UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended July 20, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-5486
THE DIANA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2448698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0037
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes ___ No
At August 15, 1996, the registrant had issued and outstanding an
aggregate of 5,028,590 shares of its common stock.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The Diana Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
July 20, March 30,
1996 1996
----------- ----------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 11,686 $ 6,254
Marketable securities 1,414 1,215
Receivables 21,163 16,171
Inventories 12,373 12,337
Other current assets 974 1,009
------ ------
Total current assets 47,610 36,986
Property and equipment 4,440 4,158
Intangible assets 9,521 11,585
Other assets 3,293 804
------ ------
$ 64,864 $ 53,533
====== ======
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 12,523 $ 13,707
Accrued liabilities 2,442 2,514
Revolving lines of credit 9,256 7,038
Current portion of long-term debt 405 444
------ ------
Total current liabilities 24,626 23,703
Long-term debt 3,468 3,562
Other liabilities 1,615 1,582
Commitments and contingencies
Shareholders' equity
Preferred stock - $.01 par value --- ---
Common stock - $1 par value 5,756 5,526
Additional paid-in capital 72,086 59,456
Accumulated deficit (36,099) (34,776)
Unrealized loss on marketable securities (677) (876)
Treasury stock (5,911) (4,644)
------ ------
Total shareholders' equity 35,155 24,686
$ 64,864 $ 53,533
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
16 Weeks Ended
July 20, July 22,
1996 1995
---------- ----------
<S> <C> <C>
Net sales $ 87,217 $ 81,553
Other income 207 135
------ ------
87,424 81,688
Cost of sales 83,180 78,931
Selling and administrative expenses 5,273 2,751
------ ------
Operating earnings (loss) (1,029) 6
Interest expense (396) (335)
Minority interest 103 ---
Equity in loss of unconsolidated
subsidiaries --- (72)
------ ------
Net loss $ (1,322) $ (401)
====== ======
Loss per common share $ (.27) $ (.10)
====== ======
Weighted average number of common shares
outstanding 4,976 4,111
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
16 Weeks Ended
July 20, July 22,
1996 1995
---------- ----------
<S> <C> <C>
Operating Activities:
Net loss $(1,322) $ (401)
Reconciliation of net loss to net cash
provided by operating activities:
Depreciation and amortization 513 364
Minority interest (103) ---
Equity in loss of unconsolidated
subsidiaries --- 72
Other (275) (31)
Changes in operating assets and liabilities (3,751) 1,609
------ ------
Net cash provided (used) by operating activities (4,938) 1,613
Investing activities:
Increase in promissory note (5,000) ---
Additions to property and equipment (544) (147)
Purchases of marketable securities --- (161)
Sales of marketable securities --- 4,200
Other --- (3)
------ ------
Net cash provided (used) by investing activities (5,544) 3,889
Financing activities:
Changes in revolving lines of credit 2,218 (2,184)
Payments on long-term debt (133) (87)
Common stock issued 13,918 ---
Cash dividend payment by subsidiary to
minority shareholders (89) ---
------ ------
Net cash provided (used) by financing activities 15,914 (2,271)
------ ------
Increase in cash and cash equivalents 5,432 3,231
Cash and cash equivalents at the
beginning of the period 6,254 2,440
------ ------
Cash and cash equivalents at the end
of the period $11,686 $ 5,671
====== ======
Non-cash transaction:
Acquisition of common stock held by
minority shareholder $ 2,325 $ ---
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
The Diana Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
July 20, 1996
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the sixteen weeks ended July 20, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 29, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended March 30, 1996.
The computation of loss per common share is based on the weighted
average common shares outstanding and dilutive common stock equivalents
(stock options).
NOTE 2 - Sattel Communications ("Sattel")
On May 3, 1996, the Company and Sattel Technologies, Inc. ("STI")
entered into a Supplemental Agreement to amend the Exchange Agreement entered
into on January 16, 1996, whereby, among other things, the Company increased
its ownership interest in Sattel from 50% to 80%. STI conveyed to the
Company an additional 15% of Sattel and 50,000 shares of the Company's common
stock (previously acquired by STI on January 16, 1996) in exchange for being
released from the obligation to pay for certain product development and STI's
proportionate share of a $10 million capital contribution to Sattel. In May
1996, the Company contributed $10 million to Sattel pursuant to the
Supplemental Agreement. These transactions resulted in a net reduction of
approximately $1,825,000 of intangible assets which originated from the
January 16, 1996 transaction. In addition, in fiscal 1997 Sattel granted
equity participation interests to certain employees of the Company. The
Company's effective ownership of Sattel remains at approximately 80% after
the grant of these interests. STI's effective ownership interest in Sattel
was reduced to approximately 4% as a result of all of these transactions.
In June 1996, Concentric Network Corporation ("CNC") executed a
Promissory Note for $5,000,000 in favor of Sattel. In August 1996, the
Promissory Note and accrued interest receivable were converted into 3,729,110
shares of CNC Series D Preferred Stock. In August 1996, Sattel entered into
an agreement with a third party to sell 1,838,235 shares of its CNC Series D
Preferred Stock for $2.5 million. This transaction is anticipated to close
in September 1996.
NOTE 3 - Shareholders' Equity
In April 1996, the Company raised approximately $14 million, after
commissions and expenses, through the sale of 430,000 shares of common stock.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In fiscal 1996, the Company acquired an 80% ownership interest in Valley
and increased its ownership interest in Sattel from 50% to 80%. The results
of operations of Valley were included in the consolidated group beginning in
December 1995 and Sattel beginning in January 1996 (see Notes 1 and 2 to the
fiscal 1996 Consolidated Financial Statements).
The following is a summary of sales by segment (see Note 14 to the
Fiscal 1996 Consolidated Financial Statements) for the first quarter of
fiscal 1997 and 1996, including sales by significant product line for the
meat and seafood segment (in thousands):
1997 1996
Telecommunications equipment $ 7,550 $ 6,266
Network installation and service 3,804 ---
Beef 33,666 36,056
Pork 15,258 16,500
Other 26,939 22,731
------ ------
Meat and seafood total 75,863 75,287
------ ------
$87,217 $81,553
====== ======
For the sixteen weeks ended July 20, 1996, net sales increased
$5,664,000 or 6.9% over fiscal 1996 first quarter net sales. Sales of the
telecommunications equipment segment increased $1,284,000 or 20.5% from
fiscal 1996 first quarter net sales primarily due to the inclusion of Sattel
in the Consolidated Financial Statements. Sattel's commercial sales during
the first quarter of fiscal 1997 were $841,000. Sales of the network
installation and service segment are all attributable to Valley. Sales of
the meat and seafood segment consist of sales made by APC. APC's overall
volume (based on tonnage) during this period decreased by .2% and net sales
increased $576,000 or .8% over fiscal 1996 first quarter net sales.
Other income increased $72,000 or 53.3% from the same period in fiscal
1996. The increase is primarily attributable to an increase in interest
income resulting from increased cash and cash equivalent levels due to the
sale of 600,000 shares of common stock by the Company in March and April
1996.
For the sixteen weeks ended July 20, 1996, gross profit increased
$1,415,000 or 54.0% from the same period in fiscal 1996. On a consolidated
basis, gross profit as a percentage of net sales was 4.6% in the first
quarter of fiscal 1997 as compared to 3.2% in the first quarter of fiscal
1996. The increase in gross profit and the gross profit percentage is
primarily attributable to the inclusion of Sattel and Valley in the
Consolidated Financial Statements in fiscal 1997.
5
<PAGE>
For the sixteen weeks ended July 20, 1996, selling and administrative
expenses increased $2,522,000 or 91.7% from the same period in fiscal 1996.
Selling and administrative expenses as a percentage of net sales were 6.1%
for the sixteen weeks ended July 20, 1996 as compared to 3.4% from the same
period in fiscal 1996. Selling and administrative expenses have increased
primarily because of the inclusion of Sattel and Valley in the Consolidated
Financial Statements in fiscal 1997.
For the sixteen weeks ended July 20, 1996, interest expense increased
$61,000 or 18.2% over the same period in fiscal 1996. The increase in
interest expense is primarily due to an increase in borrowings that were made
in connection with the acquisition of Valley.
Minority interest for the sixteen weeks ended July 20, 1996, consists of
Sattel Technologies Inc.'s proportionate share of Sattel's first quarter loss
partially offset by Valley's minority shareholder's proportionate share of
Valley's first quarter earnings.
The change in equity in loss of unconsolidated subsidiaries is primarily
due to the change in the accounting of Sattel from the equity method of
accounting to consolidation accounting as a result of the increase in the
Company's ownership in Sattel from 50% to 80% in January 1996.
The increase in the Company's net loss for the first quarter of fiscal
1997 as compared to the same period of time in fiscal 1996 is primarily due
to the following: a loss incurred by Sattel primarily due to start-up costs
incurred for the development of its business; a reduction in C&L's earnings
which have been adversely impacted by the competitor company established in
1995 by several of C&L's former employees; and an increase in APC's loss in
fiscal 1997 as compared to fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash outflow from operating activities of $4,938,000
during the first quarter of fiscal 1997 as compared to cash flow of
$1,613,000 in fiscal 1996. The decrease in cash flow is primarily
attributable to an increase in the net loss and less cash provided by the net
change in working capital items. The increase in receivables is primarily
attributable to increased trade accounts receivable at C&L and APC. C&L's
receivables have increased primarily due to an increase in its sales. APC's
receivables have increased due to an increase in accounts receivable from a
large customer resulting from late payments. This customer has substantially
eliminated its past due receivables during August 1996. In addition, the
Company has classified $2,500,000 of the promissory note receivable from CNC
within receivables (see discussion below).
The decrease in intangible assets is primarily attributable to the
transaction discussed in Note 2 to the Condensed Consolidated Financial
Statements.
6
<PAGE>
In the first quarter of fiscal 1997, the Company had $544,000 of capital
expenditures of which $349,000 were made collectively by C&L, Valley and APC.
The Loan and Security Agreements for C&L, Valley and APC include covenants
that restrict capital expenditures. In fiscal 1997, capital expenditures
made by C&L, Valley and APC will be limited to $1,100,000 because of
covenants in their Loan and Security Agreements that restrict capital
expenditures.
C&L has a Loan and Security Agreement ("C&L Revolver") with a lender
providing a revolving line of credit through January 1999 of up to
$6,000,000, with interest at the prime rate or LIBOR plus 2.25%. In
addition, there is an unused line fee of .25%. Borrowings under the C&L
Revolver are restricted based on defined percentages of eligible accounts
receivable and inventories. The amount of borrowings and availability under
the C&L Revolver at July 20, 1996 was $3,043,000 and $1,954,000,
respectively. C&L's Revolver provides for the following financial covenants
during fiscal 1997: minimum tangible net worth of $2,000,000; minimum
cumulative income from operations, calculated on a quarterly basis of
$115,000, $446,000, $730,000 and $1,174,000, respectively; a current ratio of
1:1 and a maximum ratio of total liabilities to equity of 6:1. C&L has met
its financial covenants during fiscal 1997.
Valley has a Loan and Security Agreement ("Valley Revolver") with a
lender providing a revolving line of credit through March 1999 of up to
$2,500,000 with interest at the prime rate or LIBOR plus 2.25%. In addition,
there is an unused line fee of .25%. Borrowings under the Valley Revolver
are restricted based on defined percentages of eligible accounts receivable
and inventories. The amount of borrowings and availability under the Valley
Revolver at July 20, 1996 was $648,000 and $1,653,000, respectively.
APC's credit facility provides a revolving line of credit of up to
$9,500,000 with interest at the prime rate plus 2% through November 1997. A
$2 million letter of credit facility is included within the total credit
facility. At July 20, 1996, APC borrowed $5,565,000 and had letters of
credit of $2,000,000 issued on its behalf. At July 20, 1996, APC had
available unused borrowing capacity of $686,000. APC's revolving line of
credit has the following financial covenants for fiscal 1997: minimum
tangible net worth of $3,900,000 through March 28, 1997 and $4,400,000 on
March 29, 1997, a net loss of not greater than $40,000 and net cash flow on
a rolling 13-period basis (measured at the end of each four week period)
ranging from $385,000 to $500,000. APC violated a financial covenant
requiring net cash flow of $400,000, $385,000 and $405,000 for the 52 week
periods ended June 22, 1996, July 20, 1996, and August 17, 1996,
respectfully. The lender has not waived these violations. APC and the
lender are presently in discussions regarding this matter. In addition, APC
has received a commitment, subject to certain conditions, from a new lender
to refinance its revolving line of credit. The proposed credit facility
provides for a revolving line of credit of up to $10,000,000 with certain
terms anticipated to be more favorable than the present credit facility. The
new credit facility is anticipated to close around September 30, 1996.
7
<PAGE>
In May 1996, the Company contributed an additional $10 million to
Sattel. In June 1996, CNC executed a Promissory Note for $5,000,000 in favor
of Sattel. In August 1996, the Promissory Note and accrued interest
receivable were converted into 3,726,110 shares of CNC Series D Preferred
Stock. In August 1996, Sattel entered into an agreement with a third party
to sell 1,838,235 shares of its CNC Series D Preferred Stock for $2.5
million. This transaction is anticipated to close in September 1996. At
July 20, 1996, the Company classified $2,500,000 of the Promissory Note
within receivables and the balance in other assets.
In the fourth quarter of fiscal 1996 and in the first quarter of
fiscal 1997, the Company raised approximately $17.4 million, after
commissions and expenses, through the sale of 600,000 shares of Common Stock.
The Company believes that it has adequate resources to meet its liquidity
needs for fiscal 1997. On a long term basis, financing for the Company's
operations, including working capital requirements for Sattel and capital
expenditures, will come from cash generated from operations, the sale of
additional equity or other securities, additional bank borrowings and other
sources of capital, if available. The Company has filed a registration
statement for shelf registration of up to 500,000 shares of common stock,
which may be sold in fiscal 1997 if conditions warrant.
The Company is investigating how it can be restructured in order to
maximize shareholder value. Management is currently looking at several
alternative approaches, based on separating operating units by industry type
into independent publicly traded companies. Management has retained the
services of Hambrecht & Quist, LLC, an investment banking firm, to assist
them with this effort.
In August 1996, all negotiations and agreements with third parties
concerning the sale of APC were terminated.
8
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
3.1 - By-Laws of Registrant as amended.
4.1 - Loan and Security Agreement by and between Valley Communications,
Inc. and Sanwa Business Credit Corporation dated March 14, 1996.
10.1 - Agreement dated November 17, 1995 between Valley Communications,
Inc. and Communications Workers of America Local 9412.
10.2 - Letter dated September 3, 1996 from Sanwa Business Credit
Corporation to The Diana Corporation
27 - Financial Data Schedule
b) Reports on Form 8-K:
(1) Form 8-K/A (Amendment No. 1) on April 1, 1996 to amend the Form 8-K
filed on January 31, 1996; Item 7. Financial Statements and
Exhibits. The financial statements included in this filing were
the audited financial statements of Sattel Communications Company
for the period November 23, 1994 (inception) through December 31,
1994 and for the year ended December 31, 1995, Unaudited Pro Forma
Condensed Consolidated Balance Sheet of The Diana Corporation at
January 6, 1996 and Unaudited Pro Forma Condensed Consolidated
Statements of Operations of The Diana Corporation for the 52 weeks
ended April 1, 1995 and the 40 weeks ended January 6, 1996.
(2) Form 8-K/A (Amendment No. 2) on July 12, 1996 to amend the Form 8-K
filed on December 5, 1996; Item 7. Financial Statements and
Exhibits. The financial statements included in this filing were
the audited financial statements of Valley Communications, Inc. for
the years ended October 31, 1992, 1993, 1994 and for the ten months
ended August 31, 1995, the Pro Forma Condensed Consolidated Balance
Sheet of The Diana Corporation at October 14, 1995 and the Pro
Forma Condensed Consolidated Statements of Operations of The Diana
Corporation for the 52 weeks ended April 1, 1995 and the 28 weeks
ended October 14, 1995.
(3) Form 8-K/A (Amendment No. 2) on July 15, 1996 to amend the Form 8-K
filed on January 31, 1996; Item 7. Financial Statements and
Exhibits. There were no financial statements included in this
filing.
(4) Form 8-K/A (Amendment No. 3) on August 14, 1996 to amend the Form
8-K filed on January 31, 1996; Item 7. Financial Statements and
Exhibits. The financial statements included in this filing were
the audited financial statements of Sattel Communications Company
for the period November 23, 1994 (inception) through December 31,
1994 and for the year ended December 31, 1995, Unaudited Pro Forma
Condensed Consolidated Balance Sheet of The Diana Corporation at
January 6, 1996 and Unaudited Pro Forma Condensed Consolidated
Statements of Operations of The Diana Corporation for the 52 weeks
ended April 1, 1995 and the 40 weeks ended January 6, 1996.
9
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE DIANA CORPORATION
By:/s/ Richard Y. Fisher
Richard Y. Fisher
Chairman of the Board and
President (Principal
Executive Officer)
By:/s/ R. Scott Miswald
R. Scott Miswald
Vice President, Treasurer
and Secretary (Principal
Financial and Accounting
Officer)
DATE: September 3, 1996
BY LAWS OF
THE DIANA CORPORATION
ARTICLE I
Offices
SECTION 1. REGISTERED OFFICE. The registered office shall be
in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The corporation may also have
offices at such other places both within and without the State of
Delaware as the board of directors may from time to time determine
or the business of the corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. PLACE OF MEETINGS. Meetings of stockholders for
any purpose may be held at such place, within or without the State
of Delaware, as shall be stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETING. The board of directors may fix
the date, time and place of the annual meeting of stockholders, but
if no such date, time and place is fixed by the board of directors
for any calendar year, the annual meeting for such calendar year,
commencing with the year 1980, shall be held at the executive
offices of the corporation on the fourth Tuesday in June if not a
legal holiday, and if a legal holiday, then on the next business
day following at 10:00 a.m., local time. At each annual meeting
the stockholders shall elect directors and transact such other
business as may properly be brought before the meeting. (Amended
January 22, 1980)
SECTION 3. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, unless prescribed by
statute, may be called by the Chairman of the Board, the Secretary,
or the Board of Directors. (Amended April 11, 1988)
SECTION 4. WRITTEN NOTICE. Written notice of the annual
meeting and each special meeting of stockholders stating the place,
date and hour of the meeting, and in the case of a special meeting
stating the purpose or purposes for which the special meeting is
called, shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date
of the meeting. Whenever the language of a proposed resolution is
included in a written notice of a meeting of stockholders the
resolution may be adopted at such meeting with such clarifying or
other amendments as do not enlarge its original purpose without
1
<PAGE>
further notice to stockholders not present in person or by proxy at
such meeting.
SECTION 5. LIMITATION ON BUSINESS TRANSACTED. Business
transacted at any special meeting of stockholders shall be limited
to the purposes stated in the notice.
SECTION 6. VOTING LIST. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours,
for a period of at least ten days prior to the meeting, either at
a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 7. QUORUM. The holders of issued and outstanding
stock entitled to cast a majority of the total number of votes
which may be cast thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the
stockholders except as otherwise provided by statute or by the
Certificate of Incorporation. Treasury shares shall not be counted
in determining the total number of outstanding shares for voting
purposes at any given time. If, however, such quorum shall not be
so present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the
meeting, until a quorum shall be so present or represented. At
such adjourned meetings at which a quorum shall be present in
person or represented by proxy, any business may be transacted
which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 8. MAJORITY CONTROL. When a quorum is present at any
meeting, the vote of the holders of stock having a majority of the
voting power present in person or represented by proxy at such
meeting shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the
statutes or of the Certificate of Incorporation, a different vote
is required, in which case such express provision shall govern and
control the decision of such question.
2
<PAGE>
SECTION 9. VOTING POWER. Every stockholder of record, except
a holder of stock which has been called for redemption and with
respect to which an irrevocable deposit of funds has been made,
shall have the right, at every stockholders' meeting, to such a
vote for every share, and to such a fraction of a vote with respect
to every fractional share, of stock of the corporation registered
in his name on the books of the corporation as may be provided in
the Certificate of Incorporation, and to one vote for every share,
and to a fraction of a vote equal to every fractional share, of
stock of the corporation registered in his name on the books of the
corporation if no express provision for voting rights is made in
the Certificate of Incorporation. Treasury stock shall not be
voted, directly or indirectly, at any meeting of stockholders or be
counted in connection with the expression of consent or dissent to
corporate action in writing without a meeting.
SECTION 10. PROXIES. Every stockholder entitled to vote at
a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another
person or persons to act for him by proxy. Every proxy shall be
executed in writing by the stockholder or by his duly authorized
attorney in fact and filed with the Secretary of the corporation.
A proxy, unless coupled with an interest sufficient in law to
support an irrevocable power and stated to be irrevocable, shall be
revocable at will, notwithstanding any other agreement or any
provision in the proxy to the contrary, but the revocation of a
proxy shall not be effective until notice thereof has been given to
the Secretary of the corporation. No unrevoked proxy shall be
valid after three years from the date of its execution, unless a
longer time is expressly provided therein. A proxy shall not be
revoked by the death of incapacity of the maker unless, before the
vote is counted or the authority is exercised, written notice of
such death or incapacity is given to the Secretary of the
corporation.
SECTION 11. ACTION WITHOUT A MEETING. Unless otherwise
provided in the Certificate of Incorporation, any action required
to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent of
stockholders shall be given to those stockholders who have not
consented thereto in writing.
3
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS AND NUMBER
The business and affairs of the Company shall be managed by
its Board of Directors. The directors shall be divided into 3
classes; the term of office of the directors of the 1st class to
expire at the Annual Meeting of Shareholders to be held in 1988;
that of the 2nd class to expire at the Annual Meeting of
Shareholders to be held in 1989; and that of the 3rd class to
expire at the Annual Meeting of Shareholders to be held in 1990.
At each annual meeting starting in 1988, the number of directors
equal to the number of the class whose term expires at the time of
such meeting shall be elected to hold office until the 3rd
succeeding annual meeting. The number of directors of the Company
shall be seven (Amended September 27, 1991). This number of
directors may be changed only by the affirmative vote of (i) the
holders of at lease 75% of the shares of the corporation entitled
to vote on such change, or (ii) a majority of the directors in
office at the time of the vote. When the number of directors is
changed, any increase or decrease in directorships shall be
apportioned among the classes so as to make all classes as nearly
equal in number as possible. (Amended April 11, 1988)
SECTION 2. VACANCIES
A director may be removed from office only for cause, and only
by affirmative vote of a majority of the shares entitled to vote
for the election of such director, taken at a meeting of
shareholders called for that purpose. Except as may otherwise be
provided by law, cause for removal shall be construed to exist only
if the director whose removal is proposed has been convicted of a
felony by a court of competent jurisdiction and such conviction is
no longer subject to direct appeal or has been adjudged by a court
of competent jurisdiction to be liable for negligence or misconduct
in the performance of his duty to the Company in a matter of
substantial importance to the Company, and such adjudication is no
longer subject to direct appeal. A director may resign at any time
by filing his written resignation with the Secretary of the
Company.
Any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, may be
filled until the expiration of the term of that class of directors
in which the vacancy exists by the affirmative vote of a majority
of the directors then in office, though less than a quorum of the
Board of Directors.
All nominations for election to the Board of Directors,
including any nomination to fill a vacancy (whether created by an
increase in the number of directors, a resignation of a Director,
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or otherwise) other than those made by the remaining directors then
in office, must be made at a meeting of stockholders called for the
election of directors. (Amended April 11, 1988)
SECTION 3. [BLANK] (AMENDED APRIL 11, 1988)
Meetings of the Board of Directors
SECTION 4. PLACE OF MEETINGS. The board of directors may
hold meetings, both regular and special, either within or without
the State of Delaware.
SECTION 5. ANNUAL MEETING. The first meeting of each newly
elected board of directors shall be held in the same place as the
annual meeting of stockholders immediately following such meeting
and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting is
not held at such time and place, the meeting may be held at such
time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the board of
directors, or as shall be specified in a written waiver signed by
all of the directors.
SECTION 6. REGULAR MEETINGS WITHOUT NOTICE. Regular meetings
of the board of directors may be held without notice at such date,
time and place as shall from time to time be determined by
resolution of the board.
SECTION 7. SPECIAL MEETINGS. Special meetings of the board
of directors may be called by the Chief Executive Officer or the
Secretary, and shall be called by the Chief Executive Officer or
the Secretary upon the written request of any two or more
directors. Notice of the date, time and place of such meetings
shall be served upon or telephoned to each director at least 24
hours, or mailed (postage prepaid) or telegraphed, cable or telexed
(charges prepaid) to each director at his address as shown on the
books of the corporation at least 48 hours prior to the time of the
meeting.
SECTION 8. QUORUM. At all meetings of the board a majority
of the total number of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically
provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting
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from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 9. ACTION WITHOUT A MEETING. Unless otherwise
restricted by the Certificate of Incorporation or these By-Laws:
(a) Unanimous Consent. Any action required or permitted
to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if all
members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with
the minutes or proceedings of the board or committee.
