<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-14365
ALPHA TECHNOLOGIES GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 76-0079338
- ------------------------------------------------ -----------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
306 Pasadena Ave. South Pasadena, CA 91030
------------------------------------------
(Address of principal executive offices)
(626) 799-9171
--------------
(Registrant's telephone number, including area code)
9465 Wilshire Blvd., Suite 980 Beverly Hills, CA 90212
------------------------------------------------------
(Former address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, $.03 par value 6,942,287
- ----------------------------------------------------- ---------------------------------------
Class Outstanding at May 30, 1999
</TABLE>
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC.
FORM 10-Q
MAY 2, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION................................................................ 3
CONSOLIDATED BALANCE SHEETS - OCTOBER 25, 1998 AND MAY 2, 1999............................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND SIX MONTHS ENDED APRIL 26, 1998
AND MAY 2, 1999............................................................................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 26, 1998 AND
MAY 2, 1999................................................................................ 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................................. 11
PART II - OTHER INFORMATION.................................................................. 17
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - OCTOBER 25, 1998 AND MAY 2, 1999
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
October 25, May 2,
1998 1999
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 1,387 $ 398
Accounts receivable, net 8,671 8,684
Inventories, net 9,546 7,944
Prepaid expenses 623 1,039
-------- --------
Total current assets 20,227 18,065
PROPERTY AND EQUIPMENT, at cost 21,360 21,379
Less - Accumulated depreciation and amortization 8,005 9,326
-------- --------
Property and equipment, net 13,355 12,053
GOODWILL, net 2,714 2,679
OTHER ASSETS, net 2,379 2,334
-------- --------
TOTAL ASSETS $ 38,675 $ 35,131
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade $ 5,808 $ 3,776
Accrued compensation and related benefits 1,777 1,519
Other accrued liabilities 2,582 1,842
Current portion of long-term debt 961 1,217
-------- --------
Total current liabilities 11,128 8,354
REVOLVING CREDIT FACILITY 8,180 4,203
LONG-TERM DEBT 2,833 4,570
OTHER LONG-TERM LIABILITIES 217 191
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value; shares authorized 180,000 - -
Common stock, $.03 par value; shares authorized 17,000,000; issued
7,940,838 at October 25, 1998 and 7,942,506 at May 2, 1999 238 238
Additional paid - in capital 43,781 43,831
Retained deficit (23,893) (22,528)
Cumulative translation adjustment, net of income taxes (91) (10)
Treasury stock, at cost (1,008,553 common shares at October 25, 1998 and
May 2, 1999) (3,718) (3,718)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 16,317 17,813
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,675 $ 35,131
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND SIX MONTHS ENDED
APRIL 26, 1998 AND MAY 2, 1999
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
----------------------- ----------------------
April 26, May 2, April 26, May 2,
1998 1999 1998 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
SALES $ 22,295 $ 16,164 $ 42,695 $ 32,475
COST OF SALES 17,506 12,016 33,902 24,418
-------- -------- -------- -------
Gross profit 4,789 4,148 8,793 8,057
OPERATING EXPENSES
Research and development 579 176 987 374
Selling, general and administrative 3,451 2,870 6,567 5,788
Other 42 -- 42 --
-------- -------- -------- -------
Total operating expenses 4,072 3,046 7,596 6,162
-------- -------- -------- -------
OPERATING INCOME 717 1,102 1,197 1,895
INTEREST AND OTHER INCOME (EXPENSE), net (208) (241) (291) (530)
-------- -------- -------- -------
INCOME BEFORE TAXES 509 861 906 1,365
PROVISION (BENEFIT) FOR INCOME TAXES - - - -
-------- -------- -------- -------
NET INCOME $ 509 $ 861 $ 906 $ 1,365
======== ======== ======== =======
BASIC AND DILUTED NET INCOME PER SHARE
Basic $ 0.08 $ 0.12 $ 0.14 $ 0.20
======== ======== ======== =======
Diluted $ 0.07 $ 0.12 $ 0.13 $ 0.20
======== ======== ======== =======
SHARES USED IN COMPUTING NET INCOME
