<PAGE> 1
As filed with the Securities and Exchange Commission on April 17, 1997
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DATAFLEX CORPORATION
(Exact name of registrant as specified in its charter)
--------------------
<TABLE>
<CAPTION>
<S> <C>
New Jersey 5081 22-2163376
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2145 CALUMET STREET
CLEARWATER, FLORIDA 34625
(813) 562-2200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ANTHONY G. LEMBO
PRESIDENT
DATAFLEX CORPORATION
2145 CALUMET STREET
CLEARWATER, FLORIDA 34625
(813) 562-2200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Copies of communications to:
ROBERT J. GRAMMIG, ESQ.
HOLLAND & KNIGHT LLP
400 NORTH ASHLEY DRIVE, SUITE 2300
TAMPA, FLORIDA 33602
(813) 227-8500
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statements for the same offering. [ ] _____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ] __________________
<TABLE>
<CAPTION>
==========================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value
per share . . . . . . . 270,000 $3.3125 $894,375 $280.00
==========================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION - DATED APRIL 17, 1997
PROSPECTUS
================================================================================
270,000 SHARES
DATAFLEX CORPORATION
COMMON STOCK
================================================================================
The 270,000 shares of common stock, no par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by certain shareholders
of the Company (the "Selling Shareholders"). The Common Stock may be sold from
time to time by the Selling Shareholders or by their transferees. No
underwriting arrangements have been entered into by the Selling Shareholders.
The distribution of the securities by the Selling Shareholders may be effected
in one or more transactions that may take place on The Nasdaq National Market
(the "Nasdaq National Market") or otherwise, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such shares as principals at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the Selling Shareholders in connection with
sales of such Common Stock.
The Selling Shareholders and intermediaries through whom such securities may be
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
and any profits realized or commissions received may be deemed underwriting
compensation. The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Shareholders. See "Principal and
Selling Shareholders."
The Common Stock of the Company is included in the Nasdaq National Market under
the symbol "DFLX." On April 14, 1997, the last reported sales price of the
Common Stock on the Nasdaq National Market was $3.3125 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" ON PAGES 5 TO 8 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April __, 1997.
<PAGE> 3
PROSPECTUS SUMMARY
The following is a summary of the more detailed information and
financial statements appearing elsewhere in this Prospectus. This
Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934 (the "1934 Act"). The
words "expect," "estimate," "anticipate," "predict," "believe" and similar
expressions and variations thereof are intended to identify
forward-looking statements. Such statements appear in a number of places
in this Prospectus and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with
respect to, among other things: (i) trends affecting the Company's
financial condition or results of operations; (ii) the Company's financing
plans; (iii) the Company's business strategies; and (iv) the declaration
and payment of dividends. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements as a
result of various factors. The accompanying information contained in this
Prospectus, including without limitation the information set forth under
the headings "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
information contained in the Company's 1934 Act filings with the
Securities and Exchange Commission (the "Commission"), identify important
factors that could cause such differences.
THE COMPANY
Dataflex Corporation (the "Company"), incorporated in New Jersey in
1976, is a direct marketer of microcomputer equipment, related products
and computer services. The Company markets computer equipment and related
products supplied primarily by major manufacturers, including Compaq,
Hewlett-Packard, IBM and Toshiba. The Company's customers are business
organizations with diverse desktop computing requirements located
throughout the United States, with a primary concentration in the
Southeast. The Company provides its customers with single-source,
value-added desktop computing solutions and services, including product
sales, system integration, network installations, help desk support,
training, consultation services and equipment repair maintenance. The
Company is also a certified Novell Education Center and a certified
Microsoft Authorized Technical Education Center capable of providing
on-site or off-site manufacturer authorized education.
The computer services business continues to be the fastest growing
segment of the Company's operations and includes dedicated on-site
remedial and nonremedial maintenance support to the Company's customers
through the Company's Mainsite(TM) program, field service repairs and
maintenance, system configuration, asset management, authorized training
centers, LAN/WAN consulting and system integration, help desk support
through its toll-free support line for all computer and computer related
problems, and FlexStaff, which provides dedicated high-end technical
support on a contract basis to customers for short and long-term
requirements. In addition, the Company is a member of a national network
of service partners to enhance its ability to deliver nationwide, on-site
services to its customers.
The Company focuses its efforts on customer service. The Company
conducts ongoing training for its associates, monitors response and repair
time regarding customer requests and concerns, measures delivery time for
services and conducts customer surveys to determine the level of customer
satisfaction.
2
<PAGE> 4
Over the past twelve months, the Company has divested its Eastern
(New Jersey-based), Midwestern (Chicago-based), and Western (California-
and Arizona-based) regions in a series of transactions. Additionally, the
Company has entered into an understanding with Computer Plus, Inc. for the
possible sale of its Kindergarten through 12th Grade Education business.
These divestitures are a reversal of the Company's expansion strategy
implemented in 1994 and 1995. The Company was not able to successfully
integrate these acquisitions promptly and effectively. Additionally,
management determined that the Company lacked adequate capital (or access
to adequate capital) to support its expanded infrastructure, to make
necessary additional capital expenditures and to service the significant
indebtedness incurred in connection with the acquisitions. Management
concluded that it was necessary to reduce the burden of this indebtedness.
The divestitures have reduced the Company's indebtedness and allowed it to
focus on its core competencies. In particular, management believed that
the Company's best opportunities were in the Southeastern United States
and therefore concentrated the Company's efforts in this region. As a
result, the Company disposed of its other operations, including its
Eastern region (the original business of the Company) in 1996.
The Company has offices in Tallahassee, Maitland (Orlando), Hollywood
(Miami-Ft. Lauderdale) and Clearwater (Tampa Bay), Florida, as well as in
Charlotte, North Carolina, Memphis, Tennessee and Smyrna (Atlanta),
Georgia. The Company's headquarters are located at 2145 Calumet Street,
Clearwater, Florida 34625, and its telephone number is (813) 562-2200.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered by the Selling Shareholders . . . . . . . . . . . . . . . . 270,000 shares
Common Stock Outstanding(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,847,199 shares
Nasdaq National Market Symbol . . . . . . . . . . . . . . . . . . . . . . . . . . DFLX
</TABLE>
- --------------------
(1) Based upon the number of shares outstanding as of March 31, 1997.
Excludes (i) 1,089,222 shares of Common Stock issuable upon the exercise of
options outstanding which had a weighted average exercise price of $3.725 per
share and of which 421,813 shares were exercisable at a weighted average
exercise price of $4.966 per share and (ii) 849,116 shares of Common Stock
reserved for future issuance under the Company's Stock Option Plans. See
"Description of Capital Stock."
3
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Nine Months
Ended
For the Years Ended March 31, December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992 1996 1995
-------- --------- ---------- -------- ----------- ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue . . . . . . . . $472,102 $273,851 $ 122,348 $ 77,306 $ 99,031 $ 210,899 $ 340,804
Cost of Revenue . . . . 419,592 242,564 108,818 65,555 80,733 185,327 302,462
-------- -------- --------- --------- ---------- ----------- -----------
Gross Profit . . . . . 52,510 31,287 13,530 11,751 18,298 25,572 38,342
Selling, General and
Administrative
Expenses . . . . . . 42,995 24,259 10,675 10,272 11,116 21,594 30,632
Amortization of
Goodwill . . . . . . 1,265 594 0 0 0 530 932
Restructuring and Other
Charges . . . . . . . 5,353 0 0 0 0 0 0
-------- -------- --------- --------- ---------- ----------- -----------
Operating Income . . . 2,897 6,434 2,855 1,479 7,182 3,448 6,778
Interest (Expense)
Income . . . . . . . (8,063) (2,677) 4 (13) (123) (4,051) (5,717)
Loss on Dispositions of
Businesses . . . . . (4,632) 0 0 0 0 (6,230) 0
Litigation Settlement
and Related Costs . . 0 0 (847) 0 0 0 0
-------- -------- --------- --------- ---------- ----------- -----------
(Loss) Income Before
Income Taxes. . . . . (9,798) 3,757 2,012 1,466 7,059 (6,833) 1,061
(Benefit from)
Provision for
Income Taxes . . . . (3,463) 1,617 884 653 2,931 (2,412) 456
-------- -------- --------- --------- ---------- ----------- -----------
Net (Loss) Income . . . (6,335) 2,140 1,128 813 4,128 (4,421) 605
======== ======== ========= ========= ========== =========== ===========
(Loss) Earnings per
Common Share. . . . . (1.22) .45 .28 .20 .95 (.78) .11
======== ======== ========= ========= ========== =========== ===========
Weighted Average Common
Shares . . . . . . . 5,214 4,733 4,085 4,080 4,335 5,644 5,422
======== ======== ========= ========= ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: March 31, December 31,
-------------------------------------------------- ------------
1996 1995 1994 1993 1992 1996
------------------ ---------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Working Capital . . . . $ 57,531 $ 46,971 $ 22,629 $20,973 $20,722 $ 9,363
Total Assets . . . . . 170,313 146,581 56,337 37,943 42,179 68,982
Long-Term Debt . . . . 54,062 52,510 228 -0- 213 4,687
Total Shareholders'
Equity . . . . . . . . 31,849 34,140 26,680 25,338 24,970 27,915
</TABLE>
4
<PAGE> 6
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this
Prospectus, in connection with an investment in the Common Stock offered
hereby. This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the 1934 Act. The words "expect," "estimate," "anticipate," "predict,"
"believe" and similar expressions and variations thereof are intended to
identify forward-looking statements. Such statements appear in a number of
places in this Prospectus and include statements regarding the intent, belief
or current expectations of the Company, its directors or its officers with
respect to, among other things: (i) trends affecting the Company's financial
condition or results of operations; (ii) the Company's financing plans; (iii)
the Company's business strategies; and (iv) the declaration and payment of
dividends. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
The accompanying information contained in this Prospectus, including without
limitation the information set forth below, as well as under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as information contained in the Company's
1934 Act filings with the Commission, identify important factors that could
cause such differences.
DEPENDENCE UPON PRINCIPAL SUPPLIERS. Compaq, Hewlett-Packard and IBM
supplied approximately 19%, 17% and 3%, respectively, of the Company's
Southeastern region purchases for the nine months ended December 31, 1996. No
other supplier accounted for more than 3% of the Company's Southeastern region
purchases during this period. The Company's authorized dealership agreements
with Compaq, Hewlett-Packard and IBM are renewable annually and are subject to
termination by Compaq, Hewlett-Packard, IBM or the Company with or without cause
upon three months prior written notice, or immediately, under certain
circumstances. The non-renewal or termination by Compaq, Hewlett-Packard or IBM
of the Company's authorized dealer status would have a material adverse effect
on the Company's business. Additionally, any significant reduction in
promotional sales concessions by such suppliers could have a material adverse
effect on the Company's business and its ability to compete. See
"Business--Products and Principal Suppliers."
COMPETITION. The sale of microcomputer equipment, related products and
computer services is highly competitive. The Company competes with local,
regional, national and international resellers and distributors and mail order
providers of microcomputer equipment, related products and computer services,
including network integrators and retail stores. Many of the Company's
competitors are substantially larger, have more personnel, have substantially
greater financial and marketing resources, and operate within a larger
geographic area than the Company. The microcomputer distribution and support
industry continues to experience a significant amount of consolidation. In the
future, the Company may experience further competition from new market entrants
and possible alliances between existing competitors. Additionally, the
Company's recent reduction in size and geographic reach may make it a less
desirable supplier for some of its customers. As a result of competition among
microcomputer resellers, higher discounts given to large corporate customers
and other factors, the Company's gross margins have continued to decline over
the past several years, and there can be no assurance that such decreases will
not continue.
The Company is also increasingly competing with microcomputer
manufacturers which market through direct sales forces and distributors. More
aggressive competition by manufacturers of microcomputer products, such as
offering a full range of services in addition to products, could have a
material adverse effect on the Company's business. There can be no assurance
that the Company will be able to compete successfully with its competitors in
the future. See "Business--Competition."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL. The Company's future success
also depends largely on its ability to attract, hire, train and retain highly
qualified technical personnel to provide the Company's services.
5
<PAGE> 7
Competition for such personnel is intense. There can be no assurance that the
Company will be successful in attracting and retaining the technical personnel
it requires to conduct and expand its operations successfully and to
differentiate itself from its competition. The Company's results of operations
and growth prospects could be materially adversely affected if the Company were
unable to attract, hire, train and retain such qualified technical personnel.
See "Business--Employees."
MANAGEMENT OF GROWTH AND REDEPLOYMENT OF THE COMPANY'S RESOURCES. The
Company's future performance will depend in part on its availability to
redeploy its resources to its remaining core business and to finance and manage
any expansion of these operations. Additionally, the Company must adapt its
management information system to changes in its business, including those
related to the changing scope of its operations and the redirection of its
efforts to its core business. The failure of the Company to effectively
redeploy its resources, to manage growth effectively, or to successfully adapt
its management information systems, could have a material adverse effect upon
its business, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES. The Company has historically relied upon
credit lines and trade credit from its vendors to satisfy its capital needs.
The inability to obtain and retain such sources of capital could have an adverse
affect on the Company's business, financial condition and results of operations.
INVENTORY MANAGEMENT. The microcomputer distribution and support industry
is characterized by rapid product improvement and technological change
resulting in relatively short product life cycles and rapid product
obsolescence. While most of the inventory stocked by the Company is for
specific customer orders, inventory devaluation or obsolescence could have a
material adverse effect on the Company's operations and financial results.
Current industry practice among manufacturers is to provide price protection
intended to reduce the risk of inventory devaluation, although such policies
are subject to change at any time and there can by no assurance that such price
protection will be available to the Company in the future. Also, the Company
currently has the option of returning inventory to certain manufacturers and
distributors, subject to certain limitations. The amount of inventory that can
be returned to manufacturers without a restocking fee varies under the
Company's agreements and such return policies may provide only limited
protection against excess inventory. There can be no assurance that new
product developments will not have a material adverse effect on the value of
the Company's inventory or that the Company will successfully manage its
existing and future inventory. In addition, the Company stocks parts inventory
for its service business. Parts inventory is more likely to experience a
decrease in valuation as a result of technological change and obsolescence, and
there are no price protection practices offered by manufacturers with respect
to parts. See "Business--Products and Principal Suppliers."
PRODUCT SUPPLY. The computer distribution industry is dependent upon the
supply of products available from its vendors. The industry is characterized
by periods of severe product shortages due to vendors' difficulty in projecting
demand for certain products distributed by the Company. When such product
shortages occur, the Company typically receives an allocation of product from
the vendor. There can be no assurance that vendors will be able to maintain an
adequate supply of products to fulfill all of the Company's customer orders on
a timely basis. Failure to obtain adequate product supplies, if available to
competitors, could have an adverse affect on the Company's business, financial
condition, and results of operations.
VENDOR REBATES AND VOLUME DISCOUNTS. The Company's profitability has been
favorably affected by its ability to obtain rebates and volume discounts from
manufacturers and through aggregators and distributors. Because of the
divesture of the Company's Eastern, Midwestern and Western regions, the Company
has experienced a reduction in its volume discounts. Any additional reduction
or elimination of rebates, volume discount schedules or other marketing
programs offered by manufacturers and currently received by the Company could
have a material adverse effect on the Company's operations and financial
results. In particular, a reduction or elimination of rebates relating to
government customers could adversely effect the Company's ability to serve
government agencies in a highly competitive marketplace. See
"Business--Products and Principal Suppliers".
MANUFACTURER MARKET DEVELOPMENT FUNDS. Several manufacturers offer market
development funds, cooperative advertising and other promotional programs to
computer resellers. These funds are accounted for as reductions in selling,
general and administrative expenses, thereby increasing net income. While such
programs have been available to the Company in the past, there is no assurance
that these programs will be continued. Any discontinuation or material
reduction of these programs could have an adverse effect on the Company's
operations and financial results. See "Business--Products and Principal
Suppliers."
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE. The market for the
Company's products and services is characterized by rapidly changing technology
and frequent new product and service introductions. The development and
commercialization of new technologies and the introduction of new products can
render existing products and services obsolete or unmarketable. The Company's
business depends on its ability to attract and retain highly capable technical
personnel, to enhance existing services and to package newly developed and
introduced
6
<PAGE> 8
service offerings of its own with products and services from vendors, on a
timely and cost-effective basis, that keep pace with technological developments
and address increasingly sophisticated client requirements. There can be no
assurance that the Company will be successful in identifying and marketing
service enhancements or supporting new products and services introduced by
vendors that respond to technological change. In addition, the Company may
experience contractual or technical difficulties that could delay or prevent it
from successfully deploying new product and service offerings. See
"Business--Industry."
DEPENDENCE ON INDUSTRY ALLIANCES AND RELATIONSHIPS. The Company depends
in part upon its alliances and relationships with leading hardware and software
vendors, telecommunications carriers and Internet access service providers,
particularly Compaq, Hewlett-Packard and IBM. Any adverse change in these
relationships could have a materially adverse effect on the Company's results
of operations and financial condition while it seeks to establish alternative
relationships. Also, the Company will likely need to establish additional
alliances and relationships in order to keep pace with evolutions in technology
and enhance its service offerings, and there can be no assurance that such
additional alliances will be established. See "Business--Products and
Principal Suppliers."
DEPENDENCE ON TELESALES CENTER. The Company's product sales network is
dependent upon the Company's ability to protect its computer and
telecommunications equipment and the information stored in its Clearwater,
Florida, Telesales Center against damage from fire, hurricanes, power loss,
telecommunications failures, unauthorized intrusion, computer viruses and
disabling devices and similar events. There can be no assurance that an
unforeseen event will not result in a prolonged disruption of the Company's
product sales or that the Company can recover the full amount of its lost
revenues from its insurance policies for business interruption. See
"Business--Services."
SUBSTANTIAL RELIANCE ON KEY CLIENTS. The Company estimates that its
current top 25 clients accounted for approximately 29% of revenues in the
nine months ended December 31, 1996. No one customer accounted for more than 5%
of the Company's business during this period. The loss of any of its top 25
clients or any other large client or a significant reduction in purchases by
any of the top 25 clients could have a materially adverse effect on the
Company's results of operations. The Company's contracts to provide
professional services to its clients generally do not obligate the client to
purchase any minimum level of services and are terminable upon relatively short
notice, often 30 days. There can be no assurance that the Company's largest
clients will continue to enter into new contracts with the Company at current
levels of business, if at all, or that existing contracts will not be
terminated.
VOLATILITY OF STOCK PRICE. The market price of the Common Stock could be
subject to significant fluctuations in response to the Company's operating
results and other factors, and there can be no assurance that the market price
of the Common Stock will not decline below the current market price.
Developments in the high technology industries or changes in general economic
conditions could adversely affect the market price of the Common Stock. In
addition, the stock market has from time to time experienced extreme price and
volume volatility. These fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded and may adversely
affect the market price of the Common Stock. See "Price Range of Common
Stock."
DEPENDENCE ON SENIOR MANAGEMENT. The Company is largely dependent upon
its senior management team. The loss of the services of any member of its
senior management for any reason could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management."
DEPENDENCE ON THE ECONOMY OF THE SOUTHEASTERN UNITED STATES. Although the
Company still operates on a nationwide basis, the vast majority of its sales
are concentrated in the Southeastern United States (Florida, Alabama,
Mississippi, Louisiana, South Carolina, North Carolina, Tennessee, Georgia and
Arkansas.) Accordingly, the Company could be adversely affected by economic
downturns and other conditions that may occur from time to time in the region,
which may not significantly affect its more geographically diversified
competitors.
7
<PAGE> 9
CUSTOMER CREDIT EXPOSURE. The Company sells its products to an active
customer base. The Company's business could be adversely affected in the event
of the deterioration of the financial condition of its customers, resulting in
the customers' inability to repay the Company.
8
<PAGE> 10
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders.
PRICE RANGE OF COMMON STOCK
The Common Stock is included in the Nasdaq National Market under the
symbol "DFLX." The following table sets forth, for the periods indicated, the
high and low sales prices of the Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
----------- ------------
1995
<S> <C> <C> <C>
First Quarter (Beginning January 1, 1995) . . . . . . . . . . . . $ 10.125 $ 7.25
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 10.125 7.25
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 8.25 5.50
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 6.750 3.00
1996
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.125 $ 3.125
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 7.625 2.688
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 7.375 2.625
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 3.875 2.063
1997
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.125 $ 2.3125
Second Quarter (through April 14, 1997) . . . . . . . . . . . . . $ 3.3125 $ 2.625
</TABLE>
On April 14, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $3.3125 per share. As of March 31, 1997, there
were 529 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
After the consummation of the Offering, the Company does not intend in the
foreseeable future to declare or pay any cash dividends and intends to retain
earnings, if any, for the future operation and expansion of the Company's
business.
Any determination to declare or pay dividends in the future will be at the
discretion of the Company's Board of Directors and will depend upon the
Company's results of operations, financial condition, any contractual
restrictions, considerations imposed by applicable law and other factors deemed
relevant by the Board of Directors. The Company's current line of credit
prohibits the Company, under certain conditions, from making cash dividends in
excess of $1.0 million in any fiscal year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
9
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996. See "Principal and Selling Shareholders." This table
should be read in conjunction with the Consolidated Financial Statements and
Notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31,
1996
---------------
(In thousands)
<S> <C>
Current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,085
-------
Long-term debt, less current installments . . . . . . . . . . . . . . . . 4,687
-------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares
authorized, no shares issued . . . . . . . . . . . . . . . . . . . . --
Common Stock, no par value; 20,000,000 shares
authorized, 5,587,661 shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,443
Less: Loans Receivable for Exercise of Stock Options . . . . . . . . . . (194)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,269
Less: Treasury Stock at Cost; 113,901 . . . . . . . . . . . . . . . . . (603)
-------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 27,915
-------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . $60,687
=======
</TABLE>
10
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
Selected consolidated financial data is set forth below as of and for each
of the five fiscal years ended March 31, 1992, 1993, 1994, 1995 and 1996. The
financial data for periods prior to fiscal year 1996 have been restated to
include the results of operations and financial position of Sunland Computer
Services, Inc. ("Sunland"), which was acquired in August 1994 and accounted for
under the pooling of interests method. This data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Nine Months
Ended
For the Years Ended March 31, December 31,
-------------------------------------------------- ----------------------
1996 1995 1994 1993 1992 1996 1995
--------- --------- --------- --------- ---------- ----------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue . . . . . . . . . $472,102 $273,851 $122,348 $ 77,306 $ 99,031 $ 210,899 $ 340,804
Cost of Revenue . . . . . 419,592 242,564 108,818 65,555 80,733 185,327 302,462
-------- -------- -------- -------- --------- ---------- ---------
Gross Profit . . . . . . 52,510 31,287 13,530 11,751 18,298 25,572 38,342
Selling, General and
Administrative Expenses 42,995 24,259 10,675 10,272 11,116 21,594 30,632
Amortization of Goodwill 1,265 594 0 0 0 530 932
Restructuring and Other
Charges . . . . . . . . 5,353 0 0 0 0 0 0
-------- -------- -------- -------- --------- ---------- ---------
Operating Income . . . . 2,897 6,434 2,855 1,479 7,182 3,448 6,778
Interest (Expense) Income (8,063) (2,677) 4 (13) (123) (4,051) (5,717)
Loss on Dispositions of
Businesses . . . . . . (4,632) 0 0 0 0 (6,230) 0
Litigation Settlement and
Related Costs . . . . . 0 0 (847) 0 0 0 0
-------- -------- -------- -------- --------- ---------- ---------
Income (Loss) Before
Income Taxes . . . . . (9,798) 3,757 2,012 1,466 7,059 (6,833) 1,061
(Benefit from) Provision
for Income Taxes. . . . (3,463) 1,617 884 653 2,931 (2,412) 456
-------- -------- -------- -------- --------- ---------- ---------
Net Income (Loss) . . . (6,335) 2,140 1,128 813 4,128 (4,421) 605
======== ======== ======== ======== ========= ========== =========
(Loss) Earnings per Common
Share . . . . . . . . . (1.22) .45 .28 .20 .95 (0.78) .11
======== ======== ======== ======== ========= ========== =========
Weighted Average Common
Shares . . . . . . . . 5,214 4,733 4,085 4,080 4,335 5,644 5,422
======== ======== ======== ======== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: March 31, December 31,
-------------------------------------------------- --------------------
1996 1995 1994 1993 1992 1996
--------- --------- --------- --------- ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Working Capital . . . . . $ 57,531 $ 46,971 $ 22,629 $ 20,973 $ 20,722 $ 9,363
Total Assets . . . . . . 170,313 146,581 56,337 37,943 42,179 68,982
Long-Term Debt . . . . . 54,062 52,510 228 -0- 213 4,687
Total Shareholders' Equity 31,849 34,140 26,680 25,338 24,970 27,915
</TABLE>
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto, included elsewhere in this
Prospectus.
GENERAL
During 1996, the Company substantially changed the focus of its
operations. During the period 1994-1995, the Company acquired substantially
all of the assets of the following entities: Granite Computer Products, Inc.
("Granite"), Advantage Systems, Inc. ("Advantage"), Sunland, Hagen Computer
Systems, Inc. ("Hagen"), National Data Products, Inc. ("NDP") and Valtron
Technologies, Inc. ("Valtron"). During 1996, the Company divested its Eastern,
Midwestern, and Western regions in a series of transactions. Accordingly, all
of the acquired operations (except NDP), as well as the Company's original
operations in the Northeastern United States, have been divested. These
divestitures are a reversal of the Company's expansion strategy and resulted
from the Company's inability to successfully integrate these acquisitions in a
prompt and effective manner. Additionally, management determined that the
Company lacked adequate capital (or access to adequate capital) to support its
expanded infrastructure, to make necessary additional capital expenditures and
to service the significant indebtedness incurred in connection with the
acquisitions. Management concluded that it was necessary to sell these
operations to reduce the Company's indebtedness to an appropriate level. The
divestitures have reduced the Company's indebtedness and allowed it to focus on
its core competencies. In particular, management believed that the Company's
best opportunities were in the Southeastern United States and therefore
concentrated the Company's efforts in this region (originally the NDP operating
area). Additionally, the Company recently entered into an understanding with
Computer Plus, Inc. for the possible sale of its Kindergarten through 12th Grade
Education business, although there can be no assurance that this transaction
will be consummated. Management does not currently intend to make any other
significant divestitures.
The historical financial information contains financial information for
Granite, Advantage, Hagen, NDP and Valtron from the date of their respective
acquisitions. The Sunland acquisition, which was accounted for as a pooling of
interests, resulted in a restatement of all periods presented.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to total revenues of the items listed in the Company's
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Percentage of
Revenue
Nine Months
Percentage of Revenue Ended
Years ended March 31, December 31,
------------------------------------- -----------------------
1996 1995 1994 1996 1995
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Revenue . . . . . . . . . . . . . . . . 88.9 88.6 88.9 87.9 88.7
----- ----- ----- ----- -----
Gross Profit . . . . . . . . . . . . . . . . . 11.1 11.4 11.1 12.1 11.3
Selling General and Administrative Expenses . . 9.1 8.9 8.7 10.2 9.0
Amortization of Goodwill . . . . . . . . . . . 0.3 0.2 0.0 0.3 0.3
Restructuring and Other Charges . . . . . . . . 1.1 0.0 0.0 0.0 0.0
----- ----- ----- ----- -----
Operating (Loss) Income . . . . . . . . . . . . .6 2.3 2.4 1.6 2.0
Interest (Expense) Income, Net . . . . . . . . (1.7) (0.9) 0.0 (1.9) (1.7)
Loss on Dispositions of Business . . . . . . . (1.0) 0.0 0.0 (2.9) 0.0
Litigation Settlement and Related Costs . . . . 0.0 0.0 (0.7) 0.0 0.0
----- ----- ----- ----- -----
(Loss) Income Before Income Taxes . . . . . . . (2.1) 1.4 1.7 (3.2) 0.3
(Benefit from) Provision for Income Taxes . . . (0.7) 0.6 0.8 (1.1) 0.1
----- ----- ----- ----- -----
Net (Loss) Income . . . . . . . . . . . . . . . (1.4)% 0.8% 0.9% (2.1)% 0.2%
===== ===== ===== ===== =====
</TABLE>
12
<PAGE> 14
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
For the nine months ended December 31, 1996, revenues decreased by 38.1%
or $129,905,000, to $210,899,000, as compared with $340,804,000 for the nine
months ended December 31, 1995. The decrease in revenues is due to the sale of
the Western region operations on April 1, 1996 and the sale of the Midwestern
and Eastern region operations on October 4, 1996. On a comparable basis,
excluding revenues for the Western, Midwestern and Eastern regions, revenues
increased by 19.3% or $19,809,000, for the nine months ended December 31, 1996,
as compared with the nine months ended December 31, 1995.
For the nine months ended December 31, 1996, gross profit decreased by
33.3% or $12,770,000, to $25,572,000, as compared with $38,342,000 for the nine
months ended December 31, 1995. This decrease relates to the exclusion of
gross profit contribution for the Western region for the nine months ended
December 31, 1995. On a comparable basis, excluding the Western, Midwestern
and Eastern regions, gross profit increased by $4,469,000, or 34.5% for the
nine months ended December 31, 1996.
As a percentage of revenues, gross profit was 12.1% for the nine months
ended December 31, 1996, as compared to 11.3% for the nine months ended
December 31, 1995. The increase in gross profit as a percentage of sales in the
third quarter reflects an increase in services sales, which have a higher gross
margin. The increase in gross profit as a percentage of sales for the nine
months ended December 31, 1996, as compared with the prior year, is due to the
disposition of less profitable computer services business in the Western region
and the increase in computer services business in the Southeastern region.
Selling, general and administrative expenses decreased by 29.5% or
$9,038,000 to $21,594,000, as compared with $30,632,000 for the nine months
ended December 31, 1995. This decrease primarily relates to the sale of the
Western region on April 1, 1996 and the sale of the Midwestern and Eastern
regions on October 4, 1996.
As a percentage of revenues, selling, general and administrative expenses
were 10.2% for the nine months ended December 31, 1996, as compared with 9.0%
for the nine months ended December 31, 1995. The increase in selling, general
and administrative expenses as a percentage of revenues for the nine months
ended December 31, 1996, as compared with the prior year, reflects additional
administrative expenses associated with the sales of the Western, Midwestern
and Eastern regions, as well as the sale of the Valtron division (part of the
Western region operations). The increase also reflects a difference in
customer base and product mix in the Southeastern region, as compared to the
Midwestern and Eastern regions.
Amortization of goodwill decreased by 43.2% or $403,000 to $529,000, as
compared with $932,000 for the nine months ended December 31, 1995, due
primarily to the disposition of the Western region on April 1, 1996 and the
disposition of the Midwestern and Eastern regions on October 4, 1996.
Interest expense decreased by 29.1% or $1,665,000 to $4,052,000, as
compared to $5,716,000 for the nine months ended December 31, 1995. The
decrease primarily relates to reduced average borrowings resulting from the pay
down of debt from the proceeds of the sale of the Western, Midwestern and
Eastern regions.
The loss on disposition of business recorded in the nine months ended
December 31, 1996 represents the aggregate difference between the carrying
value of the net assets of the sale of the Midwestern and Eastern region
operations and the net realizable value of these net assets. The Company
recorded a loss of $6,230,000 on the disposition of these businesses.
SUBSEQUENT EVENTS
In March 1997, the Company settled certain litigation (See "Legal
Proceedings") with former shareholders of Sunland. This settlement will have
no material effect on the Company's financial position or results of operations.
13
<PAGE> 15
The Company has a proposed sale of its Kindergarten through 12th Grade
Education business for approximately $4.5 million. Sales for this business for
the nine months ended December 31, 1996 were approximately $14.5 million.
There can be no assurance that this sale will be consummated. If the sale is
consummated on terms and conditions presently being negotiated, it is not
anticipated that operating results would be adversely affected.
1996 COMPARED TO 1995
Revenues increased by 72.4% or $198,251,000, from $273,851,000 for the
fiscal year ended March 31, 1995 ("Fiscal 1995") to $472,102,000 for the fiscal
year ended March 31, 1996 ("Fiscal 1996"). The increase primarily related to a
full year of revenues contributed by the companies acquired during Fiscal 1995
of $190,000,000. Product revenues, which included desktop computers, printers,
displays, LAN products, software and other peripherals, accounted for
approximately 89.5% of total revenues and increased by $176,001,000 or 71.4%.
Service revenues, which include consulting, training, on-site maintenance and
project management, accounted for approximately 10.5% of total revenues and
increased by $22,250,000 or 81.4%.
Gross profit increased by 67.8% or $21,233,000, from $31,287,000 in Fiscal
1995 to $52,510,000 in Fiscal 1996. This increase during Fiscal 1996 primarily
related to the gross profit contribution provided by the acquired companies.
As a percentage of revenues, gross profit decreased to 11.1% in Fiscal 1996 as
compared to 11.4% in Fiscal 1995. This decrease reflects lower margins in the
computer services business due to incremental costs associated with the
continued investment in the development of the computer services business.
Hardware margins were consistent with those for Fiscal 1995.
Selling, general and administrative expenses increased by 77.2% or
$18,736,000, from $24,259,000 in Fiscal 1995 to $42,995,000 in Fiscal 1996,
primarily due to the recent acquisitions and increases in corporate
infrastructure to support the growth of the Company. As a percentage of
revenues, selling, general and administrative expenses increased from 8.9% in
Fiscal 1995 to 9.1% in Fiscal 1996. This increase was primarily due to the
acquisition of Valtron (part of the Western region's operations), which had
higher selling, general and administrative expenses as a percentage of
revenues.
Amortization of goodwill of $1,265,000 in Fiscal 1996, as compared to
$594,000 in Fiscal 1995, reflects a full year of amortization in Fiscal 1996,
whereas Fiscal 1995 includes a partial year of amortization due to the timing
of recent acquisitions.
Restructuring and other charges represented the estimated costs to enhance
the Company's operational and administrative efficiencies through
consolidations of operations and information systems. The charges related
primarily to dispositions and write-downs of inventory and spare parts of
$2,700,000, employee termination benefits of $1,200,000, write-offs of computer
systems of $1,000,000 and other charges of $400,000. Inventory write-offs
related primarily to a reduction in the net realizable value of inventory
product lines in which the Company no longer intends to conduct business.
Employee termination benefits related largely to one-time payments to former
Company executives resulting from the termination of their contracts and other
benefits to be provided to line employees terminated due to consolidation and
elimination of certain positions. Systems write-offs related primarily to the
replacement of older computer systems with new, upgraded systems.
Loss on dispositions of businesses represented the aggregate difference
between the carrying value of the net assets of the businesses to be sold and
the estimated net realizable value of these net assets. As described
previously, the Company sold substantially all the assets and transferred
substantially all the liabilities of its Western Region (including its Valtron
operation) subsequent to its Fiscal 1996 year-end. The Company recorded a loss
of approximately $4.6 million in Fiscal 1996 on the dispositions of these
businesses.
14
<PAGE> 16
Interest expense, net of interest income, was $8,064,000 in Fiscal 1996 as
compared to $2,677,000 in Fiscal 1995. The increase primarily related to
increased borrowings in connection with the acquisitions in Fiscal 1995 and
Fiscal 1996 and higher average interest rates during Fiscal 1996 relative to
Fiscal 1995.
1995 COMPARED TO 1994
Revenues increased by 123.8% or $151,502,000, from $122,349,000 for the
fiscal year ended March 31, 1994 ("Fiscal 1994") to $273,851,000 for Fiscal
1995. The increase primarily related to revenues contributed by the acquired
companies during Fiscal 1995 of $148,005,000. Product revenues, which included
desktop computers, printers, displays, LAN products, software and other
peripherals, accounted for over 90% of total revenues and increased by
$138,353,000 or 127.9%. Service revenues, which included consulting, training,
on-site maintenance and project management, accounted for approximately 10% of
total revenues and increased by $13,163,000 or 93.0%.
Gross profit increased by 131.2% or $17,757,000, from $13,530,000 in
Fiscal 1994 to $31,287,000 in Fiscal 1995. This increase primarily related to
the gross profit contribution provided by the acquired companies during Fiscal
1995. As a percentage of revenues, gross profit increased to 11.4% in Fiscal
1995 as compared to 11.1% in Fiscal 1994. This increase reflected slight
improvement in hardware margins, partially offsetting lower margins in the
computer services business due to incremental costs associated with the
continued investment in the development of a nationwide computer services
business.
Selling, general and administrative expenses increased by 127.2% or
$13,584,000, from $10,675,000 in Fiscal 1994 to $24,259,000 in Fiscal 1995,
primarily due to the recent acquisitions and increases in corporate
infrastructure to support the Company's growth. As a percentage of revenues,
selling, general and administrative expenses increased from 8.7% in Fiscal 1994
to 8.8% in Fiscal 1995.
Amortization of goodwill of $594,000 in Fiscal 1995 reflects amortization
of the excess of purchase price over net assets acquired for the related
acquisitions. There was no amortization of goodwill in Fiscal 1994.
Interest (expense) income, net was ($2,677,000) in Fiscal 1995 as compared
to $4,800 in Fiscal 1994. The net increase in expense as compared to income in
the prior fiscal year primarily related to the use of funds available for
investment and increased borrowings in connection with the acquisitions in
Fiscal 1995.
Litigation settlement and related costs in Fiscal 1994 represented
expenses associated with the settlement of the class action lawsuit. See Note
15 to the Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents unaudited quarterly operating results for the
Company for the four calendar quarters of each of 1995 and 1996. In the
opinion of management, this information has been prepared on the same basis as
the audited Consolidated Financial Statements included in this Prospectus and
includes all adjustments (consisting of only normal recurring accruals) that
management considers necessary for a fair presentation of the results for such
periods. Such quarterly results are not necessarily indicative of the results
of operations for any future period.
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------------------------------------
1995 1996
--------------------------------------------- ---------------------------------------------
March 31, June 30, Sept.30, Dec. 31, March 31, June 30, Sept. 30, Dec.31,
--------- -------- -------- -------- --------- -------- --------- -------
(in thousands, except for per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue . . . . . .$ 70,743 $110,325 $107,844 $122,635 $ 131,298 $ 86,031 $ 83,875 $40,993
Gross profit . . . 11,051 11,900 12,774 13,674 14,162 10,369 9,531 5,672
Net income . . . . 272 309 142 153 (6,999) (534) (4,145) 257
Net earnings per
share . . . . . .$ .05 $ .06 $ .03 $ .03 $ (1.34) $ (.10) $ (.75) $ .04
</TABLE>
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements increased significantly as a result of the
Company's acquisitions during the period 1994-1996. A significant debt burden
was placed upon the Company in connection with these acquisitions, and
management determined that the Company lacked adequate capital (or access to
adequate capital) to support its expanded infrastructure, to make necessary
capital expenditures and to service its debt. Accordingly, management
concluded that it was necessary to divest the Company's Eastern, Midwestern and
Western regions. As a result of the sale of its Eastern, Midwestern, and
Western Regions, the bulk of the Company's cash flow in 1996 resulted from
proceeds of these sales.
Historically, IBM Credit Corporation was the Company's primary lender.
During 1996, the Company replaced IBM Credit Corporation with NationsBank, N.A.
(South) and NationsCredit Commercial Corporation of America (the "Line of
Credit"). Currently, the Line of Credit provides that the Company may borrow
up to $38.0 million, at an interest rate of LIBOR plus 2 1/2% per annum. This
Line of Credit has an initial term through December 17, 1998. Borrowings under
the Line of Credit are collateralized by all of the Company's inventory and
accounts receivable. Currently, approximately $23.6 million is outstanding
under the Line of Credit.
The Line of Credit contains certain financial covenants, including
covenants requiring the Company to maintain a minimum tangible net worth,
maintain a minimum interest coverage ratio, maintain various minimum financial
ratios and limit the amount of capital expenditures. In addition, the Line of
Credit prohibits the Company, under certain conditions, from making cash
dividends and distributions and from redeeming shares of its capital stock for
cash in excess of $1,000,000 in any fiscal year.
Although there can be no assurance that the proposed sale of the Company's
Kindergarten through 12th Grade Education business to Computer Plus will be
consummated, if the sale is effected, the Company intends to use the bulk of
the proceeds (approximately $4.5 million) to further reduce the balance due
under the Line of Credit. It is expected that the Company will retain
approximately $2.0 million in accounts receivable. Additionally, approximately
$5.0 million is currently being held in escrow pursuant to the agreement
regarding the sale of the Company's Midwestern and Eastern region. The
majority of the funds released to the Company from such escrow, if any, are
also expected to be used to decrease amounts outstanding under the Line of
Credit. The determination of the amount of funds to be released to the
Company, if any, is currently scheduled to be completed on April 30, 1997.
During Fiscal 1996 and Fiscal 1997, the Company's Southeast Division
invested approximately $1.2 million and $827,000, respectively, for capital
equipment expenditures. The majority of the capital expenditures were for
computer equipment and software. For the year ending March 31, 1998, the
Company expects its capital expenditures to be approximately $8.5 million, with
approximately $7.5 million to be spent on a new 73,000 square foot facility
that will allow the Company to consolidate all of its Clearwater-based
personnel into one facility and provide space for additional expansion. The
Company is currently negotiating with developers for the construction of this
new facility and is in the process of seeking appropriate mortgage financing
for construction.
The Company believes that the cash flow from operations, the Line of
Credit and trade credit from its vendors will be sufficient for its
requirements through the expiration of the term of the Line of Credit in
December 1998.
IMPACT OF INFLATION
The Company has not been adversely affected by inflation as technological
advances and competition within the microcomputer industry have generally
caused prices of the products sold by the Company to decline. Management
believes that any price increases could be passed onto its customers as prices
charged by the Company are not set by long-term contracts.
16
<PAGE> 18
NEW-ACCOUNTING PRONOUNCEMENTS
In Fiscal 1997, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 121, Accounting For the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of. The adoption of this standard had no
effect on the Company's financial statements.
In Fiscal 1997, the Company elected to continue to apply the prior
accounting rules by adopting SFAS No. 123, Accounting for Stock-Based
Compensation. Additional disclosures relating to the pro forma net income and
earnings per share will be required in the Company's annual financial
statements for Fiscal 1997.
The effect, if any, of recently issued SFAS No. 128, Earnings Per Share
and SFAS No. 129, Disclosure of Information About Capital Structure, is not
presently known.
17
<PAGE> 19
BUSINESS
GENERAL
The Company, established in 1976, is a direct marketer of microcomputer
equipment, related products and computer services. The Company markets
equipment and products supplied primarily by major manufacturers, including
Compaq, Hewlett-Packard, IBM and Toshiba. The Company's customers are business
organizations with diverse desktop computing requirements located throughout
the United States, with a primary concentration in the Southeast. The Company
provides its customers with single-source, value-added desktop computing
solutions and services, including product sales, system integration, network
installations, help desk support, training, consultation services and equipment
repair maintenance. The Company is also a certified Novell Education Center
and a Microsoft Authorized Technical Education Center capable of providing
on-site or off-site manufacturer authorized education.
The computer services business continues to be the fastest growing segment
of the Company's operations and includes dedicated on-site remedial and
nonremedial maintenance support to the Company's customers through the
Company's Mainsite(TM) program, field service repairs and maintenance, system
configuration, asset management, authorized training centers, LAN/WAN
consulting and system integration, help desk support through its toll-free
support line for all computer and computer related problems, and FlexStaff,
which provides dedicated high-end technical support on a contract basis to
customers for short and long-term requirements. In addition, the Company is a
member of a national network of service partners to enhance its ability to
deliver nationwide, on-site services to its customers.
The Company focuses its efforts on customer service. The Company conducts
ongoing training for its associates, monitors response and repair time
regarding customer requests and concerns, measures delivery time for services
and conducts customer surveys to determine the level of customer satisfaction.
Over the past twelve months, the Company has divested its Eastern (New
Jersey-based), Midwestern (Chicago-based), and Western (California- and
Arizona-based) regions in a series of transactions. Additionally, the Company
has entered into an understanding with Computer Plus, Inc. for the possible
sale of its Kindergarten through 12th Grade Education business. These
divestitures are a reversal of the Company's expansion strategy implemented in
1994 and 1995. The Company was not able to successfully integrate these
acquisitions promptly and effectively. Additionally, management determined
that the Company lacked adequate capital to support its expanded
infrastructure, to make necessary additional capital expenditures and to
service the significant indebtedness incurred in connection with the
acquisitions. Management concluded that it was necessary to reduce the burden
of this indebtedness. The divestitures have reduced the Company's indebtedness
and allowed it to focus on its core competencies. In particular, management
believed that the Company's best opportunities were in the Southeastern United
States and therefore concentrated the Company's efforts on this region. As a
result, the Company disposed of its other operations, including its Eastern
region (the original business of the Company) in 1996.
The Company has offices in Tallahassee, Maitland (Orlando), Hollywood
(Miami-Ft. Lauderdale) and Clearwater (Tampa Bay), Florida, as well as in
Charlotte, North Carolina, Memphis, Tennessee and Smyrna (Atlanta), Georgia.
The Company's headquarters are located at 2145 Calumet Street, Clearwater,
Florida 34625 and its telephone number is (813) 562-2200.
INDUSTRY OVERVIEW
Since 1988, the microcomputer distribution and support industry's rate of
revenue growth has been affected by the introduction of many lines of low
priced clones, significant price reductions by major competitors, increasing
support costs and complexity and the introduction of networking technology.
The Company believes the microcomputer distribution and support industry does
not function along the traditional supply and demand principle, as in many
cases product shortages result in lower pricing to customers. The industry has
been consolidating since the early 1990's, as larger resellers acquire smaller,
strategically-located resellers to increase their market share.
18
<PAGE> 20
Dataquest reports that the demand for microcomputer products and related
services are expected to grow approximately 10-13% from 1996 to the year 2000.
Dataquest estimates that approximately 80% of the five-year cost of businesses
owning personal computers is in the maintenance, training and support, not the
hardware and software acquisition costs. Consequently, the Company believes
future growth will come not only from a continuing demand for computer
hardware, but also from an increasing demand for related computer services,
such as internet and intranet applications, as well as for integration services
and training.
MARKETING AND SALES STRATEGY
The Company's objective is to continue as a direct marketer of
microcomputer equipment, related products and computer services, with a primary
focus on the Southeastern United States. The key elements of the Company's
marketing and sales strategy in seeking to achieve this objective include:
Focus on Medium-to-Large Organizations and Government Agencies. The
Company's marketing focus is primarily on medium-to-large organizations and
government agencies. The Company believes that these customers are
dependent on their suppliers to provide, in addition to competitive pricing,
a consultative approach to their microcomputer equipment needs. This
approach addresses purchasing, software selection, compatibility,
maintenance, support, networking, training and obsolescence. The Company
utilizes this approach, seeking to help customers analyze costs, improve
user satisfaction and maintain administrative control over their desktop
computer equipment. The Company markets solutions to both existing and
potential customers with the objective of becoming the customers' "preferred
provider" of desktop microcomputer services and product acquisition.
Target Client Needs. The Company may benefit from its clients'
needs, particularly in the areas of internet-working, client/server
applications, and network management through targeted telemarketing,
strategic alliances with major personal computer and network vendors,
client referrals and promotional programs that offer hardware and service
tie-ins. The need to outsource for technical expertise in these areas may
provide growth for the Company and offer cost savings, improved flexibility
and high-end user satisfaction for its customers.
Develop Internal Information Systems. The Company believes that its
ability to provide accurate and timely information to customers is integral
to the success of its marketing efforts. Accordingly, the Company is
continuing to develop its internal information systems. These internal
information systems are intended to provide members of the Company's
marketing and sales staff, as well as customers, with current information
regarding the products offered for sale, including information on
availability, pricing, order status and purchasing requests. See
"Business--Management Information Systems."
Utilize Various Marketing Strategies. To market its products and
services, the Company utilizes telemarketing, strategic alliances with
major vendors, customer referrals and various promotional activities. The
Company also makes joint sales presentations with certain of its major
vendors to existing and prospective customers.
PRODUCTS AND PRINCIPAL SUPPLIERS
The Company offers over 50,000 PC/Networking hardware and software SKU's
from over 500 vendors, including Compaq, Hewlett-Packard, IBM, Toshiba,
Microsoft and Novell. Products include desktop and laptop PCs, servers,
monitors, peripherals, operating system and application software and individual
components. The Company continually evaluates new products from existing
vendors and seeks out new products and new vendors, as technology develops and
needs arise.
Sales of Compaq, Hewlett-Packard and IBM products constituted
approximately 18%, 16% and 5% of the Company's Southeastern region revenue
during Fiscal 1997. No other manufacturer's products accounted for more
19
<PAGE> 21
than 5% of the Company's revenues. No one customer accounted for more than 10%
of the Company's revenues during Fiscal 1997.
The Company receives discretionary subsidies, including rebates and volume
discounts, from certain manufacturers and through aggregators and distributors
to promote sales and support activities relating to their products. Some of
these subsidies have been used to expand the array of sales and support
services and to reimburse the Company for, and to accelerate its expansion
into, additional areas relating to those manufacturers' products and services.
The loss of a significant amount of rebates, volume discounts or other
marketing programs offered by manufacturers that result in the reduction or
elimination of subsidies currently received by the Company could have a
material adverse effect on the Company's operations and financial results. In
particular, a reduction or elimination of rebates relating to government
customers could adversely affect the Company's ability to serve government
agencies in a highly competitive marketplace. See "Risk Factors-Vendor Rebates
and Volume Discounts" and "--Manufacturer Market Development Funds."
The Company's authorized dealership agreements may be terminated by the
manufacturer or the Company without cause upon notice with periods ranging from
30 to 90 days, and immediately, under certain circumstances. In addition,
while each agreement is generally subject to renewal on an annual basis, there
can be no assurance that such agreements will be renewed. The termination or
non-renewal of the Compaq, Hewlett-Packard or IBM dealership agreements would
have a material adverse effect on the Company's business. The Company believes
that its relationships with its major suppliers are good. See "Risk
Factors-Dependence on Principal Suppliers."
The microcomputer distribution and support industry is characterized by
rapid product improvement and technological change resulting in relatively
short product life cycles and rapid product obsolescence. While most of the
inventory stocked by the Company is for specific customer orders, inventory
devaluation (whether as a result of vendor price reductions or otherwise) or
obsolescence is a potential problem for the Company. Current industry practice
among manufacturers is to provide price protection intended to reduce the risk
of devaluation, although such policies are subject to change at any time and
there can be no assurance that such price protection will be available to the
Company in the future. The Company currently has in place stock rotation
arrangements with many of its vendors, enabling it to return all or a part of
inventory items purchased within a designated period. The Company also stocks
parts inventory for its service business, which is not subject to price
protection and stock rotation protection. This inventory may be especially
susceptible to technological changes and obsolescence. See "Risk
Factors-Inventory Management."
SALES ACTIVITIES AND ORDER FULFILLMENT
The Company is dependent, in large part, on the account executives that
locate and service customers via telephone communications. These account
executives develop a customer base through a combination of outbound calling
and direct mail. The Company's account executives are well-trained, product
knowledgeable and motivated to maximize sales and customer service. These
account executives are organized in teams to provide a customer with several
knowledgeable representatives. The account representatives strive to have an
individual answer telephone calls and to avoid automated telephone responses.
The teams are geographically segmented and are responsible for developing
sales for their territory. The account executives utilize on-line computers to
retrieve information regarding product characteristics, cost and availability
and to enter customer orders. At the time of order entry, the account
executive has access to information from four major suppliers and the Company's
own warehouse. Processing of the order is performed immediately following a
credit check and either a "pick ticket" is generated for products in the
Company's warehouse or electronic purchase orders are created for distribution
orders. The Company ships product via UPS, Federal Express, common carrier or
any other acceptable manner requested by the customer. The customer is billed
either at the time the order ships from the Company's warehouse or at the time
an electronic invoice is received from its distributor for orders drop shipped
directly to its customer.
20
<PAGE> 22
The Company's account executives are compensated based upon the amount of
gross profit generated. The account executives have the authority to negotiate
and adjust prices for products, provided that the account executives sell at a
price that meets established guidelines. The account executives can achieve
relatively high compensation levels. There can be no assurance that the
Company can continue to attract and retain qualified account executives to
assist in expanding the business.
SERVICES
The Company provides services to support product sales. Services are
offered on a per PC or complete project basis. Some of the services offered by
the Company are:
Technology Management Services. The Company offers contracts to
customers for both on-site ("MainSite(TM)") and off-site product
maintenance. These maintenance contracts generally require the Company to
maintain microcomputer equipment at the customer's location during regular
business hours. Most maintenance contracts are renewable annually. In
addition, the Company provides authorized warranty service and repair for
equipment sold by it and by others.
FlexStaff. The Company offers to its customers its resources for
on-site technical consulting assignments. These contracts are generally
for less than one year and provide customers with resources to meet their
internal technical needs such as project management, application
development, hardware maintenance, help desk, network design and
implementation and systems integration.
Training. The Company offers authorized training for Microsoft and
Novell at both customer sites and its regional training locations. All
trainers must be certified instructors prior to teaching any course.
Instructors also develop applications with the products they are
authorized to teach.
Professional Services. The Company provides professional consulting
services to help customers define, design, implement and support local and
wide-area networks ("LAN/WAN"). The Company professionals and the
customer develop a needs analysis and agree upon an implementation plan
for the LAN/WAN systems and then work together in implementing and
supporting the LAN/WAN systems.
COMPETITION
The microcomputer distribution and support industry is highly competitive.
Distribution has evolved from manufacturers selling through direct sales forces
to sales by manufacturers to wholesalers, resellers and value-added resellers.
Competition, especially the pressure on pricing, has resulted in industry
consolidation. In response to continuing competitive pressures, including
specific price pressure from the direct telemarketing and mail order
distribution channels, the microcomputer distribution channel is currently
undergoing segmentation into value-added resellers that emphasize advanced
systems together with service and support for business networks, as compared to
computer "superstores" who offer retail purchasers a relatively low cost, low
service alternative and limited service. Certain "superstores" have expanded
their marketing efforts to target segments of the Company's customer base,
which could have a material adverse impact on the Company's business.
The Company believes that competition in its industry is based upon a
combination of price and quality of service. The Company's recent reduction in
geographic reach may make the Company a less attractive supplier to certain
customers. Among the Company's most significant competitors are Entex,
Vanstar, Compucom, Comp USA, and Pomeroy.
The Company competes for sales with local, national and international
distributors and resellers. Many of these resellers may sell products at lower
prices than the Company. Many of the Company's competitors are substantially
larger, have more personnel, materially greater financial and marketing
resources, and operate within a larger geographic area than the Company.
21
<PAGE> 23
The Company believes that the growth rate of the market for microcomputer
equipment, related products and computer services has decreased in recent
years. The Company believes that this will create further competitive
pressures within the industry. There can be no assurance that the Company will
continue to successfully compete. See "Risk Factors--Competition."
CUSTOMERS
The Company's target customers are middle to large sized entities and
governments located primarily in the Southeastern United States. The Company's
customers typically have between 200 and 1,000 workstations and can benefit
from the full range of the Company's services. The Company has over 4,000
customers in diverse industries, including healthcare, utilities and
manufacturing.
MANAGEMENT INFORMATION SYSTEMS
The Company uses proprietary, real-time management information systems,
which centralize key functions of management and provide real-time access to
inventory levels of its key suppliers. The Company's just-in-time inventory
process allows it to minimize its investment in inventory, reduce inventory
discrepancies and the risk of obsolescence, while meeting customer needs. The
Company expects to introduce an Internet order entry system by July 1997, which
will allow customers access to order and inventory information over the World
Wide Web.
The Company relies upon the accuracy and proper utilization of its
management information system to provide timely distribution services, manage
its inventory and track its financial information. To manage its growth, the
Company is continually implementing changes and modifications to its existing
systems. The Company expects that it will need to regularly make capital
expenditures to upgrade and modify its management information system, including
software and hardware, as the Company grows and the needs of its business
change. There can be no assurance that the Company will predict all of the
demands which its expanding operations will place on its management information
systems. The occurrence of a significant system failure or the Company's
failure to expand or successfully implement its systems could have a materially
adverse effect on the Company's financial results and business. See "Risk
Factors--Management of Growth and Redeployment of the Company's Resources."
PERSONNEL
On March 31, 1997, the Company employed 377 full-time personnel of which
166 are responsible for marketing and sales, 135 for services, 26 for
operations, 20 for finance, 10 for management information systems and 20 for
administrative functions. None of the Company's personnel is represented by a
union, and the Company believes its relationships with its personnel to be
satisfactory.
The Company needs to locate, hire, train and retain a number of highly
qualified technical personnel. Competition for the services of such
individuals is intense. Although the Company has been successful in locating,
hiring, training, and retaining such personnel to date, there can be no
assurance that it will continue to successfully do so in the future. See "Risk
Factors--Competitive Market For Technical Personnel."
22
<PAGE> 24
PROPERTIES
The Company's corporate headquarters and eastern regional office are
located in Clearwater, Florida. The Company owns land and property in
Clearwater, Florida. The buildings owned are comprised of 44,400 square feet
and are used for office and warehouse space. Mortgages on the property are due
on January 10, 2000, bearing interest at the rate of prime plus 1% per annum.
The outstanding balance of such mortgages as of March 31, 1997 was $1,099,930.
The following office locations are currently leased by the Company:
<TABLE>
<CAPTION>
Regional Office Square Footage Principal Use Expiration Date
--------------- -------------- ------------- ---------------
<S> <C> <C> <C>
Tallahassee, FL 3,173 Sales/Service September 30, 1999
Hollywood, FL 4,500 Sales/Service May 31, 1998
Maitland, FL 7,103 Sales/Service December 14, 2001
Memphis, TN* 1,200 Sales/Service month-to-month
Smyrna, GA 6,426 Sales/Service January 31, 2001
Charlotte, NC* 240 Sales/Service month-to-month
</TABLE>
* In the event the Company's Kindergarten through 12th Grade Education
business is sold, the Memphis and Charlotte offices are expected to be
part of the assets transferred. The Company also leases space in
Nashville, Tennessee which relates to a closed office. The term of this
lease extends through May, 1998 and the Company is currently seeking to
sublet this space.
Generally, the Company is responsible for all real estate taxes,
insurance, utilities and maintenance expenses payable with respect to these
leased premises.
LEGAL PROCEEDINGS
In 1996, the Company was named as defendant in a suit filed in state court
in Maricopa County, Arizona (the "Lawsuit"), by former shareholders
(collectively, the "Plaintiffs") of Sunland. The Plaintiffs alleged that the
Company breached a registration rights agreement requiring the Company to
register with the Commission shares of its common stock issued to the
Plaintiffs in connection with the Company's acquisition of all of Sunland's
outstanding capital stock pursuant to a Stock Purchase Agreement dated August
19, 1994.
In March, 1997, the Company and the Plaintiffs agreed to settle the
Lawsuit pursuant to a Settlement Agreement and Release (the "Settlement
Agreement"). In exchange for the voluntary dismissal of the Lawsuit with
prejudice by the Plaintiffs, the Settlement Agreement required the Company to
(i) issue 270,000 shares of common stock (the "Shares") to the Plaintiffs, (ii)
file a registration statement with the Commission covering the Shares on or
before April 15, 1997, and use reasonable efforts to have such registration
statement declared effective as soon as possible, (iii) pay $300,000 to the
Plaintiffs and (iv) forgive indebtedness owed to the Company by certain of the
Plaintiffs in the amount of $101,010.30. The Settlement Agreement also
included a mutual release of claims among the parties.
In August 1996, the Company and Richard C. Rose were named as defendants
in a suit filed in state court in New Jersey, by Gordon McLenithan, a former
executive officer of the Company. Mr. McLenithan alleges that the Company
failed to pay him an amount allegedly owed to Mr. McLenithan upon a change in
control of the Company. Mr. McLenithan also charges Mr. Rose with defamation
and interference with contractual relations. The lawsuit is in the initial
stages of litigation and the Company has denied Mr. McLenithan's allegations and
intends to vigorously contest the suit.
In November 1996, the Company was named in a suit filed in state court in
New Jersey, by a former employee of the Company. The former employee seeks
damages for breach of the duty of good faith and fair dealing, and for sex
discrimination in violation of the New Jersey Law Against Discrimination,
alleging that the Company terminated her from her position as an Account
Executive on or about January 15, 1996 to avoid paying her commissions to which
she was entitled under her Compensation Plan, and because of her gender. The
lawsuit is in the initial stages of litigation. The Company has denied the
former employee's allegations and intends to vigorously contest the suit.
In September 1996, the Company was named as a defendant in a suit filed in
state court in New Jersey by a former salesman of the Company. The plaintiff
alleges a breach of his commission agreement and constructive discharge. The
case is in the initial stages of litigation and the Company denies the
plaintiff's allegations.
23
<PAGE> 25
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to each
person who is currently a director or executive officer of the Company.
<TABLE>
<CAPTION>
Year First
Became a
Name Position(s) Age Director
---- ----------- --- --------
<S> <C> <C> <C>
Richard C. Rose . . . . . . . . Chief Executive Officer and Director, Class V 49 1984
Anthony G. Lembo . . . . . . . President, Chief Operating Officer, Chief 44 1996
Financial Officer and Director, Class II
Philip Doganiero . . . . . . . Chairman & Director, Class III 40 1995
W. Keith Schilit . . . . . . . Director, Class IV 42 1997
Barry M. Alpert . . . . . . . . Director, Class V 55 1997
</TABLE>
Richard C. Rose has served as Chief Executive Officer of the Company since
April 1990. Mr. Rose has served as a director of the Company since October
1984 and Chairman of the Board of Directors from September 1993 to December
1996. Prior to April 1990, Mr. Rose served as President of the Company (April
1987 - September 1993), Chief Operating Officer of the Company (July 1986 -
April 1990) and as Vice President - Sales and Marketing of the Company (July
1984 - April 1987).
Anthony G. Lembo has served as President, Chief Operating Officer, Chief
Financial Officer and a director of the Company since October 1996. Prior to
October 1996, Mr. Lembo served as Vice President of the Company (1995 - 1996).
Mr. Lembo's previous experience includes nine years as Chief Operating Officer
of NDP, prior to the Company's acquisition of NDP (1986 - 1995).
Philip Doganiero has served as a director of the Company since January
1995 and as Chairman of the Board of Directors since December 1996. Prior to
December 1996, Mr. Doganiero served as President of the Company (April 1996 -
December 1996) and Co-President of the Company (January 1995 - April 1996),
following the Company's acquisition of NDP. Prior to 1995, Mr. Doganiero was a
founder and President of NDP (1972-1995).
W. Keith Schilit has served as a director of the Company beginning in
April 1997. Dr. Schilit is a professor of management and the director of the
Program in Entrepreneurship at the University of South Florida, Tampa, Florida,
having served on the faculty of the university since 1985. Dr. Schilit, who
holds an MBA and Ph.D. in strategic planning, is also an author, consultant and
lecturer. He has been the principal owner of Catalyst Ventures (and its
predecessors), a business consulting firm, since before 1982. From 1982 until
1985, he was on the faculty of Syracuse University. From 1979 until 1982, he
was on the faculty of University of Maryland. He also is a director of Chico's
FAS, Inc. and ASM Fund, Inc.
Barry M. Alpert has served as a director of the Company since April 1997.
Mr. Alpert has served as Managing Director, Investment Banking for Raymond
James & Associates, Inc. since January 1997 and as President and Chief
Executive Officer of Alpert Financial Group, Inc. (a family investment holding
company) since 1989. Prior to January 1997, Mr. Alpert served as Vice
President, and as Senior Vice President - Investment Banking for Robert W.
Baird & Co. Incorporated (1991 - 1997). From 1989 until 1993, Mr. Alpert
served as Vice Chairman of Colony Bank. Mr. Alpert served from 1989 until 1991
as Vice Chairman and director of Western Reserve Life Assurance Co. of Ohio and
as President of Pioneer Western Corporation. Prior to 1989, Mr. Alpert served
as President and Chief Executive Officer of United Insurance Companies, Inc.
(1988-1989); Chairman of the Board
24
<PAGE> 26
of Directors, President and Chief Executive Officer of Home Life Financial
Assurance Corporation (1982-1988); Chairman of the Board of Directors,
President and Chief Executive Officer of Orange State Life Insurance Company
(1977-1989) and Chairman of the Board of Directors of Life Savings Bank
(1979-1983).
