SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-10611
MILGRAY ELECTRONICS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-5600636
- --------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
77 Schmitt Boulevard, Farmingdale, New York 11735
- ----------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 420-9800
---------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value 25 Cents per Share
[Cover page 1 of 2 pages]
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be con-tained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of the voting stock held by non-affiliates of
the registrant (based upon the selling price of such stock as of December 13,
1996) was $39,568,064.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of December 13, 1996.
6,773,176 shares of Common Stock
25 cents par value per share
[Cover page 2 of 2 pages]
<PAGE>
PART I
Item 1. Business.
The registrant is a distributor mainly of electronic components produced
by a large number of manufacturers. The items sold by the registrant consist
principally of semiconductors, electromechanical de- vices (principally relays
and electronic hardware), passive components and computer products. During the
1994, 1995 and 1996 fiscal years, the approximate percentage of registrant's
gross sales volume represented by semiconductors, by electromechanical devices,
by passive components and by computer products was as follows:
Electromechanical Passive Computer
Semiconductors Devices Components Products
-------------- ----------------- ---------- --------
1996 67% 6% 20% 7%
1995 68% 5% 19% 8%
1994 68% 7% 17% 8%
The registrant's sales are made to more than 12,000 customers, located
principally in the United States, Canada and Western Europe. During 1996 no
customer accounted for more than 2% of the sales volume of the registrant.
During 1996 approximately 94% of registrant's gross sales volume was represented
by sales to customers in the United States, and approximately 6% by export sales
from the United States to customers in Western Europe and North America. The
registrant has not encountered significantly greater risks in connection with
its foreign sales as compared with its domestic sales.
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<PAGE>
The registrant's business is highly competitive in all of the principal
markets in which the registrant sells its products. The registrant is in
competition with other similar firms, and, to some extent, with its own
suppliers who sell direct to consumers, industrial customers and institutional
users; and many of the registrant's competitors have greater financial resources
than the registrant. The methods of competition relate principally to price of
products and availability of particular items at the time ordered by customers.
In order to compete effectively and to meet delivery requirements of
customers, the registrant carries significant amounts in inventory of a large
number of items, principally in the categories referred to above. Collections on
most of the registrant's sales have averaged approximately 53 days during the
course of the 1996 fiscal year.
The registrant purchases its products from a large number of suppliers,
principally under franchise arrangements which, for the most part, may be
cancelled by either party upon 30 days' notice, subject to the terms and
conditions of the particular agreements. These franchise arrangements are an
important factor in the registrant's business, and cancellation of a franchise
by a major supplier could adversely affect the registrant's business unless
replaced by a comparable arrangement. During the 1996 fiscal year, products
purchased from the registrant's three largest suppliers accounted for
approximately 13%, 9% and 7%, respectively, of the registrant's total sales
volume.
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<PAGE>
The registrant's backlog of unfilled orders at September 30, 1996 was
approximately $71,300,000 as compared to approximately $71,300,000 at September
30, 1995.
The registrant has approximately 520 employees.
The following table sets forth the approximate amount of the registrant's
export sales for the 1994, 1995 and 1996 fiscal years.
1994 1995 1996
---- ---- ----
$12,500,000 $16,300,000 $17,600,000
Under the terms of an Agreement and Plan of Merger (the "Merger
Agreement") dated as of November 26, 1996, the registrant will be acquired by ME
Acquisition, Inc. ("ME"), a wholly owned subsidiary of Bell Industries, Inc.
("Bell") through a tender offer to registrant's shareholders for $14.77 per
share in cash (or approximately $100 million for all of the outstanding shares
of the registrant) to be followed by a merger of ME into registrant as
hereinafter set forth (the "Merger"). Bell (a California corporation with
headquarters based in Los Angeles, California) is primarily a national
distributor of electronic components; and in addition Bell distributes graphics
and electronic imaging and recreational related products. According to
information provided by Bell, for the four quarters ended September 30, 1996,
Bell had sales of $611 million and net income of $16.1 million.
Pursuant to the Merger Agreement, ME has made a tender offer (the "Tender
Offer") to purchase all outstanding shares of common stock of
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<PAGE>
the registrant. Mr. Herbert S. Davidson (who is the beneficial owner of
approximately 55.2% of the outstanding common stock of the registrant) is a
party to a tender agreement pursuant to which Mr. Davidson is required to tender
his shares into the Tender Offer and vote his shares in favor of the merger. In
addition to customary conditions, the Tender Offer is subject to, among other
things, (i) receipt of financing by Bell, and (ii) there being validly tendered
and not withdrawn prior to expiration of the Tender Offer at least two-thirds of
the outstanding common stock of the registrant. Early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act has been granted
by regulatory authorities. The Tender Offer is scheduled to expire on January 7,
1997 unless extended pursuant to the terms of the Merger Agreement. Subsequent
to consummation of the Tender Offer, ME will be merged into the registrant as
provided in the Merger Agreement, with the registrant being the surviving
entity. Upon consummation of the Merger, Bell will be the owner of all
outstanding shares of the registrant. In addition to customary conditions, the
Merger is subject, among other things, to consummation of the Tender Offer and,
in the event that ME owns less than 90% of the registrant's outstanding shares,
approval by registrant's shareholders.
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<PAGE>
Item 2. Properties.
The registrant owns land and a building in Farmingdale, New York. This
building contains approximately 80,000 square feet of space which are used for
executive and sales offices and as an assembly, warehousing and shipping center.
In addition, the registrant, as of December 16, 1996, leased approximately
125,000 square feet of space at various locations as set forth below:
Approximate Expiration
Square Date of
Location Function Footage Lease
-------- -------- ------- -----
Columbia,
Maryland Sales Office 2,200 August 31, 1998
Wilmington,
Massachusetts Sales Office 4,900 February 28, 2000
Cleveland,
Ohio Sales Office 1,900 July 31, 1998
Mount Laurel
Township,
New Jersey Sales Office 2,600 October 31, 1999
Parsippany,
New Jersey Sales Office 1,900 July 31, 1997 (1)
Orlando,
Florida Sales Office 2,700 April 30, 1997
Kansas City,
Kansas Sales Office 1,400 September 30, 1999
Milford,
Connecticut Sales Office 2,100 March 31, 1997
Atlanta,
Georgia Sales Office 2,400 March 31, 1997
- ----------
(1) Renewable at the option of the registrant for three successive one- year
periods.
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<PAGE>
Approximate Expiration
Square Date of
Location Function Footage Lease
-------- -------- ------- -----
Pittsford,
New York Sales Office 2,200 June 30, 1999
Palatine,
Illinois Sales Office 2,800 November 30, 1999
Austin,
Texas Sales Office 1,700 March 31, 1997
Dallas,
Texas Sales Office 2,200 October 31, 1997
Salt Lake City,
Utah Sales Office 3,000 February 28, 2001 (2)
Toronto,
Canada Sales Office 2,800 November 30, 1999
Montreal,
Canada Sales Office 1,100 August 31, 1998
Canovanas, Assembly, Warehousing
Puerto Rico and Shipping Center 11,400 June 30, 1998
Thousand Oaks,
California Sales Office 2,900 April 30, 1997 (3)
Irvine,
California Sales Office 3,000 September 19, 1997
San Jose, Marketing and
California Administrative Office 1,900 December 23, 1996
San Jose,
California Sales Office 3,900 February 29, 2000
Houston,
Texas Sales Office 2,600 January 31, 2001
Raleigh,
North Carolina Sales Office 1,100 Month to Month
- ----------
(2) Renewable at the option of the registrant for a term of five years.
(3) Renewable at the option of the registrant for a term of two years.
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<PAGE>
Approximate Expiration
Square Date of
Location Function Footage Lease
-------- -------- ------- -----
San Diego,
California Sales Office 4,000 September 30, 1999
Westminster,
Colorado Sales Office 2,100 October 14, 2000 (4)
Huntsville,
Alabama Sales Office 3,000 October 31, 1998 (1)
Indianapolis,
Indiana Sales Office 1,700 February 28, 1998 (5)
Beaverton,
Oregon Sales Office 2,300 December 31, 1999
Edgewood, Assembly and
New York Administrative Office 4,300 March 31, 2001
Las Vegas,
Nevada Warehouse 38,400 March 31, 2001
Vancouver,
British Columbia Sales Office 1,800 January 5, 2001 (6)
Phoenix,
Arizona Sales Office 2,600 June 30, 1999 (4)
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(1) Renewable at the option of the registrant for three successive one- year
periods.
(4) Renewable at the option of the registrant for a term of three years.
(5) Renewable at the option of the registrant for two successive three- year
terms.
(6) Renewable at the option of the registrant for two successive two- year
terms.
Item 3. Legal Proceedings.
There is no information required to be reported under this Item.
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
(i) Annual Meeting
(a) The registrant's annual meeting was held on July 17, 1996.
(b) The following persons (being all of the directors of the
registrant) were elected as directors at the annual meeting: Herbert S.
Davidson, Robert Davidoff, Richard Hyman, Herschel M. Weinberg and Leonard
Gardner.
(c) The only matter voted upon at the registrant's annual meeting
was the election of directors. The following shares were voted in favor of the
election of each of the following directors: Herbert S. Davidson - 6,201,955,
Robert Davidoff and Leonard Gardner - 6,202,355, Richard Hyman - 6,200,355 and
Herschel M. Weinberg - 6,199,555. Of the 6,215,055 shares present in person or
represented by proxy at the meeting, the votes of 13,100 shares were withheld or
not voted in respect of the election of Herbert S. Davidson, the votes of 12,700
shares were withheld or not voted in respect of the election of Robert Davidoff
and Leonard Gardner, the votes of 14,700 shares were withheld or not voted in
respect of the election of Richard Hyman and the votes of 15,500 shares were
withheld or not voted in respect of the election of Herschel M. Weinberg. A
total of 558,121 of the registrant's outstanding shares were not present in
person or represented by proxy at the meeting.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) The registrant's common stock is traded in the Nasdaq market. The
following table sets forth the range of high and low sales prices for such stock
for each quarterly period during the 1995 and 1996 fiscal years. Prices in the
table below have been adjusted to reflect the 2 for 1 stock split effected in
the form of a 100% stock dividend effective October 19, 1995.
1995 1996
---- ----
Low High Low High
--- ---- --- ----
1st Quarter 6.00 7.50 9.75 15.50
2nd Quarter 6.00 8.25 8.63 11.88
3rd Quarter 6.13 14.50 9.00 13.50
4th Quarter 11.13 17.25 9.75 12.75
(b) As of June 10, 1996, this being the record date in connection with the
registrant's annual meeting of shareholders held on July 17, 1996, there were
approximately 166 record holders. Taking into account participants in security
position listings of the registrant's common stock and requests by brokerage
houses and other nominees for proxy material to be forwarded to their principals
(and expense reimbursement in connection with such forwarding), the registrant
estimates that on said record date there were approximately 1,405 beneficial
holders of its common stock.
(c) The registrant has not declared any dividends during the last
two years.
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<PAGE>
The registrant is a .party to a Credit Agreement (the "Credit Agreement")
with Fleet Bank, N.A., First Union National Bank and European American Bank (the
"Banks"). Under the provisions of the Credit Agreement, the registrant is not
permitted to declare or pay dividends, or make other distributions upon the
registrant's stock (with certain exceptions, including stock dividends, set
forth in the Credit Agreement) so long as the Credit Agreement remains in effect
or any amount is owing to the Banks under the Credit Agreement or in connection
with the Transactions thereunder.
Item 6. Selected Financial Data.
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales $ 118,054 $ 150,295 $ 181,844 $ 239,519 $ 275,399
Income before income taxes 1,508 7,923 9,653 14,954 14,038
Net income 1,094 5,148 6,193 9,316 8,613
Net income per share:*
Net income per share .17 .78 .93 1.38 1.27
Common shares and equiv-
alents outstanding 6,229,520 6,588,644 6,695,170 6,752,056 6,773,176
Balance Sheet Data:
Total Assets 45,853 63,100 70,444 94,346 100,741
Long Term Obligations 14,460 17,971 22,733 31,633 36,887
</TABLE>
*Number of shares outstanding and income per share were restated to reflect a 2
for 1 split effected in the form of a 100% stock dividend effective October
19, 1995 and a 2 for 1 split effected in the form of a 100% stock dividend
effective September 23, 1994 and a 2 for 1 split effected in the form of a
100% stock dividend effective June 14, 1993.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The registrant relies upon cash flow provided from opera-tions and bank
financing to provide the cash flow necessary for its busi-ness operations. On
August 29, 1996, the registrant entered into an unsecured revolving credit
agreement with three banks which provides for maximum outstanding borrowings of
$70,000,000 and extends the maturity date through August 29, 2001. This
agreement replaced the existing unsecured revolving credit agreement, as
amended, for maximum borrowings of $50,000,000 which was due December 31, 1998.
Maximum borrowings under the new agreement are based upon the sum of eligible
inventory (the lesser of 50% of inventory or $30,000,000) and 90% of eligible
accounts receivable.
The registrant does not currently have or anticipate having material
commitments for capital expenditures. Working capital at September 30, 1996
amounted to $79,200,000 versus $65,700,000 at September 30, 1995. At September
30, 1996, liabilities to net worth ratio (leverage) was 1.19 times the
registrant's tangible net worth at September 30, 1996, compared to 1.52 times at
September 30, 1995. The decline in the leverage ratio is principally due to the
registrant's net income of $8,600,000 and the reduction in liabilities of
$2,200,000.
The registrant believes that its cash flow requirements for fiscal 1997
will be met by its operating results and the use of its bank credit facility.
Results of Operations
Net sales amounted to $275,399,000 for the fiscal year ended September 30,
1996 compared to $239,519,000 for the preceding year, an
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<PAGE>
increase of $35,880,000. This increase in sales volume of 15% resulted primarily
from improvement in customer demand across many of the registrant's product
lines, higher sales from the registrant's newer locations and increased sales
productivity on the part of the registrant's employees. Sales for fiscal 1995
increased by $57,675,000 to $239,519,000, an increase of 32%. The increase in
sales volume resulted from solid improvements in customer demand for the
registrant's products and increased sales from the registrant's newer locations.
Gross profit was $60,611,000 (22.0% of sales) for fiscal 1996, $56,062,000
(23.4% of sales) for fiscal 1995 and $41,765,000 (23.0% of sales) for fiscal
1994. The gross profit rate decrease of 1.4% for fiscal 1996 was due to economic
conditions experienced in the industry, reflected in a sharp decline in selling
prices and gross margins of memory products.
Selling, general and administrative expenses amounted to $43,986,000
(16.0% of sales) for fiscal 1996, $39,292,000 (16.4% of sales) for fiscal 1995
and $31,000,000 (17.0% of sales) for fiscal 1994. The continuing decline in
selling, general and administrative expenses as a percentage of sales is
attributable to continuing productivity gains by the registrant's employees.
Interest expense amounted $2,587,000 (0.9% of sales for fiscal 1996,
$1,816,000 (0.8% of sales) for fiscal 1995 and $1,111,000 (0.6% of sales) for
fiscal 1994. The increases in interest expense are primarily due to increased
borrowing resulting from increased average levels of inventory and accounts
receivable.
Income taxes amounted to $5,425,000 (38.6% of pre-tax income) for fiscal
1996, $5,638,000 (37.7% of pre-tax income) for fiscal 1995 and
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<PAGE>
$3,460,000 (35.8% of pre-tax income) for fiscal 1994. These tax rates differ
from the statutory federal income tax rate of 34% because of the impact of
operating profits of a subsidiary in a United States territory which are taxed
at a tax rate which is lower than the statutory federal income tax rate, and the
effect of state and local income and franchise taxes.
Net income for the year ended September 30, 1996 amounted to $8,613,000
compared to $9,316,000 for fiscal 1995 and $6,193,000 for fiscal 1994, as a
result of the above factors.
Item 8. Financial Statements and Supplementary Data.
There are hereby incorporated by reference the Financial Statements and
accompanying Notes together with the report of Grant Thornton LLP, Independent
Certified Public Accountants, appearing elsewhere in this Annual Report on Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There is no information required to be reported under this Item.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 with respect to directors and
executive officers appears in the Information Statement pursuant to Section
14(f) of the Securities Exchange Act of 1934 (the "Exchange Act") filed as
Schedule A to Schedule 14D-9 of the registrant dated December 4, 1996 under the
heading in said Information Statement "Present Directors and Executive Officers"
and is hereby incorporated by reference. A copy of said Information Statement is
filed as Exhibit 99 to this 10-K Report.
Item 11. Executive Compensation.
The information required by Item 11 with respect to executive compensation
appears in the Information Statement pursuant to Section 14(f) of the Exchange
Act filed as Schedule A to Schedule 14D-9 of the registrant dated December 4,
1996 under the heading in said Information Statement "Executive Compensation"
and is hereby incorporated by reference. A copy of said Information Statement is
filed as Exhibit 99 to this 10-K Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 with respect to security ownership of
certain beneficial owners and management appears in the Information Statement
pursuant to Section 14(f) of the Exchange Act filed as Schedule A to Schedule
14D-9 of the registrant dated December 4, 1996 under the heading in said
Information Statement "Security Ownership of Management and Principal
Stockholder" and is hereby incorporated by reference. A copy of said Information
Statement is filed as Exhibit 99 to this 10-K Report.
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<PAGE>
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 with respect to certain relationships
and related transactions appears in the Information Statement pursuant to
Section 14(f) of the Exchange Act filed as Schedule A to Schedule 14D-9 of the
registrant dated December 4, 1996 under the heading in said Information
Statement "Present Directors and Executive Officers" and is hereby incorporated
by reference. A copy of said Information Statement is filed as Exhibit 99 to
this 10-K Report.
<PAGE>
SUPERCOPY FINANCIAL STATEMENTS AND NOTES FROM AUDITORS' REPORT FOR FINAL
PART IV
Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K.
(a) 1. Financial Statements
Included in Part II of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at September 30, 1996 and 1995
Consolidated Statements of Income for the years ended
September 30, 1996, 1995 and 1994
Consolidated Statement of Changes in Stockholders' Equity for
the years ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Included in Part IV of this report:
Report of Independent Certified Public Accountants on
Financial Statement Schedule
For the years ended September 30, 1996, 1995 and 1994:
Schedule II - Valuation and Qualifying Accounts
Other Schedules are omitted because of absence of conditions
under which they are required or because the required
information is given in the financial statements or notes
thereto.
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<PAGE>
(a) 3. Exhibits. The Exhibit Index, which follows the signature page and
Financial Statement Schedules of this Annual Report on Form 10-K, is
incorporated herein by reference.
(b) No reports on Form 8-K were filed by registrant during the last quarter
of its 1996 fiscal year.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Milgray Electronics, Inc.
We have audited the accompanying consolidated balance sheets of Milgray
Electronics, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Milgray
Electronics, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended September 30, 1996, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
October 24, 1996
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<PAGE>
Milgray Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30,
ASSETS 1996 1995
-------- -------
CURRENT ASSETS
Cash and cash equivalents $ 1,787 $ 1,909
Accounts receivable, net of allowance for
doubtful accounts of $1,277 in 1996 and
$1,066 in 1995 37,510 39,105
Inventories 55,419 48,525
Prepaid expenses and sundry receivables 713 459
Income taxes refundable 634
Deferred income taxes 593 618
-------- -------
Total current assets 96,656 90,616
PROPERTY, PLANT AND EQUIPMENT - AT COST,
NET 3,783 3,347
OTHER ASSETS
Security deposits and sundry 302 383
-------- -------
$100,741 $94,346
======== =======
The accompanying notes are an integral part of these statements.
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<PAGE>
Milgray Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
-------- -------
CURRENT LIABILITIES
Accounts payable $ 13,953 $19,280
Accrued expenses and sundry liabilities
Accrued payroll 1,729 1,841
Other 1,504 2,697
Income taxes payable 265 1,088
Current maturities of long-term debt 36 50
-------- -------
Total current liabilities 17,487 24,956
LONG-TERM DEBT 36,887 31,633
DEFERRED INCOME TAXES 327 330
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.25 per share; authorized,
60,000,000 shares; issued, 6,816,902 shares 1,704 1,704
Retained earnings 44,406 35,793
-------- -------
46,110 37,497
Less treasury stock - at cost (43,726 shares) 70 70
-------- -------
46,040 37,427
-------- -------
$100,741 $94,346
======== =======
The accompanying notes are an integral part of these statements.
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<PAGE>
Milgray Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year ended September 30,
(in thousands, except per share data)
1996 1995 1994
---------- ---------- ----------
Net sales $ 275,399 $ 239,519 $ 181,844
---------- ---------- ----------
Costs and expenses
Cost of sales 214,788 183,457 140,079
Selling, general and administrative 43,986 39,292 31,001
Interest 2,587 1,816 1,111
---------- ---------- ----------
261,361 224,565 172,191
---------- ---------- ----------
Income before income taxes 14,038 14,954 9,653
Income tax provision 5,425 5,638 3,460
---------- ---------- ----------
NET INCOME $ 8,613 $ 9,316 $ 6,193
========== ========== ==========
Net income per share $ 1.27 $ 1.38 $ .93
========== ========== ==========
Common shares and equivalents outstanding 6,773,176 6,752,056 6,695,170
========== ========== ==========
The accompanying notes are an integral part of these statements.
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<PAGE>
Milgray Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Common stock Capital in Treasury stock
------------------ excess of Retained --------------
Shares Amount par value earnings Shares Amount Total
--------- ------ --------- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1993 1,694,020 $ 423 $ 699 $ 20,296 43,726 $(70) $21,348
Net income 6,193 6,193
Exercise of stock options 27,000 7 169 176
Two-for-one common stock split 1,677,294 419 (419)
Tax benefit from exercise of stock
options 281 281
--------- ------ ----- -------- ------ ---- -------
Balance, September 30, 1994 3,398,314 849 730 26,489 43,726 (70) 27,998
Net income 9,316 9,316
Exercise of stock options 32,000 8 105 113
Two-for-one common stock split 3,386,588 847 (835) (12)
--------- ------ ----- -------- ------ ---- -------
Balance, September 30, 1995 6,816,902 1,704 -- 35,793 43,726 (70) 37,427
Net income 8,613 8,613
--------- ------ ----- -------- ------ ---- -------
Balance, September 30, 1996 6,816,902 $1,704 $-- $ 44,406 43,726 $(70) $46,040
========= ====== ===== ======== ====== ==== =======
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
Milgray Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 8,613 $ 9,316 $ 6,193
-------- -------- -------
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization of property,
plant and equipment 482 435 348
Amortization of other assets 222 130 154
Deferred income taxes 22 (299) 46
Change in allowance for doubtful accounts 211 194 151
Decrease (increase) in operating assets
Accounts receivable 1,384 (9,771) (4,599)
Inventories (6,894) (19,059) (1,267)
Prepaid expenses and sundry receivables (254) 375 (463)
Income taxes refundable (634) 23 62
Other assets (141) (72) (164)
Increase (decrease) in operating liabilities
Accounts payable (5,327) 7,960 (2,608)
Accrued expenses and sundry liabilities (1,305) 1,094 761
Income taxes payable (823) 716 (2,047)
-------- -------- -------
(13,057) (18,274) (9,626)
-------- -------- -------
Net cash used in operating activities (4,444) (8,958) (3,433)
-------- -------- -------
Cash flows from investing activities
Acquisition of property, plant and equipment (832) (534) (908)
-------- -------- -------
Net cash used in investing activities (832) (534) (908)
-------- -------- -------
</TABLE>
- 23 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year ended September 30,
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from financing activities
Repayment of long-term debt $ (71) $ (50) $(1,291)
Net borrowings under revolving credit facility 5,225 8,950 5,975
Proceeds from exercise of stock options 113 175
------- ------- -------
Net cash provided by financing activities 5,154 9,013 4,859
------- ------- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (122) (479) 518
Cash and cash equivalents at beginning of year 1,909 2,388 1,870
------- ------- -------
Cash and cash equivalents at end of year $ 1,787 $ 1,909 $ 2,388
======= ======= =======
Supplemental cash flow information:
Interest paid $ 2,673 $ 1,762 $ 1,043
Income taxes paid 6,860 4,646 5,680
</TABLE>
The accompanying notes are an integral part of these statements.
- 24 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE A - GENERAL AND SUMMARY OF ACCOUNTING POLICIES
Milgray Electronics, Inc. and Subsidiaries (the "Company") distributes
electronic components produced by a large number of manufacturers. The
Company's sales are made to customers mainly in the electronic, defense
and computer industries located principally in the United States, Canada
and Western Europe.
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
Milgray Electronics, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
2. Revenue Recognition
The Company recognizes revenue as products are shipped.
3. Inventories
Inventories, consisting primarily of merchandise purchased for
resale, have been valued at the lower of cost or market, on the
moving average cost method.
4. Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation of
furniture, fixtures, equipment and computer equipment is computed
for financial reporting and tax purposes on the straight-line and
accelerated basis over the estimated useful lives of the assets
which are 5 to 10 years for furniture, fixtures and equipment and 5
to 7 years for computer equipment. The building and improvements are
being depreciated on a straight-line basis over 40 years for
financial reporting purposes and 15 to 32 years for tax purposes.
Leasehold improvements are amortized over the lesser of the useful
life of the asset or the term of the lease without regard to renewal
options.
5. Income Taxes
Deferred income taxes are recognized for temporary differences
between financial statement and income tax bases of assets and
liabilities and loss carryforwards and tax credit carryforwards for
which income tax benefits are expected to be realized in future
years. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that all or some portion of
such deferred tax assets will not be realized. The effect on
deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
- 25 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE A (continued)
6. Net Income Per Share
The computation of net income per share of common stock is based
upon the weighted average number of common shares outstanding during
the period plus (in periods in which they have a dilutive effect)
common stock equivalents representing shares issuable upon the
assumed exercise of stock options. In 1996, no stock options were
outstanding (see Note G) and in 1995 and 1994, stock options were
not considered in the computation of net income per sharse since
their inclusion would not be materially dilutive.
7. Concentration of Credit Risk
Concentration of credit risk with respect to accounts receivable is
limited due to the large number of customers comprising the
Company's customer base, and their dispersion across many
geographical regions. At September 30, 1996, 1995 and 1994, the
Company had no significant concentration of credit risk.
8. Cash and Cash Equivalents
The Company includes checks which have not been paid by its
disbursing banks as cash in bank and as accounts payable. The amount
of checks that have not been paid by the Company's disbursing banks
was approximately $3,169,000 and $2,207,000 as of September 30, 1996
and 1995, respectively.
Cash equivalents include all highly liquid instruments purchased
with an original maturity of three months or less.
9. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
year-end and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
- 26 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE A (continued)
10. Reclassifications
Certain amounts in the 1995 consolidated financial statements were
reclassified to conform to the 1996 presentation.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
September 30,
---------------------
1996 1995
------ ------
---(in thousands)----
Land $ 206 $ 206
Building and improvements 2,049 2,040
Furniture, fixtures and equipment 2,223 1,684
Computer equipment 1,940 1,632
Leasehold improvements 90 31
------ ------
6,508 5,593
Less accumulated depreciation
and amortization 2,725 2,246
------ ------
$3,783 $3,347
====== ======
NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Fair Value of
Financial Instruments," requires disclosure of the estimated fair value of
an entity's financial instrument assets and liabilities. The Company's
principal financial instrument consists of its revolving credit agreement
with banks. The Company believes that the carrying amount of such debt
approximates the fair value as the variable interest rates approximate the
current prevailing interest rate.
- 27 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
---------------------
1996 1995
------- -------
---(in thousands)----
Bank loan (a) $36,850 $31,625
Equipment loans, collateralized and due
through November 1998 73 58
------- -------
36,923 31,683
Less current maturities 36 50
------- -------
$36,887 $31,633
======= =======
(a) On August 29, 1996, the Company entered into a new unsecured
revolving credit agreement with three banks which provides for
maximum outstanding borrowings of $70,000,000 and extends the
maturity date through August 29, 2001. This agreement replaced the
then existing unsecured revolving credit agreement, as amended, for
maximum borrowings of $50,000,000 which was due December 31, 1998.
Maximum borrowings under the new agreement are based upon the sum of
eligible inventory (the lesser of 50% of inventory or $30,000,000)
and 90% of eligible accounts receivable. The credit agreement
provides for a commitment fee of .1875% per annum on the daily
unused portion of the facility, payable quarterly. The credit
agreement contains various restrictions and conditions; the most
restrictive of these requires that the Company maintain certain
liabilities to net worth, inventory, interest, and current ratios
and tangible net worth. The agreement also restricts the payment of
dividends. The rate of interest payable under the new agreement is,
at the Company's option, a function of the prime rate, Eurodollar
rate and the Banker's Acceptance Rates, as defined.
Long-term debt matures as follows (in thousands):
1997 $ 36
1998 30
1999 7
2000 --
2001 36,850
------
$36,923
=======
- 28 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE E - INCOME TAXES
The income tax provision (benefit) consists of the following:
September 30,
--------------------------------------
1996 1995 1994
------ ------- ------
-----------(in thousands)-------------
Current
Federal $4,270 $ 4,678 $2,815
State and local 899 908 556
Foreign 93 126 15
U.S. Territory 141 225 28
------ ------- ------
5,403 5,937 3,414
Deferred 22 (299) 46
------ ------- ------
$5,425 $ 5,638 $3,460
====== ======= ======
A reconciliation of income taxes computed at the Federal statutory rate
and the effective income tax rate is as follows:
September 30,
--------------------------
1996 1995 1994
---- ---- ----
Income taxes at statutory rate 35.0% 35.0% 34.0%
State and local income taxes (net of
Federal income tax benefit) 4.2 4.0 3.8
Exemption from United States territory
income taxes (0.5) (0.7) (2.1)
Other (0.1) (0.6) 0.1
---- ---- ----
Effective income tax rate 38.6% 37.7% 35.8%
==== ==== ====
- 29 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE E (continued)
Foreign withholding taxes of 5% have been provided on undistributed
earnings of a U.S. territory subsidiary of approximately $1,362,000,
$1,377,000, and $1,521,000 for the years ended September 30, 1996, 1995
and 1994, respectively. These earnings are considered to be permanently
reinvested. If the earnings were not considered permanently reinvested,
approximately $67,000, $68,000 and $76,000 of deferred income taxes would
have been provided for in the years ended September 30, 1996, 1995 and
1994, respectively.
The components of the Company's deferred tax assets and liabilities are
summarized below:
September 30,
-----------------
1996 1995
---- ----
-(in thousands)--
Deferred tax assets
Allowance for doubtful accounts $434 $362
Bonus accrued 85 85
401(k) contribution accrued 105 235
Other 34 34
---- ----
Gross deferred tax assets 658 716
---- ----
Deferred tax liabilities
Depreciation 361 364
Other receivable 43
Other 31 21
---- ----
Gross deferred tax liabilities 392 428
---- ----
Net deferred tax assets $266 $288
==== ====
The above amounts are presented in the consolidated balance sheets as of
September 30, 1996 and 1995 as $593,000 and $618,000, respectively, of
current deferred tax assets and $327,000 and $330,000, respectively, of
noncurrent deferred tax liabilities.
- 30 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE F - COMMON STOCK
On July 19, 1995, the Company's Board of Directors authorized a
two-for-one stock split in the form of a 100% stock dividend payable on
October 19, 1995 to stockholders of record on September 28, 1995. On
August 9, 1994, the Company's Board of Directors authorized a two-for-one
stock split in the form of a 100% stock dividend payable on September 23,
1994 to stockholders of record on August 30, 1994. The par value of the
new shares issued totalled $847,000 and $419,000 for the 1995 and 1994
stock splits, respectively. In 1995, the par value was transferred to the
common stock account from capital in excess of par value in an amount
equal to the balance existing at the time of the stock split of $835,000,
and from retained earnings for the remaining par value of $12,000. In
1994, the entire par value was transferred to the common stock account
from capital in excess of par value. All references in the financial
statements to average number of shares outstanding, per share amounts and
stock option plan data for prior periods presented have been restated to
reflect the stock splits.
On September 20, 1995, the Company's stockholders approved the increase of
the authorized number of shares of the Company's common stock from
4,000,000 to 60,000,000 shares.
NOTE G - COMMITMENTS AND CONTINGENCIES
1. At September 30, 1996, the Company was obligated under operating
leases for real property for varying periods expiring through the
year 2001. The approximate future minimum annual rental payments
under operating leases are approximately as follows:
(in thousands)
1997 $ 984
1998 793
1999 699
2000 426
2001 160
------
$ 3,062
=======
In addition, certain of the lease arrangements require the Company to pay
increases in certain expenses such as real estate taxes and other
operating expenses.
Total rental expense for real property charged to operations for the year
ended September 30, 1996, 1995 and 1994, was approximately $1,060,000,
$861,000, and $692,000, respectively.
- 31 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE G (continued)
2. The Company had a qualified incentive stock option plan for key
employees. This plan provided for the grant of options to purchase
up to 600,000 shares of the Company's common stock upon terms and
conditions (including price, exercise date and number of shares)
determined by the Board of Directors. The option price was not less
than the fair market value of the stock on the date that the option
was granted. The plan expired on October 17, 1993. No options were
outstanding as of September 30, 1995.
A summary of the option transactions for the years ended September
30, 1995 and 1994 is as follows:
September 30,
1995 1994
------- --------
Options outstanding at beginning of period 64,000 172,000
Exercised (64,000) (108,000)
------- --------
Options outstanding at end of period
(all exercisable) -- 64,000
======= ========
Exercise price of outstanding options $1.235 to
$2.19
Exercise price of options exercised $1.235 to $1.235 to
during the period $2.19 $2.19
3. During 1984, the Company established a noncontributory
profit-sharing plan for all eligible domestic employees. No
contribution was made during the years ended September 30, 1996,
1995 and 1994. Contributions to the plan were at the discretion of
the Board of Directors. On January 4, 1995, the Company merged the
plan with the Milgray Electronics, Inc. Profit Sharing and 401(k)
Savings Plan.
4. During 1989, the Company established a 401(k) plan for all eligible
domestic employees. The Company may contribute to the plan from its
current or accumulated net profits as determined by the Board of
Directors. On January 4, 1995, the Company merged the plan with the
Milgray Electronics, Inc. Profit Sharing and 401(k) Savings Plan.
The Company made contributions of approximately $360,000, $350,000
and $180,000 during the years ended September 30, 1996, 1995 and
1994, respectively.
- 32 -
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE H - SUBSEQUENT EVENT (UNAUDITED)
On November 27, 1996, the Company and Bell Industries, Inc. ("Bell")
announced that they have signed a merger agreement for Bell to acquire the
Company for $14.77 per share in cash, or approximately $100 million. Bell,
based in Los Angeles, California, distributes products for the electronic,
computer, graphic and other industrial markets in the United States.
Bell's common stock (ticker symbol Bl) is listed on the New York and
Pacific Stock Exchanges. Bell reported sales of $611 million and net
income of $16.1 million, or $2.13 per share, for the four quarters ended
September 30, 1996.
The merger agreement is subject to customary closing conditions, including
the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act and the receipt of financing by Bell. Bell has initiated
a cash tender offer for the Company's shares and those of the Company's
majority shareholder. The tender will be subject to customary conditions,
including the tender of at least 66-2/3 percent of the Company's
outstanding shares. The tender offer will be followed by a second-step
cash merger at the same price. Bell expects to complete the acquisition in
early 1997.
- 33 -
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) 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.
MILGRAY ELECTRONICS, INC.
----------------------------------------
(Registrant)
Date: December 23, 1996 By /s/ H.S. Davidson
------------------------- -------------------------------------
Herbert S. Davidson,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: December 23, 1996 By /s/ H.S. Davidson
------------------------- -------------------------------------
Herbert S. Davidson,
President and Director
(Principal Executive Officer)
Date: December 23, 1996 By /s/ John Tortorici
------------------------- -------------------------------------
John Tortorici,
Vice President-Finance
(Principal Financial Officer)
Date: December 23, 1996 By /s/ Elio Carlino
------------------------- -------------------------------------
Elio Carlino,
Controller
(Principal Accounting Officer)
Date: December 23, 1996 By /s/ Richard Hyman
------------------------- -------------------------------------
Richard Hyman,
Executive Vice President,
Vice President-Sales/Marketing
and Director
Date: December 23, 1996 By /s/ Herschel M. Weinberg
------------------------- -------------------------------------
Herschel M. Weinberg,
Secretary and Director
Date: December 23, 1996 By /s/ Robert Davidoff
------------------------- -------------------------------------
Robert Davidoff,
Director
Date: December 23, 1996 By /s/ Leonard Gardner
------------------------- -------------------------------------
Leonard Gardner,
Director
- 34 -
<PAGE>
Item 14. Exhibits and Financial Statement Schedules
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders
Milgray Electronics, Inc.
In connection with our audits of the consolidated financial statements of
Milgray Electronics, Inc. and Subsidiaries referred to in our report dated
October 24, 1996, we have also audited Schedule II for each of the three years
in the period ended September 30, 1996. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
GRANT THORNTON LLP
Melville, New York
October 24, 1996
S-1
<PAGE>
Milgray Electronics, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- --------- -------- --------- ----------
Additions
(1) (2)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts- Deductions- end of
Description of period expenses describe describe period
----------- ---------- ---------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1996
Allowance for doubtful accounts $1,066,000 $ 750,000 $ -- $539,000 (a) $1,277,000
========== ========== ======== ============ ==========
Year ended September 30, 1995
Allowance for doubtful accounts $ 872,000 $ 597,813 $ -- $403,813 (a) $1,066,000
========== ========== ======== ============ ==========
Year ended September 30, 1994
Allowance for doubtful accounts $ 721,000 $ 461,978 $ -- $310,978 (a) $ 872,000
========== ========== ======== ============ ==========
</TABLE>
(a) Accounts written off, net of recoveries.
S-2
<PAGE>
<PAGE>
EXHIBIT INDEX
3(i)(a) - Restated Certificate of Incorporation of the registrant, incorporated
by reference to Exhibit 3(a) of Form 10-K of the registrant for the fiscal year
ended December 31, 1980 (File No. 2-18979).
3(i)(b) - Certificate of Change of registrant dated December 20, 1983,
incorporated by reference to Exhibit 3(i)(b) of Form 10-K of the registrant for
the fiscal year ended December 31, 1983 (File No. 0-10611).
3(i)(c) - Certificate of Amendment of Certificate of Incorporation of the
registrant relating to increase of authorized capital stock to $1,000,000 and
number of authorized shares to 4,000,000 shares, incorporated by reference to
Exhibit 3(i)(c) of Form 10-K of the registrant for the fiscal year ended
December 31, 1984 (File No. 0-10611).
3(i)(d) - Certificate of Amendment of Certificate of Incorporation of the
registrant relating to limiting the liability of directors, incorporated by
reference to Exhibit 3(i)(d) of Form 10-K of the registrant for the fiscal year
ended December 31, 1987 (File No. 0-10611).
3(i)(e) - Certificate of Amendment of Certificate of Incorporation of the
registrant relating to increase of authorized capital stock to $15,000,000 and
number of authorized shares to 60,000,000 shares, incorporated by reference to
Exhibit 3(i)(e) of Form 10-K of the registrant for the fiscal year ended
September 30, 1995 (File No. 0-10611).
3(i)(f) - Composite Certificate of Incorporation, as Amended, of the registrant,
incorporated by reference to Exhibit 3(i)(f) of Form 10-K of the registrant for
the fiscal year ended September 30, 1995 (File No. 0-10611).
3(ii) - By-laws of the registrant (incorporating amendment of Article IX,
Section 1 of the By-laws regarding indemnification).
4(i) - Credit Agreement dated as of August 29, 1996 (the "Credit Agreement")
among registrant, the Guarantors named therein, Fleet Bank, N.A., First Union
National Bank and European American Bank.
<PAGE>
10(i) - Agreement and Plan of Merger among Bell Industries, Inc., ME
Acquisition, Inc. and registrant, dated as of November 26, 1996, incorporated by
reference to Exhibit (c)(1) to Schedule 14D-9 of registrant dated December 4,
1996 (File No. 005-33857).
18 - Letter dated February 4, 1988 from Grant Thornton LLP to registrant
relating to newly adopted accounting principle, incorporated by reference to
Exhibit 18 of Form 10-K of the registrant for the fiscal year ended December 31,
1987 (File No. 0-10611).
22 - Subsidiaries of the registrant.
23(ii) - Consent by Grant Thornton LLP to incorporation by reference of their
reports and accompanying consolidated financial statements and schedules
included in this 10-K Report, in registrant's registration statements on Forms
S-8 -- File No. 33-59986 and File No. 33-66652.
27 - Financial Data Schedule.
99 - Information Statement of registrant pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 thereof (Schedule A to Schedule
14D-9 of registrant dated December 4, 1996 filed herewith).
EXHIBIT 3(ii)
MILGRAY ELECTRONICS, INC.
* * * * * * *
BY-LAWS
* * * * * * *
ARTICLE I
OFFICES
Section 1. The office of the corporation shall be located at Farmingdale,
Town of Babylon, County of Suffolk, State of New York.
Section 2. The corporation may also have offices at such other places both
within and without the State of New York as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. All meetings of shareholders for the election of directors shall
be held at the office of the corporation at Farmingdale, Town of Babylon, County
of Suffolk, State of New York. Meetings of stockholders for any other purpose
may be held at such places within the State of New York as shall be stated in
the notice of meeting, or in a duly executed waiver of notice thereof.
<PAGE>
Section 2. An annual meeting of the stockholders of the corporation shall
be held on the third Wednesday of July in each year if not a legal holiday, and,
if a legal holiday, then on the next secular day following, at 11:00 o'clock
A.M., when they shall elect a board of directors by a plurality vote, and
transact such other business as may properly come before the meeting.
Section 3. Special meetings of the stockholders for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by resolution of the board of directors or by the
president, and shall be called by the president or secretary at the request in
writing of a majority of the board of directors or at the request in writing of
a majority of the stockholders entitled to vote on the action proposed to be
taken. Such request shall state the purpose or purposes of the proposed meeting.
Section 4. Written notice of every meeting of stockholders, stating the
purpose or purposes for which the meeting is called, the date and time and the
place where it is to be held, shall be served, not less than ten nor more than
forty days before the meeting, either personally or by mail, upon each
stockholder entitled to vote at such meeting and upon each stockholder of record
who, by reason of any action proposed at such meeting, would be entitled to have
his stock appraised if such action were taken. If mailed, such notice shall be
directed to a stockholder at his address
<PAGE>
as it shall appear on the books of the corporation unless he shall have filed
with the secretary of the corporation a written request that notices intended
for him be mailed to some other address, in which case it shall be mailed to the
address designated in such request.
Section 5. Business transacted at all special meetings shall be confined to
the objects stated in the call.
Section 6. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum at all meetings of the stockholders
for the transaction of business except as otherwise provided by statute or by
the certificate of incorporation or by these by-laws. If a quorum shall not be
present or represented, the stockholders entitled to vote thereat, present or 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 present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 7. When a quorum is present or represented at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting
<PAGE>
unless the question is one upon which, by express provision of the statutes or
of the certificate of incorporation or of these by-laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 8. Each stockholder of record having the right to vote shall be
entitled at every meeting of the stockholders of the corporation to one vote for
each share of stock having voting power standing in the name of such stockholder
on the books of the corporation, and such votes may be cast either in person or
by written proxy.
Section 9. Every proxy must be executed in writing by the stockholder or by
his duly authorized attorney. No proxy shall be valid after the expiration of
eleven months from the date of its execution unless it shall have specified
therein its duration. Every proxy shall be revocable at the pleasure of the
person executing it or of his personal representatives or assigns except in
those cases where an irrevocable proxy is permitted by law.
ARTICLE III
DIRECTORS
Section 1. The board of directors shall consist of not less than three nor
more than 11 directors, all of whom shall be of full age and at least one of
whom shall be a citizen of the United States and a resident of the State of New
York. They shall be elected
<PAGE>
at the annual meeting of the stockholders and each director shall be elected to
serve for one year and until his successor shall be elected and shall qualify.
Section 2. Notwithstanding any other provisions of these by-laws, newly
created directorships and all vacancies occurring in the board of directors may
be filled by the affirmative vote of the remaining directors, though less than
a quorum of the board of directors. A director elected to fill a vacancy shall
be elected for the unexpired portion of the term of his predecessor in office. A
director elected to fill a newly created directorship shall serve until the next
successive annual meeting of shareholders and until his successor shall have
been elected and qualified.
Section 3. The business of this corporation shall be managed by its board
of directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws required to be exercised or done by the
stockholders.
MEETINGS OF DIRECTORS
Section 4. The directors may hold their meetings at the office of the
corporation, in the State of New York, or at such other places, either within or
without the State of New York, as they may from time to time determine.
Section 5. Regular meetings of the board may be held without notice at such
time and place as shall from time to time be determined by resolution of the
board.
<PAGE>
Section 6. Special meetings of the board may be called by the president on
two days' notice to each director either personally or by mail or by wire;
special meetings shall be called by the president or secretary in a like manner
on the written request of two directors.
Section 7. At all meetings of the board the presence of one-third of the
entire number of directors shall be necessary to constitute a quorum and
sufficient for the transaction of business and any act of a majority present at
a 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 or by these by-laws. If a quorum shall not be
present at any meeting of directors the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
EXECUTIVE COMMITTEE
Section 8. There may be an executive committee of two directors appointed
by the board who may meet at stated times or on notice to all by any of their
own number. They shall consult with and advise the officers of the corporation
in the management of its business and exercise such powers of the board of
directors as may be lawfully delegated by the board of directors. Vacancies
shall be filled by the board of directors at any regular or special meeting. The
executive committee shall keep regular minutes of its proceedings and report the
same to the board when required.
