SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996 Commission file number 1-4680
EA INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
New Jersey 21-0606484
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
185 Monmouth Parkway 07764-9989
West Long Branch, New Jersey (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (908) 229-1100
Former name, former address and former fiscal year, if changed since last report
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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
--- ---
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As of March 30, 1996, there were 17,432,027 outstanding
shares of the Registrant's common stock.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
March 30, Dec. 31,
1996 1995
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $6,140 $9,830
Restricted cash 8,266 8,004
Receivables, less allowance of $275 in 1996 and $385
in 1995 for doubtful accounts 13,815 12,092
Inventories 12,525 12,978
Prepaid expenses and other assets 1,334 1,610
-------- --------
TOTAL CURRENT ASSETS 42,080 44,514
-------- --------
Equipment and leasehold improvements 17,676 15,023
Less accumulated depreciation (7,236) (6,952)
-------- --------
10,440 8,071
-------- --------
Investment in affiliates 804 1,083
-------- --------
Intangible assets 12,331 12,331
Less accumulated amortization (1,024) (813)
-------- --------
11,307 11,518
-------- --------
Other assets 361 454
Note receivable 793 985
-------- --------
$ 65,785 $ 66,625
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of Debt and Capital Lease Obligations $ 10,216 $ 9,704
Accounts payable 11,809 13,522
Accrued expenses 3,298 2,712
-------- --------
TOTAL CURRENT LIABILITIES 25,323 25,938
-------- --------
Long-Term Liabilities:
Long-term Debt and Capital Lease Obligations 3,221 1,731
Convertible Notes and Debentures 9,300 12,200
Other long-term liabilities 3,590 3,672
-------- --------
TOTAL LONG-TERM LIABILITIES 16,111 17,603
-------- --------
TOTAL LIABILITIES 41,434 43,541
-------- --------
Minority interest 3,730 3,694
-------- --------
Shareholders' Equity:
Common Stock 66,302 63,397
Accumulated deficit since January 1, 1986 (45,206) (43,532)
-------- --------
21,096 19,865
Less common stock in treasury, at cost (475) (475)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 20,621 19,390
-------- --------
$ 65,785 $ 66,625
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
(2)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(UNAUDITED)
(thousands of dollars, except per share data)
Quarter Ended
March 30, April 1,
1996 1995
---------- ----------
Sales $24,025 $19,056
---------- ----------
Cost of sales 22,634 18,950
Selling, general and
administrative expenses 2,227 2,158
Purchased research and
development -- 6,012
---------- ----------
Total 24,861 27,120
---------- ----------
Loss from operations (836) (8,064)
---------- ----------
Interest expense 435 328
Interest income (158) (35)
Other expense 561 241
---------- ----------
Net loss $(1,674) $(8,598)
========== ==========
Loss per common share $ (0.10) $ (0.84)
========== ==========
Weighted average
common shares and
common share
equivalents outstanding 16,616,944 10,241,278
========== ==========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
(3)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Shareholders' Equity
For The Three Months Ended March 30, 1996
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Deficit
Since
Common Stock Treasury Stock Jan. 1,
Shares Amount Shares Amount 1986
---------- ------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 16,045,447 $63,397 (218,476) $(475) $(43,532)
Net loss (1,674)
Exercise of stock
options 1,250 5
Exercise of Class A
and B Warrants 796,084 1,096
Notes receivable from
stock sales -- (1,096)
Debt conversion 807,722 2,900
---------- ------- -------- ----- --------
Balance, March 30, 1996 17,650,503 $66,302 (218,476) $(475) $(45,206)
========= ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
(4)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------
March 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(1,674) $(8,598)
Adjustments to reconcile net loss to net
cash provided/(used) by operating
activities:
Depreciation and amortization 763 697
Valuation adjustment -- Note Receivable 192 --
Purchased research and development -- 6,012
Equity in loss of affiliate 225 187
Cash provided/(used) by changes in:
Receivables (1,723) 2,605
Inventories 453 (2,099)
Prepaid expenses & other assets 276 814
Accounts payable and accrued expenses (1,127) 845
Accrued excess leased space costs (109) (107)
Other operating items -- net (52) (414)
------- -------
Net cash used by operations (2,776) (58)
------- -------
Cash flows from Investing Activities:
Capital expenditures (2,921) (758)
Investment in affiliates -- (5,325)
Cash acquired in purchase of Tanon -- 890
Proceeds from the sale of discontinued operations -- 200
------- -------
Net cash provided/(used) by investing activities (2,921) (4,993)
------- -------
Cash flows from Financing Activities:
Net borrowings/(repayments) under credit facilities (32) (2,225)
Net proceeds from capital leases 2,034 --
Principal repayments of long-term debt -- (109)
Proceeds from the exercise of stock options or rights 5 527
Net proceeds from sale of common stock (private
placement) and exercise of warrants -- 1,734
Issuance of note receivable in connection with
acquisition -- (1,000)
------- -------
Net cash provided/(used) by financing activities 2,007 (1,073)
Net Increase (Decrease) in Cash and Cash Equivalents (3,690) (6,124)
Cash and Cash Equivalents at Beginning of Period 9,830 6,157
------- -------
Cash and Cash Equivalents at End of Period $6,140 $ 33
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $407 $ 328
======= =======
Non cash financing activities:
Conversion of debt to equity $2,900
=======
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
(5)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Description of Business and Basis of Presentation
EA Industries, Inc., a New Jersey corporation formerly known as
"Electronic Associates, Inc." ("EAI" or the "Company"), through
its wholly-owned subsidiary, Tanon Manufacturing, Inc.
("Tanon"), is engaged principally in the business of providing
contract electronic manufacturing services ranging from the
assembly of printed circuit boards to the complete procurement,
production, assembly, test and delivery of entire electronic
products and systems. Tanon was acquired by the Company on
January 4, 1995. References to the Company with respect to any
time period after January 3, 1995 shall be deemed to include
Tanon unless the context otherwise requires.
In addition, the Company, through its one-third investment in
BarOn Technologies, Ltd. ("BarOn") a privately owned Israeli
corporation based in Haifa, Israel and its indirect interest in
a joint venture with Israel Aircraft Industries, Ltd., an
Israeli government corporation ("IAI"), seeks to develop and
market new, high technology products. Baron has developed and is
in the process of commercializing an electronic computer input
pen that captures handwriting independent of surface or
language. The joint venture with IAI which was formed in August
1995, was organized to review, evaluate and exploit the
commercial potential of products based on technologies developed
by IAI.
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's
latest annual report on Form 10-K for the year ended December
31, 1995. These condensed financial statements reflect, in the
opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
results for the interim period. Results of operations for the
interim period ended March 30, 1996 are not necessarily
indicative of results of operations expected for the full year.
The Company operates on a 52 week year, with each fiscal week
and quarter ending on Saturday, except for the fourth quarter
which ends on December 31.
Loss per share amounts have been computed based on the weighted
average number of common shares outstanding. Shares issuable
upon the exercise of stock options, warrants and convertible
notes and debentures have not been included in per share
computations, because their impact would have been antidilutive
in each period.
(2) Operations and Liquidity
The Company has incurred significant losses and had negative
cash flows from operations in each of the last four years and in
the quarter ended March 30, 1996. In order to continue
(6)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
operations, the Company has had to raise additional capital to
offset cash utilized in operating and investing activities. The
Company was successful in raising approximately $33,200,000
during 1995 from the issuance of common stock, the exercise of
stock options and warrants and the sale of convertible notes and
debentures. In November 1995, the Company completed the sale of
10% convertible debentures in the aggregate principal amount of
$2,200,000 to four purchasers. As of the date of this report all
of these debentures have been converted into 646,756 shares of
the Company's common stock in accordance with their terms. In
December 1995, the Company completed the sale of 7% convertible
notes of the Company in the aggregate principal amount of
$10,000,000 to GFL Advantage Fund Limited and GFL Performance
Fund Limited. As of this date $5,095,000 of such notes have
been converted into 1,424,190 shares of the Company's stock in
accordance with their terms. On May 3, 1996, the Company raised
an additional $7,000,000 from the sale of 9% convertible
debentures which was used in purchasing approximately 11.64% of
the outstanding shares of common stock of Aydin (hereinafter
defined). See Note 5 below. Although the Company's financial
projections indicate that operating losses and negative cash
flows from operations will continue at a declining rate during
most of 1996, management believes that available cash, together
with funds available under Tanon's line of credit with Schroder
(hereinafter defined), will enable the Company to meet its
obligations in the normal course of business during 1996. See
Note 3 below.
The Company acquired, during 1995, an approximate 33.34% equity
interest in BarOn, including an additional equity interest of
8.33% acquired in September, 1995. The cash consideration for
the additional equity interest was $2,000,000, of which
$1,500,000 was paid in 1995 and the remaining $500,000 was paid
on April 1, 1996. According to BarOn's business and operating
plan for 1996, BarOn will need additional capital by early in
the third quarter of 1996. Consistent with such plan, BarOn is
seeking investors to raise additional funds. Although no formal
determination has been made, currently, the Company does not
plan to increase its interest in BarOn, pursuant to its existing
right of first refusal or otherwise.
Also during 1995, the Company's 52.3% owned subsidiary
Electronic Associates Technologies Israel, Ltd. ("EATI"),
entered into a joint venture agreement ("JVA" or "Joint Venture
Agreement") with IAI to form a joint venture called "ITI" (the
"Joint Venture") to review, develop, and exploit non-military,
non-classified technological applications developed by IAI. The
JVA provides that an Investment Committee (the "Investment
Committee") will review and evaluate applications developed by
IAI. If an application is selected for development and
exploitation, an entity will be formed ("Licensee") in which
EATI will own a 50% interest and IAI will own a 50% interest,
and IAI will grant such Licensee a perpetual, royalty free
license for such application. The Investment Committee will
prepare a business plan to exploit each application selected,
including a funding plan. The Company will be primarily
responsible to raise the funds necessary to exploit the
application selected. However, the Company will not be under any
obligation to raise any funds for such purpose unless and until
the Investment Committee selects an application for
exploitation. In the event the Company is unable to raise the
funds necessary to exploit any application which the Investment
Committee selects, IAI can terminate the JVA. The JVA can also
be terminated under certain other circumstances.
(7)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
As of the date of this report, the Investment Committee has
selected one application for development and exploitation, the
Vista Application ("Vista"). Vista is a system for the automatic
inspection of manufactured parts, capable of detecting defects
as small as 20 microns. The preliminary business plan for Vista
requires funding of $1,000,000. Consistent with the terms of the
JVA, the Company is considering raising funds for Vista through
a variety of methods including a combination of sales of Vista
equity interests and borrowings by Vista. There can be no
assurance that the Company will be successful in its efforts to
raise such funds, in which case the Company will be confronted
with the choice of possibly foregoing its investment in the
Joint Venture or funding the $1,000,000 through its own
resources.
At March 30, 1996, the Joint Venture formed with IAI had
remaining cash of $7,246,000. Such cash will be used to fund
expenses of the Joint Venture and accordingly has been
classified as Restricted Cash by the Company.
On May 6, 1996 the Company purchased 11.64% of the outstanding
shares of Aydin. The Company has initiated discussions with
Aydin's Board of Directors regarding a possible merger. A merger
may require, among other things, additional cash resources in
excess of those presently available. See Note 5 below.
The remaining unexercised Class A and Class B warrants issued in
February 1994, if exercised, could provide the Company with
additional capital of approximately $2,000,000. To date, Class A
and Class B warrants to purchase 2,037,084 shares have been
exercised and the Company received $1,302,000 in proceeds. In
addition, in February 1996, the Company received unsecured
promissory notes in the aggregate principal amount of $1,096,000
as payment for the exercise of Class A and Class B warrants to
purchase 796,084 shares of common stock. These promissory notes
bear interest at the rate of 7% per annum and are due on or
before February 14, 1997. No assurance can be given that the
remaining unexercised warrants will be exercised or that such
promissory notes will be paid in full.
(3) Lines of Credit
On May 3, 1996, Tanon replaced the Company's existing asset
based credit facility and the Tanon separate revolving line of
credit with a new asset based credit facility provided by IBJ
Schroder Bank & Trust Company ("Schroder") to Tanon. Under the
terms of this new facility, Schroder will advance up to
$13,000,000 in the form of a revolving loan with availability
subject to the amount of a borrowing base comprised generally of
the sum of (1) up to between 80% and 85% of eligible accounts
receivable, (2) up to 18% of eligible inventory subject to an
availability sublimit of $3,000,000 and (3) up to 75% (reduced
by one percentage point on the first day of each month following
May 3, 1996) of the liquidation value of certain of the
Company's machinery and equipment, subject to an availability
sublimit of $1,250,000 (the "Schroder Loan Facility"). The
Schroder Loan Facility has a three-year term and bears interest
at an annual rate equal to the sum of the base commercial rate
determined by Schroder and publicly announced to be in effect
from
(8)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
time to time plus 1-1/2%. Each fiscal quarter, Tanon will also
be obligated to pay a fee at a rate equal to one-half of one
percent (1/2%) per annum of the average unused portion of the
Schroder Loan Facility. The Company paid a commitment issuance
fee of $75,000 to Schroder on March 25, 1996 and an additional
$50,000 fee at the closing of the Schroder Loan Facility.
Advances under the Schroder Loan Facility can only be used to
fund the Company's electronic contract manufacturing operations
which are now being conducted solely by Tanon. The agreement
with Schroder requires Tanon to maintain certain financial
ratios, including current assets to current liabilities and
earnings to certain fixed charges, and to maintain a minimum net
worth. As a result of the new facility Tanon's available
borrowing capacity increased by approximately $3,000,000 as
compared to the sum of the two prior facilities.
Concurrent with, and as a condition to, the closing of the
Schroder Loan Facility, the Company consolidated all of its
contract electronic manufacturing business into its wholly-owned
subsidiary, Tanon, by assigning to Tanon all of the assets and
liabilities related to the contract electronic manufacturing
business conducted directly by the Company. As a result, EAI is
now principally a holding company with all operations being
conducted by various subsidiaries with EAI providing strategic,
financial and other support to such subsidiaries.
The Company maintained an asset based credit facility which is
described in detail in note 5, "Notes Payable and Line of
Credit" of Notes To Consolidated Financial Statements at Item 8
of the Company's latest Annual Report on Form 10-K, for the year
ended December 31, 1995. At March 30, 1996, the Company had
$3,942,000 outstanding under this credit facility and had
approximately $734,000 of additional borrowing capacity. There
were two financial covenants with which the Company had to
comply under this facility, which the Company was in
compliance with as of March 30, 1996. On May 3, 1996 Tanon
replaced this facility with the Schroder Loan Facility.
Tanon maintained a separate revolving line of credit with a
commercial bank that provides for short-term borrowings up to
$5.5 million based on eligible accounts receivable and
inventory. At March 30, 1996, $5,500,000 was committed under
this line ($5,195,000 in loans and $305,000 in a letter of
credit). The credit agreement pertaining to this line of credit
restricted Tanon from entering into certain transactions and
contained covenants regarding the maintenance of working
capital, minimum net worth and debt-to-equity ratios, together
with minimum profitability requirements. At March 30, 1996 Tanon
was in compliance with all of these covenants. On May 3, 1996,
Tanon replaced this facility with the Schroder Loan Facility.
(4) Other Long-Term Liabilities
Other long-term liabilities include $1,575,000 of subordinated
debentures issued by EATI to its shareholders other than the
Company. The Company has no liability on or with respect to any
of such debentures. Moreover, the debentures are payable by EATI
only if, as, when, and out of any profits earned by EATI.
(9)
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
(5) Acquisition of Aydin Corporation equity interest and issuance
of convertible debentures
On May 6, 1996, the Company purchased 596,927 shares of the
common stock of Aydin Corporation ("Aydin"), a New York Stock
Exchange listed company, in a private purchase from the then
Chairman and Chief Executive Officer of Aydin. The purchase
price for such shares was $18 per share or an aggregate of
$10,744,686 and the purchase represented approximately 11.64% of
the outstanding shares of common stock of Aydin. On May 6, 1996,
the closing price of the common stock of Aydin as reported
by the New York Stock Exchange was $15.50. Aydin designs,
manufactures and sells wireless, digital LOS radios and various
other telecommunications equipment and systems, computer
monitors and workstations, mostly for utilities, network access
equipment, airborne and ground data acquisition, radar
simulation, modernization and air-defense C3 equipment and
systems.
To fund a portion of the purchase price of the Aydin common
stock, the Company, on May 3, 1996, completed the sale of 9%
convertible debentures in the aggregate principal amount of
$7,000,000. The balance of the purchase price was funded with
existing cash of the Company. The Company has agreed to pay a
placement fee equal to 5% of the proceeds raised in the sale of
the debentures, payable on August 1, 1996. These debentures will
mature on May 3, 1998 and are convertible into shares of the
Company's common stock at a conversion price equal to the lesser
of (i) four dollars ($4) per share, or (ii) 82% of the average
closing price of the Company's common stock as traded on the New
York Stock Exchange for the five (5) days preceding the date of
the notice to the Company that the holder wishes to exercise its
conversion right. Such conversion is conditioned on, among other
things, the Company causing the shares underlying the debentures
to be listed on the New York Stock Exchange. The Company has
also agreed to file a registration statement with the Securities
and Exchange Commission covering the shares of the Company's
common stock underlying the debentures within six (6) months
after the closing date and to cause the shares to be registered
within eight (8) months after the closing date. In the event the
registration statement is not declared effective or the New York
Stock Exchange has not approved the listing of the underlying
shares within eight (8) months from the closing date, then the
Company will be obligated to pay certain penalties and the
holders of the debentures may then declare the entire unpaid
principal and interest due and payable.
EAI has initiated discussions with the Board of Directors of
Aydin concerning a possible merger or other combination with
Aydin. EAI and Aydin have not had any formal discussions
concerning the possible terms or structure of such a transaction
and no current proposal has been submitted by EAI to Aydin for
such transaction.
(10)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
On January 4, 1995, the Company acquired Tanon, a
privately-owned contract electronic manufacturing firm with operations located
in Fremont, California. The acquisition has been reported as a purchase for
accounting purposes and, accordingly, the results of operations of Tanon are
included with those of the Company from January 4, 1995 forward.
On January 16, 1995, the Company acquired a 25.01% equity
interest in BarOn, a privately-owned Israeli corporation based in Haifa, Israel.
On September 30, 1995, the Company exercised its option to acquire an additional
8.33% equity interest in BarOn. BarOn is a development stage company which has
developed and is in the process of commercializing an electric computer input
device that can directly digitize handwriting in a variety of languages, from
any surface. The investment in BarOn has been accounted for as a purchase of a
minority interest using the equity method of accounting, and accordingly, the
Company's equity interest in the results of BarOn are included in the
consolidated results of the Company from January 16, 1995 forward.
On August 8, 1995, the Company, through a 52.3% owned
subsidiary, EATI, entered into a Joint Venture Agreement with IAI to review,
develop and exploit non-classified technological applications developed by IAI.
The Company 's investment in the Joint Venture, ITI, is accounted for using the
purchase method of accounting.
Results of Operations
During the first quarter of 1996, the Company's sales increased,
its cost of sales increased in total value but decreased as a percentage of
sales, and selling, general and administrative expenses increased in total but
decreased as a percentage of sales. The Company had a loss from operations of
$836,000 for the first quarter of 1996. This compared with a loss from
operations of $8,064,000, for the first quarter of 1995 which included a
non-recurring charge of $6,012,000 representing the charge to expense for
purchased in-process research and development resulting from the Company's
investment in BarOn.
The increase in sales to $24,025,000 in the first quarter of
1996 resulted primarily from an increase in sales to its existing customer base
and sales to several new customers partially offset by the loss of two
customers.
Cost of sales increased to $22,634,000 in the first quarter of
1996 from $18,950,000 in the same quarter of 1995 and decreased, as a percentage
of revenue to 94.2% in the first quarter of 1996 compared with 99.4% in the same
quarter of 1995. This decrease resulted from the Company's action in the fourth
quarter of 1995 to reduce its material cost as a percentage of revenues. In
addition, there was a decrease in materials cost resulting from a market driven
decline in prices on certain components. In addition, pricing for services to a
major customer were renegotiated in January 1996. This renegotiation, combined
with the increased sales volume in the first quarter of 1996, has returned the
Company's New Jersey facility to a positive gross margin. Gross profit increased
from $106,000 in the first quarter of 1995 to $1,391,000 in the first quarter of
1996 reflecting improved margins at both the New Jersey facility and the
California facility.
Selling, general and administrative expenses increased to
$2,227,000 in the first quarter of 1996, from $2,158,000 in the same quarter of
1995. This moderate increase has resulted from the
(11)
<PAGE>
additional sales, general and administrative staff hired in the fourth quarter
of 1995 to support the increased level of sales. Selling, general and
administrative expenses declined as a percentage of revenue to 9.3% in 1996 from
11.3% in 1995 primarily because the increase in sales exceeded the rate of the
increase in selling, general and administrative expenses.
During the first quarter of 1995, the Company determined that
the amount of the purchase price in excess of the estimated fair value of the
25.01% equity interest in BarOn acquired by the Company represented in-process
research and development with no alternative future use. Accordingly, the
estimated value associated with such purchased research and development of
$6,012,000 was recorded as research and development expense in the first quarter
of 1995.
Interest expense was $435,000 in the first quarter of 1996 as
compared to $328,000 in the first quarter of 1995. The increase is attributable
to interest on convertible notes in the amount of $10,000,000 issued in
December, 1995, interest on capitalized leases related to equipment additions in
1995 and an increase in the interest rate on the Tanon revolving line of credit,
partially offset by reductions in amounts borrowed under the Company's asset
based credit facility.
Interest income increased by $123,000 in the first quarter of
1996 as compared to the same period in 1995 as a result of the investment of
funds received from the sale of convertible notes in December, 1995 in the
amount of $10,000,000.
The increase in other expense is primarily attributable to a
decline in the market value of securities securing a note receivable and an
increase in the Company's equity interest in BarOn's results of operations.
The Company's consolidated backlog at March 30, 1996 was
$42,088,000.
Liquidity and Capital Resources
Liquidity, as discussed below, is measured in reference to the
consolidated financial position of the Company at March 30, 1996, as compared to
December 31, 1995. Net cash used by operations of $2,776,000 in the first
quarter of 1996 increased by $2,718,000 from cash used in operations of $58,000
in the same period in 1995. Net Cash used by operations was primarily a result
of an increase in accounts receivable resulting from increased sales volume and
a decrease in accounts payable and accrued expenses resulting from the payment
of trade payables incurred in connection with the build up of inventories at the
end of 1995 to support higher sales volumes and, to a lesser extent, the net
loss for the quarter.
Liquidity, as measured by cash and cash equivalents, decreased
to $6,140,000 at March 30, 1996 from $9,830,000 at December 31, 1995. Liquidity
as measured by working capital (excluding Restricted Cash of $8,266,000)
decreased to $8,491,000 at March 30, 1996 compared with $10,572,000 at December
31, 1995. The decrease in working capital was a result of capital expenditures
less the proceeds from capital leasing activity during the quarter and the net
loss for the quarter. The Company's ability to generate internal cash flows
result primarily from the sale of material and labor elements of its contract
electronic manufacturing services. In the first quarter of 1996, revenue from
such services increased by $4,969,000 from $19,056,000 in the same period of
1995, primarily from an increase in sales to its existing customer base as well
as increased sales volume to new customers. Accounts receivable increased by
$1,723,000 in the first quarter of 1996 reflecting an increase in sales of
$3,069,000 to $24,025,000 from $20,956,000 in the fourth quarter of 1995.
Inventory decreased by $453,000 during the quarter.
(12)
<PAGE>
At March 30, 1996, the Company had accounts payable of
approximately $11,809,000 of which approximately $329,000 had been outstanding
for over 90 days. This compares with $13,522,000 of accounts payable at December
31, 1995, of which $167,000 had been outstanding for over 90 days.
Cash flows from financing activities during the first quarter of
1996 amounted to $2,007,000 resulting primarily from the net proceeds from
capital leases. Approximately $1,800,000 of such financing was applicable to
equipment acquired at the end of 1995. During April, 1996 the Company obtained
additional financing in the amount of $750,000 on equipment acquired during the
first quarter of 1996.
Net cash in the amount of $2,921,000 was used to purchase
capital equipment, consisting primarily of two high speed surface mount lines
for the Company's California facility.
On May 3, 1996, Tanon replaced the Company's existing asset
based credit facility and the Tanon separate revolving line of credit with a new
asset based credit facility provided by Schroder to Tanon. Under the terms of
this new facility, Schroder will advance up to $13,000,000 in the form of a
revolving loan with availability subject to the amount of a borrowing base
comprised generally of the sum of (1) up to between 80% and 85% of eligible
accounts receivable, (2) up to 18% of eligible inventory subject to an
availability sublimit of $3,000,000 and (3) up to 75% (reduced by one percentage
point on the first day of each month following May 3, 1996) of the liquidation
value of certain of the Company's machinery and equipment, subject to an
availability sublimit of $1,250,000. The Schroder Loan Facility has a three-year
term and bears interest at an annual rate equal to the sum of the base
commercial rate determined by Schroder and publicly announced to be in effect
from time to time plus 1-1/2%. Each fiscal quarter, Tanon will also be obligated
to pay a fee at a rate equal to one-half of one percent (1/2%) per annum of the
average unused portion of the Schroder Loan Facility. The Company paid a
commitment issuance fee of $75,000 to Schroder on March 25, 1996 and an
additional $50,000 fee at the closing of the Schroder Loan Facility. Advances
under the Schroder Loan Facility can only be used to fund the Company's
electronic contract manufacturing operations which are now being conducted
solely by Tanon. The agreement with Schroder requires Tanon to maintain certain
financial ratios, including current assets to current liabilities and earnings
to certain fixed charges, and to maintain a minimum net worth. As a result of
the new facility Tanon's available borrowing capacity increased by approximately
$3,000,000 as compared to the sum of the two prior facilities.
Concurrent with, and as a condition to, the closing of the
Schroder Loan Facility, the Company consolidated all of its contract electronic
manufacturing business into its wholly-owned subsidiary, Tanon, by assigning to
Tanon all of the assets and liabilities related to the contract electronic
manufacturing business conducted directly by the Company. As a result, EAI is
now principally a holding company with all operations being conducted by various
subsidiaries with EAI providing strategic, financial and other support to such
subsidiaries.
The Company maintained an asset based credit facility which is
described in detail in note 5, "Notes Payable and Line of Credit" of Notes To
Consolidated Financial Statements at Item 8 of the Company's latest Annual
Report on Form 10-K, for the year ended December 31, 1995. At March 30, 1996,
the Company had $3,942,000 outstanding under this credit facility and had
approximately $734,000 of additional borrowing capacity. There were two
financial covenants with which the Company had to comply under this
facility, which the Company was in compliance with as of March 30, 1996. On May
3, 1996 Tanon replaced this facility with the Schroder Loan Facility.
Tanon maintained a separate revolving line of credit with a
commercial bank that provides for short-term borrowings up to $5.5 million based
on eligible accounts receivable and inventory. At March 30, 1996, $5,500,000 was
committed under this line ($5,195,000 in loans and $305,000 in a letter of
(13)
<PAGE>
credit). The credit agreement pertaining to this line of credit restricted Tanon
from entering into certain transactions and contained covenants regarding the
maintenance of working capital, minimum net worth and debt-to-equity ratios,
together with minimum profitability requirements. At March 30, 1996 Tanon was in
compliance with all of these covenants. On May 3, 1996, Tanon replaced this
facility with the Schroder Loan Facility.
The Company has incurred significant losses and had negative
cash flows from operations in each of the last four years and in the quarter
ended March 30, 1996. In order to continue operations, the Company has had to
raise additional capital to offset cash utilized in operating and investing
activities. The Company was successful in raising approximately $33,200,000
during 1995 from the issuance of common stock, the exercise of stock options and
warrants and the sale of convertible notes and debentures. In November 1995, the
Company completed the sale of 10% convertible debentures in the aggregate
principal amount of $2,200,000 to four purchasers. As of the date of this report
all of these debentures have been converted into 646,756 shares of the Company's
common stock in accordance with their terms. In December 1995, the Company
completed the sale of 7% convertible notes of the Company in the aggregate
principal amount of $10,000,000 to GFL Advantage Fund Limited and GFL
Performance Fund Limited, which mature in December 1997. As of this date
$5,095,000 of such notes have been converted into 1,424,190 shares of the
Company's common stock in accordance with their terms. On May 3, 1996, the
Company raised an additional $7,000,000 from the sale of 9% convertible
debentures which was used in purchasing approximately 11.64% of the outstanding
shares of common stock of Aydin. These debentures will mature on May 3, 1998 and
are convertible into shares of the Company's common stock at a conversion price
equal to the lesser of (i) four dollars ($4.00) per share, or (ii) 82% of the
average closing price of the Company's common stock as traded on the New York
Stock Exchange for the five (5) days preceding the date of the notice to the
Company that the holder wishes to exercise its conversion right. Such conversion
is conditioned on, among other things, the Company causing the shares underlying
the debentures to be listed on the New York Stock Exchange. The Company has also
agreed to file a registration statement with the Securities and Exchange
Commission covering the shares of the Company's common stock underlying the
debentures within six (6) months after the closing date and to cause the shares
to be registered within eight (8) months after the closing date. In the event
the registration statement is not declared effetive or the New York Stock
Exchange has not approved the listing of the underlying shares within eight (8)
months from the closing date, then the Company will be obligated to pay certain
penalties and the holders of the debentures may then declare the entire unpaid
principal and interest due and payable. Although the Company's financial
projections indicate that operating losses and negative cash flows from
operations will continue at a declining rate during most of 1996, management
believes that available cash, together with funds available under Tanon's line
of credit with Schroder, will enable the Company to meet its obligations in the
normal course of business during 1996.
The Company acquired, during 1995, an approximate 33.34% equity
interest in BarOn, including an additional equity interest of 8.33% acquired in
September, 1995. The cash consideration for the additional equity interest was
$2,000,000, of which $1,500,000 was paid in 1995 and the remaining $500,000 was
paid on April 1, 1996. According to BarOn's business and operating plan for
1996, BarOn will need additional capital by early in the third quarter of 1996.
Consistent with such plan, BarOn is seeking investors to raise additional funds.
Although no formal determination has been made, currently, the Company does not
plan to increase its interest in BarOn, pursuant to its existing right of first
refusal or otherwise.
Also during 1995, the Company's 52.3% owned subsidiary, EATI,
entered into a joint venture agreement with IAI to review, develop, and exploit
non-military, non-classified technological applications developed by IAI. The
JVA provides that the Investment Committee will review and evaluate applications
developed by IAI. If an application is selected for development and
exploitation, a Licensee will be formed in which EATI will own a 50% interest
and IAI will own a 50% interest, and IAI will grant such Licensee a perpetual,
royalty free license for such application. The Investment Committee will prepare
a business plan to exploit each application selected, including a funding plan.
