SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended May 3, 1997
Commission file number 1-683
Multigraphics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 34-0054940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
431 Lakeview Court Mt. Prospect, IL 60056
(Address of principal executive offices) (Zip Code)
(847) 375-1700
(Registrant's telephone number, including area code)
AM International, Inc.
(Former Name)
Indicate by check mark whether the registrant (1) has filed all reports
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.
X Yes No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
X Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicab,le date.
2,815,337 shares of Registrant's
Common Stock, $.025 par value, were outstanding as of June 9, 1997.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
May 3, April May 3, April
27, 27,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Machines and
Supplies $10,006 $30,023 $35,714 $84,832
Services 10,863 14,317 33,621 43,388
Total Revenues 20,869 44,340 66,335 128,220
Cost of sales
Machines and Supplies 8,193 24,308 29,475 69,589
Services 6,399 8,711 20,779 27,021
Total Cost of Sales 14,592 33,019 50,254 96,610
Gross Margin 6,277 11,321 19,081 31,610
Operating expenses
Selling, general and
administrative 5,794 11,038 20,389 37,351
Miscellaneous
(income) expense (50) (2,930) (115) (3,107)
Unusual items, net - - (2,095) -
Total operating
expenses 5,744 8,108 18,179 34,244
Operating income (loss) 533 3,213 902 (2,634)
Non-operating income
(expense):
Interest income 367 48 1,094 114
Interest expense (632) (942) (2,186) (2,691)
Other, net - 174 120 (85)
Income (loss) before
income taxes,
discontinued operations 268 2,493 (70) (5,296)
Income tax expense
(benefit) - - - -
Net income (loss)
before discontinued
operations 268 2,493 (70) (5,296)
Net income (loss) of
discontinued
operations, net of tax - (1,163) - (5,874)
Net income (loss) $268 $1,330 $(70) $(11,170)
Per share of common
stock:
Income (loss) from
continuing operations $0.10 $0.89 $(0.02) $(1.89)
Income (loss) from
Discontinued operations - $(0.42) - $(2.10)
Net income (loss) $0.10 $0.47 $(0.02) $(3.99)
Weighted average shares of common
stock and common stock equivalents outstanding
(in thousands) - See Note 2,805 2,803 2,804 2,803
<FN>
The Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands except per share amounts)
May 3,1997 July 31,1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $27,888 $2,560
Accounts receivable, net 8,478 19,774
Inventories, net 12,758 11,602
Prepaid expenses and other assets 816 1,069
Net assets held for sale - 7,698
Net assets of discontinued operations - 42,940
Total current assets 49,940 85,643
Property, plant and equipment, net 10,414 10,867
Other assets, net 797 1,452
Total assets $61,151 $97,962
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $7,185 $14,381
Accounts payable 4,735 15,435
Service contract deferred income 10,550 12,924
Payroll related expenses 7,549 13,227
Dividends payable 14,080 -
Other current liabilities 10,905 17,956
Total current liabilities 55,004 73,923
Long-term debt 6,103 8,527
Other long-term liabilities 12,116 13,216
Total liabilities 73,223 95,666
Total shareholders' equity
Common stock, $.025 par value; 9.5
million shares authorized;
2,815,337 issued as of May 3, 1997 70 70
and 2,803,368 issued
as of July 31, 1996 (See Note 4)
Capital in excess of par value 22,162 36,242
Accumulated earnings (deficit) (34,304) (34,234)
Cumulative translation adjustment - 218
Total shareholders' equity (12,072) 2,296
Total liabilities and shareholders' equity $61,151 $97,962
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
</TABLE>
<PAGE>
<TABLE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands, except per share amounts)
Nine Months Ended
May 3, April 27,
1997 1996
<S> <C> <C>
Cash Flows from Operating
Activities:
Net income (loss) $(70) $(11,170)
Adjustments to reconcile net income to
cash flow from operating activities:
Depreciation of property,
plant and equipment 1,401 969
Amortization and writedown
of other assets - 326
Discontinued
operations - 48
Change in assets and liabilities:
Accounts receivable, net 11,296 4,424
Inventory,net (1,156) 2,494
Prepaid expenses and other assets 908 (346)
Accounts payable (10,700) 2,882
Accrued liabilities (11,703) (809)
Other current liabilities (3,400) (4,692)
Other, net (827) (2,906)
Cash flow from operating activities (14,251) (8,780)
Cash Flows from Investing Activities:
Capital expenditures (1,579) (8,369)
Proceeds from disposition of PP&E 140 6,938
Net proceeds from divested operations 50,638 -
Discontinued operations - (1,099)
Cash flow from investing activities 49,199 (2,530)
Cash Flows from Financing Activities:
Net borrowings (payments)
under revolving credit facilities (5,430) 10,087
Payments of Bankruptcy Claims (3,149) (3,802)
Borrowings under capital lease and
other arrangements - 3,542
Payments under capital lease arrangements (1,041) (187)
Discontinued operations - (5,428)
Cash flow from financing activities (9,620) 4,212
Increase (decrease)in cash and
cash equivalents 25,328 (7,098)
Cash and cash equivalents at beginning
of period 2,560 12,563
Cash and cash equivalents at
end of period $27,888 $5,465
<FN>
The Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
<PAGE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note 1 - Basis of Presentation
The Condensed Consolidated Financial Statements included here have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion
of management, the Condensed Consolidated Financial Statements reflect
all adjustments, which are of a recurring nature, necessary for fair
presentation. Certain prior year amounts have been reclassified to
conform with the current year presentation. The accompanying Condensed
Consolidated Financial Statements and the related notes should be read
in conjunction with the Consolidated Financial Statements and the
related notes thereto included in the Company's Annual Report on Form 10
- - K for the year ended July 31, 1996, as amended.
Note 2 - Discontinued Operations
The results of operations, net of taxes, and the net assets of Sheridan
Systems and the divested Multigraphics - International operations are
presented in the consolidated financial statements as discontinued
operations.
The results of the discontinued operations are not necessarily
indicative of the results of operations which may have been obtained had
the continuing and discontinued operations been operating independently.
Note 3 - Borrowing Arrangements
The Company's short and long-term borrowings are comprised of the
following:
May 3, 1997 July 31, 1996
Revolving Credit Facility $- $5,430
General Unsecured Claims &
Priority Tax Claims 10,646 13,795
Capital Leases 2,642 3,683
Total $13,288 $22,908
Classified in the Consolidated Balance Sheet
as follows:
Short-term $7,185 $14,381
Long-term 6,103 8,527
Total $13,288 $22,908
<PAGE>
In May, 1997 the Company entered into a $10,000 three year secured
Revolving Credit Facility (subject to borrowing base limitations) with
Foothill Capital Corporation. The Revolving Credit Facility includes a
$5,000 sub-facility for the issuance of letters of credit. As of May
31, 1997 the calculated borrowing base was approximately $7,000. As
security for utilization of the Revolving Credit Facility, the Company
granted a security interest and general lien upon all of its assets.
Interest generally will be charged at a spread of 1% above the reference
(i.e. prime) rate of Foothill and can be reduced in 1/2% increments in
each of the next two fiscal years if certain performance measures are
achieved. As of May 31, 1997 the reference rate was 8.5%. Letter of
credit fees are 1.5% per annum plus issuance costs and processing fees.
The agreement contains restrictive covenants limiting capital
expenditures, restricting the payment of dividends and other payments
and providing for quarterly measures of working capital and net worth,
among other things.
Through October 12, 1996, the date the facility expired, the Company
maintained a $25,000 three year secured domestic Revolving Credit
Facility (subject to borrowing base limitations) with BT Commercial
Corporation and LaSalle National Bank. The Revolving Credit Facility
included a $10,000 sub-facility for the issuance of letters of credit.
As security for utilization of the Revolving Credit Facility, the
Company granted a security interest and general lien upon its domestic
assets. As of July 31, 1996 the Company had borrowings of $5,430 under
the Revolving Credit Facility and was utilizing $3,347 of the facility
to secure outstanding letters of credit.
<PAGE>
In August, 1996 the Company completed the sale of substantially all of
the assets and liabilities of the Sheridan Systems division for gross
proceeds of $50,100. The proceeds of the sale were used in part to pay
off all outstanding borrowings on the Revolving Credit Facility which
expired in October, 1996 and to cash collateralize outstanding letters
of credit. At May 3, 1997, the Company had restricted cash on deposit of
$2,300 to cover outstanding letters of credit issued by Bankers Trust
Company. The Company is operating its business with existing cash
reserves and liquidity provided by the new Foothill Revolving Credit
Facility which are sufficient to finance current operations.
On October 13, 1993 the Company concluded a reorganization when the
United States Bankruptcy Court for the District of Delaware confirmed
the Company's Plan of Reorganization (Plan). The Plan provides that
holders of allowed general unsecured claims receive cash payments toward
satisfaction of the full amount of their claims in equal quarterly
payments payable on the last business day of each calendar quarter
ending after October 13, 1993 over a five-year period, together with
interest at 5% per annum. Holders of priority tax claims are paid 10%
of the allowed claim together with accrued and unpaid interest at 8% per
annum on the then outstanding amount on each anniversary of October 13,
1993 which occurs prior to the sixth anniversary of the date of assessment
and the balances of such claims along with accrued and unpaid
interest on the sixth anniversary. For financial reporting purposes
interest on general unsecured claims has been imputed at 9% per annum.
At May 3, 1997 the Company had $1,347 of restricted cash which pertains
to the settlement of disputed claims in accordance with the Plan.
Note 4- Capital Structure
On May 1, 1997 the Board of Directors declared a dividend of $2.00 per
common share, payable to holders of record as of May 13, 1997. The
dividend of approximately $14,080 was disbursed May 27, 1997.
On May 28, 1997 the Company's shareholders approved amendments to the
Company's Second Restated Certificate of Incorporation (1) decreasing
the authorized number of shares of capital stock from 50,000,000 shares
to 10,000,000 shares with 9,500,000 shares being reserved for issuance
as Common Stock and 500,000 shares being reserved for issuance as
Preferred Stock, (2) changing the name of the Company to Multigraphics,
Inc and (3) effecting a 1 for 2 / reverse stock split thereby decreasing
the number of issued and outstanding shares of the Company's Common
Stock to 2,815,337, without giving effect to elimination of fractional
shares, and increasing the par value of each Common share from $.01 to
$.025 per share. All references in the accompanying financial
statements to the number of common shares and per-share amounts have
been restated to reflect the reverse stock split and change in par
value.
<PAGE>
Restated for the reverse stock split and the payment of the $2.00 per
share dividend, as of May 3, 1997, the Company's 1994 Long Term
Incentive Plan provides for the issuance of 560,000 shares of Common
Stock. Options to purchase the Common Stock are awarded at a price not
less than 100% of the market price on the date of the grant, become
exercisable at various dates generally from one to four years after the
date of grant, and expire ten years after the date of grant. As of May
3, 1997, options to purchase 114,500 shares would have been outstanding
at option prices ranging from $3.1713 to $8.6603. The Company has not
issued any Preferred Stock. The Common Stock is not subject to
conversion or redemption and when issued is fully paid and non-
assessable and has no premptive rights. The Company's warrants that
were issued in accordance with the Plan expired unexercised.
Note 5 - Commitments and Contingencies
The Company received creditor claims during its bankruptcy proceedings
which the Company believes are duplicative, erroneous or exaggerated and
to which the Company believes it has valid defenses. The Company has
filed objections to these disputed claims in the United States
Bankruptcy Court in Delaware. As of May 3, 1997 disputed claims
amounted to $20,900. During the first nine months the Company expunged
or settled approximately $10,400 in disputed claims for amounts within
previously established reserves. The disputed claims are primarily
comprised of environmental and product liability claims. The Company
has been notified of various environmental matters in connection with
certain current or former Company locations in Illinois, Ohio, Indiana,
Pennsylvania, and Rhode Island. The Company is also involved in various
other administrative and legal proceedings incidental to its business,
including product liability and general liability lawsuits against which
the Company is partially insured. The disputed claims are in many cases
in excess of recorded reserves. At the present time, it is management's
opinion, based on information available to the Company and management's
experience in such matters, that the resolution of these legal
proceedings is not expected to have a material adverse effect on the
Company's financial condition, results of operations or liquidity.
Note 6 - Components of Certain Balance Sheet Accounts
The components of certain balance sheet accounts are as
May 3, 1997 July 31, 1996
Accounts receivable:
Accounts receivable $8,948 $20,596
Allowance for doubtful accounts (470) (822)
Total accounts receivable, net $8,478 $19,774
Inventories:
Raw materials $100 $1,407
Work-in-process 176 2,959
Finished goods 12,482 7,236
Total inventories, net $12,758 $11,602
<PAGE>
Inventories and cost of goods sold reported in the interim financial
statements are based, in part, on accounting estimates relating to
inventory obsolescence and differences resulting from periodic and
physical inventories.
Accumulated depreciation deducted from property, plant and equipment was
$6,632 at May 3, 1997 and $5,399 at July 31, 1996.
Note 7 - Unusual Items, Net
On September 20, 1996 the Company completed the sale of its 2,148,000
shares of AM Japan Co., Ltd. (" AM Japan") and the Company received
proceeds of approximately $10,600, net of certain costs. At July 31,
1996, the Company's investment in AM Japan amounted to $7,698 and was
reflected as "Net assets held for sal"' in the Consolidated Balance
Sheet. This amount consisted primarily of receivables, inventory,
property and equipment, intangible assets, net of accounts payable and
accrued liabilities. A gain of approximately $2,600 was recorded by the
Company in the quarter ended November 2, 1996 after providing for
expenses related to the sale.
On October 17, 1996, the Company's Canadian subsidiary filed for a
voluntary assignment in bankruptcy. Reserves for the cost to exit
Canada, which had been established in the fiscal year ended July 31,
1996, were adequate and no additional costs were recognized.
On December 2, 1996, the Company and Xeikon, N. V. entered into an
agreement under which the parties agreed not to renew the distribution
agreement. The distribution agreement provided for the Company to sell
and service Xeikon digital color presses in North America. As part of
this agreement, Xeikon America, Inc. has acquired certain assets from
the Company and assumed certain liabilities of the Company. The
divestiture of the assets resulted in a net loss of approximately $500
which the Company recorded in the quarter ending November 2, 1996.
Note 8 - Significant Events
On October 29, 1996 the Company entered into a definitive Merger Purchase
Agreement with a corporation newly formed by affiliates of Pacholder
Associates,
a Cincinnati-based provider of investment management, financial advisory
and investment banking services to institutional clients. The agreement
provided for the merger of a subsidiary of the purchaser with and into the
Company pursuant to which the current shareholders of the Company would
receive $5.00 per common share and the Company would become a wholly-owned
subsidiary of the purchaser. On March 3, 1997 the Company announced that its
Board of Directors and the corporation formed by affiliates of Pacholder
Associates, Inc. to acquire the Company had not reached agreement on
amending the merger agreement to reduce consideration the Company's
shareholders would receive in connection with the proposed transaction.
Since the corporation formed by Pacholder Associates, Inc. had expressed
its unwillingness to move toward closing on the basis of the $5.00 per
share price specified in the Merger Agreement, the Company delivered a
notice of breach to the purchaser. The Merger Agreement was terminated
on May 1, 1997.
<PAGE>
On May 1, 1997 the Board of Directors declared a dividend of $2.00 per
common share, payable to holders of record as of May 13, 1997. The
dividend of approximately $14,080 was disbursed on May 27, 1997.
On May 28, 1997 the shareholders approved proposals to reduce the
authorized number of all classes of capital stock from 50,000,000 to
10,000,000 shares, and effect a 1 for 2 / reverse stock split thereby
reducing the number of outstanding shares of Common Stock, and
increasing the par value from $.01 to $.025 per share.
MULTIGRAPHICS, INC.
QUARTERLY REPORT
May 3, 1997
Management's Discussion and Analysis
The discussion of the results of continuing operations and financial
condition presented below should be read in conjunction with
Management's Discussion and Analysis included in the Company's Annual
Report to Shareholders for the year ended July 31, 1996. On May 28,
1997 the Company's shareholders approved amendments to the Company's
Second Restated Certificate of Incorporation (1) decreasing the
authorized number of shares of capital stock from 50,000,000 shares to
10,000,000 shares with 9,500,000 shares being reserved for issuance as
Common Stock and 500,000 shares being reserved for issuance as Preferred
Stock, (2) changing the name of the Company to Multigraphics, Inc and
(3) effecting a 1 for 2 / reverse stock split thereby decreasing the
number of issued and outstanding shares of the Company's Common Stock to
2,815,337, without giving effect to elimination of fractional shares,
and increasing the par value of each Common share from $.01 to $.025 per
share. All references in this Management's Discussion and Analysis and
the accompanying financial statements to the number of common shares and
per-share amounts have been restated to reflect the reverse stock split
and change in par value. The results of operations, net of taxes, and
the net assets of Sheridan Systems and the divested Multigraphics -
International operation are presented in the consolidated financial
statements as discontinued operations.