<PAGE>
COMPENSATION OF DIRECTORS
Section 9. Compensation of directors for services in their capacity as
directors shall be determined by resolution of the board. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 10. Any action required or permitted to be taken by the board of
any committee thereof may be taken without a meeting if all members of the board
or the committee consent in writing to the adoption of a resolution authorizing
the action. The resolution and the written consents thereto by the members of
the board or committee shall be filed with the minutes of the proceedings of the
board or committee.
Section 11. Any one or more members of the board or any committee thereof
may participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
ARTICLE IV
WAIVER OF NOTICE
Section 1. Whenever by statute, the provisions of the certificate of
incorporation or these by-laws, the stockholders or the board of directors are
authorized to take any action after notice, such notice may be waived, in
writing, before or after the holding of the meeting, by the person or persons
entitled to
<PAGE>
such notice, or, in the case of a stockholder, by his attorney thereunto
authorized.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be a president, a vice
president, a secretary and a treasurer. Any two of the aforesaid offices, except
those of president and vice-president, may be held by the same person. The board
of directors may also choose additional vice-presidents, and one or more
assistant secretaries and assistant treasurers.
Section 2. The directors, immediately after each annual meeting of
stockholders, shall appoint from their number a president and shall also choose
one or more vice-presidents, a secretary and a treasurer who need not be members
of the board.
Section 3. The board may appoint such other officers, agents and employees
as it shall deem necessary who shall have such authority and shall perform such
duties as from time to time shall be prescribed by the board.
Section 4. The salaries of all officers of the corporation shall be fixed
by the board of directors.
Section 5. The officers of the corporation shall hold office for one year
and until their successors are chosen and qualify in their stead. Any officer
elected or appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the directors. If the office of any officer
becomes vacant for any reason, the vacancy shall be filled by the board of
directors.
<PAGE>
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation; he shall preside at all meetings of the stockholders and directors;
he shall have the management of the business of the corporation and shall see
that all orders and resolutions are carried into effect.
THE VICE-PRESIDENTS
Section 7. The vice-president or, if there be more than one, the
vice-presidents in the order determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE SECRETARY
Section 8. The secretary shall attend all sessions of the board and all
meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose, and shall perform like duties
for any committee appointed by the board. He shall give or cause to be given
notice of all meetings of stockholders and special meetings of the board of
directors and shall perform such other duties as may be prescribed by the board
of directors. He shall keep in safe custody the seal of the corporation and
affix it to any instrument when authorized by the board of directors.
THE TREASURER
Section 9. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate
<PAGE>
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. He shall disburse the funds of the corporation as may be ordered
by the board, taking proper vouchers for such disbursements, and shall render to
the president and directors at the regular meetings of the board, or whenever
they may require it, an account of all his transactions as treasurer and of the
financial condition of the corporation.
Section 10. He shall, if required by the board, give the corporation a bond
in such sum or sums and with such surety or sureties as shall be satisfactory to
the board, conditioned upon the faithful performance of his duties 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.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. The certificates of stock of the corporation shall be numbered
and entered in the books of the corporation as they are issued. They shall
exhibit the holder's name and the number of shares and shall be signed by the
president or a vice president and the treasurer or an assistant treasurer or the
secretary or an assistant secretary and shall bear the corporate seal. Such seal
may be a facsimile, engraved or printed. Where any such certificate is signed by
a transfer agent or transfer clerk, and by a registrar, the signature of any
such officers may be facsimiles, engraved or printed.
<PAGE>
LOST CERTIFICATES
Section 2. The board of directors may direct a new certificate or
certificates to be issued in place or any certificate or certificates
theretofore issued by the corporation, alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum and with such surety or sureties as it may direct
as indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed.
TRANSFERS OF STOCK
Section 3. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate of stock duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer of stock shall be
entered on the stock book of the corporation which shall be kept at its
principal office in New York.
<PAGE>
Section 4. The corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person whether or not it shall have express
or other notice thereof, except as expressly provided by the laws of New York.
ARTICLE VII
GENERAL PROVISIONS
CLOSING OF TRANSFER BOOK OR FIXING OF RECORD DATE
Section 1. The board of directors may prescribe a period not exceeding
forty days prior to the date of meetings of the stockholders or prior to the
last day on which the consent or dissent of stockholders may be effectively
expressed for any purpose without a meeting, during which no transfer of stock
on the books of the corporation may be made; or in lieu of prohibiting the
transfer of stock, may fix a time not more than forty days prior to the date of
any meeting of stockholders or prior to the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose without a
meeting, as the time as of which stockholders entitled to notice of and to vote
at such a meeting or whose consent or dissent is required or may be expressed
for any purpose, as the case may be, shall be determined; and all persons who
were holders of record of voting stock
<PAGE>
at such time and no others shall be entitled to notice of and to vote at such
meeting or to express their consent or dissent, as the case may be. The board of
directors may also fix a time not exceeding forty days preceding the date fixed
for a payment of any dividend or the making of any distribution, or for the
delivery of evidences of rights, or evidences of interests arising out of any
change, conversion or exchange of capital stock, as a record time for the
determination of the stockholders entitled to receive any such dividend,
distribution, rights or interests, or, at its option, in lieu of so fixing a
record time, may prescribe a period not exceeding forty days prior to the date
for such payment, distribution or delivery during which no transfer of stock on
the books of the corporation may be made.
DIVIDENDS
Section 2. Dividends upon the capital stock of the corporation, subject to
any provisions of the certificate of incorporation relating thereto, may be
declared by the board of directors at any regular or special meeting, pursuant
to law.
Section 3. Before payment of any dividend, there may be set aside out of
the net profits of the corporation available for dividends such sum or sums as
the directors from time to time in their absolute discretion think proper as a
reserve fund to meet contingencies, or for equalizing
<PAGE>
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interests
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
SEAL
Section 4. The seal of the corporation shall be circular in form and
contain the name of the corporation, the year of its organization and the words
"Corporate Seal, New York". The seal may be used by causing it to be impressed
directly on the instrument, or writing to be sealed, or upon adhesive substance
affixed thereto. The seal on any corporate obligation for payment of money may
be facsimile, engraved or printed.
CHECKS
Section 5. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 6. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 1. HOW AMENDED. These By-Laws may be altered, amended, repealed or
added to by the vote of the Board of Directors of this corporation at any
regular meeting of said Board, or at a special meeting of Directors called for
that purpose provided a quorum of the Directors, as provided by law and by the
Certificate of Incorporation, are present at such regular or special meeting.
These By-Laws, and any amendments thereto and new By-Laws added by the Directors
may be amended, altered or replaced by the stockholders at any annual or special
meeting of the stockholders.
ARTICLE IX
INDEMNIFICATION
Section 1. The corporation shall indemnify its officers and directors to
the fullest extent permitted by the New York Business Corporation Law. Without
limiting the generality of the preceding sentence, the corporation shall
indemnify to the full extent permitted by, and in the manner permissible under,
the laws of the State of New York any person made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact
<PAGE>
that he or she or his or her testator or intestate is or was a director or
officer of the corporation or any predecessor of the corporation, or served any
other enterprise as a director or officer at the request of the corporation or
any predecessor corporation.
Expenses incurred by a director or officer of the corporation in defending
a civil or criminal action, suit or proceeding by reason of the fact that he or
she was a director or officer of the corporation (or was serving at the
corporation's request as a director or officer of another enterprise or
corporation) shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if and to the
extent it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized by relevant sections of the New
York Business Corporation Law.
The Board of Directors in its discretion shall have the power on behalf of
the corporation to indemnify any person, other than a director or officer, made
a party to any action, suit or proceeding by reason of the fact that he or she
or his or her testator or intestate, is or was an employee or agent of the
<PAGE>
corporation and to pay the expenses incurred by any such person defending such
action, suit or proceeding.
The foregoing rights of indemnification shall not be deemed exclusive of
any other rights to which any director or officer may be entitled apart from the
provisions of this Article IX.
EXHIBIT 4(i)
================================================================================
CREDIT AGREEMENT
Dated as of August 29, 1996
among
MILGRAY ELECTRONICS, INC.,
THE GUARANTORS NAMED HEREIN,
FLEET BANK, N.A.,
(as "Agent" and as a "Lender")
FIRST UNION NATIONAL BANK
and
EUROPEAN AMERICAN BANK
(as "Lenders")
and
THE OTHER LENDERS NAMED HEREIN
================================================================================
<PAGE>
TABLE OF CONTENTS
I. DEFINITIONS ........................................................ -1-
II. THE LOANS .......................................................... -17-
SECTION 2.01. Revolving Credit Commitments ............................ -17-
SECTION 2.02. Loans ................................................... -17-
SECTION 2.03. Notice of Loans ......................................... -19-
SECTION 2.04. Note; Repayment of Loans ................................ -20-
SECTION 2.05. Interest on Loans ....................................... -20-
SECTION 2.06. Rate Adjustments ........................................ -21-
SECTION 2.07. Commitment and Other Fees ............................... -22-
SECTION 2.08. Termination and Reduction of Revolving Credit Commitments -22-
SECTION 2.09. Interest on Overdue Amounts; Alternate Rate of Interest . -23-
SECTION 2.10. Prepayment of Loans ..................................... -24-
SECTION 2.11. Reserve Requirements; Change in Circumstances ........... -25-
SECTION 2.12. Change in Legality ...................................... -27-
SECTION 2.13. Indemnity ............................................... -28-
SECTION 2.14. Pro Rata Treatment ...................................... -28-
SECTION 2.15. Sharing of Setoffs ...................................... -29-
SECTION 2.16. Taxes ................................................... -30-
SECTION 2.17. Payments and Computations ............................... -33-
III. LETTERS OF CREDIT AND ACCEPTANCES .................................. -33-
SECTION 3.01. Issuance of Letters of Credit ........................... -33-
SECTION 3.02. Payment in Respect of Letters of Credit; Reimbursement .. -33-
SECTION 3.03. Actions of Agent ........................................ -36-
SECTION 3.04. Payments in Respect of Increased Costs .................. -36-
SECTION 3.05. Indemnity as to Letters of Credit ....................... -38-
SECTION 3.06. Letter of Credit Fees ................................... -39-
SECTION 3.07. Acceptance Drafts ....................................... -39-
SECTION 3.08. Payment of Acceptances .................................. -40-
SECTION 3.09. Ineligibility of Acceptance Drafts ...................... -43-
SECTION 3.10. Customary Fees .......................................... -43-
SECTION 3.11. Forms of Drafts ......................................... -43
IV. REPRESENTATIONS AND WARRANTIES ..................................... -44-
SECTION 4.01. Organization, Legal Existence ........................... -44-
SECTION 4.02. Authorization ........................................... -44-
SECTION 4.03. Governmental Approvals .................................. -44-
SECTION 4.04. Binding Effect .......................................... -45-
(i)
<PAGE>
SECTION 4.05. No Default; Material Adverse Change ..................... -45-
SECTION 4.06. Litigation; Compliance with Laws; Etc. .................. -45-
SECTION 4.07. Financial Statements .................................... -45-
SECTION 4.08. Federal Reserve Regulations ............................. -46-
SECTION 4.09. Taxes ................................................... -47-
SECTION 4.10. Employee Benefit Plans .................................. -47-
SECTION 4.11. No Material Misstatements ............................... -49-
SECTION 4.12. Investment Company Act; Public Utility Holding
Company Act ........................................... -49-
SECTION 4.13. Use of Proceeds ......................................... -49-
SECTION 4.14. Subsidiaries and Affiliates ............................. -50-
SECTION 4.15. Tide to Properties; Possession Under Leases; Trademarks . -50-
SECTION 4.16. Permits, Etc. ........................................... -51-
SECTION 4.17. Compliance with Environmental Laws ...................... -51-
SECTION 4.18. No Change in Credit Criteria or Collection Policies ..... -52-
SECTION 4.19. Franchise Agreements .................................... -52-
SECTION 4.20. Financing Agreements .................................... -52-
SECTION 4.21. No Overdue Obligations .................................. -52-
V. CONDITIONS OF CREDIT EVENTS ........................................ -53-
SECTION 5.01. All Credit Events ....................................... -53-
SECTION 5.02. First Borrowing ......................................... -53-
SECTION 5.03. Puerto Rican Securities Borrowing ....................... -56-
VI. AFFIRMATIVE COVENANTS .............................................. -56-
SECTION 6.01. Legal Existence ......................................... -56-
SECTION 6.02. Businesses and Properties ............................... -56-
SECTION 6.03. Insurance ............................................... -57-
SECTION 6.04. Taxes ................................................... -57-
SECTION 6.05. Financial Statements, Reports, Etc. ..................... -58-
SECTION 6.06. Litigation and Other Notices ............................ -60-
SECTION 6.07. ERISA ................................................... -61-
SECTION 6.08. Maintaining Records; Access to Properties and
Inspections; Right to Audit ........................... -62-
SECTION 6.09. Use of Proceeds ......................................... -62-
SECTION 6.10. Fiscal Year-End ......................................... -63-
SECTION 6.11. Additional Guarantors ................................... -63-
SECTION 6.12. Environmental Laws ...................................... -63-
SECTION 6.13. Pay Obligations to Lenders and Perform Other Covenants .. -65-
(ii)
<PAGE>
VII. NEGATIVE COVENANTS ................................................. -65-
SECTION 7.01. Liens ................................................... -65-
SECTION 7.02. Indebtedness ............................................ -67-
SECTION 7.03. Dividends, Distributions and Payments ................... -69-
SECTION 7.04. Consolidations, Mergers and Sales of Assets ............. -70-
SECTION 7.05. Investments ............................................. -70-
SECTION 7.06. Capital Expenditures .................................... -71-
SECTION 7.07. Net Worth ............................................... -71-
SECTION 7.08. Total Unsubordinated Liabilities to Net Worth Ratio ..... -72-
SECTION 7.09. Rental Obligations ...................................... -72-
SECTION 7.10. Consolidated Inventory Ratio ............................ -72-
SECTION 7.11. Consolidated Current Ratio .............................. -72-
SECTION 7.12. Interest Coverage Ratio ................................. -72-
SECTION 7.13. Net Income .............................................. -72-
SECTION 7.14. Business ................................................ -72-
SECTION 7.15. Sales of Receivables .................................... -72-
SECTION 7.16. Use of Proceeds ......................................... -73-
SECTION 7.17. ERISA ................................................... -73-
SECTION 7.18. Accounting Changes ...................................... -73-
SECTION 7.19. Modification of Indebtedness ............................ -73-
SECTION 7.20. Transactions with Affiliates ............................ -73-
VIII. EVENTS OF DEFAULT ................................................. -74-
IX. AGENT .............................................................. -78-
X. GUARANTEES ......................................................... -81-
XI. MISCELLANEOUS ...................................................... -83-
SECTION 11.01. Notices ................................................. -83-
SECTION 11.02. Survival of Agreement ................................... -83-
SECTION 11.03. Successors and Assigns: Participations .................. -84-
SECTION 11.04. Expenses: Indemnity ..................................... -87-
SECTION 11.05. Applicable Law .......................................... -88-
SECTION 11.06. Right of Setoff ......................................... -88-
SECTION 11.07. Payments on Business Days ............................... -88-
SECTION 11.08. Waivers; Amendments ..................................... -88-
SECTION 11.09. Severability ............................................ -90-
SECTION 11.10. Entire Agreement; Waiver of Jury Trial, Etc. ............ -90-
SECTION 11.11. Confidentiality ......................................... -91-
SECTION 11.12. Submission to Jurisdiction .............................. -91-
SECTION 11.13. Counterparts: Facsimile Signature ....................... -92-
(iii)
<PAGE>
SECTION 11.14. Headings ................................................. -92-
EXHIBIT A
Form of Revolving Credit Note ........................................... -95-
EXHIBIT B ............................................................... -98-
EXHIBIT C
Form of Assignment and Acceptance ....................................... -101-
EXHIBIT D
Form of Acceptance Draft ................................................ -104-
EXHIBIT E
Aged Trial Balance ...................................................... -105-
EXHIBIT F
Inventory Turns ......................................................... -106-
EXHIBIT G
Draft of Legal Opinion/Puerto Rico Counsel to Milgray
Electronics/P.R., Inc. ................................................ -107-
EXHIBIT H
Form of Notice Regarding Domestic Shipment Financing .................... -109-
EXHIBIT I
Form of Certificate of Compliance ....................................... -110-
SCHEDULE 2.01.
Revolving Credit Commitments ............................................ -112-
SCHEDULE 2.02
Lending Offices ......................................................... -113-
SCHEDULE 3.01
Outstanding Letters of Credit ........................................... -114-
SCHEDULE 4.01
Qualified Jurisdictions ................................................. -115-
SCHEDULE 4.05
Material Adverse Change ................................................. -116-
(iv)
<PAGE>
SCHEDULE 4.06(a)
Litigation .............................................................. -117-
SCHEDULE 4.06(b)
Compliance with Laws, Etc. .............................................. -118-
SCHEDULE 4.09
Taxes ................................................................... -119-
SCHEDULE 4.10
ERISA ................................................................... -120-
SCHEDULE 4.14
Subsidiaries and Affiliates ............................................. -122-
SCHEDULE 4.17
Environmental Compliance ................................................ -123-
SCHEDULE 4.20
Milgray Electronics, Inc. Financing Agreements .......................... -124-
SCHEDULE 6.12
Hazardous Materials ..................................................... -126-
SCHEDULE 7.01
Existing Liens .......................................................... -127-
SCHEDULE 7.02
Milgray Electronics, Inc. Indebtedness .................................. -128-
(v)
<PAGE>
CREDIT AGREEMENT dated as of August 29, 1996, among MILGRAY ELECTRONICS,
INC., a New York corporation (the "Borrower"), the Guarantors named herein and
signatories hereto, FLEETBANK, N.A., a national banking association, FIRST UNION
NATIONAL BANK, a national banking association ("First Union"), EUROPEAN AMERICAN
BANK, a New York bank ("EAB"), and the other lenders named in Schedule 2.01
annexed hereto (collectively, the "Lenders"), and FLEETBANK, N.A., as agent for
the Lenders (in such capacity, the "Agent").
The Borrower has applied to the Lenders for Credits (such term and all
other capitalized terms used in this paragraph having the respective meanings
ascribed to such terms above or hereinafter) in the form of Credits to the
Borrower at any time and from time to time prior to the Revolving Credit
Termination Date in an aggregate principal amount not in excess of $70,000,000
at any time outstanding. The proceeds of the Credits shall be used to repay all
obligations under the Prior Credit Agreement, advances by the Borrower to
Milgray Electronics/P.R., Inc. in an aggregate amount of up to $5,000,000 to
enable such entity to purchase Puerto Rican Securities and for the general
working capital requirements of the Borrower and the Guarantors. The Guarantors
are guaranteeing (or in the case of Guarantors not in existence on the date
hereof, will guarantee) the Credits in accordance with the provisions of this
Agreement. The Lenders are severally, and not jointly, willing to extend such
Credits to the Borrower subject to the terms and conditions hereinafter set
forth. Accordingly, the Borrower, the Guarantors, the Lenders and the Agent
hereby agree as follows:
I. DEFINITIONS.
For purposes hereof, the following terms shall have the meanings specified
below:
"Acceptance Date" shall have the meaning set forth in Section 3.07(b)
hereof.
"Acceptance Draft", "Acceptance Drafts" shall have the meanings set forth
in Section 3.07(a) hereof.
"Acceptance Draft Commission" shall have the meaning set forth in Section
3.08 hereof.
"Acceptance Draft Exposure" shall mean at any time the sum of (a) the
aggregate face amount of Acceptance Drafts outstanding and (b) the aggregate
amount of all payments in respect of Acceptance Drafts for which the Lenders
shall not have been reimbursed as provided in Section 3.08 hereof.
"Adjusted Eurodollar Rate" shall mean, with respect to any Eurodollar Loan
for any Interest Period, an interest rate per annum (rounded
<PAGE>
upwards, if necessary, to the next 1/16 of 1%) equal to the product of (i) the
Eurodollar Rate in effect for such Interest Period and (ii) Eurodollar Reserves.
For purposes hereof, the term "Eurodollar Reserves" means a fraction (expressed
as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the applicable statutory reserve requirements
(expressed as a decimal) for the Agent (without duplication, but including,
without limitation, basic, supplemental, marginal and emergency reserves), from
time to time in effect under Regulation D of the Board of Governors of the
Federal Reserve System ("Regulation D") with respect to Eurocurrency funding
currently referred to as "Eurocurrency liabilities" in Regulation D. It is
agreed that for purposes hereof each Eurodollar Loan shall be deemed to
constitute a "Eurocurrency liability" as defined in Regulation D, and to be
subject to the reserve requirements of Regulation D, without benefit of credit
or proration, exemptions or offsets which might otherwise be available to the
Agent from time to time under Regulation D.
"Affiliate" of any person shall mean any other person other than a natural
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For the purposes of this definition, H.S.
Davidson Associates, Inc. shall not be deemed an Affiliate and the term
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any applicable person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such person, whether
through the ownership of voting securities or by contract or otherwise.
"Agreement" shall mean this Credit Agreement, together with all schedules
and exhibits hereto, as the same may be supplemented, modified, amended or
restated from time to time in the manner provided herein.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Prime Rate Loan and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Loan.
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an assignee, consented to and accepted by the Agent, in
substantially the form of Exhibit C hereto.
"Availability" shall mean at any time (i) the lesser at such time of (x)
the Total Revolving Credit Commitment (as such amount may be reduced or
increased in accordance with the provisions of this Agreement) and (y) the
Borrowing Base, minus (ii) the sum at such time of (u) the aggregate principal
amount of the Revolving Credit
-2-
<PAGE>
Loans outstanding, (v) the Letter of Credit Exposure and (w) the Acceptance
Draft Exposure.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States.
"Borrower" shall have the meaning assigned to such term in the preamble to
this Agreement.
"Borrowing Base" shall mean an amount equal to the sum of (i) up to 90% of
the Net Amount of Eligible Receivables plus (ii) the lesser of (x) 50% of the
Net Amount of Eligible Inventory or (y) $30,000,000.
"Business Day" shall mean any day, other than a Saturday, Sunday or legal
holiday in the State of New York, on which banks are open for substantially all
their banking business in New York City.
"Capitalized Lease Obligation" shall mean an obligation to pay rent or
other amounts under any lease of (or other arrangement conveying the right to
use) real and/or personal property which obligation is required to be classified
and accounted for as a capital lease on a balance sheet prepared in accordance
with generally accepted accounting principles, and for purposes hereof the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with such principles.
"Closing Date" shall mean the date on which the Credit Parties, the Lenders
and the Agent shall have executed and delivered this Agreement, which date shall
not in any event be later than August 31, 1996.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder.
"Consolidated" shall mean, in respect of any person, as applied to any
financial or accounting term, such term determined on a consolidated basis in
accordance with generally accepted accounting principles (except as otherwise
required herein) for the person and all consolidated subsidiaries thereof.
"Contaminant" shall mean all Hazardous Materials and all those substances
which are regulated by or form the basis of liability under Federal, state or
local environmental, health and safety statutes or regulations including,
without limitation, asbestos, polychlorinated biphenyls ("PCBs"), and
radioactive substances, or any other material or substance which constitutes a
material health, safety or environmental hazard to any person or property.
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"Credit Event" shall mean each extension of Credits hereunder.
"Credit Parties" shall mean, collectively, the Borrower and the Guarantors.
"Credits" shall mean Loans, Letters of Credit or Acceptance Drafts, as the
case may be.
"Current Assets" shall mean, with respect to any person at any date, the
aggregate amount of all assets of such person which would be classified as
current assets at such date, computed and calculated in accordance with
generally accepted accounting principles.
"Current Liabilities" shall mean, with respect to any person at any date,
the aggregate amount of all liabilities of such person (including tax and other
proper accruals) which would be classified as current liabilities at such date,
computed and calculated in accordance with generally accepted accounting
principles consistently applied, but in any event shall include all Credits
(other than Letters of Credit) and the indebtedness allowed pursuant to Section
7.02 (xviii) hereof.
"Current Ratio" shall mean the ratio of Current Assets to Current
Liabilities.
"Customer" shall mean and include the account debtor or obligor with
respect to any of the Receivables.
"Default" shall mean any condition, act or event which, with notice or
lapse of time or both, would constitute an Event of Default.
"Discount Rate" shall mean a fluctuating annual rate of interest in effect
from time to time equal to the then current rate established by the Agent for
banker's acceptances of equal face amount and duration eligible for discount
with the Federal Reserve Banks of the United States.
"Dollars" or the symbol "$" shall mean dollars in lawful currency of the
United States of America.
"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office, opposite its name in
Schedule 2.02 hereto, or such other office of such Lender as such Lender may
from time to time specify to the Borrower and the Agent.
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"Eligible Inventory" shall mean Inventory of the Borrower and its
Consolidated subsidiaries (to the extent such subsidiaries have become
Guarantors) consisting of electronic components, semiconductors,
electromechanical devices, passive components, computer products and other
related products of the type currently being distributed by Borrower and the
Guarantors; provided, that Eligible Inventory shall not include (x) work in
process or (y) any raw materials or finished inventory which (i) is not located
in the United States or Canada, (ii) which has been held more than 15 months
unless there exists open Customer sales orders with respect thereto, (iii) which
is damaged, unsalable or otherwise unfit for use or (iv) is the subject of a
purchase money security interest or similar arrangements.
"Eligible Receivables" shall mean at the time of any determination thereof
all Receivables which meet the following criteria at the time of creation and
continue to meet the same at all times relevant to such determination: (a) all
payments due on the Receivable have been invoiced; (b) the payment due on the
Receivable is not more than 120 days past the invoice date; (c) the payments due
on more than 50% of all Receivables from the same Customer are less than 120
days past the invoice date; (d) the Receivable arose from a completed, outright
and lawful sale of goods, to which title has passed to the Customer, by or on
behalf of the Borrower or any of the Guarantors; (e) the Receivable is free and
clear of all security interests, liens, charges and encumbrances of any nature
whatsoever; (f) the Receivable constitutes (i) an "account" or "chattel paper"
within the meaning of the Uniform Commercial Code of the state in which the
Receivable is located or (ii) an "instrument" within the meaning of the Uniform
Commercial Code of the state in which the Receivable is located, but only to the
extent that such instrument was received as payment in respect of an "account"
and is payable in full within 120 days past the invoice date relating to such
"account", (g) the Customer has not asserted that the Receivable, and neither
the Borrower nor any Guarantor is aware that the Receivable, is subject to any
setoff, net-out contract, offset, deduction, dispute, credit, counterclaim or
other defense arising out of the transactions represented by the Receivables or
independently thereof other than any of same arising in the ordinary course of
business and for which adequate reserves have been established in accordance
with generally accepted accounting principles, and the Customer has finally
accepted the goods from the sale out of which the Receivable arose and has not
objected to its liability thereon or returned, rejected or repossessed any of
such goods, except for complaints made or goods returned in the ordinary course
of business for which, in the case of goods returned, goods of equal or greater
value have been shipped in return; (h) the Receivable arose in the ordinary
course of business of the Borrower or any of the Guarantors; (i) the Customer is
not (x) the United States government or the government of any state or political
subdivision
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thereof or therein, or any agency or department of any thereof or (y) an
Affiliate of the Borrower or any subsidiary of any thereof; (j) the Customer is
a United States, Puerto Rican or Canadian person or an obligor in the United
States, Puerto Rico or Canada; (k) the Receivable complies with all material
requirements of all applicable laws and regulations, whether Federal, state or
local (including, without limitation, usury laws and laws, rules and regulations
relating to truth in lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy); (1) to the
knowledge of the Borrower or any Guarantor after reasonable investigation, the
Receivable is in full force and effect and constitutes a legal, valid and
binding obligation of the Customer enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors, rights
generally and by general equity principles; (m) the Receivable is denominated in
and provides for payment by the Customer in United States (or in the case of a
Receivable where the applicable Customer is a Canadian person, Canadian or
United States) dollars; and (n) the Receivable has not been and is not required
to be charged off or written off as uncollectible in accordance with generally
accepted accounting principles or the customary business practice of the
Borrower or any Guarantor unless adequate reserves have been established
therefor in accordance with generally accepted accounting principles.
Notwithstanding the foregoing, all Receivables of any single Customer which, in
the aggregate, exceed 10% of the total Eligible Receivables at the time of any
such determination shall be deemed not to be Eligible Receivables to the extent
of such excess.
"Environmental Claim" shall mean any written notice of violation, claim,
demand, abatement or other order by any governmental authority or any person for
personal injury (including sickness, disease or death), tangible or intangible
property damage, damage to the environment, nuisance, pollution, contamination
or other adverse effects on the environment, or for fines, penalties or deed or
use restrictions, resulting from or based upon (i) the existence, or the
continuation of the existence, of a Release (including, without limitation,
sudden or non-sudden, accidental or nonaccidental Releases), of, or exposure to,
any substance, chemical, material, pollutant, contaminant, odor or audible noise
or other release or emission in, into or onto the environment (including,
without limitation, the air, ground, water or any surface) at, in, by or from
any of the properties of the Borrower, any Guarantor or any of their respective
subsidiaries, (ii) the environmental aspects of the transportation, storage,
treatment or disposal of materials in connection with the operation of any of
the properties of the Borrower, any Guarantor or any of their respective
subsidiaries or (iii) the violation, or alleged violation by the Borrower, any
Guarantor or any of their respective
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subsidiaries, of any statutes, ordinances, orders, rules, regulations, Permits
or licenses of or from any governmental authority, agency or court relating to
environmental matters connected with any of the properties of the Borrower, any
Guarantor or any of their respective subsidiaries, under any applicable
Environmental Law.
"Environmental Laws" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss.9601 et seq.), the Hazardous
Material Transportation Act (49 U.S.C. ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss.6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Oil Pollution Act of 1990
(P.L. 101-380), the Safe Drinking Water Act (42 U.S.C. ss.300(f), et seq.), the
Clear Air Act (42 U.S.C. ss.7401 et seq.), the Toxic Substances Control Act, as
amended (15 U.S.C. ss.2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. ss.136 et. seq.), and the Occupational Safety and
Health Act (29 U.S.C. ss.651 et seq.), as such laws have been and hereafter may
be amended or supplemented, and any related or analogous present or future
Federal, state, local or foreign statutes, rules, regulations, ordinances,
licenses, permits and interpretations and orders of regulatory and
administrative bodies.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder, as in effect from
time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which together with the Borrower or any of its subsidiaries would
be treated as a single employer under the provisions of Title I or Title IV of
ERISA.
"Eurodollar Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Eurodollar Lending Office" opposite its name in
Schedule 2.02 hereto (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to the Borrower and the Agent.
"Eurodollar Loan" shall mean a Loan bearing interest based on the Adjusted
Eurodollar Rate in accordance with Article II hereof.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the rate at which United States dollar deposits
approximately equal in principal amount to the Eurodollar Loan and for a
maturity equal to the applicable Interest Period are offered in the London
interbank market and that (a) appears on the Telerate Page 3750 as of 11:00
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a.m. London time, two Business Days prior to the first day of such Interest
Period or (b) if no such rate appears on the Telerate page 3750, the rate of
interest determined by the Agent to be the average of up to four interest rates
per annum which appear on the Reuter's Screen LIBO page as of 11:00 a.m. London
time two Business Days prior to the first day of such Interest Period if at
least two such offered rates so appear on the Reuter's Screen LIBO Page or (c)
if no such rate appears on the Telerate Page 3750 and fewer than two offered
rates appear on the Reuter's Screen LIBO Page, the rate of interest at which
U.S. Dollar deposits are offered to the Agent by first class banks in the London
interbank market for delivery in immediately available funds at the Eurodollar
Office of the Agent on the first day of such Interest Period as determined by
the Agent at approximately 10:00 a.m. (New York time) two Business Days prior to
the date upon which such Interest Period is to commence (which determination by
the Agent shall, in the absence of manifest error, be conclusive)
"Event of Default" shall have the meaning assigned such term in Article
VIII hereof.
"Financial Officer" shall mean, with respect to any person, the chief
financial officer, Vice President - Finance, Treasurer or Assistant Treasurer of
such person.
"Fiscal Year" shall mean the fiscal year of the Borrower for accounting
purposes which ends on September 30 of each year.
"Foreign Subsidiaries" shall mean Milgray/Toronto, Inc., a corporation
organized and existing under the laws of Ontario, Canada and all other direct or
indirect subsidiaries or Affiliates of the Borrower or the Guarantors now or
hereafter existing that are incorporated or organized in a jurisdiction outside
of the United States of America.
"Guarantee" shall mean any obligation, contingent or otherwise, of any
person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or obligation of any other person in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such person,
direct or indirect, (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such
Indebtedness, (ii) to purchase property, securities or services for the purpose
of assuring the owner of such Indebtedness of the payment of such Indebtedness,
or (iii) to maintain working capital, equity capital, available cash or other
financial statement condition of the primary obligor so as to enable the primary
obligor to pay such Indebtedness; provided, however, that the term Guarantee
shall not include endorsements for collection or deposit, in either case in the
ordinary course of business.
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"Guarantor" shall mean each subsidiary and Affiliate of a Credit Party
executing and delivering this Agreement or which becomes a Guarantor after the
date hereof pursuant to Section 6.11 hereof.
"Hazardous Material" shall mean any pollutant, contaminant, chemical, or
industrial or hazardous, toxic or dangerous waste, substance or material,
defined or regulated as such in (or for purposes of) any Environmental Law and
any other toxic, reactive, or flammable chemicals, including (without
limitation) any asbestos, any petroleum (including crude oil or any fraction),
any radioactive substance and any polychlorinated biphenyls; provided, in the
event that any Environmental Law is amended so as to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment; and provided, further, to the extent that the
applicable laws of any state establish a meaning for "hazardous material",
"hazardous substance", "hazardous waste", "solid waste" or "toxic substance"
which is broader than that specified in any Environmental Law, such broader
meaning shall apply.
"Indebtedness" shall mean, with respect to any person, (a) all obligations
of such person for borrowed money, or with respect to deposits or advances of
any kind, (b) all obligations of such person evidenced by bonds, debentures,
notes or other similar instruments, (c) all obligations of such person for the
deferred purchase price of property or services, except current accounts payable
arising in the ordinary course of business and not overdue, (d) all obligations
of such person under conditional sale or other title retention agreements
relating to property purchased by such person, (e) all payment obligations of
such person with respect to interest rate or currency protection agreements, (f)
all obligations of such person as an account party under any letter of credit or
in respect of bankers, acceptances, (g) all Indebtedness of any third party
secured by property or assets of such person (regardless of whether or not such
person is liable for repayment of such Indebtedness), (h) all Capitalized Lease
Obligations, (i) all Guarantees of such person and (j) the redemption price of
all redeemable preferred stock issued after the date hereof of such person, but
only to the extent that such stock is redeemable at the option of the holder or
requires sinking fund or similar payments at any time prior to the Revolving
Credit Termination Date.
"Information" shall have the meaning assigned to such term in Section 11.11
hereof.
"Interest Coverage Ratio" shall mean, with respect to any person for any
period, the ratio of (i) EBIT for such period, to (ii) the Interest Expense of
such person for such period. For purposes hereof, EBIT shall mean with respect
to any person for any period the sum of (i) Net Income, (ii) Interest Expense
and (iii) federal,
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state, local and foreign income taxes, in each case of such person on a
Consolidated basis for such period, computed and calculated in accordance with
generally accepted accounting principles applied on a consistent basis.
"Interest Expense" shall mean, with respect to any person for any period,
the interest expense of such person during such period determined on a
Consolidated basis in accordance with generally accepted accounting principles
consistently applied, and shall in any event include, without limitation, (i)
the amortization of debt discounts, (ii) the amortization of all fees payable in
connection with the incurrence of Indebtedness to the extent included in
interest expense, (iii) the portion of any Capitalized Lease Obligation
allocable to interest expense, (iv) all fixed or calculable dividend payments on
preferred stock and (v) payments of interest expense in kind.
"Interest Payment Date" shall mean (i) in the case of any Loan, the last
Business Day of each month commencing August 31, 1996, and (ii) with respect to
any Eurodollar Loan, the last day of the Interest Period applicable thereto and,
in the case of an Interest Period greater than three months, at three month
intervals after the first day of such Interest Period.
"Interest Period" shall mean as to any Eurodollar Loan, the period (subject
to availability) commencing on the date of commencement of such Eurodollar Loan
and ending on the numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6
months thereafter, as the Borrower may elect with respect to its Eurodollar
Loans; provided, however, that (w) if an Interest Period would end on a day that
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, with respect to Eurodollar Loans, such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day, (x) no
Interest Period with respect to any Revolving Credit Loan shall end later than
the Revolving Credit Termination Date and (y) interest shall accrue from and
including the first day of an Interest Period to but excluding the last day of
such Interest Period.
"Inventory" shall mean raw materials, work in process and finished goods,
whether now owned or hereafter acquired.
"Lender" shall have the meaning assigned to such term in the preamble to
this Agreement.
"Letter of Credit" shall have the meaning assigned to such term in Section
3.01 hereof.
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"Letter of Credit Exposure" shall mean at any time the sum of (a) the
aggregate undrawn amount of all outstanding Letters of Credit and (b) the
aggregate amount of all drawings under Letters of Credit for which the Lenders
shall not have been reimbursed as provided in Section 3.02 hereof.
"Leverage Ratio" with respect to the Borrower and its subsidiaries at the
end of any fiscal quarter shall mean the ratio of Total Unsubordinated
Liabilities to Tangible Net Worth.
"Leverage Ratio Level" shall have the meaning assigned to such term in
Section 2.06 hereof.
"LIBOR Margin" shall have the meaning assigned to such term in Section 2.06
hereof.
"Lien" shall mean, with respect to any asset, (i) any mortgage, lien,
pledge, encumbrance, charge or security interest in or on such asset, (ii) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset, (iii) in the
case of securities, any purchase option, call or similar right of a third party
with respect to such securities or (iv) any other right of or arrangement with
any creditor to have his claim satisfied out of such assets, or the proceeds
therefrom, prior to the general creditors of the owner thereof.
"Loan" shall mean any Revolving Credit Loan.
"Loan Documents" shall mean, collectively, this Agreement, the Notes, any
pledge agreements executed and delivered pursuant to Section 6.11 hereof, any
Letter of Credit, any application for any Letter of Credit, any Acceptance
Draft, the Agent's fee letter, and any documents, agreements or instruments
executed and delivered in connection with any thereof, as each may be
supplemented, modified, amended or restated from time to time in the manner
provided herein or therein.
"Margin Stock" shall have the meaning assigned such term in Regulation U.
"Material Adverse Effect" shall mean any material adverse effect,
individually or in the aggregate, on (i) the business, assets, prospects,
operations or financial or other condition of the Borrower and its subsidiaries,
taken as a whole, (ii) the ability of the Borrower and its subsidiaries, taken
as a whole, to perform or pay the Obligations in accordance with the terms
hereof or (iii) the ability of the Borrower and its subsidiaries, taken as a
whole, to conduct business substantially as conducted on the Closing Date.
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"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Amount of Eligible Inventory" shall mean, at any time, (i) the
aggregate value, computed at the lower of cost (on a moving average cost method,
which approximates the FIFO basis) and current market value, of Eligible
Inventory, less (ii) $500,000.
"Net Amount of Eligible Receivables" shall mean and include the gross
amount of Eligible Receivables less (i) sales, excise or similar taxes and (ii)
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.
"Net Income" shall mean, with respect to any person for any period, the
aggregate Consolidated income (or loss) of such person for such period equal to
net revenues and other proper income less the aggregate for such person of any
and all items that are treated as expenses under generally accepted accounting
principles, and less Federal, state and local income taxes, but excluding any
extraordinary gains or any gains from the sale or disposition of assets other
than in the ordinary course of business, all computed and calculated in
accordance with generally accepted accounting principles applied on a consistent
basis.
"Net Worth" shall mean, at any time, the sum of (i) Tangible Net Worth plus
(ii) Consolidated Subordinated Indebtedness of the Borrower, in each case at
such time.
"Notes" shall mean the Revolving Credit Notes of the Borrower, executed and
delivered as provided in Section 2.04 hereof.
"Obligations" shall mean all obligations, liabilities and indebtedness of
the Borrower and the Guarantors to the Lenders and the Agent, whether now
existing or hereafter created, direct or indirect, due or not, whether created
directly or acquired by assignment, participation or otherwise, with respect to
the Loan Documents, the principal of and interest on the Revolving Credit Loans,
reimbursement obligations with respect to and drawings under any Letter of
Credit and any Acceptance Draft, and the payment or performance of all other
obligations, liabilities, and indebtedness owed by any of them to any Lender or
any Agent under this Agreement or any other Loan Document including, without
limitation, all fees, costs, expenses and indemnity obligations hereunder and
thereunder.
"Other Indebtedness" shall have the meaning assigned to such term in
Section 7.02(xxi) hereof.
"Other Taxes" shall have the meaning assigned to such term in Section
2.16(b) hereof.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any Plan which is subject to the provisions of
Title IV of ERISA.
"Permits" shall have the meaning assigned to such term in Section 4.16
hereof.
"Person" or "Person" shall mean any natural person, corporation, business
trust, association, company, joint venture, partnership or government or any
agency or political subdivision thereof.
"Plan" shall mean any employee plan within the meaning of Section 3(3) of
ERISA and which is maintained (in whole or in part) for employees of the
Borrower, any subsidiary or any ERISA Affiliate.
"Pricing Grid" shall have the meaning set forth in Section 2.06 hereof.
"Prime Rate Loan" shall mean a Loan bearing interest based at the Prime
Rate in accordance with Article II hereof.
"Prime Rate" shall mean and refer to the floating rate of interest per
annum announced by the Agent from time to time as being the so-called prime rate
of interest charged by the Agent. Any change in the Prime Rate shall be
effective on the effective date of such change in the Prime Rate.
"Prior Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of November 7, 1995 among the Borrower, the Guarantors named
therein, Chemical Bank, as agent, and the Lenders named therein, as amended from
time to time prior to the Closing Date.
"Puerto Rican Banks" shall have the meaning set forth in Section 7.02
hereof.
"Puerto Rican Indebtedness Conditions" shall mean the following conditions
precedent to the incurrence of Indebtedness pursuant to Section 7.02(xviii) from
Puerto Rican Banks: (i) the Agent and the Lenders shall have given their written
consent indicating that the terms and conditions of all documentation creating,
evidencing or governing such Indebtedness are reasonably satisfactory to the
Agent and the Lenders (it being understood that provisions granting the Puerto
Rican Banks a contractual right of setoff against deposits of the Borrower with
such Banks are acceptable to the Agent and the Lenders), (ii) no intercompany
transactions (other than investments in capital stock and loans and advances
permitted under this Agreement) between the Borrower and Milgray
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Electronics/P.R., Inc. shall remain outstanding, (iii) the Agent and the Lenders
shall have received an opinion of counsel to the Borrower and Milgray
Electronics/P.R., Inc. (which counsel may be special counsel to such Persons in
connection with the subject matter covered thereby) in form and substance
satisfactory to the Agent and the Lenders, to the effect that no Lien exists
with respect to any of the cash, cash equivalents or Puerto Rican Securities of
the Borrower or Milgray Electronics/P.R., Inc. that are on deposit with any of
the Puerto Rican Banks (it being understood that an opinion of Rivera, Tulla &
Ferrer in the form of Exhibit G hereto shall be acceptable to the Agent and the
Lenders) and (iv) the Agent and the Lenders shall have received a certificate in
form and substance satisfactory to the Agent and the Lenders from a duly
authorized officer of each of the Puerto Rican Banks stating that to the best of
his or her knowledge, such deposits are not subject to any Lien.
"Puerto Rican Securities" shall have the meaning set forth in Section 7.02
hereof.
"Receivables" shall mean and include all of the Borrower's and its
Consolidated subsidiaries, (to the extent such subsidiaries have become
Guarantors) accounts, instruments, documents, chattel paper and general
intangibles, whether secured or unsecured, whether now existing or hereafter
created or arising.
"Register" shall have the meaning assigned to such term in Section 11.03(e)
hereof.
"Regulation D" shall mean Regulation D of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation G" shall mean Regulation G of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation T" shall mean Regulation T of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
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"Release" shall mean any releasing, spilling, leaking, seepage, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping, in each case as defined in any Environmental Law.
"Remedial Work" shall mean any investigation, site monitoring, containment,
cleanup, removal, restoration or other remedial work of any kind or nature with
respect to any property of the Borrower or its subsidiaries (whether such
property is owned, leased, subleased or used), including, without limitation,
with respect to Contaminants and the Release thereof.
"Reportable Event" shall mean a Reportable Event as defined in Section
4043(c) of ERISA.
"Required Lenders" shall mean Lenders having 66 2/3% of the Total Revolving
Credit Commitment or, if the Revolving Credit Commitments have been terminated,
Lenders having 66 2/3% of the outstanding Obligation.
"Responsible Officer" shall mean, with respect to any person, any vice
president or president, or the chief financial officer or controller, of such
person.
"Revolving Credit Commitment" shall mean, with respect to any Lender, the
Revolving Credit Commitment of such Lender as set forth in Schedule 2.01, as the
same may be reduced from time to time pursuant to Section 2.08 hereof.
"Revolving Credit Commitment Fee" shall have the meaning set forth in
Section 2.07(a).
"Revolving Credit Loan" shall mean a Revolving Credit Loan made pursuant to
Sections 2.01 and 2.02 hereof.
"Revolving Credit Notes" shall mean the Revolving Credit Notes of the
Borrower, executed and delivered as provided in Section 2.04 hereof, in
substantially the form of Exhibit A hereto.
"Revolving Credit Termination Date" shall mean August 29, 2001.
"Standby Letter of Credit Commission" shall have the meaning assigned to
such term in Section 3.06 hereof.
