SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended August 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition period from _________ to __________
Commission file number: 0-25104
CONTINENTAL INFORMATION SYSTEMS CORPORATION
-------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-0956508
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One Northern Concourse, P.O. Box 4785, Syracuse, NY 13221-4785
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(315) 455-1900
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
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. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of September 30,
1996, the registrant has 6,999,040 shares of common stock, par value $.01 per
share, outstanding.
<PAGE>
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
--------------------
Consolidated Balance Sheets - August 31, 1996 and May 31,
1996
Consolidated Statements of Operations and Retained Earnings
(Accumulated Deficit) - for the three months ended August 31,
1996 and 1995
Consolidated Statements of Cash Flows - for the three months
ended August 31, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except per Share Data)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 31, May 31,
1996 1996
-------- --------
<S> <C> <C>
Assets:
Cash and cash equivalents ................................... $ 6,050 $ 5,382
Accounts receivable, net .................................... 2,815 2,300
Notes receivable ............................................ 2,766 2,688
Inventory ................................................... 5,421 3,639
Net investment in direct financing leases ................... 16,192 15,783
Rental equipment, net ....................................... 10,539 11,148
Furniture, fixtures and equipment, net ...................... 525 625
Accrued interest and other assets ........................... 1,315 1,965
Goodwill, net ............................................... 3,806 3,940
Deferred tax assets ......................................... 5,994 6,080
-------- --------
Total assets .................................... $ 55,423 $ 53,550
======== ========
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and other liabilities ................. $ 3,353 $ 2,949
Net liabilities of discontinued operations (Note 3) .... 88 106
Discounted lease rental borrowings ..................... 16,085 14,738
Notes payable to former owners of acquired company ..... 2,304 2,304
-------- --------
Total liabilities ............................... 21,830 20,097
-------- --------
Shareholders' Equity:
Common Stock, $.01 par value; authorized 10,000,000 shares,
issued and outstanding 6,999,040, excluding 960 treasury
shares (Notes 4 and 6) ................................ 70 70
Additional paid-in capital .................................. 34,930 34,930
Accumulated deficit ......................................... (1,407) (1,547)
-------- --------
Total shareholders' equity ...................... 33,593 33,453
-------- --------
Total liabilities and shareholders' equity ...... $ 55,423 $ 53,550
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
(Unaudited)
For the Three
Months ended
August 31,
1996 1995
<S> <C> <C>
Revenues:
Equipment rentals ........................................ $ 1,401 $ 1,842
Income from direct financing leases ...................... 457 266
Equipment sales .......................................... 4,645 4,858
Interest, fees and other income .......................... 590 614
------- -------
7,093 7,580
------- -------
Costs and Expenses:
Depreciation of rental equipment ......................... 850 800
Cost of sales ............................................ 3,438 3,430
Interest expense ......................................... 325 100
Other operating expenses ................................. 499 293
Selling, general and administrative expense .............. 1,755 2,324
------- -------
6,867 6,947
------- -------
Income from continuing operations before taxes ........... 226 633
Provision for income tax ................................. 86 240
------- -------
Income from continuing operations ........................ 140 393
Income from discontinued operations, net of tax (Note 3) . -- 73
------- -------
Net income ............................................... 140 466
Accumulated deficit, beginning of period ................. (1,547) (1,613)
------- -------
Accumulated deficit, end of period ....................... $(1,407) $(1,147)
======= =======
Net income per share (Note 4)
Income from continuing operations ................... $ .02 $ .06
Income from discontinued operations ................. -- .01
------- -------
Net income ................................ $ .02 $ .07
======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three
Months ended
August 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 140 $ 466
Less: Net income from discontinued operations ................. -- 73
------- --------
Net income from continuing operations .......................... 140 393
------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from sale of equipment subject to operating leases .... 676 1,232
Amortization of unearned income ................................ (457) (266)
Collections of rentals on direct financing leases .............. 1,383 883
Depreciation and amortization expense .......................... 1,091 920
Effect on cash flows of changes in:
Accounts receivable ....................................... (515) 608
Notes receivable .......................................... (78) (185)
Inventory ................................................. (1,782) 134
Accrued interest and other assets ......................... 650 (468)
Accounts payable and other liabilities .................... 404 (1,035)
Income tax liability ...................................... -- 193
Deferred tax assets ....................................... 86 285
------- --------
1,458 2,301
------- --------
Net cash provided by continuing operations ..................... 1,598 2,694
Net cash provided by (used in) discontinued operations ......... (18) (232)
------- --------
Net cash provided by operations ................................ 1,580 2,462
------- --------
Cash flows from investing activities:
Purchase of rental equipment ................................... (2,252) (1,124)
Purchase of property and equipment ............................. (7) (14)
------- --------
Net cash used in investing activities ............ (2,259) (1,138)
------- --------
Cash flows from financing activities:
Payments on note payable to Liquidating Estate ................. -- (1,229)
Proceeds from lease, bank and institution financings ........... 3,281 280
Payments on lease, bank and institution financings ............. (1,934) (356)
------- --------
Net cash provided by (used in) financing activities 1,347 (1,305)
------- --------
Net increase in cash and cash equivalents ......... 668 19
Cash and cash equivalents at beginning of period ............... 5,382 13,015
------- --------
Cash and cash equivalents at end of period ..................... $ 6,050 $ 13,034
======= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements of Continental
Information Systems Corporation and its subsidiaries (the "Company")
contain all adjustments which are, in the opinion of management,
necessary for a fair statement of results for the interim periods
presented. While certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, the
Company believes that the disclosures herein are adequate to make the
information not misleading. To distinguish between the operations of the
Company after reorganization (sometimes referred to as the "Reorganized
Company") and operations prior to reorganization, the term "Predecessor
Company" will be used when reference is made to the pre-reorganization
periods. The results of operations for the three months ended August 31,
1996, are not necessarily indicative of the results for the full year.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto included for the fiscal year ended
May 31, 1996 appearing in the Company's Form 10-K.
On January 13, 1989, the Predecessor Company and certain of its
subsidiaries filed voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code. On November 29, 1994 (the
"Confirmation Date"), the Bankruptcy Court confirmed the Company's Plan
of Reorganization. The Plan of Reorganization became effective on
December 21, 1994 and the Reorganized Company, and its subsidiaries which
had filed petitions for relief, emerged from Chapter 11. For financial
reporting purposes, the emergence from bankruptcy protection was recorded
as of November 30, 1994, the end of the Predecessor Company's second
quarter.
2. Acquisition
On March 8, 1996, the Company, through its wholly-owned subsidiary, CIS
Corporation, acquired 100% of the capital stock of GMCCCS Corp. (dba
"LaserAccess") for a purchase price of approximately $4,608,000, payable
in cash of approximately $2,304,000 at closing and the balance of
approximately $2,304,000 in the form of notes payable in three equal
annual installments, commencing March 8, 1997, with interest at the rate
of 8.25% on the unpaid principal balance. In addition to the purchase
price to be paid in cash and notes, CIS Corporation is obligated to pay
the sellers an annual earn out payment for each of the first four years
following the March 8, 1996 sale. The earn out payment is based upon the
annual pretax income of LaserAccess. LaserAccess is engaged in the sales
and marketing of remanufactured Xerox High Speed Laser Printing Systems.
The acquisition has been accounted for using the purchase method of
accounting. Allocations of the purchase price have been determined based
upon preliminary estimates of fair market value and, therefore, are
subject to change. The excess of the purchase price, over the net
tangible assets acquired, of approximately $4.0 million, is considered
goodwill and is being amortized on a straight line basis over ten years.
LaserAccess' results of operations are included in the accompanying
consolidated statements of operations of the Company for the three months
ended August 31, 1996.
<PAGE>
Unaudited pro forma data giving effect to the purchase as if it had been
acquired at the beginning of Fiscal 1996, with adjustments, primarily for
imputed interest charges attributable to notes payable to the former
owners and amortization of goodwill follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
For the three
months ended
August 31, 1995
---------------
<S> <C>
Total revenues ............................................... $ 9,211
==========
Income from continuing operations ............................ $ 634
==========
Income per share from continuing operations .................. $ .09
==========
Weighted average number of shares outstanding ................ 7,000,000
==========
</TABLE>
Note: Reorganization items and income from discontinued operations have
been excluded from the pro forma results.
3. Discontinued Operations
As previously reported, on April 3, 1996, the Company announced its
decision to discontinue an operation, including its wholly-owned
subsidiary, Aviron Computer Technologies, Inc. ("Aviron"), that purchased
and sold used computer equipment and provided related technical services.
After that date, the Company had attempted to locate a buyer for the
operation. On June 5, 1996, the Company announced it had abandoned its
efforts to sell the operation and would instead liquidate the assets
which consisted principally of used computer equipment inventories and
fixed assets. The net loss from discontinued operations for the year
ended May 31, 1996, was $1,177,000 (net of $698,000 deferred tax
benefit).
Additionally, on May 25, 1995, the Board of Directors approved the
discontinuance of NC3, Inc., the Company's excess inventory business unit
located in Syracuse, New York. The Company recorded a provision of
$1,137,000 (net of $763,000 deferred tax benefit) in the quarter ended
May 31, 1995, relative to the disposal of NC3 assets and other charges
related to the discontinuance of the business unit. As of May 31, 1996,
the Company had exited the business and liquidated substantially all of
the assets. A total of 14 employees were terminated in connection with
the closing of this business. Liabilities of the discontinued operation
decreased from $744,000 at May 31, 1995 to $158,000 as of August 31,
1996, due to cash payments principally for severance and facilities costs
totaling approximately $256,000 and a net reduction of $330,000 to adjust
the amounts estimated for the loss on the inventories, receivables, fixed
assets and leased facility obligations. The remaining liability of
<PAGE>
$158,000 as of August 31, 1996 is expected to be liquidated by cash
payments extending through approximately May 31, 1997. The adjustment of
the liability in the amount of $230,000 was recorded as a gain from
discontinued operations, net of deferred tax expenses of $87,000 in the
quarter ended August 31, 1995. An additional adjustment of the liability
in the amount of $100,000 was recorded as an offset to the loss on
disposal of discontinued operations in the quarter ended May 31, 1996.
The Consolidated Statements of Operations for all periods presented have
been reclassified to report the results of discontinued operations
separately from continuing operations. A summary of the results of
discontinued operations follows (in thousands):
<TABLE>
<CAPTION>
For the Three
months ended
August 31,
1996 1995
---- ----
<S> <C> <C>
Revenues ........................................... $ -- $1,666
Costs and expenses ................................. -- 1,548
-------- ------
Income from discontinued operations ................ -- 118
Income tax ......................................... -- 45
-------- ------
Net income from discontinued operations ............ $ -- $ 73
======== ======
</TABLE>
The Consolidated Balance Sheets as of August 31, 1996 and May 31, 1996, have
been reclassified to report the net assets of discontinued operations separately
from the assets and liabilities of continuing operations. A summary of the
assets and liabilities of discontinued operations follows (in thousands):
<TABLE>
<CAPTION>
August 31, 1996 May 31, 1996
--------------- ------------
<S> <C> <C>
Assets:
Cash and cash equivalents ................................................................ $ 61 $ 159
Accounts receivable, net ................................................................. -- 55
Inventory ................................................................................ 100 115
Furniture, fixtures and equipment, net ................................................... -- 58
Accrued interest and other assets ........................................................ 16 16
----- -----
Total assets ................................................................... 177 403
----- -----
Liabilities:
Accounts payable and accruals ............................................................ 1 44
Other liabilities ........................................................................ 264 465
----- -----
Total liabilities .............................................................. 265 509
----- -----
Net Assets (Liabilities) of Discontinued
Operations ................................................................ $ (88) $(106)
===== =====
</TABLE>
<PAGE>
4. Net Income Per Share
Net income per share was computed based on the weighted average number of
shares of common stock outstanding during the periods. For the three
months ended August 31, 1996 and 1995, the weighted average number of
outstanding shares were 6,999,040 and 7,000,000, respectively. As of
August 31, 1996, the Company had granted options to purchase 334,000
shares of common stock (see Note 6). Since the average exercise price of
these options is in excess of the average market price of the common
stock for the three months ended August 31, 1996, the options are
considered anti-dilutive and are not included in the computation of net
income per share.
5. Reclassifications
Certain prior period balances in the financial statements have been
reclassified to conform to the current period financial statement
presentation.
6. Stock Option Plan
On July 6, 1995, the Board of Directors adopted the Continental
Information Systems Corporation 1995 Stock Compensation Plan (the "1995
Plan"). The 1995 Plan was approved by stockholders at the annual meeting
held September 27, 1995 in Syracuse, New York. The 1995 Plan provides for
the issuance of options covering up to 1,000,000 shares of common stock
and stock grants of up to 500,000 shares of common stock to non-employee
directors of the Company and, in the discretion of the Compensation
Committee, employees of and independent contractors and consultants to
the Company. As of August 31, 1996, incentive stock options for shares of
common stock had been granted to employees and non-qualified stock
options for shares of common stock had been granted to non-employee
directors as follows:
<TABLE>
<CAPTION>
Number of Exercise Fair Market Value
Description Date Granted Options Price at Date of Grant
----------- ------------ ------- ----- ----------------
<S> <C> <C> <C> <C>
Non-Qualified Stock Options May 16, 1995 15,000 $3.50 $ 52,500
Non-Qualified Stock Options September 27, 1995 9,000 2.50 22,500
Incentive Stock Options July 11, 1996 310,000 1.97 610,700
------- ---------
Balance - August 31, 1996 334,000 $685,700
======= ========
</TABLE>
As of August 31, 1996, options for 118,333 shares were exercisable.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and the notes thereto for the fiscal year ended May 31,
1996, appearing in the Company's Form 10-K.
All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future capital requirements, the
Company's future development and acquisition plans, the Company's ability to
obtain additional debt, equity or other financing, and the Company's ability to
generate cash from operations and further savings from existing operations, are
based on current expectations. These statements are forward looking in nature
and involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as the introduction of new technologies and competitors into the
telecommunications equipment, laser printing systems, and commercial aircraft
industries; pricing pressures which could affect demand for the Company's
service; change in labor, equipment and capital costs; future acquisitions;
general business, economic and regulatory conditions; and the other risk factors
described from time to time in the Company's reports filed with the SEC. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
The Company emerged from Chapter 11 pursuant to a Plan of Reorganization which
was confirmed by the Bankruptcy Court on November 29, 1994. For financial
reporting purposes, the emergence from bankruptcy protection was recorded as of
November 30, 1994. The Plan of Reorganization provided for the distribution of
all of the Company's assets, except for specifically identified assets and
liabilities having a net fair tangible value of $30 million, and the Company's
newly-issued common stock to a Liquidating Estate for distribution to the
creditors. In addition, all liabilities subject to compromise and certain
postpetition liabilities were assumed by the Liquidating Estate. The Plan of
Reorganization provided that no further recourse to the Company or any of its
subsidiaries may be had by any person with respect to any prepetition claims or
postpetition liabilities assumed by the Liquidating Estate. As a result of the
reorganization and application of "fresh start" accounting, financial
information before and after November 30, 1994 are not comparable. To
distinguish between the operations of the Company prior to reorganization and
operations after reorganization, the term "Predecessor Company" will be used for
the pre-reorganization periods. The following discussion should be read in
conjunction with the historical financial statements of the Company.
<PAGE>
The Reorganized Company applied the "fresh start" provisions of AICPA Statement
of Position No. 90-7 ("SOP 90-7") as of November 30, 1994 and, accordingly, the
assets retained by the Reorganized Company were adjusted as of that date to
reflect their fair value. The reorganization value of $35 million approximated
the fair value of the Reorganized Company's net assets, including net deferred
tax assets of $5 million, and accordingly, no excess reorganization value over
amount allocable to identifiable assets has been recognized.
Results of Operations
Continuing Operations
As previously reported, the Company has recently adjusted its strategic
direction to focus its efforts on the buying and selling of capital equipment in
existing and new markets. This decision follows an evaluation of the capital
intensive nature of the leasing business, the opportunity for utilization of
existing tax loss carryforwards, and the need to reduce the Company's operating
cost structure and increase operating profitability. Accordingly, the Company
has decided to pursue expansion of the equipment sales business and curtail its
leasing operations. As a result, management intends to sell substantially all of
its lease portfolio and utilize the proceeds to support its expansion of the
equipment sales business. Such expansion is expected to occur through the growth
of existing business lines as well as through external means by acquisition of
businesses engaged in the distribution of new and refurbished capital equipment.
The Company intends to identify acquisition candidates that can complement and
broaden the Company's existing product lines and equipment sales activity, and
expand the Company's marketing capabilities.
Total revenues decreased 6.4% to $7.1 million for the three months ended August
31, 1996 from $7.6 million for the comparable fiscal quarter in 1995. Equipment
rentals and income from direct financing leases decreased 11.9% to $1.9 million
for the three months ended August 31, 1996 from $2.1 million for the comparable
fiscal quarter in 1995. This decrease primarily reflects a "running out" of the
old lease portfolio, developed prior to and during the bankruptcy proceeding.
Equipment sales decreased 4.4% to $4.6 million for the three months ended August
31, 1996 from $4.9 million for the comparable period in 1995. This decrease was
chiefly due to lower sales in the aircraft business unit during the current
period. Interest, fees and other income decreased 3.9% to $590,000 for the three
months ended August 31, 1996 from $614,000 for the comparable period in 1995.
This decrease reflects a decline in management fees received from income funds
and a decrease in fees generated by brokered transactions.
Costs and expenses decreased 1.2% to $6.8 million for the three months ended
August 31, 1996 from $6.9 million for the comparable fiscal quarter in 1995.
Depreciation of rental equipment increased 6.3% to $850,000 for the three months
ended August 31, 1996 from $800,000 for the comparable fiscal period in 1995.
This increase is primarily due to depreciation taken on newly acquired used
equipment subject to short-term operating leases. Cost of sales as a percentage
of sales for the three months ended August 31, 1996 and 1995, was 74.0% and
70.6%, respectively. This variance is primarily the result of product mix, with
the aircraft business unit usually generating significant margins on a
relatively few large transactions and the telecommunications and printing
business units generating comparably lesser margins on a greater number of
transactions. Interest expense increased by $225,000 to $325,000 for the three
months ended August 31, 1996 from $100,000 for the comparable quarter in 1995.