(b) Telephone Conferences. Members of the board of
directors or any committee designated by the board, may
participate in a meeting of the board or committee by means of
a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to
this subsection shall constitute presence in person at such
meeting.
Committees of the Board of Directors
SECTION 10. EXECUTIVE COMMITTEE. The board of directors may,
by resolution passed by a majority of the whole board, designate an
Executive Committee consisting of the Chief Executive Officer and
not less than three other directors which, during intervals between
meetings of the board of directors, shall have and may exercise all
of the powers of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal
of the corporation to be affixed to all papers which may require
it; provided, however, that the Executive Committee shall have no
power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property or assets,
recommending to the stockholders a dissolution of the corporation
or a revocation of a dissolution, or amending the By-Laws of the
corporation, or to declare a dividend, authorize the issuance of
stock or fill vacancies on the board of directors. The board of
directors may also designate one or more directors as alternate
members of the Executive Committee who may replace any absent or
disqualified member at any meeting of the Executive Committee. The
board of directors may, at any time, by resolution passed by a
majority of the whole board, limit the exercise of the foregoing
powers by the Executive Committee, or suspend the operations of the
Executive Committee.
Three members shall constitute a quorum for the transaction of
business. The Chief Executive Officer shall act as chairman of the
Executive Committee, shall preside at all meetings of the Executive
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Committee and shall appoint one person (who need not be a member)
to act as secretary at each meeting of the Executive Committee. In
the absence of the Chief Executive Officer, or in the event of his
disability or refusal to act, such other member of the Executive
Committee as the Executive Committee or the board of directors
shall designate shall preside at meetings of the Executive
Committee. Meetings of the Executive Committee may be called by
the Chief Executive Officer or any two members of the Executive
Committee. Notice of any meeting of the Executive Committee shall
be sufficient if given in the same manner as notice of a special
meeting of the board of directors.
The Executive Committee shall keep regular minutes of its
meetings. The acting secretary of each meeting of the Executive
Committee shall furnish to the Secretary of the corporation (when
not the same person) a true and correct copy of the proceedings of
such meeting and the Secretary of the corporation shall thereupon
record such proceedings in the minute book of the corporation.
SECTION 11. OTHER COMMITTEES OF DIRECTORS. In addition to
the Executive Committee, the board of directors may, by resolution
passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the
directors of the corporation, except that the Audit Committee may
consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent
provided in the resolution, shall have and may exercise the powers
of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but
no such committee shall have the power of authority in reference to
amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's
property and assets, recommending to the stockholders a dissolution
of the corporation, or a revocation of a dissolution, or amending
the By-Laws, of the corporation; and, unless the resolution,
By-Laws, or Certificate of Incorporation expressly so provide, no
such committee shall have power of authority to declare a dividend
or to authorize the issuance of stock or to fill vacancies on the
board of directors. Such committee or committees shall have such
name or names as may be determined from time to time by resolution
adopted by the board of directors.
Unless otherwise provided by the board of directors, a
majority of the members of any committee appointed by the board of
directors pursuant to this Section shall constitute a quorum at any
meeting thereof and the act of a majority of the members present at
a meeting at which a quorum is present shall be the act of such
committee. Any such committee shall, subject to any rules
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prescribed by the board of directors, prescribe its own rules for
calling, giving notice of and holding meetings and its method of
procedure at such meetings. (Amended June 23, 1981).
SECTION 12. RECORD OF PROCEEDINGS. Each committee shall keep
regular written minutes of its meetings and actions taken by it and
report the same to the board of directors when required.
Directors Fees
SECTION 13. FEES. Each director and member of a committee of
directors shall be paid such reasonable fee, if any, as shall be
fixed by the board of directors for each meeting of the board of
directors or committee of directors which he shall attend and may
be paid such other compensation for his services as a director or
member as may be fixed by the board of directors. No such payment
shall preclude any director or member from serving the corporation
in any other capacity and receiving compensation therefor.
ARTICLE IV
Notices
SECTION 1. FORM OF NOTICES. Whenever, under the provisions
of the statutes or of the Certificate of Incorporation or of these
By-Laws, notice is required to be given to any director, any member
of a committee of directors or any stockholder, it shall not be
construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director, member or
stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in
the United States mail. Notice to any director or any member of a
committee of directors may also be given by telex, cable or
telegram and such notice shall be deemed to be given when delivered
to the telegraph company or transmitted by the teletype as the case
may be.
SECTION 2. WAIVER OF NOTICE. Whenever any notice is required
to be given under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, a written waiver
thereof, signed by the person or persons entitled to notice,
whether before or after the time stated therein, shall be deemed
equivalent thereto. Neither the business to be transacted at, nor
the purpose of, any regular of special meeting of the stockholders,
directors or members of a committee of directors need be specified
in the waiver of notice unless so required by the Certificate of
Incorporation.
Attendance of a person at any meeting shall constitute a
waiver of notice of such meeting, except where a person attends a
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meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting
was not lawfully called or convened.
ARTICLE V
Officers
SECTION 1. NUMBER. The officers of the corporation, except
those elected by delegated authority pursuant to Section 3 of this
Article, shall be chosen by the board of directors and shall
include a Chief Executive Officer, a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a
Treasurer. The board of directors may also choose a Vice Chairman
of the Board, a Chief Financial Officer, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, a Controller and
one or more Assistant Secretaries, Assistant Treasurers and
Assistant Controllers. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these
By-Laws otherwise provided.
SECTION 2. ELECTION AND TERM OF OFFICE. The board of
directors at its first meeting after each annual meeting of
stockholders shall choose a Chief Executive Officer and a Chairman
of the Board from among the directors, and shall choose a
President, one or more Vice Presidents, a Secretary and a
Treasurer, none of whom need be a member of the board. The
officers of the corporation, except those elected by delegated
authority pursuant to Section 3 of this Article, shall be elected
annually by the board of directors, and each such officer shall
hold his office until his successor shall have been elected and
qualified, or until his earlier death, resignation, or removal.
SECTION 3. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The
board of directors may from time to time elect such other officers
and appoint such committees, employees or other agents as it shall
deem necessary or appropriate, each of whom shall hold office for
such period, have such authority, and perform such duties as are
provided in these By-Laws, or as the board of directors may from
time to time determine. The board of directors may delegate to any
officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents, or committees thereof,
and to prescribe the authority and duties of such subordinate
officers, committees, employees or other agents.
SECTION 4. SALARIES. The salaries of all officers, employees
and agents of the corporation who are elected or appointed by the
board of directors shall be fixed from time to time by the board of
directors or by such officer or committee as may be designated by
the board of directors. The salaries or other compensation of any
other officers, employees and other agents shall be fixed from time
to time by the officer or committee to which the power to elect
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such officers or to retain or appoint such employees or other
agents has been delegated pursuant to Section 3 of this Article.
No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that he is also a director of
the corporation.
SECTION 5. RESIGNATIONS. Any officer or agent may resign at
any time by giving written notice to the board of directors, or to
the Chief Executive Officer or the Secretary of the corporation.
Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein and, unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 6. REMOVAL. Any officer, committee, employee or
other agent of the corporation may be removed, either for or
without cause, by the board of directors or by the officer or
committee which elected or appointed such officer, committee or
other agent whenever in the judgment of the board or of such
officer or committee the best interests of the corporation will be
served thereby.
SECTION 7. VACANCIES. Any vacancy occurring in any office of
the corporation because of death, resignation, removal,
disqualification, or any other cause, shall be filled by the board
of directors or by the officer or committee to which the power to
fill such office has been delegated pursuant to Section 3 of this
Article, as the case may be, and if the office is one for which
these By-Laws prescribe a term, shall be filled for the unexpired
portion of the term.
SECTION 8. GENERAL POWERS. All officers of the corporation
as between themselves and the corporation, shall, respectively,
have such authority and perform such duties in the management of
the property and affairs of the corporation as may be determined by
resolution of the board of directors, or in the absence of
controlling provisions in a resolution of the board of directors,
as may be provided in these By-Laws.
SECTION 9. EXECUTION OF DOCUMENTS. The Chief Executive
Officer, the Chairman of the Board, the Vice Chairman of the Board
and the President shall each have the power and authority to sign
and execute, in the name of the corporation, bonds, mortgages and
other contracts and instruments, under the seal of the corporation
or otherwise, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or
these By-Laws to some other officer, employee or agent of the
corporation.
SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the board of directors and
stockholders and, in the absence of the President or in the event
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of his inability or refusal to act, shall perform the duties and
exercise the powers of the President. The Chairman of the Board
shall also perform such other duties and have such other powers as
the board of directors may from time to time prescribe.
SECTION 11. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of
the Board shall, in the absence of the Chairman of the Board or in
the event of his inability or refusal to act, perform the duties
and exercise the powers of the Chairman of the Board, and shall
perform such other duties and have such other powers as the board
of directors may from time to time prescribe.
SECTION 12. PRESIDENT. The President shall be an executive
officer of the corporation and, in the absence of the Vice Chairman
of the Board or in the event of his inability or refusal to act,
shall perform the duties and exercise the powers of the Vice
Chairman of the Board. The President shall also perform such other
duties and exercise such other powers as the board of directors may
from time to time prescribe.
SECTION 13. CHIEF EXECUTIVE OFFICER. Either the Chairman of
the Board, the Vice Chairman of the Board or the President may be
the Chief Executive Officer of the corporation, and the board of
directors shall from time to time designate which of such officers
shall be the Chief Executive Officer. The Chief Executive Officer
shall have general and active management control of the business of
the corporation, shall see that all orders and resolutions of the
board of directors are carried into effect and shall have general
supervision and direction of all other officers of the corporation.
The Chief Executive Officer shall also perform such other duties
and have such other powers as the board of directors may from time
to time prescribe. In the event of the absence of the Chief
Executive Officer or of his inability or refusal to act, the
Chairman of the Board or the Vice Chairman of the Board or the
President (whoever does not hold the office of Chief Executive
Officer), in the order designated by the board of directors, shall
perform the duties and exercise the powers of the Chief Executive
Officer.
SECTION 14. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS
AND VICE PRESIDENTS. The Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents shall perform such duties and have
such other powers as the board of directors of the Chief Executive
Officer may from time to time prescribe.
SECTION 15. SECRETARY. The Secretary shall attend all
meetings of the board of directors and all meetings of the
stockholders, record all the proceedings of all such meetings in a
book to be kept for that purpose and shall perform like duties for
the standing committees when requested. He shall give, or cause to
be given, notice of all meetings of the stockholders and special
meetings of the board of directors, and shall perform such other
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duties and have such other powers as the board of directors or the
Chief Executive Officer may from time to time prescribe. He shall
have custody of the corporate seal of the corporation and he, or an
Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by
his signature of such Assistant Secretary. The board of directors
may give general authority to any other officer to affix the seal
of the corporation and to attest the affixing by his signature.
SECTION 16. ASSISTANT SECRETARIES. In the absence of the
Secretary or in the event of his inability or refusal to act, the
Assistant Secretary (or in the event there be more than one, the
Assistant Secretaries in the order designated by the board of
directors, or in the absence of any designation, then in the order
of their election) shall perform the duties and exercise the powers
of the Secretary. The Assistant Secretaries shall also perform
such other duties and exercise such other powers as the board of
directors or the Chief Executive Officer may from time to time
prescribe.
SECTION 17. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer of the corporation shall, under the direction and
supervision of the Chief Executive Officer, supervise and manage
the financial affairs of the corporation. He shall have direct
supervision and direction of all other officers, employees and
agents of the corporation who are involved primarily in the conduct
of the financial affairs of the corporation. He shall also perform
such other duties and have such other powers as the board of
directors or the Chief Executive Officer may from time to time
prescribe.
SECTION 18. TREASURER. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging
to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors, the
Chief Executive Officer or the Chief Financial Officer. The
Treasurer shall render to the Chief Executive Officer, the Chief
Financial Officer and the board of directors, at its regular
meetings, or otherwise when the board of directors so requests, an
account of all his transactions as Treasurer and of the financial
condition of the corporation. The Treasurer shall also perform
such other duties and have such other powers as the board of
directors, the Chief Executive Officer or the Chief Financial
Officer may from time to time prescribe.
SECTION 19. ASSISTANT TREASURERS. In the absence of the
Treasurer or in the event of his inability or refusal to act, the
Assistant Treasurer (or in the event there be more than one, the
Assistant Treasurers in the order designated by the board of
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directors, or in the absence of any designation, then in the order
of their election) shall exercise the powers and perform the duties
of the Treasurer. The Assistant Treasurers shall also perform such
other duties and exercise such other powers as the board of
directors, the Chief Executive Officer or the Chief Financial
Officer may from time to time prescribe.
SECTION 20. PERFORMANCE BOND OF TREASURER AND ASSISTANT
TREASURERS. If required by the board of directors, the Treasurer
and each Assistant Treasurer shall give the corporation a bond in
such sum and with such surety or sureties as shall be satisfactory
to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in
case of his death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to
the corporation.
SECTION 21. CONTROLLER. The Controller shall plan and direct
corporate accounting and control policies and procedures and shall
disburse the funds of the corporation as may be ordered by the
board of directors, taking proper vouchers for such disbursements,
and shall render to the Chief Executive Officer, the Chief
Financial Officer, the Treasurer and the board of directors, at its
regular meetings, or otherwise when the board of directors so
requests, an account of all his transactions as Controller and of
the financial condition of the corporation.
SECTION 22. ASSISTANT CONTROLLERS. In the absence of the
Controller or in the event of his inability or refusal to act, the
Assistant Controller (or in the event there be more than one, the
Assistant Controllers in the order designated by the board of
directors, or in the absence of any designation, then in the order
of their election) shall perform the duties and exercise the powers
of the Controller. The Assistant Controllers shall also perform
such other duties and have such other powers as the board of
directors, the Chief Executive Officer and the Chief Financial
Officer may from time to time prescribe.
ARTICLE VI
Certificate of Stock
SECTION 1. CERTIFICATES. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or
in the name of the corporation by the Chairman of the Board, the
Vice Chairman of the Board, the President or an Executive, Senior
or other Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the
corporation, certifying the number of shares owned by such holder
in the corporation.
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SECTION 2. CLASSES OF STOCK - DESIGNATION. If the
corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or
other rights, if any, of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to
represent such class or series of stock, provided that, except as
otherwise provided in the General Corporation Law of Delaware, in
lieu of the foregoing requirements there may be set forth on the
face or back of the certificate which the corporation shall issue
to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
SECTION 3. FACSIMILE SIGNATURES. When a certificate is
countersigned (1) by a transfer agent other than the corporation or
its employees, or (2) by a registrar other than the corporation or
its employees, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent,
or registrar before such certificate is issued, it may be issued by
the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 4. TRANSFER OF STOCK. The transfer of shares of
stock and certificates representing shares of stock shall be
governed by Article 8 of the Uniform Commercial Code as adopted and
in effect in the State of Delaware. Whenever any transfer of
shares of stock shall be made for collateral security, and not
absolutely, if the transferor and transferee request the
corporation to do so when the certificates representing the shares
are presented for transfer, the fact that the transfer is being
made for collateral security shall be expressed in the entry for
transfer.
SECTION 5. LOST, STOLEN, OR DESTROYED CERTIFICATES. The
corporation shall issue a new stock certificate in the place of any
certificate previously issued when the holder of record of the
certificate:
(a) Claim. Makes proof in affidavit form that it has
been lost, destroyed, or wrongfully taken;
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(b) Timely Request. Requests the issuance of a new
certificate before the corporation has notice that
the certificate has been acquired by a purchaser
for value in good faith and without notice of any
adverse claim;
(c) Bond. Gives a bond in such form, and with such
surety or sureties, with fixed or open penalty, as
the corporation may direct, to indemnify the
corporation, its transfer agents and registrars
against any claim that may be made on account of
the alleged loss, destruction, or theft or the
certificate; and
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the corporation.
When a certificate has been lost, apparently destroyed, or
wrongfully taken and the holder of record fails to notify the
corporation within a reasonable time after he has notice of it, and
the corporation registers a transfer of the shares represented by
such certificate before receiving such notification, the holder of
record is precluded from making any claim against the corporation
for the transfer or for a new certificate.
SECTION 6. FIXING RECORD DATE. In order that the corporation
may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing a meeting, or
entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix,
in advance, a record date, which shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a
new record date for the adjourned meeting.
SECTION 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on
its books as the owner of stock to receive dividends, and to vote
as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such stock on the part of any other
person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VII
General Provisions
SECTION 1. FISCAL YEAR. Each fiscal year of the corporation
shall end on the Saturday nearest to March 31st of each year.
(Amended January 22, 1980)
SECTION 2. SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization
and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SECTION 3. AMENDMENTS. These By-Laws may be altered or
repealed at any meeting of the stockholders or of the Board of
Directors without a meeting as respectively provided in Section 11
of Article II and Section 9 or Article III; provided, however, that
Article II, Section 3, and Article III, Sections 1 and 2, and
Article VII, Section 3 may be amended or repealed only by an
affirmative vote of not less than seventy-five percent (75%) of the
shares present or represented at an Annual or Special Meeting of
the Stockholders at which a quorum is in attendance. (Amended
April 11, 1988)
ARTICLE VIII
SECTION 1. MISCELLANEOUS. Unless otherwise ordered by the
board of directors, the Chief Executive Officer, the Chairman of
the Board, the Vice Chairman of the Board, the President, any
Executive, Senior or other Vice President, or the Secretary, in
person or by proxy or proxies appointed by any of them, shall have
full power and authority on behalf of the corporation to vote, act
and consent with respect to any shares of stock issued by other
corporations which the corporation may own or as to which the
corporation otherwise has the right to vote, act or consent.
ARTICLE IX
Indemnification
SECTION 1. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of
the fact that such person is or was serving as a director or
officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
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judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action,
suit or proceeding if he 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, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
SECTION 2. The corporation shall indemnify any person who
becomes a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was serving as a director or
officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, and amounts paid in settlement actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit if he 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 in such cases as involve gross
negligence or willful misconduct in the performance of his duties.
SECTION 3. Expenses incurred by a director, officer, employee
or agent of the corporation in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding
as authorized by the board of directors upon receipt of an
undertaking by or on behalf of such person to repay such amounts
unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as provided in these By-Laws.
SECTION 4. The indemnification provided by these By-Laws
shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 5. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director or
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officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
any resulting expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to so indemnify him under the
provisions of these By-Laws.
(Amended August 1, 1982)
ARTICLE X
Indemnification Saving Clause and Retroactivity
SECTION 1. The invalidity or unenforceability of any
provision in Article IX, in whole or in part, shall not affect the
validity or enforceability of the affected provision to the full
extent permitted by law to be enforceable, nor of the remaining
provisions of that Article IX.
SECTION 2. The indemnification provided in Article IX shall
be retroactive in application ab initio of the corporation.
(Amended August 1, 1982)
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
SANWA BUSINESS CREDIT CORPORATION
AND
VALLEY COMMUNICATIONS, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS.................................................1
1.1 "Accounts"............................................1
1.2 "Account Debtor"......................................1
1.3 "Accounts Report".....................................1
1.4 "Accumulated Funding Deficiency"......................1
1.5 "Affiliate"...........................................1
1.6 "Ancillary Agreements"................................2
1.7 "Billings in Excess of Cost and Earnings..............2
1.8 "Borrower's Knowledge"................................2
1.9 "Business Day"........................................2
1.10 "Capital Leases"......................................2
1.11 "Charges".............................................2
1.12 "Closing".............................................2
1.13 "Code"................................................2
1.14 "Collateral"..........................................3
1.15 "Collateral Availability".............................3
1.16 "Contract Year".......................................3
1.17 "Costs and Earnings in Excess of Billings.............3
1.18 "Current Assets"......................................3
1.19 "Current Liabilities".................................3
1.20 "Default".............................................3
1.21 "Default Rate"........................................3
1.22 "Depository Bank".....................................3
1.23 "Designated Rate".....................................3
1.24 "Eligible Accounts"...................................3
1.25 "Eligible Inventory"..................................3
1.26 "Employee Benefit Plan"...............................4
1.27 "Environmental Laws"..................................4
1.28 "Environmental Lien"..................................4
1.29 "Equipment"...........................................4
1.30 "ERISA"...............................................4
1.31 "Event of Default"....................................4
1.32 "Excess Interest".....................................4
1.33 "Financials"..........................................4
1.34 "General Intangibles".................................4
1.35 "Hazardous Materials".................................5
1.36 "Indebtedness"........................................5
1.37 "Interest Period".....................................5
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1.38 "Interest Rate Determination Date"....................5
1.39 "Inventory"...........................................5
1.40 "Inventory Report"....................................5
1.41 "Liabilities".........................................6
1.42 "LIBOR Rate"..........................................6
1.43 "LIBOR Rate Revolving Loan"...........................6
1.44 "Maximum Amount"......................................6
1.45 "Multiemployer Plan"..................................6
1.46 "Participant".........................................6
1.47 "PBGC"................................................6
1.48 "Permitted Liens".....................................7
1.49 "Person"..............................................7
1.50 "Plan Administrator"..................................7
1.51 "Plan Sponsor"........................................7
1.52 "Pre-Tax Net Income"..................................7
1.53 "Prime Rate"..........................................7
1.54 "Prime Rate Revolving Loan"...........................7
1.55 "Prohibited Transaction"..............................7
1.56 "Reportable Event"....................................7
1.57 "Revolving Loan"......................................7
1.58 "Revolving Loan Account"..............................8
1.59 "Security Documents"..................................8
1.60 "Special Collateral"..................................8
1.61 "Special Deposit Account".............................8
1.62 "Stock"...............................................8
1.63 "Tangible Net Worth"..................................8
1.64 "Telerate Screen".....................................8
1.65 "Term"................................................8
1.66 "Total Facility"......................................8
1.67 "Unused Facility Fee".................................8
1.68 Accounting Terms......................................8
1.69 Other Terms...........................................8
2. LOANS: GENERAL TERMS.......................................9
2.1 Total Facility.........................................9
2.2 Advances to Borrower Constitute One Loan...............9
2.3 Interest Rate..........................................9
2.4 Term of Agreement; Liquidated Damages.................13
2.5 Unused Facility Fee...................................14
2.6 Closing Fee...........................................14
2.7 Special Provisions Governing LIBOR Rate Revolving
Loan..................................................14
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2.8 Purpose...............................................16
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY......................16
3.1 Eligible Accounts.....................................16
3.2 Eligible Inventory....................................18
4. PAYMENTS...................................................18
4.1 Revolving Loan Account; Method of Making Payments.....18
4.2 Payment Terms.........................................19
4.3 Collection of Accounts and Payments...................19
4.4 Application of Payments and Collections...............20
4.5 Statements............................................20
5. COLLATERAL: GENERAL TERMS.................................20
5.1 Security Interest.....................................20
5.2 Disclosure of Security Interest.......................21
5.3 Special Collateral....................................21
5.4 Further Assurances....................................21
5.5 Inspection............................................21
5.6 Location of Collateral................................21
5.7 Lender's Payment of Claims Asserted Against Borrower..22
6. COLLATERAL: ACCOUNTS......................................22
6.1 Verification of Accounts..............................22
6.2 Assignments, Records and Accounts Report..............22
6.3 Notice Regarding Disputed Accounts....................23
6.4 Sale or Encumbrance of Accounts.......................23
7. COLLATERAL: INVENTORY.....................................23
7.1 Sale of Inventory.....................................23
7.2 Safekeeping of Inventory; Inventory Covenants.........23
7.3 Records and Schedules of Inventory....................23
7.4 Returned and Repossessed Inventory....................23
7.5 Evidence of Ownership of Inventory....................24
8. COLLATERAL: EQUIPMENT.....................................24
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8.1 Maintenance of the Equipment..........................24
8.2 Evidence of Ownership of Equipment....................24
8.3 Proceeds of the Equipment.............................24
9. WARRANTIES AND REPRESENTATIONS.............................25
9.1 General Warranties and Representations................25
9.2 Account Warranties and Representations................28
9.3 Inventory Warranties and Representations..............29
9.4 ERISA Warranties and Representations..................29
9.5 Automatic Warranty and Representation and
Reaffirmation of Warranties and Representations.......31
9.6 Survival of Warranties and Representations............31
10. COVENANTS AND CONTINUING AGREEMENTS.......................32
10.1 Affirmative Covenants...............................32
10.2 Negative Covenants..................................36
10.3 Contesting Charges..................................39
10.4 Payment of Charges..................................39
10.5 Insurance; Payment of Premiums......................39
10.6 Survival of Obligations Upon Termination of
Agreement...........................................40
11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT...................40
11.1 Event of Default; Default...........................40
11.2 Acceleration of the Liabilities.....................43
11.3 Remedies............................................43
11.4 Notice..............................................44
12. CONDITIONS PRECEDENT TO DISBURSEMENT......................44
12.1 Conditions Precedent................................44
12.2 Lender Satisfaction.................................45
12.3 Additional Funding Requirements.....................45
13. MISCELLANEOUS.............................................46
13.1 Appointment of Lender as Borrower's Lawful
Attorney-In Fact....................................46
13.2 Modification of Agreement; Sale of Interest.........47
13.3 Attorneys' Fees and Expenses; Lender's Out-of-
Pocket Expenses.....................................47
13.4 Indemnification.....................................48
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13.5 Waiver by Lender....................................48
13.6 Severability........................................48
13.7 Parties; Entire Agreement...........................48
13.8 Conflict of Term....................................49
13.9 Waiver by Borrower..................................49
13.10 Waiver and Governing Law............................49
13.11 Notice..............................................50
13.12 Release of Claims...................................51
13.13 Representation by Counsel...........................51
13.14 Counterparts........................................51
13.15 LENDER'S WAIVER OF JURY.............................52
13.16 Section Titles, Etc.................................52
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is
made as of the 14th day of March, 1996, by and between SANWA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender") and
VALLEY COMMUNICATIONS, INC., a California corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower desires to borrow funds and obtain other
financial accommodations from Lender, and Lender is willing to make
certain loans and provide other financial accommodations to Borrower
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and
conditions contained herein, and of any loans or extension of credit
heretofore, now or hereafter made to or for the benefit of Borrower
by Lender, the parties hereto hereby agree as follows:
I. DEFINITIONS
When used herein, the following terms shall have the
following meanings:
1.1 "Accounts" shall mean all accounts, contract rights,
chattel paper, instruments and documents, whether now owned or
hereafter acquired by Borrower.