PER SHARE
Basic 6,695 6,933 6,694 6,933
======== ======== ======== =======
Diluted 6,909 7,013 6,859 6,960
======== ======== ======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
APRIL 26, 1998 AND MAY 2, 1999
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
April 26, May 2,
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 906 $ 1,365
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,669 1,613
Gain on sale of equipment (70) --
Stock option compensation expense -- 47
Cumulative translation adjustment 42 6
Changes in assets and liabilities:
(Increase) in accounts receivable (748) (13)
(Increase) decrease in inventory (1,769) 1,602
(Increase) decrease in prepaid expenses 45 (416)
Increase (decrease) in accounts payable 1,101 (2,032)
(Decrease) in accrued compensation and related benefits (28) (258)
(Decrease) in other liabilities (151) (766)
-------- --------
Total adjustments 91 (217)
Net cash provided by operating activities 997 1,148
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 88 97
Purchase of property and equipment, net (2,946) (253)
(Increase) in other assets, net (24) --
-------- --------
Net cash (used in) investing activities (2,882) (156)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 9 3
Proceeds from revolving credit lines 34,271 29,164
Payments on revolving credit lines (32,066) (33,141)
Proceeds from term debt 580 5,836
Payments on term debt (540) (3,843)
-------- --------
Net cash provided by (used in) financing activities 2,254 (1,981)
NET INCREASE (DECREASE) IN CASH 369 (989)
-------- --------
CASH, beginning of year 1,707 1,387
-------- --------
CASH, end of period $ 2,076 $ 398
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Alpha Technologies Group, Inc. ("Alpha" or the "Company") manufactures
thermal management products, electronic connectors, and custom designed
subsystems.
Thermal management products, principally heat sinks, are primarily
fabricated aluminum extrusions that have high surface area to volume ratios and
are engineered to dissipate unwanted heat generated by electronic components. As
systems become increasingly more powerful and packaging becomes smaller, the
need to dissipate heat becomes more important to the reliability and
functionality of electronic systems. The Company's thermal management products
serve the microprocessor, computer, consumer electronics, telecommunication,
transportation, automotive, industrial controls, factory automation, power
supply, aerospace and defense industries.
Connectors are electro-mechanical devices that permit electronic
subassemblies such as printed circuit boards, power supplies and input-output
wire harnesses/cable assemblies to be coupled and separated. The Company's
connector products include sub-miniature, micro-miniature and ultra-miniature
connectors and cable and/or wire harness connector assemblies, the majority of
which are custom manufactured to meet rigid specifications. The Company's
connector products serve the aerospace, communications, defense, factory
automation, industrial controls, medical electronics, scientific/process
instrumentation and test/measurement industries.
Custom designed subsystems are operational sub-units integrated into major
networks for data transmission, retrieval and transfer. The Company designs,
fabricates and tests custom designed subsystems for the defense industry, the
telecommunications industry and certain commercial markets.
The Company was incorporated as Synercom Technology, Inc., in Texas in
1969, and was reincorporated in Delaware in 1983. In 1993, the Company began its
transformation from a software company to its current businesses. Since October
1993, the Company has grown through a combination of acquisitions and internal
growth. In September of 1994, the Company sold the remaining aspects of its
software and related services business. In April 1995, it changed its name to
Alpha Technologies Group, Inc.
6
<PAGE>
(2) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of the Company, the accompanying interim unaudited
consolidated financial statements contain all material adjustments, consisting
only of normal recurring adjustments necessary to present fairly the financial
condition, the results of operations and the changes in cash flows of Alpha
Technologies Group, Inc. and Subsidiaries for interim periods. The results for
such interim periods are not necessarily indicative of results for a full year.
All material intercompany transactions and balances have been eliminated.