This increase is the result of a significant increase of the average debt
<PAGE>
outstanding to $17.7 million during the three months ended August 31, 1996 from
$4.9 million for the comparable quarter in 1995. This significant increase in
the current period primarily represents discounted lease rental borrowings
associated with the purchase of rental equipment subject to lease. Other
operating expenses increased by $206,000 to $499,000 for the three months ended
August 31, 1996 from $293,000 for the comparable quarter in 1995. This increase
was chiefly attributable to the amortization of goodwill relative to the
LaserAccess acquisition; goodwill of approximately $4.0 million is being
amortized on a straight line basis over ten years. Selling, general and
administrative expenses decreased 24.5% to $1.8 million for the three months
ended August 31, 1996 from $2.3 million for the comparable quarter in 1995. This
decrease is principally due to staff reductions between the periods.
Discontinued Operations
As previously reported, on April 3, 1996, the Company announced its decision to
discontinue an operation, including its wholly-owned subsidiary, Aviron Computer
Technologies, Inc. ("Aviron"), that purchased and sold used computer equipment
and provided related technical services. After that date, the Company had
attempted to locate a buyer for the operation. On June 5, 1996, the Company
announced it had abandoned its efforts to sell the operation and would instead
liquidate the assets which consisted principally of used computer equipment
inventories and fixed assets. The net loss from discontinued operations for the
year ended May 31, 1996 was $1,177,000 (net of $698,000 deferred tax benefit).
Additionally, on May 25, 1995, the Board of Directors approved the
discontinuance of NC3, Inc., the Company's excess inventory business unit
located in Syracuse, New York. The Company recorded a provision of $1,137,000
(net of $763,000 deferred tax benefit) in the quarter ended May 31, 1995,
relative to the disposal of NC3 assets and other charges related to the
discontinuance of the business unit. As of May 31, 1996, the Company had exited
the business and liquidated substantially all of the assets. A total of 14
employees were terminated in connection with the closing of this business.
Liabilities of the discontinued operation decreased from $744,000 at May 31,
1995 to $158,000 as of August 31, 1996, due to cash payments principally for
severance and facilities costs totaling approximately $256,000 and a net
reduction of $330,000 to adjust the amounts estimated for the loss on the
inventories, receivables, fixed assets and leased facility obligations. The
remaining liability of $158,000 as of August 31, 1996 is expected to be
liquidated by cash payments extending through approximately May 31, 1997. The
adjustment of the liability in the amount of $230,000 was recorded as a gain
from discontinued operations, net of deferred tax expenses of $87,000 in the
quarter ended August 31, 1995. An additional adjustment of the liability in the
amount of $100,000 was recorded as an offset to the loss on disposal of
discontinued operations in the quarter ended May 31, 1996.
<PAGE>
The Consolidated Statements of Operations for all periods presented have been
reclassified to report the results of discontinued operations separately from
continuing operations. A summary of the results of discontinued operations
follows (in thousands):
<TABLE>
<CAPTION>
For the three
months ended
August 31,
1996 1995
---- ----
<S> <C> <C>
Revenues ........................................... $ -- $1,666
Costs and expenses ................................. -- 1,548
-------- ------
Income from discontinued operations ................ -- 118
Income tax ......................................... -- 45
-------- ------
Net income from discontinued operations ............ $ -- $ 73
======== ======
</TABLE>
Income Taxes
For the three months ended August 31, 1996 and 1995, a provision for deferred
income tax expense on income from continuing operations was recorded in the
amounts of $86,000 and $240,000, respectively. In addition, for the three months
ended August 31, 1995, a provision for deferred income tax expense on income
from discontinued operations was recorded in the amount of $45,000.
As of November 30, 1994, $5 million in net deferred tax assets were recorded
under "fresh start" accounting (net of a valuation allowance of $7 million) to
reflect the amount of deferred tax assets which management believed more likely
than not to be realized. The Company's total gross deferred tax assets as of the
Effective Date were approximately $12 million. The deferred tax assets relate
principally to the net operating loss carryforwards available to offset future
taxable income of the Reorganized Company, subject to an annual limitation of
approximately $2 million (limited in the aggregate to approximately $35
million). These carryforwards expire during the years 2004 to 2010. Any future
realization of tax benefits relating to pre-reorganization net operating loss
carryforwards in excess of the net $5 million initially recorded will be
recognized as a direct credit to stockholders' equity as required under SOP
90-7.
Liquidity and Capital Resources
Cash provided by operations for the three months ended August 31, 1996 of
$1,580,000 was composed of cash provided by continuing operations of $1,598,000
with $18,000 being used in discontinued operations. Cash provided by continuing
operations arose primarily from net income of $140,000 less non-cash
amortization of unearned income of $457,000 plus non-cash depreciation and
amortization expense of $1,091,000, in addition to proceeds from sale of
<PAGE>
equipment subject to operating leases of $676,000. Cash provided by collections
of rentals on direct financing leases of $1,383,000 was offset primarily by the
net change in other balance sheet accounts. New investment in rental equipment
for the three months ended August 31, 1996 was $2.3 million as compared to $1.1
million for the comparable period in 1995. The significant increase in rental
equipment in the current period resulted from the Company's acquisition of
equipment subject to lease. Because a note payable to the Liquidating Estate was
paid in full in March 1996, there were no payments made on the note for the
three months ended August 31, 1996, as compared to the comparable period in 1995
when the Company made principal payments of $1.2 million. Proceeds from lease,
bank and institution financings were $3.3 million for the three months ended
August 31, 1996, as compared to $.3 million for the comparable period in 1995.
The significant increase in the current period primarily represents discounted
lease rental borrowings associated with the purchase of rental equipment subject
to lease. Additionally, payments on lease, bank and institution financings
increased to $1.9 million for the three months ended August 31, 1996 from $.4
million for the comparable period in 1995.
As noted previously, the Company has adjusted its strategic direction to focus
its efforts on the buying and selling of capital equipment in existing and new
markets. As a result, management intends to sell substantially all of its lease
portfolio and utilize the proceeds to support its expansion of the equipment
sales business. Such expansion is expected to occur through the growth of
existing business lines as well as through external means by acquisition of
businesses engaged in the distribution of new and refurbished capital equipment.
The Company expects that operations will generate sufficient cash to meet its
operating expenses and current obligations. The cash retained by the Company
pursuant to the Plan of Reorganization has been used to provide liquidity to
fund investment in new leases, inventory, and other investment opportunities. In
April 1996, the Company finalized a revolving loan agreement with an institution
to provide interim and recourse/limited recourse lease financing in the total
amount of $5 million. Additionally, in July 1996, the Company finalized two
revolving loan agreements with institutions to provide (1) warehouse lease
financing in the amount of $5 million and (2) inventory financing for
LaserAccess and CIS Air in the amount of $7 million. The Company believes that
the Company's asset base will enable the Company to obtain sufficient capital to
operate its business.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
10.1*Loan and Security Agreement between CIS Corporation and
CoreStates Bank, N.A. dated July 9, 1996.
10.2 Revolving credit facility between CIS Air Corporation and
Norwest Business Credit, Inc., dated July 31, 1996.
10.3 Revolving credit facility between GMCCCS Corp. (doing
business as "LaserAccess") and Norwest Business Credit,
Inc., dated July 31, 1996.
27.1 Financial Data Schedule.
----------------------------------
* Filed as Exhibit 10.17 to the Company's Form 10-K filed
August 26, 1996 and incorporated herein by reference.
(b) Reports on Form 8-K - The Company filed the following reports on
--------------------
Form 8-K on the date indicated during the quarter ended August
31, 1996:
Date Description
---- -----------
June 10, 1996 Press Release announcing fourth
quarter charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTINENTAL INFORMATION SYSTEMS
CORPORATION
Date: October 7, 1996 By: /s/ Thomas J. Prinzing
----------------------
Thomas J. Prinzing
President and
Chief Executive Officer
Date: October 7, 1996 By: /s/ Frank J. Corcoran
---------------------
Frank J. Corcoran
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
CREDIT AND SECURITY AGREEMENT
Dated as of July 31, 1996
CIS Air Corporation, a Delaware corporation (the "Borrower"), and
Norwest Business Credit, Inc., a Minnesota corporation (the "Lender"), hereby
agrees as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles.
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of goods
or rendition of services by the Borrower on an open account or deferred payment
basis.
"Advance" means an advance to the Borrower by the Lender under the
Discretionary Credit Facility.
"Affiliate" or "Affiliates" means CIS Corporation, CIS Aircraft
Partners, Inc., CIS Assignor L.P.A., Inc., Continental Information Systems
Corporation, GMCCCS Corp. and any other Person controlled by, controlling or
under common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Aircraft Security Agreement" means the Aircraft Security Agreement
dated July 31, 1996 between the Borrower and the Lender.
"Banking Day" means a day other than a Saturday on which banks are
generally open for business in Milwaukee, Wisconsin.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota, National Association as its "base rate" or, if
such bank ceases to announce a rate so designated, any similar successor rate
designated by the Lender. The Base Rate may not be the lowest rate offered by
the Lender to its other customers.
"Borrowing Base" means, at any time and subject to change from time to
time in the Lender's sole discretion, the lesser of
(a) $4,500,000 or
<PAGE>
(b) the sum of
(i) the lesser of (A) 80% of Eligible Accounts or (B) $4,500,000,
plus
(ii) the lesser of (A) 60% of Eligible Inventory or (B)
$2,500,000.
"Collateral" means all of the Equipment, General Intangibles,
Inventory and Receivables, together with all substitutions and replacements for
and products of any of the foregoing and together with proceeds of any and all
of the foregoing and, in the case of all tangible Collateral, together with all
accessions and together with (i) all accessories, attachments, parts, equipment
and repairs now or hereafter attached or affixed to or used in connection with
any such goods, and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning specified in Section 4.1(d)
hereof.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Rate" means at any time Three percent (3.0%) over the
Floating Rate, which Default Rate shall change when and as the Floating Rate
changes.
"Discretionary Credit Facility" means the discretionary credit
facility being made available to the Borrower by the Lender pursuant to Article
II hereof.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(1) That portion of Accounts over 90 days past invoice date or,
if the Lender in its discretion has determined that a particular
dated Account may be eligible, that portion of such Account which
is more than 60 days past the stated due date;
(2) That portion of Accounts that are disputed or subject to a
claim of offset or a contra account;
(3) That portion of Accounts not yet earned by the final delivery
of goods or rendition of services, as applicable, by the Borrower
to the customer;
(4) Accounts owed by any unit of the United States Government, or
any foreign government (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government with respect to which the Borrower has
provided evidence satisfactory to the Lender that (A) the Lender
has a first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such unit
of government under all applicable laws);
<PAGE>
(5) Accounts owed by an account debtor located outside the United
States except Canada which are not backed by a bank letter of
credit assigned to the Lender, in the possession of the Lender
and acceptable to the Lender in all respects, in its sole
discretion;
(6) Accounts owed by an account debtor that is the subject of
bankruptcy proceedings or has gone out of business;
(7) Accounts owed by a shareholder, subsidiary, Affiliate,
officer or employee of the Borrower;
(8) Accounts not subject to a duly perfected security interest in
favor of the Lender or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender;
(9) That portion of Accounts that have been restructured,
extended, amended or modified;
(10) That portion of Accounts that constitutes finance charges,
service charges;
(11) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 25% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (1), (2) or
(9) above; and
(12) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"Eligible Inventory" means all inventory of the Borrower, at the lower
of cost or market value as determined in accordance with generally accepted
accounting principles; provided, however, that the following shall not in any
event be deemed Eligible Inventory:
(1) Inventory that is: in-transit; located at any warehouse or
other premises not approved by the Lender in writing; covered by
any negotiable or non-negotiable warehouse receipt, bill of
lading or other document of title; on consignment to or from any
other person or subject to any bailment;
(2) Inventory as to which any necessary filing has not been made
in order for Lender to have a perfected first priority security
interest therein;
(3) Supplies, packaging or parts inventory;
(4) Work-in-process inventory;
(5) Inventory that is damaged, obsolete or not currently saleable
in the normal course of the Borrower's operations;
(6) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to
the vendor thereof;
<PAGE>
(7) Inventory that is subject to a security interest in favor of
any Person other than the Lender;
(8) Inventory that is subject to long-term rental or lease
agreements;
(9) Inventory having a value greater than Four Hundred Thousand
Dollars ($400,000) that does not have an appraisal satisfactory
to the Lender; and
(10) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12 hereof.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not
limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools and supplies.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 8.1 hereof.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus three-quarters percent (.75%), which Floating Rate shall change when and as
the Base Rate changes.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"GMCCCS Credit Facility" means the Credit and Security Agreement dated
as of July 31, 1996 between GMCCCS Corp. and the Lender.
"Guarantors" means CIS Corporation, Continental Information Systems
Corporation, and GMCCCS Corp.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether consisting
of whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service contracts or
for manufacture or processing, and wherever located.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
<PAGE>
"Letter of Credit" has the meaning specified in Section 2.3 hereof.
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning specified in Section 4.1(e) hereof.
"Minimum Interest Charge" has the meaning specified in Section 2.8(b)
hereof.
"Net Earnings" shall mean the excess of:
(a) All revenues and income derived from operations in the ordinary
course of business (excluding extraordinary gains and profits upon the
disposition of investments and fixed assets),
Over:
(b) All expenses and other proper charges against income (including
payment of or provision for all applicable income and other taxes, but
excluding extraordinary losses and losses upon the disposition of
investments and fixed assets), all as determined in accordance with
generally accepted accounting principles.
"Net Worth" shall mean the total of all assets properly appearing on
the balance sheet of the Borrower in accordance with generally accepted
accounting principles, less the sum of the following:
(a) Any write-up in the book carrying value of any asset resulting
from a revaluation thereof subsequent to May 31, 1995;
(b) All reserves including, but not limited to, reserves for
liabilities, fixed or contingent, deferred income taxes, obsolescence,
depletion, insurance, and inventory valuation, which are not deducted
from assets;
(c) The amount, if any, at which the shares of stock or indebtedness
of an Affiliate in excess of Seven Million Nine Hundred Thousand
Dollars ($7,900,000) appear on the asset side of such balance sheet;
and
(d) All liabilities of the Borrower shown on such balance sheet.
"Note" means the Demand Note of the Borrower payable to the order of
the Lender in substantially the form attached hereto as Exhibit A.
"Obligation of Reimbursement" has the meaning specified in Section 2.4
hereof.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower and covered by Title IV of ERISA.
<PAGE>
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the premises
legally described in Exhibit E attached hereto.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a loan, out
of the overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Security Documents" means the Agreement as to Collateral Account and
Lockbox Services, the Aircraft Security Agreement and all other documents, each
as described in Section 4.1 hereof.
"Security Interest" has the meaning specified in Section 3.1 hereof.
"Special Account" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with Letters
of Credit, as contemplated by Sections 2.5 and 3.5 hereof.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Termination Date" has the meaning specified in Section 2.9 hereof.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.12 hereof as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
ARTICLE II
Amount and Terms of the Discretionary Credit Facility
<PAGE>
Section 2.1 Advances. The Lender may, in its sole discretion, make
Advances to the Borrower from time to time
during the period from the date hereof until the Lender demands payment of the
Advances or the Discretionary Credit Facility has been terminated pursuant to
Section 2.9 or 2.10, in an aggregate amount at any time outstanding not to
exceed the Borrowing Base less the L/C Amount, which Advances shall be secured
by the Collateral as provided in Article III hereof. The Discretionary Credit
Facility shall be a revolving facility and it is contemplated that the Borrower
will request Advances, make prepayments and request additional Advances. The
Borrower agrees to comply with the following procedures in requesting Advances
under this Section 2.1:
(a) The Borrower will not request any Advance under this
Section if, after giving effect to such requested Advance, the sum of
the outstanding and unpaid Advances under this Section or otherwise
would exceed the Borrowing Base less the L/C Amount.
(b) Each request for an Advance may be made in writing or
by telephone, specifying the date of the requested Advance and the
amount thereof, and shall be by (i) any officer of the Borrower; or
(ii) any person designated as the Borrower's agent by any officer of
the Borrower in a writing delivered to the Lender; or (iii) any
person reasonably believed by the Lender to be an officer of the
Borrower or such a designated agent.
(c) Upon fulfillment of the applicable conditions set forth
in Article hereof, the Lender shall disburse loan proceeds, if any,
by crediting the same to the Borrower's demand deposit account
maintained with CoreStates Bank, N.A. unless the Lender and the
Borrower shall agree in writing to another manner of disbursement.
Upon request of the Lender, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate daily collateral report to the Lender. The Borrower shall
be obligated to repay all Advances under this Section notwithstanding
the failure of the Lender to receive such confirmation and
notwithstanding the fact that the person requesting the same was not
in fact authorized to do so. Any request for an Advance under this
Section , whether written or telephonic, shall be deemed to be a
representation by the Borrower that (i) the condition set forth in
Section 2.1(a) hereof has been met, and (ii) the conditions set forth
in Section 4.2 hereof have been met as of the time of the request.
Section 2.2 Note. All Advances made by the Lender under this Article
II shall be evidenced by and repayable with interest in accordance with the
Note. The principal of the Note shall be due and payable as provided herein and
on the earlier of termination of the Discretionary Credit Facility or demand by
the Lender and shall bear interest as provided herein.
Section 2.3 Issuance of Letters of Credit. (a) The Lender may, in its
sole discretion, issue or cause to be issued by an Issuer one or more letters of
credit for the account of the Borrower (each a "Letter of Credit") from time to
time during the period from the date hereof until the Lender demands payment of
the Advances or the Discretionary Credit Facility has been terminated pursuant
to Section or , in an aggregate amount at any time outstanding not to exceed the
Borrowing Base less the sum of (i) all outstanding and unpaid Advances hereunder
and (ii) the unpaid amount of the Obligation of Reimbursement. Each Letter of
<PAGE>
Credit, if any, shall be issued pursuant to a separate L/C Application entered
into between the Borrower and the Lender, completed in a manner satisfactory to
the Lender and the Issuer. The terms and conditions set forth in each such L/C
Application shall supplement the terms and conditions hereof, but in the event
of inconsistency between the terms of any such L/C Application and the terms
hereof, the terms hereof shall control.
(b) The Borrower will not request the issuance of any
Letter of Credit under this Section 2.3 if, after the issuance of
such requested Letter of Credit, the sum of the face amounts of all
issued and outstanding Letters of Credit would exceed the Borrowing
Base less the sum of (i) all outstanding and unpaid Advances
hereunder and (ii) the unpaid amount of the Obligation of
Reimbursement.