"Subordinated Indebtedness" shall mean, with respect to the Borrower or any
Guarantor, Indebtedness subordinated in right of payment to such person's
monetary obligations under this Agreement, which by its terms shall not mature
or be subject to any mandatory prepayment or amortization of principal prior to
the Revolving
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Credit Termination Date and all of whose terms and provisions shall be
satisfactory to the Required Lenders as evidenced by their prior written consent
to the creation of such Indebtedness.
"Subsidiary" shall mean, with respect to any person (the "parent"), any
corporation, association or other business entity of which securities or other
ownership interests representing more than 50% of the ordinary voting power
are, at the time as of which any determination is being made, owned or
controlled by the parent or one or more subsidiaries of the parent.
"Swiss Volksbank Guarantee" shall have the meaning assigned such term in
Section 7.02(xx) hereof.
"Tangible Net Worth" shall mean the total of all assets appearing on the
Consolidated balance sheet of the Borrower prepared in accordance with generally
accepted accounting principles, after deducting therefrom (without duplication
of deductions):
(i) the total of all items which would properly be included as liabilities
on a balance sheet, determined in accordance with generally accepted accounting
principles (including, without limitation, Subordinated Indebtedness, reserves
for liabilities, fixed or contingent, deferred income taxes, obsolescence,
depletion, insurance, and inventory valuation and all other reserves of any
kind); and
(ii) the book value of all assets appearing on such balance sheet which
would be treated as intangibles under generally accepted accounting principles,
including, without limitation, goodwill, long term deferred taxes, trademarks,
trade names, patents, copyrights and licenses.
"Total Revolving Credit Commitment" shall mean the sum of the Lenders'
Revolving Credit Commitments, as the same may be reduced from time to time
pursuant to Section 2.08 hereof.
"Total Unsubordinated Liabilities" shall mean, with respect to any person,
the total of all items which would properly be included as liabilities on a
Consolidated balance sheet, determined in accordance with generally accepted
accounting principles consistently applied, excluding Subordinated Indebtedness,
capital stock, additional paid in capital, capital surplus, retained earnings,
minority interests and contingency reserves.
"Transactions" shall have the meaning assigned such term in Section 4.02.
Unless otherwise expressly provided herein, each accounting term used
herein shall have the meaning given it under generally accepted accounting
principles in effect from time to time in the
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United States applied on a basis consistent with those used in preparing the
financial statements referred to in Section 6.05 hereof; provided, however, that
each reference in Article VII hereof, or in the definition of any term used in
Article VII hereof, to generally accepted accounting principles shall mean
generally accepted accounting principles as in effect on the date hereof.
II. THE LOANS.
SECTION 2.01. Revolving Credit Commitments. Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Lender, severally and not jointly, agrees to make Revolving Credit Loans to
the Borrower, at any time and from time to time from the date hereof to the
Revolving Credit Termination Date, or until the earlier termination of its
Revolving Credit Commitment in accordance with the terms hereof, in an aggregate
principal amount at any time outstanding not to exceed the amount of such
Lender's Revolving Credit Commitment set forth opposite its name in Schedule
2.01 hereto, as such Revolving Credit Commitment may be reduced from time to
time in accordance with the provisions of this Agreement. Notwithstanding the
foregoing, the sum of (i) the aggregate principal amount of Revolving Credit
Loans outstanding at any time to Borrower, (ii) the Letter of Credit Exposure
and (iii) the Acceptance Draft Exposure, shall not exceed the lesser of the
amount of Borrowing Base and the Total Revolving Credit Commitment. The
Revolving Credit Commitment of each Lender shall automatically and permanently
terminate on the Revolving Credit Termination Date
Within the foregoing limits, Borrower may borrow, repay (or, subject to the
provisions of Section 2.10 hereof, prepay) and reborrow, on and after the date
hereof and prior to the Revolving Credit Termination Date, subject to the terms,
provisions and limitations set forth herein, including, without limitation, the
requirement that no Revolving Credit Loan shall be made hereunder if the amount
thereof exceeds the Availability outstanding at such time.
SECTION 2.02. Loans. (a) The Revolving Credit Loans made by the Lenders on
any date shall be in minimum aggregate principal amounts of $400,000 and in
integral multiples of $100,000 in excess thereof; provided, however, that,
unless otherwise agreed in writing by all of the Lenders, the Eurodollar Loans
made on any date must be in a minimum aggregate principal amount of $1,500,000.
(b) Loans shall be made ratably by the Lenders in accordance with their
respective Revolving Credit Commitments; provided, however, that the failure of
any Lender to make any Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder.
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<PAGE>
(c) Each Loan shall be either a Prime Rate Loan or a Eurodollar Loan as the
Borrower may request pursuant to Section 2.03 hereof. Each Lender may fulfill
its obligations under this Agreement by causing its Applicable Lending Office to
make such Loan; provided that the exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
the applicable Note. Loans of more than one type and Interest Period may be
outstanding at the same time.
(d) Subject to the provisions of paragraph (e) below, each Lender shall
make its Revolving Credit Loans on the proposed dates thereof by paying the
amount required to the Agent in Melville, New York in immediately available
funds not later than 12:00 noon (or one hour after First Union and EAB are both
notified of the request for such Loan, whichever is later), New York City time,
and the Agent shall as soon as practicable, but in no event later than 3:00
p.m., New York City time, credit the amounts so received to the general deposit
account of the Borrower with the Agent in immediately available funds or, if
Loans are not to be made on such date because any condition precedent to a
borrowing herein specified is not met, return the amounts so received to the
respective Lenders.
(e) The Borrower shall, with respect to any Loan, have the right at any
time upon prior irrevocable written, telex or facsimile notice to the Agent
given in the manner and at the times specified in Section 2.03 hereof with
respect to the Loans into which conversion or continuation is to be made, to
convert all or any portion of Eurodollar Loans into Prime Rate Loans, to convert
all or any portion of Prime Rate Loans into Eurodollar Loans (specifying the
Interest Period to be applicable thereto), to convert the Interest Period with
respect to all or any portion of any Eurodollar Loan to be continued as such to
another permissible Interest Period on the last day of such Interest Period
(effective the following day), and to continue all or any portion of any Loans
into a subsequent Interest Period of the same duration, subject to the terms and
conditions of this Agreement and to the following:
(i) in the case of a conversion or continuation of fewer than all the
Loans, the aggregate principal amount of (x) any portion of a Eurodollar Loan
converted into an Prime Rate Loan shall not be less than $400,000 and in
integral multiples of $100,000 in excess thereof; provided, however, that the
remaining portion of such Eurodollar Loan shall not be less than $1,500,000, (y)
any portion of a Eurodollar Loan continued shall not be less than $1,500,000 and
(z) all or any portion of an Prime Rate Loan converted into a Eurodollar Loan
shall not be less than $1,500,000 and in integral multiples of $100,000 in
excess thereof;
(ii) each conversion shall be effected by each Lender by applying the
proceeds of the new Loan to the Loan (or portion
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thereof) being converted; accrued interest on a Eurodollar Loan (or portion
thereof) being converted or continued shall be paid by the Borrower at the time
of conversion or continuation;
(iii) if any Eurodollar Loan is converted at any time other than the
end of an Interest Period applicable thereto, the Borrower shall make such
payments associated therewith as are required pursuant to Section 2.13 hereof;
(iv) any portion of the Revolving Credit Loan which is subject to an
Interest Period ending on a date that is less than one month prior to the
Revolving Credit Termination Date may not be converted into, or continued as, a
Eurodollar Loan and shall be automatically converted at the end of such Interest
Period into an Prime Rate Loan; and
(v) no Default or Event of Default shall have occurred and be
continuing.
The Interest Period applicable to any Eurodollar Loan resulting from a
conversion shall be specified by the Borrower in the irrevocable notice of
conversion delivered pursuant to this Section; provided, however, that if no
such Interest Period shall be specified, the Borrower shall be deemed to have
selected an Interest Period of three months' duration. If the Borrower shall not
have given timely notice to continue any Eurodollar Loan into a subsequent
Interest Period (and shall not otherwise have given notice to convert such
Loan), such Loan (unless repaid or required to be repaid pursuant to the terms
hereof) shall, subject to (iv) and (v) above, automatically be continued into a
new Interest Period of three months, duration. The Agent shall promptly advise
the Lenders of any notice given pursuant to this Section and of each Lender's
portion of the continuation or conversion hereunder.
SECTION 2.03. Notice of loans. The Borrower will give the Agent irrevocable
telephonic notice (immediately confirmed in writing) of each borrowing
(including, without limitation, a refinancing or conversion as permitted by
Section 2.02(e) hereof) not later than (i) in the case of Eurodollar Loans,
12:00 noon (New York City time) two Business Days before a proposed borrowing
and (ii) in the case of Prime Rate Loans, 12:00 noon (New York City time) on the
Business Day of the proposed borrowing or conversion. Such notice shall specify
(w) whether the Loans then being requested are to be Prime Rate Loans or
Eurodollar Loans, (x) the date of such borrowing (which shall be a Business Day)
and the amount thereof and (y) if such Loans are to be Eurodollar Loans, the
Interest Period with respect thereto. If no election as to the type of Loan is
specified in any such notice, all such Loans shall be Prime Rate Loans. If no
Interest Period with respect to any Eurodollar Loan is specified in any such
notice, then an Interest Period of three months, duration shall be deemed to
have been selected. The Agent
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<PAGE>
shall promptly advise (but in any event, by 2:00 p.m., New York City time, two
Business Days before a Eurodollar Loan or by 12:30 p.m., New York City time, on
the same Business Day in the case of an Prime Rate Loan) the Lenders of any
notice given pursuant to this Section 2.03 and of each Lender's portion of the
requested borrowing.
SECTION 2.04. Note; Repayment of Loans (a) All Revolving Credit Loans made
by a Lender shall be evidenced by a single Revolving Credit Note, duly executed
on behalf of Borrower, dated the Closing Date, in substantially the form of
Exhibit A hereto, delivered and payable to such Lender in a principal amount
equal to its Revolving Credit Commitment in respect of the Borrower on such
date.
(b) The outstanding principal balance of each Revolving Credit Loan, as
evidenced by any such Revolving Credit Note, shall mature and be due and payable
on the Revolving Credit Termination Date. Each Revolving Credit Note shall bear
interest from its date on the outstanding principal balance thereof, as provided
in Section 2.05 hereof.
(c) Each Lender shall, and is hereby authorized by Borrower to, endorse on
the schedule attached to the Revolving Credit Note of such Lender (or on a
continuation of such schedule attached to such Note and made a part thereof) an
appropriate notation evidencing the date and amount of each Loan to Borrower
from such Lender, as well as the date and amount of each payment and prepayment
with respect thereto; provided, however, that the failure of any person to make
such a notation on a Note shall not affect any obligations of Borrower under
such Note. All advances and payments made pursuant to this Agreement and the
other Loan Documents may be recorded by each Lender on its books and records,
and such books and records shall be conclusive as to the existence and amounts
thereof absent manifest error.
SECTION 2.05. Interest on Loans. (a) Interest on each Loan shall be payable
in arrears on each applicable Interest Payment Date, on the Revolving Credit
Termination Date and on demand, after maturity by acceleration or otherwise.
Interest on each Prime Rate Loan and Eurodollar Loan shall be computed based on
the number of days elapsed in a year of 360 days. The Agent shall determine each
interest rate applicable to the Loans and shall promptly advise the Borrower and
the Lenders of the interest rate so determined.
(b) It is the intention of the Lenders and the Borrower that the interest
(as defined under applicable law) on the Loans, Letter of Credit advances and
Acceptance Drafts that may be charged to, collected from or received from the
Borrower shall not exceed the maximum rate permissible under applicable law.
Accordingly, anything in this Agreement, any Note or any other Loan Document to
the contrary notwithstanding, in the event any interest (as so
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defined) is charged to, collected from or received from the Borrower by the
Lenders pursuant hereto or thereto in excess of such maximum lawful rate, then
the excess of such payment over that maximum shall be applied to the reduction
of the outstanding principal balance of the Loans and the other obligations
(without any prepayment premium or penalty), and any portion of such excess
payment remaining after payment and satisfaction in full of the Obligations
shall be returned by the Lenders to the Borrower.
SECTION 2.06. Rate Adjustments The (a) LIBOR Margin as determined pursuant
to the grid below (the "LIBOR Margin") for Revolving Credit Loans, (b) Standby
Letter of Credit Commission (as defined in Section 3.06) for standby Letters of
Credit and (c) Acceptance Draft Commission (as defined in Section 3.08) for
Acceptance Drafts shall be adjusted on a quarterly basis based upon the Leverage
Ratio of the Borrower and its subsidiaries on a Consolidated basis. On the
Closing Date, the applicable LIBOR Margin, Standby Letter of Credit Commission
and Acceptance Draft Commission shall be .75%, .875%, and .75%, respectively,
and thereafter for each fiscal quarter commencing with the fiscal quarter ending
June 30, 1996 shall be determined pursuant to the grid below (the "Pricing
Grid") for the periods and at the Leverage Ratio Levels (the "Leverage Ratio
Levels") indicated on the Pricing Grid.
<TABLE>
<CAPTION>
==================================================================================================
Leverage Ratio Leverage Ratio Leverage Ratio
Level 1 Level 2 Level 3
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIBOR Margin .75% 1.00% 1.25%
- --------------------------------------------------------------------------------------------------
Standby Letter of .875% 1.125% 1.375%
Credit
- --------------------------------------------------------------------------------------------------
Acceptance Draft .75% 1.00% 1.25%
Commission
==================================================================================================
==================================================================================================
Leverage Ratio Leverage Ratio Leverage Ratio
Level 1 Level 2 Level 3
- --------------------------------------------------------------------------------------------------
Closing Date - 9/29/97 Leverage Ratio is less Leverage Ratio is Leverage Ratio is equal
than or equal to 1.75:1 greater than 1.75:1 to or greater than
but less than l.90:1 1.90:1
- --------------------------------------------------------------------------------------------------
9/30/97 and thereafter Leverage Ratio is less Leverage Ratio is Leverage Ratio is equal
than or equal to 1.65:1 greater than 1.65:1 to or greater than
but less than 1.80:1 1.80:1
==================================================================================================
</TABLE>
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<PAGE>
Provided that no Event of Default shall have occurred and be continuing, such
adjustments, if applicable, (i) shall become effective (and shall pertain, as
appropriate, to each new Eurodollar Loan funded, each new standby Letter of
Credit issued and each new Acceptance Draft created thereafter) five (5)
Business Days after the receipt by the Agent and the Lenders of the financial
statements and certificates required to be delivered pursuant to Sections
6.05(a), (b) and (d) hereof, as applicable, together with a certificate signed
by a Financial Officer of the Borrower demonstrating the calculation of the
Leverage Ratio, all such statements and certificates to be in form and substance
satisfactory to the Agent and the Lenders, and (ii) shall remain in effect until
five (5) Business Days after the receipt by the Agent and the Lenders of the
applicable financial statements and certificates for the succeeding fiscal
period; provided, however, that if such financial statements together with such
certificates are not submitted to the Agent and the Lenders pursuant to this
Section 2.06 and Section 6.05 hereof, the applicable LIBOR Margin, Standby
Letter of Credit Commission and Acceptance Draft Commission shall be those
provided for at Leverage Ratio Level 3 above.
The LIBOR Margin, Standby Letter of Credit Commission and Acceptance Draft
Commission shall be calculated on the basis of the actual number of days elapsed
in a year of 360 days.
SECTION 2.07. Commitment and Other Fees. (a) The Borrower shall pay each
Lender, through the Agent, on each January 1, April 1, July 1 and October 1, and
on the Revolving Credit Termination Date, in immediately available funds, a
commitment fee (the "Revolving Credit Commitment Fee") of .1875% per annum on
the daily unused amount of the Revolving Credit Commitment of such Lender (it
being understood that for purposes of calculating such unused amount, the unused
amount of such Lender's Revolving Credit Commitment shall be reduced by an
amount equal to such Lender's pro rata share of the Letter of Credit Exposure
and Acceptance Draft Exposure), during the quarter (or shorter period commencing
with the date hereof or ending with the Revolving Credit Termination Date)
ending on such date. The commitment fees due to each Lender under this Section
2.07(a) shall commence to accrue on the date hereof and cease to accrue on the
earlier of (i) the Revolving Credit Termination Date and (ii) the termination of
the Revolving Credit Commitment of such Lender pursuant to Section 2.08 hereof.
(b) All fees under this Section 2.07 shall be calculated on the basis of
the actual number of days elapsed in a year of 360 days.
SECTION 2.08. Termination and Reduction of Revolving Credit Commitments.
(a) Upon at least three Business Days prior irrevocable written, telex or
facsimile notice to the Agent, the Borrower may at any time in whole permanently
terminate, or from time to time in part
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<PAGE>
permanently reduce, the Total Revolving Credit Commitment, ratably among the
Lenders in accordance with the amounts of their respective Revolving Credit
Commitments. Each partial reduction of the Total Revolving Credit Commitment
shall be in a minimum of $1,000,000 and an integral multiple of $1,000,000.
(b) Simultaneously with any termination or reduction of the Total Revolving
Credit Commitment pursuant to paragraph (a) of this Section 2.08, the Borrower
shall pay to each Lender, through the Agent, the Revolving Credit Commitment Fee
on the amount of the Revolving Credit Commitment of such Lender so terminated or
reduced owed to the date of such termination or reduction.
SECTION 2.09. Interest on Overdue Amounts; Alternate Rate of Interest. (a)
If Borrower shall default in the payment of the principal of or interest on any
Loan or any other amount becoming due hereunder, by acceleration or otherwise,
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on such defaulted amount up to the date of actual payment (after as well
as before judgment) at a rate per annum equal to the Prime Rate plus 3%.
(b) In the event, and on each occasion, that on the day two Business Days
prior to the commencement of any Interest Period for a Eurodollar Loan the Agent
shall have determined that dollar deposits in the amount of each Eurodollar Loan
are not generally available in the London interbank market, or that the rate at
which dollar deposits are being offered will not adequately and fairly reflect
the cost to any Lender of making or maintaining such Eurodollar Loan during such
Interest Period, or that reasonable means do not exist for ascertaining the
Eurodollar Rate, the Agent shall as soon as practicable thereafter give written,
telex or facsimile notice of such determination to the Borrower and the Lenders,
and any request by Borrower for the making of a Eurodollar Loan pursuant to
Section 2.03 hereof or conversion or continuation of any Loan into a Eurodollar
Loan pursuant to Section 2.02(e) hereof shall, until the circumstances giving
rise to such notice no longer exist, be deemed to be a request for an Prime Rate
Loan except to the extent that the Borrower shall have notified the Agent in
writing that it does not desire such notice to be deemed as a request for an
Prime Rate Loan (in which case such notice shall be deemed to be cancelled).
Each determination by the Agent made hereunder shall be conclusive absent
manifest error.
(c) After notice from the Lenders during the continuance of any Event of
Default prior to maturity, and at all times on or after maturity, the Borrower
shall pay to the Lenders additional fees respecting the Letters of Credit and
Acceptance Drafts (in each case computed on the basis of the actual number of
days elapsed and a year of 360 days) outstanding from time to time during such
period(s) at a rate equal to 3.00% per annum, which
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<PAGE>
amounts shall be payable by the Borrower in addition to the regular interest
payments, Letter of Credit fees and Acceptance Draft discounts required under
this Agreement, and shall be paid at the same times as the regular interest
payments on the Loan required pursuant to this Agreement, subject, however, to
the maximum rate permissible by applicable law as provided in Section 2.05(d).
SECTION 2.10. Prepayment of Loans. (a) subject to the terms and conditions
contained in this Section 2.10 and elsewhere in this Agreement, Borrower shall
have the right to prepay any Loan at any time in whole or from time to time in
part; provided, however, that each such partial prepayment of a Loan shall be in
an integral multiple of $250,000 and in the case of a Eurodollar Loan shall
occur only on the last day of an Interest Period.
(b) Without limiting the generality of the first sentence of paragraph (c)
below, on the date of any termination or reduction of the Total Revolving Credit
Commitment pursuant to Section 2.08(a) hereof, Borrower shall pay or prepay so
much of the Revolving Credit Loans as shall be necessary in order that the
Availability equals or exceeds zero following such termination or reduction. Any
prepayments required by this paragraph (b) shall be applied to outstanding Prime
Rate Loans up to the full amount thereof before they are applied to outstanding
Eurodollar Loans.
(c) Borrower shall make prepayments of the Revolving Credit Loans from time
to time such that the Availability equals or exceeds zero at all times. Any
prepayments required by this paragraph (c) shall be applied to outstanding Prime
Rate Loans up to the full amount thereof, to outstanding Eurodollar Loans
(provided that no such prepayment shall be required until the last day of the
Interest Period with respect thereto so long as an amount equal to such
prepayment is deposited by the Borrower into a cash collateral account with the
Agent to be held in such account pursuant to terms satisfactory to the Required
Lenders) and then as cash collateral for outstanding Letters of Credit and
Acceptance Drafts up to the full amount of the Letter of Credit Exposure and
Acceptance Draft Exposure then existing, such cash collateral to be held by the
Agent on terms and pursuant to documents satisfactory in all respects to the
Required Lenders.
(d) When making a prepayment, whether mandatory or otherwise, pursuant to
paragraph (a) or (b) above, the Borrower shall furnish to the Agent, not later
than 12:00 noon (New York City time) on the day of such prepayment (or in the
case of Eurodollar Loans five Business Days prior to the date of such
prepayment), a written, telex or facsimile (or telephonic, promptly confirmed in
writing) notice of prepayment which shall specify the prepayment date and the
principal amount of each Loan (or portion thereof) to be prepaid, which notice
shall be irrevocable and shall commit the Borrower to prepay such Loan by the
amount stated therein on the
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date stated therein. All prepayments shall be accompanied by accrued interest on
the principal amount being prepaid to the date of prepayment.
(e) All prepayments and other payments made pursuant to this Agreement
shall be subject to Section 2.13 hereof, whether as a result of the provisions
of this Agreement, miscalculation, consent of the Lenders, change in
circumstance, acceleration of the obligations or otherwise.
(f) Except as otherwise expressly provided in this Section 2.10, payments
with respect to any paragraph of this Section 2.10 are in addition to payments
made or required to be made under any other paragraph of this Section 2.10 or
any provision of this Agreement or any other Loan Document.
SECTION 2.11. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
(or in the case of any assignee, the date of assignment) any change in
applicable law or regulation or in the interpretation or administration thereof
by any governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law) shall: (i) subject the Agent or
any Lender (which shall for the purpose of this Section include any assignee or
lending office of the Agent or any Lender) to any tax with respect to any amount
paid or to be paid by either the Agent or any Lender with respect to any
Eurodollar Loans made by a Lender to Borrower (other than (x) taxes imposed on
the overall net income of the Agent or such Lender and (y) franchise taxes
imposed on the Agent or such Lender, in either case by the jurisdiction in which
such Lender or the Agent has its principal office or its lending office with
respect to such Eurodollar Loan or any political subdivision or taxing authority
of either thereof); (ii) change the basis of taxation of payments to any Lender
or the Agent of the principal of or interest on any Eurodollar Loan or any other
fees or amounts payable hereunder (other than taxes imposed on the overall net
income of such Lender or the Agent by the jurisdiction in which such Lender or
the Agent has its principal office or by any political subdivision or taxing
authority therein); (iii) impose, modify or deem applicable any reserve, special
deposit or similar requirement (other than any change by way of imposition or
increase of reserve requirements, in the case of Eurodollar Loans, included in
the Eurodollar Reserves used to calculate any then applicable Adjusted
Eurodollar Rate) against assets of, deposits with or for the account of, or
loans or loan commitments extended by, such Lender; or (iv) impose on any Lender
or the London interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender; and the result of any of the foregoing
shall be to increase the cost to any such Lender of making or maintaining any
Eurodollar Loan, or to reduce the amount of any payment (whether of principal,
interest or
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<PAGE>
otherwise) receivable by such Lender or to require such Lender to make any
payment in respect of any Eurodollar Loan, then Borrower shall pay to such
Lender or the Agent, as the case may be, upon such Lender's or the Agent's
demand, such additional amount or amounts as will compensate such Lender or the
Agent for such additional costs or reduction. The Agent and each Lender agree to
give notice to the Borrower and the Agent of any such change in law, regulation,
interpretation or administration with reasonable promptness after becoming
actually aware thereof and of the applicability thereof to the Transactions.
Notwithstanding anything contained herein to the contrary, nothing in clauses
(i) or (ii) of this Section 2.11(a) shall be deemed to (x) permit the Agent or
any Lender to recover any amount thereunder which would not be recoverable under
Section 2.16 hereof or (y) require the Borrower to make any payment of any
amount to the extent that such payment would duplicate any payment made by the
Borrower pursuant to Section 2.16 hereof.
(b) If, after the date of this Agreement, any Lender shall have determined
that the adoption of any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its lending office) with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or will have the effect of reducing the
rate of return on such Lender's capital as a consequence of its obligations
hereunder to a level below that which such Lender could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) then from time to time, Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction. Each Lender agrees to give notice to Borrower
and the Agent of any adoption of, change in, or change in interpretation or
administration of, any such law, rule, regulation or guideline with reasonable
promptness after becoming actually aware thereof and of the applicability
thereof to the Transactions.
(c) A statement of each Lender or the Agent setting forth such amount or
amounts, supported by calculations in reasonable detail, as shall be necessary
to compensate such Lender (or the Agent) as specified in paragraphs (a) and (b)
above shall be delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay each Lender or the Agent the amount shown as due
on any such statement within 10 days after its receipt of the same.
(d) Failure on the part of any Lender or the Agent to demand compensation
for any increased costs, reduction in amounts received or receivable with
respect to any Interest Period or reduction in
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<PAGE>
the rate of return earned on such Lender's capital, shall not constitute a
waiver of such Lender's or the Agent's rights to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
rate of return in such Interest Period or in any other Interest Period. The
protection under this Section 2.11 shall be available to each Lender and the
Agent regardless of any possible contention of the invalidity or inapplicability
of any law, regulation or other condition which shall give rise to any demand by
such Lender or the Agent for compensation.
(e) Any Lender claiming any additional amounts payable pursuant to this
Section 2.11 agrees to use reasonable efforts (consistent with legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such a designation would avoid the need for, or reduce the amount
of, any such additional amounts and would not, in the reasonable judgment of
such Lender, be otherwise disadvantageous to such Lender.
SECTION 2.12. Change in Lega1ity. (a) Notwithstanding anything to the
contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations to
make Eurodollar Loans as contemplated hereby, then, by written notice to
Borrower and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon the Borrower shall be prohibited from requesting
Eurodollar Loans from such Lender hereunder unless such declaration is
subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans, as the case may
be, made by it be converted to Prime Rate Loans, in which event (A) all such
Eurodollar Loans shall be automatically converted to Prime Rate Loans as of the
effective date of such notice as provided in paragraph (b) below and (B) all
payments of principal which would otherwise have been applied to repay the
converted Eurodollar Loans shall instead be applied to repay the Prime Rate
Loans resulting from the conversion of such Eurodollar Loans.
(b) For purposes of section 2.12(a) hereof, a notice to the Borrower by any
Lender shall be effective, if lawful, on the last day of the then current
Interest Period or, if there are then two or more current Interest Periods, on
the last day of each such Interest Period, respectively; otherwise, such notice
shall be effective with respect to Borrower on the date of receipt by Borrower.
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SECTION 2.13. Indemnity. Borrower shall indemnify each Lender against any
loss or reasonable expense sustained or incurred or to be sustained or incurred
in liquidating or employing deposits from third parties acquired to effect or
maintain any Loan or part thereof as a Eurodollar Loan or maintain any
Acceptance Draft which such Lender may sustain or incur as a consequence of the
following events (regardless of whether such events occur as a result of the
provisions of this Agreement, the consent of the Lenders, the occurrence of an
Event of Default or the exercise of any right or remedy of the Agent or the
Lenders under this Agreement, any other Loan Document or applicable law): any
failure of Borrower to fulfill on the date of any borrowing hereunder the
applicable conditions set forth in Article V applicable to it, any failure of
Borrower to borrow hereunder after irrevocable notice of borrowing pursuant to
Section 2.03 hereof has been given, any payment, prepayment or conversion of a
Eurodollar Loan on a date other than the last day of the relevant Interest
Period, any repayment of an Acceptance Draft on a date prior to its maturity,
any default in payment or prepayment of the principal amount of any Eurodollar
Loan or Acceptance Draft or any part thereof or interest accrued thereon, as and
when due and payable (at the due date thereof, by irrevocable notice of
prepayment or otherwise). Such loss or reasonable expense respecting Eurodollar
Loans shall include, without limitation, an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the principal amount
so paid, prepaid or converted or not borrowed for the period from the date of
such payment, prepayment or conversion or failure to borrow to the last day of
the Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow), at the applicable rate of interest for such Loan provided
for herein over (ii) the redeployment rate (bid side) of the Agent for
Eurodollar Loans with comparable maturities for comparable periods. Any such
Lender shall provide to Borrower and the Agent a statement, signed by an officer
of such Lender, explaining any loss or expense and setting forth, if applicable,
the computation pursuant to the preceding sentence, and such statement shall be
conclusive absent manifest error. Borrower shall pay such Lender the amount
shown as due on any such statement within 10 days after the receipt of the same.
SECTION 2.14. Pro Rata Treatment. (a) Except as permitted under Section
2.12 hereof, and except for any payment, reimbursement or other indemnity to any
Lender or other indemnified person under Section 2.11, 2.12, 2.13, 2.16, 3.04,
3.05, or 11.04 hereof, each borrowing, each payment or prepayment of principal
of the Notes, each payment of interest on the Notes, each payment of any fee or
other amount payable hereunder and each reduction of the Total Revolving Credit
Commitment shall be made pro rata among the Lenders in the proportions that
their Revolving Credit Commitments bear to the Total Revolving Credit
Commitment.
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(b) Unless the Agent shall have been notified in writing by any Lender
prior to the time the Lender is required to fund any proposed borrowing that
such Lender will not make the amount that would constitute its pro rata share of
the borrowing on such date available to the Agent, the Agent may (assuming that
the Agent has furnished such Lender with notice of the proposed borrowing as
required under Section 2.03 hereof) assume that such Lender has made such amount
available to the Agent on such date, and the Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is made available by such Lender to the Agent on a date after such
borrowing date, such Lender shall pay to the Agent on demand an amount equal to
the product of (i) the daily average Federal funds rate during such period as
quoted by the Agent, times (ii) the amount of such Lender's pro rata share of
such borrowing, times (iii) a fraction the numerator of which is the number of
days that elapse from and including such borrowing date to the date on which
such Lender's pro rata share of such borrowing shall have become immediately
available to the Agent and the denominator of which is 360. A certificate of the
Agent submitted to any Lender with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error. If such
Lender's pro rata share of such borrowing is not in fact made available to the
Agent by such Lender within three Business Days of such borrowing date, the
Agent shall be entitled to recover such amount with interest thereon at the rate
per annum applicable to the relevant Loans hereunder, on demand, from the
Borrower.
SECTION 2.15. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
Borrower or Guarantor, including, but not limited to, a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, obtain
payment (voluntary or involuntary) in respect of a Note held by it as a result
of which the unpaid principal portion of the Notes held by it shall be
proportionately less than the unpaid principal portion of the Notes held by any
other Lender, it shall be deemed to have simultaneously purchased from such
other Lender a participation in the Notes held by such other Lender with the
purchase price payable in cash upon demand by such other Lender, so that the
aggregate unpaid principal amount of the Notes and participations in Notes held
by it shall be in the same proportion to the aggregate unpaid principal amount
of all Notes then outstanding as the principal amount of the Notes held by it
prior to such exercise of banker's lien, setoff or counterclaim was to the
principal amount of all Notes outstanding prior to such exercise of banker's
lien, setoff or counterclaim; provided, however, that if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.15 and such
other Lender shall
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thereafter receive or recover from or respecting the Borrower or any Guarantor
any amount in respect of a Note proportionally greater than that received by the
first Lender, such purchase or purchases or adjustments shall be repurchased and
rescinded to the extent of such receipt or recovery and the purchase price or
prices paid or adjustments made shall be repaid or restored, as applicable,
without interest; provided, that, if such disproportionate amount received or
recovered by such other Lender exceeds the amount necessary to restore the
Lenders, respective pro rata shares, then this section shall apply to such
excess. The Borrower expressly consents to the foregoing arrangements and agrees
that any Lender holding a participation in a Note deemed to have been so
purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by Borrower to such Lender
as fully as if such Lender held a Note in the amount of such participation.
SECTION 2.16. Taxes. (a) Any and all payments by Borrower or any Guarantor
hereunder shall be made, in accordance with Section 2.17 hereof, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings in any such case imposed by the
United States or any political subdivision thereof, excluding:
(i) in the case of the Agent and each Lender, taxes imposed or based
on its net income, and franchise or capital taxes imposed on it, (A) if the
Agent or such Lender is organized under the laws of the United States or any
political subdivision thereof and (B) if the Agent or such Lender is not
organized under the laws of the United States or any political subdivision
thereof, and its principal office or Applicable Lending Office is located in the
United States, and in the case of both (A) and (B), withholding taxes payable
with respect to payments to the Agent or such Lender, in either case by any
jurisdiction in which it has at its principal office or Applicable Lending
Office under laws (including, without limitation, any treaty, ruling,
determination or regulation) in effect on the date hereof (or in the case of any
assignee, on the date of its assignment), but not any increase in withholding
tax resulting from any subsequent change in such laws (other than withholding
with respect to taxes imposed or based on its net income or with respect to
franchise or capital taxes),
(ii) taxes (including withholding taxes) imposed by reason of the
failure of the Agent or any Lender, in either case that is organized outside the
United States, to comply with Section 2.16(f) hereof (or the inaccuracy at any
time of the certificates, documents and other evidence delivered thereunder),
and
(iii) taxes (including withholding taxes) that would not have been
imposed on the Agent or any Lender but for a connection between such Agent or
Lender and the jurisdiction imposing such
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taxes (except to the extent that the liability for such taxes arises as a result
of the fact that such person is a party to this Agreement)
(all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If Borrower or any
Guarantor shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder to the Lenders or the Agent, (x) the sum payable shall be
increased by the amount necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.16) such Lender or the Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (y) Borrower or
such Guarantor shall make such deductions and (z) Borrower or such Guarantor
shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, Borrower and the Guarantors agree to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
(c) Borrower and the Guarantors will indemnify each Lender and the Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction (except as specified in clause
(a) (i), (ii) and (iii)) on amounts payable under this Section 2.16) paid by
such Lender or the Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be made within 30 days from the date such Lender or
the Agent (as the case may be) makes written demand therefor. If any Lender
receives a refund in respect of any Taxes or Other Taxes for which such Lender
has received payment from Borrower hereunder, such Lender shall promptly notify
Borrower of such refund and such Lender shall, within 30 days of receipt of a
request by Borrower, repay such refund to Borrower, provided that Borrower, upon
the request of such Lender, agrees to return such refund (plus any penalties,
interest or other charges) to such Lender in the event such Lender is required
to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes
withheld by a Borrower or Guarantor in respect of any payment to any Lender, the
Borrower will furnish to the Agent, at its address referred to in Section 11.01
hereof, such certificates, receipts and other documents as may be reasonably
required to evidence payment thereof.
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(e) without prejudice to the survival of any other agreement hereunder, the
agreements and obligations contained in this Section 2.16 shall survive the
payment in full of principal and interest hereunder.
(f) Each Lender that is organized outside of the United States shall
deliver to Borrower on the date hereof (or, in the case of an assignee, on the
date of the assignment) and from time to time as required for renewal under
applicable law duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 (or any successor or additional forms), as appropriate,
indicating in each case that such Lender is entitled to receive payments under
this Agreement without any deduction or withholding of any United States federal
income taxes. The Agent (if the Agent is an entity organized outside the United
States) and each Lender that is organized outside the United States shall
promptly notify Borrower and the Agent of any change in its Applicable Lending
office and upon written request of Borrower such Lender shall, prior to the
immediately following due date of any payment by Borrower or any Guarantor
hereunder, deliver to Borrower or such Guarantor, as the case may be (with
copies to the Agent), such certificates, documents or other evidence, as
required by the Code or Treasury Regulations issued pursuant thereto, including
without limitation Internal Revenue Service Form 4224, Form 1001 and any other
certificate or statement of exemption required by Treasury Regulation Section
1.1441-4(a) or Section 1.1441-6(c) or any subsequent version thereof, properly
completed and duly executed by such Lender establishing that such payment is (i)
not subject to withholding under the Code because such payment is effectively
connected with the conduct by such Lender of a trade or business in the United
States or (ii) totally exempt from United States tax under a provision of an
applicable tax treaty. The Borrower shall be entitled to rely on such forms in
their possession until receipt of any revised or successor form pursuant to this
Section 2.16(f). If the Agent or a Lender fails to provide a certificate,
document or other evidence required pursuant to this Section 2.16(f), then (i)
the Borrower shall be entitled to deduct or withhold on payments to the Agent or
such Lender as a result of such failure, as required by law, and (ii) the
Borrower shall not be required to make payments of additional amounts with
respect to such withheld Taxes pursuant to clause (x) of Section 2.16(a) hereof
to the extent such withholding is required solely by reason of the failure of
the Agent or such Lender to provide the necessary certificate, document or other
evidence.
(g) Each Lender and Agent shall use reasonable efforts to avoid or minimize
any amounts which might otherwise be payable pursuant to this Section 2.16
(including seeking refunds of any amounts that are reasonably believed not to
have been correctly or legally asserted); provided, however, that such efforts
shall not include the taking of any actions by such Lender or Agent that
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would result in any tax, costs or other expense to such Lender or Agent (other
than a tax, cost or other expense for which such Lender or Agent shall have been
reimbursed or indemnified by the Borrower pursuant to this Agreement or
otherwise) or any action which would or might in the reasonable opinion of such
Lender or Agent have an adverse effect upon its business, operations or
financial condition or otherwise be disadvantageous to such Lender or Agent.
SECTION 2.17. Payments and Computations. Except as otherwise provided
herein, the Borrower shall make each payment under this Agreement or any other
Loan Document no later than 1:00 p.m. (New York City time) on the day when due
in lawful money of the United States (in freely transferable dollars) to the
Agent at its offices at 300 Broad Hollow Road, Melville, New York 11747 for the
account of the Lenders, in immediately available funds. The Agent will
distribute promptly, and in any event no later than 5:00 p.m. (New York City
time) on the same day, to each Lender such Lender's share (computed in
accordance with the provisions of this Agreement) of each payment received by
the Agent.
III. LETTERS OF CREDIT AND ACCEPTANCES.
SECTION 3.01. Issuance of Letters of Credit. Upon the request of the
Borrower, and subject to the conditions set forth in Article V hereof and such
other conditions to the opening of Letters of Credit as the Agent requires of
its customers generally, the Agent shall from time to time issue documentary or
standby letters of credit (each, together with the letters of credit outstanding
on the date hereof and set forth on Schedule 3.01 annexed hereto, a "Letter of
Credit") for the account of the Borrower, provided that the face amount of any
Letter of Credit that the Borrower may request the Agent to open shall not
exceed the Availability outstanding at such time. The issuance of each Letter of
Credit shall be made on at least one (1) Business Day's prior written notice
from the Borrower to the Agent, at its Domestic Lending Office, which written
notice shall be an application for a Letter of Credit on the Agent's customary
form. The expiration date of any Letter of Credit shall not be later than one
(1) year from the date of issuance thereof nor, in any event, later than the
Revolving Credit Termination Date. The Letters of Credit shall be issued in
respect of any transactions occurring in the Borrower's ordinary course of
business.
SECTION 3.02. Payment in Respect of Letters of Credit; Reimbursement. Upon
the issuance of any Letter of Credit, the Agent shall notify each Lender of the
principal amount, the number, and the expiration date thereof and the amount of
such Lender's participation therein. By the issuance of a Letter of Credit
hereunder and without further action on the part of the Agent or the Lenders,
each Lender hereby accepts from the Agent a participation (which participation
shall
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be nonrecourse to the Agent) in such Letter of Credit equal to such Lender's pro
rata (based on its Revolving Credit Commitment) share of such Letter of Credit,
effective upon the issuance of such Letter of Credit. Each Lender hereby
absolutely and unconditionally assumes, as primary obligor and not as a surety,
and agrees to pay and discharge, and to indemnify and hold the Agent harmless
from liability in respect of, such Lender's pro rata share of the amount of any
drawing under a Letter of Credit. Each Lender acknowledges and agrees that its
obligation to acquire participation in each Letter of Credit issued by the Agent
and its obligation to make the payments specified herein, and the right of the
Agent to receive the same, in the manner specified herein, are absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including, without limitation, the occurrence and continuance of an Event of
Default hereunder, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever. The Agent shall review, on
behalf of the Lenders, each draft presented under a Letter of Credit and shall
notify each Lender of any such presentment. Promptly after it shall have
ascertained that any draft presented under such Letter of Credit appears on its
face to be in substantial conformity with the terms and conditions of the Letter
of Credit, the Agent shall give telephonic or facsimile notice to the Lenders
and the Borrower of the receipt and amount of such draft and the date on which
payment thereon will be made. The Borrower shall reimburse the Agent for the
amount specified in such notice by no later than 11:00 a.m. (New York City time)
on the date such payment is scheduled to be made. If the Borrower has not so
discharged such reimbursement obligations and the Agent is unable to recover the
required amount by debiting the Borrower's account (as hereinafter provided),
the Agent shall give each Lender notice of any amount that remains unreimbursed,
and each Lender shall promptly, but in any event within two hours of the receipt
of such notice, pay the amounts required to the Agent in Melville, New York in
immediately available funds, and the Agent, not later than 3:00 p.m. (New York
City time) on such day, shall make the appropriate payment to the beneficiary.
If the Lenders shall pay any draft presented under a Letter of Credit, then the
Agent, on behalf of the Lenders, shall charge the general deposit account of the
Borrower with the Agent for the amount thereof, together with the Agent's
customary overdraft or similar fee in the event the funds available in such
account shall not be sufficient to reimburse the Lenders for such payment. If
the Lenders have not been reimbursed with respect to such drawing as provided
above, the Borrower shall pay to, the Agent, for the account of the Lenders, the
amount of the drawing together with interest on such amount at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of 360
days) equal to the Prime Rate plus 3% payable on demand. The obligations of the
Borrower under this Section 3.02 to reimburse the Lenders and the Agent for all
drawings under Letters of Credit shall be absolute, unconditional and
irrevocable and
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shall be satisfied strictly in accordance with their terms, irrespective of:
(a) any lack of validity or enforceability of any Letter of Credit;
(b) the existence of any claim, setoff, defense or other right which the
Borrower or any other person may at any time have against the beneficiary under
the Letter of Credit, the Agent or any Lender (other than the defense of payment
in accordance with the terms of this Agreement or a defense not otherwise waived
hereunder based on the gross negligence or willful misconduct of the Agent or
any Lender) or any other person in connection with this Agreement or any other
transaction;
(c) any draft or other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; provided that
payment by the Agent or any Lender under such Letter of Credit against
presentation of such draft or document shall not have constituted gross
negligence or willful misconduct;
(d) payment by the Agent or any Lender under any Letter of Credit against
presentation of a draft or other document which does not comply with the terms
of such Letter of Credit; provided that such payment shall not have constituted
gross negligence or willful misconduct;
(e) the existence, character, quantity, quality, condition, packing, value
or delivery of any goods or other property relating to any Letter of Credit;
(f) the time, place, manner or order in which shipment is made;
(g) the provisions of any insurance policy or any act or omission of any
insurer, shipper, warehouseman, carrier, correspondent or other person;
(h) any other circumstance or event whatsoever, whether or not similar to
any of the foregoing; provided that such other circumstance or event shall not
have been the result of gross negligence or willful misconduct of the Agent or
any Lender.
It is understood that in making any payment under any Letter of Credit (x)
the Agent's and any Lender's exclusive reliance on the documents presented to it
under such Letter of Credit as to any and all matters set forth therein,
including, without limitation, good faith reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary
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equals the amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be insufficient in any respect, if
such document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be inaccurate
or untrue in any respect whatsoever and (y) any noncompliance in any immaterial
respect of the documents presented under such Letter of Credit with the terms
thereof shall, in each case, not be deemed willful misconduct or gross
negligence of the Agent or any Lender.
SECTION 3.03. Actions of Agent. Any Letter of Credit may, in the discretion
of the Agent or its correspondents, be interpreted by them (to the extent not
inconsistent with such Letter of Credit) in accordance with the Uniform Customs
and Practice for Documentary Credits of the International chamber of Commerce,
as adopted or amended from time to time, or any other rules, regulations and
customs prevailing at the place where any Letter of Credit is available or the
drafts are drawn or negotiated. The Agent and its correspondents may in good
faith accept and act upon the name, signature, or act of any party purporting to
be the executor, administrator, receiver, trustee in bankruptcy, or other legal
representative of any party designated in any Letter of Credit in the place of
the name, signature, or act of such party.