Certain prior year amounts have been reclassified to conform to fiscal 1999
presentation.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") Number 130 ("SFAS 130")
"Reporting Comprehensive Income"; and in February 1998, FASB issued SFAS 132
"Employers' Disclosures about Pensions and Other Post Retirement Benefits". The
Company has adopted these standards for its fiscal year 1999, however the
adoption of SFAS 130 and SFAS 132 in fiscal 1999 did not have a material effect
on the preparation of and results of the Company's consolidated financial
statements.
Users of financial information produced for interim periods are encouraged
to refer to the footnotes contained in the Annual Report to Stockholders when
reviewing interim financial results.
(3) INVENTORIES
Inventories consisted of the following on October 25, May 2,
(in thousands): 1998 1999
----------- -----------
Raw materials and components $ 6,187 $ 5,601
Work in process 3,194 2,916
Finished goods 2,564 1,954
-------- --------
11,945 10,471
Valuation reserve (2,399) (2,527)
-------- --------
$ 9,546 $ 7,944
======== ========
7
<PAGE>
(4) DEBT AND REVOLVING CREDIT FACILITIES
Debt and revolving credit facilities consisted of the following on:
October 25, May 2,
1998 1999
-------- --------
(In Thousands)
Variable-rate revolving credit facility (effective
interest rates of 8.188% and 8.5% at October 25,
1998), interest payable monthly, principal is
repaid and re-borrowed based on cash
requirements...................................... $ 8,180 $ --
Variable-rate term notes (effective interest rates
of 8.75% to 8.85% at October 25, 1998), payable in
monthly installments ranging from $22,619 to
$37,500, plus accrued interest ................... 2,766 --
Equipment acquisition facility (effective interest
Rate of 8.75% on October 25, 1998, payable in 84
monthly installments of $10,952 , plus accrued
interest.......................................... 920 --
Variable-rate revolving credit facility (effective
interest rate of 8.25% on May 2, 1999
interest payable monthly, principal is
repaid and re-borrowed based on cash
requirements...................................... -- 4,203
Variable-rate term note (effective interest rate
of 8.25% On May 2, 1999), payable in
monthly installments of $90,000 plus
accrued interest.................................. -- 5,400
Other............................................... 108 387
-------- --------
11,974 9,990
Less current portion................................ (961) (1,217)
-------- --------
$ 11,013 $ 8,773
======== ========
Effective April 16, 1999, the Company and its subsidiaries (hereinafter
referred to as "Borrowers") became parties to a loan and security agreement (the
"Agreement") with a commercial lender which provides for revolving loans of up
to $10,500,000, a $5,400,000 term note payable monthly over five years, and an
equipment acquisition facility of up to $1,000,000 for fiscal 1999. An
additional $2,000,000 of equipment loans will be made available to Borrowers if
the Borrower's earnings before provision for income taxes, excluding all
extraordinary and nonrecurring items, equals or exceeds $1.00 for the fiscal
year ending October 31, 1999, or for any fiscal year thereafter. The advances
on the revolving loans are based on the eligible accounts receivable and
inventories and the advances on the equipment acquisition facility may be used
only for the purpose of funding capital equipment purchases by the Borrowers.
The maturity date of the Agreement is April 15, 2004.
8
<PAGE>
On May 2, 1999, $4,203,000 was outstanding on the revolving credit facility
with interest accruing at the prime rate announced by First Union National Bank
plus .5% (8.25% per annum on May 2, 1999). There is an unused line fee equal to
.5% per annum on the difference between $10,500,000 and the average daily
outstanding principal balance of Revolving Loans during each month payable
monthly in arrears on the first day of each month. The $5,400,000 term note
accrues interest at the prime rate announced by First Union National Bank plus
.5% (8.25% per annum on May 2, 1999) and is payable in fifty-nine (59) equal
monthly installments of $90,000 beginning April 30, 1999 and a final installment
equal to all unpaid principal on March 31, 2004, together, in each instance,
with interest thereon to the date of payment. On May 2, 1999, $5,400,000 was
outstanding on the term loan and no borrowings on the equipment acquisition
facility. The obligations under the Agreement are secured by a first lien on and
assignment of all of the assets of the Borrowers which in aggregate total
$35,131,000 on May 2, 1999.