(c) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(d) Any request for the issuance of a Letter of Credit
under this Section 2.3 shall be deemed to be a representation by the
Borrower that (i) the condition set forth in Section 2.3(b) hereof
has been met, and (ii) the statements set forth in Section 4.2 hereof
are correct as of the time of the request.
Section 2.4 Payment of Amounts Drawn Under Letters of Credit. The
Borrower acknowledges that the Lender, as co-applicant, will be liable to the
Issuer of any Letter of Credit for reimbursement of any and all draws thereunder
and all other amounts required to be paid under the applicable L/C Application.
Accordingly, the Borrower agrees to pay to the Lender any and all amounts
required to be paid under the applicable L/C Application, when and as required
to be paid thereby, and the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day
a draft is honored under any Letter of Credit a sum equal to all
amounts drawn under such Letter of Credit plus any and all reasonable
charges and expenses that the Issuer or the Lender may pay or incur
relative to such draw, plus interest on all such amounts, charges and
expenses as set forth below (all such amounts are hereinafter
referred to, collectively, as the "Obligation of Reimbursement").
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amounts, charges and expenses payable by the Borrower
to the Lender under this Section 2.4, accrued from the date any such
draft, charge or expense is paid by the Issuer until payment in full
by the Borrower at the Default Rate.
If the Borrower fails to pay to the Lender promptly the amount of its Obligation
of Reimbursement in accordance with the terms hereof and the L/C Application
pursuant to which such Letter of Credit was issued, the Lender is hereby
irrevocably authorized and directed, in its sole discretion, to make an Advance
in an amount sufficient to discharge the Obligation of Reimbursement, including
all interest accrued thereon but unpaid at the time of such Advance, and such
Advance shall be evidenced by the Note and shall bear interest as provided in
Section 2.8 hereof.
<PAGE>
Section 2.5 Special Account. If the Lender terminates the
Discretionary Credit Facility pursuant to Section , or the Discretionary Credit
Facility is otherwise terminated for any reason whatsoever, while any Letter of
Credit is outstanding, the Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an amount equal
to the maximum aggregate amount available to be drawn under all Letters of
Credit then outstanding, assuming compliance with all conditions for drawing
thereunder. The Special Account shall be maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Borrower's Obligation of Reimbursement or any
other Obligations, in the Lender's sole discretion, and shall not be subject to
withdrawal by the Borrower so long as the Lender maintains a security interest
therein. The Lender agrees to transfer any balance in the Special Account to the
Borrower at such time as the Lender is required to release its security interest
in the Special Account under applicable law.
Section 2.6 Increased Costs and Reduced Return. (a) If the Lender
shall determine that, after the date hereof, the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Issuer or the Lender or its parent corporation with any
requirement or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency:
(i) shall subject the Issuer or the Lender or its parent
corporation to any tax, duty or other similar charge with
respect to any Letter of Credit, the Advances or the Note
or shall change the basis of taxation of payments to the
Issuer or the Lender or its parent corporation of the
Reimbursement Obligation, of the principal of or interest
on the Advances or of any other amounts due under this
Agreement in respect of any Letter of Credit, the Advances
or the Note (except for any change in respect of any tax
imposed on the overall income of the Issuer or the Lender
or its parent corporation); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System) against assets of,
deposits with or for the account of, or credit extended by,
the Issuer or the Lender or its parent corporation or shall
impose on the Issuer or the Lender or its parent
corporation any other condition affecting any Letter of
Credit, the Advances or the Note;
<PAGE>
and the result of any of the foregoing is to increase the cost to the
Issuer or the Lender or its parent corporation of issuing or
maintaining any Letter of Credit or of making or maintaining any
Advances, or to reduce the amount of any sum received or receivable
by the Issuer or the Lender or its parent corporation under the
application and agreement pursuant to which the Letter of Credit was
issued, this Agreement or the Note with respect thereto, by an amount
deemed by the Lender or its parent corporation to be material, then
upon demand by the Lender, the Borrower shall pay to the Lender such
additional amount or amounts as will compensate the Issuer or the
Lender or its parent corporation for such increased cost or
reduction.
(b) If the Lender shall determine that the adoption after
the date hereof of any applicable law, rule or regulation regarding
capital adequacy, or any change therein after the date hereof, any
change after the date hereof in the interpretation or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
compliance by the Lender or its parent corporation with any guideline
or request issued after the date hereof regarding capital adequacy
(whether nor not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's or the Lender's parent
corporation's capital as a consequence of any Letters of Credit,
Advances or the Lender's obligations hereunder to a level below that
which the Lender or its parent corporation could have achieved but
for such adoption, change or compliance (taking into consideration
the Lender's policies with respect to capital adequacy and those of
the Lender's parent corporation) by an amount deemed to the Lender or
its parent corporation to be material, then from time to time on
demand by the Lender, the Borrower shall pay to the Lender such
additional amount or amounts as will compensate the Lender or its
parent corporation for such reduction.
(c) Certificates of the Lender sent to the Borrower from
time to time claiming compensation under this Section, stating the
reason therefor and setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to the
Lender hereunder shall be conclusive absent manifest error. In
determining such amounts, the Lender or its parent corporation may
use any reasonable averaging and attribution methods.
Section 2.7 Obligations Absolute. The obligations of the Borrower
arising under this Agreement shall be absolute, unconditional and irrevocable,
and shall be paid strictly in accordance with the terms of this Agreement, under
all circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
<PAGE>
(c) the existence of any claim, setoff, defense or other
right which the Borrower may have at any time, against any
beneficiary or any transferee of any Letter of Credit (or any persons
or entities for whom any such beneficiary or any such transferee may
be acting), or other person or entity, whether in connection with
this Agreement, the transactions contemplated herein or in the
Related Documents or any unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer or the Lender
under any Letter of Credit against presentation of a draft or
certificate which does not strictly comply with the terms of such
Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
Section 2.8 Interest. (a) The principal of the Advances
outstanding from time to time during any month shall bear interest
(computed on the basis of actual days elapsed in a 360-day year) at
the Floating Rate; provided, however, that from the first day of any
month during which any Default or Event of Default occurs or exists
at any time, in the Lender's discretion and without waiving any of
its other rights and remedies, the principal of the Advances
outstanding from time to time shall bear interest at the Default
Rate; and provided, further, that in any event no rate change shall
be put into effect which would result in a rate greater than the
highest rate permitted by law. Interest accruing on the principal
balance of the Advances outstanding from time to time shall be
payable on the first day of the next succeeding month and on the
termination of the Discretionary Credit Facility or earlier demand or
prepayment in full.
(b) Notwithstanding the interest payable pursuant to
Section 2.8(a) hereof, the Borrower shall be liable to the Lender for
interest hereunder and under the GMCCCS Credit Facility of not less
than One Hundred Fifty-Six Thousand Dollars ($156,000) in the
aggregate per year (the "Minimum Interest Charge") during the term of
this Agreement, and the Borrower shall pay any deficiency between the
Minimum Interest Charge and the amount of interest otherwise
calculated under Sections 2.8(a) and 2.8(b) of this Agreement and the
GMCCCS Credit Facility on the date and in the manner provided in
Section 2.8(a) of this Agreement and the GMCCCS Credit Facility.
Section 2.9 Discretionary Nature of this Facility;
Termination by the Lender; Automatic Renewal. This Agreement contains the terms
and conditions upon which the Lender presently expects to make Advances to the
Borrower or issue, or cause to be issued, Letters of Credit for the account of
the Borrower. Each Advance by the Lender to the Borrower and each Letter of
Credit issued, or caused to be issued, for the account of the Borrower shall be
in the sole discretion of the Lender, and the Lender need not show that an
<PAGE>
adverse change has occurred in the Borrower's condition, financial or otherwise,
or that any of the conditions of Article IV have not been met, in order to
refuse to make any requested Advance or to demand payment of any
then-outstanding Advances or to refuse to issue, or cause to be issued, any
Letter of Credit for the account of the Borrower. The Lender may at any time
terminate the Discretionary Credit Facility whereupon the Lender shall no longer
consider requests for Advances or the issuance of Letters of Credit under this
Agreement. Unless terminated by the Lender at any time or by the Borrower
pursuant to Section 2.10 hereof, the Discretionary Credit Facility shall remain
in effect until July 31, 1998 and, thereafter, shall automatically renew for
successive one year periods (July 31, 1998, and each anniversary date thereof
which is at the end of any year in which the Discretionary Credit Facility has
been automatically renewed, is herein referred to as a "Termination Date").
Section 2.10 Voluntary Prepayment; Termination of Agreement
by the Borrower. Except as otherwise provided herein, the Borrower may, in its
discretion, prepay the Advances in whole at any time or from time to time in
part, without penalty so long as this Agreement is not terminated. The Borrower
may terminate this Agreement as of any Termination Date, so long as no Letter of
Credit has been issued and is outstanding with an expiration date after such
Termination Date, by giving at least 90 days' prior written notice to the Lender
of the Borrower's intention to terminate this Agreement as of the specified
Termination Date. If the Borrower desires to terminate this Agreement as of any
date other than a Termination Date, or as of a Termination Date but without
giving at least 90 days' prior written notice thereof, it shall 0.0.1. give at
least 30 days' prior written notice to the Lender of the Borrower's intention to
do so; and 0.0.2. pay the Lender a prepayment fee of One Hundred Thousand
Dollars ($100,000) less the amount of any prepayment penalty paid to the Lender
by GMCCCS Corp. under Section 2.5(b) of the GMCCCS Credit Facility; provided,
however, that there shall be no prepayment fee if Borrower has complied with
Section 2.10(a) hereof after eighteen (18) months from the date of this
Agreement and the source of the prepayment is a Norwest Bank. Upon compliance
with the foregoing requirements and subject to payment and performance of all
the Borrower's obligations to the Lender, the Borrower may obtain any release or
termination of the Security Interest to which the Borrower is otherwise entitled
by law. Notwithstanding any other provision of this Agreement, if the Borrower
terminates this Agreement because of additional payments required by Section 2.6
hereof, no prepayment fee, premium or penalty shall be due in connection with
such termination.
Section 2.11 Mandatory Prepayment. The Borrower shall repay
the Advances immediately upon demand of the Lender. Without notice or demand, if
the sum of the outstanding principal balance of the Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall immediately
prepay the Advances to the extent necessary to eliminate such excess; and (ii)
if prepayment in full of the Advances is insufficient to eliminate such excess,
pay to the Lender in immediately available funds for deposit in the Special
Account an amount equal to the remaining excess. Any payment received by the
Lender under this Section 2.11 or under Section 2.10 may be applied to the
Obligation of Reimbursement or the Advances, including interest thereon and any
fees, commissions, costs and expenses hereunder and under the Security
Documents, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine. Mandatory prepayments required by this Section
2.11 shall be made without premium, fee or penalty.
<PAGE>
Section 2.12 Payment. All payments of principal of and
interest on the Advances, the Obligation of Reimbursement, the commission and
fees hereunder and amounts required to be paid to the Lender for deposit in the
Special Account shall be made to the Lender in immediately available funds. The
Borrower hereby authorizes the Lender to charge against the Borrower's account
with the Lender an amount equal to the principal, Obligation of Reimbursement,
accrued interest, commissions and fees from time to time due and payable to the
Lender hereunder and amounts required to be paid to the Lender for deposit in
the Special Account and further authorizes the Lender, in its discretion at any
time or from time to time and without request by the Borrower, to make an
Advance under the Discretionary Credit Facility to the extent necessary to pay
any such amounts hereunder or under the Security Documents.
Section 2.13 Payment on Non-Banking Days. Whenever any
payment to be made hereunder shall be stated to be due on a day which is not a
Banking Day, such payment may be made on the next succeeding Banking Day, and
such extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
Section 2.14 Use of Proceeds. The proceeds of Advances and
each Letter of Credit issued or caused to be issued shall be used by the
Borrower for ordinary working capital purposes.
Section 2.15 Liability Records. The Lender may maintain
from time to time, at its discretion, liability records as to any and all
Advances made or repaid, interest accrued or paid under this Agreement,
outstanding Letters of Credit and fees thereon and the Borrower's Obligation of
Reimbursement. All entries made on any such record shall be presumed correct
until the Borrower establishes the contrary. On demand by the Lender, the
Borrower will admit and certify in writing the exact principal balance that the
Borrower then asserts to be outstanding to the Lender for Advances under this
Agreement and the amount of any Letters of Credit outstanding. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless specific written notice of exception is given to
the Lender by the Borrower within 30 days after its receipt by the Borrower.
Section 2.16 Setoff. The Borrower agrees that the Lender
may at any time or from time to time, at its sole discretion and without demand
and without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any indebtedness owed to the Lender by the
Borrower (for Advances, the Obligation of Reimbursement or the amounts required
to be paid to the Lender for deposit in the Special Account or for any other
transaction or event), whether or not due. In addition, each other Person
holding a participating interest in any Advances made to the Borrower by the
Lender shall have the right to appropriate or setoff any deposit or other
liability then owed by such Person to the Borrower, whether or not due, and
apply the same to the payment of said participating interest, as fully as if
such Person had lent directly to the Borrower the amount of such participating
interest.
Section 2.17 Fees. (a) The Borrower hereby agrees to pay
the Lender a fully earned and non-refundable origination fee of Forty-five
Thousand Dollars ($45,000) (less the audit and approval fees in the amount of
Twenty-Five Thousand Dollars ($25,000) already paid by Borrower), due and
payable upon the execution of this Agreement.
<PAGE>
(b) The Borrower agrees to pay the Lender a commission with
respect to each Letter of Credit, if any, accruing on a daily basis
and computed at the annual rate of one and one-half percent (1.50%)
of the available amount of such Letter of Credit (as it may be
changed from time to time) from and including the date of issuance of
such Letter of Credit until such date as such Letter of Credit shall
terminate by its terms, payable annually in advance, and prorated for
any part of a full calendar year in which such Letter of Credit
remains outstanding. The foregoing commission shall be in addition to
any and all fees, commissions and charges of any Issuer of a Letter
of Credit with respect to or in connection with such Letter of
Credit.
(c) The Borrower agrees to pay the Lender, on written
demand, the administrative fees charged by the Issuer in connection
with the honoring of drafts under any Letter of Credit, amendments
thereto, transfers thereof and all other activity with respect to the
Letters of Credit.
(d) The Borrower hereby agrees to pay the Lender, on
demand, audit fees of Two Thousand Five Hundred Dollars ($2,500) per
quarter plus out-of-pocket expenses in connection with any audits or
inspections by the Lender of any collateral or the operations or
business of the Borrower. The first such audit fee shall be due on
October 1, 1996 and such out-of-pocket expenses will be due as such
expenses are incurred.
(e) The Borrower hereby agrees to (i) reimburse the Lender
for all wire transfer charges and automated clearinghouse charges and
to (ii) pay overadvance charges of Two Hundred Dollars ($200) per
day; provided, however, that from the first day of any month during
which any Default or Event of Default occurs or exists at any time,
the daily overadvance charge (if an overadvance exists) shall be Four
Hundred Dollars ($400).
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interests") in the Collateral, as security for the payment and
performance of each and every debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender (whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower, and whether
it is direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, the Obligation of
Reimbursement and all indebtedness of the Borrower arising under this Agreement,
the Note, any L/C Application completed by the Borrower or any other loan or
credit agreement or guaranty between the Borrower and the Lender, whether now in
effect or hereafter entered into; all such debts, liabilities and obligations
are herein collectively referred to as the "Obligations").
<PAGE>
Section 3.2 Notification of Account Debtors and Other
Obligors. In addition to the rights of the Lender under Section hereof, with
respect to any and all rights to payment constituting Collateral, the Lender may
at any time (either before or after the occurrence of an Event of Default)
notify any account debtor or other person obligated to pay the amount due that
such right to payment has been assigned or transferred to the Lender for
security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as agent and
attorney in fact of the Borrower, notify the United States Postal Service to
change the address for delivery of the Borrower's mail to any address designated
by the Lender, otherwise intercept the Borrower's mail, and receive, open and
dispose of the Borrower's mail, applying all Collateral as permitted under this
Agreement and holding all other mail for the Borrower's account or forwarding
such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether before or after the occurrence of any Event of
Default, the Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proofs of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.
Section 3.4 Occupancy. (a) The Borrower hereby irrevocably
grants to the Lender the right to take possession of the Premises at any time
after the occurrence and during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall
cease and terminate upon the earlier of (i) payment in full and
discharge of all Obligations, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
<PAGE>
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use
of any of the Premises; provided, however, in the event that the
Lender does pay or account for any rent or other compensation for the
possession, occupancy or use of any of the Premises, the Borrower
shall reimburse the Lender promptly for the full amount thereof. In
addition, the Borrower will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time
incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section .
Section 3.5 Security Interest in Special Account and
Collateral Account. The Borrower hereby pledges, and grants to the Lender a
security interest in, all funds held in the Special Account and in the
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all present and future Obligations of Reimbursement and all other
Obligations.
Section 3.6 License. The Borrower hereby grants to the
Lender a non-exclusive, worldwide and royalty-free license to use or otherwise
exploit all trademarks, franchises, trade names, copyrights and patents of the
Borrower for the purpose of selling, leasing or otherwise disposing of any or
all Collateral following an Event of Default.
Section 3.7 Release of Collateral. Lender may from time to
time in its sole discretion release specific items of Collateral and, in such
event, shall execute all documents reasonably requested by Borrower (including
but not limited to loan payout letters and UCC and Federal Aviation
Administration forms) necessary to evidence such release.
ARTICLE IV
Conditions of Willingness to Consider Lending
Section 4.1 Conditions Precedent to the Lender's
Willingness to Consider Making Advances. The Lender's willingness to consider
making the initial Advance hereunder or issuing or causing to be issued any
Letter of Credit hereunder shall be subject to the condition precedent that the
Lender shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Note, properly executed on behalf of the Borrower.
(c) A true and correct copy of any and all leases pursuant
to which the Borrower is leasing the Premises, together with a
landlord's disclaimer and consent with respect to each such lease.
<PAGE>
(d) An Agreement as to Collateral Account and Lockbox
Services, duly executed by the Borrower and a financial institution
acceptable to the Lender, pursuant to which (i) the Borrower and the
institution establish a depository account (the "Collateral Account")
in the name of and under the sole and exclusive control of the
Lender, from which such institution agrees to transfer finally
collected funds to the Lender for application to the Advances, and
(ii) the Borrower agrees to maintain and direct account debtors to
make payment to, and such institution agrees to maintain and process
payments received in, a lockbox for the benefit of the Lender (the
"Lockbox"), from which Lockbox such institution shall transfer funds
to the Collateral Account.