1.2 "Account Debtor" shall mean any Person who is or who
may become obligated to Borrower under, with respect to, or on
account of an Account.
1.3 "Accounts Report" shall mean a report delivered to
Lender by Borrower, as required by Section 6.2, consisting of a
trial balance of all Accounts of Borrower existing as of the date
of such Accounts Report, specifying for each Account Debtor
obligated on the Accounts, such Account Debtor's name, address and
outstanding balance.
1.4 "Accumulated Funding Deficiency" shall have the
meaning assigned to that term in Section 302 of ERISA.
1.5 "Affiliate" shall mean any and all Persons which, in
the sole and absolute judgment of Lender, directly or indirectly,
own or control, are controlled by or are under common control with
Borrower, and any and all Persons from whom, in the sole and
absolute judgment of Lender, Borrower has not or is not likely to
exhibit independence of decision or action. For the purpose of this
definition, "control" means the possession, directly or indirectly,
of the power
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to direct or cause the direction of management and policies of a
Person, whether through the ownership of voting securities, by
contract or otherwise.
1.6 "Ancillary Agreements" shall mean all Security
Documents and agreements, instruments and documents, including
without limitation, notes, guaranties, mortgages, deeds of trust,
chattel mortgages, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases,
financing statements, subordination agreements, trust account
agreements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of Borrower or any other Person
or delivered to Lender or any Participant with respect to this
Agreement.
1.7 "Billings in Excess of Cost and Earnings" is a
liability on Borrower's balance sheet and shall mean all of the
Borrower's billings to its Account Debtors which are in excess of
the Borrower's revenues recognized with respect to such Account
Debtors.
1.8 "Borrower's Knowledge" or words of such import shall
mean all knowledge, including, actual knowledge and knowledge of
matters which any reasonable person in such position knew or should
have known, of the respective officers, directors and managers of
Borrower.
1.9 "Business Day" shall mean (a) for all purposes other
than as specified in clause (b), any day, other than a Saturday or
Sunday, on which the main lobby of the Depository Bank and Lender
are open for business with the general public, and (b) with respect
to all notices, determinations, findings and payments in connection
with the LIBOR Rate, any day that is a Business Day described in
clause (a) and that is also a day for trading by and between banks
in dollar deposits in the applicable interbank LIBOR market.
1.10 "Capital Leases" shall mean any lease of personal
property of any Person, as lessee, which, in accordance with
generally accepted accounting principles, is accounted for as a
capital lease on the balance sheet of such Person.
1.11 "Charges" shall mean all national, federal, state,
county, city, municipal, or other governmental (including, without
limitation, the Pension Benefit Guaranty Corporation) taxes, levies,
assessments, charges, liens, claims or encumbrances upon or relating
to (i) the Collateral, (ii) the Liabilities, (iii) Borrower's
employees, payroll, income or gross receipts, (iv) Borrower's
ownership or use of any of its assets, or (v) any other aspect of
Borrower's business.
1.12 "Closing" shall mean the date on which this Agreement
is executed by both Borrower and Lender.
1.13 "Code" shall mean the Internal Revenue Code of 1986,
as amended.
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1.14 "Collateral" shall mean all of the property and
interests in property described in Section 5.1 and all other
property and interests in property which shall, from time to time,
secure any part of the Liabilities.
1.15 "Collateral Availability" shall have the meaning
ascribed to it in Section 2.1.
1.16 "Contract Year" shall mean initially, that period of
time commencing on the Closing and one day prior to the anniversary
of the Closing, and thereafter each period of one (1) year
commencing on the date after the last day of the immediately
preceding Contract Year and any one (1) day prior to the anniversary
of such date.
1.17 "Costs and Earnings in Excess of Billings" is an
asset on Borrower's balance sheet and shall mean revenues recognized
in excess of amounts billed.
1.18 "Current Assets" shall mean the aggregate net book
value of the current assets of Borrower as determined in accordance
with generally accepted accounting principles, excluding any
accounts owing to Borrower from any Affiliate.
1.19 "Current Liabilities" shall mean the aggregate amount
of all liabilities of Borrower, including the indebtedness evidenced
by the Revolving Loan and those liabilities which would be
classified as current liabilities under generally accepted
accounting principles.
1.20 "Default" shall mean the occurrence or existence of
any one or more of the events described in Section 11.1.
1.21 "Default Rate" shall mean a rate per annum equal to
two hundred (200) basis points in excess of the interest rate then
in effect for the respective Liabilities.
1.22 "Depository Bank" shall mean the banking institution
which is referred to in Section 4.3 and which shall be the signatory
to the Special Deposit Agreement which is attached hereto as
Exhibit A.
1.23 "Designated Rate" shall mean, with respect to (a)
Prime Rate Revolving Loan, the Prime Rate, and (b) the LIBOR Rate
Revolving Loan, the LIBOR Rate.
1.24 "Eligible Accounts" shall mean those Accounts
included in an Accounts Report which, as of the date of such
Accounts Report and at all times thereafter, (i) satisfy the
requirements for eligibility as described in Section 3.1, (ii) do
not violate the negative covenants and other provisions of this
Agreement and do satisfy the affirmative covenants, warranties and
other provisions of this Agreement and (iii) Lender, in its sole and
absolute credit judgment and in the exercise of good faith, deems
to be Eligible Accounts.
1.25 "Eligible Inventory" shall mean those items of
Inventory included in an Inventory Report which, as of the date of
such Inventory Report and at all times thereafter,
3
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(i) satisfy the requirements for eligibility as described in
Section 3.2, (ii) do not violate the negative covenants and other
provisions of this Agreement and do satisfy the affirmative
covenants, warranties and other provisions of this Agreement and
(iii) Lender, in its sole and absolute credit judgment and in the
exercise of good faith, deems to be Eligible Inventory.
1.26 "Employee Benefit Plan" shall mean an employee
benefit plan within the meaning of ERISA Section 3(3) maintained,
sponsored or contributed to by the Borrower or any ERISA Affiliate.
1.27 "Environmental Laws" shall mean the Resource
Conservation and Recovery Act of 1987, the Comprehensive
Environmental Response, Compensation and Liability Act, any so-
called "Superfund" or "Superlien" law, the Toxic Substances Control
Act, or any other federal state or local statute, law, ordinance,
code, rule, regulation, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, as now
or at any time hereafter in effect.
1.28 "Environmental Lien" shall mean a lien in favor of
any governmental entity for (i) any liability under any
Environmental Laws, or (ii) damages arising from or costs incurred
by such governmental entity in response to a release of a Hazardous
Material into the environment.
1.29 "Equipment" shall mean all Borrower's now owned and
hereafter acquired equipment and fixtures, including without
limitation, furniture, machinery, vehicles and trade fixtures,
together with any and all accessories, parts and appurtenances
thereto, substitutions therefor and replacements thereof.
1.30 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.31 "Event of Default" shall mean any event or condition
which, with the passage of time or the giving of notice or both,
would constitute a Default.
1.32 "Excess Interest" shall mean have the meaning
ascribed to it in Section 2.3(C)(ii).
1.33 "Financials" shall mean those financial statements
of Borrower attached hereto as Exhibit B or delivered to Lender
pursuant to Section 10.1.
1.34 "General Intangibles" shall mean all choses in
action, general intangibles, causes of action and all other
intangible personal property of Borrower of every kind and nature
(other than Accounts) now owned or hereafter acquired by Borrower.
Without in any way limiting the generality of the foregoing, General
Intangibles specifically includes, without limitation, all corporate
or other business records, deposit accounts, inventions, designs,
patents, patent applications, trademarks, trademark applications,
trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, and tax refund claims owned by Borrower and
all letters of
4
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credit, guarantee claims, security interests or other security held
by or granted to Borrower to secure payment by an Account Debtor of
any Accounts.
1.35 "Hazardous Materials" shall mean any hazardous
substance or pollutant or contaminant defined as such in (or for the
purposes of) any Environmental Law and shall include, but not be
limited to, petroleum, any radioactive material, and asbestos in any
form or condition.
1.36 "Indebtedness" shall mean all of Borrower's
liabilities, obligations and indebtedness to any Person of any and
every kind and nature, whether primary, secondary, direct, indirect,
absolute, contingent, fixed, or otherwise, heretofore, now or
hereafter owing, due, or payable, however evidenced, created,
incurred, acquired or owing and however arising, whether under
written or oral agreement, by operation of law, or otherwise.
Without in any way limiting the generality of the foregoing,
Indebtedness specifically includes (i) the Liabilities, (ii) all
obligations or liabilities of any Person that are secured by any
lien, claim, encumbrance, or security interest upon property owned
by Borrower, even though Borrower has not assumed or become liable
for the payment thereof, (iii) all obligations or liabilities
created or arising under any lease of real or personal property, or
conditional sale or other title retention agreement with respect to
property used or acquired by Borrower, even though the rights and
remedies of the lessor, seller or lender thereunder are limited to
repossession of such property, (iv) all obligations and liabilities
in respect of unfunded vested benefits under any Employee Benefit
Plan or in respect of withdrawal liabilities incurred under ERISA
by the Borrower or any ERISA Affiliate to any Multiemployer Plan and
(v) deferred taxes.
1.37 "Interest Period" means any actual period applicable
to a LIBOR Rate Revolving Loan as determined pursuant to Section
2.3(D).
1.38 "Interest Rate Determination Date" means each date
for calculating the LIBOR Rate for purposes of determining the
interest rate applicable to any LIBOR Rate Revolving Loan made
pursuant to Section 2.3. The Interest Rate Determination Date shall
be the second Business Day prior to the first day of an Interest
Period for a LIBOR Rate Revolving Loan.
1.39 "Inventory" shall mean all goods, inventory,
merchandise and other personal property including, without
limitation, goods in transit, wherever located and whether now owned
or hereafter acquired by Borrower which is or may at any time be
held for sale or lease, furnished under any contract of service or
held as raw materials, work in process, supplies or materials used
or consumed in Borrower's business, and all such property the sale
or other disposition of which has given rise to Accounts and which
has been returned to or repossessed or stopped in transit by
Borrower.
1.40 "Inventory Report" shall mean a report delivered to
Lender by Borrower, as required by Section 7.3, consisting of a
detailed listing of all Inventory as of the date of such Inventory
Report describing the kind, type, quality, quantity, location and
the lower of cost (computed on the basis of an average cost flow
assumption) or market value of such Inventory.
5
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1.41 "Liabilities" shall mean all of Borrower's
liabilities, obligations and indebtedness to Lender of any and every
kind and nature, whether primary, secondary, direct, absolute,
contingent, fixed, or otherwise (including, without limitation,
interest, charges, expenses, attorneys' fees and other sums
chargeable to Borrower by Lender, future advances made to or for the
benefit of Borrower and obligations of performance), whether arising
under this Agreement, under any of the Ancillary Agreements or
acquired by Lender from any other source, whether heretofore, now
or hereafter owing, arising, due, or payable from Borrower to
Lender, however evidenced, created, incurred, acquired or owing and
however arising, whether under written or oral agreement, operation
of law, or otherwise.
1.42 "LIBOR Rate" shall mean, for each Interest Period,
a rate of interest equal to the sum of:
a. the rate of interest determined by the Lender
at which deposits in U.S. Dollars for the relevant Interest
Period are offered based on information presented on the
Telerate Screen as of 11:00 A.M. (London time) on the
applicable Interest Rate Determination Date; provided, that if
more than one (1) offered rate appears on the Telerate Screen
in respect of such Interest Period, the arithmetic mean of all
such rates (as determined by the Lender) will be the rate used;
provided, further, that if Telerate ceases to provide LIBOR
quotations, such rate shall be the average rate of interest
determined by the Lender at which deposits in U.S. Dollars are
offered for the relevant Interest Period by The Sanwa Bank,
Limited (or its successor) to banks in London interbank markets
as of 11:00 A.M. (London time) on the applicable Interest Rate
Determination Date, plus
b. two hundred and twenty-five (225) basis points.
1.43 "LIBOR Rate Revolving Loan" shall mean the Revolving
Loan, to the extent that it bears interest at the LIBOR Rate.
1.44 "Maximum Amount" shall mean an amount equal to Two
Million Five Hundred Thousand and No/100 Dollars ($2,500,000).
1.45 "Multiemployer Plan" shall mean any plan described
in Section 4001(a)(3) of ERISA to which contributions are or have
been made by the Borrower or any ERISA Affiliate.
1.46 "Participant" shall mean any Person, now or at any
time or times hereafter, participating with Lender in the loans made
by Lender to Borrower pursuant to this Agreement and the Ancillary
Agreements.
1.47 "PBGC" shall mean the Pension Benefit Guaranty
Corporation or any governmental body succeeding to its functions.
6
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1.48 "Permitted Liens" shall mean those liens scheduled
on Exhibit G to this Agreement.
1.49 "Person" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, institution, entity, party,
or government (whether national, federal, state, county, city,
municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
1.50 "Plan Administrator" shall have the meaning assigned
to it in Section 3(16)(A) of ERISA.
1.51 "Plan Sponsor" shall have the meaning assigned to it
in Section 3(16)(B) of ERISA.
1.52 "Pre-Tax Net Income" shall mean, for any period,
with respect to any Person, the gross revenues of such Person, less
all operating and non-operating expenses (including, without
limitation, interest expenses and all fees and commissions) of such
Person for such period, derived in the ordinary course of its
business, including all charges of a proper character (excluding,
however, current and deferred taxes on income and provisions for
taxes on income but including current additions to bad debt and
other reserves), all determined on a basis consistent with prior
years."
1.53 "Prime Rate" shall mean the highest "prime rate" of
interest quoted, from time to time, by The Wall Street Journal as
the base rate on corporate loans at large United States money center
commercial banks, provided, however, that in the event that The Wall
Street Journal ceases quoting a "prime rate" of the type described,
Prime Rate shall mean the highest per annum rate of interest quoted
as the "Bank Prime Loan" rate for "This week" in Statistical Release
H.15(519) published from time to time by the Board of Governors of
the Federal Reserve System.
1.54 "Prime Rate Revolving Loan" shall mean the Revolving
Loan, to the extent that it bears interest at the Prime Rate.
1.55 "Prohibited Transaction" shall mean a transaction
that is prohibited under Code Section 4975 or ERISA Section 406 and
not exempt under Code Section 4975 or ERISA Section 408.
1.56 "Reportable Event" shall mean (a) an event described
in Sections 4043(b), 4068(a) or 4063(a) of ERISA or in the
regulations thereunder, (b) receipt of a notice of withdrawal
liability with respect to a Multiemployer Plan pursuant to Section
4202 of ERISA, (c) an event requiring the Borrower or any ERISA
Affiliate to provide security for an Employee Benefit Plan under
Code Section 401(a)(29), and (d) any failure to make payment
required under Code Section 412(m).
1.57 "Revolving Loan" shall have the meaning ascribed to
it in Section 2.1.
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1.58 "Revolving Loan Account" shall have the meaning
ascribed to it in Section 4.1.
1.59 "Security Documents" shall mean this Agreement and
all other agreements, instruments, documents, financing statements,
warehouse receipts, bills of lading, notices of assignment,
schedules, assignments, mortgages and other written matter necessary
or requested by Lender to create perfect and maintain perfected
Lender's security interest in the Collateral.
1.60 "Special Collateral" shall have the meaning ascribed
to it in Section 5.3.
1.61 "Special Deposit Account" shall have the meaning
ascribed to it in Section 4.3.
1.62 "Stock" shall mean all shares, options, interests,
participations or other equivalents (however designated) of or in
a corporation, whether voting or non-voting, including, without
limitation, common stock, warrants, preferred stock, convertible
debentures and all agreements, instruments and documents
convertible, in whole or in part, into any one or more or all of the
foregoing.
1.63 "Tangible Net Worth" shall mean, as of any particular
date, calculated on an unconsolidated basis the difference between
(a) Borrower's total assets as shown on the balance sheet of
Borrower, but excluding therefrom all values attributable to
goodwill, non-competition agreements, patents, copyrights, trade-
marks, licenses, prepaid expenses, Capital Leases, other General
Intangibles and Accounts due from Affiliates and (b) Borrower's
total liabilities and deferred charges shown on such balance sheet,
including as liability all guarantees of the indebtedness of
Affiliates.
1.64 "Telerate Screen" means the display designated as
Screen 3750 on the Telerate System or such other screen on the
Telerate System as shall display the London interbank offered rates
for deposits in U.S. dollars quoted by selected banks.
1.65 "Term" shall have the meaning ascribed to it in
Section 2.4.
1.66 "Total Facility" shall have the meaning ascribed to
it in Section 2.1.
1.67 "Unused Facility Fee" shall have the meaning set
forth in Section 2.5 herein.
1.68 Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined shall have the meanings
customarily given them in accordance with generally accepted
accounting principles.
1.69 Other Terms. All other terms contained in this
Agreement which are not otherwise defined in this Agreement shall,
unless the context indicates otherwise, have the
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meanings provided for by the Uniform Commercial Code of the State
of Illinois to the extent the same are used or defined therein.
2. LOANS: GENERAL TERMS
2.1 Total Facility. Lender may, in its sole and absolute
discretion, and in the exercise of good faith, make available for
Borrower's use from time to time during the term of this Agreement,
upon Borrower's request therefor, certain loans and other financial
accommodations in an aggregate amount (except in Lender's sole and
absolute discretion) not to exceed Two Million Five Hundred Thousand
and No/100ths Dollars ($2,500,000.00) (the "Total Facility"). The
Total Facility shall be subject to all of the terms and conditions
of this Agreement and shall comprise a revolving line of credit
consisting of advances against Eligible Accounts and Eligible
Inventory (the "Revolving Loan") in an aggregate principal amount
not to exceed, at any time outstanding, the lesser of
(i) $2,500,000.00 or (ii) the outstanding amount of Collateral
Availability. As used in this Agreement, "Collateral Availability"
shall mean, as of any date of determination, an amount equal to the
sum of (i) up to eighty percent (80%) of the net amount (after
deduction of such reserves as Lender deems proper and necessary in
the exercise of good faith) of Eligible Accounts plus (ii) up to
fifty percent (50%) of the aggregate value of Eligible Inventory
(determined on the basis of the lower of an average cost or market
value, net of such reserves as Lender deems proper and necessary in
the exercise of good faith), provided that Collateral Availability
as to Eligible Inventory of Borrower shall not at any time exceed
in the aggregate Five Hundred Thousand and No/100ths Dollars
($500,000.00).
It is expressly understood and agreed by Borrower that
nothing contained in this Agreement shall, at any time, require
Lender to make loans or other extensions of credit to Borrower and
the making and amount of such loans or other extensions of credit
to Borrower under this Agreement shall at all times be in Lender's
sole and absolute discretion in the exercise of good faith. Lender
may, in the exercise of such discretion in the exercise of good
faith, at any time and from time to time, increase or decrease the
advance percentages to be applied to Eligible Accounts and Eligible
Inventory which are contained in this Section 2.1. In the event
such percentages are decreased, such decrease shall become effective
immediately for the purpose of calculating the amount which Lender
may be willing to advance, or allow to remain outstanding, against
Eligible Accounts and Eligible Inventory.
2.2 Advances to Borrower Constitute One Loan. All loans
and advances by Lender to Borrower under this Agreement and the
Ancillary Agreements shall constitute one loan to Borrower and all
indebtedness and obligations of Borrower to Lender under this
Agreement and the Ancillary Agreements shall constitute one general
obligation of Borrower secured by the Collateral of Borrower.
2.3 Interest Rate.
(A) (i) So long as no Default has occurred and is
continuing, the Borrower shall pay to the Lender interest on the
outstanding principal balance of the Revolving Loan at the
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applicable Designated Rate; provided, however, that upon the
occurrence and during the continuation of any Default, Lender may
at its option, raise the interest rate charged on the Liabilities
to the Default Rate with respect to the Liabilities from the date
of the occurrence of the Event of Default until the earlier of (1)
the Event of Default is cured or waived by Lender or (2) the
Liabilities are paid in full. The applicable basis for determining
the rate of interest with respect to the Revolving Loan shall be
selected by the Borrower initially at the time a request for an
advance is given pursuant to Section 12.3(J). The basis for
determining the interest rate with respect to the Revolving Loan may
be changed from time to time by Borrower pursuant to subsection
2.3(E).
(ii) Interest on the Revolving Loan shall be computed
by multiplying the closing daily balance of the Revolving Loan as
reflected in the Borrower's Revolving Loan Account for each day
during the preceding month by the interest rate determined to be
applicable hereunder on each such day.
(iii) Interest and all fees hereunder (other than
prepayment fees) shall be computed on the basis of a 360-day year
for the actual number of days elapsed. In computing interest on the
Revolving Loan, the date of funding of the Revolving Loan or the
first day of an Interest Period applicable to such Revolving Loan
if it is a LIBOR Rate Revolving Loan, or with respect to a Prime
Rate Revolving Loan being converted from a LIBOR Rate Revolving
Loan, the date of conversion of such LIBOR Rate Revolving Loan to
such Prime Rate Revolving Loan, shall be included and the date of
payment of such Revolving Loan or the expiration date of an Interest
Period applicable to such Revolving Loan if it is a LIBOR Rate
Revolving Loan, or with respect to a Prime Rate Revolving Loan being
converted to a LIBOR Rate Revolving Loan, the date of conversion of
such Prime Rate Revolving Loan to such LIBOR Rate Revolving Loan,
shall be excluded; provided, that if a Revolving Loan is repaid on
the same day on which it is made, one day's interest shall be paid
on that Revolving Loan.
(B) Following the occurrence of a Default, the Borrower
shall pay to the Lender interest from the date of such Default to
and including the date of cure of such Default on the outstanding
principal balance of the Liabilities at the Default Rate applicable
to such Liabilities; provided, however, that in the case of LIBOR
Rate Revolving Loan, upon the expiration of the Interest Period in
effect at the time any Default shall have occurred and be
continuing, such LIBOR Rate Revolving Loan shall become Prime Rate
Revolving Loan and thereafter bear interest at the Default Rate
applicable to Prime Rate Revolving Loan.
(C) (i) Interest shall be due at the Designated Rate as
provided herein, after as well as before demand, default and
judgment, notwithstanding any judgment rate of interest provided for
in any statute. If any interest payment or other charge or fee
payable hereunder exceeds the maximum amount then permitted by
applicable law, then to the extent permitted by law and subject to
the provisions of subparagraph (ii) below, the Borrower shall be
obligated to pay the maximum amount then permitted by applicable law
and the Borrower shall continue to pay the maximum amount from time
to time permitted by applicable law until all such interest
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payments and other charges and fees otherwise due hereunder (in the
absence of such restraint imposed by applicable law) have been paid
in full.
(ii) It is the intention of the Lender and the
Borrower to comply with the laws of the State of Illinois, and
notwithstanding any provision to the contrary contained herein or
in the other Ancillary Agreements, the Borrower shall not be
required to pay and the Lender shall not be permitted to collect any
amount in excess of the maximum amount of interest permitted by law
("Excess Interest"). If any Excess Interest is provided for or
determined to have been provided for by a court of competent
jurisdiction in this Agreement or in any of the other Ancillary
Agreements, then in such event: (a) the provisions of this
subparagraph shall govern and control; (b) neither the Borrower nor
any guarantor or endorser shall be obligated to pay any Excess
Interest; (c) any Excess Interest that the Lender may have received
hereunder shall be, at the Lender's option (1) applied as a credit
against the outstanding principal balance of the Liabilities or
accrued and unpaid interest (not to exceed the maximum amount
permitted by law), (2) refunded to the payor thereof, or (3) any
combination of the foregoing; and (d) the interest rate(s) provided
for herein shall be automatically reduced to the maximum lawful rate
allowed under applicable law, and this Agreement and the other
Ancillary Agreements shall be deemed to have been, and shall be,
reformed and modified to reflect such reduction.