As previously reported, the Company has, over the past several years,
formulated and executed various restructuring plans in order to improve
operating results. These plans have included the exit from certain
unprofitable foreign subsidiaries, the divestitures of non-core product
lines, the exit from manufacturing operations at Multigraphics and the
implementation of strategic investments in new products and
capabilities. Included in the continuing operations are results of the
two remaining foreign subsidiaries; however, the Company sold its
interest in AM Japan Co., Ltd. in September, 1996, and on October 17, 1996,
the Company's Canadian subsidiary filed a voluntary assignment in
bankruptcy.
<PAGE>
Consolidated Results of Operations
Continuing Operations:
Quarter Ended Nine MonthsEnded
($ in millions) May 3, April 27, May 3, April 27,
1997 1996 1997 1996
Revenues $20.9 $44.3 $69.3 $128.2
Gross margin 6.3 11.3 19.1 31.6
Gross margin % 30.1% 25.5% 27.5% 24.7%
Operating expenses 5.8 8.1 20.3 34.2
Unusual items 0.0 0.0 (2.1) 0.0
(income)
Operating income 0.5 3.2 0.9 (2.6)
(loss)
Non-operating 0.2 0.7 1.0 2.7
expense, net
Net income (loss) $0.3 $2.5 $(0.1) $(5.3)
Third Quarter
The net income from continuing operations for the quarter ended May 3,
1997 of $0.3 million ($0.10 per common share) increased by $0.6 million,
as compared with the comparable prior year period after adjusting for
$2.8 million of non-recurring favorable adjustments included in the
prior year net income of $2.5 million ($0.89 per common share) which
resulted from the resolution of legal disputes.
Revenues for the third quarter of $20.9 million were $23.4 million lower
than the prior year comparable period. Revenues from subsidiaries in
Japan and Canada, which the Company divested in the first quarter,
contributed $10.8 million to the prior year quarter. Third quarter
revenues from discontinued press and post-press machine product lines
were $7.1 million below the comparable prior year period. Market
demand, particularly in the in-plant market segment, for the Company's
press products has experienced long term decline due in part to inroads
from competing printing technologies. As a result, the installed base
of the Company's press equipment has declined which has led to decreased
sales of supplies and services. In 1995, the Company initiated efforts
to transition out of manufacturing, and become a distributor of
equipment, supplies and services to the graphics arts markets. In
November 1996, the Company completed the build out of offset duplicator
presses and the sell off of manufactured press inventories is expected
to be substantially completed in the current fiscal year.
In order to better focus its efforts on the continuing core distribution
and service businesses, the Company and one of its suppliers (Xeikon
N.V.) mutually agreed in December, 1996 to terminate a distribution
agreement which had been in effect since 1993. Revenues from that
product line were nil in the current quarter, and $1.4 million year to
date, as compared to $2.3 million and $5.3 million in the prior year
quarter and first nine months, respectively.
<PAGE>
Gross margin of $6.3 million for the quarter was $5.0 million lower than
the comparable prior year period. The divested foreign operations
accounted for $2.5 million of the decline and the discontinued press and
post-press product lines accounted for most of the balance of the
decrease. Gross margin percentage for the quarter was 30.1% as compared
to 25.5% for the comparable prior year period. The improvement of 4.6%
was primarily due to the discontinuance of lower margin machines.
Operating expenses in the third quarter of $5.8 million were $5.2
million lower than the prior year period (when the prior year is adjusted
for the $2.8 million favorable impact from the resolution of
legal disputes). The decrease in expenses was primarily the result of
cost reduction actions taken by the Company which lowered headcount,
facility and other selling, general and administrative costs. The
divestitures of operations in Canada and Japan accounted for $2.6
million of the decrease.
Nine Months
The net loss before discontinued operations for the nine months ended
May 3, 1997 of $0.1 million ($0.02 per common share) improved by $5.2
million, as compared with a net loss of $5.3 million ($1.89 per common
share) for the comparable prior year period. As previously described,
the prior year comparable period was favorably impacted by $2.8 million
($0.98 per common share) resultant from the favorable resolution of
legal disputes.
Revenues for the first nine months of $69.3 million were $58.9 million
below the corresponding prior year period. Cumulative revenues from the
subsidiaries in Japan and Canada, which the Company divested in the
first quarter, were $2.2 million as compared to $29.4 million in the
prior year. Revenues from discontinued manufactured press and post-press
machine product lines declined $19.7 million from the prior year period,
while revenues from the exited Xeikon product line were $4.0 million
lower than the prior year. The balance of the decline was attributable
to decreases in the installed base of duplicators, primarily in the in-
plant market segment due primarily to inroads by competing technologies
and competition.
Gross margin of $19.1 million for the first nine months was $12.5
million lower than the comparable prior year period. The divested
foreign operations accounted for $6.5 million of the decline and the
balance of the decrease in margin was largely due to lower revenue
levels, particularly in discontinued press and post-press product lines.
The gross margin percentage for the first nine months was 27.5% as
compared to 24.7% for the comparable prior year period. The improvement
of 2.8% was primarily due to the discontinuance of lower margin
machines.
<PAGE>
Selling, general and administrative expenses of $20.3 million decreased
$16.7 million as compared to the prior year period (when the prior year
is adjusted to remove the $2.8 million favorable impact from the
resolution of legal disputes). The decrease has resulted from headcount
reductions and other measures to reduce operating costs in response to
lower revenue levels. Cumulative operating expenses from the divested
subsidiaries in Japan and Canada were $0.8 million in the current year
as compared to $8.1 million for the comparable prior year period.
Unusual item income represented the $2.6 million gain on the sale of the
Company's ownership interest in its majority owned Japanese subsidiary.
In addition, a $0.5 million loss was recorded for the disposition of net
assets employed following the decision to exit distribution of the
Xeikon digital color press. Reserves for the cost to exit Canada, which
had been established in the fiscal year ended July 31, 1996, were
adequate and no additional costs were recognized.
Non-operating expenses are primarily net interest, and decreased $1.7
million from the prior year largely due to increased interest income on
investment of the proceeds from divestitures received in the first
quarter ended November 2, 1996.<PAGE>
Liquidity and Capital Resources
(nine months ended May 3, 1997 and April 27, 1996)
The Company's total cash and cash equivalents were $27.9 million as
of May 3, 1997, with an increase of $25.3 million from the $2.6 million
balance on July 31, 1996. In addition to the increase in cash balances,
net borrowings and other debt was reduced by $9.6 million during the
first nine months of the current year.
Operating Activities. In the nine months ended May 3, 1997 the
Company had a cash outflow from operating activities of $14.3 million as
compared with a cash outflow of $8.8 million in the comparable period
ended April 27, 1996. The net loss was $0.1 million as compared with a
net loss of $11.2 million in the comparable prior year period.
Accounts receivable decreased $11.3 million in the first nine
months of 1997 and $4.4 million in the first nine months of 1996 as a
result of the collection of comparatively higher outstanding balances
which typically exist at the Company's July 31 year end and for the
first nine months of 1997 the decrease also resulted from the
elimination of revenues related to the phase-out of the Company's
manufactured machines and generally improved collection rates.
Inventory increased $1.2 million in 1997 primarily as the result of
increases in supply and service parts stock levels to improve
availability. In the first nine months of 1996, inventories decreased
by $2.5 million primarily as the result of decreases in digital
equipment. In the first nine months of 1997, accounts payable decreased
$10.7 million from a paydown of past due payables which used the
proceeds from the divestitures of Sheridan Systems and AM Japan. In
addition, other current liabilities declined $15.1 million (exclusive of
a $14.1 million liability to record the declaration of the Company's
$2.00 per share dividend) primarily for restructuring payments which
included severance, accrued vacation and a settlement of a lease
obligation related to a divested foreign subsidiary. In 1996 accounts
payable increased $2.9 million during the first nine months due to
extending payment terms with vendors.
<PAGE>
Investing Activities. Capital expenditures of $1.6 million in the
first nine months of 1997 were primarily to upgrade systems and
equipment and $8.4 million in 1996 were primarily to acquire new
facilities and upgrade systems equipment. In 1996, proceeds from the
disposition of fixed assets were primarily from the sale of the
Company's Mount Prospect facility. The Company has committed to capital
expenditures related to increased system capabilities which will be
financed primarily utilizing a combination of cash balances and third
party leases. The Company received net proceeds from the divestitures
of Sheridan Systems and AM Japan which totaled $50.6 million during the
first nine months of 1997.
Financing Activities. In the first quarter of 1997 the Company
repaid outstanding borrowings under its Revolving Credit Agreement of
$5.4 million with proceeds from the divestitures. Payments of general
unsecured claims and priority tax claims were $3.1 million in the first
nine months of 1997 and $3.8 million in the first nine months of 1996 in
accord with scheduled Plan payments. In 1997, the Company paid $1.0
million for capital lease obligations. In 1996, Discontinued Operations
had a reduction in long-term debt and capital lease obligations of $5.4
million which resulted primarily from repayments made with the proceeds
from divestitures of non-core product lines.
In May 1997, the Company paid special dividends of $14,080 and entered
into a $10 million three year secured Revolving Credit Facility (subject
to borrowing base limitations) with Foothill Capital Corporation. The
Company's revolving credit facility with BT Commercial Corporation and
LaSalle National Bank expired October 12, 1996. The Company believes
that its existing cash reserves and the liquidity provided by the new
Foothill Revolving Credit Facility are sufficient to finance current
operations for the forseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 28, 1997, Registrant held its Annual Meeting of Stockholders for
the fiscal year ended July 31, 1996.
Registrant's stockholders elected five members of the Board of
Directors to serve until the next annual meeting or until their
successors are elected and qualified. The Board of Directors now
consists of Robert E. Anderson, III, Jeffrey D. Benjamin, Robert N.
Dangremond, Jeff M. Moore, and Thomas D. Rooney.
Registrant's stockholders also approved an amendment to the
Registrant's Second Restated Certificate of Incorporation to Change the
name of the Registrant from "AM International, Inc." to " Multigraphics, Inc."
The vote total was 6,768,306 votes "for", 2,457 votes "against", and 5,827
votes to "abstain".
Registrant's stockholders also approved an amendment to the
Registrant's Second Restated Certificate of Incorporation to reduce the
authorized number of shares of all classes of capital stock the Company
shall have the authority to issue from fifty million (50,000,000) to ten
million (10,000,000). The vote total was 6,601,870 votes "for",
169,597 votes "against", and 5,123 votes to "abstain".
Registrant's stockholders also approved an amendment to the
Registrant's Second Restated Certificate of Incorporation to effect a 1
for 2-1/2 share reverse stock split of the issued and outstanding shares
of the Registrant's Common Stock. The vote total was 6,600,526 votes
"for", 170,877 votes "against", and 5,187 votes to "abstain".
Registrant's stockholders also ratified the appointment of Arthur
Andersen LLP as the Registrant's independent public accountants for the
fiscal year ending July 31, 1997. The vote total was 6,767,807 votes
"for", 4,164 votes "against", and 4,619 votes to "abstain".
Registrant filed an amendment to its Second Restated Certificate of
Incorporation with the Delaware Secretary of State containing the
charter amendments described above on May 28, 1997. The Company is now
officially known as Multigraphics, Inc., and is traded on the American
Stock Exchange under the ticker symbol "MTI".
<PAGE>
Item 6. Exhibits
(a) Exhibits.
3 Certificate of Incorporation
(A) Second Restated Certificate of Incorporation of
Registrant *
(B) Certificate of Amendment to the Second Restated
Certicate of Incorporation of Registrant
10 Material Contracts.
(A) Loan and Security Agreement dated as of May 30, 1997
between Multigraphics, Inc. and Foothill Capital Corporation.
27 Financial Data Schedule
* Incorporated herein by reference to exhibit of the same number filed with
the Registrant's Annual Report for the year ended July 31, 1993, as filed with
the Commission on October 29, 1993.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Multigraphics, Inc.
Date: June 16, 1997 /s/ Gregory T. Knipp
Gregory T. Knipp
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> MAY-03-1997
<CASH> 27,888
<SECURITIES> 0
<RECEIVABLES> 8,948
<ALLOWANCES> (470)
<INVENTORY> 12,758
<CURRENT-ASSETS> 49,940
<PP&E> 17,046
<DEPRECIATION> 6,632
<TOTAL-ASSETS> 61,151
<CURRENT-LIABILITIES> 55,004
<BONDS> 0
0
0
<COMMON> 70
<OTHER-SE> (12,142)
<TOTAL-LIABILITY-AND-EQUITY> 61,151
<SALES> 69,335
<TOTAL-REVENUES> 69,335
<CGS> 50,254
<TOTAL-COSTS> 68,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,092
<INCOME-PRETAX> (70)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
LOAN AND SECURITY AGREEMENT
by and between
MULTIGRAPHICS, INC.,
formerly known as
AM INTERNATIONAL, INC.
and
FOOTHILL CAPITAL CORPORATION
DATED AS OF MAY 30, 1997
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION.................................4
1.1. Definitions...........................................4
1.2. Accounting Terms.....................................17
1.3. Code.................................................17
1.4. Construction.........................................17
1.5. Schedules and Exhibits...............................18
2. LOAN AND TERMS OF PAYMENT................................. 18
2.1. Revolving Advances................................. 18
2.2. Letters of Credit................................. 19
2.3. Intentionally Omitted................................21
2.4. Intentionally Omitted................................21
2.5. Overadvances.........................................21
2.6. Interest and Letter of Credit Fees: Rates,
Payments, and Calculations...........................21
2.7. Collection of Accounts...............................23
2.8. Crediting Payments; Application of Collections.......23
2.9. Designated Account................................. 24
2.10. Maintenance of Loan Account; Statements of
Obligations..........................................24
2.11. Fees................................................24
3. CONDITIONS; TERM OF AGREEMENT...............................25
3.1. Conditions Precedent to the Initial Advance and
Letter of Credit.....................................25
3.2. Conditions Precedent to all Advances and all
Letters of Credit....................................26
3.3. Condition Subsequent.................................27
3.4. Term.................................................27
3.5. Effect of Termination................................27
3.6. Early Termination by Borrower........................27
3.7. Termination Upon Event of Default....................28
4. CREATION OF SECURITY INTEREST...............................28
4.1. Grant of Security Interest...........................28
4.2. Negotiable Collateral................................28
4.3. Collection of Accounts, General Intangibles, and
Negotiable Collateral................................28
4.4. Delivery of Additional Documentation Required........29
4.5. Power of Attorney....................................29
4.6. Right to Inspect.....................................29
5. REPRESENTATIONS AND WARRANTIES..............................30
5.1. No Encumbrances......................................30
5.2. Eligible Accounts....................................30
5.3. Eligible Inventory...................................30
5.4. Equipment............................................30
5.5. Location of Inventory and Equipment..................30
5.6. Inventory Records....................................30
5.7. Location of Chief Executive Office; FEIN.............31
5.8. Due Organization and Qualification; Subsidiaries.....31
5.9. Due Authorization; No Conflict.......................31
5.10. Litigation..........................................32
5.11. No Material Adverse Change..........................32
5.12. Solvency............................................32
5.13. Employee Benefits...................................32
5.14. Environmental Condition.............................33
5.15. Subsidiary Activities...............................33
5.16. Patents and Trademarks..............................33
6. AFFIRMATIVE COVENANTS.......................................33
6.1. Accounting System....................................33
6.2. Collateral Reporting.................................33
6.3. Financial Statements, Reports, Certificates..........34
6.4. Tax Returns..........................................35
6.5. Guarantor Reports....................................35
6.6. Returns..............................................36
6.7. Intentionally Omitted................................36
6.8. Maintenance of Equipment.............................36
6.9. Taxes................................................36
6.10. Insurance...........................................36
6.11. No Setoffs or Counterclaims.........................38
6.12. Location of Inventory and Equipment.................38
6.13. Compliance with Laws................................38
6.14. Employee Benefits...................................38
6.15. Leases..............................................39
6.16. Notice of Initial Advance...........................39
6.17. Change Name.........................................39
7. NEGATIVE COVENANTS..........................................39
7.1. Indebtedness.........................................40
7.2. Liens................................................40
7.3. Restrictions on Fundamental Changes..................40
7.4. Disposal of Assets...................................40
7.5. Change Corporate Structure...........................41
7.6. Guarantee............................................41
7.7. Nature of Business...................................41
7.8. Prepayments and Amendments...........................41
7.9. Change of Control....................................41
7.10. Consignments........................................41
7.11. Distributions.......................................41
7.12. Accounting Methods..................................41
7.13. Investments.........................................42
7.14. Transactions with Affiliates........................42
7.15. Suspension..........................................42
7.16. Intentionally Omitted...............................42
7.17. Use of Proceeds.....................................42
7.18. Change in Location of Chief Executive Office........42
7.19. No Prohibited Transactions Under ERISA..............42
7.20. Financial Covenants.................................43
7.21. Capital Expenditures................................44
7.22. Subsidiary Activities...............................44
8. EVENTS OF DEFAULT...........................................44
9. FOOTHILL'S RIGHTS AND REMEDIES..............................46
9.1. Rights and Remedies..................................46
9.2. Remedies Cumulative..................................48
10. TAXES AND EXPENSES.........................................48
11. WAIVERS; INDEMNIFICATION...................................48
11.1. Demand; Protest; etc................................48
11.2. Foothill's Liability for Collateral.................48
11.3. Indemnification.....................................48
12. NOTICES....................................................49
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.................50
14. DESTRUCTION OF BORROWER'S DOCUMENTS........................50
15. GENERAL PROVISIONS.........................................50
15.1. Effectiveness.......................................50
15.2. Successors and Assigns..............................50
15.3. Section Headings....................................51
15.4. Interpretation......................................51
15.5. Severability of Provisions..........................51
15.6. Amendments in Writing...............................51
15.7. Counterparts; Telefacsimile Execution...............51
15.8. Revival and Reinstatement of Obligations............52
15.9. Integration.........................................52
15.10. Confidentiality....................................52
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 2.6 Business Plan
Schedule 5.8 Subsidiaries
Schedule 5.13 ERISA Benefit Plans
Schedule 5.14 Environmental Matters
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Schedule 7.3 Stock Split
Schedule 7.17 Existing Letters of Credit
Exhibit C-1 Form of Compliance Certificate
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is
entered into as of May 30, 1997, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place
of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333 and MULTIGRAPHICS, INC.,
formerly known as AM INTERNATIONAL, INC., a Delaware corporation
("Borrower"), with its chief executive office located at 431
Lakeview Court, Mount Prospect, Illinois 60056.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1. Definitions.