(e) An Aircraft Security Agreement properly executed by the
Borrower.
(f) Current searches of appropriate filing offices and the
FAA aircraft registry showing that (i) no state or federal tax liens
have been filed and remain in effect against the Borrower, (ii) the
"Collateral" (as defined in the Aircraft Security Agreement) which
constitutes Eligible Inventory is free and clear of all liens except
those created by the Aircraft Security Agreement, (iii) no financing
statements have been filed and remain in effect against the Borrower,
except those financing statements relating to liens permitted
pursuant to Section hereof and those financing statements filed by
the Lender, (iv) the Aircraft Security Agreement has been duly filed
for recordation with the FAA, and (v) the Lender has duly filed all
financing statements necessary to perfect the Security Interests
granted hereunder, to the extent the Security Interests are capable
of being perfected by filing.
(g) A certificate of the Secretary or an Assistant
Secretary of the Borrower, certifying as to (i) the resolutions of
the directors and, if required, the shareholders of the Borrower,
authorizing the execution, delivery and performance of this Agreement
and the Security Documents, (ii) the articles of incorporation and
the bylaws of the Borrower, and (iii) the signatures of the officers
or agents of the Borrower authorized to execute and deliver this
Agreement, the Security Documents and other instruments, agreements
and certificates, including Advance requests, on behalf of the
Borrower.
(h) A current certificate issued by the Secretary of State
of the state of the Borrower's incorporation, certifying that the
Borrower is in compliance with all corporate organizational
requirements of such state.
(i) Evidence that the Borrower is duly licensed or
qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification
necessary.
(j) A certificate of an officer of the Borrower confirming,
in his personal capacity, the representations and warranties set
forth in Article hereof.
(k) An opinion of counsel to the Borrower and each of the
Guarantors, addressed to the Lender.
<PAGE>
(l) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable endorsement
in favor of the Lender and all liability insurance naming the Lender
as an additional insured.
(m) Guaranties, properly executed by each of the
Guarantors, pursuant to which each Guarantor unconditionally
guarantees the full and prompt repayment of all present and future
Obligations.
(n) A General Business Security Agreement properly executed
by GMCCCS Corp., securing the Obligations guaranteed by such
Guarantor.
(o) A Debt Subordination Agreement, properly executed by
CIS Corporation.
(p) Acknowledgments of Ownership and Waiver of Liens,
properly executed by each of the Borrower's subcontractors in
possession of goods and inventory comprising the Collateral,
including, without limitation, American Technical Suppliers Inc.,
Evergreen Air Center, Greenwich Air Services and M&M Aircraft
Services.
(q) A Landlord's Waiver and Consent properly executed by B.
G. Sulzle, Inc.
(r) Payment of the fees and commissions due through the
date of the initial Advance or Letter of Credit under Section 2.17
hereof and expenses incurred by the Lender through such date and
required to be paid by the Borrower under Section hereof.
(s) Such other documents as the Lender in its sole
discretion may require.
Section 4.2 Conditions Precedent to the Lender's
Willingness to Consider Making All Advances. The Lender will not consider a
request for any Advance or the issuance of any Letter of Credit unless on the
date thereof:
(a) the representations and warranties contained in Article
hereof are correct on and as of the date of such Advance as though
made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would
result from such Advance or the issuance of such Letter of Credit, as
the case may be, which constitutes a Default or an Event of Default.
<PAGE>
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as
follows:
Section 5.1 Corporate Existence and Power; Name; Chief
Executive Office; Inventory and Equipment Locations. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its corporate existence, the Borrower has done business solely
under the names set forth in Exhibit B hereto. The chief executive office and
principal place of business of the Borrower is located at the address set forth
in Exhibit B hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in Exhibit B
hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to
Law or Agreements. The execution, delivery and performance by the Borrower of
the Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower, (b) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes
and, upon due execution by the Borrower, the other Loan Documents will
constitute the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Exhibit B
attached hereto, the Borrower has no Subsidiaries.
<PAGE>
Section 5.5 Financial Condition; No Adverse Change.
Continental Information Systems Corporation has heretofore furnished to the
Lender audited consolidated financial statements for its fiscal year ended May
31, 1995 and the Borrower has heretofore furnished to the Lender unaudited
financial statements of the Borrower for its fiscal year ended May 31, 1995 and
for the months ended May 31, 1996, and those statements fairly present the
financial condition of the Borrower on the dates thereof and the results of its
operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the business, properties or condition (financial or otherwise) of the Borrower.
Section 5.6 Litigation. Except as disclosed in Schedule
5.6, there are no actions, suits or proceedings pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any of its
Affiliates or the properties of the Borrower or any of its Affiliates before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any of its Affiliates, would have a material adverse effect on the
financial condition, properties or operations of the Borrower or any of its
Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have
paid or caused to be paid to the proper authorities when due all federal, state
and local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other Collateral, properties and assets reflected in the
latest balance sheet referred to in Section 5.5 hereof and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for (i) mortgages, security interests and liens permitted by Section
hereof, and (ii) in the case of any such property which is not Collateral or
other collateral described in the Security Documents, covenants, restrictions,
rights, easements and minor irregularities in title which do not materially
interfere with the business or operations of the Borrower as presently
conducted. No financing statement naming the Borrower as debtor is on file in
any office except to perfect only security interests permitted by Section
hereof.
<PAGE>
Section 5.10 Plans. Except as disclosed to the Lender in
writing prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning
of ERISA; or
(b) Any liability or knows of any fact or circumstances
which could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with
all provisions of all material agreements, instruments, decrees and orders to
which it is a party or by which it or its property is bound or affected, the
breach or default of which could have a material adverse effect on the financial
condition, properties or operations of the Borrower.
Section 5.12 Environmental Protection. The Borrower has
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws and regulations relating to emissions, discharges,
releases of pollutants, contaminants, hazardous or toxic materials, or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. Except as previously disclosed
to the Lender in writing, the Borrower and all activities of the Borrower at its
facilities comply with all Environmental Laws and with all terms and conditions
of any required permits, licenses and authorizations applicable to the Borrower
with respect thereto. Except as previously disclosed to the Lender in writing,
the Borrower is also in compliance with all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in Environmental Laws or contained in any plan, order,
decree, judgment or notice of which the Borrower is aware. Except as previously
disclosed to the Lender in writing, the Borrower is not aware of, nor has the
Borrower received notice of, any events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance with, or which may give rise to any liability under, any
Environmental Laws.
Section 5.13 Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
<PAGE>
Section 5.14 Financing Statements. Except as otherwise
provided in Schedule 5.14, the Borrower has provided to the Lender signed UCC
financing statements sufficient when filed to perfect such Security Interests
and the other security interests created by the Security Documents as are
capable of being perfected by filing UCC financing statements. When such UCC
financing statements are filed in the offices noted therein, the Lender will
have a valid and perfected security interest in all Collateral and all other
collateral described in the Security Documents which is capable of being
perfected by filing UCC financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and
each instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
Affirmative Covenants of the Borrower
So long as the Note shall remain unpaid or the
Discretionary Credit Facility shall be outstanding or any Letter of Credit shall
be outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will
deliver, or cause to be delivered, to the Lender each of the following, which
shall be in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 120 days
after the end of each fiscal year of Continental Information Systems
Corporation, audited annual financial statements of Continental
Information Systems Corporation with the unqualified opinion of
independent certified public accountants selected by Continental
Information Systems Corporation and acceptable to the Lender, which
annual financial statements shall include the balance sheet of
Continental Information Systems Corporation as at the end of such
fiscal year and the related statements of income, retained earnings
and cash flows of Continental Information Systems Corporation for the
fiscal year then ended, prepared on a consolidating and consolidated
basis to include the Borrower and any Affiliates, all in reasonable
detail and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting
practices applied in the financial statements referred to in Section
5.5 hereof, together with (i) a report signed by such accountants
stating that in making the investigations necessary for said opinion
they obtained no knowledge, except as specifically stated, of any
Default or Event of Default hereunder and all relevant facts in
reasonable detail to evidence, and the computations as to, whether or
not the Borrower is in compliance with the requirements set forth in
<PAGE>
Sections 6.12 and 6.13 and Section 7.10 hereof; and (ii) a
certificate of the chief financial officer of Continental Information
Systems Corporation stating that such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the accounting practices reflected
in the annual financial statements referred to in Section 5.5 hereof
and whether or not such officer has knowledge of the occurrence of
any Default or Event of Default hereunder and, if so, stating in
reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail
and stating in comparative form the figures for the corresponding
date and periods in the previous year, all prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with the accounting practices reflected in the financial
statements referred to in Section 5.5 hereof, subject to year-end
audit adjustments; and accompanied by a certificate of the chief
financial officer of the Borrower, substantially in the form of
Exhibit D hereto and stating (i) that such financial statements have
been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting
practices reflected in the financial statements referred to in
Section hereof, subject to year-end audit adjustments, (ii) whether
or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder not theretofore reported and remedied and,
if so, stating in reasonable detail the facts with respect thereto,
and (iii) all relevant facts in reasonable detail to evidence, and
the computations as to, whether or not the Borrower is in compliance
with the requirements set forth in Sections 6.12 and 6.13 and Section
7.10 hereof;
(c) within 15 days after the end of each month, agings of
the Borrower's accounts receivable and its accounts payable and an
inventory certification report as of the end of such month;
(d) at least 30 days before the beginning of each fiscal
year of the Borrower, the projected balance sheets and income
statements for each month of such year, each in reasonable detail,
representing the good faith projections of the Borrower and certified
by the Borrower's chief financial officer as being the most accurate
projections available and identical to the projections used by the
Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its
discretion require;
<PAGE>
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section hereof or which seek a monetary recovery against
the Borrower in excess of One Hundred Fifty Thousand Dollars
($150,000);
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of
default under any Security Document or any event which constitutes a
Default or Event of Default hereunder, notice of such occurrence,
together with a detailed statement by a responsible officer of the
Borrower of the steps being taken by the Borrower to cure the effect
of such breach, default or event;
(g) as soon as possible and in any event within 30 days
after the Borrower knows or has reason to know that any Reportable
Event with respect to any Plan has occurred, the statement of the
chief financial officer of the Borrower setting forth details as to
such Reportable Event and the action which the Borrower proposes to
take with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days
after the Borrower fails to make any quarterly contribution required
with respect to any Plan under Section 412(m) of the Internal Revenue
Code of 1986, as amended, the statement of the chief financial
officer of the Borrower setting forth details as to such failure and
the action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims in excess of One Hundred Fifty Thousand Dollars
($150,000) by customers of the Borrower; (ii) any goods returned to
or recovered by the Borrower; and (iii) any change in the persons
constituting the officers and directors of the Borrower;
(j) promptly upon knowledge thereof, notice of any loss of
or material damage to any Collateral or other collateral covered by
the Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment
thereof;
(k) promptly upon their distribution, copies of all
financial statements, reports and proxy statements which Continental
Information Systems Corporation shall have sent to its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which Continental
Information Systems Corporation shall file with the Securities and
Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the
violation by the Borrower of any law, rule or regulation, the
non-compliance with which could materially and adversely affect its
business or its financial condition; and
<PAGE>
(n) from time to time, with reasonable promptness, any and
all receivables schedules, collection reports, deposit records,
equipment schedules, copies of invoices to account debtors, shipment
documents and delivery receipts for goods sold, and such other
material, reports, records or information as the Lender may request.
Section 6.2 Books and Records; Inspection and Examination.
The Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to the Borrower's business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with
generally accepted accounting principles consistently applied and, upon request
of the Lender, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
affairs of the Borrower with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
Section 6.3 Account Verification. The Borrower will at any
time and from time to time upon request of the Lender send requests for
verification of accounts or notices of assignment to account debtors and other
obligors.
Section 6.4 Compliance with Laws; Environmental Indemnity.
The Borrower will (a) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition, (b) comply with all applicable
Environmental Laws and obtain any permits, licenses or similar approvals
required by any such Environmental Laws, and (c) use and keep the Collateral,
and will require that others use and keep the Collateral, only for lawful
purposes, without violation of any federal, state or local law, statute or
ordinance. The Borrower will indemnify, defend and hold the Lender harmless from
and against any claims, loss or damage to which the Lender may be subjected as a
result of any past, present or future existence, use, handling, storage,
transportation or disposal of any hazardous waste or substance or toxic
substance by the Borrower or on property owned, leased or controlled by the
Borrower. This indemnification agreement shall survive the termination of this
Agreement and payment of the indebtedness hereunder.
Section 6.5 Payment of Taxes and Other Claims. The Borrower
will pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interests, prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
<PAGE>
Section 6.6 Maintenance of Properties. (a) The Borrower
will keep and maintain the Collateral, the other collateral covered by the
Security Documents and all of its other properties necessary or useful in its
business in good condition, repair and working order (normal wear and tear
excepted) and will from time to time replace or repair any worn, defective or
broken parts; provided, however, that nothing in this Section 6.6 shall prevent
the Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Lender, desirable
in the conduct of the Borrower's business and not disadvantageous in any
material respect to the Lender.
(b) The Borrower will defend the Collateral against all
claims or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other
collateral covered by the Security Documents free and clear of all
security interests, liens and encumbrances except the Security
Interests and other security interests permitted by Section 7.1
hereof.
Section 6.7 Insurance. The Borrower will obtain and at all
times maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower operates. Without limiting the generality of the foregoing, the
Borrower will at all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the benefit of the Lender. All policies of
liability insurance required hereunder shall name the Lender as an additional
insured.
Section 6.8 Preservation of Corporate Existence. The
Borrower will preserve and maintain its corporate existence and all of its
rights, privileges and franchises necessary or desirable in the normal conduct
of its business and shall conduct its business in an orderly, efficient and
regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by
the Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 Lockbox; Collateral Account. (a) The Borrower
will irrevocably direct all present and future Account debtors and other Persons
obligated to make payments constituting Collateral to make such payments
directly to the Lockbox. All of the Borrower's invoices, account statements and
other written or oral communications directing, instructing, demanding or
requesting payment of any Account or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox and shall
include the Lockbox address. All payments received in the Lockbox shall be
processed to the Collateral Account.
<PAGE>
(b) The Borrower agrees to deposit in the Collateral
Account or, at the Lender's option, to deliver to the Lender all
collections on Accounts, contract rights, chattel paper and other
rights to payment constituting Collateral, and all other cash
proceeds of Collateral, which the Borrower may receive directly
notwithstanding its direction to Account debtors and other obligors
to make payments to the Lockbox, immediately upon receipt thereof, in
the form received, except for the Borrower's endorsement when deemed
necessary. Until delivered to the Lender or deposited in the
Collateral Account, all proceeds or collections of Collateral shall
be held in trust by the Borrower for and as the property of the
Lender and shall not be commingled with any funds or property of the
Borrower. Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower,
except after full payment and discharge of all Obligations. All such
collections shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. Collected funds from the
Collateral Account shall be transferred to the Lender's general
account, and the Lender may deposit in its general account or in the
Collateral Account any and all collections received by it directly
from the Borrower. The Lender may commingle such funds with other
property of the Lender or any other person. The Lender, after
allowing (i) two (2) Banking Days after deposit in the Collateral
Account and/or (ii) one (1) Banking Day after direct deposit in
Lender's account no. 10-62-609 at Norwest Bank Minnesota, National
Association, shall apply such funds (i) first, to the payment of all
fees, costs and expenses due and unpaid hereunder, (ii) second, to
the payment of any and all Obligations, in any order or manner of
application satisfactory to the Lender, and (iii) third, after
payment in full of all amounts required under clauses (i) and (ii)
above, to the Borrower or otherwise as required by law or as directed
by a court of competent jurisdiction. All items delivered to the
Lender or deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower
will immediately pay the Lender, or, for items deposited in the
Collateral Account, the bank maintaining such account, the amount of
that item, or such bank at its discretion may charge any uncollected
item to the Borrower's account with the Lender. The Borrower shall be
liable as an endorser on all items deposited in the Collateral
Account, whether or not in fact endorsed by the Borrower.
Section 6.11 Performance by the Lender. If the Borrower at
any time fails to perform or observe any of the foregoing covenants contained in
this Article or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.5, 6.7 and
6.10 hereof, immediately upon the occurrence of such failure, without notice or
lapse of time), the Lender may, but need not, perform or observe such covenant
on behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
<PAGE>
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
Section 6.12 Net Worth. While any part of the Obligations
remains unpaid, the Borrower shall, unless waived in writing by Lender,
continuously maintain: (a) from the execution of this Agreement through November
30, 1996 a minimum Net Worth of not less than Two Million Seven Hundred Thousand
Dollars ($2,700,000) and (b) a minimum Net Worth as of the end of each six-month
period commencing with the six months ending November 30, 1996 of not less than
One Hundred Thousand Dollars ($100,000) more than the Net Worth requirement
during the preceding six-month period.
Section 6.13 Net Earnings. While any part of the
Obligations remains unpaid, the Borrower shall, unless waived in writing by the
Lender, demonstrate Net Earnings of not less than One Hundred Thousand Dollars
($100,000) on its internally prepared financial statements for the six months
ending November 30, 1996 and each six-month period thereafter.
ARTICLE VII
Negative Covenants
So long as the Note shall remain unpaid or the
Discretionary Credit Facility shall be outstanding or any Letter of Credit shall
be outstanding, the Borrower agrees that, without the prior written consent of
the Lender:
Section 7.1 Liens. The Borrower will not create, incur or
suffer to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however, from the operation of
the foregoing:
(a) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed
in Exhibit C hereto, securing indebtedness for borrowed money
permitted under Section 7.2 hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower so long as the
Borrower is in, and maintains, compliance with every other provision
of this Agreement.
<PAGE>
Section 7.2 Indebtedness. The Borrower will not incur,
create, assume or permit to exist any recourse indebtedness or liability on
account of deposits or advances or any indebtedness for borrowed money, or any
other indebtedness or liability evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Exhibit C hereto;
(c) indebtedness relating to liens permitted in accordance
with Section hereof; and
(d) "Subordinated Indebtedness" as such term is defined in
the Debt Subordination Agreement, dated even date herewith by and
among Borrower, Lender and CIS Corporation.
Section 7.3 Guaranties. The Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the
ordinary course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Exhibit C hereto.