(D) In connection with each LIBOR Rate Revolving Loan,
the Borrower shall elect an interest period (each an "Interest
Period") to be applicable to such Revolving Loan, which Interest
Period shall be either a 30, 60 or 90 day period; provided, that:
(i) the initial Interest Period for any Revolving
Loan shall commence on the date of funding of such
Revolving Loan;
(ii) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence
on the day on which the immediately preceding Interest
Period expires (Borrower and Lender agree that this
subsection does not obligate Borrower to pay interest
twice for the same days' funds);
(iii) if an Interest Period otherwise would
expire on a day that is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day;
provided, that if such next succeeding Business Day falls
in a new calendar month, then such Interest Period shall
expire on the immediately preceding Business Day;
(iv) 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 paragraph (v) below, end on the last Business Day of
a calendar month;
(v) no Interest Period shall extend beyond the last
day of the Term;
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(vi) no Interest Period may extend beyond a date on
which the Borrower is required to make a required payment
or prepayment of principal of the Revolving Loan; and
(vii) there shall be no more than two (2)
Interest Periods relating to LIBOR Rate Revolving Loans
outstanding at any time.
(E) Subject to the provisions of subsection 2.3(D), the
Borrower shall have the option to:
(i) convert at any time all or any part of the
outstanding Prime Rate Revolving Loan equal to Two
Hundred Thousand and No/100ths Dollars ($200,000) and
integral multiples of One Hundred Thousand and No/100ths
Dollars ($100,000) in excess of that amount from Prime
Rate Revolving Loan to LIBOR Rate Revolving Loan or to
convert LIBOR Rate Revolving Loan in amounts equal to Two
Hundred Thousand and No/100ths Dollars ($200,000) and
integral multiples of One Hundred Thousand and No/100ths
Dollars ($100,000) in excess of that amount from LIBOR
Rate Revolving Loan to Prime Rate Revolving Loan; or
(ii) upon the expiration of any Interest Period
applicable to a LIBOR Rate Revolving Loan, to continue
all, or any portion of such Revolving Loan equal to any
multiple of One Hundred Thousand and No/100ths Dollars
($100,000) in excess of or below that amount (but in no
event less than Two Hundred Thousand and No/100ths
($200,000)) as a LIBOR Rate Revolving Loan and the
succeeding Interest Period(s) of such continued LIBOR
Rate Revolving Loan shall commence on the last day of the
Interest Period of the LIBOR Rate Revolving Loan to be
continued; provided, that LIBOR Rate Revolving Loan may
only be converted into Prime Rate Revolving Loan on the
expiration date of an Interest Period applicable thereto;
provided, further, that no outstanding Revolving Loan may
be continued as, or be converted into, a LIBOR Rate
Revolving Loan when any Default with respect to the
payment of money or any Event of Default has occurred and
is continuing.
(F) Subject to the provisions of subsection 2.3(E):
(i) the Borrower shall deliver a Notice of
Conversion/Continuation to the Lender no later than 1:00
P.M. (Chicago, Illinois time) at least two (2) Business
Days in advance of the proposed conversion/continuation
date. A Notice of Conversion/Continuation shall certify:
(1) the proposed conversion/continuation date (which
shall be a Business Day); (2) the amount of the Revolving
Loan to be converted/continued; (3) the nature of the
proposed conversion/ continuation; (4) in the case of a
conversion to, or a continuation of, a LIBOR Rate
Revolving Loan, the requested Interest Period; and (5) in
the case of a conversion to, or a continuation of, a
LIBOR Rate Revolving Loan, that no Default or Event of
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Default has occurred and is continuing or would result
from the proposed conversion/continuation. In lieu of
delivering the above-described Notice of
Conversion/Continuation, the Borrower may give the Lender
telephonic notice by the required time of any proposed
conversion/continuation under subsection 2.3(E);
provided, that such notice shall be promptly confirmed in
writing by delivery of a Notice of
Conversion/Continuation to the Lender on or before the
proposed conversion/continuation date. If on any day a
Revolving Loan is outstanding with respect to which
notice has not been delivered to the Lender in accordance
with the terms of this Agreement specifying the basis for
determining the rate of interest, then for that day that
Revolving Loan shall be deemed to be a Prime Rate
Revolving Loan.
(ii) The Lender shall not incur any liability to the
Borrower in acting upon any telephonic notice referred to
above that the Lender believes in good faith to have been
given by or at the direction of an officer of Borrower or
for otherwise acting in good faith under this subsection
2.3(F) and, upon conversion/continuation by the Lender in
accordance with this Agreement pursuant to any telephonic
notice, the Borrower shall have effected such conversion
or continuation, as the case may be, hereunder.
(iii) A Notice of Conversion/Continuation for
conversion to, or continuation of, a LIBOR Rate Revolving
Loan (or telephonic notice in lieu thereof) shall be
irrevocable once given, and the Borrower shall be bound
to convert or continue in accordance therewith.
G. Subject to the provisions of Section 2.3, each LIBOR
Rate Revolving Loan requested must equal at least Two Hundred
Thousand and No/100ths Dollars ($200,000) and may only be in
additional integral multiples of One Hundred Thousand and No/100ths
Dollars ($100,000).
2.4 Term of Agreement; Liquidated Damages. This
Agreement shall be in effect until the three year anniversary of the
Closing (the "Term"). This Agreement may also be terminated by
Lender upon the occurrence of a Default as provided in Section 11.
Upon the effective date of termination, all of the Liabilities of
Borrower shall become immediately due and payable without notice or
demand. Notwithstanding any termination, until all of the
Liabilities of Borrower shall have been fully paid and satisfied,
Lender shall be entitled to retain its security interest in the
Collateral, Borrower shall continue to remit collections of Accounts
and proceeds of Collateral as provided in this Agreement, and Lender
shall retain all of its rights and remedies under this Agreement.
If, during the Term, this Agreement is terminated by Borrower other
than as permitted in this Section 2.4, Borrower shall pay to Lender,
for loss of the bargain and not as a penalty, as liquidated damages
and compensation for the costs of being prepared to make funds
available to Borrower under this Agreement, an amount (the
"Prepayment Fee") equal to three percent (3%) of the Maximum Amount
for any prepayment made during the first Contract Year; two percent
(2%) of the Maximum Amount for any prepayment made during the second
Contract
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Year; and one percent (1%) of the Maximum Amount for any prepayment
made in the third Contract Year.
2.5 Unused Facility Fee. As an additional charge for
Lender's agreement to extend credit to the Borrower under the terms
hereof, Borrower shall pay Lender an Unused Facility Fee in the
amount of one-quarter of one percent (0.25%) per annum of the
average unused portion of the Revolving Loan for all monthly periods
after the Closing, payable monthly in arrears on the last day of
each such month during the Term, commencing on March 31, 1996, and
in each and every consecutive month thereafter.
2.6 Closing Fee. Borrower shall pay the Lender a
non-refundable Closing Fee in an amount equal to Twelve Thousand
Five Hundred and No/100ths Dollars ($12,500) to be paid at Closing.
2.7 Special Provisions Governing LIBOR Rate Revolving
Loan. Notwithstanding any other provision of this Agreement, the
following provisions shall govern with respect to LIBOR Rate
Revolving Loan as to the matters covered:
(A) As soon as practicable after 1:00 p.m. (Chicago,
Illinois time) on each Interest Rate Determination Date, the Lender
shall determine (which determination shall, absent manifest error,
be final, conclusive and binding upon all parties) the interest rate
that shall apply to the LIBOR Rate Revolving Loan for which an
interest rate is then being determined for the applicable Interest
Period and shall promptly give notice thereof (in writing or by
telephone confirmed in writing) to the Borrower.
(B) If on any Interest Rate Determination Date the Lender
shall have determined (which determination shall be final and
conclusive and binding upon the Borrower) that:
(i) by reason of any changes arising after the date
of this Agreement affecting the LIBOR market or affecting
the position of the Lender in such market, adequate and
fair means do not exist for ascertaining the applicable
interest rate by reference to the LIBOR Rate with respect
to the LIBOR Rate Revolving Loan as to which an interest
rate determination is then being made; or
(ii) by reason of (a) any change after the date
hereof in any applicable law or governmental rule,
regulation or order (or any interpretation thereof and
including the introduction of any new law or governmental
rule, regulation or order) or (b) other circumstances
affecting the Lender or the LIBOR market or the position
of the Lender in such market (such as for example, but
not limited to, official reserve requirements required by
Regulation D to the extent not given effect in the LIBOR
Rate), the LIBOR Rate shall not represent the effective
pricing to the Lender for dollar deposits of comparable
amounts for the relevant period;
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then, and in any such event, the Lender shall, promptly after being
notified of a borrowing, conversion or continuation, give notice (by
telephone confirmed in writing) to the Borrower of such
determination. Thereafter, the Borrower shall pay to the Lender,
upon written demand therefor, such additional amounts (in the form
of an increased rate of, or a different method of calculating,
interest or otherwise as the Lender in its reasonable credit
judgment shall determine) as shall be required to cause the Lender
to receive interest with respect to the LIBOR Rate Revolving Loan
for the Interest Period following that Interest Rate Determination
Date at a rate per annum equal to two (2%) percent per annum in
excess of the effective pricing to the Lender for dollar deposits
to make or maintain the LIBOR Rate Revolving Loan. A certificate
as to additional amounts owed the Lender, showing in reasonable
detail the basis for the calculation thereof, submitted in good
faith to the Borrower shall, absent manifest error, be final and
conclusive and binding upon the Borrower.
(C) If on any date the Lender shall have reasonably
determined (which determination shall be final and conclusive and
binding upon the Borrower) that the making or continuation of any
LIBOR Rate Revolving Loan has become unlawful or impossible by
compliance by the Lender in good faith with any law, governmental
rule, regulation or order (whether or not having the force of law
and whether or not failure to comply therewith would be unlawful),
then, and in any such event, the Lender shall promptly give notice
(by telephone confirmed in writing) to the Borrower of that
determination. The obligation of the Lender to make or maintain
such LIBOR Rate Revolving Loan during any such period shall be
terminated at the earlier of the termination of the Interest Period
then in effect or when required by law and the Borrower shall no
later than the termination of the Interest Period in effect at the
time any such determination pursuant to this subsection is made or,
earlier, when required by law, repay or prepay such LIBOR Rate
Revolving Loan, together with all interest accrued thereon.
(D) The Borrower shall compensate the Lender, upon
written request by the Lender (which request shall set forth in
reasonable detail the basis for requesting such amounts and which
shall, absent manifest error, be conclusive and binding upon the
Borrower), for all reasonable losses, expenses and liabilities
(including, without limitation, any loss (including interest paid)
sustained by the Lender in connection with the re-employment of such
funds) the Lender may sustain: (1) if for any reason (other than a
default by the Lender or the failure of a borrowing to occur due to
the occurrence of any event described in subsection 2.7(C)) a
borrowing of any LIBOR Rate Revolving Loan does not occur on a date
specified therefor in a request for an advance, a Notice of
Conversion/Continuation or a telephonic request for borrowing or
conversion/continuation or a successive Interest Period does not
commence after notice therefor is given pursuant to subsection
2.3(E); or (2) as a consequence of any other default by the Borrower
to repay any LIBOR Rate Revolving Loan when required by the terms
of this Agreement; provided, that during the period while any such
amounts have not been paid, the Lender shall reserve an equal amount
from amounts otherwise available to be borrowed under the Revolving
Loan. The provisions of this subsection 2.7(D) shall survive the
termination of this Agreement, the repayment of the Revolving Loan
and the discharge of the Borrower's other obligations hereunder.
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(E) The Lender may make, carry or transfer any LIBOR Rate
Revolving Loan at, to, or for the account of, any of its branch
offices or the office of an affiliate of the Lender.
(F) Calculation of all amounts payable to the Lender
under Section 2.7 shall be made as though the Lender had actually
funded the relevant LIBOR Rate Revolving Loan through the purchase
of a LIBOR deposit bearing interest at the LIBOR Rate in an amount
equal to the amount of that LIBOR Rate Revolving Loan and having a
maturity comparable to the relevant Interest Period and through the
transfer of such LIBOR deposit from an offshore office to a domestic
office in the United States of America; provided, however, that the
Lender may fund each of the LIBOR Rate Revolving Loan in any manner
it sees fit and the foregoing assumption shall be utilized only for
the calculation of amounts payable under Section 2.7.
2.8 Purpose. The purpose of the Revolving Loan is to
provide Borrower with (i) working capital financing; (ii) the funds
necessary to pay off Borrower's existing working capital and term
loans made by Commercial Bank of Fremont; and (iii) the funds
necessary to repay the $750,000 loan from C&L Communications, Inc.
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY
3.1 Eligible Accounts. Upon Borrower's delivery to
Lender of an Accounts Report, Lender shall determine, in its sole
and absolute discretion and in the exercise of good faith, which
individual Accounts listed thereon are Eligible Accounts. In making
this determination, Lender will consider the following requirements:
(A) If the individual Account arises from the sale of
goods, such goods have been shipped or delivered on open account and
on an absolute sale basis and not on consignment, on approval or on
a sale-or-return basis or subject to any other repurchase or return
agreement and no material part of such goods has been returned
(other than returns described in Section 7.4), repossessed,
rejected, lost or damaged;
(B) The individual Account is not evidenced by chattel
paper or an instrument of any kind;
(C) The Account Debtor obligated on such individual
Account is not insolvent or the subject of any bankruptcy or in-
solvency proceeding of any kind and Lender is satisfied with the
creditworthiness of such Account Debtor;
(D) If the individual Account is owing from an Account
Debtor located outside the United States, such Account Debtor has
furnished the Borrower with an irrevocable letter of credit which
has been issued or confirmed by a financial institution acceptable
to Lender, is in form and substance acceptable to Lender, has been
pledged to Lender, and is payable in United States dollars in an
amount not less than the face value of the individual Account;
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(E) The individual Account is a valid, legally
enforceable obligation of the relevant Account Debtor and such
Account Debtor has not asserted any offset, counterclaim or defense
denying liability thereunder; provided, however, that if such
offset, counterclaim or defense has been asserted, such Account
shall be ineligible only to the extent of such asserted offset,
counterclaim or defense;
(F) The individual Account is subject to and covered by
Lender's perfected security interest and is not subject to any other
lien, claim, encumbrance or security interest, except for the
Permitted Liens;
(G) The individual Account is evidenced by an invoice or
other documentation in form acceptable to Lender;
(H) The individual Account has not remained unpaid for
a period exceeding ninety (90) days after the related invoice date;
(I) Accounts owing by a single Account Debtor or its
Affiliate (whether or not such Affiliate is known by Borrower to be
an Affiliate of such Account Debtor), including currently scheduled
Accounts, if fifty percent (50%) or more of the balance owing by
such Account Debtor and its Affiliates, in the aggregate, upon
Accounts remain ineligible by reason of the criteria set forth in
clause (H) above;
(J) The individual Account is not owing from the United
States of America or any department, agency or instrumentality
thereof, unless, however, there has been compliance, as determined
in Lender's reasonable credit judgment, and at the sole cost and
expense of Borrower, with the Federal Assignment of Claims Act of
1940, as amended;
(K) Accounts with respect to which the Account Debtor is
a director, officer, employee or agent of Borrower, or is a
subsidiary or an Affiliate;
(L) Each of the warranties and representations set forth
in Section 9.2 has been reaffirmed with respect to such individual
Account at the time that the most recent Accounts Report was
delivered to Lender;
(M) The individual Account is one against which Lender
is legally permitted to make loans and advances;
(N) That portion of any Account which represents Billing
in Excess of Costs and Earnings;
(O) Each Account is evidenced by an invoice which is
supported by a fully signed contract or any other appropriate
documentation, as determined by Lender in its reasonable credit
judgment;
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(P) That portion of any Account which represents
retainage in excess of any reserve for retainage then in place (to
be initially established by Lender in the amount of $30,000 and
which shall be subject to periodic adjustments as Lender shall, from
time to time, deem necessary; provided, however, that such reserve
shall never be less than $30,000);
(Q) If the Account Debtor is located in the State of New
Jersey, all Accounts of such Account Debtor unless Borrower has
filed a Notice of Business Activities Report with the New Jersey
Division of Taxation for the then current year; and
(R) If the Account Debtor is located in the State of
Minnesota, all Accounts of such Account Debtor unless Borrower has
filed a Business Activity Report with the Minnesota Department of
Revenue.
3.2 Eligible Inventory. Upon Borrower's delivery to
Lender of an Inventory Report, Lender shall determine, in its sole
and absolute discretion and in the exercise of good faith, which
items of Inventory listed thereon are Eligible Inventory. In making
this determination, Lender will consider the following requirements:
(A) The item of 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 either currently useable or currently saleable
in the ordinary course of Borrower's (who owns such Inventory)
business and is not otherwise unacceptable to Lender due to age,
type, category or quantity;
(B) The item of Inventory is located at one of the
locations listed on Exhibit C attached hereto, is subject to and
covered by Lender's perfected security interest and is not subject
to any other lien, claim, encumbrance or security interest, except
for the Permitted Liens;
(C) The item of Inventory has not remained on hand for
more than three hundred sixty (360) days;
(D) The item of Inventory has not been consigned, sold
or leased to any Person;
(E) Each of the warranties and representations set forth
in Section 9.3 has been reaffirmed with respect to such items of
Inventory at the date that the most recent Inventory Report was
delivered to Lender; and
(F) The item of Inventory was not purchased by Borrower
in or as part of a "bulk" transfer or sale of assets unless
Borrower, and the seller of such item, have complied with all
applicable bulk sales or bulk transfer laws.
4. PAYMENTS
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4.1 Revolving Loan Account; Method of Making Payments.
Lender shall maintain a loan account (the "Revolving Loan Account")
on its books in which shall be recorded (i) all loans and advances
made by Lender to Borrower pursuant to this Agreement, (ii) all
payments made by Borrower on all such loans and advances and (iii)
all other appropriate debits and credits as provided in this
Agreement, including, without limitation, all fees, charges,
expenses and interest. All entries in the Revolving Loan Account
shall be made in accordance with Lender's customary accounting
practices as in effect from time to time. Unless otherwise agreed
to in writing from time to time hereafter, all payments which
Borrower is required to make to Lender under this Agreement or under
any of the Ancillary Agreements shall be made by appropriate debits
to the Revolving Loan Account. Lender may, in its sole and absolute
discretion, elect to bill Borrower for such amounts in which case
the amount shall be immediately due and payable with interest
thereon at the rate set forth at the Prime Rate.
4.2 Payment Terms. All of the Liabilities shall be
payable to Lender at the address set forth in Section 13.11. The
Liabilities of Borrower will be repayable as follows: (i) interest
shall be payable on the first day of each month (for the immediately
preceding month) out of the first collections received with respect
to any proceeds of Collateral, (ii) fees, costs, expenses and
similar charges shall be payable as and when provided for in this
Agreement or the Ancillary Agreements and (iii) the principal
balance of the Liabilities shall be payable from collections
received with respect to any proceeds of Collateral as such proceeds
are received; provided, however, that if at any time the outstanding
principal balance of the Revolving Loan to Borrower exceeds the
Collateral Availability of Borrower or the outstanding principal
balance of all of the Liabilities exceeds the Total Facility, the
Borrower, shall immediately pay to Lender such amount as is
necessary to eliminate such excess. Nothing contained in this
Section 4.2 shall authorize Borrower to sell, lease or otherwise
dispose of any Collateral other than as expressly set forth in
Sections 6.4, 7.1 and 8.3.
4.3 Collection of Accounts and Payments. Borrower has
established a special account (the "Special Deposit Account") in
Borrower's name with Sanwa Bank California ("Depository Bank") to
which Borrower will immediately deposit all remittances and proceeds
of the Collateral in the identical form in which such payment was
made, whether by cash or check. The Depository Bank shall
acknowledge and agree, in a manner satisfactory to Lender, that all
payments made to such special account are the sole and exclusive
property of Lender, that Depository Bank has no right of setoff
against the funds in such special and that Depository Bank will
wire, or otherwise transfer immediately available funds in a manner
satisfactory to Lender, funds deposited in such special account to
Lender on a daily basis as soon as such funds are collected.
Borrower hereby agrees that all payments made to such special
account or otherwise received by Lender, whether on the Accounts or
as proceeds of other Collateral or otherwise, will be the sole and
exclusive property of Lender and will be applied on account of the
Liabilities. Lender will credit (conditional upon final collection)
all payments received through the special account to the Revolving
Loan Account on the Business Day that Lender is in receipt of good
funds. Upon the occurrence and during the continuance of an Event
of Default or Default, Borrower and any Affiliates, shareholders,
directors, officers, employees, agents of Borrower and all Persons
acting for or in concert with Borrower shall, acting as trustee for
Lender, receive, as
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the sole and exclusive property of Lender, any monies, checks,
notes, drafts or any other payments relating to or proceeds of
Accounts or other Collateral which come into their possession or
under their control and immediately upon receipt thereof, shall
remit the same or cause the same to be remitted, in kind, to Lender,
at Lender's address set forth in Section 13.11 or deposit such items
in the special account at the Depository Bank. Borrower agrees to
pay to Lender any and all fees, costs and expenses (if any) which
Lender incurs in connection with opening and maintaining the special
account and depositing for collection by Lender any check or item
of payment received or delivered to Depository Bank or Lender on
account of the Liabilities and Borrower further agrees to reimburse
Lender for any claims asserted by Depository Bank in connection with
its Special Deposit Account or any returned or uncollected checks
received by Depository Bank for deposit in the Special Deposit
Account.
4.4 Application of Payments and Collections. Borrower
irrevocably waives the right to direct the application of payments
and collections received by Lender from or on behalf of Borrower,
and Borrower agrees that Lender shall have the continuing exclusive
right to apply and reapply any and all such payments and collections
against the Liabilities in such manner as Lender may deem
appropriate, notwithstanding any entry by Lender upon any of its
books and records. To the extent that Borrower makes a payment or
payments to Lender or Lender receives any payment or proceeds of the
Collateral for Borrower's benefit, which payment(s) or proceeds or
any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party under any bankruptcy act,
state or federal law, common law or equitable cause, then to the
extent of such payment or proceeds received, the Liabilities of the
Borrower, as the case may be, or part thereof intended to be
satisfied shall be revived and shall continue in full force and
effect, as if such payments or proceeds had not been received by
Lender.
4.5 Statements. All advances to Borrower, and all other
debits and credits provided for in this Agreement, shall be
evidenced by entries made by Lender in its internal data control
systems showing the date, amount and reason for each such debit or
credit. Until such time as Lender shall have rendered to Borrower
written statements of account as provided herein, the balance in the
Revolving Loan Account, as set forth on Lender's most recent
statement, shall be rebuttably presumptive evidence of the amounts
due and owing to Lender by Borrower. Not less than ten (10) days
after the final day of each calendar month, Lender shall render to
Borrower a statement setting forth the balance of the Revolving Loan
Account, including principal, interest, expenses and fees. Each
such statement shall be subject to subsequent adjustment by Lender
and Lender's right to reapply payments in accordance with
Section 4.4, but shall, absent manifest errors or omissions, be
presumed correct and binding upon Borrower and shall constitute an
account stated unless, within thirty (30) days after receipt of any
statement from Lender, Borrower, shall deliver to Lender written
objection thereto specifying the error or errors, if any, contained
in such statement.
5. COLLATERAL: GENERAL TERMS
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5.1 Security Interest. To secure the prompt payment to
Lender of the Liabilities, Borrower hereby grants to Lender a
continuing security interest in and to all of the following property
and interest in property of or in which Borrower has an interest,
whether now owned or existing or hereafter acquired or arising and
wherever located: (i) all Accounts, Inventory, Equipment, contract
rights, General Intangibles, tax refunds, chattel paper,
instruments, letters of credit, documents and documents of title;
(ii) all of Borrower's deposit accounts (general or special) with
and credits and other claims against Depository Bank or Lender, or
any other financial institutions with which Borrower maintains
deposits; (iii) all of Borrower's now owned or hereafter acquired
monies, and any and all other property of Borrower now or hereafter
coming into the actual possession, custody or control of Lender or
any agent or affiliate of Lender in any way or for any purpose
(whether for safekeeping, deposit, custody, pledge, transmission,
collection or otherwise); (iv) all insurance proceeds of or relating
to any of the foregoing; (v) all of Borrower's books and records
relating to any of the foregoing; and (vi) all accessions and
additions to, substitutions for, and replacements, products and
proceeds of any of the foregoing.