As used in this Agreement, the following terms shall
have the following definitions:
"Account Debtor" means any Person who is or who may
become obligated under, with respect to, or on account of, an
Account.
"Accounts" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of
obligations owing to Borrower arising out of the sale or lease of
goods or the rendition of services by Borrower, irrespective of
whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other
Person who directly or indirectly controls, is controlled by, is
under common control with or is a director or officer of such
Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to vote 10% or
more of the securities having ordinary voting power for the
election of directors or the direct or indirect power to direct
the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble
hereto.
"Authorized Person" means any officer or other employee
of Borrower.
"Average Unused Portion of Maximum Revolving Amount"
means, as of any date of determination, (a) the Maximum Revolving
Amount, less (b) the sum of (i) the average Daily Balance of
Advances that were outstanding during the immediately preceding
month, plus (ii) the average Daily Balance of the undrawn Letters
of Credit that were outstanding during the immediately preceding
month.
"Bankruptcy Code" means the United States Bankruptcy
Code (11 U.S.C. S 101 et seq.), as amended, and any successor
statute.
"Benefit Plan" means a "defined benefit plan" (as
defined in Section 3(35) of ERISA) for which Borrower, any
Subsidiary of Borrower, or any ERISA Affiliate has been an
"employer" (as defined in Section 3(5) of ERISA) within the past
six years.
"Borrower" has the meaning set forth in the preamble to
this Agreement.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records indicating, summarizing, or
evidencing Borrower's properties or assets (including the
Collateral) or liabilities; all information relating to
Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other
computer prepared information.
"Borrowing Base" has the meaning set forth in Section
2.1(a).
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which national banks are authorized or
required to close.
"Change of Control" shall be deemed to have occurred at
such time as a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934), other than any of Apollo Advisors, L.P.; Lion Advisors,
L.P.; AIF II, L.P.; or any of its Affiliates; BEA Associates;
State of Wisconsin Investment Board; Fidelity Bankers Life
Insurance Company; Hellmold Associates, Inc.; and Trust Company
of the West; or any of the Affiliates of any of the foregoing,
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of
more than 20% of the total voting power of all classes of stock
then outstanding of Borrower entitled to vote in the election of
directors.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment, other than leased Equipment to the
extent that the applicable lease prohibits Liens on such
property,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(h) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of
Foothill, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of
insurance covering any or all of the Collateral, and any and all
Accounts, Borrower's Books, Equipment, General Intangibles,
Inventory, Negotiable Collateral, money, deposit accounts, or
other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the
foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgment agreement of
any warehouseman, processor, lessor, consignee, or other Person
in possession of, having a Lien upon, or having rights or
interests in the Equipment or Inventory, in each case, in form
and substance reasonably satisfactory to Foothill.
"Collections" means all cash, checks, notes,
instruments, and other items of payment (including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds).
"Compliance Certificate" means a certificate
substantially in the form of Exhibit C-1 and delivered by the
chief accounting officer of Borrower to Foothill.
"Consolidated Current Assets" means, as of any date of
determination, the aggregate amount of all current assets of
Borrower that would, in accordance with GAAP, be classified on a
balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any
date of determination, the aggregate amount of all current
liabilities of Borrower that would, in accordance with GAAP, be
classified on a balance sheet as current liabilities. For
purposes of this definition, all Advances outstanding under this
Agreement shall be deemed to be current liabilities without
regard to whether they would be deemed to be so under GAAP.
"Daily Balance" means the amount of an Obligation owed
at the end of a given day.
"deems itself insecure" means that the Person deems
itself insecure in accordance with the provisions of Section 1208
of the Code.
"Default" means an event, condition, or default that,
with the giving of notice, the passage of time, or both, would be
an Event of Default.
"Designated Account" means account number 00193498 of
Borrower maintained with Borrower's Designated Account Bank, or
such other deposit account of Borrower (located within the United
States) which has been designated, in writing and from time to
time, by Borrower to Foothill.
"Designated Account Bank" means Bankers Trust Company,
whose office is located at One Bankers Trust Plaza, New York, New
York 10006, and whose ABA number is 021001033.
"Dilution" means, in each case based upon the
experience of the immediately prior 3 months, the result of
dividing the Dollar amount of (a) bad debt write-downs,
discounts, advertising allowances, returns, promotions, credits,
or other dilution with respect to the Accounts, by (b) Borrower's
Collections (excluding extraordinary items) plus the Dollar
amount of clause (a).
"Dilution Reserve" means, as of any date of
determination, an amount sufficient to reduce Foothill's advance
rate against Eligible Accounts by one percentage point for each
percentage point by which Dilution is in excess of 5%.
"Dividend" means the cash dividend of $2.00 per share
declared and paid by Borrower prior to the Closing Date in
respect of its capital stock.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth
in Section 3.6.
"Eligible Accounts" means the Eligible Service Accounts
and the Eligible Trade Accounts.
"Eligible Inventory" means Inventory consisting of
first quality finished goods held for sale in the ordinary course
of Borrower's business, raw materials for such finished goods and
demonstration units, that strictly comply with each and all of
the representations and warranties respecting Inventory made by
Borrower to Foothill in the Loan Documents, and that are and at
all times continue to be acceptable to Foothill in all respects
in its reasonable credit judgment, consistent with Foothill's
standard credit policies; provided, however, that standards of
eligibility may be fixed and revised from time to time by
Foothill in Foothill's reasonable credit judgment, consistent
with Foothill's standard credit policies. In determining the
amount to be so included, Inventory shall be valued at the lower
of cost or market on a basis consistent with Borrower's current
and historical accounting practices. An item of Inventory shall
not be included in Eligible Inventory if:
(a) it is not owned solely by Borrower or Borrower
does not have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set
forth on Schedule E-1 or another location of which Foothill has
been notified in accordance with Section 6.12;
(c) it is not located on property owned or leased by
Borrower or in a contract warehouse, in each case, subject to a
Collateral Access Agreement executed by the mortgagee, lessor,
the warehouseman, or other third party, as the case may be, and
segregated or otherwise separately identifiable from goods of
others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first
priority security interest in favor of Foothill, and, if it is
located outside of the State of Illinois, as evidenced by post-
filing UCC searches;
(e) it consists of goods returned or rejected by
Borrower's customers that are not otherwise in compliance with
the other provisions of the definition of "Eligible Inventory" or
it consists of goods in transit;
(f) it is slow-moving (as determined on a manner
consistent with Borrower's historical practices), obsolete, a
restrictive or custom item, work-in-process, packaging or
shipping materials, trunk kit Inventory, Inventory held for
return, Inventory subject to a Lien in favor of any third Person,
Inventory located with the vendor thereof unless Foothill has
received documentation satisfactory to Foothill with respect
thereto, bill and hold goods, defective or unsaleable goods,
"seconds" or used Inventory, or Inventory acquired on
consignment;
(g) it consists of new machines manufactured by
Borrower and held for sale by Borrower; and
(h) if it is located on property leased by Borrower,
Foothill has not received a copy of the lease relating thereto.
"Eligible Service Accounts" means those Accounts that
do not qualify as Eligible Trade Accounts solely because they
arise out of the rendition of services by Borrower pursuant to a
service contract (other than a service contract that provides for
invoicing on a time and materials basis), but such Accounts arise
pursuant to a service contract that is currently in existence,
under which no breach or default exists, that is not prepaid more
than a year in advance, and, with respect to annual renewal
billings, the Account Debtor thereunder has executed a
confirmation of renewal.
"Eligible Trade Accounts" means those Accounts created
by Borrower in the ordinary course of business, that arise out of
Borrower's sale of goods or rendition of services, that strictly
comply with each and all of the representations and warranties
respecting Accounts made by Borrower to Foothill in the Loan
Documents, and that are and at all times continue to be
acceptable in all material respects to Foothill in its reasonable
credit judgment, consistent with Foothill's standard credit
policies; provided, however, that standards of eligibility may be
fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment, consistent with Foothill's standard
credit policies. Eligible Trade Accounts shall not include the
following:
(a) Accounts that the Account Debtor has failed to pay
within 90 days of invoice date or Accounts with selling terms of
more than 60 days;
(b) Accounts owed by an Account Debtor or its
Affiliates where 50% or more of all Accounts owed by that Account
Debtor (or its Affiliates) are deemed ineligible under clause (a)
above;
(c) Accounts with respect to which the Account Debtor
is an employee or Affiliate of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval,
bill and hold, or other terms by reason of which the payment by
the Account Debtor may be conditional;
(e) Accounts that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its
chief executive office in the United States or Canada, or (ii) is
not organized under the laws of the United States or Canada or
any State or Province thereof, respectively, or (iii) is the
government of any foreign country or sovereign state (other than
Canada), or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency,
public corporation, or other instrumentality thereof, unless (y)
the Account is supported by an irrevocable letter of credit
reasonably satisfactory to Foothill (as to form, substance, and
issuer or domestic confirming bank) that has been delivered to
Foothill and is directly drawable by Foothill, or (z) the Account
is covered by credit insurance in form and amount, and by an
insurer, reasonably satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor
is either (i) the United States or any department, agency, or
instrumentality of the United States (exclusive, however, of
Accounts with respect to which Borrower has complied, to the
reasonable satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. S 3727), or (ii) any State of the United
States (exclusive, however, of Accounts (y) owed by any State
that does not have a statutory counterpart to the Assignment of
Claims Act) or (z) with respect to which Borrower has complied,
to the reasonable satisfaction of Foothill, with an applicable
statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor
is a creditor of Borrower, has or has asserted a right of setoff,
has disputed its liability, or has made any claim with respect to
the Account, in each case to the extent of the applicable offset,
dispute or claim; Accounts subject to a contra to the extent of
such contra; and Accounts subject to offset because the Account
Debtor has prepaid all or any portion of its obligations under a
service contract with Borrower (which payments are classified by
Borrower as "deferred revenues"), to the extent of such offset;
(h) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower exceed 10% of all Eligible
Accounts, to the extent of the obligations owing by such Account
Debtor in excess of such percentage;
(i) Accounts with respect to which the Account Debtor
is subject to any Insolvency Proceeding, or becomes insolvent, or
goes out of business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of
the Account Debtor's financial condition;
(k) Accounts with respect to which the goods giving
rise to such Account have not been shipped and billed to the
Account Debtor, the services giving rise to such Account have not
been performed and accepted by the Account Debtor, or the Account
otherwise does not represent a final sale;
(l) Accounts with respect to which the Account Debtor
is located in the states of New Jersey, Minnesota or West
Virginia (or any other state that requires a creditor to file a
Business Activity Report or similar document in order to bring
suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such
state), unless Borrower has qualified to do business in New
Jersey, Minnesota, West Virginia, or such other states, or has
filed a Notice of Business Activities Report with the applicable
division of taxation, the department of revenue, or with such
other state offices, as appropriate, for the then-current year,
or is exempt from such filing requirement;
(m) Accounts that represent progress payments or other
advance billings that are due prior to the completion of
performance by Borrower of the subject contract for goods or
services;
(n) Accounts payable to Borrower on a COD basis; and
(o) Accounts that arise out of the rendition of
services by Borrower pursuant to a service contract (other than a
service contract that provides for invoicing on a time and
materials basis), or the lease of goods by Borrower.
"Equipment" means all of Borrower's present and
hereafter acquired machinery, machine tools, motors, equipment,
furniture, furnishings, fixtures, vehicles (including motor
vehicles and trailers), tools, parts, goods (other than consumer
goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security
Act of 1974, 29 U.S.C. SS 1000 et seq., amendments thereto,
successor statutes, and regulations or guidance promulgated
thereunder.
"ERISA Affiliate" means (a) any corporation subject to
ERISA whose employees are treated as employed by the same
employer as the employees of Borrower under IRC Section 414(b),
(b) any trade or business subject to ERISA whose employees are
treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any organization
subject to ERISA that is a member of an affiliated service group
of which Borrower is a member under IRC Section 414(m), or (d)
solely for purposes of Section 302 of ERISA and Section 412 of
the IRC, any party subject to ERISA that is a party to an
arrangement with Borrower and whose employees are aggregated with
the employees of Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect
to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of
Borrower, any of its Subsidiaries or ERISA Affiliates from a
Benefit Plan during a plan year in which it was a "substantial
employer" (as defined in Section 4001(a)(2) of ERISA), (c) the
providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA),
(d) the institution by the PBGC of proceedings to terminate a
Benefit Plan or Multiemployer Plan, (e) any event or condition
(i) that provides a basis under Section 4042(a)(1), (2), or (3)
of ERISA for the termination of, or the appointment of a trustee
to administer, any Benefit Plan or Multiemployer Plan, or
(ii) that may result in termination of a Multiemployer Plan
pursuant to Section 4041A of ERISA, (f) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA,
of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan
under Section 401(a)(29) of the IRC by Borrower or its
Subsidiaries or any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section
8.
"Excess Availability" means, as of any date of
determination, (a) the Maximum Revolving Amount, less (b) the sum
of (i) the Daily Balance of Advances that are outstanding on such
date plus (ii) the Daily Balance of the undrawn Letters of Credit
that are outstanding on such date plus (c) the aggregate amount
of unrestricted cash balances maintained in Borrower's deposit
accounts.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to
this Agreement.
"Foothill Account" has the meaning set forth in Section
2.7.
"Foothill Expenses" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by
Borrower under any of the Loan Documents that are reasonably paid
or incurred by Foothill; fees or charges reasonably paid or
incurred by Foothill in connection with Foothill's transactions
with Borrower, including fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public
record searches (including tax lien, litigation, and UCC searches
and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing,
recording, publication, appraisal (including periodic Personal
Property Collateral or Real Property Collateral appraisals), real
estate surveys, real estate title policies and endorsements, and,
after the occurrence and during the continuance of an Event of
Default, or if Foothill at any time has a Lien on any Real
Property Collateral of Borrower, environmental audits; costs and
expenses incurred by Foothill in the disbursement of funds to
Borrower (by wire transfer or otherwise); charges paid or
incurred by Foothill resulting from the dishonor of checks; costs
and expenses paid or incurred by Foothill to correct any default
or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the
Personal Property Collateral or the Real Property Collateral, or
any portion thereof, irrespective of whether a sale is
consummated; costs and expenses reasonably paid or incurred by
Foothill in examining Borrower's Books; costs and expenses of
third party claims or any other suit reasonably paid or incurred
by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with Borrower or any
guarantor; and Foothill's reasonable attorneys fees and expenses
incurred in advising, structuring, drafting, reviewing,
administering, amending, terminating, enforcing (including
attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or any guarantor of the Obligations),
defending, or concerning the Loan Documents, irrespective of
whether suit is brought.
"Funding Date" means the date of the first to occur of
the making of the initial Advance or the issuance of the initial
Letter of Credit.
"GAAP" means generally accepted accounting principles
as in effect from time to time in the United States, consistently
applied by Borrower.
"General Intangibles" means all of Borrower's present
and future general intangibles and other personal property
(including contract rights, rights arising under common law,
statutes, or regulations, choses or things in action, goodwill,
patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment
and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on
computer disks or tapes, literature, reports, catalogs, deposit
accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral
and other than BT Institutional Cash Management Fund 497, Account
Number 47912087 and related property pledged under the Security
Agreement (Hypothecation Agreement) dated April 11, 1997 made by
Debtor in favor of Bankers Trust Company to secure Debtor's
reimbursement obligations with respect to certain letters of
credit issued by Bankers Trust Company for the account of Debtor,
as such Security Agreement existed on April 11, 1997.