The Company will be primarily responsible to raise the funds necessary to
exploit the application selected. However, The Company will not be under any
obligation to raise any funds for such purpose unless and until the Investment
Committee selects an application for exploitation. In the event the Company is
unable to raise the funds necessary to exploit any application which the
Investment Committee selects, IAI can terminate the JVA. The JVA can also be
terminated under certain other circumstances.
(14)
<PAGE>
As of the date of this report, the Investment Committee has
selected one application for development and exploitation, Vista. Consistent
with the terms of the JVA, the Company is considering raising funds for Vista
through a variety of methods including a combination of sales of Vista equity
interests and borrowings by Vista. There can be no assurance that the Company
will be successful in its efforts to raise such funds, in which case the Company
will be confronted with the choice of possibly foregoing its investment in the
Joint Venture or funding the $1,000,000 through its own resources.
On May 6, 1996 the Company purchased 11.64% of the outstanding
shares of Aydin. The Company has initiated discussions with Aydin's Board of
Directors regarding a possible merger or other combination. The Company and
Aydin have not had any formal discussions concerning the possible terms or
structure of such a transaction and no current proposal has been submitted by
the Company to Aydin for such transaction. A merger may require, among other
things, additional cash resources in excess of those presently available.
The remaining unexercised Class A and Class B warrants issued in
February 1994, if exercised, could provide the Company with additional capital
of approximately $2,000,000. To date, Class A and Class B warrants to purchase
2,037,084 shares have been exercised and the Company received $1,302,000 in
proceeds. In addition, in February 1996, the Company received unsecured
promissory notes in the aggregate principal amount of $1,096,000 as payment for
the exercise of Class A and Class B warrants to purchase 796,084 shares of
common stock. These promissory notes bear interest at the rate of 7% per annum
and are due on or before February 14, 1997. No assurance can be given that the
remaining unexercised warrants will be exercised or that such promissory notes
will be paid in full.
Reference is made to "Legal Proceedings" in Item 3, Part I of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, and in Item 1, Part II of this Report, for information concerning certain
pending claims which could have an adverse impact on the Company's income and
cash flows.
(15)
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed by the Company, in October, 1992, Lemco
Associates L.P., a limited partnership ("Lemco"), the owner of property
previously owned by EAI, initiated an action against EAI and others alleging,
among other things, that the defendants created environmental contamination at
the property and is seeking damages in unspecified amounts. EAI has denied
Lemco's allegations, asserted numerous defenses to the claims asserted and
asserted a counterclaim against Lemco and cross claims against co-defendants and
others for indemnification and contribution. In addition, the Company has made a
demand upon its insurance carriers for coverage for the claims made by Lemco and
cross claims and third party claims may be filed against these insurance
companies seeking indemnification against these claims. To date, the Company's
insurance carriers have agreed to pay 71% of its defense costs under a
reservation of rights. Discovery in this matter is ongoing. By letter dated
March 30, 1995, Lemco provided the Company with a statement of its remediation
costs to date, as well as an estimate of future remediation costs associated
with the contamination for which it seeks recovery in this action. Specifically,
Lemco claims that it has expended approximately $424,000 in remediation costs,
including fees for legal oversight and consultation. It further estimates that
its future remediation costs will amount to approximately $4,900,000. Such
amount is included in a report made by Lemco's environmental consultants based
on their current assessment of the extent of contamination and the method and
period required to complete the remediation. Further, by letter dated June 7,
1995, Lemco provided the Company with an appraisal report made by a real estate
appraisal company engaged by Lemco in support of Lemco's claim for diminution in
the value of the property. Such report states that it is the appraisal company's
opinion that the market value of the property as of May 23, 1988 was $3.6
million and as of April 14, 1995 was $750,000. Lemco's appraisal expert
subsequently determined in October 1995 that the value of the property as of
April 14, 1995 was $960,000. Lemco purchased the property in question in 1979
for approximately $400,000. The Company's experts have estimated that, based
upon hydrogeologic data gathered to date by Lemco's experts, the major source of
continuing contamination of groundwater was released into the water table about
late 1984 or, using more conservative extrapolations, about mid-1979. Further
hydrogeologic data to be collected will allow a more precise evaluation. Based
on the foregoing, management believes that the range of possible loss in this
matter ranges from zero to approximately $7.8 million, not including costs and
expenses, such as legal and expert fees, which will be incurred in connection
with this matter, and not taking into account the amount of any loss which may
be offset by insurance coverage as discussed above. The Company and its
consultants recently completed the investigation and evaluation of additional
information received from Lemco and have determined that Lemco's remediation
cost estimates are premature and conceptual in nature. In addition, an
independent analysis of the site to determine the appropriateness of Lemco's
claims and of the estimated cost of remediation has not been completed;
therefore, it is not possible to predict its outcome at this time. Moreover,
there is no assurance that the outcome of this matter will come within the
above-mentioned range of possible loss.
The Company is vigorously defending this matter. On May 3, 1996,
the Superior Court of New Jersey referred this case to mediation in an effort
to explore opportunities for settlement. Mediation proceedings are expected to
take place in or after September, 1996. In the event the matter cannot be
resolved through mediation, the case will be referred back to the Court for
trial.
Reference is made to "Legal Proceedings" in Item 3, Part I of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 for information concerning this pending claim and a separate pending claim
involving the Bridgeport Rental and Oil Services Superfund Site.
(16)
<PAGE>
ITEM 5. OTHER INFORMATION
On May 3, 1996, Tanon replaced the Company's existing asset
based credit facility and the Tanon separate revolving line of credit with a new
asset based credit facility provided by Schroder pursuant to the terms of a
Revolving Credit and Security Agreement ("Schroder Loan Agreement") between
Schroder and Tanon.
In connection with, and as a condition to, the consummation of
the Schroder Loan Agreement and Schroder Loan Facility, the Company transferred
and assigned to Tanon all of its assets related to the Company's electronic
contract manufacturing operations, subject to certain liabilities, in
consideration for Tanon's repayment of the Company's existing asset based credit
facility with Congress Financial Corporation and the balance, if any, as a
capital contribution to Tanon. As a result, all of the Company's electronic
contract manufacturing operations are now being conducted by and through Tanon,
and the Company is now principally a holding company.
Under the terms of the Schroder Loan Facility, Schroder will
advance up to $13,000,000 in the form of a revolving loan with availability
subject to the amount of a borrowing base comprised generally of the sum of (1)
up to between 80% and 85% of eligible accounts receivable, (2) up to 18% of
eligible inventory subject to an availability sublimit of $3,000,000 and (3) up
to 75% (reduced by one percentage point on the first day of each month following
May 3, 1996) of the liquidation value of certain of the Company's machinery and
equipment, subject to an availability sublimit of $1,250,000.
The Schroder Loan Facility has a three-year term and bears
interest at an annual rate equal to the sum of the base commercial rate as
determined by Schroder and publicly announced to be in effect from time to time
plus one and one-half percent (1 1/2%). Each fiscal quarter Tanon will also be
obligated to pay a fee at a rate equal to one-half of one percent (1/2%) per
annum of the average unused portion of the Schroder Loan Facility. Also, the
Company paid a commitment issuance fee of $75,000 to Schroder on March 25, 1996
and an additional $50,000 fee at the closing of the Schroder Loan Facility.
Advances under the Schroder Loan Facility can only be used to fund the Company's
electronic contract manufacturing operations which are now being conducted
solely by Tanon. The available borrowing capacity by Tanon has increased by
approximately $3,000,000 as a result of the Schroder Loan Facility, as compared
to the sum of the two prior loan facilities.
The Schroder Loan Facility is secured by all of the assets of
Tanon, including without limitation, all receivables, inventory and equipment,
together with the proceeds and products thereof. As additional security for the
obligations of Tanon to Schroder, Schroder required the Company to execute a
"Guaranty" and "Guarantor Pledge Agreement", both dated May 3, 1996, in favor of
Schroder, pursuant to which the Company guaranteed the payment and performance
by Tanon of, and became a surety for, Tanon's obligations under the Schroder
Loan Agreement and the Company pledged to Schroder all of the issued and
outstanding capital stock of Tanon as security for the Company's obligations to
Schroder under the Guaranty.
The Schroder Loan Agreement includes certain "Negative
Covenants" pursuant to which Tanon agrees, among other things, not to: (i)
engage in certain transactions, including any merger, consolidation or other
reorganization with or into any other person or entity, any acquisition of all
or substantially all of the assets or stock of another person or entity, or any
sale or transfer of any of its assets except in the ordinary course of business;
(ii) incur any liens on its property; (iii) pay any dividends; (iv) make loans
to or investments in third parties with certain exceptions; (v) guaranty or
become liable for the indebtedness of any other person; (vi) make any capital
expenditures during a fiscal year in excess of certain limitations; (vii) incur
certain other indebtedness; (viii) engage in transactions with affiliates except
in the ordinary course of business and on terms no less favorable than would be
obtainable from an
(17)
<PAGE>
unaffiliated person in an arm's-length transaction; or (ix) pay or prepay
certain inter-company indebtedness in the amount of $6,256,000 owed to the
Company, except as permitted in accordance with a "Subordination Agreement"
dated May 3, 1996 among Schroder, the Company and Tanon.
In addition, the Schroder Loan Agreement requires Tanon to
maintain certain financial ratios, including current assets to current
liabilities and earnings to certain fixed charges, and to maintain a certain
minimum net worth. The failure to pay any principal or interest on the Schroder
Loan Facility when due or the breach of a covenant in the Schroder Loan
Agreement (subject to any applicable cure period), or breach of certain other
agreements related to the Schroder Loan Facility including the Company's
Guaranty, Guaranty Pledge Agreement and the Subordination Agreement, and certain
other conditions, constitute an event of default ("Default") under the Schroder
Loan Agreement. Upon such a Default, Schroder may accelerate and make due all
obligations of Tanon under the Schroder Loan Agreement and terminate the
Schroder Loan Facility.
(18)
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description
----------- ------------
10.1 Revolving Credit and Security Agreement
dated May 3, 1996, between IBJ Schroder
Bank & Trust Company and Tanon
Manufacturing, Inc.
10.2 Stock Purchase Agreement dated May 3, 1996, between
the Company and Ayhan Hakimoglu.
10.3 Form of Subscription Agreement and Form of 9%
Convertible Subordinated Debenture issued in
connection with raising $7 million in May, 1996 to
fund a portion of the purchase price for
approximately 11.64% of the issued and outstanding
Aydin Common Stock purchased from Mr. Hakimoglu.
27 Financial Data Schedule
(b) The registrant filed the following Form 8-K during the
quarter for which this report is filed:
NONE
(19)
<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.
EA INDUSTRIES, INC.
(Registrant)
Date: May 14, 1996 By: /s/ Stanley O. Jester
----------------------------
Stanley O. Jester,
Treasurer and
Vice President - Finance
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
(20)
EXHIBIT 10.1
Revolving Credit and Security Agreement
<PAGE>
- -------------------------------------------------------------------------------
REVOLVING CREDIT
AND
SECURITY AGREEMENT
- -------------------------------------------------------------------------------
IBJ SCHRODER BANK & TRUST COMPANY
(AS LENDER AND AS AGENT)
- -------------------------------------------------------------------------------
WITH
- -------------------------------------------------------------------------------
TANON MANUFACTURING, INC.
(BORROWER)
- -------------------------------------------------------------------------------
May 3, 1996
- -------------------------------------------------------------------------------
<PAGE>
Table of Contents
I. DEFINITIONS........................................................... 1
-----------
1.1. Accounting Terms........................................ 1
----------------
1.2. General Terms........................................... 1
-------------
1.3. Uniform Commercial Code Terms........................... 16
-----------------------------
1.4. Certain Matters of Construction......................... 16
-------------------------------
II. ADVANCES, PAYMENTS.................................................... 17
------------------
2.1. (a) Revolving Advances........................... 17
------------------
(b) Discretionary Rights......................... 18
--------------------
2.2. Procedure for Revolving Advances Borrowing.............. 18
------------------------------------------
2.3. Disbursement of Advance Proceeds........................ 18
--------------------------------
2.4. Intentionally Omitted. ................................ 18
---------------------
2.5. Maximum Advances........................................ 18
----------------
2.6. Repayment of Advances................................... 19
---------------------
2.7. Repayment of Excess Advances............................ 19
----------------------------
2.8. Statement of Account.................................... 19
--------------------
2.9. Letters of Credit....................................... 20
-----------------
2.10. Issuance of Letters of Credit........................... 20
-----------------------------
2.11. Requirements For Issuance of Letters of Credit.......... 20
----------------------------------------------
2.12. Additional Payments..................................... 22
-------------------
2.13. Manner of Borrowing and Payment......................... 22
-------------------------------
2.14. Mandatory Prepayments................................... 24
---------------------
2.15. Use of Proceeds......................................... 24
---------------
2.16. Defaulting Lender....................................... 24
-----------------
III. INTEREST AND FEES..................................................... 25
-----------------
3.1. Interest................................................ 25
--------
3.2. Letter of Credit Fees................................... 26
---------------------
3.3. Facility Fee............................................ 26
------------
3.4. Fee Letter.............................................. 27
----------
3.5. Computation of Interest and Fees........................ 27
--------------------------------
3.6. Maximum Charges......................................... 27
---------------
3.7. Increased Costs......................................... 27
---------------
3.8. Capital Adequacy........................................ 28
----------------
IV. COLLATERAL: GENERAL TERMS............................................ 28
--------------------------
4.1. Security Interest in the Collateral..................... 28
-----------------------------------
4.2. Perfection of Security Interest......................... 29
-------------------------------
4.3. Disposition of Collateral............................... 29
-------------------------
4.4. Preservation of Collateral.............................. 29
--------------------------
4.5. Ownership of Collateral................................. 30
-----------------------
4.6. Defense of Agent's and Lenders' Interests............... 30
-----------------------------------------
4.7. Books and Records....................................... 31
-----------------
4.8. Financial Disclosure.................................... 31
--------------------
4.9. Compliance with Laws.................................... 31
--------------------
4.10. Inspection of Premises.................................. 31
----------------------
4.11. Insurance............................................... 32
---------
4.12. Failure to Pay Insurance................................ 33
------------------------
-i-
<PAGE>
4.13. Payment of Taxes........................................ 33
----------------
4.14. Payment of Leasehold Obligations........................ 33
--------------------------------
4.15. Receivables............................................. 33
-----------
(a) Nature of Receivables........................ 33
---------------------
(b) Solvency of Customers........................ 34
---------------------
(c) Locations of Borrower........................ 34
---------------------
(d) Collection of Receivables.................... 34
-------------------------
(e) Notification of Assignment of Receivables.... 34
-----------------------------------------
(f) Power of Agent to Act on Borrower's Behalf... 34
------------------------------------------
(g) No Liability................................. 35
------------
(h) Establishment of a Lockbox Account, Dominion
Account...................................... 35
-------
(i) Adjustments.................................. 36
-----------
4.16. Inventory............................................... 36
---------
4.17. Maintenance of Equipment................................ 36
------------------------
4.18. Exculpation of Liability................................ 36
------------------------
4.19. Environmental Matters................................... 37
---------------------
4.20. Financing Statements.................................... 39
--------------------
V. REPRESENTATIONS AND WARRANTIES........................................ 39
------------------------------
5.1. Authority............................................... 39
---------
5.2. Formation and Qualification............................. 40
---------------------------
5.3. Survival of Representations and Warranties.............. 40
------------------------------------------
5.4. Tax Returns............................................. 40
-----------
5.5. Financial Statements.................................... 40
--------------------
5.6. Corporate Name.......................................... 41
--------------
5.7. O.S.H.A. and Environmental Compliance................... 41
-------------------------------------
5.8. Solvency; No Litigation, Violation, Indebtedness
------------------------------------------------
or Default.............................................. 42
----------
5.9. Patents, Trademarks, Copyrights and Licenses............ 43
--------------------------------------------
5.10. Licenses and Permits.................................... 44
--------------------
5.11. Default of Indebtedness................................. 44
-----------------------
5.12. No Default.............................................. 44
----------
5.13. No Burdensome Restrictions.............................. 44
--------------------------
5.14. No Labor Disputes....................................... 44
-----------------
5.15. Margin Regulations...................................... 45
------------------
5.16. Investment Company Act.................................. 45
----------------------
5.17. Disclosure.............................................. 45
----------
5.18. Delivery of Assignment Agreement........................ 45
--------------------------------
5.19. Swaps................................................... 45
-----
5.20. Conflicting Agreements.................................. 45
----------------------
5.21. Application of Certain Laws and Regulations............. 46
-------------------------------------------
5.22. Business and Property of Borrower....................... 46
---------------------------------
VI. AFFIRMATIVE COVENANTS................................................. 46
---------------------
6.1. Payment of Fees......................................... 46
---------------
6.2. Conduct of Business and Maintenance of Existence
and Assets.............................................. 46
----------
6.3. Violations.............................................. 46
----------
6.4. Government Receivables.................................. 47
----------------------
6.5. Net Worth............................................... 47
---------
6.6. Current Ratio........................................... 47
-------------
6.7. Intentionally Omitted................................... 47
---------------------
-ii-
<PAGE>
6.8. Intentionally Omitted................................... 47
---------------------
6.9. Fixed Charge Coverage Ratio............................. 47
---------------------------
6.10. Execution of Supplemental Instruments................... 47
-------------------------------------
6.11. Payment of Indebtedness................................. 47
-----------------------
6.12. Standards of Financial Statements....................... 48
---------------------------------
6.13. Environmental Reports................................... 48
---------------------
VII. NEGATIVE COVENANTS.................................................... 48
------------------
7.1. Merger, Consolidation, Acquisition and Sale of
Assets.................................................. 48
------
7.2. Creation of Liens....................................... 48
-----------------
7.3. Guarantees.............................................. 48
----------
7.4. Investments............................................. 48
-----------
7.5. Loans................................................... 49
-----
7.6. Capital Expenditures.................................... 49
--------------------
7.7. Dividends............................................... 49
---------
7.8. Indebtedness............................................ 49
------------
7.9. Nature of Business...................................... 49
------------------
7.10. Transactions with Affiliates............................ 49
----------------------------
7.11. Leases.................................................. 50
------
7.12. Subsidiaries............................................ 50
------------
7.13. Fiscal Year and Accounting Changes...................... 50
----------------------------------
7.14. Pledge of Credit........................................ 50
----------------
7.15. Amendment of Articles of Incorporation, By-Laws......... 50
-----------------------------------------------
7.16. Compliance with ERISA................................... 50
---------------------
7.17. Subordinated Note....................................... 51
-----------------
7.18. Prepayment of Indebtedness.............................. 51
--------------------------
VIII. CONDITIONS PRECEDENT.................................................. 51
--------------------
8.1. Conditions to Initial Advances.......................... 51
------------------------------
(a) Note......................................... 51
----
(b) Filings, Registrations and Recordings........ 51
-------------------------------------
(c) Corporate Proceedings of Borrower............ 51
---------------------------------
(d) Incumbency Certificates of Borrower.......... 52
-----------------------------------
(e) Certificates................................. 52
------------
(f) Good Standing Certificates................... 52
--------------------------
(g) Legal Opinion................................ 52
-------------
(h) No Litigation................................ 52
-------------
(i) Financial Condition Certificates............. 52
--------------------------------
(j) Collateral Examination....................... 52
----------------------
(k) Fees......................................... 53
----
(l) Pro Forma Financial Statements............... 53
------------------------------
(m) Assignment Agreement......................... 53
--------------------
(n) Subordination Agreements..................... 53
------------------------
(o) Guaranties, Guarantor Pledge Agreement and
------------------------------------------
Other Documents.............................. 53
---------------
(p) Insurance.................................... 53
---------
(q) Environmental Reports........................ 53
---------------------
(r) Payment Instructions......................... 54
--------------------
(s) Blocked Accounts............................. 54
----------------
(t) Consents..................................... 54
--------
(u) No Adverse Material Change................... 54
--------------------------
(v) Leasehold Agreements......................... 54
--------------------
(w) Subordinated Notes........................... 54
------------------
-iii-
<PAGE>
(x) Net Worth.................................... 54
---------
(y) Contract Review.............................. 54
---------------
(z) Closing Certificate.......................... 54
-------------------
(aa) Borrowing Base............................... 55
--------------
(ab) Other........................................ 55
-----
8.2. Conditions to Each Advance.............................. 55
--------------------------
(a) Representations and Warranties............... 55
------------------------------
(b) No Default................................... 55
----------
(c) Maximum Advances............................. 55
----------------
IX. INFORMATION AS TO BORROWER............................................ 56
--------------------------
9.1. Disclosure of Material Matters.......................... 56
------------------------------
9.2. Schedules............................................... 56
---------
9.3. Environmental Reports................................... 56
---------------------
9.4. Litigation.............................................. 56
----------
9.5. Material Occurrences.................................... 56
--------------------
9.6. Government Receivables.................................. 57
----------------------
9.7. Annual Financial Statements............................. 57
---------------------------
9.8. Monthly Financial Statements............................ 58
----------------------------
9.9. Other Reports........................................... 58
-------------
9.10. Additional Information.................................. 58
----------------------
9.11. Projected Operating Budget.............................. 58
--------------------------
9.12. Variances From Operating Budget......................... 59
-------------------------------
9.13. Notice of Suits, Adverse Events......................... 59
-------------------------------
9.14. ERISA Notices and Requests.............................. 59
--------------------------
9.15. Additional Documents.................................... 60
--------------------
X. EVENTS OF DEFAULT..................................................... 60
-----------------
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT............................ 63
------------------------------------------
11.1. Rights and Remedies..................................... 63
-------------------
11.2. Agent's Discretion...................................... 64
------------------
11.3. Setoff.................................................. 64
------
11.4. Rights and Remedies not Exclusive....................... 64
---------------------------------
XII. WAIVERS AND JUDICIAL PROCEEDINGS...................................... 64
--------------------------------
12.1. Waiver of Notice........................................ 64
----------------
12.2. Delay................................................... 64
-----
12.3. Jury Waiver............................................. 64
-----------
XIII. EFFECTIVE DATE AND TERMINATION........................................ 65
------------------------------
13.1. Term.................................................... 65
----
13.2. Termination............................................. 65
-----------
XIV. REGARDING AGENT....................................................... 66
---------------
14.1. Appointment............................................. 66
-----------
14.2. Nature of Duties........................................ 66
----------------
14.3. Lack of Reliance on Agent and Resignation............... 67
-----------------------------------------
14.4. Certain Rights of Agent................................. 68
-----------------------
14.5. Reliance................................................ 68
--------
14.6. Notice of Default....................................... 68
-----------------
14.7. Indemnification......................................... 68
---------------
14.8. Agent in its Individual Capacity........................ 69
--------------------------------
14.9. Delivery of Documents................................... 69
---------------------
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<PAGE>
14.10. Borrower's Undertaking to Agent......................... 69
-------------------------------
XV. MISCELLANEOUS......................................................... 69
15.1. Governing Law........................................... 69
-------------
15.2. Entire Understanding.................................... 70
--------------------
15.3. Successors and Assigns; Participations; New
Lenders................................................. 71
-------
15.4. Application of Payments................................. 72
-----------------------
15.5. Indemnity............................................... 73
---------
15.6. Notice.................................................. 73
------
15.7. Severability............................................ 74
------------
15.8. Expenses................................................ 74
--------
15.9. Injunctive Relief....................................... 74
-----------------
15.10. Consequential Damages................................... 75
---------------------
15.11. Captions................................................ 75
--------
15.13. Construction............................................ 75
------------
15.14. Survival................................................ 75
--------
15.15. Confidentiality......................................... 75
---------------
15.16. Publicity............................................... 76
---------
-v-
<PAGE>
Exhibits and Schedules
Exhibits
Exhibit 2.1(a) Revolving Credit Note
Exhibit 5.5(b) Pro-Forma Balance Sheet and Projections
Exhibit 8.1(i) Financial Condition Certificate
Exhibit 15.3 Commitment Transfer Supplement
Schedules
Schedule 1.2 Permitted Encumbrances
Schedule 1.2(A) Subordinated Notes
Schedule 4.5 Inventory and Equipment Locations
Schedule 5.2(a) States Qualified to do Business
Schedule 5.2(b) Subsidiaries
Schedule 5.6 Corporate Names and Tradenames
Schedule 5.8(b) Litigation
Schedule 5.8(d) Plans
Schedule 5.9 Patents, Trademarks, Copyrights, Licenses,
Source Code Escrow Agreements
Schedule 5.10 Licenses and Permits Non-Compliance
Schedule 5.14 Labor Disputes
Schedule 7.3 Guarantees
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<PAGE>
REVOLVING CREDIT
AND
SECURITY AGREEMENT
Revolving Credit and Security Agreement dated as of May 3,
1996 among TANON MANUFACTURING, INC., a corporation organized under the laws of
the State of California ("Borrower"), the undersigned financial institutions and
the various financial institutions which in accordance with the terms and
provisions of Section 15.3(c) hereof become Purchasing Lenders (collectively,
the "Lenders" and individually a "Lender") and IBJ SCHRODER BANK & TRUST COMPANY
("IBJS"), a New York banking corporation, as agent for Lenders (IBJS, in such
capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings
herein contained, Borrower, Lenders and Agent hereby agree as follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Note, or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP applied in preparation of the audited
financial statements of Borrower for the fiscal year ended December 31, 1995.
1.2. General Terms. For purposes of this Agreement the
following terms shall have the following meanings:
"Advances" shall mean and include the Revolving
Advances and the Letters of Credit.
"Advance Rates" shall mean, collectively, the
Receivables Advance Rate, the Inventory Advance Rate and the
Equipment Advance Rate.
"Affiliate" of any Person shall mean (a) any Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, direct or indirect,
(x) to vote 5% or more of the securities having ordinary voting power for the
election of directors of such Person, or (y) to direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
<PAGE>
"Alternate Base Rate" shall mean, for any day, a rate
per annum equal to the higher of (i) the Base Rate in effect on such day and
(ii) the Federal Funds Rate in effect on such day plus 1/2 of 1%.
"Assignment Agreement" shall mean the Assignment and
Assumption Agreement dated the Closing Date between Holdings and
Borrower.
"Authority" shall have the meaning set forth in
Section 4.19(d).
"Base Rate" shall mean the base commercial lending
rate of IBJS as publicly announced to be in effect from time to time, such rate
to be adjusted automatically, without notice, on the effective date of any
change in such rate. This rate of interest is determined from time to time by
IBJS as a means of pricing some loans to its customers and is neither tied to
any external rate of interest or index nor does it necessarily reflect the
lowest rate of interest actually charged by IBJS to any particular class or
category of customers of IBJS.
"Blocked Accounts" shall have the meaning set forth
in Section 4.15(h).
"Borrower" shall mean Tanon Manufacturing, Inc., a
California corporation, and all permitted successors and assigns.
"Borrower's Account" shall have the meaning set forth
in Section 2.8.
"Business Day" shall mean any day other than a day on
which commercial banks in New York are authorized or required by
law to close.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss.ss.9601 et seq.
"Change of Control" shall mean the occurrence of any
event (whether in one or more transactions) which results in a transfer of
control of Borrower to a Person who is not an Original Owner. For purposes of
this definition, "control of Borrower" shall mean the power, direct or indirect
(x) to vote 50% or more of the securities having ordinary voting power for the
election of directors of Borrower or (y) to direct or cause the direction of the
management and policies of Borrower by contract or otherwise.
"Change of Ownership" shall mean (a) any transfer
(whether in one or more transactions) of ownership of more than 50% of the
common stock of Borrower held collectively by the Original Owners (including for
the purposes of the calculation of percentage ownership, any shares of common
stock into which any capital stock of Borrower held by any of the Original
Owners is convertible or
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<PAGE>
for which any such shares of the capital stock of Borrower or of any other
Person may be exchanged and any shares of common stock issuable to such Original
Owners upon exercise of any warrants, options or similar rights which may at the
time of calculation be held by such Original Owners) to a Person who is neither
an Original Owner nor an Affiliate of an Original Owner; (b) any merger,
consolidation or sale of substantially all of the property or assets of
Borrower; or (c) a Person or group of Persons acting in concert as a
partnership, limited partnership, syndicate or other group ("Group of Persons")
shall together with any Affiliates thereof, succeed in having a sufficient
number of nominees elected to the Board of Directors of Holdings such that such
nominees, when added to any existing directors remaining on the Board of
Directors of Holdings after such election, will constitute a majority of the
Board of Directors of Holdings.
"Charges" shall mean all taxes, charges, fees,
imposts, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation and property taxes, custom duties, fees, assessments, liens, claims
and charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts, imposed by any taxing or
other authority, domestic or foreign (including, without limitation, the Pension
Benefit Guaranty Corporation or any environmental agency or superfund), upon the
Collateral, Borrower or any of its Affiliates.
"Closing Date" shall mean May 3, 1996 or such other
date as may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time and the regulations promulgated
thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all of Borrower's right, title and
interest in and to (i) its goods and other property including, but not limited
to all merchandise returned or rejected by Customers, relating to or securing
any of the Receivables; (ii) all of Borrower's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor, including
stoppage in transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all
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<PAGE>
additional amounts due to Borrower from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to any
goods securing this Agreement; (v) all of Borrower's contract rights, rights of
payment which have been earned under a contract right, instruments, documents,
chattel paper, warehouse receipts, deposit accounts, money and securities; (vi)
if and when obtained by Borrower, all real and personal property of third
parties in which Borrower has been granted a lien or security interest as
security for the payment or enforcement of Receivables; and (vii) any other
goods, personal property or real property now owned or hereafter acquired in
which Borrower has expressly granted a security interest or may in the future
grant a security interest to Agent hereunder, or in any amendment or supplement
hereto, or under any other agreement between Lenders and Borrower;
(f) all of Borrower's ledger sheets,
ledger cards, files, correspondence, records, books of account, business papers,
computers, computer software (owned by Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to (a), (b), (c), (d) or
(e) of this Paragraph; and
(g) all proceeds and products of (a),
(b), (c), (d), (e) and (f) in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements, documents, eminent domain proceeds,
condemnation proceeds and tort claim proceeds.
"Commitment Percentage" of any Lender shall mean the
percentage set forth below such Lender's name on the signature page hereof as
same may be adjusted upon any assignment by a Lender pursuant to Section 15.3(c)
hereof.
"Commitment Transfer Supplement" shall mean a
document in the form of Exhibit 15.3 hereto, properly completed and otherwise in
form and substance satisfactory to Agent by which a Purchasing Lender purchases
and assumes a portion of the obligation of Lenders to make Advances under this
Agreement.
"Consents" shall mean all filings and all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties, domestic or foreign, necessary
to carry on Borrower's business, including, without limitation, any Consents
required under all applicable federal, state or other applicable law.
"Contract Rate" shall mean the Revolving Interest
Rate.
"Controlled Group" shall mean all members of a
controlled group of corporations and all trades or businesses
-4-
<PAGE>
(whether or not incorporated) under common control which, together with
Borrower, are treated as a single employer under Section 414 of the Code.