5.2 Disclosure of Security Interest. Borrower shall make
appropriate entries upon its financial statements and books and
records disclosing Lender's security interest in the Collateral.
5.3 Special Collateral. Immediately upon Borrower's
receipt of any Collateral that is evidenced or secured by an
agreement, chattel paper, letter of credit, instrument or document,
including, without limitation, promissory notes, documents of title
and warehouse receipts (the "Special Collateral"), Borrower shall
deliver the original thereof to Lender or to such agent of Lender
as Lender shall designate, together with appropriate endorsements,
the documents required to draw thereunder (as may be relevant to
letters of credit) or other specific evidence (in form and substance
acceptable to Lender) of assignment thereof to Lender.
5.4 Further Assurances. At Lender's request, Borrower
shall, from time to time, (i) execute and deliver to Lender all
Security Documents that Lender may reasonably request, in form and
substance acceptable to Lender, and pay the costs of any recording
or filing of the same and (ii) take such other actions as Lender may
request in order to fully effect the purposes of this Agreement and
to protect Lender's interest in the Collateral. Upon the occurrence
of any Default, Borrower hereby irrevocably makes, constitutes and
appoints Lender (and all Persons designated by Lender for that
purpose) as Borrower's true and lawful attorney and agent-in-fact
to sign the name of Borrower on any of the Security Documents and
to deliver any of the Security Documents to such Persons as Lender,
in its sole discretion, may elect. Borrower agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement.
5.5 Inspection. Lender (by any of its officers,
employees or agents) shall have the right, at any time or times
during Borrower's usual business hours, but in no event less than
every ninety (90) days, without prior notice, to inspect the
Collateral, all records related thereto (and to make extracts from
such records) and the premises upon which any of the Collateral is
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located, to discuss Borrower's affairs and finances with any Person
and to verify the amount, quality, value and condition of, or any
other matter relating to, the Collateral.
5.6 Location of Collateral. Borrower's chief executive
office, principal place of business and all other offices and
locations of the Collateral and books and records related thereto
(including, without limitation, computer programs, printouts and
other computer materials and records concerning the Collateral) are
set forth on Exhibit C attached hereto. Borrower shall not remove
its books and records or the Collateral from any such locations
(except for removal of items of Inventory upon its sale in
accordance with the terms of this Agreement) and shall not open any
new offices or relocate any of its books and records or the
Collateral except within the continental United States of America
with at least thirty (30) days' prior notice thereof to Lender.
Upon the opening of any new offices which are leased or the
relocation of Borrower to a new office which is leased locations,
Borrower shall cause the landlord of such location to execute and
deliver to Lender a landlord's waiver in form and substance
satisfactory to Lender within thirty (30) days after the opening of
such new office or relocation from an existing office.
5.7 Lender's Payment of Claims Asserted Against Borrower.
Upon and during the continuation of an Event of Default, Lender may,
but shall not be obligated to, at any time or times hereafter, in
its sole discretion, and without waiving any Default or waiving or
releasing any obligation, liability or duty of Borrower under this
Agreement or the Ancillary Agreements, pay, acquire or accept an
assignment of any security interest, lien, claim or other
encumbrance asserted by any Person against the Collateral. All sums
paid by Lender under this Section 5.7, including all costs, fees
(including without limitation reasonable attorney's and paralegals'
fees and court costs), expenses and other charges relating thereto,
shall be payable by Borrower to Lender on demand and shall be
additional Liabilities secured by the Collateral.
6. COLLATERAL: ACCOUNTS
6.1 Verification of Accounts. Any of Lender's officers,
employees or agents shall have the right, at any time or times
hereafter, in Lender's or in Borrower's name or in the name of a
firm of independent certified public accountants acceptable to
Lender, to verify the validity, amount or any other matters relating
to any Accounts by mail, telephone, telegraph or otherwise.
6.2 Assignments, Records and Accounts Report. Borrower
shall keep accurate and complete records of its Accounts and not
less frequently than weekly, Borrower shall deliver to Lender an
Accounts Report and formal written assignments of all Accounts,
together with copies of the invoices related thereto (collectively,
the "Accounts Documents"); provided, however, after and during the
continuance an Event of Default or Default, Borrower shall deliver
to Lender the Accounts Documents as frequently as Lender shall
require, but not less frequently than twice weekly. Borrower shall
also deliver to Lender, upon demand, the original copy of all
documents, including, without limitation, repayment histories,
present status reports and shipment reports, relating to the
Accounts included in any Accounts Report and such other matters and
information relating to the status of then existing Accounts as
Lender shall reasonably request.
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Borrower shall further deliver to Lender once per month, and
after and during the continuance of an Event of Default or Default,
as frequently as Lender shall require, but not less frequently than
once per month, an aged Accounts Report of Borrower setting forth
the aging of all Accounts as well as the Account Debtor's name,
address and outstanding balance.
6.3 Notice Regarding Disputed Accounts. Borrower shall
give Lender prompt notice of any Accounts in excess of $50,000 which
are in dispute between any Account Debtor and Borrower. Each
Accounts Report shall identify all disputed Accounts and disclose
with respect thereto, in reasonable detail, the reason for the
dispute, all claims related thereto and the amount in controversy.
6.4 Sale or Encumbrance of Accounts. Borrower shall not,
without the prior written consent of Lender, sell, transfer, grant
a security interest in or otherwise dispose of or encumber any of
its Accounts to any Person other than Lender, except for the
Permitted Liens.
7. COLLATERAL: INVENTORY
7.1 Sale of Inventory. Unless a Default occurs and is
continuing, Borrower may sell Inventory in the ordinary course of
its business (which does not include a transfer in partial or total
satisfaction of Indebtedness, sales in bulk, sales on consignment
or sales on an approval or sale or return basis). All proceeds of
such sales shall be part of the Collateral and remitted to the
Special Deposit Account. Borrower shall not rent, lease or
otherwise transfer or dispose of any of the Inventory without
Lender's prior written consent, except as set forth in this
Section 7.1.
7.2 Safekeeping of Inventory; Inventory Covenants.
Borrower shall maintain its Inventory in good and saleable condition
at all times. Lender shall not be responsible for (i) the
safekeeping of the Inventory; (ii) any loss or damage thereto or
destruction thereof occurring or arising in any manner or fashion
from any cause; (iii) any diminution in the value of Inventory or
(iv) any act or default of any carrier, warehouseman, bailee or
forwarding agency or any other Person in any way dealing with or
handling the Inventory. All risk of loss, damage, distribution or
diminution in value of the Inventory shall be borne by Borrower.
7.3 Records and Schedules of Inventory. Borrower shall
keep correct and accurate daily records on an average cost basis,
itemizing and describing the kind, type, quality and quantity of
Inventory, Borrower's cost therefor and selling price thereof, and
the daily withdrawals therefrom and additions thereto and Inventory
then on consignment (if any, provided that Lender's prior written
consent to such consignment must be obtained), and shall furnish to
Lender (i) daily copies of the working papers related thereto; and
(ii) monthly a current Inventory Report, based on an average cost
assumption. A physical count of the Inventory shall be conducted
no less often than annually and a report based on such count of the
Inventory shall promptly thereafter be provided to Lender together
with such supporting information including, without limitation,
invoices relating to Borrower's purchase of goods listed in said
report, as Lender shall, in its sole discretion, request.
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7.4 Returned and Repossessed Inventory. If at any time
prior to the occurrence of a Default, any Account Debtor returns any
of the Inventory to Borrower, Borrower shall promptly determine the
reason for such return and, if Borrower accepts such return, issue
a credit memorandum (with a copy to be immediately sent to Lender)
in the appropriate amount to such Account Debtor; provided, however,
that Borrower shall not, without the prior consent of Lender, accept
on any single day, returned Inventory the sale price of which was
in excess of $50,000 in the aggregate. After the occurrence and
during the continuation of a Default, Borrower shall hold all
returned Inventory in trust for Lender, shall segregate all returned
Inventory from all other property of Borrower or in Borrower's
possession and shall conspicuously label such returned Inventory as
the property of Lender. Borrower shall, in all cases, immediately
notify Lender of the return of any Inventory, specifying the reason
for such return and the location and condition of the returned
Inventory.
7.5 Evidence of Ownership of Inventory. Borrower shall,
upon Lender's request, deliver to Lender all evidence of ownership
of the Inventory.
8. COLLATERAL: EQUIPMENT
8.1 Maintenance of the Equipment. Borrower shall keep
and maintain the Equipment in good operating condition and repair,
except for ordinary wear and tear, and shall make all necessary
replacements thereof so that the value, utility and operating
efficiency thereof shall at all times be maintained and preserved
and shall promptly inform Lender of any additions to or deletions
from the Equipment. Borrower shall not permit any such items to
become affixed to real estate in such manner that such items of
Equipment will become a fixture or an accession to other personal
property.
8.2 Evidence of Ownership of Equipment. Borrower shall,
upon Lender's request, deliver to Lender all evidence of ownership
of the Equipment (including, without limitation, bills of sale,
certificates of title and applications for title).
8.3 Proceeds of the Equipment. Borrower shall not sell,
transfer, lease, grant a security interest in or otherwise dispose
of or encumber the Equipment or any part thereof to any Person other
than Lender; provided, however, that in any fiscal year of Borrower,
Borrower may sell or otherwise dispose of Equipment with an
aggregate net book value not to exceed $25,000. In the event any
Equipment is sold, transferred or otherwise disposed of as permitted
in this Section 8.3, Borrower shall promptly notify Lender of such
fact and deliver all of the cash proceeds of such sale, transfer or
disposition to Lender, which proceeds shall be applied to the
repayment of the Liabilities; provided, however, that with Lender's
prior consent Borrower may use the proceeds of such sale, transfer
or disposition to finance the purchase of replacement Equipment.
Borrower shall deliver to Lender written evidence of the use of the
proceeds for such purchase. All replacement Equipment purchased by
Borrower shall be free and clear of all liens, claims, security
interests and other encumbrances, except for the security interest
granted to Lender, purchase money security interests consented to
in writing by Lender, and the Permitted Liens.
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9. WARRANTIES AND REPRESENTATIONS
9.1 General Warranties and Representations. Borrower
warrants and represents that:
(A) Borrower is a corporation duly organized and validly
existing and in good standing under the laws of the state of its
incorporation, and is qualified or licensed as a foreign corporation
to do business in all other countries, states and provinces in which
the laws thereof require Borrower to be so qualified or licensed and
where failure to qualify would have a material adverse affect on
Borrower's business or the Collateral;
(B) Borrower has used, during the five (5) year period
preceding the date of this Agreement, and does not intend to use,
any other corporate or fictitious name, except as disclosed in
Exhibit D attached hereto or as hereinafter disclosed in writing;
(C) Borrower has the right and power and is duly
authorized and empowered to enter into, execute, deliver and perform
this Agreement and the Ancillary Agreements;
(D) The execution, delivery and performance by Borrower
of this Agreement and the Ancillary Agreements shall not, by their
execution or performance, the lapse of time, the giving of notice
or otherwise, constitute a violation of any applicable law, rule,
regulation, judgment, order or decree or a breach of any provision
contained in Borrower's charter documents or by-laws or contained
in any agreement, instrument, indenture or other document to which
Borrower is now a party or by which it is bound, except where such
breach will not have a material adverse effect on Borrower's
business or the Collateral;
(E) Borrower's use of the proceeds of any advances made
by Lender are, and will continue to be, legal and proper corporate
uses (duly authorized by its board of directors, in accordance with
any applicable law, rule or regulation) and such uses are consistent
with all applicable laws, rules and regulations, as in effect as of
the date hereof;
(F) Borrower has, and is current and in good standing
with respect to, all governmental approvals, permits, certificates,
inspections, consents and franchises necessary to conduct and to
continue to conduct its present and intended business as heretofore
conducted by it and to own or lease and operate its properties as
now owned or leased and operated by it;
(G) None of said approvals, permits, certificates,
consents or franchises contains any term, provision, condition or
limitation more burdensome than such as are generally applicable to
Persons engaged in the same or similar business as Borrower;
(H) Borrower now has capital sufficient to carry on its
business and transactions and all businesses and transactions in
which it is about to engage and is now solvent and able to pay its
debts as they mature and Borrower now owns property the fair
saleable value of which is greater than the amount required to pay
Borrower's debts;
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(I) Except as disclosed on Exhibit E attached hereto and
in the Financials or as hereinafter disclosed in writing, Borrower
has no litigation pending, or to the best of its knowledge,
threatened, and no Indebtedness (except for the Indebtedness shown
on Exhibit I or as hereinafter disclosed in writing and trade
payable arising in the ordinary course of its business since the
dates reflected in the Financials) and has not guaranteed the
obligations of any other Person;
(J) Borrower (i) is not a party to any contract or
agreement or subject to any charge, restriction, judgment, decree
or order materially and adversely affecting its business, property,
assets, operations or condition, financial or other, and is not a
party to any labor dispute; and (ii) there are no lockouts, strikes
or walkouts relating to any labor contracts and no such contract is
scheduled to expire during the Term; except as to (i) and (ii) as
are disclosed on Exhibit F attached hereto or as hereinafter
disclosed to Lender in writing;
(K) Borrower has good, indefeasible and merchantable
title to and ownership of its Collateral, free and clear of all
liens, claims, security interests and other encumbrances, except
those of Lender and those, if any, described on Exhibit G attached
hereto;
(L) To the best of its knowledge, Borrower is not in
violation of any applicable statute, rule, regulation or ordinance
of any governmental entity, including, without limitation, the
United States of America, any state, city, town, municipality,
county or of any other jurisdiction, or of any agency thereof, in
any respect materially and adversely affecting the Collateral or
Borrower's business, property, assets, operations or condition,
financial or other;
(M) Borrower is not in default under any indenture, loan
agreement, mortgage, lease, trust deed, deed of trust or other
similar agreement relating to the borrowing of monies to which it
is a party or by which it is bound;
(N) The Financials fairly present the assets, liabilities
and financial condition and results of operations of Borrower and
such other Persons described therein as of the dates thereof; there
are no omissions or other facts or circumstances which are or may
be material and there has been no material and adverse change in the
assets, liabilities or financial or other condition of Borrower
since the date of the Financials; there exist no equity or long term
investments in or outstanding advances to any Person not reflected
in the Financials; there are no actions or proceedings which are
pending or, to the best of Borrower's knowledge, threatened, against
Borrower or any other Person which might result in any material
adverse change in Borrower's financial condition or materially and
adversely affect Borrower's operations, its assets or the
Collateral;
(O) Borrower has not received any notice to the effect
that it is not in full compliance with any of the requirements of
ERISA and the regulations promulgated thereunder and, to the best
of Borrower's knowledge, there exists no event described in
Section 4043 of ERISA, excluding subsections 4043(b)(2) and
4043(b)(3) thereof ("Reportable Event");
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(P) Borrower has filed all federal, state and local tax
returns and other reports, or has been included in consolidated
returns or reports filed by an Affiliate, which Borrower is required
by law, rule or regulation to file and all Charges that are due and
payable have been paid;
(Q) The execution and delivery of this Agreement or any
of the Ancillary Agreements by Borrower does do not directly or
indirectly violate or result in any violation of the Securities
Exchange Act of 1934, as amended, or any regulations issued pursuant
thereto, including without limitation, Regulation U, G, T or X of
the Board of Governors of the Federal Reserve System (12 CFR 221,
207, 220 and 224, respectively) and Borrower does not own or intend
to purchase or carry any "margin security," as defined in such
Regulations;
(R) Exhibit J contains a true and complete list of all
trademarks, brand-names, copyrights, patents, patent application in
which Borrower has an interest; and
(S) (i) the operations of Borrower, any other obligor
and each of Borrower's subsidiaries, if any, comply in all material
respects with all applicable Environmental Laws; (ii) none of the
operations of Borrower, any other obligor or any Subsidiary are
subject to any judicial or administrative proceeding alleging the
violation of any Environmental laws; (iii) none of the operations
of Borrower, any other obligor or any subsidiary are the subject of
any federal or state investigation evaluating whether any remedial
action is needed to respond to a release of any Hazardous Material
into the environment; (iv) none of Borrower, any other obligor or
any Subsidiary has filed any notice under any federal or state law
indicating past or present treatment, storage or disposal of a
Hazardous Material or reporting a spill or release of a Hazardous
Material into the environment; and (v) none of Borrower, any other
obligor or any Subsidiary has any known material contingent
liability in connection with any release of any Hazardous Material
into the environment. The materiality standard used in this
Section 9.1(S) shall be exceeded if the facts giving rise to a
breach or breaches of the representations or warranties contained
herein might result in liability in excess of $50,000 in the
aggregate.
Borrower hereby indemnifies Lender, its successors and
assignees, and agrees to hold Lender harmless from and against any
and all losses, liabilities, damages, injuries, costs, expenses and
claims of any and every kind whatsoever (including, without
limitation, court costs and attorneys' fees) which at any time or
from time to time may be paid, incurred or suffered by, or asserted
against, Lender for, with respect to, or as a direct or indirect
result of the violation by Borrower, of the Environmental Laws or
any laws or regulations relating to Hazardous Material, treatment,
storage, disposal, generation and transportation, air, water and
noise pollution, soil or ground or water contamination, the
handling, storage or release into the environmental of Hazardous
Materials; or with respect to, or as a direct or indirect result of
the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission or release from, properties utilized by
Borrower, any other obligor or any of Borrower's subsidiaries in the
conduct of their respective business into or upon any land, the
atmosphere, or any watercourse, body of water or wetlands, of any
Hazardous Material (including, without limitation, any losses,
liabilities, damages, injuries, costs, expenses or claims asserted
or arising under the Environmental Laws); and the
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provisions of and undertakings and indemnification set out in this
Section 9.1(S) shall survive the satisfaction and payment of the
Liabilities and the termination of this Agreement.
9.2 Account Warranties and Representations. Borrower
warrants and represents that Lender may rely, in determining which
Accounts listed on any Accounts Report submitted by Borrower are
Eligible Accounts, without independent investigation, on all
statements, warranties and representations made by Borrower on or
with respect to any such Accounts Report and, unless otherwise
indicated in writing by Borrower, that:
(A) Such Accounts are genuine, are in all respects what
they purport to be, are not reduced to a judgment and, if evidenced
by any instrument, item of chattel paper, agreement, contract or
documents, are evidenced by only one executed original instrument,
item of chattel paper, agreement, contract, or document, which
original has been endorsed and delivered to Lender;
(B) Such Accounts represent undisputed, bona fide
transactions completed in accordance with the terms and provisions
contained in any documents related thereto;
(C) Except for credits issued to any Account Debtor in
the ordinary course of Borrower's business for Inventory returned
pursuant to Section 7.4, the amounts shown on the Accounts Report,
and all invoices and statements delivered to Lender with respect to
any Account, are actually and absolutely owing to Borrower and are
not contingent for any reason;
(D) To the best of Borrower's knowledge, except as may
be disclosed on such Accounts Report, there are no setoffs,
counterclaims or disputes existing or asserted with respect to any
Accounts included on an Accounts Report, and Borrower has not made
any agreement with any Account Debtor for any deduction from such
Account, except for discounts or allowances allowed by Borrower in
the ordinary course of its business, which discounts and allowances
have been disclosed to Lender and are reflected in the calculation
of the invoice related to such Account;
(E) To the best of Borrower's knowledge, there are no
facts, events or occurrences which in any way impair the validity
or enforcement of any of the Accounts or tend to reduce the amount
payable thereunder from the amount of the invoice shown on any
Accounts Report, and on all contracts, invoices and statements
delivered to Lender with respect thereto;
(F) To the best of Borrower's knowledge, all Account
Debtors are solvent and had the capacity to contract at the time any
contract or other document giving rise to or evidencing the Accounts
was executed;
(G) The goods, the sale of which gave rise to the
Accounts, are not, and were not at the time of the sale thereof,
subject to any lien, claim, security interest or other encumbrance,
except those of Lender, and those removed or terminated prior to the
date hereof, and the Permitted Liens;
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(H) Borrower has no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the
Accounts;
(I) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor which might result in any material adverse change in
its financial or other condition; and
(J) The Accounts have not been pledged or sold to any
other Person or otherwise encumbered and the Borrower is the owner
of the Accounts free of all liens and encumbrances except those of
Lender and except for the Permitted Liens.
9.3 Inventory Warranties and Representations. Borrower
warrants and represents that Lender may rely, in determining which
items of Inventory listed on any Inventory Report submitted by
Borrower are Eligible Inventory, without independent investigation,
on all statements, warranties and representations made by Borrower
on or with respect to any such Inventory Report and, unless
otherwise indicated in writing by Borrower, that:
(A) All Inventory is located on premises listed on
Exhibit C or is Inventory which is in transit and is so identified
on the relevant Inventory Report;
(B) The Inventory is not subject to any lien, claim,
security interest or other encumbrance whatsoever, except for the
security interest of Lender hereunder and except for the Permitted
Liens;
(C) Except as specified on Exhibit C, no Inventory is
now, and shall not at any time or times hereafter be, stored with
a bailee, warehouseman or similar party without Lender's prior
written consent and, if Lender gives such consent, Borrower will
concurrently therewith cause any such bailee, warehouseman or
similar party to issue and deliver to Lender, in form and substance
acceptable to Lender, warehouse receipts therefor in Lender's name;
and
(D) Borrower is the owner of all of the Inventory
purported to be owned by Borrower free and clear of all liens and
encumbrances, except for the Permitted Liens, and none of the
Inventory has been leased, rented, transferred or sold, either on
consignment, on a sale or return basis, on approval, or otherwise.
9.4 ERISA Warranties and Representations. Borrower
warrants and represents that:
(A) Exhibit K hereto describes the Employee Benefit Plans
to which Borrower may have obligations;
(B) Each Employee Benefit Plan of Borrower or any of its
ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the Code, except where the
failure to so comply would not have a material (in the reasonable
opinion of
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the Lender) adverse effect on the financial condition or results or
operations of Borrower, and each such Employee Benefit Plan that is
intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified (or,
consistent with Section 1140 of the Tax Reform Act of 1986, will be
submitted to the Internal Revenue Service for such a determination
within the applicable remedial amendment period), and each trust
related to any such Employee Benefit Plan has been determined to be
exempt from federal income tax under Section 501(a) of the Code;
(C) Except as set forth in Exhibit K, neither Borrower
nor any of its ERISA Affiliates maintains or contributes to any
Employee Benefit Plan with an actuarial present value of projected
benefit obligations that exceeds the fair market value of the net
assets available for such benefits, calculated on the basis of the
actuarial assumptions specified in the most recent actuarial
valuation for such Employee Benefit Plan, and no such Employee
Benefit Plan provides for subsidized early retirement benefits that,
in the event of a reduction in force or plant closing, would have
a material (in the reasonable opinion of the Lender) adverse effect
on the financial condition or results or operations of Borrower;
(D) Except as set forth on Exhibit K, neither Borrower
nor any of its ERISA Affiliates maintains or contributes to any
employee welfare benefit plan within the meaning of Section 3(1) of
ERISA that provides benefits to employees after termination of
employment other than as required by Section 601 of ERISA;
(E) Neither Borrower nor any of its ERISA Affiliates has
breached in any material respect any of the responsibilities,
obligations, or duties imposed on it by ERISA or the regulations
promulgated thereunder with respect to any Employee Benefit Plan,
which breach would have a material (in the reasonable opinion of the
Lender) adverse effect on the financial condition or results or
operations of Borrower;
(F) Neither Borrower nor any ERISA Affiliate has (i)
failed to make a required contribution or payment to a Multiemployer
Plan or (ii) made a complete or partial withdrawal under Sections
4203 or 4205 of ERISA from a Multiemployer Plan, where such failure
or complete or partial withdrawal would have a material (in the
reasonable opinion of the Lender) adverse effect on the financial
condition or results or operations of Borrower;
(G) At the date hereof, the aggregate potential
withdrawal liability, as determined in accordance with Title IV of
ERISA, of Borrower and any ERISA Affiliates with respect to all
Employee Benefit Plans that are Multiemployer Plans does not exceed
$250,000 and, to the best of Borrower's and its ERISA Affiliates'
knowledge, no Multiemployer Plan is in reorganization or insolvent
within the meaning of Section 4241 or 4245 of ERISA;
(H) Neither Borrower nor any ERISA Affiliate has failed
to make a required installment or any other required payment under
Section 412 of the Code on or before the due date for such
installment or other payment;
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(I) Neither Borrower nor any ERISA Affiliate is required
to provide security to an Employee Benefit Plan under Section
401(a)(29) of the Code due to an Employee Benefit Plan amendment
that results in an increase in current liability for the plan year;
(J) No liability to the PBGC has been, or is expected by
Borrower or any ERISA Affiliate to be, incurred by Borrower or any
ERISA Affiliate, which liability would have a material (in the
reasonable opinion of the Lender) adverse effect on the financial
condition or results or operations of Borrower, and there are no
premium payments that have become due and which are unpaid;
(K) No events have occurred in connection with any
Employee Benefit Plan that might constitute grounds for the
termination of any such Employee Benefit Plan by the PBGC or for the
appointment by any United States District Court of a trustee to
administer any such Employee Benefit Plan;
(L) Except as set forth in Exhibit K, no Reportable Event
has, in the case of any Employee Benefit Plan maintained by Borrower
or an ERISA Affiliate other than a Multiemployer Plan, occurred and
is continuing, or to the best of Borrower's knowledge, has occurred
and is continuing in the case of any such Employee Benefit Plan that
is a Multiemployer Plan;
(M) No Employee Benefit Plan maintained by the Borrower
or an ERISA Affiliate had an Accumulated Funding Deficiency, whether
or not waived, as of the last day of the most recent fiscal year of
such Employee Benefit Plan or, in the case of any Multiemployer
Plan, as of the most recent fiscal year of such Multiemployer Plan
for which the annual reports of such Multiemployer Plan's actuaries
and auditors have been received; and
(N) Neither Borrower nor any ERISA Affiliate has engaged
in a Prohibited Transaction prior to the date hereof, which
Prohibited Transaction would have a material (in the reasonable
opinion of the Lender) adverse effect on the financial condition or
results or operations of Borrower, and the execution, delivery, and
carrying out of this Agreement will not involve any non-exempt
Prohibited Transactions (within the meaning of Part 4 of Subtitle B
of Title I of ERISA) or any transaction in connection with which a
tax could be imposed pursuant to Section 4975 of the Code.