"Governing Documents" means the certificate or articles
of incorporation, by-laws, or other organizational or governing
documents of any Person.
"Hazardous Materials" means (a) substances that are
defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances," or
any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids,
synthetic gas, drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any
flammable substances or explosives or any radioactive materials,
and (d) asbestos in any form or electrical equipment that
contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of Borrower
for borrowed money, (b) all obligations of Borrower evidenced by
bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations of Borrower in respect of
letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under
capital leases, (d) all obligations or liabilities of others
secured by a Lien on any property or asset of Borrower,
irrespective of whether such obligation or liability is assumed,
and (e) any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other
Person.
"Insolvency Proceeding" means any proceeding commenced
by or against any Person under any provision of the Bankruptcy
Code or under any other bankruptcy or insolvency law, assignments
for the benefit of creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"Inventory" means all present and future inventory in
which Borrower has any interest, including goods held for sale or
lease or to be furnished under a contract of service and all of
Borrower's present and future raw materials, work in process,
finished goods, and packing and shipping materials, wherever
located.
"Inventory Letter of Credit" means a documentary Letter
of Credit issued to support the purchase by Borrower of Inventory
prior to transit of such Inventory to a location set forth on
Schedule E-1 or another location of which Foothill has been
notified pursuant to Section 6.12 and with respect to which
Foothill has filed all financing statements, amendments to
financing statements and fixture filings reasonably required by
Foothill, that provides that all draws thereunder must require
presentation of customary documentation (including, if
applicable, commercial invoices, packing list, certificate of
origin, bill of lading or airway bill, customs clearance
documents, quota statement, inspection certificate, beneficiaries
statement, and bill of exchange, bills of lading, dock warrants,
dock receipts, warehouse receipts, or other documents of title)
in form and substance satisfactory to Foothill and reflecting the
passage to Borrower of title to first quality Inventory
conforming to Borrower's contract with the seller thereof. Any
such Letter of Credit shall cease to be an "Inventory Letter of
Credit" at such time, if any, as the goods purchased thereunder
become Eligible Inventory.
"Inventory Reserves" means reserves (determined from
time to time by Foothill in its reasonable discretion) for (a)
the estimated costs relating to unpaid freight charges,
warehousing or storage charges, taxes, duties, and other similar
unpaid costs associated with the acquisition of Inventory by
Borrower pursuant to an Inventory Letter of Credit, plus (b) the
estimated amount of outstanding reclamation claims of unpaid
sellers of Inventory sold to Borrower.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section
2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as
the context requires.
"Lien" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the
owner of the property, whether such interest shall be based on
the common law, statute, or contract, whether such interest shall
be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or
the existence of some future circumstance or circumstances,
including the lien or security interest arising from a mortgage,
deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment,
or bailment for security purposes and also including
reservations, exceptions, encroachments, easements, rights-of-
way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section
2.10.
"Loan Documents" means this Agreement, the Letters of
Credit, the Lockbox Agreements, the Mortgages, any note or notes
executed by Borrower and payable to Foothill, and any other
agreement entered into, now or in the future, in connection with
this Agreement.
"Lockbox Account" shall mean a depository account
established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox
Operating Procedural Agreements and those certain Depository
Account Agreements, in form and substance satisfactory to
Foothill, each of which is among Borrower, Foothill, and one of
the Lockbox Banks.
"Lockbox Banks" means LaSalle National Bank, PNC Bank,
N.A. and any other bank from time to time party to a Lockbox
Agreement.
"Lockboxes" has the meaning set forth in Section 2.7.
"Material Adverse Change" means (a) a material adverse
change in the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or
otherwise) of Borrower, (b) the material impairment of Borrower's
ability to perform its obligations under the Loan Documents to
which it is a party or of Foothill to enforce the Obligations or
realize upon the Collateral, (c) a material adverse effect on the
value of the Collateral or the amount that Foothill would be
likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of
Foothill's Liens with respect to the Collateral.
"Maximum Revolving Amount" means $10,000,000.
"Mortgages" means one or more mortgages, deeds of
trust, or deeds to secure debt, executed by Borrower in favor of
Foothill after the date hereof, the format and substance of which
shall be satisfactory to Foothill, that encumber the Real
Property Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which Borrower, any of
its Subsidiaries, or any ERISA Affiliate has contributed, or was
obligated to contribute, within the past six years.
"Negotiable Collateral" means all of Borrower's present
and future letters of credit, notes, drafts, instruments,
investment property, security entitlements, securities (including
the shares of stock of Subsidiaries of Borrower), documents,
personal property leases (wherein Borrower is the lessor),
chattel paper, and Borrower's Books relating to any of the
foregoing.
"Net Worth" means, as of any date of determination,
Borrower's total shareholders' equity as determined in accordance
with GAAP.
"Obligations" means all loans, Advances, debts,
principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued),
contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination
Premiums), liabilities (including all amounts charged to
Borrower's Loan Account pursuant hereto), obligations, fees,
charges, costs, or Foothill Expenses (including any fees or
expenses that, but for the provisions of the Bankruptcy Code,
would have accrued), lease payments, guaranties, covenants, and
duties owing by Borrower to Foothill of any kind and description
(whether pursuant to or evidenced by the Loan Documents or
pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether
direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including any debt,
liability, or obligation owing from Borrower to others that
Foothill may have obtained by assignment or otherwise, and
further including all interest not paid when due and all Foothill
Expenses that Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise.
"Overadvance" has the meaning set forth in Section 2.5.
"PBGC" means the Pension Benefit Guaranty Corporation
as defined in Title IV of ERISA, or any successor thereto.
"Permitted Investment" means:
(a) investments in short-term obligations backed by
the full faith and credit of the United States Government;
(b) investments in certificates of deposit, time
deposits, money market funds or bankers acceptances issued by any
prime commercial bank or investment bank (which commercial bank
or investment bank shall have capital and surplus of at least
$500,000,000 in the aggregate at all times, and a short term debt
rating of at least A-1 from Standard & Poor's Corporation and at
least P-1 from Moody's Investors Services, Inc. at all times),
with a remaining maturity not in excess of one year, payable to
the order of Borrower or to bearer, and repurchase agreements
secured by investments of the type described in clause (a) above
and this clause (b); and
(c) investments in commercial paper having a rating of
at least A-1 from Standard & Poor's Corporation and at least P-1
from Moody's Investors Services, Inc. at all times.
"Permitted Liens" means (a) Liens held by Foothill,
(b) Liens for unpaid taxes that either (i) are not yet due and
payable or (ii) are the subject of Permitted Protests, (c) Liens
set forth on Schedule P-1 or securing capital leases and purchase
money financing set forth on Schedule 7.1, (d) the interests of
lessors under operating leases and purchase money Liens of
lessors under capital leases to the extent that the acquisition
or lease of the underlying asset is permitted under Section 7.21
and so long as the Lien only attaches to the asset purchased or
acquired and only secures the purchase price of, or lease cost
with respect to, the asset, interest with respect thereto and all
related fees and charges, (e) Liens arising by operation of law
in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary
course of business of Borrower and not in connection with the
borrowing of money, and which Liens either (i) are for sums not
yet due and payable, or (ii) are the subject of Permitted
Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance,
(g) Liens or deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement), incurred
in the ordinary course of business of Borrower and not in
connection with the borrowing of money, (h) Liens arising by
reason of security for surety or appeal bonds in the ordinary
course of business of Borrower, (i) Liens of or resulting from
any judgment or award that would not cause a Material Adverse
Change and as to which the time for the appeal or petition for
rehearing of which has not yet expired, or in respect of which
Borrower is in good faith prosecuting an appeal or proceeding for
a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured, (j) Liens
with respect to the Real Property Collateral that are exceptions
to the commitments for title insurance issued in connection with
the Mortgages, as accepted by Foothill, (k) with respect to any
Real Property that is not part of the Real Property Collateral,
easements, rights of way, zoning and similar covenants and
restrictions, and similar encumbrances that customarily exist on
properties of Persons engaged in similar activities and similarly
situated and that in any event do not materially interfere with
or impair the use or operation of the Collateral by Borrower or
the value of Foothill's Lien thereon or therein, or materially
interfere with the ordinary conduct of the business of Borrower
and (l) BT Institutional Cash Management Fund 497, Account Number
47912087 and related property pledged under the Security
Agreement (Hypothecation Agreement) dated April 11, 1997 made by
Debtor in favor of Bankers Trust Company to secure Debtor's
reimbursement obligations with respect to certain letters of
credit issued by Bankers Trust Company for the account of Debtor,
as such Security Agreement existed on April 11, 1997.
"Permitted Protest" means the right of Borrower to
protest any Lien (other than any such Lien that secures the
Obligations), tax (other than payroll taxes), or rental payment,
provided that (a) a reserve with respect to such obligation is
established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (b) any such protest is
instituted and diligently prosecuted by Borrower in good faith,
and (c) Foothill is satisfied that, while any such protest is
pending, there will be no impairment of the enforceability,
validity, or priority (except in a case where Foothill has
established a reserve in respect of such Lien) of any of the
Liens of Foothill in and to the Collateral.
"Person" means and includes natural persons,
corporations, limited liability companies, limited partnerships,
general partnerships, limited liability partnerships, joint
ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities,
and governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral
other than the Real Property Collateral.
"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with
respect to which it may incur liability.
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by Borrower.
"Real Property Collateral" means any Real Property
hereafter acquired by Borrower (other than Real Property in which
Borrower has a leasehold interest).
"Reference Rate" means the variable rate of interest,
per annum, most recently announced by Norwest Bank Minnesota,
National Association, or any successor thereto, as its "base
rate," irrespective of whether such announced rate is the best
rate available from such financial institution.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than
a Reportable Event as to which the provision of 30 days notice to
the PBGC is waived under applicable regulations.
"Retiree Health Plan" means an "employee welfare
benefit plan" within the meaning of Section 3(1) of ERISA that
provides benefits to individuals after termination of their
employment, other than as required by Section 601 of ERISA.
"Solvent" means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of
the properties and assets of such Person are greater than the sum
of the debts, including contingent liabilities, of such Person,
(b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize
upon its properties and assets and pay its debts and other
liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not
intend to, and does not believe that it will, incur debts beyond
such Person's ability to pay as such debts mature, and (e) such
Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such
Person's properties and assets would constitute unreasonably
small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at
such time, represents the amount that reasonably can be expected
to become an actual or matured liability.
"Subsidiary" of a Person means a corporation,
partnership, limited liability company, or other entity in which
that Person directly or indirectly owns or controls the shares of
stock or other ownership interests having ordinary voting power
to elect a majority of the board of directors (or appoint other
comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Termination Date" has the meaning set forth in Section
3.4.
"Voidable Transfer" has the meaning set forth in
Section 15.8.
"Working Capital" means, as of any date of
determination, Consolidated Current Assets minus Consolidated
Current Liabilities.
1.2. Accounting Terms.
All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and
schedules thereto. Whenever the term "Borrower" is used in
respect of a financial covenant or a related definition, it shall
be understood to mean Borrower on a consolidated basis unless the
context clearly requires otherwise.
1.3. Code.
Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
1.4. Construction.
Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular,
references to the singular include the plural, the term
"including" is not limiting, and the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the
phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this
Agreement. An Event of Default shall "continue" or be
"continuing" until such Event of Default has been waived in
writing by Foothill. Section, subsection, clause, schedule, and
exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall
include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and
supplements, thereto and thereof, as applicable.
1.5. Schedules and Exhibits.
All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1. Revolving Advances.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to
Borrower in an amount outstanding not to exceed at any one time
the lesser of (i) the Maximum Revolving Amount less the
outstanding balance of all undrawn or unreimbursed Letters of
Credit, or (ii) the Borrowing Base less (A) the aggregate amount
of all undrawn or unreimbursed Letters of Credit (other than
Inventory Letters of Credit), less (B) 50% of the aggregate
amount of all undrawn or unreimbursed Inventory Letters of Credit
issued in connection with the purchase of finished goods or
supplies less (C) 70% of the aggregate amount of all undrawn or
unreimbursed Inventory Letters of Credit issued in connection
with the purchase of parts less (D) 70% of the aggregate amount
of all undrawn or unreimbursed Inventory Letters of Credit issued
in connection with the purchase of demonstration units less (E)
the aggregate amount of the Inventory Reserves. For purposes of
this Agreement, "Borrowing Base", as of any date of
determination, shall mean the result of:
(x) the lesser of (i) the sum of (A) up to
85% of Eligible Trade Accounts, less the amount,
if any, of the Dilution Reserve, plus (B) up to
50% of Eligible Service Accounts, and (ii) an
amount equal to Borrower's Collections with
respect to Accounts for the immediately preceding
60 day period, plus
(y) the least of (i) $5,000,000, (ii) the
sum of (A) up to 50% of the value of Eligible
Inventory consisting of finished goods and
supplies, (B) up to 30% of the value of Eligible
Inventory consisting of parts and (C) the lesser
of (I) up to 30% of the value of Eligible
Inventory consisting of demonstration units and
(II) $500,000 less 30% of the aggregate amount of
all undrawn or unreimbursed Inventory Letters of
Credit issued in connection with the purchase of
demonstration units, and (iii) 175% of the amount
of credit availability created by clause (x)
above, minus
(z) the aggregate amount of reserves, if
any, established by Foothill under Section 2.1(b).
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill, in its reasonable judgment, may create
reserves against the Borrowing Base or reduce its advance rates
based upon Eligible Accounts or Eligible Inventory without
declaring an Event of Default (i) for amounts owing by Borrower
to landlords, warehouseman, processors and similar Persons that
could assert a statutory or common law Lien in any of the
Collateral that is senior to Foothill's Lien on such Collateral,
(ii) for any amount subject to a Permitted Protest, (iii) for
such matters as are determined by Lender in its reasonable credit
judgment in accordance with its standard credit policies or (iv)
if it determines that there has occurred a Material Adverse
Change. Without limiting Lender's ability to create reserves
after the Closing Date pursuant to this Section 2.1(b), as of the
Closing Date, Lender has established reserves for potential
warranty claims, Inventory shrinkage, Inventory obsolescence and
average Inventory variance.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding
Obligations to exceed the Maximum Revolving Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may
be repaid and, subject to the terms and conditions of this
Agreement, reborrowed at any time during the term of this
Agreement.
2.2. Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue letters of credit for the
account of Borrower (each, an "L/C") or to issue guarantees of
payment (each such guaranty, an "L/C Guaranty") with respect to
letters of credit issued by an issuing bank for the account of
Borrower. Foothill shall have no obligation to issue a Letter of
Credit if any of the following would result:
(i) the sum of 50% of the aggregate amount
of all undrawn and unreimbursed Inventory Letters
of Credit issued in connection with the purchase
of finished goods or supplies plus 70% of the
aggregate amount of all undrawn and unreimbursed
Inventory Letters of Credit issued in connection
with the purchase of parts or demonstration units,
plus 100% of the aggregate amount of all other
types of undrawn and unreimbursed Letters of
Credit, would exceed the Borrowing Base less the
amount of outstanding Advances less the aggregate
amount of Inventory Reserves; or
(ii) the aggregate amount of all undrawn or
unreimbursed Letters of Credit (including
Inventory Letters of Credit) would exceed the
lower of: (x) the Maximum Revolving Amount less
the amount of outstanding Advances; or (y)
$5,000,000; or
(iii) the outstanding Obligations would exceed
the Maximum Revolving Amount; or
(iv) 30% of the aggregate amount of all
undrawn or unreimbursed Inventory Letters of
Credit issued in connection with the purchase of
demonstration units would exceed $500,000 less the
aggregate amount of Advances than outstanding
against the value of Eligible Inventory consisting
of demonstration units.
Borrower expressly understands and agrees that Foothill shall
have no obligation to arrange for the issuance by issuing banks
of the letters of credit that are to be the subject of L/C
Guarantees. Each Letter of Credit shall have an expiry date no
later than 30 days prior to the date on which this Agreement is
scheduled to terminate under Section 3.4 (without regard to any
potential renewal term) and all such Letters of Credit shall be
in form and substance acceptable to Foothill in its sole
discretion. If Foothill is obligated to advance funds under a
Letter of Credit, Borrower immediately shall reimburse such
amount to Foothill and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed
to be an Advance hereunder and, thereafter, shall bear interest
at the rate then applicable to Advances under Section 2.6.
(b) Borrower hereby agrees to indemnify, save, defend,
and hold Foothill harmless from any loss, cost, expense, or
liability, including payments made by Foothill, expenses, and
reasonable attorneys fees incurred by Foothill arising out of or
in connection with any Letter of Credit. Borrower agrees to be
bound by the issuing bank's regulations and interpretations of
any Letters of Credit guarantied by Foothill and opened to or for
Borrower's account or by Foothill's interpretations of any L/C
issued by Foothill to or for Borrower's account, even though this
reasonable interpretation may be different from Borrower's own,
and Borrower understands and agrees that Foothill shall not be
liable for any error, negligence, or mistake, whether of omission
or commission, in following Borrower's instructions or those
contained in the Letter of Credit or any modifications,
amendments, or supplements thereto. Borrower understands that
the L/C Guarantees may require Foothill to indemnify the issuing
bank for certain costs or liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with respect
to any loss, cost, expense (including reasonable attorneys fees),
or liability incurred by Foothill under any L/C Guaranty as a
result of Foothill's indemnification of any such issuing bank,
other than any such loss, cost, expense or liability incurred
because of Foothill's gross negligence or willful misconduct.