Section 7.4 Investments and Subsidiaries. (a) The Borrower
will not purchase or hold beneficially any stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including specifically but without limitation any partnership or joint venture,
except:
(1) investments in direct obligations of the United States
of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper
issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(2) travel advances or loans to officers and employees of
the Borrower not exceeding at any one time an aggregate of Ten
Thousand Dollars ($10,000); and
(3) advances in the form of progress payments, prepaid rent
or security deposits;
(4) payments to CIS Corporation to reduce inter-company
debt to the extent permitted by Section 7.20; and
<PAGE>
(5) other loans and advances made in the ordinary course of
Borrower's business, provided that the conditions set forth in
subparagraphs (a) through (d) of Section 7.20 have been satisfied
(and for this purpose the "payment" referred to therein shall be
deemed to be the loan or advance proposed to be made by the Borrower
under this subparagraph (5)).
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof
and listed in Exhibit B hereto. Notwithstanding any other provision
of this Agreement, in no event will the Borrower make any investment
in, or any loan, advance, or transfer of assets of any nature to, any
Affiliate which is not a Guarantor.
Section 7.5 Dividends. The Borrower will not declare or pay
any dividends (other than dividends payable solely in stock of the Borrower) on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly; provided,
however, that if the Borrower is an S Corporation within the meaning of the
Internal Revenue Code of 1986, as amended, or shall become such an S Corporation
with the Lender's consent under Section 7.16 hereof, and after first providing
such supporting documentation as the Lender may request, the Borrower may pay
dividends in an amount equal to the amount of state and federal income tax which
would be due by each shareholder with respect to income deemed to be received by
such shareholder from the Borrower as a result of the Borrower's status as an S
Corporation at the highest marginal income tax rate for federal and state (for
the state or states in which each shareholder is liable for income taxes with
respect to such income) income tax purposes, after taking into account any
deduction for state income taxes in calculating the federal income tax
liability.
Section 7.6 Sale or Transfer of Assets; Suspension of
Business Operations. The Borrower will not sell, lease, assign, transfer or
otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial
part of its assets, or (iii) any Collateral or any interest therein (whether in
one transaction or in a series of transactions) to any other Person other than
the sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration. For purposes of this Agreement, a sale in the "ordinary course of
business" shall be deemed to include a sale to an Affiliate at not less than
Borrower's cost.
Section 7.7. Consolidation and Merger; Asset Acquisitions.
The Borrower will not consolidate with or merge into any Person, or permit any
other Person to merge into it, or acquire (in a transaction analogous in purpose
or effect to a consolidation or merger) all or substantially all the assets of
any other Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
<PAGE>
Section 7.9 Restrictions on Nature of Business. The
Borrower will not engage in any line of business materially different from that
presently engaged in by the Borrower and will not purchase, lease or otherwise
acquire assets not related to its business.
Section 7.10 Capital Expenditures. The Borrower will not
expend or contract to expend more than One Hundred Thousand Dollars ($100,000)
in the aggregate during any fiscal year for the lease, purchase or other
acquisition of any capital asset, or for the lease of any other asset, whether
payable currently or in the future.
Section 7.11 Accounting. The Borrower will not adopt any
material change in accounting principles other than as required by generally
accepted accounting principles. The Borrower will not adopt, permit or consent
to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not (a)
after notice from the Lender, grant any discount, credit or allowance to any
customer of the Borrower or accept any return of goods sold, or (b) at any time
(whether before or after notice from the Lender) modify, amend, subordinate,
cancel or terminate the obligation of any account debtor or other obligor of the
Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower
will not adopt, create, assume or become a party to
any defined benefit pension plan, unless disclosed to the Lender pursuant to
Section 5.10 hereof.
Section 7.14 Other Defaults. The Borrower will not permit
any breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation which may constitute a recourse obligation binding upon
the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interests. The Borrower will not change
its name.
Section 7.16 Organizational Documents; S Corporation
Status. The Borrower will not amend its certificate of incorporation, articles
of incorporation or bylaws. The Borrower will not become an S Corporation within
the meaning of the Internal Revenue Code of 1986, as amended, or, if the
Borrower already is such an S Corporation, it shall not change or rescind its
status as an S Corporation.
Section 7.17 Salaries. The Borrower will not pay excessive
or unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 20% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment.
<PAGE>
Section 7.18 Change in Ownership. The Borrower will not
issue or sell any stock of the Borrower so as to change the percentage of voting
and non-voting stock owned by each of the Borrower's shareholders, and the
Borrower will not permit or suffer to occur the sale, transfer, assignment,
pledge or other disposition of any or all of the issued and outstanding shares
of stock of the Borrower.
Section 7.19 Overhead Charges. The Borrower will not pay
corporate overhead charges which combined with the payments of corporate
overhead charges by GMCCCS Corp. exceed Two Hundred Thousand Dollars ($200,000)
per fiscal quarter.
Section 7.20 Existing Inter-Company Debt. The Borrower will
not make quarterly payments to CIS Corporation to reduce Existing Inter-Company
Debt (as defined in Exhibit C hereto), unless:
(a) The Borrower is not in default under this Agreement and
GMCCCS Corp. is not in default under the GMCCCS Credit Facility;
(b) The Borrower has maintained an average net availability
during the 30-day period prior to making any such payment equal to
the amount of such payment plus Seven Hundred Fifty Thousand Dollars
($750,000);
(c) GMCCCS Corp. has maintained an average net availability
during the 30-day period prior to making any such payment of not less
than the amount of such payment plus Two Hundred Fifty Thousand
Dollars ($250,000); and
(d) The inter-company debt balance is at least One Million
Five Hundred Thousand Dollars ($1,500,000).
Section 7.21 New Inter-Company Debt. The Borrower will not
make any payments to reduce additional inter-company debt in excess of the
Existing Inter-Company Debt, unless:
(a) The Borrower is not in default under this Agreement and
GMCCCS Corp. is not in default under the GMCCCS Credit Facility; and
(b) The Borrower has net availability prior to making any
such payment equal to the amount of such payment plus Seven Hundred
Fifty Thousand Dollars ($750,000).
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. Notwithstanding that the
Lender may demand immediate payment of the Advances at any time, whether or not
a Default or an Event of Default shall have occurred, and without waiving or
limiting in any respect the Lender's right to so demand payment of the Advances
at any time, this Agreement sets forth a non-exclusive list of certain critical
events after the occurrence of which the Lender expects that it would demand
immediate payment of the Advances. "Event of Default", wherever used herein,
means any one of the following events:
<PAGE>
(a) Default in the payment of any interest on or principal
of the Note when it becomes due and payable, or failure to pay
immediately upon demand any principal of or interest on the Note; or
(b) Failure to pay when due any amount specified in Section
2.4 hereof relating to the Borrower's Obligation of Reimbursement, or
failure to pay immediately when due or upon termination of the
Discretionary Credit Facility any amounts required to be paid for
deposit in the Special Account under Section 2.5 or 2.11 hereof; or
(c) Default in the payment of any fees, commissions, costs
or expenses required to be paid by the Borrower under this Agreement;
or
(d) Default in the performance, or breach, of any covenant
or agreement of the Borrower contained in this
Agreement; or
(e) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its inability to pay its or his debts
as they mature, or make an assignment for the benefit of creditors;
or the Borrower or any Guarantor shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or
him or for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower or such Guarantor, as the
case may be; or the Borrower or any Guarantor shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the
Borrower or any such Guarantor; or any judgment, writ, warrant of
attachment, garnishment or execution or similar process shall be
issued or levied against a substantial part of the property of the
Borrower or any Guarantor; or
(f) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor; or
(g) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the
Lender or by the Borrower (or any of its officers) or any Guarantor
in any agreement, certificate, instrument or financial statement or
other statement contemplated by or made or delivered pursuant to or
in connection with this Agreement or any such guaranty shall prove to
have been incorrect in any material respect when deemed to be
effective; or
(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of One Hundred
Fifty Thousand Dollars ($150,000) and the continuance of such
judgment, decree or order unsatisfied and in effect for any period of
30 consecutive days without a stay of execution; or
<PAGE>
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other
than the Lender, or under any indenture or other instrument under
which any such evidence of indebtedness has been issued or by which
it is governed, or under any lease of any of the Premises, and the
expiration of the applicable period of grace, if any, specified in
such evidence of indebtedness, indenture, other instrument or lease;
or
(j) Any Reportable Event, which the Lender determines in
good faith might constitute grounds for the termination of any Plan
or for the appointment by the appropriate United States District
Court of a trustee to administer any Plan, shall have occurred and be
continuing 30 days after written notice to such effect shall have
been given to the Borrower by the Lender; or a trustee shall have
been appointed by an appropriate United States District Court to
administer any Plan; or the Pension Benefit Guaranty Corporation
shall have instituted proceedings to terminate any Plan or to appoint
a trustee to administer any Plan; or the Borrower shall have filed
for a distress termination of any Plan under Title IV of ERISA; or
the Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the
Internal Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination with any
such failures that the Lender may determine are likely to occur in
the future, result in the imposition of a lien on the assets of the
Borrower in favor of the Plan; or
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note; or
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the prior written consent of the Lender; or
(m) The Borrower shall fail to pay, withhold, collect or
remit any tax or tax deficiency when assessed or due (other than any
tax deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books
adequate reserves therefor) or notice of any state or federal tax
liens shall be filed or issued; or
(n) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising hereunder;
or
(o) Any Guarantor shall repudiate, purport to revoke or
fail to perform any such Guarantor's obligations under such
Guarantor's guaranty in favor of the Lender, any individual Guarantor
shall die or any other Guarantor shall cease to exist; or
(p) Any breach, default or event of default by or
attributable to any Affiliate under any agreement between such
Affiliate and the Lender.
<PAGE>
Section 8.2 Rights and Remedies. As provided in Section 2.9
hereof, the Lender may, at any time, refuse to make any requested Advance,
refuse to issue or cause to be issued any Letter of Credit, demand payment of
the Advances or terminate the Discretionary Credit Facility, whether or not a
Default or an Event of Default shall have occurred. In addition, upon the
occurrence of an Event of Default or at any time thereafter, the Lender may
exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare to
be forthwith due and payable the entire unpaid principal amount of
the Note then outstanding, all interest accrued and unpaid thereon,
all amounts payable under this Agreement and any other Obligations,
whereupon the Note, all such accrued interest and all such amounts
and Obligations shall become and be forthwith due and payable,
without presentment, notice of dishonor, protest or further notice of
any kind, all of which are hereby expressly waived by the Borrower;
(b) The Lender may, without notice to the Borrower and
without further action, apply any and all money owing by the Lender
to the Borrower to the payment of the Advances, including interest
accrued thereon, and of all other sums then owing by the Borrower
hereunder, including, without limitation, the Obligation of
Reimbursement;
(c) The Lender may, exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble
the Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(d) The Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account
pursuant to Sections and 3.5 hereof an amount equal to the maximum
aggregate amount available to be drawn under all Letters of Credit
then outstanding, assuming compliance with all conditions for drawing
thereunder;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(f) hereof, the entire unpaid principal amount of the
Note and the Obligation of Reimbursement (whether contingent or funded), all
interest accrued and unpaid thereon, all other amounts payable under this
Agreement and any other Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.
<PAGE>
Section 8.3 Certain Notices. If notice to the Borrower of
any intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
business days prior to the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or
delay on the part of the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law. The Lender agrees
to act at all times in a commercially reasonable manner in exercising its rights
and remedies under the Loan Documents as required by the UCC and any other
applicable law.
Section 9.2 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed to the party to whom notice is being given at
its address as set forth below and, if telecopied, transmitted to that party at
its telecopier number set forth below:
If to the Borrower:
CIS Air Corporation
One Northern Concourse
Syracuse, New York 13221
Telecopier: (315) 455-4862
Attention: Frank J. Corcoran
If to the Lender:
Norwest Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
Milwaukee, WI 53202
Telecopier: (414) 224-7439
Attention: Thomas J. Zak
<PAGE>
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article hereof shall not be
effective until received by the Lender.
Section 9.4 Financing Statement. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
CIS Air Corporation
One Northern Concourse
Syracuse, New York 13221
Federal Tax Identification No. 94-3043971
Name and address of Secured Party:
Norwest Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
Milwaukee, WI 53202
Section 9.5 Further Documents. The Borrower will from time
to time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interests or the rights of the
Lender under this Agreement (but any failure to request or assure that the
Borrower executes, delivers or endorses any such item shall not affect or impair
the validity, sufficiency or enforceability of this Agreement and the Security
Interests, regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion).
Section 9.6 Collateral. This Agreement does not contemplate
a sale of accounts, contract rights or chattel paper, and, as provided by law,
the Borrower is entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and the Lender need not otherwise preserve, protect, insure or care for any
Collateral. The Lender shall not be obligated to preserve any rights the
Borrower may have against prior parties, to realize on the Collateral at all or
in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
<PAGE>
Section 9.7 Costs and Expenses. The Borrower agrees to pay
on demand all costs and expenses, including (without limitation) attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, any Letters of Credit and any other document or agreement
related hereto or thereto, and the transactions contemplated hereby, including
without limitation the Lender's appraisal fees on an ongoing basis and all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interests.
Section 9.8 Indemnity. In addition to the payment of
expenses pursuant to Section 9.7 hereof and the environmental indemnity pursuant
to Section 6.4 hereof, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees and agents of the
foregoing (the "Indemnitees"), from and against (i) any and all transfer taxes,
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement and the other Loan
Documents or the making of the Advances or issuance of any Letter of Credit, and
(ii) any and all liabilities, losses, damages, penalties, judgments, suits,
claims, costs and expenses of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel) in connection with
any investigative, administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against such Indemnitee, in any manner relating to or
arising out of or in connection with the making of the Advances, the issuance of
any Letter of Credit this Agreement and all other Loan Documents or the use or
intended use of the proceeds of the Advances or any Letter of Credit (the
"Indemnified Liabilities"). If any investigative, judicial or administrative
proceeding arising from any of the foregoing is brought against any Indemnitee,
upon request of such Indemnitee, the Borrower, or counsel designated by the
Borrower and satisfactory to the Indemnitee, will resist and defend such action,
suit or proceeding to the extent and in the manner directed by the Indemnitee,
at the Borrower's sole cost and expense. Each Indemnitee will use its best
efforts to cooperate in the defense of any such action, suit or proceeding. If
the foregoing undertaking to indemnify, defend and hold harmless may be held to
be unenforceable because it violates any law or public policy, the Borrower
shall nevertheless make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The obligation of the Borrower under this Section 9.8 shall survive the
termination of this Agreement and the discharge of the Borrower's other
Obligations.
Section 9.9 Participants. The Lender and its participants,
if any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the participants, successors or assigns of
the Lender.
Section 9.10 Execution in Counterparts. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
<PAGE>
Section 9.11 Binding Effect; Assignment; Complete
Agreement. The Loan Documents shall be binding upon and inure to the benefit of
the Borrower and the Lender and their respective successors and assigns, except
that the Borrower shall not have the right to assign its rights thereunder or
any interest therein without the prior written consent of the Lender. This
Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof.
Section 9.12 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of Wisconsin.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of Wisconsin in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient, and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in either the Circuit Court of
Milwaukee County, Wisconsin, or the United States District Court for the Eastern
District of Wisconsin. The parties waive any right to trial by jury in any
action or proceeding based on or pertaining to this Agreement.
Section 9.13 Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.14 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers
thereunto duly authorized as of the date first above written.
BORROWER:
CIS AIR CORPORATION (SEAL)
By: /s/ Frank J. Corcoran
---------------------
Name: Frank J. Corcoran
Title: Vice President
By:
Its:_______________________
LENDER:
NORWEST BUSINESS CREDIT, INC. (SEAL)
By: /s/ Thomas J. Zak
-----------------
Name: Thomas J. Zak
Title: Assistant Vice
President
<PAGE>
Exhibit 0.1. to Credit and Security Agreement
DEMAND NOTE
$4,500,000 Milwaukee, Wisconsin
July 31
For value received, the undersigned, CIS Air Corporation, a
Delaware corporation (the "Borrower"), hereby promises to pay ON DEMAND, and in
accordance with the terms of the Credit Agreement (defined below), to the order
of Norwest Business Credit, Inc. a Minnesota corporation (the "Lender"), at its
main office in Milwaukee, Wisconsin, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Four Million Five Hundred
Thousand Dollars ($4,500,000) or, if less, the aggregate unpaid principal amount
of all advances made by the Lender to the Borrower hereunder, together with
interest on the principal amount hereunder remaining unpaid from time to time,
computed on the basis of the actual number of days elapsed and a 360-day year,
from the date hereof until this Note is fully paid at the rate from time to time
in effect under the Credit and Security Agreement of even date herewith (the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and the interest accruing thereon shall be payable as provided in the
Credit Agreement and in any event on demand. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the
Credit Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses, in the event
this Note is not paid when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of
dishonor and protest are expressly waived.
CIS AIR CORPORATION (SEAL)
By: /s/ Frank J. Corcoran
-----------------
Frank J. Corcoran
Vice President
CREDIT AND SECURITY AGREEMENT
Dated as of July 31, 1996
GMCCCS Corp., a California corporation d/b/a Laser Access (the
"Borrower"), and Norwest Business Credit, Inc., a Minnesota corporation (the
"Lender"), hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as
the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles.
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of goods
or rendition of services by the Borrower on an open account or deferred payment
basis.
"Advance" means an advance to the Borrower by the Lender under the
Discretionary Credit Facility.
"Affiliate" or "Affiliates" means CIS Corporation, CIS Air
Corporation, CIS Aircraft Partners, Inc., CIS Assignor L.P.A., Inc., Continental
Information Systems Corporation and any other Person controlled by, controlling
or under common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Banking Day" means a day other than a Saturday on which banks are
generally open for business in Milwaukee, Wisconsin.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota, National Association as its "base rate" or, if
such bank ceases to announce a rate so designated, any similar successor rate
designated by the Lender. The Base Rate may not be the lowest rate offered by
the Lender to its other customers.
<PAGE>
"Borrowing Base" means, at any time and subject to change from time to
time in the Lender's sole discretion, the lesser of
(a) $2,500,000, or
(b) the sum of
(i) the lesser of (A) 80% of Eligible Accounts or (B)
$2,500,000, plus
(ii) the lesser of (A) 45% of Eligible Inventory or (B)
$1,500,000.
"CIS Air Corporation Credit Facility" means the Credit and Security
Agreement dated as of July 31, 1996 between CIS Air Corporation and the Lender.