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the terms of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") and Bylaws, the Board of Directors has the
power to set the number of directors (but not more than 12 members) by
resolution adopted by the directors of the Company. The directors are divided
into five classes, as nearly equal in number as possible. Each director in a
particular class is elected to serve a five-year term or until his or her
successor is duly elected and qualified. The classes are staggered so that
their terms expire in successive years. Currently, the number of directors is
set at five. The Company intends to maintain at all times at least two
independent directors on its Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Company has established an Audit Committee composed
of Messrs. Schilit and Alpert. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plan and results of the audit engagement,
approves professional services provided by the accountants, reviews the
independence of the accountants, considers the range of audit and non-audit
fees, and reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The Company has established a Compensation
Committee, consisting of Messrs. Schilit and Alpert. The Compensation
Committee determines the compensation of the Company's executive officers and
sets financial targets to be used in determining executive bonuses.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid $12,000 annually.
All directors receive reimbursement for reasonable out-of-pocket expenses
incurred in connection with meetings of the Board of Directors. No director
who is an employee of the Company receives separate compensation for services
rendered as a director.
25
<PAGE> 27
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information concerning the
compensation earned during fiscal years 1995, 1996 and 1997 by the Company's
Chief Executive Officer and each of the other executive officers of the Company
whose total annual salary and bonus for Fiscal 1997 exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ---------------------------- -------
Other Securities
Name Annual Restricted Under- All Other
and Compen- Stock lying LTIP Compen-
Principal Fiscal sation Awards(s)(2) Options Payouts sation
Position Year Salary($)(1) Bonus($) ($) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard C. Rose
Chief Executive 1995 $ 329,400 $254,416 ---- ---- ---- ---- $ 1,913 (3)
Officer 1996 $ 329,400 ---- ---- $ 31,525 ---- ---- $153,550 (4)
1997 $ 354,600 ---- ---- ---- 97,022 ---- $ 380 (3)
Anthony G. Lembo
President, Chief
Operating Officer 1995 ---- ---- ---- ---- ---- ---- ----
and Chief Financial 1996 $ 125,000 ---- ---- ---- ---- ---- $ 1,100 (3)
Officer 1997 $ 175,000 ---- ---- ---- ---- ---- $ 914 (3)
Philip Doganiero
Chairman of the Board 1995 ---- ---- ---- ---- ---- ---- ----
of Directors 1996 $ 225,000 ---- ---- ---- ---- ---- $ 2,187
1997 $ 103,800 (5) ---- $15,000(5) ---- ---- ---- $ 1,052 (3)
- -----------
</TABLE>
(1) Includes deferred compensation.
(2) Represents the value of the vested portion of the stock grants issued to
who was granted 27,022 shares of Common stock in April 1995, pursuant to
a restricted stock agreement (the "Agreement"). Pursuant to the terms of
the Agreement, the shares are subject to certain restrictions which expire
on March 31, 1998. The restrictions lapse equally each year for the term
of the grant and with respect to all shares in the event of termination of
employment for any reason other than "cause," voluntary termination for
"good reason" and death or disability, as defined in the Agreement. If at
any time prior to the expiration of the restriction period, employment is
terminated "for cause" or any other reason not provided for under the
Agreement, any such shares still subject to restrictions, as previously
described, shall be transferred to the Company, without monetary
consideration.
(3) All other compensation represents 401(k) matching contributions.
(4) Includes a one-time lump sum distribution to Mr. Rose of $152,000 on
April 1, 1995.
(5) Mr. Doganiero voluntarily reduced his base salary to $1.00 effective
October 1, 1996. However, he is entitled to an annual base salary of
$225,000 under the terms of his employment agreement. The Company
pays premiums for a split dollar key-man life insurance policy, for which
Mr. Doganiero's estate is the beneficiary.
26
<PAGE> 28
OPTION GRANTS IN FISCAL 1997
The following table contains information concerning the grant of
stock options pursuant to the Company's several stock option plans to the Named
Executive Officers during Fiscal 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Individual Grants
- -----------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Number of Assumed Annual Rates of
Securities Percent of Stock Price Appreciation For
underlying Total Options/ Option Term(3)
option/SARs SARs Granted Exercise of -----------------------------
Granted to Employees Base Price Expiration
Name (#)(1) in Fiscal Year ($/Sh)(2) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
- ----------------------------------- ---------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Rose . . . . . . . . . . 97,022 16.4% $ 2.06 11/15/06 $42,971 $ 92,150
Anthony G. Lembo . . . . . . . . . 40,000 6.76% $ 2.06 11/15/06 17,720 38,000
Philip Doganiero . . . . . . . . . 40,000 6.76% $ 2.06 11/15/06 17,720 38,000
</TABLE>
(1) On November 15, 1996, an option to purchase 97,022 shares at $2.06 per
share was granted to Mr. Rose in exchange for cancellation of the options
previously granted on April 1, 1995 and August 11, 1995 (options to
purchase 27,022 shares at $8.125 per share and 70,000 shares at $5.75 per
share, respectively).
(2) All stock options were granted at the fair market value on the date of
grant.
(3) The amounts set forth are based on assumed appreciation of 5% and 10%
rates as prescribed by the Commission rules and are not intended to
forecast future appreciation, if any, of the stock price. The Company did
not use an alternative formula for a grant date valuation as it is not
aware of any formula which will determine with reasonable accuracy a
present value based on future unknown or volatile factors. Actual gains,
if any, on stock option exercises and common stock holdings are dependent
on the future performance of the Company's Common Stock. There can be no
assurance that the amounts reflected in this table will be achieved.
27
<PAGE> 29
AGGREGATE OPTION TABLE
The following table shows information concerning options exercised during
Fiscal 1997 and options held by the Named Executive Officers at the end of
Fiscal 1997.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Securities In-the-Money
Underlying Unexercised Options at
Options at Fiscal Fiscal Year-
Year-End(#) End($)(2)
Shares Acquired Value Exercisable(E)/ Exercisable(E)/
Name on Exercise(#) Realized($)(1) Unexercisable(U) Unexercisable(U)
- ---- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Richard C. Rose -- -- 271,813(E)/ $0(E)/
134,209(U) $66,945(U)
0(E)/ $0(E)/
Philip Doganiero -- -- 40,000(U) $27,600(U)
Anthony G. Lembo -- -- 0(E)/ $0(E)/
40,000(U) $27,600(U)
</TABLE>
- --------------
(1) Represents the dollar value of the difference between the value (measured
on the date exercised) and the option exercise price.
(2) Represents the dollar value of the difference between the value at the end
of Fiscal 1997 and the option exercise price of unexercised options at the
end of Fiscal 1997.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with executive officers Richard C.
Rose and Philip Doganiero. Mr. Rose's agreement, as amended, provides for a
minimum annual base salary of $329,400, a one-time lump sum distribution of
$152,000 on April 1, 1995, discretionary bonuses awarded by the Company's Board
of Directors and awards of restricted stock and stock options that vest over
three years. Mr. Rose's amended employment agreement expires December 31,
1999. Mr. Doganiero's agreement provides for an annual base salary of $225,000
or such greater amount as may be approved from time to time by the Company's
Board of Directors.
Pursuant to their respective employment agreements, Messrs. Rose and
Doganiero each agree not to compete, directly or indirectly, with the Company
in the states in which the Company does or may do business during the terms of
their employment and for a period of one year after the termination of their
employment. If either Mr. Rose or Mr. Doganiero is terminated without cause,
the Company is required to pay his remaining base salary and any additional
compensation earned in excess of his base salary until the date of termination,
plus an amount equal to his then annual base salary for the period through and
including the expiration of the employment agreement. If either Mr. Rose or
Mr. Doganiero is terminated with cause, the Company is required to pay only his
base salary up to the date of termination. If either Mr. Rose or Mr.
Doganiero dies during the term of his employment, the Company is required: (a)
to pay to his estate the base salary otherwise payable until the later of (i)
three years from the date of death or (ii) the end of the term of his employment
agreement; and (b) to pay his estate an additional $5,000.
28
<PAGE> 30
Under their respective employment agreements, if there is a "change in
control" of the Company and, subsequent to such change in control, either Mr.
Rose's or Mr. Doganiero's employment agreement (or any subsequent employment
agreement then in effect which expires prior to the time they have attained 65
years of age) is terminated or is not renewed by the Company at the expiration
of its term, or any renewals, extensions or modifications, then he would
receive compensation in an amount equal to 299% of his annual base salary in
effect at the time of his termination (the "Severance Amount"). This Severance
Amount would be payable in one single payment within 60 days after the
termination of his employment. The Severance Amount, however, may not exceed
three times the "base amount" as determined under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). In the event the Severance
Amount is reduced for the reason set forth in the preceding sentence, the
Severance Amount would be reduced prior to the reduction of any other payments
due under each of Mr. Rose's and Mr. Doganiero's employment agreements. A
"change in control" is defined in both employment agreements as a transfer of
more than 50% of the Company's Common Stock in a single transaction or series
of transactions in concert with each other (excluding transfers made by persons
who were officers or were related to officers of the Company immediately prior
to the change in control).
The Company has also entered into an employment agreement with Anthony G.
Lembo, its President, effective January 11, 1995. Mr. Lembo's employment
agreement is for a period of three years and provides for an annual base salary
of $125,000 or such greater amount as may be approved from time to time by the
Company's Board of Directors. Upon Mr. Lembo's election as President of the
Company, the Board of Directors approved an increase of Mr. Lembo's annual base
salary to $175,000 ("Base Salary") and an amount equal to $50,000 per year, or
such greater amount as may be approved from time to time by the Company's Board
of Directors, if the Company's Southeast division meets or exceeds certain
financial targets ("Performance Bonus"). Pursuant to his employment agreement,
Mr. Lembo agrees not to compete, directly or indirectly, with the Company in the
states in which the Company does or may do business during the term of his
employment and for a period of one year after the termination of his employment.
The employment agreement also provides that Mr. Lembo shall receive severance
benefits if his employment is terminated by the Company "without cause" (as
defined in the employment agreement). In such a case, Mr. Lembo would receive
his Base Salary, as in effect upon termination, for the remaining term of his
employment agreement and his Performance Bonus for the last full fiscal year
completed prior to the date of his termination. Mr. Lembo's employment
agreement expires January 11, 1998.
STOCK OPTION PLANS
The Company maintains two incentive stock option plans (the "ISO Plans")
and five incentive and nonqualified stock option plans. The 1989, 1990, 1991,
1992 and 1994 incentive and nonqualified stock option plans (the "NQSO Plans")
provide for the grant of both incentive stock options and nonqualified stock
options to employees of the Company.
Shares of Common Stock have been reserved and issued under the above plans
as follows:
<TABLE>
<CAPTION>
Stock Option Plan Shares Reserved Shares Granted
----------------- --------------- --------------
<S> <C> <C>
1984 and 1987 ISO Plans 700,000 700,000
1989 NQSO Plan 400,000 400,000
1990 NQSO Plan 160,000 160,000
1991 NQSO Plan 200,000 200,000
1992 NQSO Plan 400,000 400,000
1994 NQSO Plan 800,000 769,074
</TABLE>
The ISO Plans and the NQSO Plans, excluding the 1990 NQSO Plan, provide
for the discretionary grant of options to purchase Common Stock at a price
determined by the Compensation Committee of the Board of Directors but, in the
case of incentive stock options, at a price not less than the fair market value
thereof on the date of grant. The options, by their terms, must be exercised
within ten years from the date on which they are granted or within 90 days of
employment termination.
29
<PAGE> 31
All options fully vest at date of grant except for stock options granted
under the 1989, 1991 and 1992 NQSO Plans, which vest 25% per year beginning one
year after grant date, and the 1994 NQSO Plan, which provides the board of
directors with discretion to determine vesting.
30
<PAGE> 32
CERTAIN TRANSACTIONS
The Company has made loans from time to time during the fiscal years 1987
through 1996 to its employees, including Richard C. Rose, the Company's Chief
Executive Officer, primarily to enable them to exercise stock options to
purchase the Company's Common Stock. During Fiscal 1996, the amount of
indebtedness owed on such loans was evidenced by promissory notes from the
appropriate employees. These loans bear interest at rates ranging from 7% per
annum to prime plus 1.5% per annum and are payable upon demand. As of March
31, 1996 and 1997, Mr. Rose's outstanding loan balance was $329,927 and
$309,370, respectively.
The Company acquired substantially all the assets of NDP, a reseller of
computer products based in Clearwater, Florida in 1995. Philip Doganiero and
Anthony G. Lembo held a 60% and 15% ownership interest in NDP, respectively.
The Company acquired NDP for $6,200,00 in cash, $3,500,000 in subordinated
notes with an interest rate of 9%, 625,000 shares of the Company's Common Stock
with an aggregate market value at the time of the acquisition of approximately
$4,200,000, and a contingent payment based on the future earnings of the
Company's Southeastern region over a seven-year period. These contingent
payments totalled $0 in Fiscal 1996 and approximately $350,000 in Fiscal 1997.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 31, 1997 and as adjusted
to reflect consummation of the Offering by (i) each person who is known to the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the Named Executive Officers, (iii) each of the directors
of the Company, (iv) the Selling Shareholders and (v) all directors and
executive officers of the Company as a group. Except as set forth below, the
shareholders named below have sole voting and investment power with respect to
all shares of Common Stock shown as being beneficially owned by them.
<TABLE>
<CAPTION>
Shares Shares Beneficially
Beneficially Owned After
Owned Before Shares to Offering, Assuming
Name Offering(1) be Offered All Shares Are Sold
- ---- ----------------------- ------------ ----------------------
Number Percent Number Percent
---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND
PRINCIPAL SHAREHOLDERS
Anthony G. Lembo(2) . . . . . . . . . . . 7,500 * -- 7,500 *
Richard C. Rose(2)(3) . . . . . . . . . . 298,156 4.7% -- 298,156 4.7%
Philip Doganiero(2) . . . . . . . . . . . 18,000 * -- 18,000 *
U.S. Bankcorp(4) . . . . . . . . . . . . 551,000 9.4% -- 551,000 9.4%
Pioneering Management Corporation(5) . . 423,500 7.2% -- 423,500 7.2%
W. Keith Schilit . . . . . . . . . . . . -- * -- -- *
Barry M. Alpert . . . . . . . . . . . . . -- * -- -- *
All Directors and Executive Officers as a
Group (5 persons) . . . . . . . . . . . 314,656 5.1% -- 314,656 5.1%
SELLING SHAREHOLDERS
Arlen Westling, as Trustee for
the Westling Family Trust,
dated February 1, 1995 . . . . . . . . 22,065 * 9,200 12,865 *
Roger F. Powell . . . . . . . . . . . . . 48,470 * 31,470 17,000 *
Jeff Abreu . . . . . . . . . . . . . . . 11,737 * 11,737 -- *
David Riley, as Trustee
for the David and Tamara Riley Family
Trust, dated December 4, 1992 . . . . . 152,992 2.6% 67,500 85,490 1.5%
Leonard and Leslie Sickman, as Trustees
for the Sickman Family Trust, dated
December 22, 1992 . . . . . . . . . . . 82,800 1.4% 82,800 -- *
Robert G. Kreisheimer, as Trustee
for the Kreisheimer Family Trust,
dated December 11, 1992 . . . . . . . . 62,293 1.1% 67,293 -- *
</TABLE>
- ----------------------
* Less than 1%.
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares as to
which a person shares voting power and/or investment power. The
31
<PAGE> 33
Company has been informed that all shares shown are held of record with
sole voting and investment power, except as otherwise indicated.
(2) The business address for Messrs. Doganiero, Lembo and Rose is 2145 Calumet
Street, Clearwater, Florida 34625.
(3) The number of shares shown in the table above includes 271,813 shares
that are subject to options that are currently exercisable.
(4) The number of shares shown is based on a Schedule 13G filed with the
Securities and Exchange Commission, dated February 13, 1997. The business
address for U.S. Bankcorp is 111 Southwest Fifth Avenue, Portland, Oregon
99204.
(5) The number of shares shown is based on a Schedule 13G filed with the
Securities and Exchange Commission, dated January 14, 1997. The business
address for Pioneering Management Corporation is 60 State Street, Boston,
Massachusetts 02108.
32
<PAGE> 34
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock, no par value ("Preferred Stock"). As of
March 31, 1997, 5,847,199 shares of Common Stock were outstanding, and such
shares were held by approximately 529 holders of record and no shares of
Preferred Stock were outstanding.
The following descriptions of the Common Stock and the Preferred Stock are
based on the Company's Certificate of Incorporation, Bylaws and applicable New
Jersey law.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned
of record on all matters presented to the shareholders. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company,
if any, remaining after the payment of all debts and liabilities of the
Company. The Common Stock has no preemptive rights, no cumulative voting
rights and no redemption, sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any Preferred Stock that may
be issued and outstanding and subject to any dividend restrictions in the
Company's credit facilities. No dividends or other distributions (including
redemptions or repurchases of shares of capital stock) may be made if after
giving effect to any such dividends or distributions, the Company would not be
able to pay its debts as they become due in the usual course of business or the
Company's total assets would be less than the sum of its total liabilities plus
the amount that would be needed at the time of a liquidation to satisfy the
preferential rights of any holders of Preferred Stock. See "Dividend Policy."
All of the shares of Common Stock offered hereby are validly issued, fully
paid and nonassessable.
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to designate and issue from time to time one or more series
of Preferred Stock. The Board of Directors may fix and determine the
designations, preferences and relative rights and qualifications, limitations
or restrictions of any series of Preferred Stock so established, including
voting powers, dividend rights, liquidation preferences, redemption rights and
conversion privileges. Because the Board of Directors has the power to
establish the preferences and rights of each series of Preferred Stock, it may
afford the holders of any series of Preferred Stock preferences and rights,
voting or otherwise, senior to the rights of holders of Common Stock. As of
the date of this Prospectus, the Board of Directors has not authorized any
series of Preferred Stock and has no plans to issue any shares of Preferred
Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
The Bylaws provides that special meetings of shareholders may be called
only by: (i) the President; (ii) the Board of Directors; or (iii) the Chairman
of the Board of Directors. Any action required or permitted to be taken at a
meeting of Shareholders may be taken without a meeting of all Shareholders
entitled to vote consent to such action in writing.
The Certificate of Incorporation provides for a classified Board of
Directors and permit removal of directors only for cause by the shareholders of
the Company at a meeting by the affirmative vote of at least 60% of the
33
<PAGE> 35
outstanding shares of Common Stock. See "Management--Executive Officers and
Directors." The Certificate of Incorporation establishes an advance notice
procedure for the nomination of candidates for election as directors, as well
as for other shareholder proposals to be considered at shareholders' meetings.
Nominations may be made at shareholders' meetings by or at the direction of the
Board of Directors, by any nominating committee or person appointed by the
Board or by any shareholder entitled to vote for the election of directors.
Notice of shareholder proposals and nominations of directors by shareholders
must be given timely in writing to the Secretary of the Company before the
meeting at which such matters are to be acted upon or directors are to be
elected. Such notice, to be timely, must be received at the principal
executive offices of the Company with respect to shareholder proposals and
elections to be held at the annual meeting, not less than 60 days before the
date of the meeting at which the director(s) are to be elected; however, if
less than 70 days' notice or prior public disclosure of the date of the
scheduled meeting is given or made, notice by the shareholder, to be timely,
must be so delivered or received not later than the close of business on the
tenth day following the earlier of the day on which notice of the date of such
meeting is mailed to shareholders or public disclosure of the date of such
meeting is made.
Notice to the Company from a shareholder who intends to present a proposal
or to nominate a person for election as a director at a meeting must contain
certain information about the shareholder giving such notice and, in the case
of director nominations, all information that would be required to be included
in a proxy statement soliciting proxies for the election of the proposed
nominee (including such person's written consent to serve as a director if so
elected). If the presiding officer of the meeting determines that a
shareholder's proposal or nomination is not made in accordance with the
procedures set forth in the Certificate of Incorporation, such proposal or
nomination, at the direction of such presiding officer, may be disregarded.
The notice requirement for shareholder proposals contained in the Certificate
of Incorporation does not restrict a shareholder's right to include proposals
in the Company's annual proxy materials pursuant to rules promulgated under the
1934 Act.
The preceding provisions of the Certificate of Incorporation may be
changed only upon the affirmative vote of holders of 60% of the outstanding
Common Stock.
The provisions of the Certificate of Incorporation summarized in the
preceding four paragraphs and the provisions of the New Jersey Shareholders
Protection Act described under "Certain Provisions of New Jersey Law" may have
certain anti-takeover effects. Such provisions, individually or in
combination, may discourage other persons, or make it more difficult, without
the approval of the Board of Directors, for other persons to make a tender
offer or acquisitions of substantial amounts of the Common Stock or from
launching other takeover attempts that a shareholder might consider in such
shareholder's best interest, including attempts that might result in the
payment of a premium over the market price for the Common Stock held by such
shareholder.
CERTAIN PROVISIONS OF NEW JERSEY LAW
The Company is subject to the New Jersey Shareholder Protection Act
("NJSPA"), which prohibits certain New Jersey corporations such as the Company
from engaging in business combinations (including mergers, consolidations,
significant asset dispositions and certain stock issuances) with any Interested
Shareholder (defined to include, among others, any person that after the
Offering becomes a beneficial owner of 10% or more of the affected
corporation's voting power) for five years after such person becomes an
Interested Shareholder, unless the business combination is approved by the
Board of Directors prior to the date the shareholder became an Interested
Shareholder. In addition, the NJSPA prohibits any business combination at any
time with an Interested Shareholder other than a transaction that: (i) is
approved by the Board of Directors prior to the date the Interested Shareholder
became an Interested Shareholder; or (ii) is approved by the affirmative vote
of the holders of two-thirds of the voting stock not beneficially owned by the
Interested Shareholder; or (iii) satisfies certain "fair price" and related
criteria. The NJSPA does not apply to certain business combinations, including
those with persons who acquired 10% or more of the voting power of the
corporation prior to the time the corporation was required to file periodic
reports pursuant to the 1934 Act, or prior to the time the corporation's
securities began to trade on a national securities exchange.
34
<PAGE> 36
PLAN OF DISTRIBUTION
The sale of the shares of Common Stock offered hereby is not being
underwritten. Sales may be made by the Selling Shareholders in the Nasdaq
National Market, or otherwise, at prices and on terms then prevailing or at
prices related to the then current market price of the Common Stock, or in
negotiated transactions. In this regard, the shares may be sold in one or more
of the following types of transactions: (i) a block trade, in which the broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(ii) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (iv)
directly in private transactions at negotiated prices. In effecting sales,
brokers or dealers engaged by the Selling Shareholders may arrange for other
brokers or dealers to participate. Brokers or dealers will receive commissions
or discounts from the Selling Shareholders in amounts to be negotiated prior to
any sale. The Selling Shareholder and any broker or dealer participating in
any such distribution may be deemed to be "underwriters" (as defined in the
Securities Act) with respect to such sales.
The Company has agreed to furnish the Selling Shareholders a reasonable
number of copies of this Prospectus.
35
<PAGE> 37
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenbaum, Rowe, Smith, Ravin, Davis & Himmel,
Woodbridge, New Jersey.
EXPERTS
The Consolidated Financial Statements of the Company as of March 31, 1996
and 1995 and for each of the three years in the period ending March 31, 1996,
included in this Prospectus and the Consolidated Financial Statements included
in the Registration Statement have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934 Act
and in accordance therewith files periodic reports and other information with
the Commission. Reports, proxy and information statements and other
information filed by the Company may be inspected and copies may be obtained
(at prescribed rates) at the Commission's Public Reference Section, 450 5th
Street, N.W., Washington, D.C. 20549, as well as the following Regional Offices
of the Commission: Seven World Trade Center, 13th Floor, New York, New York
10048 and at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained by
mail from the Public Reference Section, Securities and Exchange Commission, 450
Fifth Street, N.W., Washington D.C. 20549, upon payment of prescribed rates.
In addition, electronically filed documents, including reports, proxy and
information statements and other information regarding the Company, can be
obtained from the Commission's Web site at: http://www.sec.gov. The Company's
Common Stock is quoted on the Nasdaq National Market, and reports, proxy
statements and other information concerning the Company can also be inspected
at the offices of the National Association of Securities Dealers, Inc. at 1735
K Street, Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in the
Prospectus with respect to the contents of any contract or other document filed
as an exhibit to the Registration Statement are not necessarily complete, and
in each such instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in all respects by such reference to such exhibit.
Copies of all or any part of the Registration Statement, including the
documents incorporated by reference therein or exhibits thereto, may be
obtained upon payment of the prescribed rates at the offices of the Commission
set forth above.
36
<PAGE> 38
DATAFLEX CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1995 and 1996 F-3
Consolidated Statements of Earnings for the years ended
March 31, 1994, 1995 and 1996 F-4
Consolidated Statement of Shareholders' Equity for the years
ended March 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1994, 1995 and 1996 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT ACCOUNTANTS
ON SCHEDULE II II-7
Schedule II -- Valuation and Qualifying Accounts for
the years ended March 31, 1994, 1995 and 1996 II-8
</TABLE>
F-1
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Dataflex Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Dataflex Corporation and its subsidiary at March 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Morristown, New Jersey
July 2, 1996
F-2
<PAGE> 40
DATAFLEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
------------------------- -------------
1996 1995 1996
------------ ------------ -------------
ASSETS (unaudited)
(In thousands)
<S> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . $ 499 $ 5,590 $ 429
Accounts Receivable, Net . . . . . . . . . . . . . . . . . . . 57,333 56,834 22,735
Inventory, Net . . . . . . . . . . . . . . . . . . . . . . . . 25,755 32,029 8,679
Net Assets Held for Sale . . . . . . . . . . . . . . . . . . . 45,229 -- --
Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . 3,288 312 300
Income Taxes Receivable . . . . . . . . . . . . . . . . . . . . 829 -- 2,665
Other Current Assets . . . . . . . . . . . . . . . . . . . . . 8,428 11,493 10,735
----------- ----------- -------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . 141,361 106,258 45,543
Property and Equipment, Net . . . . . . . . . . . . . . . . . . 9,437 11,617 4,441
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . 799 963 982
Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . -- -- 3,294
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,716 27,743 14,522
----------- ----------- -------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . $ 170,313 $ 146,581 $ 68,782
=========== =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt . . . . . . . . . . . . . . . $ 32,967 $ 7,249 $ 240
Short-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . -- -- 27,846
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 42,478 45,199 3,346
Accrued Expenses and Other Payables . . . . . . . . . . . . . . 8,385 6,663 4,748
Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . -- 176 --
----------- ----------- -------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . 83,830 59,287 36,180
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . 54,062 52,510 4,687
Deferred Tax Liability . . . . . . . . . . . . . . . . . . . . . 348 428 --
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . 224 216 --
----------- ----------- -------------
Total Liabilities . . . . . . . . . . . . . . . . . . . 138,464 112,441 40,867
----------- ----------- -------------
Commitments and Contingencies (Notes 11 and 15)
Shareholders' Equity:
Common Stock-No Par Value; Authorized 20,000,000 Shares;
Issued 5,961,169, 5,587,661, 4,867,184 Shares at
December 31, 1996, March 31, 1996 and March 31, 1995,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . 23,065 19,045 23,443
Less: Loans Receivable for Exercised Stock Options . . . . . . (311) (413) (194)
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . 9,690 16,025 5,269
Less: Treasury Stock - At Cost; 115,382, 113,901 and 104,237
shares at December 31, 1996, March 31, 1996 and March 31,
1995, respectively . . . . . . . . . . . . . . . . . . . . . . (595) (517) (603)
----------- ----------- -------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . 31,849 34,140 27,915
----------- ----------- -------------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . $ 170,313 $ 146,581 $ 68,782
=========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 41
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months
Ended
For the Years Ended March 31, December 31,
--------------------------------- -------------------
1996 1995 1994 1996 1995
---------- ---------- ----------- --------- ---------
(Unaudited)
Revenue (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Equipment . . . . . . . . . . . . . . . . . $ 422,533 $ 246,532 $ 108,192 $186,833 $ 305,326
Services . . . . . . . . . . . . . . . . . 49,569 27,319 14,156 24,066 35,478
--------- --------- ---------- -------- ---------
Total Revenue . . . . . . . . . . . . . . . . 472,102 273,851 122,348 210,899 340,804
--------- --------- ---------- -------- ---------
Cost of Revenue
Equipment . . . . . . . . . . . . . . . . . 378,490 220,711 98,008 166,060 273,414
Services . . . . . . . . . . . . . . . . . 41,102 21,853 10,810 19,267 29,048
--------- --------- ---------- -------- ---------
Total Cost of Revenue . . . . . . . . . . . . 419,592 242,564 108,818 185,327 302,462
--------- --------- ---------- -------- ---------
Gross Profit . . . . . . . . . . . . . . . 52,510 31,287 13,530 25,572 38,342
Selling, General and Administrative Expenses 42,995 24,259 10,675 21,594 30,632
Amortization of Goodwill . . . . . . . . . . 1,265 594 -- 530 932
Restructuring and Other Charges . . . . . . . 5,353 -- -- -- --
--------- --------- ---------- -------- ---------
Operating Income . . . . . . . . . . . . . 2,897 6,434 2,855 3,448 6,778
Other Income (Expenses):
Interest (Expense) Income, Net . . . . . . (8,063) (2,677) 4 (4,051) (5,717)
Loss on Dispositions of Businesses . . . . (4,632) -- -- (6,230) --
Litigation Settlement and Related Costs . . -- -- (847) -- --
--------- --------- ---------- -------- ---------
(Loss) Income Before Income Taxes . . . . . . (9,798) 3,757 2,012 (6,833) 1,061
(Benefit from) Provision for Income Taxes . . (3,463) 1,617 884 (2,412) 456
--------- --------- ---------- -------- ---------
Net (Loss) Income . . . . . . . . . . . . . $ (6,335) $ 2,140 $ 1,128 $ (4,421) $ 605
========= ========= ========== ======== =========
(Loss) Earnings Per Common Share . . . . . . $ (1.22) $ 0.45 $ 0.28 (0.78) .11
========= ========= ========== ======== =========
Weighted Average Common Shares Outstanding . 5,214 4,733 4,085 5,644 5,422
========= ========= ========== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 42
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Earnings Treasury Stock
--------------------------------------- --------------------------
Issued
Shares Amount Amount Shares Cost
---------- ------------- -------------- ------------- ------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993 . . . . . . . 4,126,187 $ 13,196 $ 12,758 125,759 $ 617
Exercise of Stock Options . . . . . . . 15,837 86 -- -- --
Sale of Treasury Stock . . . . . . . . -- -- -- (10,007) (48)
Issuance of Officers Loans . . . . . . -- (50) -- -- --
Reductions of Loans Receivable for
Exercised Stock Options . . . . . . . -- 131 -- -- --
Net Income . . . . . . . . . . . . . . -- -- 1,128 -- --
--------- ------------- ------------- ------------ ------------
Balance at March 31, 1994 . . . . . . . 4,142,024 13,363 13,886 115,752 569
Exercise of Stock Options and Warrants 28,763 153 -- -- --
Sale of Treasury Stock . . . . . . . . -- 32 -- (11,515) (52)
Issuance of Common Stock . . . . . . . 696,397 5,028 -- -- --
Issuance of Notes Receivable for
Warrants . . . . . . . . . . . . . . -- (102) -- -- --
Capitalized Tax Benefit for Exercise of
Stock Options . . . . . . . . . . . . -- 26 -- -- --
Reductions of Loans Receivable for
Exercised Stock Options . . . . . . -- 131 -- -- --
Net Income . . . . . . . . . . . . . . -- -- 2,139 -- --
--------- ------------- ------------- ------------ ------------
Balance at March 31, 1995 . . . . . . . 4,867,184 18,631 16,025 104,237 517
Exercise of Stock Options and Warrants 6,000 30 -- -- --
Purchase of Treasury Stock . . . . . . -- -- -- 9,664 78
Issuance of Restricted Stock . . . . . 72,225 240 -- -- --
Issuance of Common Stock . . . . . . . 642,252 3,750 -- -- --
Reductions of Loans Receivable for
Exercised Stock Options . . . . . . -- 103 -- -- --
Net Loss . . . . . . . . . . . . . . . -- -- (6,335) -- --
--------- ------------- ------------- ------------ ------------
Balance at March 31, 1996 . . . . . . . 5,587,661 $ 22,754 $ 9,690 113,901 $ 595
Purchase of Treasury Stock . . . . . . -- -- -- 1,481 8
Exercise of Stock Options . . . . . . . 373,508 378 -- -- --
Reductions of Loans Receivable . . . . -- 117 -- -- --
Net Loss . . . . . . . . . . . . . . . -- -- (4,421) -- --
--------- ------------- ------------- ------------ ------------
Balance at December 31, 1996
(unaudited) . . . . . . . . . . . . . . 5,961,169 $ 23,249 $ 5,269 115,382 $ 603
========= ============= ============= ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 43
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended
For the Years Ended March 31, December 31,
------------------------------------------------------------
1996 1995 1994 1996 1995
------------- ------------------------------------- --------
(Unaudited)
Operating Activities: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net (Loss) Income . . . . . . . . . . . . . . $ (6,335) $ 2,139 $ 1,128 $ (4,421) $ 605
Adjustments to Reconcile Net (Loss) Income to
Net Cash and Cash Equivalents:
Depreciation and Amortization . . . . . . . . 4,895 2,594 1,224 1,977 3,513
Amortization of Restricted Stock Grants . . . 62 --
Deferred Taxes . . . . . . . . . . . . . . . (3,057) 40 56 41 3
Loss on Dispositions of Businesses . . . . . . 4,632 -- -- 6,230 --
Restructuring and Other Charges . . . . . . . . 5,353 -- -- -- --
Changes in Assets and Liabilities:
Accounts Receivable . . . . . . . . . . . . . 704 (2,775) (7,208) 34,598 (18,288)
Income Taxes Receivable . . . . . . . . . . . (829) -- 360 (1,836) (176)
Inventory . . . . . . . . . . . . . . . . . . 4,255 (9,839) (1,933) 17,076 (24,952)
Net Assets Held for Sale . . . . . . . . . . (36,622) -- -- -- --
Other Current Assets . . . . . . . . . . . . 3,105 (7,514) (1,068) (2,307) 423
Other Assets . . . . . . . . . . . . . . . . 89 (368) (118) (179) 28
Accounts Payable . . . . . . . . . . . . . . (3,487) 8,111 14,850 (39,131) 10,357
Accrued Expenses and Other Payables . . . . . 507 (924) 761 (3,637) 2,134
Income Taxes Payable . . . . . . . . . . . . (176) (9) 211 -- --
Accrued Settlement . . . . . . . . . . . . . -- (712) 712 -- --
Other Long-Term Liabilities . . . . . . . . . (209) 65 -- (225) 321
------------ ------------ ------------ ---------- --------
Net Cash and Cash Equivalents - Operating . . . (27,175) (9,192) 8,975 8,248 (26,032)
------------ ------------ ------------ ---------- --------
Investing Activities:
Capital Expenditures . . . . . . . . . . . . (4,687) (5,270) (1,352) (1,477) (2,699)
Net Assets Held for Sale . . . . . . . . . . 45,229 --
Acquisition of Businesses, Net of Cash and
Cash Equivalents Acquired . . . . . . . . . (1,215) (19,604) -- -- (1,145)
------------ ------------ ------------ ---------- --------
Net Cash and Cash Equivalents - Investing . . . (5,902) (24,874) (1,352) 43,752 (3,844)
------------ ------------ ------------ ---------- --------
Financing Activities:
Proceeds from Issuance of Notes Payable . . . 267,825 72,831 2,369 88,995 197,944
Payments of Notes Payable . . . . . . . . . . (239,702) (49,461) (2,120) (141,423) (172,594)
Payments of Long-Term Borrowings . . . . . . (88) (29) -- (160) (66)
Proceeds from Common Stock and Options . . . 30 153 30 290 30
Sale of Treasury Stock . . . . . . . . . . . -- 84 54 -- --
Purchase of Treasury Stock . . . . . . . . . (79) -- -- (8) (79)
Payments on Officers Loans Receivable for
Exercised
Stock Options . . . . . . . . . . . . . . . -- 131 201 236 --
------------ ------------ ------------ ---------- --------
Net Cash and Cash Equivalents - Financing . . . 27,986 23,709 534 (52,070) 25,235
------------ ------------ ------------ ---------- --------
Net (Decrease) Increase in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . . . (5,091) (10,357) 8,157 (70) (4,641)
Cash and Cash Equivalents - Beginning of Year . 5,590 15,947 7,790 499 5,590
------------ ------------ ------------ ---------- --------
Cash and Cash Equivalents - End of Year . . . . $ 499 $ 5,590 $ 15,947 $ 429 $ 949
============ ============ ============ ========== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Dataflex Corporation ("Dataflex" or "the Company") was incorporated in
the State of New Jersey in April 1976. Dataflex provides desktop computing
solutions and services including product sales, system integration, network
installation, help desk support, training, consultation services and equipment
repair maintenance. The Company serves primarily large business organizations
with diverse desktop computing requirements located throughout the United
States.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary. All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION--Sales of computer equipment are recorded when the
customer accepts title. Services contract revenue is recognized ratably over
the terms of the contracts. The operating history of the Company is such that
the allowance for doubtful accounts represents an insignificant percentage of
total receivables.
INCOME TAXES--The Company accounts for income taxes using an asset and
liability approach that requires the recognition of deferred tax consequences
of events that have been recognized in the Company's financial statements or
tax returns.
EARNINGS (LOSS) PER SHARE--Earnings (loss) per share are calculated by
dividing net income (loss) by the weighted average common shares and, when
their effect is dilutive, common share equivalents outstanding during the year.
Weighted average common shares outstanding for the years ended March 31, 1996,
1995 and 1994 were 5,213,711, 4,732,571 and 4,085,049, and included common
stock equivalents of 0, 485,797 and 72,077, respectively.
CASH AND CASH EQUIVALENTS--For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
INVENTORY--Inventory is stated at the lower of cost or market. Cost
is determined on a specific cost basis for equipment and average cost for spare
parts. Discretionary subsidies received from manufacturers are recorded as
reductions in the inventory value or, if the product to which the subsidy
relates has been sold, as reductions in the cost of revenue. The Company
amortizes its spare parts over their estimated useful lives ranging from three
to eight years on a straight-line basis.
NET ASSETS HELD FOR SALE--Net assets held for sale represents the
estimated fair market value of the net assets of the Western Region and its
Valtron Division. Management decided to exit these businesses in March 1996
(Note 3).
PROPERTY AND EQUIPMENT, NET--Property and equipment are stated at
cost. Depreciation and amortization are computed by use of the straight-line
method. Depreciation is based on the estimated useful life of the various
assets which range from three to forty years. Leasehold improvements are
amortized over the shorter of the life of the lease or their estimated useful
life.
GOODWILL--Goodwill represents the excess of purchase price over the
fair value of net assets acquired and liabilities assumed and is being
amortized over 25 years using the straight-line method. Accumulated
amortization was $1,023,354 and $589,629 at March 31, 1996 and 1995,
respectively.
NEW ACCOUNTING PRONOUNCEMENT--The Financial Accounting Standards Board
recently issued two standards which will be applicable to the Company but which
the Company has not yet adopted: No. 121, Accounting for
F-7
<PAGE> 45
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
and No. 123, Accounting for Stock-Based Compensation. The impairment standard
is not expected to have a significant impact on the Company. The Company has
not yet determined which of the acceptable approaches it will use under the
stock compensation standard. Adoption of certain approaches under the stock
compensation standard could result in noncash charges, which if made are not
expected to be material. At a minimum, the standard will require disclosures
about the fair value of the employee stock options.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash equivalents--The carrying amount approximates fair value because
of the short maturity of those instruments.
Long-term debt--The carrying amount approximates fair value because of
the variable interest rate charged on substantially all of this debt
and the relatively short maturity of the debt instruments.
USE OF ESTIMATES--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA. The interim financial data at December 31,
1996 and for the nine months ended December 31, 1995 and 1996 are unaudited;
however, in the opinion of management, such interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results of the interim periods.
NOTE 2: ACQUISITIONS
Effective April 1, 1994, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Granite Computer
Products, Inc. ("Granite"), a reseller of computer products located in Alameda,
California, for $9,514,200 in cash.
Effective June 1, 1994, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Advantage Systems,
Inc. ("Advantage"), an Entre Computer franchise of Intelligent Electronics, in
exchange for $2,250,000 in cash, a $1,000,000 convertible redeemable note,
71,397 shares of the Company's common stock with an aggregate market value of
$500,000 and a contingent payment based upon the future earnings of Advantage
for a three-year period. The $1,000,000 convertible redeemable note bears
interest at 6% per annum and may be converted at any time through the maturity
date of May 31, 1997 into 100,000 shares of the Company's common stock, which
would be valued at the closing price on the date of conversion.
Effective November 1, 1994, the Company (through its wholly-owned
subsidiary Dataflex Southwest Corporation) acquired substantially all of the
assets and assumed substantially all of the liabilities of Hagen Computer
Systems, Inc. ("Hagen"), an Entre Computer franchise of Intelligent
Electronics, located in Tucson, Arizona, for $416,000 in cash.
Effective January 1, 1995, the Company acquired substantially all of
the assets and assumed substantially all of the liabilities of National Data
Products Inc. ("NDP"), a reseller of computer products based in Clearwater,
Florida, for $6,200,000 in cash, $3,500,000 in subordinated notes with an
interest rate of 9%, 625,000 shares of the Company's common stock with an
aggregate market value of approximately $4,200,000, and a contingent payout
based on the future earnings of NDP over a seven year period.
F-8
<PAGE> 46
Effective July 1, 1995, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Valtron
Technologies, Inc., a disk drive repair and reseller located in Valencia,
California, for 642,252 shares of the Company's common stock with an
approximately aggregate market value of $3,400,000 and two subordinated notes
aggregating $1,000,000. The notes bear interest at 9% per annum.
These acquisitions have been accounted for under the purchase method
and, accordingly, the operating results of Granite, Advantage, Hagen, NDP and
Valtron have been included in the consolidated operating results since the
dates of their respective acquisitions.
The cost of the acquisitions has been allocated on the basis of the
fair market value of the assets acquired and the liabilities assumed. The
allocation resulted in goodwill of approximately $34,086,000 which is being
amortized over 25 years on a straight-line basis. Net goodwill associated with
the assets sold was $13,110,000 (Note 3).
The unaudited pro forma consolidated condensed results of operations
listed below give effect to certain adjustments, and assume the acquisitions
occurred at the beginning of each period presented.
<TABLE>
<CAPTION>
For the Years Ended March 31,
--------------------------------------
1995 1994
-------------- ------------
(In thousands, except per share data)
<S> <C> <C>
Revenue $ 383,984 $ 271,258
Gross Profit 46,393 34,359
Net Income 3,777 2,466
Earnings Per Common Share $ .72 $ .52
</TABLE>
The pro forma information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the Granite, Advantage, Hagen and NDP acquisitions been
consummated as of the beginning of the periods above, nor are they necessarily
indicative of future operating results.
On August 19, 1994, the Company acquired all of the issued and
outstanding common stock of Sunland Computer Services, Inc. ("Sunland"), a
reseller and service provider of computer products based in Tempe, Arizona, in
exchange for 640,013 shares of the Company's common stock with an aggregate
market value of $4,800,000. The acquisition was accounted for as a pooling of
interests and, accordingly, the accompanying consolidated financial statements
have been restated to include the accounts and operations of Sunland for all
periods presented.
NOTE 3: DISPOSITIONS OF BUSINESSES
In March 1996, the Company decided to exit its operations in its
Western Region, which consists primarily of the Granite, Hagen and Sunland
acquisitions completed during Fiscal 1995, and its Valtron division, an
acquisition completed in Fiscal 1996 (Note 2). The Western Region had combined
revenues of $155,343,000, $98,816,000 and $19,968,000 for fiscal years 1996,
1995 and 1994, respectively.
In connection with these planned dispositions, the Company recorded a
loss on disposal of $4,632,000, representing the aggregate difference between
the carrying value of the net assets of these businesses and the estimated fair
value of these businesses. The estimated fair market value of the net assets
of the businesses to be disposed of are included in "Net Assets Held for Sale"
in the March 31, 1996 Consolidated Balance Sheet.
On May 24, 1996, the Company completed the sale of substantially all
the assets and the transfer of substantially all the liabilities of the Western
Region, excluding Valtron, to Vanstar Corporation for approximately
F-9
<PAGE> 47
$42 million in cash, including $5 million placed in escrow pending future
adjustments as described in the agreement. The cash received was used to
reduce the Company's accounts payable and interest-bearing obligations on its
credit facility with IBM Credit Corporation in the amount of $9.3 million and
$27.7 million, respectively (Note 10). The purchase price is subject to
adjustment based primarily on the expected realizability of certain assets as
defined in the agreement. The Company has included its best estimate of these
adjustment in its determination of the estimated fair market value of the net
assets held for sale and of the loss on disposition of businesses. The Company
does not expect these adjustments to be material relative to the total purchase
price.
On June 5, 1996, the Company announced an agreement to sell
substantially all the assets and the transfer of substantially all the
liabilities of its Valtron division to Valtron's President and a group of
investors. The agreement, finalized in July, is for $2,900,000 in cash,
$750,000 in forgiveness of a Note payable to Valtron and receipt of a note of
$850,000, bearing interest at 9%. The note is payable in two installments in
July 1998 and July 1999. The estimated loss on this sale, based on the
purchase price outlined in the agreement, is included in the Consolidated
Statement of Operations for the fiscal year ended March 31, 1996 described
above.
NOTE 4: INVENTORY
Inventory consists of:
<TABLE>
<CAPTION>
March 31,
-------------------------------------
1996 1995
-------------- -----------
(In thousands)
<S> <C> <C>
Finished Goods $ 21,989 $ 25,744
Spare Parts, Net 3,766 6,285
------------- -----------
$ 25,755 $ 32,029
============= ===========
</TABLE>
Accumulated amortization of spare parts inventory is $801,428 and
$1,554,217 at March 31, 1996 and 1995, respectively. Amortization expense
amounted to $2,065,000, $1,005,000 and $493,000 for the years ended March 31,
1996, 1995 and 1994, respectively.
NOTE 5: OTHER CURRENT ASSETS
The balance in other current assets at March 31, 1996 and 1995
includes receivables from major vendors for returned goods, marketing and other
programs of $7,309,000 and $9,896,000, respectively.
F-10
<PAGE> 48
NOTE 6: PROPERTY AND EQUIPMENT, NET
Property and equipment, is as follows:
<TABLE>
<CAPTION>
March 31,
--------------------------------------
1996 1995
--------------- ------------
(In thousands)
<S> <C> <C>
Land $ 684 $ 684
Buildings 1,912 1,693
Rental Equipment -- 88
Furniture and Equipment 10,422 11,398
Transportation Equipment 174 171
Leasehold Improvements 1,244 1,215
Construction in Progress -- 495
-------------- ------------
$ 14,436 $ 15,744
Less: Accumulated Depreciation (4,999) (4,127)
-------------- ------------
$ 9,437 $ 11,617
============== ============
</TABLE>
Depreciation and amortization expense amounted to $3,315,000,
$1,968,000 and $1,218,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
NOTE 7: LOANS RECEIVABLE FROM EMPLOYEES
Loans receivable from employees of $533,000 and $697,000 at March 31,
1996 and 1995, respectively, includes various loans made to certain employees
during fiscal years 1987 through 1996, of which $311,000 at March 31, 1996 and
1995 are related to the exercise of stock options. These loans bear interest
at rates ranging from 6% to prime plus 1.5% per annum and are payable upon
demand.
Total interest income from employees' loans amounted to $41,000,
$45,000 and $40,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
F-11
<PAGE> 49
NOTE 8: SUPPLEMENTARY CASH FLOW INFORMATION
The following is a summary of supplementary cash flow information:
<TABLE>
<CAPTION>
For the Years Ended March 31,
------------------------------------------------
1996 1995 1994
--------------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Interest Paid $ 7,381 $ 2,403 $ 230
Income Taxes Paid 624 1,636 365
Noncash Investing and Financing Activities:
Issuance of Notes Receivable for -- 102 --
Common Stock
Issuance of Common Stock in Exchange -- 208 --
for Notes Payable
Capitalized Tax Benefit for Exercise -- 26 --
of Options
Accounts Receivable Acquired 1,503 34,346 --
Inventory Acquired 899 9,784 --
Fixed Assets Acquired 858 4,322 --
Other Assets Acquired 40 925 --
Debt Issued and Liabilities Assumed 2,339 51,479 --
Common Stock Issued 3,750 4,719 --
</TABLE>
NOTE 9: CREDIT FACILITY
On December 28, 1994, the Company and its former wholly-owned
subsidiary, Dataflex Southwest Corporation ("Dataflex Southwest"), executed
Inventory and Working Capital Agreements with IBM Credit Corporation (the
"Agreements"). The Agreements have been subsequently amended to expand the
available line from a maximum of $110.0 million secured by substantially all of
the assets of the Company and Dataflex Southwest to $120.0 million including a
$5.0 million unsecured promissory note. Interest charged under the Agreements
ranges from LIBOR plus 4.25% to LIBOR plus 4.875% on outstanding borrowings.
Other charges include monthly fees of $3,750 and an annum renewal fee of
$25,000. The Agreements expire on December 28, 1997 and can be renewed by the
parties for an additional year on each anniversary date. Effective July 1,
1996, as a result of the sale of the Western Region, IBM Credit Corporation has
reduced the line of credit to $85 million.
The Agreements include several covenants requiring, among other
things, minimum levels of tangible net worth, earnings as a percentage of
revenue, current ratio and leverage ratio requirements. At March 31, 1996, the
Company was not in compliance with certain of these covenants. Waiver of
default of certain financial covenants was received from IBM Credit Corporation
and the Agreements were subsequently amended to revise certain financial
covenants to reflect the Company's current and future business environment.
F-12
<PAGE> 50
NOTE 10: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31,
---------------------------------------
1996 1995
-------------- -------------
(In thousands)
<S> <C> <C>
Mortgage note payable to a bank, payable in $ 851 $ 920
monthly installments of $5,267 plus interest at
the bank's prime rate plus 1% (9.25% at March
31, 1996) with the remaining balance due January
10, 2000, collateralized by land and buildings
Mortgage note payable to a bank, payable in 337 362
monthly installments of $2,066 plus interest at
the bank's prime rate plus 1% (9.25% at March
31, 1996) with the remaining balance due January
10, 2000, collateralized by land and buildings
Convertible Promissory Note, payable in full on 1,000 1,000
June 1, 1997, with interest due quarterly at an
interest rate of 6%. This note is convertible
to 100,000 shares of Dataflex common stock
through the date of the note
Promissory Note, payable in full on January 10, 2,000 2,000
2002, with interest due quarterly at an interest
rate of 9%
Promissory Note, payable in full on January 10, 1,500 1,500
1998, with interest due quarterly at an interest
rate of 9%
Promissory Note, payable to IBM Credit Corp. 5,000 7,000
(Note 9)
The IBM Agreement (Note 9) 76,236 46,816
Miscellaneous Notes Payable 105 161
------------- -------------
87,029 59,759
Less: Current portion of long-term debt 32,967 7,249
------------- -------------
$ 54,062 $ 52,510
============= =============
</TABLE>
F-13
<PAGE> 51
Aggregate principal payments for the next five years subsequent to March 31,
1996 are as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
(In thousands)
<S> <C>
1997 $ 32,967
1998 51,050
1999 88
2000 88
2001 836
Thereafter 2,000
---------
$ 87,029
=========
</TABLE>
NOTE 11: LEASES
The Company leases various facilities and equipment under
noncancelable lease arrangements which expire at various dates during the next
eight years, excluding renewal options. In addition, the Company is generally
responsible for real estate taxes, utilities, insurance and maintenance
expenses which relate to its facilities.
Future minimum lease payments applicable to noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Operating
Year Ended March 31, Leases
---------------------------------------------------- -----------
(In thousands)
<S> <C>
1997 $ 1,663
1998 1,188
1999 1,131
2000 1,085
2001 584
Thereafter 351
</TABLE>
Rental expense amounted to $1,482,857, $1,147,325 and $811,143 for the
years ended March 31, 1996, 1995 and 1994, respectively.
NOTE 12: INCOME TAXES
The composition of the (benefit from) provision for income taxes is as
follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
-------------------------------------------------
1996 1995 1994
--------------- ------------- -------------
<S> <C> <C> <C>
Current Taxes: (In thousands)
Federal $ (407) $ 1,235 $ 623
State -- 320 250
-------------- ------------ ------------
(407) 1,555 873
Deferred Taxes:
Federal (2,682) 46 9
State (374) 16 2
-------------- ------------ ------------
(Benefit from) Provision for Incomes Taxes $ (3,463) $ 1,617 $ 884
============== ============ ============
</TABLE>
F-14
<PAGE> 52
A reconciliation of the federal statutory rate with the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
------------------------------------------------
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C> <C>
(In thousands)
Income Taxes at Federal Statutory Rate $ (3,331) $ 1,277 $ 684
State Taxes, Net of Federal Tax
(Provision) Benefit (77) 221 166
Other (55) 119 34
-------------- ------------ ------------
(Benefit from) Provision for Income Taxes $ (3,463) $ 1,617 $ 884
============== ============ ============
</TABLE>
Deferred tax assets (liabilities) arise due to the recognition of
income and expense items for tax purposes in periods which differ from those
used for financial statement purposes. The tax effects of significant
temporary differences which comprise the net deferred tax liability at March
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
March 31,
-------------------------------------
1996 1995
-------------- -----------
(In thousands)
<S> <C> <C>
Accounts Receivable Reserves $ 177 $ 124
Vacation Reserve 110 43
Uniform Inventory Capitalization 172 145
Loss on Dispositions of Businesses 1,850 --
Restructuring and Other Charges 2,138 --
Other Deferred Tax Assets 140 --
------------- -----------
Deferred Tax Assets 4,587 312
------------- -----------
Accelerated Depreciation (543) (267)
Accelerated Amortization of Goodwill (604) (161)
------------- -----------
Deferred Tax Liabilities (1,147) (428)
------------- -----------
Deferred Tax Assets Valuation (500) --
------------- -----------
Net Deferred Tax Asset (Liability) $ 2,940 $ (116)
============= ===========
</TABLE>
NOTE 13: SIGNIFICANT CUSTOMERS AND VENDORS
No single customer accounted for greater than 10% of the Company's
revenue during the years ended March 31, 1996, 1995 and 1994.
Sales of products from one vendor constituted approximately 31%, 23%
and 58% of the Company's revenue during the years ended March 31, 1996, 1995,
and 1994, respectively. Another vendor's products comprised 13%, 13% and 15%
of the Company's revenue during the same three year period.
NOTE 14: RESTRUCTURING AND OTHER CHARGES
During the fourth quarter of Fiscal 1996, the Company recorded
restructuring and other charges of $5,352,809, primarily related to write-downs
of inventory and spare parts, employee termination benefits and write-offs of
the value of computer systems to be replaced. The restructuring program was
driven by the need to refocus operations along more profitable business lines,
consolidate operations and implement upgraded computer systems. The Company
plans personnel reductions of approximately 30 individuals in operational,
administrative and executive areas. The Company has recorded a provision of
$1,200,000 for the estimated level of employee termination benefits in the
accompanying March 31, 1996 Consolidated Balance Sheet. Due to the proximity
of the
F-15
<PAGE> 53
announcement to the balance sheet date, no employees have been terminated and
no termination benefits have been paid as of March 31, 1996.
NOTE 15: COMMITMENTS AND CONTINGENCIES
The Company's employment contracts with three employees provide for
base annual salaries aggregating approximately $750,000 per year. The
contracts for the employees expire between January 1998 and December 1999.
Subsequent to March 31, 1996, in connection with the sale of the
Western Region (Note 3), the Company terminated its employment contract with
the President of this business unit. This termination resulted in a one-time
payment of approximately $300,000 which is included in the loss of dispositions
of this business.
Certain contracts referred to above include provisions for payment of
severance and in the event of a change of control. The maximum amount that
could be required to be paid under these contracts, if such events occur,
approximates $2,500,000.
A class action complaint was filed in March 1992 by shareholders of
the Company alleging that the Company and certain of its officers and directors
violated federal securities laws. The Company included a charge of $847,500
against earnings for the year ended March 31, 1994, which included $110,000 in
legal fees. Although management believed it had meritorious defenses, expenses
to defend and the time and disruption of Company resources led the Company to
agree to a full settlement of all claims for $900,000. This amount, of which
$162,500 was reimbursed from the Company's insurance carrier in Fiscal 1995,
was paid by the Company in the first quarter of Fiscal 1995.
Other claims, suits and complaints arise in the ordinary course of the
Company's business. In the opinion of Company management, such pending matters
are without merit or are of such kind, or involve such amounts, as would not
have a material adverse effect on the financial position or results of
operations of the Company.
NOTE 16: STOCK OPTIONS
The Company maintains two incentive stock option plans (the "ISO
Plans"), and five incentive and nonqualified stock option plans (the "NQSO
Plans"). The 1989, 1990, 1991, 1992 and 1994 Plans provide for the grant of
both incentive stock options and nonqualified stock options to employees of the
Company. The grant prices of the various stock option plans range from $2.03
to $8.75.
Shares of Common Stock have been reserved and issued under the above
plans as follows:
<TABLE>
<CAPTION>
Stock Option Plan
Granted Shares Reserved Shares Granted
----------------- --------------- --------------
<S> <C> <C>
1984 and 1987 ISO 700,000 700,000
1989 Plan 400,000 400,000
1990 Plan 160,000 160,000
1991 Plan 200,000 200,000
1992 Plan 400,000 400,000
1994 Plan 800,000 769,000
</TABLE>
The ISO Plans and the 1989, 1991, 1992 and 1994 Plans provide for the
discretionary grant of options to purchase Common Stock at a price determined
by the Compensation Committee of the Board of Directors but, in the case of
incentive stock options, at a price not less than the fair market value thereof
on the date of grant. The
F-16
<PAGE> 54
options, by their terms, must be exercised within ten years from the date on
which they are granted or within 90 days of employment termination.
All options fully vest at date of grant except for stock options
granted under the 1989, 1991, 1992 Plans, which vest 25% per year beginning one
year after grant date, and the 1994 Plan, which vests 25% on the grant date and
25% each year beginning one year after grant date. Under certain
circumstances, options can vest immediately at the discretion of the Company's
Board of Directors.
The Company has occasionally granted to officers, directors and
certain key employees, stock options in addition to the ISO and NQSO stock
option plans.
On November 15, 1993, in connection with the appointment of a member
to the Company's Board of Directors, the Company granted options for 300,000
shares of common stock to the board member at its then fair market value of
$5.00 per share.
On September 2, 1994, in connection with the appointment of another
member to the Company's Board of Directors, the Company granted options for
10,000 shares of common stock to the board member at its then fair market value
of $7.125 per share.
These options vest 25% per year beginning one year after date of
grant. The options, by their terms, must be exercised within ten years from
the grant date or within 90 days of termination from the Board of Directors.
On April 6, 1994, in connection with the acquisition of Granite
Products, Inc. (see Note 2), the Company granted a total of 300,000 shares to
four Granite associates. The options were granted at their then fair market
value of $7.00 per share. These options vest 25% per year beginning one year
after date of grant. The options, by their terms, must be exercised within ten
years from the date of grant or within 90 days of employment termination.
Information concerning options outstanding as of March 31, 1996, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
-------------------------------------
1996 1995 1994
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Outstanding at Beginning $ 1,713 $ 1,147 $ 533
Granted 516 639 795
Exercised (6) (29) (16)
Cancelled (153) (44) (165)
-------- ------- --------
Outstanding at End 2,070 1,713 1,147
-------- ------- --------
Exercisable $ 1,001 $ 534 $ 280
</TABLE>
Options exercised during the years ended March 31, 1996 and March 31,
1995 ranged in exercise prices from $4.50 to $5.85.
NOTE 17: EMPLOYEE BENEFITS
The Company has a 401(k) Plan which covers all employees who have
completed ninety days of service and are at least twenty-one years of age.
Employees may contribute from 1% to 15% of their annual compensation subject to
the limitation imposed by law. Employee contributions of up to 6% of each
covered employees' compensation are matched at a percentage determined each
year by the Company. The maximum matching percent during fiscal years 1996,
1995 and 1994 was 20%, resulting in Company contributions of $235,000, $85,000
and $40,000, respectively.
F-17
<PAGE> 55
NOTE 18: SHAREHOLDERS' EQUITY
In September 1995, the Company's shareholders approved the resolution
proposed by the Board of Directors to amend Article Fourth of the Company's
Certificate of Incorporation to authorize the Company to issue 10,000,000
shares of Preferred Sock, without par value, and to increase the number of
authorized shares of common stock, no par value, from 10,000,000 shares to
20,000,000 shares.
As of March 31, 1996, there are no issued shares of Preferred Stock.
NOTE 19: QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data for the fiscal years ended March
31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
--------------- ---------------- --------------- -----------------
FY 1996: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 110,325 $ 107,844 $ 122,635 $ 131,298 (1)
Gross Profit 11,900 12,774 13,674 14,162
Net Income (Loss) 309 142 153 (6,939)
Earnings (Loss) Per Share $ 0.06 $ 0.03 $ 0.03 $ (1.34)
FY 1995:
Revenue $ 53,774 $ 57,880 $ 64,135 $ 98,062
Gross Profit 5,800 6,880 7,556 11,051
Net Income 521 661 685 272
Earnings Per Share $ 0.11 $ 0.15 $ 0.15 $ 0.05
</TABLE>
(1) Includes $9,985,000 pre-tax charges for restructuring and loss on
disposition as further discussed in Notes 2 and 14.
F-18
<PAGE> 56
<TABLE>
<S> <C>
No dealer, salesman or any other person has been
authorized to give any information or to make any 270,000 SHARES
representations other than those contained in this
Prospectus in connection with the offer made by
this Prospectus and, if given or made, such DATAFLEX CORPORATION
information or representations must not be relied
upon as having been authorized by the Company or
the Selling Shareholders. This Prospectus does not
constitute an offer to sell or a solicitation of Common Stock
an offer to buy any security other than the shares
of Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or a
solicitation of an offer to buy the shares of
Common Stock by anyone in any jurisdiction in
which such an offer or solicitation is not --------------------
authorized, or in which the person making such
offer or solicitation is not qualified to do so,
or to any person to whom it is unlawful to make PROSPECTUS
such offer or solicitation. Neither the delivery
of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any ---------------------
implication that the information contained herein
is correct as of any time subsequent to the date
hereof.
</TABLE>
___________________
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C> <C>
Prospectus Summary . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . 9
Price Range of Common Stock . . . . . . . . 9
Dividend Policy . . . . . . . . . . . . . . 9 __________ ___, 1997
Capitalization . . . . . . . . . . . . . . 10
Selected Consolidated Financial Data . . . 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . 12
Business . . . . . . . . . . . . . . . . . 18
Management . . . . . . . . . . . . . . . . 24
Certain Transactions . . . . . . . . . . . 31
Principal and Selling Shareholders . . . . 31
Description of Capital Stock . . . . . . . 33
Plan of Distribution . . . . . . . . . . . 35
Legal Matters . . . . . . . . . . . . . . . 36
Experts . . . . . . . . . . . . . . . . . . 36
Available Information . . . . . . . . . . . 36
Index to Financial Statements
and Schedule . . . . . . . . . . . . . .
F-1
</TABLE>
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. -- Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection
with the issuance and distribution of the securities being registered
hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . . . . . . . . $280
Copying and engraving expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
=======
</TABLE>
- ----------------
* To be filed by Amendment
ITEM 14. -- Indemnification of Directors and Officers.
The Company is a New Jersey corporation. The New Jersey Business
Corporation Act ("NJBCA") provides that, in general, a business corporation may
indemnify any person who is or was a party to any proceeding (other than an
action by, or in the right of, the corporation) by reason of the fact that he
is or was a director or officer of the corporation, against liability incurred
in connection with such proceeding, including any appeal thereof, provided
certain standards are met, including that such officer or director acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, and provided further that, with respect
to any criminal action or proceeding, the officer or director had no reasonable
cause to believe his conduct was unlawful. In the case of proceedings by or in
the right of the corporation, the NJBCA provides that, in general, a
corporation may indemnify any person who was or is a party to any such
proceeding by reason of the fact that he is or was a director or officer of the
corporation against expenses and amounts paid in settlement actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, provided that such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim as to which such person is adjudged liable to the corporation unless a
court of competent jurisdiction determines upon application that such person is
fairly and reasonably entitled to indemnity. To the extent that any officers
or directors are successful on the merits or otherwise in the defense of any of
the proceedings described above, the NJBCA provides that the corporation is
required to indemnify such officers or directors against expenses actually and
reasonably incurred in connection therewith. However, the NJBCA further
provides that, in general, indemnification or advancement of expenses shall not
be made to or on behalf of any officer or director if a judgment or other final
adjudication establishes that his actions, or omissions to act, were: (i) in
breach of his duty of loyalty to the corporation or its shareholders, (ii) not
in good faith or involved a knowing violation of law or (iii) resulted in
receipt by the officer or director of an improper personal benefit. The
Company's Certificate of Incorporation provides that the Company shall
indemnify any director, officer, employee or agent, or any former director,
officer, employee or agent to the full extent permitted by New Jersey law.