(c) Borrower hereby authorizes and directs any bank
that issues a letter of credit guaranteed by Foothill to deliver
to Foothill all instruments, documents, and other writings and
property received by the issuing bank pursuant to such letter of
credit, and to accept and rely upon Foothill's instructions and
agreements with respect to all matters arising in connection with
such letter of credit and the related application. Borrower may
or may not be the "applicant" or "account party" with respect to
such letter of credit.
(d) Any and all charges, commissions, fees, and costs
incurred by Foothill relating to the letters of credit guaranteed
by Foothill shall be considered Foothill Expenses for purposes of
this Agreement and immediately shall be reimbursable by Borrower
to Foothill.
(e) Immediately upon the termination of this
Agreement, Borrower agrees to either (i) provide cash collateral
to be held by Foothill in an amount equal to 102% of the maximum
amount of Foothill's obligations under Letters of Credit, (ii)
cause to be delivered to Foothill releases of all of Foothill's
obligations under outstanding Letters of Credit or (iii) cause to
be delivered to Foothill one or more back-to-back letters of
credit, in form and substance, and issued by an issuer,
reasonably acceptable to Foothill, in an aggregate amount equal
to 102% of the maximum amount of Foothill's obligations under
outstanding Letters of Credit. At Foothill's discretion, any
proceeds of Collateral received by Foothill after the occurrence
and during the continuation of an Event of Default may be held as
the cash collateral required by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable
law, treaty, rule, or regulation or any change in the
interpretation or application by any governmental authority of
any such applicable law, treaty, rule, or regulation, or (ii)
compliance by the issuing bank or Foothill with any direction,
request, or requirement (irrespective of whether having the force
of law) of any governmental authority or monetary authority
including, without limitation, Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in
effect (and any successor thereto):
(A) any reserve, deposit, or similar
requirement is or shall be imposed or
modified in respect of any Letters of Credit
issued hereunder, or
(B) there shall be imposed on the
issuing bank or Foothill any other condition
regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant
hereto;
and the result of the foregoing is to increase, directly or
indirectly, the cost to the issuing bank or Foothill of issuing,
making, guaranteeing, or maintaining any letter of credit, or
Letter of Credit, as applicable, or to reduce the amount
receivable in respect thereof by such issuing bank or Foothill,
then, and in any such case, Foothill may, at any time within a
reasonable period after the additional cost is incurred or the
amount received is reduced, notify Borrower, and Borrower shall
pay on demand such amounts as the issuing bank or Foothill may
specify to be necessary to compensate the issuing bank or
Foothill for such additional cost or reduced receipt, together
with interest on such amount from the date of such demand until
payment in full thereof at the rate set forth in Section
2.6(a)(i) or (c)(i), as applicable. The determination by the
issuing bank or Foothill, as the case may be, of any amount due
pursuant to this Section 2.2(f), as set forth in a certificate
setting forth the calculation thereof in reasonable detail,
shall, in the absence of manifest or demonstrable error, be final
and conclusive and binding on all of the parties hereto.
2.3. Intentionally Omitted.
2.4. Intentionally Omitted.
2.5. Overadvances.
If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Sections 2.1
or 2.2 is greater than either the Dollar or percentage
limitations set forth in Sections 2.1 or 2.2 (an "Overadvance"),
Borrower immediately shall pay to Foothill, in cash, the amount
of such excess to be used by Foothill first, to repay Advances
outstanding under Section 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to
repay Foothill for all amounts paid pursuant to Letters of
Credit.
2.6. Interest and Letter of Credit Fees: Rates, Payments,
and Calculations.
(a) Interest Rate. Except as provided in clause (b)
below, all Obligations (except for undrawn Letters of Credit)
shall bear interest commencing on the Closing Date at a per annum
rate of 1.00 percentage point above the Reference Rate, which
rate shall be prospectively reduced by one-half percentage point
one day after receipt by Lender of Borrower's unqualified annual
audited financial statements for the 1998 fiscal year delivered
pursuant to Section 6.3(b) and one-half percentage point one day
after receipt by Lender of Borrower's unqualified annual audited
financial statements for the 1999 fiscal year delivered pursuant
to Section 6.3(b), respectively, if Borrower (i) has net income
for such fiscal year, determined in accordance with GAAP, of at
least $1 and (ii) has met or exceeded the projected levels for
each of gross margin dollars; net income; operating income;
stockholders equity; and working capital (defined as current
assets less current liabilities), set forth in Borrower's
business plan for, or as of the last day of, such fiscal year, as
applicable, a copy of which business plan is attached hereto as
Schedule 2.6. If the interest rate is so reduced with respect to
Borrower's financial performance for its 1998 fiscal year and
Borrower fails to satisfy either of the foregoing criteria for
its 1999 fiscal year, the interest rate shall be prospectively
increased by one-half percentage point one day after receipt of
Borrower's financial statements for its 1999 fiscal year. Except
as provided in Section 2.6(c) below, in no event shall the
applicable interest rate be less than the Reference Rate or
greater than 1.00 percentage point above the Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Foothill
a fee (in addition to the charges, commissions, fees, and costs
set forth in Section 2.2(d)) equal to 1.50% per annum times the
aggregate undrawn amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, and commencing immediately
following notice thereof by Foothill to Borrower, (i) all
Obligations (except for undrawn Letters of Credit) shall
prospectively bear interest at a per annum rate equal to 4.00
percentage points above the otherwise applicable interest rate
provided in Section 2.6(a), and (ii) the Letter of Credit fee
provided in Section 2.6(b) shall be prospectively increased to
3.50% per annum times the amount of the undrawn Letters of
Credit.
(d) Minimum Interest. In no event shall the rate of
interest chargeable hereunder for any day be less than 7.00% per
annum. To the extent that interest accrued hereunder at the rate
set forth herein would be less than the foregoing minimum daily
rate, the interest rate chargeable hereunder for such day
automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest and Letter of Credit fees
payable hereunder shall be due and payable, in arrears, on the
first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest and Letter of Credit fees, all
Foothill Expenses (as and when incurred), the charges,
commissions, fees, and costs provided for in Section 2.2(d) (as
and when accrued or incurred), the fees and charges provided for
in Section 2.11 (as and when accrued or incurred), and all
installments or other payments due under any Loan Document to
Borrower's Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any
interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. The Reference Rate as of the date of
this Agreement is 8.50% per annum. In the event the Reference
Rate is changed from time to time hereafter, the applicable rate
of interest hereunder automatically and immediately shall be
increased or decreased by an amount equal to such change in the
Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for
the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate.
In no event shall the interest rate or rates payable under this
Agreement, plus any other amounts paid in connection herewith,
exceed the highest rate permissible under any law that a court of
competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Foothill, in executing and delivering
this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided,
however, that, anything contained herein to the contrary
notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then,
ipso facto as of the date of this Agreement, Borrower is and
shall be liable only for the payment of such maximum as allowed
by law, and payment received from Borrower in excess of such
legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such
excess.
2.7. Collection of Accounts.
Borrower shall at all times maintain lockboxes (the
"Lockboxes") and, immediately after the Closing Date, shall
instruct all Account Debtors with respect to the Accounts,
General Intangibles, and Negotiable Collateral of Borrower to
remit all Collections in respect thereof to such Lockboxes.
Borrower, Foothill, and the Lockbox Banks shall enter into the
Lockbox Agreements, which among other things shall provide for
the opening of a Lockbox Account for the deposit of Collections
at a Lockbox Bank. Borrower agrees that all Collections and
other amounts received by Borrower from any Account Debtor or any
other source immediately upon receipt shall be deposited into a
Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrower without the
prior written consent of Foothill. Upon the terms and subject to
the conditions set forth in the Lockbox Agreements, all amounts
received in each Lockbox Account shall be transferred by federal
funds transfer or ACH transfer each Business Day into an account
(the "Borrower Account") maintained by Borrower at a depository
selected by Borrower and shall be available to Borrower at
Borrower's instruction; provided, that if (a) an Event of Default
has occurred and is continuing, (b) Foothill reasonably deems
itself insecure or (c) Excess Availability is less than
$2,000,000, Foothill shall have the right, in its discretion, to
direct each Lockbox Bank to wire all amounts received in the
applicable Lockbox Account each Business Day into an account (the
"Foothill Account") maintained by Foothill at a depository
selected by Foothill.
2.8. Crediting Payments; Application of Collections.
The receipt of any Collections by Foothill (whether
from transfers to Foothill by the Lockbox Banks pursuant to the
Lockbox Agreements or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under Section
2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available
federal funds and is made to the Foothill Account or unless and
until such Collection item is honored when presented for payment.
From and after the Closing Date, Foothill shall be entitled to
charge Borrower for 1 Business Day of `clearance' or `float' at
the rate set forth in Section 2.6(a)(i) or Section 2.6(c)(i), as
applicable, on all Collections (regardless of whether forwarded
by the Lockbox Banks to Foothill, whether provisionally applied
to reduce the Obligations under Section 2.1, or otherwise). This
across-the-board 1 Business Day clearance or float charge on all
Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of
Borrower, and shall apply irrespective of the characterization of
whether receipts are owned by Borrower or Foothill, and whether
or not there are any outstanding Advances, the effect of such
clearance or float charge being the equivalent of charging 1
Business Day of interest on such Collections. Should any
Collection item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item
shall be deemed received by Foothill only if it is received into
the Foothill Account on a Business Day on or before 11:00 a.m.
California time. If any Collection item is received into the
Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have
been received by Foothill as of the opening of business on the
immediately following Business Day.
2.9. Designated Account.
Foothill is authorized to make the Advances and the
Letters of Credit under this Agreement based upon telephonic or
other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section
2.6(e). Borrower agrees to establish and maintain the Designated
Account with the Designated Account Bank for the purpose of
receiving the proceeds of the Advances requested by Borrower and
made by Foothill hereunder. Unless otherwise agreed by Foothill
and Borrower, any Advance requested by Borrower and made by
Foothill hereunder shall be made to the Designated Account.
2.10. Maintenance of Loan Account; Statements of Obligations.
Foothill shall maintain an account on its books in the
name of Borrower (the "Loan Account") on which Borrower will be
charged with all Advances made by Foothill to Borrower or for
Borrower's account, including, accrued interest, Foothill
Expenses, and any other payment Obligations of Borrower. In
accordance with Section 2.8, the Loan Account will be credited
with all payments received by Foothill from Borrower or for
Borrower's account, including all amounts received in the
Foothill Account from any Lockbox Bank. Foothill shall render
statements regarding the Loan Account to Borrower, including
principal, interest, fees, and including an itemization of all
charges and expenses constituting Foothill Expenses owing, and
such statements shall be conclusively presumed to be correct and
accurate and constitute an account stated between Borrower and
Foothill unless, within 30 days after receipt thereof by
Borrower, Borrower shall deliver to Foothill written objection
thereto describing the error or errors contained in any such
statements.
2.11. Fees.
Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee
of $75,000;
(b) Unused Line Fee. On the first day of each month
during the term of this Agreement, commencing on the Closing
Date, an unused line fee in an amount equal to 0.25% per annum
times the Average Unused Portion of the Maximum Revolving Amount;
(c) Intentionally Omitted;
(d) Financial Examination, Documentation, and
Appraisal Fees. Foothill's customary fee of $650 per day per
examiner, plus out-of-pocket expenses for each financial analysis
and examination (i.e., audits) of Borrower performed by personnel
employed by Foothill, payable as incurred; Foothill's customary
appraisal fee of $1,500 per day per appraiser, plus out-of-pocket
expenses for each appraisal of the Collateral performed by
personnel employed by Foothill, payable as incurred; the actual
charges paid or incurred by Foothill if it elects to employ the
services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrower, to appraise
the Collateral or to verify Accounts or other Collateral, payable
as incurred; and, on each anniversary of the Closing Date prior
to the Termination Date, Foothill's customary fee of $1,000 per
year for its loan documentation review; and
(e) Servicing Fee. On the first day of each month
(for the prior month) during the term of this Agreement, and
thereafter so long as any Obligations are outstanding, a
servicing fee in an amount equal to $1,500.
3. CONDITIONS; TERM OF AGREEMENT.
3.1. Conditions Precedent to the Initial Advance and Letter
of Credit.
The obligation of Foothill to make the initial Advance
or to issue the initial Letter of Credit is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of
each of the following conditions on or before the Funding Date:
(a) Foothill shall have received evidence satisfactory
to Foothill of the filing of all financing statements and fixture
filings required by Foothill to be filed prior to the Funding
Date;
(b) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full
force and effect:
(i) the Lockbox Agreements;
(ii) UCC termination statements and other
documentation evidencing the termination of all
existing Liens in and to the properties and assets
of Borrower located in Illinois other than
Permitted Liens;
(iii) the trademark and license mortgage, in
form and substance satisfactory to Foothill,
executed by Borrower;
(iv) the solvency certificate, in form and
substance satisfactory to Foothill, executed by
Borrower's chief financial officer; and
(v) such UCC-3 amendments relating to the
change of Borrower's name to "Multigraphics,
Inc.", and such additional financing statements
and fixture filings showing Multigraphics, Inc. as
debtor, as Foothill shall reasonably require, each
in form and substance satisfactory to Foothill.
(c) Foothill shall have received a certificate from
the Secretary of Borrower attesting to the resolutions of
Borrower's Board of Directors authorizing its execution,
delivery, and performance of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute the same;
(d) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of Borrower;
(e) Foothill shall have received a certificate of
status with respect to Borrower, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate
officer of the jurisdiction of organization of Borrower, which
certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(f) Foothill shall have received certificates of
status with respect to Borrower, each dated within 15 days of the
Closing Date, such certificates to be issued by the appropriate
officer of the jurisdictions in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change,
which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(g) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are
required by Section 6.10, the form and substance of which shall
be satisfactory to Foothill and its counsel;
(h) Foothill shall have received Collateral Access
Agreements from the lessors of Borrower's Arlington Heights,
Illinois facility;
(i) Foothill shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Foothill
in its sole discretion;
(j) Foothill shall have received satisfactory evidence
that all tax returns required to be filed by Borrower have been
timely filed and all taxes upon Borrower or its properties,
assets, income, and franchises (including real property taxes and
payroll taxes) have been paid prior to delinquency, except such
taxes that are the subject of a Permitted Protest;
(k) Foothill shall have received an opinion of
Borrower's counsel to the effect that Borrower's declaration and
payment of the Dividend did not violate or breach any of the
terms of Borrower's Plan of Reorganization confirmed on October
13, 1993;
(l) Foothill shall have received a letter satisfactory
in form and substance to Foothill from Houlihan Lokey Howard &
Zukin authorizing Foothill to rely on its Opinion dated May 1,
1997;
(m) no material adverse change shall have occurred
with respect to the financial condition, business, operations,
performance, properties or assets of Borrower or the value of the
Collateral after the date hereto, exclusive of the Dividend;
(n) no Event of Default shall be in existence; and
(o) Foothill's counsel shall have completed its legal
due diligence with respect to Borrower, with results satisfactory
to Foothill in its sole discretion.
3.2. Conditions Precedent to all Advances and all Letters of
Credit.
The following shall be conditions precedent to all
Advances and all Letters of Credit hereunder:
(a) the representations and warranties contained in
this Agreement and the other Loan Documents shall be true and
correct in all material respects on and as of the date of such
extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties
relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor
shall either result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the
extending of such credit shall have been issued and remain in
force by any governmental authority against Borrower, Foothill,
or any of their Affiliates.
3.3. Condition Subsequent.
As conditions subsequent to initial closing hereunder,
Borrower shall (a) within 60 days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance,
together with the endorsements thereto, as are required by
Section 6.10, the form and substance of which shall be
satisfactory to Foothill and its counsel (and the failure by
Borrower to so perform shall constitute an Event of Default) and
(b) within 30 days of the Closing Date, deliver to Foothill UCC
termination statements and other documentation evidencing the
termination of all existing Liens in and to the properties of
Borrower located outside of Illinois, other than Permitted Liens,
the form and substance of which shall be satisfactory to Foothill
and its counsel (and the failure by Borrower to so perform shall
constitute an Event of Default).
3.4. Term.
This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall
continue in full force and effect for a term ending on the date
(the "Termination Date") that is three years from the Closing
Date, unless sooner terminated pursuant to the terms hereof. The
foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately and
without notice upon the occurrence and during the continuation of
an Event of Default.