SECTION 3.04. Payments in Respect of Increased Costs. (a) Notwithstanding
any other provision herein, if after the date of this Agreement any change in
applicable law or regulation or in the interpretation or administration thereof
by any governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law), or any change in generally
accepted accounting principles or regulatory accounting principles applicable to
the Agent or any Lender, shall (i) impose, modify or make applicable to the
Agent or any Lender any reserve, special deposit or similar requirement with
respect to its obligations under this Article III or any Letter of Credit or
Acceptance Draft, (ii) impose on the Agent or any Lender any other condition
with respect to its obligations under this Article III or any Letter of Credit
or Acceptance Draft, or (iii) subject the Agent or any Lender to any tax (other
than (x) taxes imposed an the overall net income of the Agent or such Lender and
(y) franchise taxes imposed on the Agent or such Lender, in either case by the
jurisdiction in which the Agent or such Lender has its principal office or
lending office or any political subdivision or taxing authority of any such
jurisdiction), charge, fee, deduction or withholding of any kind whatsoever, and
the result of any of the foregoing shall be to increase the cost to the Agent or
such Lender of maintaining such Letter of Credit or Acceptance Draft or making
any payment under such Letter of Credit or Acceptance Draft or this Article III
or to reduce the amount of principal, interest or any fee or compensation
receivable by the Agent or such Lender in
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respect of this Article III or such Letter of Credit or Acceptance Draft, then
such additional amount or amounts as will compensate the Agent or such Lender
for such additional costs or reduction shall be paid to the Agent or such Lender
by the Borrower. Each Lender agrees to give notice to the Borrower and the Agent
of any such change in law, regulation, interpretation or administration with
reasonable promptness after becoming actually aware thereof and of the
applicability thereof to the transactions contemplated in this Article III.
(b) If, after the date of this Agreement, any Lender shall have determined
reasonably and in good faith that the adoption of any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its lending office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender's capital as
a consequence of its obligations under this Article III to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy) then from time to time, the Borrower shall pay to such Lender
such additional amount or amounts as will compensate the Agent or such Lender
for such reduction. Each Lender agrees to give notice to the Borrower and the
Agent of any adoption of, change in, or change in interpretation or
administration of, any such law, rule, regulation or guideline with reasonable
promptness after becoming actually aware thereof and of the applicability
thereof to the transactions contemplated hereby.
(c) A certificate of the Agent or a Lender setting forth such amount or
amounts, supported by calculations in reasonable detail, as shall be necessary
to compensate the Agent or such Lender as specified in paragraphs (a) and (b)
above shall be delivered to the Borrower and shall be conclusive and binding
upon the Borrower absent manifest error. The Borrower shall pay the Agent or
such Lender the amount shown as due on any such certificate within five (5)
Business Days after its receipt of the same. In the event that such Lender or
the Agent, as the case may be, determines that the Borrower has made a payment
pursuant to a statement that contains a manifest error, and further determines
that as a result thereof the Borrower has paid more than the amount necessary to
compensate such Lender or the Agent as specified in paragraphs (a) and (b)
above, such Lender or the Agent, as the case may be, shall promptly refund such
excess amount to the Borrower. In the event that such Lender or the Agent, as
the case may be, determines that it has received a refund of any additional
costs of the type described in paragraph (a) above, such Lender or the Agent, as
the case may be,
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shall promptly refund to the Borrower an amount (not to exceed the amount of the
refund received by such Lender or the Agent) equal to the amount of compensation
payments made by the Borrower pursuant to paragraph (a) above in respect of such
additional costs.
(d) Failure on the part of any Lender or the Agent to demand compensation
for any increased costs, reduction in amounts received or receivable with
respect to this Article III or any Letter of Credit or Acceptance Draft or
reduction in the rate of return earned on such Lender's capital, in each case
pursuant to paragraph (a) or (b) above, shall not constitute a waiver of the
Agent's or such Lender's rights to demand compensation for any increased costs
or reduction in amounts received or receivable or reduction in rate of return
pursuant to paragraph (a) or (b) above. The protection under this Section 3.04
shall be available to each Lender and the Agent regardless of any possible
contention of the invalidity or inapplicability of any law, regulation or other
condition which shall give rise to any demand by such Lender or the Agent for
compensation (but if such law, regulation or other condition is finally
determined to be invalid or inapplicable, the Agent or Lenders shall promptly
refund (without interest) all amounts paid under this Section 3.04 arising from
such invalid or inapplicable law, regulation or other condition).
SECTION 3.05. Indemnity as to Letters of Credit. The Borrower hereby agrees
to indemnify and hold harmless the Agent and the Lenders from and against any
and all claims, damages, losses, liabilities, costs or expenses whatsoever which
the Agent or the Lenders may incur or suffer by reason of or in connection with
the execution and delivery or assignment of, or payment under, any Letter of
Credit, except only if and to the extent that any such claim, damage, loss,
liability, cost or expense shall be caused by the willful misconduct or gross
negligence of the Agent or any Lender performing its obligations respecting such
Letter of Credit under this Agreement. Without limiting the foregoing, the
Borrower further agrees to indemnify and hold harmless the Agent, its officers
and directors, each person who controls the Agent within the meaning of Section
15 of the Securities Act of 1933 or any applicable state securities law and
their respective successors and assigns from and against any and all claims,
damages, losses, liabilities, costs or expenses, joint or several, to which they
or any of them may become subject under any federal or state securities law,
rule or regulation, at common law or otherwise, insofar as such claims, damages,
losses, liabilities, costs or expenses arise out of or are based upon the
execution and delivery by the Agent of any Letters of Credit or the execution
and delivery of any other document in connection therewith (but not including
any claims, damages, losses, liabilities, costs or expenses arising from the
gross negligence or willful misconduct of the Agent). The Borrower upon demand
by the Agent at any time, shall reimburse the Agent for any reasonable legal or
other expenses incurred in
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connection with investigating or defending against any of the foregoing. The
indemnities contained herein shall survive the expiration or termination of the
Letters of Credit and this Agreement.
SECTION 3.06. Letter of Credit Fees. The Borrower agrees to pay to the
Agent for the ratable benefit of the Lenders a letter of credit fee with respect
to (i) standby Letters of Credit, equal to the product of (A) the Standby Letter
of Credit Commission determined pursuant to the Pricing Grid contained in
Section 2.06 hereof (the "Standby Letter of Credit Commission") and (B) the face
amount of such standby Letter of Credit, which fee shall be paid at the time of
issuance of such standby Letter of Credit, and (ii) documentary Letters of
Credit, equal to 3/8% of the face amount thereof, which fee shall be paid at the
time such documentary Letter of Credit is negotiated or cancelled.
SECTION 3.07. Acceptance Drafts. (a) Upon the terms and conditions hereof,
the Borrower may, from time to time from the date hereof until the Revolving
Credit Termination Date, request the Lenders to accept drafts in the form of
Exhibit D (each an "Acceptance Draft" and, collectively, the "Acceptance
Drafts"), at the Borrower's election, provided that the face amount of any
Acceptance Draft that the Borrower may request the Agent to create shall not
exceed the Availability outstanding at such time.
(b) The Borrower shall give the Agent telephonic notice (immediately
confirmed in writing) of its request that the Agent accept such Acceptance Draft
no later than 1:00 p.m. (New York City time) on the same day of such request
(the "Acceptance Date"). Such notice shall contain the aggregate face amount
(which shall be in minimum aggregate principal amounts of $1,000,000 and in
integral multiples of $100,000 in excess thereof) and maturity date of such
Acceptance Draft, which maturity date shall not be later than the earlier of (a)
30, 60, 90 or 120 days after the Acceptance Date of such Acceptance Draft, as
Borrower shall designate, and (b) the Revolving Credit Termination Date. Such
notices also shall describe the underlying goods and indicate their origin and
destination points or provide other evidence of the underlying transaction in
form and substance as may be acceptable to the Agent (it being understood that
the form of notice attached hereto as Exhibit H is acceptable to the Agent) to
permit it to accurately complete the appropriate eligibility legend (i.e.,
"eligibility certificate") on the face of the Acceptance Draft. The Borrower
shall promptly confirm such telephonic notices by telecopy and mailing an
original signed notice. Each draft shall mature on a Business Day, which shall
be at least 30 days after the Acceptance Date. No Acceptance Draft shall be
dated or accepted more than 30 days before or more than 30 days after the date
of the shipment of goods to which it relates. The Borrower hereby irrevocably
authorizes the Agent to
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complete its Acceptance Draft in accordance with the instructions given pursuant
to this Section 3.07. Any pre-signed drafts held by the Agent for completion
shall not be affected by the departure of the signer as an authorized signatory
of the Borrower, which drafts shall nevertheless remain valid and binding upon
the Borrower for all purposes as if the signer's authority had continued in
effect. (Such completion and presentment, however, shall not obligate the Agent
to accept any such Acceptance Draft.)
(c) Upon receipt of such notices from the Borrower, the Agent shall
promptly notify each Lender of (i) its pro rata (based on its Revolving Credit
Commitment) share of such Acceptance Draft, (ii) the maturity date of such
Acceptance Draft and (iii) the Discount Rate and commission applicable to such
Acceptance Draft, which shall be computed in accordance with Section 3.08
hereof. The Agent may decline to create any such Acceptance Draft if the Agent
is not then providing such financing to its middle market customers with credit
standings similar to Borrower's.
(d) The Agent in its discretion at any time or from time to time may sell,
rediscount or otherwise dispose of any Acceptance Draft without any notice or
credit to or consent from the Borrower or any other Lender.
(e) Each Acceptance Draft shall relate to one or more specific transactions
involving the importation or exportation of goods or the domestic shipment of
goods within the United States. The goods relating to each Acceptance Draft
shall have a c.i.f. value equaling or exceeding the amount of the Acceptance
Draft, shall be of good and merchantable quality, shall be fully insured in
accordance with prudent industry practice and shall not be the subject of any
security interest granted by the Borrower or any subsidiary. No other source
shall have financed the transaction underlying the Acceptance Draft. The
Borrower shall have procured all import, export and other licenses essential to
the underlying transaction and shall have complied with all applicable laws
pertaining to the underlying goods and transaction. Each Acceptance Draft shall
qualify (upon acceptance) in all respects with the requirements for eligibility
for discount of the Federal Reserve Banks of the United States. With regard to
each Acceptance Draft presented, the Borrower represents and warrants to the
Agent and the Lenders that, as of the date of presentment, the Acceptance Draft
and underlying goods and transaction. conform to the requirements of this
subsection, and the Borrower covenants and agrees that they will continue to
conform to those requirements for so long as the. Acceptance Draft is
outstanding.
SECTION 3.08. Payment of Acceptances. The Agent shall notify each Lender of
the presentment to the Agent of any draft for acceptance hereunder, which notice
shall include the amount of such draft and the maturity date thereof. Upon the
acceptance of any Acceptance
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Draft, the Agent shall: (i) notify each Lender of the net proceeds thereof and
the amount of such Lender's participation therein (acquired pursuant to the
terms hereof) and (ii) credit the net proceeds thereof to the Borrower's account
maintained with the Agent for such purpose. Such net proceeds shall be in an
amount equal to the face amount of such Acceptance Draft less the applicable
discount and commission. Such discount and commission shall be calculated as the
product of (i) the face amount of such Acceptance Draft and (ii) the sum of (A)
the Discount Rate per annum of the Agent in effect on the Acceptance Date of
such Acceptance Draft, and (B) a commission rate per annum equal to the
applicable Acceptance Draft Commission determined pursuant to the Pricing Grid
contained in Section 2.06 hereof (the "Acceptance Draft Commission"). The
Discount Rate and applicable commission shall be calculated for each Acceptance
Draft on the basis of the actual number of days from the Acceptance Date to
maturity divided by 360. The funds, net of such discounts and commissions, so
credited to the Borrower's account shall be immediately available to the
Borrower, and the Agent shall promptly notify the Borrower as to the amount of
the net funds so credited. By acceptance of an Acceptance Draft and without
further action on the part of the Agent or the Lenders, each Lender hereby
accepts from the Agent a participation (which participation shall be nonrecourse
to the Agent) in such Acceptance Draft equal to such Lender's pro rata (based on
its Revolving Credit Commitment) share of such Acceptance Draft, effective upon
the issuance of such Acceptance Draft. Each Lender hereby absolutely and
unconditionally assumes, as primary obligor and not as a surety, and agrees to
pay and discharge, and to indemnify and hold the Agent harmless from liability
in respect of, such Lender's pro rata share of the amount of any payment of an
Acceptance Draft. Each Lender acknowledges and agrees that its obligation to
acquire participations in each Acceptance Draft accepted by the Agent and its
obligation to make the payments specified herein, and the right of the Agent to
receive the same, in the manner specified herein, are absolute and unconditional
and shall not be affected by any circumstance whatsoever, including, without
limitation, the occurrence and continuance of an Event of Default hereunder, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever. The Borrower shall reimburse the Agent for the amount
to be paid on such Draft no later than 11:00 a.m. (New York City time) on the
date such payment is scheduled to be made. If the Borrower has not so discharged
such reimbursement obligation and the Agent is unable to recover the required
amount by debiting the Borrower's account (as hereinafter provided), the Agent
shall give each Lender notice of any amount that remains unreimbursed, and each
Lender shall promptly, but in any event within two hours of receipt of such
notice, pay the amounts required to the Agent in Melville, New York in
immediately available funds. If the Lenders shall make any such payment upon the
maturity of an Acceptance Draft, then the Agent, on behalf of the Lenders, shall
charge the general deposit account
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of the Borrower with the Agent for the amount thereof, together with the Agent's
customary overdraft or similar fee in the event the funds available in such
account shall not be sufficient to reimburse the Lenders for such payment. If
the Lenders have not been reimbursed with respect to such payment as provided
above, the Borrower shall pay to the Agent, for the account of the Lenders, the
amount of the payment together with interest on such amount at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of 360
days) equal to the Prime Rate plus 3% payable on demand. The obligations of the
Borrower under this Section 3.08 to reimburse the Lenders and the Agent for all
payments made in respect of Acceptance Drafts shall be absolute, unconditional
and irrevocable and shall be satisfied strictly in accordance with their terms,
irrespective of:
(a) any lack of validity or enforceability of any Acceptance Draft;
(b) the existence of any claim, setoff, defense or other right which the
Borrower or any other person may at any time have against the beneficiary under
the Acceptance Draft, the Agent or any Lender (other than the defense of payment
in accordance with the terms of this Agreement or a defense not otherwise waived
hereunder based on the gross negligence or willful misconduct of the Agent or
any Lender) or any other person in connection with this Agreement or any other
transaction;
(c) any draft or other document presented in connection with any Acceptance
Draft proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect; provided
that acceptance of or payment by the Agent or any Lender of such Acceptance
Draft shall not have constituted gross negligence or willful misconduct;
(d) the existence, character, quantity, quality, condition, packing, value
or delivery of any goods or other property relating to any Acceptance Draft;
(e) the time, place, manner or order in which shipment is made;
(f) the provisions of any insurance policy or any act or omission of any
insurer, shipper, warehouseman, carrier, correspondent or other person;
(g) any other circumstance or event whatsoever, whether or not similar to
any of the foregoing; provided that such other circumstance or event shall not
have been the result of gross negligence or willful misconduct of any Agent or
any Lender.
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It is understood that in making any payment in respect of any Acceptance
Draft (x) the Agent's and any Lender's exclusive reliance on the documents
presented to it in connection with such Acceptance Draft as to any and all
matters set forth therein, including, without limitation, whether or not any
document presented pursuant to such Acceptance Draft proves to be insufficient
in any respect, if such document on its face appears to be in order, and whether
or not any other statement or any other document presented pursuant to such
Acceptance Draft proves to be forged or invalid or any statement therein proves
to be inaccurate or untrue in any respect whatsoever and (y) any noncompliance
in any immaterial respect of the documents presented in connection with such
Acceptance Draft with the terms thereof shall, in each case, not be deemed
willful misconduct or gross negligence of the Agent or any Lender.
SECTION 3.09. Ineligibility of Acceptance Drafts. In the event that any
Acceptance Draft accepted pursuant to this Agreement does not, for reasons
beyond the control of the Agent, comply at the time of its acceptance with
applicable regulations of the Board governing bankers' acceptances and would not
be eligible under such regulations for discount with a Federal Reserve lender or
if for any other reason any Acceptance Draft is deemed by the Agent not eligible
for discount, the Borrower will, upon receipt of written notice from the Agent,
forthwith pay to the Agent any additional cost or costs, as determined by the
Agent, incurred by the Agent (including, without limitation, any costs resulting
from a higher discount rate upon disposition of such Acceptance Draft by the
Agent, any funding costs resulting from a higher discount rate upon disposition
of such Acceptance Draft by the Agent, reserve requirements or additional
premium liability to the Federal Deposit insurance Corporation) in connection
with such Acceptance Draft on account of such noncompliance or ineligibility.
SECTION 3.10. Customary Fees. The Borrower agrees to pay to the Agent,
solely for the Agent's own account, upon demand, its customary fees, from time
to time in effect, in respect of Letters of Credit issued by the Agent. Such
fees shall include all amendment fees, fees in respect of the examination of
documents and fees for other administrative matters.
SECTION 3.11. Forms of Drafts. Prior to the first presentation of drafts
for acceptance hereunder the Borrower shall provide the Agent with a supply of
Acceptance Drafts, in the form of Exhibit D each signed and endorsed, where
appropriate, by a duly authorized officer of the Borrower. Upon request, the
Borrower shall furnish a further supply of such Acceptance Drafts to the Agent.
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IV. REPRESENTATIONS AND WARRANTIES.
Each of the Credit Parties represents and warrants to each of the Lenders
that:
SECTION 4.01. Organization, Legal Existence. Each Credit Party and each of
their subsidiaries are legal entities duly organized, validly existing and in
good standing under the laws of the jurisdiction of their respective
organization, have the requisite power and authority to own their property and
assets and to carry on their business as now conducted and as currently proposed
to be conducted and are qualified to do business in every jurisdiction where
such qualification is required (all such jurisdictions being listed in Schedule
4.01 hereto). Each of the Credit Parties has the corporate power to execute,
deliver and perform its obligations under this Agreement and the other Loan
Documents to which it is a party, and, in the case of the Borrower, to borrow
hereunder and to execute and deliver the Notes.
SECTION 4.02. Authorization. The execution, delivery and performance by
each of the Credit Parties of this Agreement and each of the other Loan
Documents to which it is a party, the borrowings hereunder by the Borrower and
the execution and delivery by the Borrower of the Notes (collectively, the
"Transactions") (a) have been duly authorized by all requisite corporate and, if
required, stockholder action and (b) will not (i) violate (A) any provision of
law, statute, rule or regulation or the certificate or articles of incorporation
or other applicable constitutive documents or the by-laws of the Credit Parties,
or their subsidiaries, as the case may be, (B) any order of any court, or any
rule, regulation or order of any other agency of government binding upon the
Credit Parties, or their subsidiaries, or (C) any provisions of any material
indenture, agreement or other instrument to which the Credit Parties, or their
subsidiaries, or any of their respective properties or assets are or may be
bound, (ii) be in conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under any material indenture,
agreement or other instrument referred to in (b) (i) (c) above or (iii) result
in the creation or imposition of any Lien of any nature whatsoever upon any
property or assets of the Credit Parties, or their subsidiaries.
SECTION 4.03. Governmental Approvals. No registration or filing with
consent or approval of, or other action by, any Federal, state or other
governmental agency, authority or regulatory body is or will be required in
connection with the Transactions, other than any which have been made or
obtained.
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SECTION 4.04. Binding Effect. This Agreement and each of the other Loan
Documents to which it is a party constitutes a legal, valid and binding
obligation of such Credit Party enforceable in accordance with its terms. Each
of the Notes, when duly executed and delivered, will constitute a legal, valid
and binding obligation of the Borrower enforceable in accordance with its terms
SECTION 4.05. No Default: Material Adverse Change. No Default or Event of
Default has occurred and is continuing. Except as set forth in Schedule 4.05
hereto, no event has occurred since September 30, 1995 that, individually or
when taken together with any other event(s), has had or could reasonably be
expected to have a Material Adverse Effect.
SECTION 4.06. Litigation; Compliance with Laws: Etc. (a) Except as set
forth in Schedule4.06(a) hereto, there are not any actions, suits or proceedings
at law or in equity or by or before any governmental instrumentality or other
agency or regulatory authority now pending or, to the knowledge of any
Responsible Officer of any Credit Party, threatened against or affecting the
Credit Parties or any of their subsidiaries or the businesses, assets or rights
of the Credit Parties or any of their subsidiaries (i) which involve any of the
Transactions or (ii) as to which it is probable (within the meaning of Statement
of Financial Accounting Standards No. 5) that there will be an adverse
determination and which, if adversely determined, could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
(b) Except as set forth in Schedule 4.06(1,) hereto, neither the Credit
Parties nor any of their subsidiaries is in violation of any law, or in default
with respect to any judgment, writ, injunction, decree, rule or regulation of
any court or governmental agency or instrumentality which violation and/or
default could reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect.
SECTION 4.07. Financial Statements. (a) The Borrower has heretofore
furnished to the Agent Consolidated balance sheets and statements of income and
cash flows of the Borrower and its subsidiaries dated as of September 30, 1995
and for the Fiscal Year then ended audited by and accompanied by the opinion of
independent public accountants. Such Consolidated balance sheets and statements
of income and cash flows present fairly the Consolidated financial condition and
results of operations of the Borrower and its subsidiaries as of the date and
for the period indicated, and such balance sheets and the notes thereto disclose
all material liabilities, direct or contingent, of the Borrower and its
subsidiaries, as of the date thereof. The financial statements referred to in
this Section 4.07(a) have been prepared in
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accordance with generally accepted accounting principles consistently applied.
(b) The Borrower has heretofore furnished to the Agent Consolidated balance
sheets and statements of income and cash flows of the Borrower and its
subsidiaries dated as of June 30, 1996 and for the nine (9) month period then
ended prepared by management of the Borrower. Such balance sheets and statements
of income and cash flows present fairly the Consolidated financial condition and
results of operations of Borrower and its subsidiaries as of the date and for
the period indicated, and such balance sheets and the notes thereto (if any)
disclose all material liabilities direct or contingent to the extent required to
be disclosed in accordance with generally accepted accounting principles, of the
Borrower and its subsidiaries, as of the date thereof. The financial statements
referred to in this Section 4.07(b) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
that they do not include all the footnote disclosure required by generally
accepted accounting principles for complete financial statements), subject to
normal year-end audit adjustments.
(c) The Borrower has heretofore furnished to the Agent comparative
consolidating balance sheets and statements of income of the Borrower and its
subsidiaries dated as of September 30, 1995 and for the Fiscal Year then ended
prepared by management of the Borrower and reported on by the independent public
accountants that audited the financial statements referred to in Section 4.07(a)
hereof in the Report of Independent Certified Public Accountants on
Supplementary Information accompanying the audited financial statements referred
to in Section 4.07(a) hereof. Such consolidating balance sheets and statements
of income present fairly the consolidating financial condition and results of
operations of the Borrower and its subsidiaries as of the date and for the
period indicated, and such balance sheets disclose all direct, material
liabilities of the Borrower and its subsidiaries, as of the date thereof. The
financial statements referred to in this Section 4.07(c) have been prepared in
accordance with generally accepted accounting principles consistently applied
(except that they do not include any of the footnote disclosure required by
generally accepted accounting principles for complete financial statements)
SECTION 4.08. Federal Reserve Regulations. (a) Neither the Credit Parties
nor any of their subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
(b) No part of the proceeds of the Loans will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to purchase
or carry Margin Stock
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or to extend credit to others for the purpose of purchasing or carrying Margin
Stock or to refund indebtedness originally incurred for such purpose, or (ii)
for any purpose which entails a violation of, or which is inconsistent with, the
provisions of the Regulations of the Board, including, without limitation,
Regulation G, T, U or X thereof. If requested by any Lender, the Credit Parties
or any of their subsidiaries shall furnish to such Lender a statement on Federal
Reserve Form U-1 referred to in said Regulation U.
SECTION 4.09. Taxes. Except as set forth in Schedule 4.09 hereto, the
Credit Parties and each of their subsidiaries have filed or caused to be filed
all Federal, state, local and foreign tax returns which are required to be filed
by them, on or prior to the date hereof, other than tax returns in respect of
taxes that (x) are not franchise, capital or income taxes, (y) in the aggregate
are not material and (z) would not, if unpaid, result in the imposition of any
material Lien on any property or assets of the Credit Parties or any of their
subsidiaries. Except as set forth in Schedule 4.09 hereto, the Credit Parties
and their subsidiaries have paid or caused to be paid all taxes shown to be due
and payable on such filed returns or on any assessments received by them, other
than (i) any taxes or assessments the validity of which such Credit Party or
such subsidiary is diligently contesting in good faith by appropriate
proceedings, and with respect to which such Credit Party or such subsidiary
shall, to the extent required by generally accepted accounting principles
consistently applied have set aside on its books adequate reserves and (ii)
taxes other than income, capital or franchise taxes that in the aggregate are
not material and which would not, if unpaid, result in the imposition of any
material Lien on any property or assets of the Credit Parties or any of their
subsidiaries. Except as set forth in Schedule 4.09 hereto, no Federal income tax
returns of the Credit Parties or any of their subsidiaries have been audited by
the United States Internal Revenue Service for any Fiscal Year since the Fiscal
Year ended September 30, 1994, and neither the Credit Parties nor any of their
subsidiaries has as of the date hereof requested or been granted any extension
of time to file any Federal, state, local or foreign tax return. Neither the
Borrower nor any of its subsidiaries is party to or has any obligation under any
tax sharing agreement.
SECTION 4.10. Employee Benefit Plans. (a) With respect to the provisions of
ERISA as to any Plan other than a multiemployer Plan and with respect to the
representations and warranties herein as made on the Closing Date solely for the
eight year period preceding the Closing Date:
(i) Except as disclosed in Schedule 4.10 hereto, no Reportable Event
has occurred or is continuing with respect to any Pension Plan.
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(ii) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) has occurred with respect to any Plan subject
to Part 4 of Subtitle B of Title I of ERISA.
(iii) Neither the Credit Parties nor any ERISA Affiliate is now, or
has been during the preceding five years, obligated to contribute to a Pension
Plan. Neither the Credit Parties nor any ERISA Affiliate has (A) ceased
operations at a facility so as to become subject to the provisions of Section
4062(e) of ERISA, (B) withdrawn as a substantial employer so as to become
subject to the provisions of Section 4063 of ERISA, (C) ceased making
contributions to any Pension Plan subject to the provisions of Section 4064(a)
of ERISA to which the Credit Parties, any subsidiary thereof or any ERISA
Affiliate made contributions or (D) been a party to any transaction or agreement
under which the provisions of Section 4204 of ERISA were applicable.
(iv) No notice of intent to terminate a Pension Plan has been filed,
nor has any Plan been terminated pursuant to the provisions of Section 4041(e)
of ERISA.
(v) The PBGC has not instituted proceedings to terminate (or appoint a
trustee to administer) a Pension Plan and no event has occurred or condition
exists which might constitute grounds under the provisions of Section 4042 of
ERISA for the termination of (or the appointment of a trustee to administer) any
such Plan.
(vi) With respect to each Pension Plan that is subject to the
provisions of Title I, Subtitle B, Part 3 of ERISA, the funding method used in
connection with such Plan is acceptable under ERISA, and the actuarial
assumptions and methods used in connection with funding such Pension Plan
satisfy the requirements of Section 302 of ERISA. The assets of each such
Pension Plan are at least equal to the present value of the greater of (i)
accrued benefits (both vested and non-vested) under such Plan, or (ii) "benefit
liabilities" (within the meaning of Section 4001(a) (16) of ERISA) under such
Plan, in each case as of the latest actuarial valuation date for such Plan
(determined in accordance with the same actuarial assumptions and methods as
those used by the Plan's actuary in its valuation of such Plan as of such
valuation date). No such Pension Plan has incurred any "accumulated funding
deficiency" (as defined in Section 412 of the Code), whether or not waived.
(vii) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Credit Parties or any
ERISA Affiliate, which could reasonably be expected to be asserted, against any
Plan or the assets of any such Plan which could reasonably be expected to have a
Material Adverse Effect. No civil or criminal action brought pursuant to
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the provisions of Title I, Subtitle B, Part 5 of ERISA is pending or threatened
against any fiduciary or any Plan. Except as disclosed in Schedule 4.10 hereto,
none of the Plans or any fiduciary thereof (in its capacity as such) has been
the direct or indirect subject of any audit or investigation by any governmental
or quasi-governmental agency.
(viii) All of the Plans comply currently, and have complied in the
past, both as to form and operation, with their terms and with the provisions of
ERISA and the Code, and all other applicable laws, rules and regulations; all
necessary governmental approvals for the Plans have been obtained and a
favorable determination as to the qualification under Section 401(a) of the Code
of each of the Plans which is an employee pension benefit plan (within the
meaning of Section 3(2) of ERISA) has been made by the Internal Revenue Service
and a recognition of exemption from federal income taxation under Section 501(a)
of the Code of each of the funded employee welfare benefit plans (within the
meaning of Section 3(1) of ERISA) has been made by the Internal Revenue Service,
and nothing has occurred since the date of each such determination or
recognition letter that would materially adversely affect such qualification.
(b) Except as set forth in Schedule 4.10, as at the Closing Date the Credit
Parties have not incurred or caused to occur a complete or partial withdrawal
from a Multiemployer Plan.
SECTION 4.11. No Material Misstatements. No information, report, financial
statement, exhibit or schedule prepared or furnished by or on behalf of any
Credit Party to the Agent or any Lender in connection with any of the
Transactions or this Agreement, the Notes or any other Loan Documents or
included therein contained or contains any material misstatement of fact or
omitted or omits to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 4.12. Investment Company Act; Public Utility Holding Company Act.
Neither the Credit Parties nor any of their subsidiaries is an "investment
company" as defined in, or is otherwise subject to regulation under, the
Investment Company Act of 1940. Neither the Credit Parties nor any of their
subsidiaries is a "holding company" as that term is defined in or is otherwise
subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 4.13. Use of proceeds. (a) All proceeds of the Credits to be
extended on the Closing Date shall be used first to refinance existing
Indebtedness under the Prior Credit Agreement and next, if requested by the
Borrower, to provide for the general working capital requirements of the Credit
Parties.
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(b) All proceeds of each Credit extended subsequent to the Closing Date
shall be used to provide for the general working capital requirements of the
Credit Parties, provided, however, up to $5,000,000 may be advanced by the
Borrower to Milgray Electronics/P.R., Inc. to enable such entity to purchase
Puerto Rican Securities.
SECTION 4.14. Subsidiaries and Affiliates. As of the Closing Date, Schedule
4.14 hereto sets forth each direct and indirect subsidiary and each Affiliate of
the Borrower and the other Credit Parties, its jurisdiction of incorporation,
its capitalization and each beneficial and record holder of capital stock of
each such subsidiary and Affiliate.
SECTION 4.15. Title to Properties; Possession Under Leases; Trademarks. (a)
The Credit Parties and each of their subsidiaries have good and marketable title
to, or valid leasehold interest in, all of their respective properties and
assets shown on the most recent balance sheet referred to in Section 4.07(a)
hereof and all assets and properties acquired since the date of such balance
sheet, except for such properties as are no longer used or useful in the conduct
of its business or as have been disposed of in the ordinary course of business,
and except for minor defects in title that do not interfere with the ability of
the Credit Parties or any of their subsidiaries to conduct its business as now
conducted. All such assets and properties are free and clear of all Liens other
than those permitted by Section 7.01 hereof.
(b) The Credit Parties and each of their subsidiaries have complied with
all obligations under all leases to which they are a party and under which they
are in occupancy, and all such leases are in full force and effect and the
Credit Parties and each of their subsidiaries enjoy peaceful and undisturbed
possession under all such leases.
(c) The Credit Parties and each of their subsidiaries own or control all
material trademarks, trademark rights, trade names, trade name rights,
copyrights, patents, patent rights and licenses which are necessary for the
conduct of the business of the Credit Parties and each of their subsidiaries.
Neither the Credit Parties nor any of their subsidiaries is infringing upon or
otherwise acting adversely to any of such trademarks, trademark rights, trade
names, trade name rights, copyrights, patent rights or licenses owned by any
other person or persons. There is no claim or action by any such other person
pending, or to the knowledge of any Responsible officer of the Credit Parties or
any subsidiary thereof, threatened, against the Credit Parties or any of their
subsidiaries with respect to any of the rights or property referred to in this
Section 4.15(c).
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SECTION 4.16. Permits, Etc. The Credit Parties and each of their
subsidiaries possess all licenses, permits, approvals and consents, including,
without limitation, all environmental, health and safety licenses, permits,
approvals and consents (collectively, "Permits") of all Federal, state, local
and foreign governmental authorities as required to conduct properly their
business, each such Permit is and will be in full force and effect, the Credit
Parties and each of their subsidiaries are in compliance in all material
respects with all such Permits, and no event (including, without limitation, any
violation of any law, rule or regulation) has occurred which allows the
revocation or termination of any such Permit or any restriction thereon.
SECTION 4.17. Compliance with Environmental Laws. Except as disclosed in
Schedule 4.17 hereto: (i) the operations of the Credit Parties and their
subsidiaries comply in all material respects with all applicable Environmental
Laws; (ii) the Credit Parties and their subsidiaries and all of their present
facilities or operations, as well as to the knowledge of the Credit Parties and
their subsidiaries their past facilities or operations, are not subject to any
judicial proceeding or administrative proceeding or any outstanding written
order or agreement with any governmental authority or private party respecting
(a) any Environmental Law, (b) any Remedial Work, or (c) any Environmental
Claims arising from the Release of a Contaminant into the environment; (iii) to
the best of the knowledge of the Credit Parties and their subsidiaries, none of
their operations is the subject of any Federal or state investigation evaluating
whether any Remedial Work is needed to respond to a Release of any Contaminant
into the environment in violation of any Environmental Law; (iv) neither the
Credit Parties nor any of their subsidiaries nor any predecessor of the Credit
Parties or any of their subsidiaries has filed any notice under any
Environmental Law indicating past or present treatment, storage, or disposal of
a Hazardous Material or reporting a spill or Release of a Contaminant into the
environment in violation of any Environmental Law; (v) to the best of the
knowledge of the Credit Parties and their subsidiaries, neither the Credit
Parties nor any of their subsidiaries has any contingent liability in connection
with any Release of any Contaminant into the environment; (vi) none of the
operations of the Credit Parties or any of their subsidiaries involves the
generation, transportation, treatment or disposal of Hazardous Materials; (vii)
neither the Credit Parties nor any of their subsidiaries has disposed of any
Contaminant by placing it in or on the ground or waters of any premises owned,
leased or used by any of them and to the knowledge of the Credit Parties and
their subsidiaries neither has any lessee, prior owner, or other person; (viii)
no underground storage tanks or surface impoundments are on any property of the
Credit Parties and their subsidiaries; and (ix) no Lien in favor of any
governmental authority for (A) any liability under any Environmental Law or
regulation, or (B) damages arising from or costs incurred by such
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governmental authority in response to a Release of a Contaminant into the
environment, has been filed or attached to the property of the Credit Parties
and their subsidiaries.
SECTION 4.18. No Change in Credit Criteria or Collection Policies. There
has been no material change in credit criteria or collection policies concerning
account receivables of the Credit Parties since September 30, 1995. All Eligible
Receivables of the Credit Parties are valid, binding and enforceable obligations
of Customers and are not subject to any claims, defenses or setoffs, except to
the extent same arise in the ordinary course of business and adequate reserves
have been established therefor in accordance with generally accepted accounting
principles.
SECTION 4.19. Franchise Agreements. Neither the Credit Parties nor any of
their subsidiaries or, to the knowledge of the Credit Parties, any other person
is in default under any material provision of any franchise agreement or any
other material agreement to which it is a party except, (x) in the case of any
franchise agreement, a default resulting from payments to a supplier by a Credit
Party beyond (but not later than 60 days beyond) the terms specified in such
franchise agreement and (y) in the case of contracts with its customers which
constitute material agreements, defaults the results of which when taken in the
aggregate would not materially adversely effect the ability of the Borrower and
its subsidiaries, taken as a whole, to conduct business substantially as
conducted prior to the occurrence of such defaults.
SECTION 4.20. Financing Agreements. Schedule 4.20 hereto sets forth all
promissory notes, debentures and similar instruments and all credit, loan and
similar financing agreements evidencing, creating or governing Indebtedness for
borrowed money to which the Credit Parties or any of their subsidiaries is a
party, and the Credit Parties have furnished to the Agent true and complete
copies of all such instruments and agreements.
SECTION 4.21. No Overdue Obligations. There exists no unpaid and overdue
Indebtedness of the Credit Parties or any of their subsidiaries other than:
Indebtedness (A) the payment of which the Credit Parties or such subsidiary is
diligently contesting in good faith by appropriate proceedings and with respect
to which the Credit Parties or such subsidiary shall, to the extent required by
generally accepted accounting principles consistently applied, have set aside on
its books adequate reserves and (B) which, if unpaid, could not reasonably be
expected to have a Material Adverse Effect.
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V. CONDITIONS OF CREDIT EVENTS
The obligation of each Lender to extend Credits hereunder shall be subject
to the following conditions precedent:
SECTION 5.01. All Credit Events On each date on which a Credit Event is to
occur:
(a) The Agent shall have received a notice of borrowing required by Section
2.03 hereof, application for a Letter of Credit required by Section 3.01 hereof
or a notice of Borrower's request that Agent accept an Acceptance Draft required
by Section 3.07 hereof.
(b) The representations and warranties set forth in Article IV hereof and
in any documents delivered herewith, including, without limitation, the Loan
Documents, shall be true and correct in all material respects with the same
effect as though made on and as of such date (except insofar as such
representations and warranties relate expressly to an earlier date).
(c) The Borrower shall be in compliance with all the terms and provisions
contained herein on its part to be observed or performed, and at the time of and
immediately after such Credit Event no Default or Event of Default shall have
occurred and be continuing.
(d) The Agent and the Lenders shall have received a certificate signed by
the Financial Officer of the Borrower as to the compliance with (b) and (c)
above.
SECTION 5.02. First Borrowing. The obligations of the Lenders in respect of
the first Credit Event hereunder is subject to the following additional
conditions precedent:
(a) Each Lender shall have received the favorable written opinion of
counsel for each Credit Party, substantially in the form of Exhibit B hereto,
dated the Closing Date, addressed to the Lenders and satisfactory to the Agent.
(b) The Agent shall have received (i) a certificate as to the good standing
of each Credit Party from the Secretary of State or other appropriate official
of the state or county of its organization or location, as appropriate, in each
case dated as of a recent date; (ii) a certificate of the Secretary, Assistant
Secretary or a Financial Officer of each Credit Party, dated as of the date
hereof and certifying (A) that its certificate or articles of incorporation and
its By-laws have not been amended since November 7, 1995 or, in the case of
Credit Parties incorporated after November 7, 1995, since the date of
incorporation thereof (or if there has been any such amendment, attaching a
certified copy
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thereof), (B) that attached thereto is a true and complete copy of a resolution
adopted by such person's Board of Directors authorizing the execution, delivery
and performance of this Agreement, the Notes, the other Loan Documents and the
Credit Events hereunder, as applicable, and that such resolution has not been
modified, rescinded or amended and is in full force and effect and (C) as to the
incumbency and specimen signature of each of such person's officers executing
this Agreement, the Notes, or any other Loan Document delivered in connection
herewith or therewith, as applicable; (iii) a certificate of another of such
person 5 officers as to incumbency and signature of its Secretary, Assistant
Secretary or Financial Officer, as applicable; and (iv) such other documents as
the Agent or any Lender may reasonably request.
(c) The Agent shall have received a certificate, dated the Closing Date and
signed by a Financial Officer of the Borrower, confirming compliance with the
conditions precedent set forth in paragraphs (b) and (c) of Section 5.01 hereof,
the conditions set forth in this Section 5.02 and that no Event of Default
presently exists and no event (including, without limitation, any Credit Event
hereunder) has occurred and is continuing which would constitute a Default.
(d) Each Lender shall have received its Revolving Credit Note duly executed
by the Borrower, payable to its order and otherwise complying with the
provisions of Section 2.04 hereof and the Agent shall have received each other
applicable Loan Document, each duly executed by the parties thereto.
(e) The Agent shall have received for the benefit of the Lenders, and each
Lender shall have had the opportunity to review and determined to be in form and
substance satisfactory to them:
(i) the aging of accounts of each Credit Party and a consolidated
schedule of Inventory of the Credit Parties listed by manufacturer, each dated
within 40 days of the Closing Date;
(ii) evidence of the compliance by the Borrower with Section 6.03
hereof;
(iii) the financial statements described in section 4.07(b) hereof
(each certified by a Financial Officer of the Borrower) and each of the
agreements and instruments listed in Schedule 4.20 hereto and Schedule 7.02
hereto;
(iv) all shareholder agreements to which the Borrower or any other
Credit Party is a party to the extent such agreements relate to such
shareholder's interests in the Borrower or any other Credit Party;
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(v) the three largest (based on sales revenues) franchise agreements
to which the Borrower is a party, and any other franchise agreements that the
Agent may in its reasonable discretion designate;
(vi) a schedule listing all franchise agreements to which the Borrower
or any of its subsidiaries is a party; and
(vii) if requested by the Agent or any Lender, copies of the most
recent annual reports that were filed with the Internal Revenue Service on
Treasury Form 5500 with respect to any Plan, together with certified financial
statements (if any) for the Plan and any actuarial statements on Schedule B to
such Form 5500.
(f) Intentionally Omitted
(g) Messrs. Goetz & Mady-Grove, counsel to the Agent, shall have received
payment in full for all legal fees charged, and all costs and expenses incurred,
by such counsel through the Closing Date in connection with the transactions
contemplated under this Agreement and the other Loan Documents and instruments
in connection herewith and therewith.
(h) All legal and other matters in connection with the Transactions shall
be satisfactory to the Agent, the Lenders and their respective counsel in their
sole discretion. Without limiting the generality of the foregoing, the Agent,
the Lenders and their respective counsel shall be satisfied that:
(i) the Transactions are in compliance with all applicable laws and
regulations;
(ii) all requisite third party consents (including, without
limitation, consents with respect to the Credit Parties) to the Transactions
have been received;
(iii) there has been no material adverse change in the business,
assets, operations, prospects or financial condition of the Credit Parties and
their subsidiaries since September 30, 1995; and
(iv) there are no actions, suits or proceedings at law or in equity or
by or before any governmental instrumentality or other agency or regulatory
authority now pending or threatened against or affecting the Borrower or any of
its subsidiaries or any of their respective businesses, assets or rights which
involve any of the Transactions.
(i) The Borrower shall have executed and delivered to the Agent a
disbursement authorization letter with respect to the disbursement of the
proceeds of any Credits extended on the Closing Date, in form and substance
satisfactory to the Agent.
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(j) The Lenders shall have received a certificate demonstrating compliance
as of July 26, 1996 with the Borrowing Base in form satisfactory to the Lenders.
(k) The Agent shall have received such other documents as the Lenders or
the Agent or their respective counsel shall reasonably deem necessary.
(l) The Agent and the Lenders shall have received evidence of payment or
provision for payment of all outstanding Indebtedness under the Prior Credit
Agreement and the termination of same.
(m) The Agent and the Lenders shall have received payment of all fees owed
to them by the Credit Parties under the Prior Credit Agreement, this Agreement
or otherwise.
SECTION 5.03. Puerto Rican Securities Borrowing. The obligations of the
Lenders in respect of the use of any Credit to purchase Puerto Rican Securities
shall be subject to the Agent and the Lenders having received a certificate from
the Borrower and Milgray Electronics/P.R. Inc. certifying compliance with
subsections (ii) through (iv) of the Puerto Rican Indebtedness Conditions.
VI. AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Note, any amount under any Letter of Credit or Acceptance Draft or any fee,
expense or amount payable hereunder or in connection with any of the
Transactions shall be unpaid, it will, and will cause each of its subsidiaries
and, with respect to Section 6.07 hereof, each ERISA Affiliate, to:
SECTION 6.01. Legal Existence. Do or cause to be done all things necessary
to preserve, renew and keep in full force and effect its legal existence,
provided, however, nothing contained in this Section 6.01 shall prohibit or
limit any transaction permitted under Section 7.04 hereof.
SECTION 6.02. Businesses and Properties. At all times do or cause to be
done all things necessary to: preserve, renew and keep in full force and effect
the rights, licenses, Permits, franchises, patents, copyrights, trademarks and
trade names material to the conduct of its businesses; maintain and operate such
businesses in the same general manner in which they are presently conducted and
operated; comply with all laws, rules, regulations and governmental orders
(whether Federal, state or local) applicable to the operation of such businesses
whether now in effect or hereafter enacted (including, without limitation, all
applicable laws, rules, regulations and governmental orders relating to public
and employee
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health and safety and all Environmental Laws) and with any and all other
applicable laws, rules, regulations and governmental orders the lack of
compliance with which could reasonably be expected to have a Material Adverse
Effect, except to the extent that such Credit Party is diligently contesting the
applicability or content thereof in good faith by appropriate proceedings and
has established adequate reserves therefor to the extent required in accordance
with generally accepted accounting principles; take all actions which may be
required to obtain, preserve, renew and extend all Permits and other
authorizations which are material to the operation of such businesses; and at
all times maintain, preserve and protect all property material to the conduct of
such businesses and keep such property in good repair, working order and
condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 6.03. Insurance. (a) Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers, (b) maintain
such other insurance, to such extent and against such risks, including fire,
business interruption and other risks insured against by extended coverage, as
is customary with companies similarly situated and in the same or similar
businesses, provided, however, that such insurance shall insure the property of
the Borrower and its subsidiaries against all risk of physical damage,
including, without limitation, loss by fire, explosion, theft, business
interruption, fraud and such other casualties as may be reasonably satisfactory
to the Agent and the Required Lenders, but in no event at any time in an amount
less than replacement value, (c) maintain in full force and effect public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by the Borrower or any of its subsidiaries, in
such amount as the Agent and the Required Lenders shall reasonably deem
necessary, and (d) maintain such other insurance as may be required by law or as
may be reasonably requested by the Agent for purposes of assuring compliance
with this Section 6.03, including, without limitation, insurance against risk of
casualties caused by any Release of any Hazardous Materials to the extent
required by law. All insurance covering tangible personal property of the
Borrower or any subsidiary thereof shall provide that the Agent and each of the
Lenders is an additional insured.