"Current Assets" at a particular date, shall mean all
cash, cash equivalents, accounts and inventory of Borrower and all other items
which would, in conformity with GAAP, be included under current assets on a
balance sheet of Borrower as at such date; provided, however, that such amounts
shall not include (a) any amounts for any Indebtedness owing by an Affiliate to
Borrower, unless such Indebtedness arose in connection with the sale of goods or
rendition of services in the ordinary course of business and would otherwise
constitute current assets in conformity with GAAP, (b) any shares of stock
issued by an Affiliate of Borrower, or (c) the cash surrender value of any life
insurance policy.
"Current Liabilities" at a particular date, shall
mean all amounts which would, in conformity with GAAP, be included under current
liabilities on a balance sheet of Borrower, as at such date, but in any event
including, without limitation, the amounts of (a) all Indebtedness of Borrower
payable on demand, or, at the option of the Person to whom such Indebtedness is
owed, not more than twelve (12) months after such date, (b) any payments in
respect of any Indebtedness of Borrower (whether installment, serial maturity,
sinking fund payment or otherwise) required to be made not more than twelve (12)
months after such date, (c) all reserves in respect of liabilities or
Indebtedness payable on demand or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after such date, the
validity of which is not contested at such date, and (d) all accruals for
federal or other taxes measured by income payable within a twelve (12) month
period. Current Liabilities shall not include the principal amount of the
Obligations.
"Customer" shall mean and include the account debtor
with respect to any Receivable and/or the prospective purchaser of goods,
services or both with respect to any contract or contract right, and/or any
party who enters into or proposes to enter into any contract or other
arrangement with Borrower, pursuant to which Borrower is to deliver any personal
property or perform any services.
"Default" shall mean an event which, with the giving
of notice or passage of time or both, would constitute an Event of
Default.
"Default Rate" shall have the meaning set forth in
Section 3.1 hereof.
"Defaulting Lender" shall have the meaning set forth
in Section 2.16(a).
"Depository Accounts" shall have the meaning set
forth in Section 4.15(h) hereof.
-5-
<PAGE>
"Documents" shall have the meaning set forth in
Section 8.1(c) hereof.
"Dollar" and the sign "$" shall mean lawful money of
the United States of America.
"Earnings Before Interest and Taxes" shall mean for
any period the sum of (i) Borrower's net income for such period, (ii) all
interest expense of Borrower for such period and (iii) all charges against
Borrower's income for such period for federal, state and local taxes actually
paid.
"EBITDA" shall mean for any period the sum of (i)
Earnings before Interest and Taxes for such period, (ii) depreciation expenses
for such period and (iii) amortization expenses for such period (excluding
amortization included in Borrower's interest expense for such period).
"ECO Receivables Advance Rate" shall have the meaning
set forth in Section 2.1(a)(y)(i) hereof.
"Eligible Inventory" shall mean raw materials
Inventory, valued at the lower of cost or market value, determined on a
first-in-first-out basis, which is not, in Agent's reasonable opinion, obsolete,
slow moving or unmerchantable and which Agent, in its sole discretion, shall not
deem ineligible Inventory, based on such considerations as Agent may from time
to time deem appropriate including, without limitation, whether the Inventory is
subject to a perfected, first priority security interest in favor of Agent and
whether the Inventory conforms to all standards imposed by any governmental
agency, division or department thereof which has regulatory authority over such
goods or the use or sale thereof.
"Eligible Receivables" shall mean each Receivable
arising in the ordinary course of Borrower's business and which Agent, in its
sole credit judgment, shall deem to be an Eligible Receivable, based on such
considerations as Agent may from time to time deem appropriate. A Receivable
shall not be deemed eligible unless such Receivable is subject to Agent's
perfected security interest and no other Lien, and is evidenced by an invoice or
other documentary evidence satisfactory to Lenders. In addition, no Receivable
shall be an Eligible Receivable if:
(a) it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate of
Borrower;
(b) it is due or unpaid more than ninety (90) days
after the original invoice date;
(c) fifty percent (50%) or more of the Receivables
from such Customer are not deemed Eligible Receivables hereunder.
-6-
<PAGE>
Such percentage may, in Agent's sole discretion, be increased or
decreased from time to time;
(d) any covenant, representation or warranty
contained in this Agreement with respect to such Receivable has
been breached;
(e) the Customer shall (i) apply for, suffer, or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property or call a meeting of its creditors, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) take any action for the purpose of effecting any
of the foregoing;
(f) the sale is to a Customer outside the
continental United States of America, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case acceptable to Agent in its sole
discretion;
(g) the sale to the Customer is on a bill-and-hold
(except for such bill-and-hold sales which are on terms and conditions
satisfactory to Agent in its sole discretion), guaranteed sale, sale-and-return,
sale on approval, consignment or any other repurchase or return basis or is
evidenced by chattel paper;
(h) Agent believes, in its sole judgment, that
collection of such Receivable is insecure or that such Receivable
may not be paid by reason of the Customer's financial inability to
pay;
(i) the Customer is the United States of America,
any state or any department, agency or instrumentality of any of
them, unless Borrower assigns its right to payment of such
Receivable to Agent pursuant to the Assignment of Claims Act of
1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C.
Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have
not been shipped and delivered to and accepted by the Customer or the services
giving rise to such Receivable have not been performed by Borrower and accepted
by the Customer or the Receivable otherwise does not represent a final sale;
-7-
<PAGE>
(k) the Receivables of the Customer exceed a
credit limit determined by Agent, in its sole discretion, to the extent
such Receivable exceeds such limit;
(l) the Receivable is subject to any offset (but
only to the extent of such offset), deduction, defense, dispute, or
counterclaim, the Customer is also a creditor or supplier or the Receivable is
contingent in any respect or for any reason;
(m) Borrower has made any agreement with any
Customer for any deduction therefrom, except for discounts or allowances made in
the ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;
(n) shipment of the merchandise or the rendition
of services has not been completed;
(o) any return, rejection or repossession of the
merchandise has occurred;
(p) such Receivable is not payable to Borrower; or
(q) such Receivable is not otherwise satisfactory
to Agent as determined in good faith by Agent in the exercise of its discretion
in a reasonable manner.
"Environmental Complaint" shall have the meaning set
forth in Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state
and local environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances and codes relating to the protection of
the environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Environmental Reports" shall mean those
environmental reports delivered pursuant to Section 6.13 hereof.
"Equipment" shall mean and include all of Borrower's
goods (other than Inventory) whether now owned or hereafter acquired and
wherever located including, without limitation, all equipment, machinery,
apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts,
accessories and all replacements and substitutions therefor or accessions
thereto.
"Equipment Advance Rate" shall mean seventy-five
percent (75%) reducing by one percentage point on the first day of each month
following the Closing Date.
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<PAGE>
"Equipment Appraisal" shall mean the Daley-Hodkin
equipment appraisal prepared by Daley-Hodkin dated April 23, 1996.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time and the rules and regulations
promulgated thereunder.
"Event of Default" shall mean the occurrence of any
of the events set forth in Article X hereof.
"Federal Funds Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or if such rate
is not so published for any day which is a Business Day, the average of
quotations for such day on such transactions received by IBJS from three Federal
funds brokers of recognized standing selected by IBJS.
"Fee Letter" shall mean the letter agreement dated
the Closing Date between Borrower and Agent.
"Fixed Charge Coverage" shall mean and include, with
respect to any fiscal period, the ratio of (a) EBITDA minus the sum of
non-financed capital expenditures, the principal amortization of capitalized
lease obligations and all taxes actually paid, to (b) all Senior Debt Payments
plus all Subordinated Debt Payments.
"Formula Amount" shall have the meaning set forth in
Section 2.1(a).
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time.
"General Intangibles" shall mean and include all of
Borrower's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to Borrower to secure payment of any of the Receivables by a Customer,
all rights of indemnification and all other intangible property of every kind
and nature (other than Receivables).
"Governmental Body" shall mean any nation or
government, any state or other political subdivision thereof or any
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<PAGE>
entity exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.
"Guarantor" shall mean Holdings.
"Guarantor Pledge Agreement" shall mean the Stock
Pledge Agreement dated the Closing Date executed by Guarantor in favor of Agent
pursuant to which Guarantor pledged to Agent for the benefit of Lenders all of
the issued and outstanding capital stock of Borrower.
"Guaranty" shall mean the guaranty of the obligations
of Borrower executed by Guarantor in favor of Lenders.
"Hazardous Discharge" shall have the meaning set
forth in Section 4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation,
any flammable explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated byphenyls, petroleum and petroleum
products, methane, hazardous materials, Hazardous Wastes, hazardous or toxic
substances or related materials as defined in CERCLA, the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA,
Articles 15 and 27 of the New York State Environmental Conservation Law or any
other applicable Environmental Law and in the regulations adopted pursuant
thereto.
"Hazardous Wastes" shall mean all waste materials
subject to regulation under CERCLA, RCRA or applicable state law, and any other
applicable Federal and state laws now in force or hereafter enacted relating to
hazardous waste disposal.
"Holdings" shall mean EA Industries, Inc., a New
Jersey corporation.
"Indebtedness" of a Person at a particular date shall
mean all obligations of such Person which in accordance with GAAP would be
classified upon a balance sheet as liabilities (except capital stock and surplus
earned or otherwise) and in any event, without limitation by reason of
enumeration, shall include all indebtedness, debt and other similar monetary
obligations of such Person whether direct or guaranteed, and all premiums, if
any, due at the required prepayment dates of such indebtedness, and all
indebtedness secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the acquisition by such
Person of any assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and incurring of the
indebtedness secured thereby, whether or not actually so created, assumed or
incurred.
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<PAGE>
"Inventory" shall mean all of Borrower's now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Inventory Advance Rate" shall have the meaning set
forth in Section 2.1(a)(y)(iii) hereof.
"Lender" and "Lenders" shall have the meaning
ascribed to such term in the Preamble and shall include each person which is a
Purchasing Lender, Transferee and all successors and assigns.
"Lender Default" shall have the meaning set forth in
Section 2.16(a) hereof.
"Letters of Credit" shall have the meaning set forth
in Section 2.9.
"Letter of Credit Application" shall have the meaning
set forth in Section 2.10 hereof.
"Letter of Credit Fees" shall have the meaning set
forth in Section 3.2.
"Lien" shall mean any mortgage, deed of trust,
pledge, hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge (which is past due or otherwise has become or resulted in the
imposition of a lien), claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Material Adverse Effect" shall mean a material
adverse effect on (i) the business, assets, operations, prospects or financial
condition of Borrower, (ii) Borrower's ability to pay the Obligations in
accordance with the terms hereof, (iii) the Collateral or Agent's Liens on the
Collateral or the priority of any such Lien, or (iv) Agent's and Lenders' rights
and remedies under this Agreement and the Other Documents.
"Maximum Loan Amount" shall mean $13,000,000.
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"Maximum Revolving Advance Amount" shall mean
$13,000,000.
"Net Worth" at a particular date, shall mean (a) the
aggregate amount of all assets of Borrower as may properly be classified as such
in accordance with GAAP consistently applied and such other assets as are
properly classified as "intangible assets", less (b) the aggregate amount of all
Indebtedness (exclusive of Indebtedness with respect to the Subordinated Note)
of Borrower. In determining Net Worth, the effect of non-cash extraordinary
gains or losses and accounting changes occurring since December 31, 1995 shall
be excluded.
"Non-Defaulting Lender" shall have the meaning set
forth in Section 2.16(b) hereof.
"Note" shall mean the Revolving Credit Note.
"Obligations" shall mean and include any and all of
Borrower's Indebtedness and/or liabilities to Agent or Lenders or any
corporation that directly or indirectly controls or is controlled by or is under
common control with any Lender of every kind, nature and description, direct or
indirect, secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising, contractual
or tortious, liquidated or unliquidated, regardless of how such indebtedness or
liabilities arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument, including, but not limited to,
any and all of Borrower's Indebtedness and/or liabilities under this Agreement
or under any other agreement between Agent or Lenders and Borrower and all
obligations of Borrower to Agent or Lenders to perform acts or refrain from
taking any action.
"Original Owners" shall mean Holdings.
"Other Documents" shall mean the Fee Letter, the
Note, the Questionnaire and any and all other agreements, instruments and
documents, including, without limitation, guaranties, pledges, powers of
attorney, consents, and all other writings heretofore, now or hereafter executed
by Borrower and/or delivered to Agent or any Lender in respect of the
transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or
other entity owning, directly or indirectly at least 50% of the shares of stock
or other ownership interests having ordinary voting power to elect a majority of
the directors of the Person, or other Persons performing similar functions for
any such Person.
"Participant" shall mean each Person who shall be
granted the right by any Lender to participate in any of the Advances and who
shall have entered into a participation agreement in form and substance
satisfactory to such Lender.
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"Payment Office" shall mean initially One State
Street, New York, New York 10004; thereafter, such other office of Agent, if
any, which it may designate by notice to Borrower and to each Lender to be the
Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Permitted Encumbrances" shall mean (a) Liens in
favor of Agent for the benefit of Agent and Lenders; (b) Liens for taxes,
assessments or other governmental charges not delinquent, or, being contested in
good faith and by appropriate proceedings and with respect to which proper
reserves have been taken by Borrower; provided, that, the Lien shall have no
effect on the priority of the Liens in favor of Agent or the value of the assets
in which Agent has such a Lien and a stay of enforcement of any such Lien shall
be in effect; (c) Liens disclosed in the financial statements referred to in
Section 5.5; (d) deposits or pledges to secure obligations under worker's
compensation, social security or similar laws, or under unemployment insurance;
(e) deposits or pledges to secure bids, tenders, contracts (other than contracts
for the payment of money), leases, statutory obligations, surety and appeal
bonds and other obligations of like nature arising in the ordinary course of
Borrower's business; (f) judgment Liens that have been stayed or bonded and
mechanics', worker's, materialmen's or other like Liens arising in the ordinary
course of Borrower's business with respect to obligations which are not due or
which are being contested in good faith by Borrower; (g) Liens placed upon fixed
assets hereafter acquired to secure a portion of the purchase price thereof,
provided that (x) any such lien shall not encumber any other property of
Borrower and (y) the aggregate amount of Indebtedness secured by such Liens
incurred as a result of such purchases during any fiscal year shall not exceed
the aggregate amount provided for such fiscal year in Section 7.6; and (h) Liens
disclosed on Schedule 1.2.
"Person" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a governmental authority or any other entity of
whatever nature.
"Plan" shall mean any employee benefit plan within
the meaning of Section 3(3) of ERISA, maintained for employees of Borrower or
any member of the Controlled Group or any such Plan to which Borrower or any
member of the Controlled Group is required to contribute on behalf of any of its
employees.
"Prepayment Date" shall have the meaning set forth in
Section 13.1 hereof.
"Pro Forma Balance Sheet" shall have the meaning set
forth in Section 5.5(a) hereof.
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"Pro Forma Financial Statements" shall have the
meaning set forth in Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in
Section 5.5(b) hereof.
"Purchasing Lender" shall have the meaning set forth
in Section 15.3 hereof.
"Questionnaire" shall mean the Documentation
Information Questionnaire and the responses thereto provided by Borrower and
delivered to Agent.
"RCRA" shall mean the Resource Conservation and
Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., as same may be amended
from time to time.
"Real Property" shall mean all of Borrower's rights,
title and interest in and to the premises located at 46360 Fremont Boulevard,
Fremont, California, 185 Monmouth Parkway, West Long Branch, New Jersey and any
other premises owned or leased by
Borrower.
"Receivables" shall mean and include all of
Borrower's accounts, contract rights, instruments (including those evidencing
indebtedness owed to Borrower by its Affiliates), documents, chattel paper,
general intangibles relating to accounts, drafts and acceptances, and all other
forms of obligations owing to Borrower arising out of or in connection with the
sale or lease of Inventory or the rendition of services, all guarantees and
other security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Lenders hereunder.
"Receivables Advance Rate" shall have the meaning set
forth in Section 2.1(a)(y)(ii) hereof.
"Register" shall have the meaning set forth in
Section 15.3(d).
"Release" shall have the meaning set forth in Section
5.7(c)(i) hereof.
"Reportable Event" shall mean a reportable event
described in Section 4043(b) of ERISA or the regulations
promulgated thereunder.
"Required Lenders" shall mean Lenders holding at
least sixty-seven percent (67%) of the Advances or, if no Advances
are outstanding, of the Commitment Percentages.
"Revolving Advances" shall mean Advances made other
than Letters of Credit.
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"Revolving Credit Note" shall mean the promissory
note referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate
per annum equal to the sum of the Alternate Base Rate plus one and
one-half percent (1.50%).
"Senior Debt Payments" shall mean and include all
paid and accrued (a) interest payments on any Advances hereunder, plus, (b)
payments for all fees, commissions and charges set forth herein and with respect
to any Advances.
"Settlement Date" shall mean the Closing Date and
thereafter Wednesday of each week unless such day is not a Business Day in which
case it shall be the next succeeding Business Day.
"Subordinated Debt Payments" shall mean and include
all cash actually expended to make payments of principal and
interest on the Subordinated Note.
"Subordinated Note" shall mean, collectively, the
intercompany promissory note(s) issued by Borrower in favor of Holdings, as more
fully described on Schedule 1.2A hereto, in the aggregate principal sum of
$___________.
"Subordination Agreement" shall mean the
Subordination Agreement dated May 3, 1996 among Agent, on behalf of itself and
Lenders, Borrower and Holdings.
"Subsidiary" shall mean a corporation or other entity
of whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other Persons performing similar functions for such
entity, are owned, directly or indirectly, by such Person.
"Tangible Net Worth" shall mean (a) Net Worth of
Borrower at such date less (b) the aggregate amount of all assets of Borrower as
may be properly classified in accordance with GAAP consistently applied as
intangible assets.
"Term" shall have the meaning set forth in Section
13.1 hereof.
"Termination Event" shall mean (i) a Reportable Event
with respect to any Plan or Multiemployer Plan; (ii) the withdrawal of either
Borrower or any member of the Controlled Group from a Plan or Multiemployer Plan
during a plan year in which such entity was a "substantial employer" as defined
in Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might
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constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan or Multiemployer Plan, or (b)
that may result in termination of a Multiemployer Plan pursuant to Section 4041A
of ERISA; or (vi) the partial or complete withdrawal within the meaning of
Sections 4203 and 4205 of ERISA, of either Borrower or any member of the
Controlled Group from a Multiemployer Plan.
"Toxic Substance" shall mean and include any material
present on the Real Property which has been shown to have significant adverse
effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. ss.ss. 2601 et seq., applicable state
law, or any other applicable Federal or state laws now in force or hereafter
enacted relating to toxic substances. "Toxic substance" includes but is not
limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.
"Transferee" shall have the meaning set forth in
Section 15.3(b) hereof.
"Transactions" shall have the meaning set forth in
Section 5.5 hereof.
"Undrawn Availability" at a particular date shall
mean an amount equal to (a) the lesser of (i) the Formula Amount or (ii) the
Maximum Revolving Advance Amount, minus (b) the sum of (i) the outstanding
amount of Advances, plus (ii) all amounts due and owing to Borrower's trade
creditors which are sixty (60) days or more past due, plus (iii) held checks and
book overdrafts, plus (iv) fees and expenses for which Borrower is liable but
which have not been paid or charged to Borrower's Account.
"WCO Receivables Advance Rate" shall have the meaning
set forth in Section 2.1(a)(y)(ii) hereof.
"Week" shall mean the time period commencing with the
opening of business on a Wednesday and ending on the end of
business the following Tuesday.
"Working Capital" at a particular date, shall mean
the excess, if any, of Current Assets over Current Liabilities at
such date.
1.3. Uniform Commercial Code Terms. All terms used herein
and defined in the Uniform Commercial Code as adopted in the State of New York
shall have the meaning given therein unless otherwise defined herein.
1.4. Certain Matters of Construction. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. Wherever appropriate in the context, terms used
herein in the singular also include the plural and vice versa. All
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references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. Unless otherwise provided, all
references to any instruments or agreements to which Agent is a party,
including, without limitation, references to any of the Other Documents shall
include any and all modifications or amendments thereto and any and all
extensions or renewals thereof.
II. ADVANCES, PAYMENTS.
2.1. (a) Revolving Advances. Subject to the terms and
conditions set forth in this Agreement, each Lender, severally and not jointly,
will make Revolving Advances to Borrower in aggregate amounts outstanding at
any time equal to such Lender's Commitment Percentage of the lesser of (x) the
Maximum Revolving Advance Amount less the aggregate amount of outstanding
Letters of Credit or (y) an amount equal to the sum of:
(i) up to 80%, subject to the provisions of Section
2.1(b) hereof ("ECO Receivables Advance Rate"), of
Eligible Receivables arising out of sales by the East
Coast operations of Borrower, plus
(ii) up to 85%, subject to the provisions of Section
2.1(b) hereof ("WCO Receivables Advance Rate" and,
collectively, with the ECO Receivables Advance Rate,
the "Receivables Advance Rate") of Eligible Receivables
arising out of sales by the West Coast operations of
Borrower, plus
(iii) up to the lesser of (A) 18%, subject to the
provisions of Section 2.1(b) hereof ("Inventory Advance
Rate"), of the value of the Eligible Inventory or (B)
$3,000,000 in the aggregate at any one time, plus
(iv) up to the lesser of (A) the Equipment Advance Rate
of the lesser of (x) the orderly liquidation value of
Borrower's Equipment based upon the Equipment which is
the subject of the Equipment Appraisal or (y)
$1,666,667 or (B) $1,250,000 in the aggregate at any
one time as reduced by an amount equal to the orderly
liquidation value of Equipment on the Equipment
Appraisal which is sold after the Closing Date, minus
(v) the aggregate amount of outstanding Letters of
Credit, minus
(vi) such reserves as Agent may reasonably deem
proper and necessary from time to time.
The amount derived from (x) the sum of Sections 2.1(a)(y)(i), (ii),
(iii) and (iv) minus (y) Section 2.1(a)(y)(vi)
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at any time and from time to time shall be referred to as the "Formula Amount".
The Revolving Advances shall otherwise be evidenced by the secured promissory
note ("Revolving Credit Note") substantially in the form attached hereto as
Exhibit 2.1(a) and shall be secured by the Collateral.
(b) Discretionary Rights. The Advance Rates may
be increased or decreased by Agent at any time and from time to time in the
exercise of its reasonable discretion based upon objective criteria such as, by
way of example and not limitation, an increase in the dilution experience with
respect to Receivables. Borrower consents to any such increases or decreases and
acknowledges that decreasing the Advance Rates or increasing the reserves may
limit or restrict Advances requested by Borrower.
2.2. Procedure for Revolving Advances Borrowing.
Borrower may notify Agent prior to 11:00 a.m. on a
Business Day of its request to incur, on that day, a Revolving Advance
hereunder. Should any amount required to be paid as interest hereunder, or as
fees or other charges under this Agreement or any other agreement with Agent or
Lenders, or with respect to any other Obligation, become due, same shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement or any other agreement with Agent or Lenders, and such
request shall be irrevocable.
2.3. Disbursement of Advance Proceeds. All Advances shall be
disbursed from whichever office or other place Agent may designate from time to
time and, together with any and all other Obligations of Borrower to Agent or
Lenders, shall be charged to Borrower's Account on Agent's books. During the
Term, Borrower may use the Revolving Advances by borrowing, repaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Revolving Advance requested by Borrower or deemed to have been
requested by Borrower under Section 2.2 hereof shall, with respect to requested
Revolving Advances to the extent Lenders make such Revolving Advances, be made
available to Borrower on the day so requested by way of credit to Borrower's
operating account at IBJS, or such other bank as Borrower may designate
following notification to Agent, in immediately available federal funds or other
immediately available funds or, with respect to Revolving Advances deemed to
have been requested, be disbursed to Agent to be applied to the outstanding
Obligations giving rise to such deemed request.
2.4. Intentionally Omitted.
2.5. Maximum Advances. The aggregate balance of Revolving
Advances outstanding at any time shall not exceed the lesser of (a) Maximum
Revolving Advance Amount minus outstanding Letters of
Credit or (b) the Formula Amount.
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2.6. Repayment of Advances.
(a) The Advances shall be due and payable in full
on the last day of the Term subject to earlier prepayment as herein
provided.
(b) Borrower recognizes that the amounts evidenced
by checks, notes, drafts or any other items of payment relating to and/or
proceeds of Collateral may not be collectible by Agent on the date received. In
consideration of Agent's agreement to conditionally credit Borrower's Account as
of the Business Day on which Agent receives those items of payment, Borrower
agrees that, in computing the charges under this Agreement, all items of payment
shall be deemed applied by Agent on account of the Obligations one (1) Business
Day after the Business Day Agent receives such payments via wire transfer or
electronic depositary check. Agent is not, however, required to credit
Borrower's Account for the amount of any item of payment which is unsatisfactory
to Agent and Agent may charge Borrower's Account for the amount of any item of
payment which is returned to Agent unpaid.
(c) All payments of principal, interest and other
amounts payable hereunder, or under any of the Other Documents shall be made to
Agent at the Payment Office not later than 1:00 P.M. (New York time) on the due
date therefor in lawful money of the United States of America in federal funds
or other funds immediately available to Agent. Agent shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging Borrower's Account or by making Advances as provided in Section 2.2
hereof.
(d) Borrower shall pay principal, interest, and
all other amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
2.7. Repayment of Excess Advances. The aggregate balance of
Advances outstanding at any time in excess of the maximum amount of Advances
permitted hereunder shall be immediately due and payable without the necessity
of any demand, at the Payment Office, whether or not a Default or Event of
Default has occurred.
2.8. Statement of Account. Agent shall maintain, in accordance with
its customary procedures, a loan account ("Borrower's Account") in the name of
Borrower in which shall be recorded the date and amount of each Advance made by
Lenders and the date and amount of each payment in respect thereof; provided,
however, the failure by Agent to record the date and amount of any Advance shall
not adversely affect Agent or any Lender. Each month, Agent shall send to
Borrower a statement showing the accounting for the Advances made, payments made
or credited in respect thereof, and other transactions between Lenders and
Borrower, during such month. The monthly statements shall be deemed correct and
binding upon Borrower in the absence of manifest
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error and shall constitute an account stated between Lenders and Borrower unless
Agent receives a written statement of Borrower's specific exceptions thereto
within thirty (30) days after such statement is received by Borrower. The
records of Agent with respect to the loan account shall be conclusive evidence
absent manifest error of the amounts of Advances and other charges thereto and
of payments applicable thereto.
2.9. Letters of Credit. Subject to the terms and conditions hereof,
Agent shall issue or cause the issuance of Letters of Credit ("Letters of
Credit"); provided, however, that Agent will not be required to issue or cause
to be issued any Letters of Credit to the extent that the face amount of such
Letters of Credit would then cause the sum of (i) the outstanding Revolving
Advances plus (ii) outstanding Letters of Credit (with the requested Letter of
Credit being deemed to be outstanding for purposes of this calculation) to
exceed the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula
Amount. The maximum amount of outstanding Letters of Credit shall not exceed
$1,000,000 in the aggregate at any time. All disbursements or payments related
to Letters of Credit shall be deemed to be Revolving Advances and shall bear
interest at the Revolving Interest Rate; Letters of Credit that have not been
drawn upon shall not bear interest. Letters of Credit shall be subject to the
terms and conditions set forth in the applicable Letter of Credit Application.
2.10. Issuance of Letters of Credit.
(a) Borrower may request Agent to issue or cause
the issuance of a Letter of Credit by delivering to Agent at the Payment Office,
Agent's standard form of Letter of Credit Application (the "Letter of Credit
Application"), completed to the satisfaction of Agent; and, such other
certificates, documents and other papers and information as Agent may reasonably
request.
(b) Each Letter of Credit shall, among other
things, (i) provide for the payment of sight drafts when presented for honor
thereunder in accordance with the terms thereof and when accompanied by the
documents described therein and (ii) have an expiry date not later than twelve
(12) months after such Letter of Credit's date of issuance and in no event later
than the last day of the Term. Each Letter of Credit Application and each Letter
of Credit shall be subject to the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
and any amendments or revision thereof and, to the extent not inconsistent
therewith, the laws of the State of New York.
2.11. Requirements For Issuance of Letters of Credit.
(a) In connection with the issuance of any Letter
of Credit, Borrower shall indemnify, save and hold Agent and each Lender
harmless from any loss, cost, expense or liability,
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including, without limitation, payments made by Agent and any Lender, and
expenses and reasonable attorneys' fees incurred by Agent or any Lender arising
out of, or in connection with, any Letter of Credit to be issued or created for
Borrower. Borrower shall be bound by Agent's or any issuing or accepting bank's
regulations and good faith interpretations of any Letter of Credit issued or
created for Borrower's Account, although this interpretation may be different
from Borrower's own; and, neither Agent nor any Lender, the bank which opened
the Letter of Credit, nor any of its correspondents shall be liable for any
error, negligence, or mistakes, whether of omission or commission, in following
Borrower's instructions or those contained in any Letter of Credit or of any
modifications, amendments or supplements thereto or in issuing or paying any
Letter of Credit, except for Agent's or any Lender's or such correspondents'
willful misconduct.
(b) Borrower shall authorize and direct any bank
which issues a Letter of Credit to name Borrower as the "Account Party" therein
and to deliver to Agent all instruments, documents, and other writings and
property received by the bank pursuant to the Letter of Credit and to accept and
rely upon Agent's instructions and agreements with respect to all matters
arising in connection with the Letter of Credit, the application therefor.
(c) In connection with all Letters of Credit
issued or caused to be issued by Agent under this Agreement, Borrower hereby
appoints Agent, or its designee, as its attorney, with full power and authority
(to the extent applicable), (i) to sign and/or endorse Borrower's name upon any
warehouse or other receipts, letter of credit applications and acceptances; (ii)
to sign Borrower's name on bills of lading; (iii) to clear Inventory through the
United States of America Customs Department ("Customs") in the name of Borrower
or Agent or Agent's designee, and to sign and deliver to Customs officials
powers of attorney in the name of Borrower for such purpose; and (iv) to
complete in Borrower's name or Agent's, or in the name of Agent's designee, any
order, sale or transaction, obtain the necessary documents in connection
therewith, and collect the proceeds thereof. Neither Agent nor its attorneys
will be liable for any acts or omissions nor for any error of judgment or
mistakes of fact or law, except for its own gross (not mere) negligence and
willful misconduct. This power, being coupled with an interest, is irrevocable
as long as any Letters of Credit remain outstanding.
(d) Each Lender shall to the extent of the
percentage amount equal to the product of such Lender's Commitment Percentage
times the aggregate amount of all unreimbursed reimbursement obligations and
disbursements made with respect to the Letters of Credit be deemed to have
irrevocably purchased an undivided participation in each such unreimbursed
reimbursement obligation made as a consequence of such disbursement. In the
event that at the time a disbursement is made the unpaid balance of Revolving
Advances exceeds or would exceed, with the making of such disbursement, the
lesser of the Maximum Revolving Advance Amount or
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the Formula Amount, and such disbursement is not reimbursed by Borrower within
two (2) Business Days, Agent shall promptly notify each Lender and upon Agent's
demand each Lender shall pay to Agent such Lender's proportionate share of such
unreimbursed disbursement together with such Lender's proportionate share of
Agent's unreimbursed costs and expenses relating to such unreimbursed
disbursement. Upon receipt by Agent of a repayment from Borrower of any amount
disbursed by Agent for which Agent had already been reimbursed by Lenders, Agent
shall deliver to each Lender that Lender's pro rata share of such repayment.