"Collateral" means all of the Equipment, General Intangibles,
Inventory and Receivables, together with all substitutions and replacements for
and products of any of the foregoing and together with proceeds of any and all
of the foregoing and, in the case of all tangible Collateral, together with all
accessions and together with (i) all accessories, attachments, parts, equipment
and repairs now or hereafter attached or affixed to or used in connection with
any such goods, and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning specified in Section hereof.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Rate" means at any time three percent (3.0%) over the
Floating Rate, which Default Rate shall change when and as the Floating Rate
changes.
"Discretionary Credit Facility" means the discretionary credit
facility being made available to the Borrower by the Lender pursuant to Article
II hereof.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(1) That portion of Accounts over 90 days past invoice date or,
if the Lender in its discretion has determined that a particular
dated Account may be eligible, that portion of such Account which
is more than 60 days past the stated due date;
(2) That portion of Accounts that are disputed or subject to a
claim of offset or a contra account;
(3) That portion of Accounts not yet earned by the final delivery
of goods or rendition of services, as applicable, by the Borrower
to the customer;
<PAGE>
(4) Accounts owed by any unit of the United States Government, or
any foreign government (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government with respect to which the Borrower has
provided evidence satisfactory to the Lender that (A) the Lender
has a first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such unit
of government under all applicable laws);
(5) Accounts owed by an account debtor located outside the United
States except Canada which are not backed by a bank letter of
credit assigned to the Lender, in the possession of the Lender
and acceptable to the Lender in all respects, in its sole
discretion;
(6) Accounts owed by an account debtor that is the subject of
bankruptcy proceedings or has gone out of business;
(7) Accounts owed by a shareholder, subsidiary, Affiliate,
officer or employee of the Borrower;
(8) Accounts not subject to a duly perfected security interest in
favor of the Lender or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender;
(9) That portion of Accounts that have been restructured,
extended, amended or modified;
(10) That portion of Accounts that constitutes finance charges,
service charges;
(11) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 25% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (1), (2) or
(9) above;
(12) Accounts for leased goods;
(13) Accounts subject to progress billings; and
(14) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"Eligible Inventory" means all inventory of the Borrower, at the lower
of cost or market value as determined in accordance with generally accepted
accounting principles; provided, however, that the following shall not in any
event be deemed Eligible Inventory:
(1) Inventory that is: in-transit; located at any warehouse or
other premises not approved by the Lender in writing; covered by
any negotiable or non-negotiable warehouse receipt, bill of
lading or other document of title; on consignment to or from any
other person or subject to any bailment;
(2) Inventory as to which any necessary filing has not been made
in order for Lender to have a perfected first priority security
interest therein;
<PAGE>
(3) Supplies, packaging or parts inventory;
(4) Work-in-process inventory;
(5) Inventory that is damaged, obsolete or not currently saleable
in the normal course of the Borrower's operations;
(6) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to
the vendor thereof;
(7) Inventory that is subject to a security interest in favor of
any Person other than the Lender;
(8) Inventory that is subject to long-term rental or lease
agreements;
(9) Inventory having a value greater than Four Hundred Thousand
Dollars ($400,000) that does not have an appraisal satisfactory
to the Lender; and
(10) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12 hereof.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not
limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 8.1 hereof.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus three-quarters percent (0.75%), which Floating Rate shall change when and
as the Base Rate changes.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guarantors" means CIS Air Corporation, CIS Corporation and
Continental Information Systems Corporation.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether consisting
of whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service contracts or
for manufacture or processing, and wherever located.
"Issuer" means the issuer of any Letter of Credit.
<PAGE>
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.3 hereof.
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning specified in Section 4.1(e) hereof.
"Minimum Interest Charge" has the meaning specified in Section 2.8(b)
hereof.
"Net Earnings" shall mean the excess of:
(a) All revenues and income derived from operations in the
ordinary course of business (excluding extraordinary gains and profits
upon the disposition of investments and fixed assets),
Over:
(b) All expenses and other proper charges against income
(including payment or provision for all applicable income and other
taxes, but excluding extraordinary losses and losses upon the
disposition of investments and fixed assets), all as determined in
accordance with generally accepted accounting principles.
"Net Worth" shall mean the total of all assets properly appearing on
the balance sheet of the Borrower in accordance with generally accepted
accounting principles, less the sum of the following:
(a) Any write-up in the book carrying value of any asset
resulting from a revaluation thereof subsequent to May 31, 1995;
(b) All reserves including, but not limited to, reserves for
liabilities, fixed or contingent, deferred income taxes, obsolescence,
depletion, insurance, and inventory valuation, which are not deducted
from assets;
(c) The amount, if any, at which the shares of stock or
indebtedness of an Affiliate in excess of Seven Million Nine Hundred
Thousand Dollars ($7,900,000) appear on the asset side of such balance
sheet; and
(d) All liabilities of the Borrower shown on such balance
sheet.
"Note" means the Demand Note of the Borrower payable to the order of
the Lender in substantially the form attached hereto as Exhibit A.
"Obligation of Reimbursement" has the meaning specified in Section
hereof.
"Obligations" has the meaning specified in Section 3.1 hereof.
<PAGE>
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the premises
legally described in Exhibit E attached hereto.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a loan, out
of the overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Security Documents" means the Agreement as to Collateral Account and
the Lockbox Services and all other documents, each as described in Section 4.1
hereof.
"Security Interest" has the meaning specified in Section 3.1
hereof.
"Special Account" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with Letters
of Credit, as contemplated by Sections 2.5 and 3.5 hereof.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Termination Date" has the meaning specified in Section 2.9 hereof.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.12 hereof as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
<PAGE>
ARTICLE II
Amount and Terms of the Discretionary Credit Facility
Section 2.1 Advances. The Lender may, in its sole discretion,
make Advances to the Borrower from time to time during the period from the date
hereof until the Lender demands payment of the Advances or the Discretionary
Credit Facility has been terminated pursuant to Section 2.9 or 2.10, in an
aggregate amount at any time outstanding not to exceed the Borrowing Base less
the L/C Amount, which Advances shall be secured by the Collateral as provided in
Article III hereof. The Discretionary Credit Facility shall be a revolving
facility and it is contemplated that the Borrower will request Advances, make
prepayments and request additional Advances. The Borrower agrees to comply with
the following procedures in requesting Advances under this Section 2.1:
(a) The Borrower will not request any Advance under this
Section 2.1 if, after giving effect to such requested Advance, the sum
of the outstanding and unpaid Advances under this Section 2.1 or
otherwise would exceed the Borrowing Base less the L/C Amount.
(b) Each request for an Advance may be made in writing or by
telephone, specifying the date of the requested Advance and the amount
thereof, and shall be by (i) any officer of the Borrower; or (ii) any
person designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any person
reasonably believed by the Lender to be an officer of the Borrower or
such a designated agent.
(c) Upon fulfillment of the applicable conditions set forth in
Article IV hereof, the Lender shall disburse loan proceeds, if any, by
crediting the same to the Borrower's demand deposit account maintained
with Core States Bank, N.A. unless the Lender and the Borrower shall
agree in writing to another manner of disbursement. Upon request of
the Lender, the Borrower shall promptly confirm each telephonic
request for an Advance by executing and delivering an appropriate
daily collateral report to the Lender. The Borrower shall be obligated
to repay all Advances under this Section 2.1 notwithstanding the
failure of the Lender to receive such confirmation and notwithstanding
the fact that the person requesting the same was not in fact
authorized to do so. Any request for an Advance under this Section
2.1, whether written or telephonic, shall be deemed to be a
representation by the Borrower that (i) the condition set forth in
Section 2.1(a) hereof has been met, and (ii) the conditions set forth
in Section 4.2 hereof have been met as of the time of the request.
Section 2.2 Note. All Advances made by the Lender under this
Article II shall be evidenced by and repayable with interest in accordance with
the Note. The principal of the Note shall be due and payable as provided herein
and on the earlier of termination of the Discretionary Credit Facility or demand
by the Lender and shall bear interest as provided herein.
Section 2.3 Issuance of Letters of Credit. (a) The Lender may,
in its sole discretion, issue or cause to be issued by an Issuer one or more
letters of credit for the account of the Borrower (each a "Letter of Credit")
from time to time during the period from the date hereof until the Lender
demands payment of the Advances or the Discretionary Credit Facility has been
terminated pursuant to Section 2.9 or 2.10, in an aggregate amount at any time
<PAGE>
outstanding not to exceed the Borrowing Base less the sum of (i) all outstanding
and unpaid Advances hereunder and (ii) the unpaid amount of the Obligation of
Reimbursement. Each Letter of Credit, if any, shall be issued pursuant to a
separate L/C Application entered into between the Borrower and the Lender,
completed in a manner satisfactory to the Lender and the Issuer. The terms and
conditions set forth in each such L/C Application shall supplement the terms and
conditions hereof, but in the event of inconsistency between the terms of any
such L/C Application and the terms hereof, the terms hereof shall control.
(b) The Borrower will not request the issuance of any Letter
of Credit under this Section 2.3 if, after the issuance of such
requested Letter of Credit, the sum of the face amounts of all issued
and outstanding Letters of Credit would exceed the Borrowing Base less
the sum of (i) all outstanding and unpaid Advances hereunder and (ii)
the unpaid amount of the Obligation of Reimbursement.
(c) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(d) Any request for the issuance of a Letter of Credit under
this Section 2.3 shall be deemed to be a representation by the Borrower
that (i) the condition set forth in Section 2.3(b) hereof has been met,
and (ii) the statements set forth in Section 4.2 hereof are correct as
of the time of the request.
Section 2.4 Payment of Amounts Drawn Under Letters of Credit.
The Borrower acknowledges that the Lender, as co-applicant, will be liable to
the Issuer of any Letter of Credit for reimbursement of any and all draws
thereunder and all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower agrees to pay to the Lender any and all
amounts required to be paid under the applicable L/C Application, when and as
required to be paid thereby, and the amounts designated below, when and as
designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Issuer or the Lender may pay or incur relative to
such draw, plus interest on all such amounts, charges and expenses as
set forth below (all such amounts are hereinafter referred to,
collectively, as the "Obligation of Reimbursement").
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amounts, charges and expenses payable by the Borrower
to the Lender under this Section 2.4, accrued from the date any such
draft, charge or expense is paid by the Issuer until payment in full by
the Borrower at the Default Rate.
If the Borrower fails to pay to the Lender promptly the amount of its Obligation
of Reimbursement in accordance with the terms hereof and the L/C Application
pursuant to which such Letter of Credit was issued, the Lender is hereby
irrevocably authorized and directed, in its sole discretion, to make an Advance
in an amount sufficient to discharge the Obligation of Reimbursement, including
all interest accrued thereon but unpaid at the time of such Advance, and such
Advance shall be evidenced by the Note and shall bear interest as provided in
Section 2.8 hereof.
<PAGE>
Section 2.5 Special Account. If the Lender terminates the
Discretionary Credit Facility pursuant to Section 2.9, or the Discretionary
Credit Facility is otherwise terminated for any reason whatsoever, while any
Letter of Credit is outstanding, the Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an amount equal
to the maximum aggregate amount available to be drawn under all Letters of
Credit then outstanding, assuming compliance with all conditions for drawing
thereunder. The Special Account shall be maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Borrower's Obligation of Reimbursement or any
other Obligations, in the Lender's sole discretion, and shall not be subject to
withdrawal by the Borrower so long as the Lender maintains a security interest
therein. The Lender agrees to transfer any balance in the Special Account to the
Borrower at such time as the Lender is required to release its security interest
in the Special Account under applicable law.
Section 2.6 Increased Costs and Reduced Return. (a) If the
Lender shall determine that, after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Issuer or the Lender or its parent corporation
with any requirement or directive (whether or not having the force of law) of
any such authority, central bank or comparable agency:
(i) shall subject the Issuer or the Lender or its parent
corporation to any tax, duty or other similar charge with
respect to any Letter of Credit, the Advances or the Note or
shall change the basis of taxation of payments to the Issuer
or the Lender or its parent corporation of the Reimbursement
Obligation, of the principal of or interest on the Advances or
of any other amounts due under this Agreement in respect of
any Letter of Credit, the Advances or the Note (except for any
change in respect of any tax imposed on the overall income of
the Issuer or the Lender or its parent corporation); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System) against assets of,
deposits with or for the account of, or credit extended by,
the Issuer or the Lender or its parent corporation or shall
impose on the Issuer or the Lender or its parent corporation
any other condition affecting any Letter of Credit, the
Advances or the Note;
and the result of any of the foregoing is to increase the cost to the Issuer or
the Lender or its parent corporation of issuing or maintaining any Letter of
Credit or of making or maintaining any Advances, or to reduce the amount of any
sum received or receivable by the Issuer or the Lender or its parent corporation
under the application and agreement pursuant to which the Letter of Credit was
issued, this Agreement or the Note with respect thereto, by an amount deemed by
the Lender or its parent corporation to be material, then upon demand by the
Lender, the Borrower shall pay to the Lender such additional amount or amounts
as will compensate the Issuer or the Lender or its parent corporation for such
increased cost or reduction.
<PAGE>
(b) If the Lender shall determine that the adoption after the
date hereof of any applicable law, rule or regulation regarding
capital adequacy, or any change therein after the date hereof, any
change after the date hereof in the interpretation or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
compliance by the Lender [or its parent corporation] with any
guideline or request issued after the date hereof regarding capital
adequacy (whether nor not having the force of law) of any such
authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the Lender's or the Lender's
parent corporation's capital as a consequence of any Letters of
Credit, Advances or the Lender's obligations hereunder to a level
below that which the Lender or its parent corporation could have
achieved but for such adoption, change or compliance (taking into
consideration the Lender's policies with respect to capital adequacy
and those of the Lender's parent corporation) by an amount deemed to
the Lender or its parent corporation to be material, then from time to
time on demand by the Lender, the Borrower shall pay to the Lender
such additional amount or amounts as will compensate the Lender or its
parent corporation for such reduction.
(c) Certificates of the Lender sent to the Borrower from time
to time claiming compensation under this Section, stating the reason
therefor and setting forth in reasonable detail the calculation of the
additional amount or amounts to be paid to the Lender hereunder shall
be conclusive absent manifest error. In determining such amounts, the
Lender or its parent corporation may use any reasonable averaging and
attribution methods.
Section 2.7 Obligations Absolute. The obligations of the
Borrower arising under this Agreement shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including (without limitation)
the following circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or
any transferee of any Letter of Credit (or any persons or entities for
whom any such beneficiary or any such transferee may be acting), or
other person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
<PAGE>
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate
which does not strictly comply with the terms of such Letter of Credit;
or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2.8 Interest. (a) The principal of the Advances
outstanding from time to time during any month shall bear interest (computed on
the basis of actual days elapsed in a 360-day year) at the Floating Rate;
provided, however, that from the first day of any month during which any Default
or Event of Default occurs or exists at any time, in the Lender's discretion and
without waiving any of its other rights and remedies, the principal of the
Advances outstanding from time to time shall bear interest at the Default Rate;
and provided, further, that in any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by law.
Interest accruing on the principal balance of the Advances outstanding from time
to time shall be payable on the first day of the next succeeding month and on
the termination of the Discretionary Credit Facility or earlier demand or
prepayment in full.
(b) Notwithstanding the interest payable pursuant to Section
2.8(a) hereof, the Borrower shall be liable to the Lender for interest
hereunder and under the CIS Air Corporation Credit Facility of not less
than One Hundred Fifty-Six Thousand Dollars ($156,000) in the aggregate
per year (the "Minimum Interest Charge") during the term of this
Agreement, and the Borrower shall pay any deficiency between the
Minimum Interest Charge and the amount of interest otherwise calculated
under Sections 2.8(a) and 2.8(b) of this Agreement and the CIS Air
Corporation Credit Facility on the date and in the manner provided in
Section 2.8(a) of this Agreement and the CIS Air Corporation Credit
Facility.
Section 2.9 Discretionary Nature of this Facility; Termination
by the Lender; Automatic Renewal. This Agreement contains the terms and
conditions upon which the Lender presently expects to make Advances to the
Borrower or issue, or cause to be issued, Letters of Credit for the account of
the Borrower. Each Advance by the Lender to the Borrower and each Letter of
Credit issued, or caused to be issued, for the account of the Borrower shall be
in the sole discretion of the Lender, and the Lender need not show that an
adverse change has occurred in the Borrower's condition, financial or otherwise,
or that any of the conditions of Article IV have not been met, in order to
refuse to make any requested Advance or to demand payment of any
then-outstanding Advances or to refuse to issue, or cause to be issued, any
Letter of Credit for the account of the Borrower. The Lender may at any time
terminate the Discretionary Credit Facility whereupon the Lender shall no longer
consider requests for Advances or the issuance of Letters of Credit under this
Agreement. Unless terminated by the Lender at any time or by the Borrower
pursuant to Section 2.10 hereof, the Discretionary Credit Facility shall remain
in effect until July 31, 1998 and, thereafter, shall automatically renew for
successive one year periods (July 31, 1998, and each anniversary date thereof
which is at the end of any year in which the Discretionary Credit Facility has
been automatically renewed, is herein referred to as a "Termination Date").
<PAGE>
Section 2.10 Voluntary Prepayment; Termination of Agreement by
the Borrower. Except as otherwise provided herein, the Borrower may, in its
discretion, prepay the Advances in whole at any time or from time to time in
part, without penalty so long as this Agreement is not terminated. The Borrower
may terminate this Agreement as of any Termination Date, so long as no Letter of
Credit has been issued and is outstanding with an expiration date after such
Termination Date, by giving at least 90 days' prior written notice to the Lender
of the Borrower's intention to terminate this Agreement as of the specified
Termination Date. If the Borrower desires to terminate this Agreement as of any
date other than a Termination Date, or as of a Termination Date but without
giving at least 90 days' prior written notice thereof, it shall (a) give at
least 30 days' prior written notice to the Lender of the Borrower's intention to
do so; and (b) pay the Lender a prepayment fee of One Hundred Thousand Dollars
($100,000) less than the amount of any prepayment penalty paid to the Lender by
CIS Air Corporation under Section 2.10(b) of the CIS Air Corporation Credit
Facility; provided, however, that there shall be no prepayment fee if Borrower
has complied with Section 2.5(a) hereof after eighteen (18) months from the date
of this Agreement and the source of the prepayment is a Norwest Bank. Upon
compliance with the foregoing requirements and subject to payment and
performance of all the Borrower's obligations to the Lender, the Borrower may
obtain any release or termination of the Security Interest to which the Borrower
is otherwise entitled by law. Notwithstanding any other provision of this
Agreement, if the Borrower terminates this Agreement because of additional
payments required by Section 2.6 hereof, no prepayment fee, premium or penalty
shall be due in connection with such termination.