9.5 Automatic Warranty and Representation and
Reaffirmation of Warranties and Representations. Each request for
an advance made by Borrower pursuant to this Agreement or the
Ancillary Agreements shall constitute (i) an automatic warranty and
representation by Borrower to Lender that there does not then exist
a Default or an Event of Default and (ii) a reaffirmation as of the
date of said request of all of the warranties and representations
of Borrower contained in this Agreement and in the Ancillary
Agreements.
9.6 Survival of Warranties and Representations. Borrower
covenants, warrants and represents to Lender that all
representations and warranties of Borrower contained in this
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Agreement and the Ancillary Agreements shall be true at the time of
Borrower's execution of this Agreement and the Ancillary Agreements,
and shall survive the execution, delivery and acceptance hereof and
thereof by the parties thereto and the closing of the transactions
described herein and therein or related hereto or thereto. Borrower
and Lender expressly agree that any misrepresentation or breach of
any representation or warranty whatsoever contained in this
Agreement or in any of the Ancillary Agreements shall be deemed
material.
10. COVENANTS AND CONTINUING AGREEMENTS
10.1 Affirmative Covenants. Borrower covenants that it
shall:
(A) At all times during the Term, maintain a ratio of
total liabilities to Tangible Net Worth of not more than 4.0:1.0;
(ii) Tangible Net Worth at least equal to $1,350,000, to be adjusted
for any dividends paid to or for the benefit of the holder or
holders of Borrower's Stock, as permitted by Section 10.2(C); (iii)
a ratio of Current Assets to Current Liabilities of not less than
1.1:1.0; and (iv) Pre-Tax Net Income of not less than $350,000 at
the end of each fiscal year of Borrower or such pro rata share
thereof; all as determined for each of the foregoing financial
covenants in accordance with generally accepted accounting
principles consistently applied;
(B) Pay to Lender, on demand, any and all fees, costs or
expenses which Lender or any Participant pays to a bank or other
similar institution arising out of or in connection with (i) the
forwarding to Borrower or any other Person on behalf of Borrower,
by Lender or any Participant, of proceeds of loans made by Lender
to Borrower pursuant to this Agreement and (ii) the depositing for
collection, by Lender or any Participant, of any check or item of
payment received or delivered to Lender or any Participant on
account of the Liabilities;
(C) At its sole cost and expense, keep and maintain the
Collateral insured for its full insurable value against loss or
damage by fire, theft, explosion, sprinklers and all other hazards
and risks ordinarily insured against by other owners or users of
such properties in similar businesses and notify Lender promptly of
any event or occurrence causing a material loss or decline in value
of the Collateral and the estimated (or actual, if available) amount
of such loss or decline;
(D) Promptly upon Borrower's learning thereof, notify
Lender of (i) any material delay in Borrower's performance of any
of its obligations to any Account Debtor and of any assertion of any
claims, offsets, defenses or counterclaims by any Account Debtor and
of any allowances or credits granted (including all credits issued
for returned or repossessed Inventory) or other monies advanced by
Borrower to any Account Debtor and (ii) all material adverse
information relating to the financial or other condition of any
Account Debtor;
(E) Keep books of account and prepare financial
statements and furnish to Lender the following (all of the foregoing
and following to be kept and prepared in accordance with generally
accepted accounting principles applied on a basis consistent with
the Financials, unless Borrower's independent certified public
accountants concur in any changes therein and such
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changes are disclosed to Lender and are consistent with then
generally accepted accounting principles):
(i) as soon as available, but not later than one
hundred twenty (120) days after the close of each fiscal
year of Borrower, financial statements of Borrower
(including a balance sheet, statement of cash flows and
profit and loss statement with supporting footnotes) as
at the end of such year and for the year then ended all
in reasonable detail as requested by Lender and examined
by a firm of independent certified public accountants of
recognized national standing selected by Borrower and
containing the unqualified opinion of such independent
certified public accountants with respect to the
financial statements;
(ii) as soon as available, but no later than thirty
(30) days after the end of each month, an unaudited
financial statement of Borrower on an unconsolidated
basis (including a statement of profit and loss and of
surplus for the month then ended, statement of cash flows
and a balance sheet as at the end of such month) as at
the end of the portion of Borrower's fiscal year then
elapsed, all in reasonable detail as requested by Lender
and certified by Borrower's principal financial officer
as prepared in accordance with generally accepted
accounting principles and fairly presenting the financial
position and results of operations of Borrower for such
period; provided, however, that Borrower and Lender agree
that the financial statements for periods other than the
fiscal year to date ended June, September, December and
March may deviate from generally accepted accounting
principles due solely to Borrower not calculating Costs
and Earnings in Excess of Billings and Billings in Excess
of Costs and Earnings monthly;
(iii) as soon as available, but not later than
sixty (60) days before the beginning of each fiscal year,
Borrower's balance sheet, profit and loss statement and
cash flow projection, prepared on a month by month basis,
for such fiscal year, together with appropriate
supporting documents reasonably acceptable to Lender;
provided, however, that Borrower shall not be required to
deliver the financial projections set forth in this
subsection (iii) for the calendar year ended March 31,
1997 until May 15, 1996;
(iv) as soon as available, but no later than thirty
(30) days after the close of business on the last day of
each month from and after the date hereof, a monthly
report and certificate thereto signed by the Borrower's
Chief Financial Officer, which monthly report shall
include, as of the last business day of the preceding
month a detailed aged trial balance of all existing
Accounts, including the invoice dates thereof and which
Accounts remain unpaid thirty (30), sixty (60), ninety
(90) and one hundred twenty (120) days from such invoice
date and listing the names of all applicable Account
Debtors; and
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(v) such other data and information (financial and
other) as Lender, from time to time, may reasonably
request, bearing upon or related to the Collateral,
Borrower's financial condition or results of its
operations, or the financial condition of any Person who
is a guarantor of any of the Liabilities;
(F) Notify Lender promptly upon, but in no event later
than, five (5) days after Borrower's learning thereof, that any
Eligible Account or Eligible Inventory has ceased to be an Eligible
Account or Eligible Inventory, respectively, and the reason(s) for
such ineligibility;
(G) Notify Lender, promptly upon Borrower's learning of
(i) any litigation affecting Borrower, whether or not the claim is
considered by Borrower to be covered by insurance; and (ii) the
institution of any suit or administrative proceeding which may
materially and adversely affect the operations, financial condition
or business of Borrower or which may affect Lender's security
interest in the Collateral;
(H) Provide Lender with copies of all agreements between
Borrower and any warehouse at which Inventory may, from time to
time, be kept and all leases or similar agreements between Borrower
and any Person, whether Borrower is lessor or lessee thereunder;
(I) Maintain product liability insurance in an amount
customary for the business conducted by Borrower;
(J) As to the following ERISA reports:
(i) As soon as possible, and in any event within
ten (10) Business Days, after Borrower knows or has
reason to know that, regarding any Employee Benefit Plan
with respect to the Borrower or an ERISA Affiliate, a
Prohibited Transaction or a Reportable Event has occurred
(whether or not the requirement for notice of such
Reportable Event has been waived by the PBGC), deliver to
the Lender a certificate of a responsible officer of
Borrower setting forth the details of such Prohibited
Transaction or Reportable Event, the action that Borrower
proposes to take with respect thereto, and, when known,
any action taken or threatened by the Internal Revenue
Service, Department of Labor, or PBGC;
(ii) Upon request of the Lender made from time to
time, deliver to the Lender a copy of the most recent
actuarial report, funding waiver, and annual report
received with respect to any Employee Benefit Plan
maintained by Borrower or an ERISA Affiliate; and
(iii) Upon reasonable request of the Lender made
from time to time, deliver to the Lender a copy of any
Employee Benefit Plan maintained by Borrower or any ERISA
Affiliates; and
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(iv) As soon as possible, and in any event within
ten (10) Business Days, after it knows or has reason to
know that any of the following have occurred with respect
to any Employee Benefit Plan maintained by or contributed
to Borrower or an ERISA Affiliate, deliver to the Lender
a certificate of a responsible officer of Borrower
setting forth the details of the events described in (a)
through (l) and the action that the Borrower or any ERISA
Affiliate proposes to take with respect thereto, together
with a copy of any notice or filing from the PBGC or
other agency of the United States government with respect
to such of the events described in (a) through (l): (a)
any Employee Benefit Plan has been terminated; (b) the
Plan Sponsor intends to terminate any Employee Benefit
Plan; (c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate any
Employee Benefit Plan or to appoint a trustee to
administer such Employee Benefit Plan, or the Borrower or
any ERISA Affiliate receives a notice from a
Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; (d)
Borrower or any ERISA Affiliate withdraws from any
Employee Benefit Plan, or notice of any withdrawal
liability is received by Borrower or any ERISA Affiliate;
(e) any Employee Benefit Plan has received an unfavorable
determination letter from the Internal Revenue Service
regarding the qualification of the Employee Benefit Plan
under Section 401(a) of the Code; (f) the Borrower or any
ERISA Affiliate fails to make a required installment or
any other required payment under Section 412 of the Code
on or before the due date for such installment or payment
or has applied for a waiver of the minimum funding
standard under Section 412 of the Code; (g) the
imposition of any tax under Code Section 4980B(a) or the
assessment by the Secretary of Labor of a civil penalty
under Section 502(c) of ERISA; (h) there is a partial or
complete withdrawal (as described in ERISA Section 4203
or 4205) by the Borrower or any ERISA Affiliate from a
Multiemployer Plan; (i) the Borrower or any ERISA
Affiliate is in "default" (as defined in ERISA Section
4219(c)(5)) with respect to payments to a Multiemployer
Plan required by reason of its complete or partial
withdrawal from such Employee Benefit Plan; (j) a
Multiemployer Plan is in "reorganization" or "insolvent"
(as described in Title IV of ERISA) or such Multiemployer
Plan intends to terminate or has terminated under Section
4041A of ERISA; (k) the institution of a proceeding by a
fiduciary of a Multiemployer Plan against the Borrower or
any ERISA Affiliate to enforce Section 515 of ERISA; or
(l) the Borrower or any ERISA Affiliate has increased
benefits under any existing Employee Benefit Plan or
commenced contributions to an Employee Benefit Plan to
which Borrower or any ERISA Affiliate was not previously
contributing. For purposes of this Section, the Borrower
shall be deemed (i) to have knowledge of all facts known
by the Plan Administrator of any Employee Benefit Plan of
which Borrower is the Plan Sponsor or in which Borrower
participates or to which Borrower contributes, and
(ii) to have knowledge of all facts known by the Plan
Administrator of any Employee Benefit Plan of which any
ERISA Affiliate is the Plan Sponsor or in which any ERISA
Affiliate participates or to which any ERISA Affiliate
contributes and which facts could lead to an event or
condition that could have a material (in the reasonable
opinion of the Lender) adverse effect on the financial
condition or results or operations of Borrower;
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(K) Give written notice to Lender immediately upon
receipt of any notice that (i) the operations of Borrower, any other
obligor or any Subsidiary are not in full compliance with
requirements of applicable Environmental Laws; (ii) Borrower, any
other obligor or any Subsidiary is subject to any Federal or state
investigation evaluating whether any remedial action is needed to
respond to the release of any Hazardous Material into the
environment; or (iii) any properties or assets of Borrower, any
other obligor or any Subsidiary are subject to any Environmental
Lien;
(L) Without limiting the generality of any of Borrower's
other covenants and agreements, the operations of Borrower, any
other obligor and each of Borrower's Subsidiaries shall at all times
comply in all material respects with all applicable Environmental
Laws. The materiality standard used in this Section 10.1(L) shall
be exceeded if the facts giving rise to a breach or breaches of the
covenant contained herein might result in liability in excess of
$50,000 in the aggregate, whether or not such liability may be
covered by insurance;
(M) As soon as available but not later than thirty (30)
days after the end of each calendar quarter, delivery to Lender a
summary report certified by the Borrower's Chief Financial Officer
detailing all Billings in Excess of Cost and Earnings; and
(N) Within thirty (30) days after the end of each fiscal
month of Borrower, deliver to Lender a Covenant Compliance
Certificate, in the form of Exhibit L attached hereto executed by
an officer of Borrower attesting to the items set forth in such
Certificate.
10.2 Negative Covenants. Borrower covenants that it shall
not:
(A) Merge or consolidate with or acquire any Person, or
otherwise acquire all or substantially all of the assets or
properties of any other Person without the prior written consent of
Lender, which may withheld in Lender's sole and absolute discretion;
(B) Other than in the ordinary course of business, make
any investment in the securities of any Person;
(C) Declare or pay dividends upon any of Borrower's Stock
or make any distribution of Borrower's property or assets to any
Person, including, without limitation, any Affiliate, officer or
employee of Borrower; provided that, as long as at the time of any
proposed payment of a dividend, no Default or Event of Default has
occurred and is continuing or would be created by the making of such
payment, Borrower may declare and pay dividends upon Borrower's
Stock so long as (i) Borrower's Tangible Net Worth is not less than
$1,350,000 at the time of and immediately following the payment of
such dividend; and (ii) that immediately after the payment of such
dividend Borrower has Collateral Availability of $125,000 or more,
which Collateral Availability shall be calculated in accordance with
Section 2.1 hereinbefore and shall be further reduced by (i) all
accounts payable balances in excess of sixty (60) days past due and
(ii) all Charges which are due and owing. Moreover, Borrower may
issue stock dividends upon its Stock so long as the same is in
accordance with all applicable laws;
(D) Permit the annual salary and all other direct and
indirect remuneration to Borrower's officers to exceed $180,000
individually or $690,000 in the aggregate, or permit the
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payment of any management fee to an Affiliate; provided, however,
that Borrower may pay a management fee to C&L Acquisition not to
exceed $100,000 per fiscal year of Borrower;
(E) Redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Borrower's Stock, or make any
material change in Borrower's capital structure or in any of its
business objectives, purposes and operations which might in any way
adversely affect the repayment of Liabilities;
(F) Enter into, or be a party to, any transaction with
any Affiliate, director, officer or stockholder of Borrower, except
in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable
terms which are fully disclosed to Lender (except that transactions
between Borrower and Sattel Communications, L.L.C. or C&L
Communications, Inc. in the ordinary course of Borrower's business
need not be disclosed to Lender outside of Borrower's reporting
requirements set forth herein) and are no less favorable to Borrower
than Borrower would obtain in a comparable arm's-length transaction
with a Person not an Affiliate, director, officer or stockholder of
Borrower;
(G) Enter into any transaction which materially and
adversely affects the Collateral or Borrower's ability to repay the
Indebtedness or permit or agree to any extension, compromise or
settlement or make any change or modification of any kind or nature
with respect to any Account, including any of the terms relating
thereto, except for credits given for Inventory returned pursuant
to Section 7.4;
(H) Guarantee or otherwise, in any way, become liable
with respect to the obligations or liabilities of any Person, except
by endorsement of instruments or items of payment for deposit to the
general account of Borrower or for delivery to Lender on account of
the Liabilities;
(I) Except as otherwise permitted hereunder make deposits
to or withdrawals from any of its deposit accounts for the benefit
of any Affiliate;
(J) Except as otherwise expressly permitted herein or in
the Ancillary Agreements, pledge, mortgage, grant a security
interest in, encumber, assign, sell, lease or otherwise dispose of
or transfer, whether by sale, merger, consolidation, liquidation,
dissolution, or otherwise, any of Borrower's assets;
(K) Incur any Indebtedness for borrowed money other than
the indebtedness scheduled on Exhibit I attached hereto and the
Liabilities, except for Indebtedness which is unsecured and is to
Persons who execute and deliver to Lender (in form and substance
acceptable to Lender and its counsel) subordination agreements
subordinating their claims against Borrower to the payment of the
Liabilities;
(L) Make capital expenditures in any fiscal year which,
in the aggregate, exceed $250,000.00 in any fiscal year;
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(M) Permit any Accounts owing to Borrower from any
Affiliate to be payable on terms which would not allow Borrower to
demand payment upon the occurrence of a default or permit the
aggregate amount of all Accounts owing from its Affiliates at any
time to exceed $10,000 outside of the ordinary course of Borrower's
business unless a Default has occurred in which case Borrower shall
not permit any Accounts to be owing from its Affiliates; or
(N) Do any of the following:
(i) Establish, maintain, and operate any Employee
Benefit Plan that is not in compliance in all material
respects with the provisions of ERISA, the Code, and all
other applicable laws, and the regulations and
interpretations thereunder, except where the failure to
so comply would not have a material (in the reasonable
opinion of the Lender) adverse effect on the financial
condition or results or operations of the Borrower;
(ii) Allow to exist any Accumulated Funding
Deficiency with respect to any Employee Benefit Plan;
(iii) Terminate any Employee Benefit Plan, or
withdraw or effect a partial withdrawal from any
Multiemployer Plan, if such termination, withdrawal, or
partial withdrawal would have a material (in the
reasonable opinion of the Lender) adverse effect on the
financial condition or results or operations of Borrower;
(iv) Fail to make any contribution or payment to any
Multiemployer Plan which Borrower or any ERISA Affiliate
may be required to make under any agreement relating to
such Multiemployer Plan;
(v) Fail to make any required installment or any
other payment required under Section 412 of the Code on
or before the due date for such installment or other
payment;
(vi) Amend any Employee Benefit Plan so as to result
in an increase in current liability for the plan year
such that Borrower or any ERISA Affiliate is required to
provide security to such Employee Benefit Plan under
Section 401(a)(29) of the Code;
(vii) Enter into any Prohibited Transaction
involving any Employee Benefit Plan, which Prohibited
Transaction would have a material (in the reasonable
opinion of the Lender) adverse effect on the financial
condition or results or operations of Borrower;
(viii) Permit the occurrence of any Reportable
Event, or any other event or condition, which would have
a material (in the reasonable opinion of the Lender)
adverse effect on the financial condition or results or
operations of Borrower; or
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(ix) Allow or permit to exist with respect to any
Employee Benefit Plan any other event or condition known
or which reasonably should be known to Borrower and which
would have a material (in the reasonable opinion of the
Lender) adverse effect on the financial condition or
results or operations of Borrower.
(O) Make any loans, advances or extensions of credit to
any Person, including, without limitation, any Affiliate, officer
or employee of Borrower;
10.3 Contesting Charges. Notwithstanding anything to the
contrary herein, Borrower may dispute any Charges without prior
payment thereof, even if such non-payment may cause a lien to attach
to Borrower's assets, provided that Borrower shall give Lender
prompt notice of such dispute and shall be diligently contesting the
same in good faith and by an appropriate proceeding and there is no
danger of a loss or forfeiture of any of the Collateral and provided
further that, if the same are potentially or actually in excess of
$25,000 in the aggregate for Borrower at any time hereafter,
Borrower shall give Lender such additional collateral and assurances
as Lender, in its sole discretion, deems necessary under the
circumstances, immediately upon demand by Lender.
10.4 Payment of Charges. Subject to the provisions of
Section 10.3, Borrower shall pay promptly when due all of the
Charges. In the event Borrower, at any time or times hereafter,
shall fail to pay the Charges or to promptly obtain the satisfaction
of such Charges, Borrower shall promptly so notify Lender thereof
and Lender may, without waiving or releasing any obligation or
liability of Borrower hereunder or any Default, in its sole
discretion, at any time or times thereafter, make such payment or
any part thereof (but shall not be obligated so to do), or obtain
such satisfaction and take any other action with respect thereto
which Lender deems advisable. All sums so paid by Lender and any
expenses, including reasonable attorneys' fees, court costs,
expenses and other charges relating thereto, shall be payable by
Borrower to Lender upon demand and shall be additional Liabilities.
10.5 Insurance; Payment of Premiums. All policies of
insurance on the Collateral or otherwise required hereunder shall
be in form and amount satisfactory to Lender and with insurers
reasonably recognized as adequate by Lender. Borrower shall deliver
to Lender the original (or a certified copy) of each policy of
insurance and evidence of payment of all premiums therefor and shall
deliver renewals of all such policies to Lender at least thirty (30)
days prior to their expiration dates. Such policies of insurance
shall contain an endorsement, in form and substance acceptable to
Lender, showing all losses payable to Lender to the extent of the
Liabilities outstanding at the time of the payment. Such
endorsement shall provide that the insurance companies will give
Lender at least thirty (30) days' prior notice before any such
policy shall be altered or cancelled and that no act or default of
Borrower or any other person shall affect the right of Lender to
recover under such policy in case of loss or damage. Borrower
hereby directs all insurers under such policies to pay all proceeds
payable thereunder directly to Lender. Upon the occurrence and
during the continuation of a Default or Event of Default, Borrower
irrevocably makes, constitutes and appoints Lender (and all
officers, employees or agents designated by Lender) as Borrower's
true and lawful attorney and agent-in-fact for the purpose of
making, settling and adjusting claims under such policies (provided
that Lender shall consult
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with Borrower prior to finally making, settling or adjusting claims
under such policies), endorsing the name of Borrower in writing or
by stamp on any check, draft, instrument or other item of payment
for the proceeds of such policies and for making all determinations
and decisions with respect to such policies. If Borrower shall fail
to obtain or maintain any of the policies required by this Section
10.5 or to pay any premium relating thereto, then Lender, without
waiving or releasing any obligation or default by Borrower
hereunder, may (but shall be under no obligation to do so) obtain
and maintain such policies of insurance and pay such premiums and
take any other action with respect thereto which Lender deems
advisable. All sums so disbursed by Lender, including reasonable
attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable by Borrower to Lender upon demand and
shall be additional Liabilities.
10.6 Survival of Obligations Upon Termination of
Agreement. Except as otherwise expressly provided for in this
Agreement and in the Ancillary Agreements, no termination or
cancellation (regardless of cause or procedure) of this Agreement
or the Ancillary Agreements shall in any way affect or impair the
powers, obligations, duties, rights, and liabilities of Borrower or
Lender in any way or respect relating to any transaction or event
occurring prior to such termination or cancellation, the Collateral,
or any of the undertakings, agreements, covenants, warranties and
representations of Borrower or Lender contained in this Agreement
or the Ancillary Agreements. All such undertakings, agreements,
covenants, warranties and representations shall survive such
termination or cancellation.