Each Lender's participation commitment shall continue until the last to occur of
any of the following events: (A) Agent ceases to be obligated to issue Letters
of Credit hereunder; (B) no Letter of Credit issued hereunder remains
outstanding and uncancelled or (C) all Persons (other than Borrower) have been
fully reimbursed for all payments made under or relating to Letters of Credit.
2.12. Additional Payments. Any reasonable sums expended by Agent or
any Lender due to Borrower's failure to perform or comply with its obligations
under this Agreement or any Other Document including, without limitation,
Borrower's obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof,
may be charged to Borrower's Account as a Revolving Advance and added to the
Obligations.
2.13. Manner of Borrowing and Payment.
(a) Each borrowing of Revolving Advances shall be
advanced according to the Commitment Percentages of Lenders.
(b) Each payment (including each prepayment) by
Borrower on account of the principal of and interest on the Revolving Credit
Note, shall be applied to the Revolving Advances pro rata according to the
Commitment Percentages of Lenders. Except as expressly provided herein, all
payments (including prepayments) to be made by Borrower on account of principal,
interest and fees shall be made without set-off or counterclaim and shall be
made to Agent on behalf of Lenders to the Payment Office, in each case on or
prior to 1:00 P.M., New York time, in Dollars and in immediately available
funds.
(c) (i) Notwithstanding anything to the contrary
contained in Sections 2.13(a) and (b) hereof, commencing with the first Business
Day following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by Borrower on account of Revolving Advances
shall be applied first to those Revolving Advances made by Agent. On or before
1:00 P.M., New York time, on each Settlement Date commencing with the first
Settlement Date following the Closing Date, Agent and Lenders shall make certain
payments as follows: (I) if the aggregate amount of new Revolving Advances made
by Agent during the preceding Week exceeds the aggregate amount of repayments
applied to outstanding Revolving Advances during such preceding Week, then each
Lender shall provide Agent with funds in an amount equal to its Commitment
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Percentage of the difference between (w) such Revolving Advances and (x) such
repayments and (II) if the aggregate amount of repayments applied to outstanding
Revolving Advances during such Week exceeds the aggregate amount of new
Revolving Advances made during such Week, then Agent shall provide each Lender
with its Commitment Percentage of the difference between (y) such repayments and
(z) such Revolving Advances.
(ii) Each Lender shall be entitled to
earn interest at the Contract Rate on outstanding Advances which it has
funded.
(iii) Promptly following each Settlement
Date, Agent shall submit to each Lender a certificate with respect to payments
received and Advances made during the Week immediately preceding such Settlement
Date. Such certificate of Agent shall be conclusive in the absence of manifest
error.
(d) If any Lender or Participant (a "benefitted
Lender") shall at any time receive any payment of all or part of its Advances,
or interest thereon, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily or by set-off) in a greater proportion than any
such payment to and Collateral received by any other Lender, if any, in respect
of such other Lender's Advances, or interest thereon, and such greater
proportionate payment or receipt of Collateral is not expressly permitted
hereunder, such benefitted Lender shall purchase for cash from the other Lenders
such portion of each such other Lender's Advances, or shall provide such other
Lender with the benefits of any such Collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such Collateral or proceeds ratably with each of Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. Each Lender so purchasing a portion of another
Lender's Advances may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
(e) Unless Agent shall have been notified by
telephone, confirmed in writing, by any Lender that such Lender will not make
the amount which would constitute its Commitment Percentage of the Advances
available to Agent, Agent may (but shall not be obligated to) assume that such
Lender shall make such amount available to Agent and, in reliance upon such
assumption, make available to Borrower a corresponding amount. Agent will
promptly notify Borrower of its receipt of any such notice from a Lender. If
such amount is made available to Agent on a date after a Settlement Date, such
Lender shall pay to Agent on demand an amount equal to the product of (i) the
daily average federal funds rate (computed on the basis of a year of 360 days)
during such period as
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quoted by Agent, times (ii) such amount, times (iii) the number of days from and
including such Settlement Date to the date on which such amount becomes
immediately available to Agent. A certificate of Agent submitted to any Lender
with respect to any amounts owing under this paragraph (e) shall be conclusive,
in the absence of manifest error. If such amount is not in fact made available
to Agent by such Lender within three (3) Business Days after such Settlement
Date, Agent shall be entitled to recover such an amount, with interest thereon
at the rate per annum then applicable to Revolving Advances hereunder, on demand
from Borrower; provided, however, that Agent's right to such recovery shall not
prejudice or otherwise adversely affect Borrower's rights (if any) against such
Lender.
2.14. Mandatory Prepayments.
When Borrower sells or otherwise disposes of any
Equipment, Borrower shall repay the Advances in an amount equal to the net
proceeds of such sale (i.e., gross proceeds less the reasonable costs of such
sales or other dispositions), such repayments to be made promptly but in no
event more than one (1) Business Day following receipt of such net proceeds, and
until the date of payment, such proceeds shall be held in trust for Agent. The
foregoing shall not be deemed to be implied consent to any such sale otherwise
prohibited by the terms and conditions hereof. Such repayments shall be applied
to the Advances in such order as Agent may determine, subject to Borrower's
ability to reborrow Revolving Advances in accordance with the terms hereof.
2.15. Use of Proceeds. Borrower shall apply the proceeds
of Advances to (i) repay existing indebtedness owed to Congress
Financial Corporation and Comerica, (ii) pay fees and expenses
relating to the Transactions and (iii) to provide for its working
capital needs.
2.16. Defaulting Lender.
(a) Notwithstanding anything to the contrary
contained herein, in the event any Lender (x) has refused (which refusal
constitutes a breach by such Lender of its obligations under this Agreement) to
make available its portion of any Advance or (y) notifies either Agent or
Borrower that it does not intend to make available its portion of any Advance
(if the actual refusal would constitute a breach by such Lender of its
obligations under this Agreement) (each, a "Lender Default"), all rights and
obligations hereunder of such Lender (a "Defaulting Lender") as to which a
Lender Default is in effect and of the other parties hereto shall be modified to
the extent of the express provisions of this Section 2.16 while such Lender
Default remains in effect.
(b) Advances shall be incurred pro rata from
Lenders (the "Non-Defaulting Lenders") which are not Defaulting Lenders based on
their respective Commitment Percentages, and no Commitment Percentage of any
Lender or any pro rata share of any Advances
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required to be advanced by any Lender shall be increased as a result of such
Lender Default. Amounts received in respect of principal of any type of Advances
shall be applied to reduce the applicable Advances of each Lender pro rata based
on the aggregate of the outstanding Advances of that type of all Lenders at the
time of such application; provided, that, such amount shall not be applied to
any Advances of a Defaulting Lender at any time when, and to the extent that,
the aggregate amount of Advances of any Non-Defaulting Lender exceeds such
Non-Defaulting Lender's Commitment Percentage of all Advances then outstanding.
(c) A Defaulting Lender shall not be entitled to
give instructions to Agent or to approve, disapprove, consent to or vote on any
matters relating to this Agreement and the Other Documents. All amendments,
waivers and other modifications of this Agreement and the Other Documents may be
made without regard to a Defaulting Lender and, for purposes of the definition
of "Required Lenders", a Defaulting Lender shall be deemed not to be a Lender
and not to have Advances outstanding.
(d) Other than as expressly set forth in this
Section 2.16, the rights and obligations of a Defaulting Lender (including the
obligation to indemnify Agent) and the other parties hereto shall remain
unchanged. Nothing in this Section 2.16 shall be deemed to release any
Defaulting Lender from its obligations under this Agreement and the Other
Documents, shall alter such obligations, shall operate as a waiver of any
default by such Defaulting Lender hereunder, or shall prejudice any rights which
Borrower, Agent or any Lender may have against any Defaulting Lender as a result
of any default by such Defaulting Lender hereunder.
(e) In the event a Defaulting Lender retroactively
cures to the satisfaction of Agent the breach which caused a Lender to become a
Defaulting Lender, such Defaulting Lender shall no longer be a Defaulting Lender
and shall be treated as a Lender under this Agreement.
III. INTEREST AND FEES.
3.1. Interest. Interest on Advances shall be payable in arrears on
the first day of each month. Interest charges shall be computed on the actual
principal of Advances outstanding during the month at a rate per annum equal to
the Revolving Interest Rate. Whenever, subsequent to the date of this Agreement,
the Alternate Base Rate is increased or decreased, the applicable Contract Rate
shall be similarly changed without notice or demand of any kind by an amount
equal to the amount of such change in the Alternate Base Rate during the time
such change or changes remain in effect. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the Obligations shall
bear interest at the applicable Contract Rate plus two (2%) percent per annum
(the "Default Rate").
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3.2. Letter of Credit Fees.
Borrower shall pay (i) Agent for the ratable benefit
of Lenders for issuing or causing the issuance of (A) a standby Letter of
Credit, a fee computed at a rate of 5/8 of 1% on the outstanding amount thereof
for each 90 days or a portion thereof of its term, and (B) a Letter of Credit
that is not a standby Letter of Credit, a fee equal to .25% of the original and
each increase in the face amount thereof for each 90 days or portion thereof of
its term (the fees set in (A) and (B) referred to as "Letter of Credit Fees")
and (ii) Bank's other customary charges payable in connection with Letters of
Credit, as in effect from time to time (which charges shall be furnished to
Borrower by Agent upon request). Such fees and charges shall be payable (i) in
the case of any Letter of Credit, on the opening of such Letter of Credit, (ii)
in the case of a standby Letter of Credit, monthly thereafter in advance and
(iii) in the case of any Letter of Credit, upon each increase in the outstanding
amount thereof. Any such charge in effect at the time of a particular
transaction shall be the charge for that transaction, notwithstanding any
subsequent change in Bank's prevailing charges for that type of transaction. All
Letter of Credit Fees payable hereunder shall be deemed earned in full on the
date when the same are due and payable hereunder and shall not be subject to
rebate or proration upon the termination of this Agreement for any reason.
Following the occurrence of any Event of Default and
during the continuance thereof and upon termination of this Agreement, upon the
request of Agent, Borrower will cause cash to be deposited and maintained in an
account with Agent, as cash collateral, in an amount equal to one hundred and
five percent (105%) of the outstanding face amount of Letters of Credit, and
Borrower hereby irrevocably authorizes Agent, in its discretion, on Borrower's
behalf and in Borrower's name, to open such an account and to make and maintain
deposits therein, or in an account opened by Borrower, in the amounts required
to be made by Borrower, out of the proceeds of Receivables or other Collateral
or out of any other funds of Borrower coming into any Lender's possession at any
time. Agent will invest such cash collateral (less applicable reserves) in such
short-term money-market items as to which Agent and Borrower mutually agree and
the net return on such investments shall be credited to such account and
constitute additional cash collateral. Borrower may not withdraw amounts
credited to any such account except upon payment and performance in full of all
Obligations and termination of this Agreement.
3.3. Facility Fee. If, for any fiscal quarter during the Term, the
average daily unpaid balance of the Advances for each day of such quarter does
not equal the Maximum Loan Amount, then Borrower shall pay to Agent for the
ratable benefit of Lenders a fee at a rate equal to one-half of one percent
(.50%) per annum on the amount by which the Maximum Loan Amount exceeds such
average daily unpaid balance. Such fee shall be payable to Agent in arrears on
the first day of each quarter.
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3.4. Fee Letter. Borrower shall pay the fees set forth in
the Fee Letter.
3.5. Computation of Interest and Fees. Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed. If any payment to be made hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable Contract Rate during such extension.
3.6. Maximum Charges. In no event whatsoever shall interest and
other charges charged hereunder exceed the highest rate permissible under law.
In the event interest and other charges as computed hereunder would otherwise
exceed the highest rate permitted under law, such excess amount shall be first
applied to any unpaid principal balance owed by Borrower, and if the then
remaining excess amount is greater than the previously unpaid principal balance,
Lenders shall promptly refund such excess amount to Borrower and the provisions
hereof shall be deemed amended to provide for such permissible rate.
3.7. Increased Costs. In the event that any applicable law, treaty
or governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by Agent or any Lender (for purposes of this
Section 3.7, the term "Lender" shall include Agent or any Lender and any
corporation or bank controlling Agent or any Lender) with any request or
directive (whether or not having the force of law) from any central bank or
other financial, monetary or other authority, shall:
(a) subject Agent or any Lender to any tax of any
kind whatsoever with respect to this Agreement or change the basis of taxation
of payments to Agent or any Lender of principal, fees, interest or any other
amount payable hereunder or under any Other Documents (except for changes in the
rate of tax on the overall net income of Agent or any Lender by the jurisdiction
in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve,
special deposit, assessment or similar requirement against assets held by, or
deposits in or for the account of, advances or loans by, or other credit
extended by, any office of Agent or any Lender, including (without limitation)
pursuant to Regulation D of the Board of Governors of the Federal Reserve
System; or
(c) impose on Agent or any Lender any other
condition with respect to this Agreement, any Other Documents, and the result of
any of the foregoing is to increase the cost to Agent or any Lender of making,
renewing or maintaining its Advances hereunder by an amount that Agent or such
Lender deems to be material or to reduce the amount of any payment (whether of
principal, interest or otherwise) in respect of any of the Advances by an amount
that Agent or such Lender deems to be material, then,
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in any case Borrower shall promptly pay Agent or such Lender, upon its demand,
such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be. Agent or such Lender
shall certify the amount of such additional cost or reduced amount to Borrower,
and such certification shall be conclusive absent manifest error.
3.8. Capital Adequacy.
(a) In the event that Agent or any Lender shall
have determined that any applicable law, rule, regulation or guideline regarding
capital adequacy, 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 Agent or any Lender (for purposes of this Section 3.8, the term "Lender"
shall include Agent or any Lender and any corporation or bank controlling Agent
or any Lender) with any request or directive regarding capital adequacy (whether
or 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 Agent or any Lender's capital as a consequence of its obligations hereunder
to a level below that which Agent or such Lender could have achieved but for
such adoption, change or compliance (taking into consideration Agent's and each
Lender's policies with respect to capital adequacy) by an amount deemed by Agent
or any Lender to be material, then, from time to time, Borrower shall pay upon
demand to Agent or such Lender such additional amount or amounts as will
compensate Agent or such Lender for such reduction. In determining such amount
or amounts, Agent or such Lender may use any reasonable averaging or attribution
methods. The protection of this Section 3.8 shall be available to Agent and each
Lender regardless of any possible contention of invalidity or inapplicability
with respect to the applicable law, regulation or condition.
(b) A certificate of Agent or such Lender setting
forth such amount or amounts as shall be necessary to compensate Agent or such
Lender with respect to Section 3.8(a) hereof when delivered to Borrower shall be
conclusive absent manifest error.
IV. COLLATERAL: GENERAL TERMS.
4.1. Security Interest in the Collateral. To secure the prompt
payment and performance to Agent and each Lender of the Obligations, Borrower
hereby assigns, pledges and grants to Agent for the ratable benefit of Agent and
each Lender a continuing security interest in and to all of the Collateral,
whether now owned or existing or hereafter acquired or arising and wheresoever
located. Borrower shall mark its books and records as may be necessary or
appropriate to evidence, protect and perfect Agent's security interest and shall
cause its financial statements to reflect such security interest.
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4.2. Perfection of Security Interest. Borrower shall take all
action that may be necessary or desirable, or that Agent may request, so as at
all times to maintain the validity, perfection, enforceability and priority of
Agent's security interest in the Collateral or to enable Agent to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers, (iii)
delivering to Agent, endorsed or accompanied by such instruments of assignment
as Agent may specify, and stamping or marking, in such manner as Agent may
specify, any and all chattel paper, instruments, letters of credits and advices
thereof and documents evidencing or forming a part of the Collateral, (iv)
entering into warehousing, lockbox and other custodial arrangements satisfactory
to Agent, and (v) executing and delivering financing statements, instruments of
pledge, mortgages, notices and assignments, in each case in form and substance
satisfactory to Agent, relating to the creation, validity, perfection,
maintenance or continuation of Agent's security interest under the Uniform
Commercial Code or other applicable law. Agent is hereby authorized to file
financing statements signed by Agent instead of Borrower in accordance with
Section 9-402(2) of Uniform Commercial Code as adopted in the State of New York.
All charges, expenses and fees Agent may incur in doing any of the foregoing,
and any local taxes relating thereto, shall be charged to Borrower's Account as
a Revolving Advance and added to the Obligations, or, at Agent's option, shall
be paid to Agent for the ratable benefit of Lenders immediately upon demand.
4.3. Disposition of Collateral. Borrower will safeguard and protect
all Collateral for Agent's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
ordinary course of business and (b) the disposition or transfer of Equipment in
the ordinary course of business during any fiscal year having an aggregate fair
market value of not more than $300,000 and only to the extent that the proceeds
of such disposition or transfer are remitted to Agent in accordance with Section
2.14 hereof.
4.4. Preservation of Collateral. Following the occurrence of a
Default or Event of Default, in addition to the rights and remedies set forth in
Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent deems
necessary to protect Agent's interest in and to preserve the Collateral,
including the hiring of such security guards or the placing of other security
protection measures as Agent may deem appropriate; (b) may employ and maintain
at any of Borrower's premises a custodian who shall have full authority to do
all acts necessary to protect Agent's interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move all or part of the Collateral; (d)
may use any of Borrower's owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral; and (e) shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may
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proceed over and through any of Borrower's owned or leased property. Borrower
shall cooperate fully with all of Agent's efforts to preserve the Collateral and
will take such actions to preserve the Collateral as Agent may direct. All of
Agent's expenses of preserving the Collateral, including any expenses relating
to the bonding of a custodian, shall be charged to Borrower's Account as a
Revolving Advance and added to the Obligations.
4.5. Ownership of Collateral. With respect to the Collateral, at
the time the Collateral becomes subject to Agent's security interest: (a)
Borrower shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first security interest in each and every item
of the Collateral to Agent; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens and encumbrances whatsoever; (b)
each document and agreement executed by Borrower or delivered to Agent or any
Lender in connection with this Agreement shall be true and correct in all
respects; (c) all signatures and endorsements of Borrower that appear on such
documents and agreements shall be genuine and Borrower shall have full capacity
to execute same; and (d) Borrower's Equipment and Inventory shall be located as
set forth on Schedule 4.5 and shall not be removed from such location(s) without
the prior written consent of Agent except with respect to the sale of Inventory
in the ordinary course of business and Equipment to the extent permitted in
Section 4.3 hereof.
4.6. Defense of Agent's and Lenders' Interests. Until (a)
payment and performance in full of all of the Obligations and (b)
termination of this Agreement, Agent's interests in the Collateral shall
continue in full force and effect. During such period Borrower shall not,
without Agent's prior written consent, pledge, sell (except Inventory in the
ordinary course of business and Equipment to the extent permitted in Section 4.3
hereof), assign, transfer, create or suffer to exist a Lien upon or encumber or
allow or suffer to be encumbered in any way except for Permitted Encumbrances,
any part of the Collateral. Borrower shall defend Agent's interests in the
Collateral against any and all persons whatsoever. At any time following the
occurrence and during the continuance of an Event of Default and demand by Agent
for payment of all Obligations, Agent shall have the right to take possession of
the indicia of the Collateral and the Collateral in whatever physical form
contained, including without limitation: labels, stationery, documents,
instruments and advertising materials. If Agent exercises this right to take
possession of the Collateral, Borrower shall, upon demand, assemble it in the
best manner possible and make it available to Agent at a place reasonably
convenient to Agent. In addition, with respect to all Collateral, Agent and
Lenders shall be entitled to all of the rights and remedies set forth herein and
further provided by the Uniform Commercial Code or other applicable law.
Borrower shall, and Agent may, at its option, instruct all suppliers, carriers,
forwarders, warehouses or others receiving or holding cash, checks, Inventory,
documents or instruments in which Agent holds a security interest
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to deliver same to Agent and/or subject to Agent's order and if they shall come
into Borrower's possession, they, and each of them, shall be held by Borrower in
trust as Agent's trustee, and Borrower will immediately deliver them to Agent in
their original form together with any necessary endorsement.
4.7. Books and Records. Borrower (a) shall keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including without limitation by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by Borrower.
4.8. Financial Disclosure. Borrower hereby irrevocably authorizes
and directs all accountants and auditors employed by Borrower at any time during
the Term to exhibit and deliver to Agent and each Lender copies of any of
Borrower's financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to Agent
and each Lender any information such accountants may have concerning Borrower's
financial status and business operations. Borrower hereby authorizes all
federal, state and municipal authorities to furnish to Agent and each Lender
copies of reports or examinations relating to Borrower, whether made by Borrower
or otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from Borrower prior to obtaining such
information or materials from such accountants or such authorities.
4.9. Compliance with Laws. Borrower shall comply with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to the Collateral or any part thereof or to the
operation of Borrower's business the non-compliance with which could reasonably
be expected to have a Material Adverse Effect. The Collateral at all times shall
be maintained in accordance with the requirements of all insurance carriers
which provide insurance with respect to the Collateral so that such insurance
shall remain in full force and effect.
4.10. Inspection of Premises. At all reasonable times
Agent shall have full access to and the right to audit, check,
inspect and make abstracts and copies from Borrower's books,
records, audits, correspondence and all other papers relating to
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the Collateral and the operation of Borrower's business. Agent and its agents
may enter upon any of Borrower's premises at any time during business hours and
at any other reasonable time, and from time to time, for the purpose of
inspecting the Collateral and any and all records pertaining thereto and the
operation of Borrower's business.
4.11. Insurance. Borrower shall bear the full risk of any loss of
any nature whatsoever with respect to the Collateral. At Borrower's own cost and
expense in amounts and with carriers acceptable to Agent, Borrower shall (a)
keep all its insurable properties and properties in which Borrower has an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to Borrower's including, without limitation, business interruption
insurance;, (b) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to Borrower's insuring against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of Borrower either directly or through authority to draw
upon such funds or to direct generally the disposition of such assets; (c)
maintain public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (d) maintain all such
worker's compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which Borrower is engaged in business; (e) furnish
Agent with (i) copies of all policies and evidence of the maintenance of such
policies by the renewal thereof at least thirty (30) days before any expiration
date, and (ii) appropriate loss payable endorsements in form and substance
satisfactory to Agent, naming Agent as a co-insured and loss payee as its
interests may appear with respect to all insurance coverage referred to in
clauses (a) and (b) above, and providing (A) that all proceeds thereunder shall
be payable to Agent, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such policy, and
(C) that such policy and loss payable clauses may not be cancelled, amended or
terminated unless at least thirty (30) days' prior written notice is given to
Agent. In the event of any loss thereunder, the carriers named therein hereby
are directed by Agent and Borrower to make payment for such loss to Agent and
not to Borrower and Agent jointly. If any insurance losses are paid by check,
draft or other instrument payable to Borrower and Agent jointly, Agent may
endorse Borrower's name thereon and do such other things as Agent may deem
advisable to reduce the same to cash. Agent is hereby authorized to adjust and
compromise claims under insurance coverage referred to in clauses (a) and (b)
above. All loss recoveries received by Agent upon any such insurance may be
applied to the Obligations, in such order as Agent in its sole discretion shall
determine. Any surplus shall be paid by Agent to Borrower or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by Borrower to
Agent, on demand.
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4.12. Failure to Pay Insurance. If Borrower fails to obtain
insurance as hereinabove provided, or to keep the same in force, Agent, if Agent
so elects, may obtain such insurance and pay the premium therefor for Borrower's
Account, and charge Borrower's Account therefor and such expenses so paid shall
be part of the Obligations.
4.13. Payment of Taxes. Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon Borrower or any
of the Collateral including, without limitation, real and personal property
taxes, assessments and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes. If any tax by any governmental
authority is or may be imposed on or as a result of any transaction between
Borrower and Agent or any Lender which Agent or any Lender may be required to
withhold or pay or if any taxes, assessments, or other Charges remain unpaid
after the date fixed for their payment, or if any claim shall be made which, in
Agent's or any Lender's opinion, may possibly create a valid Lien on the
Collateral, Agent may without notice to Borrower pay the taxes, assessments or
other Charges and Borrower hereby indemnifies and holds Agent and each Lender
harmless in respect thereof. Agent will not pay any taxes, assessments or
Charges to the extent that Borrower has contested or disputed those taxes,
assessments or Charges in good faith, by expeditious protest, administrative or
judicial appeal or similar proceeding provided that any related tax lien is
stayed and sufficient reserves are established to the reasonable satisfaction of
Agent to protect Agent's security interest in or Lien on the Collateral. The
amount of any payment by Agent under this Section 4.13 shall be charged to
Borrower's Account as a Revolving Advance and added to the Obligations and,
until Borrower shall furnish Agent with an indemnity therefor (or supply Agent
with evidence satisfactory to Agent that due provision for the payment thereof
has been made), Agent may hold without interest any balance standing to
Borrower's credit and Agent shall retain its security interest in any and all
Collateral held by Agent.
4.14. Payment of Leasehold Obligations. Borrower shall at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request will provide evidence of having done so.
4.15. Receivables.
(a) Nature of Receivables. Each of the
Receivables shall be a bona fide and valid account representing a bona fide
indebtedness incurred by the Customer therein named, for a fixed sum as set
forth in the invoice relating thereto (provided immaterial or unintentional
invoice errors shall not be deemed to be a breach hereof) with respect to an
absolute sale or lease and delivery of goods upon stated terms of Borrower, or
work, labor or
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services theretofore rendered by Borrower as of the date each Receivable is
created. Same shall be due and owing in accordance with Borrower's standard
terms of sale without dispute, setoff or counterclaim except as may be stated on
the accounts receivable schedules delivered by Borrower to Agent.
(b) Solvency of Customers. Each Customer, to the
best of Borrower's knowledge, as of the date each Receivable is created, is and
will be solvent and able to pay all Receivables on which the Customer is
obligated in full when due or with respect to such Customers of Borrower who are
not solvent Borrower has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.
(c) Locations of Borrower. Prior to the date
hereof, Borrower's chief executive office was located at 46360 Fremont
Boulevard, Fremont, California and upon and after the date hereof, Borrower's
chief executive office is located at 185 Monmouth Parkway, West Long Branch, New
Jersey. Until written notice is given to Agent by Borrower of any other office
at which it keeps its records pertaining to Receivables, all such records shall
be kept at such executive office.
(d) Collection of Receivables. Until Borrower's
authority to do so is terminated by Agent (which notice Agent may give at any
time following the occurrence and during the continuance of an Event of Default
or a Default, Borrower will, at Borrower's sole cost and expense, but on Agent's
behalf and for Agent's account, collect as Agent's property and in trust for
Agent all amounts received on Receivables, and shall not commingle such
collections with Borrower's funds or use the same except to pay Obligations.
Borrower shall, upon request, deliver to Agent or the Blocked Account in
original form and on the date of receipt thereof, all checks, drafts, notes,
money orders, acceptances, cash and other evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At
any time following the occurrence and during the continuance of an Event of
Default, Agent shall have the right to send notice of the assignment of, and
Agent's security interest in, the Receivables to any and all Customers or any
third party holding or otherwise concerned with any of the Collateral.
Thereafter, Agent shall have the sole right to collect the Receivables, take
possession of the Collateral, or both. Agent's actual collection expenses,
including, but not limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrower's Account and added to the
Obligations.
(f) Power of Agent to Act on Borrower's Behalf.
Agent shall have the right to receive, endorse, assign and/or deliver in the
name of Agent or Borrower any and all checks, drafts and other instruments for
the payment of money relating to the Receivables, and Borrower hereby waives
notice of presentment,
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protest and non-payment of any instrument so endorsed. Borrower hereby
constitutes Agent or Agent's designee as Borrower's attorney with power (i) to
endorse Borrower's name upon any notes, acceptances, checks, drafts, money
orders or other evidences of payment or Collateral; (ii) to sign Borrower's name
on any invoice or bill of lading relating to any of the Receivables, drafts
against Customers, assignments and verifications of Receivables; (iii) to send
verifications of Receivables to any Customer; (iv) to sign Borrower's name on
all financing statements or any other documents or instruments deemed necessary
or appropriate by Agent to preserve, protect, or perfect Agent's interest in the
Collateral and to file same; (v) to demand payment of the Receivables when due;
(vi) to enforce payment of the Receivables by legal proceedings or otherwise;
(vii) to exercise all of Borrower's rights and remedies with respect to the
collection of the Receivables and any other Collateral; (viii) to settle,
adjust, compromise, extend or renew the Receivables; (ix) to settle, adjust or
compromise any legal proceedings brought to collect Receivables; (x) to prepare,
file and sign Borrower's name on a proof of claim in bankruptcy or similar
document against any Customer; (xi) to prepare, file and sign Borrower's name on
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables; and (xii) to do all other acts and things
necessary to carry out this Agreement. Agent shall only exercise the powers
conferred by clauses (v), (vi), (vii), (viii), (ix), (x) and (xi) following the
occurrence and during the continuation of an Event of Default. All acts of said
attorney or designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law, unless done maliciously or with
gross (not mere) negligence; this power being coupled with an interest is
irrevocable while any of the Obligations remain unpaid. Agent shall have the
right at any time following the occurrence and during the continuance of an
Event of Default, to change the address for delivery of mail addressed to
Borrower to such address as Agent may designate.
(g) No Liability. Neither Agent nor any Lender
shall, under any circumstances or in any event whatsoever, have any liability
for any error or omission or delay of any kind occurring in the settlement,
collection or payment of any of the Receivables or any instrument received in
payment thereof, or for any damage resulting therefrom. Following the occurrence
and during the continuance of an Event of Default Agent may, without notice or
consent from Borrower, (i) sue upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof, and (ii) accept the return of the goods
represented by any of the Receivables, all without discharging or in any way
affecting Borrower's liability hereunder.
(h) Establishment of a Lockbox Account, Dominion
Account. All proceeds of Collateral shall, at the direction of
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Agent, be deposited by Borrower into a lockbox account, dominion account or such
other "blocked account" ("Blocked Accounts") as Agent may require pursuant to an
arrangement with such bank as may be selected by Borrower and be acceptable to
Agent. Borrower shall issue to any such bank, an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to Agent,
either to any account maintained by Agent at said bank or by wire transfer to
appropriate account(s) of Agent. All funds deposited in such "blocked account"
shall immediately become the property of Agent and Borrower shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited. Agent assumes no responsibility for such "blocked account"
arrangement, including without limitation, any claim of accord and satisfaction
or release with respect to deposits accepted by any bank thereunder.
Alternatively, Agent may establish depository accounts ("Depository Accounts")
in the name of Agent at a bank or banks for the deposit of such funds and
Borrower shall deposit all proceeds of Collateral or cause same to be deposited,
in kind, in such Depository Accounts of Agent in lieu of depositing same to the
Blocked Accounts.