Section 2.11 Mandatory Prepayment. The Borrower shall repay
the Advances immediately upon demand of the Lender. Without notice or demand, if
the sum of the outstanding principal balance of the Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall immediately
prepay the Advances to the extent necessary to eliminate such excess; and (ii)
if prepayment in full of the Advances is insufficient to eliminate such excess,
pay to the Lender in immediately available funds for deposit in the Special
Account an amount equal to the remaining excess. Any payment received by the
Lender under this Section 2.11 or under Section 2.10 may be applied to the
Obligation of Reimbursement or the Advances, including interest thereon and any
fees, commissions, costs and expenses hereunder and under the Security
Documents, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine. Mandatory prepayments required by this Section
2.11 shall be made without premium, fee or penalty.
Section 2.12 Payment. All payments of principal of and
interest on the Advances, the Obligation of Reimbursement, the commissions and
fees hereunder and amounts required to be paid to the Lender for deposit in the
Special Account shall be made to the Lender in immediately available funds. The
Borrower hereby authorizes the Lender to charge against the Borrower's account
with the Lender an amount equal to the principal, Obligation of Reimbursement,
accrued interest, commissions and fees from time to time due and payable to the
Lender hereunder and amounts required to be paid to the Lender for deposit in
the Special Account and further authorizes the Lender], in its discretion at any
time or from time to time and without request by the Borrower, to make an
Advance under the Discretionary Credit Facility to the extent necessary to pay
any such amounts hereunder or under the Security Documents.
Section 2.13 Payment on Non-Banking Days. Whenever any payment
to be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of interest
on the Advances or the fees hereunder, as the case may be.
<PAGE>
Section 2.14 Use of Proceeds. The proceeds of Advances and
each Letter of Credit issued or caused to be issued shall be used by the
Borrower for ordinary working capital purposes.
Section 2.15 Liability Records. The Lender may maintain from
time to time, at its discretion, liability records as to any and all Advances
made or repaid, interest accrued or paid under this Agreement, outstanding
Letters of Credit and fees thereon and the Borrower's Obligation of
Reimbursement. All entries made on any such record shall be presumed correct
until the Borrower establishes the contrary. On demand by the Lender, the
Borrower will admit and certify in writing the exact principal balance that the
Borrower then asserts to be outstanding to the Lender for Advances under this
Agreement and the amount of any Letters of Credit outstanding. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless specific written notice of exception is given to
the Lender by the Borrower within 30 days after its receipt by the Borrower.
Section 2.16 Setoff. The Borrower agrees that the Lender may
at any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any indebtedness owed to the Lender by the
Borrower (for Advances, the Obligation of Reimbursement or the amounts required
to be paid to the Lender for deposit in the Special Account or for any other
transaction or event), whether or not due. In addition, each other Person
holding a participating interest in any Advances made to the Borrower by the
Lender shall have the right to appropriate or setoff any deposit or other
liability then owed by such Person to the Borrower, whether or not due, and
apply the same to the payment of said participating interest, as fully as if
such Person had lent directly to the Borrower the amount of such participating
interest.
Section 2.17 Fees. (a) The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of Thirty Thousand
Dollars ($30,000) due and payable upon the execution of this Agreement.
(b) The Borrower hereby agrees to pay the Lender a commission
with respect to each Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate of one and one-half percent
(1.50%) of the available amount of such Letter of Credit (as it may be
changed from time to time) from and including the date of issuance of
such Letter of Credit until such date as such Letter of Credit shall
terminate by its terms, payable annually in advance, and prorated for
any part of a full calendar year in which such Letter of Credit remains
outstanding. The foregoing commission shall be in addition to any and
all fees, commissions and charges of any Issuer of a Letter of Credit
with respect to or in connection with such Letter of Credit.
(c) The Borrower agrees to pay the Lender, on written demand,
the administrative fees charged by the Issuer in connection with the
honoring of drafts under any Letter of Credit, amendments thereto,
transfers thereof and all other activity with respect to the Letters of
Credit.
<PAGE>
(d) The Borrower hereby agrees to pay the Lender, on demand,
audit fees of Two Thousand Five Hundred Dollars ($2,500) per quarter
plus out-of-pocket expenses in connection with any audits or
inspections by the Lender of any collateral or the operations or
business of the Borrower. The first such audit fee shall be due on
October 1, 1996 and such out-of-pocket expenses will be due as such
expenses are incurred.
(e) The Borrower hereby agrees to (i) reimburse the Lender for
all wire transfer charges and automated clearinghouse charges and to
(ii) pay overadvance charges of Tow Hundred Dollars ($200) per day;
provided, however, that from the first day of any month during which
any Default or Event of Default occurs or exists at any time, the daily
overadvance charge (if an overadvance exists) shall be Four Hundred
Dollars ($400).
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interests") in the Collateral, as security for the payment and
performance of each and every debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender (whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower, and whether
it is direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, the Obligation of
Reimbursement and all indebtedness of the Borrower arising under this Agreement,
the Note, any L/C Application completed by the Borrower or any other loan or
credit agreement or guaranty between the Borrower and the Lender, whether now in
effect or hereafter entered into; all such debts, liabilities and obligations
are herein collectively referred to as the "Obligations").
Section 3.2 Notification of Account Debtors and Other
Obligors. In addition to the rights of the Lender under Section 6.10 hereof,
with respect to any and all rights to payment constituting Collateral, the
Lender may at any time (either before or after the occurrence of an Event of
Default) notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as agent and
attorney in fact of the Borrower, notify the United States Postal Service to
change the address for delivery of the Borrower's mail to any address designated
by the Lender, otherwise intercept the Borrower's mail, and receive, open and
dispose of the Borrower's mail, applying all Collateral as permitted under this
Agreement and holding all other mail for the Borrower's account or forwarding
such mail to the Borrower's last known address.
<PAGE>
Section 3.3 Assignment of Insurance. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether before or after the occurrence of any Event of
Default, the Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proofs of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.
Section 3.4 Occupancy. (a) The Borrower hereby irrevocably
grants to the Lender the right to take possession of the Premises at any time
after the occurrence and during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and discharge of
all Obligations, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, in the event that the Lender
does pay or account for any rent or other compensation for the
possession, occupancy or use of any of the Premises, the Borrower shall
reimburse the Lender promptly for the full amount thereof. In addition,
the Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 Security Interest in Special Account and
Collateral Account. The Borrower hereby pledges, and grants to the Lender a
security interest in, all funds held in the Special Account and in the
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all present and future Obligations of Reimbursement and all other
Obligations.
Section 3.6 License. The Borrower hereby grants to the Lender
a non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral following an Event of Default.
Section 3.7 Release of Collateral. Lender may from time to
time in its sole discretion release specific items of Collateral and, in such
event, shall execute all documents reasonably requested by Borrower (including
but not limited to loan payout letters and UCC and Federal Aviation
Administration forms) necessary to evidence such release.
<PAGE>
ARTICLE IV
Conditions of Willingness to Consider Lending
Section 4.1 Conditions Precedent to the Lender's Willingness
to Consider Making Advances. The Lender's willingness to consider making the
initial Advance hereunder or issuing or causing to be issued any Letter of
Credit hereunder shall be subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Note, properly executed on behalf of the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) An Agreement as to Collateral Account and Lockbox
Services, duly executed by the Borrower and a financial institution
acceptable to the Lender, pursuant to which (i) the Borrower and the
institution establish a depository account (the "Collateral Account")
in the name of and under the sole and exclusive control of the Lender,
from which such institution agrees to transfer finally collected funds
to the Lender for application to the Advances, and (ii) the Borrower
agrees to maintain and direct account debtors to make payment to, and
such institution agrees to maintain and process payments received in,
a lockbox for the benefit of the Lender (the "Lockbox"), from which
Lockbox such institution shall transfer funds to the Collateral
Account.
(e) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements have been
filed and remain in effect against the Borrower, except those
financing statements relating to liens permitted pursuant to Section
7.1 hereof and those financing statements filed by the Lender, and
(iii) the Lender has duly filed all financing statements necessary to
perfect the Security Interests granted hereunder, to the extent the
Security Interests are capable of being perfected by filing.
(f) A certificate of the Secretary or an Assistant Secretary
of the Borrower, certifying as to (i) the resolutions of the directors
and, if required, the shareholders of the Borrower, authorizing the
execution, delivery and performance of this Agreement and the Security
Documents, (ii) the articles of incorporation and the bylaws of the
Borrower, and (iii) the signatures of the officers or agents of the
Borrower authorized to execute and deliver this Agreement, the Security
Documents and other instruments, agreements and certificates, including
Advance requests, on behalf of the Borrower.
(g) A current certificate issued by the Secretary of State of
the state of the Borrower's incorporation, certifying that the Borrower
is in compliance with all corporate organizational requirements of such
state.
<PAGE>
(h) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(i) A certificate of an officer of the Borrower confirming, in
his personal capacity, the representations and warranties set forth in
Article V hereof.
(j) An opinion of counsel to the Borrower and each of the
Guarantors, addressed to the Lender.
(k) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in
favor of the Lender and all liability insurance naming the Lender as
an additional insured.
(l) Guaranties, properly executed by each of the Guarantors,
pursuant to which each Guarantor unconditionally guarantees the full
and prompt repayment of all present and future Obligations.
(m) A General Business Security Agreement, properly executed
by CIS Air Corporation, securing the Obligations guaranteed by such
Guarantor.
(n) Acknowledgments of Ownership and Waiver of Liens, properly
executed by each of the Borrower's subcontractors in possession of
goods and inventory comprising the Collateral, including, without
limitation, [Park Plaza] and [The Business Works].
(o) A Landlord's Disclaimer and Consent, properly executed by
RE Hazard Container Co.
(p) Payment of the fees and commissions due through the date
of the initial Advance or Letter of Credit under Section 2.17 hereof
and expenses incurred by the Lender through such date and required to
be paid by the Borrower under Section 9.7 hereof.
(q) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to the Lender's Willingness
to Consider Making All Advances. The Lender will not consider a request for any
Advance or the issuance of any Letter of Credit unless on the date thereof:
(a) the representations and warranties contained in Article
hereof are correct on and as of the date of such Advance as though
made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance or the issuance of such Letter of Credit, as the
case may be, which constitutes a Default or an Event of Default.
<PAGE>
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief
Executive Office; Inventory and Equipment Locations. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California, and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its corporate existence, the Borrower has done business solely
under the names set forth in Exhibit B hereto. The chief executive office and
principal place of business of the Borrower is located at the address set forth
in Exhibit B hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in Exhibit B
hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law
or Agreements. The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower, (b) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and,
upon due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Exhibit B
attached hereto, the Borrower has no Subsidiaries.
<PAGE>
Section 5.5 Financial Condition; No Adverse Change.
Continental Information Systems Corporation has heretofore furnished to the
Lender audited consolidated financial statements of Continental Information
Systems Corporation for its fiscal year ended May 31, 1995 and the Borrower has
heretofore furnished to the Lender unaudited financial statements of the
Borrower for its fiscal year ended May 31, 1995 and for the months ended May 30,
1996, and those statements fairly present the financial condition of the
Borrower on the dates thereof and the results of its operations and cash flows
for the periods then ended and were prepared in accordance with generally
accepted accounting principles. Since the date of the most recent financial
statements, there has been no material adverse change in the business,
properties or condition (financial or otherwise) of the Borrower.
Section 5.6 Litigation. There are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or any of its Affiliates or the properties of the
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid
or caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other Collateral, properties and assets reflected in the
latest balance sheet referred to in Section 5.5 hereof and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for (i) mortgages, security interests and liens permitted by Section 7.1
hereof, and (ii) in the case of any such property which is not Collateral or
other collateral described in the Security Documents, covenants, restrictions,
rights, easements and minor irregularities in title which do not materially
interfere with the business or operations of the Borrower as presently
conducted. No financing statement naming the Borrower as debtor is on file in
any office except to perfect only security interests permitted by Section 7.1
hereof.
<PAGE>
Section 5.10 Plans. Except as disclosed to the Lender in
writing prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all
provisions of all material agreements, instruments, decrees and orders to which
it is a party or by which it or its property is bound or affected, the breach or
default of which could have a material adverse effect on the financial
condition, properties or operations of the Borrower.
Section 5.12 Environmental Protection. The Borrower has
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws and regulations relating to emissions, discharges,
releases of pollutants, contaminants, hazardous or toxic materials, or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. Except as previously disclosed
to the Lender in writing, the Borrower and all activities of the Borrower at its
facilities comply with all Environmental Laws and with all terms and conditions
of any required permits, licenses and authorizations applicable to the Borrower
with respect thereto. Except as previously disclosed to the Lender in writing,
the Borrower is also in compliance with all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in Environmental Laws or contained in any plan, order,
decree, judgment or notice of which the Borrower is aware. Except as previously
disclosed to the Lender in writing, the Borrower is not aware of, nor has the
Borrower received notice of, any events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance with, or which may give rise to any liability under, any
Environmental Laws.
Section 5.13 Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
<PAGE>
Section 5.14 Financing Statements. The Borrower has provided
to the Lender signed financing statements sufficient when filed to perfect the
Security Interests and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents which is
capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
Affirmative Covenants of the Borrower
So long as the Note shall remain unpaid, the Discretionary
Credit Facility shall be outstanding or any Letter of Credit shall be
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver,
or cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 120 days
after the end of each fiscal year of Continental Information Systems
Corporation, audited annual financial statements of Continental
Information Systems Corporation with the unqualified opinion of
independent certified public accountants selected by Continental
Information Systems Corporation and acceptable to the Lender, which
annual financial statements shall include the balance sheet of
Continental Information Systems Corporation as at the end of such
fiscal year and the related statements of income, retained earnings and
cash flows of Continental Information Systems Corporation for the
fiscal year then ended, prepared on a consolidating and consolidated
basis to include the Borrower and any Affiliates, all in reasonable
detail and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices
applied in the financial statements referred to in Section 5.5 hereof,
together with (i) a report signed by such accountants stating that in
making the investigations necessary for said opinion they obtained no
knowledge, except as specifically stated, of any Default or Event of
Default hereunder and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.12 and 6.13
and Section 7.10 hereof; and (ii) a certificate of the chief financial
officer of Continental Information Systems Corporation stating that
<PAGE>
such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent
with the accounting practices reflected in the annual financial
statements referred to in Section 5.5 hereof and whether or not such
officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the
accounting practices reflected in the financial statements referred to
in Section 5.5 hereof, subject to year-end audit adjustments; and
accompanied by a certificate of the chief financial officer of the
Borrower, substantially in the form of Exhibit D hereto and stating (i)
that such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent
with the accounting practices reflected in the financial statements
referred to in Section hereof, subject to year-end audit adjustments,
(ii) whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder not theretofore reported and
remedied and, if so, stating in reasonable detail the facts with
respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.12 and 6.13
and Section 7.10 hereof;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable and an
inventory certification report as of the end of such month;
(d) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
good faith projections of the Borrower and certified by the Borrower's
chief financial officer as being the most accurate projections
available and identical to the projections used by the Borrower for
internal planning purposes, together with such supporting schedules and
information as the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.6 hereof or which seek a monetary recovery
against the Borrower in excess of One Hundred Fifty Thousand Dollars
($150,000).
<PAGE>
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the chief financial
officer of the Borrower setting forth details as to such Reportable
Event and the action which the Borrower proposes to take with respect
thereto, together with a copy of the notice of such Reportable Event to
the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal Revenue Code
of 1986, as amended, the statement of the chief financial officer of
the Borrower setting forth details as to such failure and the action
which the Borrower proposes to take with respect thereto, together with
a copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims in excess of One Hundred Fifty Thousand Dollars
($150,000) by customers of the Borrower; (ii) any goods returned to or
recovered by the Borrower; and (iii) any change in the persons
constituting the officers and directors of the Borrower;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which Continental Information
Systems Corporation shall have sent to its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which Continental
Information Systems Corporation shall file with the Securities and
Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the violation
by the Borrower of any law, rule or regulation, the non-compliance with
which could materially and adversely affect its business or its
financial condition; and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request.
<PAGE>
Section 6.2 Books and Records; Inspection and Examination. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with generally accepted
accounting principles consistently applied and, upon request of the Lender, will
permit any officer, employee, attorney or accountant for the Lender to audit,
review, make extracts from or copy any and all corporate and financial books and
records of the Borrower at all times during ordinary business hours, to send and
discuss with account debtors and other obligors requests for verification of
amounts owed to the Borrower, and to discuss the affairs of the Borrower with
any of its directors, officers, employees or agents. The Borrower will permit
the Lender, or its employees, accountants, attorneys or agents, to examine and
inspect any Collateral, other collateral covered by the Security Documents or
any other property of the Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Borrower will at any
time and from time to time upon request of the Lender send requests for
verification of accounts or notices of assignment to account debtors and other
obligors.
Section 6.4 Compliance with Laws; Environmental Indemnity. The
Borrower will (a) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition, (b) comply with all applicable
Environmental Laws and obtain any permits, licenses or similar approvals
required by any such Environmental Laws, and (c) use and keep the Collateral,
and will require that others use and keep the Collateral, only for lawful
purposes, without violation of any federal, state or local law, statute or
ordinance. The Borrower will indemnify, defend and hold the Lender harmless from
and against any claims, loss or damage to which the Lender may be subjected as a
result of any past, present or future existence, use, handling, storage,
transportation or disposal of any hazardous waste or substance or toxic
substance by the Borrower or on property owned, leased or controlled by the
Borrower. This indemnification agreement shall survive the termination of this
Agreement and payment of the indebtedness hereunder.
Section 6.5 Payment of Taxes and Other Claims. The Borrower
will pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interests, prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
Section 6.6 Maintenance of Properties. (a) The Borrower will
keep and maintain the Collateral, the other collateral covered by the Security
Documents and all of its other properties necessary or useful in its business in
good condition, repair and working order (normal wear and tear excepted) and
will from time to time replace or repair any worn, defective or broken parts;
<PAGE>
provided, however, that nothing in this Section 6.6 shall prevent the Borrower
from discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the judgment of the Lender, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect to
the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security
interests, liens and encumbrances except the Security Interests and
other security interests permitted by Section 7.1 hereof.