3.5. Effect of Termination.
On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit)
immediately shall become due and payable without notice or
demand; provided, that any such contingent reimbursement
obligations with respect to Letters of Credit shall be satisfied
in the manner set forth in Section 2.2(e). No termination of
this Agreement, however, shall relieve or discharge Borrower of
Borrower's duties, Obligations, or covenants hereunder, and
Foothill's continuing Liens in the Collateral shall remain in
effect until all Obligations have been fully and finally
discharged and Foothill's obligation to provide additional credit
hereunder is terminated.
3.6. Early Termination by Borrower.
The provisions of Section 3.4 that allow termination of
this Agreement by Borrower only on the Termination Date and
certain anniversaries thereof notwithstanding, Borrower has the
option, at any time upon 30 days prior written notice to
Foothill, to terminate this Agreement by paying to Foothill, in
cash, the Obligations, in full (provided, that any contingent
reimbursement obligations of Borrower with respect to outstanding
Letters of Credit shall be satisfied in the manner set forth in
Section 2.2(e)), together with a premium (the "Early Termination
Premium") equal to (a) 3% of the Maximum Revolving Amount if such
termination occurs on or before the first anniversary of the date
hereof, (b) 2% of the Maximum Revolving Amount if such
termination occurs after the first anniversary of the date hereof
but on or before the second anniversary of the date hereof and
(c) 1% of the Maximum Revolving Amount if such termination occurs
after the second anniversary of the date hereof but before the
third anniversary of the date hereof; provided, that if Borrower
terminates this Agreement due to Foothill's refusal to consent to
a proposed acquisition by Borrower that would violate Section
7.13(a) or (c) below, the applicable Termination Prepayment shall
be reduced by one-half of the Early Termination Premium otherwise
payable hereunder.
3.7. Termination Upon Event of Default.
If Foothill terminates this Agreement upon the
occurrence of an Event of Default caused by a breach of this
Agreement that Borrower has intentionally committed or
intentionally permitted to occur, in view of the impracticability
and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof, Borrower shall pay
to Foothill upon the effective date of such termination, a
premium in an amount equal to the Early Termination Premium. The
Early Termination Premium shall be presumed to be the amount of
damages sustained by Foothill as the result of such an early
termination and Borrower agrees that it is reasonable under the
circumstances currently existing. The Early Termination Premium
provided for in this Section 3.7 shall be deemed included in the
Obligations.
4. CREATION OF SECURITY INTEREST.
4.1. Grant of Security Interest.
Borrower hereby grants to Foothill a continuing
security interest in all currently existing and hereafter
acquired or arising Personal Property Collateral in order to
secure prompt repayment of any and all Obligations and in order
to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Foothill's security
interests in the Personal Property Collateral shall attach to all
Personal Property Collateral without further act on the part of
Foothill or Borrower. Anything contained in this Agreement or
any other Loan Document to the contrary notwithstanding, except
for the sale of Inventory to buyers in the ordinary course of
business and other sales of Personal Property Collateral
permitted under Section 7.4, Borrower has no authority, express
or implied, to dispose of any item or portion of the Personal
Property Collateral or the Real Property Collateral.
4.2. Negotiable Collateral.
In the event that any Collateral, including proceeds,
is evidenced by or consists of Negotiable Collateral, Borrower,
immediately upon the request of Foothill, shall endorse and
deliver physical possession of such Negotiable Collateral to
Foothill.
4.3. Collection of Accounts, General Intangibles, and
Negotiable Collateral.
At any time after the occurrence and during the
continuance of an Event of Default, Foothill or Foothill's
designee may (a) notify customers or Account Debtors of Borrower
that the Accounts, General Intangibles, or Negotiable Collateral
have been assigned to Foothill or that Foothill has a security
interest therein, and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Borrower
agrees that at any time that Foothill (i) has notified customers
or Account Debtors under clause (a) above, (ii) is directly
collecting Accounts, General Intangibles and Negotiable
Collateral under clause (b) above or (iii) has directed any
Lockbox Bank to wire funds into the Foothill Account pursuant to
Section 2.7, it will hold in trust for Foothill, as Foothill's
trustee, any Collections that it receives and immediately will
deliver said Collections to Foothill in their original form as
received by Borrower.
4.4. Delivery of Additional Documentation Required.
At any time upon the request of Foothill, Borrower
shall execute and deliver to Foothill all financing statements,
continuation financing statements, fixture filings, security
agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other
documents that Foothill reasonably may request, in form
satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral, and in order to
fully consummate all of the transactions contemplated hereby and
under the other the Loan Documents.
4.5. Power of Attorney.
Borrower hereby irrevocably makes, constitutes, and
appoints Foothill (and any of Foothill's officers, employees, or
agents designated by Foothill) as Borrower's true and lawful
attorney, with power to (a) if Borrower refuses to, or fails
timely to execute and deliver any of the documents described in
Section 4.4, sign the name of Borrower on any of the documents
described in Section 4.4, (b) at any time that an Event of
Default has occurred and is continuing or Foothill deems itself
insecure, sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts,
and notices to Account Debtors, (c) send requests for
verification of Accounts, (d) endorse Borrower's name on any
Collection item that may come into Foothill's possession, (e) at
any time that an Event of Default has occurred and is continuing
or Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail
to an address designated by Foothill, to receive and open all
mail addressed to Borrower, and to retain all mail relating to
the Collateral and forward all other mail to Borrower, (f) at any
time that an Event of Default has occurred and is continuing or
Foothill deems itself insecure, make, settle, and adjust all
claims under Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of
insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure,
settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms that
Foothill determines to be reasonable, and Foothill may cause to
be executed and delivered any documents and releases that
Foothill determines to be necessary. The appointment of Foothill
as Borrower's attorney, and each and every one of Foothill's
rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid
and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6. Right to Inspect.
Foothill (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or
the amount, quality, value, condition of, or any other matter
relating to, the Collateral; provided, that unless an Event of
Default has occurred and is continuing, (a) all of such
inspections shall take place during normal business hours and (b)
Foothill will conduct such inspections no more than once per
calendar quarter.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this
Agreement, Borrower makes the following representations and
warranties which shall be true, correct, and complete in all
material respects as of the Closing Date, as of the Funding Date,
and at and as of the date of the making of each Advance or Letter
of Credit, as though made on and as of the date of such Advance
or Letter of Credit (except to the extent that such
representations and warranties relate solely to an earlier date)
and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1. No Encumbrances.
Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2. Eligible Accounts.
The Eligible Accounts are bona fide existing
obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course
of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return
or cancellation. The property giving rise to such Eligible Trade
Account has been delivered to the Account Debtor, or to the
Account Debtor's agent for immediate shipment to and
unconditional acceptance by the Account Debtor. Borrower has not
received notice of actual or imminent bankruptcy, insolvency, or
material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3. Eligible Inventory.
All Eligible Inventory is of good and merchantable
quality, free from defects.
5.4. Equipment.
All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5. Location of Inventory and Equipment.
The Inventory and Equipment are located only at the
locations identified on Schedule 6.12 or otherwise permitted by
Section 6.12.
5.6. Inventory Records.
Borrower keeps records that are correct and accurate in
all material respects, itemizing and describing the kind, type,
quality, and quantity of the Inventory, and Borrower's cost
therefor.
5.7. Location of Chief Executive Office; FEIN.
The chief executive office of Borrower is located at
the address indicated in the preamble to this Agreement and
Borrower's FEIN is 34-0054940.
5.8. Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in
good standing under the laws of the jurisdiction of its
incorporation and qualified and licensed to do business in, and
in good standing in, any state where the failure to be so
licensed or qualified reasonably could be expected to have a
Material Adverse Change.
(b) Set forth on Schedule 5.8 is a complete and
accurate list of Borrower's direct and indirect Subsidiaries,
showing the jurisdiction of their incorporation.
(c) Except as set forth on Schedule 5.8, no capital
stock (or any securities, instruments, warrants, options,
purchase rights, conversion or exchange rights, calls,
commitments or claims of any character convertible into or
exercisable for capital stock) of any direct or indirect
Subsidiary of Borrower is subject to the issuance of any
security, instrument, warrant, option, purchase right, conversion
or exchange right, call, commitment or claim of any right, title,
or interest therein or thereto.
5.9. Due Authorization; No Conflict.
(a) The execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which it is
a party have been duly authorized by all necessary corporate
action.
(b) The execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which it is
a party do not and will not (i) violate any provision of federal,
state, or local law or regulation (including Regulations G, T, U,
and X of the Federal Reserve Board) applicable to Borrower, the
Governing Documents of Borrower, or any order, judgment, or
decree of any court or other governmental authority binding on
Borrower, (ii) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default
under any material contractual obligation or material lease of
Borrower, (iii) result in or require the creation or imposition
of any Lien of any nature whatsoever upon any properties or
assets of Borrower, other than Permitted Liens, or (iv) require
any approval of stockholders or any approval or consent of any
Person under any material contractual obligation of Borrower.
(c) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution,
delivery, and performance by Borrower of this Agreement and the
Loan Documents to which Borrower is a party do not and will not
require any registration with, consent, or approval of, or notice
to, or other action with or by, any federal, state, foreign, or
other governmental authority or other Person.
(d) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated hereby
and thereby, when executed and delivered by Borrower will be the
legally valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms,
except as enforcement may be limited by equitable principles or
by bankruptcy, insolvency, reorganization, moratorium, or similar
laws relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and
to its properties and assets pursuant to this Agreement and the
other Loan Documents are validly created, perfected, and first
priority Liens, subject only to Permitted Liens.
5.10. Litigation.
There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and
Borrower does not have knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations,
or claims, complaints, actions, or prosecutions involving
Borrower or any guarantor of the Obligations, except for: (a)
ongoing collection matters in which Borrower is the plaintiff;
(b) matters existing on the date hereof that would not reasonably
be expected to cause a Material Adverse Change; and (c) matters
arising after the date hereof that would not reasonably be
expected to cause a Material Adverse Change.
5.11. No Material Adverse Change.
All financial statements relating to Borrower or any
guarantor of the Obligations (other than projections) that have
been delivered by Borrower to Foothill have been prepared in
accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to
quarterly adjustments and year-end audit adjustments) and fairly
present Borrower's (or such guarantor's, as applicable) financial
condition as of the date thereof and Borrower's results of
operations for the period then ended. There has not been a
Material Adverse Change with respect to Borrower (or such
guarantor, as applicable) since the date of the latest financial
statements submitted to Foothill on or before the Closing Date,
exclusive of the declaration and payment of the Dividend.<PAGE>
5.12. Solvency.
Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower
in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder,
delay, or defraud either present or future creditors of Borrower.
5.13. Employee Benefits.
None of Borrower, any of its Subsidiaries, or any of
their ERISA Affiliates maintains or contributes to any Benefit
Plan, other than those listed on Schedule 5.13. Borrower, each
of its Subsidiaries and each ERISA Affiliate have satisfied the
minimum funding standards of ERISA and the IRC with respect to
each Benefit Plan to which it is obligated to contribute. No
ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. None of Borrower or its
Subsidiaries, any ERISA Affiliate, or any fiduciary of any Plan
is subject to any direct or indirect material liability with
respect to any Plan as a result of any noncompliance with any
applicable law, treaty, rule, regulation, or agreement. None of
Borrower or its Subsidiaries or any ERISA Affiliate is required
to provide security to any Plan under Section 401(a)(29) of the
IRC.
5.14. Environmental Condition.
Except as set forth in Schedule 5.14, (a) none of
Borrower's properties or assets has ever been used by Borrower
or, to the best of Borrower's knowledge, by previous owners or
operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials; (b) none
of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection
statute as a Hazardous Materials disposal site, or a candidate
for closure pursuant to any environmental protection statute; (c)
no Lien arising under any environmental protection statute has
attached to any revenues or to any real or personal property
owned or operated by Borrower; and (d) Borrower has not received
a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower resulting in
the releasing or disposing of Hazardous Materials into the
environment, except for any of the foregoing which would not
reasonably be expected to cause a Material Adverse Change.
5.15. Subsidiary Activities.
None of Borrower's Subsidiaries has any material assets
or conducts any material business operations.
5.16. Patents and Trademarks.
The loss by Borrower or any of its Subsidiaries of all
of its respective rights with respect to (a) all U.S. patents and
patent applications owned by Borrower or such Subsidiary and (b)
all U.S. trademarks, trademark registrations, trademark
applications, trade names and tradestyles, service marks, service
mark registrations, service mark applications and brand names
owned by Borrower or such Subsidiary, other than any of the
foregoing listed on Exhibit A to the trademark and license
mortgage described in Section 3.1(b)(iii), would not be
reasonably expected to cause a Material Adverse Change.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, and unless Foothill shall otherwise
consent in writing, Borrower shall do all of the following:
6.1. Accounting System.
Maintain a standard and modern system of accounting
that enables Borrower to produce financial statements in
accordance with GAAP, and maintain records pertaining to the
Collateral that contain information as from time to time may be
reasonably requested by Foothill. Borrower also shall keep a
modern inventory reporting system that shows all additions,
sales, claims, returns, and allowances with respect to the
Inventory.
6.2. Collateral Reporting.
Provide Foothill with the following documents at the
following times in form satisfactory to Foothill: (a) unless
Foothill otherwise requests, on a monthly basis, and, in any
event, by no later than the 16th day of each month during the
term of this Agreement, a sales journal, collection journal, and
credit register since the last such schedule and a calculation of
the Borrowing Base as of such date, (b) unless Foothill otherwise
requests, on a monthly basis and, in any event, by no later than
the 16th day of each month during the term of this Agreement, (i)
a detailed calculation of the Borrowing Base, and (ii) a detailed
aging, by total, of the Accounts, together with a reconciliation
to the detailed calculation of the Borrowing Base previously
provided to Foothill; provided, that commencing no later than
August 31 (with respect to July, 1997) and continuing on the 16th
of each month thereafter, Borrower will provide separate agings
for Accounts arising from the provision of services by Borrower
and for all other Accounts, (c) unless Foothill otherwise
requests, on a monthly basis and, in any event, by no later than
the 16th day of each month during the term of this Agreement, a
summary aging, by vendor, of Borrower's accounts payable and any
book overdraft, (d) unless Foothill otherwise requests, on a
monthly basis, and, in any event, by no later than the 16th day
of each month during the term of this Agreement, Inventory
reports specifying Borrower's cost and the market value of its
Inventory by category, with additional detail showing additions
to and deletions from the Inventory, (e) unless Foothill
otherwise requests, on a monthly basis, and, in any event, by no
later than the 16th day of each month during the term of this
Agreement, notice of all returns, disputes, or claims, (f) upon
request, copies of invoices in connection with the Accounts,
customer statements, credit memos, remittance advices and
reports, deposit slips, shipping and delivery documents in
connection with the Accounts and for Inventory and Equipment
acquired by Borrower, purchase orders and invoices, (g) on a
quarterly basis, a detailed list of Borrower's customers,
(h) unless Foothill otherwise requests, on a monthly basis, and,
in any event, by no later than the 16th day of each month during
the term of this Agreement, a calculation of the Dilution for the
prior month; and (i) such other reports as to the Collateral or
the financial condition of Borrower as Foothill may reasonably
request from time to time. Original sales invoices evidencing
daily sales shall be mailed by Borrower to each Account Debtor
and, after the occurrence and during the continuance of an Event
of Default, at Foothill's direction, the invoices shall indicate
on their face that the Account has been assigned to Foothill and
that all payments are to be made directly to Foothill. With
respect to any of the foregoing documents to be delivered no
later than the 16th day of a month, if in any month the 16th
falls on a day that is not a Business Day, than such documents
shall be delivered no later than the next Business Day after the
16th of such month.
6.3. Financial Statements, Reports, Certificates.
Deliver to Foothill: (a) as soon as available, but in
any event within 90 days after the end of the last month of each
of Borrower's fiscal years, within 45 days after the end of the
last month of each of Borrower's fiscal quarters (other than the
last quarter in any fiscal year) and within 30 days after the end
of each month during each of Borrower's fiscal years (other than
the last month of any fiscal quarter), a company prepared balance
sheet, income statement, and statement of cash flow covering
Borrower's operations during such period; and (b) as soon as
available, but in any event within 90 days after the end of each
of Borrower's fiscal years, financial statements of Borrower for
each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been
prepared in accordance with GAAP, together with a certificate of
such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default
or Event of Default. Such audited financial statements shall
include a balance sheet, profit and loss statement, and statement
of cash flow and, if prepared, such accountants' letter to
management. If Borrower is a parent company of one or more
Subsidiaries, or Affiliates, or is a Subsidiary or Affiliate of
another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial
statements prepared on a consolidating basis so as to present
Borrower and each such related entity separately, and on a
consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports, and Form 8-K Current Reports, and any other filings made
by Borrower with the Securities and Exchange Commission, if any,
promptly following the filing thereof, or any other information
that is provided by Borrower to its shareholders, and any other
report previously prepared by Borrower and reasonably requested
by Foothill relating to the financial condition of Borrower.