II-1
<PAGE> 58
The Company has purchased insurance with respect to, among other
things, any liabilities that may arise under the statutory provisions referred
to above.
ITEM 15. -- Recent Sales of Unregistered Securities.
In March 1997, 270,000 shares of common stock were issued to six
former shareholders of Sunland Computer Services, Inc. in settlement of certain
litigation, in reliance upon the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 16. -- Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 The Company's Certificate of Incorporation, as amended.*
3.2 Certificate of Amendment to the Certificate of Incorporation.*
3.3 The Company's Restated and Amended Bylaws.*
4 Specimen of stock certificate for shares of Common Stock.*
5 Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel.
10.1 Dealer Agreement entered into February 7, 1997, between International Business Machines Corporation and
the Company.
10.2 Dealer Agreement between Hewlett-Packard Company and the Company.
10.3 Dealer Agreement entered into August 26, 1996, between Apple Computer, Inc. and the Company.
10.4 Dealer Agreement dated January 14, 1997 between Apple Computer, Inc. and the Company.
10.5 Dealer Agreement dated August 2, 1990 between COMPAQ Computer Corporation and the Company.
10.6 1987 Incentive Stock Option Plan.*
10.7 1989 Incentive and Non-Qualified Stock Option Plan.*
10.8 Salary Savings Plan and Trust of Dataflex Corporation dated December 21, 1989.*
10.9 1990 Senior Management Incentive and Non-Qualified Stock Option Plan.*
10.10 Form of Stock Option Agreement for 1989 Incentive and Non-Qualified Stock Option Plan by and between the
Company and Richard C. Rose.*
10.11 Form of Stock Option Agreement for 1989 Incentive and Non-Qualified Stock Option Plan by and between the
Company and Gordon J. McLenithan.*
</TABLE>
II-2
<PAGE> 59
<TABLE>
<S> <C>
10.12 Form of Stock Option Agreement for 1990 Senior Management Incentive and Non-Qualified Stock Option Plan
by and between the Company and Richard C. Rose.*
10.13 Form of Stock Option Agreement for 1990 Senior Management Incentive and Non-Qualified Stock Option Plan
by and between the Company and Gordon J. McLenithan. *
10.14 Asset Purchase Agreement between the Company and Granite Computer Products, Inc. dated March 21, 1994.**
10.15 Asset Purchase Agreement between the Company and Advantage Systems, Inc. dated May 23, 1994.***
10.16 1991 Incentive and Non-Qualified Stock Option Plan.****
10.17 Asset Purchase Agreement between Dataflex Corporation and National Data Products, Inc. dated November 17,
1994.*****
10.18 Stock Purchase Agreement between Dataflex Corporation, the sellers named therein and Sunland Computer
Services, Inc. dated August 19, 1994.******
10.19 1992 Incentive and Non-Qualified Stock Option Plan.*******
10.20 1994 Incentive and Non-Qualified Stock Option Plan.********
10.21 Employment Agreement dated April 1, 1993 by and between the Company and Richard C. Rose.*********
10.22 Amendment to Employment Agreement dated April 1, 1993 by and between the Company and Richard C.
Rose.*********
10.23 Asset Purchase Agreement by and among Vanstar Corporation, VST West, Inc., Dataflex Corporation and
Dataflex Southwest Corporation dated May 24, 1996.**********
10.24 Employment Agreement, dated January 11, 1995, by and between the Company and Philip Doganiero.
10.25 Amendment to Employment Agreement, dated April 1, 1995, by and between the Company and Philip Doganiero.
10.26 Employment Agreement, dated January 11, 1995 by and between the Company and Anthony G. Lembo.
10.27 Settlement Agreement and Release dated March 1, 1997.
10.28 Loan and Security Agreement by and between the Company and NationsBank, N.A. (South).
10.29 Loan and Security Agreement by and between the Company and Nationscredit Commercial Corporation
of America
21 Subsidiaries.**********
23.1 Consent of Price Waterhouse LLP.
</TABLE>
II-3
<PAGE> 60
<TABLE>
<S> <C>
* Filed as an exhibit to the Company's Registration Statement on Form S-1 filed February 23, 1990, and
amendments thereto, Registration No. 33033472.
** Filed as an Exhibit to the Company's Form 8-K filed April 23, 1994.
*** Filed as an Exhibit to the Company's Form 8-K filed June 16, 1994.
**** Filed as an Exhibit to the Company's Annual Proxy Statement filed September 1, 1991.
***** Filed as an Exhibit to the Company's Form 8-K filed January 24, 1995.
****** Filed as an Exhibit to the Company's Form 8-K filed August 31, 1994.
******* Filed as an Exhibit to the Company's Annual Proxy Statement filed September 1, 1992.
******** Filed as an Exhibit to the Company's Annual Proxy Statement filed September 1, 1994.
********* Filed as an Exhibit to the Company Form 10-K filed June 29, 1995.
********** Filed as an Exhibit to the Company's Form 8-K filed June 13, 1996.
*********** Filed as an Exhibit to the Company's Form 10-K filed July 30, 1996.
+ To be Filed by Amendment
</TABLE>
(b) Financial Schedule: the financial statement schedule filed as
part of this report are listed separately in the Index to Financial Statements
and Schedule beginning on page F-1 of this report.
ITEM 17. -- Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item 14, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such
securities at that time shall be deemed to be the initial bona fide
Offering thereof.
II-4
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Clearwater, State of
Florida, on April 15, 1997.
DATAFLEX CORPORATION
By: /s/ RICHARD C. ROSE
---------------------------------
Richard C. Rose,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Anthony G. Lembo and Philip Doganiero,
and each of them, with the power to act without the other, as his true and
lawful attorney-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, and in any and all
capacities: (i) to sign any and all amendments (including post-effective
amendments) to this Registration Statement; (ii) to sign any registration
statement to be filed pursuant to Rule 462(b) under the Securities Act for the
purpose of registering additional shares of Common Stock for the same offering
covered by this Registration Statement; and (iii) to file any of the same, with
all exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ANTHONY G. LEMBO President, Chief Operating Officer, April 15, 1997
----------------------------------------------- Chief Financial Officer, Principal
Anthony G. Lembo Accounting Officer and Director
/s/ RICHARD C. ROSE Chief Executive Officer and Director April 15, 1997
-----------------------------------------------
Richard C. Rose
/s/ PHILIP DOGANIERO Chairman of the Board and Director April 15, 1997
-----------------------------------------------
Philip Doganiero
/s/ W. KEITH SCHILIT Director April 15, 1997
-----------------------------------------------
W. Keith Schilit
/s/ BARRY M. ALPERT Director April 15, 1997
-----------------------------------------------
Barry M. Alpert
</TABLE>
II-5
<PAGE> 62
Report Of Independent Accountants On Schedule
Board of Directors and Shareholders of
Dataflex Corporation
In connection with our audit of the consolidated financial statements of
Dataflex Corporation, referred to in our report dated July 2, 1996, which is
included in this Registration Statement, we have also audited Schedule II for
each of the three years in the period then ended. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
PRICE WATERHOUSE, LLP
Morristown, New Jersey
July 2, 1996
II-6
<PAGE> 63
SCHEDULE II
DATAFLEX CORPORATION
Valuation and Qualifying Accounts
For the Years Ended March 31, 1994, March 31, 1995 and March 31, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Charged to Accounts Balance
Beginning Costs and Written Off, at End
Description of Year Expenses Net of Year
----------- ---------- ---------- ------------ -------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended March 31, 1994 $ 60,988 $ 170,098 $ (0) $ 231,086
Year Ended March 31, 1995 $ 231,086 $ 399,918 $ (177,693) $ 453,311
Year Ended March 31, 1996 $ 453,311 $ 213,711 $ ( 51,595) $ 615,427
</TABLE>
II-7
<PAGE> 1
EXHIBIT 5
[GREENBAUM, ROWE, SMITH, RAVIN, DAVIS & HIMMEL LETTERHEAD]
REPLY TO Woodbridge
April 11, 1997
Dataflex Corporation
2145 Calumet Street
Clearwater, Florida 34625
Gentlemen:
In connection with the filing by Dataflex Corporation, a New Jersey
corporation (the "Company") of a Registration Statement on Form S-1
(Registration No. 333- ), covering the registration of 270,000 shares
of common stock, no par value per share ("Common Stock"), we have been asked to
issue an opinion as to whether the Common Stock being registered is legally
issued, fully paid, non-assessable, and binding obligations of the Company.
We have examined the Certificate of Incorporation and By-Laws, as
amended to date, and other corporate records of the Company had have made such
other investigations as we have deemed necessary in connection with the
opinion hereinafter set forth. We have relied, to the extent we deem such
reliance proper, upon certain factual representations of officers and directors
of the Company given in certificates, in answer to our written inquiries and
otherwise, and, although we have not independently verified all of the facts
contained therein, nothing has come to our attention that would cause us to
believe that any of the statements contained therein are untrue or misleading.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us. We have assumed that the corporate records of the Company
furnished to us constitute all of the existing corporate records of the Company
and include all corporate proceedings taken by it.
<PAGE> 2
GREENBAUM, ROWE, SMITH,
RAVIN, DAVIS & HIMMEL
Dataflex Corporation
April 11, 1997
Page 2
Based solely upon and subject to the foregoing, we are of the opinion
that the shares of Common Stock are duly authorized, issued and full paid and
non-assessable, and the issuance of such shares by the Company is not subject
to any preemptive or similar rights.
We hereby consent to the filing of this opinion as an Exhibit to the
aforesaid Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the Prospectus.
Very truly yours,
/s/ Greenbaum, Rowe, Smith, Ravin,
Davis & Himmel
<PAGE> 1
EXHIBIT 10.1
IBM BUSINESS PARTNER AGREEMENT FOR RESELLERS [IBM LOGO]
- --------------------------------------------------------------------------------
1. MARKETING APPROVAL
As our IBM Business Partner-Reseller, we approve you under the terms of this
Agreement to market to End Users Products and Services specified on the
signature page. You acquire such Products and Services from an IBM
Distributor.
2. DEFINITIONS
END USER is anyone who is not part of the enterprise of which you are a
part, who uses Services or acquires Products for its own use and not
for resale.
ENTERPRISE is any legal entity and the subsidiaries it owns by more than 50%.
MACHINE is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term "Machine" includes an IBM
Machine and any non-IBM Machine (including other equipment) that we approve
you to market.
PRODUCT is a Machine or Program.
PROGRAM is an IBM Program or a non-IBM Program provided under its
applicable license terms, that we approve you to market.
SERVICE is the performance of a task, provision of advice and counsel,
assistance, or use of a resource that we approve you to market.
3. OUR RELATIONSHIP
Each of us agrees that:
1. each of us is responsible for our own expenses regarding fulfillment of
our responsibilities and obligations under the terms of this Agreement:
2. neither of us will assume or create any obligations on behalf of the
other or make any representations or warranties about the other,
other than those authorized:
3. neither of us will bring a legal action against the other more than two
years after the cause of action arose, unless otherwise provided by local
law without the possibility of contractual waiver:
4. failure by either of us to insist on strict performance or to exercise a
right when entitled does not prevent either of us from doing so at a later
time, either in relation to that default or any subsequent one:
5. All information exchanged between us is non-confidential, unless both of
us agree otherwise in writing:
6. IBM may change the terms of this Agreement on one month's written notice.
Otherwise, for any other change to be valid, both of us must agree in
writing. Changes are not retroactive. Additional or different terms in a
communication from you are void; and
7. IBM reserves the right to assign, in whole or in part, this Agreement to
any other IBM related company.
4. YOUR RESPONSIBILITIES TO IBM
You agree:
1. to provide us, or our representative with access to your facilities in
order for us to fulfill our obligations and to review your compliance with
the Agreement:
2. your rights under this Agreement are not property rights and, therefore
you can not transfer them to anyone else or encumber them in any way:
3. to maintain the criteria we specified when we approved you;
4. to retain records of each Product and Service transaction (for example a
sale, a credit or a warranty claim) for three years and provide us
relevant records on request. We may reproduce and retain copies of these
records;
5. to report to us any suspected Product defects or safety problems, and to
assist us in tracing and locating Products; and
6. to comply with the highest ethical principles in performing under the
Agreement, you will not offer or make payments or gifts (monetary or
otherwise) to anyone for the purpose of wrongfully influencing decisions
in favor of IBM, directly or indirectly. IBM may terminate this Agreement
immediately in case of a) a breach of this clause or b) when IBM
reasonably believes such a breach has occurred.
5. YOUR RESPONSIBILITIES TO END USERS
You agree to:
1. be responsible for customer satisfaction and to participate in customer
satisfaction programs as we determine;
2. refund the amount paid for a Product returned to you because the End User
returned it to you under the terms of its warranty or did not accept the
terms of the license or a money back guarantee we offer End Users. You may
return such Products to the IBM Distributor form whom you acquired them
for credit.
Page 1 of 4
<PAGE> 2
3. Provide installation and post-installation support for the offering
you marketed. For Products and Services to be the primary contact
for Product information, technical advice and operational advice
associated with the offering. You may delegate these support
responsibilities and those for any other associated products to
another IBM Business Partner who is approved to market such
Products. If you do, you retain customer satisfaction
responsibilities. Alternatively, such support responsibilities will
be provided by IBM if you market the applicable IBM Services to the
End User. If you do, we assume customer satisfaction
responsibilities for such support;
4. provide a dated written record, such as a sales receipt or an
invoice, which specifies the End User's name , the part number of
the Machine type/model, and serial number, if applicable;
5. inform your End User, in writing, who the warranty provider is, if
other than yourself, and of any other applicable Warranty
information, as well as any modification you or the IBM Distributor
make to a Product and advise that such modification may void the
warranty; and
6. inform your End User that the sales receipt (or other documentation
we may specify, such as Proof of Entitlement, if it is required)
will be necessary for proof of warranty entitlement and for Program
Upgrades.
6. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) of any substantive change or anticipated change to the
information supplied in your application. Upon notification of such change,
(or in the event of failure to give notice of such change) IBM may, at its
sole discretion, immediately terminate this Agreement.
7. MARKETING FUNDS AND PROMOTIONAL OFFERINGS
We may provide marketing funds and promotional offerings. If we do, you
agree to use them according to our guidelines and to maintain records of
your activities regarding the use of such funds and offerings for three
years. We may withdraw or recover marketing funds and promotional offerings
from you if you breach any terms of the Agreement. Upon notification of
termination of the Agreement, marketing funds and promotional offerings will
no longer be available for use by you, unless we specify otherwise in
writing.
8. PRODUCTION STATUS
Each IBM Machine is manufactured from new parts, or new and used parts. In
some cases, the IBM Machine may not be new and may have been previously
installed. You agree to inform your End User of these terms in writing.
Regardless of the IBM Machine's production status. IBM's warranty terms
apply. Warranty information is available from your IBM Distributor.
9. WARRANTY SERVICE
If we approve you to provide Warranty Service, you agree to do so under the
guidelines we specify to you.
10. MARKETING OF SERVICES FOR A FEE
You may market IBM Services which IBM or your IBM Distributor make available
to you, to an End User if you 1) marketed a Product under this Agreement
that End User, or 2) are approved on the signature page of this
Agreement to market such Services.
If you market an IBM Service which is eligible for a fee and which your IBM
Distributor makes available to you, we will pay the fee to your IBM
Distributor. Alternatively, if such IBM Service is not available from your
IBM Distributor, but is available to you, we will pay the fee to you.
In either case we will pay the fee when 1)you identify the opportunity and
perform the marketing activities. 2)you provide the order and any required
documents, signed by the End User where required and 3) If a standard
Statement of Work is used, there are no changes, and no marketing assistance
from us is required.
Additionally, for Services we specify, and which are not available from your
IBM Distributor we will pay you a fee when you provide us a lead and the
following criteria are met: 1) it is submitted on a form we provide to you
2) it is for an opportunity which is not known to us, and 3) it results in
the End User ordering the Service from us within six months from the date we
receive the lead from you.
11. EXPORT
You may actively market Products and Services only within the geographic
scope specified in this Agreement. You may not market outside this scope and
you agree not to use anyone else to do so. If a customer acquires a Product
for export, our responsibilities, if any, under this Agreement no longer
apply to that Product, unless the Product's warranty or license terms state
otherwise. You agree to use your best efforts to ensure that your customer
complies with all export laws and regulations including those of the United
States and the country specified in the Governing Law Section of this
Agreement, and any laws and regulations of the country in which the Product
is imported or exported. Before your sale of such Product, you agree to
prepare a support plan for it and obtain your customer's agreement to that
plan. Within one month of sale, you agree to provide us with the customer's
name and address, Machine type/model and serial number, date of sale, and
destination country. We exclude those Products from any of your attainment
objectives and qualification for applicable promotional offerings and
marketing funds.
Page 2 of 4
<PAGE> 3
12. TRADEMARKS
We will notify you in written guidelines of the IBM Business Partner title
and emblem which you are authorized to use. You may not modify the emblem in
any way. You may use our Trademarks (which include the title, emblem, IBM
Trademarks and service marks) only:
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market; and
3. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the Trademarks
will be waived, since the use of this asset is in conjunction with marketing
activities supporting sales of Products and Services.
You agree to promptly modify any advertising or promotional materials that
do not comply with our guidelines. If you receive any complaints about your
use of a Trademark, you agree to promptly notify us. When this Agreement
ends, you agree to promptly stop using our Trademarks. If you do not, you
agree to pay any expenses and fees we incur in getting you to stop.
You agree not to register or use any mark that is confusingly similar to any
of our Trademarks.
Our Trademarks, and any goodwill resulting from your use of them, belong to
us.
13. LIABILITY
Circumstances may arise where, because of default or other liability, one of
us is entitled to recover damages from the other. In each such instance,
regardless of the basis on which damages can be claimed, the following terms
apply as your exclusive remedy and our exclusive liability.
We are responsible for the amount of any actual loss or damage, up to the
greater of $100,000 or the charges (if recurring, 12 months' charges apply)
for the Product that is the subject of the claim.
Under no circumstances (except as required by law) are we liable for
third-party claims against you for losses or damages, or for special,
incidental, or indirect charges, or for any economic consequential damages
(including lost profits or savings) even if we are informed of their
possibility.
In addition to damages for which you are liable under law and the terms of
this Agreement, you will indemnify us for claims by others made against us
by others (particularly regarding statements, representations, or warranties
not authorized by us) arising out of your conduct under this Agreement or as
a result of your relations with anyone else.
14. ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means, and such
communication is acceptable as a signed writing to the extent permissible
under applicable law. Both of us agree that for all electronic
communications, an identification code (called a "user ID") contained in an
electronic document is legally sufficient to verify the sender's identity
and the document's authenticity.
15. ENDING THE AGREEMENT
Either of us may terminate this Agreement, with or without cause, on three
months' written notice. If, under applicable law, a longer period is
mandatory, then the notice period is the minimum notice period allowable.
If we terminate for cause we may, at our discretion, allow you a reasonable
opportunity to cure. If you fail to do so, the date of termination is that
specified in the notice.
However, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of such
breach by you are if you do not maintain customer satisfaction; if you
repudiate this Agreement; or if you make any material misrepresentations to
us. You agree that our only obligation is to provide the notice called for
in this section and we are not liable for any claims or losses if we do so.
You agree that if we permit you to perform certain activities after this
Agreement ends, you will do so under the terms of this Agreement.
16. GEOGRAPHIC SCOPE
all the rights and obligations of both of us are valid only in the United
States and Puerto Rico.
17. GOVERNING LAW
The laws of the State of New York govern this Agreement. The "United Nations
Convention on the International Sale of Goods" does not apply.
Page 3 of 4
<PAGE> 4
CONTRACT START DATE________________ DURATION 24 MONTHS LOCATION ID_____
Unless we specify otherwise in writing, the Agreement will be renewed
automatically for subsequent two year periods. Each of us is responsible to
provide the other three months' written notice if the Agreement will not be
renewed.
PRODUCTS AND SERVICES YOU ARE APPROVED TO MARKET:
Personal computer Products and associated Services.
MINIMUM ANNUAL ATTAINMENT: NOT APPLICABLE
This Agreement is the complete agreement regarding this relationship, and
replaces any prior oral or written communications between us. Once this
Agreement is signed 1) any reproduction of this Agreement made by reliable
means (for example, photo-copy or facsimile) is considered an original, to the
extent permissible under applicable law, and 2) all Products and Services you
market and Services you perform under this Agreement are subject to it.
<TABLE>
<S> <C>
Agreed to: /s/Dataflex Corporation Agreed to:
------------------------
(IBM Business Partner Name) International Business Machines Corporation
By: /s/ Anthony G. Lembo By:
------------------------------ ---------------------------------
(Authorized Signature) (Authorized Signature)
Name (type or print): Anthony G. Lembo Name (type or print):
Date: 2/7/97 Date:
IBM Business Partner Address IBM Address: IBM Corporation
3039 Cornwallis Rd.
Building 201
Research Triangle Park, NC 27709
</TABLE>
Page 4 of 4
<PAGE> 1
EXHIBIT 10.2
U.S. SECOND TIER RESELLER AGREEMENT
1. APPOINTMENT
Hewlett-Packard Company ("HP") appoints Second Tier Reseller as an
authorized, non-exclusive Second Tier Reseller for marketing the HP
Products listed on the Product Exhibits and purchased from your Dual
Source Suppliers. Second Tier Reseller's appointment is subject to the
terms of this U.S. Second Tier Reseller Agreement and the associated
Addenda, Product Exhibits and HP Product. Categories ("Product
Categories") (collectively, "Agreement") for the period from the
effective date through the expiration date of this Agreement. Second
Tier Reseller accepts appointment on these terms.
2. STATUS CHANGE
A. If second Tier Reseller wishes to:
1. Change its name or that of any approved location;
2. Add, close or change an approved location;
3. Undergo a merger, acquisition, consolidation, or other
reorganization with the result that any entity controls
50% or more of Second Tier Reseller's capital stock or
assets after such transaction; or
4. Undergo a significant change in control or management of
Second Tier Reseller operations;
then Second Tier Reseller shall notify HP in writing prior to
the intended date of change.
B. HP agrees to promptly notify Second Tier Reseller of its approval
or disapproval of any proposed change, provided that the Second
Tier Reseller has given HP all information and documents
reasonably requested by HP.
C. HP must approve proposed Second Tier Reseller changes prior to any
obligation of HP to perform under this Agreement with Second Tier
Reseller as changed.
7. PRICES
Upon request from Second Tier Reseller, at its discretion HP may grant
special pricing for particular end-user customer transactions. In
good faith, HP may retract the special pricing at any time before
acceptance by the end-user customer. HP may extend the pricing on an
exclusive or non-exclusive basis and may condition the pricing on a
pass-through of all or part of the non-standard offering extended by
HP.
10. SOFTWARE
Second Tier Reseller is granted the right to distribute software
materials supplied by HP only in accordance with the license terms
supplied with these materials. Second Tier Reseller may alternatively
acquire the software materials from HP for its own demonstration
purposes in accordance with the terms for use in those license terms.
11. TRADEMARKS
A. From time to time, HP may authorize Second Tier Reseller to
display one or more designated HP trademarks. Second Tier
Reseller may display the trademarks solely to promote HP Products.
Any display of the trademarks must be in good taste, in a manner
that preserves their value as HP trademarks, and in accordance
with standards provided by HP for their display. Second Tier
Reseller will not use any name or symbol in a way which may imply
that Second Tier Reseller is an agency or branch of HP; Second
Tier Reseller will discontinue any such use of a name or mark as
requested by HP. Any rights or purported rights in any HP
trademarks acquired through Second Tier Reseller's use belong
solely to HP.
B. Second Tier Reseller grants HP the non-exclusive, royalty-free
right to display Second Tier Reseller's trademarks in advertising
and promotional material solely for directing prospective
purchasers of HP Products to Second Tier Reseller's selling
locations. Any display of the trademarks must be in good taste,
in a manner that preserves their value as Second Tier Reseller's
trademarks, and in accordance with standards provided by Second
Tier Reseller for their display. Any rights or purported rights
in any Second Tier Reseller trademarks acquired through HP's use
belong solely to Second Tier Reseller.
12. WARRANTY
A. HP Product User Warranties are described on the Product Exhibits
and apply only to end-user purchasers of HP Products. HP
revisions to the User Warranties will be effective on the date
specified by HP. Copies of User Warranties will be supplied with
HP Products. Second Tier Reseller must provide a copy of the
associated User Warranty for an HP Product to each end-user prior
to sale.
B. HP Product Warranty begins upon purchase by the Reseller's
end-user customer and shall be verified by proof of acquisition by
the end-user or via HP's electronic warranty verification system.
C. HP PRODUCT USER WARRANTIES ARE THE EXCLUSIVE WARRANTIES COVERING
HP PRODUCTS AND ARE IN LIEU OF ANY OTHER WARRANTIES, WRITTEN OR
ORAL, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
D. Some HP Products may contain selected remanufactured parts
equivalent to new in performance.
13. LIMITATION OF REMEDIES AND LIABILITY
A. The remedies provided in this Agreement are Second Tier Reseller's
sole and exclusive remedies against HP.
B. HP will be liable for damage to tangible property, bodily injury
or death to the extent a court of competent jurisdiction
determines that an HP Product sold under this Agreement is
defective and has directly caused such damage, injury or death,
provided that HP's liability for damage to tangible property will
be limited to $300,000 for incident.
C. HP will be liable to Second Tier Reseller for any net credits due
from HP pursuant to the express provisions of this Agreement. IN
NO EVENT WILL HP BE LIABLE FOR LOSS OF DATA, FOR INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS) OR FOR ANY OTHER DAMAGES WHETHER
<PAGE> 2
BASED ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY.
14. INTELLECTUAL PROPERTY INDEMNITY
A. HP will defend any claim against Second Tier Reseller that any HP
Product infringes a patent, utility model, industrial design,
copyright, mask work or trademark in the country where Second
Tier Reseller acquires or sells the Product from HP, provided
that Second Tier Reseller;
1. Promptly notifies HP in writing of the claim; and
2. Cooperates with HP in and grants HP sole authority to control
the defense and any related settlement.
HP will pay the cost of such defense or settlement and any costs
and damages finally awarded by a court against Second Tier
Reseller.
B. HP's indemnity shall extend to Second Tier Reseller's end-users
under this Agreement provided they comply with the obligations
above.
C. HP may procure for Second Tier Reseller, its customers and
end-users the right to continued sale or use, as appropriate, of
the Product or HP may modify or replace the Product if a court
enjoins the sale or use of the Product and HP determines that none
of the above alternatives is reasonably available, HP will accept
return of the Product and refund its depreciated value.
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or
instructions of Second Tier Reseller;
2. Modification of the Product by Second Tier Reseller or a third
party;
3. Use of the Product in a way not specified by HP; or
4. Use of the Product with products not supplied by HP.
E. This Section states HP's entire liability to Second Tier Reseller
and its customers and end-users for infringement.
15. SECOND TIER RESELLER RECORD-KEEPING
A. For contract compliance verification, product safety information,
operational problem correction and the like, Second Tier Reseller
must maintain records of customer purchases of HP hardware
products for one year. Records must include customer name,
address, phone number, ship-to address, serial number and date of
sale. HP may require monthly reporting incorporating the
previous month's date for each approved location.
B. HP may require Second Tier Reseller to provide HP or HP's
designate with HP Product inventory and sales data including, but
not limited to, information such as total units of selected HP
Products sold and held in all inventory by month for each approved
location, in a format specified by HP. HP may require monthly
reporting incorporating the previous month's data for each approved
location.
C. In addition, Second Tier Reseller must comply with any reporting
requirements for HP programs.
D. At HP's discretion and upon notice to Second Tier Reseller, HP or
HP's designate will be given prompt access during normal business
hours, either on site or through other means specified by HP, to
Second Tier Reseller's customers records, inventory records and
other books and records of account specifically related to HP
Products as HP believes are reasonably necessary to verify and
audit Second Tier Reseller's compliance with this Agreement.
E. Failure to promptly comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of this
Agreement on 15 days' notice without further cause.
F. HP may recover all reasonable actual costs associated with
compliance verification procedures from Second Tier Reseller's HP
Advantage program funds, rebate funds or any other HP accrued
funds due Second Tier Reseller by HP.
G. HP may debit the appropriate Dual Source Supplier and/or Second
Tier Reseller for all wrongfully claimed discounts, rebates,
promotional allowances or other amounts determined as a result of
HP's audit.
16. AMENDMENTS
A. From time to time, HP may add products to or delete them from the
Product Exhibits, or implement or change HP policies or programs,
at HP's discretion, after reasonable notice to Second Tier
Reseller.
Additionally HP may give Second Tier Reseller 30 days' advance
notice of any other amendment to this Agreement.
B. Any amendment will automatically become a part of this Agreement
on the effective date specified in the notice.
C. Each party agrees that the other has made no commitments regarding
the duration or renewal of this Agreement beyond those expressly
stated in this Agreement.
17. TERMINATION OF AGREEMENT
A. Either party may terminate this Agreement without cause at any
time upon 30 days' written notice or with cause at any time upon
15 days' written notice to the other party.
B. This Agreement shall terminate immediately if Second Tier Reseller
ceases to have a buying relationship with both Dual Source
Suppliers or if both Dual Source Suppliers undergo any of the
types of status changes described in Section 2 of this Agreement
which are not approved by HP.
C. This Agreement shall terminate immediately if HP's Agreement with
both of Second Tier Reseller's Dual Source Suppliers terminate.
D. Upon termination or expiration of this Agreement for any reason,
Second Tier Reseller will immediately cease to be an authorized HP
Reseller and will refrain from representing itself as such and
from using any HP trademark or trade name.
E. Upon any termination or expiration, either party may require that
HP purchase and Second Tier Reseller sell to HP any HP Products
sold to Second Tier Reseller by Dual Source Suppliers under this
Agreement that are on HP's then current Product Exhibits and which
are in their unopened, original packaging and marketable as new
merchandise. HP will pay Second Tier Reseller the lower of HP's
then current Net price or First Tier Reseller's original purchase
price less any promotional or other discounts or credit extended
to First Tier
<PAGE> 3
Reseller for the Product, whichever is lower. Second Tier Reseller
should contact its HP sales representative for information about the
items eligible for repurchase and instructions for their return at HP's
expense.
F. Upon termination of this Agreement, or expiration without renewal of
this Agreement, all rights to any accrued HP Advantage program or other
promotional funds will automatically lapse.
G. The Indemnities provided in this Agreement will survive termination or
expiration of this Agreement.
16. RELATIONSHIP
A. Second Tier Reseller's relationship to HP will be that of an
independent contractor. Second Tier Reseller and HP agree that this
Agreement does not establish a franchise, joint venture or
partnership. HP shall not be deemed a party to any agreement between
either Dual Source Supplier and Second Tier Reseller.
B. Unless expressly authorized by HP in writing in advance, any commitment
made by Second Tier Reseller to its customers with respect to price,
quantities, delivery, specifications, warranties, modifications,
interfacing capability or suitability will be Second Tier Reseller=s
sole responsibility, and Second Tier Reseller will indemnify HP from
liability for any such commitment by Second Tier Reseller.
C. List prices are suggested prices for resale to end-user customers.
Second Tier Reseller has the right to determine its own resale prices,
and no HP representative will require that any particular resale price
be charged by Second Tier Reseller or grant or withhold any treatment
to Second Tier Reseller based on Second Tier Reseller's resale pricing
policies. Second Tier Reseller agrees that it will promptly report any
effort by HP personnel to interfere with its pricing policies directly
to any HP officer or manager.
D. This Agreement applies only to the HP Products listed on the Product
Exhibits (U.S. versions only). Second Tier Reseller acknowledges that
HP may market other products, including products in competition with
those listed on the Product Exhibits without making them available to
Second Tier Reseller. HP reserves the right to advertise, promote and
sell any product, including HP Products on the Product Exhibits in
competition with Second Tier Reseller.
E. Nothing contained in this Agreement shall prevent a Second Tier
Reseller from purchasing individually, on it own credit and account
directly from HP should it elect to do so, but nothing shall obligate
HP to sell directly to Second Tier Reseller.
19. POLICIES AND PROGRAMS
From time to time, HP may offer or change HP policies and programs, such
as but not limited to the HP Advantage program and Premier Support program,
participation in which will be on the current terms and conditions of the
policies and programs.
20. GENERAL CONDITIONS
A. Neither party may assign any rights or obligation in this Agreement
without the prior written consent of the other party. Any attempted
assignment will be deemed void.
B. Neither party's failure to enforce any provision of this Agreement will
be deemed a waiver of that provision or of the right to enforce it in
the future.
C. This Agreement, including the attached Addenda, associated Product
Exhibits and Product Categories contains and constitutes the entire
understanding between the parties relating to its subject matter. HP
hereby gives notice of objection to any additional or inconsistent
terms set forth in any purchase order or other document issued by
Second Tier Reseller. Except as provided in paragraphs 16A and 16B of
this Agreement, no modification of this Agreement will be binding on
either party unless made in writing and signed by both parties.
D. No U.S. Government procurement regulations will be deemed included in
this Agreement or binding on either party unless specifically accepted
in writing and signed by both parties.
E. This Agreement will be governed by laws of the State of California.
F. If any clause of this Agreement is held invalid, the remainder of the
Agreement will continue unaffected.
21. NOTICES
All notices and demands issued under the terms of this Agreement shall be in
writing, delivered by fax, personal service, first class mail postage prepaid
or by registered mail to a location set forth in this Agreement or to HP at
5301 Stevens Creek Boulevard, P.O. Box 58059, Santa Clara, California
95052-8059 or to the assigned local HP Sales Representative.
<PAGE> 1
EXHIBIT 10.3
APPLE EDUCATION SALES AGENT
FISCAL YEAR 1997 AGREEMENT
(LIMITED DURATION)
THIS AGREEMENT is between Apple Computer, Inc., a California
corporation with its principal place of business located at One Infinite Loop,
Cupertino, California 95014 ("Apple"), and Dataflex Corporation, a corporation
organized under the laws of New Jersey with its principal place of business
located at 2145 Calumet St., Clearwater, FL 34625 ("Sales Agent" or "Agent").
1. DEFINITIONS
The following terms shall have the meanings set forth below whenever
they are capitalized and used in this Agreement, in any Addenda, or in
any documents incorporated by reference:
A. "Agreement" shall mean this 1997 Apple Education Sales Agent Agreement
and any other documents incorporated by reference.
B. "Apple Product(s)" and/or "Product(s)" - shall mean hardware, software,
support, and training products, including items manufactured,
distributed or licensed ("sold") exclusively by Apple and items
manufactured or distributed by others, that may be sold by Apple to
Authorized Customers.
C. "Authorized Customers" or "Authorized Education Customers" shall mean
the Kindergarten through Twelfth Grade ("K-12") institutional customers
specifically assigned to Agent by name or territory by Apple.
D. "Authorized Product(s)" shall mean those Products listed in the
then-current Apple Education Sales Product & Price list ("Education
Price List") that Agent is authorized to promote to its Authorized
Education Customers.
E. "Central Processing Unit", or "CPU" shall mean that logic board assembly
consisting of random access memory, microprocessor, read only memory
with support for displays, and peripheral input-output devices such as
keyboard, mice, disk drives.
F. "Authorized Customer/Compensation Schedule" or the "Schedule" shall
mean the K-12 institutional customers within the assigned territory,
which is specifically assigned to Sales Agent by Apple, and the
guidelines for Sales Agent remuneration. Both may be modified by Apple
from time to time.
G. "Consumables" shall mean those items, such as specialty paper/media,
toner cartridges, inkjet tanks and cartridges, printer ribbons, floppy
disks and labels, as specified by Apple in the appropriate price list,
that Agent shall be permitted to order and resell to its Authorized
Education Customers.
H. "Education Customers" shall mean all public and private nonprofit K-12
education institutions.
I. "Effective Date" shall mean October 5, 1996, or the day after the Sales
Agent's "Apple Education Sales Agent 1995 Agreement (Limited Duration)"
is terminated, whichever occurs earlier.
1
<PAGE> 2
J. "Performance Requirements for Sales Agents" shall mean the obligations
with which Sales Agents must comply to maintain their authorization as
an Apple Education Sales Agent.
K. "Statement of Work" means the documentation sent to Sales Agent by
Apple, which describes the responsibilities and obligations of the
Sales Agent to promote Apple products, services, and solutions to
Authorized Customers on Apple's behalf. These requirements and
responsibilities may be modified by Apple at its sole discretion from
time to time.
L. "Sales Agent," or "Agent," shall mean the entire legal entity
(Corporation, Partnership, or Sole Proprietorship) that is a party to
and authorized by this Agreement.
M. "Personal Digital Assistant," or "PDA" shall mean hand held or other
portable computing devices which capture data through pen, voice,
keyboard, touch or similar input and which consist of random access
memory, microprocessor, read only memory, built in display, and built
in wireless or wired communication capability.
N. "Server," shall mean the system assembly consisting of logic board
assembly including random access memory, microprocessor and read only
memory, with support for displays, connection devices, software and
peripheral input-output devices such as keyboard, mice, disk drives,
back-up, and compact disk; and with the capability to store and serve
resources on a Local Area Network or Wide Area Network, or to act as a
Server in a Client Server environment.
O. "Performance Review" shall mean the documentation sent to Sales Agent
by Apple on or about March, 1996, which requested information regarding
the Sales Agent's evaluation of its performance under the "Apple
Education Sales Agent 1995 Agreement (Limited Duration)," and it
includes the Sales Agent's complete written response to that
documentation.
P. "Printer" shall mean any device capable of delivering visual images
processed on a computer to a medium such as paper or film. A printer
is considered capable of reproducing a visual image to a media capable
of being distributed or copied.
Q. "Assigned Territory" shall mean the territory assigned by Apple to the
Sales Agent, which may be modified by Apple from time to time.
2. APPOINTMENT OF SALES AGENT
A. Appointment. Apple hereby appoints Sales Agent as an Authorized Apple
Education Sales Agent solely for the purpose of soliciting sales of
Apple Products from Authorized Customers on Apple's behalf. Sales
Agent shall aggressively promote the sale of Apple Products to
Authorized Customers in accordance with the terms of the Agreement.
Sales Agent may not solicit sales under this Agreement from any other
customers. This appointment extends only to those Apple Products and
designated in the Education Price List and any additional products
specified by Apple from time-to-time.
B. No Assignment. The authorization is based upon the existing ownership
of Sales Agent and is, therefore, personal in nature. Consequently,
Sales Agent may not assign or transfer any or all of its rights or
obligations under the Agreement without express written approval from
Apple; and, any change in ownership without such approval shall be
grounds for immediate termination.
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C. Limited Agent. Sales Agent is an agent of Apple only for the limited
purpose of aggressively promoting the sale of Apple Products in
accordance with this Agreement. Sales Agent is not authorized pursuant
to this Agreement to provide service and support of Apple Products.
D. Independent Status. Nothing stated in this Agreement shall be
construed as constituting Apple and Sales Agent as partners or joint
ventures, or as creating the relationship of employer and employee,
master and servant, franchisor and franchisee, or licensor and licensee
between Apple and Sales Agent.
3. SCOPE OF AUTHORIZATION
A. Limited Duties and Rights. Sales Agent agrees to perform the following
limited duties and Apple grants Sales Agent the following limited
rights:
(1) to directly solicit sales of Apple Products contained in the Apple
Education Price List from Authorized Customers, in accordance with
Apple's guidelines as they are amended from time to time, subject to
Apple's final acceptance of any purchase order;
(2) subject to the limitations of Section 6 below, to use Apple's name and
trade designations, in connection with the solicitation of sales of
Apple Products to Authorized Customers;
B. Authorized Customers.
Authorized Customers are assigned to Sales Agent by name and/or
territory. Sales Agent understands and agrees that during the course
of this Agreement, changes may be needed by Apple in the solicitation
of, sale, marketing, installation, demonstration and/or distribution of
Apple Products to K-12 institutional customers. Such changes, which
will be made by Apple in its sole discretion, could result from changes
in federal, state and/or local laws, competitive bidding, or other
requirements. Apple reserves the right to (1) discontinue or modify
Sales Agent's assignment of any or all of the assigned Authorized
Customers at any time, with or without cause, upon written notice to
Sales Agent, and (2) authorize other entities to solicit the sale of,
sell, market, install, demonstrate, distribute or otherwise promote
Apple Products to Authorized Customers assigned to Sales Agent. At
Apple's sole discretion the Sales Agent may or may not be compensated
for these sales.
C. Apple-Only.
Sales Agent agrees that it shall not, in any capacity, solicit the sale
of, sell, distribute, market, install, demonstrate or otherwise promote
to any Education Customers, including Sales Agent's Authorized
Customers, any CPU, PDA, Printer, or Server, other than those
manufactured by Apple or appearing on the Apple Education Price List,
without the prior written consent of Apple.
D. Resale of Consumables. Subject to credit approval, Sales Agent may
purchase certain Consumables as Apple designates on the then-current
appropriate price list for resale to the Authorized Customers assigned
to it.
E. Reserved Rights. Apple reserves the right to change purchase terms and
conditions, to decline any purchase orders, and to discontinue any
promotion, program, or Product subject to such orders, without
obligation to Sales Agent.
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4. SALES AGENT OBLIGATIONS
A. Promotion of Apple Products. Sales Agent agrees to conduct its
business in a manner that reflects favorably on Apple's Products and
their high-quality image, and on the good name, goodwill, and
reputation of Apple. Sales Agent shall:
(1) comply with Apple's programs and policies contained in documentation
available to Sales Agent;
(2) maintain at least one office location where Sales Agent's staff can
meet and Apple Products can be demonstrated. The interior and exterior
of all Sales Agent office locations will be maintained in a manner that
is conducive to the demonstration and promotion of Apple Products;
(3) utilize the promotional programs and funds Apple makes available, if
any, in accordance with guidelines published by Apple from time to time;
(4) make no representations (written or oral) with respect to the
specifications, features, or capabilities of Apple Products that are
not consistent with those contained in promotional materials produced
by Apple, including, but not limited to warranties, service, support
and training.
B. Compliance with Laws. Sales Agent shall comply with all applicable
federal, state, and local laws and ordinances in performing its duties
hereunder and in any of its dealings with Apple or Apple Products.
C. Adhere to Business Plan. As required from time-to-time by Apple, Sales
Agent shall submit business plans which shall be subject to Apple's
approval. Sales Agent shall adhere to its approved business plan.
D. Adhere to Statement of Work. Sales Agent agrees to comply with the
obligations set forth in the Document entitled, "Statement of Work",
which may be modified by Apple from time to time.
E. Administrative Requirements. To qualify for and maintain its
authorization as an Apple Education Sales Agent during the term of this
Agreement, Sales Agent agrees that it shall comply with the following:
(1) Sales Agent shall provide reports and plans as required by Apple in the
"Statement of Work" or as Apple may require from time to time.
(2) Sales Agent shall provide annual financial statements for its most
recent fiscal year as well as trade credit and bank references, in a
format specified by Apple. Upon Apple's request, Sales Agent shall
provide Apple with audited financial statements. Sales Agent
acknowledges that its furnishing or its failure to furnish such
financial information may result in a modification of the credit terms,
if any, offered Sales Agent by Apple and/or termination of this
Agreement.
(3) Sales Agent shall notify Apple in writing no less than TWENTY (20)
BUSINESS DAYS prior to any material change in the management or control
of Sales Agent, or any transfer of any substantial part of Sales
Agent's business, whether by sale of shares, sale of assets, merger,
liquidation, or otherwise.
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(4) Sales Agent shall promptly notify Apple in writing of any suspected
product defect, safety problem, or claim or proceeding involving the
advertisement, promotion, sale or support of Apple Products by Apple or
Sales Agent.
(5) Sales Agent shall allow Apple, upon reasonable notice, to inspect Sales
Agent's business operations, including all facilities and such records
that relate to promotional programs and funds Apple makes available.
Sales Agent shall maintain for at least FIVE (5) YEARS its records,
contracts, and accounts relating to the Sales Agent's utilization of
such promotional funds under this Agreement, to the extent Apple
establishes such a program. Sales Agent upon reasonable notice shall
allow Apple to audit and copy such records.
F. Territories.
Each Sales Agent may be assigned one or more Territories. Each
Territory shall be described in the Authorized Customer/Compensation
Schedule, or as agreed to in writing by Apple. Sales Agent shall
establish and maintain a sales manager, field sales representatives,
systems engineers, and any other positions, defined in the Statement of
Work, or as required by Apple from time to time for each individual
sales territory.
5. COMPENSATION
A. Sales Agent will be compensated for sales they solicit, at the
then-current rates set by Apple in the Authorized Customer/Compensation
Schedule. Apple anticipates that the Schedule will be issued to the
Sales Agent on or about November 1, 1996. Sales Agent may or may not
be compensated for sales of Apple Products solicited by other entities,
as determined by Apple in its sole discretion. Apple reserves the
right to modify the compensation rate from time to time.
B. For the Sales Agent to be eligible for compensation, the Education
Customer must be Sales Agent's Authorized Customer during the period
which Sales Agent would otherwise be eligible for compensation under
the Authorized Customer/Compensation Schedule.
C. No compensation specified in subsection 5A, above shall be due to Sales
Agent, and any compensation paid shall be refunded by Sales Agent, to
the extent that:
(1) such Apple Products are rejected or returned in whole or in part;
(2) any portion of the purchase price for such Apple Products becomes
subject to adjustment, refund or rebate; or
(3) payment to Apple for the Apple Products must or may be required to be
returned by Apple in connection with any claim, action or proceeding
(whether voluntary or involuntary) involving an Authorized Customer
under any bankruptcy, insolvency, debtor's relief law or otherwise.
Should no claim be made or action filed within eighteen (18) months
after such payments are made, Sales Agent shall be entitled to the
compensation.
6. APPLE PROPRIETARY RIGHTS
A. Trademarks, Service Marks and Trade names
(1) During the term of the Agreement, Sales Agent is authorized and
permitted by Apple to display the registered trademarks "Apple" and the
Apple logo, the other trademarks,
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<PAGE> 6
service marks and names belonging or licensed to Apple ("Apple Marks")
solely in connection with Sales Agent's promotion of Apple Products.
Sales Agent's display of such Apple Marks shall be in accordance with
Apple's written policies in effect from time to time. Sales Agent will
not remove any Apple Marks from any Authorized Products nor shall Sales
Agent add any marks to such Products.
(2) Apple retains all rights not expressly conveyed to Sales Agent by the
Agreement. Sales Agent recognizes the great value of the publicity and
goodwill associated with the Apple Marks and acknowledges that such
goodwill exclusively inures to the benefit of and belongs to Apple.
Sales Agent has no rights of any kind whatsoever with respect to the
Apple Marks. Sales Agent shall not use or license others to use the
Apple Marks on or in connection with any goods or services (including
but not limited to promotional and merchandising items such as key
chains, mugs, and T-shirts) other than the Apple Products, except in
accordance with Apple's written merchandising programs and policies.
7. INSURANCE AND INDEMNITIES
A. Insurance. While this Agreement is in effect, Sales Agent shall keep
in force and effect for each office a sufficient general liability
insurance policy, including premises liability, products, and completed
operations, with limits of coverage not less than $1,000,000.00 bodily
or personal injury and $1,000,000.00 property damage, or $1,000,000.00
combined single limit.
B. Apple Indemnity. Apples agrees to defend any proceeding or action
brought by a third party against Sales Agent to the extent based on a
claim that: (1) the marketing or use of any product sold by Apple to an
Authorized Customer infringes any U.S. patent, copyright, trademark,
trade secret or other proprietary right of a third party; or (2) a
defective Apple product directly caused death or personal injury
(provided the product at issue has not been altered, modified or
otherwise changed by Sales Agent). Apple agrees to indemnify Sales
Agent for damages awarded to third parties solely as a result of such
claims. Apple's obligation to so defend and indemnify Sales Agent is
contingent on Sales Agent's compliance with subsection 7D below.
IN NO EVENT WILL APPLE BE LIABLE FOR ANY LOST PROFITS OR OTHER
INDIRECT, CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES OF AGENT, EVEN
IF APPLE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
C. Sales Agent Indemnity. Agent agrees to indemnify and hold Apple
harmless from and against any and all claims, costs, damages, and
liabilities whatsoever asserted by any person or entity, resulting
directly or indirectly from the acts, omissions, or negligence of
Agent, its employees, or agents. Such indemnification shall include
all reasonable legal fees and other costs incurred by Apple in
defending any such claims. Sales Agent's obligations to indemnify and
hold Apple harmless is contingent on Apple's compliance with
subsection 7D below.
D. Notice/Defense. Each party shall promptly notify the other party of
any claim, demand, proceeding or suit of which the other party
becomes aware which may give rise to a right of defense or
indemnification pursuant to this section ("Claim"). Notice of any
Claim which is a legal proceeding, by suit or otherwise, must be
provided to the indemnifying party within THIRTY (30) days of first
learning of such proceeding. Notice shall include an offer to tender
the defense of the Claim to the indemnifying party. The indemnifying
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party, if it accepts such tender, shall be entitled to take over sole
control of the defense of the Claim. That control shall include the
right to take any and all actions necessary to completely and finally
resolve the Claim by settlement or compromise (in which case the
indemnifying party shall be responsible for the cost of
settlement/compromise related to the Claim). Upon acceptance of tender,
the indemnified party shall cooperate with the indemnifying party with
respect to such defense and settlement. In the event a Claim is settled,
both parties agree not to publicize the settlement and will make every
effort to ensure the settlement agreement contains a non-disclosure
provision.
8. CONFIDENTIALITY
Any information disclosed to Sales Agent by Apple relating to Apple's
present or future developments, including but not limited to future
product information, business activities, terms and conditions of this
Agreement (including any documents incorporated by reference), pricing,
and all other amendments and addenda between Sales Agent and Apple
(except such information as is previously known to Sales Agent without an
obligation of confidentiality or is publicly disclosed by Apple either
prior or subsequent to Sales Agent's receipt of such information from
Apple), shall be characterized as confidential information. Sales Agent
shall hold such confidential information in trust and confidence for
Apple and shall not use it except in furtherance of the relationship set
forth in the Agreement, nor publish, disclose, or disseminate it for a
period of FIVE (5) YEARS after receipt thereof by Sales Agent, except as
may be authorized by Apple in writing. Sales Agent shall have no right
to prepare any derivative works of such confidential information.
9. LIMITATION OF LIABILITY
IN NO EVENT SHALL APPLE BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL,
INDIRECT, OR SPECIAL DAMAGES OF ANY NATURE, INCLUDING, WITHOUT
LIMITATION, LOST BUSINESS PROFITS. DIRECT DAMAGES SHALL BE LIMITED TO AN
AMOUNT NOT TO EXCEED $100,000 PER INCIDENT.
10. TERM AND TERMINATION
A. Term. Unless terminated as provided herein, this Agreement shall be
effective from its Effective Date until its expiration on September, 26
1997. Sales Agent and Apple agree that in no event shall either party be
obligated to renew or extend the Agreement.
B. Termination with Sixty (60) Days Notice. Either party may terminate this
Agreement at will, at any time, with or without cause, by written notice
to the other party not less than SIXTY (60) DAYS before the effective
date of such notice.
C. Immediate Termination. To the extend permitted by applicable law, Apple
may terminate the Agreement effective immediately and without notice in
the event that:
(1) Sales Agent fails to perform any obligation, duly, or responsibility
imposed under this Agreement and such failure or default remains
unremedied FIFTEEN (15) DAYS after written notice thereof.
(2) Sales Agent commits a felony or engages in an unlawful business practice
or conduct prohibited in Sections 2,3, or 4 of this Agreement.
(3) There is any material change or transfer in the management or control of
Sales Agent, Sales Agent's business operations, or any new affiliation or
transfer of any substantial part of its business.
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(4) Any conduct or proposed conduct of Sales Agent exposes or threatens to
expose Apple to any liability or obligation, including any federal,
state, or local law.
(5) Sales Agent fails to maintain sufficient net worth and working capital to
perform its obligations; has a receiver or similar party appointed for
its property; becomes insolvent or makes an assignment for the benefit of
creditors; closes its offices or ceases to promote and solicit sales of
Apple Products to its Authorized Customers.
D. Effect of Notice of Termination. In the event that notice of termination
of the Agreement is given for any reason, Apple may restrict Sales
Agent's use of available promotional funds, if any. Beginning on the
date of the notice, payment of compensation which otherwise would be due
pursuant to the Authorized Customer/Compensation Schedule shall be
deferred. Sales Agent has thirty (30) days from the termination date to
claim from Apple any compensation of any type or nature arising from or
related to this Agreement. All such undisputed compensation shall be
paid within FORTY-FIVE (45) BUSINESS DAYS after the effective date of
termination; provided, however, that Sales Agent has complied with all
material terms of this Agreement. In any event, Sales Agent shall only
be entitled to compensation, as set forth in the Authorized Customer/
Compensation Schedule, for orders by Authorized Customers billed by Apple
in its normal billing cycle prior to the effective date of termination.
E. Effect of Termination. Upon expiration or termination of the Agreement:
(1) Sales Agent shall promptly return to Apple all property of Apple in its
possession, including but not limited to loaned or leased equipment, and
any documents of any kind containing Apple confidential information.
(2) Sales Agent shall immediately cease using any Apple trademarks, service
marks and trade names.
(3) Apple's assignment to Sales Agent of K-12 institutional customers shall
cease and Apple shall be free to reassign, transfer or otherwise deal
with such Education Customers.
(4) Any unspent promotional funds which may have been advanced to the Sales
Agent by Apple shall be returned to Apple by Sales Agent within thirty
(30) days from termination date. If unspent promotional funds are not
returned, Apple may deduct an equal amount from any monies due the Sales
Agent, at Apple's sole discretion.
F. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND,
INCLUDING INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES, ON ACCOUNT OF
EXPIRATION OR TERMINATION OF THE AGREEMENT IN ACCORDANCE WITH ITS TERMS.
To the extent permitted by applicable law, and in consideration of its
entering into this Agreement, Sales Agent hereby waives and relinquishes
any rights or claims under franchise, dealership, or other statues, or at
common law, that would or might arise out of a termination of this
Agreement by Apple or refusal by Apple or renew or extend the term of
this Agreement.
G. Sales Agent's obligations under Sections 4.E(4) and (5), 6,7,8,9,10, and
11 and their subsections shall survive expiration or termination of the
Agreement.
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11 GENERAL TERMS
A. Governing Law. The Agreement and the corresponding relationships of the
parties shall be governed by and construed in accordance with the laws of
the state of California without giving effect to its conflict of law
provisions.
B. Disputes
(1) Any dispute, resolution, or proceeding with respect to the Agreement
shall take place in the County of Santa Clara, State of California.
Sales Agent expressly agrees that venue within this district is proper
and voluntarily submits to the jurisdiction of the courts within same.
(2) Any action arising from or related to the Agreement must be brought
within ONE (1) YEAR from the date such action could have first been
brought. The parties expressly agree to this provision notwithstanding
any longer period which may be provided by statute and any such period is
expressly waived.
C. Notice. Notices and demands of any kind that Sales Agent may be required
or desire to serve upon Apple pursuant to this Agreement shall be served
by United States mail, postage prepaid or overnight courier providing a
signed receipt to Apple, at: Apple Computer, Inc.
Attention: Education District Manager
7650 Courtney Campbell Causeway
Suite 1150
Tampa, FL 33607
Notices and demands of any kind that Apple may be required or desire to
serve upon Sales Agent pursuant this Agreement shall be served by
personal service, United States mail, postage prepaid, or electronic mail
or overnight courier to Sales Agent, at Sales Agent's address set forth
in the Agreement or Sales Agent's Applelink address or subsequently
approved email address.
With written notice to the other, Apple and Sales Agent may designate in
writing different addresses. All notices or demands by United States
mail shall be deemed given and complete upon mailing.
D. Severability.
(1) In the event that any provision of the Agreement shall be held by a court
of competent jurisdiction to be invalid or unenforceable, the remaining
portions of the Agreement shall remain in full force and effect and
construed so as to best effectuate the intention of the parties upon
execution.
(2) The paragraph headings contained herein are for reference only and shall
not be considered as substantive parts of the Agreement. Use of the
singular or plural form shall include the other, and use of the
masculine, feminine, or neuter gender shall include the others.
E. Waiver. The waiver of any one default shall not waive subsequent
defaults of the same or different kind.
F. Successors in Interest. The provisions of the Agreement shall be binding
upon and inure to
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the benefit of the parties, their successors, and permitted assigns.
G. Order of Precedence. The terms of this Agreement and all documents
incorporated by reference shall be reasonably interpreted so as not to
result in a conflict. In the event of any conflict, the following order
of precedence will control: this Agreement, the Statement of Work, the
Performance Review and Original Request for Proposal, in that order.
12. ENTIRE AGREEMENT
This document and all documents referred to or incorporated herein by
reference contain all the agreements, warranties, understandings,
conditions, covenants, and representations made between Sales Agent and
Apple. Neither Apple nor Sales Agent shall be liable for any agreements,
warranties, understandings, conditions, covenants, or representations
that are not expressly set forth in the Agreement. Any different or
additional terms and conditions in any purchase order, invoice or other
such document are hereby expressly rejected by Apple and shall have no
force or effect.
The Agreement may only be modified in writing by an instrument signed by
an authorized representative of each party. Apple may unilaterally
modify guidelines and policies incorporated by reference in this
Agreement effective on the date designated by Apple. For changes
requiring Sales Agent to materially alter its activities, Sales Agent
shall have a reasonable period of time to implement such changes provided
such period does not exceed THIRTY (30) DAYS from the stated effective
date. Any changes affecting price or compensation, however, shall be
effective on the stated effective date.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE EXECUTED THE AGREEMENT THROUGH
THEIR DULY AUTHORIZED REPRESENTATIVES.
SALES AGENT APPLE
Signature: /s/ Anthony G. Lembo Signature: /s/ Cheryl L. Cullins
------------------------- -----------------------------
Print Name: Anthony G. Lembo Print Name: Cheryl L. Cullins
------------------------- ----------------------------
Title: Vice President Title: Manager, Bids & Contracts Mangmt.
------------------------------ ---------------------------------
Date: 7/12/96 Dept: Bids and Contracts Management
------------------------------ ----------------------------------
Date: 8/26/96
----------------------------------
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EXHIBIT 10.4
APPLE COMPUTER, INC.
APPLE EDUCATION SERVICE & SUPPORT PROVIDER AGREEMENT
This Apple Education Service & Support Provider Agreement is made between Apple
Computer, Inc., a California corporation with its principal place of business
located at 1 Infinite Loop, Cupertino, California 95014 "Apple," and Dataflex
Corporation, a (corporation) (partnership) (sole proprietorship) organized under
the laws of NJ with its principal place of business located at 2145 Calvmet St.,
Clearwater, FL 34625, "Provider."
DEFINITIONS
As used in this Agreement, the following terms and conditions have the meaning
specified below:
A. "Apple Authorized Service Provider Agreement" or "AASP Agreement" the
Apple Authorized Service Provider Agreement between Apple and Provider and any
documents incorporated therein by reference.
B. "Apple Certified Server Engineer(s)". Provider's employee(s), agent(s),
and/or subcontractor(s) who have successfully completed the Apple Certified
Server Engineer Certification Tests, as they are modified from time to time, and
who are successfully maintained in other Apple requirements.
C. "Apple Certified Server Engineer Certification Tests" - tests
administered by Apple or Apple's designee, that are designed to determine the
skills necessary to perform the Authorized Services. These tests may be
computer-based, written, oral, hands-on, or any combination thereof.
D. "Apple Education Service & Support Program Manual" - the then-current so
titled document, made available to Provider in written or electronic format,
which describes Apple's policies and procedures for providing Authorized
Services on Apple Product(s) for K-12 Institutional Customers.
E. "Apple Education Service & Support Provider Agreement" or AESSP
Agreement" - this Apple Education Service & Support Provider Agreement and any
documents incorporated herein by reference.
F. "Apple Product(s)" and/or "Product(s)" - hardware, software, support, and
training products, including terms manufactured distributed, or licensed
("sold") exclusively by Apple and items manufactured or distributed by others,
that may be sold by Apple to K-12 Institutional Customer(s).
G. "Apple Service Programs Manual" - the then-current so titled document,
made available to Apple Authorized Service Providers in written or electronic
format, which describes Apple's policies and procedures for providing service
and support for Apple Product(s).
H. "Authorized Customer(s)" - the Kindergarten through Twelfth Grade
("K-12") institutional customers specifically assigned to Provider by Apple for
Setup and/or Upgrade only.
I. "Authorized Services" - the specific services described in this Agreement
and the Apple Education Service & Support Program Manual.
J. "Central Processing Unit" or "CPU" that logic board assembly consisting
of random access memory, microprocessor, read only memory with support for
displays and peripheral input-output devices including keyboard, mice, and disk
drives.
K. "K-12 Institutional Customers" - All public and private nonprofit K-12
educational institutions.
L. "Personal Digital Assistant," or "PDA" - the hand held or other portable
computing devices which capture data through pen, voice, keyboard, touch or
similar input and which consist of random access memory, microprocessor, read
only memory, built in display, and built in wireless or wired communication
capability.
M. "Server" - the system assembly consisting of logic board assembly
consisting of logic board assembly, random access memory, microprocessor, and
read only memory, with support for displays, connection devices, software and
peripheral input-output devices including keyboard, mice, disk drives, back-up,
and compact disk; and with the capability to store and serve resources on a
Local Area Network or Wide Area Network, or to act as a Service in a Client
environment.
N. "Setup" or "Setup Service" - those services which are described in the
Apple Education Service & Support Program Manual.
O. "Upgrade" or "Upgrade Service" - those services which are described in
the Apple Education Service & Support Program Manual.
1. APPOINTMENT
A. Provider elects to perform service as an Apple Education Service &
Support Provider ("AESSP"). On the basis of Provider's representations that it
has the capabilities to perform the applicable services required, Apple hereby
appoints Provider as an AESSP. Such nonexclusive appointment authorizes
Provider to perform Setup, Upgrade and/or other services of Apple Products as
described in the Apple Education Service & Support Program Manual, when
requested by Apple for Authorized Customers as a limited agent of Apple, and to
perform all other services on Apple Product(s) authorized by Apple under this
AGreement as an independent contractor. Apple will determine, in its sole
discretion, whether such services shall be performed by Provider as a limited
agent of Apple or as an independent contractor; however Apple will give Provider
ninety (90) days prior notice of any change in this designation. Provider
accepts such appointment and, in consideration therefore, represents that it
will meet the specific service requirements as set forth in this AESSP
Agreement, and the Apple Education Service & Support Program Manual.
B. When providing services authorized under this Agreement other than those
services described in the preceding paragraph, Provider is an independent
contractor, has no power or authority to bind Apple and is contracting for
certain services. Nothing in this AESSP Agreement shall be construed as
creating any relationship such as employer-employee, principal-agent or
Franchisor-Franchisee.
C. The appointment is based upon the existing ownership of Provider and is,
therefore, personal in nature. Consequently, Provider may not assign or
transfer any or all of its rights or obligations under this AESSP Agreement
without express written approval from Apple, and any change in ownership shall
be grounds for immediate termination of such appointment.
2. SCOPE OF AUTHORIZATION
A. After all applicable certifications and approvals are obtained. Provider
is authorized to provide:
(1) setup and/or Upgrade or Apple Products for Authorized Customer(s) as
requested by Apple and as a limited agent of Apple. For Setup and/or Upgrade
only, Authorized Customers will be assigned to Provider by name and/or
territory. Provider understands and agrees that during the course of this
Agreement, changes may be needed by Apple in the assignment of Authorized
Customer(s). Apple reserves the right to
<PAGE> 2
discontinue of modify Provider's assignment of any or all of the assigned
Authorized Customer(s) at any time, with or without cause, upon written notice
to Provider; and
(2) services related to Setup (including but not limited to trash removal,
facilities, preparation for Setup, and new user orientation) if requested by
Apple, technical problem resolution, and network services for Apple Product(s)
only, for K-12 Institutional Customers. All services performed by Provider
pursuant to this paragraph will be as an independent contractor.
B. Subject to the limitations of Section 6 below, Provider is authorized to
use Apple's name and trade designations, in connection with the services
authorized under this Agreement.