SECTION 6.04. Taxes. Pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property before the same shall become
delinquent or in default, as well as all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might give rise to Liens upon such
properties or
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any part thereof, except to the extent that such taxes, assessments,
governmental charges, levies or claims are being diligently contested in good
faith by appropriate proceedings and as to which adequate reserves have been
established in accordance with generally accepted accounting principles.
SECTION 6.05. Financial Statements, Reports, Etc. Furnish to the Agent and
each of the Lenders:
(a) within 90 days after the end of each Fiscal Year, (i) a comparative
Consolidated balance sheet and comparative Consolidated income statement showing
the financial condition of the Borrower and its subsidiaries as of the close of
such Fiscal Year and the results of their operations during such year, and (ii)
a comparative Consolidated statement of shareholders, equity (with respect only
to a Fiscal Year in which there is a change in shareholders' equity resulting
from any reason other than earnings) and a comparative Consolidated statement of
cash flow for the year then ended, all the foregoing financial statements to be
audited by independent public accountants of nationally recognized standing
acceptable to the Agent and the Lenders (which report shall not contain any
qualification except with respect to new accounting principles mandated by the
Financial Accounting Standards Board), and to be in form and substance
acceptable to the Agent; and comparative consolidating balance sheets and
consolidating income statements showing the financial condition of the Borrower
and its subsidiaries as of the close of such Fiscal Year and the results of
their operations during such year prepared by management of the Borrower and
reported on by the independent public accountants referred to above;
(b) within 45 days after the end of each of the first three (3) fiscal
quarters of the Borrower, an unaudited condensed consolidated balance sheet and
an unaudited condensed consolidated income statement showing the financial
condition and results of operations of the Borrower and its subsidiaries as of
the end of each such quarter, an unaudited condensed Consolidated statement of
shareholders' equity (such statement of shareholders, equity shall only be
required to be submitted to the Agent and each of the Lenders to the extent
there is a change in shareholders' equity from the prior fiscal quarter end
arising as a result of any reason other than the addition of the earnings or
substraction of the losses of the Borrower and its subsidiaries) and an
unaudited condensed Consolidated statement of cash flow for such fiscal quarter,
in each case prepared by management of the Borrower under the supervision and
direction of the chief financial officer of the Borrower and accompanied by a
letter stating that such financial statements were prepared under the
supervision and direction of the chief financial officer of the Borrower and
confirming that such financial statements present fairly the financial condition
and the results of operations of the Borrower and its subsidiaries in
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accordance with generally accepted accounting principles, consistently applied,
except that they do not include all of the information and footnote disclosure
required by generally accepted accounting principles for complete financial
statements, in each case subject to normal year-end audit adjustments;
(c) promptly after the same become publicly available, copies of such
registration statements, annual, periodic and other reports, and such proxy
statements and other information, if any, as shall be filed by the Borrower or
any subsidiaries with the Securities and Exchange Commission pursuant to the
requirements of the Securities Act of 1933 or the Securities Exchange Act of
1934;
(d) concurrently with any delivery under (a) or (b) above, a certificate of
the chief financial officer (in the form of the certificate attached hereto as
Exhibit T or another form acceptable to the Agent) certifying that to the best
of his or her knowledge no Default or Event of Default has occurred (including
calculations demonstrating compliance, as of the dates of the financial
statements being furnished at such time, with the covenants set forth in
Sections 7.06, 7.07, 7.08, 7.09, 7.10, 7.11, 7.12 and 7.13 hereof and, if such a
Default or Event of Default has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken with respect
thereto;
(e) as soon as available and in any event within 15 days after receipt by
the Borrower or any subsidiary thereof, each management letter prepared by the
independent public accountants who reported on the financial statements
delivered under (a) above;
(f) within 30 days of the end of each month, an aging schedule of the
Receivables of each Credit Party in the form of Exhibit E hereto, and a schedule
of Inventory of each Credit Party in the form of Exhibit F hereto;
(g) no later than December 31 of each calendar year, financial projections
(including, without limitation, with respect to capital expenditures) for the
Borrower and its subsidiaries for the then current Fiscal Year (including
quarterly Consolidated balance sheets, statements of income and of cash flow),
in form, substance and detail (including, without limitation, principal
assumptions) satisfactory to the Agent, prepared by management of the Borrower
under the supervision and direction of the chief financial officer of the
Borrower and accompanied by a letter from the chief financial officer of the
Borrower stating that such projections were prepared under the supervision and
direction of the chief financial officer of the Borrower;
(h) as soon as practicable, copies of all reports, forms, filings, loan
documents and financial information submitted to its
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shareholders generally and/or the Securities and Exchange Commission;
(i) within 30 days after the end of each month, a certificate, in form,
substance and detail satisfactory to the Agent, of the chief financial officer
of each Credit Party demonstrating compliance as at the end of such month with
the Borrowing Base;
(j) within ten (10) days after a request made by the Agent or any Lender to
receive (a) a copy of any franchise agreement to which the Borrower or any of
its subsidiaries is a party, a true and complete executed copy of such franchise
agreement and (b) a schedule of all franchise agreements to which the Borrower
or any of its subsidiaries is a party, a true and complete listing of all
franchise agreements to which the Borrower or any of its subsidiaries is a
party;
(k) immediately upon becoming aware thereof, notice of(i) with respect to
material agreements to which any Credit Party is a party that are not franchise
agreements, the material breach by any party of any such agreement and (ii) with
respect to franchise agreements to which any Credit Party is a party, the
termination of any such agreement should the sales pursuant to such franchise
agreement be equal to or greater than 5% of consolidated sales of the Borrower
and its subsidiaries over the immediately prior twelve (12) months, on a rolling
twelve (12) month basis; and as soon as practicable, such other information and
documents regarding the operations and affairs of the Borrower or any of its
subsidiaries as the Agent or any Lender may reasonably request.
(1) as soon as practicable, such other information and documents regarding
the operations and affairs of the Borrower or any of its subsidiaries as the
Agent or any Lender may reasonably request.
SECTION 6.06. Litigation and Other Notices. Give the Agent and each Lender
prompt written notice of the following:
(a) the issuance by any court or governmental agency or authority of any
injunction, order, decision or other restraint prohibiting, or having the effect
of prohibiting, the making of the Loans or occurrence of other Credit Events, or
invalidating, or having the effect of invalidating, any provision of this
Agreement, the Notes or the other Loan Documents, or the initiation of any
litigation or similar proceeding seeking any such injunction, order, decision or
other restraint;
(b) the filing or commencement of any action, suit or proceeding against
the Borrower or any of its subsidiaries, whether at law or in equity or by or
before any court or any Federal,
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state, municipal or other governmental agency or authority, (i) which is brought
by or on behalf of any governmental agency or authority, or in which injunctive
or other equitable relief is sought, and which if adversely determined could
reasonably be expected to have a Material Adverse Effect or (ii) as to which it
is probable (within the meaning of Statement of Financial Accounting Standards
No. 5) that there will be an adverse determination and which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect;
(c) any Default or Event of Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto; and
(d) any development in the business or affairs of the Borrower or any of
its subsidiaries or any other event of which such Credit Party becomes aware
which has had, or could reasonably be expected to have, a Material Adverse
Effect.
SECTION 6.07. ERISA. (a) other than with respect to a Multiemployer Plan,
pay and discharge promptly any liability imposed upon it pursuant to the
provisions of Title IV of ERISA, provided, however, that neither the Borrower
nor any ERISA Affiliate shall be required to pay any such liability if (1) the
amount, applicability or validity thereof shall be diligently contested in good
faith by appropriate proceedings, and (2) to the extent required under generally
accepted accounting principles, such person shall have set aside on its books
,reserves which, in the opinion of the chief financial officer of such person,
are adequate with respect thereto; and maintain and administer each Pension Plan
and continue its qualifications under and in compliance with ERISA and the Code,
except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(b) other than with respect to a Multiemployer Plan, deliver to the Agent,
promptly, and in any event within 30 days, after: (i) the occurrence of any
Reportable Event, a copy of the materials that are filed with the PBGC, or the
materials that would have been required to be filed if the 30-day notice
requirement to the PBGC was not waived; (ii) the Borrower or any ERISA Affiliate
or an administrator of any Pension Plan files with participants, beneficiaries
or the PBGC a notice of intent to terminate any such Plan, a copy of any such
notice; (iii) the receipt of notice by the Borrower or any ERISA Affiliate or an
administrator of any Pension Plan from the PBGC of the PBGC's intention to
terminate any Pension Plan or to appoint a trustee to administer any such Plan,
a copy of such notice; (iv) if requested by the Agent or any Lender, the filing
thereof with the Internal Revenue Service, copies of each annual report that is
filed on Treasury Form 5500 with respect to any Plan, together with certified
financial statements (if any) for the Plan and any actuarial statements on
Schedule B to such Form
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5500; (v) the Borrower or any ERISA Affiliate knows or has reason to know of any
event or condition which might constitute grounds under the provisions of
Section 4042 of ERISA for the termination of (or the appointment of a trustee to
administer) any Pension Plan, an explanation of such event or condition; (vi)
the Borrower or any ERISA Affiliate knows or has reason to know of any event or
condition which might cause any one of them to incur a liability under Section
4062, 4063, 4064 or 4069 of ERISA or Section 412(n) or 4971 of the Code, an
explanation of such event or condition; and (vii) the Borrower or any ERISA
Affiliate knows or has reason to know that an application is to be, or has been,
made to the Secretary of the Treasury for a waiver of the minimum funding
standard under the provisions of Section 412 of the Code, a copy of such
application; and in each case described in clauses (i) through (iii) and (v)
through (vi) together with a statement signed by the Financial Officer setting
forth details as to such Reportable Event, notice, event or condition and the
action which the Borrower or such ERISA Affiliate proposes to take with respect
thereto.
(c) With respect to a Multiemployer Plan, deliver to the Agent, promptly,
and in any event within 30 days after the receipt by the Borrower or any ERISA
Affiliate of an assessment of withdrawal liability under Section 4201 of ERISA
from a Multiemployer Plan, a copy of such assessment.
SECTION 6.08. Maintaining Records: Access to Properties and Inspections:
Right to Audit. Maintain financial records in accordance with accepted financial
practices and, upon reasonable notice (which may be telephonic), at all
reasonable times and as often as any Lender may reasonably request, permit any
authorized representative designated by such Lender to visit and inspect the
properties and financial records of the Borrower and its subsidiaries and to
make extracts from such financial records at such Lender's expense, and permit
any authorized representative designated by such Lender to discuss the affairs,
finances and condition of the Borrower and its subsidiaries with the appropriate
Financial Officer and such other officers as the Borrower shall deem appropriate
and the Borrower's independent public accountants, as applicable. The Agent
agrees that it shall schedule any meeting with any such independent public
accountant through the Borrower and a Responsible Officer of the Borrower shall
have the right to be present at any such meeting. Each of the Agent and each
Lender shall have the right to audit, as often as it may request, the existence
and condition of the Receivables, Inventory, books and records of the Borrower
and its subsidiaries and to review their compliance with the terms and
conditions of this Agreement and the other Loan Documents.
SECTION 6.09. Use of Proceeds. Use the proceeds of the Credits only for the
purposes set forth in Section 4.13 hereof.
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SECTION 6.10. Fiscal Year-End. Cause its Fiscal Year to end on September 30
in each year.
SECTION 6.11. Additional Guarantors. Promptly inform the Agent and each
Lender of the creation or acquisition by it of any direct or indirect subsidiary
or Affiliate (subject to the provisions of Section 7.04 hereof) and (i) with
respect-to any such subsidiary or Affiliate that is not a Foreign Subsidiary,
cause such person to execute this Agreement as a Guarantor and (ii) with respect
to any such subsidiary or Affiliate that is a Foreign Subsidiary, at the
Borrower's option, (A) cause the direct parent of such person to pledge and
deliver in form satisfactory to the Agent at least 65% of the capital stock of
such person to the Agent (for the ratable benefit of itself and the Lenders)
pursuant to such agreements and instruments as the Agent deems reasonably
necessary or advisable or (B) cause such person to execute this Agreement as a
Guarantor.
SECTION 6.12. Environmental Laws. (a) Comply, and cause each of its
subsidiaries to comply, in all material respects with the provisions of all
Environmental Laws, and shall keep its properties and the properties of its
subsidiaries free of any Lien imposed pursuant to any Environmental Law; not
cause or suffer or permit, the property of the Borrower or its subsidiaries to
be used for the generation, production, processing, handling, storage,
transporting or disposal of any Hazardous Material, except for Hazardous
Materials used in the ordinary course of business of the Borrower or its
subsidiaries and disclosed in Schedule 6.12 hereto, in which case such Hazardous
Materials shall be used, stored, generated, treated and disposed of only in
compliance with Environmental Law, and except for Remedial Work in response to
Hazardous Materials on or about the properties owned, operated, leased or
occupied by the Borrower or any of its subsidiaries.
(b) At the request of the Agent or any Lender, supply to the Agent and each
Lender copies of all submissions by the Borrower or any of its subsidiaries to
any governmental body and of the reports of all environmental audits and of all
other environmental tests, studies or assessments (including the data derived
from any sampling or survey of asbestos, soil, or subsurface or other materials
or conditions) that may be conducted or performed (by or on behalf of the
Borrower or any of its subsidiaries) on or regarding the properties owned,
operated, leased or occupied by the Borrower or any of its subsidiaries or
regarding any conditions that might have been affected by Hazardous Materials on
or Released or removed from such properties; permit and authorize the
consultants, attorneys or other persons that prepare such submissions or reports
or perform such audits, tests, studies or assessments to discuss such
submissions, reports or audits with the Agent and the Lenders.
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(c) Promptly (and in no event more than two Business Days after the
Borrower becomes aware or is otherwise informed of such event) provide oral and
written notice to the Agent and each Lender upon the happening of any of the
following:
(i) the Borrower, any subsidiary of the Borrower, or any tenant or
other occupant of any property of the Borrower or such subsidiary receives
notice of any claim, complaint, charge or notice of a violation or potential
violation of any Environmental Law;
(ii) there has been a spill or other Release of Hazardous Materials
upon, under or about or affecting any of the properties owned, operated, leased
or occupied by the Borrower or any of its subsidiaries, or Hazardous Materials
at levels or in amounts that may have to be reported, remedied or responded to
under Environmental Law are detected on or in the soil or groundwater;
(iii) the Borrower or any of its subsidiaries is or may be liable for
any costs of cleaning up or otherwise responding to a Release of Hazardous
Materials;
(iv) any part of the properties owned, operated, leased or occupied by
the Borrower or any of its subsidiaries is or may be subject to a Lien under any
Environmental Law; or
(v) the Borrower or any of its subsidiaries undertakes any Remedial
Work with respect to any Hazardous Materials.
(d) Timely undertake and complete any Remedial Work required by any
Environmental Law.
(e) Without in any way limiting the scope of Section 11.04 hereof and in
addition to any obligations thereunder, the Borrower hereby indemnifies and
agrees to hold the Agent and the Lenders harmless from and against any
liability, loss, damage, suit, action or proceeding arising out of its business
or the business of its subsidiaries pertaining to Hazardous Materials,
including, but not limited to, claims of any governmental body or any third
person arising under any Environmental Law or under tort, contract or common
law. To the extent laws of the United States or any applicable state or local
law in which property owned, operated, leased or occupied by the Borrower or any
of its subsidiaries is located provide that a Lien upon such property of the
Borrower or such subsidiary may be obtained for the removal of Hazardous
Materials which have been or may be Released, no later than sixty days after
notice is given by the Agent to the Borrower or such subsidiary, the Borrower or
such subsidiary shall deliver to the Agent a report issued by a qualified third
party engineer certifying as to the existence of any Hazardous Materials located
upon or beneath the specified property. To the extent any
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Hazardous Materials located therein or thereunder either subject the property to
Lien or require removal to safeguard the health of any persons, the removal
thereof shall be an affirmative covenant of the Borrower hereunder.
(f) In the event that any Remedial Work is required to be performed by the
Borrower or any of its subsidiaries under any applicable Environmental Law, any
judicial order, or by any governmental entity, commence all such Remedial Work
at or prior to the time required therefor under such Environmental Law or
applicable judicial orders and thereafter diligently prosecute to completion all
such Remedial Work in accordance with and within the time allowed under such
applicable Environmental Laws or judicial orders.
SECTION 6.13. Pay Obligations to Lenders and Perform Other Covenants (a)
Make full and timely payment of the Obligations whether now existing or
hereafter arising and (b) duly comply with all the terms and covenants contained
in this Agreement (including, without limitation, the borrowing limitations and
mandatory prepayments in accordance with Article II hereof) and in each of the
other Loan Documents, all at the times and places and in the manner set forth
therein.
VII. NEGATIVE COVENANTS
Each Credit Party covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Note, any amount under any Letter of Credit or any Acceptance Draft, or any fee,
expense or amount payable hereunder or in connection with any of the
Transactions shall be unpaid, it will not and will not cause or permit any of
its subsidiaries and, in the case of Section 7.17 hereof, any ERISA Affiliate
to, either directly or indirectly:
SECTION 7.01. Liens. Incur, create, assume or permit to exist any Lien on
any of its property or assets (including the stock of any direct or indirect
subsidiary or Affiliate), whether owned at the date hereof or hereafter
acquired, or assign or convey any rights to or security interests in any future
revenues, except:
(a) Liens incurred and pledges and deposits made in the ordinary course of
business in connection with workers, compensation, unemployment insurance,
old-age pensions and other social security benefits (not including any Lien
described in Section 412 (m) of the Code);
(b) Liens imposed by law, such as carriers , warehousemen's, mechanics',
materialmen's and vendors, Liens and other similar Liens, incurred in good faith
in the ordinary course of business
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and securing obligations which are not overdue for a period of more than 15 days
or which are being contested in good faith by appropriate proceedings as to
which the Borrower or any of its subsidiaries, as the case may be, shall, to the
extent required by generally accepted accounting principles consistently
applied, have set aside on its books adequate reserves;
(c) Liens securing the payment of taxes, assessments and governmental
charges or levies, that are not delinquent or are being diligently contested in
good faith by appropriate proceedings and as to which adequate reserves have
been established in accordance with generally accepted accounting principles;
(d) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interests, mortgages,
obligations, Liens and other encumbrances incurred, created, assumed or
permitted to exist and arising by, through or under a landlord or owner of the
leased property, with or without consent of the lessee) which do not in the
aggregate materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business;
(e) Liens upon any equipment acquired through the purchase or lease by the
Borrower or any of its subsidiaries which are created or incurred
contemporaneously with such acquisition to secure or provide for-the payment of
any part of the purchase price of, or lease payments on, such equipment (but no
other amounts and not in excess of 90% the purchase price or aggregate lease
payments); provided, however, that any such Lien shall not apply to any other
property of the Borrower or any of its subsidiaries; and provided, further, that
the same may be incurred only so long as no Event of Default or Default then
exists or would result therefrom, with the various financial measurements and
covenants set forth in Sections 7.06 through 7.12 of this Agreement being
recalculated on a pro forma basis (from the then most recent quarterly or
subsequent pro forma calculations) to include the effects of the proposed
Indebtedness and Capitalized Leases;
(f) Liens existing on the date of this Agreement and set forth in Schedule
7.01 hereto but not the extension, renewal or refunding of the Indebtedness
secured thereby;
(g) Liens created in favor of the Agent for the benefit of the Lenders;
(h) Liens securing the performance of bids, tenders, leases, contracts
(other than for the repayment of borrowed money), statutory obligations, surety,
customs and appeal bonds and other
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obligations of like nature, incurred as an incident to and in the ordinary
course of business;
(i) Liens constituting statutory landlord's Liens;
(j) the Lien imposed under a Special Deed of Pledge (a copy of such
executed Special Deed of Trust having been previously provided to the Agent) by
Milgray/International, Inc. in favor of Swiss Volksbank with respect to the SFR
35,000 held in an account or accounts in the name of Milgray/International, Inc.
at Swiss Volksbank;
(k) Liens securing Other Indebtedness; or
(1) Liens securing or attaching in connection with judgments which
individually and in the aggregate do not constitute an Event of Default under
paragraph (j) of Article VIII hereof.
SECTION 7.02. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness other than:
(i) Indebtedness (including, without limitation, Guarantees) existing
on the date hereof and listed in Schedule 7.02 hereto, but not the extension,
renewal or refunding thereof subject to compliance with clauses (xiii) through
(xxi);
(ii) Indebtedness incurred under this Agreement or any other Loan
Document;
(iii) Guarantees of the Borrower of Indebtedness or rental obligations
of any Guarantor permitted hereunder and Guarantees of any Guarantor of
Indebtedness or rental obligations of the Borrower permitted hereunder;
(iv) Indebtedness to trade creditors incurred in the ordinary course
of business;
(v) Guarantees constituting the endorsement of negotiable instruments
for deposit or collection in the ordinary course of business;
(vi) Guarantees of the Obligations;
(vii) purchase money Indebtedness and Capitalized Lease obligations to
the extent permitted by Sections 7.01(e) and 7.06 hereof;
(viii) Subordinated Indebtedness;
(ix) Guarantees existing on the date hereof, and set forth in Schedule
7.02 hereof, of Indebtedness existing on the date
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hereof, but not Guarantees of any extension, renewal or refunding of any such
Indebtedness;
(x) progress payments made in the ordinary course of business by the
Borrower or any of its subsidiaries;
(xi) Indebtedness of the Borrower owing to any of its subsidiaries;
(xii) (A) Indebtedness of any Guarantor other than Milgray
Electronics/P.R., Inc. and Milgray/Toronto, Inc. owing to the Borrower or any
other Guarantor and (B) Indebtedness of Milgray Electronics/P.R., Inc. owing to
the Borrower, provided that the aggregate outstanding amount of such
Indebtedness shall not at any time exceed $10,000,000;
(xiii) Indebtedness of Milgray/Toronto, Inc. owing to the Borrower,
provided that the aggregate outstanding amount of such Indebtedness shall not at
any time exceed $5,000,000;
(xiv) INTENTIONALLY OMITTED;
(xv) Indebtedness of Milgray/International, Inc. and Milgray/Toronto,
Inc. owing under overdraft lines of credit, provided that the aggregate
outstanding amount of such Indebtedness shall not at any time exceed $1,000,000
and $1,000,000, respectively;
(xvi) Indebtedness of Mugray/International, Inc. owing under customs
guarantee lines of credit, provided that the aggregate outstanding amount of
such Indebtedness shall not at any time exceed $75,000;
(xvii) Indebtedness of Milgray Electronics, Inc.,
Milgray/International, Inc. and Mugray/Toronto, Inc. owing under foreign
exchange lines of credit, provided that the aggregate outstanding amount of such
Indebtedness shall not at any time exceed $4,000,000 in the aggregate for
Milgray Electronics, Inc. and Milgray/International, Inc. and (Canadian)
$10,000,000 in the case of Milgray/Toronto, Inc.,
(xviii) if the Revolving Credit Commitment has not been utilized to
acquire Puerto Rican Securities, unsecured Indebtedness of the Borrower owing to
commercial banks that are located in the United States or Puerto Rico (such
banks in Puerto Rico referred to herein as the "Puerto Rican Banks TM), provided
that the aggregate outstanding amount of such Indebtedness shall not exceed
$5,000,000, the proceeds of such Indebtedness are used by Milgray
Electronics/P.R., Inc. to purchase tax exempt Puerto Rican Securities rated A or
better by Standard and Poor's Corporation or Moody's Investors Service, Inc.
(the "Puerto Rican Securities") in
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connection with a transaction entered into for the purpose of reducing the
Borrower's or Milgray Electronics/P.R., Inc.'s tax liability to Puerto Rico and
the terms and conditions of such Indebtedness are reasonably satisfactory to the
Agent and the Lenders in the case of a borrowing from a United States bank or if
such Indebtedness is incurred from Puerto Rican Banks, the Puerto Rican
Indebtedness Conditions have been fulfilled to the satisfaction of the Agent and
the Lenders;
(xix) a Guarantee of Milgray Electronics/P.R., Inc. of the
Indebtedness incurred pursuant to subsection (xviii) above if incurred from
Puerto Rican Banks (or United States banks), provided that the Agent and Lenders
shall have given the Borrower their prior written consent indicating that the
terms and conditions of such Guarantee are reasonably satisfactory to them in
all respects;
(xx) a Guarantee (a copy of such executed Guaranty having been
previously provided to the Agent) of Milgray/International, Inc. in favor of
Swiss Volksbank in the amount of SFR 35,000 (the "Swiss Volksbank Guarantee");
(xxi) Indebtedness of the Borrower to the Agent or an Affiliate of the
Agent and Guarantees of any Guarantors of such Indebtedness in connection with
interest rate swaps with aggregate notational amounts of up to $3,000,000 under
which the Borrower is obligated to pay a fixed rate and is entitled to receive a
floating rate; and
(xxii) (i) other Indebtedness (including, without limitation,
Guarantees) in an aggregate amount not in excess of $250,000 less (ii) the
United States dollar equivalent of the Swiss Volksbank Guarantee plus the
aggregate amounts actually paid thereunder (the "Other Indebtedness").
SECTION 7.03. Dividends. Distributions and Payments Declare or pay,
directly and indirectly, any cash dividends or make any other distribution,
whether in cash, property, securities or a combination thereof, with respect to
(whether by reduction of capital or otherwise) any shares of its capital stock,
or directly or indirectly redeem, purchase, retire or otherwise acquire for
value (or permit any subsidiary to purchase or acquire) any shares of any class
of its capital stock or any options, warrants or other rights with respect
thereto, or set aside any amount for any such purpose, except for (i) the
cancellation or retirement of outstanding treasury stock, (ii) dividends or
other distributions payable by or to the Borrower or any subsidiary thereof
solely in shares of common stock, (iii) cash dividends or distributions by any
subsidiary of the Borrower to the Borrower, (iv) cash dividends payable in lieu
of any issuance of fractional shares of capital stock permitted under clause
(ii) above and (v) the acquisition by the Borrower of shares of its capital
stock from employees of the
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Borrower in exchange for the issuance to such employees of shares of the
Borrower's capital stock in accordance with the provisions of a stock option
plan of the Borrower existing on the Closing Date.
SECTION 7.04. Consolidations. Mergers and Sales of Assets. Consolidate with
or merge into any other person, or sell, lease, transfer or assign to any
persons or otherwise dispose of (whether in one transaction or a series of
transactions) any capital stock of any of its subsidiaries (whether now owned or
hereafter acquired), or any portion of any of its other assets or properties
other than in the ordinary course of business (whether now owned or hereafter
acquired), or any of its inventory other than in the ordinary course of
business, or permit another person to merge into it, or acquire all or
substantially all the capital stock or assets of any other person, except (i)
that upon not less than thirty (30) days' prior written notice to the Agent and
the Lenders, provided no such notice shall be required in the case of the merger
of Milgray/Computer Products, Inc. or U.S. Computer Supply, Inc. into the
Borrower within sixty (60) days of the entry into this Credit Agreement, (A) any
Guarantor or Foreign Subsidiary may merge with and into the Borrower, provided
that the Borrower is the sole surviving entity of such merger, (B) any Guarantor
may merge with and into another Guarantor, (except no domestic Guarantor may
merge into Milgray/Toronto, Inc. or any other Guarantor which is a Foreign
Subsidiary or Milgray Electronics/P.R., Inc.), and (C) any Foreign Subsidiary
(other than Milgray/Toronto, Inc.) may merge with and into another Foreign
Subsidiary, (ii) that any Guarantor may sell, lease, transfer or otherwise
dispose of all or any portion of its business or assets to the Borrower or
another Guarantor (other than a Guarantor which is a Foreign Subsidiary or
Milgray Electronics/P.R., Inc.) and (iii) that any Foreign Subsidiary may sell,
lease, transfer or otherwise dispose of all or any portion of its business or
assets to the Borrower, any Guarantor or another Foreign Subsidiary.
SECTION 7.05. Investments. Own, purchase or acquire any stock, obligations,
assets or securities of, or any interest in, or make any capital contribution or
loan or advance to, any other person, or make any other investments, except:
(a) investments in checking and interest bearing deposit accounts and
certificates of deposit in dollars of any Lender, or any other commercial banks
registered to do business in any state of the United States (i) having capital
and surplus in excess of $1,000,000,000 and (ii) whose long-term debt rating is
at least investment grade as determined by either Standard & Poor's Corporation
or Moody's Investor Service, Inc.;
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(b) readily marketable direct obligations of the United States government
or any agency thereof which are backed by the full faith and credit of the
United States;
(c) investments in money market mutual funds having assets in excess of
$2,500,000,000;
(d) commercial paper of any Lender or commercial paper, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investor Service, Inc.;
(e) federally tax exempt securities rated A or better by either Standard &
Poor's Corporation or Moody's Investor Service, Inc.;
(f) loans and advances by it to other persons constituting Indebtedness
permitted under clauses (xi), (xii) or (xiii) of Section 7.02 hereof;
(g) investments in interest bearing deposit accounts made in the ordinary
course of business in banks located in Puerto Rico which have been identified in
writing by the Agent and the Lenders as acceptable;
(h) investments, including investments by means of capital contribution, in
the stock of any subsidiary or Affiliate;
(i) loans and advances to employees of any Credit Party so long as the
aggregate outstanding amount of all such loans and advances to employees of all
the Credit Parties does not at any time exceed $300,000; and
(j) Puerto Rican Securities to the extent permitted by Section 7.02 (xviii)
or alternatively, loans or advances from Borrower to Mugray Electronics/P.R.
Inc. to purchase such Puerto Rican Securities; provided that, in each case
mentioned in (a), (b), (d) and (e) above, such obligations shall mature not more
than one year from the date of acquisition thereof.
SECTION 7.06. Capital Expenditures Permit or suffer the aggregate amount of
payments made for capital expenditures, including, without limitation,
Capitalized Lease Obligations and Indebtedness secured by Liens permitted under
Section 7.01(e) hereof, to exceed $2,500,000 in any Fiscal Year.
SECTION 7.07. Net Worth. Permit or suffer Net Worth at any time to be less
than (i) $31,000,000 at any time from the Closing Date through and including
September 29, 1996 and (ii) during each subsequent twelve month period
commencing on September 30 in any year and ending on September 29 of the
subsequent year, the sum of
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(a) the minimum Net Worth required pursuant to this Section 7.07 to be
maintained during the immediately preceding twelve month period plus (b)
$3,000,000.
SECTION 7.08. Total Unsubordinated Liabilities to Net Worth Ratio - Permit
or suffer the ratio of (x) Total Unsubordinated Liabilities of the Borrower and
its subsidiaries to (y) Net Worth, at any time to be greater than (i) from the
Closing Date through and including December 30, 1998, 2.25:1.00 and (ii)
thereafter, 2.00:1.00.
SECTION 7.09. Rental Obligations. Incur, create, assume or permit or suffer
to exist, in respect of leases of real and personal property (other than
Capitalized Lease Obligations), rental obligations or other commitments
thereunder to make any direct or indirect payment, whether as rent or otherwise,
for fixed or minimum rentals, percentage rentals, property taxes, or insurance
premiums, in an aggregate amount for the Borrower and its subsidiaries which
shall exceed: (i) $2,000,000 for the Fiscal Year ending September 30, 1996; and
(ii) for any Fiscal Year ending thereafter, the sum of (A) the maximum amount of
such obligations permitted under this Section 7.09 for the immediately preceding
Fiscal Year plus (B) $500,000.
SECTION 7.10. Consolidated Inventory Ratio. Permit or suffer the ratio of
(x) Inventory of the Borrower on a Consolidated basis to (y) Current Assets of
the Borrower on a Consolidated basis, at any time to exceed 0.65:1.00.
SECTION 7.11. Consolidated Current Ratio. Permit or suffer the Consolidated
Current Ratio of the Borrower at any time to be less than (x) from the Closing
Date through and including December 30, 1998, 1.20:1.00 and (y) thereafter,
1.30:1.00.
SECTION 7.12. Interest Coverage Ratio. Permit or suffer the Interest
Coverage Ratio of the Borrower at the end of any Fiscal Year to be less than (x)
prior to September 29, 1999, 2.00:1.00 and (y) thereafter 2.50:1.00.
SECTION 7.13. Net Income. Permit or suffer Borrower's Net Income to be less
than zero for any Fiscal Year.
SECTION 7.14. Business. Alter the nature of its business as operated on the
date of this Agreement in any material respect.
SECTION 7.15. Sales of Receivables. Sell, assign, discount, transfer, or
otherwise dispose of any accounts receivable, promissory notes, drafts or trade
acceptances or other rights to receive payment held by it, with or without
recourse, except for the purpose of collection or settlement in the ordinary
course of business.
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SECTION 7.16. Use of Proceeds. Permit or suffer the proceeds of any Credit
to be used for any purpose which entails a violation of, or is inconsistent
with, Regulation G, T, U or X of the Board, or for any purpose other than those
set forth in Section 4.13 hereof.
SECTION 7.17. ERISA. (a) Engage in any transaction in connection with which
the Borrower or any ERISA Affiliate could be subject to either a material civil
penalty assessed pursuant to the provisions of Section 502 of ERISA or a
material tax imposed under the provisions of Section 4975 of the Code.
(b) Terminate any Pension Plan in a "distress termination" under Section
4041 of ERISA, or take any other action which could result in a material
liability of the Borrower or any ERISA Affiliate to the PBGC.
(c) Other than with respect to a Multiemployer Plan, fail to make payment
when due of all amounts which, under the provisions of any Plan, the Borrower or
any ERISA Affiliate is required to pay as contributions thereto, or, with
respect to any Pension Plan, permit to exist any material "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA and Section 412 of the
Code), whether or not waived, with respect thereto.
(d) Adopt an amendment to any Pension Plan requiring the provision of
security under Section 307 of ERISA or Section 401(a)(29) of the Code.
(e) With respect to a Multiemployer Plan, incur or cause to occur a
complete or partial withdrawal so as to incur withdrawal liability in an amount
that could reasonably be expected to have a Material Adverse Effect.
SECTION 7.18. Accounting Changes. Make, or permit or suffer any subsidiary
to make any change in their accounting treatment or financial reporting
practices except as required or permitted by generally accepted accounting
principles in effect from time to time.
SECTION 7.19. Modification of Indebtedness. Modify, amend or otherwise
alter the terms and provisions of any Subordinated Indebtedness or prepay or
acquire any Indebtedness outstanding thereunder other than as scheduled
thereunder.
SECTION 7.20. Transactions with Affiliates. Except as otherwise
specifically set forth in this Agreement, directly or indirectly purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or enter into any other transaction with any stockholder, officer, director,
Affiliate or agent of the Borrower or any of its subsidiaries, or H.S. Davidson
Associates, Inc., or
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any relative of any thereof, except at prices and on terms not less favorable to
it than that which would have been obtained in an arm's-length transaction with
a non-affiliated third party, provided that this Section 7.20 shall not be
deemed to prohibit any Credit Party from paying performance related bonuses to
any of its employees or from making loans or advances to employees that are
permitted under Section 7.05(i) hereof or entering into a transaction permitted
under Section 7.04 hereof, and further provided that, subject to the provisions
of Article 7 hereof, this Section 7.20 shall not be deemed to prohibit the
Borrower or any domestic Guarantor or Canadian Guarantor (provided that for any
such Canadian Guarantor the Agent shall have received an opinion of counsel in
form and substance satisfactory to the Agent and the Lenders that the Guarantee
of such Guarantor is enforceable against such Guarantor at least to the same
extent as exists with respect to a domestic Guarantor) from directly or
indirectly purchasing, acquiring or leasing any property from, or selling,
transferring or leasing any property to, or entering into any other transaction
with the Borrower or any domestic Guarantor or qualifying Canadian Guarantor
whether or not such transaction is at arm's-length.
VIII. EVENTS OF DEFAULT
In case of the happening of any of the following events (herein called
"Events of Default"):
(a) any representation or warranty made or deemed made in or in connection
with this Agreement, the Notes or any other Loan Documents or any Credit Events
hereunder, shall prove to have been incorrect in any material respect when made
or deemed to be made;
(b) default shall be made in the payment of any principal of any Note when
and as the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Note, any
Revolving Credit Commitment Fee or any fee or any other amount payable
hereunder, or under the Notes, Letters of Credit, Acceptance Drafts or any other
Loan Document, or in connection with any other Credit Event or the Transactions,
when and as the same shall become due and payable;
(d) (i) default shall be made in the due observance or performance of any
covenant, condition or agreement to be observed or performed on the part of the
Borrower or any of its subsidiaries pursuant to the terms of Article II or III,
hereof, Sections 6.05, 6.06, 6.08 and 6.13 hereof, or Articles VII, X or XI
hereof or pursuant to any other Loan Document; or (ii) default shall be made in
the due observance or performance of any other covenant, condition or agreement
to be observed or performed pursuant to the
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terms hereof and such default shall continue unremedied for thirty (30) or more
consecutive days from the date any Credit Party becomes aware or should have
become aware of such default (but in any event from a date that a Credit Party
has been advised by the Agent or any Lender (such person being under no duty to
so advise) of such default);
(e) the Borrower, any Guarantor or any subsidiary of any thereof shall (i)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code or any other Federal, state or foreign
bankruptcy, insolvency, liquidation or similar law, (ii) consent to the
institution of, or fail to contravene in a timely and appropriate manner, any
such proceeding or the filing of any such petition, (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator or similar
official for the Borrower, such Guarantor or such subsidiary or for a
substantial part of its property or assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) become unable,
admit in writing its inability or fail generally to pay its debts as they become
due or (vii) take corporate action for the purpose of effecting any of the
foregoing;
(f) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (i) relief in
respect of the Borrower, any Guarantor or any subsidiary of any thereof, or of a
substantial part of the property or assets of the Borrower, any Guarantor or any
subsidiary of any thereof, under Title 11 of the United States Code or any other
Federal state or foreign bankruptcy, insolvency, receivership or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator or similar
official for the Borrower, any Guarantor or any subsidiary of any thereof or for
a substantial part of the property of the Borrower, any Guarantor or any
subsidiary of any thereof or (iii) the winding-up or liquidation of the
Borrower, any Guarantor or any subsidiary of any thereof; and such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall continue unstayed and in effect for 60
days;
(g) default shall be made with respect to any Indebtedness of the Borrower,
any Guarantor or any subsidiary of any thereof in excess of $300,000 (excluding
Indebtedness outstanding hereunder) if the effect of any such default shall be
to accelerate, or to permit the holder or obligee of any such Indebtedness (or
any trustee on behalf of such holder or obligee) at its option to accelerate,
the maturity of such Indebtedness or obligations under a capitalized lease;
(h) (i) a Reportable Event shall have occurred with respect to a Pension
Plan, (ii) the filing by the Borrower, any ERISA
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Affiliate, or an administrator of any Plan of a notice of intent to terminate
such a Plan in a distress termination" under the provisions of Section 4041 of
ERISA, (iii) the receipt of notice by the Borrower, any ERISA Affiliate, or an
administrator of a Plan that the PBGC has instituted proceedings to terminate
(or appoint a trustee to administer) such a Pension Plan, (iv) any other event
or condition exists which might, in the reasonable opinion of the Agent,
constitute grounds under the provisions of Section 4042 of ERISA for the
termination of (or the appointment of a trustee to administer) any Pension Plan
by the PBGC, (v) a Pension Plan shall fail to maintain the minimum funding
standard required by Section 412 of the Code for any plan year or a waiver of
such standard is sought or granted under the provisions of Section 412(d) of the
Code, (vi) the Borrower or any ERISA Affiliate has incurred, or is likely to
incur, a liability under the provisions of Section 4062, 4063, 4064 or 4201 of
ERISA, (vii) the Borrower or any ERISA Affiliate fails to pay the full amount of
an installment required under Section 412(m) of the Code, (viii) the occurrence
of any other event or condition with respect to any Plan which would constitute
an event of default under any other agreement entered into by the Borrower or
any ERISA Affiliate, and in each case in clauses (i) through (viii) of this
subsection (h), such event or condition, together with all other such events or
conditions, if any, could subject the Borrower or any ERISA Affiliate to any
taxes, penalties or other liabilities which, in the reasonable opinion of the
Agent, could have a Material Adverse Effect;
(i) the Borrower or any ERISA Affiliate (i) shall have been notified by the
sponsor of a Multiemployer Plan that it has incurred any withdrawal liability to
such Multiemployer Plan which could reasonably be expected to have a Material
Adverse Effect and (ii) does not have reasonable grounds for contesting such
withdrawal liability and is not in fact contesting such withdrawal liability in
a timely and appropriate manner;
(j) a judgment (to the extent not reimbursed by insurance policies of the
Borrower, any Guarantor or any subsidiary of any thereof) or decree for the
payment of money, a fine or penalty which when taken together with all other
such judgments, decrees, fines and penalties shall exceed $300,000 shall be
rendered by a court or other tribunal against the Borrower, any Guarantor or any
subsidiary of any thereof and (i) shall remain undischarged or unbonded for a
period of 45 consecutive days during which the execution of such judgment,
decree, fine or penalty shall not have been stayed effectively or (ii) any
judgment creditor or other person shall legally be prosecuting an unstayed
action to collect on or enforce such judgment, decree, fine or penalty;
(k) this Agreement, any Note or any other Loan Document shall for any
reason cease to be, or shall be asserted by the Borrower, any Guarantor or any
subsidiary of any thereof not to be, a legal,
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valid and binding obligation of the Borrower, such Guarantor or such subsidiary,
as applicable, enforceable in accordance with its terms, or the security
interest or Lien purported to be created by any Loan Document shall for any
reason cease to be, or be asserted by the Borrower, any Guarantor or any
subsidiary of any thereof not to be, a valid, first priority perfected security
interest in any collateral covered thereby (except to the extent otherwise
permitted under this Agreement; or
(l) any person shall legally commence proceedings to foreclose upon any
Lien (other than any Lien of the type described in Section 7.01(d) or (1)
hereof) on any property of the Borrower or any subsidiary thereof except to the
extent that such proceedings shall have been stayed or a surety bond
satisfactory to the Agent and the Lenders in connection with such proceedings
shall have been obtained by the Borrower or such subsidiary;
then, and in any such event (other than an event described in paragraph (e) or
(f) above), and at any time thereafter during the continuance of such event, the
Agent with the written consent of the Required Lenders may, and upon the written
request of the Required Lenders shall, by written notice (or facsimile notice
promptly confirmed in writing) to the Borrower, take any or all of the following
actions at the same or different times: (i) terminate forthwith all or any
portion of the Revolving Credit Commitment and the obligations of the Lenders to
issue Letters of Credit and accept Acceptance Drafts; (ii) demand that the
Borrower and the Guarantors provide to the Lenders, and the Borrower and the
Guarantors upon such demand agree to provide, cash collateral in an amount equal
to the aggregate Letter of Credit Exposure then existing plus the aggregate
Acceptance Draft Exposure then outstanding, to be held by the Agent for the
ratable benefit of the Lenders on terms and pursuant to documents and agreements
satisfactory in all respects to the Agent; and (iii) declare the Notes and any
amounts then owing to the Lenders on account of drawings under any Letters of
Credit and Acceptance Drafts to be forthwith due and payable, and the Borrower
shall provide such cash collateral to secure the aggregate Letter of Credit
Exposure then existing plus the Acceptance Draft Exposure then existing,
whereupon the principal of such Notes, together with accrued interest and fees
thereon and any amounts then owing to the Lenders on account of drawings under
any Letters of Credit and acceptance of Acceptance Drafts and other liabilities
of the Borrower accrued hereunder, shall become forthwith due and payable both
as to principal and interest, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Borrower,
anything contained herein or in the Notes to the contrary notwithstanding;
provided, however, that with respect to a default described in paragraph (e) or
(f) above, the Revolving Credit Commitment and the obligation of the Lenders to
issue Letters of Credit and accept Acceptance Drafts shall automatically
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terminate and the principal of the Notes, together with accrued interest and
fees thereon and any amounts then owing to the Lenders on account of drawings
under any Letters of Credit and Acceptance Drafts and any other liabilities of
the Borrower accrued hereunder shall automatically become due and payable, both
as to principal and interest, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrower,
anything contained herein or in the Notes to the contrary notwithstanding.
IX. AGENT
In order to expedite the transactions contemplated by this Agreement, Fleet
Bank, N.A. is hereby appointed to act as Agent on behalf of the Lenders. Each of
the Lenders and each subsequent holder of any Note or issuer of any Letter of
Credit or acceptor of any Acceptance Draft by its acceptance thereof,
irrevocably authorizes the Agent to take such action on its behalf and to
exercise such powers hereunder and under the Loan Documents as are specifically
delegated to or required of the Agent by the terms hereof and the terms thereof
together with such powers as are reasonably incidental thereto. Neither the
Agent nor any of its directors, officers, employees or agents shall be liable as
such for any action taken or omitted to be taken by it or them hereunder or
under any of the Loan Documents or in connection herewith or therewith (a) at
the request or with the approval of the Required Lenders (or, if otherwise
specifically required hereunder or thereunder, the consent of all the Lenders)
or (b) in the absence of its or their own gross negligence or willful
misconduct.
The Agent is hereby expressly authorized on behalf of the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of each of the
Lenders any payment of principal of or interest on the Notes outstanding
hereunder and all other amounts accrued hereunder paid to the Agent, and
promptly to distribute to each Lender its proper share of all payments so
received, (b) to distribute to each Lender copies of all notices, agreements and
other material as provided for in this Agreement or in the other Loan Documents
as received by such Agent and (c) to take all actions with respect to this
Agreement and the other Loan Documents as are specifically delegated to the
Agent.