(i) Adjustments. Borrower will not, without
Agent's consent, compromise or adjust any Receivables (or extend the time for
payment thereof) or accept any returns of merchandise or grant any additional
discounts, allowances or credits thereon except for those compromises,
adjustments, returns, discounts, credits and allowances as have been heretofore
customary in the business of Borrower.
4.16. Inventory. All Inventory held for sale or lease has been, and
will be, produced by Borrower in accordance with the Federal Fair Labor
Standards Act of 1938, as amended, and all rules, regulations and orders
thereunder.
4.17. Maintenance of Equipment. The Equipment shall be maintained
in good operating condition and repair (reasonable wear and tear excepted) and
all necessary replacements of and repairs thereto shall be made so that the
value and operating efficiency of the Equipment shall be maintained and
preserved. Borrower shall not use or operate the Equipment in violation of any
law, statute, ordinance, code, rule or regulation. Borrower shall have the right
to sell Equipment to the extent set forth in Section 4.3 hereof.
4.18. Exculpation of Liability. Nothing herein contained shall be
construed to constitute Agent or any Lender as Borrower's agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof. Neither
Agent nor any Lender, whether by anything herein or in any assignment or
otherwise, assume any of Borrower's obligations under any contract or agreement
assigned to Agent or such Lender, and neither Agent nor any Lender shall be
responsible in any way for the performance by Borrower of any of the terms and
conditions thereof.
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4.19. Environmental Matters. (a) Borrower will ensure that
the Real Property remains in compliance with all Environmental Laws
and it will not place or permit to be placed any Hazardous Substances on any
Real Property except as not prohibited by applicable law or appropriate
governmental authorities.
(b) Borrower will maintain its periodic review
system to assure and monitor continued compliance with all applicable
Environmental Laws which system shall include periodic reviews of such
compliance.
(c) Borrower will (i) employ in connection with
its use of the Real Property appropriate technology necessary to maintain
compliance with any applicable Environmental Laws and (ii) dispose of any and
all Hazardous Waste generated at the Real Property only at facilities and with
carriers that maintain valid permits under RCRA and any other applicable
Environmental Laws. Borrower shall use its best efforts to obtain certificates
of disposal, such as hazardous waste manifest receipts, from all treatment,
transport, storage or disposal facilities or operators employed by Borrower in
connection with the transport or disposal of any Hazardous Waste generated at
the Real Property.
(d) In the event Borrower obtains, gives or
receives notice of any Release or threat of Release of a reportable quantity of
any Hazardous Substances at the Real Property (any such event being hereinafter
referred to as a "Hazardous Discharge") or receives any notice of violation,
request for information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with regard
to any Hazardous Discharge or violation of Environmental Laws affecting the Real
Property or Borrower's interest therein (any of the foregoing is referred to
herein as an "Environmental Complaint") from any Person or entity, including any
state agency responsible in whole or in part for environmental matters in the
state in which the Real Property is located or the United States Environmental
Protection Agency (any such person or entity hereinafter the "Authority"), then
Borrower shall, within ten (10) days, give written notice of same to Agent
detailing facts and circumstances of which Borrower is aware giving rise to the
Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in the Real Property
and is not intended to create nor shall it create any obligation upon Agent or
any Lender with respect thereto.
(e) Borrower shall promptly forward to Agent
copies of any request for information, notification of potential liability,
demand letter relating to potential responsibility with respect to the
investigation or cleanup of Hazardous Substances at any other site owned,
operated or used by Borrower to dispose of Hazardous Substances and shall
continue to forward copies of correspondence between Borrower and the Authority
regarding such
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claims to Agent until the claim is settled. Borrower shall promptly forward to
Agent copies of all documents and reports concerning a Hazardous Discharge at
the Real Property that Borrower is required to file under any Environmental
Laws. Such information is to be provided solely to allow Agent to protect
Agent's security interest in the Real Property and the Collateral.
(f) Borrower shall respond promptly to any
Hazardous Discharge or Environmental Complaint and take all necessary action in
order to safeguard the health of any natural Person and to avoid subjecting the
Collateral or Real Property to any Lien. If Borrower shall fail to respond
promptly to any Hazardous Discharge or Environmental Complaint or Borrower shall
fail to comply with any of the requirements of any Environmental Laws, Agent on
behalf of Lenders may, but without the obligation to do so, for the sole purpose
of protecting Agent's interest in Collateral: (A) give such notices or (B) enter
onto the Real Property (or authorize third parties to enter onto the Real
Property) and take such actions as Agent (or such third parties as directed by
Agent) deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Revolving Advances shall be paid upon demand by Borrower,
and until paid shall be added to and become a part of the Obligations secured by
the Liens created by the terms of this Agreement or any other agreement between
Agent, any Lender and Borrower.
(g) Promptly upon the written request of Agent
from time to time which request will not be made more than once during the Term
unless Agent either becomes aware that a Hazardous Discharge has occurred or an
Environmental Complaint has been made, Borrower shall provide Agent, at
Borrower's expense, with an environmental site assessment or environmental audit
report prepared by an environmental engineering firm acceptable in the
reasonable opinion of Agent, to assess with a reasonable degree of certainty the
existence of a Hazardous Discharge and the potential costs in connection with
abatement, cleanup and removal of any Hazardous Substances found on, under, at
or within the Real Property. Any report or investigation of such Hazardous
Discharge proposed and acceptable to an appropriate Authority that is charged to
oversee the clean-up of such Hazardous Discharge shall be acceptable to Agent.
If such estimates, individually or in the aggregate, exceed $100,000, Agent
shall have the right to require Borrower to post a bond, letter of credit or
other security reasonably satisfactory to Agent to secure payment of these costs
and expenses.
(h) Borrower shall defend and indemnify Agent and
Lenders and hold Agent, Lenders and their respective employees,
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agents, directors and officers harmless from and against all loss, liability,
damage and expense, claims, costs, fines and penalties, including attorney's
fees, suffered or incurred by Agent or Lenders under or on account of any
Environmental Laws, including, without limitation, the assertion of any lien
thereunder, with respect to any Hazardous Discharge, the presence of any
Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of the foregoing
except to the extent such loss, liability, damage and expenses is attributable
to any Hazardous Discharge resulting from actions on the part of Agent, any
Lender or any of their agents, employees, officers or invitees. Borrower's
obligations under this Section 4.19 shall arise upon the discovery of the
presence of any Hazardous Substances at the Real Property, whether or not any
federal, state, or local environmental agency has taken or threatened any action
in connection with the presence of any Hazardous Substances. Borrower's
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.
(i) For purposes of Section 4.19 and 5.7, all
references to Real Property shall be deemed to include all of Borrower's right,
title and interest in and to its owned and leased premises.
4.20. Financing Statements. Except as respects the
financing statements filed by Agent and the financing statements
described on Schedule 1.2, no financing statement covering any of
the Collateral or any proceeds thereof is on file in any public
office.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1. Authority. Borrower has full power, authority and legal right
to enter into this Agreement and the Other Documents and perform all Obligations
hereunder and thereunder. The execution, delivery and performance hereof and of
the Other Documents (a) are within Borrower's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Borrower's by-laws,
certificate of incorporation or other applicable documents relating to
Borrower's formation or to the conduct of Borrower's business or of any material
agreement or undertaking to which Borrower is a party or by which Borrower is
bound, and (b) will not conflict with nor result in any breach of any of the
provisions of or constitute a default under or result in the creation of any
Lien except Permitted Encumbrances upon any asset of Borrower under the
provisions of any agreement, charter document, instrument, by-law, or other
instrument to which Borrower or its property is a party or by which it may be
bound.
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5.2. Formation and Qualification. (a) Borrower is duly incorporated
and in good standing under the laws of the State of California and is qualified
to do business and is in good standing or has filed an application for
qualification in the states listed on Schedule 5.2(a) which constitute all
states in which qualification and good standing are necessary for Borrower to
conduct its business and own its property except where the failure to so qualify
could not reasonably be expected to have a Material Adverse Effect. Borrower has
delivered to Agent true and complete copies of its certificate of incorporation
and by-laws and will promptly notify Agent of any amendment or changes thereto.
(b) The only Subsidiaries of Borrower are listed
on Schedule 5.2(b).
5.3. Survival of Representations and Warranties. All
representations and warranties of Borrower contained in this Agreement and the
Other Documents shall be true at the time of Borrower's execution of this
Agreement and the Other Documents, and shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.
5.4. Tax Returns. Borrower's federal tax identification number is
94-2820371. Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid all taxes, assessments,
fees and other governmental charges that are due and payable. Federal, state and
local income tax returns of Borrower have been examined and reported upon by the
appropriate taxing authority or closed by applicable statute and satisfied for
all fiscal years prior to and including the fiscal year ending December 31,
1991. The provision for taxes on the books of Borrower are adequate for all
years not closed by applicable statutes, and for its current fiscal year, and
Borrower has no knowledge of any deficiency or additional assessment in
connection therewith not provided for on its books.
5.5. Financial Statements.
(a) The pro forma balance sheet of Borrower (the
"Pro Forma Balance Sheet") furnished to Agent on the Closing Date reflects the
consummation of the transactions contemplated under this Agreement and the
transfer by Holdings of the assets and liabilities of its West Long Branch
contract manufacturing division to Borrower (the "Transactions") and is
accurate, complete and correct and fairly reflects the financial condition of
Borrower as of the Closing Date after giving effect to the Transactions, and has
been prepared in accordance with GAAP, consistently applied. The Pro Forma
Balance Sheet of Borrower has been certified as accurate, complete and correct
in all material respects by the President and Chief Financial Officer of
Borrower. All financial statements referred to in this subsection 5.5(a),
including the related schedules and notes thereto, have been prepared, in
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accordance with GAAP, except as may be disclosed in such financial
statements.
(b) The twelve-month cash flow projections of
Borrower and its projected balance sheets as of the Closing Date, copies of
which are annexed hereto as Exhibit 5.5(b) (the "Projections") were prepared by
the Chief Financial Officer of Borrower, are based on underlying assumptions
which provide a reasonable basis for the projections contained therein and
reflect Borrower's judgment based on present circumstances of the most likely
set of conditions and course of action for the projected period. The cash flow
Projections together with the Pro Forma Balance Sheet, are referred to as the
"Pro Forma Financial Statements".
(c) (i) The balance sheet of Borrower as of
December 31, 1995 and (ii) the consolidated and consolidating balance sheets of
Holdings and its Subsidiaries and such other Persons described therein
(including the accounts of all Subsidiaries for the respective periods during
which a subsidiary relationship existed) as of December 31, 1995, and the
related statements of income, changes in stockholder's equity, and changes in
cash flow for the period ended on such date, all accompanied by reports thereon
containing opinions without qualification by independent certified public
accountants, copies of which have been delivered to Agent, have been prepared in
accordance with GAAP, consistently applied (except for changes in application in
which such accountants concur and present fairly the financial position of
Borrower and its Subsidiaries at such date and the results of their operations
for such period. Since December 31, 1995 there has been no change in the
condition, financial or otherwise, of Borrower as shown on the balance sheet as
of such date and no change in the aggregate value of machinery, equipment and
Real Property owned by Borrower, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse, and changes contemplated by the Transactions. Since December 31, 1995
there has been no change in the condition, financial or otherwise of Holdings or
its Subsidiaries as shown on the consolidated balance sheet as of such date,
except changes in the ordinary course of business, none of which individually or
in the aggregate has been materially adverse, and changes contemplated by the
Transactions.
5.6. Corporate Name. Borrower has not been known by any other
corporate name in the past five years and does not sell Inventory under any
other name except as set forth on Schedule 5.6, nor has Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5)
years.
5.7. O.S.H.A. and Environmental Compliance.
(a) Borrower has duly complied with, and its
facilities, business, assets, property, leaseholds and Equipment
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are in compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act, the Environmental Protection Act, RCRA and
all other Environmental Laws; there have been no outstanding citations, notices
or orders of non-compliance issued to Borrower or relating to its business,
assets, property, leaseholds or equipment under any such laws, rules or
regulations.
(b) Borrower has been issued all required federal,
state and local licenses, certificates or permits relating to all
applicable Environmental Laws.
(c) (i) There are no visible signs of releases,
spills, discharges, leaks or disposal (collectively referred to as "Releases")
of Hazardous Substances at, upon, under or within any Real Property or any
premises leased by Borrower; (ii) to the best of Borrower's knowledge and except
as set forth in the Environmental Reports, there are no underground storage
tanks or polychlorinated biphenyls on the Real Property or any premises leased
by Borrower; (iii) to the best of Borrower's knowledge and except as set forth
in the Environmental Reports, neither the Real Property nor any premises leased
by Borrower has ever been used as a treatment, storage or disposal facility of
Hazardous Waste; and (iv) to the best of Borrower's knowledge and except as set
forth in the Environmental Reports, no Hazardous Substances are present on the
Real Property or any premises leased by Borrower, excepting such quantities as
are handled in accordance with all applicable manufacturer's instructions and
governmental regulations and in proper storage containers and as are necessary
for the operation of the commercial business of Borrower or of its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or
Default.
(a) After giving effect to the Transactions,
Borrower will be solvent, able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (i) as of the Closing Date, the fair present saleable value of its
assets, calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the Closing Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in excess of the amount
of its liabilities.
(b) Except as disclosed in Schedule 5.8(b),
Borrower has (i) no pending or threatened litigation, arbitration, actions or
proceedings which could reasonably be expected to have a Material Adverse
Effect, and (ii) no liabilities nor indebtedness for borrowed money other than
the Obligations.
(c) Borrower is not in violation of any applicable
statute, regulation or ordinance in any respect which could reasonably be
expected to have a Material Adverse Effect, nor is Borrower in violation of any
order of any court, governmental authority or arbitration board or tribunal.
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(d) Neither Borrower nor any member of the
Controlled Group maintains or contributes to any Plan other than those listed on
Schedule 5.8(d) hereto. Except as set forth in Schedule 5.8(d), (i) no Plan has
incurred any "accumulated funding deficiency," as defined in Section 302(a)(2)
of ERISA and Section 412(a) of the Code, whether or not waived, and Borrower and
each member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan, (ii) each Plan
which is intended to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and the trust related thereto is
exempt from federal income tax under Section 501(a) of the Code, (iii) neither
Borrower nor any member of the Controlled Group has incurred any liability to
the PBGC other than for the payment of premiums, and there are no premium
payments which have become due which are unpaid, (iv) no Plan has been
terminated by the plan administrator thereof or by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title IV of
ERISA to terminate any Plan, (v) at this time, the current value of the assets
of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and neither Borrower nor any member of the Controlled
Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities, (vi) neither
Borrower nor any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan, (vii) neither Borrower nor any member of a Controlled Group has
incurred any liability for any excise tax arising under Section 4972 or 4980B of
the Code, and no fact exists which could give rise to any such liability, (viii)
neither Borrower nor any member of the Controlled Group nor any fiduciary of,
nor any trustee to, any Plan, has engaged in a "prohibited transaction"
described in Section 406 of the ERISA or Section 4975 of the Code nor taken any
action which would constitute or result in a Termination Event with respect to
any such Plan which is subject to ERISA, (ix) Borrower and each member of the
Controlled Group has made all contributions due and payable with respect to each
Plan, (x) there exists no event described in Section 4043(b) of ERISA, for which
the thirty (30) day notice period contained in 29 CFR ss.2615.3 has not been
waived, (xi) neither Borrower nor any member of the Controlled Group has any
fiduciary responsibility for investments with respect to any plan existing for
the benefit of persons other than employees or former employees of Borrower and
any member of the Controlled Group, and (xii) neither Borrower nor any member of
the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980.
5.9. Patents, Trademarks, Copyrights and Licenses. All
patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, copyrights, copyright
applications, design rights, tradenames, assumed names, trade
secrets and licenses owned or utilized by Borrower are set forth
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on Schedule 5.9, are valid and have been duly registered or filed with all
appropriate governmental authorities and constitute all of the intellectual
property rights which are necessary for the operation of its business; there is
no objection to or pending challenge to the validity of any such material
patent, trademark, copyright, design rights tradename, trade secret or license
and Borrower is not aware of any grounds for any challenge, except as set forth
in Schedule 5.9 hereto. Each patent, patent application, patent license,
trademark, trademark application, trademark license, service mark, service mark
application, service mark license, copyright, copyright application and
copyright license owned or held by Borrower and all trade secrets used by
Borrower consists of original material or property developed by Borrower or was
lawfully acquired by Borrower from the proper and lawful owner thereof. Each of
such items has been maintained so as to preserve the value thereof from the date
of creation or acquisition thereof. With respect to all software used by
Borrower, Borrower is in possession of all source and object codes related to
each piece of software or is the beneficiary of a source code escrow agreement,
each such source code escrow agreement being listed on Schedule 5.9 hereto.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10,
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state
or local law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct business except
where the failure to so comply or to procure such licenses or permits could not
reasonably be expected to have a Material Adverse Effect.
5.11. Default of Indebtedness. Borrower is not in default in the
payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any Indebtedness has been
issued and no event has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving of notice, or
both, constitutes or would constitute an event of default thereunder.
5.12. No Default. Borrower is not in default in the
payment or performance of any of its contractual obligations and no
Default has occurred.
5.13. No Burdensome Restrictions. Borrower is not party to any
contract or agreement the performance of which could reasonably be expected to
have a Material Adverse Effect. Borrower has not agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise) any of
its property, whether now owned or hereafter acquired, to be subject to a Lien
which is not a Permitted Encumbrance.
5.14. No Labor Disputes. Borrower is not involved in any
labor dispute; there are no strikes or walkouts or union
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organization of any of Borrower's employees threatened or in existence and no
labor contract is scheduled to expire during the Term other than as set forth on
Schedule 5.14 hereto.
5.15. Margin Regulations. Borrower is not engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Advance will be used for "purchasing" or "carrying" "margin stock" as
defined in Regulation U of such Board of Governors.
5.16. Investment Company Act. Borrower is not an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, nor is it controlled by such a company.
5.17. Disclosure. No representation or warranty made by Borrower in
this Agreement or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to Agent in writing with respect to the transactions contemplated by this
Agreement which could reasonably be expected to have a Material Adverse Effect.
5.18. Delivery of Assignment Agreement. Agent has received complete
copies of the Assignment Agreement (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto, if any)
and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been delivered to Agent.
5.19. Swaps. Borrower is not a party to, nor will it be a party to,
any swap agreement whereby Borrower has agreed or will agree to swap interest
rates or currencies unless same provides that damages upon termination following
an event of default thereunder are payable on an unlimited "two-way basis"
without regard to fault on the part of either party.
5.20. Conflicting Agreements. No provision of any mortgage,
indenture, contract, agreement, judgment, decree or order binding on Borrower or
affecting the Collateral conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
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5.21. Application of Certain Laws and Regulations. Neither Borrower
nor any Affiliate of Borrower is subject to any statute, rule or regulation
which regulates the incurrence of any Indebtedness, including without
limitation, statutes or regulations relative to common or interstate carriers or
to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.
5.22. Business and Property of Borrower. Upon and after the Closing
Date, Borrower does not propose to engage in any business other than the
electronics contract manufacturing and activities necessary to conduct such
business. On the Closing Date, Borrower will own all the property and possess
all of the rights and Consents necessary for the conduct of the business of
Borrower.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and
termination of this Agreement:
6.1. Payment of Fees. Pay to Agent on demand all usual and
customary fees and expenses which Agent incurs in connection with (a) the
forwarding of Advance proceeds and (b) the establishment and maintenance of any
Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).
Agent may, without making demand, charge Borrower's Account for all such fees
and expenses.
6.2. Conduct of Business and Maintenance of Existence and Assets.
(a) Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
design rights, tradenames, trade secrets and trademarks and take all actions
necessary to enforce and protect the validity of any intellectual property right
or other right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business where the failure to do so could
reasonably be expected to have a Material Adverse Effect; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States or
any political subdivision thereof.
6.3. Violations. Promptly notify Agent in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to
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Borrower which could reasonably be expected to have a Material Adverse Effect.
6.4. Government Receivables. Take all steps necessary to protect
Agent's interest in the Collateral under the Federal Assignment of Claims Act or
other applicable state or local statutes or ordinances and deliver to Agent
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between Borrower and the United States, any
state or any department, agency or instrumentality of any of them.
6.5. Net Worth. Maintain for each fiscal quarter (a) for the period
between the Closing Date and March 31, 1997, a Net Worth in amount of not less
than $4,000,000 and (b) commencing with the fiscal quarter ending on June 30,
1997, a Net Worth in an amount which is not less than the amount of Net Worth on
the last day of the prior fiscal quarter.
6.6. Current Ratio. Maintain at all times a ratio of
Current Assets to Current Liabilities of not less than 1.25 to
1.00.
6.7. Intentionally Omitted.
6.8. Intentionally Omitted.
6.9. Fixed Charge Coverage Ratio. Cause to be maintained as of the
end of each fiscal period set forth below a Fixed Charge Coverage of not less
than the ratio set opposite each fiscal period below:
Fixed Charge
Fiscal Period Coverage Ratio
------------- --------------
April 1, 1996 - June 30, 1996 .70 to 1.00
April 1, 1996 - September 30, 1996 .75 to 1.00
April 1, 1996 - December 31, 1996 1.00 to 1.00
April 1, 1996 - March 31, 1997 1.00 to 1.00
and each rolling four quarter
thereafter
6.10. Execution of Supplemental Instruments. Execute and deliver to
Agent from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect.
6.11. Payment of Indebtedness. Pay, discharge or otherwise satisfy
at or before maturity (subject, where applicable, to specified grace periods
and, in the case of the trade payables, to normal payment practices) all its
obligations and liabilities of whatever nature, except when the failure to do so
could not reasonably be expected to have a Material Adverse Effect or when
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the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and Borrower shall have provided for such reserves as
Agent may reasonably deem proper and necessary, subject at all times to any
applicable subordination arrangement in favor of Lenders.
6.12. Standards of Financial Statements. Cause all financial
statements referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and
9.14 as to those to which GAAP is applicable to be complete and correct in all
material respects (subject, in the case of interim financial statements, to
normal year-end audit adjustments) and to be prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).
6.13. Environmental Reports. No later than sixty (60) days
following the Closing Date, deliver to Agent environmental reports prepared by
an environmental engineering firm acceptable in the reasonable opinion of Agent
covering the Real Property.
VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the Obligations
and termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of
Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a substantial
portion of the assets or stock of any Person or permit any other Person to
consolidate with or merge with it.
(b) Sell, lease, transfer or otherwise dispose of
any of its properties or assets, except in the ordinary course of
its business.
7.2. Creation of Liens. Create or suffer to exist any
Lien or transfer upon or against any of its property or assets now
owned or hereafter acquired, except Permitted Encumbrances.
7.3. Guarantees. Become liable upon the obligations of
any Person by assumption, endorsement or guaranty thereof or otherwise
(other than to Lenders) except (a) as disclosed on Schedule 7.3, and (b) the
endorsement of checks in the ordinary course of business.
7.4. Investments. Purchase or acquire obligations or
stock of, or any other interest in, any Person, except (a)
obligations issued or guaranteed by the United States of America or
any agency thereof, (b) commercial paper with maturities of not
more than 180 days and a published rating of not less than A-1 or
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P-1 (or the equivalent rating), (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency and (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof.
7.5. Loans. Make advances, loans or extensions of credit
to any Person, including without limitation, Holdings, any Parent,
Subsidiary or Affiliate except with respect to the extension of
commercial trade credit in connection with the sale of Inventory in
the ordinary course of its business.
7.6. Capital Expenditures. Contract for, purchase or make any
expenditure or commitments for fixed or capital assets (including capitalized
leases) in fiscal year in an amount in excess of (a) $1,000,000 (exclusive of
capital expenditures which are financed) and (b) $5,000,000 (inclusive of
capital expenditures which are financed).
7.7. Dividends. Declare, pay or make any dividend or distribution
on any shares of the common stock or preferred stock of Borrower (other than
dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any common or preferred stock,
or of any options to purchase or acquire any such shares of common or preferred
stock of Borrower.
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) of Borrower except in respect of (i)
Indebtedness to Agent and Lenders; (ii) Indebtedness incurred for capital
expenditures permitted under Section 7.6 hereof; and (iii) Indebtedness due
under the Subordinated Note.
7.9. Nature of Business. Substantially change the nature of the
business in which it is presently engaged, nor except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the ordinary course of business for assets or property which are
useful in, necessary for and are to be used in its business as presently
conducted.
7.10. Transactions with Affiliates. Directly or
indirectly, purchase, acquire or lease any property from, or sell, transfer
or lease any property to, or otherwise deal with, any Affiliate, except
transactions disclosed in the ordinary course of business, on an arm's-length
basis on terms no less favorable than
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terms which would have been obtainable from a Person other than an Affiliate.
7.11. Leases. Enter as lessee into any lease arrangement for real
or personal property (unless capitalized and permitted under Section 7.6 hereof)
if after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $3,000,000 in any one fiscal year.
7.12. Subsidiaries.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or
similar arrangement.
7.13. Fiscal Year and Accounting Changes. Change its
fiscal year from December 31 or make any change (i) in accounting
treatment and reporting practices except as required by GAAP or
(ii) in tax reporting treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge any
Lender's credit on any purchases or for any purpose whatsoever or
use any portion of any Advance in or for any business other than
Borrower's business as conducted on the date of this Agreement.
7.15. Amendment of Articles of Incorporation, By-Laws.
Amend, modify or waive any term or material provision of its
Articles of Incorporation or By-Laws unless required by law.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member
of the Controlled Group to maintain, or (y) become obligated to contribute, or
permit any member of the Controlled Group to become obligated to contribute, to
any Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
"prohibited transaction", as that term is defined in section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency", as that term is defined in
Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any
member of the Controlled Group to terminate, any Plan where such event could
result in any liability of Borrower or any member of the Controlled Group or the
imposition of a lien on the property of Borrower or any member of the Controlled
Group pursuant to Section 4068 of ERISA, (v) assume, or permit any member of the
Controlled Group to assume, any obligation to contribute to any Multiemployer
Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any member of the
Controlled Group to incur, any withdrawal liability to any Multiemployer Plan;
(vii) fail promptly to notify Agent of the occurrence of any Termination Event,
(viii) fail to comply, or permit a member of the Controlled Group to fail to
comply, with the requirements of ERISA or the Code or other applicable laws in
respect of any Plan, (ix) fail to meet, or permit any member of the
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Controlled Group to fail to meet, all minimum funding requirements under ERISA
or the Code or postpone or delay or allow any member of the Controlled Group to
postpone or delay any funding requirement with respect of any Plan.
7.17. Subordinated Note. At any time, directly or indirectly, pay,
prepay, repurchase, redeem, retire or otherwise acquire, or make any payment on
account of any principal of, interest on or premium payable in connection with
the repayment or redemption of the Subordinated Note, except as expressly
permitted in the Subordination Agreement. The inclusion of Subordinated Debt
Payments in the calculation of any financial covenant contained in this
Agreement shall not be deemed or construed to permit Subordinated Debt Payments
not permitted by this Section 7.17.
7.18. Prepayment of Indebtedness. At any time, directly or
indirectly, prepay any Indebtedness (other than to Lenders), or
repurchase, redeem, retire or otherwise acquire any Indebtedness of
Borrower.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Initial Advances. The agreement of
Lenders to make the initial Advances requested to be made on the Closing
Date is subject to the satisfaction, or waiver by Lenders, immediately prior to
or concurrently with the making of such Advances, of the following conditions
precedent:
(a) Note. Agent shall have received the Note duly
executed and delivered by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each
document (including, without limitation, any Uniform Commercial Code financing
statement) required by this Agreement, any related agreement or under law or
reasonably requested by the Agent to be filed, registered or recorded in order
to create, in favor of Agent, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and Agent shall have received an acknowledgment copy, or
other evidence satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(c) Corporate Proceedings of Borrower. Agent
shall have received a copy of the resolutions in form and substance reasonably
satisfactory to Agent, of the Board of Directors of Borrower authorizing (i) the
execution, delivery and performance of this Agreement, the Other Documents and
any related agreements, (collectively the "Documents") and (ii) the granting by
Borrower of the security interests in and liens upon the Collateral in each case
certified by the Secretary or an Assistant Secretary of Borrower as of the
Closing Date; and, such certificate shall state
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that the resolutions thereby certified have not been amended,
modified, revoked or rescinded as of the date of such certificate;
(d) Incumbency Certificates of Borrower. Agent
shall have received a certificate of the Secretary or an Assistant Secretary of
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of Borrower executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Certificates. Agent shall have received a
copy of the Articles or Certificate of Incorporation of Borrower, and all
amendments thereto, certified by the Secretary of State or other appropriate
official of its jurisdiction of incorporation together with copies of the
By-Laws of Borrower and all agreements of Borrower's shareholders certified as
accurate and complete by the Secretary of Borrower;
(f) Good Standing Certificates. Agent shall have
received good standing certificates for Borrower dated not more than twenty (20)
days prior to the Closing, issued by the Secretary of State or other appropriate
official of Borrower's jurisdiction of incorporation and each jurisdiction where
the conduct of Borrower's business activities or the ownership of its properties
necessitates qualification;
(g) Legal Opinion. Agent shall have received the
executed legal opinion of Mesirov, Gelman, Jaffe, Cramer & Jamieson in form and
substance satisfactory to Agent which shall cover such matters incident to the
transactions contemplated by this Agreement, the Other Documents, and related
agreements as Agent may reasonably require and each Borrower hereby authorities
and directs such counsel to deliver such opinions to Agent and Lenders;
(h) No Litigation. (i) No litigation,
investigation or proceeding before or by any arbitrator or governmental
authority shall be continuing or threatened against Borrower or against the
officers or directors of Borrower (A) in connection with the Documents or any of
the transactions contemplated thereby and which, in the reasonable opinion of
Lenders, is deemed material or (B) which could, in the reasonable opinion of
Lenders, have a Material Adverse Effect; and (ii) no injunction, writ,
restraining order or other order of any nature materially adverse to Borrower or
the conduct of its business or inconsistent with the due consummation of the
Transactions shall have been issued by any governmental authority;
(i) Financial Condition Certificates. Agent shall
have received executed Financial Condition Certificates in the form
of Exhibit 8.1(i).
(j) Collateral Examination. Agent shall have (i)
completed Collateral examinations, the results of which shall be
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satisfactory in form and substance to Lenders, of the Receivables, Inventory,
General Intangibles, books and records of Borrower and Real Property and (ii)
received appraisals of the Equipment of Borrowers, the results of which shall be
satisfactory in form and substance to Lenders.