C. Apple reserves the right to change any or all of these terms and conditions
and to modify or discontinue the AESSP Program, without obligation to Provider.
3. PROVIDER'S OBLIGATIONS
A. Provider shall at all times maintain its status as an Apple Authorized
Service Provider Plus, or maintain similar status under an appropriate
agreement with Apple, as deemed appropriate by Apple, in its sole discretion.
B. When providing Setup, Provider will use only persons who have been trained
to perform Setup as described in the Apple Education Service & Support Program
Manual. When requested by Apple, Provider will perform Setup for Authorized
Customers in accordance with the Apple Education Service & Support Program
Manual. If Authorized Customer requests additional services related to Setup
(including but not limited to trash removal, facilities preparation for Setup,
or new user orientation), Provider may provide these additional services as an
independent contractor.
C. When providing Upgrade Service, Provider will use only technicians who are
qualified to perform service under the terms of Provider's Apple Authorized
Service Provider Agreement. Provider will provide Upgrade Service as described
in the Apple Education Service & Support Program Manual and the Apple Service
Programs Manual.
D. Provider shall participate in Apple's Support Professional Program and shall
escalate technical problems, as appropriate, in accordance with the Support
Professional problem escalation process, as it is modified from time to time.
E. When performing Authorized Services, Provider will at all times utilize
employees, contractors, and/or agents who meet the minimum requirements
described in the Apple Education Services & Support Program Manual.
F. Provider will actively promote Authorized Services to K-12 Institutional
Customers as part of the Apple Education Authorized Service & Support Program.
Provider may provide services that are not authorized under this Agreement, but
Provider may not market, sell, or otherwise imply that those other services are
part of the Apple Education Authorized Service & Support Program. If other
services are discussed with, or quoted to, a K-12 Institutional Customer,
Provider will state that those other services are not authorized under the
Apple Education Service & Support Program. If other services are described on
the Provider's proposal and/or invoice, one of the following statements must be
included:
"The following, services which are part of this proposal for invoice/
are not authorized under the Apple Education Service & Support Program:
(list of unauthorized services)."
or
"The services which are authorized under the Apple Education Service &
Support Program are the following: (list of Authorized Services)"
Non-compliance with the foregoing shall give Apple the right to immediately
terminate this Agreement.
G. Provider agrees that it shall not, in any capacity; solicit the sale of,
sell, distribute, market, demonstrate or otherwise promote to an K-12
Institutional Customers, including Provider's Authorized Customers, any CPU or
PDA, other than those manufactured by Apple and appearing on the Apple
Education Price List, unless first expressly authorized to do so by Apple, in
writing.
H. Provider will maintain adequate facilities to meet the service needs of
K-12 Institutional Customers, so that the facilities reflect favorably on the
products, good name, goodwill and reputation of Apple.
I. Provider will submit, on an annual basis or more frequently if requested by
Apple, a K-12 Service and Support Business Plan, in the format requested by
Apple.
J. Provider will at all times meet the highest standards of quality when
delivering services authorized under this Agreement.
4. INSPECTIONS, RECORDS, AND REPORTING
A. Apple shall have the right to inspect any location(s) from which Provider
provides Authorized Services, and its operation at any time during regular
business hours to verify Provider's compliance with the terms and conditions of
this Agreement and Apple's programs. Upon Apple's request, Provider shall
promptly make and provide copies of any and all requested records and
documents.
B. Provider shall maintain for at least FIVE(5) YEARS its records, contracts,
and accounts relating to the provision of Authorized Services.
C. Provider will submit an annual Service & Support Business Plan, in a format
requested by Apple, at least every twelve months, for the duration of this
Agreement, Provider agrees that the first Service & Support Business Plan must
be accepted by Apple in writing before Provider may promote itself as an Apple
Education Service & Support Provider.
D. Provider will maintain complete Setup and Upgrade records, including but
not limited to Setup and Upgrade information provided by Apple and information
on the status of the service (e.g. complete or pending) in a format requested
by Apple.
E. From time to time Provider must undertake customer satisfaction surveys as
requested by Apple. Provider will submit these surveys and/or the compiled
results to Apple as requested. Provider is responsible for maintaining a
minimum average rating established by Apple, and will notify Apple if that
average rating is not maintained for two consecutive months.
F. Provider shall notify Apple in writing no less than TEN(10) DAYS prior to
any material change in the management or control of Provider, any new
affiliation or association, or transfer of any substantial part of Provider's
business.
G. Provider will promptly notify Apple in writing of any suspected Product
defect or safety problem.
H. Provider shall provide annual financial statements for its most recent
fiscal year as well as trade credit and bank references in a format specified
by Apple. Upon Apple's request, Provider shall provide Apple with audited
financial statements. Provider acknowledges that is furnishing or its failure
to furnish such financial information may result in a modification of the
credit terms, if any, offered Provider by Apple and/or termination of this
Agreement.
5. PAYMENT
Provider will compensated by Apple for Setup and/or Upgrades to Authorized
Customer(s) according to the then-current rates established by Apple.
Apple may change the compensation rates from time to time. The current
compensation rate will be set forth in the Apple Education Service & Support
Program Manuals. Changes to the compensation schedule will be communicated by
Apple to AESSP via U.S. mail, overnight delivery service, or electronic mail.
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For the Provider to be eligible for compensation, the K-12 Institutional
Customer must be the Provider's Authorized Customer. After the work has been
successfully completed by Provider, Provider will invoice Apple for all
compensation claimed.
6. APPLE PROPRIETARY RIGHTS
A. TRADEMARKS, SERVICE MARKS AND TRADENAMES
(1) During the term of this Agreement, Provider is authorized and permitted by
Apple to display the registered trademarks "Apple" and the Apple logo, the
other trademarks, service marks and names belonging or licensed to Apple
("Apple Marks"), and the designation "Apple Education Service and Support
Provider" solely in connection with Provider's promotion of, or Provider's
support and service capabilities as authorized under this Agreement, Provider's
display of such Apple Marks shall be in accordance with Apple's written
policies in effect from time to time. Provider will not remove any Apple Marks
from any Apple Products nor shall Provider add any marks to such products. (2)
Apple retains all rights not expressly conveyed to Provider by this Agreement.
Provider recognizes the great value of the publicity and goodwill associated
with the Apple Marks and acknowledges that such goodwill exclusively accrues to
the benefit of and belongs to Apple. Provider shall not use or license others
to use the Apple Marks on or in connection with any goods or service (including
but not limited to promotional and merchandising items such as key chains,
mugs, and T-shirts) other than the Apple Products, except in accordance with
Apple's written merchandising programs and policies.
7. INSURANCE AND INDEMNITIES
A. While this Agreement is in effect, Provider shall keep in force and effect
a sufficient general liability-insurance policy, including premises liability,
products, and completed operations, with limits of coverage not less than
$1,000,00 bodily or personal injury and $1,000,000 property damage, or
$1,000,000 combined single limit.
B. Apple agrees to defend any proceeding or action brought by a third party
against Provider to the extent based on a claim that a defective Apple product
directly caused death or personal injury (provided the product at issue has not
been altered, modified or otherwise changed by Provider). Apple agrees to
indemnify Provider for damages awarded to third parties solely as a result of
such claims. Apple's obligation to so defend and indemnify Provider is
contingent on Provider's compliance with Section D below.
C. Provider agrees to defend any proceeding or action brought by a third party
against Apple to the extent based on a claim arising from the acts or omissions
of Provider, its employees or agents in conduct associated with this Agreement,
except acts or omissions expressly required by Apple's written programs and
policies. Provider agrees to indemnify Apple for any losses, damages,
liabilities, costs and reasonable expenses arising from such acts or omissions.
Provider's obligation to so defend and indemnify Apple is contingent on Apple's
compliance with Section D below.
D. Each party shall promptly notify the other party of any claim, demand,
proceeding or suit of which the other party becomes aware which may give rise
to a right of defense or indemnification pursuant to this section ("Claim").
Notice of any Claim which is a legal proceeding, by suit or otherwise, must be
provided to the indemnifying party within THIRTY (30) days of first learning of
such proceeding. Notice shall include an offer to tender the defense of the
Claim to the indemnifying party. The indemnifying party, if it accepts such
tender, shall be entitled to take over sole control of the defense of the
Claim. That control shall include the right to take any and all actions
necessary to completely and finally resolve the Claim by settlement or
compromise (in which case the indemnifying party shall be responsible for the
cost of settlement/compromise related to the Claim). Upon acceptance of
tender, the indemnified party shall cooperate with the indemnifying party with
respect to such defense and settlement. In the event a Claim is settled, both
parties agree not to publicize the settlement and will make every effort to
ensure the settlement agreement contains a non-disclosure provision.
8. CONFIDENTIALITY
Any information disclosed to Provider by Apple relating to Apple's present or
future developments, including but not limited to product design and repair,
future product information, service activities, terms and conditions of this
Agreement (including any documents incorporated by reference), pricing, and all
other amendments and addenda between Provider and Apple (expect such
information as is previously known to Provider without an obligation of
confidentiality or is publicly disclosed by Apple either prior or subsequent to
Provider's receipt of such information from Apple), shall be characterized as
confidential information. Provider shall hold such confidential information in
trust and confidence for Apple and shall not use it except in futherance of the
relationship set forth in this Agreement, nor publish, disclose, or disseminate
it for a period of FIVE (5) YEARS after receipt thereof by Provider, except as
may be authorized by Apple in writing. Provider shall have no right to prepare
any derivative works of such confidential information.
9. LIMITATION OF LIABILITY
IN NO EVENT SHALL APPLE BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR
SPECIAL DAMAGES OF ANY NATURE. INCLUDING, WITHOUT LIMITATION, LOST BUSINESS
PROFITS. DIRECT DAMAGES SHALL BY LIMITED TO AN AMOUNT NOT TO EXCEED $100,000
PER INCIDENT.
10. LIMITATION OF REMEDIES
THE REMEDIES SET FORTH IN THIS AGREEMENT SHALL BE PROVIDER'S SOLE AND EXCLUSIVE
REMEDIES FOR ANY BREACH OF THIS AGREEMENT BY APPLE.
11. TERM AND TERMINATION
A. TERM
Unless terminated as provided herein, this Agreement shall be effective from
its date until its expiration on September 30, 1997. Provider and Apple agree
that in no event shall either party be obligated to renew or extend this
Agreement.
B. TERMINATION WITH THIRTY (30) DAYS NOTICE
Either party may terminate this Agreement at will, at any time, with or without
cause, by written notice to the other party not less than THIRTY (30) DAYS
before the effective date of such notice.
C. IMMEDIATE TERMINATION
To the extent permitted by applicable law, Apple may terminate this Agreement
effective immediately and without notice in the event that.
(1) Provider fails to perform any obligation, duty, or responsibility imposed
under this Agreement and such failure or default remains umremdedied FIFTEEN
(15) DAYS after written notice thereof;
(2) Provider commits a felony, engages in an unlawful business practice, or
conducts business in any manner prohibited by Sections 1, 2, or 3;
(3) there should be any material change or transfer in the management or control
of Provider, Provider's business operations, or any new affiliation or transfer
of any substantial part of its business;
(4) any conduct or proposed conduct of Provider exposes or threatens to expose
Apple to any liability of obligation, including any federal, state or local
law;
(5) Provider fails to maintain sufficient net worth and working capital to
perform its obligations; has a receiver or similar party appointed for its
property; becomes insolvent or makes an assignment for the benefit of
creditors; or ceases to perform the services authorized under this Agreement;
(6) Provider fails to comply with Section 3E of this Agreement; or
(7) Provider's AASP Agreement terminates for any reason.
D. EFFECT OF NOTICE OF TERMINATION
In the event that notice of termination of this Agreement is given for any
reason;
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(1) Provider shall not enter into any commitments for services as an Apple
Education Service & Support Provider that will not be completed prior to the
termination date.
(2) Provider will make every effort to perform all outstanding Setup(s),
Upgrade(s), and other Authorized Service(s) prior to the termination date.
(3) Provider will immediately provide to Apple a complete copy of Provider's
Setup and Upgrade service records.
(4) Provider will promptly notify all K-12 Institutional Customer(s) with whom
if has outstanding agreement(s) to provide Authorized Services and which
services will not be completed prior to the termination date of this Agreement,
that Provider will cease being an Apple Education Service and Support Provider,
and the effective date. This notice must be given by Provider prior to the
termination of the Agreement.
E. EFFECT OF TERMINATION
Upon expiration or termination of this Agreement:
(1) Provider shall immediately cease use of the Apple Marks provided by Section
6 herein, and otherwise discontinue representing to the public and trade that
it is an Apple Education Service and Support Provider.
(2) Provider shall promptly return to Apple all property of Apple in its
possession, including but not limited to loaned equipment and all Apple
confidential information.
(3) Provider will immediately provide to Apple a complete copy of Provider's
Setup and Upgrade service records.
(4) Provider will promptly notify all K-12 Institutional Customer(s) with whom
it has outstanding agreement(s) to provide Authorized Services and which
services will not be completed prior to the termination date of this Agreement,
that Provider will cease being an Apple Education Service and Support Provider,
and the effective date. This notice must be given by Provider prior to the
termination of the Agreement.
F. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND,
INCLUDING INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES, ON ACCOUNT OF
EXPIRATION OR TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS.
G. To the extent permitted by applicable law, and in consideration of its
entering into this Agreement, Provider hereby waives and relinquishes any right
or claims under franchise, dealership, or other statutes, or at common law,
that would or might arise out of a termination of this Agreement by Apple or
refusal by Apple to renew or extend the term of this Agreement.
H. Provider's obligations under Sections 4, 6, 8, 9, 10 and 11 and their
subsections shall survive expiration or termination of this Agreement. Apple
and Provider's obligations under Sections 7 and 12 and their subsections shall
survive expiration or termination of this Agreement.
12. GENERAL TERMS
A. GOVERNING LAW
This Agreement and the corresponding relationships of the parties shall be
governed by and construed in accordance with the laws of the State of
California without giving effect to its conflict of law provisions.
H. DISPUTES
(1) Any dispute, resolution, or proceeding with respect to this Agreement shall
take place solely in the County of Santa Clara, State of California. Provider
expressly agrees that venue within this district is proper and voluntarily
submits to the jurisdiction of the courts within same.
(2) Any action arising from or related to this Agreement must be brought
within ONE (1) YEAR from the date such action could have first been brought.
The parties expressly agree to this provision notwithstanding any longer period
which may be provided by statute and any such period is expressly waived.
C. NOTICE
Notices and demands of any kind that Provider may be required or desire to
serve upon Apple pursuant to this Agreement shall be served by United States
mail, postage prepaid, or overnight courier, to Apple at
Apple Computer, Inc.
Bids & Contracts Management
900 E. Hamilton Avenue, M/S 73-CM
Campbell, CA 95008
Notices and demands of any kind that Apple may be required or desire to serve
upon Provider pursuant this Agreement shall be served by personal service,
United States mail postage prepaid, or overnight carrier at Provider's address
set forth in this Agreement, or by electronic mail at Provider's AppleLink(C)
electronic mail address or subsequent electronic address, if any.
With written notice to the other, Apple and Provider may designate in writing
different addresses. All notices or demands by United States mail shall be
deemed given and complete upon mailing.
D. SEVERABILITY
(1) In the event that any provision of this Agreement shall be held by a court
of competent jurisdiction to be invalid or unenforceable, the remaining
portions of this Agreement shall remain in full force and effect and be
construed so as to best effectuate the intention of the parties upon execution.
(2) The paragraph headings contained herein are for reference only and shall
not be considered as substantive parts of this Agreement. Use of the singular
or plural form shall include the other.
E. WAIVER
The waiver of any one default shall not waive subsequent defaults of the same
or different kind.
F. SUCCESSORS IN INTEREST
The provisions of this Agreement shall be binding upon and inure to the benefit
of the parties, their successors, and permitted assigns.
13. ENTIRE AGREEMENT
This document and all documents referred to or incorporated herein by reference
contain all the agreements, warranties, understandings, conditions, covenants,
and representations made between Provider and Apple. Neither Apple nor
Provider shall be liable for any agreements, warranties, understandings,
conditions, covenants, or representations that are not expressly set forth in
this Agreement. Any different or additional terms and conditions in any
purchase order, invoice or other such document are hereby expressly rejected by
Apple and shall have no force or effect.
This Agreement may only be modified in writing by an instrument signed by an
authorized representative of each party. Apple may unilaterally modify the
Service Programs Manual and/or the Apple Education Service & Support Program
Manual effective on the date designated by Apple. Provider shall have a
reasonable period of time to implement changes requiring Provider to materially
alter its activities provided such period does not exceed THIRTY (30) DAYS from
the stated effective date
The duly authorized representatives of the parties execute this Agreement as of
the dates set forth below:
PROVIDER
SIGNATURE: /s/ Stephen Morse
-------------------------------------
PRINT NAME: Stephen Morse
------------------------------------
TITLE: V.P. - K-12 Education Dir.
-----------------------------------------
DATE: 8/25/96
------------------------------------------
APPLE COMPUTER, INC.
SIGNATURE:
-------------------------------------
PRINT NAME:
------------------------------------
TITLE:
-----------------------------------------
DEPT.: Bids and Contracts Management
-----------------------------------------
EFFECTIVE DATE:
--------------------------------
1996 Apple Computer, Inc. All rights reserved. Apple, the Apple logo and
AppleLink are registered trademarks of Apple Computer, Inc.
<PAGE> 1
EXHIBIT 10.5
COMPAQ COMPUTER CORPORATION
UNITED STATES DEALER AGREEMENT
This Dealer "Agreement" is between Compaq Computer Corporation, a
Delaware Corporation, having its principal place of business at 20555 SH 249,
Houston, Harris County, Texas, 77070 ("COMPAQ") and Dataflex Corporation, d/b/a
Dataflex/computerBay, having its principal place of business at 3920 Park
Avenue, Edison, Middlesex County, NJ 08820 ("Dealer").
1. Definitions:
1.1 The term "COMPAQ Products" as used in this Agreement shall
mean items described in the United States Dealer Price List published by COMPAQ
("Price List"), as updated and revised from time to time, and all COMPAQ spare
parts and accessories.
1.2 The term "Dealer's Authorized Headquarters" as used in this
Agreement shall mean the party to a COMPAQ Central Purchase Agreement currently
in effect with COMPAQ, who is identified in Exhibit A attached hereto.
2. Appointment as Dealer
2.1 COMPAQ hereby appoints Dealer, and Dealer hereby accepts its
appointment, as an Authorized Dealer for COMPAQ Products only in the United
States and only from the wholly-owned Dealer locations or within the
territories specified in Exhibit A, attached hereto, and such other locations
or territories as may be agreed to in writing by COMPAQ ("Authorized
Location(s)"). All shipments of COMPAQ Products will be made to Dealer's
Authorized Locations unless otherwise agreed to in writing by COMPAQ. COMPAQ
reserves the right, during the term of this Agreement and thereafter, to market
COMPAQ Products or other products in the geographic areas served by Dealer,
either directly or indirectly, through any means, without obligation or
liability to Dealer. Dealer shall have no right to, and agrees it shall not,
ship COMPAQ Products to any location other than Dealer's Authorized Location(s)
without the prior written approval of COMPAQ, or appoint any other dealers,
warranty service providers or distributors of COMPAQ Products.
2.2 Dealer is an independent contractor and is not a legal
representative or agent of COMPAQ for any purpose whatsoever. Dealer is not
authorized to and agrees that it will not, make any warranties or
representations or assume or create any other obligations or liabilities on the
behalf of COMPAQ. Dealer agrees to indemnify and hold COMPAQ harmless from and
against any and all such warranties, representations, obligations and
liabilities in accordance with Section 27 of this Agreement.
3. Term
Unless earlier terminated pursuant to Section 26 herein, the term of
this Agreement shall be twelve (12) months, commencing on the date COMPAQ
executes this Agreement ("Effective Date"). This Agreement will be
automatically renewed at the conclusion of the initial twelve (12) month period
for successive twelve (12) month periods unless one of the parties indicates by
written notice to the other party given not less than thirty (30) days prior to
the end of any such twelve (12) month period that it does not intend to renew.
Notwithstanding the provisions of this Section, this Agreement may be
terminated by either party at any time pursuant to Section 26 of this
Agreement.
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4. Duties of COMPAQ
4.1 COMPAQ agrees to provide the following services to Dealer:
4.1.1 Provide Dealer with an initial quantity, as
determined by COMPAQ, of sales aids, data sheets, brochures, instruction sheets
and other materials to assist Dealer in the promotion and sale of COMPAQ
Products. COMPAQ will make additional copies of these materials available to
Dealer at a reasonable charge.
4.1.2 Provide Dealer with such technical assistance and
information regarding COMPAQ Products as COMPAQ believes is necessary and keep
Dealer advised of material information regarding COMPAQ Products.
4.1.3 Provide training for one (1) employee from each
Authorized Location where Dealer performs maintenance and/or warranty service
on COMPAQ Product ("Authorized Service Location") and provide initial service
documents as part of the service training. COMPAQ will make additional copies
of these materials available to Dealer and/or provide training for additional
Dealer employees at a reasonable charge.
4.1.4 Provide training for one (1) Dealer employee from
each Authorized Location where Dealer performs sales and marketing services for
COMPAQ Products ("Authorized Sales Location") and provide initial sales and
marketing materials as part of the sales training. COMPAQ will make additional
copies of these materials available to Dealer and/or provide training for
additional Dealer employees at a reasonable charge.
5. Duties of Dealer
5.1 Dealer agrees that it shall perform the following material
obligations at all times during the term of this Agreement:
5.1.1 Maintain at each Authorized Sales Location one (1) or
more full-time employees trained by COMPAQ and capable of effectively marketing
COMPAQ Products.
5.1.2 Maintain at each Authorized Service Location one (1)
or more full-time employees who have, in the sole judgment of COMPAQ, passed
COMPAQ service training and who are, in the sole judgment of COMPAQ, capable of
effectively providing warranty and maintenance service on all COMPAQ Products.
5.1.3 Maintain at each Authorized Service Location adequate
floor space and related facilities to provide warranty and maintenance service
to purchasers of COMPAQ Products
5.1.4 Exert its best efforts to market, advertise, promote,
sell and service COMPAQ Products.
5.1.5 Conduct its business at all times in a manner that
reflects favorably upon the reputation, quality, goodwill and credibility of
COMPAQ and COMPAQ Products. To this end, Dealer shall not disparage COMPAQ or
COMPAQ Products in any way or make any representations or express any opinions
regarding the features or capabilities of COMPAQ Products which are not
consistent with those found in literature or other materials distributed by
COMPAQ.
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5.1.6 Establish and maintain compensation plans (or other
incentive plans) for Dealer's employees, agents and subcontractors involved in
the marketing, advertising, promotion, sales and/or servicing of COMPAQ
Products which are at all times proportionally fair to COMPAQ in comparison to
similar plans for any other competitive products sold by Dealer and which
reflect Dealer's obligation to exert best efforts to sell COMPAQ Products.
5.1.7 Provide, at COMPAQ's request, copies of the
compensation plans for other products sold by Dealer.
5.1.8 Explain and demonstrate COMPAQ Products upon customer
request and instruct the customer with respect to setup and installation of
COMPAQ Products. Dealer shall not sell COMPAQ Products by mail, telephone, or
by or through any other method which does not emphasize in-person contact with
the customer.
5.1.9 Furnish a bill of sale or other receipt to the
customer stating the date of sale and the serial numbers of the COMPAQ Products
sold and ensure that the appropriate COMPAQ warranty statement, agreement or
other materials as specified by COMPAQ from time to time are included with each
COMPAQ Product.
5.1.10 Provide COMPAQ with a valid resale exemption
certificate(s), as required by law, in lieu of, or with respect to, sales tax
for the COMPAQ Products purchased under this Agreement. Dealer agrees to
promptly notify COMPAQ of the revocation or modification of any such resale
exemption certificate.
5.1.11 Promptly report to COMPAQ all suspected COMPAQ
Product defects or safety problems and keep COMPAQ informed of customer
complaints.
5.1.12 Allow COMPAQ or its third party representative access
to Authorized Locations to inspect Dealer's facilities and records for the
purpose of ensuring Dealer's compliance with the terms of this Agreement.
5.1.13 Maintain sufficient liability insurance to protect
COMPAQ from all customer claims arising out of the acts, omissions,
misrepresentations or negligence of Dealer.
5.1.14 Obey all applicable laws, comply with all applicable
rules and regulations, and conduct business in an ethical manner.
5.1.15 Maintain for five (5) years from the date of sale a
list of all customers and their addresses at the time of sale together with
COMPAQ Product serial numbers, if any, and provide all assistance reasonably
required by COMPAQ in implementing any mandatory safety changes. This
obligation shall survive the expiration or termination of this Agreement.
5.1.16 Purchase and maintain at each Authorized Service
Location a COMPAQ specified complement of warranty service parts from COMPAQ.
5.1.17 Use only parts manufactured or designated by COMPAQ
when performing COMPAQ warranty service unless otherwise agreed by COMPAQ in
writing.
5.1.18 Maintain adequate tools and test equipment at each
Authorized Service Location to provide warranty service for COMPAQ Products.
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5.1.19 Validate all warranty claims and render warranty service on
all COMPAQ Products within forty-eight (48) hours of the receipt by Dealer of
any COMPAQ Product for warranty service, regardless of place of purchase,
according to procedures established from time to time by COMPAQ and
communicated to Dealer.
5.1.20 Maintain an overall credit rating satisfactory to COMPAQ in
its sole judgment.
5.1.21 Maintain an appropriate and attractive display of working
COMPAQ Products in each Authorized Sales Location:
5.1.22 Purchase COMPAQ Products only from COMPAQ or Dealer's
Authorized Headquarters unless written permission from COMPAQ to purchase from
another source has been granted.
5.2 Dealer shall not sell or otherwise make available COMPAQ Products to
any third party for the purpose of resale to others unless approval to do so has
been given by COMPAQ to Dealer in accordance with this Agreement.
5.3 Dealer shall not incorporate or substitute parts or options not
manufactured or sold by COMPAQ into COMPAQ Products unless Dealer notifies the
customer of such incorporation or substitution and records such notice on a
receipt or other proof of purchase provided to the customer. Dealer shall also
inform the customer that parts or options not manufactured or sold by COMPAQ
are not warranted by COMPAQ.
5.4 Dealer shall not perform service on COMPAQ Products using parts not
manufactured or sold by COMPAQ without identifying to the customer which parts
are not manufactured or sold by COMPAQ and notifying the customer that such
party are not warranted by COMPAQ.
6. Sales to Dealer Associates
6.1 In the event that Dealer wishes to sell COMPAQ Products to a third
party ("Dealer Associate"), for the purpose of resale to others, Dealer shall
nominate and interact with such Dealer Associate pursuant to the written
policies and procedures established and amended by COMPAQ from time to time at
its sole discretion. Each Dealer Associate must be approved in writing by
COMPAQ, which approval shall be at COMPAQ's sole discretion.
6.2 COMPAQ shall have the right at any time to withdraw its approval of a
Dealer Associate with or without cause upon written notice to Dealer.
7. Sales to Other Authorized Dealers
Dealer may sell COMPAQ Products to other Authorized Dealers of COMPAQ
Products but only if Dealer has first obtained written approval from COMPAQ to
make such sale, Dealer shall provide COMPAQ, within thirty (30) days of such
sale, with a written list of COMPAQ Products sold to such other Authorized
Dealer(s), together with their respective serial numbers, if any.
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8. Sales to Government
In the event that Dealer sells COMPAQ Products to the Government, Dealer
shall make such sales pursuant to the written policies and procedures
established and amended by COMPAQ from time to time at its sole discretion.
9. Sales of Spare Parts to Third Parties
9.1 Dealer may sell COMPAQ spare parts to third parties for use in
servicing COMPAQ Products ("Third Party Maintainers") subject to the following
conditions:
9.1.1 It is understood that only COMPAQ can authorize warranty
service providers and that the purchase of COMPAQ service parts by a Third Party
Maintainer from Dealer does not authorize the Third Party Maintainer to perform
warranty services on COMPAQ Products.
9.1.2 Any warranty provided by a Third Party Maintainer shall
be at the sole expense and obligation of such Third Party Maintainer.
9.1.3 Dealer shall ensure that Third Party Maintainers that
are not authorized by COMPAQ to provide COMPAQ warranty service will notify
their customers in writing that the service they perform is not warranted by
COMPAQ.
9.2 COMPAQ service parts purchased by Dealer shall be used only for
performing warranty service, for performing maintenance service, or for
remarketing to Third Party Maintainers.
10. Product Discontinuance
COMPAQ reserves the unilateral right, without any prior notice, to cease
making available any COMPAQ Product to Dealer.
11. Change of Control
In the event of any merger, consolidation, change in key management,
change or loss of franchise relationship, reorganization of Dealer, change of
control, transfer of any substantial part of Dealer's or its Authorized
Location's business, whether by sale of stock, sale of assets, or otherwise,
Dealer shall notify COMPAQ in writing within ten (10) days of such change.
Dealer agrees that its failure to provide such notice to COMPAQ shall constitute
a material breach of this Agreement.
12. Scheduling COMPAQ Products
Prior to the commencement of this Agreement and, thereafter, on or
before each anniversary of the Effective Date, Dealer will submit a written
forecast to COMPAQ of the COMPAQ Products required for each of the next twelve
(12) months. COMPAQ reserves the right to supply all or a portion of Dealer's
forecast, consistent with availability, production schedules, product demand
and other factors as determined by COMPAQ at its sole discretion. COMPAQ shall
have no liability or obligation to Dealer for partial or late delivery or for
failure to deliver.
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13. Ordering COMPAQ Products
13.1 Dealer shall order and purchase COMPAQ Products pursuant to
written ordering procedures established and amended by COMPAQ from time to time
at its sole discretion.
13.2 All orders shall be subject to acceptance by COMPAQ and shall be
governed solely by the terms and conditions of this Agreement. No additional or
different provisions contained in Dealer's purchase orders or other business
forms or correspondence shall be of any force whatsoever. The failure of COMPAQ
to object to any such provision shall not be deemed an acceptance of such
provisions or a waiver of its rights hereunder.
13.3 Dealer acknowledges that product availability may be subject to
production, shipping or other delays. In such event, Dealer agrees that COMPAQ
may, at its sole discretion, allocate distribution of COMPAQ Products among
COMPAQ's customers, notwithstanding the effect such allocation may have on
Dealer's outstanding orders.
14. Sales Out and Inventory Information
Dealer agrees to provide COMPAQ with a monthly summary by model number
and unit serial number of the COMPAQ Products sold at each Authorized Location
as well as dealer's current inventory position. This summary shall be submitted
to COMPAQ in accordance with the procedures specified from time to time by
COMPAQ.
15. Cancellation Charge
COMPAQ shall have the right to impose a cancellation charge for any
order which is cancelled or deferred by Dealer at a rate to be established by
COMPAQ at its sole discretion. COMPAQ may, at its sole discretion, waive any
cancellation charge. No waiver by COMPAQ of a cancellation charge in one or
more instances shall constitute a waiver by COMPAQ of its right to impose a
cancellation charge in a subsequent instance.
16. Payment and Prices
16.1 Payment in full for each COMPAQ Product shall be due and payable
within thirty (30) days of the date of the invoice ("Due Date"). If payment is
not received by COMPAQ by the Due Date, the Dealer shall pay a financing charge
of 1.5% for each month or portion thereof during which payment remains
outstanding.
16.2 If COMPAQ has given Dealer notice of termination of this
Agreement or if Dealer is delinquent on any payment for COMPAQ Products, COMPAQ
shall have the right to stop all shipments to Dealer. The order for any such
stopped shipment shall be considered to have been cancelled by Dealer.
16.3 Dealer shall pay COMPAQ for COMPAQ Products in United States
Dollars at the applicable prices ("Dealer Price") specified in the COMPAQ United
States Price List in effect on the date an order is received or shipped by
COMPAQ, whichever is less, provided, however, that if publication of a new Price
List results in an increase in the price of any COMPAQ Product, the increased
price shall apply to any order placed by Dealer after the effective date of the
Price List or any other order which is scheduled by COMPAQ for shipment after
the effective date of the Price List.
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16.4 COMPAQ reserves the right to amend the Price List without
notice. The amended Price List shall become effective either on the date of
publication or on the date specified by COMPAQ and remain in effect until a new
Price List is published and effective.
16.5 When the adoption of a new Price List results in the reduction
of the price of any COMPAQ Product (excluding spare parts), COMPAQ may provide
Dealer price protection for such products pursuant to written policies or
procedures established by COMPAQ from time to time at its sole discretion.
16.6 The prices shown on the Price List are FOB a COMPAQ designated
shipping location and do not include the cost of transport, taxes, duties or
any other costs associated with the transportation of COMPAQ Products. All
such costs for each COMPAQ Product shall be paid by Dealer in accordance with
the billing practices of COMPAQ as implemented from time to time.
16.7 In addition to the prices shown on the Price List, Dealer
agrees to pay any taxes resulting from this Agreement of the activities
contemplated hereunder, exclusive of taxes based on the net income of COMPAQ.
16.8 The suggested resale price for a COMPAQ Product set forth in
any Price List is a suggestion only. Dealer is under no obligation to accept
any such suggestion. COMPAQ expressly disclaims any intention to have Dealers
adhere to the suggested resale price.
16.9 COMPAQ shall have the right to set off or apply any and all
amounts owed by Dealer, its subsidiaries and affiliates, against any and all
amounts owed or which may subsequently be owing by COMPAQ to Dealer, its
affiliates, subsidiaries, or their successor in interest.
17. Title
Title to each COMPAQ Product shall pass to Dealer upon delivery by
COMPAQ to a common carrier for shipment.
18. Risk of Loss or Damage
Dealer and its insurers, if any, accept responsibilities for all
risks of loss or damage to the COMPAQ Products upon delivery by COMPAQ to a
common carrier for shipment.
19. Security Interest
COMPAQ reserves a purchase money security interest in the COMPAQ
Products shipped to Dealer under this Agreement. In the proceeds thereof in
the amount of the COMPAQ Products' purchase prices, and in the accounts
receivable for such COMPAQ Products. Dealer expressly grants COMPAQ the right
to file in Dealer's name any document required to perfect such purchase money
security interest. Dealer agrees to sign any documents required to permit
COMPAQ to perfect any such purchase money security interest.
20. Partial Shipments
COMPAQ may make the shipments of COMPAQ Products ordered by Dealer
in one or more installments. Delay in shipment by COMPAQ of any installment in
excess of thirty (30) days from the scheduled shipping date shall, upon written
notification by Dealer
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to COMPAQ prior to actual shipment, relieve Dealer from its obligation to
accept any remaining installment.
21. Warranty Service
21.1 COMPAQ authorizes Dealer to perform, and Dealer agrees to
perform, the services which meet the terms of either the COMPAQ limited
warranty statements included with COMPAQ Products or any extended service
agreement the customer has purchased with respect to COMPAQ Products,
regardless of the place of purchase of the COMPAQ Product. The quality
standards and procedures for such services will be set forth by COMPAQ from
time to time in writing to Dealer.
21.2 In consideration for Dealer's agreement to provide COMPAQ
warranty service or extended service, COMPAQ agrees to (i) credit Dealer for
warranty labor at the rate set forth in the current COMPAQ Computer Dealer
Warranty Reimbursement Schedule, as revised by COMPAQ from time to time, for
service rendered within the applicable warranty period; and (ii) exchange
defective COMPAQ parts returned by Dealer which were replaced in COMPAQ
Products falling within the applicable warranty period or, at the option of
COMPAQ, credit Dealer at the then current COMPAQ Dealer Price for such part.
22. Limited Warranty
22.1 The applicable COMPAQ limited warranty statement is included
with each COMPAQ Product shipped to Dealer. Dealer is not authorized by
COMPAQ to make any other warranty, whether written or oral, with respect to
COMPAQ Products.
22.2 Dealer may submit warranty service claims to COMPAQ for
COMPAQ Products when a defect that would be a breach of the COMPAQ limited
warranty statement is discovered by Dealer prior to the Date of Purchase, as
defined in Sub-Section 22.3 of this Agreement, provided that such claim is made
by Dealer within a specified period of time after the shipment of the COMPAQ
Product to Dealer as established by COMPAQ from time to time.
22.3 The Date of Purchase of any COMPAQ Product for purposes of this
Section 22 is defined as (i) Dealer's sale of the COMPAQ Product, or (ii) the
initial transfer of title of the COMPAQ Product from Dealer, or (iii) the setup
and operation by Dealer of the COMPAQ Product for loan, lease, rental, or any
other similar purpose, or (iv) the use by Dealer of the COMPAQ Product for any
business purpose, whichever date comes first.
22.4 EXCEPT FOR THE WARRANTY SET FORTH IN THE LIMITED WARRANTY
STATEMENT WHICH ACCOMPANIES EACH COMPAQ PRODUCT, COMPAQ MAKES NO WARRANTIES OR
REPRESENTATIONS WITH RESPECT TO THE PERFORMANCE OF COMPAQ PRODUCTS. ALL
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY DISCLAIMED.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH ELSEWHERE IN THIS AGREEMENT,
THE LIABILITY OF COMPAQ FOR DAMAGES CAUSED BY ANY ALLEGEDLY DEFECTIVE COMPAQ
PRODUCTS DISCOVERED BY DEALER WITHIN THE SPECIFIED PERIOD ESTABLISHED BY COMPAQ
PURSUANT TO SECTION 22.2 IS LIMITED TO THE TERMS OF THE APPLICABLE LIMITED
WARRANTY STATEMENT. COMPAQ SHALL HAVE THE RIGHT TO CHANGE ITS LIMITED WARRANTY
AT ANY TIME WITHOUT FURTHER NOTICE OR OBLIGATION TO DEALER OR ANY OTHER PERSON
BY REASON OF SUCH CHANGE.
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23. Trademarks and Related Matters
23.1 Dealer may refer to itself as an "Authorized COMPAQ Computer Dealer"
during the term of this agreement solely in connection with the sale of
COMPAQ Products purchased from COMPAQ pursuant to this Agreement.
23.2 No rights are granted to Dealer to use trademarks and trade names
of COMPAQ or trademarks or trade names of third parties used in connection with
the COMPAQ Products except the limited permission for Dealer to use the
trademark "COMPAQ" and any other trademarks identified on the COMPAQ Price
List, registered, or identified by COMPAQ as a COMPAQ trademark ("Trademark"),
solely to identify COMPAQ Products purchased from COMPAQ pursuant to this
Agreement. Dealer shall provide to COMPAQ, for prior review and written
approval, all promotional, advertising and other materials and activity using
or displaying any Trademark or trade name of COMPAQ or of third parties used in
connection with COMPAQ Products or referring to Dealer as an "Authorized COMPAQ
Computer Dealer," unless such materials and activity are within the guidelines
set forth by COMPAQ from time to time to Dealer. Dealer agrees to change or
correct, at Dealer's expense, any such material or activity which COMPAQ, in
its sole judgment, determines to be inaccurate, objectionable, misleading or a
misuse of Trademarks or trade names of COMPAQ.
23.3 Upon the expiration or termination of this Agreement, Dealer shall
immediately cease referring to itself as an "Authorized COMPAQ Computer Dealer"
and shall immediately cease using Trademarks and trade names of COMPAQ and of
third parties in connection with COMPAQ Products except those used on COMPAQ
Products which remain in the possession of Dealer. Dealer shall also promptly
return to COMPAQ or destroy all materials in its possession or under its
control employing such Trademarks and trade names used in connection with COMPAQ
Products.
23.4 Dealer recognizes COMPAQ ownership of and title to the Trademarks
and the goodwill attaching thereto, and agrees that any goodwill which accrues
because of Dealer's use of the Trademarks or because of any other activity
involving the promotion of COMPAQ Products shall vest in and become the
property of COMPAQ. Dealer agrees not to contest or take any action to contest
the Trademarks or trade names of COMPAQ or to use, employ or attempt to
register any Trademark or trade name which is confusingly or deceptively
similar to the Trademarks or trade names of COMPAQ.
23.5 The provision of this Section 23 shall survive the expiration or
termination of this Agreement.
24. Patents and Copyrights
24.1 COMPAQ will defend Dealer against a claim that COMPAQ Products
supplied hereunder infringe a United States patent or copyright and COMPAQ will
pay resulting costs, damages and attorney's fees finally awarded by a court,
provided that (i) Dealer promptly notifies COMPAQ in writing of the claim; and
(ii) COMPAQ has sole control of the defense and all related settlement
negotiations.
24.2 The obligation of COMPAQ under this Section is conditioned on
Dealer's agreement that if the COMPAQ Products or the operation thereof become,
or in the opinion of COMPAQ are likely to become, the subject of such a claim,
Dealer will permit COMPAQ, at the sole option and expense of COMPAQ, either to
procure the right for the Dealer to continue marketing and using the COMPAQ
Products or to replace or modify them so that they become non-infringing.
However, if neither of the foregoing alternatives is available on
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terms which are reasonable, in the sole judgment of COMPAQ, Dealer will return
the COMPAQ Products upon written request by COMPAQ and COMPAQ agrees to grant
Dealer a credit equal to the price paid by Dealer to COMPAQ for the returned
COMPAQ Products.
24.3 COMPAQ shall have no liability for any claim based upon the
combination, operation or use of any COMPAQ Product supplied hereunder with
equipment, date or programming not supplied by COMPAQ, or based upon any
alteration or modification of the COMPAQ Products.
24.4 The foregoing states the entire obligation of COMPAQ to Dealer with
respect to infringement of patents and copyrights.
25. Confidential Information
Confidential information shall mean all information designated "COMPAQ
Confidential" or disclosed to Dealer by COMPAQ which relates to the present or
future development and business activities of COMPAQ, including but not limited
to all sales, promotional, advertising, and support programs, except such
information as is previously known to Dealer without an obligation of
confidentiality or is publicly disclosed by COMPAQ either prior to or
subsequent to Dealer's receipt of such information from COMPAQ. Dealer shall
hold such confidentiality information in trust and confidence for COMPAQ and
shall not use it except in furtherance of the relationship set forth in this
Agreement, nor publish, disclose or disseminate it, except as may be authorized
by COMPAQ in writing. Upon the expiration or termination of this Agreement,
Dealer shall deliver to COMPAQ all written or descriptive matter including, but
not limited to, drawings, blueprints, descriptions or other papers or documents
containing any such confidential information. This Section shall survive the
expiration or termination of this Agreement.
26. Termination
26.1 Either party shall have the right to terminate this Agreement at any
time, for any reason or no reason whatsoever, at such party's sole and
unchallengeable discretion, said termination to be effective no fewer than
thirty (30) days from the date written notice of termination is received by the
non-terminating party.
26.2 Upon the occurrence of any of the following enumerated
circumstances, termination of this Agreement by COMPAQ shall be effective
immediately upon receipt by Dealer of written notice of termination:
26.2.1 A receiver, liquidator, trustee or similar administrator is
appointed to take charge of all or substantially all of Dealer's assets; or
26.2.2 Dealer is adjudged or becomes bankrupt or insolvent, is
unable to pay its debts as they become due, or makes an assignment for the
benefit of its creditors; or
26.2.3 Any judicial proceedings are commenced by or on behalf of
Dealer pursuant to any bankruptcy, insolvency or debtor relief law; or
26.2.4 Dealer voluntarily or involuntarily undertakes to dissolve
or wind up its affairs; or
26.2.5 There occurs any event as specified in Section 11 hereof; or
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26.2.6 Dealer defaults in any payment due to COMPAQ and such default
continues for a period of ten (10) days after the Due Date; or
26.2.7 Dealer makes any false or misleading representations in
connection with the business relationship of the parties or engages in fraud,
criminal or negligent conduct in connection with the business relationship of
the parties; or
26.2.8 Any competitor of COMPAQ purchases or otherwise acquires an
interest of any sort or size in Dealer; or
26.2.9 Dealer breaches any other material term of the Agreement.
If for any reason such circumstances are found not to exist, termination shall
nevertheless be effective thirty (30) days from the date of receipt by Dealer
of COMPAQ's written notice of termination pursuant to Sub-Section 26.1.
26.3 The parties understand and agree that this Agreement may be
terminated at any time and that as a result of such termination, the terminated
party may suffer injury, damages and loss. Moreover, expenditures of money and
time undertaken by the parties pursuant to or in connection with this Agreement
may as a result of such termination be rendered worthless, and goodwill or
other tangible and intangible assets or value generated by such expenditures or
by long-term contracts and relationships with customers or others may be lost.
Notwithstanding all of the above, and UNDERSTANDING FULLY THE RISK THAT THIS
AGREEMENT MAY BE TERMINATED AT ANY TIME FOR ANY REASON OR FOR NO REASON
WHATSOEVER, each of the parties hereto hereby agrees that in the event of
termination, the terminating party shall not under any circumstances be liable
to the whether for the loss of present or prospective commissions or lost
profits, or for expenditures, investments, opportunities forgone, or for the
inability to fulfill customer contracts, or otherwise.
26.4 If COMPAQ, terminates this Agreement, COMPAQ may, at its sole
option, repurchase some or all of the COMPAQ Products in Dealer's inventory at
prices to be agreed upon by COMPAQ and Dealer, but in no event greater than the
price invoiced to and actually paid by the Dealer less any credits received by
Dealer in respect of such Products. In the event the factory box seal of a
COMPAQ Product has been broken, the price to be paid by COMPAQ shall not exceed
50% of the price invoiced to and actually paid by Dealer. Dealer agrees to
return to COMPAQ, pursuant to the terms set forth in this Sub-Section, any or
all of Dealer's inventory that COMPAQ may decide to repurchase.
26.5 If Dealer terminates this Agreement, COMPAQ may, at its sole
discretion, accept return of some or all of the COMPAQ Products in the
Dealer's inventory offered to COMPAQ by the Dealer. If COMPAQ chooses to
accept such returns, Dealer will be reimbursed the price invoiced to and
actually paid by the Dealer, less any credits received by Dealer in respect of
such COMPAQ Products and less a 15% handling charge and any return shipment
charges paid by COMPAQ.
26.6 Termination of this Agreement by either party does not relieve
Dealer of any responsiblity of duty set forth in this Agreement which by its
terms survives such termination.
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26.7 Termination of this Agreement shall automatically accelerate the
Due Date such that all outstanding invoices shall be due and payable as of the
effective date of termination.
26.8 Upon notice of termination of this Agreement, COMPAQ may reject
all or part of any orders received from Dealer after the date of notice of
termination. COMPAQ may also at its sole discretion, refuse to fill any orders
received prior to notice of termination. Any COMPAQ Products to be shipped to
Dealer prior to the effective date of termination shall be paid for by Dealer by
certified or cashier's check prior to the shipping date.
26.9 Upon the effective date of termination of this Agreement.
26.9.1 Dealer shall promptly return all advertising,
promotional, technical, sales, or other materials supplied by COMPAQ;
26.9.2 Dealer shall cease holding itself out as an authorized
seller or service provider of COMPAQ Products;
26.9.3 Dealer shall notify and arrange for all publishers and
others who may identify, list, or publish Dealer's name as a dealer or service
provider of COMPAQ Products to discontinue such listings as soon as practicable;
26.9.4 Dealer shall no longer sell COMPAQ Products (including
spare parts) to its customers, nor shall Dealer perform warranty service on
COMPAQ Products without the prior written consent of COMPAQ; and
26.9.5 Dealer shall no longer be entitled to warranty service
reimbursement for services performed on COMPAQ Products.
26.10 Upon the date of notice termination:
26.10.1 All promotional allowances available to Dealer for use
which are not already subject to valid and existing claims submitted by Dealer
and received by COMPAQ shall no longer be available for use by Dealer;
26.10.2 Dealer shall no longer be entitled to accrue
additional promotional allowances; and
26.10.3 Dealer's rights under any Inventory return or price
protection policy that may have been established by COMPAQ shall terminate.
27. Indemnification
Dealer agrees to indemnify COMPAQ against, including reasonable
attorneys' fees, and costs of litigation, and hold COMPAQ harmless from, any
and all claims by any other party resulting, directly or indirectly, from
Dealer's acts, omissions, misrepresentations, or negligence, regardless of the
form of action. This Section shall survive the expiration of termination of
this Agreement.
28. Limitation of Remedies
28.1 In the event of the failure, or threatened failure, of Dealer to
fulfill any of its obligations hereunder, COMPAQ shall be entitled to seek
injunctive relief to request that
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such obligation be fulfilled. Without limitation, COMPAQ shall have the right
to seek the enforcement of its rights regarding copyrights, Trademarks or trade
names and the enforcement of Dealer's obligation to cease representing itself
as in any way authorized by COMPAQ to sell or service COMPAQ Products.
28.2 In all situations involving the performance or non-performance of
COMPAQ Products acquired by Dealer under this Agreement, Dealer's remedy is set
forth in Sub-Section 22 of this Agreement. For any other claim brought by
Dealer against COMPAQ, regardless of the form of action, which does not arise
out of or relate to the termination of this Agreement, COMPAQ's liability shall
not exceed the lesser of (i) Dealer's actual damages caused by the breach; or
(ii) 250,000,00.
28.3 In no event shall COMPAQ be liable to Dealer or third parties for
lost profits or other consequential, incidental, indirect or special damages of
any nature whatsoever, including, without limitation, loss of profits, or loss
of business or anticipatory profits even if COMPAQ has been apprised of the
likelihood of such damages.
28.4 DEALER HEREBY WAIVES ALL RIGHTS UNDER THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT.
29. General
29.1 Dealer shall not assign any right or Interest herein nor delegate
any duty or obligation without the prior written consent of COMPAQ. Any
attempt by Dealer to assign any of the rights or interests or to delegate the
duties or obligations of this Agreement without such consent is void.
29.2 The entire Agreement between the parties is incorporated herein
and supersedes all prior discussions and agreements between the parties
relating to the subject matter hereto. Each party acknowledges that no
representations, inducements, promises herein. This Agreement can be modified
only by a written amendment duly signed by persons authorized to sign
agreements on behalf of Dealer and COMPAQ, and shall not be supplemented or
modified by any course of dealing or trade usage. Variance from or addition to
the terms and conditions of this Agreement in any order or other written
notification from Dealer will be of no effect. The term "Agreement" as used
herein includes any applicable future written amendment incorporated by
reference made in accordance herewith.
29.3 Any obligations and duties which by their nature extend beyond
the expiration or termination of this Agreement shall survive any expiration or
termination and remain in effect.
29.4 If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable, neither party is required to perform said
provision to the extent that said provision is invalid, illegal or
unenforceable; however, such provision shall be enforced to the fullest extent
permitted by applicable law and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
29.5 Neither party shall be liable for the failure to perform any of
its obligations under this Agreement if such failure is caused by the occurrence
of any contingency beyond its reasonable control.
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29.6 No action, regardless of form, arising out of this Agreement may
be brought by either party more than two (2) years after the cause of action
has arisen, or, in the case of non-payment, more than two (2) years from the
date the last payment was due.
29.7 Notices required or permitted hereunder shall be in writing and
deemed given and received when properly posted by registered or certified mail,
postage prepaid, first class, in an envelope properly addressed (i) if to
COMPAQ, to 20555 SH 249, Houston, Texas 77070; or (ii) if to Dealer, to the
address set forth in the introduction of this Agreement, or to such other
addresses as Dealer or COMPAQ specified upon ten (10) days written notice to
the other party.
29.8 Any waiver of any kind by COMPAQ of a breach of this Agreement
must be submitted in writing by COMPAQ to Dealer, shall be effective only to
the extent set forth in such writing and shall not operate or be construed as a
waiver of any subsequent breach by Dealer. Any COMPAQ delay or omission, if
any, in exercising any right, power or remedy pursuant to a breach or default
by Dealer shall not impair any right, power or remedy which COMPAQ may have.
29.9 This Agreement and all transactions executed hereunder shall be
governed exclusively by and construed in accordance with the substantive laws of
the State of Texas. This Agreement shall be deemed executed and performed
solely in the State of Texas.
29.10 In the event of litigation involving the parties hereto or
arising out of this Agreement or the subject matter hereof, the exclusive forum
for such litigation shall be the United States District Court for the Southern
District of Texas located in Houston, Texas. The parties hereby consent to the
in personam jurisdiction of said United States District Court for purposes of
any such litigation, and waive, fully and completely, any right to dismiss
and/or transfer any action from the court pursuant to 28 U.S.C. Section 1404 or
1406 (or any successor statue). In the event the United States District Court
for the Southern District of Texas should decline federal jurisdiction, such
litigation shall be brought in the appropriate state court located in Houston,
Texas.
29.11 In any litigation involving the parties hereto or arising out of
this Agreement or the subject matter hereof, the parties hereby agree to waive
trial by jury, and hereby stipulate that any actions shall be tried to the
Court.
29.12 Goods purchased or received under this Agreement as well as all
information disclosed by COMPAQ are subject to United States export
regulations, Dealer may not export such goods or information without first
obtaining written permission from COMPAQ.
29.13 Dealer shall not sell or ship any products or technical data
directly or indirectly to any person or destination where such sale or shipment
would be prohibited by the laws of the United States or regulations of a
department of the United States.
29.14 In any action or proceeding between the parties hereto, or
brought to enforce the terms of this Agreement, the prevailing party in such
action or proceeding shall be entitled to recover its attorneys' fees and
costs, including time and costs of outside and in-house counsel, incurred in
connection with said litigation. In addition to such attorneys' fees and
costs, said prevailing party shall also be entitled to recover the reasonable
costs of management time necessarily incurred in connection with such
litigation. As used in this Agreement, the term "attorneys' fees" shall be
deemed to mean the full and actual cost of any legal services actually
performed in connection with the matters involved, calculated on
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the basis of the usual fees charged by the attorneys performing such services,
and shall not be limited to "reasonable attorneys' fees" as defined by common
law or in any statute or rule of court.
29.15 Dealer shall at all times comply with all applicable federal,
state and local laws and regulations.
291.6 This Agreement is COMPAQ Confidential.
30. COMPAQ Policy
COMPAQ does not contain entertain complaints from its dealers about any
other dealer's pricing practices. In executing this Agreement, Dealer agrees
to abide by that policy and to refrain from making complaints about any other
dealer's prices. COMPAQ may receive information from its dealers on the
non-price conduct of other sellers of COMPAQ Products, including, for example,
information on service, warranty, advertising, or sales by unauthorized
outlets. Any decisions regarding such information will be at sole and
unilateral discretion of COMPAQ. Any comments by COMPAQ representatives
contrary to these policies are expressly unauthorized and disclaimed by COMPAQ.
In executing this Agreement, Dealer recognizes these policies of COMPAQ and
will cooperate with COMPAQ in complying with this policy.
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND
AGREE TO BOUND BY ITS TERMS AND CONDITIONS. FURTHER, BOTH PARTIES AGREE THAT
IT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE
PARTIES, WHICH SUPERSEDES ALL PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER
COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS
AGREEMENT.
DEALER COMPAQ
Dataflex Corporation
- --------------------
Corporate Name
Dataflex/computerBay COMPAQ COMPUTER CORPORATION
- --------------------
d/b/a Name
7/24/90 AUGUST 2, 1990
- ------------------------------- ---------------------------------
Date Date (Effective Date)
/s/ Richard C. Rose, President /s/ DOUG JOHNS
- ------------------------------- ------------------------------------
Print Name and Title Signature
Richard C. Rose, President Doug Johns, Vice President,
- ------------------------------- Marketing Operations
Print Name and Title ------------------------------------
Print Name and Title
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EXHIBIT 10.24
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 11, 1995, between Dataflex Corporation, a
New Jersey corporation, which has its principal office at 3920 Park Avenue,
Edison, New Jersey 08820 (hereinafter, the "Company") and Philip Doganiero
(hereinafter, the "Executive").
WHEREAS, the Company desires to employ the Executive as President of
Dataflex Southeast, a division of the Company; and
WHEREAS, the Executive is willing to accept such employment as
President of Dataflex Southeast, a division of the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter set forth, the parties hereto
agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions hereinafter
set forth.
2. Term. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement shall begin on the "Closing Date," as
defined in that certain Asset Purchase Agreement, dated as of November 17, 1994
(the "Asset Purchase Agreement"), by and between the Company and National Data
Products, Inc. ("NDP") and
<PAGE> 2
shall terminate on the third anniversary of such Closing Date.
3. Compensation. For the services to be rendered by the Executive under
the terms of this Agreement, the Company shall pay the Executive a basic salary
of $296,460 per year or such greater amount as may be approved from time to
time by the Company's Board of Directors (the "Basic Salary"), payable in equal
by-weekly installments.
4. Duties.
A. The Executive is engaged as President of Dataflex Southeast, a division
of the Company with all of the responsibilities commensurate with such title.
The precise services of the Executive may be modified, enlarged or limited, from
time to time, at the discretion of the Company's Board of Directors or the
Chief Executive Officer. The Executive shall be appointed to the Company's Board
of Directors at the first meeting thereof following the date of this Agreement
and thereafter during the term of this Agreement shall be nominated by the
Company's Board of Directors for election to the Company's Board of Directors by
the Company's shareholders. The Executive will not receive any additional
compensation in respect of his membership on the Company's Board of Directors.
During the term of this Agreement, the Executive shall devote his full
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business time, energy and skill to his employment as President of Dataflex
Southeast, a division of the Company.
B. During the term of this Agreement, the Executive shall not be
required to relocate to any office of the Company which would require him to
change his principal residence from that maintained by the Executive on the date
hereof.
5. Restrictive Covenants.
A. The Executive recognizes and acknowledges that the list of the
Company's customers, as it may exist from time to time, is a valuable, special,
and unique asset of the Company's business. The Executive will not, during, or
for one (1) year after the term of his employment, disclose the list of the
Company's customers or any part thereof to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever.
B. During the term of this Agreement and for one year after the
termination of this Agreement, the Executive will not, directly or indirectly,
within New Jersey, New York, Connecticut, Massachusetts, Pennsylvania,
California, Illinois, Arizona, Florida and such other states in which the
Company may or does do business, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation, or
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control of any business competitive with or otherwise similar to the business
conducted by the Company during the term of the Executive's employment
hereunder.
C. In the event of a breach or threatened breach by the Executive of
the provisions of this paragraph 5, the Company shall be entitled to injunctive
relief to enforce its rights hereunder. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of damages
from the Executive.
D. The Executive acknowledges and agrees that the covenants set forth
in this paragraph 5 are given in consideration of the purchase by the Company of
substantially all of the assets of NDP, as set forth in the Asset Purchase
Agreement, and that such covenants are therefore enforceable under the laws of
the State of Florida.
E. This Paragraph 5 shall survive the termination of this Agreement.
6. Expenses. The Executive is authorized to incur reasonable expenses
in connection with the business of the Company, including expenses for
entertainment, travel, and similar items. The Company shall reimburse the
4
<PAGE> 5
Executive for all such expenses upon the presentation by the Executive, from
time to time, of an itemized account of such expenditures.
7. Disability.
A. If the Executive is not able to perform each of the material duties
of his job due to physical or mental disability, does not work at any other
occupation, is unable to do each of the material duties of any job for which he
is fitted by education, training, or experience, and is under the regular
treatment of a physician, all for a period in excess of twelve (12) consecutive
months, then, at the option of the Company, and upon thirty (30) days' notice
in writing to the Executive by the Company, this Agreement (other than the
restrictive covenants set forth in paragraph 5 hereof) shall terminate, and the
Executive shall be paid, within sixty (60) days of the date of termination
of this Agreement, a lump sum equal to all Basic Salary (as then in effect)
earned up to and including the date of termination plus fifty percent (50%) of
the remaining total amount of Basic Salary (as then in effect) which would have
been earned by the Executive hereunder if he had remained in the employ of the
Company through the third anniversary of the date hereof. An additional amount
equal to the balance of the Basic Salary (as then in effect) which would have
been
5
<PAGE> 6
earned by the Executive hereunder if he had remained in the employ of the
Company through the third anniversary of the date hereof shall be paid to the
Executive in equal installments through the third anniversary of the date hereof
in accordance with the Company's normal payroll practices. However, such
periodic payments shall immediately terminate, and the Company shall have no
further obligations under this Paragraph 7, in the event of the Executive's
death prior to the third anniversary of the date hereof.
B. In addition to the payments described in Paragraph 7A above, the
Executive shall be entitled to receive the compensation described in the second
sentence of paragraph 3 hereof earned up to and including the date of
termination. Such amount is deemed to be earned on a monthly pro-rata basis, on
the last day of each month, and shall be payable within 90 days after the end
of the fiscal quarter in which termination occurred.
C. Notwithstanding the provisions of Paragraph 7A to the contrary, the
lump sum or periodic payments of Basic Salary in respect of the remaining
original term of this Agreement provided for in Paragraph 7A shall be reduced by
any funds provided or to be provided from disability insurance or other plans or
arrangements which the Company,
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<PAGE> 7
at its sole cost and expense, may obtain for the benefit of the Executive and
by any compensation received by the Executive from another employer subsequent
to the date of disability and during the term of this Agreement. Such reduction
shall first be applied to reduce the fifty (50%) percent payment to be made
within sixty (60) days of the termination of the Agreement and, to the extent
necessary, shall then be applied on a proportionate basis to reduce the
remaining disability payments to be made in accordance with the Company's normal
payroll practices.
D. If at any time, as a result of the total payments received from the
Company, a disability insurance carrier and/or another employer, the Executive
has received benefits or compensation in excess of that which he is entitled to
receive under this Paragraph 7, he shall be obligated to immediately pay such
excess to the Company. In addition, the Company may deduct such excess from any
payments which the Company is otherwise obligated to make to the Executive in
the future under this Agreement.
E. This Paragraph 7 shall survive the termination of this Agreement.
8. Insurance. The Company shall have the right, from time to time, to
apply for and take out in its name and at its own expense, life, health or other
insurance upon the
7
<PAGE> 8
Executive in any sum or sums which may be deemed necessary by the Company to
protect its interest under this Agreement, and the Executive shall do all such
things as may be necessary to assist in the procuring of such insurance by
making proper application therefor as may be required by an insurance company
and submitting to the usual and customary medical examination.
9. Other Plans. In addition to the compensation provided for in
Paragraph 3 hereof, the Executive shall be entitled to participate in any group
life, medical, pension, retirement, profit sharing and other employee benefit
plans, vacations, and other types of deferred compensation arrangements
afforded generally by the Company to other officers of the Company, subject to
his meeting applicable eligibility requirements, and nothing herein contained
shall be deemed to preclude the Executive's participation in any such plan.
10. Termination.
A. The Company shall have the right to terminate the Executive's
employment under this Agreement if the Executive:
(i) is convicted of a felony, or pleads guilty or nolo
contendere to such felony or lesser charge which results from plea
bargaining; or
8
<PAGE> 9
(ii) breaches any material term or condition of this
Agreement in any material respect and fails to cure such material
breach within the latter of thirty (30) calendar days after receiving
written notice of such breach from the Company or such reasonable
period of time as is necessary to cure such breach; or
(iii) dies, or is disabled pursuant to Paragraph 7 of this
Agreement; or
(iv) the Company shall reasonably believe that the Executive
has committed an act of fraud, theft or dishonesty against the Company.
B. If this Agreement is terminated pursuant to Paragraph 10A hereof,
and except as otherwise provided in Paragraphs 7 and 11 hereof, the Company
shall be under no obligation or liability to the Executive except to pay to him
such Basic Salary to which he may be entitled pursuant hereto through the date
of such termination and the compensation described in the second sentence of
paragraph 3 hereof through the last full fiscal quarter completed prior to the
date of termination. No compensation in excess of Basic Salary will be earned
for the fiscal quarter of termination. Such funds shall be payable to the
Executive, or his personal representative, within sixty (60) days after
9
<PAGE> 10
such termination, or the appointment of a duly authorized personal
representative, whichever is later.
C. The Company shall also have the right to terminate the Executive's
employment without cause. In such event, the Company shall be required to pay to
the Executive the remaining Basic Salary as then in effect to which the
Executive is entitled for the remaining term of this Agreement. The Company's
Board of Directors may not reduce the Executive's Basic Salary in contemplation
of such termination. The remaining Basic Salary shall be payable in one lump sum
within thirty-one (31) days after such termination. In addition, the Executive
will be entitled to the compensation described in the second sentence of
Paragraph 3 hereof through the date of termination. For this purpose, such
compensation is deemed to be earned on a monthly pro-rata basis, on the last day
of each month. Such amount shall be payable within ninety (90) days after the
end of the fiscal quarter in which termination occurs.