Each month, together with the financial statements
provided pursuant to Section 6.3(a), Borrower shall deliver to
Foothill a certificate signed by its chief financial officer to
the effect that: (i) all financial statements delivered or
caused to be delivered to Foothill hereunder have been prepared
in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject
to quarterly adjustments and year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the
representations and warranties of Borrower contained in this
Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate,
as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier
date), (iii) for each month that also contains the date on which
a financial covenant in Section 7.20 is to be tested, a
Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable
financial covenants contained in Section 7.20, and (iv) on the
date of delivery of such certificate to Foothill there does not
exist any condition or event that constitutes a Default or Event
of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any non-compliance, describing such non-compliance
as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to
communicate with Foothill and to release to Foothill whatever
financial information concerning Borrower that Foothill may
request. Borrower hereby irrevocably authorizes and directs all
auditors or accountants, to deliver to Foothill, at Borrower's
expense, copies of Borrower's financial statements, papers
related thereto, and other accounting records of any nature in
their possession, and to disclose to Foothill any information
they may have regarding Borrower's business affairs and financial
conditions. Foothill shall concurrently notify Borrower of any
such request for information made to Borrower's accountants.
6.4. Tax Returns.
Deliver to Foothill copies of each of Borrower's future
federal income tax returns, and any amendments thereto, within 30
days of the filing thereof with the Internal Revenue Service.
6.5. Guarantor Reports.
Cause any guarantor of any of the Obligations to
deliver its annual financial statements at the time when Borrower
provides its audited financial statements to Foothill and copies
of all federal income tax returns as soon as the same are
available and in any event no later than 30 days after the same
are required to be filed by law.
6.6. Returns.
Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in
accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this
Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such
return and, if Borrower accepts such return, issue a credit
memorandum (with a copy to be sent to Foothill upon Foothill's
request) in the appropriate amount to such Account Debtor. If,
at a time when an Event of Default has occurred and is
continuing, any Account Debtor returns any Inventory to Borrower,
Borrower promptly shall determine the reason for such return and,
if Foothill consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7. Intentionally Omitted.
6.8. Maintenance of Equipment.
Maintain the Equipment in good operating condition and
repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other
than those items of Equipment that constitute fixtures on the
Closing Date, Borrower shall use its best efforts not to permit
any item of Equipment to become a fixture to real estate or an
accession to other property.
6.9. Taxes.
Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or
assessed against Borrower or any of its property to be paid in
full, before delinquency or before the expiration of any
extension period, except to the extent that the validity of such
assessment or tax shall be the subject of a Permitted Protest.
Borrower shall make due and timely payment or deposit of all such
federal, state, and local taxes, assessments, or contributions
required of it by law, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted
Protest, and will execute and deliver to Foothill, on demand,
appropriate certificates attesting to the payment thereof or
deposit with respect thereto. Borrower will make timely payment
or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income
taxes, except to the extent that the validity of such assessment
or tax shall be the subject of a Permitted Protest, and will,
upon request, furnish Foothill with proof satisfactory to
Foothill indicating that Borrower has made such payments or
deposits.
6.10. Insurance.
(a) At its expense, keep the Personal Property
Collateral insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in
such amounts, as are ordinarily insured against by other owners
in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property
damage insurance relating to Borrower's ownership and use of the
Personal Property Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance
of the type necessary to insure Collateral for the full
replacement cost thereof, against any loss by fire, lightning,
windstorm, hail, explosion, aircraft, smoke damage, vehicle
damage, earthquakes, elevator collision, and other risks from
time to time included under "extended coverage" policies, in such
amounts as Foothill may reasonably require, but in any event in
amounts sufficient to prevent Borrower from becoming a co-insurer
under such policies (except to the extent of deductibles and
self-insurance retentions standard for companies operating in the
same line of business as Borrower) and (ii) insurance for such
other risks as Foothill may reasonably require. Replacement
costs, at Foothill's option, may be redetermined by an insurance
appraiser, reasonably satisfactory to Foothill, not more
frequently than once every 12 months at Borrower's cost.
(c) Intentionally Omitted.
(d) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be
reasonably satisfactory to Foothill. All insurance required
herein shall be written by companies which are authorized to do
insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify,
shall contain a California Form 438BFU (NS) mortgagee
endorsement, or an equivalent endorsement satisfactory to
Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance
referred to in this Section 6.10 shall contain an agreement by
the insurer that it will not cancel such policy except after 30
days prior written notice to Foothill and that any loss payable
thereunder shall be payable notwithstanding any act or negligence
of Borrower or Foothill which might, absent such agreement,
result in a forfeiture of all or a part of such insurance payment
and notwithstanding (i) occupancy or use of any real property for
purposes more hazardous than permitted by the terms of such
policy, (ii) any foreclosure or other action or proceeding taken
by Foothill pursuant to the Mortgages upon the happening of an
Event of Default, or (iii) any change in title or ownership of
any real property. Borrower shall deliver to Foothill certified
copies of such policies of insurance and evidence of the payment
of all premiums therefor.
(e) Original policies or certificates thereof
satisfactory to Foothill evidencing such insurance shall be
delivered to Foothill at least 30 days prior to the expiration of
the existing or preceding policies. Borrower shall give Foothill
prompt notice of any loss covered by such insurance, and after
the occurrence and during the continuance of an Event of Default,
Foothill shall have the exclusive right (subject to the rights of
holders of Permitted Liens) to adjust any loss, without any
liability to Borrower whatsoever in respect of such adjustments.
Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be
paid over to Foothill (subject to the rights of holders of
Permitted Liens) to be applied at the option of Foothill either
to the prepayment of the Obligations without premium, in such
order or manner as Foothill may elect, or shall be disbursed to
Borrower under stage payment terms satisfactory to Foothill for
application to the cost of repairs, replacements, or
restorations. All repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a value at
least equal to the value of the items or property destroyed prior
to such damage or destruction. Upon the occurrence and during
the continuance of an Event of Default, Foothill shall have the
right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Foothill shall determine.
(f) Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that
required to be maintained under this Section 6.10, unless
Foothill is included thereon as named insured with the loss
payable to Foothill under a standard California 438BFU
(NS) Mortgagee endorsement, or its local equivalent. Borrower
immediately shall notify Foothill whenever such separate
insurance is taken out, specifying the insurer thereunder and
full particulars as to the policies evidencing the same, and
originals of such policies immediately shall be provided to
Foothill.
6.11. No Setoffs or Counterclaims.
Make payments hereunder and under the other Loan
Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local
taxes.
6.12. Location of Inventory and Equipment.
Keep the Inventory and Equipment only at the locations
identified on Schedule 6.12; provided, however, that Borrower may
amend Schedule 6.12 to add a new location so long as such
amendment occurs by written notice to Foothill prior to the date
on which the Inventory or Equipment is moved to such new
location, so long as such new location is within the continental
United States, and so long as, at the time of such written
notification, Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected
Foothill's security interests in such assets.
6.13. Compliance with Laws.
Comply with the requirements of all applicable laws,
rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders
the non-compliance with which, individually or in the aggregate,
would not have and could not reasonably be expected to have a
Material Adverse Change.
6.14. Employee Benefits.
(a) Promptly, and in any event within 10 Business Days
after Borrower or any of its Subsidiaries knows or has reason to
know that an ERISA Event has occurred that reasonably could be
expected to result in a Material Adverse Change, a written
statement of the chief financial officer of Borrower describing
such ERISA Event and any action that is being taking with respect
thereto by Borrower, any such Subsidiary or ERISA Affiliate, and
any action taken or threatened by the IRS, Department of Labor,
or PBGC. Borrower or such Subsidiary, as applicable, shall be
deemed to know all facts known by the administrator of any
Benefit Plan of which it is the plan sponsor, (ii) promptly, and
in any event within 3 Business Days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by Borrower,
any of its Subsidiaries or, to the knowledge of Borrower, any
ERISA Affiliate with respect to such request, and (iii) promptly,
and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or,
where any such plan is not in writing, complete description
thereof) (and if applicable, related trust agreements or other
funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that
have been distributed to employees or former employees of
Borrower or its Subsidiaries; (ii) the most recent determination
letter issued by the IRS with respect to each Benefit Plan;
(iii) for the three most recent plan years, annual reports on
Form 5500 Series required to be filed with any governmental
agency for each Benefit Plan; (iv) all actuarial reports prepared
for the last three plan years for each Benefit Plan; (v) a
listing of all Multiemployer Plans, with the aggregate amount of
the most recent annual contributions required to be made by
Borrower or any ERISA Affiliate to each such plan and copies of
the collective bargaining agreements requiring such
contributions; (vi) any information that has been provided to
Borrower or any ERISA Affiliate regarding withdrawal liability
under any Multiemployer Plan; and (vii) the aggregate amount of
the most recent annual payments made to former employees of
Borrower or its Subsidiaries under any Retiree Health Plan.
6.15. Leases.
Pay when due all rents and other amounts payable under
any leases to which Borrower is a party or by which Borrower's
properties and assets are bound, unless such payments are the
subject of a Permitted Protest. To the extent that Borrower
fails timely to make payment of such rents and other amounts
payable when due under its leases, Foothill shall be entitled, in
its discretion, to reserve an amount equal to such unpaid amounts
against the Borrowing Base.
6.16. Notice of Initial Advance.
Use its best efforts to provide Foothill with at least
15 days prior notice of Borrower's intention to request the
initial Advance hereunder, provided, that Borrower shall have no
liability to Foothill for failure to provide such notice.
6.17. Change Name.
Provide Foothill with 15 days prior written notice of
any change to Borrower's name, FEIN, identity, or the addition by
Borrower of any new fictitious name; and provide Foothill, as
soon as available thereafter, with (a) written evidence of the
effectiveness of the same, including without limitation, in the
case of a name change, evidence that Borrower has amended each of
its qualifications to do business as a foreign corporation to
reflect such name change, all in form and substance satisfactory
to Foothill, except where the failure to so amend would not be
reasonably likely to cause a Material Adverse Change and (b) any
financing statements or amendments to financing statements
necessary to perfect and continue perfect Foothill's security
interests in the Collateral.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, Borrower will not do any of the
following without Foothill's prior written consent:
7.1. Indebtedness.
Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together
with Indebtedness to issuers of letters of credit that are the
subject of L/C Guarantees;
(b) Indebtedness set forth on Schedule 7.1;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) and (c) of this Section
7.1 (and continuance or renewal of any Permitted Liens associated
therewith) so long as: (i) the terms and conditions of such
refinancings, renewals, or extensions do not materially impair
the prospects of repayment of the Obligations by Borrower, (ii)
the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the aggregate
principal amount of the Indebtedness so refinanced, renewed, or
extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted
maturity of the Indebtedness so refinanced, renewed, or extended,
and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the
subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those
applicable to the refinanced Indebtedness.
7.2. Liens.
Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or
any income or profits therefrom, except for Permitted Liens
(including Liens that are replacements of Permitted Liens to the
extent that the original Indebtedness is refinanced under Section
7.1(d) and so long as the replacement Liens only encumber those
assets or property that secured the original Indebtedness).
7.3. Restrictions on Fundamental Changes.
Except for the reverse stock split described on
Schedule 7.3 and except for transactions to which Foothill has
consented under Section 7.13, enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify
its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, assign,
lease, transfer, or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its
property or assets.
7.4. Disposal of Assets.
Sell, lease, assign, transfer, or otherwise dispose of
any of Borrower's properties or assets other than (a) sales of
Inventory to buyers in the ordinary course of Borrower's business
as currently conducted, (b) sales or other dispositions of
obsolete or unuseful Equipment and (c) sales or other
dispositions of other Equipment with an aggregate book value not
in excess of $50,000 in any fiscal year.
7.5. Change Corporate Structure.
Change Borrower's corporate structure (within the
meaning of Section 9402(7) of the Code), except in connection
with a transaction to which Foothill has consented under Section
7.13.
7.6. Guarantee.
Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by
endorsement of instruments or items of payment for deposit to the
account of Borrower or which are transmitted or turned over to
Foothill.
7.7. Nature of Business.
Make any change in the principal nature of Borrower's
business.
7.8. Prepayments and Amendments.
(a) Except in connection with a refinancing permitted
by Section 7.1(d), prepay, redeem, retire, defease, purchase, or
otherwise acquire any Indebtedness owing to any third Person,
other than the Obligations in accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing
evidencing or concerning Indebtedness permitted under Sections
7.1(b), (c), or (d).
7.9. Change of Control.
Cause, permit, or suffer, directly or indirectly, any
Change of Control.
7.10. Consignments.
Consign any Inventory in excess of an aggregate amount
equal to $1,000,000 at any time or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional
terms of sale.
7.11. Distributions.
Except for the reverse stock split described on
Schedule 7.3, make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock)
on, or purchase, acquire, redeem, or retire any of Borrower's
capital stock, of any class, whether now or hereafter
outstanding.
7.12. Accounting Methods.
Modify or change its method of accounting or enter
into, modify, or terminate any agreement currently existing, or
at any time hereafter entered into with any third party
accounting firm or service bureau for the preparation or storage
of Borrower's accounting records without said accounting firm or
service bureau agreeing to provide Foothill information regarding
the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any,
it may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant to
or in accordance with this Agreement, and agrees that Foothill
may contact directly any such accounting firm or service bureau
in order to obtain such information.
7.13. Investments.
Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in
connection with (a) the acquisition of the securities (whether
debt or equity) of, or other interests in, a Person, (b) except
in connection with a transaction to which Foothill has consented
under clause (a) or (c) of this Section 7.13, loans, advances,
capital contributions, or transfers of property to a Person, (c)
the acquisition of all or substantially all of the properties or
assets of a Person or (d) Permitted Investments. Foothill shall
not unreasonably withhold its consent to a request by Borrower to
take any action prohibited under clause (a) or (c) above.
7.14. Transactions with Affiliates.
Directly or indirectly enter into or permit to exist
any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms, that are fully
disclosed to Foothill, and that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-
Affiliate.
7.15. Suspension.
Suspend or go out of a substantial portion of its
business.
7.16. Intentionally Omitted.
7.17. Use of Proceeds.
Use the proceeds of the Advances and Letters of Credit
issued made hereunder for any purpose other than, consistent with
the terms and conditions hereof, its lawful and permitted
corporate purposes, including without limitation to provide for
ongoing working capital and letter of credit needs of Borrower
and to finance acquisitions to which Foothill has consented under
Section 7.13.
7.18. Change in Location of Chief Executive Office.
Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to
Foothill and so long as, at the time of such written
notification, Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected
Foothill's security interests.
7.19. No Prohibited Transactions Under ERISA.
Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to
engage, in any prohibited transaction which is reasonably likely
to result in a civil penalty or excise tax described in
Sections 406 of ERISA or 4975 of the IRC for which a statutory or
class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan
any accumulated funding deficiency (as defined in Sections 302 of
ERISA and 412 of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to
fail, to pay timely required contributions or annual installments
due with respect to any waived funding deficiency to any Benefit
Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any
liability of Borrower, any of its Subsidiaries or any ERISA
Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to
fail, to make any required contribution or payment to any
Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to
fail, to pay any required installment or any other payment
required under Section 412 of the IRC on or before the due date
for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to
amend, a Plan resulting in an increase in current liability for
the plan year such that either of Borrower, any Subsidiary of
Borrower or any ERISA Affiliate is required to provide security
to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is
reasonably likely to result in any liability of any such entity
under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably
would be expected to result in a claim against or liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate in
excess of $300,000.
7.20. Financial Covenants.
Fail to maintain:
(a) Net Worth. Net Worth of at least the applicable
amount set forth below as of each date set forth below:
Date Net Worth
The last day of the 1997 (-$14,000,000)
fiscal year
The last day of the first (-$14,000,000)
quarter of the 1998 fiscal
year
The last day of the second (-$14,000,000)
quarter of the 1998 fiscal
year
The last day of the third (-$13,800,000)
quarter of the 1998 fiscal
year
The last day of the fourth (-$13,500,000)
quarter of the 1998 fiscal
year
The last day of the first (-$13,200,000)
quarter of the 1999 fiscal
year
The last day of the second (-$12,900,000)
quarter of the 1999 fiscal
year
The last day of the third (-$12,500,000)
quarter of the 1999 fiscal
year
The last day of the fourth (-$12,000,000)
quarter of the 1999 fiscal
year and the last day of
each fiscal quarter
thereafter
(b) Working Capital. Working Capital of at least (i)
(-$11,500,000), measured on the last day of the last fiscal
quarter of the 1997 fiscal year and the last day of the first
fiscal quarter of the 1998 fiscal year, and (ii) (-$10,200,000),
measured on the last day of each fiscal quarter after the first
fiscal quarter of the 1998 fiscal year.