11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1 Event of Default; Default. The occurrence of any one
or more of the following events shall constitute an Event of Default
which, if not cured within the applicable grace period or waived in
writing by Lender, shall constitute a Default:
(A) Borrower fails to pay any part of the Liabilities
when due and payable or declared due and payable or is in default
in the payment of any of the Indebtedness;
(B) Borrower or any Affiliate or guarantor of the
Liabilities fails or neglects to perform, keep or observe any other
term, provision, condition or covenant contained in this Agreement
or in the Ancillary Agreements, which is required to be performed,
kept or observed by Borrower or such Affiliate or guarantor and the
same is not cured to Lender's satisfaction within twenty (20) days
after Lender gives Borrower notice identifying such default;
provided, however, that breach of any of the provisions, conditions
or covenants contained in Sections 9.1(H), 9.1(N), 9.2(J), 10.1(A)
and 10.2 shall without notice or time to cure be a Default;
(C) Borrower shall default under any agreement, document
or instrument, other than this Agreement or any of the Ancillary
Agreements, now or hereafter existing, to which Borrower is a party;
(D) Any statement, warranty, representation, report,
financial statement, or certificate made or delivered by Borrower,
or any of its officers, employees or agents, to Lender is not true
and correct in any material respect;
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(E) There shall occur any material uninsured damage to
or loss, theft, or destruction of any of the Collateral;
(F) The Collateral or any of Borrower's other assets are
attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is
not cured within thirty (30) days thereafter; an application is made
by any Person other than Borrower for the appointment of a receiver,
trustee, or custodian for any of the Collateral or any of Borrower's
other assets and the same is not dismissed within sixty (60) days
after the application therefor;
(G) An application is made by Borrower for the
appointment of a receiver, trustee or custodian for any of the
Collateral or any of Borrower's other assets; a petition under any
section or chapter of the Bankruptcy Code or any similar law or
regulation is filed by or against Borrower or any guarantor of the
Liabilities and, if filed against Borrower or any guarantor, is not
dismissed within sixty (60) days after filing; Borrower makes an
assignment for the benefit of its creditors or any case or
proceeding is filed by or against Borrower for its dissolution,
liquidation, or termination; Borrower ceases to conduct its business
as now conducted or is enjoined, restrained or in any way prevented
by court order from conducting all or any material part of its
business affairs;
(H) Except as permitted in Section 10.3, a notice of
lien, levy or assessment is filed of record with respect to all or
any substantial portion of Borrower's assets by the United States,
or any department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental agency including,
without limitation, the Pension Benefit Guaranty Corporation, or any
taxes or debts owing to any of the foregoing becomes a lien or
encumbrance upon the Collateral or any of Borrower's other assets
and such lien or encumbrance is not released within thirty (30) days
after its creation;
(I) Judgment(s) is or are rendered against Borrower in
the aggregate in excess of $50,000 and Borrower fails within twenty
(20) days after the entry thereof to pay such judgment, or fails to
commence appropriate proceedings to appeal such judgment(s) within
the applicable appeal period or, after such appeal is filed,
Borrower fails to diligently prosecute such appeal or such appeal
is denied;
(J) Borrower becomes insolvent or fails generally to pay
its debts as they become due;
(K) Any individual who is liable for the payment of any
of the Liabilities, either primarily or secondarily (as a guarantor
or an accommodation party ) shall die or become incompetent;
(L) Any Person who is a guarantor, surety or endorser of
all or any part of the Liabilities shall withdraw or terminate his,
her or its guaranty, or if any guaranty of any of the Liabilities
ceases to be effective for any reason; or
(M) As to the following ERISA reports:
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(i) As soon as possible, and in any event within
ten (10) Business Days, after Borrower knows or has
reason to know that, regarding any Employee Benefit Plan
with respect to the Borrower or an ERISA Affiliate, a
Prohibited Transaction or a Reportable Event has occurred
(whether or not the requirement for notice of such
Reportable Event has been waived by the PBGC), deliver to
the Lender a certificate of a responsible officer of
Borrower setting forth the details of such Prohibited
Transaction or Reportable Event, the action that Borrower
proposes to take with respect thereto, and, when known,
any action taken or threatened by the Internal Revenue
Service, Department of Labor, or PBGC;
(ii) Upon request of the Lender made from time to
time, deliver to the Lender a copy of the most recent
actuarial report, funding waiver, and annual report
received with respect to any Employee Benefit Plan
maintained by Borrower or an ERISA Affiliate; and
(iii) Upon reasonable request of the Lender made
from time to time, deliver to the Lender a copy of any
Employee Benefit Plan maintained by Borrower or any ERISA
Affiliates; and
(iv) As soon as possible, and in any event within
ten (10) Business Days, after it knows or has reason to
know that any of the following have occurred with respect
to any Employee Benefit Plan maintained by or contributed
to Borrower or an ERISA Affiliate, deliver to the Lender
a certificate of a responsible officer of Borrower
setting forth the details of the events described in (a)
through (l) and the action that the Borrower or any ERISA
Affiliate proposes to take with respect thereto, together
with a copy of any notice or filing from the PBGC or
other agency of the United States government with respect
to such of the events described in (a) through (l): (a)
any Employee Benefit Plan has been terminated; (b) the
Plan Sponsor intends to terminate any Employee Benefit
Plan; (c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate any
Employee Benefit Plan or to appoint a trustee to
administer such Employee Benefit Plan, or the Borrower or
any ERISA Affiliate receives a notice from a
Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; (d)
Borrower or any ERISA Affiliate withdraws from any
Employee Benefit Plan, or notice of any withdrawal
liability is received by Borrower or any ERISA Affiliate;
(e) any Employee Benefit Plan has received an unfavorable
determination letter from the Internal Revenue Service
regarding the qualification of the Employee Benefit Plan
under Section 401(a) of the Code; (f) the Borrower or any
ERISA Affiliate fails to make a required installment or
any other required payment under Section 412 of the Code
on or before the due date for such installment or payment
or has applied for a waiver of the minimum funding
standard under Section 412 of the Code; (g) the
imposition of any tax under Code Section 4980B(a) or the
assessment by the Secretary of Labor of a civil penalty
under Section 502(c) of ERISA; (h) there is a partial or
complete withdrawal (as described in ERISA Section 4203
or 4205) by the Borrower or any ERISA Affiliate from a
Multiemployer Plan; (i) the
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Borrower or any ERISA Affiliate is in "default" (as
defined in ERISA Section 4219(c)(5)) with respect to
payments to a Multiemployer Plan required by reason of
its complete or partial withdrawal from such Employee
Benefit Plan; (j) a Multiemployer Plan is in
"reorganization" or "insolvent" (as described in Title IV
of ERISA) or such Multiemployer Plan intends to terminate
or has terminated under Section 4041A of ERISA; (k) the
institution of a proceeding by a fiduciary of a
Multiemployer Plan against the Borrower or any ERISA
Affiliate to enforce Section 515 of ERISA; or (l) the
Borrower or any ERISA Affiliate has increased benefits
under any existing Employee Benefit Plan or commenced
contributions to an Employee Benefit Plan to which
Borrower or any ERISA Affiliate was not previously
contributing. For purposes of this Section, the Borrower
shall be deemed (i) to have knowledge of all facts known
by the Plan Administrator of any Employee Benefit Plan of
which Borrower is the Plan Sponsor or in which Borrower
participates or to which Borrower contributes, and
(ii) to have knowledge of all facts known by the Plan
Administrator of any Employee Benefit Plan of which any
ERISA Affiliate is the Plan Sponsor or in which any ERISA
Affiliate participates or to which any ERISA Affiliate
contributes and which facts could lead to an event or
condition that could have a material (in the reasonable
opinion of the Lender) adverse effect on the financial
condition or results or operations of Borrower.
11.2 Acceleration of the Liabilities. Upon and after the
occurrence of a Default, all of the Liabilities of Borrower may, at
the option of Lender and without demand, notice, or legal process
of any kind, be declared, and immediately shall become, due and
payable.
11.3 Remedies. Upon and after the occurrence of a
Default, which is not waived or cured during any applicable grace
or cure period, Lender shall have all of the following rights and
remedies:
(A) All of the rights and remedies of a secured party
under the Illinois Uniform Commercial Code or other applicable law,
all of which rights and remedies shall be cumulative, and
non-exclusive, to the extent permitted by law, and in addition to
any other rights and remedies contained in this Agreement and in any
of the Ancillary Agreements;
(B) The right to (i) peacefully enter upon the premises
of Borrower or any other place or places where the Collateral is
located and kept, without any obligation to pay rent to Borrower or
any other person, through self-help and without judicial process or
first obtaining a final judgment or giving Borrower notice and
opportunity for a hearing on the validity of Lender's claim, and
remove the Collateral from such premises and places to the premises
of Lender or any agent of Lender, for such time as Lender may
require to collect or liquidate the Collateral, and/or (ii) require
Borrower to assemble and deliver the Collateral to Lender at a place
to be designated by Lender;
(C) The right to (i) open Borrower's mail and collect any
and all amounts due from Account Debtors, (ii) notify Account
Debtors that the Accounts have been assigned to Lender and that
Lender has a security interest therein and (iii) direct such Account
Debtors to make all
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payments due from them upon the Accounts, including the Special
Collateral, directly to Lender or to a lock box designated by
Lender. Lender shall promptly furnish Borrower with a copy of any
such notice sent, and Borrower hereby agrees that any such notice,
in Lender's sole discretion, may be sent on Lender's stationery, in
which event, Borrower shall, upon demand, co-sign such notice with
Lender; and
(D) The right to sell, lease or to otherwise dispose of
all or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or
sales, with such notice as provided in Section 11.4, in lots or in
bulk, for cash or on credit, all as Lender, in its sole discretion,
may deem advisable. At any such sale or sales of the Collateral,
the Collateral need not be in view of those present and attending
the sale, nor at the same location at which the sale is being
conducted. Lender shall have the right to conduct such sales on
Borrower's premises or elsewhere and shall have the right to use
Borrower's premises without charge for such sales for such time or
times as Lender may see fit. Lender is hereby granted a license or
other right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in advertising for sale
and selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit but
Lender shall have no obligations thereunder. Lender may purchase all
or any part of the Collateral at public or, if permitted by law,
private sale and, in lieu of actual payment of such purchase price,
may setoff the amount of such price against the Liabilities. The
proceeds realized from the sale of any Collateral shall be applied
first to the reasonable costs, expenses and attorneys' and paralegal
fees and expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage, sale and
delivery of the Collateral; second to interest due upon any of the
Liabilities; and third to the principal of the Liabilities Lender
shall account to Borrower for any surplus. If any deficiency shall
arise, Borrower shall remain liable to Lender therefor.
11.4 Notice. Borrower agrees that any notice required to
be given by Lender of a sale, lease, other disposition of any of the
Collateral or any other intended action by Lender, which is
personally delivered to Borrower or which is deposited in the United
States mail, postage prepaid and duly addressed to Borrower at the
address set forth in Section 13.11, at least ten (10) days prior to
any such public sale, lease or other disposition or other action
being taken, or the time after which any private sale of the
Collateral is to be held, shall constitute commercially reasonable
and fair notice thereof to Borrower.
12. CONDITIONS PRECEDENT TO DISBURSEMENT.
12.1 Conditions Precedent. The obligation of Lender to
make the loans to Borrower pursuant to the Total Facility is subject
to the condition precedent that, in addition to satisfaction of the
conditions set forth in Sections 12.2 and 12.3 hereof, Lender shall
have received, prior to the first disbursement of the proceeds of
any of the loans hereunder, the
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documents set forth on the Closing Checklist, a copy of which is
attached hereto as Exhibit H, duly executed in the form and
substance satisfactory to Lender;
12.2 Lender Satisfaction. The obligation of Lender to
make the loans pursuant to the Total Facility to Borrower is subject
to the further condition precedent that all proceedings taken in
connection with the transaction contemplated by this Agreement, and
all instruments, authorizations and other documents applicable
thereto, shall be satisfactory in form and substance to Lender and
its counsel.
12.3 Additional Funding Requirements. In addition to the
foregoing, prior to Lender making of any and all loans hereunder,
all of the following shall have been satisfied in a manner
satisfactory to Lender:
(A) No change in the condition or operations, financial
or otherwise, of Borrower shall have occurred which change, in the
reasonable credit judgment of Lender, may have a material adverse
effect on Borrower or on any of the Collateral;
(B) No litigation shall be outstanding or have been
instituted or threatened which Lender determines to be material
against Borrower or any of the Collateral;
(C) All of the representations and warranties of Borrower
set forth in this Agreement and each of the other Agreements to
which Borrower is a party shall be true and correct on the date of
the contemplated loan to the same extent as originally made on such
date;
(D) No Event of Default or Default shall exist or be
continuing;
(E) Lender shall be satisfied that the transactions
contemplated by this Agreement are in compliance with all applicable
laws, regulations, orders, and contractual obligations deemed
relevant by Lender;
(F) Lender's continuing due diligence review with respect
to Borrower, including, without limitation, investigations and
reviews of Borrower's condition (financial or otherwise), business,
operations, results of operations, assets, prospects, litigation and
environmental matters, and field review of the Collateral by
Lender's representatives, shall continue to be satisfactory to
Lender as of the Closing Date;
(G) Lender's liens and security interests securing the
Liabilities shall have been duly created and perfected and be of
first priority, except as otherwise expressly permitted by this
Agreement;
(H) The corporate, capital and legal structure, as well
as the ownership and the organizational documents, of Borrower shall
be satisfactory to Lender in all respects; and
(I) Borrower shall have Collateral Availability of not
less than $125,000 at Closing after Borrower's first draw on the
credit facility;
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(J) Lender shall have received a valid, properly
perfected Collateral Assignment to Lender of the $3,400,000
Promissory Note from C&L Communications, Inc. to C&L Acquisition
Corporation, all in form and substance acceptable to Lender; and
(K) The Lender shall have received, on or prior to 1:00
P.M. (Chicago, Illinois time) no later than the day a Prime Rate
Revolving Loan is to be made and at least two (2) Business Days
prior to the day a LIBOR Rate Revolving Loan is to be made, (i) a
telephonic request (which telephonic request, in the case of LIBOR
Rate Revolving Loan, shall be promptly confirmed in writing) from
the Borrower for an advance in a specific amount, and (ii) a current
daily certificate identifying the current Borrowing Base and all
other documents required to have been delivered to the Lender
hereunder prior to such date. In the case of LIBOR Rate Revolving
Loan, advances may be made with respect to the Revolving Loan no
more than twice each week and only in minimum amounts of Two Hundred
Thousand and No/100ths Dollars ($200,000) or integral multiples of
One Hundred Thousand and No/100ths Dollars ($100,000) in excess
thereof. Each request for an advance for a Prime Rate Revolving Loan
or a LIBOR Rate Revolving Loan shall specify: (1) the proposed date
of funding (which shall be a Business Day); (2) the amount and type
of advance requested; (3) that the aggregate amount of the Revolving
Loan (including the advance then noticed) will not exceed the unused
loan availability; (4) whether such advance shall consist of a Prime
Rate Revolving Loan or a LIBOR Rate Revolving Loan; and (5) if such
advance, or a portion thereof is a LIBOR Rate Revolving Loan, the
amount thereof and the initial Interest Period therefor.
13. MISCELLANEOUS
13.1 Appointment of Lender as Borrower's Lawful Attorney-
In Fact. Borrower irrevocably designates, makes, constitutes and
appoints Lender (and all persons designated by Lender) as Borrower's
true and lawful attorney and agent in-fact and Lender, or Lender's
agent, may, without notice to Borrower:
(A) At any time hereafter, endorse by writing or stamp
Borrower's name on any checks, notes, drafts or any other payment
relating to and/or proceeds of the Collateral which come into the
possession of Lender or under Lender's control and deposit the same
to the account of Lender for application to the Liabilities;
(B) At any time after the occurrence of a Default, which
is not waived or cured during any applicable grace or cure period,
in Borrower's or Lender's name: (i) demand payment of the
Collateral; (ii) enforce payment of the Collateral, by legal
proceedings or otherwise; (iii) exercise all of Borrower's rights
and remedies with respect to the collection of the Collateral; (iv)
settle, compromise, extend or renew the Accounts and the Special
Collateral; (v) settle, adjust or compromise any legal proceedings
brought to collect the Collateral; (vi) if permitted by applicable
law, sell or assign the Collateral upon such terms, for such amounts
and at such time or times as Lender deems advisable; (vii) satisfy
and release the Accounts and Special Collateral; (viii) take
control, in any manner, of any item of payment or proceeds referred
to in Section 4.3; (ix) prepare, file and sign Borrower's name on
any proof of claim in Bankruptcy or similar document against any
Account Debtor; (x) prepare, file and sign Borrower's name on any
notice of lien, assignment or satisfaction of lien or similar
document in connection with the Collateral; (xi) do
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all acts and things necessary, in Lender's sole discretion, to
fulfill Borrower's obligations under this Agreement; (xii) endorse
by writing or stamp the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or
similar document or agreement relating to the Collateral; and (xiii)
use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the
Collateral to which Borrower has access; and
(C) Upon and after the occurrence of a Default, which is
not waived or cured during any applicable grace or cure period,
notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Lender and
receive, open and dispose of all mail addressed to Borrower.
13.2 Modification of Agreement; Sale of Interest. This
Agreement and the Ancillary Agreements may not be modified, altered
or amended, except by an agreement in writing signed by Borrower and
Lender. Borrower may not sell, assign or transfer this Agreement
or the Ancillary Agreements or any portion hereof or thereof,
including, without limitation, Borrower's right, title, interest,
remedies, powers, or duties hereunder or thereunder. Borrower
hereby consents to Lender's participation, sale, assignment,
transfer or other disposition, at any time or times hereafter, of
this Agreement or the Ancillary Agreements or of any portion hereof
or thereof, including, without limitation, Lender's right, title,
interest, remedies, powers, or duties hereunder or thereunder.
13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket
Expenses. If, at any time or times, whether prior or subsequent to
the date hereof and regardless of the existence of a Default or an
Event of Default, Lender incurs legal or other costs and expenses
or employs counsel, accountants or other professionals for advice
or other representation or services in connection with:
(A) The preparation, negotiation and execution of this
Agreement, all Ancillary Agreements, any amendment of or
modification of this Agreement or the Ancillary Agreements or any
sale or attempted sale of any interest herein to a Participant;
(B) Any litigation, contest, dispute, suit, proceeding
or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement, the
Ancillary Agreements or Borrower's affairs;
(C) Any attempt to enforce any rights of Lender or any
Participant against Borrower or any other Person which may be
obligated to Lender or such Participant by virtue of this Agreement
or the Ancillary Agreements, including, without limitation, the
Account Debtors;
(D) Any attempt to inspect, verify, protect, collect,
sell, liquidate or otherwise dispose of any of the Collateral; or
(E) Any inspection, verification, protection, collection,
sale, liquidation or other disposition of any of the Collateral,
including without limitation, Lender's periodic or special audits
of Borrower's books and records;
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then, in any such event, the reasonable attorneys' and paralegals'
fees and expenses arising from such services and all reasonably
incurred expenses, costs, charges and other fees of or paid by
Lender in any way or respect arising in connection with or relating
to any of the events or actions described in this Section 13.3 shall
be payable by Borrower to Lender upon demand and shall be additional
Liabilities. Without limiting the generality of the foregoing, such
expenses, costs, charges and fees may include accountants' fees,
costs and expenses; court costs, fees and expenses; photocopying and
duplicating expenses; court reporter fees, costs and expenses; long
distance telephone charges; air express charges; telegram charges;
secretarial overtime charges; and expenses for travel, lodging and
food paid or incurred in connection with the performance of all such
services.
13.4 Indemnification. Borrower further agrees to
indemnify and save harmless Lender, any Participants and each of
their respective officers, directors, employees, agents, attorneys-
in-fact and Affiliates from and against any and all actions, causes
of action, suits, losses, liabilities and damages and expenses
(including, without limitation, attorneys' fees) in connection
therewith (herein called the "Indemnified Liabilities") incurred by
Lender, any Participants or any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates as a
result of, or arising out of or relating to any of the transactions
contemplated hereby or by the other Security Documents, except for
any Indemnified Liabilities arising on account of the gross
negligence or willful misconduct of the Person seeking indemnity
under this Section 13.3; provided, however, that, if and to the
extent such agreement to indemnify may be unenforceable for any
reason, the Borrower shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities
which shall be permissible under applicable law. The agreements in
this Section 13.3 shall survive the payment of the Liabilities.
13.5 Waiver by Lender. Lender's failure, at any time or
times hereafter, to require strict performance by Borrower of any
provision of this Agreement or of any Ancillary Agreement shall not
constitute a waiver, or affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by Lender of a Default under this Agreement
or any Ancillary Agreement shall not suspend, waive or affect any
other Default under this Agreement or the Ancillary Agreements,
whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of Borrower contained in
this Agreement or the Ancillary Agreements and no Default under this
Agreement or the Ancillary Agreements shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is
by an instrument in writing signed by an officer of Lender and
directed to Borrower specifying such suspension or waiver.
13.6 Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
13.7 Parties; Entire Agreement. This Agreement and the
Ancillary Agreements shall be binding upon and inure to the benefit
of the respective successors and assigns of Borrower
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and Lender. Borrower's successors and assigns shall include,
without limitation, a trustee, receiver or debtor-in-possession of
or for Borrower. Nothing contained in this Section 13.7 shall be
deemed to modify Section 13.2. Except as provided in Section 13.8,
this Agreement is the complete statement of the agreement by and
between Borrower and Lender and supersedes all prior negotiations,
understandings and representations between them with respect to the
subject matter of this Agreement.
13.8 Conflict of Term. The provisions of the Ancillary
Agreements are incorporated in this Agreement by this reference.
Except as otherwise provided in this Agreement and except as
otherwise provided in the Ancillary Agreement, by specific reference
to the applicable provision of this Agreement, if any provision
contained in this Agreement is in conflict with, or inconsistent
with, any provision in any Ancillary Agreement, the provision
contained in this Agreement shall govern and control.
13.9 Waiver by Borrower. Except as otherwise provided for
in this Agreement, Borrower waives (i) presentment, demand and
protest, notice of protest, notice of presentment, default,
nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time
held by Lender on which Borrower may in any way be liable and hereby
ratifies and confirms whatever Lender may do in this regard; (ii)
all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy
upon the Collateral or any bond or security which might be required
by any court prior to allowing Lender to exercise any of Lender's
remedies; and (iii) the benefit of all valuation, appraisement,
extension and exemption laws. Borrower acknowledges that it has
been advised by its own counsel with respect to this Agreement and
the transactions evidenced by this Agreement.
13.10 Waiver and Governing Law. THE LOANS EVIDENCED
HEREBY HAVE BEEN MADE, AND THIS AGREEMENT HAS BEEN DELIVERED, AT
CHICAGO, ILLINOIS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF
LAWS PROVISIONS) OF THE STATE OF ILLINOIS. BORROWER (i) WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY
MATTER ARISING FROM OR RELATED TO THIS AGREEMENT OR ANY OF THE
ANCILLARY AGREEMENTS; (ii) IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS, OVER
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS; (iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT BORROWER
MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv) AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (v) AGREES NOT
TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST LENDER OR ANY
OF LENDER'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY,
CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OF THE ANCILLARY AGREEMENTS
49
<PAGE>
IN ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS.
BORROWER WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS ISSUED IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS, AND AGREES THAT
SERVICE OF SUCH SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER
AT THE ADDRESS SET FORTH IN SECTION 13.11. SHOULD BORROWER FAIL TO
APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SERVED
WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, IT SHALL BE
DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED
AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR
LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW
OR LENDER'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER
OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
13.11 Notice. Except as otherwise provided herein,
any notice required hereunder shall be in writing and shall be
deemed to have been validly served, given or delivered upon deposit
in the United States certified or registered mails, with proper
postage prepaid, addressed to the party to be notified as follows:
(a) If to Lender, at:
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attn: First Vice President
Asset Based Lending Division,
Commercial Financial Services Group
with a copy to:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
Attn: Richard G. Smolev
50
<PAGE>
(b) If to Borrower, at:
Valley Communications, Inc.
4026 Clipper Court
Fremont, California 94538
Attn: Henry P. Mutz, Jr.
with a copy to:
Richard Y. Fisher
The Diana Corporation
8200 West Brown Deer Road
Suite 200
Milwaukee, Wisconsin 53223
and
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Attn: Kenneth Hunt
or to such other address as each party may designate for itself by
like notice.
13.12 Release of Claims. Borrower releases Lender
from any and all causes of action or claims which Borrower may now
or hereafter have for any asserted loss or damage to Borrower
claimed to be caused by or arising from: (a) any failure of Lender
to protect, enforce or collect in whole or in part any of the
Collateral; (b) Lender's notification to any Account Debtor of
Lender's security interests in the Accounts and Special Collateral;
(c) Lender's directing any Account Debtor to pay any sums owing to
Borrower directly to Lender; and (d) any other act or omission to
act on the part of Lender, its officers, agents or employees, except
for gross negligence or willful misconduct.
13.13 Representation by Counsel. Borrower hereby
represents that it has been represented by competent counsel of its
choice in the negotiation and execution of this Agreement and the
Ancillary Agreements; that it has read and fully understood the
terms hereof and intends to be bound hereby. This Agreement has
been thoroughly reviewed by counsel for Borrower and in the event
of an ambiguity or conflict in the terms hereof, there shall be no
presumption against Lender as the drafter hereof.
13.14 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall constitute an
original agreement, but all of which together shall constitute one
and the same instrument.
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<PAGE>
13.15 LENDER'S WAIVER OF JURY. LENDER HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION TO ENFORCE OR PROSECUTE ANY
MATTER ARISING FROM OR RELATED TO THIS AGREEMENT.
13.16 Section Titles, Etc. The section titles and
table of contents, if any, contained in this Agreement are and shall
be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto. All
references herein to Sections, paragraphs, clauses and other
subdivisions refer to the corresponding Sections, paragraphs,
clauses and other subdivisions of this Agreement; and the words
"herein," "hereof," "hereby," "hereto," "hereunder," and words of
similar import refer to this Agreement as a whole and not to any
particular Section, paragraph, clause or subdivision hereof. All
Exhibits which are referred to herein or attached hereto are hereby
incorporated by reference.