11. Death During Employment. Notwithstanding any other provision in
this Agreement to the contrary, if the Executive dies during the term of his
employment hereunder, the Company shall:
A. pay to the estate of the Executive within six (6) months of the
Executive's death, all of the Basic Salary
10
<PAGE> 11
which would otherwise be payable to him up to the later of (i) three years from
the date of death or (ii) the third anniversary of the date hereof. The amount
of Basic Salary to be used in determining the amount payable to his estate
pursuant to the preceding sentence shall be the Basic Salary in effect on the
date of his death; and, in addition,
B. pay a total of $5,000 to the estate of the Executive, within sixty
(60) days after the death of the Executive.
12. Payment In the Event of Change in Control of the Company.
A. If in a single transaction or as a result of a series of
transactions occurring in concert with each other, the control of the Company
shall change, and subsequent to such change in control, this Agreement, or any
subsequent employment agreement then in effect which expires prior to the
Executive's attaining sixty-five (65) years of age, is terminated or is not
renewed by the Company at the expiration of the term of such agreement or any
renewals, extensions or modifications thereof, the Executive shall be entitled
to compensation in addition to all amounts otherwise payable to the Executive
under this Agreement, in an amount equal to two hundred ninety nine percent
(299%) of the annual Basic Salary payable to the Executive at the time
11
<PAGE> 12
when his employment is terminated. For purposes of this Paragraph 12, a "change
in control" shall occur if a person, together with such person's affiliates or
associates, acquire 50% or more of the outstanding voting stock of the Company.
The amount payable under this Paragraph 12 shall be paid in one single payment
to the Executive within sixty (60) days of the termination of employment.
B. Notwithstanding any other provisions of this Agreement to the
contrary, the total amounts deemed to be payable to the Executive under this
Agreement as a result of a change in control shall not exceed three (3) times
the "base amount" as determined under Section 28OG of the Internal Revenue Code
of 1986, as amended. In the event the amounts payable to the Executive as a
result of a change of control are reduced pursuant to the preceding sentence,
the amounts payable under this paragraph 12 shall be reduced prior to the
reduction of any other payments to the Executive hereunder.
C. This paragraph 12 shall survive the termination of this Agreement.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to his
12
<PAGE> 13
residence, in the case of the Executive, or to its principal office, in the case
of the Company.
14. Waiver of Breach. The waiver by the Company of a breach of any
provision of this Agreement by the Executive shall not operate or be construed
as a waiver of any subsequent breach by the Executive.
15. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey.
16. Entire Agreement. This instrument contains the entire agreement of
the parties. It may not be changed or modified except by an agreement in writing
signed by the parties hereto.
17. Severaability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validly or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding on the parties hereto
13
<PAGE> 14
and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by the Executive without the prior written consent
of the Company.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
ATTEST: DATAFLEX CORPORATION
By: /s/ Richard C. Rose
------------------------
Title: Chairman and Chief Executive Officer
/s/ Philip Doganiero
----------------------------
Philip Doganiero
<PAGE> 1
(DATAFLEX CORPORATION LETTERHEAD)
EXHIBIT 10.25
Philip Doganiero
c/o Dataflex Corporation-Southeast
2145 Calumet Street
Clearwater, FL 34625
April 1, 1995
Re: Employment Agreement
Dear Mr. Doganiero:
Reference is made to that certain Agreement, dated as January 11, 1995
between Dataflex Corporation, a New Jersey Corporation (the "Company") and you
(as the same has been and may hereafter be amended, restated, supplemented or
otherwise modified from time to time, the "Employment Agreement").
Each of the parties agrees as follows:
SECTION 1. Employment Agreement. Section 3 of the Employment
Agreement is hereby amended by deleting the words "a basic salary of $296,400"
appearing therein an substituting therefor the words "a basic salary of
$225,000."
SECTION 2. Miscellaneous.
(a) This Amendment and the rights of the parties hereto shall be
governed by and construed in accordance with, the law of the State of New
Jersey.
(b) This Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to an original and all of which taken together shall
constitute one and the same agreement.
(c) Except as expressly amended by this Amendment, the Employment
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
Kindly confirm your acceptance of the terms hereof by signing and
returning one copy of this document to the Company
Very truly yours,
DATAFLEX CORPORATION
By: /s/
Title: /s/ Sr. V.P. of Finance & CFO
--------------------------------------
Senior Vice President of Finance & CFO
/s/ Phillip Doganiero
---------------------------------
Phillip Doganiero
6/26/95
------------------------
Date
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 11, between Dataflex Corporation, a New
Jersey corporation, which has its principal office at 3920 Park Avenue, Edison,
New Jersey 08820 (hereinafter, the "Company") and Anthony Lembo (hereinafter,
the "Executive").
WHEREAS, the Company desires to employ the Executive as Vice President
of Dataflex Southeast, a division of the Company; and
WHEREAS, the Executive is willing to accept such employment as Vice
President of Dataflex Southeast, a division of the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter set forth, the parties hereto
agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions hereinafter
set forth.
2. Term. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement shall begin on the "Closing Date," as
defined in that certain Asset Purchase Agreement, dated as of November 17, 1994
(the "Asset Purchase Agreement"), by and between
<PAGE> 2
the Company and National Data Products, Inc. ("NDP") and shall terminate on the
third anniversary of such Closing Date.
3. Compensation. For the services to be rendered by the Executive under
the terms of this Agreement, the Company shall pay the Executive a basic salary
of $125,000 per year or such greater amount as may be approved from time to time
by the Company's Board of Directors (the "Basic Salary"), payable in equal
by-weekly installments. In addition to such Basic Salary, the Executive shall be
entitled to compensation in an amount equal to $50,000 per year, or such greater
amount as may be approved from time to time by the Company's Board of
Directors, if, but only if, the Dataflex Southeast division of the Company meets
or exceeds certain financial targets to be determined by the Company's Board of
Directors. Such compensation in excess of Basic Salary shall be payable within
ninety (90) days after the end of each fiscal year of the Company during the
employment term.
4. Duties.
A. The Executive in engaged as Vice President of Dataflex Southeast, a
division of the Company with all of the responsibilities commensurate with such
title. The precise services of the Executive may be modified, enlarged
2
<PAGE> 3
or limited, from time to time, at the discretion of the Company's Board of
Directors or the President or Chief Executive Officer. During the term of this
Agreement, the Executive shall devote his full business time, energy and skill
to his employment as Vice President of Dataflex Southeast, a division of the
Company.
B. During the term of this Agreement, the Executive shall not be
required to relocate to any office of the Company which would require him to
change his principal residence from that maintained by the Executive on the date
hereof.
5. Restrictive Covenants.
A. The Executive recognizes and acknowledges that the list of the
Company's customers, as it may exist from time to time, is a valuable, special,
and unique asset of the Company's business. The Executive will not, during, or
for one (1) year after the term of his employment, disclose the list of the
Company's customers or any part thereof to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever.
B. During the term of this Agreement and for one year after the
termination of this Agreement, the Executive will not, directly or indirectly,
within New Jersey, New York, Connecticut, Massachusetts, Pennsylvania,
California,
3
<PAGE> 4
Illinois, Arizona, Florida and such other states, in which the Company may or
does do business, own, manage, operate, control, be employed by, participate in,
or be connected in any manner with the ownership, management, operation, or
control of any business competitive with or otherwise similar to the business
conducted by the Company during the term of the Executive's employment
hereunder.
C. In the event of a breach or threatened breach by the Executive of
the provisions of this paragraph 5, the Company shall be entitled to injunctive
relief to enforce its rights hereunder. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of damages
from the Executive.
D. The Executive acknowledges and agrees that the covenants set forth
in this paragraph 5 are given in consideration of the purchase by the Company of
substantially all of the assets of NDP, as set forth in the Asset Purchase
Agreement, and that such covenants are therefore enforceable under the laws of
the State of Florida.
E. This Paragraph 5 shall survive the termination of this Agreement.
4
<PAGE> 5
6. Expenses. With the prior approval of the President or Chief
Executive Officer of the Company or the President of the Dataflex Southeast
division of the Company, the Executive is authorized to incur reasonable
expenses in connection with the business of the Company, including expenses for
entertainment, travel, and similar items. The Company shall reimburse the
Executive for all such expenses upon the presentation by the Executive, from
time to time, of an itemized account of such expenditures.
7. Insurance. The Company shall have the right, from time to time, to
apply for and take out in its name and at its own expense, life, health or other
insurance upon the Executive in any sum or sums which may be deemed necessary by
the Company to protect its interest under this Agreement, and the Executive
shall do all such things as may be necessary to assist in the procuring of such
insurance by making proper application therefor as may be required by an
insurance company and submitting to the usual and customary medical examination.
8. Other Plans. In addition to the compensation provided for in
Paragraph 3 hereof, the Executive shall be entitled to participate in any group
life, medical, pension, retirement, profit sharing and other employee benefit
plans, vacations, and other types of deferred compensation
5
<PAGE> 6
arrangements afforded generally by the Company to other officers of the Company,
subject to his meeting applicable eligibility requirements, and nothing herein
contained shall be deemed to preclude the Executives participation in any such
plan.
9. Termination
A. The Company shall have the right to terminate the Executive's
employment under this Agreement if the Executive:
(i) is convicted of a felony, or pleads guilty or nolo
contendere to such felony or lesser charge which results from plea
bargaining; or
(ii) breaches any material term or condition of this Agreement
in any material respect and fails to cure such material breach within
the latter of thirty (30) calendar days after receiving written notice
of such breach from the Company or such reasonable period of time as is
necessary to cure such breach; or
(iii)dies, or is disabled such that he is unable to perform
each of the material duties of his employment; or
(iv) the Company shall reasonably believe that the Executive
has committed an act of fraud, theft or dishonesty against the Company.
6
<PAGE> 7
B. If this Agreement is terminated pursuant to Paragraph 9A hereof, the
Company shall be under no obligation or liability to the Executive except to pay
to him such Basic Salary to which he may be entitled pursuant hereto through the
date of such termination and the compensation described in the second sentence
of paragraph 3 hereof through the last full fiscal year completed prior to the
date of termination. No compensation in excess of Basic Salary will be earned
for the fiscal year of termination. Such funds shall be payable to the
Executive, or his personal representative, within sixty (60) days after such
termination, or the appointment of a duly authorized personal representative,
whichever is later.
C. The Company shall also have the right to terminate the Executive's
employment without cause. In such event, the Company shall be required to pay
to the Executive the remaining Basic Salary as then in effect to which the
Executive is entitled for the remaining term of this Agreement. The Company's
Board of Directors may not reduce the Executive's Basic Salary in contemplation
of such termination. The remaining Basic Salary shall be payable in one lump-sum
within thirty-one (31) days after such termination. In addition, the Executive
will be entitled to the compensation described in the second sentence of
7
<PAGE> 8
Paragraph 3 hereof through the last full fiscal year completed prior to the date
of termination. No compensation in excess of Basic Salary will be earned for the
fiscal year of termination.
10. Death During Employment. Notwithstanding any other provision in
this Agreement to the contrary, if the Executive dies during the term of his
employment hereunder, the Company shall:
A. pay to the estate of the Executive within six (6) months of the
Executive's death, all of the Basic Salary which would otherwise be payable to
him up to the later of (i) three years from the date of death or (ii) the third
anniversary of the date hereof. The amount of Basic Salary to be used in
determining the amount payable to his estate pursuant to the preceding sentence
shall be the Basic Salary in affect on the date of his death; and, in addition,
B. pay a total of $5,000 to the estate of the Executive, within sixty
(60) days after the death of the Executive.
11. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to his residence, in the case of the Executive, or to its
principal office, in the case of the Company.
8
<PAGE> 9
12. Waiver of Breach. The waiver by the Company of a breach of any
provision of this Agreement by the Executive shall not operate or be construed
as a waiver of any subsequent breach by the Executive.
13. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey.
14. Entire Aareement. This instrument contains the entire agreement of
the parties. It may not be changed or modified except by an agreement in writing
signed by the parties hereto.
15. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validly or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding on the parties hereto and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by the
9
<PAGE> 10
Executive without the prior written consent of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first, written above.
ATTEST: DATAFLEX CORPORATION
By: /s/ Richard C. Rose
------------------------------------------
Title: Chairman and Chief Executive Officer
/s/ Anthony Lembo
---------------------------------------------
Anthony Lembo
10
<PAGE> 1
EXHIBIT 10.27
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release ("Agreement") is effective as of
March 1, 1997.
1. PARTIES.
The parties to this Agreement are Arlen Westling, as Trustee for the
Westling Family Trust dated February 1, 1995; Roger Powell; Jeff Abreu; Ruth
Wayman; Victoria Chaisson; Gordon Lane; Leonard O. Sickman; David Riley, as
Trustee for the David and Tamara Riley Family Trust dated December 4, 1992;
Leonard and Leslie Sickman as Trustees for the Sickman Family Trust dated
December 22, 1992; Robert G. Kreisheimer as Trustee for the Kreisheimer Family
Trust dated December 11, 1992; David and Barbara Hall as Trustees for the Hall
Family Trust dated July 29, 1987; Roger and Rosie Hebert as Trustees for the
Hebert Family Trust dated January 16, 1991; Gene Nadal and Shirley Nadal,
husband and wife; Robert W. Gaylor; Edward J. Meyer (collectively "plaintiffs")
and Dataflex Corporation ("Dataflex").
2. RECITALS.
A. Plaintiffs and Dataflex are parties to the lawsuit now pending in
Maricopa County, Arizona, styled Arlen Westling; Roger Powell; Jeff Abreu; Ruth
Wayman; Victoria Chaisson; Gordan Lane; Leonard O. Sickman; David Riley;
Leonard and Leslie Sickman as Trustees for the Sickman Family Trust dated
December 22, 1992; Robert G. Kreisheimer; David and Barbara Hall as Trustees
for the Hall Family Trust dated July 29, 1987; Roger and Rosie Herbert as
Trustees for the Herbert Family Trust dated July 29, 1987; Gene Nadal and
Shirley Nadal, husband and wife; Robert W. Gaylor; Edward J. Meyer v. Dataflex
Corporation, Case No. CV 96 14329 (the "Lawsuit"). The Lawsuit asserts causes
of action based upon breach of contract in connection with the filing of a
shelf registration;
<PAGE> 2
B. Plaintiffs are former shareholders of a corporation formerly known as
Sunland Computer Services, Inc. ("Sunland").
C. Dataflex acquired all of Sunland's stock, including the stock owned
by plaintiffs, pursuant to the terms of a Stock Purchase Agreement dated August
19, 1994;
D. In connection with Dataflex' acquisition of Sunland, Dataflex issued
Dataflex stock to plaintiffs in exchange for plaintiffs' Sunland stock;
E. The plaintiffs and Dataflex entered into a registration agreement
which provided, in part, that a shelf registration would be filed at a later
date;
F. Plaintiffs contend that the shelf registration was not filed in a
timely fashion;
G. Dataflex claims that the filing was delayed by conditions which were
beyond the control of Dataflex, and that the shelf registration has now been
filed and is fully effective.
H. Without making any admissions of any kind, Dataflex and plaintiffs
agree that it is in their mutual best interests to resolve the Lawsuit.
3. PURPOSE OF AGREEMENT.
The parties to this Agreement, by way of good faith compromise and
settlement of their respective positions, and in consideration of the mutual
convenants contained herein, agree to resolve all claims, counterclaims and
causes of action, whether raised or not raised, or which could have been
raised, in the Lawsuit, which arise out of, are connected with, or relate to,
directly or indirectly, the acquisition of Sunland, the insurance of Dataflex
stock and the filing of the shelf registration.
<PAGE> 3
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants and agreements hereinafter expressed, the parties agree as follows:
4. TERMS AND AGREEMENT.
A. Dataflex shall pay to plaintiffs as follows:
i. $225,000 on March 7, 1997;
ii. $75,000 on April 1, 1997.
B. The payments set forth in Paragraph A above shall be made via
cashier's checks payable to "Fennemore Craig Trust Account" and shall be
delivered on the dates stated to plaintiffs' counsel, William L. Thorpe,
Fennemore Craig, Two North Central Avenue, Suite 2200, Phoenix, Arizona 85004.
C. Dataflex will convey to plaintiffs 270,000 shares of Dataflex
common stock on March 14, 1997. These shares shall be issued in the name of
"Fennemore Craig Trust Account" and shall be delivered on the date stated to
plaintiffs' counsel, William L. Thorpe, at the address set forth in Paragraph B
above. Dataflex further agrees that within five (5) business days after
receiving written request from plaintiffs' counsel, William L. Thorpe, Dataflex
will instruct the transfer agent to cancel the certificate issued to Fennemore
Craig Trust Account and to reissue the shares reflected thereby in the names
and quantities, cumulatively not to exceed 270,000 directed by plaintiffs'
counsel.
D. Dataflex will file a registration statement relating to the
shares conveyed in Paragraph C (the "Registration Statement"), on the
appropriate form, with the Securities and Exchange Commission on or before
April 15, 1997. After the Registration Statement is filed, Dataflex will use
its reasonable best efforts to cause it to become effective as soon as
possible. When such registration becomes effective, Dataflex shall provide
plaintiffs'
<PAGE> 4
counsel with written notice that the Registration Statement has become effective
within two (2) business days at the address set forth in Paragraph B above.
E. In the event that the Registration Statement is not filed
on or before April 15, 1997, Dataflex will pay $2,000 to plaintiffs collectively
for each full business day following April 15, 1997 that passes until the
Registration Statement is filed. Dataflex will make each payment due plaintiffs
under this provision by delivering to the U.S. mail a $2,000 cashier's check to
plaintiff's counsel, mailed to the address set forth in Paragraph B above within
two (2) business days of each day on which Dataflex incurs a $2,000 debt to
plaintiffs under this provision.
F. Dataflex forgives the indebtedness owed to Dataflex by
Arlen Westling in the amount of $80,000.00, by Jeff Abreu in the amount of
$5,000.00, by Ruth Wayman in the amount of $17,197.50, and shall, within ten
(10) business days of the date of this Agreement, return to each of them the
original promissory note evidencing such indebtness marked "Paid in Full."
G. Concurrent with the execution of this Agreement, the
parties shall execute a stipulation to dismiss the Lawsuit with prejudice, and
plaintiffs' counsel shall thereafter promptly cause the Stipulation to be filed
with the Court within ten (10) business days following the execution of this
Agreement.
5. GENERAL MUTUAL RELEASE
A. Excepting for the rights, duties and liabilities set forth
in this Agreement, plaintiffs, for themselves and for each of their assigns,
successors, heirs, beneficiaries, agents, representatives, administrators and
executors (collectively "Plaintiffs' Releases"), hereby forever release the
"Dataflex Releases," defined as: Dataflex Corporation
<PAGE> 5
and each of its divisions, subsidiaries, affiliates, officers, directors,
shareholders, owners, insurers, representatives, financial advisors,
underwriters, accountants, agents, attorneys, servants, current and former
employees, assigns, predecessors and successors, and all persons acting by,
through, or in concert with them, and the Dataflex Releases hereby forever
release Plaintiffs' Releases, and each of them, from any and all claims,
demands, actions, causes of action, controversies, complaints, suits, debts,
liens, contracts, agreements, promises, liabilities, responsibilities, charges,
losses, damages, attorneys' fees, costs and expenses of every kind whatsoever,
in law, equity, or otherwise, whether known or unknown, suspected or
unsuspected, fixed or contingent (hereafter, "Claims"), which the parties now
own or hold, or have at any time heretofore owned or held against the other
party in connection with, arising from or related to, directly or indirectly,
the facts and matters alleged in the Lawsuit; or which could have been raised
in the Lawsuit, or which arise out of, are connected with, or relate to, either
directly or indirectly, the acquisition of Sunland, the issuance of Dataflex
stock, and the filing of the shelf registration; provided, however, that
nothing in this Agreement shall be construed as a release of any claims
Plaintiffs, or any of them, may have against the Dataflex Releases, or any of
them, arising out of or relating to health care benefits.
B. Plaintiffs agree that this Release will apply to all
unknown and unanticipated injuries, as well as those presently known or
disclosed. Plaintiffs acknowledge that they may discover facts that are
different from, or in addition to, those which they now know or believe to be
true, but agree that this Release is now and shall remain effective,
notwithstanding the existence or discovery of additional or different facts.
C. Plaintiffs have been advised by their legal counsel of,
understand, and acknowledge the significance and consequence of this Release.
<PAGE> 6
D. Plaintiffs represent and warrant that there has been no
assignment or other transfer of any interests in the claims released hereunder
and plaintiffs agree to indemnify and hold forever harmless the Dataflex
Releases, and each of them, from any claims, liabilities, demands, costs and
expenses, including reasonable attorneys' fees, incurred as a result of any
person or entity asserting such claims against the Dataflex Releases, or any of
them, pursuant to assignment or transfer. Plaintiffs agree that if they
hereafter commence, join or in any manner seek relief arising out of, based upon
or relating to any of the claims released hereunder, or in any manner assert
against the Dataflex Releases, or any of them, any of the claims released
hereunder, then plaintiffs, jointly and severally, shall indemnify and forever
hold harmless the Dataflex Releases, and each of them, from any and all claims,
liabilities, demands, costs and expenses, including reasonable attorneys' fees,
incurred as a result thereof.
6. GENERAL PROVISIONS.
A. Each party hereto represents and warrants that he or it has
succeeded to full power to make the releases and agreements contained herein,
and that he or it has not assigned, encumbered or in any manner transferred all
or any portion of the claims covered by the releases and agreements contained
herein.
B. Each party hereto acknowledges that he or it has been
represented by counsel in the negotiation of this Agreement, and that this
Agreement is the result of an arms-length negotiation. Because the parties
hereto have received the terms of this Agreement, and have relied on the advice
of their respective attorneys as to the terms and provisions, each of them have
had the opportunity to add to or delete from the initial drafts of this
Agreement, the parties agree that the usual rule that the provisions of a
document are to be construed against the drafter does not apply to the
interpretation of the provisions of this Agreement.
<PAGE> 7
C. The parties agree that the terms of this Agreement are to
be treated as confidential, and neither party will disclose the contents hereof
to any third party, except that each party may disclose this Agreement to their
auditors, insurers or professional accountants (or any other person who might
need to review this Agreement in their discharge of their ordinary professional
responsibilities). If either party is served with compulsory process to obtain
copies of this Agreement, the party so served shall promptly notify the other
party to afford that party the opportunity to object to such production.
D. This Agreement constitutes a single, integrated, written
contract expressing the entire agreement of the parties hereto. No other
statements, representations or promises, written or oral, express or implied,
have been made by any party to any other. All prior discussions and
negotiations have been and are merged and integrated into, and are superseded
by, this Agreement. This Agreement may be modified only by a writing signed by
the party or parties to be charged.
E. The headings in this Agreement are for convenience only,
and are not a party of this Agreement, and shall not in any way affect the
interpretation of this Agreement.
F. This Agreement may be executed in counterparts, each part
of which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
G. The parties hereto shall cooperate to effectuate, and shall
undertake such actions as are reasonable necessary to effectuate, this
Agreement.
H. In the event that any provisions of this Agreement, or the
application thereof, become or is declared by a court of competent jurisdiction
to be illegal, void
<PAGE> 8
or unenforceable, the remainder of this Agreement shall continue in full force
and effect. The parties further agree to replace such void, illegal or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the fullest extent possible, the economic, business and
other purposes of such void or unenforceable provision. Notwithstanding the
foregoing, however, Dataflex shall have no further obligation to plaintiffs and
the finality of this Agreement shall not be affected by any determination of any
appropriate government agency, or by any court or administrative body, as to the
treatment of the monies paid to the plaintiffs.
I. If any party to this Agreement brings an action to enforce
its rights hereunder, the prevailing party shall be entitled to recover its
costs and expenses, including reasonable attorneys' fees, if any, incurred in
connection with such suit.
J. Any action brought to interpret or enforce this Agreement,
shall be brought before a state or federal court of competent jurisdiction
located within the United States District of Arizona and the parties hereto
irrevocably consent to the jurisdiction of such court and service of process for
such purpose. The terms of this Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the state of Arizona.
K. Each party shall bear his or its own costs and attorneys'
fees in the Lawsuit.
IN WITNESS WHEREFORE, the parties hereto have executed this Agreement
either personally or by and through their respective authorized agent(s).
DATED March 1, 1997
-------
/s/ Arlen Westling /s/ Roger Powell
- ------------------ ----------------
Arlen Westling as Trustee of the Roger Powell
Westling Family Trust dated 2/1/95
<PAGE> 9
/s/ Jeff Abreu /s/ Ruth Wayman
- ----------------------------------- -----------------------------------
Jeff Abreu Ruth Wayman
/s/ Victoria Chaisson /s/ Gordan Lane
- ----------------------------------- -----------------------------------
Victoria Chaisson Gordan Lane
/s/ Leonard O. Sickman /s/ David Riley
- ----------------------------------- -----------------------------------
Leonard O. Sickman David Riley as Trustee of the Riley
Family Trust dated 12/4/92
/s/ Leonard D. Sickman /s/ Leslie Sickman
- ----------------------------------- -----------------------------------
Leonard D. Sickmn as Trustee Leslie Sickman as Trustee
for the Sickman Family Trust for the Sickman Family Trust
dated 12/22/92 dated 12/22/92
/s/ Robert W. Gaylor /s/ Edward J. Meyer
- ----------------------------------- -----------------------------------
Robert W. Gaylor Edward J. Meyer
/s/ David Hall /s/ Barbara Hall
- ----------------------------------- -----------------------------------
David Hall as Trustee for the Barbara Hall as Trustee for the
Hall Family Trust dated 7/29/87 Hall Family Trust dated 7/29/87
/s/ Roger Hebert /s/ Rose Hebert
- ----------------------------------- -----------------------------------
Roger Hebert as Trustee for the Rose Hebert as Trustee for the
Hebert Family Trust dated 1/16/91 Hebert Family Trust dated 1/16/91
/s/ Gene Nadal /s/ Shirley Nadal
- ----------------------------------- -----------------------------------
Gene Nadal Shirley Nadal
<PAGE> 10
/s/ Robert G. Kreisheimer
- ----------------------------------------
Robert G. Kreisheimer as Trustee for
the Kreisheimer Family Trust dated
12/11/92
DATAFLEX CORPORATION
By /s/
-------------------------------------
Its PRESIDENT
-------------------------------------
READ AND APPROVED BY:
O'CONNOR, CAVANAGH, ANDERSON,
KILLINGSWORTH & BESHEARS, P.A.
By /s/ Scott A. Salmon
--------------------------------------
Scott A. Salmon
Attorneys for Defendent
FENNEMORE CRAIG
By /s/ William L. Thorpe
--------------------------------------
William L. Thorpe
Attorneys for Plaintiffs
<PAGE> 1
EXHIBIT 10.28
================================================================================
LOAN AND SECURITY AGREEMENT
Dated as of December 18, 1996
Between
DATAFLEX CORPORATION
(the Borrower)
and
NATIONSBANK, N.A. (SOUTH)
(the Lender)
================================================================================
<PAGE> 2
TABLE OF CONTENTS1
<TABLE>
<S> <C>
ARTICLE I - DEFINITIONS ............................................................................ 1
SECTION 1.1 DEFINITION ......................................................................... 1
SECTION 1.2 OTHER REFERENTIAL PROVISIONS ....................................................... 15
SECTION 1.3 EXHIBITS AND SCHEDULES ............................................................. 16
ARTICLE 2 - REVOLVING CREDIT FACILITY .............................................................. 16
SECTION 2A.1 REVOLVING CREDIT LOANS ............................................................ 16
SECTION 2A.2 MANNER OF BORROWING REVOLVING CREDIT LOANS ........................................ 17
SECTION 2A.3 REPAYMENT OF REVOLVING CREDIT LOANS ............................................... 18
SECTION 2A.4 REVOLVING CREDIT NOTE ............................................................. 18
SECTION 2A.5 EXTENSION OF FACILITY ............................................................. 18
B. TERM LOAN FACILITY .............................................................................. 18
SECTION 2B.1 TERM LOAN ......................................................................... 18
SECTION 2B.2 MANNER OF BORROWING AND DISTRIBUTING TERM LOAN .................................... 18
SECTION 2B.3 REPAYMENT OF TERM LOAN I ......................................................... 19
SECTION 2B.4 TERM NOTE ......................................................................... 19
SECTION 2B.5 PREPAYMENT OF TERM. LOAN .......................................................... 19
ARTICLE 3 - GENERAL LOAN PROVISIONS ................................................................ 19
SECTION 3.1 INTEREST ........................................................................... 19
SECTION 3.2 FEES ............................................................................... 21
SECTION 3.3 NONE OF CONVERSION OR CONTINUATION OF LOANS ........................................ 21
SECTION 3.4. CONVERSION OR CONTINUATION ........................................................ 22
SECTION 3.5 DURATION OF INTEREST PERIODS, MAXIMUM NUMBER OF LIBOR LOAN; MINIMUM INCREMENTS ..... 22
SECTION 3.6 CHANGED CIRCUMSTANCES .............................................................. 22
SECTION 3.7 PAYMENTS NOT AT END OF INTEREST PERIOD: FAILURE To BORROW .......................... 23
SECTION 3.9 INCREASED COSTS AND REDUCED RETURNS ................................................ 24
SECTION 3.9 MANNER OF PAYMENT .................................................................. 24
SECTION 3.10 STATEMENTS OF ACCOUNT ............................................................. 24
SECTION 3.11 TERMINATION OF AGREEMENT .......................................................... 25
ARTICLE 4 - CONDITIONS PRECEDENT ................................................................... 25
SECTION 4.1 CONDITIONS PRECEDENT TO INITIAL LOAN ............................................... 25
SECTION 4.2 ALL LOANS .......................................................................... 27
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER ......................................... 28
SECTION 5.1 REPRESENTATIONS AND WARRANTIES ..................................................... 28
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC .................................... 32
ARTICLE 6 - SECURITY INTEREST ...................................................................... 32
SECTION 6.1 SECURITY INTEREST .................................................................. 32
SECTION 6.2 CONTINUED PRIORITY OF SECURITY INTEREST ............................................ 32
ARTICLE 7 - COLLATERAL COVENANTS ................................................................... 33
SECTION 7.1 COLLECTION OF RECEIVABLES .......................................................... 33
SECTION 7.2 VERIFICATION AND NOTIFICATION ...................................................... 33
</TABLE>
- -----------------------------
1 This Table of contents is included for reference purposes only and does
not constitute part of the Loan and Security Agreement.
<PAGE> 3
<TABLE>
<S> <C>
SECTION 7.3 DISPUTES, RETURNS AND ADJUSTMENTS ................................................ 34
SECTION 7.4 INVOICES ......................................................................... 34
SECTION 7.5 DELIVERY OF INSTRUMENTS .......................................................... 34
SECTION 7.6 SALES OF INVENTORY ............................................................... 34
SECTION 7.7 RETURNED GOODS ................................................................... 34
SECTION 7.8 OWNERSHIP AND DEFENSE OF TITLE ................................................... 34
SECTION 7.9 INSURANCE ........................................................................ 35
SECTION 7.10 LOCATION OF OFFICES AND COLLATERAL .............................................. 35
SECTION 7.11 RECORDS RELATING TO COLLATERAL
SECTION 7.12 INSPECTION ...................................................................... 36
SECTION 7.13 MAINTENANCE OF EQUIPMENT ........................................................ 36
SECTION 7.14 INFORMATION AND REPORTS ......................................................... 36
SECTION 7.15 POWER OF ATTORNEY ............................................................... 37
ARTICLE 8 - AFFIRMATIVE COVENANTS .................................................................. 37
SECTION 8.1 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR MATTERS .......................... 37
SECTION 8.2 COMPLIANCE WITH APPLICABLE LAW ................................................... 37
SECTION 8.3 CONDUCT OF BUSINESS .............................................................. 37
SECTION 8.4 PAYMENT OF TAXES AND CLAIMS ...................................................... 37
SECTION 8.5 ACCOUNTING METHODS AND FINANCIAL RECORDS ......................................... 38
SECTION 8.6 USE OF PROCEEDS .................................................................. 38
SECTION 8.7 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL REQUIREMENTS ....................... 38
SECTION 8.8 ACCURACY OF INFORMATION .......................................................... 38
SECTION 9.9 REVISIONS OR UPDATES TO SCHEDULES ................................................ 38
ARTICLE 9 - INFORMATION ............................................................................ 39
SECTION 9.1 FINANCIAL STATEMENTS ............................................................. 39
SECTION 9.2 ACCOUNTANTS, CERTIFICATE ......................................................... 39
SECTION 9.3 OFFICERS CERTIFICATE ............................................................. 40
SECTION 9.4 COPIES OF OTHER REPORTS .......................................................... 40
SECTION 9.5 NOTICE OF LITIGATION AND OTHER MATTERS ........................................... 40
SECTION 9.6 ERISA ............................................................................ 40
ARTICLE 10 - NEGATIVE COVENANTS .................................................................... 41
SECTION 10.1 FINANCIAL RATIOS ................................................................ 41
SECTION 10.2 INDEBTEDNESS .................................................................... 42
SECTION 10.3 GUARANTIES ...................................................................... 42
SECTION 10.4 INVESTMENTS ..................................................................... 42
SECTION 10.5 CAPITAL EXPENDITURES ............................................................ 42
SECTION 10.6 RESTRICTED DISTRIBUTIONS AND PAYMENTS, ETC ...................................... 42
SECTION 10.7 MERGER CONSOLIDATION AND SALE OF ASSETS ......................................... 43
SECTION 10.8 TRANSACTIONS WITH AFFILIATES .................................................... 43
SECTION 10.9 LIENS ........................................................................... 43
SECTION 1O.1O OPERATING LEASES ............................................................... 43
SECTION 1O.11 BENEFIT PLANS .................................................................. 43
SECTION 10.12 SALES AND LEASEBACKS ........................................................... 43
SECTION 10.13 AMENDMENTS OF OTHER AGREEMENTS ................................................. 43
SECTION 10.14 MINIMUM AVAILABILITY ........................................................... 43
ARTICLE II - DEFAULT ............................................................................... 43
SECTION 11.1 EVENTS OF DEFAULT ............................................................... 43
SECTION 11.2 REMEDIES ........................................................................ 45
SECTION 11.3 APPLICATION OF PROCEEDS ......................................................... 47
SECTION 11.4 POWER OF ATTORNEY ............................................................... 48
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
SECTION 11.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES .................................... 48
SECTION 11.6 TRADEMARK LICENSE ............................................................... 49
ARTICLE 12 - MISCELLANEOUS ......................................................................... 49
SECTION 12.1 NOTICES ......................................................................... 49
SECTION 12.2 EXPENSES ........................................................................ 50
SECTION 12.3 STAMP AND OTHER TAXES ........................................................... 50
SECTION 12.4 SETOFF .......................................................................... 51
SECTION 12.5 LITIGATION ...................................................................... 51
SECTION 12.6 WAIVER OF RIGHTS ................................................................ 51
SECTION 12.7 REVERSAL OF PAYMENTS ............................................................ 52
SECTION 12.8 INJUNCTIVE RELIEF ............................................................... 52
SECTION 12.9 ACCOUNTING MATTERS .............................................................. 52
SECTION 12.10 ASSIGNMENT; PARTICIPATION ...................................................... 52
SECTION 12.11 AMENDMENTS ..................................................................... 52
SECTION 12.12 PERFORMANCE OF BORROWER'S DUTIES ............................................... 52
SECTION 12.13 INDEMNIFICATION ................................................................ 53
SECTION 12.14 ALL POWERS COUPLED WITH INTEREST ............................................... 53
SECTION 12.15 SURVIVAL ....................................................................... 53
SECTION 12.16 SEVERABILITY OF PROVISIONS ..................................................... 53
SECTION 12.17 GOVERNING LAW .................................................................. 53
SECTION 12.19 COUNTERPARTS ................................................................... 53
SECTION 12.19 REPRODUCTION OF DOCUMENTS ...................................................... 53
SECTION 12.20 FUNDS TRANSFER SERVICES ........................................................ 54
</TABLE>
- iii -
<PAGE> 5
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
EXHIBIT A-1 FORM OF REVOLVING CREDIT NOTE
EXHIBIT A-2 FORM OF TERM NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C COPIES OF SUBORDINATED NOTES
EXHIBIT D FORM OF OFFICER'S CERTIFICATE
SCHEDULE 1.1A Barnett Bank Liens
SCHEDULE 5.1(a) Jurisdictions in Which Borrower is Qualified as a Foreign Corporation
SCHEDULE 5.1(b) Borrower's Capital Stock
SCHEDULE 5.1(e) Borrower's Business
SCHEDULE 5.1(f) Exceptions to Governmental Approvals
SCHEDULE 5.1(g) Non Lien Title Exceptions and Defects and Property Disposed of Out of
Ordinary Course of Business
SCHEDULE 5.1(h) Liens
SCHEDULE 5.1(i) Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1(j) Litigation
SCHEDULE 5.1(k) Tax Returns and Payments
SCHEDULE 5.1(o) ERISA
SCHEDULE 5.1(t) Location of Chief Executive Office
SCHEDULE 5.1(u) Locations of Inventory
SCHEDULE 5.1(v) Locations of Equipment
SCHEDULE 5.1(w) Corporate and Fictitious Names
SCHEDULE 5.1(z) Employee Relations
SCHEDULE 5.1(aa) Proprietary Rights
SCHEDULE 8.6 Use of Proceeds
</TABLE>
- iv -
<PAGE> 6
LOAN AND SECURITY AGREEMENT
Dated as of December 18, 1996
DATAFLEX CORPORATION - N, a New Jersey corporation, and NATIONSBANK,
N.A. (SOUTH), a national banking association, agree as follows:
ARTICLE I - DEFINITIONS
Section 1. I Definitions. For the purposes of this Agreement:
"Account Debtor" means a Person who is obligated on a Receivable.
"Acquire", as applied to any Business Unit or Investment, means the
acquisition of such Business Unit or Investment by purchase, exchange, issuance
of stock or other securities, or by merger, reorganization or any other method.
"Adjusted EBITDA" means, for any accounting period of the Borrower, an
amount equal to the Borrower's Net Income before interest expense and taxes and
before depreciation and amortization, as adjusted, in the case of fiscal year
1997 only, for all charges, expenses and losses directly associated with the
sale of the Borrower's East and Midwest Divisions to Ameridata pursuant to the
Ameridata Sale Agreement.
"Affiliate" means, with respect to a Person, (a) any officer, director,
employee or managing agent of such Person, (b) any spouse, parents, brothers,
sisters, children and grandchildren of such Person, (C) any association,
partnership, trust, entity or enterprise in which such Person is a director,
officer or general partner, (d) any other Person that, (I) directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such given Person, (ii) directly or indirectly
beneficially owns or holds 10% or more of any class of voting stock or
partnership or other interest of such Person or any Subsidiary of such Person,
or (iii) 10% or more of the voting stock or partnership or other interest of
which is directly or indirectly beneficially owned or held by such Person or a
Subsidiary of such Person. The term .control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities or
partnership or other interests, by contract or otherwise.
"Agency Account' means an account of the Borrower maintained by it with
a Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among the Borrower, the
Lender and a Clearing Bank (if other than the Lender) concerning the collection
of payments which 'represent the proceeds of Receivables or of any other
Collateral.
"Agreement" means this Agreement, including the Exhibits and Schedules
hereto, and all amendments, modifications and supplements hereto and thereto and
restatements hereof and thereof
"Agreement Date" means the date as of which this Agreement is dated.
"Ameridata" means Ameridata of New Jersey, Inc., a Delaware corporation,
and its successors and assigns.
<PAGE> 7
"Ameridata Sale Agreement" means the Asset Purchase Agreement dated
August 30, 1996 between Ameridata and the Borrower, as amended from time to
time.
"Assignment of Tax Claim" means the Assignment of Tax Claim, dated as of
the Effective Date, from the Borrower to the Lender, pursuant to which the
Borrower assigns to the Lender the right to receive the Tax Refund Claim.
"Availability" means, as of the date of determination, the amount of
Revolving Credit Loans available to be borrowed by the Borrower hereunder in
accordance with Section 2A.1 less the sum of the outstanding principal balance
of all Revolving Credit Loans hereunder as of such date.
"Benefit Plan" means an employee benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which a Person or
any Related Company is, or within the immediately preceding 6 years was, an
'employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
"Borrower" means Dataflex Corporation, a New Jersey corporation, and its
successors and assigns.
"Borrowing Base" means at any time an amount equal to the sum of
(a) 85% (or such lesser percentage as the Lender may in its
reasonable credit judgment determine from time to time) of the face value of
Eligible Receivables due and owing at such time, plus
(b) THE LESSER OF
(i) 50% (or such lesser percentage as the Leader may in its
reasonable credit judgment determine from time to time) of the lesser of
cost (computed on a first-in-first-out basis) and fair market value of
Eligible Inventory at such time, and
(ii) $1,000,000, minus
(c) the Letter of Credit Reserve and such other reserves as the
Lender may determine from time to time in the exercise of its reasonable credit
judgment.
"Borrowing Base Certificate" means a certificate in the form of Exhibit
B attached hereto.
"Business Day" means (a) any day other than a Saturday, Sunday or other
day on which banks in the city in which the principal office of the Lender is
located are authorized to close, and (b) in respect of any determination with
respect to a LIBOR Loan, any day referred to in clause (a) that is also a day on
which tradings are conducted in the London interbank eurodollar market.
"Business Unit" means the assets constituting the business, or a
division or operating unit thereof, of any Person.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than assets which constitute a Business Unit) which are not, in accordance with
GAAP, treated as expense items for such Person in the year made or incurred or
as a prepaid expense applicable to a future year or years.
"Capitalized Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
2
<PAGE> 8
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
"Clearing Bank" means the Lender and any other banking institution with
which an Agency Account has been established pursuant to an Agency Account
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means and includes all of the Borrower's right, tide and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising:
(a) all Receivables,
(b) all Inventory,
(c) all Equipment,
(d) all Contract Rights,
(e) all General Intangibles,
(f) all Deposit Accounts,
(g) all goods and other property, whether or not delivered, (i) die
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(i) all documents of tide, policies and certificates of insurance,
securities, chattel paper and other documents and instruments evidencing or
pertaining to any and all items of Collateral,
(j) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
(k) all cash deposited with the Lender or any Affiliate thereof or
which the Lender is entitled to retain or otherwise possess as collateral
pursuant to the provisions of this Agreement or any of the Security Documents,
and
(l) any and all products and cash and non-cash proceeds of the
foregoing (including, but riot limited to, any claims to any items referred to
in this definition and any claims against third parties for loss of, damage to
or destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums
3
<PAGE> 9
with respect to policies of insurance) in whatever form, including, but not
limited to. cash, negotiable instruments and other instruments for the payment
of money, chattel paper, security agreements and other documents.
"Contract Rights" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, to the extent that the same may lawfully be assigned.
"Default" means any of the events specified in SECTION 11.1 that, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
"Default Margin" means 2%.
"Deposit Accounts" means any demand, time, savings, passbook or like
account maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of deposit
that is an instrument under the UCC.
"Disbursement Account" means the account maintained by and in the name
of the Borrower with the Lender for the purpose of disbursing Revolving Credit
Loan proceeds and amounts credited thereto pursuant to SECTIONS 2A.2(b)(I) and
7.1(b)(ii).
"Dollar" and "$" means freely transferable United States dollars.
"ERISA" means the Employee Retirement Income Security Act of 1974, as in
effect from time to time, and any successor statute.
"Effective Date" means the later of (a) the Agreement Date, and (b) the
first date on which all of the conditions set forth in Section 4.1 shall have
been fulfilled or waived by the Lender.
"Effective Interest Rate" means the rate of interest per annum on the
Loans in effect from time to time pursuant to the provisions of SECTION 3.1(a),
(b), (c) and (d).
"Eligible Inventory" means items of spare parts Inventory of the
Borrower held for sale in the ordinary course of the business of the Borrower
(but not including packaging or shipping materials or maintenance supplies)
which are deemed by the Lender in the exercise of its reasonable credit judgment
to be eligible for inclusion in the calculation of the Borrowing Base. Unless
otherwise approved in writing by the Lender, no Inventory shall be deemed to be
Eligible Inventory unless it meets all of the following requirements: (a) such
Inventory is owned by the Borrower, is subject to the Security Interest, which
is perfected as to such Inventory, and is subject to no other Lien whatsoever
other than a Permitted Lien; (b) such Inventory consists of spare parts and does
not consist of finished goods, work-in-process, supplies or consigned goods; (C)
such Inventory is in good condition and meets all standards applicable to such
goods, their use or sale imposed by any governmental agency, or department or
division thereof, having regulatory authority over such matters; (d) such
Inventory is currently either usable or saleable, at prices approximating at
least the cost thereof, in the normal course of the Borrower's business; (e)
such Inventory is not obsolete or returned or repossessed or used goods taken in
trade; (f) such Inventory is located at one of the locations listed in SCHEDULE
5.1(u); and (g) such Inventory is in the possession and control of the Borrower
and not any third party, or, if located in a warehouse or other facility leased
by the Borrower, the warehouseman or lessor has delivered to the Lender a waiver
and consent in form and substance satisfactory to the Lender.
"Eligible Receivable" means the unpaid portion of a Receivable payable
in Dollars to the Borrower net of any returns, discounts, claims, credits,
charges or other allowances, offsets, deductions, counterclaims,
4
<PAGE> 10
disputes or other defenses and reduced by the aggregate amount of all reserves,
limits and deductions provided for in this definition and elsewhere in this
Agreement which is deemed by the Lender in the exercise of its reasonable credit
judgment to be eligible for inclusion in the calculation of the Borrowing Base.
Unless otherwise approved in writing by the Lender, no Receivable shall be
deemed an Eligible Receivable unless it meets all of the following requirements:
(a) such Receivable is owned by the Borrower and represents a complete bona fide
transaction which requires no further act under any circumstances on the part of
the Borrower to make such Receivable payable by the Account Debtor; (b) such
Receivable is not unpaid more than 90 days after the date of the original
invoice or past due more than 60 days after its due date, which shall not be
later than 30 days after the invoice date; (C) such Receivable does not arise
out of any transaction with any Subsidiary, Affiliate, creditor, lessor or
supplier of the Borrower; (d) such Receivable is not owing by an Account Debtor
more than 50% of whose then-existing accounts owing to die Borrower do not meet
the requirements set forth in CLAUSE b above; (e) if the Account Debtor with
respect thereto is located outside of the United States of America, Canada or
Puerto Rico, the goods which gave rise to such Receivable were shipped after
receipt by the Borrower from the Account Debtor of an irrevocable letter of
credit that has been confirmed by a financial institution acceptable to the
Lender and is in form and substance acceptable to the Lender, payable in the
full face amount of the face value of the Receivable in Dollars at a place of
payment located within the United States and has been duly delivered to the
Lender; (f) such Receivable is not subject to the Assignment of Claims Act of
1940, as amended from time to time, or any applicable law now or hereafter
existing similar in effect thereto, as determined in the sole discretion of the
Lender, or to any provision prohibiting its assignment or requiring notice of or
consent to such assignment; (g) the Borrower is not in breach of any express or
implied representation or warranty with respect to the goods the sale of which
gave rise to such Receivable; (h) the Account Debtor with respect to such
Receivable is not insolvent or the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action, threatened or
pending, which might, in the Lender's sole judgment, have a Materially Adverse
Effect on such Account Debtor; (i) the goods the sale of which gave rise to such
Receivable were shipped or delivered to the Account Debtor on an absolute sale
basis and not on a bill and hold sale basis, a consignment sale basis, a
guaranteed sale basis, a sale or return basis or on the basis of any other
similar understanding, and such goods have not been returned or rejected; (j)
such Receivable is not owing by an Account Debtor who or along with a group of
affiliated Account Debtors has then-existing accounts owing to the Borrower
which exceed in face amount 15 % of the Borrower's total Eligible Receivables;
(k) such Receivable is evidenced by an invoice or other documentation in form
acceptable to the Lender containing only terms normally offered by the Borrower.
and dated no later than the date of shipment; (l) such Receivable is a valid,
legally enforceable obligation of the Account Debtor with respect thereto and is
not subject to any present, or contingent (and no facts exist which are the
basis for any future), offset (other than any offset waived on terms
satisfactory to the Lender in its sole discretion), deduction or counterclaim,
dispute or other defense on the part of such Account Debtor; (m) such Receivable
is not evidenced by chattel paper or an instrument of any kind, unless such
chattel paper or instrument has been delivered and endorsed and/or assigned to
the Lender; W if such Receivable arises from the performance of services, such
services have been fully performed; and (o) such Receivable is subject to the
Security Interest, which is perfected as to such Receivable, and is subject to
no other Lien whatsoever other than a Permitted Lien and the goods giving rise
to such Receivable were not, at the time of the sale thereof, subject to any
Lien other than a Permitted Lien.
"Environmental Laws" means all federal, state, local and foreign laws
now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitations ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, contaminants, chemicals
or industrial. toxic or hazardous substances or wastes, and any and all
regulations, notices or demand letters issued, entered, promulgated or approved
thereunder.
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<PAGE> 11
"Equipment" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings, and
other tangible personal property (other than Inventory) of every kind and
description used in such Person's business operations or owned by such Person or
in which such Person has an interest and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
"Escrow Account" means the escrow account established pursuant to the
Ameridata Sale Agreement for the payment of certain post-closing adjustments, as
set forth in the Ameridata Sale Agreement and the Escrow Account Agreement.
"Escrow Account Agreement" means the escrow account agreement between
the Borrower and Ameridata and escrow agent, entered into pursuant to the
Ameridata Sale Agreement with respect to the payment of certain post-closing
adjustments.
"Event of Default" means any of the events specified in SECTION 11.1.
"Financing Statements" means the Uniform Commercial Code financing
statements executed and delivered by the Borrower to the Lender, naming the
Lender as secured party and the Borrower as debtor, in connection with this
Agreement.
"GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with the
prior financial practice of the Person referred to.
"General Intangibles" means, as to any Person, all of such Person's then
owned or existing and future acquired or arising general intangibles, choses in
action and causes of action and all other intangible personal property of such
Person of every kind and nature (other than Receivables), including, without
limitation, Intellectual Property, corporate or other business records,
inventions, designs, blueprints, plans, specifications, trade secrets, goodwill,
computer software, customer lists, registrations, licenses, franchises, tax
refund claims, reversions or any rights thereto and any other amounts payable to
such Person from any Benefit Plan, Multiemployer Plan or other employee benefit
plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, property,
casualty or any similar type of insurance and any proceeds thereof, proceeds of
insurance covering the lives of key employees on which such Person is
beneficiary and any letter of credit, guarantee, claims, security interest or
other security held by or granted to such Person to secure payment by an Account
Debtor of any of the Receivables.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
governmental bodies, whether federal, state, local, foreign national or
provincial, and all agencies thereof.
"Governmental Authority" means any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Guaranty", "Guaranteed" or to "Guarantee," as applied to any obligation
of another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), directly or indirectly, in
any manner, of any part or all of such obligation of such other Person, and
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<PAGE> 12
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by (i) the purchase of securities or obligations, (ii) the purchase,
sale or lease (as lessee or lessor) of property or the purchase or sale of
services primarily for the purpose of enabling the obligor with respect to such
obligation to make any payment or performance (or payment of damages in the
event of nonperformance) of or on account of any part or all of such obligation
or to assure the owner of such obligation against loss, (iii) the supplying of
funds to, or in any other manner investing in, the obligor with respect to such
obligation, (iv) repayment of amounts drawn down by beneficiaries of letters of
credit, or (v) the supplying of funds to or investing in a Person on account of
all or any part of such Person's obligation under a guaranty of any obligation
or indemnifying or holding harmless, in any way, such Person against any part or
all of such obligation.
"Indebtedness" of any Person means, without duplication, (a)
Liabilities, (b) all obligations for money borrowed or for the deferred purchase
price of property or services or in respect of reimbursement obligations under
letters of credit, (c) all obligations represented by bonds, debentures, notes
and accepted drafts that represent extensions of credit, (d) Capitalized Lease
Obligations, (e) all obligations (including, during the noncancellable term of
any lease in the nature of a tide retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall have
been assumed by such Person, (f) all obligations of other Persons which such
Person has Guaranteed, including, but not limited to, all obligations of such
Person consisting of recourse liability with respect to accounts receivable sold
or otherwise disposed of by such Person, and (g) in the case of the Borrower
(without duplication) the Loans.
"Indemnification Agreement" means the Indemnification Agreement, dated
as of the Effective Date, between the Borrower and the Lender, pursuant to which
the Borrower agrees to indemnify the Lender for certain matters related to
Florida documentary stamp taxes.
"Initial Loans" means the Revolving Credit Loan and the Term Loan made
to the Borrower on the Effective Date.
"Intellectual Property" means, as to any Person, all of such Person's
then owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations and continuations-in-part of any of the foregoing and
all rights to sue for past, present and future infringements of any of the
foregoing.
"Interbank Offered Rate" means, with respect to any LIBOR Loan for the
Interest Period applicable thereto, the average (rounded upward to the nearest
one-sixteenth (1/16) of one percent) per annum rate of interest determined by
the Lender (each such determination to be conclusive and binding absent manifest
error) as of two Business Days prior to the first day of such Interest Period
from Telerate Page 3750 as the effective rate at which deposits in immediately
available funds in Dollars are being offered or quoted to major banks in the
interbank market for eurodollar deposits for a term comparable to such Interest
Period and in the amount of the LIBOR Loan. If such rate is unavailable from
such service, then such rate may be determined by the Lender from any other
interest rate reporting service of recognized standing that the Lender shall
select.
"Intercreditor Agreement" means that certain Intercreditor Agreement,
dated on or about the Effective Date, between the Lender and NationsCredit,
pursuant to which the Lender and NationsCredit agree upon the relative
priorities of their Liens in the Collateral.
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<PAGE> 13
"Interest Expense" means interest on Indebtedness during the period for
which computation is being made, excluding (a) the amortization of fees and
costs incurred with respect to the closing of loans which have been capitalized
as transaction costs, and (b) interest paid in kind.
"Interest Payment Date" means the first day of each calendar month
commencing on January 1, 1997 and continuing thereafter until the Secured
Obligations have been irrevocably paid in full.
"Interest Period" means, with respect to each LIBOR Loan, the period
commencing on the date of the making or continuation of or conversion to such
LIBOR Loan and ending one, two, three or six months thereafter, as the Borrower
may elect in the applicable Notice of Borrowing or Notice of Conversion or
Continuation; PROVIDED, that:
(a) any Interest Period that would otherwise end on a day
that is not a Business Day shall, subject to the provisions of CLAUSE
(c) below, be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day;
(b) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to CLAUSE (c)below, end on the last Business Day
of a calendar month;
(c) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date;
(d) no Interest Period applicable to a LIBOR Tenn Loan may
end after the scheduled maturity thereof; and
(e) notwithstanding CLAUSE (c)above, no Interest Period
shall have a duration of less than one month, and, if any applicable
Interest Period would be for a shorter period, such Interest Period
shall not be available hereunder.
"Inventory" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) goods intended for
sale or lease or for display or demonstration, (b) work in process, ((C)raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or otherwise used or
consumed in the conduct of business, and (d) documents evidencing and general
intangibles relating to any of the foregoing.
"Inventory Financing Agreement" means that certain Loan and Security
Agreement, dated as of the Agreement Date, between the Borrower and
NationsCredit.
"Investment" means, with respect to any Person: (a) the direct or
indirect purchase or acquisition of any beneficial interest in, any share of
capital stock of, evidence of Indebtedness of or other security issued by any
other Person, (b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person, excluding advances to employees in the
ordinary course of business for business expenses, (c)any Guaranty of the
obligations of any other Person, or (d) any commitment or option to take any of
the actions described in CLAUSES (a), (b) or (c)above.
"Lender" means NATIONSBANK, N.A. (South), a national banking
association, and its successors and as
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<PAGE> 14
"Lender's Office" means the office of the Lender specified in or
determined in accordance with the provisions of SECTION 12.1(c).
"Letter of Credit" means any letter of credit issued by the Lender for
the account of the Borrower.
"Letter of Credit Reserve" means, at any time, 100% of the sum of (i)
the aggregate undrawn amount of all Letters of Credit outstanding at such time,
PLUS (ii) the aggregate amount of all drawings under Letters of Credit for which
the Lender has not been reimbursed.
"Liabilities" means all liabilities of a Person determined in accordance
with GAAP and includable on a balance sheet of such Person prepared in
accordance with GAAP.
"LIBOR" means, with respect to the Interest Period applicable thereto, a
simple per annum interest rate determined pursuant to the following formula:
LIBOR = Interbank Offered Rate
------------------------------------------
1 - LIBOR Reserve Percentage
LIBOR shall be adjusted automatically as of the effective date of any change in
the LIBOR Reserve Percentage.
"LIBOR Loan" means a LIBOR Revolving Credit Loan or a LIBOR Term Loan.
"LIBOR Reserve Percentage" means, for any day, that percentage
(expressed as a decimal) which is in effect from time to time under Regulation D
of the Board of Governors of the Federal Reserve System, as such regulation may
be amended from time to time, or any successor regulation, as the maximum
reserve requirement (including, without limitation, any basic, supplemental,
emergency, special or marginal reserves) applicable to any member bank with
respect to Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by reference to
which the interest rate of any LIBOR Loan is determined), whether or not Lender
has any Eurocurrency liabilities subject to such reserve requirement at that
time. All LIBOR Loans shall be deemed to constitute Eurocurrency liabilities and
as such shall be deemed subject to reserve requirements without the benefit of
credits for proration, exceptions or offsets that may be available from time to
time to Lender.
"LIBOR Revolving Credit Loan" means any Revolving Credit Loan bearing
interest at the time in question determined with reference to LIBOR.
"LIBOR Term Loan" means that portion of the unpaid principal amount of
the Term Loan bearing interest at the time in question determined with reference
to LIBOR.
"Lien" as applied to the property of any Person means: (a) any mortgage,
died to secure debt, deed of trust, lien, pledge, charge, lease constituting a
Capitalized Lease Obligation, conditional sale or other tide retention
agreement, or other security interest, security tide or encumbrance of any kind
in respect of any property of such Person or upon the income or profits
therefrom, (b) any arrangement, express or implied, under which any property of
such Person is transferred, sequestered or otherwise identified for the purpose
of subjecting the same to the payment of Indebtedness or performance of any
other obligation in priority to the payment of the general, unsecured creditors
of such Person, (C) any Indebtedness which is unpaid more than 30 days after the
same shall have become due and payable and which if unpaid might by law
(including, but not limited to, bankruptcy and insolvency laws) or otherwise be
given any priority whatsoever over general unsecured creditors of such Person,
and (d) the filing of, or any agreement to give, any financing statement under
the UCC or its equivalent in any jurisdiction.
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<PAGE> 15
"Loan" means any Revolving Credit Loan or the Term Loan, as well as all
such Loans collectively.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Security Documents and each other instrument, agreement and document executed
and delivered by the Borrower in connection with this Agreement and each other
instrument, agreement or document referred to herein or contemplated hereby.
"Lockbox" means the U.S. Post Office Box(es) specified in, or pursuant
to, an Agency Account Agreement.
"Materially Adverse Effect" means any act, omission, event or
undertaking which would, singly or in the aggregate, have a materially adverse
effect upon (a) the business, assets, properties, liabilities, condition
(financial or otherwise), results of operations or business prospects of the
Borrower or any of its Subsidiaries, (b) upon the respective ability of the
Borrower or any of its Subsidiaries to perform any obligations under this
Agreement or any other Loan Document to which it is a party, or (C) the
legality, validity, binding effect, enforceability or admissibility into
evidence of any Loan Document or the ability of Lender to enforce any rights or
remedies under or in connection with any Loan Document; in any case, whether
resulting from any single act, omission, situation, status, event, or
undertaking, together with other such acts, omissions, situations, statuses,
events, or undertakings .
"Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness for
money borrowed, (b) Indebtedness, whether or not in any such case the same was
for money borrowed, (i) represented by notes payable and drafts accepted, that
represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than trade Indebtedness) or that was issued
or assumed as full or partial payment for property, (c) Indebtedness that
constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is such by
virtue of CLAUSE (f) of the definition thereof, but only to the extent that the
obligations Guaranteed are obligations that would constitute Indebtedness for
Money Borrowed.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding 6 years.
"NationsCredit" means NationsCredit Commercial Corporation of America, a
North Carolina corporation, and its successors and assigns.
"Net Income" or "Net Loss" means, as applied to any Person, the net
income (or net loss) of such Person for the period in question after giving
effect to deduction of or provision for all operating expenses, all taxes and
reserves (including reserves for deferred taxes and all other proper
deductions), all determined in accordance with GAAP, provided that there shall
be excluded: (a) the net income (or net loss) of any Person accrued prior to the
date it becomes a Subsidiary of, or is merged into or consolidated with, the
Person whose Net Income is being determined or a Subsidiary of such Person, (b)
the net income (or net loss) of any Person in which the Person whose Net Income
is being determined or any Subsidiary of such Person has an ownership interest,
except, in the case of net income, to the extent that any such income has
actually been received by such Person or such Subsidiary in the form of cash
dividends or similar distributions, (c) any restoration of any contingency
reserve, except to the extent that provision for such reserve was made out of
income during such period, (d) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments, Business
Units and other capital assets, provided that there shall also be excluded any
related charges for taxes thereon, (e) any net pin arising from the collection
of the proceeds of any insurance policy, (f) any write-up of any asset, and (g)
any other extraordinary item.
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<PAGE> 16
"Net Worth" of any Person means the total shareholders' equity
(including capital stock, additional paid-in capital and retained earnings,
after deducting treasury stock) which would appear as such on a balance sheet of
such Person prepared in accordance with GAAP.
"Note" means each of the Revolving Credit Note and the Term Note, and
"Notes" means more than one of such notes.
"Notice of Borrowing" has the meaning set forth in SECTION 2A.2(a)(iii).
"Notice of Conversion or Continuation" has the meaning set forth in
SECTION 3.3.
"Obligor" means the Borrower, each party to the Security Documents
(other than the Lender), and each other party at any time primarily or
secondarily, directly or indirectly, liable on any of the Secured Obligations.
"Operating Lease" means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Permitted Indebtedness for Money Borrowed" means (a) Permitted Purchase
Money Indebtedness, (b) Indebtedness to NationsCredit under the Inventory
Financing Agreement, (C) Subordinated Indebtedness, and (d) Indebtedness owing
to Barnett Bank of Pinellas County as set forth on the SCHEDULE 5.1(I) delivered
on the Effective Date.
"Permitted Investments" means Investments of the Borrower in: (a)
negotiable certificates of deposit, time deposits and banker's acceptances
issued by the Lender or any Affiliate of the Lender or by any United States bank
or trust company having capital, surplus and undivided profits in excess of
$250,000,000, (b) any direct obligation of the United States of America or any
agency or instrumentality thereof which has a remaining maturity at the time of
purchase of not more than one year and repurchase agreements relating to the
same, (C) sales on credit in the ordinary course of business on terms customary
in the industry, and (d) notes, accepted in the ordinary course of business,
evidencing overdue accounts receivable arising in the ordinary course of
business.
"Permitted Liens" means: (a) Liens securing taxes, assessments and other
governmental charges or levies (excluding any Lien unposed pursuant to any of
the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, but (i) in all cases, only if payment shall not
at the time be required to be made in accordance with SECTION 8.4, and (ii) in
the case of warehousemen or landlords controlling locations where Inventory is
located, only if such liens have been waived or subordinated to the Security
Interest in a manner satisfactory to the Lender; (b) Liens consisting of
deposits or pledges made in the ordinary course of business in connection with,
or to secure payment of, obligations under workers' compensation, unemployment
insurance or similar legislation or under surety or performance bonds, in each
case arising in the ordinary course of business; (c) Liens constituting
encumbrances in the nature of zoning restrictions, easements and rights or
restrictions of record on the use of the Borrower's real estate, which in the
sole judgment of the Lender do not materially detract from the value of such
real estate or impair the use thereof in the business of the Borrower; (d)
Purchase Money Liens securing Permitted Purchase Money Indebtedness; (e) Liens
in favor of NationsCredit as collateral for the Borrower's obligations under the
Inventory Financing Agreement, provided such Liens shall be subordinate to the
Security Interest except as provided in the Intercreditor Agreement; (f) Liens
of the Lender arising under this Agreement and the other Loan Documents; (g)
Liens arising out of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of
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<PAGE> 17
which shall not have expired, or in respect of which the Borrower is fully
protected by insurance or in respect of which the Borrower shall at any time in
good faith be prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review shall
have been secured, and as to which appropriate reserves have been established on
the books of the Borrower; and (h) Liens in favor of Barnett Bank of Pinellas
County, in the Borrower's property described on SCHEDULE 1.1A, as security for
the Indebtedness described in clause (d) of the definition of Permitted
Indebtedness for Money Borrowed.