Section 0.0.0.0.1. Insurance. The Borrower will obtain and at
all times maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower operates. Without limiting the generality of the foregoing, the
Borrower will at all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the benefit of the Lender. All policies of
liability insurance required hereunder shall name the Lender as an additional
insured.
Section 6.8 Preservation of Corporate Existence. The Borrower
will preserve and maintain its corporate existence and all of its rights,
privileges and franchises necessary or desirable in the normal conduct of its
business and shall conduct its business in an orderly, efficient and regular
manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 Lockbox; Collateral Account. (a) The Borrower
will irrevocably direct all present and future Account debtors and other Persons
obligated to make payments constituting Collateral to make such payments
directly to the Lockbox. All of the Borrower's invoices, account statements and
other written or oral communications directing, instructing, demanding or
requesting payment of any Account or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox and shall
include the Lockbox address. All payments received in the Lockbox shall be
processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account
or, at the Lender's option, to deliver to the Lender all collections on
Accounts, contract rights, chattel paper and other rights to payment
constituting Collateral, and all other cash proceeds of Collateral,
<PAGE>
which the Borrower may receive directly notwithstanding its direction
to Account debtors and other obligors to make payments to the Lockbox,
immediately upon receipt thereof, in the form received, except for the
Borrower's endorsement when deemed necessary. Until delivered to the
Lender or deposited in the Collateral Account, all proceeds or
collections of Collateral shall be held in trust by the Borrower for
and as the property of the Lender and shall not be commingled with any
funds or property of the Borrower. Amounts deposited in the Collateral
Account shall not bear interest and shall not be subject to withdrawal
by the Borrower, except after full payment and discharge of all
Obligations. All such collections shall constitute proceeds of
Collateral and shall not constitute payment of any Obligation.
Collected funds from the Collateral Account shall be transferred to the
Lender's general account, and the Lender may deposit in its general
account or in the Collateral Account any and all collections received
by it directly from the Borrower. The Lender may commingle such funds
with other property of the Lender or any other person. The Lender,
after allowing (i) two (2) Banking Days after deposit in the Collateral
Account and/or (ii) one (1) Banking Day after direct deposit in
Lender's account no. 10-62-609 at Norwest Bank Minnesota, National
Association, shall apply such funds (i) first, to the payment of all
fees, costs and expenses due and unpaid hereunder, (ii) second, to the
payment of any and all Obligations, in any order or manner of
application satisfactory to the Lender, and (iii) third, after payment
in full of all amounts required under clauses (i) and (ii) above, to
the Borrower or otherwise as required by law or as directed by a court
of competent jurisdiction. All items delivered to the Lender or
deposited in the Collateral Account shall be subject to final payment.
If any such item is returned uncollected, the Borrower will immediately
pay the Lender, or, for items deposited in the Collateral Account, the
bank maintaining such account, the amount of that item, or such bank at
its discretion may charge any uncollected item to the Borrower's
account with the Lender. The Borrower shall be liable as an endorser on
all items deposited in the Collateral Account, whether or not in fact
endorsed by the Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.5, 6.7 and
6.10 hereof, immediately upon the occurrence of such failure, without notice or
lapse of time), the Lender may, but need not, perform or observe such covenant
on behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
<PAGE>
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
Section 6.12 Net Worth. While any part of the Obligations
remains unpaid, the Borrower shall, unless waived in writing by Lender,
continuously maintain: (a) from the execution of this Agreement through November
30, 1996 a minimum Net Worth of not less than One Million Dollars ($1,000,000)
and (b) a minimum Net Worth as of the end of each six-month period commencing
with the six months ending November 30, 1996 of not less than One Hundred
Thousand Dollars ($100,000) more than the Net Worth requirement during the
preceding six-month period.
Section 6.13 Net Earnings. While any part of the Obligations
remains unpaid, the Borrower shall, unless waived in writing by the Lender,
demonstrate Net Earnings of not less than One Hundred Thousand Dollars
($100,000) on its internally prepared financial statements for the six months
ending November 30, 1996 and each six-month period thereafter.
ARTICLE VII
Negative Covenants
So long as the Note shall remain unpaid, the Discretionary
Credit Facility shall be outstanding or any Letter of Credit shall be
outstanding, the Borrower agrees that, without the prior written consent of the
Lender:
Section 7.1 Liens. The Borrower will not create, incur or
suffer to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however, from the operation of
the foregoing:
(a) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed
in Exhibit C hereto, securing indebtedness for borrowed money
permitted under Section 7.2 hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower so long as the
Borrower is in, and maintains, compliance with every other provision
of this Agreement.
Section 7.2 Indebtedness. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:
<PAGE>
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Exhibit C hereto;
(c) indebtedness relating to liens permitted in accordance
with Section hereof; and
(d) "Subordinated Indebtedness" as such term is defined in the
Debt Subordination Agreement, dated even date herewith by and among
Borrower, Lender and CIS Corporation.
Section 7.3 Guaranties. The Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Exhibit C hereto.
Section 7.3 Investments and Subsidiaries. (a) The Borrower
will not purchase or hold beneficially any stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality
thereof whose obligations constitute full faith and
credit obligations of the United States of America
having a maturity of one year or less, commercial paper
issued by U.S. corporations rated "A-1" or "A-2" by
Standard & Poors Corporation or "P-1" or "P-2" by
Moody's Investors Service or certificates of deposit or
bankers' acceptances having a maturity of one year or
less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which
certificates of deposit or bankers' acceptances are
fully insured by the Federal Deposit Insurance
Corporation);
(ii) travel advances or loans to officers and employees
of the Borrower not exceeding at any one time an
aggregate of Ten Thousand Dollars ($10,000);
(iii) advances in the form of progress payments,
prepaid rent or security deposits; and
<PAGE>
(iv) other loans and advances made in the ordinary
course of Borrower's business, provided that the
conditions set forth in subparagraphs (a) through (c)
of Section 7.20 have been satisfied (and for this
purpose, the "payment" referred to therein shall be
deemed to be the proposed loan or advance to made by
the Borrower under this subparagraph (4)).
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof
and listed in Exhibit B hereto. Notwithstanding any other provision of
this Agreement, in no event will the Borrower make any investment in,
or any loan, advance, or transfer of assets of any nature to, any
Affiliate which is not a Guarantor.
Section 7.5 Dividends. The Borrower will not declare or pay
any dividends (other than dividends payable solely in stock of the Borrower) on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly; provided,
however, that if the Borrower is an S Corporation within the meaning of the
Internal Revenue Code of 1986, as amended, or shall become such an S Corporation
with the Lender's consent under Section 7.16 hereof, and after first providing
such supporting documentation as the Lender may request, the Borrower may pay
dividends in an amount equal to the amount of state and federal income tax which
would be due by each shareholder with respect to income deemed to be received by
such shareholder from the Borrower as a result of the Borrower's status as an S
Corporation at the highest marginal income tax rate for federal and state (for
the state or states in which each shareholder is liable for income taxes with
respect to such income) income tax purposes, after taking into account any
deduction for state income taxes in calculating the federal income tax
liability.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration. For purposes of this Agreement, a sale in the "ordinary course of
business" shall be deemed to include a sale to an Affiliate at not less than
Borrower's cost.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
<PAGE>
Section 7.9 Restrictions on Nature of Business. The Borrower
will not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 Capital Expenditures. The Borrower will not
expend or contract to expend more than One Hundred Thousand Dollars ($100,000)
in the aggregate during any fiscal year, for the lease, purchase or other
acquisition of any capital asset, or for the lease of any other asset, whether
payable currently or in the future.
Section 7.11 Accounting. The Borrower will not adopt any
material change in accounting principles other than as required by generally
accepted accounting principles. The Borrower will not adopt, permit or consent
to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not (a) after
notice from the Lender, grant any discount, credit or allowance to any customer
of the Borrower or accept any return of goods sold, or (b) at any time (whether
before or after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will
not adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10 hereof.
Section 7.14 Other Defaults. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation which may constitute a recourse obligation binding upon
the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interests. The Borrower will not change
its name.
Section 7.16 Organizational Documents; S Corporation Status.
The Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower will not become an S Corporation within
the meaning of the Internal Revenue Code of 1986, as amended, or, if the
Borrower already is such an S Corporation, it shall not change or rescind its
status as an S Corporation.
Section 7.17 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 20% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment. Nothing contained in this Section
7.17 shall be deemed to affect the rights of Greg M. Cody and Charles C. Sinks
to certain "Earn Out" payments pursuant to the Stock Purchase Agreement dated as
of March 8, 1996 among CIS Corporation, Borrower, Greg M. Cody and Charles C.
Sinks.
<PAGE>
Section 7.18 Change in Ownership. Except as set forth in the
Pledge Agreement dated March 8, 1996 among Borrower, CIS Corporation and Greg M.
Cody and the Pledge Agreement dated March 8, 1996 among Borrower, CIS
Corporation and Charles C. Sinks, the Borrower will not issue or sell any stock
of the Borrower so as to change the percentage of voting and non-voting stock
owned by each of the Borrower's shareholders, and the Borrower will not permit
or suffer to occur the sale, transfer, assignment, pledge or other disposition
of any or all of the issued and outstanding shares of stock of the Borrower.
Section 7.19 Overhead Charges. The Borrower will not pay
corporate overhead charges which combined with the payments of corporate
overhead charges by CIS Air Corporation exceed Two Hundred Thousand Dollars
($200,000) per fiscal quarter.
Section 7.20 Inter-company Debt. The Borrower will not make
quarterly payments to CIS Corporation to reduce inter-company debt, unless:
(a) The Borrower is not in default under this Agreement and
CIS Air Corporation is not in default under the CIS Air Corporation
Credit Facility;
(b) The Borrower has maintained an average net availability
during the 30-day period prior to making any such payment of not less
than the amount of such payment plus Two Hundred Fifty Thousand
Dollars ($250,000); and
(c) CIS Air Corporation has maintained an average net
availability during the 30-day period prior to making any such payment
equal to the amount of such payment plus Seven Hundred Fifty Thousand
Dollars ($750,000).
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. Notwithstanding that the Lender
may demand immediate payment of the Advances at any time, whether or not a
Default or an Event of Default shall have occurred, and without waiving or
limiting in any respect the Lender's right to so demand payment of the Advances
at any time, this Agreement sets forth a non-exclusive list of certain critical
events after the occurrence of which the Lender expects that it would demand
immediate payment of the Advances. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of any interest on or principal of
the Note when it becomes due and payable, or failure to pay
immediately upon demand any principal of or interest on the Note; or
(b) Failure to pay when due any amount specified in Section
2.4 hereof relating to the Borrower's Obligation of Reimbursement, or
failure to pay immediately when due or upon termination of the
Discretionary Credit Facility any amounts required to be paid for
deposit in the Special Account under Section 2.5 or 2.11 hereof; or
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement; or
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; or
<PAGE>
(e) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its inability to pay its or his debts
as they mature, or make an assignment for the benefit of creditors; or
the Borrower or any Guarantor shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or him
or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the
application or consent of the Borrower or such Guarantor, as the case
may be; or the Borrower or any Guarantor shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it or him under the laws
of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower or any such
Guarantor; or any judgment, writ, warrant of attachment, garnishment
or execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor; or
(f) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor; or
(g) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the
Lender or by the Borrower (or any of its officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective; or
(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of One Hundred Fifty
Thousand Dollars ($150,000) and the continuance of such judgment,
decree or order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution; or
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease; or
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Plan; or
the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed
to make any quarterly contribution required with respect to any Plan
<PAGE>
under Section 412(m) of the Internal Revenue Code of 1986, as amended,
which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the assets of the Borrower in favor of the Plan; or
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note; or
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the prior written consent of the Lender; or
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books
adequate reserves therefor) or notice of any state or federal tax
liens shall be filed or issued; or
(n) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder; or
(o) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's
guaranty in favor of the Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist; or
(p) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender.
Section 8.2 Rights and Remedies. As provided in Section 2.9
hereof, the Lender may, at any time, refuse to make any requested Advance,
refuse to issue or cause to be issued any Letter of Credit, demand payment of
the Advances or terminate the Discretionary Credit Facility, whether or not a
Default or an Event of Default shall have occurred. In addition, upon the
occurrence of an Event of Default or at any time thereafter, the Lender may
exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare to be
forthwith due and payable the entire unpaid principal amount of the
Note then outstanding, all interest accrued and unpaid thereon, all
amounts payable under this Agreement and any other Obligations,
whereupon the Note, all such accrued interest and all such amounts and
Obligations shall become and be forthwith due and payable, without
presentment, notice of dishonor, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower;
(b) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Advances, including interest accrued
thereon, and of all other sums then owing by the Borrower hereunder,
including, without limitation, the Obligation of Reimbursement;
<PAGE>
(c) The Lender may, exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(d) The Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant
to Sections and hereof an amount equal to the maximum aggregate amount
available to be drawn under all Letters of Credit then outstanding,
assuming compliance with all conditions for drawing thereunder;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(f) hereof, the entire unpaid principal amount of the
Note and the Obligation of Reimbursement (whether contingent or funded), all
interest accrued and unpaid thereon, all other amounts payable under this
Agreement and any other Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
business days prior to the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or
delay on the part of the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law. The Lender agrees
to act at all times in a commercially reasonable manner in exercising its rights
and remedies under the Loan Documents as required by the UCC and any other
applicable law.
<PAGE>
Section 9.2 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed to the party to whom notice is being given at
its address as set forth below and, if telecopied, transmitted to that party at
its telecopier number set forth below:
If to the Borrower:
GMCCCS Corp. d/b/a Laser Access
One Northern Concourse
Syracuse, New York 13221
Telecopier: (315) 455-4862
Attention: Frank J. Corcoran
If to the Lender:
Norwest Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
Milwaukee, WI 53202
Telecopier: (414) 224-7439
Attention: Thomas J. Zak
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II hereof shall not
be effective until received by the Lender.
<PAGE>
Section 9.4 Financing Statement. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
GMCCCS Corp. d/b/a Laser Access
One Northern Concourse
Syracuse, New York 13221
Federal Tax Identification No. 33-0524954
Name and address of Secured Party:
Norwest Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
Milwaukee, WI 53202
Section 9.5 Further Documents. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interests or the rights of the
Lender under this Agreement (but any failure to request or assure that the
Borrower executes, delivers or endorses any such item shall not affect or impair
the validity, sufficiency or enforceability of this Agreement and the Security
Interests, regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion).
Section 9.6 Collateral. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.7 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, any Letters of Credit and any other document or agreement
related hereto or thereto, and the transactions contemplated hereby, including
without limitation the Lender's appraisal fees on an ongoing basis and all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interests.
<PAGE>
Section 9.8 Indemnity. In addition to the payment of expenses
pursuant to Section 9.7 hereof and the environmental indemnity pursuant to
Section 6.4 hereof, the Borrower agrees to indemnify, defend and hold harmless
the Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees and agents of the foregoing (the
"Indemnitees"), from and against (i) any and all transfer taxes, documentary
taxes, assessments or charges made by any governmental authority by reason of
the execution and delivery of this Agreement and the other Loan Documents or the
making of the Advances or issuance of any Letter of Credit, and (ii) any and all
liabilities, losses, damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection with any
investigative, administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against such Indemnitee, in any manner relating to or
arising out of or in connection with the making of the Advances, the issuance of
any Letter of Credit, this Agreement and all other Loan Documents or the use or
intended use of the proceeds of the Advances or any Letter of Credit (the
"Indemnified Liabilities"). If any investigative, judicial or administrative
proceeding arising from any of the foregoing is brought against any Indemnitee,
upon request of such Indemnitee, the Borrower, or counsel designated by the
Borrower and satisfactory to the Indemnitee, will resist and defend such action,
suit or proceeding to the extent and in the manner directed by the Indemnitee,
at the Borrower's sole cost and expense. Each Indemnitee will use its best
efforts to cooperate in the defense of any such action, suit or proceeding. If
the foregoing undertaking to indemnify, defend and hold harmless may be held to
be unenforceable because it violates any law or public policy, the Borrower
shall nevertheless make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The obligation of the Borrower under this Section 9.8 shall survive the
termination of this Agreement and the discharge of the Borrower's other
Obligations.
Section 9.9 Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the participants, successors or assigns of
the Lender.
Section 9.10 Execution in Counterparts. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
Section 9.11 Binding Effect; Assignment; Complete Agreement.
The Loan Documents shall be binding upon and inure to the benefit of the
Borrower and the Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights thereunder or any
interest therein without the prior written consent of the Lender. This
Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof.
<PAGE>
Section 9.12 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of Wisconsin.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of Wisconsin in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient, and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in either the Circuit Court of
Milwaukee County, Wisconsin, or the United States District Court for the Eastern
District of Wisconsin. The parties waive any right to trial by jury in any
action or proceeding based on or pertaining to this Agreement.
Section 9.13 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.14 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
BORROWER:
GMCCCS CORP.,
D/B/A LASER ACCESS (SEAL)
By: /s/ Frank J. Corcoran
-----------------
Name: Frank J. Corcoran
Title: Vice President
By:___________________________
Its:___________________________
LENDER:
NORWEST BUSINESS CREDIT, INC. (SEAL)
By: /s/ Thomas J. Zak
-------------
Name: Thomas J. Zak
Title: Assistant Vice President
<PAGE>
Exhibit A to Credit and Security Agreement
DEMAND NOTE
$2,500,000 Milwaukee, Wisconsin
July 31, 1996
For value received, the undersigned, GMCCCS Corp., a
California corporation d/b/a/ Laser Access (the "Borrower"), hereby promises to
pay ON DEMAND, and in accordance with the terms of the Credit Agreement (defined
below), to the order of Norwest Business Credit, Inc., a Minnesota corporation
(the "Lender"), at its main office in Milwaukee, Wisconsin, or at any other
place designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of Two
Million Five Hundred Thousand Dollars ($2,500,000) or, if less, the aggregate
unpaid principal amount of all advances made by the Lender to the Borrower
hereunder, together with interest on the principal amount hereunder remaining
unpaid from time to time, computed on the basis of the actual number of days
elapsed and a 360-day year, from the date hereof until this Note is fully paid
at the rate from time to time in effect under the Credit and Security Agreement
of even date herewith (the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and the interest accruing thereon shall be
payable as provided in the Credit Agreement and in any event on demand. This
Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the
Credit Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses, in the event this Note is not paid
when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
GMCCCS CORP.
D/B/A LASER ACCESS (SEAL)
By: /s/Frank J. Corcoran
--------------------
Frank J. Corcoran
Vice President
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