(k) Fees. Agent shall have received all fees
payable to Agent and Lenders on or prior to the Closing Date
pursuant to Article III hereof and the Fee Letter;
(l) Pro Forma Financial Statements. Agent shall
have received (i) a copy of the Pro Forma Financial Statements which shall be
satisfactory in all respects to Lenders and (ii) the 1995 audited financial
statements and Form 10-K of Holdings and its Subsidiaries containing
consolidation and consolidated presentations;
(m) Assignment Agreement. Agent shall have
received final executed copies of the Assignment Agreement and all related
agreements, documents and instruments as in effect on the Closing Date and the
transactions contemplated by such documentation shall be consummated prior to or
concurrently with the making of the initial Advance;
(n) Subordination Agreements. Agent shall have
entered into a Subordination Agreement with Borrower and Holdings which shall
set forth the basis upon which Holdings may receive, and Borrower may make,
payments under the Subordinated Note, which basis shall be satisfactory in form
and substance to Lenders in their sole discretion;
(o) Guaranties, Guarantor Pledge Agreement and
Other Documents. Agent shall have received the executed Guaranty, Guarantor
Pledge Agreement together with the stock certificates evidencing the pledged
stock and related stock powers, additional intercompany notes and all Other
Documents, each in form and substance satisfactory to Lenders together with
appropriate resolutions, incumbency certificates and charter documents for
Holdings;
(p) Insurance. Agent shall have received in form
and substance satisfactory to Agent, certified copies of Borrower's casualty
insurance policies, together with loss payable endorsements on Agent's standard
form of loss payee endorsement naming Lenders as loss payee, and certified
copies of Borrower's liability insurance policies, together with endorsements
naming Lenders as a co-insured;
(q) Environmental Reports. Agent shall have
received all environmental studies and reports prepared by independent
environmental engineering firms of all Real Property owned or leased by Borrower
and shall be reasonably satisfied that the maximum possible dollar liability
arising from Lemco
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Associates, L.P.'s action against Holdings does not exceed $8,000,000;
(r) Payment Instructions. Agent shall have
received written instructions from Borrower directing the application of
proceeds of the initial Advances made pursuant to this Agreement;
(s) Blocked Accounts. Agent shall have received
duly executed agreements establishing the Blocked Accounts or Depository
Accounts with financial institutions acceptable to Lenders for the collection or
servicing of the Receivables and proceeds of the Collateral;
(t) Consents. Agent shall have received any and
all Consents necessary to permit the effectuation of the transactions
contemplated by this Agreement and the Other Documents; and, Agent shall have
received such Consents and waivers of such third parties as might assert claims
with respect to the Collateral, as Agent and its counsel shall deem necessary;
(u) No Adverse Material Change. (i) Since
December 31, 1995, there shall not have occurred any event, condition or state
of facts which could reasonably be expected to have a Material Adverse Effect
and (ii) no representations made or information supplied to Lenders shall have
been proven to be inaccurate or misleading in any material respect;
(v) Leasehold Agreements. Agent shall have
received landlord, mortgagee or warehouseman agreements satisfactory to Agent
with respect to all premises leased by Borrower at which Inventory is located;
(w) Subordinated Notes. Agent shall have received
final executed copies of the Subordinated Notes which shall be in an amount and
contain such terms and provisions including, without limitation, subordination
terms, satisfactory to Agent;
(x) Net Worth. Agent shall have received the Pro
Forma Balance Sheet reflecting a Net Worth after giving effect to the
Transactions of at least $6,000,000;
(y) Contract Review. Agent shall have reviewed
all material contracts of Borrower including, without limitation, leases, union
contracts, labor contracts, vendor supply contracts, license agreements and
distributorship agreements and such contracts and agreements shall be
satisfactory in all respects to Agent;
(z) Closing Certificate. Agent shall have
received a closing certificate signed by the Chief Financial Officer of Borrower
dated as of the date hereof, stating that (i) all representations and warranties
set forth in this Agreement and the other Documents are true and correct on and
as of such date, (ii) Borrower is on such date in compliance with all the terms
and
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provisions set forth in this Agreement and the other Documents and (iii) on such
date no Default or Event of Default has occurred or is continuing;
(aa) Borrowing Base. Agent shall have received
evidence from Borrower that the aggregate amount of Eligible Receivables and
Eligible Inventory is sufficient in value and amount to support Advances in the
amount requested by Borrower on the Closing Date; and that after giving effect
to the initial Advances hereunder, Borrower shall have Undrawn Availability of
at least $4,000,000; and
(ab) Other. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection with the
Transactions shall be satisfactory in form and substance to Agent, Lenders and
their counsel.
8.2. Conditions to Each Advance. The agreement of Lenders
to make any Advance requested to be made on any date (including,
without limitation, its initial Advance), is subject to the
satisfaction of the following conditions precedent as of the date
such Advance is made:
(a) Representations and Warranties. Each of the
representations and warranties made by Borrower in or pursuant to this Agreement
and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date;
(b) No Default. No Event of Default or Default
shall have occurred and be continuing on such date, or would exist after giving
effect to the Advances requested to be made, on such date and, in the case of
the initial Advance, after giving effect to the consummation of the transactions
contemplated by the Assignment Agreement; provided, however that Lenders in
their sole discretion, may continue to make Advances notwithstanding the
existence of an Event of Default or Default and that any Advances so made shall
not be deemed a waiver of any such Event of Default or Default; and
(c) Maximum Advances. In the case of any
Revolving Advances requested to be made, after giving effect thereto, the
aggregate Advances shall not exceed the maximum Advances permitted under Section
2.1 hereof.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.
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IX. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the Obligations and
the termination of this Agreement:
9.1. Disclosure of Material Matters. Immediately upon learning
thereof, report to Agent all matters materially affecting the value,
enforceability or collectibility of any portion of the Collateral including,
without limitation, Borrower's reclamation or repossession of, or the return to
Borrower of, a material amount of goods or claims or disputes asserted by any
Customer or other obligor.
9.2. Schedules. Deliver to Agent on or before the fifteenth (15th)
day of each month as and for the prior month (a) accounts receivable ageings
(for Borrower as a whole and for each of the East Coast and West Coast
operations), (b) accounts payable schedules and (c) Inventory reports. In
addition, Borrower will deliver to Agent at such intervals as Agent may require:
(i) confirmatory assignment schedules, (ii) copies of Customer's invoices, (iii)
evidence of shipment or delivery, and (iv) such further schedules, documents
and/or information regarding the Collateral as Agent may require including,
without limitation, trial balances and test verifications. Agent shall have the
right to confirm and verify all Receivables by any manner and through any medium
it considers advisable and do whatever it may deem reasonably necessary to
protect its interests hereunder. The items to be provided under this Section are
to be in form satisfactory to Agent and executed by Borrower and delivered to
Agent from time to time solely for Agent's convenience in maintaining records of
the Collateral, and Borrower's failure to deliver any of such items to Agent
shall not affect, terminate, modify or otherwise limit Agent's Lien with respect
to the Collateral.
9.3. Environmental Reports. Furnish Agent, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate of Borrower signed by the President of Borrower stating, to the best
of his knowledge, that Borrower is in compliance in all material respects with
all federal, state and local laws relating to environmental protection and
control and occupational safety and health. To the extent Borrower is not in
compliance with the foregoing laws, the certificate shall set forth with
specificity all areas of non-compliance and the proposed action Borrower will
implement in order to achieve full compliance.
9.4. Litigation. Promptly notify Agent in writing of any
litigation, suit or administrative proceeding affecting Borrower,
whether or not the claim is covered by insurance, and of any suit
or administrative proceeding, which in any such case could
reasonably be expected to have a Material Adverse Effect.
9.5. Material Occurrences. Promptly notify Agent in
writing upon the occurrence of (a) any Event of Default or Default;
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(b) any event of default under the Subordinated Note; (c) any event which with
the giving of notice or lapse of time, or both, would constitute an event of
default under the Subordinated Note; (d) any event, development or circumstance
whereby any financial statements or other reports furnished to Agent fail in any
material respect to present fairly, in accordance with GAAP consistently
applied, the financial condition or operating results of Borrower as of the date
of such statements; (e) any accumulated retirement plan funding deficiency
which, if such deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Internal Revenue Code, could subject Borrower to
a tax imposed by Section 4971 of the Internal Revenue Code; (f) each and every
default by Borrower which might result in the acceleration of the maturity of
any Indebtedness, including the names and addresses of the holders of such
Indebtedness with respect to which there is a default existing or with respect
to which the maturity has been or could be accelerated, and the amount of such
Indebtedness; and (g) any other development in the business or affairs of
Borrower which could reasonably be expected to have a Material Adverse Effect;
in each case describing the nature thereof and the action Borrower proposes to
take with respect thereto.
9.6. Government Receivables. Notify Agent immediately if
any of its Receivables arise out of contracts between Borrower and
the United States, any state, or any department, agency or
instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent within one hundred
(100) days after the end of each fiscal year of Borrower, financial statements
of Holdings on a consolidated basis and of Borrower including, but not limited
to, statements of income and stockholders' equity and cash flow from the
beginning of the current fiscal year to the end of such fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in accordance with
GAAP applied on a basis consistent with prior practices, and in reasonable
detail and reported upon without qualification by an independent certified
public accounting firm selected by Borrower and satisfactory to Agent (the
"Accountants"). The report of the Accountants shall be accompanied by a
statement of the Accountants certifying that (i) they have caused the Loan
Agreement to be reviewed, (ii) in making the examination upon which such report
was based either no information came to their attention which to their knowledge
constituted an Event of Default or a Default under this Agreement or any related
agreement or, if such information came to their attention, specifying any such
Default or Event of Default, its nature, when it occurred and whether it is
continuing, and such report shall contain or have appended thereto calculations
which set forth Borrower's compliance with the requirements or restrictions
imposed by Sections 6.5, 6.6, 6.7, 6.8, 6.9, 7.6 and 7.11 hereof. In addition,
the reports shall be accompanied by a certificate of Borrower's Chief Financial
Officer which shall state that, based on an examination sufficient to permit him
to make an informed statement, no Default or Event of Default exists, or, if
such is not the case, specifying such Default or Event of Default,
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its nature, when it occurred, whether it is continuing and the steps being taken
by Borrower with respect to such event and, such certificate shall have appended
thereto calculations which set forth Borrower's compliance with the requirements
or restrictions imposed by Sections 6.5, 6.6, 6.7, 6.8, 6.9, 7.6 and 7.11
hereof.
9.8. Monthly Financial Statements. Furnish Agent within thirty (30)
days after the end of each month, an unaudited balance sheet of Borrower and
unaudited statements of income and stockholders' equity and cash flow of
Borrower reflecting results of operations from the beginning of the fiscal year
to the end of such month and for such month, prepared on a basis consistent with
prior practices and complete and correct in all material respects, subject to
normal year end adjustments. The reports shall be accompanied by a certificate
of Borrower's Chief Financial Officer which shall state that, based on an
examination sufficient to permit him to make an informed statement, no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default, its nature, when it occurred, whether it is continuing and
the steps being taken by Borrower with respect to such event and, such
certificate shall have appended thereto calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by Sections 6.5, 6.6,
6.7, 6.8, 6.9, 7.6 and 7.11 hereof.
9.9. Other Reports. Furnish Agent upon Agent's request with copies
of such financial statements, reports and returns as Borrower shall send to
Holdings and furnish Agent as soon as available but in any event within ten (10)
days after the issuance thereof, with copies of such financial statements,
reports and returns as Holdings shall send to its stockholders.
9.10. Additional Information. Furnish Agent with additional
information as Agent shall reasonably request in order to enable Agent and
Lenders to determine whether the terms, covenants, provisions and conditions of
this Agreement and the Other Documents have been complied with by Borrower
including, without limitation and without the necessity of any request by Agent,
(a) copies of all environmental audits and reviews, (b) at least thirty (30)
days prior thereto, notice of Borrower's opening of any new office or place of
business or Borrower's closing of any existing office or place of business, and
(c) promptly upon Borrower's learning thereof, of any labor dispute to which
Borrower may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Borrower is a party or by which Borrower is bound.
9.11. Projected Operating Budget. Furnish Agent, no later than the
beginning of each of Borrower's fiscal years commencing with fiscal year 1997, a
month by month projected operating budget and cash flow of Borrower for such
fiscal year (including an income statement for each month and a balance sheet as
at the end of the last month in each fiscal quarter), such projections to be
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accompanied by a certificate signed by Borrower's President or Chief Financial
Officer to the effect that such projections have been prepared on the basis of
sound financial planning practice consistent with past budgets and financial
statements and that such officer has no reason to question the reasonableness of
any material assumptions on which such projections were prepared.
9.12. Variances From Operating Budget. Furnish Agent, concurrently
with the delivery of the financial statements referred to in Section 9.7 and
each monthly report, a written report summarizing all material variances from
budgets submitted by Borrower pursuant to Section 9.11 and a discussion and
analysis by management with respect to such variances.
9.13. Notice of Suits, Adverse Events. Furnish Agent with prompt
notice of (i) any lapse or other termination of any Consent issued to Borrower
by any Governmental Body or any other Person that is material to the operation
of Borrower's business, (ii) any refusal by any Governmental Body or any other
Person to renew or extend any such Consent; and (iii) copies of any periodic or
special reports filed by Borrower with any Governmental Body or Person, if such
reports indicate any material change in the business, operations, affairs or
condition of Borrower, or if copies thereof are requested by Agent, and (iv)
copies of any material notices and other communications from any Governmental
Body or Person which specifically relate to Borrower.
9.14. ERISA Notices and Requests. Furnish Agent with immediate
written notice in the event that (i) Borrower or any member of the Controlled
Group knows or has reason to know that a Termination Event has occurred,
together with a written statement describing such Termination Event and the
action, if any, which Borrower or member of the Controlled Group has taken, is
taking, or proposes to take with respect thereto and, when known, any action
taken or threatened by the Internal Revenue Service, Department of Labor or PBGC
with respect thereto, (ii) Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Internal Revenue Code) has occurred together with a
written statement describing such transaction and the action which Borrower or
any member of the Controlled Group has taken, is taking or proposes to take with
respect thereto, (iii) a funding waiver request has been filed with respect to
any Plan together with all communications received by either Borrower or any
member of the Controlled Group with respect to such request, (iv) any increase
in the benefits of any existing Plan or the establishment of any new Plan or the
commencement of contributions to any Plan to which either Borrower or any member
of the Controlled Group was not previously contributing shall occur, (v)
Borrower or any member of the Controlled Group shall receive from the PBGC a
notice of intention to terminate a Plan or to have a trustee appointed to
administer a Plan, together with copies of each such notice, (vi) Borrower or
any member of the Controlled Group shall receive any favorable or unfavorable
determination letter from the Internal
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Revenue Service regarding the qualification of a Plan under Section 401(a) of
the Internal Revenue Code, together with copies of each such letter; (vii)
Borrower or any member of the Controlled Group shall receive a notice regarding
the imposition of withdrawal liability, together with copies of each such
notice; (viii) Borrower or any member of the Controlled Group shall fail to make
a required installment or any other required payment under Section 412 of the
Internal Revenue Code on or before the due date for such installment or payment;
(ix) Borrower or any member of the Controlled Group knows that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of
a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
9.15. Additional Documents. Execute and deliver to Agent,
upon request, such documents and agreements as Agent may, from time
to time, reasonably request to carry out the purposes, terms or
conditions of this Agreement.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
10.1. failure by Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due or in any other Document;
10.2. any representation or warranty made or deemed made by
Borrower in this Agreement or any related agreement or in any certificate,
document or financial or other statement furnished at any time in connection
herewith or therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
10.3. failure by Borrower to (i) furnish financial
information when due or when requested, or (ii) permit the
inspection of its books or records;
10.4. issuance of a notice of Lien, levy, assessment,
injunction or attachment against a material portion of Borrower's
property which is not stayed or lifted within forty (40) days;
10.5. failure or neglect of Borrower to perform, keep or observe
any term, provision, condition, covenant herein contained, or contained in any
other agreement or arrangement, now or hereafter entered into between Borrower,
Agent and/or Lenders other than a failure or neglect of Borrower to perform,
keep or observe any term, provision, condition in Sections 4.6, 4.7, 4.9, 4.11,
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6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is cured within fifteen (15) days from
the occurrence of such failure or neglect;
10.6. any judgment is rendered or judgment liens filed
against Borrower for an amount in excess of $250,000 which within forty
(40) days of such rendering or filing is not either satisfied, stayed or
discharged of record;
10.7. Borrower shall (i) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within forty-five (45)
days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing;
10.8. Borrower shall admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease
operations of its present business;
10.9. any Affiliate or any Subsidiary of Borrower, or any
Guarantor, shall (i) apply for, consent to or suffer the appointment of, or the
taking of possession by, a receiver, custodian, trustee, liquidator or similar
fiduciary of itself or of all or a substantial part of its property, (ii) admit
in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii) make a general
assignment for the benefit of creditors, (iv) commence a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in effect), (v) be
adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii) acquiesce
to, or fail to have dismissed, within forty-five (45) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;
10.10. any change in Borrower's condition or affairs
(financial or otherwise) which has a Material Adverse Effect;
10.11. any Lien created hereunder or provided for hereby or
under any related agreement for any reason ceases to be or is not a
valid and perfected Lien having a first priority interest;
10.12. an event of default has occurred and been declared
under the Subordinated Note which default shall not have been cured
or waived within any applicable grace period;
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10.13. a default of the obligations of Borrower under any
other agreement to which it is a party shall occur which has a
Material Adverse Effect and which default is not cured within any
applicable grace period;
10.14. termination or breach of any Guaranty, the Guarantor Pledge
Agreement or similar agreement executed and delivered to Agent or Lenders in
connection with the Obligations of Borrower, or if Holdings attempts to
terminate, challenges the validity of, or its liability under, any such
Guaranty, Guarantor Pledge Agreement or similar agreement;
10.15. any Change of Ownership or Change of Control;
10.16. any material provision of this Agreement shall, for
any reason, cease to be valid and binding on Borrower, or Borrower
shall so claim in writing to Agent;
10.17. (i) any Governmental Body shall (A) revoke, terminate,
suspend or adversely modify any license, permit, patent trademark or tradename
of Borrower, the continuation of which is material to the continuation of
Borrower's business, or (B) commence proceedings to suspend, revoke, terminate
or adversely modify any such license, permit, trademark, tradename or patent,
the continuation of which is material to the continuation of Borrower's business
and such proceedings shall not be dismissed or discharged within sixty (60)
days, or (c) schedule or conduct a hearing on the renewal of any license,
permit, trademark, tradename or patent necessary for the continuation of
Borrower's business and the staff of such Governmental Body issues a report
recommending the termination, revocation, suspension or material, adverse
modification of such license, permit, trademark, tradename or patent; (ii) any
agreement which is necessary or material to the operation of Borrower's business
shall be revoked or terminated and not replaced by a substitute acceptable to
Agent within forty (40) days after the date of such revocation or termination,
and such revocation or termination and non-replacement would reasonably be
expected to have a Material Adverse Effect;
10.18. any portion of the Collateral shall be seized or taken by a
Governmental Body, or Borrower or the title and rights of Borrower or Holdings
shall have become the subject matter of litigation which might, in the opinion
of Lenders, upon final determination, result in impairment or loss of the
security provided by this Agreement or the Other Documents;
10.19. the operations of any of Borrower's manufacturing
facilities are interrupted at any time, unless Borrower shall be
able to continue such operations at another facility of Borrower;
10.20. an event or condition specified in Sections 7.16 or 9.14
hereof shall occur or exist with respect to any Plan and, as a result of such
event or condition, together with all other such events or conditions, Borrower
or any member of the Controlled
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Group shall incur, or in the opinion of Agent be reasonably likely to incur, a
liability to a Plan or the PBGC (or both) which, in the reasonable judgment of
Lenders, would have a Material Adverse Effect; or
10.21. termination or breach of the terms of the
Subordination Agreement.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of (i) an Event of
Default pursuant to Section 10.7 all Obligations shall be immediately due and
payable and this Agreement and the obligation of Lenders to make Advances shall
be deemed terminated; and, (ii) any of the other Events of Default and at any
time thereafter (such default not having previously been cured), at the option
of Required Lenders all Obligations shall be immediately due and payable and
Lenders shall have the right to terminate this Agreement and to terminate the
obligation of Lenders to make Advances, or (iii) a filing of a petition against
Borrower in any involuntary case under any state or federal bankruptcy laws the
obligation of Lenders to make Advances hereunder shall be terminated other than
as may be required by an appropriate order of the bankruptcy court having
jurisdiction over Borrower. Upon the occurrence of any Event of Default, Agent
shall have the right to exercise any and all other rights and remedies provided
for herein, under the Uniform Commercial Code and at law or equity generally,
including, without limitation, the right to foreclose the security interests
granted herein and to realize upon any Collateral by any available judicial
procedure and/or to take possession of and sell any or all of the Collateral
with or without judicial process. Agent may enter any of Borrower's premises or
other premises without legal process and without incurring liability to Borrower
therefor, and Agent may thereupon, or at any time thereafter, in its discretion
without notice or demand, take the Collateral and remove the same to such place
as Agent may deem advisable and Agent may require Borrower to make the
Collateral available to Agent at a convenient place. With or without having the
Collateral at the time or place of sale, Agent may sell the Collateral, or any
part thereof, at public or private sale, at any time or place, in one or more
sales, at such price or prices, and upon such terms, either for cash, credit or
future delivery, as Agent may elect. Except as to that part of the Collateral
which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Agent shall give Borrower reasonable
notification of such sale or sales, it being agreed that in all events written
notice mailed to Borrower at least five (5) days prior to such sale or sales is
reasonable notification. At any public sale Agent or any Lender may bid for and
become the purchaser, and Agent, any Lender or any other purchaser at any such
sale thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and such right and
equity are hereby expressly waived
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and released by Borrower. In connection with the exercise of the foregoing
remedies, Agent is granted permission to use (a) all of Borrower's trademarks,
trade styles, trade names, patents, patent applications, licenses, franchises
and other proprietary rights which are used in connection with Inventory for the
purpose of disposing of such Inventory and (b) Equipment for the purpose of
completing the manufacture of unfinished goods. The proceeds realized from the
sale of any Collateral shall be applied as follows: first, to the reasonable
costs, expenses and attorneys' fees and expenses incurred by Agent for
collection and for acquisition, completion, protection, removal, storage, sale
and delivery of the Collateral; second, to interest due upon any of the
Obligations; and, third, to the principal of the Obligations. If any deficiency
shall arise, Borrower shall remain liable to Agent and Lenders therefor.
11.2. Agent's Discretion. Agent shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which Agent or any
Lender may have under applicable law, upon the occurrence of an Event of Default
hereunder, Agent and such Lender shall have a right to apply any of Borrower's
property held by Agent and such Lender to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest and notice
thereof with respect to any and all instruments, notice of acceptance hereof,
notice of loans or advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all other demands
and notices of any description, except such as are expressly provided for
herein.
12.2. Delay. No delay or omission on Agent's or any
Lender's part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or
of any default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
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ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND
EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and
shall be binding upon the respective successors and permitted assigns of each of
Borrower, Agent and each Lender, shall become effective on the date hereof and
shall continue in full force and effect until May 3, 1999 (the "Term") unless
sooner terminated as herein provided. Borrower may terminate this Agreement at
any time upon ninety (90) days' prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid in full prior to the last
day of the Term (the date of such prepayment hereinafter referred to as the
"Prepayment Date"), Borrower shall pay an early termination fee in an amount
equal to $450,000 if the Prepayment Date occurs from the Closing Date to and
including the date immediately preceding the eighteenth month anniversary of the
Closing Date. Notwithstanding the foregoing, no early termination fee shall be
payable if Lenders exercise their rights under Sections 3.7 and 3.8 hereof and
Borrower prepays the Obligations within one hundred and twenty (120) days from
the date of such exercise.
13.2. Termination. The termination of the Agreement shall not
affect any of Borrower's, Agent's or any Lender's rights, or any of the
Obligations having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations
have been fully disposed of, concluded or liquidated. The security interests,
Liens and rights granted to Agent and Lenders hereunder and the financing
statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Borrower's
Account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Borrower have been paid or performed in full after the
termination of this Agreement or Borrower has furnished Agent and Lenders with
an indemnification satisfactory to Agent and Lenders with respect thereto and
Borrower shall have delivered a general release in favor of Agent and Lenders in
form and substance satisfactory to
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Agent and Lenders. Accordingly, Borrower waives any rights which it may have
under Section 9-404(1) of the Uniform Commercial Code to demand the filing of
termination statements with respect to the Collateral, and Agent shall not be
required to send such termination statements to Borrower, or to file them with
any filing office, unless and until this Agreement shall have been terminated in
accordance with its terms and all Obligations paid in full in immediately
available funds. All representations, warranties, covenants, waivers and
agreements contained herein shall survive termination hereof until all
Obligations are paid or performed in full.
XIV. REGARDING AGENT.
14.1. Appointment. Each Lender hereby designates IBJS to act as
Agent for such Lender under this Agreement and the Other Documents. Each Lender
hereby irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees (except the fees set forth in the Fee
Letter), charges and collections (without giving effect to any collection days)
received pursuant to this Agreement, for the ratable benefit of Lenders. Agent
may perform any of its duties hereunder by or through its agents or employees.
As to any matters not expressly provided for by this Agreement (including
without limitation, collection of the Note) Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding; provided, however, that Agent shall not be
required to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or applicable law unless Agent
is furnished with an indemnification reasonably satisfactory to Agent with
respect thereto.
14.2. Nature of Duties. Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
Other Documents. Neither Agent nor any of its officers, directors, employees or
agents shall be (i) liable for any action taken or omitted by them as such
hereunder or in connection herewith, unless caused by their gross negligence
(but not mere negligence) or willful misconduct or gross (not mere) negligence,
or (ii) responsible in any manner for any recitals, statements, representations
or warranties made by Borrower or any officer thereof contained in this
Agreement, or in any of the Other Documents or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any of the Other Documents or for
the value, validity, effectiveness, genuineness,
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enforceability or sufficiency of this Agreement, or any of the Other Documents
or for any failure of Borrower to perform its obligations hereunder. Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any of the Other Documents, or to inspect the properties,
books or records of Borrower. The duties of Agent as respects the Advances to
Borrower shall be mechanical and administrative in nature; Agent shall not have
by reason of this Agreement a fiduciary relationship in respect of any Lender;
and nothing in this Agreement, expressed or implied, is intended to or shall be
so construed as to impose upon Agent any obligations in respect of this
Agreement except as expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation. Independently and
without reliance upon Agent or any other Lender, each Lender has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of Borrower in connection with the making and the
continuance of the Advances hereunder and the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
Borrower. Agent shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before making of the
Advances or at any time or times thereafter except as shall be provided by
Borrower pursuant to the terms hereof. Agent shall not be responsible to any
Lender for any recitals, statements, information, representations or warranties
herein or in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any Other
Document, or of the financial condition of Borrower, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Note, the Other Documents or the
financial condition of Borrower, or the existence of any Event of Default or any
Default.
Agent may resign on sixty (60) days' written notice to each of
Lenders and Borrower and upon such resignation, the Required Lenders will
promptly designate a successor Agent reasonably satisfactory to Borrower.
Any such successor Agent shall succeed to the rights, powers and
duties of Agent, and the term "Agent" shall mean such successor agent effective
upon its appointment, and the former Agent's rights, powers and duties as Agent
shall be terminated, without any other or further act or deed on the part of
such former Agent. After any Agent's resignation as Agent, the provisions of
this Article XIV shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
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14.4. Certain Rights of Agent. If Agent shall request instructions
from Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and the Other Documents and
its duties hereunder, upon advice of counsel selected by it. Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder or under the Other Documents, unless Agent has received notice from a
Lender or Borrower referring to this Agreement or the Other Documents,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that Agent receives such a notice, Agent shall
give notice thereof to Lenders. Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, that, unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.
14.7. Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrower, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Loan Document; provided that, Lenders shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
negligence (but not mere negligence) or willful misconduct or gross (not mere)
negligence.
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14.8. Agent in its Individual Capacity. With respect to the
obligation of Agent to lend under this Agreement, the Advances made by it shall
have the same rights and powers hereunder as any other Lender and as if it were
not performing the duties as Agent specified herein; and the term "Lender" or
any similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity as a Lender. Agent may engage in business with
Borrower as if it were not performing the duties specified herein, and may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.
14.9. Delivery of Documents. To the extent Agent receives
documents and information from Borrower pursuant to the terms of
this Agreement, Agent will promptly furnish such documents and
information to Lenders.
14.10. Borrower's Undertaking to Agent. Without prejudice to their
respective obligations to Lenders under the other provisions of this Agreement,
Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or Lenders or any of them pursuant to this Agreement to the extent not
already paid. Any payment made pursuant to any such demand shall pro tanto
satisfy Borrower's obligations to make payments for the account of Lenders or
the relevant one or more of them pursuant to this Agreement.
XV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applied to
contracts to be performed wholly within the State of New York. Any judicial
proceeding brought by or against Borrower with respect to any of the
Obligations, this Agreement or any related agreement may be brought in any court
of competent jurisdiction in the State of New York, United States of America,
and, by execution and delivery of this Agreement, Borrower accepts for itself
and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the right of Lenders to bring proceedings against Borrower
in the courts of any other jurisdiction. Borrower waives any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon forum non
conveniens. Any judicial proceeding by Borrower against Lenders involving,
directly or indirectly, any matter or claim in any way arising out of, related
to or connected with this Agreement or any related agreement, shall be brought
only in a federal or state court located in the City of New York, State of New
York.
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15.2. Entire Understanding. (a) This Agreement and the documents
executed concurrently herewith contain the entire understanding between
Borrower, Agent and each Lender and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof. Any promises,
representations, warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing, and executed by the party
or parties making such representations, warranties or guaranties. Neither this
Agreement nor any portion or provisions hereof may be changed, modified,
amended, waived, supplemented, discharged, cancelled or terminated orally or by
any course of dealing, or in any manner other than by an agreement in writing,
signed by the party to be charged. Borrower acknowledges that it has been
advised by counsel in connection with the execution of this Agreement and Other
Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
(b) The Required Lenders, Agent with the consent
in writing of the Required Lenders, and Borrower may, subject to the provisions
of this Section 15.2 (b), from time to time enter into written supplemental
agreements to this Agreement, the Notes or the Other Documents executed by
Borrower, for the purpose of adding or deleting any provisions or otherwise
changing, varying or waiving in any manner the rights of Lenders, Agent or
Borrower thereunder or the conditions, provisions or terms thereof of waiving
any Event of Default thereunder, but only to the extent specified in such
written agreements; provided, however, that no such supplemental agreement
shall, without the consent of all Lenders:
(i) increase the Commitment Percentage
of any Lender;
(ii) extend the maturity of any Note or
the due date for any amount payable hereunder, or decrease the rate of interest
or reduce any fee payable by Borrower to Lenders pursuant to this Agreement;
(iii) alter the definition of the term
Required Lenders or alter, amend or modify this Section 15.2(b);
(iv) release any Collateral during any
calendar year (other than in accordance with the provisions of this
Agreement) having an aggregate value in excess of $100,000; or
(v) change the rights and duties of
Agent.
Any such supplemental agreement shall apply equally to each of Lenders and shall
be binding upon Borrower, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrower, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default
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<PAGE>
(whether or not the subsequent Event of Default is the same as the Event of
Default which was waived), or impair any right consequent thereon.
15.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure
to the benefit of Borrower, Agent, each Lender, all future holders of the Note
and their respective successors and assigns, except that Borrower may not assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of Agent and each Lender.