"Permitted Purchase Money Indebtedness" means Purchase Money
Indebtedness secured only by Purchase Money Liens and Capitalized Lease
Obligations, incurred by the Borrower after the Agreement Date, up to an
aggregate amount outstanding at any time equal to $2,000,000.
"Person" means an individual, corporation, partnership, association,
trust or unincorporated organization or a government or any agency or political
subdivision thereof.
"Prime Rate" means during the period from the Effective Date through the
last day of the month in which the Effective Date falls, the per annum rate of
interest publicly announced by the Lender at its principal office as its "prime
rate" as in effect on the Effective Date, and thereafter during each succeeding
calendar month, means such "prime rate" as in effect on the last Business Day of
the immediately preceding calendar month. Any change in an interest rate
resulting from a change in the Prime Rate shall become effective as of 12:01
a.m. on the first day of the month following the month in which such change was
announced. The Prime Rate is a reference used by the Lender in determining
interest rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit to any debtor.
"Prime Rate Loan" means a Prime Rate Revolving Credit Loan or a Prime
Rate Term Loan.
"Prime Rate Revolving Credit Loan" means a Revolving Credit Loan bearing
interest at the time in question determined with reference to the Prime Rate.
"Prime Rate Term Loan" means that portion of the unpaid principal amount
of the Term Loan bearing interest at the time in question determined with
reference to the Prime Rate.
"Purchase Money Indebtedness" means Indebtedness created to finance the
payment of all or any pan of the purchase price (not in excess of the fair
market value thereof) of any tangible asset (other than Inventory) and incurred
at the time of or within 10 days prior to or after the acquisition of such
tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money
Indebtedness, but only if such Lien shall at all times be confined solely to the
tangible asset (other than Inventory) the purchase price of which was financed
through the incurrence of the Purchase Money Indebtedness secured by such Lien.
"Receivables" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) rights to the payment
of money or other forms of consideration of any kind (whether classified under
the UCC as accounts, contract rights. chattel paper, general intangibles or
otherwise) including, but not limited to, accounts receivable, letters of credit
and the right to receive payment the Escrow Account and the right to receive
payments thereunder, chattel paper, tax refunds, insurance proceeds, Contract
Rights, notes, drafts, instruments, documents, acceptances and all other debts,
obligations and liabilities in whatever form from any Person and guaranties,
security and Liens securing payment thereof. (b) goods, whether now owned or
hereafter acquired, and whether sold, delivered, undelivered, in transit or
returned, which may be represented by, or the sale or lease of which may have
given rise to, any such right to payment or other debt, obligation or liability,
and (c) cash and non-cash proceeds of any of the foregoing.
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<PAGE> 18
"Related Company" means, as to any Person, any (a) corporation which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(C) of the Code) with such Person, or (C) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in CLAUSE (a) above or any partnership,
trade or business described in CLAUSE (b) above.
"Restricted Distribution" by any Person- means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to any
such securities or partnership interests, (C) any loan or advance by such Person
to, or other investment by such Person in, the holder of any of such securities
or partnership interests, and (d) any other payment by such Person in respect of
such securities or partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or prepayment
or other retirement, prior to the stated maturity thereof or prior to the due
date of any regularly scheduled installment or amortization payment with respect
thereto, of any Indebtedness of a Person (other than the Secured Obligations,
obligations under the Inventory Financing Agreement and trade debt), and (b) the
payment by any Person of the principal amount of or interest on any Subordinated
Indebtedness or on any Indebtedness (other than trade debt) owing to an
Affiliate of such Person.
"Revolving Credit Facility" means the facility for the Revolving Credit
Loans in the principal sum of up to $24,000,000.
"Revolving Credit Loans" means loans made to the Borrower pursuant to
SECTION 2A.1.
"Revolving Credit Note" means the Revolving Credit Note made by the
Borrower payable to the order of the Lender evidencing the obligation of the
Borrower to pay the aggregate unpaid principal amount of all Revolving Credit
Loans made to it by the Lender (and any promissory note or notes that may be
issued from time to time in substitution, renewal, extension, replacement or
exchange therefor, whether payable to the Lender or a different lender, whether
issued in connection with a Person becoming a tender after the Effective Date or
otherwise), substantially in the form of EXHIBIT A-1 hereto, with all blanks
properly completed.
"Sale Agreements" means the Vanstar Sale Agreement and the Ameridata
Sale Agreement.
"Schedule of Equipment" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(c).
"Schedule of Inventory" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(b).
"Schedule of Receivables" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(a).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising, (a) the principal of and interest and premium, if any, on the
Loans, (b) all reimbursement and other obligations relating to Letters of
Credit, and (c) all indebtedness, liabilities, obligations, overdrafts,
covenants and duties of the Borrower to the Lender or any Affiliate of the
Lender of every kind, nature and description. direct or indirect. absolute or
contingent, due or not due, contractual or tortious, liquidated, or
unliquidated, and whether or not evidenced by any note and whether or not for
the payment of money under or in respect of this Agreement, any Note or any of
the other Loan Documents.
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"Security Documents" means each of (a) the Financing Statements, and (b)
each other writing executed and delivered by any Person securing the Secured
Obligations or evidencing such security.
"Security Interest" means the Liens of the Lender on and in the
Collateral effected hereby or by any of the Security Documents or pursuant to
the terms hereof or thereof.
"Senior Funded Indebtedness" means the Loans, all indebtedness under the
Inventory Financing Agreement and all Indebtedness for Money Borrowed having a
maturity of more than 12 months from the date of the most recent balance sheet
of the Borrower or having a maturity of less than 12 months from the date of
such balance sheet but by its terms being renewable or extendible beyond 12
months from the date of such balance sheet at the option of the Borrower,
excluding, however, Subordinated Indebtedness.
"Subordinated Indebtedness" means (a) the "earn-out" payments
due National Data Products, Inc. under Section 2.2 of the Asset Purchase
Agreement dated as of November 17, 1994 among the Borrower, National Data
Products, Inc. and the Shareholder Indemnitors named therein and the
Indebtedness evidenced by the Subordinated Notes which is subordinated to the
Secured Obligations as set forth in the Subordination Agreements, and (b) any
other Indebtedness for Money Borrowed of the Borrower which is subordinated to
the Secured Obligations on terms and conditions acceptable to the Lender in its
sole discretion.
"Subordinated Notes" means those certain promissory notes in the form of
EXHIBIT C attached hereto, with respect to which the outstanding principal
balances as of the Effective Date are set forth on SCHEDULE 5.1(i) attached
hereto.
"Subordination Agreements" means the subordination agreements, in form
and substance acceptable to the Lender, pursuant to which the Indebtedness
evidenced by the Subordinated Notes is subordinated to the Secured Obligations.
"Subsidiary" when used to determine the relationship of a Person to
another Person, means a Person of which an aggregate of 50% or more of the stock
of any class or classes or 50% or mom of other ownership interests is owned of
record or beneficially by such other Person or by one or more Subsidiaries of
such other Person or by such other Person and one or more Subsidiaries of such
Person, (i) if the holders of such stock or other ownership interests (A) are
ordinarily, in the absence of contingencies, entitled to vote for the election
of a majority of the directors (or other individuals performing similar
functions) of such Person, even though the right so to vote has been suspended
by the happening of such a contingency, or (B) are entitled, as such holders, to
vote for the election of a majority of the directors (or individuals performing
similar functions) of such Person, whether or not the right so to vote exists by
mason of the happening of a contingency, or (ii) in the case of such other
ownership interests, if such ownership interests constitute a majority voting
interest.
"Tangible Net Worth" means, as applied to any Person, the Net Worth of
such Person at the time in question, after deducting therefrom the amount of all
intangible items reflected therein, including all unamortized debt discount and
expense, unamortized research and development expense, unamortized deferred
charges, goodwill, Intellectual Property, unamortized excess cost of investment
in Subsidiaries over equity at dates of acquisition, and all similar items which
should properly be treated as intangibles in accordance with GAAP.
"Tax Refund Claim" means the Borrower's claim for a refund with respect
to its fiscal year ended March 31, 1996.
"Term Loan" means the loan made to the Borrower pursuant to SECTION 2B.1
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"Term Note" means the Term Note made by the Borrower payable to the
order of the Lender evidencing the obligation of the Borrower to pay the
aggregate unpaid principal amount of the Term Loan made to it by the Lender (and
any promissory note or notes that may be issued from time to time in
substitution, renewal, extension, replacement or exchange therefor, whether
payable to the Lender or a different lender, whether issued in connection with a
Person becoming a lender after the Effective Date or otherwise), substantially
in the form of EXHIBIT A-2 hereto, with all blanks properly completed.
"Termination Date" means the earlier of December 17, 1998 or such later
date to which the termination of the Revolving Credit Facility shall be extended
pursuant to SECTION 2A.5.
"Termination Event" means (a) a "Reportable Event" as defined in Section
4043(b) of ERISA, but excluding any such event as to which the provision for 30
days' notice to the PBGC is waived under applicable regulations, (b) the filing
of a notice of intent to terminate a Benefit Plan or the treatment of a Benefit
Plan amendment as a termination under Section 4041 of ERISA, or (C) the
institution of proceedings to terminate a Benefit Plan by the PBGC under Section
4042 of ERISA or the appointment of a trustee to administer any Benefit Plan.
"Type" means, with respect to a Loan, its classification as a LIBOR Loan
or Prime Rate Loan.
"Vanstar" means, collectively, Vanstar Corporation, a Delaware
Corporation, and VST West, Inc., a Delaware corporation, and their successors
and assigns.
"Vanstar Payments" means all amounts payable to the Borrower by Vanstar,
pursuant to Section 2.6 of the Vanstar Sale Agreement, with respect to certain
post-closing adjustments thereunder.
"Vanstar Sale Agreement" means the Asset Purchase Agreement dated May
24, 1996 between Vanstar, Borrower and Dataflex Southwest corporation, an
Arizona corporation, as amended from time to time.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Georgia.
"Unfunded Vested Accrued Benefits' means, with respect to any Benefit
Plan at any time, the amount (if any) by which (a) the present value of all
vested nonforfeitable benefits under such Benefit Plan exceeds (b) the fair
market value of all Benefit Plan assets allocable to such benefits, as
determined using such reasonable actuarial assumptions and methods as are
specified in the Schedule B (Actuarial Information) to the most recent Annual
Report (Form 5500) filed with respect to such Benefit Plan.
Section 1.2 Other Referential Provisions.
(a) All terms in this Agreement, the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan Documents,
unless the context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting
terms not specifically defined or specified herein shall have the meanings
generally attributed to such terms under GAAP including, without limitation,
applicable statements and interpretations issued by the Financial Accounting
Standards Board and bulletins, opinions, interpretations and statements issued
by the American Institute of Certified Public Accountants or its committees.
(c) All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
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(d) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit nor
amplify the provisions of this Agreement, and all references in this Agreement
to Articles, Sections, Subsections, paragraphs, clauses, subclauses, Schedules
or Exhibits shall refer to the corresponding Article, Section, Subsection,
paragraph, clause or subclause of, or Schedule or Exhibit attached to, this
Agreement, unless specific reference is made to the articles, sections or other
subdivisions or divisions of, or to schedules or exhibits to, another document
or instrument.
(f) Each definition of a document in this Agreement shall include
such document as amended, modified, supplemented or restated from time to time
in accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to a
Loan Document includes that party and its successors and assigns permitted
hereunder or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is
referred to in this Agreement or in any other Loan Document, such time shall be
the local time in the city in which the principal office of Lender is located.
(i) Whenever the phrase "to the knowledge of the Borrower" or words
of similar import relating to the knowledge of the Borrower are used herein,
such phrase shall mean and refer to (i) the actual knowledge of the President or
chief financial officer or (ii) the knowledge that such officers would have
obtained if they had engaged in good faith in the diligent performance of their
duties, including the making of such reasonable specific inquiries as may be
necessary of the appropriate persons in a good faith attempt to ascertain the
accuracy of the matter to which such phrase relates.
(j) The terms accounts, chattel paper, documents, equipment,
instruments, general intangibles and inventory, as and when used (without being
capitalized) in this Agreement or the Security Documents, shall have the
meanings given those terms in the UCC.
Section 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
ARTICLE 2 - REVOLVING CREDIT FACILITY
A. REVOLVING CREDIT FACILITY
Section 2A.1 Revolving Credit Loans. Upon the terms and subject to
the conditions of, and in reliance upon the representations and warranties made
under, this Agreement, the Lender shall make Revolving Credit Loans to the
Borrower from time to time from the Effective Date to the Termination Date, as
requested by the Borrower in accordance with the terms of SECTION 2A.2, in an
aggregate principal amount outstanding not to exceed at any time the LESSER OF
(a) the Revolving Credit Facility MINUS the Letter of Credit Reserve AND (b) the
Borrowing Base. It is expressly understood and agreed that the Lender may and at
present intends to use the lesser of the amounts referred to in the foregoing
SUBCLAUSE (A) and (B) as a maximum ceiling on Revolving Credit Loans; PROVIDED,
HOWEVER, that it is agreed that should Revolving Credit Loans exceed the ceiling
so determined or any other limitation set forth in this Agreement, such
Revolving Credit Loans shall nevertheless constitute Secured Obligations and, as
such, shall be entitled to all benefits thereof and security therefor. The
principal amount of any Revolving Credit Loan which is repaid may be reborrowed
by the Borrower in accordance with the terms of this SECTION 2A.1. The Lender is
hereby authorized to record each
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repayment of principal of the Revolving Credit Loans in its books and records,
such books and records constituting PRIMA FACIE evidence of the accuracy of the
information contained therein.
Section 2A.2 Manner of Borrowing Revolving Credit Loans. Borrowings
of the Revolving Credit Loans shall be made as follows:
(a) Requests for Borrowing.
(i) Prime Rate Revolving Credit Loans. A request for the
borrowing of a Prime Rate Revolving Credit Loan shall be made, or shall
be deemed to be made, in the following manner:
(A) the Borrower may request a Prime Rate Revolving
Credit Loan by notifying the Lender, before 12:00 noon (Eastern
time) on the proposed borrowing date, of its intention to
borrow, specifying the effective date and amount of such
proposed Prime Rate Revolving Credit Loan;
(B) whenever a check is presented to the Lender for
payment against the Disbursement Account in an amount greater
than the then available balance in such account, such
presentation shall be deemed to be a request for a Prime Rate
Revolving Credit Loan on the date of such notice in an amount
equal to the excess of such check over such available balance,
and such request shall be irrevocable;
(C) unless payment is otherwise made by the
Borrower, the becoming due of any amount required to be paid
under this Agreement or any of the Notes as interest shall be
deemed to be a request for a Prime Rate Revolving Credit Loan on
the due date in the amount required to pay such interest, and
such request shall be irrevocable;
(D) unless payment is otherwise made by the
Borrower, the maturity of any Secured Obligation required to be
paid shall be deemed to be a request for a Prime Rate Revolving
Credit Loan on the due date in the amount required to pay such
Secured Obligation, and such request shall be irrevocable;
(E) whenever a drawing is made under a Letter of
Credit and the Borrower fails to reimburse the Lender therefor,
such failure to reimburse shall be deemed to be a request for a
Prime Rate Revolving Credit Loan on the date such notification
is received in the amount so unreimbursed; and
(F) any payment to NationsCredit pursuant to Section
9 of the Intercreditor Agreement shall be deemed to be a request
for a Prime Rate Revolving Credit Loan on the date of such
payment.
(ii) LIBOR Revolving Credit Loans. The Borrower may request a
LIBOR Revolving Credit Loan by notifying the Lender (which notice shall
be irrevocable) not later than 12:00 noon (Eastern time) on the date two
Business Days before the day on which the requested LIBOR Revolving
Credit Loan is to be made, specifying the effective date and amount of
such LIBOR Revolving Credit Loan and the duration of the applicable
Interest Period.
(iii) Notice of Borrowing. Any request for a Prime Rate
Revolving Credit Loan under SECTION 2A.2(A)(I)(A) or a LIBOR Revolving
Credit Loan under SECTION 2A.2(A)(II) (a "Notice of Borrowing") shall be
made by telephone or in writing (including telecopy) and, in the case of
any telephonic notice, shall be immediately followed by a written
confirmation thereof in a form acceptable
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to the Lender, PROVIDED that the failure to provide written
confirmation shall not invalidate any telephonic notice and, if such
written confirmation differs in any respect from the action taken by
the Lender, the records of the Lender shall control absent manifest
error.
(b) Disbursement of Loans. The Borrower hereby irrevocably
authorizes the Lender to disburse the proceeds of each borrowing requested, or
deemed to be requested, pursuant to this on 2A.2 as follows: (I) the proceeds of
each borrowing requested under SECTION 2A.2(a)(1)(A) or (B) or SECTION 2A.2(ii)
shall be disbursed by the Lender in lawful money of the United States of America
in immediately available funds, (A) in the case of the initial borrowing, in
accordance with the terms of the written instructions from the Borrower to the
Lender, and (B) in the case of each subsequent borrowing, by credit to the
Disbursement Account or to such other account as may be agreed upon by the
Borrower and the Lender from time to time; and (ii) the proceeds of each
borrowing requested under SECTION 2A.2(a)(I)(C), (D), (E) or (F) shall be
disbursed by the Lender by way of direct payment of the relevant principal,
interest or other Secured Obligation, as the case may be.
Section 2A.3 The Revolving Credit Loans will be repaid as follows:
(a) whether or not any Default or Event of Default has occurred, the outstanding
principal amount of all the Revolving Credit Loans is due and payable, and shall
be repaid by the Borrower in full together with accrued and unpaid interest on
the amount repaid to the date of repayment, on the Termination Date; (b) if at
any time the aggregate unpaid principal amount of the Revolving Credit Loans
then outstanding exceeds the lesser of the amounts referred to in CLAUSES (a)
and (b) of SECTION 2A.1, the Borrower shall repay the Revolving Credit Loans in
an amount sufficient to reduce the aggregate unpaid principal amount of such
Loans by an amount equal to such excess, together with accrued and unpaid
interest on the amount repaid to the date of repayment; and (C) the Borrower
hereby instructs die Leader to repay the Revolving Credit Loans outstanding on
any day in an amount equal to the amount received by the Lender on such day
pursuant to Section 7.1(b).
Section 2A.4 Revolving Credit Note. The Revolving Credit Loans and
the obligation of the Borrower to repay such Loans shall also be evidenced by a
single Revolving Credit Note payable to the order of the Lender. Such Note shall
be dated the Effective Date and be duly and validly executed and delivered by
the Borrower.
Section 2A.5 Extension of Facility. The Termination Date shall be
automatically extended for successive one-year periods unless either the Lender
or the Borrower provides to the other written notice of termination not less
than 60 days prior to the then effective Termination Date.
B. TERM LOAN FACILITY
Section 2B.1 Term Loans. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, the Lender agrees to make the Term Loan to the Borrower
on the Effective Date in the amount of $4,000,000.
Section 2B.2 Manner of Borrowing and Disbursing Term Loan The
Borrower shall give the Lender at least two Business Days' pi written notice of
the occurrence of the Effective Date, specifying the portion of the Term Loan
which will bear interest initially as a Prime Rate Term Loan and the portion of
the Term Loan which will bear interest initially as one or more LIBOR Term
Loans, and the duration of the applicable Interest Period(s) with respect to any
such LIBOR Term Loan(s). On the Effective Date, upon satisfaction of the
applicable conditions set forth in SECTIONS 4.1 and 4.2, the Lender will
disburse the Term Loan in same day funds in accordance with the terms of the
written instructions from the Borrower to the Lender.
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Section 2B.3 Repayment of Term Loan. The Term Loan is due and
payable and shall be repaid in full by the Borrower on August 31, 1997.
Section 2B.4 Term Note. The Term Loan and the obligation of the
Borrower to repay such Loan shall be evidenced by a single Term Note payable to
the order of the Lender. Such Note shall be dated the Effective Date and be duly
and validly executed and delivered by the Borrower.
Section 2B.5 Prepayment of Term Loan.
(a) Voluntary Prepayment. The Borrower shall have the right at any
time and from time to time, upon at least 60 days' prior written notice to the
Lender in the case of a prepayment in full and upon at least five days' prior
written notice to the Lender in the case of a partial prepayment, to prepay the
Term Loan in whole or in part on any Business Day. Each partial prepayment of
the Term Loan shall be in a principal amount equal to $25,000 or any integral
multiple thereof and shall be applied to the principal installments of the Tenn
Loan in the inverse order of their maturities, together with all amounts due
under SECTION 3.7 as a result of such prepayment. On the prepayment date, the
Borrower shall pay interest on the amount prepaid, accrued to the prepayment
date. Any notice of prepayment given by the Borrower hereunder shall be
irrevocable, and the amount to be prepaid (including accrued interest and any
prepayment fees) shall be due and payable on the date designated in the notice.
(b) Mandatory Prepayment. Any and all (i) amounts received by the
Borrower from the Escrow Account, (ii) Vanstar Payments received by the
Borrower, (iii) amounts received by the Borrower with respect to the Tax Refund
Claim covered by the Assignment of Tax Claim, and (iv) amounts received by the
Borrower from The Troyer Group, GMT or any other liquidator with respect to the
liquidation (by consignment sale or otherwise) of spare parts and computers of
the Borrower's West and Southwest Divisions excluded from the assets sold to
Vanstar pursuant to the Vanstar Sale Agreement, shall be paid, immediately upon
receipt by the Borrower, to the Lender, and shall be applied to the principal
installments of the Term Loan in the inverse order of their maturities. Together
with any such payment, the Borrower shall pay to the Lender all amounts due
under SECTION 3.7 as a result of such prepayment. On the prepayment date, the
Borrower shall pay interest on the amount prepaid, accrued to the prepayment
date. The Borrower shall also be obligated to prepay the Term Loan in full
together with accrued and unpaid interest thereon (and all amounts due under
SECTION 3.7 as a result of such prepayment) upon any termination of this
Agreement pursuant to SECTION 3.5 or otherwise or upon any acceleration of the
Term Loan pursuant to ARTICLE 11.
ARTICLE 3 - GENERAL LOAN PROVISIONS
Section 3.1 Interest.
(a) (i) Prime Rate Revolving Credit Loans. The Borrower will pay
interest on the unpaid principal amount of each Prime Rate Revolving
Credit Loan for each day from the day such Loan was made until such Loan
is paid (whether at maturity, by reason of acceleration or otherwise),
or is converted to a Loan of a different Type, at a rate per annum equal
to the sum of one-quarter of one percent (0.25 %) plus the Prime Rate,
payable monthly in arrears on each Interest Payment Date and on the
Termination Date.
(ii) LIBOR Revolving Credit Loans. The Borrower will pay
interest on the unpaid principal amount of each LIBOR Revolving Credit
Loan for the Interest Period applicable thereto at a rate per annum
equal to the sum of two and one-quarter percent (2.25%) plus LIBOR,
payable in arrears on each Interest Payment Date, on the last day of
such Interest Period, and when such LIBOR Revolving Credit Loan is paid
(whether at maturity, by reason of acceleration or otherwise). In the
event (A) the Borrower's Net Income equals or exceeds $450,000 for each
of the fiscal quarters ending
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on December 31, 1996 and March 31, 1997, and (B) the Borrower's Net Loss
is no greater than $4,200,000 for the fiscal year ending on March 31,
1997, then such interest rate shall be reduced to a per annum rate equal
to the sum of two percent (2.0%) plus LIBOR, effective as of the later
of July 1, 1997 and the date the Lender receives the audited financial
statements described in SECTION 9.1 for the fiscal year ending on March
31, 1997, together with the certificates described in SECTIONS 9.2 and
9.3, provided any such reduced rate shall only be effective for Interest
Periods commencing on or after the effective date of such rate
reduction.
(iii) Prime Rate Term Loans. The Borrower will pay interest on
each Prime Rate Term Loan at a rate per annum equal to the sum of
one-quarter of one percent (0.25%) plus the Prime Rate, payable in
arrears on each Interest Payment Date and when such Term Loan is due
(whether at maturity, by reason of acceleration or otherwise).
(iv) LIBOR Term Loans. The Borrower will pay interest on each
LIBOR Term Loan for the Interest Period applicable thereto at a rate per
annum equal to the sum of two and one-quarter percent (2.25 %) plus
LIBOR, payable in arrears on each Interest Payment Date, on the last day
of such Interest Period, and when such LIBOR Term Loan is due (whether
at maturity, by reason of acceleration or otherwise). In the event (A)
the Borrower's Net Income equals or exceeds $450,000 for each of the
fiscal quarters ending on December 31, 1996 and March 31, 1997, and (B)
the Borrower's Net Loss is no greater than $4,200,000 for the fiscal
year ending on March 31, 1997, then such interest rate shall be reduced
to a per annum rate equal to the sum of two percent (2.0%) plus LIBOR,
effective as of the later of July 1, 1997 and the date the Lender
receives the audited financial statements described in SECTION 9.1 for
the fiscal year ending on March 31, 1997, together with the certificates
described in SECTIONS 9.2 and 9.3, provided any such reduced rate shall
only be effective for Interest Periods commencing on or after the
effective date of such rate reduction.
(b) Notwithstanding anything to the contrary contained in this
Agreement or any other Loan Document, if the Borrower has not made a Term Loan
prepayment of at least $1,250,000 to the Lender on or before January 15, 1997
from the proceeds of Vanstar Payments, effective as of January 16, 1997 (i) the
Term Loan shall bear interest at a rate per annum equal to the sum of one
percent (1.0%) plus the Prime Rate (plus, it an Event of Default has occurred,
the Default Margin), (ii) the right of the Borrower to select LIBOR Term Loans
shall irrevocably be suspended, and (iii) all outstanding LIBOR Twin Loans shall
automatically be repaid and reborrowed as Prime Rate Loans.
(c) The Borrower shall pay interest on the unpaid principal amount
of each Secured Obligation other than a Loan for each day from the day such
Secured Obligation becomes due and payable until such Secured Obligation is paid
at the rate per annum applicable to Prime Rate Revolving Credit Loans, payable
on demand.
(d) From and after the occurrence of an Event of Default, the unpaid
principal amount of each Secured Obligation shall bear interest until paid in
full (or, if earlier, until such Event of Default is cured or waived in writing
by the Lender) at a rate per annum equal to the Default Margin plus the rate
otherwise in effect under SECTION 31(a), (b) or (c), payable on demand. The
interest rate provided for in this SECTION 3.1(d) shall to the extent permitted
by applicable law apply to and accrue on the amount of any judgment entered with
respect to any Secured Obligation and shall continue to accrue at such rate
during any proceeding described in SECTION 11.1(g) or (h).
(e) The interest rates provided for in SECTIONS 3.1(a), (b), (c)
and (d) shall be computed on the basis of a year of 360 days and the actual
number of days elapsed.
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(f) It is not intended by the Lender, and nothing contained in this
Agreement or any Note shall be deemed, to establish or require the payment of a
rate of interest in excess of the maximum rate permitted by applicable law (the
"Maximum Rate"). If, in any month, the Effective Interest Rate, absent such
limitation, would have exceeded the Maximum Rate, then the Effective Interest
Rate for that month shall be the Maximum Rate, and if, in future months, the
Effective Interest Rate would otherwise be less than the Maximum Rate, then the
Effective Interest Rate shall remain at the Maximum Rate until such time as the
amount of interest paid hereunder equals the amount of interest which would have
been paid if the same had not been limited by the Maximum Rate. In this
connection, in the event that, upon payment in full of the Secured Obligations,
the total amount of interest paid or accrued under the terms of this Agreement
is less than the total amount of interest which would have been paid or accrued
if the Effective Interest Rate had at all times been in effect, then the
Borrower shall, to the extent permitted by applicable law, pay to the Lender an
amount equal to the difference between (i) the lesser of (A) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect and (B) the amount of interest which would have accrued had the
Effective Interest Rate, at all times, been in effect, and (ii) the amount of
interest actually paid or accrued under this Agreement. In the event the Lender
receives, collects or applies as interest any sum in excess of the Maximum Rate,
such excess amount shall be applied to the reduction of the principal balance of
the applicable Secured Obligation, and, if no such principal is then
outstanding, such excess or part thereof remaining shall be paid to the
Borrower.
Section 3.2 Fees.
(a) Commitment Fee. In connection with and as consideration for the
Lender's commitment hereunder, subject to the terms hereof, to lend to the
Borrower under the Revolving Credit Facility, the Borrower shall pay a fee to
the Lender, from the Effective Date until the Termination Date, in an amount
equal to 1/8% per annum of the average daily unused portion of the Revolving
Credit Facility, payable monthly in arrears on the first day of each month and
on the date of any permanent reduction in the Revolving Credit Facility.
(b) Closing Fee. The Borrower shall pay to the Lender a closing fee
in the amount of $25,000 in connection with the establishment of the Revolving
Credit Facility and in consideration of the making of Loans under this Agreement
and in order to compensate the Lender for the costs associated with structuring,
processing, approving and closing the Revolving Credit Facility and the Loans,
but excluding expenses for which the Borrower has agreed elsewhere in this
Agreement to reimburse the Lender. Such fee shall be fully earned as of the
Effective Date, but shall be due and payable in four quarterly installments of
$6,250 on the Effective Date, March 1, 1997, June 1, 1997 and September 1, 1997.
(c) Administration Fee. For services performed by the Lender in
connection with its continuing administration hereof, the Borrower shall pay to
the Lender a fee of $8,000 per annum, payable annually in advance on the
Effective Date and on each anniversary thereof, and continuing so long as any
Loan shall remain outstanding or the Revolving Credit Facility shall not have
been terminated.
(d) General. Except as set forth in clause (b) above, all fees shall
be fully earned by the Lender when due and payable and, except as otherwise set
forth herein, shall not be subject to refund or rebate. All fees are for
compensation for services and are not, and shall not be deemed to be, interest
or a charge for the use of money.
Section 3.3 Notice of Conversion or Continuation of Loans. Whenever
the Borrower desires, subject to the provisions of SECTION 3.4, to convert an
outstanding Revolving Credit Loan or Term Loan into a Loan of a different Type
provided for in this Agreement or to continue all or a portion of an outstanding
LIBOR Revolving Credit Loan or LIBOR Term, Loan for a subsequent Interest
Period, the Borrower shall notify the Lender (which notice shall be irrevocable)
by telephone or in writing (including telecopy) not later
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than 12:00 noon (Eastern time) on the date one Business Day before the day on
which a proposed conversion of a LIBOR Loan into a Prime Rate Loan is to be
effective (which effective date shall be the last day of the Interest Period
applicable to such LIBOR Loan) and two Business Days before the day on which a
proposed conversion of a Prime Rate Loan into, or continuation of a LIBOR Loan
as, a LIBOR Loan is to be effective (and such effective date of any continuation
shall be the last day of the Interest Period for such LIBOR Loan). Each such
notice (a "Notice of Conversion or Continuation") shall (a) identify the Loan to
be converted or continued, including the Type thereof, the aggregate outstanding
principal balance thereof and, in the case of a LIBOR Loan, the last day of the
Interest Period therefor, (b) specify the effective date of such conversion or
continuation, (c) specify the principal amount of such Loan to be converted or
continued and, if converted, the Type or Types of Loan into which conversion of
such principal amount or specified portions thereof is to be made, and (d) in
the case of any conversion into or continuation as a LIBOR Loan, the Interest
Period to be applicable thereto, and, in the case of any telephonic notice,
shall be immediately followed by a written confirmation thereof by the Borrower
in a form acceptable to the Lender, PROVIDED that the failure to provide a
written confirmation shall not invalidate any telephonic notice and, if such
written confirmation differs in any respect from the action taken by the Lender,
the records of the Lender shall control absent manifest error.
Section 3.4. Conversion or Continuation- Provided that no Event of
Default shall have occurred and be continuing (but subject to the provisions of
SECTIONS 3.5 and 3.6), the Borrower may request that all or any part of any
outstanding Loan of one Type (a) be converted into a Loan or Loans of any other
Type provided for in this Agreement, or (b) be continued as a Loan or Loans of
the same Type, in the same aggregate principal amount, on any Business Day
(which, in the case of a conversion or continuation of a LIBOR Loan, shall be
the last day of the Interest Period applicable to such LIBOR Loan), upon notice
(which notice shall be irrevocable) given in accordance with SECTION 3.3,
PROVIDED that nothing in this ARTICLE 3 shall be construed to permit the
conversion of a Revolving Credit Loan to a Term Loan or vice versa.
Section 3.5 Duration of Interest Periods: Maximum Number of LIBOR
Loans; Minimum Increments.
(a) Subject to the provisions of the definition "Interest Period",
the duration of each Interest Period applicable to a LIBOR Loan shall be as
specified in the applicable Notice of Borrowing or Notice of Conversion or
Continuation. The Borrower may elect a subsequent Interest Period to be
applicable to any LIBOR Loan by giving a Notice of Conversion or Continuation
with respect to such Loan in accordance with SECTION 3.3.
(b) If the Under does not receive a Notice of Conversion or
Continuation in accordance with SECTION 3.3 with respect to the continuation of
a LIBOR Loan within the applicable time limits specified in SECTION j3.3, or if,
when such notice must be given, an Event of Default exists or such Type of Loan
is not available, the Borrower shall be deemed to have elected to convert such
LIBOR Loan in whole into a Prime Rate Loan on the last day of the Interest
Period therefor.
(c) Notwithstanding the foregoing, the Borrower may not select an
Interest Period that would end, but for the provisions of the definition
"Interest Period," after the Termination Date.
(d) In no event shall there be more than four LIBOR Loans
outstanding hereunder at any time. For the purpose of this SUBSECTION (d), each
LIBOR Revolving Credit Loan and each LIBOR Term Loan having a distinct Interest
Period shall be deemed to be a separate Loan hereunder.
(e) Each LIBOR Loan shall be in a minimum amount of $1,000,000.
Section 3.6 Changed Circumstances.
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(a) If the introduction of or any change in or in the interpretation
of (in each case, after the date hereof) any law or regulation makes it
unlawful, or any Governmental Authority asserts, after the date hereof, that it
is unlawful, for the Lender to perform its obligations hereunder to make or
maintain LIBOR Loans, the Lender shall notify the Borrower of such event, and
the right of the Borrower to select LIBOR Loans for any subsequent Interest
Period or in connection with any subsequent conversion of any Loan shall be
suspended until the Lender shall notify the Borrower that the circumstances
causing such suspension no longer exist, and the Borrower shall forthwith prepay
in full all LIBOR Revolving Credit Loans then outstanding and shall convert each
LIBOR Term Loan into a Prime Rate Term Loan, and shall pay all interest accrued
thereon through the date of such prepayment or conversion; PROVIDED, that if the
date of such repayment or proposed conversion is not the last day of the
Interest Period applicable to such LIBOR Loans, the Borrower shall also pay any
amount due pursuant to SECTION 3.7.
(b) If the Lender shall, prior to the disbursement of any requested
Revolving Credit Loan or the effective date of any conversion or continuation of
an existing Loan to be made or continued as or converted into a LIBOR Loan (each
such requested Revolving Credit Loan made and Loan to be converted or continued,
a "Pending Loan"), notify the Borrower that LIBOR will not adequately reflect
the cost to the Lender of making or funding such Pending Loan as a LIBOR Loan or
that the Interbank Offered Rate is not determinable from any interest rate
reporting service of recognized standing, then the right of the Borrower to
select LIBOR Loans for such Pending Loan, any subsequent Revolving Credit Loan,
or in connection with any subsequent conversion or continuation of any Loan,
shall be suspended until the Lender shall notify the Borrower that the
circumstances causing such suspension no longer exist, and each Loan comprising
each Pending Loan and each such subsequent Loan requested to be made, continued
or converted shall be made or continued as or converted into a Prime Rate Loan.
Section 3.7 Payments Not at End of Interest Period: Failure to
Borrow. If for any reason any payment of principal with respect to any LIBOR
Loan is made on any day prior to the last day of the Interest Period applicable
to such LIBOR Loan or, after having given a Notice of Borrowing with respect to
any Revolving Credit Loan to be comprised of LIBOR Revolving Credit Loans or a
Notice of Conversion or Continuation with respect to any Loan to be continued as
or converted into a LIBOR Loan, such Loan is not made or is not continued as or
converted into a LIBOR Loan due to the Borrower's failure to borrow or to
fulfill the applicable conditions set forth in ARTICLE 4, the Borrower shall pay
to the Lender, in addition to any other amounts that may be due under this
Agreement, an amount (if a positive number) computed pursuant to the following
formula:
L = (R - T) x P x D
---------------
360
L = amount payable
R = interest rate applicable to the LIBOR Loan
unborrowed or prepaid
T = effective interest rate per annum at which any
readily marketable bonds or other obligations of
the United States, selected at the Lender's sole
discretion, maturing on or near the last day of
the then applicable or requested Interest Period
for such Loan and in approximately the same
amount as such Loan, can be purchased by the
Lender on the day of such payment of principal
or failure to borrow
P = the amount of principal paid or the amount of
the requested Loan
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<PAGE> 29
D = the number of days remaining in the Interest Period as of the
date of such payment or the number of days in the requested
Interest Period
The Borrower shall pay such amount upon presentation by the Lender of a
statement setting forth the amount and the Lender's calculation thereof pursuant
hereto, which statement shall be deemed true and correct absent manifest error.
Section 3.8 Increased Costs and Reduced Returns. The Borrower agrees
that if any law now or hereafter in effect and whether or not presently
applicable to the Lender or any request, guideline or directive of any
Governmental Authority (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) or the interpretation or
administration thereof by any Governmental Authority, shall either (a)(i)
impose, affect, modify or deem applicable any reserve, special deposit, capital
maintenance or similar requirement against any Loan, (ii) impose on the Lender
any other condition regarding any Loan, this Agreement, the Notes or the
facilities provided hereunder, or (iii) result in any requirement regarding
capital adequacy (including any risk-based capital guidelines) affecting the
Lender being imposed or modified or deemed applicable to the Lender, or (b)
subject the Lender to any taxes on the recording, registration, notarization or
other formalization of the Loans or the Notes, and the result of any event
referred to in CLAUSE (a) or (b) above shall be to increase the cost to the
Lender of making, funding or maintaining any Loan or to reduce the amount of any
sum receivable by the Lender or the Lender's rate of return on capital with
respect to any Loan to a level below that which the Lender could have achieved
but for such imposition, modification or deemed applicability (taking into
consideration the Lender's policies with respect to capital adequacy) by an
amount deemed by Lender (in the exercise of its discretion) to be material,
then, upon demand by the Lender, the Borrower shall immediately pay to the
Lender additional amounts which shall be sufficient to compensate the Lender for
such increased cost, tax or reduced rate of return. A certificate of the Lender
to the Borrower claiming compensation under this SECTION 3.8 shall be final,
conclusive and binding on all parties for all purposes in the absence of
manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such compensation, the additional amount or amounts to be paid to
it hereunder, and the method by which such amounts were determined In
determining such amount, the Lender may use any reasonable averaging and
attribution methods.
Section 3.9 Manner of Payment. (a) Each payment (including prepayments)
by the Borrower on account of the principal of or interest on the Loans or of
any fee or other amounts payable to the Lender under this Agreement or any Note
shall be made not later than 1:30 p.m. on the date specified for payment under
this Agreement (or if such day is not a Business Day, the next succeeding
Business Day) to the Lender at the Lender's Office, in Dollars, in immediately
available funds and shall, be made without any setoff, counterclaim or deduction
whatsoever.
(b) The Borrower hereby irrevocably authorizes the Lender and each
Affiliate of the Lender to charge any account of the Borrower maintained with
the Lender or such Affiliate with such amounts as may be necessary from time to
time to pay any Secured Obligations which are not paid when due.
Section 3.10 Statements of Account. The Lender will account to the
Borrower within 30 days after the end of each calendar month with a statement of
Loans, charges and payments made pursuant to this Agreement during such calendar
month, and such account rendered by the Lender shall be deemed an account stated
as between the Borrower and the Lender and shall be deemed final, binding and
conclusive unless the Lender is notified by the Borrower in writing to the
contrary within 60 days after the date such account is delivered to the
Borrower, save for manifest error. Any such notice shall be deemed an objection
only to those items specifically objected to therein. Failure of the Lender to
render such account shall in no way affect its rights hereunder.
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<PAGE> 30
Section 3.11 Termination of Agreement. On the Termination Date, the
Borrower shall pay to the Lender, in same day funds, an amount equal to the
aggregate amount of all Loans outstanding on such date, together with accrued
interest thereon, all fees payable pursuant to SECTION 3.2 accrued from the date
last paid through the effective date of termination, any amounts payable to the
Lender pursuant to the other provisions of this Agreement, including, without
limitation, SECTIONS 3.7, 3.8, 11.2, 12.12 and 12.13, any and all other Secured
Obligations then outstanding, and an amount equal to the Letter of Credit
Reserve to be held by the Lender as cash collateral security for the payment of
and to be applied to the payment of any amounts which may thereafter become due
with respect to any Letter of Credit, and provide the Lender with an
indemnification agreement in form and substance satisfactory to the Lender with
respect to returned and dishonored items and such other matters as the Lender
shall reasonably require.
ARTICLE 4 - CONDITIONS PRECEDENT
Section 4.1 Conditions Precedent to Initial Loan. Notwithstanding any
other provision of this Agreement, the Lender's obligation to make the Initial
Loans is subject to the fulfillment of each of the following conditions prior to
or contemporaneously with the making of such Loan:
(a) Closing Documents. The Lender shall have received each of the
following documents, all of which shall be satisfactory in form and substance to
the Lender and its counsel:
(1) this Agreement, duly executed and delivered by the
Borrower;
(2) the Notes, dated the Effective Date and duly executed and
delivered by the Borrower;
(3) certified copies of the articles of incorporation and
by-laws of the Borrower as in effect on the Effective Date;
(4) certified copies of all corporate action, including
stockholder approval, if necessary, taken by the Borrower to authorize
the execution, delivery and performance of this Agreement and the other
Loan Documents and the borrowings under this Agreement;
(5) certificates of incumbency and specimen signatures with
respect to each of the officers of the Borrower who is authorized to
execute and deliver this Agreement or any other Loan Document on behalf
of the Borrower or any document, certificate or instrument to be
delivered in connection with this Agreement or the other Loan Documents
and to request borrowings under this Agreement;
(6) a certificate evidencing the good standing of the Borrower
in the jurisdiction of its incorporation and in each other jurisdiction
in which it is qualified as a foreign corporation to transact business;
(7) the Financing Statements duly executed and delivered by
the Borrower, and evidence satisfactory to the Lender that the
Financing Statements have been filed in each jurisdiction where such
filing may be necessary or appropriate to perfect the Security
Interest;
(8) the Intercreditor Agreement, duly executed and delivered
by NationsCredit and the Borrower;
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<PAGE> 31
(9) the Subordination Agreements, duly executed and delivered
by the holders of the Subordinated Notes and the Borrower, together
with copies of the Subordinated Notes bearing a legend evidencing the
subordination thereof to the Secured Obligations;
(10) landlord's waiver and consent agreements duly executed on
behalf of each landlord of real property on which any Collateral is
located;
(11) a Schedule of Inventory, a Schedule of Receivables and a
Schedule of Equipment, each prepared as of a recent date;
(12) certificates or binders of insurance relating to each of
the policies of insurance covering any of the Collateral together with
loss payable clauses which comply with the terms of SECTION 7.9(b);
(13) such Agency Account Agreements as shall be required by
the Lender duly executed by the applicable Clearing Bank and the
Borrower;
(14) a Borrowing Base Certificate prepared as of the Effective
Date duly executed and delivered by the chief financial officer of the
Borrower;
(15) a letter from the Borrower to the Lender requesting the
Initial Loans and specifying the method of disbursement;
(16) copies of all the financial statements referred to in
SECTION 5.1(m) and meeting the requirements thereof;
(17) a balance sheet of the Borrower as at October 31, 1996,
prepared by the Borrower on a pro forma basis, giving effect to the
transactions contemplated by this Agreement and setting forth the
assumptions on which such balance sheet was prepared; forecasted
consolidated financial statements consisting of balance sheets, cash
flow statements and income statements of the Borrower, giving
effect to the transactions contemplated by this Agreement and
reflecting projected borrowings hereunder and setting forth the
assumptions on which such forecasted financial statements were
prepared, covering the two-year period commencing on October 1, 1996,
and prepared on a quarterly basis; and such other evidence as the
Lender shall require supporting the representation and warranty of the
Borrower set forth in SECTION 5.1(r);
(18) a certificate of the President of the Borrower stating
that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct as of the Effective Date, both with and
without giving effect to the Loans to be made at such time and the
application of the proceeds thereof, and (b) no Default or Event of
Default exists;
(19) a signed opinion of Holland & Knight, counsel for the
Borrower, and such local counsel as the Lender shall deem necessary or
desirable, opining as to such matters in connection with this Agreement
as the Lender or its counsel may reasonably request;
(20) the Indemnification Agreement, in form and substance
satisfactory to the Lender, duly executed and delivered by the
Borrower;
(21) certified copies of each Sale Agreement and the Escrow
Agreement, together with such agreements as may be necessary to perfect
the Lender's security interest in the Escrow Account
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<PAGE> 32
and the Borrower's rights to receive payments therefrom, including an
acknowledgment from Ameridata and the escrow agent under the Escrow
Account Agreement that all references in the Escrow Account Agreement
to IBM Credit Corporation shall hereafter be deemed to refer to the
Lender, and from Vanstar that all payments under the Vanstar Sale
Agreement escrow provisions shall hereafter be made to the Lender;
(22) the Assignment of Tax Claim, in form and substance
satisfactory to the Lender, duly executed and delivered by the
Borrower; and
(23) copies of each of the other Loan Documents duly executed
by the parties thereto with evidence satisfactory to the Lender and its
counsel of the due authorization, binding effect and enforceability of
each such Loan Document on each such party and such other documents and
instruments as the Lender may reasonably request.
(b) Availability. The Lender shall be provided with evidence
satisfactory to it that, as of the Effective Date, after giving effect to the
Initial Loan, Availability will be not less than $500,000.
(c) No Injunctions, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit or to obtain substantial damages in respect of or which is related to
or arises out of this Agreement or the consummation of the transactions
contemplated hereby or which, in the Lender's sole discretion, would make it
inadvisable to consummate the transactions contemplated by this Agreement.
(d) Material Adverse Change. As of the Effective Date, there shall not
have occurred any change which, in the Lender's sole discretion, has had or may
have a Materially Adverse Effect as compared to the condition of the Borrower
presented by the most recent unaudited financial statements of the Borrower
described in Section 5.1(m).
(e) Solvency. The Lender shall have received evidence satisfactory to
it that, after giving effect to the Initial Loans (i) the Borrower has assets
(excluding goodwill and other intangible assets not capable of valuation) having
value, both at fair value and at present fair salable value, greater than the
amount of its liabilities, and (ii) the Borrower's assets are sufficient in
value to provide the Borrower with sufficient working capital to enable it
profitably to operate its business and to meet its obligations as they become
due, and (iii) the Borrower has adequate capital to conduct the business in
which it is and proposes to be engaged.
(f) Release of Security Interests. The Lender shall have received
evidence satisfactory to it of the release and termination of all Liens other
than Permitted Liens.
(g) Net Worth Statement. The Lender shall have received a duly signed
copy of the "Net Worth Statement" between Vanstar and the Borrower, in form and
substance acceptable to the Lender.
(h) Tax Refund. The Borrower shall have delivered to the Lender drafts
of the initial documents to be filed with respect to its claim for a refund in
an amount not less than $900,000 with respect to the Tax Refund Claim, together
with a letter in form and substance acceptable to the Lender from the Borrower's
independent accountant with respect to the amount of and basis for the Tax
Refund Claim.
Section 4.2 All Loans. At the time of making of each Loan, including
the Initial Loan:
(a) all of the representations and warranties made or deemed to be made
under this Agreement shall be true and correct at such time both with and
without giving effect to the Loans to be made at such time
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<PAGE> 33
and the application of the proceeds thereof, except that representations and
warranties which, by their terms, are applicable only to the Effective Date
shall be required to be true and correct only as of the Effective Date,
(b) the corporate actions of the Borrower referred to in SECTION
4.1(a)(4) shall remain in full force and effect and the incumbency of officers
shall be as stated in the certificates of incumbency delivered pursuant to
SECTION 4.1(a)(5) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Lender, and
(c) the Lender may, without waiving either condition, consider the
conditions specified in SECTIONS 4.2(a) and (b) fulfilled and a representation
by the Borrower to such effect made if no written notice to the contrary is
received by the Lender from the Borrower prior to the making of the Loans then
to be made.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER
Section 5.1 Representations and Warranties. The Borrower represents and
warrants to the Lender as follows:
(a) Organization; Power; Qualification. The Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which failure to be so qualified and authorized would have a
Materially Adverse Effect. The jurisdictions in which the Borrower is qualified
to do business as a foreign corporation are listed on SCHEDULE 5.1(a).
(b) Subsidiaries and Ownership of the Borrower. The Borrower has no
Subsidiaries. The outstanding stock of the Borrower has been duly and validly
issued and is fully paid and nonassessable by the Borrower and the number of
such shares of capital stock of the Borrower are set forth on SCHEDULE 5.1(b).
(c) Authorization of Agreement, Note, Loan Documents and Borrowing. The
Borrower has the right and power and has taken all necessary action to authorize
it to execute, deliver and perform this Agreement and each of the other Loan
Documents to which it is a party in accordance with their respective terms and
to borrow hereunder. This Agreement and each of the other Loan Documents to
which it is a party have been duly executed and delivered by the duly authorized
officers of the Borrower and each is, or when executed and delivered in
accordance with this Agreement will be, a legal, valid and binding obligation of
the Borrower, enforceable in accordance with its terms.
(d) Compliance of Agreement, Note, Loan Documents and Borrowing with
Laws, Etc. The execution, delivery and performance of this Agreement and each of
the other Loan Documents to which the Borrower is a party in accordance with
their respective terms and the borrowings hereunder do not and will not, by the
passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
applicable law relating to the Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a
default under (A) the articles or certificate of incorporation or
by-laws of the Borrower, (B) any indenture, agreement or other
instrument to which the Borrower is a party or by which any of its
property may be bound or (C) any Governmental Approval relating to the
Borrower, or,
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by the Borrower other than the Security Interest.
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(e) Business. The Borrower is engaged principally in the business
described on SCHEDULE 5.1(e).
(f) Compliance with Law; Governmental Approvals. Except as set forth in
SCHEDULE 5.1(f), the Borrower (i) has all Governmental Approvals, including
permits relating to federal, state and local Environmental Laws, ordinances and
regulations required by any applicable law for it to conduct its business, each
of which is in full force and effect, is final and not subject to review on
appeal and is not the subject of any pending or, to the knowledge of the
Borrower, threatened attack by direct or collateral proceeding, and (ii) is in
compliance with each Governmental Approval applicable to it and in compliance
with all other applicable laws relating to it, including, without being limited
to, all Environmental Laws and all occupational health and safety laws
applicable to the Borrower or its properties, except for instances of
noncompliance which would not, singly or in the aggregate, cause a Default or
Event of Default or have a Materially Adverse Effect and in respect of which
adequate reserves have been established on the books of the Borrower.
(g) Titles to Properties. Except as set forth in SCHEDULE 5.1(g), the
Borrower has good and marketable title to or a valid leasehold interest in all
its real estate and valid and legal title to or a valid leasehold interest in
all personal property and assets used in or necessary to the conduct of the
Borrower's business, including, but not limited to, those reflected on the
balance sheet of the Borrower delivered pursuant to Section 5.1(m)(ii).
(h) Liens. Except as set forth in SCHEDULE 5.1(h), none of the
properties and assets of the Borrower is subject to any Lien, except Permitted
Liens. Other than the Financing Statements, no financing statement under the
Uniform Commercial Code of any state which names the Borrower as debtor and
which has not been terminated has been filed in any state or other jurisdiction,
and the Borrower has not signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement, except to perfect those Liens listed in SCHEDULE 5.1(h) and Permitted
Liens.
(i) Indebtedness and Guaranties. Set forth on SCHEDULE 5.1(i) is a
complete and correct listing of all of the Borrower's (i) Indebtedness for Money
Borrowed and (ii) Guaranties. The Borrower is not in default of any material
provision of any agreement evidencing or relating to such any such Indebtedness
or Guaranty.
(j) Litigation. Except as set forth on SCHEDULE 5.1(j), them are no
actions, suits or proceedings pending (nor, to the knowledge of the Borrower,
are there any actions, suits or proceedings threatened, nor is there any basis
therefor) against or in any other way relating adversely to or affecting the
Borrower or any of its property in any court or before any arbitrator of any
kind or before or by any governmental body.
(k) Tax Returns and Payments. Except as set forth on SCHEDULE 5.1(k),
all United States federal, state and local and foreign national, provincial and
local and all other tax returns of the Borrower required by applicable law to
be filed have been duly filed, and all United States federal, state and local
and foreign national, provincial and local and all other taxes, assessments
and other governmental charges or levies upon the Borrower and its property,
income, profits and assets which are due and payable have been paid, except any
such nonpayment which is at the time permitted under SECTION 8.4. The charges,
accruals and reserves on the books of the Borrower in respect of United States
federal, state and local taxes and foreign national, provincial and local taxes
for all fiscal years and portions thereof since the organization of the
Borrower are in the judgment of the Borrower adequate, and the Borrower knows
of no reason to anticipate any additional assessments for any of such years
which, singly or in the aggregate, might have a Materially Adverse Effect.
(l) Burdensome Provisions. The Borrower is not a party to any
indenture, agreement, lease or other instrument, or subject to any charter or
corporate restrictions, Governmental Approval or applicable law, compliance with
the terms of which might have a Materially Adverse Effect.
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(m) Financial Statements. The Borrower has furnished to the Lender a
copy of (i) its audited balance sheet as at March 31, 1996, and the related
statements of income, cash flow and retained earnings for the twelve-month
period then ended and (ii) its unaudited balance sheet as at October 31, 1996,
and the related statement of income for the 7-month period then ended. Such
financial statements are complete and correct and present fairly and in all
material respects in accordance with GAAP, the financial position of the
Borrower as at the dates thereof and the results of operations of the Borrower
for the periods then ended. Except as disclosed or reflected in such financial
statements, the Borrower had no material liabilities, contingent or otherwise,
and there were no material unrealized or anticipated losses of the Borrower.
(n) Adverse Change. Since the date of the financial statements
described in CLAUSE (i) of SECTION 5.1(m), (i) no change in the business,
assets, liabilities, condition (financial or otherwise), results of operations
or business prospects of the Borrower has occurred that has had, or may have, a
Materially Adverse Effect, and (ii) no event has occurred or failed to occur
which has had, or may have, a Materially Adverse Effect.
(o) ERISA. Neither the Borrower nor any Related Company maintains or
contributes to any Benefit Plan other than those listed on SCHEDULE 5.1(o). Each
Benefit Plan is in substantial compliance with ERISA, and neither the Borrower
nor any Related Company has received any notice asserting that a Benefit Plan is
not in compliance with ERISA. No material liability to the PBGC or to a
Multiemployer Plan has been, or is expected by the Borrower to be, incurred by
the Borrower or any Related Company.
(p) Absence of Defaults. The Borrower is not in default under its
articles or certificate of incorporation or by-laws, and no event has occurred
which has not been remedied, cured or waived (i) that constitutes a Default or
an Event of Default or (ii) that constitutes or that, with the passage of time
or giving of notice, or both, would constitute a default or event of default by
the Borrower under any material agreement (other than this Agreement) or
judgment, decree or order to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or which would require the
Borrower to make any payment thereunder prior to the scheduled maturity date
therefor.
(q) Accuracy and Completeness of Information. All written information,
reports and other papers and data produced by or on behalf of the Borrower and
furnished to the Lender were, at the time the same were so furnished, complete
and correct in all material respects to the extent necessary to give the
recipient a true and accurate knowledge of the subject matter, no fact is known
to the Borrower which has had, or may in the future have (so far as the Borrower
can foresee), a Materially Adverse Effect which has not been set forth in the
financial statements or disclosure delivered prior to the Effective Date, in
each case referred to in SECTION 5.1(m), or in such written information, reports
or other papers or data or otherwise disclosed in writing to the Lender prior to
the Effective Date. No document furnished or written statement made to the
Lender by the Borrower in connection with the negotiation, preparation or
execution of this Agreement or any of the Loan Documents contains or will
contain any untrue statement of a fact material to the creditworthiness of the
Borrower or omits or will omit to state a material fact necessary in order to
make the statements contained therein not misleading.
(r) Solvency. In each case after giving effect to the Indebtedness
represented by the Loans outstanding and to be incurred and the transactions
contemplated by this Agreement, the Borrower is solvent, having assets of a fair
value which exceeds the amount required to pay its debts (including contingent,
subordinated, unmatured and unliquidated liabilities) as they become absolute
and matured, and the Borrower is able to and anticipates that it will be able to
meet its debts as they mature and has adequate capital to conduct the business
in which it is or proposes to be engaged.
(s) Status of Receivables. Each Receivable reflected in the
computations included in any Borrowing Base Certificate meets the criteria
enumerated in the definition of Eligible Receivables, except as
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disclosed in such Borrowing Base Certificate or as disclosed in a timely manner
in a subsequent Borrowing Base Certificate or otherwise in writing to the
Lender.
(t) Chief Executive Officer. The chief executive office of the Borrower
and the books and records relating to the Receivables are located at the address
or addresses set forth on SCHEDULE 5.1(t); except as set forth SCHEDULE 5.1(t),
the Borrower has not maintained its chief executive office or the books and
records relating to any Receivables at any other address at any time during the
five years immediately preceding the Agreement Date.
(u) Status of Inventory. All Inventory included in any Borrowing Base
Certificate delivered to the Lender pursuant to SECTION 7.14(d) meets the
criteria enumerated in the definition of Eligible Inventory, except as
disclosed in such Borrowing Base Certificate or in a subsequent Borrowing
Base Certificate or as otherwise specifically disclosed in writing to the
Lender. All Inventory is in good condition, meets all standards imposed by any
governmental agency or department or division thereof having regulatory
authority over such goods, their use or sale, and is currently either usable or
saleable in the normal course of the Borrower's business, except to the extent
reserved against in the financial statements delivered pursuant to ARTICLE 9 or
as disclosed on a Schedule of Inventory delivered to the Lender pursuant to
SECTION 7.14(b). Set forth on SCHEDULE 5.1(u) is the (i) address (including
street, city, county and state) of each facility at which Inventory is located,
(ii) the approximate quantity in Dollars of the Inventory customarily located
at each such facility, and (iii) if the facility is leased or is a third party
warehouse or processor location, the name of the landlord or such third party
warehouseman or processor. All Inventory is located on the premises set forth
on SCHEDULE 5.1(u) or is in transit to one of such locations, except as
otherwise disclosed in writing to the Lender; the Borrower has not located
Inventory at premises other than those set forth on SCHEDULE 5.1(u) at any time
during the four months immediately preceding the Agreement Date.
(v) Equipment. All Equipment is in good order and repair in all
material respects. Set forth on SCHEDULE 5.1(v) is the (i) address (including
street, city, county and state) of each facility at which Equipment (other than
motor vehicles) is located, (ii) the approximate value of Equipment located at
such facility, and (iii) if such facility is leased, the name of the landlord.
Except as set forth on SECTION 5.1(v), within the past four months no Equipment
has been located at any other location.
(w) Corporate and Fictitious Names; Trade Names. Except as otherwise
disclosed on SCHEDULE 5.1(w), during the one-year period preceding the Agreement
Date, the Borrower has not been known as or used any corporate or fictitious
name other than the corporate name of the Borrower on the Effective Date. All
trade names or styles under which the Borrower sells Inventory or Equipment or
creates Receivables, or to which instruments in payment of Receivables are made
payable, are listed on SCHEDULE 5.1(w).
(x) Federal Regulations. The Borrower is not engaged, principally or as
one of its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" (as each of the quoted
terms is defined or used in Regulations G and U of the Board of Governors of the
Federal Reserve System).
(y) Investment Company Act. The Borrower is not an "investment company"
or a company "controlled" by an "investment company" (as each of the quoted
terms is defined or used in the Investment Company Act of 1940, as amended).
(z) Employee Relations. The Borrower is not, except as set forth on
SCHEDULE 5.1(z), party to any collective bargaining agreement nor has any labor
union been recognized as the representative of the Borrower's employees; the
Borrower knows of no pending, threatened or contemplated strikes, work stoppage
or other labor disputes involving its employees or those of its Subsidiaries.
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(aa) Intellectual Property. The Borrower owns or possesses all
Intellectual Property required to conduct its business as now and presently
planned to be conducted without, to its knowledge, conflict with the rights of
others, and SCHEDULE 5.1(aa) lists all Intellectual Property owned by the
Borrower.
(bb) Sale Agreements and Escrow Agreement. The copies of the Sale
Agreements and Escrow Agreement delivered to the Lender on or before the
Effective Date constitute complete and correct copies thereof as in effect on
the Effective Date, which agreements remain in full force and effect as of the
Effective Date. The balance of the Escrow Account equals or exceeds $5,000,000
as of the Effective Date.
(cc) Tax Refund Claim. The Borrower has delivered to the Lender drafts
of the initial documents to be filed with respect to the Tax Refund Claim. The
Borrower in good faith believes that it is entitled to the tax refund set forth
in the Tax Refund Claim.
Section 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this ARTICLE 5 and all statements
contained in any certificate, financial statement or other instrument delivered
by or on behalf of the Borrower pursuant to or in connection with this Agreement
or any of the Loan Documents (including, but not limited to, any such
representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date, at and as of
the Effective Date and at and as of the date of each Loan, except that
representations and warranties which, by their terms are applicable only to one
such date shall be deemed to be made only at and as of such date. All
representations and warranties made or deemed to be made under this Agreement
shall survive and not be waived by the execution and delivery of this Agreement,
any investigation made by or on behalf of the Lender or any borrowing hereunder.
ARTICLE 6 - SECURITY INTEREST
Section 6.1 Security Interest. (a) To secure the payment, observance
and performance of the Secured Obligations, the Borrower hereby mortgages,
pledges and assigns all of the Collateral to the Lender for itself and as agent
for any Affiliate of the Lender and grants to the Lender for itself and as agent
for any Affiliate of the Lender a continuing security interest in, and a
continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations, the
Borrower grants to the Lender for itself and as agent for any Affiliate of the
Lender a security interest in, and assigns to the Lender for itself and as agent
for any Affiliate of the Lender all of the Borrower's right, tide and interest
in and to, any deposits or other sums at any time credited by or due from the
Lender and each Affiliate of the Lender to the Borrower, with the same rights
therein as if the deposits or other sums were credited by or due from the
Lender.
Section 6.2 Continued Priority of Security Interest. (a) The Security
Interest granted by the Borrower shall at all times be valid, perfected and
enforceable against the Borrower and all third parties in accordance with the
terms of this Agreement, as security for the Secured Obligations, and the
Collateral shall not at any time be subject to any Liens that are prior to, on a
parity with or junior to the Security Interest, other than Permitted Liens.
(b) The Borrower shall, at its sole cost and expense, take all action
that may be necessary or desirable, or that the Lender may request, so as at all
times to maintain the validity, perfection, enforceability and rank of the
Security Interest in the Collateral in conformity with the requirements of
SECTION 6.2(a) or to enable the Lender to exercise or enforce its rights
hereunder, including, but not limited to: (i) paying all taxes, assessments and
other claims lawfully levied or assessed on any of the Collateral, except to the
extent that such taxes, assessments and other claims constitute Permitted Liens,
(ii) diligently seeking to obtain, after the Agreement Date, landlords',
mortgagees' or mechanics' releases, subordinations, or waivers, (iii) delivering
to
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the Lender, endorsed or accompanied by such instruments of assignment as the
Lender may specify, and stamping or marking in such manner as the Lender may
specify, any and all chattel paper, instruments, letters and advices of guaranty
and documents evidencing or forming a part of the Collateral, and (iv) executing
and delivering financing statements, pledges, designations, hypothecations,
notices and assignments, in each case in form and substance satisfactory to the
Lender, relating to the creation, validity, perfection, maintenance or
continuation of the Security Interest under the UCC or other applicable law.
(c) The Lender is hereby authorized to file one or more financing or
continuation statements or amendments thereto without the signature of or in the
name of the Borrower for any purpose described in SECTION 6.2(b). A carbon,
photographic or other reproduction of this Agreement or of any of the Security
Documents or of any financing statement filed in connection with this Agreement
is sufficient as a financing statement, to the extent permitted by applicable
law.