IN WITNESS WHEREOF, this Agreement has been duly executed
as of the day and year specified at the beginning hereof.
BORROWER:
VALLEY COMMUNICATIONS, INC.
By:
Its:
LENDER:
SANWA BUSINESS CREDIT CORPORATION
By:
Its:
Attachments: Exhibit A, B, C, D, E, F, G, H, I, J, K and L
52
1995
AGREEMENT
BETWEEN
VALLEY
COMMUNICATIONS, INC.
&
COMMUNICATIONS WORKERS OF
AMERICA
LOCAL 9412
<PAGE>
TABLE OF CONTENTS
Article 1 - Recognition/Scope of Work Page 1
Article 2 - Management Rights Page 1
Article 3 - Union Security Page 1-2
Article 4 - Payroll Deduction of Union Dues Page 2-3
Article 5 - Performance of Bargaining Unit Work Page 3
Article 6 - Responsible Union Company Relationship Page 3
Article 7 - Hiring/Probationary Period Page 3-4
Article 8 - Seniority Page 4
Article 9 - Wages and Job Classification Page 4-5
Article 10 - Hours, Overtime, and Premium Pay Page 3
Article 11 - Vacations Page 6
Article 12 - Holidays Page 6
Article 13 - Callout, Standby, and Report Page 7
Article 14 - Expense Allowance (Travel/Per Dium) Page 7
Article 15 - Discipline Page 8
Article 16 - Grievance and Arbitration Page 8-9
Article 17 - Medical, and other Insurance Benefits Page 9
Article 18 - Union Representation Page 9
Article 19 - Absences (Military/Sick/ Jury Duty) Page 10-11
Article 20 - No Strike Page 11
Article 21 - Federal and State Laws Page 11
<PAGE>
TABLE OF CONTENTS CONTINUED
Article 22 - Discharges, Suspensions, and Demotions for Cause Page 11
Article 23 - Transfers Page 12
Article 24 - Right of Employees to Union Representation Page 12
Article 25 - Miscellaneous Page 12-13
Article 26 - Duration of Agreement Page 14
Appendix A - Job Classifications Page 15
Appendix B - Wage Schedule Page 16
Appendix C - Payroll Deduction of Union Dues Page 17
Appendix D - Monthly Dues Report Page 18
Appendix E - Medical and Other Benefits Page 19
<PAGE>
ARTICLE 1
RECOGNITION
Section 1.
The Company hereby recognizes the Union as the exclusive collective
bargaining representative for the purpose of collective bargaining with
respect to rates of pay, wages and hours of employment.
Section 2.
No new job classifications will be created without approval from the
Union.
Section 3.
SCOPE OF WORK: The work covered by this Agreement shall include all
work involving the installation and maintenance of the following systems:
Voice and Data, Access Control, Audio/Video, CATV, Fire Alarm, Life Safety
Support, Master Clock, Radio systems, RF/Microwave, Security/CCTV,
Sound/Paging, Telemetry and any other low voltage signal or transmission
system. This includes both copper and fiber optic communications in
support of the above. The Scope of work also includes any raceway or
conduit incidental to the installation of these systems.
ARTICLE 2
MANAGEMENT RIGHTS
The management of the Company and the direction of the work force are
vested exclusively in the Company and shall not in any way be abridged
except as specific restrictions are set forth in this agreement.
ARTICLE 3
UNION SECURITY
Section 1.
It shall be a condition of employment that all employees of the
company covered by this Agreement who are members of the Union in good
standing on the effective date of this Agreement shall remain members in
good standing, and those who are not members on the effective date of this
agreement, not later than the 30th day following the effective date of
this agreement become and remain members in good standing in the Union.
It shall also be a condition of employment that all employees covered by
this Agreement and hired on or after its effective date shall, not later
than the 30th day following the beginning of such employment, become and
remain members in good standing in the Union.
1
<PAGE>
Section 2.
This Article shall apply in those states where the laws permits the
Union to enter into this type of Union Security agreement. If during the
term of the contract the Union shall become duly authorized under the laws
of any other state to enter into this type of Union Security agreement,
the effective date of this Article as to employees in such state shall be
the date upon which the Company receives proper written evidence from the
Union that it is fully qualified to enter into such as agreement in such
state.
EXCEPTION: Special expertise with prior consultation with Union.
ARTICLE 4
PAYROLL DEDUCTION OF UNION DUES
Section 1.
A. The company agrees that, upon receipt of an individual written
request in form, (see Appendix C) approved by the Company and signed by
an employee covered by this agreement, it will deduct monthly from such
employee's wages the amount of Union dues and initiation fees specified
in such request and forward the full amount thus deducted to the
Secretary-Treasurer of Union or his authorized agent as directed. The
request may be revoked by the employee at any time upon his written
request to the company and such request should be directed to appropriate
Company representative. The Secretary-Treasurer of the Union can also
revoke the dues authorization of any employee upon the Secretary-
Treasurer's written request to the Company's appropriate representative.
B. In general, dues deductions will be made in designated pay periods
in the current month for properly executed dues deductions authorizations
received by the appropriate company representative on or before the 25th
day of the preceding month. However, the Company assumes no responsibility
either to the employee or to the Union for nay failure to make or for any
errors made in making such deductions, but will make such efforts as is
deems appropriate in correcting an such errors or omissions.
Section 2.
The Company will, each month, furnish the Union information detailed
on Appendix D, for the preceding month of all employees in the bargaining
unit.
Section 3.
An employee's authorization shall be automatically canceled upon
termination of employment. An employees authorization shall be suspended
upon leave of absence in excess of thirty (30) calendar days. The
employees authorization shall be reinstated after return form a leave of
absence.
2
<PAGE>
Section 4.
Any change in the amount of monthly Union dues will be certified to
the Company by the Secretary-Treasurer of the Communications Worker of
America. A certification which changes the dues shall become effective
the first day of the fiscal month following the date the company receives
such certification.
ARTICLE 5
PERFORMANCE OF BARGAINING UNIT WORK
The Company agrees that Company personnel who are not included in the
bargaining unit should not do work assigned to employees within the
bargaining unit, except in case where management personnel are needed for
quality control and/or for training purposes, or in emergencies caused by
acts of God.
ARTICLE 6
RESPONSIBLE UNION - COMPANY RELATIONSHIP
The Company and the Union recognize that it is in the best interest
of both parties, the employee, and the public that all dealings between
them continue to be characterized by mutual responsibility and respect.
To insure that this relationship continues and improves, the Company and
the Union and their respective representatives at all levels will apply
the terms of this contract fairly in accord with its intent and meaning
and consistent with the Union's status as exclusive bargaining
representative of all employees covered by this contract. Each party
shall bring to the attention of all employees in the units covered by this
contract, including new hires, their purpose to conduct themselves in a
spirit of responsibility and respect and the measures they have agreed
upon to insure adherence to this purpose.
ARTICLE 7
HIRING
Section 1.
New employees of the Company shall be considered probationary until
they have completed six (6) months continuous service with the Company,
during which time such employee shall work under the conditions, and
receive not less than the minimum applicable rates of pay, established in
this agreement. If any time during the probationary period the Company
should deem any such employee unqualified in any way, the Company may
discharge such employee and grievances shall not be presented in
connection with the discharge or layoff of a probationary employee.
3
<PAGE>
Section 2.
The Company has the right to utilize personnel not in the bargaining unit
with engineering or special technical skill as required to meet
installation, repair, or service requirements.
Section 3.
When new employees are hired, the Company shall notify the Union, in
writing, within five (5) working days of the date of hire of said
employees, of their official job classification and rate of pay.
ARTICLE 8
SENIORITY
Section 1.
Seniority is defined as length of continuous service with the Company
from the date of hire or rehire following a break in continuous service.
Section 2.
Where equally qualified, seniority shall determine the selection of
vacation and transfers.
Section 3.
Seniority shall be a consideration for training and promotions.
Section 4.
If a reduction in force is necessary, employees shall be laid off by
inverse order of seniority, by classification.
Section 5.
A break in seniority shall occur only in case of a voluntary quit by
an employee, a discharge for just cause, failure to return to work after
a leave of absence has expired, or failure to return to work after a
recall from layoff.
ARTICLE 9
JOB CLASSIFICATIONS AND WAGES
Job classification and descriptions shall be as set forth in Appendix "A"
of this agreement, attached hereto, as an effective part of this
agreement.
Wages for employees shall be as set forth in Appendix "B" of this
agreement, attached hereto, as an effective part of this agreement.
4
<PAGE>
Communication Technicians maybe responsible for overseeing work on various
jobs in addition to performing bargaining unit work. In addition to their
normal hourly rate of pay, these Communications Technicians when acting
as Project Managers when supervising 10 or more people on a job shall
receive a pay differential of one dollar twenty five ($1.25) per hour.
New employees shall be slotted into Job Classification Level Structure at
the time of hire, previous related experience being considered, and shall
progress in accordance with wage schedule.
Employees who demonstrate exceptional performance can be considered for
more rapid advancement by the employer.
Hourly employees will not be permitted to contract for any work or job of
a similar to their regular employment with the company.
ARTICLE 10
HOURS, OVERTIME, AND PREMIUM PAY
The normal workday shall consist of eight (8) consecutive hours of work
or ten (10) consecutive hours of work, exclusive of a one-half hour lunch
period, upon mutual agreement of the parties involved.
The normal work week shall consist of five eight-hour days or four ten-
hours days, Monday through Saturday, of forty hours duration.
An evening or night shift shall be any shift commencing after 1:00 p.m.
and shall be compensated with an additional (10) percent premium for all
hours worked.
All work on Sunday shall be paid at the rate of double-time of the regular
hourly pay.
In addition to the holiday pay as outlined ARTICLE 12, all work on any
holiday indicated in this agreement shall be paid at the rate of double-
time the regular hourly rate of pay.
All work in excess of the normal workday or work week shall be paid at
time and one-half the regular hourly rate.
NOTE: Prior authorization for any overtime must be obtained from Company
Manager.
5
<PAGE>
ARTICLE 11
VACATIONS
Full-time employees shall accrue vacation at the following rates:
(a) Employees shall accrue one week of vacation on a pro-rata basis
during the first year of employment. (3.33 hours per month)
(b) During years two through five, employees shall accrue two weeks
of vacation on a pro-rata basis each year. (6.67 hours per month)
(c) During years six through ten, employees will accrue vacation at
the rate of three weeks vacation on a pro-rata basis each year. (10
hours per month)
(d) During years eleven and after, employees will accrue vacation at
the rate of four week's vacation on a pro-rata basis each year.
(13.33 hours per month)
(e) The amount of pay for each full week of vacation shall be
authorized weekly rate for five days of duty.
(f) Vacations maybe scheduled anytime during that calendar year, and
must be coordinated and approved by the Company.
(g) Vacations are not to be accumulate from year to year without
management approval.
ARTICLE 12
HOLIDAYS
The following holidays are authorized and shall be observed:
President's Day Thanksgiving Day
Memorial Day Day after Thanksgiving
Independence Day Christmas Day
Labor Day New Year's Day
Authorized holidays falling on Sunday shall be observed on the following
Monday. Authorized holidays falling on Saturday shall be observed on the
preceding Friday.
(a) An employee must work his last regularly scheduled workday before
a holiday in order to receive pay for the holiday unless Company has
approved such absence.
(b) An employee must work the next scheduled workday after a holiday
in order to receive pay for holiday unless Company has approved such
absence.
(c) Any employee who otherwise meets the requirements of this
Article, and taking their vacation in a week in which a holiday falls,
shall receive an extra day of vacation at the employee's option.
6
<PAGE>
ARTICLE 13
CALLOUT, STANDBY AND REPORT PAY
An employee who reports for work at the regular starting time of his shift
and has not been advised by the company prior to reporting not to report
shall be guaranteed at least two (2) hours of work or paid a minimum of
two (2) hours pay at the regular rate of pay, together with any overtime
or premium pay where such employee is entitled to such overtime or premium
pay. Provision shall not apply if an employee is unavailable for
reassignment.
An employee who has clocked out and who has left the premises of the
Company after completion of his regularly scheduled working hours and who
is recalled for emergency work shall be paid not less that two (2) hours
pay at the rate of time and one-half the normal hourly rate for such
callout.
ARTICLE 14
EXPENSE ALLOWANCE
No traveling time or transportation shall be paid before or after working
hours to employees.
The Company shall reimburse the employee for the use of his automobile in
the following ways:
(a) .30 cents per mile for each mile driven by the employee on
Company business while working.
(b) Toll charges for bridges, tunnels, ferries, and toll highways
which must be traveled in the course of the above travel.
(c) Reasonable parking charges.
Per Dium
When an employee is temporarily assigned to a work location other than his
regular assigned location and the Company determines the employee's
absence from home overnight is required, the company agrees to:
(a) Furnish a maximum allowance of sixty five dollars ($65) per day
per employee to cover the cost of lodging, meals, and other expenses.
OR
(b) Provide lodging at direct Company expense and furnish the
employee thirty dollars ($30) for meals and other expenses.
7
<PAGE>
(c) In either case above, all transportation costs, including toll
fees would be paid. Employees working on ships twelve (12) hours will be
entitled to a meal allowance of $10.
ARTICLE 15
DISCIPLINE
The Company shall have the right to discipline, suspend or discharge
employees for just cause. In the event any such discipline, suspension,
or discharge occurs and the Union believes any such action to be
unjustified, the matter shall then be considered as a grievance and shall
be handled in accordance with Article 16.
ARTICLE 16
GRIEVANCE AND ARBITRATION
In the event any difference should arise between the Company and the Union
or any employee covered by this Agreement as to the meaning and
application of the provisions of this Agreement, or if any local problem
of any kind arises, there shall be no suspension of work on account of
such difference and an earnest effort shall be made by both parties to
this Agreement to settle such differences using the steps of the grievance
procedure outlined below:
Step 1.
A grievance shall be first presented orally by the employee concerned
to the immediate supervisor directly involved within seven (7) working
days of the occurrence of the event which caused the grievance. An
employee is entitled to have Union representation in any discussion
between the employee and representatives of the Company.
Step 2.
If the grievance is not settled orally at Step 1, it shall be reduced
to writing and presented by the Union to the General Manager within (20)
working days. A meeting shall be held with the Union and the General
Manager to attempt to resolve the grievance within ten (10) total working
days. Within (5) working days following this meeting management shall
present its position on the grievance in writing and submit the same to
the Union.
Step 3.
If no settlement has been reached at the second step, the Union may,
within ten (10) working days of the receipt of the Company's written
position, notify the Company of intent to refer the grievance to
arbitration.
8
<PAGE>
If the Company and the Union cannot agree upon the person to act as an
impartial arbitrator, the Federal Mediation and Conciliation Service shall
be requested to submit a list of five (5) arbitrators. The company and
the Union shall alternately strike two (2) names. The right to strike
first shall be determined by lot or as otherwise agreed by the parties.
After each party has exercised the right to strike two names, the one
remaining person on the list shall be designated as the impartial
arbitrator.
The authority of the arbitrator shall be limited to determining only
questions involving the interpretation or application of an expressed
provision of this Agreement and all other matters are excluded from
arbitration. The arbitrator shall have no authority to add to, subtract
from or to change any of the terms of the Agreement, to change any
existing wage rate, to establish a new wage rate, or to attempt to
interpret or apply in any manner whatsoever any alleged implied
obligations as against either the Company or the Union.
The decision of the arbitrator shall be final and binding on each of the
parties, and they will abide thereby subject to such laws as may apply.
The fee charged by the arbitrator shall be borne equally by the Company
and Union. Any issue or dispute not presented or carried forward by
either party in a timely manner as specified in this Article and Agreement
within the limits called for in this Article shall be considered settled
in favor of the party that presents the last written answer in the timely
manner provided in this Article. The time limits set forth in this
Article may be extended by mutual consent of the parties in writing.
ARTICLE 17
MEDICAL AND OTHER INSURANCE BENEFITS
Hospitals, physician and any and all other insurance benefits and coverage
shall be as agreed upon the union and the Company in a separate Letter of
Understanding. Such letter shall carry the full and effective force as
an integral part of this general agreement. See APPENDIX E.
ARTICLE 18
UNION REPRESENTATION
Section 1.
Employees designated by the Union will be granted the necessary time
off to carry out the business of the union. Such time off shall be
without pay but shall be considered as time worked for the purpose of
determining seniority, wage increases and other benefits.
9
<PAGE>
Section 2.
No Union representative shall suffer a loss in pay while attending
any joint Union- Company meeting or for reasonable travel time to and from
such meetings. It is understood that such joint meeting and travel time
is considered work time.
ARTICLE 19
ABSENCES
Section 1.
Any employee ordered to military duty shall be granted a leave of
absence, without pay, for such period of time as may be required such
duty. Upon his return from such service, if he is eligible for
reemployment under the terms of the Universal Military Training and
Selective Service Act, he shall be credited for all purposes for all time
spent in such military service. If such leave is for a period exceeding
two months, his current vacation shall be prorated with credit for any
portion of the current vacation year during which be was on the employer's
active payroll. For all other purposes under this Agreement his period
of service with the armed forces shall be included in determining his
seniority as required by law.
Section 2.
Any employee who is a member of a military reserve component and has
a mandatory training obligation shall be granted a maximum of fifteen (15)
days leave each calendar year when ordered to short tours of active duty
for such purpose. In such event the employer will pay to such employee the
difference, if any, between his military pay and base pay which he would
have received if he had continued within the services of the employer for
such period, not to exceed fifteen (15) days. Such differential pay shall
apply to only one fifteen day period in each calendar year.
Section 3.
Any employee selected for a position with the Union which takes him
away from his work with the Company for a period greater than six (6)
months shall, upon written request from the Union, receive a leave of
absence for the period of his service with the Union. Upon his return the
employee shall be reemployed at the same location and in the same position
he held prior to beginning his leave of absence, or to a position
generally similar to that ii which he was employed at such time with full
seniority status, provided such location and position are available. The
employee must apply for reinstatement within thirty (30) days after
leaving the employ of the Union. The Company has thirty (30) days after
application to reinstate the employee.
Section 4.
Jury Duty Pay: An employee who has completed one (1) year of
continuous service and who fails to work his regularly scheduled hours
because of jury duty shall
10
<PAGE>
receive eight hours pay at his regular basic straight time rate, less jury
fees he receives. The employee must give at least forty-eight (48) hours
notice to his supervisor of required jury duty service to be eligible for
Jury Duty pay. Payment is limited to a maximum of five (5) days in any
week and (10) days in any calendar year. To be eligible for payment the
employee must submit a written statement from the appropriate public
official, listing the dates served and the amount of fees received.
Section 5.
Paid Sick Leave: Employee will earn two (2) paid sick days per six (6)
months of full time employment, four (4) days per year. A maximum of (4)
days Sick Leave may be accumulated.
ARTICLE 20
NO STRIKE
The Union agrees that during the term of this Agreement neither the Union,
nor its agents, nor its members will authorize, instigate, aid, condone
or engage in a work stoppage, slowdown or strike. The Company agrees that
during the same period there shall be no lockouts. The Company further
agrees that no employee covered by this Agreement shall be required to
cross a picket line in the course of his employment.
ARTICLE 21
FEDERAL AND STATE LAWS
In the event any Federal or State law conflicts with the provisions of
this Agreement, the provision or provisions so affected shall no longer
be operative or binding upon the parties, but the remaining portion of the
Agreement shall continue in full force and effect.
ARTICLE 22
DISCHARGES, SUSPENSIONS, AND DEMOTIONS FOR CAUSE
In the event any employee is discharged, suspended, or demoted for cause,
the Local Union shall be notified in writing of such action within seven
(7) days.
If an employee with more than 6 months of service is discharged, suspense,
or demoted the Union's claim that the action was without proper reason
shall be subject to the grievance and arbitration procedure of this
Agreement.
11
<PAGE>
ARTICLE 23
TRANSFERS
Section 1.
Consideration shall be given to the request of an employee for a
transfer from one location to another or from one job to another. Where
more than one employee applies for a vacancy and other qualifications are
substantially equal, seniority shall govern.
Section 2.
Any employee who desires to be transferred as above described shall
notify the company in writing of such desire, the location or job to which
he desires to be transferred, his reasons for desiring the transfer and
whether he desires to be transferred immediately or at some future date
when and if a vacancy occurs. Such notice shall be valid for a period of
one (1) year from date of submission.
Section 3.
Any employee who is required to change his residence at the request
of the
Company shall be an given an allowance for moving expenses, not to exceed
two (2) thousand dollars ($2,000) intra-state.
ARTICLE 24
RIGHT OF EMPLOYEES TO UNION REPRESENTATION
Any employee is entitled to have Union representation in any discussion
between the employee and representatives of the Company in which the
employee has reasonable grounds to fear that the interview will adversely
affect his continued employment or his working conditions.
ARTICLE 25
MISCELLANEOUS
There shall be no discrimination of any kind against any member of the
union by the company or anyone employed who is a member of the Union, nor
shall any employee be discriminated against because of race, color, creed,
national origin, age, or sex. The Company and Union agree to abide by all
equal opportunity employment requirements of law.
Employees shall not be required to work under conditions where their
health or safety may be jeopardized.
12
<PAGE>
The Union business representatives shall be allowed access to Company
premises and employee's work-reporting location to discuss contract and
job-related matters with employees. The Company shall recognize and deal
with a Union steward appointed by the Union. The steward shall be allowed
reasonable time off with pay to handle grievances and attend grievance
meetings.
The Company shall provide the Union with one bulletin board at its
Regional Office location for the exclusive use of the Union.
Any provisions of the Agreement may be amended, modified, or supplemented
at any time by the mutual consent of the parities hereto, without in any
way effecting any of the other provisions of the Agreement.
Employees shall furnish hand and other tools as required. The employer
shall furnish specialized tools and equipment.
Payroll periods will be biweekly Monday through Sunday. Paydays will be
the Thursday following close of a payroll period.
13
<PAGE>
ARTICLE 26
EFFECTIVE DATE AND DURATION OF AGREEMENT
Section 1.
This Agreement shall be effective as of September 1, 1995, and shall
remain in effect for an initial period of three (3) years and including
August 31, 1998, and shall continue in effect thereafter until terminated
by written notice given by the Company or by the Union expressly stating
its intention to terminate this Agreement, in which case it Terminate
sixty (60) days following receipt of such notice. Within thirty (30 days
of the receipt of such notice to terminate this Agreement, the Union and
the Company shall commence collective bargaining with respect to a new
Agreement.
Section 2.
In additional to the right of the Union to terminate the Agreement
as specified above, the Union may, not earlier than sixty (60) days prior
to the end of the initial period, request in writing negotiations on
modifications or amendments of this Agreement. If such written request
is made the parties shall negotiate on modifications and amendments as
proposed by the Union, and this Agreement will continue in effect unless
replaced by a new or amended Agreement, or until terminated by either
unless replaced by a new or amended Agreement or until terminated by
either party giving sixty (60) days written notice of termination to the
other party.
This Agreement is entered into this 17th Day of November of 1995.
/s/ H. C. COTNER /s/ HENRY P. MUTZ
Union Company
/s/ C. COOKIE CAMERON
Union
/s/ VIRGIL PARKER
Union
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
September 3, 1996
Mr. Donald E. Runge, President
The Diana Corporation
8200 W. Brown Deer Road, Ste 200
Milwaukee, Wisconsin 53223
FAX (414) 355-0815
Re: Atlanta Provision Company ("Atlanta")/Proposal Letter and Term
Sheet dated August 13, 1996 (copies attached, hereinafter
referred to collectively as the "Proposal")
Dear Mr. Runge:
This will confirm our conversation of September 3, 1996. Subject
to the terms and conditions set forth in the above Proposal (by
reference, incorporated herein and made a part hereof), Sanwa
Business Credit Corporation has committed to close on the financing
accommodation contemplated therein on or before September 30, 1996.
Very truly yours,
SANWA BUSINESS CREDIT CORPORATION
/s/ George M. Adams
First Vice President
(312) 853-1369
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE DIANA CORPORATION AS OF AND FOR
THE 16 WEEKS ENDED JULY 20, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUL-20-1996
<CASH> 11686
<SECURITIES> 1414
<RECEIVABLES> 21950
<ALLOWANCES> (787)
<INVENTORY> 12373
<CURRENT-ASSETS> 47610
<PP&E> 9771
<DEPRECIATION> (5331)
<TOTAL-ASSETS> 64864
<CURRENT-LIABILITIES> 24626
<BONDS> 3468
0
0
<COMMON> 5756
<OTHER-SE> 29399
<TOTAL-LIABILITY-AND-EQUITY> 64864
<SALES> 87217
<TOTAL-REVENUES> 87424
<CGS> 83180
<TOTAL-COSTS> 83180
<OTHER-EXPENSES> 5273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 396
<INCOME-PRETAX> (1322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1322)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1322)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