(b) Borrower acknowledges that in the regular
course of commercial banking business one or more Lenders may at any time and
from time to time sell participating interests in the Advances to other
financial institutions (each such transferee or purchaser of a participating
interest, a "Transferee"). Each Transferee may exercise all rights of payment
(including without limitation rights of set-off) with respect to the portion of
such Advances held by it or other Obligations payable hereunder as fully as if
such Transferee were the direct holder thereof provided that (i) Borrower shall
not be required to pay to any Transferee more than the amount which it would
have been required to pay to Lender which granted an interest in its Advances or
other Obligations payable hereunder to such Transferee had such Lender retained
such interest in the Advances hereunder or other Obligations payable hereunder,
(ii) in no event shall Borrower be required to pay any such amount arising from
the same circumstances and with respect to the same Advances or other
Obligations payable hereunder to both such Lender and such Transferee, and (iii)
no Transferee shall have any voting rights with respect to this Agreement and
the Other Documents. Borrower hereby grants to any Transferee a continuing
security interest in any deposits, moneys or other property actually or
constructively held by such Transferee as security for the Transferee's interest
in the Advances.
(c) Any Lender may sell, assign or transfer all (and
IBJS may assign any part) of its rights under this Agreement and the Other
Documents to one additional bank or financial institution and such additional
bank or financial institution may commit to make Advances hereunder (each a
"Purchasing Lender"), in an amount not less than Lender's Commitment Percentage
of outstanding Advances (or such lesser amount as may be applicable to transfers
by IBJS which may sell, assign or transfer rights to more than one Purchasing
Lender) pursuant to a Commitment Transfer Supplement, executed by a Purchasing
Lender, the transferor Lender, and Agent and delivered to Agent for recording.
Upon such execution, delivery, acceptance and recording, from and after the
transfer effective date determined pursuant to such Commitment Transfer
Supplement, (i) Purchasing Lender thereunder shall be a party hereto and, to the
extent provided in such Commitment Transfer Supplement, have the rights and
obligations of a Lender thereunder with a Commitment Percentage as set forth
therein, and (ii) the
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<PAGE>
transferor Lender thereunder shall, to the extent provided in such Commitment
Transfer Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose. Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement and the
Other Documents. Borrower hereby consents to the addition of such Purchasing
Lender and the resulting adjustment of the Commitment Percentages arising from
the purchase by such Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and the Other
Documents. Borrower shall execute and deliver such further documents and do such
further acts and things in order to effectuate the foregoing.
(d) Agent shall maintain at its address a copy of
each Commitment Transfer Supplement delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Advances owing
to each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and Borrower, Agent and Lenders
may treat each Person whose name is recorded in the Register as the owner of the
Advance recorded therein for the purposes of this Agreement. The Register shall
be available for inspection by Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Agent shall receive a fee in the
amount of $3,500 payable by the applicable Purchasing Lender upon the effective
date of each transfer or assignment to such Purchasing Lender.
(e) Borrower authorizes each Lender to disclose to
any Transferee or Purchasing Lender and any prospective Transferee or Purchasing
Lender any and all financial information in such Lender's possession concerning
Borrower which has been delivered to such Lender by or on behalf of Borrower
pursuant to this Agreement or in connection with such Lender's credit evaluation
of Borrower.
15.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for Borrower's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Agent or such
Lender.
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<PAGE>
15.5. Indemnity. Borrower shall indemnify Agent and each Lender and
each of their respective officers, directors, employees, and agents from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Agent or any
Lender in any litigation, proceeding or investigation instituted or conducted by
any governmental agency or instrumentality or any other Person with respect to
any aspect of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement, whether or not Agent or any Lender is a party
thereto, except to the extent that any of the foregoing arises out of the gross
(not mere) negligence or willful misconduct of the party being indemnified.
15.6. Notice. Any notice or request hereunder may be given to
Borrower or to Agent or any Lender at their respective addresses set forth below
or at such other address as may hereafter be specified in a notice designated as
a notice of change of address under this Section. Any notice or request
hereunder shall be given by (a) hand delivery, (b) overnight courier, (c)
registered or certified mail, return receipt requested, (d) telex or telegram,
subsequently confirmed by registered or certified mail, or (e) telecopy to the
number set out below (or such other number as may hereafter be specified in a
notice designated as a notice of change of address) with telephone communication
to a duly authorized officer of the recipient confirming its receipt as
subsequently confirmed by registered or certified mail. Any notice or other
communication required or permitted pursuant to this Agreement shall be deemed
given (a) when personally delivered to any officer of the party to whom it is
addressed, (b) on the earlier of actual receipt thereof or three (3) days
following posting thereof by certified or registered mail, postage prepaid, or
(c) upon actual receipt thereof when sent by a recognized overnight delivery
service or (d) upon actual receipt thereof when sent by telecopier to the number
set forth below with telephone communication confirming receipt and subsequently
confirmed by registered, certified or overnight mail to the address set forth
below, in each case addressed to each party at its address set forth below or at
such other address as has been furnished in writing by a party to the other by
like notice:
(A) If to Agent or IBJ Schroder Bank & Trust Company
IBJS at: One State Street
New York, New York 10004
Attention: James Steffy, Vice-
President
Telephone: (212) 858-2094
Telecopier: (212) 858-2151
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118-0075
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<PAGE>
Attention: Steven J. Seif, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
(B) If to a Lender other than Agent, as specified on the
signature pages hereof
(C) If to Borrower, at: Tanon Manufacturing, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764-9989
Attention: Stanley O. Jester,
Chief Financial Officer
Telephone: (908) 229-1100
Telecopier: (908) 571-0583
with a copy to: Mesirov Gelman Jaffe Cramer &
Jamieson
1735 Market Street
Philadelphia, Pennsylvania 19103-7598
Attention: Jeffrey Greenfield, Esq.
Telephone: (215) 994-1000
Telecopier: (215) 994-1111
15.7. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.8. Expenses. All costs and expenses including, without
limitation, reasonable attorneys' fees and disbursements incurred by Agent,
Agent on behalf of Lenders and Lenders (a) in all efforts made to enforce
payment of any Obligation or effect collection of any Collateral, or (b) in
connection with the entering into, modification, amendment, administration and
enforcement of this Agreement or any consents or waivers hereunder and all
related agreements, documents and instruments, or (c) in instituting,
maintaining, preserving, enforcing and foreclosing on Agent's security interest
in or Lien on any of the Collateral, whether through judicial proceedings or
otherwise, or (d) in defending or prosecuting any actions or proceedings arising
out of or relating to Agent's or any Lender's transactions with Borrower, or (e)
in connection with any advice given to Agent or any Lender with respect to its
rights and obligations under this Agreement and all related agreements, may be
charged to Borrower's Account and shall be part of the Obligations.
15.9. Injunctive Relief. Borrower recognizes that, in the
event Borrower fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy at law may prove to
be inadequate relief to Lenders; therefore, Agent, if Agent so requests, shall
be entitled to temporary and permanent
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injunctive relief in any such case without the necessity of proving that actual
damages are not an adequate remedy.
15.10. Consequential Damages. Neither Agent nor any agent
or attorney for any of them shall be liable to Borrower for
consequential damages arising from any breach of contract, tort or
other wrong relating to the establishment, administration or
collection of the Obligations.
15.11. Captions. The captions at various places in this
Agreement are intended for convenience only and do not constitute
and shall not be interpreted as part of this Agreement.
15.12. Counterparts. This Agreement may be executed in one
or more counterparts, all of which when taken together shall
constitute one and the same agreement.
15.13. Construction. The parties acknowledge that each party and
its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.
15.14. Survival. The obligations of Borrower under
Sections 3.7, 3.8, 4.19 and 15.5 shall survive termination of this Agreement
and the Other Documents and payment in full of the obligations.
15.15. Confidentiality. Agent, each Lender and each Transferee
shall hold all non-public information obtained by Agent, such Lender or such
Transferee pursuant to the requirements of this Agreement in accordance with
Agent's, such Lender's and such Transferee's customary procedures for handling
confidential information of this nature; provided, however, Agent, each Lender
and each Transferee may disclose such confidential information (a) to its
examiners, affiliates, outside auditors, counsel and other professional
advisors, (b) to Agent, any Lender or to any prospective Transferees and
Purchasing Lenders, and (c) as required or requested by any Governmental Body or
representative thereof or pursuant to legal process; provided, further that (i)
unless specifically prohibited by applicable law or court order, Agent, each
Lender and each Transferee shall use its best efforts prior to disclosure
thereof, to notify Borrower of the applicable request for disclosure of such
non-public information (A) by a Governmental Body or representative thereof
(other than any such request in connection with an examination of the financial
condition of a Lender or a Transferee by such Governmental Body) or (B) pursuant
to legal process and (ii) in no event shall Agent, any Lender or any Transferee
be obligated to return any materials furnished by any Borrower other than those
documents and instruments in possession of Agent or any Lender in order to
perfect its Lien on the Collateral once the Obligations have been paid in full
and this Agreement has been terminated.
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15.16. Publicity. Borrower hereby authorizes Agent to make
appropriate announcements of the financial arrangement entered into among
Borrower, Agent and Lenders, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Agent shall in its sole and absolute discretion deem appropriate;
provided, however, prior to an announcement by any Lender, such Lender shall
submit such announcement to Agent for its approval which shall not be
unreasonably withheld.
Each of the parties has signed this Agreement as of the day and
year first above written.
TANON MANUFACTURING, INC.
ATTEST:
By: /s/ James F. Shanley
----------------------------------
/s/ Stanley O. Jester JAMES F. SHANLEY, Vice-President
- -----------------------------
STANLEY O. JESTER,
Secretary
IBJ SCHRODER BANK & TRUST COMPANY,
as Lender and as Agent
By /s/ David Cunn
-----------------------------------
DAVID CUNN, Vice-President
One State Street
New York, New York 10004
Commitment Percentage: 100%
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STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of May, 1996, before me personally came James F.
Shanley, to me known, who, being by me duly sworn, did depose and say that he is
the Vice-President of Tanon Manufacturing, Inc., the corporation described in
and which executed the foregoing instrument, and that he was authorized to sign
his name thereto on behalf of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of May, 1996, before me personally came David Cunn,
to me known, who, being by me duly sworn, did depose and say that he is the
Vice-President of IBJ Schroder Bank & Trust Company, the corporation described
in and which executed the foregoing instrument and that he was authorized to
sign his name thereto on behalf of said corporation.
------------------------------
NOTARY PUBLIC
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EXHIBIT 10.2
Stock Purchase Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated May 3,
1996, by and between EA INDUSTRIES, INC., a New Jersey corporation with an
address at 185 Monmouth Parkway, West Long Branch, NJ 07764 ("Buyer") and AYHAN
HAKIMOGLU, an individual residing at 431 Righters Mill Road, Narberth, PA 19072
(the "Seller").
BACKGROUND
Seller is the Chairman of the Board of Directors of Aydin
Corporation, a Delaware corporation (the "Company"), and the beneficial owner of
593,177 shares, together with 3,750 shares the Seller will acquire upon the
exercise of currently exercisable Stock Options for the $1.00 par value per
share Common Stock of the Company.
Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Stock, upon and subject to the terms and conditions contained
in this Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants hereinafter set forth and for other good and valuable
consideration, and intending to be legally bound hereby, agree as follows:
1. (a) Purchase and Sale of the Stock. Upon and subject to the
terms and conditions of this Agreement, and in reliance on the representations,
warranties and covenants contained herein, on the Closing Date, as hereinafter
defined, Seller hereby agrees to sell, assign, transfer, convey and deliver to
Buyer, and Buyer hereby agrees to purchase the Stock, as hereinafter defined,
from Seller. The purchase price ("Purchase Price") in respect of the Stock shall
be an amount equal to $18.00 per share for the 593,177 shares held by Seller and
the 3,750 shares to be issued to Seller upon the exercise of any Stock Options
exercisable on the Closing Date, (collectively the "Stock") for an aggregate of
$10,744,686.
(b) The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Aydin Corporation, 700 Dresher Road, Horsham, Pennsylvania 19044 commencing
at 10:30 a.m. local time on Friday, May 3, 1996 or as soon as practicable
following the satisfaction or waiver of all conditions to the obligations of the
parties to consummate the transactions contemplated hereby.
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(c) Deliveries at the Closing.
(i) At the Closing, Seller will deliver
to Buyer the certificates and other documents required hereunder and the stock
certificates representing all of the shares of Stock, accompanied by stock
powers duly endorsed in blank, with signatures guaranteed, provided that the
Seller shall deliver shares issuable upon exercise of the Stock Options, as
promptly as practicable; and
(ii) On Friday, May 3, 1996, at the
Closing, Buyer will deliver the certificates and other documents required to be
delivered hereunder and the Purchase Price by wire transfer of immediately
available funds.
2. Representations and Warranties of Seller. Seller
hereby represents, warrants and covenants to Buyer as follows:
(a) Seller is the sole record and beneficial
owner of the Stock, free and clear of all liens, claims, options, proxies,
voting agreements, charges or encumbrances of whatever nature, and Seller shall
transfer to Buyer good and marketable title to the Stock, free and clear of all
liens, claims, options, proxies, voting agreements, charges or encumbrances of
whatever nature affecting the Stock.
(b) The Stock represents all of Seller's
ownership interest in the Company.
(c) Seller has the full and complete power,
authority and capacity to execute, deliver and carry out the terms and
provisions of this Agreement and to consummate the transactions contemplated
hereby.
(d) This Agreement has been duly and validly
executed and delivered by Seller and constitutes a valid and binding obligation
of Seller, enforceable against Seller in accordance with its terms.
(e) There exist no restrictions upon the sale
and delivery of the Stock to Buyer. Seller is not required to obtain the
approval or consent of, or otherwise notify or file any report with, any person
or governmental agency or organization to effect the sale of the Stock to Buyer,
which consent or approval has not already been obtained. Seller has made (or if
required after the date of this Agreement, Seller covenants that he will make)
all filings with or reports or notices to, the Securities and Exchange
Commission, the New York Stock Exchange, and all other local, state or federal
governmental authorities or other parties required to be notified or to receive
a report in connection with the transaction contemplated by this Agreement.
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<PAGE>
(f) The execution and delivery of this Agreement
will not conflict with, result in a breach of or default under, and is not
prohibited by or in contravention of, any agreement of Seller or of the Company
or by which either of them or their respective assets or the Stock are bound.
3. Representations and Warranties of Buyer. Buyer
hereby represents and warrants to Seller as follows:
(a) Buyer has the full power to execute, deliver
and carry out the terms and provisions of this Agreement and to consummate the
transactions contemplated hereby, and Buyer is not required to obtain (or if
required, has previously obtained) the approval of any person or governmental
agency or organization to effect the purchase of the Stock.
(b) This Agreement has been duly and validly
executed and delivered by Buyer and constitutes a valid and binding agreement of
Buyer, enforceable in accordance with its terms.
(c) The execution and delivery of this Agreement
will not conflict with, result in a breach of or default under, and is not
prohibited by or in contravention of, any agreement of Buyer or by which Buyer
or its assets is bound.
(d) Buyer has made (or if required after the
date of this Agreement, Buyer covenants that it will make) all filings with or
reports or notices to, the Securities and Exchange Commission, the New York
Stock Exchange, and all other local, state or federal governmental authorities
or other parties required to be notified or to receive a report in connection
with the transaction contemplated by this Agreement.
(e) The Buyer is not acquiring the Stock with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act of 1933, as amended.
(f) The Buyer has carefully reviewed the
representations and warranties concerning the Seller and the Company contained
in this Agreement and understands that this investment involves substantial
risks. The Buyer has had an opportunity to discuss the Company's business,
management and financial affairs with the Seller and the Company's management.
The officers of the Seller and the Company have made available to the Buyer any
and all written information which the Buyer has requested and have answered, to
the Buyer's satisfaction, all inquiries made thereby. The Buyer is experienced
in evaluating and investing in companies such as the Company and has knowledge
and experience in financial and business matters such that the Buyer is capable
of evaluating the merits and risks of an
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investment in the Company and has the capacity to protect its own interests in
connection with this Agreement and the transactions contemplated herein.
4. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The
obligation of the Buyer to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set
forth in section 2 hereof shall be true and correct at and as of
the Closing Date;
(ii) the Seller shall have performed and
complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) no action, suit, or proceeding shall
be pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, or (C) affect adversely the right of the
Buyer to own or control the Stock (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
(iv) the Seller shall have delivered to the
Buyer a certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above in this
section 4(a) is satisfied in all respects;
(v) the Buyer shall have received the
resignations, effective as of the Closing Date, of the Seller as
an officer and director of the Company and its subsidiaries;
(vi) All actions to be taken by the Seller
in connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer.
(b) Conditions to Obligation of the Seller. The
obligation of the Seller to consummate the transactions to be performed by him
in connection with the Closing is subject to satisfaction of the following
conditions:
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(i) the representations and warranties set
forth in Section 3 hereof shall be true and correct at and as of
the Closing Date;
(ii) the Buyer shall have performed and
complied with all of its covenants hereunder in all material
respects through the Closing;
(iii) no action, suit, or proceeding shall
be pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
(iv) the Buyer shall have delivered to the
Seller a certificate (without qualification) as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above in this
section 4(b) is satisfied in all respects;
(v) the Board of Directors of the Company
shall have approved the Consulting Agreement and the Restrictive Covenant
Agreement and, the Seller and the Company shall have entered into the Consulting
Agreement and the Restrictive Covenant Agreement in form and substance as set
forth in Exhibits A-1 and A-2 and the same shall be in full force and effect;
(vi) all actions to be taken by the Buyer
in connection with consummation of the transaction contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Seller.
5. Expenses. All fees and expenses incurred by Seller and all
sales, transfer or other similar taxes payable in connection with this Agreement
(including, but not limited to, any transfer taxes payable in connection with
the sale of the Stock), will be borne by Seller, and all fees and expenses
incurred by Buyer in connection with this Agreement will be borne by Buyer. Any
fees and expenses incurred by the Company, including, but not limited to, any
fees payable to the Company's investment banker, in connection with this
Agreement will be borne by the Company.
5
<PAGE>
6. Miscellaneous Provisions.
(a) Execution in Counterparts. This Agreement
may be executed by the parties in one or more counterparts, each of which shall
be deemed to be an original but all of which taken together shall constitute one
and the same agreement, and shall become effective when one or more counterparts
has been signed by each party hereto and delivered to each other party hereto.
(b) Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given or made as of the date delivered or mailed if delivered
personally or mailed by registered or certified mail, postage prepaid, return
receipt requested, or by overnight courier, to the address of the respective
parties as follows:
If to Buyer: EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Attention: Irwin L. Gross,
Chairman
If to Seller: Ayhan Hakimoglu
431 Righters Mill Road
Narberth, PA 19072
(c) Amendments. This Agreement may only be
amended by a written instrument executed by each of the parties
hereto.
(d) Entire Agreement. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties hereto, oral and written, with respect to the subject matter hereof.
(e) Applicable Law. This Agreement shall be
governed by the laws of the State of New Jersey applicable to contracts made and
to be wholly performed within New Jersey, and without reference to the law of
conflicts.
(f) Headings. The headings contained herein are
for the sole purpose of convenience of reference, and shall not in any way limit
or affect the meaning or interpretation of any of the terms or provisions of
this Agreement.
(g) Binding Effect; Benefits. Neither party to
this Agreement may delegate his duties or assign or transfer his rights
hereunder without the prior written consent of the other party. This Agreement
shall inure to the benefit of, and be
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<PAGE>
binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
(h) Waiver, etc. The failure of either of the
parties hereto to at any time enforce any of the provisions of this Agreement
shall not be deemed or construed to be a waiver of any such provision, nor to in
any way affect the validity of this Agreement or any provision hereof or the
right of either of the parties hereto to thereafter enforce each and every
provision of this Agreement. No waiver of any breach of any of the provisions of
this Agreement shall be effective unless set forth in a written instrument
executed by the party against whom or which enforcement of such waiver is
sought; and no waiver of any such breach shall be construed or deemed to be a
waiver of any other or subsequent breach.
(i) Further Assurances. Each of the parties
hereto shall execute and deliver upon written request of the other such
additional documents, instruments and agreements as may be requested of such
party in order to more fully effectuate the purposes of this Agreement.
(j) Press Releases. Seller shall not issue any
press release with respect to the transactions contemplated by this Agreement,
except as may otherwise be required by law. Buyer shall reasonably consult with
Seller prior to the issuance of any press release with respect to the
transactions contemplated by this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto as of the date first above written.
EA INDUSTRIES, INC.
BY:/s/ Jules M. Seshens
------------------------------------
Jules M. Seshens,
Director and Vice President
/s/ Ayhan Hakimoglu
---------------------------------------
Ayhan Hakimoglu
NOTE: All representations, warranties, acknowledgements and
covenants in subparagraphs 2a, b, c, e and f shall
survive following the date hereof.
7
EXHIBIT 10.3
Form of Subscription Agreement and Debenture
<PAGE>
THE DEBENTURE, AND ANY SHARES OF COMMON STOCK ACQUIRED UPON CONVERSION
THEREOF, HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY
PROVIDED IN PARAGRAPH 5 OF THIS SUBSCRIPTION AGREEMENT, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL ACCEPTABLE TO COUNSEL FOR
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED TRANSFER
MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW.
SUBSCRIPTION AGREEMENT
This Subscription Agreement ("Agreement"), made as of May __, 1996 and effective
as set forth herein, by (i) the undersigned subscriber ("Subscriber"), on the
one hand, and (ii) EA Industries, Inc., a New Jersey corporation ("Seller"), on
the other hand, will confirm the complete understanding and agreement among the
parties with respect to the following.
1. Purchase, Sale and Delivery of Debentures.
(a) Upon the terms and conditions herein set forth, and on the basis of
the respective representations herein contained, Subscriber hereby subscribes
for and agrees to purchase from the Seller, 9% subordinated convertible
debentures ("Debentures") of Seller in the form of, and containing the terms set
forth in, Exhibit "A" attached hereto. The principal amount of the Debentures
subscribed for by Subscriber, the purchase price to be paid by Subscriber
("Purchase Price") and the conversion price for the shares of common stock of
Seller into which the Debentures are convertible ("Shares") (Debentures and
Shares which are issued or issuable upon conversion of the Debentures, are
sometimes hereinafter collectively referred to as "Securities") are set forth in
Schedule 1 annexed hereto (the "Schedule").
(b) The Subscriber agrees to pay the Purchase Price and shall deliver
to Seller herewith by wire transfer as set forth on Schedule 1 the full amount
of the Purchase Price payable to Seller, which sum represents full payment for
the Debentures.
(c) The Subscriber understands and agrees that upon receipt of such
funds delivered by him pursuant to this Paragraph 1 a closing ("Closing") on the
Debentures will have occurred, and that the amount of such check will be
returned without interest, if such Closing does not occur on or before May 3,
1996.
(d) The Subscriber understands that the proceeds will be used for
working capital purposes and for a private purchase of stock in a publicly held
company.
(e) Upon Closing, a certificate in the form of Exhibit "A"
evidencing the Debentures shall be delivered by the Seller to the Subscriber.
2. Representations and Covenants of Subscriber. Subscriber hereby
represents, warrants and covenants to the Seller as follows:
(a) Subscriber has full power and lawful authority to execute and
deliver this Agreement and to purchase the Debentures in accordance with the
terms hereof and this Agreement constitutes the legally valid and binding
agreement of Subscriber;
<PAGE>
(b) The execution and delivery of this Agreement and the consummation
of the sale of the Debentures and the transactions contemplated hereby do not
and will not conflict with or result in the breach by Subscriber of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust or other material agreement or instrument to which the Subscriber
is a party or by which Subscriber or any of the Subscriber's properties or
assets are bound, or any existing applicable law, rule or regulation or any
applicable decree, judgment or order of any court, regulatory body,
administrative agency or other governmental body having jurisdiction over any of
Subscriber's properties or assets;
(c) Subscriber has made its own investigation of Seller and its
business prospects and of the risks associated with an investment in Seller's
Securities and has received, read and understands the information contained in
the Amendment No. 6 on Form S-3 to Seller's Form S-1 Registration Statement
dated August 11, 1995, Seller's Form S-3 Registration Statement dated January
17, 1996 (including all supplements and post-effective amendments with respect
thereto), the Seller's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1995, the Quarterly Report on Form 10-Q for the quarterly period
ended April 1, 1995, the Quarterly Report on Form 10-Q for the quarterly period
ended July 1, 1995, the Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1995, the Current Report on Form 8-K dated January 4, 1995
as amended by the Form 8-K/A dated March 17, 1995, the Current Report on Form
8-K dated January 16, 1995 as amended by the Form 8-K/A dated March 30, 1995,
the Current Report on Form 8-K dated May 24, 1995, the Current Report on Form
8-K dated August 3, 1995 as amended on Form 8-K/A dated August 10, 1995, and the
Definitive Proxy Statement dated April 29, 1996, all delivered by Seller to
Subscriber, and acknowledges that no representation or warranty with respect to
Seller's business prospects has been made in this Agreement by or on behalf of
Seller;
(d) Subscriber is acquiring the Debentures for his own account, for
investment only, and not with a view toward resale or distribution in a manner
that would require registration under the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws, and that he
will not sell or otherwise transfer the Debentures or the underlying Shares,
except in compliance with state and federal law;
(e) Subscriber has, either alone or together with his Purchaser
Representative, if any, such knowledge and experience in financial and business
matters that he (or they) is (are) capable of evaluating the merits and risks of
his investment in the Securities;
(f) Subscriber is able to bear the economic risk of losing his
entire investment in the Securities;
(g) Subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to his net worth and current and
foreseeable needs, and his investment in the Securities will not cause such
overall commitment to become excessive;
(h) That (i) if a natural person, Subscriber is at least twenty-one
(21) years of age, (ii) he has adequate means of providing for his current and
foreseeable needs and personal contingencies, (iii) he is aware that no market
exists or may exist for the resale of the Debentures or the underlying Shares
and he has no need for liquidity in his investment in the Debentures or the
underlying Shares, (iv) he maintains his domicile (and is not a transient or
temporary resident) at the address shown on the Schedule, (v) all of his
investments in and commitments to non-liquid investments are, and after his
purchase of the Debentures will be, reasonable in relation to the undersigned's
net worth and current and foreseeable needs and (vi) the personal financial
information provided by the undersigned accurately reflects his financial
condition, with respect to which he does not anticipate any material adverse
changes;
2
<PAGE>
(i) Subscriber agrees and understands that Seller shall have the right,
in its sole discretion, to accept or reject this subscription, in whole or in
part, at any time prior to Closing, or to allocate to him only part of the
Debentures for which he has subscribed. Seller will notify him whether this
subscription is accepted or rejected. In the event his subscription is rejected,
his payment will be returned to him, without interest, and all of his
obligations hereunder shall terminate;
(j) Subscriber agrees, acknowledges and understands that neither the
Debentures or underlying Shares have been registered under the Securities Act of
1933, as amended, or the securities law of any state and, as the result thereof,
is subject to substantial restrictions on transfer, which restrictions are
described herein;
(k) Subscriber agrees and understands that he will not sell or
otherwise transfer any Securities or any interest therein except pursuant to an
effective registration statement under the Securities Act and applicable state
law or unless the Subscriber provides Seller with an opinion of counsel which is
reasonably satisfactory to counsel for Seller (both as to the issuer of the
opinion and the form and substance thereof) that the transfer of Security: (i)
may be effected without registration under the Securities Act, and (ii) does not
cause the violation of any state securities law (including any investment
suitability standards) applicable to Seller.
(l) Subscriber may be precluded from selling or otherwise transferring
or disposing of any Securities, or any portion thereof for an indefinite period
of time or at any particular time and may, therefore, have to bear the economic
risk of investment in the Securities for an indefinite period;
(m) Subscriber understands that an investment in Seller involves
certain risks and has taken full cognizance of and understands all of the risk
factors relating to the purchase of Debentures;
(n) Subscriber understands that no federal or state agency has approved
or disapproved the Debentures, passed upon or endorsed the merits of the
offering thereof, or made any finding or determination as to the fairness of the
Debentures for investment;
(o) Subscriber acknowledges that Seller has made available to him and
his Purchaser Representative, if any, the opportunity to ask questions of, and
receive answers from, Seller concerning the terms and conditions of the offering
and to obtain any additional information, to the extent that Seller or any
officer thereof possesses such information, or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information given to him or otherwise to make an informed investment decision;
(p) Subscriber acknowledges that, if he has used the services of a
Purchaser Representative in connection with his investment in Seller, his
Purchaser Representative has disclosed, by submitting to him a Purchaser
Representative's Letter, in the form given to him by Seller, any material
relationship between such Purchaser Representative or his affiliates and Seller
and its affiliates, which now exists or mutually is understood to be
contemplated or which has existed at any time during the previous two (2) years,
and further setting forth any compensation received or to be received as a
result of such relationship;
(q) SUBSCRIBER ACKNOWLEDGES THAT HE UNDERSTANDS THAT IF HE IS A
PENNSYLVANIA RESIDENT, HE HAS THE RIGHT TO CANCEL AND WITHDRAW THIS SUBSCRIPTION
AGREEMENT AND HIS PURCHASE OF DEBENTURES WITHOUT INCURRING ANY LIABILITY TO
SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON, UPON WRITTEN NOTICE TO SELLER
GIVEN WITHIN TWO BUSINESS DAYS FOLLOWING THE DATE OF RECEIPT BY SELLER OF HIS
WRITTEN BINDING CONTRACT FOR THE PURCHASE OF THE DEBENTURES, OR IF THERE IS NO
3
<PAGE>
WRITTEN BINDING CONTRACT OF PURCHASE FOR THE DEBENTURES, TWO BUSINESS DAYS AFTER
HE MAKES THE INITIAL PAYMENT FOR THE DEBENTURES BEING OFFERED. UPON SUCH
CANCELLATION OR WITHDRAWAL, HE WILL HAVE NO OBLIGATION OR DUTY UNDER THIS
SUBSCRIPTION AGREEMENT TO SELLER, OR TO ANY OTHER PERSON AND WILL BE ENTITLED TO
THE FULL RETURN OF ALL MONIES PAID BY HIM PURSUANT TO THIS SUBSCRIPTION
AGREEMENT. THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT HE UNDERSTANDS THAT ANY
NOTICE OF CANCELLATION OR WITHDRAWAL SHOULD BE MADE BY TELEGRAPH OR CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, POSTAGE OR OTHER TRANSMITTAL FEES
PAID, AND SHOULD BE SENT AND POSTMARKED BY THE END OF THE AFOREMENTIONED SECOND
BUSINESS DAY. THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT HE UNDERSTANDS THAT IF
HE MAKES HIS REQUEST TO WITHDRAW ORALLY, HE SHOULD ASK FOR WRITTEN CONFIRMATION
THAT THE REQUEST HAS BEEN RECEIVED;
(r) SUBSCRIBER ACKNOWLEDGES AND AGREES THAT IF HE IS A PENNSYLVANIA
RESIDENT, HE MAY NOT RESELL ANY OF THE DEBENTURES OR UNDERLYING SHARES UPON
CONVERSION FOR A PERIOD OF 12 MONTHS FROM AND AFTER THE DATE OF PURCHASE, EXCEPT
IN ACCORDANCE WITH REGULATION SECTION 204.011 PROMULGATED UNDER THE PENNSYLVANIA
SECURITIES ACT OF 1972;
(s) SUBSCRIBER ACKNOWLEDGES THAT IF HE IS A NEW YORK RESIDENT, NEITHER
THIS SUBSCRIPTION AGREEMENT NOR ANY OTHER OFFERING MATERIAL HAS BEEN FILED WITH
OR REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS
ISSUANCE AND USE AND THAT THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THE OFFERING;
(t) SUBSCRIBER ACKNOWLEDGES THAT IF HE IS A NEW JERSEY RESIDENT,
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW JERSEY NOR THE BUREAU OF
SECURITIES OF THE STATE OF NEW JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF
THE DEBENTURES OR THE OFFERING THEREOF. THIS SUBSCRIPTION AGREEMENT HAS NOT BEEN
FILED WITH OR OTHERWISE APPROVED BY THE BUREAU OF SECURITIES OF THE STATE OF NEW
JERSEY;
(u) Subscriber does not own, as of May 3, 1996, directly or indirectly
(within the meaning of the attribution rules set forth in Section 318 of the
Internal Revenue Code of 1986, as amended), any stock or other interests in
Seller or any member of its affiliated group as that term is defined in Section
1504(a) of the Internal Revenue Code of 1986, as amended;
(v) Subscriber is an "accredited investor" as such term is defined
in Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act;
(w) If the Subscriber is a corporation, trust, partnership or
other entity, it was not formed for the specific purpose of acquiring the
Debentures;
(x) Subscriber agrees and understands that he is not entitled to
cancel, terminate or revoke this subscription or any agreement hereunder, except
as set forth elsewhere herein;
(y) Subscriber has relied solely upon his own knowledge and experience,
or that of his personal advisors, in determining the economic and tax benefits,
if any, of the investment with respect to his individual economic and tax
situation and in determining the tax consequences to him of being an investor in
Seller;
(z) Subscriber understands that the Debentures are being offered and
sold in reliance on specific exemptions from the registration requirements of
federal and state securities laws and that Seller
4
<PAGE>
and controlling persons thereof are relying upon the truth and accuracy of the
representations, warranties, covenants, agreements, acknowledgements, and
understandings set forth herein in order to determine the applicability of such
exemptions and the suitability of the Subscriber to acquire such Debentures;
(aa) The information set forth herein and in the Confidential
Purchaser Questionnaire concerning the Subscriber is true and correct; and
(ab) Subscriber acknowledges that, if he is purchasing the Debentures
subscribed for hereby in a fiduciary capacity, the above representations,
warranties, covenants, agreements, acknowledgements and understandings in this
Paragraph 2 shall be deemed to have been made on behalf of the person or persons
for whom he is so purchasing.