(d) The Borrower shall mark its books and records as may be necessary
or appropriate to evidence, protect and perfect the Security Interest and shall
cause its financial statements to reflect the Security Interest.
ARTICLE 7 - COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner provided in SECTION 12.11:
Section 7.1 Collection of Receivables. (a) The Borrower will cause all
moneys, checks, notes, drafts and other payments relating to or constituting
proceeds of Receivables, or of any other Collateral, to be forwarded to a
Lockbox for deposit in an Agency Account in accordance with the procedures set
out in the corresponding Agency Account Agreement, and in particular the
Borrower will (i) advise each Account Debtor to address all remittances with
respect to amounts payable on account of any Receivables to a specified Lockbox,
and (ii) stamp all invoices relating to any such amounts with a legend
satisfactory to the Lender indicating that payment is to be made to the Borrower
via a specified Lockbox.
(b) The Borrower and the Lender shall cause all collected balances in
each Agency Account to be transmitted daily by wire transfer or depository
transfer check or Automated Clearing House transfer in accordance with the
procedures set forth in the corresponding Agency Account Agreement to the Lender
at the Lender's Office (i) for application, on account of the Secured
Obligations, as provided in SECTION 2.3(c), 11.2 and 11.3, such credits to be
entered on the first Business Day following receipt and to be conditioned upon
final payment in cash or solvent credits of the items giving rise to them, and
(ii) with respect to any balance remaining after such application, so long as no
Default or Event of Default has occurred and is continuing, for transfer to the
Disbursement Account or such other account of the Borrower as the Borrower and
the Lender may agree.
(c) Any moneys, checks, notes, drafts or other payments referred to in
CLAUSE (a) of this SECTION 7.1 which are received by or on behalf of the
Borrower will be held in trust for the Lender and will be delivered to the
Lender at the Lender's Office as promptly as possible in the exact form
received, together with any necessary endorsements.
Section 7.2 Verification and Notification. The Lender shall have the
right (a) at any time and from time to time, in the name of the Lender or in the
name of the Borrower, to verify the validity, amount or any other matter
relating to any Receivables by mail, telephone, telegraph or otherwise, and (b)
after an Event of Default, to notify the Account Debtors or obligors under any
Receivables of the assignment of such Receivables to the Lender and to direct
such Account Debtor or obligors to make payment of all amounts due or to become
due thereunder directly to the Lender and, upon such notification and at the
expense of the
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Borrower, to enforce collection of any such Receivables and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as the Borrower might have done.
Section 7.3 Disputes, Returns and Adjustments. (a) In the event (i)
amounts due and owing under any Receivable in excess of $100,000 are in dispute
between the Account Debtor and the Borrower, or (ii) of any dispute with respect
to more than $100,000 of Vanstar Payments or in the Escrow Account, the Borrower
shall provide the Lender with prompt written notice thereof.
(b) The Borrower shall notify the Lender promptly of all material
returns and credits in excess of $ 100,000 in respect of any Receivable, which
notice shall specify the Receivables affected.
(c) The Borrower may, in the ordinary course of business and prior to a
Default or an Event of Default, grant any extension of time for payment of any
Receivable or compromise, compound or settle the same for less than the full
amount thereof or release wholly or partly any Person liable for the payment
thereof or allow any credit or discount whatsoever thereon; PROVIDED that (i) no
such action results in the reduction of more than $100,000 in the amount payable
with respect to any Receivable or of more than $250,000 with respect to all
Receivables in any fiscal year of the Borrower, and (ii) the Lender is promptly
notified of the amount of such adjustments and the Receivable(s) affected
thereby.
Section 7.4 Invoices. (a) The Borrower will not use any invoices except
invoices in the forms delivered to the Lender prior to the Agreement Date,
unless the Borrower shall have given the Lender 45 days' prior notice of the
intended use of a different form of invoice together with a copy of such
different form.
(b) Upon the request of the Lender, the Borrower shall deliver to the
Lender, at the Borrower's expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, the original copy of all documents, including, without
limitation, repayment histories and present status reports, relating to
Receivables and such other documents and information relating to the Receivables
as the Lender shall specify.
Section 7.5 Delivery of Instruments. In the event any Receivable in an
amount in excess of $100,000 is, or Receivables in excess of $250,000 in the
aggregate are, at any time evidenced by a promissory note or notes, trade
acceptance or any other instrument for the payment of money, the Borrower will
immediately thereafter deliver such instruments to the Lender, appropriately
endorsed to the Lender.
Section 7.6 Sales of Inventory. All sales of Inventory will be made in
compliance with all requirements of applicable law.
Section 7.7 Returned Goods. The Security Interest in the Inventory
shall, without further act, attach to the cash and non-cash proceeds resulting
from the sale or other disposition thereof and to all Inventory which is
returned to the Borrower by customers or is otherwise recovered.
Section 7.8 Ownership and Defense of Title. (a) Except for Permitted
Liens, the Borrower shall at all times be the sole owner of each and every item
of Collateral and shall not create any Lien on, or sell, lease, exchange,
assign, transfer, pledge, hypothecate, grant a security interest or security
title in or otherwise dispose of, any of the Collateral or any interest
therein, except for sales of Inventory in the ordinary course of business, for
cash or on open account or on terms of payment ordinarily extended to its
customers and except as otherwise expressly contemplated herein. The inclusion
of "proceeds" of the Collateral under the Security Interest shall not be deemed
a consent by the Lender to any other sale or other disposition of any part or
all of the Collateral.
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(b) The Borrower shall defend its title in and to the Collateral and
shall defend the Security Interest in the Collateral against the claims and
demands of all Persons.
(c) In addition to, and not in derogation of, the foregoing and the
requirements of any of the Security Documents, the Borrower shall (i) protect
and preserve all properties material to its business, including Intellectual
Property and maintain all tangible property in good and workable condition in
all material respects, with reasonable allowance for wear and tear, and (ii)
from time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements and additions to such properties necessary for the
conduct of its business, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
Section 7.9 Insurance. (a) The Borrower shall at all times maintain
insurance on the Inventory and Equipment against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as the Lender shall
reasonably specify, in amounts and under policies issued by insurers acceptable
to the Lender. All premiums on such insurance shall be paid by the Borrower and
copies of the policies delivered to the Lender. The Borrower will not use or
permit the Inventory or Equipment to be used in violation of any applicable law
or in any manner which might render inapplicable any insurance coverage.
(b) All insurance policies required under SECTION 7.9(a) shall name the
Lender as an additional named insured and shall contain "New York standard" loss
payable clauses in the form submitted to the Borrower by the Lender, or
otherwise in form and substance satisfactory to the Lender, naming the Lender as
loss payee as its interests may appear, and providing that (i) all proceeds
thereunder shall be payable to the Lender, (ii) no such insurance shall be
affected by any act or neglect of the insured or owner of the property described
in such policy, and (iii) such policy and loss payable clauses may not be
cancelled, amended or terminated unless at least 30 days' prior written notice
is given to the Lender.
(c) Any proceeds of insurance referred to in this SECTION 7.9 which are
paid to the Lender shall be, at the option of the Lender in its sole discretion,
either (i) applied to rebuild, restore or replace the damaged or destroyed
property, or (ii) applied to the payment or prepayment of the Secured
Obligations.
(d) The Borrower shall at all times maintain, in addition to the
insurance required by SECTION 7.9(a) or any of the Security Documents, insurance
with responsible insurance companies against such risks and in such amounts as
is customarily maintained by similar businesses or as may be required by
applicable law, including such public liability, products liability, third party
property damage and business interruption insurance as is consistent with
reasonable business practices, and from time to time deliver to the Lender upon
its request a detailed list of the insurance then in effect, stating the names
of the insurance companies, the amounts and rates of the insurance, the dates of
the expiration thereof and the properties and risks covered thereby.
Section 7.10 Location of Offices and Collateral. (a) The Borrower will
not change the location of its chief executive office or the place where it
keeps its books and records relating to the Collateral or change its name,
identity or corporate structure without giving the Lender 30 days' prior written
notice thereof.
(b) All Inventory, other than Inventory in transit to any such
location, and all Equipment, other than motor vehicles, will at all times be
kept by the Borrower at one of the locations set forth in SCHEDULES 5.1(u) and
5.1(v), respectively, and shall not, without the prior written consent of the
Lender, be removed therefrom except, so long as no Event of Default shall have
occurred and be continuing, for sales of Inventory permitted under SECTION 7.8.
(c) If any Inventory is in the possession or control of any of the
Borrower's agents or processors, the Borrower shall notify such agents or
processors of the Security Interest and, upon the occurrence of an
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Event of Default, shall instruct them (and cause them to acknowledge such
instruction) to hold all such Inventory for the account of the Lender, subject
to the instructions of the Lender.
Section 7.11 Records Relating to Collateral. (a) The Borrower will at
all times (i) keep complete and accurate records of Inventory on a basis
consistent with past practices of the Borrower, itemizing and describing the
kind, type and quantity of Inventory and the Borrower's cost therefor and a
current price list for such Inventory, and (ii) keep complete and accurate
records of all other Collateral.
(b) The Borrower will take a physical listing of all Inventory,
wherever located, at least annually.
Section 7.12 Inspection. The Lender (by any of its officers, employees
or agents) shall have the right, to the extent that the exercise of such right
shall be within the control of the Borrower, during normal business hours, after
providing one days' notice, to (a) visit the properties of the Borrower, inspect
the Collateral and the other assets of the Borrower and its Subsidiaries and
inspect and make extracts from the books and records of the Borrower and its
Subsidiaries, including, but not limited to, management letters prepared by
independent accountants, all during customary business hours at such premises,
(b) discuss the Borrower's business, assets, liabilities, financial condition,
results of operations and business prospects, insofar as the same are reasonably
related to the rights of the Lender hereunder or under any of the Loan
Documents, with the Borrower's and its Subsidiaries' (i) principal officers,
(ii) independent accountants and other professionals providing services to the
Borrower, and (iii) any other Person (except that any such discussion with any
third parties shall be conducted only in accordance with the Lender's standard
operating procedures relating to the maintenance of confidentiality of
confidential information of borrowers), and (c) verify the amount, quantity,
value and condition of, or any other matter relating to, any of the Collateral
and in this connection to review, audit and make extracts from all records and
files related to any of the Collateral. The Borrower will deliver to the Lender
any instrument necessary to authorize an independent accountant or other
professional to have discussions of the type outlined above with the Lender or
for the Lender to obtain records from any service bureau maintaining records on
behalf of the Borrower.
Section 7.13 Maintenance of Equipment. The Borrower shall maintain all
physical property that constitutes Equipment in good and workable condition in
all material respects, with reasonable allowance for wear and tear, and shall
exercise proper custody over all such property.
Section 7.14 Information and Reports.
(a) Schedule Of Receivables. The Borrower shall deliver to the Lender
(i) on or before the Effective Date, a Schedule of Receivables as of a date not
more than three Business Days prior to the Effective Date setting forth a
detailed aged trial balance of all of its then existing Receivables, specifying
the name of and the balance due from (and any rebate due to) each Account Debtor
obligated on a Receivable so listed, and (ii) no later than 15 days after the
end of each accounting month of the Borrower, a Schedule of Receivables as of
the last Business Day of the Borrower's immediately preceding accounting month
setting forth (A) a detailed aged trial balance of all the Borrower's then
existing Receivables, specifying the name of and the balance due from (and any
rebate due to) each Account Debtor obligated on a Receivable so listed and (B) a
reconciliation to the Schedule of Receivables delivered in respect of the next
preceding accounting month.
(b) Schedule of Inventory. The Borrower shall deliver to the Lender on
or before the Effective Date, and no later than 15 days after the end of each
accounting month of the Borrower thereafter, a Schedule of Inventory as of the
last Business Day of the immediately preceding accounting month of the Borrower,
itemizing and describing the kind, type, quantity and location of Inventory and
the cost thereof.
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(c) Schedule of Equipment. The Borrower shall deliver to the Lender on
or before the Effective Date and thereafter on such subsequent dates as may be
requested by the Lender, a Schedule of Equipment, describing each item of such
Equipment and the location, cost and then current book value thereof.
(d) Borrowing Base Certificate. The Borrower shall deliver to the
Lender not later than two Business Days after the last day of each accounting
week of the Borrower a Borrowing Base Certificate prepared as of the close of
business on the last Business Day of such accounting week.
(e) Certification. Each of the schedules delivered to the Lender
pursuant to this SECTION 7.14 shall be certified by the Chief Financial Officer
or Vice President-Finance of the Borrower to be true, correct and complete as of
the date indicated thereon.
(f) Other Information. The Lender may, in its discretion, from time to
time require the Borrower to deliver the schedules described in Section 7.14(a),
(b), (c) and (d) more or less often and on different schedules than specified in
such Section, and the Borrower will comply with such requests. The Borrower
shall also furnish to the Lender such other information with respect to the
Collateral as the Lender may from time to time reasonably request.
Section 7.15 Power of Attorney. The Borrower hereby appoints the Lender
as its attorney, with power (a) at any time during the existence of a Default or
Event of Default, (i) to endorse the name of the Borrower on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into the Lender's possession, and (ii) to sign the name of the Borrower on
any invoice or bill of lading relating to any Receivables, Inventory or other
Collateral, on any drafts against customers related to letters of credit, on
schedules and assignments of Receivables furnished to the Lender by the
Borrower, on notices of assignment, financing statements and other public
records relating to the perfection or priority of the Security Interest, and (b)
at any time, to sign the name of the Borrower on any verifications of account
and on notices to or from customers.
ARTICLE 8 - AFFIRMATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner provided for in SECTION 12.11, the Borrower
will:
Section 8.1 Preservation of Corporate Existence and Similar Matters.
Preserve and maintain its corporate existence, rights, franchises, licenses and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
Section 8.2 Compliance with Applicable Law. Comply with all applicable
laws relating to the Borrower.
Section 8.3 Conduct of Business. Engage only in businesses in
substantially the same fields as the businesses conducted on the Effective Date.
Section 8.4 Payment of Taxes and Claims. Pay or discharge when due (a)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or upon any properties belonging to it, and (b) all
lawful claims of materialmen, mechanics, carriers, warehousemen and landlords
for labor, materials, supplies and rentals which, if unpaid, might become a Lien
on any properties of the Borrower or such Subsidiary, EXCEPT that this SECTION
8.4 shall not require the payment or discharge of any
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such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings and for which adequate reserves have been
established on the appropriate books.
Section 8.5 Accounting Methods and Financial Records. Maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP consistently
applied.
Section 8.6 Use of Proceeds. (a) Use the proceeds of (i) the Initial
Loans to pay in full the Borrower's secured Indebtedness (other than
Indebtedness secured by Permitted Liens) and to pay the amounts indicated in
SCHEDULE 8.6 to the Persons indicated therein, and (ii) all subsequent Revolving
Credit Loans only for working capital and general business purposes, and
(b) not use any part of such proceeds to purchase or carry, or to
reduce or retire or refinance any credit incurred to purchase or carry, any
margin stock (within the meaning of Regulation G or U of the Board of Governors
of the Federal Reserve System) or for any other purpose which would involve a
violation of such Regulation G or U or Regulation T or X of such Board of
Governors or for any other purpose prohibited by law or by the terms and
conditions of this Agreement.
Section 8.7 Hazardous Waste and Substances: Environmental Requirements.
(a) In addition to, and not in derogation of, the requirements of SECTION 8.2
and of the Security Documents, comply with all laws, governmental standards and
regulations applicable to the Borrower or to any of its assets in respect of
occupational health and safety laws, rules and regulations and Environmental
Laws, promptly notify the Lender of its receipt of any notice of a violation of
any such law, rule, standard or regulation and indemnify and hold the Lender
harmless from all loss, cost, damage, liability, claim and expense incurred by
or imposed upon the Lender on account of the Borrower's failure to perform its
obligations under this SECTION 8.7.
(b) Whenever the Borrower gives notice to the Lender pursuant to this
SECTION 8.7 with respect to a matter that reasonably could be expected to result
in liability to the Borrower in excess of $1,000,000 in the aggregate, the
Borrower shall, at the Lender's request and the Borrower's expense, (i) cause an
independent environmental engineer acceptable to the Lender to conduct such
tests of the site where the noncompliance or alleged noncompliance with
Environmental Laws has occurred and prepare and deliver to the Lender a report
setting forth the results of such tests, a proposed plan to bring the Borrower
into compliance with such Environmental Laws and an estimate of the costs
thereof, and (ii) provide to the Lender a supplemental report of such engineer
whenever the scope of the noncompliance or the response thereto or the estimated
costs thereof shall materially change.
Section 8.8 Accuracy of Information. All written information, reports,
statements and other papers and data furnished to the Lender, whether pursuant
to ARTICLE 9 or any other provision of this Agreement or any of the other Loan
Documents, shall be, at the time the same is so furnished, complete and correct
in all material respects to the extent necessary to give the Lender true and
accurate knowledge of the subject matter.
Section 8.9 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, the Borrower shall
provide promptly to the Lender such revisions or updates to such Schedule(s) as
may be necessary or appropriate to update or correct such Schedule(s); PROVIDED
that no such revisions or updates to any Schedule(s) shall be deemed to have
cured any breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule(s) unless and until the Lender, in its sole
discretion, shall have accepted in writing such revisions or updates to such
Schedule(s).
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Section 8.10 Tax Refund Claim. The Borrower shall promptly, and in any
event on or before December 31, 1996, file with the Internal Revenue Service all
forms necessary for the Tax Refund Claim.
ARTICLE 9 - INFORMATION
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner set forth in SECTION 12.11, the Borrower will
furnish to the Lender at the Lender's Office:
Section 9.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in any event
within 120 days after the end of each fiscal year of the Borrower, copies of the
balance sheet of the Borrower as at the end of such fiscal year and the related
statements of income, shareholders' equity and cash flow for such fiscal year,
in each case setting forth in comparative form the figures for the previous year
of the Borrower and reported on, without qualification, by Arthur Andersen LLP
or other independent certified public accountants selected by the Borrower and
acceptable to the Lender.
(b) Monthly Financial Statements. As soon as available, but in any
event within 30 days after the end of each accounting month of the Borrower,
copies of the unaudited balance sheet of the Borrower as at the end of such
month and the related unaudited income statement for the Borrower for such month
and for the portion of the fiscal year of the Borrower through such month,
certified by the chief financial officer of the Borrower to the best of his
knowledge as presenting fairly the financial condition and results of operations
of the Borrower as at the date thereof and for the periods ended on such date,
subject to normal year end adjustments.
(c) Projected Financial Statements. As soon as available, but in any
event within 30 days prior to the end of each fiscal year of the Borrower,
forecasted financial statements, prepared by the Borrower, consisting of balance
sheets, cash flow statements and income statements of the Borrower, reflecting
projected borrowings hereunder and setting forth the assumptions on which such
forecasted financial statements were prepared, covering the one-year period
until the next fiscal year end.
All such financial statements shall be complete and correct in all material
respects and all such financial statements referred to in clauses (a) and (b)
shall be prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of footnotes) applied consistently
throughout the periods reflected therein.
Section 9.2 Accountants' Certificate. Together with each delivery of
financial statements required by SECTION 9.1(a), a certificate of the
accountants who performed the audit in connection with such statements (a)
stating that they have reviewed this Agreement and that, in making the audit
necessary to the issuance of a report on such financial statements, they have
obtained no knowledge of any Default or Event of Default or, if such accountants
have obtained knowledge of a Default or Event of Default, specifying the nature
and period of existence thereof, and (b) setting forth the calculations
necessary to establish whether or not the Borrower was in compliance with the
covenants contained in SECTIONS 10.1, 10.2, and 10.5 as of the date of such
statements.
The Borrower authorizes the Lender to discuss the financial condition of the
Borrower with the Borrower's independent certified public accountants. The
Borrower shall deliver a letter addressed to such accountants authorizing them
to comply with the provisions of this SECTION 9.2.
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Section 9.3 Officer's Certificate. Together with each delivery of
financial statements required by SECTION 9.1(a) and (b), a certificate of the
Borrower's President or chief financial officer, in the form of EXHIBIT D
attached hereto, (a) stating that, based on an examination sufficient to enable
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 and its
nature, when it occurred, whether it is continuing and the steps being taken by
the Borrower with respect to such Default or Event of Default, and (b) setting
forth the calculations necessary to establish whether or not the Borrower was in
compliance with the covenants contained in SECTIONS 10.1, 10.2, and 10.5 as of
the date of such statements.
Section 9.4 Copies of Other Reports (a) Promptly upon receipt thereof,
copies of all reports, if any, submitted to the Borrower or its Board of
Directors by its independent public accountants, including, without limitation,
all management reports.
(b) From time to time and promptly upon each request, such forecasts,
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities, financial
condition, results of operations or business prospects of the Borrower as the
Lender may reasonably request. The rights of the Lender under this SECTION
9.4(b) are in addition to and not in derogation of its rights under any other
provision of this Agreement or any Loan Document.
(c) If requested by the Lender, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred to in Regulations G and
U, respectively, of the Board of Governors of the Federal Reserve System.
Section 9.5 Notice of Litigation and Other Matters. Prompt notice of:
(a) the commencement, to the extent the Borrower is aware of the same,
of all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating adversely to, or adversely
affecting, the Borrower or any Affiliate of the Borrower or any of their
respective property, assets or businesses which might, singly or in the
aggregate, cause a Default or an Event of Default or have a Materially Adverse
Effect,
(b) any amendment of the articles of incorporation or by-laws of the
Borrower,
(c) any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of the Borrower or any
Affiliate of the Borrower which has had or may have any Materially Adverse
Effect and any change in the executive officers of the Borrower, and
(d) any (i) Default or Event of Default, or (ii) event that constitutes
or that, with the passage of time or giving of notice or both, would constitute
a default or event of default by the Borrower under any material agreement
(other than this Agreement) to which the Borrower is a party or by which the
Borrower or any of its property may be bound if the exercise of remedies
thereunder by the other party to such agreement would have, either individually
or in the aggregate, a Materially Adverse Effect.
Section 9.6 ERISA. As soon as possible and in any event within 30 days
after the Borrower knows, or has reason to know, that:
(a) any Termination Event with respect to a Benefit Plan has occurred
or will occur,
(b) the aggregate present value of the Unfunded Vested Accrued Benefits
under all Plans has increased to an amount in excess of $0, or
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(c) the Borrower is in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan required by reason of
its complete or partial withdrawal (as described in Section 4203 or 4205 of
ERISA) from such Multiemployer Plan,
a certificate of the President or the chief financial officer of the Borrower
setting forth the details of such of the events described in CLAUSES (a) through
(c) as applicable and the action which is proposed to be taken with respect
thereto and, simultaneously with the filing thereof, copies of any notice or
filing which may be required by the PBGC or other agency of the United States
government with respect to such of the events described in CLAUSES (a) through
(c) as applicable.
ARTICLE 10 - NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner set forth in SECTION 12.11, the Borrower will
not directly or indirectly:
Section 10.1 Financial Ratios.
(a) Minimum Tangible Net Worth. Permit the Tangible Net Worth of the
Borrower, as of the end of any fiscal quarter of the Borrower:
(i) from the Effective Date to and including December 30,
1996, to be less than $12,000,000;
(ii) from December 31, 1996 to and including March 30,
1997, to be less than $12,500,000;
(iii) from March 31, 1997 to and including June 29, 1997,
to be less than $13,100,000;
(iv) from June 30, 1997 to and including September 29,
1997, to be less than $13,600,000;
(v) from September 30, 1997 to and including December 30,
1997, to be less than $14,100,000;
(vi) from December 31, 1997 to and including March 30,
1998, to be less than $14,800,000;
(vii) from March 31, 1998 to and including June 30, 1998,
to be less than $15,600,000; and
(viii) thereafter, to be less than 75% of the Borrower's Net
Income for the immediately preceding fiscal quarter
plus the minimum Tangible Net Worth requirement as of
the last day of such immediately preceding fiscal
quarter.
(b) Minimum Interest Coverage Ratio. Permit the ratio of (i) the
Borrower's Adjusted EBITDA to (ii) the Borrower's Interest Expense, as of the
end of each fiscal quarter of the Borrower, measured for the immediately
preceding four fiscal quarters, to be less than:
(A) 1.25 to 1 as of December 31, 1996 and March 31, 1997;
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(B) 2.25 to 1 as of June 30, 1997, September 30, 1997 and
December 31, 1997; and
(C) 3.0 to 1 as of the end of each fiscal quarter
thereafter.
(c) Minimum Funded Indebtedness Ratio. Permit the ratio of (i) the
Borrower's Senior Funded Indebtedness to (ii) the Borrower's Adjusted EBITDA, as
of the end of each fiscal quarter of the Borrower, measured for the immediately
preceding four fiscal quarters, to be greater than:
(A) 5.5 to 1 as of each fiscal quarter ending after
December 31, 1996 and on or prior to March 30, 1998;
(B) 3.5 to 1 as of each fiscal quarter ending on or after
March 31, 1998 but on or prior to March 30, 1999; and
(C) 3.0 to 1 as of each fiscal quarter ending thereafter.
(d) Minimum Fixed Charge Coverage Ratio. Permit the ratio of (i) the
Borrower's Adjusted EBITDA less Capital Expenditures less taxes paid, to (ii)
the Borrower's principal payments on Senior Funded Indebtedness plus Interest
Expense, as of the end of each fiscal quarter of the Borrower, measured for the
immediately preceding four fiscal quarters, to be less than:
(A) 1.0 to 1 as of December 31, 1996, March 31, 1997,
June 30, 1996 and September 30, 1997;
(B) 1.50 to 1 as of December 31, 1997; and
(C) 1.75 to 1 as of the end of each fiscal quarter
thereafter.
Section 10.2 Indebtedness. Create, assume, or otherwise become or
remain obligated in respect of, or permit or suffer to exist or to be created,
assumed or incurred or to be outstanding any Indebtedness for Money Borrowed,
except for Permitted Indebtedness for Money Borrowed.
Section 10. 3 Guaranties. Become or remain liable with respect to any
Guaranty of any obligation of any other Person.
Section 10.4 Investments. Acquire, after the Agreement Date, any
Business Unit or Investment or, after such date, permit any Investment to be
outstanding, other than Permitted Investments; provided, however, the Lender
shall in good faith consider any proposed acquisition of a Business Unit or
Investment in substantially the same line of business of the Borrower.
Section 10.5 Capital Expenditures. Make or incur any Capital
Expenditures, except that the Borrower may make or incur Capital Expenditures in
an amount not to exceed, in the aggregate, $1,500,000 in any fiscal year.
Section 10.6 Restricted Distributions and Payments, Etc. Declare or
make any Restricted Distribution or Restricted Payment, except that so long as
no Default or Event of Default shall have occurred and be continuing or would
result therefrom, the Borrower may (a) make payments on the Subordinated
Indebtedness (including "earn-out" payments due National Data Products, Inc.
under Section 2.2 of the Asset Purchase Agreement dated as of November 17, 1994
among the Borrower, National Data Products, Inc. and the Shareholder Indemnitors
named therein) to the extent permitted by the Subordination Agreements or the
other subordination provisions applicable thereto, (b) make cash dividends and
distributions, and redeem shares
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of its capital stock for cash, in an aggregate amount not to exceed $1,000,000
in any fiscal year, if, immediately after making any such dividend, distribution
or redemption, Availability equals or exceeds $1,000,000, and (c) convert any
Subordinated Indebtedness into stock of the Borrower, provided no distribution
of cash or other consideration (other than stock) is made to any such converting
holder of Subordinated Indebtedness.
Section 10.7 Merger, Consolidation and Sale of Assets. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person.
Section 10.8 Transactions with Affiliates. Effect any transaction with
any Affiliate on a basis less favorable to the Borrower than would be the case
if such transaction had been effected with a Person not an Affiliate.
Section 10.9 Liens. Create, assume or permit or suffer to exist or
to be created or assumed any Lien on any of the property or assets of
the Borrower, real, personal or mixed, tangible or intangible, except for
Permitted Liens.
Section 10.10 Operating Leases. Enter into any lease other than a
Capitalized Lease which would cause the annual payment obligations of the
Borrower under all leases (other than leases of real property in effect on the
Effective Date (and renewals and substitutions therefor) and Capitalized Leases)
to exceed $1,000,000 in the aggregate.
Section 10.11 Benefit Plans. Permit, or take any action which would
result in, the aggregate present value of the Unfunded Vested Accrued Benefits
under all Benefit Plans of the Borrower to exceed $0.
Section 10.12 Sales and Leasebacks. Enter into any arrangement with any
Person providing for the leasing from such Person of real or personal property
which has been or is to be sold or transferred, directly or indirectly, by the
Borrower to such Person.
Section 10.13 Amendments of Other Agreements. Amend in any way (a) the
interest rate or principal amount or schedule of payments of principal and
interest with respect to any Indebtedness (other than the Secured Obligations)
other than to reduce the interest rate or extend the schedule of payments with
respect thereto, or (b) any material provision of the Escrow Account Agreement
or the provisions of any Sale Agreement applicable to the Escrow Account or the
Vanstar Payments.
Section 10.14 Minimum Availability. Permit Availability to be less than
$500,000 at any time.
ARTICLE 11 - DEFAULT
Section 11.1 Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body:
(a) Default in Payment of Loans. The Borrower shall default in any
payment of principal of, or interest on, any Loan or Note when and as
due (whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the payment,
as and when due, of principal of or interest on, any other Secured Obligation,
and such default shall continue for ten days after written notice thereof has
been given to the Borrower by the Lender.
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(c) Misrepresentation. Any representation or warranty made (or deemed
to be made under SECTION 4.2) by the Borrower under this Agreement or any other
Loan Document or any amendment hereto or thereto shall at any time prove to have
been incorrect or misleading in any material respect when made.
(d) Default in Performance. The Borrower shall default (i) in the
performance or observance of any term, covenant, condition or agreement
contained in ARTICLES 6, 7, 8, 9 or 10; or (ii) in the performance or observance
of any term, covenant, condition or agreement contained in any other provision
of this Agreement (other than as specifically provided for otherwise in this
SECTION 11.1) and such default shall continue for a period of 30 days after
written notice thereof has been given to the Borrower by the Lender.
(e) Indebtedness Cross-Default. (i) The Borrower shall fail to pay when
due and payable the principal of or interest on any Indebtedness under the
Inventory Financing Agreement or on any other Indebtedness (other than the Loans
or Note) where the principal amount of such Indebtedness is in excess of
$100,000, or (ii) the maturity of any such Indebtedness shall have (A) been
accelerated in accordance with the provisions of any indenture, contract or
instrument providing for the creation of or concerning such Indebtedness, or (B)
been required to be prepaid prior to the stated maturity thereof, or (iii) any
event shall have occurred and be continuing which, with or without the passage
of time or the giving of notice, or both, would permit any holder or holders of
such Indebtedness, any trustee or agent acting on behalf of such holder or
holders or any other Person so to accelerate such maturity.
(f) Other Cross-Defaults. The Borrower shall default in the payment
when due or in the performance or observance of any material obligation or
condition of any agreement, contract or lease (other than the Security Documents
or any such agreement, contract or lease relating to Indebtedness), if the
exercise of remedies thereunder by the other party to such agreement could have
a Materially Adverse Effect.
(g) Voluntary Bankruptcy Proceeding. Any Obligor shall (i) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (ii) commence a proceeding seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
up or composition for adjustment of debts, (iii) consent to or fail to contest
in a timely and appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws, (iv) apply for or
consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of a substantial part of its property, domestic or
foreign, (v) admit in writing its inability to pay its debts as they become due,
(vi) make a general assignment for the benefit of creditors, or (vii) take any
corporate action for the purpose of authorizing any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding shall
be commenced against any Obligor in any court of competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as now or hereafter in effect) or
under any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts, or (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of any Obligor or of all or
any substantial part of the assets, domestic or foreign, of any Obligor, and
such case or proceeding shall continue undismissed or unstayed for a period of
60 consecutive calendar days, or an order granting the relief requested in such
case or proceeding against any Obligor (including, but not limited to, an order
for relief under such federal bankruptcy laws) shall be entered.
(i) Loan Documents. Any event of default or Event of Default under any
other Loan Document shall occur or any Obligor shall default in the performance
or observance of any material term, covenant, condition or agreement contained
in, or the payment of any other sum covenanted to be paid by any Obligor under,
any such Loan Document; or any provision of this Agreement, or of any other Loan
Document after delivery thereof hereunder, shall for any reason cease to be
valid and binding, other than a nonmaterial provision rendered unenforceable by
operation of law, or any Obligor or other party thereto (other than the
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Lender) shall so state in writing; or this Agreement or any other Loan Document,
after delivery thereof hereunder, shall for any reason (other than any action
taken independently by the Lender and except to the extent permitted by the
terms thereof) cease to create a valid, perfected and, except as otherwise
expressly permitted herein, first priority Lien on, or security interest in, any
of the Collateral purported to be covered thereby.
(j) Judgment. A judgment or order for the payment of money which
exceeds $100,000 in amount shall be entered against any Obligor by any court and
such judgment or order shall continue discharged or unstayed for 30 days.
(k) Attachment. A warrant or writ of attachment or execution or similar
process which exceeds $100,000 in value shall be issued against any property of
any Obligor and such warrant or process shall continue undischarged or unstayed
for 30 days.
(l) ERISA. (i) Any Termination Event with respect to a Benefit Plan
shall occur that, after taking into account the excess, if any, of (A) the fair
market value of the assets of any other Benefit Plan with respect to which a
Termination Event occurs on the same day (but only to the extent that such
excess is the property of the Borrower) over (B) the present value on such day
of all vested nonforfeitable benefits under such other Benefit Plan, results in
an Unfunded Vested Accrued Benefit in excess of $0, (ii) any Benefit Plan shall
incur an "accumulated funding deficiency" (as defined in Section 412 of the Code
or Section 302 of ERISA) for which a waiver has not been obtained in accordance
with the applicable provisions of the Code and ERISA, or (iii) the Borrower is
in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to
payments to a Multiemployer Plan resulting from the Borrower's complete or
partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer Plan.
(m) Qualified Audits. The independent certified public accountants
retained by the Borrower shall refuse to deliver an opinion in accordance with
SECTION 9.1(a) with respect to the annual financial statements of the Borrower.
(n) Change of Control. A Person or "group" of Persons (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules promulgated thereunder) shall acquire, beneficially or of record, 33%
or more of the outstanding capital stock of the Borrower.
(o) Material Adverse Change. There occurs any act, omission, event,
undertaking or circumstance or series of acts, omissions, events, undertakings
or circumstances which have, or in the sole judgment of the Lender would have,
either individually or in the aggregate, a Materially Adverse Effect.
(p) Change in Management. Anthony Lembo shall for any reason cease to
be the President of the Borrower and 120 days shall have elapsed during which
time no replacement satisfactory to the Lender shall have been appointed.
Section 11.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon the
occurrence of an Event of Default specified in SECTION 11.1(g) or (h), (i) the
principal of and the interest on the Loans and the Notes at the time
outstanding, and all other amounts owed to the Lender under this Agreement or
any of the Loan Documents and all other Secured Obligations, shall thereupon
become due and payable without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in this Agreement or any
of the Loan Documents to the contrary notwithstanding, and (ii) the Revolving
Credit Facility and the commitment of the Lender to make advances thereunder or
under this Agreement shall immediately terminate.
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(b) Other Remedies. If any Event of Default (other than as specified in
SECTION 11.1(g) or (h)) shall have occurred and be continuing, the Lender, in
its sole and absolute discretion, may do any of the following:
(i) declare the principal of and interest on the Loans and the
Notes at the time outstanding, and all other amounts owed to the Lender
under this Agreement or any of the Loan Documents and all other Secured
Obligations, to be forthwith due and payable, whereupon the same shall
immediately become due and payable without presentment, demand, protest
or other notice of any kind, all of which are expressly waived,
anything in this Agreement or the Loan Documents to the contrary
notwithstanding;
(ii) terminate the Revolving Credit Facility and any
commitment of the Leader to make advances hereunder;
(c) Further Remedies. If any Event of Default shall have occurred and
be continuing, the Lender, in its sole and absolute discretion, may do any of
the following:
(i) notify, or request the Borrower to notify, in writing or
otherwise, any Account Debtor or obligor with respect to any one or
more of the Receivables to make payment to the Lender or any agent or
designee of the Lender, at such address as may be specified by the
Lender, and, if, notwithstanding the giving of any notice, any Account
Debtor or other such obligor shall make payments to the Borrower, the
Borrower shall hold all such payments it receives in trust for the
Lender, without commingling the same with other funds or property of,
or held by, the Borrower and shall deliver the same to the Lender or
any such agent or designee immediately upon receipt by the Borrower in
the identical form received, together with any necessary endorsements;
(i) settle or adjust disputes and claims directly with Account
Debtors and other obligors on Receivables for amounts and on terms
which the Lender considers advisable and in all such cases only the net
amounts received by the Lender in payment of such amounts, after
deductions of costs and attorneys' fees, shall constitute Collateral,
and the Borrower shall have no further right to make any such
settlements or adjustments or to accept any returns of merchandise;
(iii) enter upon any premises on which Inventory or Equipment
may be located and, without resistance or interference by the Borrower,
take physical possession of any or all thereof and maintain such
possession on such premises or move the same or any part thereof to
such other place or places as the Lender shall choose, without being
liable to the Borrower on account of any loss, damage or depreciation
that may occur as a result thereof, so long as the Lender shall act
reasonably and in good faith;
(iv) require the Borrower to and the Borrower shall, without
charge to the Lender, assemble the Inventory and Equipment and maintain
or deliver it into the possession of the Lender or any agent or
representative of the Lender at such place or places as the Lender may
designate;
(v) at the expense of the Borrower, cause any of the Inventory
and Equipment to be placed in a public or field warehouse, and the
Lender shall not be liable to the Borrower on account of any loss,
damage or depreciation that may occur as a result thereof, so long as
the Lender shall act reasonably and in good faith;
(vi) without notice, demand or other process, and without
payment of any rent or any other charge, enter any of the Borrower's
premises and, without breach of the peace, until the Lender completes
the enforcement of its rights in the Collateral, take possession of
such premises or place
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custodians in exclusive control thereof, remain on such premises and
use the same and any of the Borrower's equipment, for the purpose of
(A) completing any work in process, preparing any Inventory for
disposition and disposing thereof, and (B) collecting any Receivable,
and the Lender is hereby granted a license or sublicense and all other
rights as may be necessary, appropriate or desirable to use the
Intellectual Property in connection with the foregoing, and the rights
of the Borrower under all licenses and franchise agreements shall inure
to the Lender's benefit (provided, however, that any use of any
federally registered trademarks as to any goods shall be subject to the
control as to the quality of such goods of the owner of such trademarks
and the goodwill of the business symbolized thereby);
(vii) exercise any and all of its rights under any and all of
the Security Documents;
(viii) apply any cash Collateral to the payment of the Secured
Obligations in any order in which the Lender may elect or use such cash
in connection with the exercise of any of its other rights hereunder or
under any of the Security Documents,
(ix) establish or cause to be established one or more
Lockboxes or other arrangement for the deposit of proceeds of
Receivables, and, in such case, the Borrower shall cause to be
forwarded to the Lender at the Lender's Office, on a daily basis,
copies of all checks and other items of payment and deposit slips
related thereto deposited in such Lockboxes, together with collection
reports in form and substance satisfactory to the Lender; and
(x) exercise all of the rights and remedies of a secured party
under the UCC (whether or not the UCC is applicable) and under any
other applicable law, including, without limitation, the right,
without notice except as specified below and with or without taking
the possession thereof, to sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any location chosen
by the Lender, for cash, on credit or for future delivery and at such
price or prices and upon such other terms as the Lender may deem
commercially reasonable. The Borrower agrees that, to the extent
notice of sale shall be required by law, at least 10 days' notice to
the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notice, but notice given in any other reasonable manner or at any
other reasonable time shall also constitute reasonable notification.
The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may adjourn
any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
Section 11.3 Application of Proceeds. All proceeds from each sale of,
or other realization upon, all or any part of the Collateral following an Event
of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including attorneys' fees,
(b) Second: to the payment of the Secured Obligations (with the
Borrower remaining liable for any deficiency) in any order which the Lender may
elect,
(c) Third: to the creation of a fund in an amount equal to the Letter
of Credit Reserve, which fund shall be held by the Lender as security for and
applied to the payment of any amounts which may thereafter become due under the
Letter of Credit Facility, and
(d) Fourth: the balance (if any) of such proceeds shall be paid to the
Borrower or, subject to any duty imposed by law or otherwise, to whomsoever is
entitled thereto.
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THE BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
Section 11.4 Power of Attorney. In addition to the authorizations
granted to the Lender under SECTION 7.15 or under any other provision of this
Agreement or any of the Loan Documents, upon and after an Event of Default, the
Borrower hereby irrevocably designates, makes, constitutes and appoints the
Lender (and all Persons designated by the Lender from time to time) as the
Borrower's true and lawful attorney and agent in fact, and the Lender or any
agent of the Lender may, for the purpose of satisfying the Secured Obligations,
without notice to the Borrower, and at such time or times as the Lender or any
such agent in its sole discretion may determine, in the name of the Borrower or
the Lender,
(a) demand payment of the Receivables, enforce payment thereof by legal
proceedings or otherwise, settle, adjust, compromise, extend or renew any or all
of the Receivables or any legal proceedings brought to collect the Receivables,
discharge and release the Receivables or any of them and exercise all of the
Borrower's rights and remedies with respect to the collection of Receivables,
(b) prepare, file and sign the name of the Borrower on any proof of
claim in bankruptcy or any similar document against any Account Debtor or any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral,
(c) endorse the name of the Borrower upon any chattel paper, document,
instrument, notice, freight bill, bill of lading or similar document or
agreement relating to the Receivables, the Inventory or any other Collateral,
(d) use the stationery of the Borrower, open the Borrower's mail,
notify the post office authorities to change the address for delivery of the
Borrower's mail to an address designated by the Lender and sign the name of the
Borrower to verifications of the Receivables and on any notice to the Account
Debtors,
(e) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Receivables,
Inventory or other Collateral to which the Borrower or any Subsidiary of the
Borrower has access.
Section 11.5 Miscellaneous Provisions Concerning Remedies.
(a) Rights Cumulative. The rights and remedies of the Lender under this
Agreement, the Note and each of the Loan Documents shall be cumulative and not
exclusive of any rights or remedies which it or they would otherwise have. In
exercising such Rights and remedies, the Lender may be selective and no failure
or delay by the Lender in exercising any right shall operate as a waiver of such
right nor shall any single or partial exercise of any power or right preclude
its other or further exercise or the exercise of any other power or right.
(b) Waiver of Marshalling. The Borrower hereby waives any right to
require any marshalling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this ARTICLE 11 or
elsewhere in this Agreement or in any of the Loan Documents shall be construed
as requiring or obligating the Lender or any agent or designee of the Lender to
make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or notice or take any
action with respect to any
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<PAGE> 54
AFFIDAVIT REGARDING DELIVERY
(attach to note or other written
obligation to pay money)
I, Stuart Hall, hereby certify that I am a Vice President of
NationsBank, N.A. (South) and that the foregoing was executed and delivered to
me as a representative of NationsBank, N.A. (South) by Anthony Lemb, as
President of DataFlex Corporation, in the State of Georgia, County of Fulton on
December 15, 1996 in the presence of the undersigned notary public.
/s/ Stuart Hall
----------------------------------------
Signature of Officer or Agent of Lender
On this the 18 day of December, 1996, before me, the undersigned a
Notary Public in and for the State of Georgia, County of Fulton, personally
known to me or proved to me on the basis of satisfactory evidence to be a Vice
President of NationsBank, N.A. (South), who executed the foregoing affidavit on
behalf of such national banking association and acknowledged to me that such
national banking association executed the foregoing pursuant to its by-laws or a
resolution of its board of directors, said execution taking place in the State
of Georgia, County of Fulton.
/s/ Stephanie Shaw
- ------------------------------
Notary Signature
My Commission Expires: 6/17/00
- ------------------------------
[Affix Notarial Seal]
<PAGE> 55
Receivable or any other Collateral or the moneys due or to become due thereunder
or in connection therewith or to take any steps necessary to preserve any rights
against prior parties, and neither the Lender nor any of its agents or designees
shall have any liability to the Borrower for actions taken pursuant to this
ARTICLE 11, any other provision of this Agreement or any of the Loan Documents,
so long as the Lender or such agent or designee shall act reasonably and in good
faith.
(d) Appointment of Receiver. In any action under this ARTICLE 11, the
Lender shall be entitled to the appointment of a receiver, without notice of any
kind whatsoever, to take possession of all or any portion of the Collateral and
to exercise such power as the court shall confer upon such receiver.
Section 11.6 Trademark License. The Borrower hereby grants to the
Lender the nonexclusive right and license to use any trademark then used by the
Borrower, for the purposes set forth in SECTION 11.2(c)(vi) and for the purpose
of enabling the Lender to realize on the Collateral and to permit any purchaser
of any portion of the Collateral through a foreclosure sale or any other
exercise of the Lender's rights and remedies under the Loan Documents to use,
sell or otherwise dispose of the Collateral bearing any such trademark. Such
right and license is granted free of charge, without the requirement that any
monetary payment whatsoever be made to the Borrower or any other Person by the
Lender. The Borrower hereby represents, warrants, covenants and agrees that it
presently has, and shall continue to have, the right, without the approval or
consent of others, to grant the license set forth in this SECTION 11.6.
ARTICLE 12 - MISCELLANEOUS
Section 12.1 Notices.
(a) Method of Communication. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and the communications
hereunder and thereunder shall be in writing or by telephone subsequently
confirmed in writing. Notices in writing shall be delivered personally or sent
by overnight courier service, by certified or registered mail, postage pre-paid,
or by facsimile transmission and shall be deemed received, in the case of
personal delivery, when delivered, in the case of overnight courier service, on
the next Business Day after delivery to such service, in the case of mailing, on
the third day after mailing (or, if such day is a day on which deliveries of
mail are not made, on the next succeeding day on which deliveries of mail are
made) and, in the case of facsimile transmission, upon transmittal; provided
that in the case of notices to the Lender, the Lender shall be charged with
knowledge of the contents thereof only when such notice is actually received by
the Lender. A telephonic notice to the Lender as understood by the Lender will
be deemed to be the controlling and proper notice on the event of a discrepancy
with or failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address of which all the other parties are
notified in writing.
If to the Borrower: Dataflex Corporation
2145 Calumet Street
Clearwater, Florida 34625
Attention: Debbe Medley
Facsimile No.: (813) 562-2243
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<PAGE> 56
If to the Lender: NationsBank, N.A. (South)
c/o NationsBank Business Credit
600 Peachtree Street, l3th Floor
Atlanta, Georgia 30308
Attention: Stuart A. Hall, VP
Facsimile No.: (404) 607-6439
(c) Lender's Office. The Lender hereby designates its office located at
600 Peachtree Street, l3th Floor, Atlanta, Georgia 30308, or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrower, as the office to which payments due are to be made and at which Loans
will be disbursed.
Section 12.2 Expenses. The Borrower agrees to pay or reimburse on
demand all reasonable costs and expenses incurred by the Lender, including,
without limitation, the reasonable fees and disbursements of counsel, in
connection with (a) the negotiation, preparation, execution, delivery,
enforcement and termination of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including, without
limitation, (i) the costs and expenses of appraisals of the Collateral, (ii) the
costs and expenses of lien searches, and (iii) taxes, fees and other charges of
filing the Financing Statements and continuations and the costs and expenses of
taking other actions to perfect, protect, and continue the Security Interest;
(b) the preparation, execution and delivery of any waiver, amendment, supplement
or consent by the Lender relating to this Agreement or any of the Loan
Documents; (c) sums paid or obligations incurred in connection with the payment
of any amount or taking any action required of the Borrower under the Loan
Documents that the Borrower fails to pay or take; (d) if an Event of Default
exists, costs of inspections and verifications of the Collateral, including,
without limitation, standard per diem fees charged by the Lender for travel,
lodging, and meals for inspections of the Collateral and the Borrower's
operations and books and records by the Lender's agents; (e) costs and expenses
of forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining each Disbursement Account, Agency Account and
Lockbox; (f) costs and expenses of preserving and protecting the Collateral;
(g) after the occurrence of a Default, consulting with and obtaining opinions
and appraisals front one or more Persons, including personal property
appraisers, accountants and lawyers, concerning the value of any Collateral for
the Secured Obligations or related to the nature, scope or value of any right
or remedy of the Lender hereunder or under any of the Loan Documents, including
any review of factual matters in connection therewith, which expenses shall
include the fees and disbursements of such Persons; and (h) costs and expenses
paid or incurred to obtain payment of the Secured Obligations, enforce the
Security Interest, sell or otherwise realize upon the Collateral, and otherwise
enforce the provisions of the Loan Documents, or to prosecute or defend any
claim in any way arising out of, related to or connected with, this Agreement
or any of the Loan Documents, which expenses shall include the reasonable fees
and disbursements of counsel and of experts and other consultants retained by
the Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrower. The Borrower
hereby authorizes the Lender to debit the Borrower's loan accounts (by
increasing the principal amount of the Revolving Credit Loan) in the amount of
any such costs and expenses owed by the Borrower when due.
Section 12.3 Stamp and Other Taxes. The Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Lender against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges, which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any of
the Loan Documents or the perfection of any rights or security interest
thereunder.
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Section 12.4 Setoff. In addition to any rights now or hereafter granted
under a applicable law, and not by way of limitation of any such rights, upon
and after the occurrence of any Default or Event of Default, the Lender and any
participant with the Lender in the Loan are hereby authorized by the Borrower at
any time or from time to time, without notice to the Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured) and any other indebtedness at any time
held or owing by the Lender or any participant to or for the credit or the
account of the Borrower against and on account of the Secured Obligations
irrespective or whether or not (a) the Lender shall have made any demand under
this Agreement or any of the Loan Documents, or (b) the Lender shall have
declared any or all of the Secured Obligations to be due and payable as
permitted by SECTION 11.2 and although such Secured Obligations shall be
continent or unmatured.
Section 12.5 Litigation. EACH OF THE LENDER AND THE BORROWER HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE
COMMENCED BY OR AGAINST THE BORROWER OR THE LENDER ARISING OUT OF THIS
AGREEMENT, THE COLLATERAL OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER
CAUSE OR DISPUTE WHATSOEVER BETWEEN THE BORROWER AND THE LENDER OF ANY KIND OR
NATURE. THE BORROWER AND THE LENDER HEREBY AGREE THAT THE FEDERAL COURT OF THE
NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE LENDER, ANY COURT IN WHICH
THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND WHICH SITS IN A
JURISDICTION IN WHICH THE BORROWER TRANSACTS BUSINESS SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE BORROWER
AND THE LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE LOAN
DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE BORROWER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR
OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE BORROWER AT THE ADDRESS SET FORTH IN SECTION 12.1(b),
WHICH SERVICE SHALL BE DEEMED MADE UPON RECEIPT THEREOF. THE NON EXCLUSIVE
CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION.
Section 12.6 Waiver of Rights. THE BORROWER HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH THE BORROWER HAS UNDER
CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR
PROVISION OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE
ISSUANCE OF A WRIT OF POSSESSION ENTITLING THE LENDER, ITS SUCCESSORS AND
ASSIGNS TO POSSESSION OF THE COLLATERAL UPON DEFAULT OR EVENT OF DEFAULT.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER
RIGHT WHICH THE LENDER MAY HAVE, THE BORROWER CONSENTS THAT, IF THE LENDER FILES
A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH SECTIONS
44-14-261 AND 44-14-262 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR
PROVISION OF APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH
PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY
DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE
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FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH CHAPTER 14 OF TITLE
44 OF THE OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE WITH ANY SIMILAR PROVISION
OF APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND AS OTHERWISE
REQUIRED BY SECTION 44-14-263 OF THE OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE
WITH ANY SIMILAR PROVISION OF APPLICABLE LAW. THE BORROWER HEREBY ACKNOWLEDGES
THAT IT HAS READ AND FULLY UNDERSTANDS THE TERMS OF THIS WAIVER AND THE EFFECT
HEREOF.
Section 12.7 Reversal of Payments. To the extent the Borrower makes a
payment or payments to the Lender or the Lender receives any payment or proceeds
of the Collateral for the Borrower's benefit, which payment(s) or proceeds or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then, the Lender shall have the continuing and exclusive right
to apply, reverse and re-apply any and all payments to any portion of the
Secured Obligations, and, to the extent of such payment or proceeds received,
the Secured Obligations or part thereof intended to be satisfied shall be
revived and continued in full force and effect, as if such payment or proceeds
had not been received by the Lender.
Section 12.8 Injunctive Relief. The Borrower recognizes that, in the
event the Borrower fails to perform, observe or discharge any of its obligations
or liabilities under this Agreement, any remedy of law may prove to be
inadequate relief to the Lender; therefore, the Borrower agrees that the Lender,
at the Lender's option, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
Section 12.9 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower to determine whether it is in compliance with any covenant contained
herein, shall, unless there is an express written direction or consent by the
Lender to the contrary, be performed in accordance with GAAP.
Section 12.10 Assignment: Participation. All the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights under this Agreement. The Lender may assign
to one or more Persons, or sell participations to one or more Persons in, all or
a portion of its rights and obligations hereunder and under the Note and, in
connection with any such assignment or sale of a participation, may assign its
rights and obligations under the Security Documents. The Lender may, in
connection with any assignment or proposed assignment or sale or proposed sale
of a participation, disclose to the assignee or proposed assignee or participant
or proposed participant any information relating to the Borrower furnished to
the Lender by or on behalf of the Borrower, provided any such proposed
participant or assignee agrees to preserve the confidentiality of any
confidential information relating to the Borrower received from the Lender.
Section 12.11 Amendments. Any term, covenant, agreement or condition
of this Agreement or any of the other Loan Documents may be amended or waived
and any departure therefrom may be consented to if, but only if, such
amendment, waiver or consent is in writing signed by the Lender and, in the
case of an amendment, by the Borrower. Unless otherwise specified in such
waiver or consent, a waiver or consent given hereunder shall be effective only
in the specific instance and for the specific purpose for which given.
Section 12.12 Performance of Borrower's Duties. The Borrower's
obligations under this Agreement and each of the Loan Documents shall be
performed by the Borrower at its sole cost and expense. If the Borrower shall
fail to do any act or thing which it has covenanted to do under this Agreement
or any of the Loan Documents, the Lender may (but shall not be obligated to) do
the same or cause it to be done either in
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the name of the Lender or in the name and on behalf of the Borrower, and the
Borrower hereby irrevocably authorizes the Lender so to act.
Section 12.13 Indemnification. The Borrower agrees to reimburse the
Lender for all reasonable costs and expenses, including counsel fees and
disbursements, incurred and to indemnify and hold the Lender harmless from and
against all losses suffered by the Lender, other than losses resulting from the
Lender's gross negligence or willful misconduct, in connection with (a) the
exercise by the Lender of any right or remedy granted to it under this Agreement
or any of the Loan Documents, (b) any claim, and the prosecution or defense
thereof, arising out of or in any way connected with this Agreement or any of
the Loan Documents, except in the case of a dispute between the Borrower and the
Lender in which the Borrower prevails in a final unappealed or unappealable
judgment, and (c) the collection or enforcement of the Secured Obligations or
any of them.
Section 12.14 All Powers Coupled with Interest. All powers of attorney
and other authorizations granted to the Lender and any Persons designated by the
Lender pursuant to any provisions of this Agreement or any of the Loan Documents
shall be deemed coupled with an interest and shall be irrevocable so long as any
of the Secured Obligations remain unpaid or unsatisfied or the Revolving Credit
Facility has not been terminated.
Section 12.15 Survival. Notwithstanding any termination of this
Agreement, (a) until all Secured Obligations have been paid in full and the
Revolving Credit Facility terminated, the Lender shall retain its Security
Interest and shall retain all rights under this Agreement and each of the
Security Documents with respect to the Collateral as fully as though this
Agreement had not been terminated, and (b) the indemnities to which the Lender
is entitled under the provisions of this ARTICLE 12 and any other provision of
this Agreement and the Loan Documents shall continue in full force and effect
and shall protect the Lender against events arising after such termination as
well as before.
Section 12.16 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 12.17 Governing Law. This Agreement and the Note shall be
construed in accordance with and governed by the law of the State of Georgia.
Section 12.18 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
Section 12.19 Reproduction of Documents. This Agreement, each of the
Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Lender, and (c) financial statements,
certificates and other information previously or hereafter furnished to the
Leader, may be reproduced by the Lender by any photographic, photostatic,
microcard, microfilm, miniature photographic or other similar process, and the
Lender may destroy any original document so reproduced. Each party hereto
stipulates that, to the extent permitted by applicable laws any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be in
existence and whether or not such reproduction was made by such Lender in the
regular course of business), and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
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Section 12.20 Funds Transfer Services.
(a) The Borrower acknowledges that the Lender has made available to it
a description of security procedures regarding funds transfers executed by the
Lender or an affiliate bank at the request of such Borrower (the "Security
Procedures"). The Borrower and the Lender agree that the Security Procedures are
commercially reasonable. The Borrower further acknowledges that the full scope
of the Security Procedures which the Lender or such affiliate bank offers and
strongly recommends for funds transfers is available only if the Borrower
communicates directly with the Lender or such affiliate bank as applicable in
accordance with said procedures. If the Borrower attempts to communicate by any
other method or otherwise not in accordance with the Security Procedures, the
Lender or such affiliate bank, as applicable, shall not be required to execute
such instructions, but if the Lender or such affiliate bank, as applicable, does
so, the Borrower will be deemed to have refused the Security Procedures that the
Lender or such affiliate bank, as applicable, offers and strongly recommends,
and the Borrower will be bound by any funds transfer, whether or not authorized,
which is issued in the Borrower's name and accepted by the Lender or such
affiliate bank, as applicable, in good faith. The Lender or such affiliate bank,
as applicable, may modify the Security Procedures at such time or times and in
such manner as the Lender or such affiliate bank, as applicable, in its sole
discretion, deems appropriate to meet prevailing standards of good banking
practice. By continuing to use the Lender's or such affiliate bank's, as
applicable. wire transfer services after receipt of any modification of the
Security Procedures, the Borrower agrees that the Security Procedures, as
modified, are likewise commercially reasonable. The Borrower further agrees to
establish and maintain procedures to safeguard the Security Procedures and any
information related thereto.
(b) The Lender or such affiliate bank, as applicable, will generally
use the Fedwire funds transfer system for domestic funds transfers, and the
funds transfer system operated by the Society for Worldwide International
Financial Telecommunication (SWIFT) for international funds transfers.
International funds transfers may also be initiated through the Clearing House
InterBank Payment System (CHIPs) or international cable. However, the Lender or
such affiliate bank, as applicable, may use any means and routes that the Lender
or such affiliate bank, as applicable, in its sole discretion, may consider
suitable for the transmission of funds. Each payment order, or cancellation
thereof, carried out through a funds transfer system or a clearing house will be
governed by all applicable funds transfer system rules and clearing house rules
and clearing arrangements, whether or not the Lender or such affiliate bank, as
applicable, is a member of the system, clearing house or arrangement and the
Borrower acknowledges that the Lender's or such affiliate bank's, as applicable,
right to reverse, adjust, stop payment or delay posting of an executed payment
order is subject to the laws, regulations, rules, circulars and arrangements
described herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Atlanta, Georgia by their duly authorized officers in several
counterparts all as of the day and year first written above.
BORROWER:
DATAFLEX CORPORATION
By: /s/ Anthony G. Lembo
-------------------------------------
Name: ANTHONY G. LEMBO
--------------------------------
Title: PRESIDENT
-------------------------------
[CORPORATE SEAL]
LENDER:
NATIONSBANK, N.A. (SOUTH)
By: /s/ Paul P. Warley
-------------------------------------
Name: Paul P. Warley
--------------------------------
Title: Vice President
-------------------------------
<PAGE> 1
EXHIBIT 10.29
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of December 18, 1996 (the
"Effective Date"), between DATAFLEX CORPORATION, a New Jersey corporation
("Company"), and NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA, a North
Carolina corporation with its principal place of business at Riverwood 100
Building, Suite 1000, 3350 Cumberland Circle N.W., Atlanta Georgia 30339
("Lender").
WITNESSETH:
WHEREAS, Company has requested a credit facility up to $10,000,000 from
Lender, and Lender has agreed to provide such facility on the terms set forth
herein;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS. As used in this Agreement, the following terms
have the respective meanings indicated below (such meanings to be applicable
equally to both the singular and plural forms of such terms):
"Account" means and includes, as to Company, all of Company's then
owned or existing and future acquired or arising (a) right to the payment of
money or other forms of consideration of any kind (whether classified under the
UCC as accounts, contract rights, chattel paper, general intangibles or
otherwise) including, but not limited to, accounts receivable, vendor credits,
price protection credits, volume rebates, advertising rebates, letters of credit
and the right to receive payment thereunder, the Escrow Account and the right to
receive payments thereunder, chattel paper, tax refunds, insurance proceeds,
Contract Rights, notes, drafts, instruments, documents, acceptances and all
other debts, obligations and liabilities in whatever form from any Person and
guaranties, security and Liens securing payment thereof, (b) goods, whether now
owned or hereinafter acquired, and whether sold, delivered, undelivered, in
transit or returned, which may be represented by, or the sale or lease of which
may have given rise to, any such right to payment or other debt, obligation
<PAGE> 2
or liability, and (c) cash and non-cash proceeds of any of the foregoing.
"Adjusted Outstanding" means, as of the effective date of any
Collateral Certificate, (a) (i) the sum of actual outstanding Advances on such
day and (ii) Unfunded Approvals for which Inventory has been received by
Company, less (b) In-Transit Inventory Advances. For purposes of calculating
such Unfunded Approvals for which Inventory has been received by Company,
Inventory shall be deemed to be received by Lender on the fourth day after the
date of approval of the invoice (or such other number of days as Lender in its
sole discretion shall determine is appropriate given periodic reviews by Lender
of Company's actual experience).
"Administrative Fee" has the meaning ascribed thereto in Section 2.05
hereof.
"Advance" means an advance made by Lender to Company to finance the
acquisition of Inventory pursuant to Section 2.01 hereof.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with another Person.
"Agreement" means this Loan and Security Agreement.
"Ameridata" means Ameridata of New Jersey, Inc., a New Jersey
corporation, and its successors and assigns.
"Ameridata Sale Agreement" means the Asset Purchase Agreement dated
August 30, 1996 between Ameridata and the Borrower, as amended.
"Apple Seed Inventory" means Eligible Inventory purchased pursuant to
the Apple Seed Program.
"Apple Seed Program" means the pricing and repurchase program
established by Apple Computer Corporation to facilitate Company's distribution
and marketing of Apple computers to schools, as the same may be modified and
amended from time to time by Apple Computer Corporation with the written
consent of Lender.
"Business Day" means a day of the year on which banks are open for
business in both Atlanta, Georgia and Clearwater, Florida.
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"Business Unit" means the assets constituting the business, or a division
or operating unit thereof, of any Person.
"Capital Lease" means any capital lease or sublease, as defined in
accordance with GAAP.
"Collateral" has the meaning set forth in Section 4.01 hereof.
"Collateral Base" means (a) the sum of --
(i) with respect to continuing operations, the lesser of cost or
market value of --
(A) 100% of Eligible Inventory which is not Apple Seed Inventory;
(B) 90% of Eligible Inventory which is Apple Seed Inventory equal
to or less than 150 days from the original invoice date (hereafter,
"from the original invoice date" shall be referred to as "Old"); and
(C) 50% of Eligible Inventory which is Apple Seed Inventory
greater than 150 days Old and equal to or less than 240 days Old;
(ii) with respect to discontinued operations, the lesser of cost or
market value of --
(A) 50% of Eligible Inventory manufactured by IBM which is equal
to or less than 180 days from the Effective date;
(B) 90% of Eligible Inventory not manufactured by IBM which is
equal to or less than 30 days from the Effective Date;
(C) 80% of Eligible Inventory not manufactured by IBM which is
greater than 30 days from the Effective Date and equal to or less
than 60 days from the Effective Date;
(D) 70% of Eligible Inventory not manufactured by IBM which is
greater than 60 days from the Effective Date and equal to or less
than 90 days from the Effective Date;
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(E) 60% of Eligible Inventory not manufactured by IBM which is
greater than 90 days from the Effective Date and equal to or less
than 120 days from the Effective Date; and
(F) 50% of Eligible Inventory not manufactured by IBM which is
greater than 120 days from the Effective Date and equal to or less
than 180 days from the Effective Date; and
(iii) with respect to all operations, 100% of Eligible Vendor
Accounts;
less (b) the balance owed by Company to any vendor under an open account
provided by such vendor to Company (provided that in addition to purchasing
Inventory from such vendor under an open account, Company also uses the
financing provided hereunder to purchase Inventory from such vendor); provided,
however, Lender retains the right to adjust advance rates and establish reserves
from time to time in its reasonable discretion, based upon charge-off and
adjustment experience and other appropriate factors.