7.21. Capital Expenditures.
Make capital expenditures in any fiscal year in excess
of $500,000.<PAGE>
7.22. Subsidiary Activities.
Permit any of Borrower's Subsidiaries to conduct any
material business operations, own any material assets or have any
material liabilities.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default")
under this Agreement:
8.1. If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations other
than principal (including any interest which, but for the
provisions of the Bankruptcy Code, would have accrued on such
amounts), and such failure continues for 3 days thereafter; or if
Borrower fails to pay when due and payable, or when declared due
and payable, any portion of the Obligations consisting of
principal;
8.2. If Borrower fails to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in
(a) Section 6.2 of this Agreement and such failure continues for
5 days thereafter, (b) any of Section 6.4, 6.5, 6.9, 6.12, 6.13,
6.14 or 6.15 of this Agreement and such failure continues for 15
days thereafter or (c) any other section of this Agreement, of
any of the Loan Documents, or of any other present or future
agreement between Borrower and Foothill;
8.3. If there is a Material Adverse Change;
8.4. If any material portion of Borrower's properties or
assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any
third Person;
8.5. If an Insolvency Proceeding is commenced by Borrower;
8.6. If an Insolvency Proceeding is commenced against
Borrower and any of the following events occur: (a) Borrower
consents to the institution of the Insolvency Proceeding against
it; (b) the petition commencing the Insolvency Proceeding is not
timely controverted; (c) the petition commencing the Insolvency
Proceeding is not dismissed within 45 calendar days of the date
of the filing thereof; provided, however, that, during the
pendency of such period, Foothill shall be relieved of its
obligation to extend credit hereunder; (d) an interim trustee is
appointed to take possession of all or a substantial portion of
the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief
shall have been issued or entered therein;
8.7. If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.8. If a notice of Lien, levy, or assessment in an amount
in excess of $100,000 or in respect of payroll taxes is filed of
record with respect to any of Borrower's properties or assets by
the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or
governmental agency, or if any taxes or debts owing at any time
in an amount in excess of $100,000 or in respect of payroll taxes
hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower's properties or
assets and the same is not paid on the payment date thereof, in
each case, whether or not the same is (a) subject to a Permitted
Protest, (b) constitutes a Permitted Lien or (c) is the subject
of a reserve under Section 2.1(b).
8.9. If a judgment or other claim in an amount in excess of
$1,000,000 becomes a Lien or encumbrance upon any portion of
Borrower's properties or assets, other than any such judgment or
claim that has been vacated, stayed, discharged or fully bonded
pending appeal or is insured (and Foothill is satisfied that the
insurer will not challenge its liability with respect thereto),
so long as the uninsured portion thereof does not exceed
$1,000,000, in each case whether or not the same is (a) subject
to a Permitted Protest, (b) constitutes a Permitted Lien or (c)
is the subject of a reserve under Section 2.1(b).
8.10.If there is a default in any material agreement to
which Borrower is a party with one or more third Persons and that
evidences or secures Indebtedness in excess of $1,000,000, and
such default (a) occurs at the final maturity of the obligations
thereunder, or (b) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of
Borrower's obligations thereunder;
8.11. If Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent
such payment is permitted by the terms of the subordination
provisions applicable to such Indebtedness;
8.12. If any material misstatement or misrepresentation
exists now or hereafter in any warranty, representation,
statement, or report made to Foothill by Borrower or any officer,
employee, agent, or director of Borrower, or if any such material
warranty or representation is withdrawn; or
8.13. If the obligation of any guarantor under its guaranty
or other Loan Document is limited or terminated by operation of
law or by the guarantor thereunder or any such guarantor becomes
the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1. Rights and Remedies.
Upon the occurrence, and during the continuation, of an
Event of Default Foothill may, at its election, without notice of
its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement, under any of
the Loan Documents, or under any other agreement between Borrower
and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill,
but without affecting Foothill's rights and security interests in
the Personal Property Collateral or the Real Property Collateral
and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill
considers advisable, and in such cases, Foothill will credit
Borrower's Loan Account with only the net amounts received by
Foothill in payment of such disputed Accounts after deducting all
Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all
other property of Borrower or in Borrower's possession and
conspicuously label said returned Inventory as the property of
Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill
considers necessary or reasonable to protect its security
interests in the Personal Property Collateral. Borrower agrees
to assemble the Personal Property Collateral if Foothill so
requires, and to make the Personal Property Collateral available
to Foothill as Foothill may designate. Borrower authorizes
Foothill to enter the premises where the Personal Property
Collateral is located, to take and maintain possession of the
Personal Property Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or Lien
that in Foothill's determination appears to conflict with its
security interests and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's owned or leased
premises, Borrower hereby grants Foothill a license to enter into
possession of such premises and to occupy the same, without
charge, in order to exercise any of Foothill's rights or remedies
provided herein, at law, in equity, or otherwise, but only to the
extent not prohibited by any applicable lease or Collateral
Access Agreement;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any
collateral in satisfaction of an obligation (within the meaning
of Section 9505 of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower
held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received
in the Lockbox Accounts, to secure the full and final repayment
of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the
manner provided for herein) the Personal Property Collateral.
Foothill is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar
nature, as it pertains to the Personal Property Collateral, in
completing production of, advertising for sale, and selling any
Personal Property Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Foothill's
benefit;
(j) Sell the Personal Property Collateral at either a
public or private sale, or both, by way of one or more contracts
or transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as Foothill determines is
commercially reasonable. It is not necessary that the Personal
Property Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of
the Personal Property Collateral as follows:
(i) Foothill shall give Borrower and each
holder of a security interest in the Personal
Property Collateral who has filed with Foothill a
written request for notice, a notice in writing of
the time and place of public sale, or, if the sale
is a private sale or some other disposition other
than a public sale is to be made of the Personal
Property Collateral, then the time on or after
which the private sale or other disposition is to
be made;
(ii) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as
provided in Section 12, at least 5 days before the
date fixed for the sale, or at least 5 days before
the date on or after which the private sale or
other disposition is to be made; no notice needs
to be given prior to the disposition of any
portion of the Personal Property Collateral that
is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a
recognized market. Notice to Persons other than
Borrower claiming an interest in the Personal
Property Collateral shall be sent to such
addresses as they have furnished to Foothill;
(iii) If the sale is to be a public sale,
Foothill also shall give notice of the time and
place by publishing a notice one time at least 5
days before the date of the sale in a newspaper of
general circulation in the county in which the
sale is to be held, or as is otherwise required by
the Code;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of
the Personal Property Collateral as provided above will be paid
immediately by Borrower. Any excess will be returned, without
interest and subject to the rights of third Persons, by Foothill
to Borrower.
9.2. Remedies Cumulative.
Foothill's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in
equity. No exercise by Foothill of one right or remedy shall be
deemed an election, and no waiver by Foothill of any Event of
Default shall be deemed a continuing waiver. No delay by
Foothill shall constitute a waiver, election, or acquiescence by
it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased
properties or assets, rents or other amounts payable under such
leases) due to third Persons, or fails to make any deposits or
furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that
Foothill reasonably determines that such failure by Borrower
could result in a Material Adverse Change, in its discretion and
without prior notice to Borrower, Foothill may do any or all of
the following: (a) make payment of the same or any part thereof;
(b) set up such reserves under Section 2.1(b) as Foothill deems
necessary to protect Foothill from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the
type described in Section 6.10, and take any action with respect
to such policies as Foothill deems prudent. Any such amounts
paid by Foothill shall constitute Foothill Expenses. Foothill
agrees to provide Borrower with prompt notice of any such action
taken by Foothill. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in
the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the
validity of, any such expense, tax, or Lien and the receipt of
the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1. Demand; Protest; etc.
Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments,
chattel paper, and guarantees at any time held by Foothill on
which Borrower may in any way be liable.
11.2. Foothill's Liability for Collateral.
So long as Foothill complies with its obligations, if
any, under Section 9207 of the Code, Foothill shall not in any
way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the
Collateral shall be borne by Borrower.
11.3. Indemnification.
Borrower shall pay, indemnify, defend, and hold
Foothill and its officers, directors, employees, counsel, agents,
and attorneys-in-fact (each, an "Indemnified Person") harmless
(to the fullest extent permitted by law) from and against any and
all claims, demands, suits, actions, investigations, proceedings,
and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement,
performance, and administration of this Agreement and any other
Loan Documents or the transactions contemplated herein, and with
respect to any investigation, litigation, or proceeding related
to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act,
omission, event or circumstance in any manner related thereto
(all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person under
this Section 11.3 with respect to any Indemnified Liability that
a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such
Indemnified Person. This provision shall survive the termination
of this Agreement and the repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or any
other Loan Document shall be in writing and (except for financial
statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered
or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to
Borrower or to Foothill, as the case may be, at its address set
forth below:
If to Borrower: MULTIGRAPHICS, INC.
431 Lakeview Court
Mount Prospect, Illinois 60056
Attn: Chief Financial Officer
Fax No.: (847) 375-1810
with copies to: SIDLEY & AUSTIN
One First National Plaza
Chicago, Illinois 60603
Attn: Bryan Krakauer, Esq.
Fax No.: (312) 853-7036
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-
3333
Attn: Business Finance Division
Manager
Fax No.: (310) 478-9788
with copies to: GOLDBERG, KOHN, BELL, BLACK,
ROSENBLOOM & MORITZ, LTD.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attn: David L. Dranoff, Esq.
Fax No.: (312) 332-2196
The parties hereto may change the address at which they
are to receive notices hereunder, by notice in writing in the
foregoing manner given to the other. All notices or demands sent
in accordance with this Section 12, other than notices by
Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual
receipt or 3 days after the deposit thereof in the mail.
Borrower acknowledges and agrees that notices sent by Foothill in
connection with Sections 9504 or 9505 of the Code shall be deemed
sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other
similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN
ANOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES
HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY
OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE
WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS THAT
IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other
papers delivered to Foothill may be destroyed or otherwise
disposed of by Foothill 4 months after they are delivered to or
received by Foothill, unless Borrower requests, in writing, the
return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1. Effectiveness.
This Agreement shall be binding and deemed effective
when executed by Borrower and Foothill.
15.2. Successors and Assigns.
This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or
any rights or duties hereunder without Foothill's prior written
consent and any prohibited assignment shall be absolutely void.
Foothill (a) may assign this Agreement and its rights and duties
hereunder and no consent or approval by Borrower is required in
connection with any such assignment and (b) reserves the right to
sell, assign, transfer, negotiate, or grant participations in all
or any part of, or any interest in Foothill's rights and benefits
hereunder; provided that without Borrower's prior consent (which
will not be unreasonably withheld) (i) Foothill will retain at
least $5,000,000 of the commitments evidenced by this Agreement
and (ii) no more than 3 Persons (including Foothill) will hold
interests (either by way of assignment or participation), in this
Agreement and the Obligations. In connection with any such
assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating
to Borrower or Borrower's business. To the extent that Foothill
assigns its rights and obligations hereunder to a third Person as
provided in this Section 15.2, Foothill thereafter shall be
released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such
third Person.
15.3. Section Headings.
Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to
this entire Agreement.
15.4. Interpretation.
Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Foothill or
Borrower, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties
and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes
and intentions of all parties hereto.
15.5. Severability of Provisions.
Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6. Amendments in Writing.
This Agreement can only be amended by a writing signed
by both Foothill and Borrower.
15.7. Counterparts; Telefacsimile Execution.
This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver
an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this
Agreement.
15.8. Revival and Reinstatement of Obligations.
If the incurrence or payment of the Obligations by
Borrower or any guarantor of the Obligations or the transfer by
either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently
be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences,
and other voidable or recoverable payments of money or transfers
of property (collectively, a "Voidable Transfer"), and if
Foothill is required to repay or restore, in whole or in part,
any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of Foothill related thereto, the
liability of Borrower or such guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such
Voidable Transfer had never been made.
15.9. Integration.
This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be
contradicted or qualified by any other agreement, oral or
written, before the date hereof.
15.10. Confidentiality.
Foothill agrees that it will not disclose without the
prior consent of Borrower (other than to its employees, auditors,
counsel or other professional advisors or to its Affiliates) any
information with respect to Borrower which is furnished pursuant
to this Agreement; provided, that Foothill may disclose any such
information (a) as has become generally available to the public,
(b) as may be required in any report, statement or testimony
submitted to any municipal, state or Federal regulatory body
having or claiming to have jurisdiction over Foothill or to the
Federal Reserve Board or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United
States or elsewhere) or their successors, (c) as may be required
in response to any summons or subpoena or in connection with any
litigation, to the extent permitted or deemed advisable by
counsel, (d) in order to comply with any law, order, regulation
or ruling applicable to Foothill and (e) to any prospective
permitted transferee in connection with any contemplated transfer
by Foothill of all or a portion of the commitments evidenced by
this Agreement (provided, that such prospective permitted
transferee executes an agreement with Foothill containing
provisions substantially identical to those contained in this
Section 15.10).
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed.
MULTIGRAPHICS, INC., formerly known
as AM INTERNATIONAL, INC.,
a Delaware corporation
By /s/ Gregory T. Knipp
Title Vice President, Chief Financial
Officer
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Mike Sadilek
Title Senior Vice President
CERTIFICATE OF AMENDMENT
TO THE
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
AM INTERNATIONAL, INC.
The undersigned, Thomas D. Rooney and Steven R. Andrews, do
hereby certify that they are the President and Chief Executive
Officer and Secretary, respectively, of AM International, Inc., a
corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the
"Corporation"), and they do further certify:
1. That the Board of Directors of the Corporation, by a
unanimous vote at a meeting duly called and held on May 1, 1997,
adopted a resolution declaring advisable and approving amendments
to the Second Restated Certificate of Incorporation of the
Corporation, as amended, a copy of such amendments is attached
hereto as Exhibit A.
2. Such amendments were duly approved and adopted on May 28,
1997 by the requisite vote of the stockholders of the corporation
in accordance with the applicable provisions of Section 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, AM International, Inc. has caused this
Certificate of Amendment to be signed by Thomas D. Rooney, its
duly authorized President and Chief Executive Officer, and
attested to by Steven R. Andrews, its duly authorized Secretary,
this 28th day of May 1997.
AM INTERNATIONAL, INC.
By: /s/ Thomas D. Rooney
Name: Thomas D.Rooney
Title:Chief Executive Officer
ATTEST:
By: /s/ Steven R. Andrews
Name: Steven R. Andrews
Title: Secretary
Exhibit A
1. Article First of the Second Restated Certificate of
Incorporation is amended to read in its entirety as follows:
`` The name of the corporation is MULTIGRAPHICS, INC.''
2. Article Fourth of the Second Restated Certificate of
Incorporation is amended to read in its entirety as follows:
The total number of shares of all classes of capital stock which
the Company shall have the authority to issue is ten million
(10,000,000) shares, of which nine million five hundred thousand
(9,500,000) shares shall be shares of Common Stock of the par
value of $0.025 per share (the ``Common Stock'') and five hundred
thousand (500,000) shares shall be shares of Preferred Stock of
the par value of $0.01 per share (the ``Preferred Stock'').
Every share of Common Stock of the Corporation issued as of the
date and time that this Amendment becomes effective (including
any shares held by the Corporation as treasury shares) shall
automatically be converted into two-fifths of a validly issued,
fully paid and nonassessable share of Common Stock and each share
of Common Stock into which shares are converted shall have a par
value of $.025. Upon the effectiveness of this Amendment, each
certificate representing one or more shares of Common Stock
immediately prior to such effectiveness shall represent a number
of shares of Common Stock (subject to the treatment of fractional
share interests as described below) equal to the shares evidenced
thereby prior to such effectiveness multiplied by two-fifths.
Holders of certificates representing shares of Common Stock
immediately prior to such effectiveness shall be entitled to
receive, upon delivery of such certificates to the Corporation or
to its agent a certificate or certificates representing the
number of shares of Common Stock (subject to the treatment of
fractional share interests as described below) previously
evidenced by the certificates so tendered multiplied by two-
fifths. No fractional shares of Common Stock shall be issued.
In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash (without
interest) equal to the product of such fraction (determined based
on the aggregate number of shares held by such holder) multiplied
by the average of the closing sale price of a share of Common
Stock as reported on the American Stock Exchange on the effective
date hereof and rounding the result to the nearest $.01.
All shares to be issued must be voting securities and, as to all
classes of such voting securities, voting power shall be
appropriately distributed among such classes by the Board of
Directors of the Company on a proportional one vote per share
basis. With respect to any class of securities having a
preference superior to another class of securities with respect
to dividends or other rights, such superior class of securities
must contain adequate provision for the election of directors
representing such preferred class of securities in the event of
failure to pay such dividends. No stockholder shall have any
preemptive right to purchase or subscribe for any or all
additional issues of stock with the Company or any or all classes
or series thereof, whether now or hereafter authorized, or for
any securities of the Company convertible into such stock.
Subject to the limitations prescribed by law and the provisions
of this Article Fourth, any number of series of Preferred Stock
may be issued from time to time with such voting powers and in
such series and in such amounts, with such designations, dividend
rates, dividend rights, redemption rights, conversion rights,
rights upon dissolution or liquidation, other preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, as shall for
each series thereof be fixed by resolution of the Board of
Directors adopted prior to the time shares of any such series are
first issued. The Board of Directors is hereby expressly granted
the authority to fix any one or more of such matters by
resolution so adopted and to cause a Certificate of Designations
to be filed reflecting the terms thereof.