3. Representations of Seller. Seller represents and warrants to
Subscriber that:
(a) Seller is an issuer (other than an investment company registered or
required to register under the U.S. Investment Company Act of 1940, as amended)
that (i) has a class of securities registered pursuant to Section 12(b) or 12(g)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
is required to file reports pursuant to Section 15(d); and (ii) has timely filed
all material required to be filed by it pursuant to Section 13(a) or 15(d) of
the Exchange Act for at least the twelve (12) months immediately preceding the
date hereof;
(b) Subject to Paragraph 3(c) hereof, the Seller presently has, and as
of the Closing will have, full legal right, power and capacity and all necessary
consents, approvals and authorizations as may be required to execute and deliver
this Agreement and to issue and sell the Debentures to Subscriber pursuant
hereto and thereto and in the manner contemplated hereby and thereby;
(c) THE CONVERSION OF THE DEBENTURES INTO SHARES OF COMMON STOCK IS
EXPRESSLY CONDITIONED UPON, AMONG OTHER THINGS, THE LISTING OF THE SHARES INTO
WHICH THE DEBENTURE IS CONVERTIBLE ON THE NEW YORK STOCK EXCHANGE, AND, IF
CONVERSION RESULTS IN THE ISSUANCE OF SHARES IN AN AMOUNT EQUAL TO OR EXCEEDING
20% OF THE SELLER'S THEN ISSUED AND OUTSTANDING SHARES, APPROVAL OF A MAJORITY
OF THE SELLER'S STOCKHOLDERS.
(d) When delivered pursuant hereto, the Debentures will be duly and
validly authorized and issued, and free and clear of any and all liens, charges,
restrictions (except as may be imposed by U.S. federal and state securities
laws), claims and encumbrances and will not subject the holders thereof to any
liability by reason of holding such securities;
(e) Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New Jersey;
(f) When executed and delivered by Seller, this Agreement will be duly
and validly executed and delivered by Seller and will be Seller's legally
binding obligation enforceable against Seller in accordance with its terms,
except to the extent that: (i) such enforcement may be limited by bankruptcy,
insolvency or similar laws now or hereafter in effect relating to creditors'
rights and remedies generally; and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought;
(g) The execution and delivery of this Agreement and the
consummation of the issuance of the Debentures and the transactions contemplated
hereby do not and will not conflict with or result in
5
<PAGE>
the breach by Seller of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other material
agreement or instrument to which such Seller is a party or by which Seller or
any of such Seller's properties or assets are bound, or any existing applicable
law, rule or regulation or any applicable decree, judgment or order of any
court, Federal or State regulatory body, administrative agency or other
governmental body having jurisdiction over any of Seller's properties or assets;
and
(h) There are no preemptive rights, rights of first refusal, repurchase
rights or any other right of Seller or any third party as to the Debentures,
except as described in the Debenture.
4. Indemnification. The Subscriber acknowledges that he understands the meaning
of the representations, warranties, covenants, agreements, acknowledgments and
understandings made by him in this Subscription Agreement and hereby agrees to
indemnify and hold harmless Seller, and each shareholder officer, director,
employee or agent of any of the foregoing, from and against any and all losses,
costs, expenses, damages, liabilities and interest (including, without
limitation, court costs and attorneys' fees) arising out of or due to a breach
by the Subscriber or any inaccuracy or incompleteness, of any such
representations, warranties, covenants, agreements, acknowledgments or
understandings contained in sections 3(a)-(h), (u)-(w) and (y) hereof. All such
representations, warranties, covenants, agreements, acknowledgments and
understandings contained in sections 3(a)-(h) (u)-(w) and (y) hereof shall
survive the delivery of this Subscription Agreement and the purchase by the
undersigned of any Debentures.
5. Registration Rights. (a) Seller shall use its best efforts to file within six
months after the Closing Date hereof, and cause to be declared effective within
eight months after the Closing Date hereof, a registration statement on Form
S-3, or such other Form as the Company shall select, with respect to the
offering and sale of the Shares which may be acquired by Subscriber upon
conversion of the Debentures purchased hereunder, provided, however, that the
filing of such registration statement shall not, in the Seller's reasonable
discretion, have a material adverse effect on the Seller. Seller shall use its
best efforts to maintain the effectiveness of such registration statement for a
period of nine months. Seller shall use its best efforts to obtain approval from
the New York Stock Exchange for the listing of the Shares within six months
after the Closing Date hereof. In addition, Subscriber shall have such piggyback
registration rights as Seller and Subscriber shall reasonably agree upon.
(b) In the event within eight months from the date hereof, either (i)
such registration statement is not declared effective, or (ii) the Shareholder
consent referred to in 3(c), if necessary, has not been obtained, or (iii) the
New York Stock Exchange has not approved the listing of the Shares, the Seller
shall immediately pay, in cash, an amount equal to ten percent (10%) of the then
outstanding principal amount of the Debentures and the holder of the Debentures
at its option may declare the entire unpaid principal and interest payable at
that time or may elect to waive its rights to such acceleration and continue to
hold the Debentures. In such event, Seller shall continue to use its best
efforts to effect such registration, listing and Shareholder consent. In
addition, Subscriber shall have such piggyback registration rights as Seller and
Subscriber shall reasonably agree upon.
(c) In the event that within nine months from the date hereof, either
(i) such registration statement is not declared effective, or (ii) the
Shareholder consent referred to 3(c), if necessary, has not been obtained, (iii)
the New York Stock Exchange has not approved the listing of the Shares, the
Seller shall immediately pay, in cash, an additional amount equal to fifteen
percent (15%) of the then outstanding principal amount of the Debentures and the
holder of the Debentures at its option may declare the entire unpaid principal
and interest payable at that time or may elect to waive such acceleration and
continue to hold the Debentures. In such event, Seller shall continue to use its
best efforts to effect such registration, listing and Shareholder consent. In
addition, Subscriber shall have such piggyback registration rights as Seller and
Subscriber shall reasonably agree upon.
6
<PAGE>
(d) In the event that (i) a Court with jurisdiction over the matter
renders a judgment that, or (ii) Subscriber presents Seller with a written
opinion of counsel demonstrating to the reasonable satisfaction of the Seller
that, the provisions of sections (b) and (c) of this paragraph 5 are
unenforceable, the Conversion Price as defined in the Debentures shall be
reduced by fifty percent (50%) and the provisions of (b) and (c) shall be
inapplicable. In such event, Seller shall continue to use its best efforts to
affect such registration and listing as described in section (a) and the
piggyback registration rights described in section (a) shall also continue to
apply.
6. Effective Date/Closing Date. This Agreement shall become effective
upon, and the Closing Date will occur on May 3, 1996.
7. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey of the United States without
regard to the conflicts of laws rules thereof.
8. Presumption. In interpreting the terms of this Agreement, no
presumption shall arise as a result of the role of any party in the drafting of
this Agreement.
9. Counterparts and Facsimile. This Agreement may be executed on
facsimile copies in two (2) or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
10. No Assignment. The undersigned agrees not to transfer or assign this
Subscription Agreement or any interest of the undersigned in the subscription in
the Debentures hereunder. Any attempted transfer or assignment shall be void and
without force or effect.
7
<PAGE>
11. Binding Agreement; Survival. This Subscription Agreement (a) shall be
binding upon the undersigned and the heirs, executors, administrators, personal
representatives and successors of the undersigned, (b) shall survive the
purchase of the Debentures, and (c) shall, if the undersigned consists of more
than one person, be the joint and several obligation of all such persons. For
purposes of this Subscription Agreement, the singular shall include the plural
and the plural shall include the singular, and the masculine shall include the
feminine and the neuter, as the context may require.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
"Subscriber"
---------------------
By: _____________________________
"Seller"
EA INDUSTRIES, INC.
a New Jersey corporation
By:______________________________
8
<PAGE>
SCHEDULE 1
TO THE
SUBSCRIPTION AGREEMENT
1. Principal Amount of Debentures:
2. Total Purchase Price:
3. Conversion Price: Equal to the lesser of (i) 80% of
the average closing price of the
Common Stock of the Company as
traded on the New York Stock
Exchange for the five days
immediately preceding the date of
Subscriber's notice to Company of
the exercise of its right to convert
the Debentures into shares of Common
Stock, or (ii) $4 per share,
provided that no less than $100,000
of the principal amount of the
Debentures may be converted at any
one time.
4. Name and Address of Subscriber:
5. Number of certificates:
6. Denominations:
7. Name appearing on Debentures:
8. Delivery method for Debentures: Bonded Courier
9. Closing Date: May 3, 1996
10. Wire Transfer Instructions for
Remittance of Principal Amount
of Debentures: Mellon Bank
Philadelphia, PA
ABA #031000037
a/c EA Industries, Inc.
#2 492 056
Att: Catherine M. McDonnell
(215) 553-4708
9
<PAGE>
Exhibit "A"
THIS DEBENTURE, AND ANY SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE
NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY PROVIDED
HEREIN, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF
COUNSEL ACCEPTABLE TO COUNSEL FOR THE ISSUER THAT SUCH REGISTRATION IS NOT
REQUIRED AND THAT THE PROPOSED TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE ACT
AND ANY APPLICABLE STATE SECURITIES LAW.
No. ____
$_______ May 3, 1996
EA INDUSTRIES, INC.
9% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MAY 3, 1998
EA INDUSTRIES, INC. (the "Company"), a New Jersey corporation, for
value received, and intending to be legally bound, hereby promises to pay to the
order of _____________________, or registered assigns, the principal amount of
_______________________________ ($_________) on May 3, 1998 or such earlier date
as provided in Paragraph (a) under the heading "Conversion of Debenture" below
("Maturity Date"), with interest from the date hereof (computed on the basis of
a 360-day year of twelve 30-day months) payable quarterly on the first day of
each calendar quarter, commencing July 1, 1996 on the unpaid principal balance
at the rate of 9% per annum until such unpaid principal balance shall become due
and payable (whether at maturity or by acceleration or otherwise). Overdue
principal payments and (to the extent permitted by applicable law) any overdue
interest shall accrue interest at the foregoing rate per annum until paid, which
interest shall be payable on demand.
Payments of principal and interest on this Debenture shall be made in
lawful money of the United States of America by delivery of a check payable in
New York Clearing House funds to the address provided by the payee as shown on
the Debenture Register. The Company may treat the person in whose name this
Debenture is registered (the "Holder") on the Debenture Register kept by the
Company as the owner of this Debenture for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary. This Debenture is transferable only (i) in accordance with the
terms hereof and (ii) by surrender thereof at an office or agency of the Company
where this Debenture is payable, duly endorsed or accompanied by a written
instrument duly executed by the Holder of this Debenture or his attorney duly
authorized in writing.
Conversion Of Debenture. This Debenture may be converted into shares of
Common Stock of the Company, as follows:
(a) Conversion. Subject to and upon compliance with the
provisions of this section captioned "Conversion of Debenture", at the option of
the Holder, at any time following the date hereof and prior to the close of
business on the Maturity Date, the unpaid principal balance of the Debenture may
be converted in whole, or from time to time in part, into fully-paid and
non-assessable shares of
1
<PAGE>
Common Stock, of the Company (the "Shares"), at a conversion price per Share
equal to the lesser of (i) eighty percent (80%) of the average closing price of
the Common Stock of the Company as traded on the New York Stock Exchange for the
five days immediately preceding the date of Holder's notice to Company of
Holder's intention to exercise its right of conversion as set forth herein, or
(ii) $4.00 per share (the "Conversion Price"), provided that in no event shall
Holder convert less than $100,000 unpaid principal balance of the Debenture at
any one time. The conversion as set forth herein shall be subject to such
adjustment or adjustments, if any, of such Conversion Price and of the
securities or other property issuable upon such conversion as set forth below,
upon delivery of the Debenture to the offices of the Company, together with the
form of conversion notice attached thereto (the "Conversion Notice"), duly
executed by the Holder thereof. The Conversion Notice shall state the principal
amount thereof to be so converted and shall include or be accompanied by
representations as to the Holder's investment intent substantially similar to
those contained in this Debenture. Shares issuable upon conversion of the
Debenture shall be issued in the name of the Holder and shall be transferable
only in accordance with all of the terms and restrictions contained herein and
in the Subscription Agreement of even date hereof to which the original Holder
hereof is a party. Upon such conversion, Company shall pay, in cash, all accrued
and unpaid interest through the conversion date on the Debenture or such part
thereof delivered for conversion. No fractional Shares shall be issued or
delivered upon conversion of the Debenture. In case the Debenture shall be
surrendered for the conversion of only a portion of the principal amount
thereof, the Company shall, at the time of issuing the Shares of Common Stock
issuable upon the conversion of such portion, execute and deliver to the Holder
of the Debenture so surrendered a new note equal in principal amount to the
unconverted portion of the surrendered Debenture, dated the most recent date to
which interest shall have been paid on the surrendered Debenture. The Company
shall use its best efforts to file, within six months of the date hereof, and
cause to be declared effective, within eight months of the date hereof, a
registration statement under the Securities Act of 1933, as amended, covering
the shares of Common Stock underlying this Debenture (the "Registration"). In
addition, Holder shall have such piggyback registration rights as Holder and
Company shall reasonably agree upon. NOTWITHSTANDING THE FOREGOING, THE
CONVERSION OF THE DEBENTURE INTO SHARES OF COMMON STOCK IS EXPRESSLY CONDITIONED
UPON (i) THE LISTING OF THE SHARES INTO WHICH THE DEBENTURE IS CONVERTIBLE ON
THE NEW YORK STOCK EXCHANGE ("LISTING"), AND (ii) IF CONVERSION RESULTS IN THE
ISSUANCE OF SHARES IN AN AMOUNT EQUAL TO OR EXCEEDING 20% OF THE HOLDER'S THEN
ISSUED AND OUTSTANDING SHARES, APPROVAL OF A MAJORITY OF THE HOLDER'S
STOCKHOLDERS. IN THE EVENT THE LISTING OR STOCKHOLDER APPROVAL DOES NOT OCCUR,
THIS DEBENTURE SHALL NOT BE CONVERTIBLE AS AFORESAID. THE COMPANY SHALL USE ITS
BEST EFFORTS TO AFFECT THE LISTING AND THE SHAREHOLDER APPROVAL, IF NECESSARY,
WITHIN SIX MONTHS AFTER THE DATE HEREOF. FURTHER, IN THE EVENT THAT EITHER
LISTING, SHAREHOLDER APPROVAL, IF NECESSARY, OR REGISTRATION HAS NOT OCCURRED
WITHIN EIGHT MONTHS FROM THE DATE HEREOF, THEN AN AMOUNT EQUAL TO TEN PERCENT
(10%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL IMMEDIATELY BE DUE AND
PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY AT ITS OPTION (i)
DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER IMMEDIATELY DUE AND
PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND CONTINUE TO HOLD THE
DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN ACCORDANCE WITH THEIR
TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS. FURTHER, IN THE EVENT
THAT THE LISTING OR SHAREHOLDER APPROVAL HAS NOT OCCURRED OR THE REGISTRATION IS
NOT EFFECTIVE WITHIN NINE MONTHS FROM THE DATE HEREOF, THEN AN ADDITIONAL AMOUNT
EQUAL TO FIFTEEN PERCENT (15%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL
IMMEDIATELY BE DUE AND PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY
AT ITS OPTION (i) DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER
IMMEDIATELY DUE AND PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND
CONTINUE TO HOLD THE DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN
ACCORDANCE WITH THEIR TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS
BEST EFFORTS TO AFFECT SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF
NECESSARY, AND HOLDER SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
2
<PAGE>
IN THE EVENT THAT (i) A COURT WITH JURISDICTION OVER THE MATTER RENDERS A
JUDGMENT THAT, OR (ii) THE HOLDER PRESENTS THE COMPANY WITH A WRITTEN OPINION OF
COUNSEL DEMONSTRATING TO THE REASONABLE SATISFACTION OF THE COMPANY THAT,
ADDITIONAL PAYMENTS OF TEN PERCENT AND 15% ARE UNENFORCEABLE, SUCH PROVISIONS
SHALL BE INAPPLICABLE AND THE CONVERSION PRICE SHALL BE REDUCED BY FIFTY PERCENT
(50%). IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY, AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
(b) Adjustments.
(i) Shares Included in Computation. The number
of shares of Common Stock at any time outstanding for any purpose hereunder
shall not include any shares of Common Stock then owned or held by or for the
account of the Company.
(ii) Subdivision or Combination. Whenever the
Company shall subdivide or combine the outstanding shares of Common Stock
issuable upon conversion of this Debenture, including stock dividends and stock
splits, the Conversion Price in effect immediately prior to such subdivision or
combination shall be proportionately decreased in the case of subdivision or
increased in the case of combination effective at the time of such subdivision
or combination.
(iii) Reclassification or Change. Whenever any
reclassification or change of the outstanding shares of Common Stock shall occur
(other than a change in par value, or from par value to no par, or from no par
to par value, or as a result of a subdivision or combination) effective
provision shall be made whereby the Holder shall have the right, at any time
thereafter, to receive upon conversion of this Debenture the kind of stock,
other securities or property receivable upon such reclassification or change by
a holder of the number of shares of Common Stock issuable upon conversion of
this Debenture immediately prior to such reclassification or change. Thereafter,
the rights of the Holder with respect to the adjustment of the amount of
securities or other property obtainable upon conversion of this Debenture shall
be appropriately continued and preserved, so as to afford as nearly as may be
possible protection of the nature afforded by this paragraph (b). The provisions
of this clause (iii) shall apply to successive transactions of the nature to
which it relates.
(c) Notices of Record Date. In case
(i) the Company shall declare a dividend (or
make any other distribution) on its shares of Common Stock payable otherwise
than in cash out of its earned surplus; or
(ii) the Company shall grant the holders of its
Common Stock the right to subscribe for or purchase any shares of its capital
stock of any class; or
(iii) the Company shall make any distribution on
or in respect of the Common Stock in connection with the dissolution,
liquidation or winding up of the Company; or
(iv) there is to be a reclassification or change
of the Common Stock of the Company (other than the subdivision or combination of
its outstanding shares of Common Stock), a consolidation or merger to which the
Company is a party and in connection with which approval of any class of
stockholders of the Company is required, or a sale or conveyance of the property
of the Company as an entirety or substantially as an entirety,
then and in each such event, the Company shall mail or cause to be mailed to the
Holder a notice specifying the date on which any record is to be taken for the
purpose of such dividend, distribution or granting of rights, or the date on
which such reclassification, consolidation or merger is expected to become
effective, and the time, if any, as of which the holders of record of Common
Stock shall be
3
<PAGE>
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization or reclassification. Such notice
shall be mailed at least 30 days prior to the record or effective date therein
specified.
(d) Notice of Adjustment of Conversion Price, etc. If there
shall be any adjustment as provided in (b) hereof, or if securities or property
other than shares of Common Stock of the Company shall become issuable or
deliverable in lieu of shares of such Common Stock upon the conversion of this
Debenture, the Company shall forthwith cause written notice thereof to be sent
by registered or certified mail, postage prepaid, to the Holder, which notice
shall be accompanied by a certificate of the principal financial officer of the
Company setting forth in reasonable detail the facts requiring any such
adjustment and the Conversion Price and number of shares issuable upon the
conversion of this Debenture after such adjustment, or the kind and amount of
any such securities or property so issuable or deliverable upon the conversion
of this Debenture, as the case may be.
Subordination.
(a) Senior Debt. As used in this Debenture, the term "Senior
Debt" shall mean all amounts due and owing by the Company to banks and other
financial institutions regardless of whether such amounts were incurred on,
before or after the date of this Debenture and any renewals or extensions of any
such debt.
(b) Subordination. The Company covenants and agrees and the
Holder, by acceptance hereof, covenants, expressly for the benefit of the
present and future holders of Senior Debt, that the payment of the principal and
interest on this Debenture is expressly subordinated in right of payment to the
payment in full of principal and interest of the Senior Debt of the Company in
accordance with the provisions of this Section. There are no restrictions on the
Company's ability to issue additional Senior Debt. Accordingly, all present and
future Senior Debt of the Company will be superior to this Debenture and may be
incurred without the consent of Holder. In addition, the Company may issue
additional subordinated debt which is senior to the debentures under this
Debenture without the prior written consent of the holders of the principal
amount of such debentures.
Upon any default by the Company in the payment of all
or any portion of principal or of interest on any Senior Debt when due and
payable, no payment may be made on or in respect of this Debenture unless or
until such default has been cured or is waived. Upon any insolvency proceedings,
receivership, conservatorship, reorganization, readjustment of debt, marshalling
or assets and liabilities or similar proceedings or any liquidation or
winding-up of the Company, whether voluntary or involuntary, the Holder of this
Debenture shall not be entitled to receive thereafter, any amount in respect of
the principal and interest of this Debenture unless and until the above Senior
Debt shall have been paid or otherwise discharged. In the event of such
proceeding, and after payment in full of all sums owing with respect to such
Senior Debt, Holder shall be entitled to be paid from the remaining assets of
the Company the unpaid principal of, and the unpaid interest due on, this
Debenture. Such payment will be made before any payment or other distribution,
whether in cash, property or otherwise shall be made on account of any capital
stock of any obligations of the Company ranking junior to this Debenture.
(c) Rights Against the Company and Others. It is understood
that the provisions of this Section captioned "Subordination" are, and are
intended to be solely for the purpose of defining the relative rights of the
Holder of this Debenture on the one hand and the holder of the Senior Debt of
the Company on the other hand. Nothing contained in this Section or elsewhere in
this Debenture shall or is intended to impair, as between the Company, its
creditors other than the holder of the Senior Debt, and the Holder of this
Debenture, the unconditional and absolute obligation of the Company to pay the
Holder of the Debenture the principal of and interest on the Debenture as and
when the same shall become due and payable in accordance with its terms or
affect the relative rights of the holder of the
4
<PAGE>
Debenture and the creditors of the Company, other than the holder of such Senior
Debt nor shall anything herein prevent the Holder of this Debenture from
exercising all remedies otherwise permitted by applicable law upon default under
this Debenture, subject to the rights, if any, of the holder of Senior Debt in
respect to cash, property or securities of the Company received upon the
exercise of any such remedy. The subordination herein provided applies to
payments or distributions by the Company only and shall not affect the right of
the Holder to collect and retain payment from any co-obligor, guarantor or
surety. Upon any payment or distribution of assets of the Company referred to in
this Section captioned "Subordination," the Holder of this Debenture shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the Holder of this
Debenture, for the purpose of ascertaining the persons entitled to participate
in such distributions, the holders of Senior Debt and other debt of the Company,
the amounts thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section.
By accepting this Debenture, the Holder hereby acknowledges that,
except as expressly set forth herein, neither this Debenture nor any shares
issuable upon conversion hereof have been, or will be at the time of acquisition
of any shares upon conversion hereof, registered under the Securities Act of
1933, as amended, or any state securities laws and represents for himself and
his legal representative that he is acquiring this Debenture, and will acquire
any shares issued upon conversion hereof, for his own account, for investment
purposes only and not with a view to, or for sale in connection with, any
distribution of such securities, and agrees to reaffirm in writing this
investment representation at the time of exercise of the conversion right set
forth above.
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
(a) if the Company shall default in the payment of principal of this
Debenture when the same becomes due and payable, whether at maturity or by
declaration of acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Debenture and shall fail to cure such default within ten days after written
notice thereof from the Holder to the Company; or
(c) if the Company shall materially default in the performance of or
compliance with any term contained herein and such default shall not have been
remedied within thirty days after written notice thereof from the Holder to the
Company; or
(d) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or a voluntary petition for reorganization under Title 11 of the
United States Code ("Title 11") shall be filed by the Company or an order shall
be entered granting relief to the Company under Title 11 or a petition shall be
filed by the Company in bankruptcy, or the Company shall be adjudicated a
bankrupt or insolvent, or shall file any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting or not contesting the material
allegations of a petition filed against the Company in any such proceeding, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company or if the Company or its directors or majority
shareholders shall take any action looking to the dissolution or liquidation of
the Company; or
(e) if within 120 days after the commencement of an action against the
Company seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or nullified or all
orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if, within 120 days after the
5
<PAGE>
appointment without the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company such appointment shall not have been vacated;
then, and in any such event, the Holder may at any time (unless such Event of
Default shall theretofore have been remedied) at its option, by written notice
to the Company, declare the Debenture to be due and payable, whereupon the
Debenture shall forthwith mature and become due and payable, together with
interest accrued thereon, and thereafter interest shall be due, at the rate per
annum hereinabove provided, on the entire principal balance until the same is
fully paid, and on any overdue interest (but only to the extent permitted by
law), without presentment, demand, protest or notice, all of which are hereby
waived.
In case of a default in the payment of any principal of or interest on
the Debenture, the Company will pay to the Holder such further amount as shall
be sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements. No course of
dealing and no delay on the part of Holder in exercising any right shall operate
as a waiver thereof or otherwise prejudice such Holder's rights, powers or
remedies. No right, power or remedy conferred by this Debenture upon Holder
shall be exclusive of any other right, power or remedy referred to herein or now
or hereafter available at law, in equity, by statute or otherwise.
Notwithstanding any provision contained in this Debenture to the
contrary, the Company's liability for payment of interest shall not exceed the
limits imposed by applicable usury law. If any provision hereof requires
interest payments in excess of the then legally permitted maximum rate, such
provision shall automatically be deemed to require such payment at the then
legally-permitted maximum rate.
All notices required or permitted to be given under this Debenture
shall be in writing (delivered by hand or sent certified or registered mail,
return receipt requested) addressed to the following addresses:
If to Holder: At its address on the Debenture
Register of the Company
If to Company: 185 Monmouth Parkway
West Long Branch, NJ 07764-9989
Attn: Stanley O. Jester
All notices shall be deemed given upon personal delivery or upon deposit of such
notice in the United States mails, with all postage affixed.
This Debenture has been made and delivered in West Long Branch, New
Jersey and shall be governed by the laws of the State of New Jersey.
EA INDUSTRIES, INC.
ATTEST:
______________________________ By:____________________________
Secretary
(SEAL)
6
<PAGE>
CONVERSION NOTICE
TO: EA INDUSTRIES, INC.
185 Monmouth Parkway
West Long Branch, NJ 07764-9989
The undersigned Holder of this Debenture hereby irrevocably exercises
his right to convert [all] [or $___________] of this Debenture into ___________
shares of Common Stock of EA INDUSTRIES, INC. at the Conversion Price of
$_________________ per share in accordance with the terms of this Debenture, and
directs that the Shares issuable and deliverable upon such conversion be
registered in the name of the undersigned and delivered to the undersigned,
together with a Debenture for the balance of the principal amount of this
Debenture, if any.
The undersigned hereby acknowledges that the Shares (i) have not been
and will not be at the time of acquisition by the undersigned registered under
the Securities Act of 1933, as amended, or under any state securities laws,
except as set forth in this Debenture, and hereby represents and warrants to the
Company that he is acquiring the Shares for his own account, for investment, and
not with a view to, or for sale in connection with, any distribution of such
Shares; and (ii) are transferable only in accordance with all the terms and
restrictions contained in the Debenture and in the Subscription Agreement dated
November, 1995, to which the Holder is, or hereby agrees to become, a party.
Dated:_____________________ 19__
- -------------------------------- -----------------------------
Witness Signature of Holder
-----------------------------
(Print Name of Holder)
Social Security Number or
Taxpayer ID Number:__________
-----------------------------
-----------------------------
-----------------------------
Address
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 30, 1996 AND
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,140
<SECURITIES> 0
<RECEIVABLES> 13,815
<ALLOWANCES> (275)
<INVENTORY> 12,525
<CURRENT-ASSETS> 42,080
<PP&E> 17,676
<DEPRECIATION> (7,236)
<TOTAL-ASSETS> 65,785
<CURRENT-LIABILITIES> 25,323
<BONDS> 3,221
0
0
<COMMON> 66,302
<OTHER-SE> (45,206)
<TOTAL-LIABILITY-AND-EQUITY> 65,785
<SALES> 24,025
<TOTAL-REVENUES> 24,025
<CGS> 22,634
<TOTAL-COSTS> 24,861
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 435
<INCOME-PRETAX> (1,674)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,674)
<EPS-PRIMARY> $(0.10)
<EPS-DILUTED> $(0.10)
</TABLE>