In the event that (a) the Borrower fails to pay when due the principal of
or interest on any Note, any amount payable under any Letter of Credit or
Acceptance Draft, or any fee payable hereunder or (b) the Agent receives written
notice of the occurrence of a Default or an Event of Default, the Agent within a
reasonable time shall give written notice thereof to the Lenders, and shall take
such action with respect to such Event of Default or other condition or event as
it shall be directed to take by the Required Lenders; provided, however, that,
unless and until the Agent shall have
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received such directions, the Agent may take such action or refrain from taking
such action hereunder or under any other Loan Documents with respect to a
Default or Event of Default as it shall deem advisable in the best interests of
the Lenders.
The Agent shall not be responsible in any manner to any of the Lenders for
the effectiveness, enforceability, perfection, value, genuineness, validity or
due execution of this Agreement, the Notes or any of the other Loan Documents or
any other agreements or certificates, requests, financial statements, notices or
opinions of counsel or for any recitals, statements, warranties or
representations contained herein or in any such instrument or be under any
obligation to ascertain or inquire as to the performance or observance of any of
the terms, provisions, covenants, conditions, agreements or obligations of this
Agreement or any of the other Loan Documents or any other agreements on the part
of the Borrower and, without limiting the generality of the foregoing, the Agent
shall, in the absence of knowledge to the contrary, be entitled to accept in
good faith any certificate furnished pursuant to this Agreement or any of the
other Loan Documents as conclusive evidence of the facts stated therein and
shall be entitled to rely in good faith on any note, notice, consent,
certificate, affidavit, letter, telegram, teletype message, statement, order or
other document which it believes in good faith to be genuine and correct and to
have been signed or sent by the proper person or persons. It is understood and
agreed that the Agent may exercise its rights and powers under other agreements
and instruments to which it is or may be a party, and engage in other
transactions with the Borrower, as though it were not Agent of the Lenders
hereunder.
The Agent shall promptly give notice to the Lenders of the receipt or
sending of any notice, schedule, report, projection, financial statement or
other document or information pursuant to this Agreement or any of the other
Loan Documents and shall promptly forward a copy thereof to each Lender.
Neither the Agent nor any of its directors, officers, employees or agents
shall have any responsibility to the Borrower on account of the failure or delay
in performance or breach by any Lender other than the Agent of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or the Borrower of any of their
respective obligations hereunder or in connection herewith.
The Agent may consult with legal counsel selected by it in connection with
matters arising under this Agreement or any of the other Loan Documents and any
action taken or suffered in good faith by it in accordance with the opinion of
such counsel shall be full justification and protection to it. The Agent may
exercise any of its powers and rights and perform any duty under this Agreement
or any of the other Loan Documents through agents or attorneys.
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The Agent and the Borrower may deem and treat the payee or most recent
assignee pursuant to Section 11.03(e) hereof, as applicable, of any Note as the
holder thereof until written notice of transfer shall have been delivered as
provided in Section 11.03(e) hereof by such payee to the Agent and the Borrower.
With respect to the Loans made hereunder, the Notes issued to it and any
other Credit Event applicable to it, the Agent in its individual capacity and
not as an Agent shall have the same rights, powers and duties hereunder and
under any other Agreement executed in connection herewith as any other Lender
and may exercise the same as though it were not the Agent, and the Agent and its
affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or other affiliate thereof as if it were not
the Agent.
Each Lender agrees (i) to reimburse the Agent in the amount of such
Lender's pro rata share (based on its Revolving Credit Commitment hereunder) of
any expenses incurred for the benefit of the Lenders by the Agent, including
counsel fees and compensation of agents and employees paid for services rendered
on behalf of the Lenders, not reimbursed by the Borrower and (ii) to indemnify
and hold harmless the Agent and any of its directors, officers, employees or
agents, on demand, in the amount of its pro rata share, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against it in its capacity as the
Agent or any of them in any way relating to or arising out of this Agreement or
any of the other Loan Documents or any action taken or omitted by it or any of
them under this Agreement or any of the other Loan Documents, to the extent not
reimbursed by the Borrower; provided, however, that no Lender shall be liable to
the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgment, suits, costs, expenses or disbursements resulting
from the gross negligence or willful misconduct of the Agent or any of its
directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement and any other Loan Document to which such Lender is party.
Each Lender also acknowledges that it will, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own decisions in
taking or not taking action under or based upon this Agreement, any other Loan
Document, any related agreement or any document furnished hereunder.
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Subject to the appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by notifying the Lenders and the
Borrower. Upon any such resignation, the Lenders shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by such
Lenders and shall have accepted such appointment within 30 days after the
retiring Agent gives notice of its resignation, then the retiring Agent may, on
behalf of the Lenders, appoint a successor Agent which shall be a bank with an
office (or an affiliate with an office) in the New York metropolitan area having
a combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor bank, such successor shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent and the retiring Agent shall be discharged from
its duties and obligations hereunder and under each of the other Loan Documents.
After any Agent's resignation hereunder, the provisions of this Article shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by the Agent pursuant to the
provisions of this Agreement or any of the other Loan Documents unless it shall
be requested in writing to do so by the Required Lenders.
X. GUARANTEES
Each Guarantor unconditionally guarantees, as a primary obligor and not
merely as a surety, jointly and severally with each other Guarantor, the due and
punctual payment of the principal of and interest on each of the Notes, when and
as due, whether at maturity, by acceleration, by notice of prepayment or
otherwise, and the due and punctual performance of all other Obligations. Each
Guarantor further agrees that the Obligations may be extended and renewed, in
whole or in part, without notice to or further assent from it, and that it will
remain bound upon its guarantee notwithstanding any extension or renewal of any
obligations.
Each Guarantor waives presentment to, demand of payment from and protest to
the Borrowers of any of the Obligations, and also waives notice of acceptance of
its guarantee and notice of protest for nonpayment. The obligations of a
Guarantor hereunder shall not be affected by: (a) the failure of any Lender or
the Agent to assert any claim or demand or to enforce any right or remedy
against the Borrower or any other Guarantor under the provisions of this
Agreement, the Notes, any Letter of Credit, any Acceptance Draft, any Loan
Document or any other document or instrument executed and delivered in
connection herewith or therewith, or otherwise; (b) any rescission, waiver,
amendment or modification of any of the terms or provisions of this Agreement,
the Notes, any
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Letter of Credit, any Acceptance Draft, any Loan Document or any other document
or instrument executed and delivered in connection herewith or therewith; (c)
the release or impairment of any security held by the Agent for the Obligations
or any of them; or (d) the failure of any Lender to exercise any right or remedy
against any other Guarantor of the Obligations.
Each Guarantor further agrees that its guarantee constitutes a guarantee of
payment when due and not of collection, and waives any right to require that any
resort be had by any Lender to any collateral security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
any Lender in favor of any Borrower or any other person.
The obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the Agent
or any Lender to assert any claim or demand or to enforce any remedy under this
Agreement, the Notes, any Letter of Credit, any Acceptance Draft, any other Loan
Document or any other document or instrument executed and delivered in
connection herewith or therewith, by any waiver or modification of any term or
provision thereof, by any default, failure or delay, willful or otherwise, (i)
in the performance of the Obligations, (ii) in the exercise or enforcement of
any right, power, privilege, remedy or interest of the Agent or any Lender under
this Agreement, any other Loan Document or applicable law, or (iii) by any other
act or omission which may or might in any manner or to any extent vary the risk
of such Guarantor or otherwise operate as a discharge of such Guarantor as a
matter of law or equity.
Each Guarantor further agrees that its guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be returned by the Agent or any Lender upon the bankruptcy or
reorganization of any Borrower or otherwise.
Each Guarantor hereby waives and releases all rights of subrogation against
the Borrower and its property and all rights of indemnification, contribution
and reimbursement from the Borrower and its property, in each case in connection
with this guarantee and any payments made hereunder, and regardless of whether
such rights arise by operation of law, pursuant to contract or otherwise.
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XI. MISCELLANEOUS
SECTION 11.01. Notices. Notices, consents and other communications provided
for herein shall be in writing and shall be delivered or mailed (or in the case
of telex or facsimile communication, delivered by telex, graphic scanning,
telecopier or other telecommunications equipment, with receipt confirmed)
addressed,
(a) if to the Borrower, any Guarantor or any of their respective
subsidiaries at Milgray Electronics, Inc., 77 Schmitt Boulevard, Farmingdale,
New York 11735, Attn: John Tortorici, Vice President - Finance, with a copy to
Herschel M. Weinberg, Esq., 110 East 59th Street, New York, New York 10022;
(b) if to the Agent, Fleet Bank, N.A., Corporate Banking Division, Broad
Hollow Road, Melville, New York 11747, Attn: Mr. Steven J. Melicharek, Senior
Vice President; and
(c) if to First Union, at First Union National Bank, Large Corporate Group
NJ1536, 550 Broad Street, 15th Floor, Newark, New Jersey 07102, Attn: Mr. Robert
Doherty, Vice President; and
(d) if to EAB, at European American Bank, 730 Veterans Memorial Highway,
Hauppauge, New York 11788, Attn: Mr. Richard Romano, Vice President; and
(e) if to any other Lender, at the address set forth below its name in
Schedule 2.01 hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if hand delivered or three Business Days after being sent by
registered or certified mail, postage prepaid, return receipt requested, if by
mail, or upon receipt during normal business hours on any Business Day (or
otherwise the next Business Day) if by any telex, facsimile or other
telecommunications equipment, in each case addressed to such party as provided
in this Section 11.01 or in accordance with the latest unrevoked direction from
such party.
SECTION 11.02. Survival of Agreement. All covenants, agreements,,
representations and warranties made by the Borrower or any of its subsidiaries
herein and in the certificates or other instruments prepared or delivered in
connection with this Agreement or any other Loan Document, shall be considered
to have been relied upon by the Lenders and shall survive the making by the
Lenders of the Loans and the execution and delivery to the Lenders of the Notes
and occurrence of any other Credit Event and shall continue in full force and
effect as long as the principal of or any accrued interest on the Notes or any
other fee or amount payable under the
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Notes or this Agreement or any other Loan Document is outstanding and unpaid and
so long as any Lender's Revolving Credit Commitment has not been terminated.
SECTION 11.03. Successors and Assigns; Participations: (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf the Borrower, any Guarantor, any ERISA
Affiliate, any subsidiary of any thereof, the Agent or the Lenders, that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns. Without limiting the generality of the
foregoing, the Borrower specifically confirms that the Agent and each Lender may
at any time and from time to time assign or pledge or otherwise grant a security
interest in any Loan or any Note or Acceptance Draft (or any part thereof) to
any Federal Reserve Bank. The Borrower may not assign or transfer any of its
rights or obligations hereunder without the written consent of all the Lenders.
(b) Each Lender, without the consent of the Borrower, may sell
participations to one or more banks or other entities in all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Revolving Credit Commitment) and the Loans owing to it and
undrawn Letters of Credit and Acceptance Drafts and the Notes held by it);
provided, however, that (i) such Lender's obligations under this Agreement
(including, without limitation, its Revolving Credit Commitment) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the banks or other
entities buying participations shall be entitled to the cost protection
provisions contained in Sections 2.11(a) (except to the extent that application
of such Section 2.11(a) to such banks and entities would cause the Borrower to
make duplicate payments thereunder), 2.12 and 2.13 hereof, and (iv) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement; provided, further, however, that each Lender
shall retain the sole right and responsibility to enforce the obligations of the
Borrower and the Guarantors relating to the Loans, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement, other than amendments, modifications or waivers
with respect to any fees payable hereunder or the amount of principal or the
rate of interest payable on, or the dates fixed for any payment of principal of
or interest on, the Loans.
(c) Each Lender may assign by novation as of the date of assignment, to any
one or more banks or other entities without the consent of the Borrower but with
the consent of the Agent
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which will not be unreasonably withheld (except that in the case of an
assignment by a Lender to one of its Affiliates, to another Lender or to any
Federal Reserve Bank no such consent of the Agent shall be required), all or a
portion of its interests, rights and obligations under this Agreement and the
other Loan Documents (including, without limitation, all or a portion of its
Revolving Credit Commitment and the same portion of the Loans and undrawn
Letters of Credit and Acceptance Drafts at the time owing to it and the Note or
Notes held by it), provided, however, that (i) each such assignment shall be of
a constant, and not a varying, percentage of all of the assigning Lender's
rights and obligations under this Agreement, which shall include the same
percentage interest in the Loans, Letters of Credit, Acceptance Drafts and
Notes, (ii) the amount of the Revolving Credit Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date the Assignment and Acceptance with respect to such assignment is delivered
to the Agent) shall be in a minimum principal amount of $2,000,000 Revolving
Credit Commitment of such Lender and (iii) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance and recording in the
Register (as defined below), an Assignment and Acceptance, together with any
Note subject to such assignment and a processing and recordation fee of $2,000.
Upon such execution, delivery, acceptance and recording and after receipt of the
written consent of the Agent, from and after the effective date specified in
each Assignment and Acceptance, which effective date shall be at least five (5)
Business Days after the execution thereof, (x) the assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder and under the other Loan
Documents and (y) the Lender which is assignor thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement and the other Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto and thereto).
(d) By executing and delivering an Assignment and Acceptance, the Lender
which is assignor thereunder and the assignee thereunder confirm to, and agree
with, each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereunder free and clear of any adverse claim, such
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, perfection, genuineness, sufficiency or value of this Agreement,
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; (ii) such Lender makes no representation or warranty and
assumes no
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responsibility with respect to the financial condition of the Borrower, any
Guarantor or any subsidiary of any thereof or the performance or observance by
the Borrower, any Guarantor or any subsidiary of any thereof of any of their
respective obligations under this Agreement or any of the other Loan Documents
or any other instrument or document furnished pursuant hereto or thereto; (iii)
such assignee confirms that it has received a copy of this Agreement, and the
other Loan Documents, together with copies of financial statements and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Agent, such
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee appoints and
authorizes the Agent to take such action as the Agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (vi) such assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Lender.
(e) The Agent shall maintain at its address referred to in Section 11.01
hereof a copy of each Assignment and Acceptance delivered to it and a register
for the recordation of the names and addresses of the Lenders and the Revolving
Credit Commitment of, and principal amount of the Loans owing to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive, in the absence of manifest error or written notice to the contrary
delivered in accordance with this Agreement, and the Borrower, the Agent and the
Lenders may treat each person whose name is so recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee together with any Note or Notes subject to such
assignment and the written consent to such assignment, the Agent shall, if such
Assignment and Acceptance has been completed and is substantially in the form of
Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Lenders and the Borrower. Within five (5) Business Days after
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Agent in exchange for each surrendered Note or Notes a new Note
or Notes to the order of such assignee in an amount equal to the Revolving
Credit Commitment assumed by it pursuant to such Assignment and Acceptance and,
if
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the assigning Lender has retained any Revolving Credit Commitment hereunder, a
new Note or Notes to the order of the assigning Lender in an amount equal to the
Revolving Credit Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit A hereto. Notes surrendered to the Borrower shall be cancelled by the
Borrower.
(g) Notwithstanding any other provision herein, any Lender may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 11.03, disclose to the assignee or
participant or proposed assignee or participant, any information, including,
without limitation, any Information, relating to the Borrower furnished to such
Lender by or on behalf of the Borrower in connection with this Agreement;
provided, however, that prior to any such disclosure, each such assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any confidential information relating to the Borrower
received from such Lender.
(h) Nothing in this Section shall limit or restrict the ability of any
Lender to sell, rediscount or otherwise dispose of any Acceptance Draft.
SECTION 11.04. Expenses: Indemnity. (a) The Borrower agrees to pay all
reasonable out-of-pocket expenses incurred by the Agent in connection with the
preparation of this Agreement, the Notes and the other Loan Documents or with
any amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions hereby contemplated shall be consummated) or
incurred by the Agent or any of the Lenders in connection with the enforcement,
adjudication or protection of its rights in connection with this Agreement or
any of the other Loan Documents or with the Loans made or the Notes or Letters
of Credit or Acceptance Drafts issued hereunder, or in connection with any
pending or threatened action, proceeding, or investigation relating to the
foregoing, including but not limited to the reasonable fees and disbursements of
counsel for the Agent and, in connection with such enforcement or protection,
the reasonable fees and disbursements of counsel for the Lenders. The Borrower
further indemnities the Lenders from and agrees to hold them harmless against
any documentary taxes, assessments or charges made by any governmental authority
by reason of the execution and delivery of this Agreement or the Notes.
(b) The provisions of this Section 11.04 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
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Agreement or the Notes, or any investigation made by or on behalf of the Agent
or any Lender. All amounts due under this Section 11.04 shall be payable on
written demand therefor.
SECTION 11.05. Applicable Law. THIS AGREEMENT AND THE NOTES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED) BY THE LAW OF THE STATE OF NEW YORK
(OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF).
SECTION 11.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, upon the request of the Required Lenders each Lender shall
and is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower or any Guarantor against any and all of the obligations
of the Borrower now or hereafter existing under this Agreement and the Notes
held by such Lender, irrespective of whether or not such Lender shall have made
any demand under this Agreement or the Notes and although such obligations may
be unmatured. Each Lender agrees to notify promptly the Agent and the Borrower
and any applicable Guarantor after any such setoff and application made by such
Lender, but the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which may be available to such Lender.
SECTION 11.07. Payments on Business Days. Should the principal of or
interest on the Notes or any fee or other amount payable hereunder become due
and payable on other than a Business Day, payment in respect thereof may be made
on the next succeeding Business Day (except as otherwise specified in the
definition of "Interest Period"), and such extension of time shall in such case
be included in computing interest, if any, in connection with such payment.
SECTION 11.08. Waivers; Amendments, (a) No failure or delay of any Lender
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. The rights and remedies of the Lenders hereunder are cumulative and not
exclusive of any rights or remedies which they may otherwise have. No waiver of
any provision of this Agreement or the Notes nor consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be
authorized as provided in paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on the Borrower in any case
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shall entitle it to any other or further notice or demand in similar or other
circumstances. Each holder of any of the Notes shall be bound by any amendment,
modification, waiver or consent authorized as provided herein, whether or not
such Note shall have been marked to indicate such amendment, modification,
waiver or consent.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders; provided, however, that no such
agreement shall (i) change the principal amount of, or extend or advance the
maturity of or the dates for the payment of principal of or interest on, any
Note or reduce the rate of interest on any Note, without the consent of each
holder affected thereby, (ii) change the Revolving Credit Commitment of any
Lender or amend or modify the provisions of this Section, Section 2.05, 2.06,
2.07, 2.09, 2.10, 2.12, 2.13 or 2.14, Section 3.02, 3.04, 3.05, 3.06, 3.07 or
3.10, Section 4.13, Article V, Article VIII (except action with respect to
affirmative and negative covenants shall only need be taken by the Required
Lenders) or Section 11.04 hereof or the definition of "Required Lenders", or
(iii) amend or modify any other provision of this Agreement or of any of the
other Loan Documents that would have the effect of reducing the security, if
any, for the Loans, in each case without the prior written consent of each
Lender affected thereby and provided, further, however, that no such agreement
shall amend, modify or otherwise affect the rights or duties of the Agent under
this Agreement or the other Loan Documents without the written consent of the
Agent. Each Lender and holder of any Note shall be bound by any modification or
amendment authorized by this Section regardless of whether its Notes shall be
marked to make reference thereto, and any consent by any Lender or holder of a
Note pursuant to this Section shall bind any person subsequently acquiring a
Note from it, whether or not such Note shall be so marked.
(c) In the event that the Borrower requests, with respect to this Agreement
or any other Loan Document, an amendment, modification or waiver and such
amendment, modification or waiver would require the unanimous consent of all of
the Lenders in accordance with Section 11.08(b) above, and such amendment,
modification or waiver is agreed to in writing by the Borrower and the Required
Lenders but not by all of the Lenders, then notwithstanding anything to the
contrary in Section 11.08(b) above, with the written consent of the Borrower and
such Required Lenders, the Borrower and Required Lenders may, but shall not be
obligated to, amend this Agreement without the consent of the Lender or Lenders
who did not agree to the proposed amendment, modification or waiver (the
"Minority Lenders") solely to provide for each and all of (i) the termination of
the Revolving Credit Commitment of each Minority Lender, (ii) the assignment in
accordance with Section 11.03, hereof to one or more persons of each Minority
Lender's
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interests, rights and obligations under this Agreement (including, without
limitation, all of such Minority Lender's Revolving Credit Commitment as well as
its portion of all outstanding Loans and the Note or Notes held by such Minority
Lender) and the other Loan Documents and/or an increase in the Revolving Credit
Commitment of one or more Required Lenders, in each case so that after giving
effect thereto the Total Revolving Credit Commitment shall be in the same amount
as prior to the events described in this paragraph, (iii) the repayment to the
Minority Lenders in full of all Loans made by such Minority Lenders outstanding
and accrued interest thereon at the time of the assignment and/or increase in
Revolving Credit Commitments described in clause (ii) above with the proceeds of
Loans made by such persons who are to become Lenders by assignment or with the
proceeds of Loans made by Required Lenders who have agreed to increase their
Revolving Credit Commitment, (iv) the payment to the Minority Lenders by the
Borrower of all fees and other compensation due and owing such Minority Lenders
under the terms of this Agreement and the other Loan Documents and (v) such
other modifications as the Required Lenders and Borrower shall deem necessary in
order to effect to changes specified in clauses (i) through (iv) hereof.
SECTION 11.09. Severability. In the event any one or more of the provisions
contained in this Agreement or in the Notes should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 11.10. Entire Agreement; Waiver of Jury Trial, Etc. (a) This
Agreement, the Notes and the other Loan Documents constitute the entire contract
between the parties hereto relative to the subject matter hereof. Any previous
agreement among the parties hereto with respect to the Transactions is
superseded by this Agreement, the Notes and the other Loan Documents. Except as
expressly provided in this Agreement, the Notes or the other Loan Documents,
nothing in this Agreement, the Notes or in the other Loan Documents is intended
to confer upon any party, other than the parties hereto, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, the Notes or
the other Loan Documents.
(b) Except as prohibited by law, each party hereto hereby waives any right
it may have to a trial by jury in respect of any litigation directly or
indirectly arising out of, under or in connection with this Agreement, the
Notes, any of the other Loan Documents or the Transactions.
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(c) Except as prohibited by law, each party hereto hereby waives any right
it may have to claim or recover in any litigation referred to in paragraph (b)
of this Section 11.10 any special, exemplary, punitive or consequential damages
or any damages other than, or in addition to, actual damages.
(d) Each party hereto (i) certifies that no representative, agent or
attorney of any Lender has represented, expressly or otherwise, that such Lender
would not, in the event of litigation, seek to enforce the foregoing waivers and
(ii) acknowledges that it has been induced to enter into this Agreement, the
Notes or the other Loan Documents, as applicable, by, among other things, the
mutual waivers and certifications herein.
SECTION 11.11. Confidentiality. The Agent and the Lenders agree to keep
confidential (and to cause their respective officers, directors, employees,
agents and representatives to keep confidential) all information, materials and
documents furnished to the Agent or any Lender (the "Information").
Notwithstanding the foregoing, the Agent and each Lender shall be permitted to
disclose Information (i) to such of its officers, directors, employees, agents,
attorneys and representatives as need to know such Information in connection
with its participation in any of the Transactions or the administration of this
Agreement or the other Loan Documents; (ii) to the extent required by applicable
laws and regulations or by any subpoena or similar legal process, or requested
by any governmental agency or authority; (iii) to the extent such Information
(A) becomes publicly available other than as a result of a breach of this
Agreement, (B) becomes available to the Agent or such Lender on a
non-confidential basis from a source other than the Borrower, any Guarantor or
any of their respective subsidiaries or (C) was available to the Agent or such
Lender on a non-confidential basis prior to its disclosure to the Agent or such
Lender by the Borrower, any Guarantor or any of their respective subsidiaries;
(iv) to the extent the Borrower, any Guarantor or any of their respective
subsidiaries shall have consented to such disclosure in writing; (v) in
connection with the sale of any collateral pursuant to the provisions of any of
the other Loan Documents; or (vi) pursuant to Section 11.03(g) hereof.
SECTION 11.12. Submission to Jurisdiction. (a) Any legal action or
proceeding with respect to this Agreement or the Notes or any other Loan
Document may be brought in the courts of the State of New York or of the United
States of America for the Southern District of New York, and, by execution and
delivery of this Agreement, the Borrower and each of the Guarantors hereby
accept for themselves and in respect of their property, generally and
unconditionally, the jurisdiction of the aforesaid courts.
(b) The Borrower and each of the Guarantors hereby irrevocably waive, in
connection with any such action or
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proceeding, any objection, including, without limitation, any objection to the
laying of venue or based on the grounds of forum non conveniens, which they may
now or hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions.
(c) The Borrower and each of the Guarantors hereby irrevocably consent to
the service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to each such person, as the case may be, at its address set
forth in Section 11.01 hereof.
(d) Nothing herein shall affect the right of the Agent or any Lender to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrower or any Guarantor in any
other jurisdiction.
SECTION 11.13. Counterparts; Facsimile Signature. This Agreement each of
the other Loan Documents may be executed in counterparts of the entire document,
or of signature pages to the document, each of which shall constitute an
original but all of which when taken together shall constitute but one contract,
and shall become effective when copies which, when taken together, bear the
signatures of each of the parties hereto or thereto shall be delivered to the
Agent and the Borrower. Delivery of an executed counterpart of a signature page
to this Agreement or any other Loan Document by telecopier shall be effective as
delivery of a manually executed signature page hereto or thereto.
SECTION 11.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only and are not to affect
the construction of, or to be taken into consideration in interpreting, this
Agreement.
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IN WITNESS WHEREOF, the Borrower, Guarantors, the Agent and the Lenders
have caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ John Tortorici
-----------------------------------
John Tortorici
Vice President-Finance
MILGRAY/ARIZONA, INC.
MILGRAY/ATLANTA, INC.
BIRNBACH COMPANY, INC.
MILGRAY/CALIFORNIA, INC.
MILGRAY/CHICAGO, INC.
MILGRAY/CLEVELAND, INC.
MILGRAY/COLORADO, INC.
MILGRAY/COMPUTER PRODUCTS, INC.
MILGRAY/CONNECTICUT, INC.
MILGRAY/DALLAS, INC.
MILGRAY/DELAWARE VALLEY, INC.
MILGRAY/FLORIDA, INC.
MILGRAY/HOUSTON, INC.
MILGRAY/HUNTSVILLE, INC.
MILGRAY/INDIANA, INC.
MILGRAY/INTERNATIONAL, INC.
a New York corporation
MILGRAY/KANSAS CITY, INC.
MILGRAY LTD.
MILGRAY/NEW ENGLAND, INC.
MILGRAY/NEW JERSEY, INC.
MILGRAY/NEW YORK, INC.
MILGRAY/NORTHERN CALIFORNIA, INC.
MILGRAY/ORANGE COUNTY, INC.
MILGRAY/OREGON, INC.
MILGRAY ELECTRONICS/P.R., INC.
MILGRAY/RALEIGH, INC.
MILGRAY/SAN DIEGO, INC.
MILGRAY/UPSTATE NEW YORK, INC.
U.S. COMPUTER SUPPLY, INC.
MILGRAY/UTAH, INC.
MILGRAY/WASHINGTON, INC.
VIEWTEK, INC.
By: /s/ John Tortorici
--------------------------------------
John Tortorici
as Vice President-Finance of and on
behalf of each of the foregoing
corporations
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MILGRAY/TORONTO, INC.
By: /s/ John Tortorici
---------------------------------
John Tortorici
Secretary
FLEET BANK, N.A.
as Lender
By: /s/ Steven J. Melicharek
---------------------------------
Steven J. Melicharek
Senior Vice President
FLEET BANK, N.A.
as Agent
By: /s/ Steven J. Melicharek
---------------------------------
Steven J. Melicharek
Senior Vice President
FIRST UNION NATIONAL BANK
By: /s/ Carol Van Eck
---------------------------------
Carol Van Eck
Assistant Vice President
EUROPEAN AMERICAN BANK
By: /s/ Richard Romano
---------------------------------
Richard Romano
Vice President
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EXHIBIT A
Form of Revolving Credit Note
$_________________ Melville, New York
August __, 1996
FOR VALUE RECEIVED, the undersigned, MILGRAY ELECTRONICS, INC., a New York
corporation (the "Maker"), hereby promises to pay to the order of
____________________________________ (the "Lender"), at the office of Fleet
Bank, N.A. (the "Agent"), at 300 Broad Hollow Road, Melville, New York 11747, on
the Revolving Credit Termination Date as defined in the Credit Agreement dated
as of August __, 1996, among the Maker, the Guarantors named therein, the
Lenders named therein and the Agent (as the same may be amended, modified or
supplemented from time to time in accordance with its terms, the "Credit
Agreement") or earlier as provided for in the Credit Agreement, the lesser of
the principal sum of _______________________________________ ($__________)
Dollars or the aggregate unpaid principal amount of all Revolving Credit Loans
to the Maker from the Lender pursuant to the terms of the Credit Agreement, in
lawful money of the United States of America in immediately available funds, and
to pay interest from the date thereof on the principal amount hereof from time
to time outstanding, in like funds, at said office, at a rate or rates per annum
and payable on such dates as determined pursuant to the terms of the Credit
Agreement.
The Maker promises to pay interest, on demand, on any overdue principal
and, to the extent permitted by law, overdue interest from their due dates at a
rate or rates determined as set forth in the Credit Agreement.
The Maker hereby waives diligence, presentment, demand, protest and notice
of any kind whatsoever. The non-exercise by the holder of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments of
the principal hereof and interest hereon and the respective dates thereof shall
be endorsed by the holder hereof on the schedule attached hereto and made a part
hereof, or on a continuation thereof which shall be attached hereto and made a
part hereof, or otherwise recorded by such holder in its internal records;
provided, however, that the failure of the holder hereof to make such a notation
or any error in such a notation shall not in any manner affect the obligation of
the Maker to make payments of principal and interest in accordance with the
terms of this Note and the Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement which,
among other things, contains provisions for the
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acceleration of the maturity hereof upon the happening of certain events, for
optional and mandatory prepayment of the principal hereof prior to the maturity
hereof and for the amendment or waiver of certain provisions of the Credit
Agreement, all upon the terms and conditions therein specified. THIS NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
MILGRAY ELECTRONICS, INC.
By:________________________________
Name:
Title:
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Loans and Payment
Unpaid Name of Person
Amount and Payments Principal Making
Date Type of Loan Principal and Interest Balance of Note Notation
- ---- ------------ ---------------------- --------------- --------
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EXHIBIT B
August __, 1996
Fleet Bank
300 Broad Hollow Road
Melville, New York 11747
First Union National Bank
550 Broad Street
Newark, New Jersey 07102
European American Bank
730 Veterans Memorial Highway
Hauppauge, New York 11788
Dear Sirs:
I have acted as counsel to Milgray Electronics, Inc., a New York
corporation (the "Borrower") and the Guarantors (other than Milgray/Toronto,
Inc.) executing the Agreement dated as of August __, 1996 (the "Agreement")
among the Borrower, the Guarantors named in the Agreement, Fleet Bank, N.A. (the
"Agent"), First Union National Bank and European American Bank in connection
with the execution and delivery of the Agreement. This opinion does not cover
Milgray/Toronto, Inc., which is not included in the term "Guarantors" as
hereinafter used in this opinion.
This opinion is delivered to you pursuant to subsection 5.02 of the
Agreement. Terms used herein which are defined in the Agreement shall have the
respective meanings set forth in the Agreement, unless otherwise defined herein.
In connection with this opinion, I have examined copies of the Agreement,
the Notes, the form of the Acceptance Drafts and such corporate documents and
records of the Borrower and the Guarantors and certificates of public officials
and officers of the Borrower and the Guarantors, and such other documents, as I
have deemed necessary or appropriate for the purposes of this opinion. In
stating my opinion, I have assumed the genuineness of all signatures of, and the
authority of, persons signing the Agreement, the Notes and the Acceptance
Drafts, the authenticity of all documents submitted to me as originals and the
conformity to authentic original documents of all documents submitted to me as
certified, conformed or photostatic copies. The term "knowledge" when used in
stating my opinion herein means actual knowledge on my part.
Based upon the foregoing, I am of the opinion that:
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1. Each of the Borrower and the Guarantors (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (b) has the corporate power to own its assets, to lease the
property it operates under lease and to transact the business in which it is
currently engaged, and (c) based upon representations by its management (upon
which I have relied) as to its ownership, lease and operation of property and
conduct of its business, is not required to be qualified to do business under
the laws of any jurisdiction other than the jurisdiction of its incorporation,
except that the Borrower (in addition to the jurisdiction of its incorporation)
is also required to be, and is, qualified to do business in California.
2. The Borrower has the corporate power and authority and the legal right
to make, deliver and perform the Agreement, the Notes and the Acceptance Drafts
and to borrow thereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions of the Agreement, the Notes
and the Acceptance Drafts. Each of the Guarantors has the corporate power and
authority and the legal right to make, deliver and perform its obligations under
the Agreement and has taken all necessary corporate action to authorize the
obligations of such Guarantor contained in the Agreement. No consent of any
other party (including stockholders of the Borrower), except as expressly
contemplated by the Agreement in connection with the performance thereof, and no
consent, license, approval or authorization of, or registration or declaration
with, any governmental authority, bureau or agency is required in connection
with the execution, delivery, performance, validity or enforceability of the
Agreement, the Notes or the Acceptance Drafts.
3. The execution, delivery and performance of the Agreement, the Notes and
the Acceptance Drafts will not violate any provision of any existing law or
regulation or of any order or decree of any court or governmental
instrumentality binding upon the Borrower or any Guarantor or of the Certificate
of Incorporation or Bylaws of the Borrower or any Guarantor or of any mortgage,
indenture, contract or other agreement, of which I have knowledge, to which the
Borrower or any Guarantor is a party or by which the Borrower or any Guarantor
or any of its or their property or assets may be bound, and will not result in
the creation or imposition of any lien, charge or encumbrance on, or security
interest in, any of its or their properties pursuant to the provisions of any
such mortgage, indenture, contract or other agreement of which I have knowledge.
4. To the best of my knowledge (based upon inquiries made of the management
of the Borrower and the Guarantors upon which I have relied) no litigation,
investigation or administrative proceedings of or before any court, tribunal or
governmental body is presently pending or, to the knowledge of the Borrower,
threatened against the Borrower or any Guarantor or any of its or their
properties or
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with respect to the Agreement, the Notes or the Acceptance Drafts, which, if
adversely determined, would, in the opinion of the Borrower, have a Material
Adverse Effect.
5. The execution, delivery and performance by the Borrower and each of the
Guarantors of the Agreement, and by the Borrower of the Notes and the Acceptance
Drafts, have been duly authorized. Upon execution and delivery of the Agreement
and the Notes on behalf of the Borrower by the President or any Vice President
of the Borrower, and upon execution and delivery of the Acceptance Drafts on
behalf of the Borrower by the President, singly, or any two other Responsible
Officers of the Borrower, and upon execution and delivery of the Agreement on
behalf of the Guarantors by the President or any Vice President of each
Guarantor, the Agreement, the Notes and the Acceptance Drafts will constitute
valid obligations of the Borrower legally binding upon the Borrower and
enforceable against the Borrower in accordance with their terms and the
Agreement will constitute a valid obligation of each Guarantor legally binding
upon each Guarantor and enforceable against each Guarantor in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors, rights
generally.
Very truly yours,
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EXHIBIT C
Form of Assignment and Acceptance
Dated: August __, 1996
Reference is made to the Credit Agreement, dated as of August __ 1996 (as
amended, modified or supplemented from time to time in accordance with its
terms, the "Credit Agreement"), among MILGRAY ELECTRONICS, INC. (the
"Borrower"), the guarantors named therein, the lenders named therein
(collectively, the "Lenders") and FLEETBANK, NA., as agent for the Lenders (in
such capacity, the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement.
__________________________________ (the "Assignor") and
__________________________________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, ____% interest in and to all the
Assignor's rights and obligations under the Credit Agreement as of the Effective
Date (as defined below) (including, without limitation, such percentage interest
in the Revolving Credit Commitment of the Assignor on the Effective Date and/or
such percentage interest in the Revolving Credit Loans owing to the Assignor
outstanding on the Effective Date and/or such percentage interest in the Letters
of Credit and Acceptance Drafts outstanding on the Effective Date, together with
such percentage interest in all unpaid interest and commitment fees accrued to
the Effective Date and such percentage interest in the Notes held by the
Assignor, as defined herein).
2. The Assignor (i) represents that as of the date hereof, its Revolving
Credit Commitment (without giving effect to assignments thereof which have not
yet become effective) is $__________, the outstanding balance of its Revolving
Credit Loans (unreduced by any assignments thereof which have not yet become
effective) is $__________, and the amount of its participation in Letters of
Credit and Acceptance Drafts (unreduced by any assignments thereof which have
not yet become effective) that have been issued and remain undrawn is
$___________, (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, perfection, genuineness, sufficiency or value of the
Credit Agreement or any other Loan Documents or any other instrument or document
furnished pursuant to any thereof, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and
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clear of any adverse claim; (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any Guarantor, or the performance or observance by the Borrower or
any Guarantor, of its obligations under the Credit Agreement or any other Loan
Documents or any other instrument or document furnished pursuant to any thereof;
and (iv) attaches the Notes referred to in paragraph 1 above and requests that
the Agent exchange such Notes for a new Note [payable to Assignee] [payable to
Assignor] in principal amounts equal to _______ and _______, respectively.
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance and the other documents executed
and delivered in connection therewith; (ii) confirms that it has received a copy
of the Credit Agreement and the other Loan Documents, together with copies of
such financial statements and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (iii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iv) appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under the Credit Agreement as
are delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) agrees that
it will keep confidential all information with respect to the Borrower furnished
to it by the Borrower or the Assignor (other than information generally
available to the public or otherwise available to the Assignor on a
nonconfidential basis). [; and (vii) attaches the forms prescribed by the
Internal Revenue Service of the United States certifying as to the Assignee's
exemption from United States withholding taxes with respect to all payments to
be made to the Assignee under the Credit Agreement or such other documents as
are necessary to indicate that all such payments are subject to such tax at a
rate reduced by an applicable tax treaty.](1)
4. The effective date for this Assignment and Acceptance shall be
_________________ (the "Effective Date").(2) Following
- ----------
(1) If the Assignee is organized under the laws of a jurisdiction outside the
United States.
(2) See Section 11.03. Such date shall be at least five Business Days after the
execution of this Assignment
-102-
<PAGE>
the execution of this Assignment and Acceptance, it will be delivered to the
Agent for acceptance and recording by the Agent.
5. Upon such acceptance and recording, from and after the Effective Date,
(i) the Assignee shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
6. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments in respect of the interest assigned hereby
(including payments of principal, interest, fees and other amounts) to the
Assignee. The Assignor and Assignee shall make all appropriate adjustments in
payments for periods prior to the Effective Date by the Agent or with respect to
the making of this assignment directly between themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN SAID STATE.
[NAME OF ASSIGNOR]
By:___________________________
Name/Title
[NAME OF ASSIGNEE]
By:___________________________
Name/Title
Accepted this ____ day
of ____________________, 19__
FLEET BANK, NA., as Agent
By:___________________________
Name/Title
- ----------
and Acceptance and delivery thereof to the Agent.
-103-
<PAGE>
EXHIBIT D
Form of Acceptance Draft
$__________________________ N ______________________ 19_____
_____________________________________________________________________ Pay to the
Order of Fleet Bank, National Association
________________________________________________________________________ Dollars
________________________________________________________________________________
Value receive and charge the same to account of
To
[Logo] Fleet Bank
Fleet Bank, National Association
Trade Services
175 Water Street, 3rd Floor
New York, NY 10038-4924 _________________________
The transaction which gives rise to this instrument is the
of _______________________________________________________
From ______________________ to ___________________________
NO._______________________________________________________
ACCEPTED
__________________________________________________________
Fleet Bank, National Association
New York
__________________________________________________________
Authorized Signature
PRIOR ENDORSEMENTS GUARANTEED
Fleet Bank, National Association
New York
By ______________________________________________
AUTHORIZED SIGNATURE
-104-
<PAGE>
EXHIBIT E
Aged Trial Balance
-105-
<PAGE>
EXHIBIT E
<TABLE>
<CAPTION>
ATBLT -1xxxxxxx BIRNBACH CC, INC. AGED TRIAL BALANCE FOR 9/30/95 PAGE 2 10/03/95
CHARGES
C ACCT AND
CUSTOMER D NUM CREDITS CURRENT 31-60 61-90 91-120 OVER 120
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KELMAR SYSTEMS INC K 0447 837.00 837.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
KSM ELECTRONICS K 1107 179.00 179.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
KABAR MANUFACTURING CORP K 1371 2,491.00 808.00 1,683.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
LUCAS SCHAEVITZ INC L 1769 274.00 274.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
METRO TEL P 0745 2,878.79 0.00 2,878.79 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK MC CARTIN M 1227 314.00 314.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
MOECG M 3287 338.00 179.00 159.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
MID ISLAND INDUSTRIAL M 3495 159.00 159.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
MASTER DISTRIBUTORS M 5997 104.00 104.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
NIAGARA MCHAWK POWER CORP N 3588 106.00 106.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
OLYMPUS CORP. O 1668 87.00 87.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
PRECISION MECHANISMS CORP P 1686 2,602.52 2,602.52 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
PAPTLOW CORP P 2108 4,853.50 1,241.50 3,612.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
PCI CABLE P 2533 234.40 234.40 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
FPCTGK ELEC P 2667 2,583.16 2,479.16 104.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
RFM ELECTRONICS R 1040 1,402.33 682.00 377.50 342.83 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
SIMCCNA ELECTRONICS S 1029 85.50CR 85.50CR 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
STONE CONTAINER CORP S 3966 274.00 274.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BIRNBACH CO, INC. TRIAL BALANCE DATE 10/03/95
<PAGE>
<TABLE>
<CAPTION>
ATBLT -1xxxxxxx BIRNBACH CC, INC. AGED TRIAL BALANCE FOR 9/30/95 PAGE 3 10/03/95
CHARGES
C ACCT AND
CUSTOMER D NUM CREDITS CURRENT 31-60 61-90 91-120 OVER 120
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 E TECHNOLOGY T 4042 325.50 224.00 101.50 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
WHOLESALE RADIO W 1070 238.00 0.00 238.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL (EXCLUDES COLLECTION ACCTS) 34,613.84 15,780.09 14030.55 610.83 3,929.43 262.94
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ATBLT -1xxxxxxx MILGRAY ELECTRONICS, INC. AGED TRIAL BALANCE FOR 9/30/95 PAGE 389 10/03/95
CHARGES
C ACCT AND
CUSTOMER D NUM CREDITS CURRENT 31-60 61-90 91-120 OVER 120
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
**NET LESS INTER-COMPANY 41,178,746.76 24,837,866.09 10,424,407.57 2,487,506.45 851,759.76 2,576909.89
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT F
Inventory Turns
-106-
<PAGE>
EXHIBIT F
INVAGERPT INVENTORY TURNS REPORT - AS OF 10/02/95 PAGE 1
BASED ON ORDER BACKLOG + SHPMNTS THRU 10/18/95
<TABLE>
<CAPTION>
------------------- T U R N S --------------------
MFG PART NUMBER BKORD $ INVENT $ TRNS NEW ITEM 0 - .5 .6 - 1 1.1 - 2 2.1 - 3 OVER 3 ITEM #
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALC ADE04 1,941 . 1,941 291886
ALC ADE06 0 319 . 319 297439
ALC ADE08 0 2,978 . 2,978 290012
ALC ADE10 1,203 . 1,203 297450
ALC ADF04 278 . 278 296892
ALC ADF05 0 416 . 416 292695
ALC ADF06S 0 77 . 77 297472
ALC ADF08 0 661 . 661 290544
ALC ADP04 0 1,600 . 1,600 297502
ALC ADP06 55 . 55 335904
ALC ASE22 28 . 28 295176
ALC ASE42G 0 1,680 . 1,680 297910
ALC ASE42RG 0 640 . 640 297915
ALC ASE43RG 0 1,985 1,985 297924
ALC ASE62RG 188 0 188 297931
ALC ASF62 91 . 91 290754
ALC ASF62R 8 8 297962
ALC ASF62RG 775 0 775 297963
ALC ATT5600C 1,173 . 1,173 298087
ALC A101SYCQ 210 . 210 297259
ALC A103-J51ZQ-00 0 253 253 332165
ALC BPM15320 41 162 1 162 291744
ALC BPT15320 91 . 91 298239
ALC BP1900 0 600 . 600 298230
ALC BP5900 106 . 106 298233
ALC C220 66 . 66 298285
ALC DPS8PW 3 . 3 298416
ALC DPS8131AK 5 . 5 296952
ALC DPS81400AKLS 0 1,062 . 1,062 298411
ALC DPS9137AK 0 1,738 . 1,738 294096
ALC DRD10C 16 . 16 291720
ALC DRD10RA 1,131 . 1,131 298440
ALC DRD16C 0 1,783 . 1,783 292170
ALC DRD16CRA 0 1,171 . 1,171 298443
ALC DRD16RA 428 . 428 298445
ALC DRM10 0 973 . 973 298444
ALC DRW16CRA 18 18 298477
ALC DTS4SD 0 1,287 . 1,287 290335
ALC FSM2J 9 . 9 334855
ALC FT105M 0 1,674 . 1,674 298526
ALC GDH04S 1,291 . 1,291 298580
ALC GDH08S 880 . 880 290826
ALC GDP02 25 . 25 298587
ALC GDP04 49 . 49 298590
ALC GDP08 125 . 125 298596
ALC GDP10 92 . 92 298599
ALC GDS02 79 . 79 298616
ALC GDS04 391 . 391 298619
ALC GDS06 558 . 558 298621
ALC GDS06S 0 981 . 981 298622
ALC GDS08 464 . 464 289816
ALC GDS10 227 . 227 298626
ALC G12KA 0 318 . 318 298554
ALC KLN500S1/8 48 . 48 298854
<PAGE>
INVAGERPT INVENTIRY TURNS REPORT - AS OF 10/02/95 PAGE 2
BASED ON ORDER BACKLOG + SHPMNTS THRU 10/18/95
<CAPTION>
------------------- T U R N S --------------------
MFG PART NUMBER BKORD $ INVENT $ TRNS NEW ITEM 0 - .5 .6 - 1 1.1 - 2 2.1 - 3 OVER 3 ITEM #
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALC KLN900S1/4 40 . 40 298860
ALC KU402B1/8 0 3,408 . 3,408 299019
ALC MHS122 0 619 . 619 290658
ALC MHS123 100 . 100 299084
ALC MHS222 606 . 606 299096
ALC MHS223 0 1,254 . 1,254 296979
ALC MHS233RA 255 . 255 299112
ALC MMS12 0 211 . 211 299218
ALC MPA103C 20 . 20 299228
ALC MPA103F 623 . 623 299230
ALC MPA106D 233 . 233 299231
ALC MPB103B 0 1,854 . 1,854 299241
ALC MPE206N 630 1.0- 630 291743
ALC MPG106D 0 1,954 . 1,954 299250
ALC MPG106F 78 . 78 299251
ALC MPS103FPC 568 . 568 299266
ALC MSSA104D1 69 0 69 296818
ALC MSS1200G 0 929 . 929 290436
ALC MSS1200R 103 . 103 299482
ALC MSS2200 144 . 144 299490
ALC MSS4200G 258 . 258 299501
ALC MSS4200R 0 275 . 275 299502
ALC MTA106DPC 0 1,305 . 1,305 299614
ALC MTA106F 66 . 66 299624
ALC MTE106D 0 269 . 269 299681
ALC MTE206N 77 . 77 299686
ALC MTE306D 0 280 . 280 290647
ALC MTF106G 846 . 846 299697
ALC MTF206N 81 . 81 299703
ALC MTF206S 96 . 96 299707
ALC MTG206N 113 . 113 290255
ALC MTL206P 0 2,195 . 2,195 299740
ALC PH13161/4 36 0 36 296886
ALC PICOD131AK 417 . 417 299805
ALC PICOD301AK 443 . 443 299809
ALC PICOP 72 . 72 299816
ALC PICO131ALULS 0 544 . 544 293985
ALC PKES120B1/4 50 . 50 299878
ALC PK1100B1/8 33 . 33 299833
ALC SE1EGPC 0 0 0 300034
ALC SLS121PC 50 . 50 300226
ALC SLS121RA 155 . 155 300227
ALC SLS131PC 65 0 65 300228
ALC SSA12G 0 1,553 . 1,553 300298
ALC SSB12R 0 811 . 811 300303
ALC SSB12RG 3,547 . 3,547 300304
ALC SSH02 7 . 7 300313
ALC SSJ12R 12 . 12 292091
ALC SSJ22R 69 . 69 300320
ALC SSV04 0 506 . 506 300357
ALC SSV08 0 426 . 426 300359
ALC TPA11FGRAO 2 . 2 296890
ALC TPB11FGRAO 340 . 340 300515
ALC TPC13C2 38 . 38 300562
<PAGE>
INVAGERPT INVENTIRY TURNS REPORT - AS OF 10/02/95 PAGE 295
BASED ON ORDER BACKLOG + SHPMNTS THRU 10/18/95
<CAPTION>
------------------- T U R N S --------------------
MFG PART NUMBER BKORD $ INVENT $ TRNS NEW ITEM 0 - .5 .6 - 1 1.1 - 2 2.1 - 3 OVER 3 ITEM #
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3M 923690-14 76 . 76 322080
3M 923690-16 97 . 97 322081
3M 923690-20 155 . 155 322082
3M 924227-32-10-I 0 135 . 135 281464
3M 924227-32-20-I 0 130 . 130 281474
3M 929025-02-20 3 . 3 315339
3M 929400-01-36 9 .0 9 282226
3M 929450-01-36-I 141 . 141 282254
3M 929550-01-36-I 0 365 . 365 282300
3M 929647-01-36-I 69 . 69 294255
3M 929665-01-36I 159 . 159 294062
3M 929715-10-36I 264 . 264 284808
3M 929715-10-36-I 193 . 193 282685
3M 929800-01-36 0 101 . 101 282924
3M 929834-01-03 45 45 4.0 45 282980
3M 929835-01-36 51 . 51 283157
3M 929836-01-08 33 . 33 283236
3M 929836-01-36 41 . 41 283257
3M 929838-01-36 1 . 1 283435
3M 929842-01-14-10 31 . 31 283586
3M 929842-01-30-10 8 . 8 283618
3M 929850-01-18-30 24 . 24 295381
3M 929850-01-23-30 77 . 77 296945
3M 929852-01-15-10 0 38 . 38 283703
3M 929852-01-17-10 0 1,660 . 1,660 283705
3M 929852-01-20-30 0 121 . 121 341112
3M 929950-00-I 0 84 . 84 283802
3M 929953-30 0 525 . 525 294666
3M 929955-06-I 0 81 . 81 294667
3M 929974-01-36 186 . 186 283807
3M 929975-01-10 3 . 3 283963
3M 929975-01-20 0 26 . 26 283977
3M 929975-01-25 0 26 . 26 283986
68 . 68 283991
MFG TOTAL - -> $2,775 $193,421 $188,032 $2,066 $25 $445 $48 $2,805
FINAL TOTAL -> $645,537 $54,380,833 $52,794,956 $767,428 $443,492 $331,906 $4,908 $38,143
</TABLE>
<PAGE>
EXHIBIT G
Draft of Legal Opinion
Rivera Tulla & Ferrer
Puerto Rico Counsel to Milgray Electronics/P.R., Inc.