"Collateral Certificate" has the meaning ascribed thereto in Section
6.12(a) hereof.
"Commitment" means $10,000,000.
"Company" means DataFlex Corporation, a New Jersey corporation.
"Compliance Certificate" means a certificate of an officer of Company
acceptable to Lender, and in form and substance satisfactory to Lender, (a)
certifying that such officer has no knowledge that a Default or Event of Default
has occurred and is continuing, or if a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof and the action being
taken or proposed to be taken with respect thereto, and (b) setting forth
detailed calculations with respect to the covenants described in Section 6.01
hereof.
"Contingent Liability" means, as to any Person, any obligation, contingent
or otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Debt or obligation of another in any manner, whether directly
or indirectly, including without limitation any obligation of such Person,
direct or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or any security for the payment of thereof,
(b) to purchase Property or services for the
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purpose of assuring the owner of such Debt of its payment, or (c) to maintain
the solvency, working capital, equity, cash flow, fixed charge or other
coverage ratio, or any other financial condition of the primary obligor so as
to enable the primary obligor to pay any Debt or to comply with any agreement
relating to any Debt or obligation.
"Contract Rights" means and includes, as to Company, all of Company's
then owned or existing and future acquired or arising rights under contracts
not yet earned by performance and not evidenced by an instrument or chattel
paper, to the extent that the same may lawfully be assigned.
"Date of Origination" means (i) with respect to any vendor Account
arising from the return of merchandise by Company to any vendor, the date the
vendor issues an "RMA number" approving such return, and (ii) with respect to
any vendor Account arising from a price protection program provided by any
vendor, the date that Company gives written notice to such vendor of the
applicable pricing adjustment giving rise to such vendor Account.
"Debt" means all obligations, contingent or otherwise, which in
accordance with GAAP should be classified on the balance sheet as liabilities,
and in any event including capital leases, Contingent Liabilities that are
required to be disclosed and quantified in notes to financial statements in
accordance with GAAP, and liabilities secured by any Lien on any Property,
regardless of whether such secured liability is with or without recourse.
"Default" means any event specified in Section 7.01 hereof, for which
any requirement for the giving of notice or lapse of time has not yet been
satisfied.
"Deposit Accounts" means any demand, time, savings, passbook or like
account maintained by Company with a bank, savings and loan association, credit
union or like organization, other than an account evidenced by a certificate of
deposit that is an instrument under the UCC.
"Effective Date" has the meaning ascribed thereto in the preamble of
this Agreement.
"Eligible Vendor Account" means an Account arising from the return of
merchandise by Company to any vendor or arising from a price protection program
provided by any vendor that:
(a) is subject to a perfected, first priority Lien in favor of
Lender, free from any other Lien;
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(b) is not unpaid more than 90 days from the Date of Origination;
(c) is not owing by a vendor located or otherwise resident outside
the United States;
(d) is not payable by a vendor who has suspended business, has made
an assignment for the benefit of creditors, is insolvent, or is
the subject of a voluntary or involuntary proceeding under any
bankruptcy law or other law for the relief of debtors;
(e) is not subject to any condition, contingency, allowance,
defense, dispute, off-set or counterclaim;
(f) does not relate to rebilling to the vendor; and
(g) is otherwise acceptable to Lender;
provided, however, each Account otherwise satisfying the requirements of
subparagraphs (a) through (g) above will be reduced by any contra-balances for
amounts then due to the applicable vendor from Company.
"Eligible Inventory" means Inventory that (a) is subject to a
perfected, first priority Lien in favor of Lender, free from any other Lien
other than those acceptable to Lender in its sole discretion, (b) is not 121
days or more Old (except for Apple Seed Inventory which may not be greater than
240 days Old and Inventory on account of discontinued operations which may not
be greater than 180 days from the Effective Date), and is located at Company's
offices as set forth on Schedule 1 hereto, (c) qualifies for repurchase under
a valid, enforceable repurchase agreement between Lender and the vendor or
manufacturer of the Inventory, (d) is not comprised of spare parts,
demonstration Inventory other than Apple Seed Inventory, Inventory in use by
Company other than Apple Seed Inventory, out of box Inventory, or RMA
Inventory, and (e) is otherwise acceptable to Lender.
"Environmental Law" means any Law or other authorization or requirement
of any Governmental Body relating to actual or threatened emissions, discharges
or releases of pollutants, contaminants, or hazardous or toxic materials, or
otherwise relating to pollution or the protection of health or the environment.
"Equipment" means and includes, as to Company, all of Company's then
owned or existing and future acquired or arising machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings, and
other tangible personal property (other than Inventory) of every kind and
description used in Company's business operations
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or owned by Company or in which Company has an interest and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.
"Escrow Account" means the escrow account established pursuant to the
Ameridata Sale Agreement for the payment of certain post-closing adjustments,
as set forth in the Ameridata Sale Agreement and the Escrow Account Agreement.
"Escrow Account Agreement" means the escrow account agreement between
Company and Ameridata and escrow agent, entered into pursuant to the Ameridata
Sale Agreement with respect to the payment of certain post-closing adjustments.
"Event of Default" means any of the events specified in Section 7.01 of
this Agreement, provided any requirement for the giving of notice or lapse of
time has been satisfied.
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
"General Intangibles" means, as to Company, all of Company's then owned
or existing and future acquired or arising general intangibles, choose in action
and causes of action and all other intangible personal property of Company of
every kind and nature (other than Accounts), including, without limitation,
Intellectual Property, corporate or other business records, inventions, designs,
blueprints, plans, specifications, trade secrets, goodwill, computer software,
customer lists, registrations, licenses, franchises, tax refund claims,
reversions or any rights thereto and any other amounts payable to Company from
any ERISA Plan or other employee benefit plan, rights and claims against
carriers and shippers, rights to indemnification, business interruption
insurance and proceeds thereof, property, casualty or any similar type of
insurance and any proceeds thereof, proceeds of insurance covering the lives of
key employees on which Company is beneficiary and any letter of credit,
guarantee, claims, security interest or other security held by or granted to
Company to secure payment by an Account obligor of any of the Accounts.
"Governmental Body" means any arbitrator, governmental official, or
state, commonwealth, federal, foreign, territorial, or other court or
governmental body, including
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any subdivision, agency, department, commission, board, bureau or
instrumentality.
"IBM" means International Business Machines Corporation.
"IBMCC" means IBM Credit Corporation, Company's Inventory lender prior
to the date hereof.
"In-Transit Inventory Advances" means any Advance made by Lender in
respect of Inventory which has not been received by Company. For purposes of
calculating In-Transit Inventory Advances, Inventory shall be deemed to be
received by the Company on the fourth day after the applicable invoice date (or
such other number of days as Lender in its sole discretion shall determine is
appropriate given periodic reviews by Lender of Company's actual experience).
"Intercreditor Agreement" means that certain intercreditor agreement of
even date between NationsBank, N.A. (South) and Lender pursuant to which
NationsBank, N.A. (South) and Lender agree upon the relative priorities of their
Liens in the Collateral, as the same may be modified and amended from time to
time.
"Interest Payment Date" means the 10th day of each calendar month,
commencing January 10, 1997.
"Intellectual Property" means, as to Company, all of Company's then
owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals, reissues
divisions, continuations and continuations-in-part of any of the foregoing and
all rights to sue for past, present and future infringements of any of the
foregoing.
"Interest Reserve Account" has the meaning ascribed thereto in Section
2.04 hereof.
"Inventory" means and includes, as to Company, all of Company's then
owned or existing and future acquired or arising (a) goods intended for sale or
lease or for display or demonstration, (b) work in process, (c) raw materials
and other materials and supplies of every nature and description used or which
might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or otherwise used or
consumed
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in the conduct of business, and (d) documents evidencing and general intangibles
relating to any of the foregoing.
"Investment" means any acquisition of all or substantially all assets
of any Person, or any acquisition of, or beneficial interest in, partnership or
membership interests, capital stock or other securities of any Person, or any
advance or capital contribution to or other investment in any Person.
"Law" means any law, regulation, order or decree of any Governmental
Body.
"Lender" means NationsCredit Commercial Corporation of America, a North
Carolina corporation.
"License" means, as to any Person, any license, permit or other
authorization by any Governmental Body or third Person necessary or appropriate
for such Person to own or operate its business or Property.
"Lien" means any security interest, lien, pledge, encumbrance, charge
or adverse claim of any kind, including without limitation any agreement to give
or not to give any lien, or any conditional sale or other title retention
agreement.
"Litigation" means any proceeding, claim or investigation conducted or
threatened by or before any Governmental Body.
"Loan Papers" means this Agreement and all certificates, instruments
and agreements delivered by any Person hereunder.
"Material Adverse Change" means any act, omission, event or undertaking
which would, singly or in the aggregate, have a materially adverse effect upon
(a) the business, assets, properties, liabilities, condition (financial or
otherwise), results of operations or business prospects of the Company or any of
its Subsidiaries, (b) upon the respective ability of the Company or any of its
Subsidiaries to perform any obligations under this Agreement or any other Loan
Paper to which it is a party, or (c) the legality, validity, binding effect,
enforceability or admissibility into evidence of any Loan Paper or the ability
of Lender to enforce any rights or remedies under or in connection with any Loan
Paper, in any case, whether resulting from any single act, omission, situation,
status, event, or undertaking, together with other such acts, emissions,
situations, statuses, events, or undertakings.
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"Money Borrowed" means, as applied to Debt, (a) Debt for money
borrowed, (b) Debt, whether or not in any such case the same was for money
borrowed, (i) represented by notes payable and drafts accepted, that represent
extensions of credit, (ii) constituting obligations evidenced by bonds,
debentures, notes or similar instruments, or (iii) upon which interest charges
are customarily paid (other than trade Debt) or that was issued or assumed as
full or partial payment for property, (c) Debt that constitutes a capitalized
lease obligation, and (d) Contingent Liabilities, but only to the extent that
the obligations guaranteed are obligations that would constitute Debt for Money
Borrowed.
"NationsBank Loan and Security Agreement" means that certain Loan and
Security Agreement of even date between Company and NationsBank, N.A. (South),
as the same may be modified and amended from time to time.
"Permitted Debt For Money Borrowed" means (a) Permitted Purchase Money
Debt, (b) Debt to NationsBank, N.A. (South) under the NationsBank Loan and
Security Agreement, (c) Subordinated Indebtedness, and (d) Debt owing to Barnett
Bank of Pinellas County an set forth on Schedule 2 delivered on the Effective
Date.
"Permitted Investments" means Investments of the Company in: (a)
negotiable certificates of deposit, time deposits and banker's acceptances
issued by NationsBank, N.A. (South) or any Affiliate of NationsBank, N.A.
(South) or by any United States bank or trust company having capital, surplus
and undivided profits in excess of $250,000,000, (b) any direct obligation of
the United States of America or any agency or instrumentality thereof which has
a remaining maturity at the time of purchase of not more than one year and
repurchase agreements relating to the same, (c) sales on credit in the ordinary
course of business on terms customary in the industry, and (d) notes, accepted
in the ordinary course of business, evidencing overdue accounts receivable
arising in the ordinary course of business.
"Permitted Liens" means; (a) Liens securing taxes, assessments and
other governmental charges or levies (excluding any Lien imposed pursuant to any
of the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, but (i) with respect to any Liens securing
taxes, assessments and other governmental charges and levies which are due and
payable, only to the extent
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such taxes or other charges are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established on the
appropriate books, and (ii) in the case of warehousemen or landlords controlling
locations where Inventory is located, only if such liens have been waived or
subordinated to the security interest of Lender in a manner satisfactory to
Lender; (b) Liens consisting of deposits or pledges made in the ordinary course
of business in connection with, or to secure payment of, obligations under
workers' compensation, unemployment insurance or similar legislation or under
surety or performance bonds, in each case arising in the ordinary course of
business; (c) Liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of
Company's real estate, which in the sole judgment of Lender do not materially
detract from the value of such real estate or impair the use thereof in the
business of Company; (d) Purchase Money Liens securing Permitted Purchase Money
Debt; (e) Liens in favor of NationsBank, N.A. (South) as collateral for
Company's obligations under the NationsBank Loan and Security Agreement,
provided such liens shall be subordinate to the security interest granted
hereunder except as provided in the Intercreditor Agreement; (f) Liens of Lender
arising under this Agreement and the other Loan Papers; (g) Liens arising out of
or resulting from any judgment or award, the time for the appeal or petition for
rehearing of which shall not have expired, or in respect of which Company is
fully protected by insurance or in respect of which Company shall at any time in
good faith be prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review shall
have been secured, and as to which appropriate reserves have been established on
the books of Company, and (h) Liens in favor of Barnett Bank of Pinellas County
encumbering the property of the Borrower described on Schedule 3, and securing
Debt permitted by clause (d) of the definitions of "Permitted Debt For Money
Borrowed".
"Permitted Purchase Money Debt" means Purchase Money Debt secured only
by Purchase Money Liens and capitalized lease obligations, incurred by Company
after the date hereof, up to an aggregate amount outstanding at any time equal
to $2,000,000.
"Person" means an individual, partnership, joint venture, corporation,
limited liability company, trust, Governmental Body or unincorporated
organization.
"Plan" means any single employer plan or multiple employer plan, within
the meaning of ERISA, established by
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Company or otherwise maintained at any time for Company's employees.
"Prime Rate" means the prime rate announced by NationsBank, N.A. at its
office in Charlotte, North Carolina and in effect on the last business day of a
calendar month, effective for the next month.
"Property" means all types of real, personal, tangible or intangible
property.
"Purchase Money Debt" means Debt created with the prior written consent
to Lender to finance the payment of all or any part of the purchase price (not
in excess of the fair market value thereof) of any tangible asset (other than
inventory) and incurred at the time of or within 10 days prior to or after the
acquisition of such tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money Debt, but
only if such Lien shall at all times be confined solely to the tangible asset
(other than Inventory) the purchase price of which was financed through the
incurrence of the Purchase Money Debt secured by such Lien.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to any
such securities or partnership interests, (c) any loan or advance by such Person
to, or other investment by such Person in, the holder of any of such securities
or partnership interests, and (d) any other payment by such Person in respect of
such securities or partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or prepayment
or other retirement, prior to the stated maturity thereof or prior to the due
date of any regularly scheduled installment or amortization payment with respect
thereto, of any Debt of a Person (other than the Debt to Lender, Debt to
NationsBank, N.A. (South) under the NationsBank Loan and Security Agreement and
trade debt), and (b) the payment by any Person of the principal amount of or
interest on any Subordinated Debt or on any Debt (other than trade debt) owing
to an Affiliate of such Person.
"Rights" means rights, remedies, powers and privileges.
"RMA Inventory" means merchandise returned by Company to the applicable
vendor.
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"Solvent" means, with respect to any Person, that on such date (a) the
fair value of the Property of such Person is greater than the total amount of
liabilities (including Contingent Liabilities) of such Person, (b) the present
fair salable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (d) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's Property would constitute an unreasonably
small capital.
"Subordinated Indebtedness" means (a) Debt evidenced by the
Subordinated Notes which is subordinated to the obligations of Company to Lender
secured by the Collateral as set forth in the Subordination Agreements, and (b)
any other Debt for Money Borrowed of Company which is subordinated to the
obligations of Company to Lender secured by the Collateral on terms and
conditions acceptable to Lender in its sole discretion.
"Subordinated Notes" means those certain promissory notes in the form
of Exhibit B attached hereto, with respect to which the outstanding principal
balances as of the date hereof are as set forth on Schedule 2 hereof.
"Subordination Agreements" means the subordination agreements, in form
and substance acceptable to the Lender, pursuant to which the Debt evidenced by
the Subordinated Notes is subordinated to the obligations of Company to Lender
secured by the Collateral.
"Subsidiary" means, as to any Person, any corporation at least 50% of
whose securities having ordinary voting power (other than securities having such
power only by reason of happening of a contingency) are owned by such Person, or
one or more Subsidiaries of that Person, or a combination thereof.
"Taxes" means all taxes, assessments, fees or other charges imposed by
any Law or Governmental Body.
"Termination Date" means December _, 1998, or such later date to which
the termination of the Commitment may be extended under Section 2.06 hereof.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Georgia.
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"Unfunded Approval" means an unfunded approval that has been issued to
a manufacturer or other vendor by Lender, pursuant to which Lender commits to
fund Company's obligations under a purchase order submitted by Company to such
manufacturer or vendor.
"Vendor Account" means an Account owed by an Inventory vendor to
Company, including, without limitation, Eligible Vendor Accounts.
ARTICLE II
ADVANCES
2.01. ADVANCES.
(a) Lender shall, subject to the term and conditions set forth herein,
make Advances to Company from time to time until the Termination Date, to fund
Company's acquisition of Inventory. Company may borrow, repay and reborrow in
accordance with this Agreement. In no event may total outstanding Advances, plus
all Unfunded Approvals, exceed the Commitment unless Lender in its sole
discretion on a case by case basis elects to fund or issue an approval for any
Advance (including Unfunded Approvals) above the Commitment.
(b) Lender will send Company schedules from time to time listing the
amount of each Advance. If Company does not agree with a schedule, it must
immediately notify Lender in writing of the objections. Company's failure to
notify Lender of an objection within fourteen days shall constitute an
acceptance of the schedule.
(c) In lieu of a promissory note or other instrument evidencing the
indebtedness hereunder, Lender will maintain records reflecting Company's
outstanding indebtedness. Failure to make notation of any Advance, however, will
not affect the obligations of Company. Entries in such records will be
conclusive, absent manifest error. Company hereby promises to pay to Lender the
principal amount of all Advances, together with accrued interest and other
amounts due thereon, all in accordance with the terms of this Agreement.
2.02. MAKING ADVANCES. On any Business Day, a vendor (at the request of
Company, which request shall be deemed made unless Company notifies Lender to
the contrary) may contact Lender for an Advance to finance Inventory sold to
Company. Subject to the terms and conditions set forth
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herein, Lender will disburse the proceeds of Advances directly to vendors of
Inventory with whom Lender has a repurchase or other dealer financing
arrangement acceptable to Lender. Each date of borrowing must be a Business Day.
In addition to Advances to vendors as described above, Lender shall make
Advances to IBMCC on or before the fourth day following the Effective Date to
refinance certain Debt of Company to IBMCC (which Debt financed Company's
purchase of certain Inventory).
2.03. PREPAYMENT AND REPAYMENT OF ADVANCES
(a) Company may from time to time prepay Advances, in whole or in part.
If, at any time prior to the Termination Date, Company terminates the Commitment
and repays all outstanding Advances, such termination and repayment shall be
accompanied by a termination fee equal to 2% of the Commitment if such
termination and repayment occurs on or before the first anniversary of the
Effective Date, or 1% of the Commitment if such termination and repayment occurs
after the first anniversary of the Effective Date and prior to the second
anniversary of the Effective Date, or such percentage of the Commitment as
Lender and Company agree on or before any extension of the Termination Date;
provided, however, if the Termination Date is extended and Company and Lender do
not agree on such termination fee on or prior to any such extension, the
applicable termination fee shall be the termination fee in effect immediately
prior to such extension of the Termination Date.
(b) Company shall repay the principal amount of each Advance within
thirty (30) days of the date of such Advance; provided, however, with respect to
any Advance made by Lender on behalf of Company to purchase Apple Seed
Inventory under the Apple Seed Program, the principal amount of each Advance
shall be repaid in accordance with the terms of the Apple Seed Program; provided
further, however, with respect to any purchase program created hereafter and
approved by Lender in its sole discretion, principal on each Advance thereunder
shall be due and payable at such time as the parties agree to in writing prior
to any such Advance.
(c) In addition, on the Termination Date, Company shall repay all
outstanding Advances, accrued interest and charges, and all other amounts owing
to Lender. Notwithstanding the foregoing, if, as of the effective date of any
Collateral Certificate, Adjusted Outstandings exceed the lesser of the
Commitment and the Collateral Base, Company shall immediately pay to Lender the
amount by which the Adjusted Outstandings exceed the lesser of the Commitment
and the Collateral Base.
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2.04. INTEREST ON ADVANCES. Advances shall bear interest at a per annum
rate equal to the Prime Rate. Lender shall create an interest reserve account
(the "Interest Reserve Account") comprised of (i) any interest discount paid by
a vendor to Lender on account of an Advance made by Lender hereunder and (ii)
any interest discount reflected in an adjustment to the amount payable by Lender
on any vendor invoice. With respect to subsection (i) above, such interest shall
be credited to the Interest Reserve Account when the interest discount is paid
by the applicable vendor to Lender. With respect to subsection (ii) above, such
interest shall be credited to the Interest Reserve Account when Lender makes the
discounted Advance to the applicable vendor. Accrued interest is due and payable
on each Interest Payment Date. Prior to such date, Lender will provide Company
with a statement of the balance of the Interest Reserve Account five (5)
Business Days prior to the applicable Interest Payment Date. On the Interest
Payment Date, Lender will pay the then due and payable interest and
Administrative Fees hereunder in an amount up to the balance of the Interest
Reserve Account by debiting the Interest Reserve Account and crediting the
interest and Administrative Fees due. If the balance of the Interest Reserve
Account is insufficient to pay in full the interest and Administrative Fees then
due and payable, Company shall pay to Lender any remaining interest and
Administrative Fees then due and payable hereunder after giving effect to the
credit for the amount held in the Interest Reserve Account. If the funds in the
Interest Reserve Account exceed the amount of interest and Administrative Fees
then due and payable, such excess shall be deposited into Company's lockbox
account maintained at NationsBank, N.A. (South), account number 375-077-6979 on
the Interest Payment Date. Notwithstanding the foregoing, upon the occurrence of
a Default or Event of Default hereunder, Lender may apply any funds or credits
in the Interest Reserve Account to the principal, interest and other charges
hereunder in its sole discretion.
During the existence of any Event of Default, at the option of Lender,
amounts owing hereunder shall bear interest at the Prime Rate plus 5% per annum,
due and payable on demand.
2.05. ADMINISTRATIVE FEES. Company shall pay to Lender an
administrative fee (the "Administrative Fee") in the amount of 0.15% for each
vendor invoice paid by Lender hereunder. Such fee shall be payable monthly on
each Interest Payment Date shall be fully earned when due and nonrefundable when
paid.
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2.06. EXTENSION OF TERMINATION DATE. The Termination Date shall be
automatically extended for successive one-year periods unless either Lender or
Company provides to the other written notice of termination not less than 60
days prior to the then effective Termination Date.
2.07. COMPUTATIONS AND MANNER OF PAYMENTS. Interest will be calculated
on a simple interest basis for a year of 360 days, based on actual days elapsed.
If any payment is due on a date that is not a Business Day, the due date will be
extended to the next Business Day. All payments due hereunder shall be paid in
immediately available funds no later than 11:00 a.m. (Atlanta, Georgia time) on
the date specified herein. Any payment received by Lender after 11:00 a.m.
(Atlanta, Georgia time) shall be deemed to have been received on the immediately
succeeding Business Day and any applicable interest shall continue to accrue.
Lender may, at any time and without notice to Company, apply monies received in
payment of Company's obligations in such order of application as Lender shall
determine. All payments shall be made in United States dollars and without
set-off, counterclaim or other defense. Company specifically agrees that it will
not delay payment of any obligations to Lender, or assert any defense or set-off
with respect to said obligations, on account of a dispute between Company and
the vendor or manufacturer of any Inventory. Company will repay the full invoice
amount relating to Advances, notwithstanding any allowance or discount provided
by the vendor or manufacturer to Lender.
ARTICLE III
CONDITIONS PRECEDENT
3.01. CONDITIONS PRECEDENT TO EFFECTIVENESS. The effectiveness of this
Agreement is subject to fulfillment of the following conditions precedent:
(a) Lender shall be satisfied, in its reasonable discretion, with
Company's financial condition, Properties, business, affairs or prospects as of
the effective date.
(b) Company shall have executed and delivered to Lender all Loan
Papers, in form and substance satisfactory to Lender.
(c) Company shall have delivered such financing statements and lien
filings as Lender shall request to record and perfect the Liens granted to
Lender hereunder. Lender shall have received such UCC and Lien search reports
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as it shall deem appropriate to evidence that its Liens on the Collateral are
first priority Liens, subject only to Permitted Liens.
(d) Lender shall have received a Collateral Certificate in the form of
Exhibit A hereto, in form and detail satisfactory to Lender and showing a
Collateral Base in excess of the initial requested Advance.
(e) Lender shall have received a certificate of a duly authorized
officer of Company, certifying that (i) no Default or Event of Default exists,
(ii) the representations and warranties set forth in Article V hereof are true
and correct, and (iii) Company has complied with all agreements and conditions
to be complied with by it under the Loan Papers by such date.
(f) Lender shall have received a certificate of a duly authorized
officer of Company, certifying (i) that attached copies of Company's articles of
incorporation and bylaws are true and complete, and in full force and effect,
without amendment except as shown, (ii) that an attached copy of resolutions
authorizing execution and delivery of the Loan Papers is true and complete, and
that such resolutions are in full force and effect, were duly adopted, have not
been amended, modified, or revoked, and constitute all resolutions adopted with
respect to this loan transaction, and (iii) to the incumbency, name and
signature of each officer authorized to sign the Loan Papers on behalf of
Company. Lender may conclusively rely on this certificate until it is otherwise
notified by Company in writing.
(g) Lender shall have received an opinion of counsel to Company (i)
that Company has full power and authority to execute and deliver its Loan
Papers; (ii) that the Loan Papers constitute the legal, valid and binding
obligations of Company, enforceable in accordance with their term; and (iii) as
to such other matters, and otherwise in form and substance, satisfactory to
Lender,
(h) Lender shall have received evidence satisfactory to it that Company
is duly organized, validly existing and in good standing in its state of
organization, and is duly qualified and in good standing in all other
appropriate jurisdictions.
(i) Lender shall have received a pay off letter from IBMCC in form and
substance satisfactory to Lender, together with appropriate Uniform Commercial
Code termination statements and other Lien releases as Lender shall request (to
be held in escrow by or on behalf of Lender until
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Company's Debt to IBMCC is refinanced as described in Section 2.02 hereof).
(j) Lender shall have received evidence that all conditions precedent
to the effectiveness of the NationsBank Loan and Security Agreement have been
satisfied.
(k) All proceedings of Company taken in connection with the
transactions contemplated hereby, and all documents incidental thereto, shall be
satisfactory in form and substance to Lender. Lender shall have received copies
of all documents or other evidence that it may reasonably request in connection
with such transactions.
3.02. REQUESTS FOR ADVANCES. Each disbursement of an Advance by Lender
directly to a vendor for the acquisition of Inventory shall constitute a
representation by Company that the date of funding, the following are true:
(a) the representations and warranties contained in Article V
hereof are true and correct on such date, as though made on
and as of such date, and
(b) no event has occurred or exists, or would result from such
Advance, that could constitute a Default or Event of Default.
Lender may condition any Advance upon Lenders receipt, in form and substance
acceptable to it, of such other information as it may reasonably deem necessary
or appropriate.
ARTICLE IV
SECURITY INTEREST
4.01. SECURITY INTERESTS IN COLLATERAL. As security for all present and
future obligations of Company to Lender, whether or not arising under this
Agreement, and of whatever kind, now due or to become due, absolute or
contingent, joint or several, Company hereby grants to Lender a continuing
security interest and Lien on all personal property (excluding fixtures) of
Company, whether now owned or hereafter acquired and wherever located
(collectively, "Collateral"), including the following:
(a) all Accounts,
(b) all Inventory,
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(c) all Equipment,
(d) all Contract Rights,
(a) all General Intangibles,
(f) all Deposit Accounts,
(g) all goods and other property, whether or not delivered, (i)
the sale or lease of which gives or purports to give rise to any Account,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Account, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements and other agreements
and property which secure or relate to any Account or other Collateral or are
acquired for the purpose of securing and enforcing any item thereof,
(i) all documents of title, policies and certificates of insurance,
securities, chattel paper and other documents and instruments evidencing or
pertaining to any and all items of Collateral,
(j) all files, correspondence,, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account obligor or showing the
amounts thereof or payments thereon or otherwise necessary or helpful in the
realization thereon or the collection thereof,
(k) all cash deposited with Lender or any Affiliate thereof or which
Lender is entitled to retain or otherwise possess as collateral pursuant to the
provisions of this Agreement or any of the other Loan Papers, and
(l) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for
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the payment of money, chattel paper, security agreements and other documents.
An additional security for all present and future obligations of
Company to Lender, whether or not arising under this Agreement, and of whatever
kind, now due or to become due, absolute or contingent, joint or several,
Company grants to Lender for itself and as agent for any Affiliate of Lender a
security interest in, and assigns to Lender for itself and as agent for any
Affiliate of Lender all of Company's right, title and interest in and to, any
deposits or other sums at any time credited by or due from Lender and each
Affiliate of Lender to Company, with the same rights therein as if the deposits
or other sums were credited by or due from Lender.
4.02. DUTIES RELATING TO COLLATERAL. So long as this Agreement is in
effect or any amounts are owing to Lender, Company agrees that it shall:
(a) Except for liquidations of up to $100,000 per year, sell and
deliver Inventory in the ordinary course of business, and not otherwise sell,
transfer, encumber (except with respect to Permitted Liens) or lease any item of
Collateral without Lender's prior written consent;
(b) Keep accurate and complete records of the Collateral; keep all
Collateral (including books and records relating thereto) at Company's addresses
specified under or pursuant to Schedule 1 hereof; and provide at least 30 days
advance written notice to Lender of any change in the location of any
Collateral;
(c) Promptly report and pay all Taxes and other charges against the
Collateral; maintain a perfected, first priority Lien in favor of Lender in the
Collateral, subject only to Permitted Liens; and discharge all other Liens that
from time to time attach to or are asserted against the Collateral;
(d) Pay all transportation and storage charges on the Collateral; and
pay all rents, if any, for the use of premises on which Company keeps any
Collateral; and
(e) Subject to the rights of NationsBank, N.A. (South) under the
Intercreditor Agreement: mark all chattel paper, instruments and records
evidencing or relating to the Accounts as being subject to the security interest
created hereby; take all actions appropriate for the collection and enforcement
of Accounts, and for the perfection of any liens securing Accounts; permit
Lender to contact Account obligors
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to verify information provided by Company, and assist Lender in such
verification process; and after a Default or Event of Default, not adjust,
settle or compromise the amount, payment or performance of any obligations
relating to Accounts, without the prior consent of Lender.
4.03. COLLECTION OF ACCOUNTS. Subject to the rights of NationsBank,
N.A. (South) under the Intercreditor Agreement and under the NationsBank Loan
and Security Agreement:
(a) Until Lender exercises its rights to collect the Accounts directly
as set forth below, Company will collect all Accounts with diligence, whether or
not they constitute Eligible Accounts. Upon the occurrence of an Event of
Default, Company will advise any or all Account obligors to make remittances to
a lock box established by Lender. Remittances received in the lock box shall be
credited to Company's obligations, but all credits are conditional, subject to
collection. Returned items and costs relating to any lock box account will be
charged to and payable by Company.
(b) Lender may, upon the occurrence of an Event of Default, with or
without cause, (i) give notice of assignment to any or all Account obligors;
(ii) collect any or all Accounts directly, at Company's expense; (iii) settle or
adjust disputes and claims directly with Account obligors for amounts and upon
terms which Lender considers advisable; (iv) receive, open and dispose of all
mail addressed to Company and notify post office authorities to change the
address for delivery of Company's mail to an address designated by Lender; (v)
endorse Company's name on any checks or other evidence of payment that may come
into possession of Lender and on any invoice, freight or express bill, bill of
lading or other document; (vi) in Company's name or otherwise, demand, sue for,
collect and give acquittance for any and all monies due or to become due on
Accounts; (vii) compromise, prosecute or defend any action or claim concerning
Accounts; and/or (viii) do any and all things appropriate to carry out the
intent of this Agreement, or any other agreement between the parties. Neither
Lender nor any person acting as its attorney hereunder shall be liable for any
acts or omissions or for any error of judgment or mistake of fact or law, except
for gross negligence or willful misconduct. Company agrees that the powers
granted hereunder, are coupled with an interest and shall be irrevocable, as
long as the Commitment or any obligations of Company to Lender remain
outstanding.
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(c) Notwithstanding the foregoing, the parties agree that Lender is
under no duty to take any actions relating to any Accounts, any related
agreements or any other Collateral, including any duty as to the collection or
protection of Accounts or income therefrom, or the preservation of rights
relating thereto.
4.04. INSURANCE OF COLLATERAL. Company shall keep the Collateral
insured for full value against all insurable risks, on terms and with insurers
reasonably acceptable to Lender, and with Lender as the loss payee, assignee or
additional insured, as appropriate. Company shall provide notice to Lender in
writing at least 10 days before changing or canceling any policy. Each policy
shall require the insurer to give not less than 30 days prior written notice to
Lender of cancellation, and shall provide that Lender's interest will not be
impaired by any act or neglect of Company or any other Person nor by any use of
the premises for purposes more hazardous than are permitted by the policy.
4.05. POWER OF ATTORNEY. Company hereby irrevocably appoints Lender,
including any officer or employee of Lender as Lender may designate, as
Company's true and lawful attorney-in-fact with power of substitution to do the
following acts on behalf of Company in connection with the transactions
contemplated by the Loan Papers: to prepare, execute and deliver in the name of
Company security instruments, financing statements, lien filings and
certificates of title relating to Collateral; to endorse Company's name upon any
notes, checks, drafts, money orders and other forms of instruments made payable
to Company and relating to Collateral; and generally to perform all acts and do
all things necessary and proper in connection with the transactions contemplated
hereby or in discharge of the powers hereby conferred, including the making of
affidavits and the acknowledgment of instruments as fully as if done by Company.
The foregoing powers are coupled with an interest and shall be irrevocable, as
long as the Commitment or any obligations of Company to Lender remain
outstanding.
4.06. FURTHER ASSURANCES. Company shall execute such financing
statements and other instruments and agreements, and shall take such actions,
as Lender shall request from time to time to evidence or perfect any Lien
granted hereunder. Unless prohibited by Law, Company authorizes Lender to
execute and file any financing statement or other instrument or agreement on
behalf of Company for the foregoing purposes. The parties agree that a copy of
this Agreement or any financing statement may be
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filed as a financing statement in any appropriate jurisdiction.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Company represents and warrants that the following are true and
correct:
5.01. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of its state of
organization. The Company is qualified to do business in all jurisdictions where
the nature of its business or Properties require such qualification. Company has
no Subsidiaries.
5.02. DUE AUTHORIZATION, VALIDITY. The Board of Directors of Company
has duly authorized the execution, delivery and performance of its Loan Papers.
No consent of any shareholders of Company is required as a prerequisite to the
validity and enforceability of its Loan Papers. Company has full legal right,
power and authority to execute, deliver and perform under its Loan Papers. Such
Loan Papers constitute the legal, valid and binding obligations of Company,
enforceable in accordance with their terms (subject as to enforcement of
remedies to any applicable bankruptcy, reorganization, moratorium, or similar
Laws or principles of equity affecting creditors' rights generally).
5.03. CONFLICTING AGREEMENTS AND OTHER MATTERS. The execution or
delivery of any Loan Papers, and performance thereunder, do not conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien (other than consents already obtained) on any Properties of Company under,
or require any approval, action by or notice to any Governmental Body or other
Person pursuant to, the articles of incorporation or bylaws of Company, or any
Law or material agreement to which Company or any of its Properties is subject.
5.04. FINANCIAL STATEMENTS. The financial statements of Company
delivered to Lender fairly present Company's financial condition and its results
of operations as of the date and for the period shown, and, with respect to the
annual financial statements, were prepared in accordance with GAAP. Company's
financial statements reflect all material liabilities, direct and contingent, of
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Company that are required to be disclosed in accordance with GAAP. Company does
not have any material Contingent Liabilities, liabilities for Taxes, forward or
long-term commitments, or unrealized or anticipated losses from any unfavorable
commitments that are not reflected in such financial statements. Company is
Solvent.
5.05. LITIGATION. Except as set forth on Schedule 5.05 hereof, there is
no Litigation pending or, to the beat of Company's knowledge, threatened against
Company on the date hereof that involves a claim for damages or reasonably
expected potential liability of $100,000 or more. There in no pending or, to the
best of Company's knowledge, threatened Litigation against Company that could
result in a Material Adverse Change.
5.06. LAWS REGULATING INCURRENCE OF DEBT . NO proceeds of any Advance
will be used directly or indirectly to acquire any securities. No Advance will
be used to purchase or carry margin stock (as defined in applicable Federal
Reserve regulations), nor to extend credit to others to do so. Company is not
subject to regulation under any Law that prohibits or restricts its incurrence
of Debt in any material respect, including Laws relating to common or contract
carriers, or public utility holding companies.
5.07. LICENSES, TITLE TO PROPERTIES, ETC. Company possesses all
Licenses and is not in violation thereof in any material respect. Company has
full power, authority and legal right to own and operate its Properties, and to
conduct its business. Company has good and indefeasible title (fee or leasehold,
as applicable) to its Properties, subject to no Lien of any kind, except
Permitted Liens. Company is not in violation of its articles of incorporation or
bylaws, any award of any arbitrator, or any Law or material agreement to which
Company or any or any of its Properties is subject. No business or Properties
of Company is affected by any strike, lock-out or other labor dispute, casualty,
earthquake, embargo or act of God.
5.08. OUTSTANDING DEBT AND LIENS. Company has no outstanding Debt or
Contingent Liabilities which are prohibited by the terms hereof and Company has
no Liens, except Permitted Liens.
5.09. TAXES. Except as set forth on Schedule 5.09 hereof, Company has
filed all Tax returns and reports which are required to be filed, and has paid
all Taxes, to the extent due and payable, except for certain franchise Taxes
disclosed to Lender in writing on or before the date hereof. All Tax liabilities
of Company are adequately provided for
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on its books (including interest and penalties) and adequate reserves have been
established therefor in accordance with GAAP. No taxing authority has notified
Company of any deficiency in a Tax return nor asserted any Tax liability in
excess of that already paid.
5.10. EMPLOYEE BENEFITS. All employee benefits are provided in
accordance with all applicable Laws. Each Plan satisfies the minimum funding
standards under all applicable laws, and has no accumulated deficiency. Company
has not incurred any withdrawal liability nor engaged in any prohibited
transaction with respect to a Plan. Company has not failed to make any payment
to a Plan as required under applicable laws, and no reportable event (as defined
under ERISA) has occurred. Company has not received any notice from any
Governmental Body or administrator of any potential termination of a Plan, and
no circumstance or event exists that could constitute grounds for the
termination of or appointment of a trustee to administer any Plan.
5.11. ENVIRONMENTAL LAWS. Company has delivered to Lender copies of all
environmental studies and reports conducted or received by Company in connection
with its Properties. Such studies cover all real Property, if any, owned in fee
by Company and reveal no potential liability, violations or discrepancies under
any Environmental Laws. All Licenses have been obtained or filed that are
required under any Environmental Laws, unless the failure to obtain or file same
could not result in a Material Adverse Change. No Hazardous Materials are
generated, produced or released at or in connection with any Properties or
operations of Company. Company has no potential liability with respect to any
release of Hazardous Materials into the environment.
5.12. DISCLOSURE. Company has not made a material misstatement of fact,
or failed to disclose any fact necessary to make the facts disclosed not
misleading, to Lender during the course of application for and negotiation of
this Agreement or otherwise in connection with any transactions contemplated
hereby. There is nothing known to Company that could materially adversely affect
Company's financial condition, Properties or business, or that could result in a
Material Adverse Change, which is not set forth herein or in notices hereafter
delivered to Lender.
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ARTICLE VI
COVENANTS
So long as this Agreement is in effect or any amounts are owing to
Lender, Company agrees that it shall:
6.01. FINANCIAL COVENANTS. Company shall comply with the financial
covenants set forth in Section 10.1 of the NationsBank Loan and Security
Agreement as in effect on the Effective Date or as such covenants may
thereafter be modified or amended with the written consent of Lender; provided,
however, if the NationsBank Loan Security Agreement is terminated prior to the
termination of this Agreement, Company shall comply with the financial
covenants set forth in Section 10.1 of the NationsBank Loan and Security
Agreement (or any other section containing financial covenants) as in effect
immediately prior to the termination of such agreement.
6.02. DEBT. Company shall not incur, create, assume, or otherwise
become or remain obligated in respect of, or permit or suffer to exist or to be
created, assumed or incurred or to be outstanding any Debt for Money Borrowed,
except for Permitted Debt for Money Borrowed and Company's Debt to IBMCC
provided such Debt to IBMCC is repaid on or before the fourth day following the
Effective Date.
6.03. CONTINGENT LIABILITIES. Company shall not incur, assume or be
liable in any manner for any Contingent Liabilities, except those resulting
from the endorsement of negotiable instruments for collection in the ordinary
course of business.
6.04. LIENS. Company shall not create, assume or permit or suffer to
exist or to be created or assumed any Lien on any of the property or assets of
Company, real, personal or mixed, tangible or intangible, except for Permitted
Liens and Liens securing Company's Debt to IBMCC; provided such Liens of IBMCC
are released on or before the fourth day following the Effective Date.
6.05. AMENDMENT OF ORGANIZATIONAL DOCUMENTS; RESTRICTED DISTRIBUTIONS.
(a) Company shall not amend or modify, or permit the
amendment or modification of, its articles of incorporation or bylaws in any
material respect, without the prior written consent of Lender (which will not be
unreasonably withheld).
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(b) Company shall not declare or make any Restricted
Distribution or Restricted Payment, except that so long as no Default or Event
of Default shall have occurred and be continuing or would result therefrom, the
Company may (a) make payments on the Subordinated Debt (including "earn-out"
payments due 90 days after the end of each fiscal year under that certain Asset
Purchase Agreement dated as of November 17, 1994 between Company and National
Data Products, Inc.) to the extent permitted by the Subordination Agreements or
the other subordination provisions applicable thereto, (b) make cash dividends
and distributions and redeem shares of its capital stock for cash, in an
aggregate amount not to exceed $1,000,000 in any fiscal year, if Company would
be permitted to make such dividend, distribution or redemption under the
NationsBank Loan and Security Agreement, and (c) convert any Subordinated Debt
into stock of the Company, provided no distribution of cash or other
consideration (other than stock) is made to any such converting holder of
Subordinated Debt.
6.06. LAWS, LICENSES AND MATERIAL AGREEMENTS. Company shall obtain and
comply in all material respects with all applicable Laws and Licenses. Company
shall maintain and comply in all material respects with all agreements
necessary or appropriate for its business and Properties. Company shall
maintain its Plans such that the representation and warranty in Section 5.11
hereof is true at all times.
6.07. DISPOSITION OF ASSETS. Except as permitted by Section 4.02(a),
Company shall not sell, transfer, encumber or lease any of its assets, except
sales or dispositions of assets in the ordinary course of business, including
dispositions of obsolete or useless assets.
6.08. MERGER; INVESTMENTS; BUSINESS. Company shall not merge into or
consolidate with any Person, or permit any other Person to merge into or
consolidate with it, or form or acquire any Subsidiary. Company shall not
change the nature of its business as now conducted. Company shall not make or
allow to be outstanding any Investment other than Permitted Investments.
Company shall not, after the Effective Date, acquire any Business Unit.
6.09. INSURANCE. Except as otherwise required by Section 4.04
hereof, Company shall (a) keep its insurable Properties adequately insured at
all times by financially sound and reputable insurers to such extent and
against such risks, including fire and other risks insured against by extended
coverage, as is customary with companies similarly
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situated and in the same or similar businesses, (b) maintain in full force and
effect public liability and workers compensation insurance, in amounts
customary for such similar companies to cover normal risks, by insurers
satisfactory to Lender, and (c) maintain such other insurance as may be required
by Law or reasonably requested by Lender. Company shall deliver evidence of
renewal of each insurance policy on or before the date of its expiration, and
from time to time shall deliver to Lender, upon demand, evidence of the
maintenance of such insurance. Company shall promptly deliver to Lender copies
of all reports provided to insurers.
6.10. INSPECTION RIGHTS. Company shall permit Lender, upon reasonable
notice and during normal business hours, to examine and make copies of and
abstracts from Company's books and records, to inspect its Properties and to
discuss its affairs with any of its directors, officers, employees or
accountants, all as Lender may reasonably request. Company agrees to reimburse
Lender for the cost of any inspection, but such cost shall not to exceed $1,000
per quarter so long as no Default or Event of Default exists.
6.11. RECORDS; CHANGES IN GAAP. Company shall keep adequate books and
records in conformity with GAAP. Company shall not change its fiscal year nor
change its method of financial accounting except in accordance with GAAP. In
connection with any change in accounting methods resulting from a change in
GAAP, Company and Lender shall make appropriate alterations to the covenants set
forth in Section 6.01 hereof, reflecting such change.
6.12. REPORTING REQUIREMENTS. Company shall furnish to Lender:
(a) No later than 3 Business Days following the Effective Date, a
Collateral Certificate in the form of Exhibit A hereto, as modified with the
consent of Lender from time to time (a "Collateral Certificate"), together with
a detailed aged trial balance of all of its then existing trade Accounts,
specifying the name of and the balance due from (and any rebate due to) each
trade Account obligor obligated on an Account so listed, a detailed Inventory
report (excluding spare parts) and a detailed Vendor Accounts agings report;
which Collateral Certificate and reports shall be in form and substance
satisfactory to Lender and certified as true and correct, prepared as of the
close of business on the Effective Date;
(b) No later than 3 Business Days after the last day of each accounting
week of Company, a Collateral
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Certificate, together with a detailed Inventory report (excluding spare parts)
and a detailed Vendor Accounts agings report; which Collateral Certificate and
reports shall be in form and substance satisfactory to Lender and certified as
true and correct, prepared as of the close of business on the last Business Day
of such week;
(c) No later than 15 days after the end of each accounting month of
Company, (i) a schedule of Accounts setting forth (A) a detailed aged trial
balance of all Company's then existing trade Accounts, specifying the name and
the balance due from (and any rebate due to) each trade Account obligor
obligated on an Account so listed and (B) a reconciliation to the schedule of
Accounts delivered in respect of the next preceding accounting month, (ii) a
detailed Inventory report (excluding spare parts), (iii) a spare parts Inventory
report, and (iv) a detailed Vendor Accounts agings report; which reports shall
be in form and substance satisfactory to Lender and certified as true and
correct, prepared as of the close of business on the last day of such month;
(d) As soon as available and in any event within 30 days after the end of
each month, a balance sheet and statement of income of Company for such month
and for the portion of the fiscal year ending with such month, prepared in
reasonable detail, and certified by an officer of Company (in a manner
satisfactory to Lender) as fairly presenting the financial condition and results
of operations of Company, together with a Compliance Certificate;
(e) As soon as available and in any event within 45 days after the end of
each quarter, a balance sheet and statement of income of Company for such
quarter and for the portion of the fiscal year ending with such quarter,
prepared in reasonable detail, and certified by an officer of Company (in a
manner satisfactory to Lender), as fairly presenting the financial condition and
results of operations of Company, together with a Compliance Certificate.
(f) As soon as available and in any event within 120 days after the end of
each fiscal year of Company, audited balance sheets and statements of income and
cash flow for each of Company and Guarantor for such fiscal year, prepared in
accordance with GAAP in reasonable detail and accompanied by unqualified
opinions of independent certified public accountants acceptable to Lender,
together with a Compliance Certificate;
(g) Promptly upon receipt thereof, copies of all material reports or
letters submitted to Company by any
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auditors or accountants in connection with any annual, interim or special audit;
(h) As soon as possible but at least 30 days prior to the commencement
of each fiscal year, a monthly business plan for such year, including a
projected balance sheet, income and cash flow statements, expenses and sales,
accompanied by a statement of assumptions and certified by an officer of Company
in a manner acceptable to Lender;
(i) As soon as possible and in any event within five days, a notice of
the occurrence of any Default or Event of Default, setting forth the details
thereof, and the action being taken or proposed to be taken with respect
thereto;
(j) As soon as possible and in any event within five days, notice of
any Litigation pending or threatened against Company which, if determined
adversely, could result in damages in excess of $100,000 or more or any other
Material Adverse Change, together with a statement of an officer of Company
describing the allegations of such Litigation, and the action being taken or
proposed to be taken with respect thereto;
(k) Promptly after filing, copies of all reports and notices that
Company furnishes to NationsBank, N.A. (South) in connection with the
NationsBank Loan and Security Agreement;
(l) Promptly after filing or receipt thereof, copies of all reports
and notices that Company furnishes to or receives from any holders of any Debt
Contingent Liability relating to a breach, default or event of default
thereunder, or otherwise relating to any event or circumstance that could
result in a Default or Event of Default;
(m) No later than 3 Business Days following the Effective Date, a list
of unfunded approvals provided by IBMCC as of the Effective Date in form and
substance satisfactory to Lender; and
(n) Promptly upon request, such information concerning the Collateral
Base, Accounts, Inventory, Company's financial condition, Properties, business,
affairs or prospects, and other matters, as Lender may from time to time
reasonably request.
6.13. TRANSACTIONS WITH AFFILIATES. Except as permitted herein,
Company shall not enter into or be party to a transaction with any Affiliate,
except on terms no less
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favorable than could be obtained on an arm's-length basis with a Person that
is not an Affiliate.
6.14. FURTHER ASSURANCES. Within 30 days after the Effective Date,
Company shall deliver to Lender documentation (in form and substance
satisfactory to Lender) evidencing Ameridata's agreement to pay to Lender any
Vendor Accounts collected by Ameridata pursuant to the Ameridata Sale Agreement
or any related sale documents. Additionally, within 30 days after the
Effective Date, Company shall become qualified to do business as a foreign
corporation in the State of Georgia and provide Lender with evidence of same.
Company at its expense will promptly execute and deliver to Lender, or cause to
be executed and delivered to Lender, all such other and further documents,
agreements, and instruments in compliance with or accomplishment of the
covenants and agreements of Company in the Loan Papers, or to correct any
omissions in the Loan Papers, or more fully to state the obligations set out
herein or in any of the Loan Papers, or to obtain any consents, all as may be
necessary or appropriate in connection therewith and as may be reasonably
requested by Lender.
ARTICLE VII
EVENTS OF DEFAULT
7.01. EVENTS OF DEFAULT. Each of the following shall be an "Event of
Default" hereunder, if the same shall occur for any reason whatsoever, whether
voluntary or involuntary, by operation of Law or otherwise:
(a) Company shall fail to pay any principal payable under Section
2.03(c) hereunder when due, or the Company shall fail to pay any other
principal (other than principal due under Section 2.03(c)), interest, fees, or
other amounts payable under any Loan Papers within five (5) days after the date
such payment was due;
(b) Any representation or warranty of Company made in connection with
this Agreement or any transactions contemplated hereby shall be incorrect or
misleading in any material respect when given;
(c) Company shall fail to perform or observe (i) any term or covenant
set forth in Article IV or Article VI hereof, or (ii) any other term or
covenant contained in any Loan Paper (other than as specifically provided for
otherwise in this Section 7.01) and such failure shall
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continue for a period of 30 days after written notice thereof has been given to
the Company by Lender;
(d) Any provision of any Loan Papers shall, for any reason, not be
valid and binding on Company, or shall be declared to be null and void; the
validity or enforceability of any provision of any Loan Papers shall be
contested by Company; or any breach, default or event of default shall occur or
exist under any Loan Papers after any applicable grace period;
(e) Any of the following shall occur: (i) Company shall make an
assignment for the benefit of creditors, be insolvent or unable to pay its
debts as they come due, or cease doing business as a going concern; (ii)
Company shall petition any Governmental Body for the appointment of a trustee,
receiver or liquidator of it or any of its assets, or shall commence any
proceedings under any bankruptcy, reorganization, insolvency, moratorium,
liquidation or other debtor relief Laws; (iii) any petition shall be filed, or
any such proceedings shall be commenced, against Company under any such Laws
and the same is not dismissed or otherwise discharged within 60 days, or an
order, judgment or decree shall be entered approving such petition or
appointing any trustee, receiver or liquidator for Company, or any of their
assets; or (iv) any final order, judgment or decree shall be entered decreeing
Company's dissolution, split-up or divestiture of assets;
(f) Company shall fail to make any payment when due with respect to
any Debt or Contingent Liability of $100,000 or more, and such failure shall
continue after any applicable grace period; Company shall fail to observe any
term or condition of any agreement relating to any Debt or Contingent Liability
of $100,000 or more, and such failure shall continue after any applicable grace
period; or any such Debt or Contingent Liability shall be declared to be due
and payable, or required to be prepaid, prior to the stated maturity thereof;
(g) Company shall have any final judgment(s) outstanding against it
for the payment of $200,000 or more, and such judgment(s) shall remain unstayed
and unpaid for over 30 days;
(h) There shall be an issuance of an order of attachment in excess of
$100,000 against Company or any of its Property, or there shall be damage to or
destruction of a substantial part of the Collateral;
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(i) Company shall have any material change in its ownership,
management or control;
(j) Lender shall determine that there has been any Material Adverse
Change; or
(k) There shall occur any Event of Default (as such term is defined in
the NationsBank Loan and Security Agreement) under the NationsBank Loan and
Security Agreement.
7.02 REMEDIES UPON DEFAULT. If any Event of Default described in
Section 7.01(e) hereof shall occur with respect to Company, all amounts owing to
Lender shall, to the extent permitted by applicable Law, become immediately due
and payable without any action by Lender, and without diligence, presentment,
demand, protest, notice of protest or intent to accelerate, or notice of any
other kind, all of which are hereby waived to the fullest extent permitted by
Law. If any other Event of Default shall occur and be continuing, Lender may do
any one or more of the following from time to time:
(a) Declare all Advances, interest and other amounts owing to Lender
immediately due and payable, whereupon they shall be due and payable without
diligence, presentment, demand, protest, notice of protest or intent to
accelerate, or notice of any other kind, all of which are hereby waived to the
fullest extent permitted by Law;
(b) Terminate or reduce the Commitment; and/or
(c) Subject to the rights of NationsBank, N.A. (South) under the
NationsBank Loan and Security Agreement and under the Intercreditor Agreement,
exercise any other Rights afforded under any agreement, by Law, at equity or
otherwise, including those Rights of a secured party under the Uniform
Commercial Code in effect in any jurisdiction where the Collateral is kept.
Such Rights shall include the right to cancel any Unfunded Approvals, to direct
Company to return any Inventory to a vendor or manufacturer thereof for credit
or refund, to enter any of Company's premises with or without legal process,
but without force, and/or to take possession of and remove Collateral, and
books and records relating to Collateral. Subject to the rights of NationsBank,
N.A. (South) under the NationsBank Loan and Security Agreement and under the
Intercreditor Agreement, at Lender's request during an Event of Default,
Company will assemble, prepare for removal and make available to Lender at a
place to be designated by Lender which is reasonably convenient to both parties
such items of Collateral as
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Lender may from time to time request. During the continuance of an Event of
Default, Lender may take control of any funds generated by the Collateral,
notify Account obligors to make payment to an account or location designated by
Lender, and in Lender's name or Company's name, demand, collect, receipt for,
settle, compromise, sue for, repossess, accept returns of, foreclose or realize
upon any Collateral, including without limitation Accounts and related
instruments and security therefor. Ten days written notice of a public sale
date or the date after which a private sale may occur shall be a reasonable
notice. Lender shall not be chargeable with responsibility for the accuracy or
validity of any document or for the existence or value of any Collateral, and
shall not be liable for failure to collect any amounts owing on an Account or
instrument. Company waives all relief from all appraisement, valuation,
deficiency or exemption laws now in force or hereafter enacted. LENDER SHALL
NOT BE LIABLE FOR ANY ACT OR OMISSION OF ITS OFFICERS, AGENTS OR EMPLOYEES,
ABSENT GROSS NEGLIGENCE OR WILFUL MISCONDUCT.
7.03. CUMULATIVE RIGHTS. All Rights available to Lender under the
Loan Papers shall be cumulative of and in addition to all other Rights under
any other agreement, at Law or in equity. The acceptance by Lender at any time
and from time to time of partial payment of any amount owing under any Loan
Papers shall not be deemed to be a waiver of any Event of Default then
existing. No waiver by Lender of an Event of Default shall be deemed to be a
waiver of any Event of Default other than such Event of Default. No delay or
omission by Lender in exercising any Right under the Loan Papers shall impair
such Right or be construed as a waiver thereof or an acquiescence therein, nor
shall any single or partial exercise of any Right preclude other or further
exercise thereof, or the exercise of any other Right under the Loan Papers or
otherwise.
7.04. PERFORMANCE BY LENDER; EXPENDITURES. Should any covenant of
Company fail to be performed in accordance with the terms of the Loan Papers,
Lender may, at its option, attempt to perform such covenant on behalf of
Company. It is expressly understood, however, that Lender does not assume and
shall never have any liability or responsibility for the performance of any
obligations of Company. Any amounts expended or incurred by Lender in the
performance of any such act or in the enforcement of this Agreement (including
reasonable attorneys' fees) shall constitute part of the obligations secured
hereunder, will bear interest at the default rate hereunder and will be payable
upon demand.
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7.05 CONTROL. None of the provisions hereof shall be deemed to give
Lender any right to exercise control over the affairs and/or management of
Company, which the parties agree is retained by Company.
ARTICLE VII
MISCELLANEOUS
8.01. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of any Loan Papers, nor consent to any departure by Company
therefrom, shall be effective unless the same shall be in writing and signed by
Lender, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
8.02. NOTICES. Unless otherwise provided herein, all notices,
demands and other communications under the Loan Papers shall be in writing and
shall be personally delivered, sent by telecopy or telex (answerback received),
or sent by certified mail, postage prepaid, to the following addresses:
(a) If to Company:
Dataflex Corporation
2145 Calumet Street
Clearwater, Florida 34625
Attention: Debbie Medley
(b) If to Lender:
NationsCredit Commercial Corporation of America
1000 Holcomb Woods Parkway, Suite 240
Roswell, Georgia 30076
Attention: Regional Manager, Business Finance
with a copy to:
NationsCredit Commercial Corporation
Riverwood 100 Building
3350 Cumberland Circle, N.W.
Suite 1000
Atlanta, Georgia 30339
Attention: Patricia J. Naghshineh, Esq.
Associate General Counsel
or to such other address as any party shall hereafter designate in written
notice to the other party. All
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notices, demand and other communications will be effective when so personally
delivered or sent by telecopy or telex, or five days after being so mailed;
provided, however, that notices to Lender pursuant to Article II hereof shall
only be effective when received.
8.03. PARTIES IN INTEREST. The Loan Papers shall bind and inure to
the benefit of the parties hereto, and their successors and assigns. Lender may
from time to time assign its rights or obligations hereunder, but Company may
not assign or transfer it rights or obligations hereunder (whether voluntarily
or by operation of Law), without the prior written consent of Lender.
8.04. COSTS, EXPENSES AND TAXES. Company agrees to pay on demand (i)
all reasonable costs and expenses of Lender in connection with the preparation,
negotiation and administration of any Loan Papers, including without limitation
reasonable attorneys' fees, (ii) all reasonable costs and expenses (including
reasonable attorneys' fees) of Lender in connection with any extension,
modification, waiver or release of any Loan Papers, and (iii) all reasonable
costs and expenses of Lender incurred in any work-out or enforcement of any
Loan Papers, including reasonable attorneys' fees and the costs and expenses of
environmental or other consultants. Company shall pay any stamp, debt,
recordation, withholding and other Taxes payable in connection with any Loan
Papers or payments thereunder (other than Taxes on the overall net income of
Lender), and agrees to save Lender harmless from and against all liabilities
relating to any Taxes arising by virtue of the execution, delivery and
performance of the Loan Papers and the transactions contemplated thereunder
excluding Taxes on the income of Lender. All payments by Company shall be made
free and clear of and without deduction for any Taxes (other than Taxes on the
income of Lender) of any nature now or hereafter existing.
8.05. INDEMNIFICATION BY COMPANY. Company agrees to indemnify,
defend and hold harmless Lender and its Affiliates, directors, officers,
agents, employees and representatives, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against any of them
in any way relating to or arising out of any Loan Papers (including in
connection with or as a result, in whole or in part, of the negligence of any
of them), any transaction related hereto or thereto, or any act, omission or
transaction of Company, or any of its Affiliates, or any of its directors,
officers, agents,
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employees or representatives; provided, however, that Company shall not
indemnify, defend and hold harmless any indemnified Person for losses or damages
that Company proves were caused by such Person's willful misconduct or gross
negligence. Company agrees that Lender shall never be liable to Company for any
consequential damages. This indemnity shall survive repayment of Company's
obligations to Lender.
8.06 HAZARDOUS WASTE INDEMNIFICATION. Company shall indemnify and hold
harmless Lender, its parent company, subsidiaries and all of their directors,
officers, employees, agents, successors, attorneys and assigns from and against
any loss, damage, cost, expense or liability directly or indirectly arising out
of or attributable to the use, generation, manufacture, treatment, production,
storage, release, threatened release, discharge, disposal or presence of a
hazardous substance on, under or about Company's property or operations or
property leased to Company, including but not limited to attorneys' fees
(including the reasonable estimate of the allocated cost of in-house counsel and
staff). For these purposes, the term "hazardous substances" means any substance
which is or becomes designated as "hazardous" or "toxic" under any federal,
state or local law. This indemnity shall survive repayment of Company's
obligations to Lender.
8.07. DISCLAIMER OF WARRANTY. COMPANY ACKNOWLEDGES THAT LENDER HAS MADE
NO EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO ANY INVENTORY OR OTHER
COLLATERAL, INCLUDING ANY WARRANTY OF MERCHANTABILITY. COMPANY IRREVOCABLY
WAIVES ANY CLAIMS AGAINST LENDER WITH RESPECT TO THE INVENTORY AND OTHER
COLLATERAL WHETHER FOR BREACH OF WARRANTY OR OTHERWISE. Any such claims shall
not alter, diminish or otherwise impair Company's liabilities or obligations to
Lender hereunder. Lender does not assume any obligations of Company relating to
the Inventory, any Accounts, any contract obligations, or any other obligations
or duties arising from the Collateral.
8.08. RATE PROVISION. It is not the intention of any party to any Loan
Papers to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall Company be obligated to pay any amount in
excess of the maximum amount of interest permitted under applicable Law. If
from any circumstance Lender shall ever receive anything of value deemed excess
interest under applicable Law, an amount equal to such excess shall be applied
to the reduction of the principal amount of outstanding Advances and any
remainder shall be refunded to the payor.
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8.09. SEVERABILITY; COUNTERPARTS. If any provision of any Loan Papers
is held to be illegal, invalid or unenforceable under present or future Laws
during the term thereof, such provision shall be fully severable, and the Loan
Papers shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part thereof. This Agreement and
the other Loan Papers may be executed in any number of counterparts.
8.10. GOVERNING LAW. This Agreement and the other Loan Papers shall
be governed by and construed in accordance with the laws of the Georgia. The
state and federal courts located in Georgia, including the U.S. District Court
for the Northern District of Georgia, shall have jurisdiction to determine any
claim or dispute pertaining to this Agreement, and the parties expressly submit
and consent to such jurisdiction.
8.11. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
THE PARTIES HERETO WAIVE ANY RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING
UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS OR ANY RELATED
MATTERS.
8.12. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.
[remainder of pay intentionally left blank]
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IN WITNESS WHEREOF, this Loan and Security Agreement is executed under
seal as of the date first set forth above.
DATAFLEX CORPORATION
By /s/ Anthony G. Lembo (SEAL)
-------------------------------------
Title: President
Attest:
------------------------------
Title:
--------------------------
NATIONSCREDIT COMMERCIAL CORPORATION
OF AMERICA
BY /s/ Merle E. Kasnes (SEAL)
-------------------------------------
Title: Senior Vice President
Attest:
------------------------------
Title:
--------------------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated July 2, 1996
relating to the financial statements of Dataflex Corporation, which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended March 31, 1996 listed
under Schedule II when such schedule is read in connection with the financial
statements referred to in our report. The audits referred to in such report
also included this schedule. We also consent to the references to us under the
headings "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Tampa, Florida
April 16, 1997