___________________________
___________________________
___________________________
Re: [Opinion Letter)
Milgray Electronics/P.R., Inc.
Gentlemen:
We have acted as Puerto Rico counsel to Milgray Electronics/P.R., Inc.,
and, solely for purposes of this opinion, as Puerto Rico counsel to Milgray
Electronics, Inc. We deliver this opinion to you pursuant to the provisions of
[article, section, paragraph] of that certain Loan Agreement dated __________
199_, by and between [creditor] Milgray Electronics, Inc. and Milgray
Electronics/P.R., Inc.
On __________, 19__, Milgray Electronics/P.R., Inc., provided us with a
certificate signed by its Chief Financial Officer as of _______________, 19__
Milgray Electronics/P.R., Inc., held the cash, cash equivalents and investments
in tax exempt Puerto Rico Securities listed on said certificate which were held
by or were on deposit with the institutions listed on said certificate; and to
the best of his knowledge and belief, these assets were free and clear of all
liens and encumbrances. Further, with regards to Puerto Rico securities on
deposit with _________________________ the Financial Officer has certified that
Milgray Electronics/P.R., Inc. is the sole owner of said securities and does not
hold the same pursuant to a repurchase transaction, or a reverse repurchase
transaction.
On ____________, 19__, we were provided with a Certificate executed by the
Chief Financial Officer of Milgray Electronics, Inc., to the effect that the
cash, cash equivalents and securities listed on the Milgray Electronics/P.R.,
Inc., certificate were, to the best of his knowledge and belief, the sole
property of Milgray Electronics/P.R., Inc., and were not subject to any lien
and/or encumbrance in favor of Milgray Electronics, Inc. or of any third party.
We have also examined the certificates dated _________, 199_ issued by
[those P.R. banks holding cash, cash equivalents and the P.R. securities
belonging to Milgray Electronics/P.R., Inc.) to the effect that said items were,
to the best of their knowledge and belief, held by each of them free and clear
of all liens and encumbrances including but not limited to, in the case
-107-
<PAGE>
of a Puerto Rico Bank, the right of a banker's set off or, in the case of
securities, that said securities are not held by the Bank and/or Investment
Banker pursuant to a repurchase or reserve repurchase agreement.
We have examined or caused to be examined the registry of Factors Lines and
Assignment of Accounts Receivable at the Registry of Property of San Juan,
Puerto Rico [Milgray Electronics/P.R., Inc.'s legal residence according to the
records of the Department of State] and the Municipality of Canovanas (the site
of the Milgray plant).
Puerto Rico does not have the Uniform Commercial Code and there is no place
where pledges, repurchase agreements, or reverse repurchase agreements can be
registered.
In preparing our opinion we have relied upon the certificates issued by the
Chief Financial Officer of Milgray Electronics/P.R., Inc., the Chief Financial
Officer of Milgray Electronics, Inc., as well as the certificates issued by
__________, ______________, and ___________ the [the banks) all dated
___________, 199_, and on our examination as of even date of the registry of
factors liens and the assignment of account receivable maintained at the San
Juan and the Canovanas registries of property; furthermore no opinion is being
given as to the type, existence or amount of the cash, cash equivalents or
securities.
Based on the foregoing we are of the opinion that as of the close of
business on __________, 19__, the cash, cash equivalents and/or securities
listed on the Milgray Electronics/P.R., Inc., certificate are, to the best of
our knowledge and belief, free and clear of liens and encumbrances as of the
close of business on _________, 199_, including liens and encumbrances in favor
of ______________________, [the banks). It is to be understood that the opinion
expressed herein is as of the close of business on _____________, 199_ and is
further subject to Judicial discretion, the exercise of the sovereign police
power of the Commonwealth of Puerto Rico of the constitutional power of the
United States of America and valid bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the enforcement of creditors rights
generally.
No one other than ___________________________ [the creditor] shall be
entitled to rely on this opinion.
Very truly yours,
Rivera, Tulla & Ferrer
By:_____________________________
-108-
<PAGE>
EXHIBIT H
Form of Notice Regarding Domestic Shipment Financing
**Format of purpose statement letter to be issued by company to meet Federal
Reserve eligibility requirements for specific Bills of Lading
Company Letterhead
Via Fax to: (617) 241-1836
Fleet Bank, N.A.
Trade Services Department
Mail Stop MA ML SFT INT
P.O. Box 2197
Boston, Massachusetts 02106-2197
Attention: Clean Banker's Acceptance Financing
Dear Sir or Madam:
We confirm our request today for the creation of a Banker's Acceptance in the
amount of
$___________ for value ____________ to mature on _____________________.
(Amount) (Date) (Date)
This financing covers the shipment(s) of _________________________
(Goods)
from _______________________________ to _____________________________
(Place) (Place)
We agree to hold available for presentation to you upon request, copies of the
invoices and related transport documents evidencing the transactions being
financed.
In addition, we certify that 1) the tenor of this financing request does not
exceed, from our experience, the average time required to normally collect
payment on the referenced transactions and will not exceed 180 days, 2) there is
no other financing of whatever nature outstanding for this merchandise, and 3)
that the bill of lading is not over 30 days old.
The proceeds of this financing should be credited to our account with you. At
maturity of the financing, you are hereby authorized to charge our account for
payment.
Sincerely,
(Authorized Signer)
-109-
<PAGE>
EXHIBIT I
Form of Certificate of Compliance
To the best of my knowledge, no Default or Event of Default (such terms and all
other capitalized terms used herein having the respective meanings ascribed to
such terms in the Credit Agreement dated as of August __, 1996 among Milgray
Electronics, Inc., the Guarantors named therein the Lenders named therein and
Fleet Bank, N.A. as Agent for the Lenders) has occurred as of _________________.
Calculations demonstrating compliance with the Covenants set forth in Sections
7.06, 7.07, 7.08, 7.09, 7.10, 7.11, 7.12 and 7.13 as of _________________
follow:
Section 7.06. Capital Expenditures
Capital expenditures incurred $____________
Section 7.07. Net Worth
Tangible Net Worth [A] $____________
Consolidated Subordinated
Indebtedness [B] $____________
Net Worth as of [A+B] $____________
Section 7.08. Total Unsubordinated
Liabilities to Net Worth Ratio.
Total Unsubordinated Liabilities [A] $____________
Net Worth [B] $____________
Total Unsubordinated Liabilities
to Net Worth Ratio [A/B] $____________
Section 7.09. Rental Obligations $____________
Section 7.10. Consolidated Inventory
Ratio Inventory [A] $____________
Current Assets [B] $____________
Consolidated Inventory Ratio [A/B] $____________
Section 7.11 Consolidated Current Ratio
Current Assets [A] $____________
Current Liabilities:
Current Liabilities as per
financial statements
Add: Loans and Acceptance Drafts:
Fleet Bank, N.A., First Union
National Bank and European
American Bank
Add: Indebtedness allowed under
Section 7.02 (xviii)
[B] $____________
Consolidated Current Ratio [A/B] $____________
-110-
<PAGE>
Section 7.12. Interest Coverage Ratio
[This ratio is computed annually]
Net Income before income taxes as
per financial statements [A] $____________
Add: Interest Expense [B] $____________
EBIT [A+B] $____________
Interest Expense [D] $____________
Interest Coverage Ratio [C/D) $____________
Section 7.13. Net Income
[This ratio is computed annually]
Consolidated Net Income $____________
IN WITNESS WHEREOF, I have hereunto set my hand this ___________ day of
_____________, 19__.
_____________________________
As Vice President-Finance of
Milgray Electronics, Inc.
-111-
<PAGE>
SCHEDULE 2.01.
Revolving Credit Commitments
Approximate Percentage of Total
Revolving Credit Revolving Credit
Lender Commitment Commitment
- ------ ---------- ----------
Fleet Bank, N.A. $33,600,000 48%
Corporate Banking Division
300 Broad Hollow Road
Melville, New York 11747
Attn: Mr. Steven J. Melicharek
Vice President
First Union Bank $19,600,000 28%
Large Corporate Credit
550 Broad Street
Newark, New Jersey 07102
Attn: Ms. Carol Van Eck
Assistant Vice President
European American Bank $16,800,000 24%
730 Veterans Memorial Highway
Hauppague, New York 11788
-112-
<PAGE>
SCHEDULE 2.02
Lending Offices
Lender Domestic and Eurodollar Lending Offices
- ------ ---------------------------------------
Fleet Bank, N.A. Corporate Banking Division
300 Broad Hollow Road
Melville, New York 11747
First Union Bank Large Corporate Credit
550 Broad Street
Newark, New Jersey 07102
European American Bank 730 Veterans Memorial Highway
Hauppague, New York 11788
-113-
<PAGE>
SCHEDULE 3.01
OUTSTANDING LETTERS OF CREDIT
None
-114-
<PAGE>
SCHEDULE 4.01
Qualified Jurisdictions
Milgray Electronics, Inc. is qualified in California. Milgray/New York, Inc. is
qualified in Nevada. Milgray Electronics P.R., Inc. is authorized to do business
in Puerto Rico, but has not complied with the filing of Annual Reports for the
years 1987, 1988 and 1995; therefore is not in good standing.
-115-
<PAGE>
SCHEDULE 4.05
Material Adverse Change
None
-116-
<PAGE>
SCHEDULE 4.06(a)
Litigation
None
-117-
<PAGE>
SCHEDULE 4.06(b)
Compliance with Laws, etc.
None
-118-
<PAGE>
SCHEDULE 4.09
Taxes
Borrower's Federal income tax returns were audited for Borrower's fiscal
years during the period from October 1, 1991 to September 30, 1994. Total
adjustments in the amount of approximately $40,381 were paid by the Borrower.
Borrower's New York State income tax returns for the period from October 1,
1990 to September 30, 1993 have been audited. Total adjustments in the amount of
approximately $20,569 were paid by Borrower.
-119-
<PAGE>
SCHEDULE 4.10
ERISA
1. In 1988, the assets of a frozen trust under Borrower's previously
terminated Pension and Proft Sharing Plans were transferred to Borrower's 1984
Profit Sharing Plan. This event was reported on Borrower's Form 5500 for 1988.
Following said transfer, the aforementioned assets were held within the
Borrower's 1984 Profit Sharing Plan as a segregated self-directed account for
the beneficiary of said frozen trust. In December 1994, in connection with the
amendment of the Borrower's 1984 Profit Sharing Plan, said account was
distributed in full and rolled over to an IRA for such beneficiary.
2. Borrower's Profit Sharing Plan was amended effective as of January 1995
by adopting Fidelity CORPORATEplan for Retirement (the Profit Sharing/401(k)
Plan) and all of the Plan's assets (not distributed to beneficiaries) were
transferred to the newly adopted Plan. This was reported in the annual report
covering the period January 1, 1994 through January 4, 1995 accompanying
Borrower's Form 5500.
-120-
<PAGE>
3. In 1988, Borrower's Profit Sharing Plan was the subject of an audit with
respect to its 1985 year. No change resulted from the audit.
4. Borrower and a Guarantor (Birnbach Company, Inc.) make contributions to
a multiemployer plan pursuant to a collective bargaining agreement. In 1994,
pursuant to a collective bargaining agreement, the Fund to which said
contributions are made by Borrower and said Guarantor was changed.
-121-
<PAGE>
Schedule 4.14
Subsidiaries and Affiliates
Outstanding
Shares
----------------
Jurisdiction of No. of Par
Name of Subsidiary Incorporation Shares Value
------------------ ------------- ------ -----
Milgray/Arizona, Inc. Arizona 1,000 $1.00
Milgray/Atlanta, Inc. Georgia 1,000 $1.00
Birnbach Company, Inc. New York 120 No Par
Milgray/California, Inc. California 1,000 $1.00
Milgray/Chicago, Inc. Illinois 1,000 $1.00
Milgray/Cleveland, Inc. Ohio 100 $1.00
Milgray/Colorado Colorado 1,000 $1.00
Milgray/Computer Products, Inc. Delaware 1,000 $1.00
Milgray/Connecticut, Inc. Connecticut 1,000 $1.00
Milgray/Dallas, Inc. Texas 1,000 $1.00
Milgray/Delaware Valley, Inc. New Jersey 500 No Par
Milgray/Florida, Inc. Florida 500 $1.00
Milgray/Houston, Inc. Texas 1,000 $1.00
Milgray/Huntsville, Inc. Alabama 1,000 $1.00
Milgray/Indiana, Inc. Indiana 100 No Par
Milgray/International, Inc. New York 2,500 $1.00
Milgray/Kansas City, Inc. Kansas 500 $1.00
Milgray Ltd. New York 100 No Par
Milgray/New England, Inc. Massachusetts 100 $1.00
Milgray/New Jersey, Inc. New Jersey 1,000 $1.00
Milgray/New York, Inc. New York 100 No Par
Milgray/Northern California, Inc. California 1,000 $1.00
Milgray/Orange County, Inc. California 1,000 $1.00
Milgray/Oregon Inc. Oregon 1,000 $1.00
Milgray Electronics/P.R., Inc. Delaware 1,000 $1.00
Milgray/Raleigh, Inc. North Carolina 1,000 $1.00
Milgray/San Diego, Inc. California 1,000 $1.00
Milgray/Toronto, Inc. Ontario 20 $1.00
Milgray/Upstate New York, Inc. New York 1,000 $1.00
U.S. Computer Supply, Inc. New York 1,000 $1.00
Milgray/Utah, Inc., Utah 100 $10.00
Viewtek, Inc. New York 1,000 $1.00
Milgray/Washington, Inc. Maryland 100 $1.00
- ----------
* Milgray Electronics, Inc. is the record and beneficial owner of all of the
outstanding shares of the Subsidiaries listed below unless otherwise
indicated.
-122-
<PAGE>
SCEDULE 4.17
Environmental Compliance
1. See Schedule 6.12 regarding two fuel oil tanks at Schmitt Boulevard,
Farmingdale, New York, and regarding storage, use and disposal of acetone, waste
acetone and toluene by Borrower and regarding storage and use of acetone by
Milgray Electronics/P.R., Inc.
2. In December 1994, a fuel oil spill occurred on Borrower's premises which
was reported to the New York State Department of Environmental Conservation. In
May 1995, Borrower was removed from the active spill list of said Department.
-123-
<PAGE>
SCEDULE 4.20
MILGRAY ELECTRONICS, INC.
FINANCING AGREEMENTS
AS OF AUGUST 29, 1996
Chemical Bank loan due December 31, 1998
Eurodollar Loans-[Eurodollar rate plus .70% and .75%] *
Alternate Base Loans [Alternate Base Rate and
Alternate Base Rate less .55%] *
Fleet Bank loan due December 31, 1998
Eurodollar Loans [Eurodollar rate plus .75%] *
Alternate Base Loans [Alternate Base Rate] *
First Union National Bank loan due December 31, 1998
Eurodollar Loans-[Eurodollar rate plus .75%] *
Alternate Base Loans [Alternate Base Rate] *
Swiss Volksbank Special Deed of Pledge [SFR 35,000]
Guarantee by Milgray/International, Inc. in favor
of Swiss Volksbank [SFR 35,000]
Overdraft Line of Credit of Milgray/International, Inc.
[$1,000,000]
Customs Guarantee Line of Credit not to exceed $75,000
Overdraft Line of Credit of Milgray/Toronto, Inc.
[$1,000,000]
Foreign Exchange Line of Credit of Milgray Electronics, Inc.
in the amount of $4,000,000
Foreign Exchange Line of Credit of Milgray/International, Inc.
in the amount of $4,000,000
Foreign Exchange Line of Credit of Milgray/Toronto, Inc.
in the amount of Canadian $10,000,000
-124-
<PAGE>
EquipmentLoan, due to CIT Group/Equipment
Financing, collateralized by computer equipment,
payable in 60 monthly installments of $4,167 plus
interest at 3/4% over prime, due November 1996 12,500
4.90% IBM Installment Payment Master Agreement
collateralized by computer equipment, payable
in monthly installments of $2,573, including
interest due October 1998 67,625
* To be repaid from proceeds of Credit Agreement
-125-
<PAGE>
SCHEDULE 6.12
Hazardous Materials
1. Borrower, at its premises at 77 Schmitt Boulevard, Farmingdale, New
York, has two fuel oil tanks, i.e., a 10,000 gallon tank and a 5,000 gallon
tank, which had a "Full System Test" in June 1992 and passed the test, which id
required by the Suffolk County Department of Health Services. The permit issued
by said Department for the tanks has an expiration date of August 31, 1997.
2. Borrower stores one drum of acetone at its premises at 77 Schmitt
Boulevard, Farmingdale, New York. The acetone is used in assembky and
value-added operations. The waste acetone and toulene are stored in a drum and
when the drum is full, it is disposed of by a transporter. Reports are filed
with the States of New York and New Jersey at the time of the waste acetone
disposal.
3. Milgray Electronics/P.R., Inc stores acetone on its premises for use in
its manufacturing operations. The acetone is completely used in the
manufacturing process and there is no residue.
-126-
<PAGE>
SCHEDULE 7.01
EXISTING LIENS
Lien held by CIT Group Financing, Inc., covering certain computer equipment
of Borrower, securing balance of indebtness [$12,500 as of August 29, 1996] due
in connection with this equipment.*
Liens held by IBM Credit Corp., covering certain computer equipment of
Borrower, securing balance of Indebtness [$67,625 as of August 29, 1996] due in
connection with this equipment.*
Lien under Special Deed of Pledge of Milgray/International, Inc. in favor
of Swiss Volksbank with respect to SPR35,000 held in an account or accounts in
the name of Milgray/International, Inc. at Swiss Volksbank.
Lien arising from judgement by Kressparkasse Goppingen against Milgray,
Ltd. in the amount of DM 82.73280 together with interest thereon at 13.25% per
annum from August 1, 1994 and in the amount of DM 6,852.83 together with
interest thereon at the rate of 4% per annum from July 12, 1995.
* For additional information regarding Indebtness covered by this lien, see
Schedule 7.02.
-127-
<PAGE>
SCHEDULE 7.02
MILGRAY ELECTRONICS, INC.
INDEBTEDNESS
AS OF AUGUST 29, 1996
Chemical Bank loan due December 31, 1998
Eurodollar Loans-[Eurodollar rate plus .70% and .75%] $18,120,000 *
Alternate Base Loans [Alternate Base Rate and
Alternate Base Rate less .55%] -0- *
Fleet Bank loan due December 31, 1998
Eurodollar Loans-[Eurodollar rate plus .75%] 10,570,000 *
Alternate Base Loans [Alternate Base Rate] -0- *
First Union National Bank loan due December 31, 1998
Eurodollar Loans-[Eurodollar rate plus .75%] 9,060,000 *
Alternate Base Loans [Alternate Base Rate] -0- *
Swiss Volksbank Special Deed of Pledge [SFR 35,000]
Guarantee of Milgray/International, Inc. in favor
of Swiss Volksbank [SFR 35,000]
Customs Guarantee Line of Credit not to exceed $75,000
EquipmentLoan, due to CIT Group/Equipment Financing,
collateralized by computer equipment, payable in
60 monthly installments of $4,167 plus interest at
3/4% over prime; due November 1996 12,500
4.90% IBM Installment Payment Master Agreement
collateralized by computer equipment, payable in
monthly installments of $2,573
including interest due October 1998 67,625
Irrevocable Standby Letter of Credit in favor of Mosel
Technology, Inc., Taipei, Taiwan in the amount of $100,000
* To be repaid from proceeds of Amended and Restated Credit Agreement
-128-
EXHIBIT 22
Subsidiaries of the Registrant
State or Jurisdiction
Name of Incorporation
- ------------------------------ ----------------------
Milgray/Cleveland, Inc. Ohio
Milgray/New England, Inc. Massachusetts
Milgray/Delaware Valley, Inc. New Jersey
Milgray/Washington, Inc. Maryland
Milgray Ltd. New York
Milgray/International, Inc. New York
Milgray/New York, Inc. New York
Milgray/Florida, Inc. Florida
Milgray/Kansas City, Inc. Kansas
Birnbach Company, Inc. New York
Milgray/Chicago, Inc. Illinois
Milgray/Dallas, Inc. Texas
Milgray Electronics/P.R., Inc. Delaware
Milgray/Utah, Inc. Utah
Milgray/California, Inc. California
Milgray/New Jersey, Inc. New Jersey
Milgray/Toronto, Inc. Ontario
Milgray/Houston, Inc. Texas
Milgray/Raleigh, Inc. North Carolina
Milgray/Orange County, Inc. California
Milgray/Northern California, Inc. California
Milgray/Upstate New York, Inc. New York
Milgray/Atlanta, Inc. Georgia
Milgray/Connecticut, Inc. Connecticut
Milgray/Indiana, Inc. Indiana
Milgray/Colorado, Inc. Colorado
Milgray/Huntsville, Inc. Alabama
Milgray/San Diego, Inc. California
Milgray/Oregon, Inc. Oregon
Viewtek, Inc. New York
Milgray/Arizona, Inc. Arizona
All of the outstanding stock of each of the above subsidiaries is wholly
owned by the registrant. Each of the above subsidiaries does business under its
own name and/or as a subsidiary of the registrant.
EXHIBIT 23(ii)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated October 24, 1996, accompanying the consolidated
financial statements and schedule included in the Annual Report of Milgray
Electronics, Inc. and Subsidiaries on Form 10-K for the year ended September 30,
1996. We hereby consent to the incorporation by reference of said reports in the
Registration Statements of Milgray Electronics, Inc. on Forms S-8 (File No.
33-59986, effective March 24, 1993, and File No. 33-66652, effective July 29,
1993).
GRANT THORNTON LLP
Melville, New York
December 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME
OF MILGRAY ELECTRONICS, INC. AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,787
<SECURITIES> 0
<RECEIVABLES> 38,787
<ALLOWANCES> 1,277
<INVENTORY> 55,419
<CURRENT-ASSETS> 96,656
<PP&E> 6,508
<DEPRECIATION> 2,725
<TOTAL-ASSETS> 100,741
<CURRENT-LIABILITIES> 17,487
<BONDS> 36,887
1,704
0
<COMMON> 0
<OTHER-SE> 44,406
<TOTAL-LIABILITY-AND-EQUITY> 100,741
<SALES> 275,399
<TOTAL-REVENUES> 275,399
<CGS> 214,788
<TOTAL-COSTS> 214,788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 750
<INTEREST-EXPENSE> 2,587
<INCOME-PRETAX> 14,038
<INCOME-TAX> 5,425
<INCOME-CONTINUING> 8,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,613
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
<FN>
<F1> ANSWER IS 0 WHEN THE TAG IS NOT APPLICABLE OR THE TAG DOES NOT CORRESPOND
TO OR IS MORE OR LESS INCLUSIVE THAN THE CAPTION USED IN THE CONDENSED
FINANCIAL STATEMENTS FILED ON FORM 10-K
</FN>
</TABLE>
EXHIBIT 99
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
MILGRAY ELECTRONICS, INC.
(Name of Subject Company)
MILGRAY ELECTRONICS, INC.
(Name of Person Filing Statement)
Common Stock, Par Value $.25 Per Share
(Title and Class of Securities)
599751 10 4
(CUSIP Number of Class of Securities)
RICHARD HYMAN
Executive Vice President
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
(516) 420-9800
(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of the Person Filing Statement)
Copy to
HERSCHEL M. WEINBERG, ESQ.
110 East 59th Street
New York, New York 10022
Telephone (212) 980-2600
================================================================================
<PAGE>
INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 ("Schedule
14D-9") relates to an offer by ME Acquisition, Inc., a New York corporation and
a wholly owned subsidiary of Bell Industries, Inc., a California corporation, to
purchase all of the Shares (as defined below) of Milgray Electronics, Inc., a
New York corporation. Capitalized terms used herein and not otherwise defined
herein shall have the meaning assigned to them in the offer to purchase dated
December 4, 1996 ("Offer to Purchase") referred to in Item 2 hereof.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Milgray Electronics, Inc., a New York
corporation (the "Company"). The address of the principal executive office of
the Company is 77 Schmitt Boulevard, Farmingdale, New York 11735. The title of
the class of equity securities to which this Statement relates is the common
stock, par value $.25 per share (the "Shares") of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer (the "Offer") disclosed in the
Schedule 14D-l dated December 4, 1996 (as amended or supplemented, "Schedule
14D-l") filed with the Securities and Exchange Commission (the "Commission") by
Bell Industries, Inc., a California corporation ("Parent" or "Bell") and its
wholly owned subsidiary ME Acquisition, Inc., a New York corporation (the
"Purchaser") relating to an offer by the Purchaser to purchase all outstanding
Shares at $14.77 per share, net to the seller in cash, without interest (the
"Offer Price") upon the terms and subject to the conditions set forth in the
Offer to Purchase and the related letter of transmittal ("Letter of
Transmittal"), copies of which are filed as Exhibits (a)(1) and (a)(2) hereto,
respectively. The principal executive offices of each of the Purchaser and
Parent are located at 11812 San Vicente Boulevard, Los Angeles, CA 90049-5022.
The Offer is being made pursuant to the Agreement and Plan of Merger dated
as of November 26, 1996 (the "Merger Agreement"), by and among the Company, Bell
and the Purchaser. A copy of the Merger Agreement is filed as Exhibit (c)(1) to
this Schedule 14D-9 and is incorporated herein by reference in its entirety.
Pursuant to the Merger Agreement, as soon as practicable following the
consummation of the Offer and the satisfaction or waiver of certain conditions,
the Purchaser will be merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation (the "Surviving Corporation").
In the Merger each Share outstanding at the Effective Time (other than Shares
held in the treasury of the Company, Shares owned by Bell, the Purchaser or any
other subsidiary of Bell or the Company or Shares owned by stockholders who
properly exercise their dissenters' rights under the New York Business
Corporation Law [the "BCL"]) will by virtue of the Merger and without any action
of the holder thereof, be converted into the right to receive $14.77 per Share,
net to the Seller in cash, without interest thereon (the "Merger
Consideration"), upon the surrender of the certificate formerly representing
such Share (the "Certificate"). The Merger Agreement is summarized in Item 3 of
this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company (which is the person
filing this Statement) are set forth in Item I above. Unless the context
otherwise requires, references to the Company in this Schedule 14D-9 are to the
Company and its subsidiaries, viewed as a single entity.
(b) The Company is a party to the Merger Agreement and Confidentiality
Agreement with the Parent and/or Purchaser; and directors and/or executive
officers of the Company are parties to agreements and arrangements summarized
below relating to or arising out of transactions contemplated by the Merger
Agreement or the Merger.
1
<PAGE>
THE MERGER AGREEMENT
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as Exhibit (c)(l)
to this Schedule 14D-9 and is incorporated herein by reference in its entirety.
The Offer. The Merger Agreement provides that Purchaser will commence the
Offer and that, upon the terms and subject to the prior satisfaction or waiver
of the conditions of the Offer, Purchaser will accept for payment and pay for
Shares tendered as soon as practicable after it is legally permitted to do so
under applicable law, subject to the restriction set forth in the next
succeeding sentence. The Merger Agreement provides that, without the written
consent of the Company, Purchaser will not decrease the Offer Price, decrease
the number of Shares sought, change the form of the consideration to be paid in
the Offer, amend or waive the Minimum Condition or amend any other condition of
the Offer (other than insignificant changes or amendments) in any manner adverse
to the holders of the Shares except that if on the initial scheduled Expiration
Date all conditions of the Offer have not been satisfied or waived, the Offer
may be extended from time to time without the consent of the Company until
February 6, 1997, or if the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act") has not expired or terminated by February
6, 1997, until February 28, 1997. The Merger Agreement also provides that,
without the written consent of the Company, the Purchaser will not accept for
payment and pay for any Shares prior to January 7, 1997. In addition, the Merger
Agreement provides that, without the consent of the Company, the Offer Price may
be increased and the Offer may be extended to the extent required by law in
connection with such an increase.
The Merger. The Merger Agreement provides that subject to the terms and
conditions thereof, and pursuant to New York Law, at the Effective Time
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of Purchaser will cease and the Company will
continue as the Surviving Corporation.
The respective obligations of Parent and Purchaser, on the one hand, and
the Company, on the other hand, to effect the Merger are subject to the
conditions that: (i) all authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by, any
Federal, state, local or foreign governmental or regulatory authority necessary
for the consummation of the Merger and the transactions contemplated by the
Merger Agreement will have been filed, occurred or been obtained and will be in
effect at the Effective Time; (ii) no temporary restraining order, preliminary
injunction or permanent injunction or other order precluding, restraining,
enjoining, preventing or prohibiting the consummation of the Merger will have
been issued by any Federal, state or foreign court or other governmental or
regulatory authority and remain in effect; (iii) no Federal, state, local or
foreign statute, rule or regulation will have been enacted which prohibits the
consummation of the Merger or would make the consummation of the Merger illegal;
and (iv) the Merger Agreement will have been approved and adopted by the
affirmative vote required of the shareholders of the Company, if required
pursuant to the Company's articles of incorporation and applicable New York Law
in order to consummate the Merger. In addition, the obligations of the Company
to effect the Merger are also subject to the satisfaction or waiver, on or prior
to the date of the closing of the Merger (the "Closing Date"), of the additional
condition that Parent, Purchaser or their affiliates will have purchased Shares
(including without limitation the Shares subject to the Tender Agreement)
pursuant to the Offer.
The Merger Agreement provides that at the Effective Time, each issued and
outstanding Share (other than Shares that are owned by the Company as treasury
stock and any Shares owned by Parent, Purchaser or any other wholly owned
subsidiary of Parent) will be converted into the right to receive the Offer
Price, without interest.
Pursuant to the Merger Agreement, each issued and outstanding share of
common stock of Purchaser will be converted into one fully paid and
nonassessable share of common stock of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that
promptly upon the purchase of and payment for any Shares (including without
limitation all Shares subject to the Tender Agreement) by Purchaser or any other
subsidiary of Parent pursuant to the Offer, Parent will be entitled to designate
such
2
<PAGE>
number of directors, rounded to the nearest whole number, on the Board as is
equal to the product of the total number of directors then serving on the Board
(which, immediately prior to such calculation, may not consist of more than five
directors) multiplied by the ratio of the aggregate number of Shares
beneficially owned by Parent, Purchaser and any of their affiliates to the total
number of Shares then outstanding. The Company must, upon request of Purchaser,
take all action necessary to cause Parent's designees to be elected or appointed
to the Board, including without limitation securing the resignations of such
number of its incumbent directors as is necessary to enable Parent's designees
to be so elected or appointed to the Board, and must cause Parent's designees to
be so elected or appointed. Purchaser has advised the Company that it is
Purchaser's expectation that those individuals so elected or appointed to the
Board will not receive any compensation for services rendered in such capacity.
At such time, the Company will also cause persons designated by Parent to
constitute the same percentage (rounded to the nearest whole number) as is on
the Board of (i) each committee of the Board, (ii) each board of directors (or
similar body) of each subsidiary of the Company and (iii) each committee (or
similar body) of each such board.
The Merger Agreement further provides that the Company will promptly take
all actions required pursuant to Section 14(f) of the Exchange Act and Rule
14f-l promulgated thereunder, including mailing to shareholders as part of the
Company's Schedule 14D-9 the information required by such Section 14(f) and Rule
14f-l as is necessary to enable Parent's designees to be elected to the Board.
From and after the time, if any, that Parent's designees constitute a majority
of the Board, any amendment of the Merger Agreement, any termination of the
Merger Agreement by the Company, any extension of time for performance of any of
the obligations of Parent or Purchaser thereunder, any waiver of any condition
or any of the Company's rights thereunder or other action by the Company
thereunder (other than as specifically provided in the Merger Agreement) may be
effected only if the action is approved by a majority of the directors of the
Company then in office who were directors of the Company on the date of the
Merger Agreement; provided that, if there will be no such directors, such
actions may be effected by majority vote of the entire Board.
Shareholders Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger: (i) duly call,
give notice of, convene and hold a special meeting of its shareholders (the
"Special Meeting") as soon as practicable following the acceptance for payment
and purchase of Shares by Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the Merger Agreement; (ii) prepare and file
with the Commission a preliminary proxy or information statement relating to the
Merger and the Merger Agreement and use its reasonable efforts (x) to obtain and
furnish the information required to be included by the Commission in the Company
Proxy Statement and, after consultation with Parent, to respond promptly to any
comments made by the Commission with respect to the preliminary proxy or
information statement and cause a definitive proxy or information statement (the
"Company Proxy Statement") to be mailed to its shareholders and (y) to obtain
the necessary approvals of the Merger and the Merger Agreement by its
shareholders; and (iii) include in the Company Proxy Statement the
recommendation of the Board of Directors that shareholders of the Company vote
in favor of the approval of the Merger and the adoption of the Merger Agreement
(provided that shareholders should consult with their financial or tax advisers
prior to voting to approve the Merger) unless, in the opinion of the Board of
Directors after consultation with independent counsel, the inclusion of such
recommendation would be inconsistent with its fiduciary duties under applicable
law. Purchaser has agreed that it will, and will cause any of its permitted
assignees to, vote all of the Shares then owned by it which are entitled to vote
in favor of the approval of the Merger and the adoption of the Merger Agreement.
The Merger Agreement provides that in the event Purchaser acquires at least
90% of the outstanding Shares, the parties will take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition without approval of the Company shareholders.
Interim Operations. In the Merger Agreement, the Company has agreed that,
except as expressly contemplated therein or as agreed in writing by Parent,
after the date of the Merger Agreement and prior to the time the directors of
the Purchaser have been elected to the Board, that the business of the Company
and its subsidiaries will be carried on in the usual, regular and ordinary
course, in substantially the same manner as previously conducted. The Merger
Agreement sets forth various specific actions related to the conduct of its
3
<PAGE>
business which the Company is prohibited or restricted from taking during this
period and other actions which the Company is required to take during this
period.
No Solicitation. In the Merger Agreement, the Company has agreed that the
Company and its subsidiaries and affiliates will not, and will use their
reasonable efforts to ensure that their respective officers, directors,
employees, investment bankers, attorneys, accountants and other representatives
and agents do not, directly or indirectly, initiate, solicit, encourage or
participate in, or provide any information to any person concerning, or take any
action to facilitate the making of, any offer or proposal which constitutes or
reasonably likely to lead to any Acquisition Proposal (as hereinafter defined)
of the Company or any subsidiary or affiliate or an inquiry with respect
thereto. The Company has agreed and will cause its subsidiaries and affiliates,
and their respective officers, directors, employees, investment bankers,
attorneys, accountants and other agents to, immediately cease and cause to be
terminated all existing activities, discussions and negotiations, if any, with
any parties conducted heretofore with respect to such matters. Nonetheless, the
Company may, directly or indirectly, provide access and furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to an appropriate confidentiality
agreement, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal (x) if such entity
or group has submitted a bona fide written proposal to the Board relating to any
such transaction and (y) if, in the opinion of the Board after consultation with
independent legal counsel to the Company, the failure to provide such
information or access or to engage in such discussions or negotiations would be
inconsistent with their fiduciary duties under applicable law.
The Company is required to promptly notify Parent and Purchaser of any such
offers, proposals or Acquisition Proposals (including without limitation the
terms and conditions thereof and the identity of the person making it), and is
further required to keep Parent apprised of all developments with respect to any
such Acquisition Proposal. The Company is further required to give Parent
written notice of any Acquisition Proposal that the Company intends to accept as
an Acceptable Offer in accordance with the terms of the Merger Agreement at
least two business days prior to accepting such offer or otherwise entering into
any agreement or understanding with respect thereto. Any modification of an
Acquisition Proposal constitutes a new Acquisition Proposal for purposes of
these provisions of the Merger Agreement.
Nothing in the Merger Agreement prohibits the Company or its Board from (a)
taking and disclosing to the Company's shareholders a position with respect to a
tender offer by a third party pursuant to Rules 14d-9 and 14e-2 under the
Exchange Act, or (b) making such disclosure to the Company's shareholders which,
in the opinion of the Board, after consultation with independent legal counsel
to the Company, may be required under applicable law. "Acquisition Proposal"
when used in connection with any person means any tender or exchange offer
involving such person, any proposal for a merger, consolidation or other
business combination involving such person or any subsidiary of such person, any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the business or assets of, such person or any
subsidiary of such person, any proposal or offer with respect to any
recapitalization or restructuring with respect to such person or any subsidiary
of such person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such person, or any subsidiary
of such person; provided, however, that, as used in the Merger Agreement, the
term "Acquisition Proposal" does not apply to (i) any transaction of the type
described in Section 6.1(d) of the Merger Agreement involving Parent, Purchaser
or their affiliates. "Acceptable Offer" means an executed written offer for an
Acquisition Proposal received by the Company (i) in which the offeror
demonstrates proof reasonably satisfactory to the Company's Board of Directors
of its financial capability and authority to consummate the transactions
contemplated by such offer (including without limitation the payments required
by Section 9.1(b) of the Merger Agreement) and (ii) which provides for (x) net
cash proceeds to the Company or all of its shareholders (in addition to amounts
paid pursuant to clause (i) above) in an amount greater than that provided for
under the Merger Agreement, at a per Share purchase price greater than that
contained thereunder (or, in the event such amount has been increased by Parent
in the Merger Agreement, such greater amount) or (y) the issuance of publicly
traded stock as the consideration payable to the Company or all of its
shareholders (in addition to amounts paid pursuant to clause (i) above) which
has an established market value in excess of the per Share purchase price
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contained herein (or, in the event such amount has been increased by Parent in
the Merger Agreement, such greater amount).
Directors' and Officers' Indemnification. The by-laws of the Surviving
Corporation in effect on the date of the Merger Agreement may not be amended,
replaced or modified up to a date which is six years from the Effective Time in
any manner which would adversely affect the rights of individuals who on the or
at any time prior to the Effective Time were directors, officers, employees or
agents of the Company unless such modification is required by law. For six years
after the earlier of (i) the date on which the Parent Designees have been
elected to the Board of Directors of the Company pursuant to Section 3.1 of the
Merger Agreement and constitute a majority of the members thereof or (ii) the
Effective Time, Parent shall and shall cause the Surviving Corporation to
indemnify the present and former officers, directors, employees or agents of the
Company or its subsidiaries against losses, claims, damages, liabilities, fees
and expenses including reasonable fees and disbursements of counsel and
judgments, fines, losses, claims, liabilities and amounts paid in settlement
(provided that the settlement is effected with the prior written consent of
Parent or the Surviving Corporation, which consent shall not be unreasonably
withheld) arising out of actions or omissions occurring at or prior to the
Effective Time (including without limitation matters arising out of or
pertaining to the transactions contemplated by the Merger Agreement) to the full
extent permitted under New York law or the Company's certificate of
incorporation or by-laws in effect at the date of the Merger Agreement. In
addition, Parent and the Surviving Corporation are required to honor and fulfill
the obligations of the Company under indemnification agreements with the
Company's directors and officers existing at or within five business days of the
date of the Merger Agreement which are listed in a schedule to the Merger
Agreement and have been delivered to Parent and Purchaser in accordance with the
Merger Agreement. The Merger Agreement also provides that the Company's
Directors' and Officers' Liability Insurance which is in effect on the date of
the Merger Agreement will be maintained through the Effective Time, at which
time the Parent shall or shall cause the Surviving Corporation to purchase and
pay for runoff coverage for a six-year term covering those persons who are
currently covered by the Company's Directors' and Officers' Liability Insurance
Policy with coverages and terms substantially similar to those now applicable.
Benefit Plans and Certain Contracts and Employment Arrangements. The Merger
Agreement provides that it is Parent's current intention to cause the Company to
provide its employees for at least two years following the Effective Time in
general with employee benefit arrangements providing welfare benefits
substantially comparable in the aggregate to those provided by the Company as of
the date of the Merger Agreement, except for any changes thereto that may be
required by law, provided that Parent has retained the right to amend, modify or
terminate any employee benefit policy or arrangement maintained by the Company
to the extent not prohibited by the terms thereof or by applicable law.
Simultaneously with the closing of the Merger Agreement, Parent entered
into employment agreements with the Selling Shareholder and Richard Hyman and
the Company and Parent entered into employment agreements with each of John
Tortorici, Andrew Epstein, James Darren O'Donnell, Steven Sokoloff, Gary Adams,
Elliott Schnabel and Thomas Woolf (collectively with Mr. Hyman, the "Key
Officers"), such agreements to be effective as of the Effective Time. The
Selling Shareholder's employment agreement provides that the Selling Shareholder
will be employed for a one-year term as Vice Chairman of the Board and an
Assistant Secretary of Parent at a salary of $100,000 per year, with automatic
one-year extensions at a nominal salary (to be set by Parent) sufficient to
enable the Selling Shareholder to participate in Parent's medical insurance
plan. Mr. Hyman's employment agreement provides that Mr. Hyman will be employed
for a five-year term as President of the Company and Executive Vice President
Electronics Distribution Group of Parent at a base salary of $400,000 plus a
guaranteed minimum incentive bonus of $135,000 per year. Mr. John Tortorici's
employment agreement provides that Mr. Tortorici will be employed for a
three-year term as Vice President - Finance and Treasurer of the Company at a
base salary of $175,000 per year plus a guaranteed minimum incentive bonus of
$70,000 per year. Mr. Elliott Schnabel's employment agreement provides that Mr.
Schnabel will be employed for a three-year term as a Regional Vice President -
Sales of the Company at a base salary of $200,000 per year plus a guaranteed
minimum incentive bonus of $80,000 per year. Mr. Thomas Woolf's employment
agreement provides that Mr. Woolf will be employed for a three-year term as a
Regional Vice President - Sales of the Company at a base salary of $175,000 per
year plus a
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guaranteed minimum incentive bonus of $56,000 per year. Mr. Gary Adams'
employment agreement provides that Mr. Adams will be employed for a three-year
term as a Regional Vice President - Sales of the Company at a base salary of
$150,000 per year plus a guaranteed minimum incentive bonus of $61,000 per year.
Mr. Steven Sokoloff's employment agreement provides that Mr. Sokoloff will be
employed for a three-year term as a Vice President - Marketing of the Company at
a base salary of $250,000 per year plus a guaranteed minimum incentive bonus of
$94,000 per year. Mr. James Darren O'Donnell's employment agreement provides
that Mr. O'Donnell will be employed for a three-year term as a Vice President -
Marketing of the Company at a base salary of $225,000 per year plus a guaranteed
minimum incentive bonus of $75,000 per year. Mr. Andrew Epstein's employment
agreement provides that Mr. Epstein will be employed for a three-year term as
Vice President - Operations of the Company at a base salary of $175,000 per year
plus a guaranteed minimum incentive bonus of $66,000 per year. In addition, each
of the Key Officers will be awarded Incentive Stock Options to acquire 10,000
shares of common stock of Parent (25,000 shares in the case of Mr. Hyman) under
Parent's Stock Option Plan pursuant to a stock option agreement to be entered
into upon effectiveness of their respective employment agreements. Each Key
Officer will also be entitled to participate in all of Parent's employee benefit
plans listed in Parent's employee handbook, as the same may change from time to
time, and, in addition, to participate on the same terms as senior Parent
executives in any benefit plans available to members of Parent's management
(whether or not listed in the employee handbook). Copies of the forms of such
Employment Agreements are set forth in Exhibit 6.8(b) to the Merger Agreement,
which is filed as Exhibit (c)(1) to this Schedule 14D-9.
Election of Directors. Parent will, immediately after the Effective Time,
cause the Selling Shareholder to be elected to Parent's Board of Directors.
Representations and Warranties. The Company has made customary
representations and warranties to Parent and Purchaser.
Termination; Expenses. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after shareholder approval thereof:
(i) by mutual consent of the Board of Directors of Parent and the
Board of Directors of the Company;
(ii) by either the Board of Directors of Parent or the Board of
Directors of the Company: (a)(i) if all conditions to the Offer shall not
have been satisfied or waived within the relevant time period specified in
Section 1.1(a) of the Merger Agreement, (ii) if all such conditions have
been so satisfied or waived and the Purchaser shall not have accepted for
purchase and purchased all Shares validly tendered and not withdrawn prior
to the Expiration Date of the Merger Agreement within ten business days
following such Expiration Date; or (iii) if the Merger shall not have been
consummated on or prior to May 31, 1997; provided, however, that the right
to terminate the Merger Agreement as described in this clause (i) shall not
be available to any party whose failure to fulfill any material obligation
under the Merger Agreement has been the cause of, or resulted in, the
failure of the Offer or the Merger, as applicable, to be consummated on or
prior to the applicable dates or (ii) if a court of competent jurisdiction
or other governmental or regulatory authority will have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto will use their reasonable efforts to lift),
in each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by the Merger Agreement and such order,
decree, ruling or other action will have become final and nonappealable;
(iii) by the Board of Directors of the Company: (a) if, prior to the
purchase of Shares by Parent, Purchaser or their affiliates pursuant to the
Offer, the Company will have (A) accepted an Acceptable Offer in compliance
with the terms of Section 6.1 of the Merger Agreement and (B) paid or
caused to be paid the expenses payable to Parent provided for in Section
9.1(b) of the Merger Agreement; or (b) if, prior to the purchase of the
Shares pursuant to the Offer, Parent or Purchaser breaches or fails in any
material respect to perform or comply with any of its material covenants
and agreements contained therein or breaches its representations and
warranties in any material respect; or (c) if Parent, Purchaser or any of
their affiliates will have failed to commence the Offer on or prior to five
business days following
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the date of the initial public announcement of the Offer other than due to
an occurrence that if occurring after the commencement of the Offer would
result in a failure to satisfy any of the conditions described in Section
14 of the Offer to Purchase; provided that the Company may not terminate
the Merger Agreement as described in this clause (c) if the Company is in
material breach of the Merger Agreement; or (d) if prior to the purchase of
Shares pursuant to the Offer, there shall have been instituted, pending or
threatened any action, suit or proceeding which challenges, seeks to make
illegal, prohibits or makes illegal the acceptance for payment, payment for
or purchase of Shares or the consummation of the Offer or the Merger and
which, in the opinion of independent counsel acceptable to the parties
(consent not be unreasonably withheld), has reasonable possibility of
success.
(iv) by the Board of Directors of Parent: (a) if, due to an occurrence
that if occurring after the commencement of the Offer would result in a
failure to satisfy any of the conditions described in Section 14 of the
Offer to Purchase, Parent, Purchaser, or any of their affiliates will have
failed to commence the Offer on or prior to the Offer Deadline; provided
that Parent and Purchaser may not terminate the Merger Agreement as
described in this clause (a) if Parent or Purchaser (x) is in material
breach of the Merger Agreement; or (y) has not exercised such right by the
close of business on or before the fifth business day following the Offer
Deadline; (b) if Parent or Purchaser is not in material breach of the
Merger Agreement and prior to the purchase of Shares pursuant to the Offer,
the Company will have received an Acceptable Offer and the Board of
Directors of the Company will have withdrawn, or modified or changed
(including by amendment of the Schedule 14D-9) in a manner adverse to
Parent or Purchaser its approval or recommendation of the Offer, the Merger
Agreement or the Merger or will have recommended an Acquisition Proposal,
provided, however, that if the Company's Board of Directors modifies or
changes its recommendation of the Offer, this Agreement or the Merger to
either express no opinion and remain neutral with respect thereto, or to
provide that it is unable to take a position with respect thereto, such
modification or change will not be deemed to be adverse to Parent or
Purchaser for purposes of this clause (b); (c) if Parent or Purchaser, as
the case may be, will have terminated the Offer, or the Offer will have
expired without Parent or Purchaser, as the case may be, purchasing any
Shares thereunder, provided that Parent and Purchaser may not terminate the
Merger Agreement as described in this clause (c) if (x) it or the Purchaser
has failed to purchase the Shares in the Offer in violation of the material
terms thereof or (y) Parent or Purchaser has not exercised such right by
the close of business on or before the fifth business day following the
termination or expiration of the Offer in accordance with its terms; or (d)
if, prior to the purchase of the Shares pursuant to the Offer, the Company
breaches or fails in any material respect to perform or comply with any of
its material covenants and agreements contained in the Merger Agreement or
breaches its representations and warranties in any material respect.
If (i) the Board of Directors of the Company terminates the Merger
Agreement because the Company has accepted an Acceptable Offer under certain
conditions prior to the later of the purchase of Shares under the Offer or the
scheduled expiration date for tender offer, (ii) the Board of Directors of
Parent terminates the Merger Agreement if the Company has received an Acceptable
Offer and withdrawn or adversely changed its recommendation of the transaction
under certain circumstances, or (iii) the Board of Directors of Parent
terminates the Merger Agreement if Parent, Purchaser or any of their affiliates
will have failed to commence the Offer by five business days after announcement
of the Merger Agreement under certain circumstances or if Parent or Purchaser
will have terminated the Offer or the Offer will have expired without Parent or
Purchaser purchasing any Shares under certain conditions, in each case due to
(x) a material breach of the representations and warranties of the Company set
forth in the Merger Agreement or (y) a material breach of, or failure of the
Company to perform or comply with, any material obligation, agreement or
covenant contained in the Merger Agreement, then in any such case as described
in clause (i), (ii) or (iii) the Company shall be required to reimburse Parent
for all of its fees and expenses incurred in connection with the Offer and the
Merger Agreement and the transactions contemplated thereby. Any such amounts
must be paid by the Company concurrently with the termination of the Merger
Agreement in the case of a termination referred to in clause (i) and otherwise
not later than two business days after termination of the Merger Agreement (or,
if later, after Parent provides reasonable documentation to the Company of the
amount of
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such fees and expenses). Any such fees and expenses not paid when due shall
accrue interest at the rate of ten percent per annum from the due date until
paid in full.
If (i) the Board of Directors of the Company terminates the Merger
Agreement prior to the purchase of any Shares pursuant to the Offer because
Parent or Purchaser breaches or fails in any material respect to perform or
comply with any of its material covenants and agreements contained in the Merger
Agreement or breaches its representations and warranties contained therein in
any material respect or (ii) Parent is unable to obtain the financing necessary
to satisfy the Financing Condition (other than because of (a) the occurrence of
any event that would result in a failure to satisfy any of the conditions of the
Offer (see Section 14 of the Offer to Purchase) (and for this purpose only,
disregarding the provisos to the condition set forth in paragraph (d) of said
Section 14), or (b) the occurrence of a Material Adverse Effect with respect to
Parent and its consolidated subsidiaries, whether such event or Material Adverse
Effect occurs before or after commencement of the Offer), then Parent shall be
required to reimburse the Company for all of its fees and expenses incurred in
connection with the Offer and the Merger Agreement and the transactions
contemplated thereby, such reimbursement to occur not later than two business
days after termination of the Merger Agreement (or, if later, after the Company
provides reasonable documentation to Parent of the amount of such fees and
expenses) Any such fees and expenses not paid when due shall accrue interest at
the rate of ten percent per annum from the due date until paid in full.
Appraisal Rights. Notwithstanding anything in the Merger Agreement to the
contrary, any issued and outstanding Shares held by persons who object to the
Merger and comply with all the provisions of New York Law concerning the right
of holders of Shares to dissent from the Merger and require appraisal of their
Shares ("Dissenting Shareholder") will not be converted into the right to
receive the Offer Price, without interest, pursuant to the Merger Agreement but
will become the right to receive such consideration as may be due to such
Dissenting Shareholder pursuant to New York Law; provided, however, that the
Shares outstanding immediately prior to the Effective Time and held by a
Dissenting Shareholder who will, after the Effective Time, fail to perfect his
right to appraisal, withdraw his demand for appraisal, or lose his right of
appraisal, in any case pursuant to Section 623 of the New York Law, will be
deemed to be converted as of the Effective Time into the right to receive the
Offer Price, payable to the holder thereof, without interest. The Company will
give Parent (i) prompt notice of any written demands for appraisal of the Shares
received by the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to any such demands. The Company will not, without the
prior written consent of Parent, voluntarily make any payment with respect to,
or settle, offer to settle or otherwise negotiate, any such demands.
Conditions of the Offer. Purchaser's obligations to accept for payment or
pay for Shares are subject, among other things, to (i) expiration and
termination of the applicable waiting period under the HSR Act, (ii)
satisfaction or waiver of the Minimum Condition, and (iii) satisfaction or
waiver of the financing condition and (iv) the occurrence at any time on or
after the date of the Merger Agreement of various events set forth in Annex A to
the Merger Agreement (or the determination by Purchaser that any of such events
shall have occurred).
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each person
who as of November 26, 1996 was either an executive officer or director of the
Company. The indemnification agreements provide generally (i) for
indemnification against all costs and expenses (including attorneys' fees)
actually and reasonably incurred in connection with the investigation or defense
of any threatened, pending or expired litigation related to such indemnitee's
service to the Company in certain capacities and against all judgments, fines
and amounts paid in settlement of any claim, unless it is determined that such
indemnification is not permitted under applicable law or as a result of certain
culpable action by such indemnitee and (ii) for the prompt advancement of
expenses to an indemnitee as well as the reimbursement by such indemnitee of any
such advances to the Company if it is determined that the indemnitee is not
entitled to such indemnification. Indemnitee's rights under the indemnification
agreements are not exclusive of any other rights indemnitee may have under the
BCL, the Company's by-laws or otherwise. A copy of the form of indemnification
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agreement referred to in this paragraph has been filed as Exhibit (c)(2) to this
Schedule 14D-9 and is incorporated herein by reference in its entirety.
Article Tenth of the certificate of incorporation of the Company, as
amended to date, limits the personal liability of directors of the Company. A
copy of such Article Tenth has been filed as Exhibit (c)(3) to this Schedule
14D-9 and is incorporated herein by reference in its entirety. Article IX,
Section 1, of the Company's by-laws provides, among other things, for mandatory
indemnification of the Company's directors and officers and advance payment of
expenses incurred by an indemnitee in defending various actions by reason of the
fact that such indemnitee was a director or officer of the Company, upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if and to the extent that it shall ultimately be determined that such
indemnitee is not entitled to be indemnified by the Company under relevant
sections of the New York Business Corporation Law. Article IX, Section 1, of the
Company's by-laws has been filed as Exhibit (c)(4) to this Schedule 14D-9 and is
incorporated herein by reference in its entirety. The Company has in effect a
directors' and officers' liability insurance policy covering, among other
things, various claims against officers and directors as set forth in said
policy.
CONFIDENTIALITY AGREEMENT
The Parent entered into a confidentiality agreement, dated September 17,
1996, with the Company (the "Confidentiality Agreement"), pursuant to which
Parent has agreed, among other things, to keep confidential certain non-public,
confidential or proprietary information of the Company furnished to Parent by or
on behalf of the Company. A copy of the Confidentiality Agreement is filed with
this Statement as Exhibit (c)(5) and incorporated herein by reference in its
entirety.
TENDER AGREEMENT
The following summary of the Tender Agreement is qualified in its entirety
by reference to the Tender Agreement, a copy of which is filed as Exhibit (c)(6)
to this Schedule 14D-9 and which is incorporated herein in its entirety.
Tender of Shares. In connection with the execution of the Merger Agreement,
Parent, Purchaser and Selling Shareholder entered into the Tender Agreement.
Upon the terms and subject to the conditions of such agreement, the Selling
Shareholder has agreed (i) to validly tender or cause the record owner of any
Shares beneficially owned by the Selling Shareholder to tender all such Shares
pursuant to the Offer not later than December 10, 1996 or, with respect to any
Shares acquired directly or indirectly, or otherwise beneficially owned, by the
Selling Shareholder in any capacity after November 26, 1996 and prior to the
termination of the Tender Agreement, whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or exchangeable
securities, or by means of a purchase, dividend, distribution, gift, bequest,
inheritance or as a successor-in-interest in any capacity (including a fiduciary
capacity) or otherwise ("After-Acquired Shares") within one business day
following the acquisition thereof, and (ii) not to withdraw any Shares so
tendered without the prior written consent of Parent. The Selling Shareholder
has agreed that Purchaser's obligation to accept for payment and pay for the
Shares in the Offer is subject to the terms and conditions of the Offer.
Non-Competition; Nondisclosure. The Selling Shareholder has agreed that for
a period of three years from the date of the sale of the Shares, or, if longer,
while the Selling Shareholder is a director, officer or employee of Bell, he
will not compete with the Company or solicit employees or customers of the
Company, and that he will not disclose trade secrets or other confidential
information of the Company. Notwithstanding the foregoing, at any time after the
initial three-year period, the Selling Shareholder may compete with the Company
or solicit employees of the Company with the express written consent of Parent,
which will not be unreasonably withheld.
Voting. The Selling Shareholder has agreed that (for so long as the Merger
Agreement is in effect), at any meeting of the holders of the Shares, however
called, or in connection with any written consent of the holders of the Shares,
he will vote (or cause to be voted) his Shares (a) in favor of the Merger, the
execution
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and delivery by the Company of the Merger Agreement and the approval of the
terms thereof and each of the other actions contemplated by the Merger Agreement
and the Tender Agreement and any actions required in furtherance thereof; (b)
against any action or agreement that would result in a breach of any obligation
or agreement of the Company under the Merger Agreement or the Tender Agreement;
and (c) except as otherwise agreed to in writing in advance by Parent, against
any of the following actions or agreements (other than the Merger Agreement or
the transactions contemplated thereby): (i) any action or agreement that is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone or attempt to discourage or adversely affect the Merger, the Offer and
the transactions contemplated by the Tender Agreement and the Merger Agreement;
(ii) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company and its subsidiaries; (iii) a
sale, lease or transfer of a material amount of assets of the Company or its
subsidiaries; (iv) any change in the management or the Board of Directors of the
Company, except as specifically contemplated by the Merger Agreement; (v) any
change in the present capitalization or dividend policy of the Company; (vi) any
amendment of the Company's articles of incorporation or by-laws; or (vii) any
other material change in the Company's corporate structure or business. Any such
vote or consent shall be given in accordance with such procedures relating
thereto as shall ensure that it is duly counted for purposes of determining that
a quorum is present and for purposes of recording the results of such vote or
consent. Notwithstanding anything to the contrary contained in the Tender
Agreement, the Selling Shareholder will be free to act in his capacity as a
member of the Board of Directors of the Company and to discharge his fiduciary
duties as such.
INVESTMENT BANKING SERVICES
In October 1996, the Company retained Carl Marks & Co., Inc. ("Carl Marks")
to provide investment banking services and to explore all options to recognize
the greatest value for the Company's shareholders. The Company agreed to pay to
Carl Marks for such services a fee of $175,000 upon consummation of the sale of
all or at least two-thirds of the Company's common stock. The Company has also
agreed to indemnify Carl Marks against certain liabilities, including
liabilities arising under the Federal securities laws. Mr. Robert Davidoff, a
director of the Company, is a vice president of Carl Marks. A copy of the
engagement letter between the Company and Carl Marks is filed with this
Statement as Exhibit (c) (7) and is incorporated herein by reference in its
entirety.
VOTE REQUIRED TO APPROVE MERGER
New York Law provides that the adoption of any plan of merger or
consolidation by the Company requires the approval of the Board and the
affirmative vote of at least 66 2/3% of all outstanding shares entitled to vote
thereon (including the votes of any Shares owned by Parent and Purchaser that
have voting rights at such time), if the "short form" merger procedure described
below is not available. The Board has authorized and approved the Offer and the
Merger; consequently, the only additional action of the Company that may be
necessary to effect the Merger is approval by such shareholders at a meeting of
the Company's shareholders convened for that purpose (the "Shareholders
Meeting") if the "short form" merger procedure described below is not available.
New York Law also provides that the Merger will not require the approval of the
Company's shareholders, and can be adopted by Purchaser's Board of Directors, if
Purchaser owns at least 90% of the outstanding Shares. Accordingly, if, as a
result of the Offer or otherwise, Purchaser acquires or controls the voting
power of at least 90% of the outstanding Shares, Purchaser could, and intends
to, effect the Merger without the Shareholders Meeting and without approval by
shareholders of the Company. If, however, Purchaser does not acquire at least
90% of the then outstanding Shares pursuant to the Offer or otherwise and a vote
of the Company's shareholders is required under New York Law, a significantly
longer period of time will be required to effect the Merger. Even if the Minimum
Condition is satisfied, Purchaser will not necessarily be able to purchase
sufficient Shares in the Tender Offer in order to be able to use the "short
form" merger procedures described above.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendations of the Board of Directors. The Board of Directors of
the Company has unanimously approved the Offer and the Merger and determined
that the Offer and the Merger and the transactions contemplated thereby are fair
to and in the best interests of the Company's shareholders as a
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group, provided that each shareholder should consult with his financial or tax
adviser regarding the impact thereof on such shareholder; and the Board
unanimously recommends that the shareholders of the Company, as a group, accept
the Offer, tender their Shares thereunder to Purchaser and approve and adopt the
Merger Agreement and the Merger, provided, however, that shareholders should
consult with their financial or tax adviser prior to tendering their Shares in
the Offer or voting to approve the Merger.
(b) Background of the Offer; Reasons for the Recommendation. In March 1996,
following conversations among Parent's investment banker, Peers & Co., Richard
Hyman (Executive Vice President and a director of the Company) and Parent,
Parent presented to Herbert S. Davidson (the Chief Executive Officer and
principal stockholder of the Company) a proposal looking toward an offer by the
Parent to acquire the outstanding stock of the Company and for merger of the
Company and a subsidiary of Parent.
Following consideration of the proposal by Mr. Davidson and Mr. Hyman, the
Parent, in a letter to the Company (the "April Letter"), presented a modified
proposal, pursuant to which the Parent would make a tender offer to the
Company's shareholders, to be followed by a merger of the Company and a
subsidiary of the Parent, subject to various conditions set forth in said
letter. The April Letter was conditioned, among other things, upon Mr. Davidson
entering into an option agreement for tendering all of his shares in the
proposed tender offer. The April Letter also contemplated the employment by the
merged company of various executives or employees of the Company.
On April 30, 1996, representatives of the Parent and of the Company met in
New York City with a view to discussing the terms, the desirability and/or
effects of the proposed merger, the methods of operation of the merged company,
the terms of the proposed employment arrangements, and various other matters
related to the Parent's proposal. Also discussed at this meeting were the
financing arrangements of the Parent relating to the proposed transaction.
Before and after the aforementioned meeting, various members of the
Company's Board of Directors were advised of the proposal and of the discussions
which were taking place. Thereafter, representatives of the Parent and of the
Company engaged in negotiations regarding various terms of the proposed Offer
and Merger and discussions also took place regarding a possible organizational
structure and compensation and benefits matters if the proposed Offer and Merger
were to be consummated. Representatives of the Company also were in contact with
the bank which was to coordinate the Parent's financing. In August 1996, Messrs.
Davidson and Hyman participated in a meeting at Parent's headquarters to discuss
and negotiate various matters with respect to the proposed transactions.
In October 1996, the Company retained Carl Marks & Co., Inc. to provide
investment banking service and to explore all options to recognize the greatest
value for the Company's shareholders. In October 1996, the Board of Directors of
the Company retained Mesirow Financial, Inc. ("Mesirow") to analyze the proposed
transaction and render its opinion as to the fairness of the proposed
transaction to shareholders from a financial point of view. At the end of
October 1996, Parent and its financing bank commenced their respective due
diligence reviews of the Company.
On November 26, 1996, the Board of Directors of the Company met to consider
and review the Parent's proposals. The terms of the proposed transactions and
related Merger Agreement were presented to and reviewed by the Board. Mesirow
made presentations to the Board and delivered its opinion that, as of November
26, 1996, the $14.77 per Share cash consideration to be received by shareholders
of the Company pursuant to the Offer is fair to the shareholders of the Company
from a financial point of view. The Board then discussed the proposed Merger
Agreement and related transactions. After discussion and further analysis, the
Board unanimously approved the Merger and made the recommendations as set forth
above in subparagraph (a) of this Item 4. Following such Board meeting, the
Company was informed that the Board of Directors of the Parent and the Purchaser
had, on November 26, 1996, approved the Merger Agreement. The Merger Agreement
was executed by the parties on November 26, 1996, and subsequently thereto, was
delivered by the parties.
11
<PAGE>
Parent and the Company, on November 27, 1996, issued a joint press release
announcing the execution of the Merger Agreement and the Tender Agreement. The
Purchaser commenced the Offer on December 4, 1996.
In arriving at its decision regarding its recommendation set forth above,
the Board of Directors of the Company considered, among other things, (i) the
terms and conditions of the Merger Agreement, including the amount and form of
the consideration; (ii) the fact that the $14.77 per Share price represents a
premium of approximately 8.4% over the closing $13.625 per Share price as
reported on the NASDAQ National Market on November 26, 1996, the date the Board
of Directors authorized the transactions; (iii) the recent historical market
prices of the Shares; (iv) the Board of Directors' knowledge of the business,
operations, prospects, assets and earnings of the Company; (v) the effect of the
transaction on the Company's employees and customers; (vi) the commitment letter
of the financing bank regarding the financing of the Merger; (vii) the
competitive environment in the electronic distribution field as related to
perceived difficulties of the Company maintaining its position in the face of
larger, well-financed distributors; (viii) the fact that, under the Merger
Agreement, the Company is not prohibited from responding to an unsolicited
Takeover Proposal (as defined in the Merger Agreement) to acquire the Company,
to the extent that the Board of Directors of the Company determines in good
faith, after consultation with independent counsel, that it is necessary to do
so in order to comply with its fiduciary duties to the Company's shareholders;
(ix) the written opinion (the "Fairness Opinion") of Mesirow dated November 26,
1996, to the effect that, as of such date, the $14.77 in cash per Share to be
received by the holders of Shares is fair to shareholders from a financial point
of view; and (x) the statements by Mesirow representatives to the Board of
Directors at its meeting on November 26, 1996 to the effect that on the basis of
various factors described to the Board at such meeting the Offer Price is fair
to shareholders from a financial point of view. In addition, the Board of
Directors considered the presentation made to them by Mesirow, which included
Mesirow's analysis of the various factors upon which its opinion is based. The
full text of the Fairness Opinion received by the Company from Mesirow is filed
as Exhibit (a)(4) to this Schedule 14D-9 and is also attached hereto as Exhibit
(a)(4). Stockholders are urged to read such opinion in its entirety.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Mesirow was retained by the Company to act as financial adviser to the
Board of Directors for the purpose of evaluating the fairness, from a financial
point of view, of the consideration to be received by shareholders pursuant to
the Offer and the Merger. The fee to be paid to Mesirow in connection with its
services is $175,000. In addition, the Company has agreed to reimburse Mesirow
for its reasonable out of pocket expenses incurred in connection with its
activities under the engagement letter (other than fees and disbursements of its
legal counsel for services in connection with the preparation of the engagement
letter and the fairness opinion). In addition to the above fees, the Company has
agreed to pay additional compensation (in an amount to be agreed upon between
the Company and Mesirow) for services requested of Mesirow by the Company in
advising the Board of Directors of the Company with respect to an offer from
another party (if made) or revised terms of the Merger in the event of such
revision. The Company has also agreed to indemnify Mesirow against certain
liabilities, including liabilities arising under the Federal securities laws.
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other persons
to make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company, or, to the best of the Company's knowledge, by any
executive officers, directors, affiliates or subsidiary of the Company.
(b) Pursuant to the Tender Agreement, Herbert S. Davidson has agreed to
tender his Shares in the Offer. See Item 3. - "Identity and Background - Tender
Agreement."
12
<PAGE>
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
under way by the Company in response to the Offer that relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization
involving the Company or any subsidiary thereof, (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof, (iii) a tender offer for or acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as set forth herein, there is no transaction, Board resolution,
agreement in principle or signed contract in response to the Offer that relates
to or would result in one or more of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL MATERIAL TO BE FURNISHED.
The Information Statement attached as Schedule A is being furnished in
connection with the possible designation by Parent (pursuant to the Merger
Agreement) of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's shareholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit (a)(1) Offer to Purchase dated December 4, 1996.
Exhibit (a)(2) Letter of Transmittal.
Exhibit (a)(3) Press release issued by the Company and Bell Industries,
Inc. on November 27, 1996.
Exhibit (a)(4) Fairness Opinion of Mesirow Financial, Inc. dated
November 26, 1996.
Exhibit (a)(5) Letter to Shareholders dated December 4, 1996.
Exhibit (c)(l) Agreement and Plan of Merger by and among Parent,
Purchaser and the Company dated as of November 26, 1996.
Exhibit (c)(2) Form of Indemnification Agreement.
Exhibit (c)(3) Article Tenth of the Certificate of Incorporation of the
Company.
Exhibit (c)(4) Article IX, Section 1, of the By-laws of the Company.
Exhibit (c)(5) Confidentiality Agreement dated September 17, 1996.
Exhibit (c)(6) Tender Agreement dated as of November 26, 1996 among
Parent, Purchaser and Herbert S. Davidson.
Exhibit (c)(7) Engagement Letter dated October 25, 1996 between the
Company and Carl Marks.
13
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
December 4, 1996
--------------------------------------
(Date)
/s/ Richard Hyman
--------------------------------------
(Signature)
Richard Hyman, Executive Vice President
--------------------------------------
(Name and Title)
14
<PAGE>
SCHEDULE A
MILGRAY ELECTRONICS, INC.
77 Schmitt Boulevard
Farmingdale, New York 11735
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14f-1 THEREUNDER.
This Information Statement is being mailed on or about December 4, 1996, as
a part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Milgray Electronics, Inc. (the "Company") to the holders of
record of shares of common stock, par value $.25 per share, of the Company (the
"Shares") as of the close of business on or about November 26, 1996. You are
receiving this Information Statement in connection with the possible election of
persons designated by the Parent to a majority of the seats on the Board of
Directors of the Company. The Merger Agreement requires the Company to use all
reasonable efforts to cause the Parent Designees (as defined below) to be
elected to the Board of Directors of the Company under the circumstances
described therein. See "Board of Directors and Executive Officers - Right to
Designate Directors; Parent Designees." This Information Statement is required
by Section 14(f) of the Securities Exchange Act of 1934 (the "Exchange Act") and
Rule 14f-1 thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action in connection with
this Information Statement. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
December 4, 1996. The Offer is scheduled to expire at 5:00 P.M., New York City
time, on Tuesday, January 7, 1997, unless the Offer is extended.
The information contained in this Information Statement concerning the
Parent and the Parent Designees has been furnished to the Company by the Parent,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
General
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of November 26, 1996, there were
6,773,176 Shares outstanding. The Board of Directors currently consists of five
members. Each director holds office until such director's successor is elected
and qualified or until such director's earlier resignation or removal. All
officers of the Company serve at the pleasure of the Board of Directors of the
Company.
Right to Designate Directors; Parent Designees
Pursuant to the Merger Agreement, promptly upon the purchase of or payment
for any Shares (including, without limitation, all Shares subject to the Tender
Agreement) by Purchaser or any other subsidiary of Parent pursuant to the Offer,
Parent shall be entitled to designate such number of directors "Parent
Designees") rounded to the nearest whole number, on the Board of Directors of
the Company as is equal to the product of the total number of directors then
serving on such Board (which, immediately prior to such calculation, shall not
consist of more than five directors) multiplied by the ratio of the aggregate
number of Shares beneficially owned by Parent, Purchaser and any of their
affiliates to the total number of Shares then outstanding, and the Company
shall, upon request of Purchaser, take all action necessary to cause the Parent
Designees to be elected or appointed as directors of the Company Board of
Directors, including without limitation securing the resignations of such number
of its incumbent directors as is necessary to enable the
<PAGE>
Parent Designees to be so elected or appointed to the Company's Board of
Directors, and shall cause the Parent Designees to be so elected or appointed.
At such time, the Company shall also cause persons designated by the Parent to
constitute the same percentage, rounded to the nearest whole number, as on the
Company's Board of Directors of (i) each committee of the Company's Board of
Directors, (ii) each board of directors (or similar body) of each subsidiary of
the Company, and (iii) each committee (or similar body) of each such board.
The Parent has informed the Company that each of the Parent Designees has
consented to act as a director. It is expected that the Parent Designees may
assume office as described above and that, upon assuming office, the Parent
Designees will thereafter constitute at least a majority of the Board of
Directors of the Company. It is further expected that none of the Parent
Designees will receive any compensation for services performed in his capacity
as director of the Company.
Parent Designees
The Parent has informed the Company that it will choose the Parent
Designees from the directors and executive officers listed in Schedule I of the
Offer to Purchase, a copy of which is to be mailed to shareholders of the
Company together with Schedule 14D-9. The information on such Schedule I is
incorporated herein by reference. The Parent has informed the Company that none
of the Parent Designees (i) is currently a director of, or holds any position
with, the Company, (ii) has a familial relationship with any of the directors or
executive officers of the Company, or (iii) to the best of the knowledge of the
Parent, beneficially owns any securities (or rights to acquire any securities)
of the Company. The Company has been advised by the Parent that, to the best of
Parent's knowledge, none of the Parent Designees has been involved in any
transactions with the Company or any of its directors, executive officers or
affiliates which are required to be disclosed pursuant to the rules and
regulations of the Commission except as may be disclosed herein or in the
Schedule 14D-9.
Present Directors and Executive Officers
Herbert S. Davidson, age 74, a director and President (since 1951), has
been the President and Chief Executive Officer of the Company more than five
years prior to the date hereof.
Robert Davidoff, age 69 (who is the brother of Herbert S. Davidson and is a
member of the Audit Committee) has been a director of the Company since 1961.
Mr. Davidoff's business experience during the last five years is as follows:
Vice President of Carl Marks & Co., Inc., investment bankers, New York, New
York, for more than five years prior to the date hereof. Carl Marks & Co., Inc.
will receive a fee of $175,000 from the Company for investment banking services
to the Company. (See the Schedule 14D-9 "Investment Banking Services.") Mr.
Davidoff is presently a director of Hubco Exploration, Inc., Rex Stores, Inc.,
Consco Enterprises, Inc., Sidari Corp., Paging Partners Corp. and Marisa
Christina, Inc.
Herschel M. Weinberg, age 69, has been a director of the Company since 1961
and Secretary of the Company since 1969, and has been a practicing attorney in
New York City for more than five years prior to the date hereof. Fees to Mr.
Weinberg for (i) legal services to the Company since the beginning of the 1996
fiscal year (October 1, 1995) amount to $303,000.00 and (ii) legal services in
respect of the Merger and related transactions amount to an additional
$350,000.00.
Richard Hyman, age 53, has been a director of the Company since 1987,
Executive Vice President since 1987 and Vice President - Sales/Marketing since
1975.
Leonard Gardner, age 68 (a member of the Audit Committee) has been a
director of the Company since April 1996. Mr. Gardner's business experience
during the last five years is as follows: President of Metro Accident & Health
Agency, Inc., general agent specializing in wholesale distribution of disability
income insurance and long-term care insurance.
John Tortorici, age 57, has been Vice President - Finance since 1983 and
Treasurer of the Company since 1982.
A-2
<PAGE>
Security Ownership of Management and Principal Stockholder
The following information is furnished with respect to ownership of shares
of common stock of the Company as of November 26, 1996 by all directors, by each
executive officer named in the Summary Compensation Table and by all directors
and executive officers of the Company as a group. The persons named on the
following table have Sole voting and investment power with respect to the shares
shown as beneficially owned by them unless otherwise indicated:
Name of Number Of Shares Percent
Beneficial Owner Beneficially Owned of Class
---------------- ------------------ --------
Herbert S. Davidson ........................ 3,742,064(1)(2) 55%
Richard Hyman .............................. 68,000 1%
Robert Davidoff ............................ 231,480 3%
Herschel M. Weinberg ....................... None --
Leonard Gardner ............................ 800 *
John Tortorici ............................. 2,000 *
Directors and Executive Officers as a Group 4,044,344(1)(2) 60%
- ----------
* Less than 1%
(1) Includes 731,632 shares of the Company owned by H. S. Davidson Associates,
Inc. Herbert S. Davidson may be deemed to be a "control person" of the
Company within the meaning of the Securities Exchange Act of 1934.
(2) Pursuant to the terms of the Tender Agreement, Mr. Davidson has agreed,
among other things, to tender his Shares in the Offer and to vote in favor
of the Merger.
The Board of Directors of the Company does not have nominating or
compensation committees or committees performing similar functions. An audit
committee consisting of two members was established in April 1996. One meeting
of such committee, in which both members participated, has been held since its
establishment. There were eight meetings of the Board of Directors during the
1996 fiscal year. The directors participated in at least 75% of the meetings of
the Board of Directors held during the term of their tenure. Mr. Davidoff and
Mr. Gardner each receives an annual retainer of $5,000 in respect of service as
a director.
The following information is submitted with respect to persons who, to the
knowledge of the Company's management, owned beneficially more than 5% of the
Company's outstanding common stock, par value $.25 per share, as of November 26,
1996.
Name and Address of Number of Shares Percent of
Title of Class Beneficial Owner Beneficially Owned Class
-------------- ---------------- ------------------ -----
Common Stock Herbert S. Davidson 3,742,064(1)(2) 55%
3295 Northwest
53rd Circle
Boca Raton, FL 33496
- ----------
(1) Includes 731,632 shares of the Company owned by H. S. Davidson Associates,
Inc. Herbert S. Davidson may be deemed to be a "control person" of the
Company within the meaning of the Securities Exchange Act of 1934.
(2) Pursuant to the terms of the Tender Agreement, Mr. Davidson has agreed,
among other things, to tender his Shares in the Offer and to vote in favor
of the Merger.
A-3
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain summary information with respect to
compensation for the periods indicated therein of the Company's Chief Executive
Officer and each of the other most highly compensated executive officers whose
annual salary and bonus for the last fiscal year exceeded $100,000 (such Chief
Executive Officer and executive officers being sometimes hereinafter referred to
in this Schedule A as "named executive officers").
Name and All Other
Principal Position Year Salary Bonus Compensation*
------------------ ---- ------ ----- -------------
Herbert S. Davidson .................... 1996 $284,765 $210,000 $6,750
President and Chairman of the Board 1995 259,961 210,000 6,750
1994 184,534 150,000 4,500
Richard Hyman .......................... 1996 304,233 210,000 6,750
Executive Vice President 1995 295,015 210,000 6,750
and Vice President Sales/Marketing 1994 277,897 150,000 4,500
John Tortorici ......................... 1996 166,709 70,000 6,750
Vice President - Finance and Treasurer 1995 168,022 70,000 6,750
1994 155,366 50,000 4,500
- ----------
* Represents portion of the Company's contribution under its 401(k) Plan
allocated to the named executive officers.
Certain Employment Contracts
In connection with the Merger Agreement referred to in Schedule 14D-9, the
Parent and/or the Company has entered into employment agreements with certain
officers, including the named executive officers, to be effective at the
Effective Time. See Schedule 14D-9 "Identity and Background - The Merger
Agreement - Benefit Plans and Certain Contracts and Employment Arrangements" for
further information regarding such employment agreements.
Report on Executive Compensation.
The Board of Directors of the Company does not have a compensation
committee or a Board committee performing equivalent functions. The directors
include Herbert S. Davidson (the Chief Executive Officer) and Richard Hyman (a
named executive officer) as well as Robert Davidoff, Herschel M. Weinberg
(Secretary of the Company) and Leonard Gardner, who, as such directors,
participate in deliberations of the Board on various elements of executive
officer compensation.
The Company's executive compensation policy is intended to enable the
Company to attract, retain and motivate the executive personnel required for the
success of the Company in a highly competitive industry. In evaluating or fixing
compensation, consideration is given both to overall Company performance and to
individual performance, taking into account particularly the contributions made
by the executive toward improving Company performance. Consideration is also
given to the executive's position and area of responsibility in the structure of
the Company and the job performance of each individual in planning, providing
direction for and implementing the Company's programs, including expansion of
operations in new and established areas, obtaining new distribution lines and
controlling costs. Compensation evaluations are also influenced by prevailing
levels of pay for positions of comparable responsibility in the industry, prior
compensation history and internal pay equity considerations The 1996 executive
compensation levels take into account the foregoing factors. The policies and
criteria set forth above with respect to compensation of executive officers of
the Company apply generally to the Company's Chief Executive Officer. Mr.
Davidson's 1996 compensation reflects his continuing participation in and
contributions to the Company's performance.
This report has been provided on behalf of the Board of Directors,
consisting of the following members: Herbert S. Davidson, Robert Davidoff,
Herschel M. Weinberg, Richard Hyman and Leonard Gardner.
A-4
<PAGE>
Stockholder Return Performance Graph
The following graph shows bow an initial investment of $100 in the
Company's common stock would have compared to an equal investment in the Nasdaq
Stock Market (US) Index and the Nasdaq Electronics Components Stock Index over a
five-year period beginning September 30, 1991 and ending September 30, 1996.
[The following table was depicted as a line graph in the printed material]
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------
Milgray Electronics, Inc. 100 175 714 743 1,435 1,251
- --------------------------------------------------------------------------------
The NASDAQ Stock Market (US) 100 112 147 148 204 243
- --------------------------------------------------------------------------------
NASDAQ Electronic Components Stocks 100 137 264 257 512 609
- --------------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and, if any, persons who own more than ten percent of the
Shares to file with the Securities and Exchange Commission initial reports
relating to beneficial ownership and reports of changes in beneficial ownership
of such Shares. Copies of these reports must also be furnished to the Company.
Based solely on a review of copies of such reports furnished to the Company and
on written representations from the reporting persons, the Company believes that
all applicable Section 16(a) reporting requirements were complied with in the
fiscal year ended September 30, 1996.
A-5
<PAGE>
EXHIBIT (a)(4)
[MESIROW FINANCIAL LETTERHEAD]
November 26, 1996
Board of Directors
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Gentlemen:
Milgray Electronics, Inc. ("Milgray" or the "Company") proposes to enter
into an agreement with Bell Industries, Inc. ("Bell") and ME Acquisition, Inc.,
a wholly owned subsidiary of Bell (the "Purchaser") pursuant to which the
Purchaser will make a tender offer for all of the issued and outstanding shares
of common stock of the Company ("Common Stock"), after which the Purchaser will
be merged with and into the Company. The offer is expected to commence on or
around December 4, 1996, and the price per share offered to holders of Common
Stock of the Company is expected to be $14.77, net to the sellers in cash for
each share of Common Stock that is purchased, or at the effective time of the
merger. You have asked Mesirow Financial, Inc. ("Mesirow") to render its opinion
(the "Opinion") as to whether or not the proposed consideration to be received
by the holders of the Common Stock in the proposed transaction is fair, from a
financial point of view, to such shareholders.
In connection with rendering the Opinion we have, among other things:
(i) reviewed the latest draft, dated November 9, 1996, of the
Agreement and Plan of Merger;
(ii) reviewed the latest available schedules provided by Milgray and
the Purchaser pursuant to the Agreement and Plan of Merger;
(iii) reviewed Milgray's annual reports on Form 10-K and annual
reports to shareholders for the years ended September 30, 1993, 1994, and
1995, quarterly reports on Form 10-Q for the quarters ended December 31,
1995, March 31, 1996, and June 30, 1996 and certain other filings with the
Securities and Exchange Commission made by Milgray, including proxy
statements;
(iv) reviewed the current and historical market prices and trading
data for Milgray Common Stock;
(v) reviewed certain non-public information relating to Milgray
including monthly internal financial statements for the year ended
September 30, 1996;
(vi) reviewed financial forecasts and projections for Milgray prepared
by the senior management of Milgray for the years ended September 30, 1997
through September 30, 2001;
(vii) reviewed certain publicly available information, including
research reports concerning certain other companies engaged in businesses
which we believed to be comparable to Milgray and the trading markets for
certain of such companies' securities;
(viii) reviewed the financial terms of certain recent mergers and
acquisitions which we believed to be relevant;
(ix) conducted discussions with Herbert S. Davidson, President and
Chairman of the Board, Richard Hyman, a Director and Executive Vice
President and Vice President-Sales/Marketing, and John Tortorici, Vice
President-Finance, Treasurer and Assistant Secretary concerning their
business and operations, assets, present conditions, and future prospects;
(x) conducted discussions with a representative from the Company's
independent certified public accountants, Grant Thornton LLP; and
<PAGE>
(xi) performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered such other
factors, as we deemed, in our sole judgment, to be necessary, appropriate
or relevant to render our opinion.
In arriving at our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of the information obtained
from public sources or provided to us by the Company. In addition, we have
assumed that Milgray's forecasts and projections furnished to us have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's management as to the future financial condition
and operating results of the Company. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company, nor have we been furnished with any such evaluations
or appraisals.
Our opinion is necessarily based upon general economic, financial, market
and other conditions as they exist and can be evaluated on the date hereof. We
were not requested to, and did not, solicit third party indications of interest
in acquiring all or any part of, or merging with, or into, the Company.
Mesirow is a full service securities firm and, therefore, in the ordinary
course of our trading and brokerage activities, Mesirow or any of our affiliates
may at any time hold long or short positions, and may trade or otherwise effect
transactions, for our own account or the accounts of customers, in securities of
Milgray or Bell. Mesirow will receive a fee for rendering this opinion.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the consideration to be offered to the holders of the Common Stock of Milgray is
fair, from a financial point of view, to such holders.
This opinion is for the use and benefit of the Board of Directors of the
Company and may not be reproduced, summarized, described or referred to or given
to any other person except in connection with the Company's initial public
announcement of the proposed merger, Schedule 14D-9 and any amendment thereof,
or proxy statement regarding the merger.
Very truly yours,
MESIROW FINANCIAL, INC.
Mesirow Financial, Inc.