9
<PAGE>
(5) BUSINESS SEGMENT INFORMATION
Summarized financial information by business segment (in thousands):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
April 26, May 2, April 26, May 2,
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales:
- ----------
Thermal management products $17,575 $11,897 $33,366 $23,596
Connector products 3,134 2,770 6,490 5,768
Subsystems 1,586 1,497 2,839 3,111
------- ------- ------- -------
Total 22,295 16,164 42,695 32,475
======= ======= ======= =======
Operating income (loss):
- ------------------------
Thermal management products 736 1,266 1,311 2,159
Connector products 112 172 234 496
Subsystems 189 92 260 194
Corporate (320) (428) (608) (954)
------- ------- ------- -------
Total 717 1,102 1,197 1,895
======= ======= ======= =======
Interest expense:
- -----------------
Thermal management products 225 247 444 516
Connector products 2 6 6 11
Subsystems 8 5 8 12
Intercompany Elimination -- (27) -- (39)
------- ------- ------- -------
Total 235 231 458 500
======= ======= ======= =======
Total assets:
- -------------
Thermal management products 31,951 24,078 31,951 24,078
Connector products 6,361 6,555 6,361 6,555
Subsystems 3,755 3,265 3,755 3,265
Corporate 3,239 2,417 3,239 2,417
Intercompany Elimination -- (1,184) -- (1,184)
------- ------- ------- -------
Total 45,306 35,131 45,306 35,131
======= ======= ======= =======
Depreciation and amortization:
- ------------------------------
Thermal management products 779 623 1,347 1,259
Connector products 118 130 235 253
Subsystems 37 45 74 90
Corporate 5 5 13 11
------- ------- ------- -------
Total 939 803 1,669 1,613
======= ======= ======= =======
Capital Expenditures:
- ---------------------
Thermal management products 1,628 26 2,723 169
Connector products 91 13 193 49
Subsystems 24 23 30 35
Corporate - - - -
------- ------- ------- -------
Total 1.743 62 2,946 253
======= ======= ======= =======
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
QUARTER TO QUARTER COMPARISON
Net Income/Loss. Net income for the second quarter of fiscal 1999 was
$861,000 as compared to a net income of $509,000 for the 1998 quarter which
included a $42,000 restructuring charge related to severance payments made at
the Company's connector operations. This improvement is primarily the result of
improved gross profit and continued control of operating expenses.
Net income from thermal management operations for the second quarter of
fiscal 1999, before the allocation of Alpha corporate expenses ("corporate
allocation"), was $1,036,000 compared to net income of $519,000 for the fiscal
1998 quarter. Results from operations increased primarily due to an increase in
gross profit margin and a decrease in operating expenses.
Net income from the connector products segment, before corporate
allocation, for the second quarter of fiscal 1999 was $163,000 compared to
$113,000 for the 1998 quarter. The 1998 quarter included a $42,000 restructuring
charge related to severance payments.
Net income from the Company's subsystems operation for the second quarter
of fiscal 1999, before corporate allocation, was $90,000 compared to $184,000
for the second quarter of fiscal 1998. The decrease in net income is primarily
attributable to a decline in sales and an increase in sales and marketing
expenses.
Sales. Sales for the second quarter of fiscal 1999 decreased 27.5% to
$16,164,000 from $22,295,000 for the same period of fiscal 1998, principally as
a result of a 32.3% decrease in thermal management sales to $11,897,000. The
decrease in thermal management sales primarily resulted from the Company's
decision to no longer pursue certain low margin sales opportunities.
Consequently, the Company is focusing its efforts on serving thermal management
customers who purchase highly customized products including products serving the
personal computer industry. These customers typically utilize the Company's
expertise in developing solutions to their thermal management problems.
Connector sales were $2,770,000 during the second quarter of fiscal 1999
compared to $3,134,000 during the prior fiscal year second quarter. Management
believes that the 11.6% decrease during fiscal 1999 was due to the slowdown in
the electronics industry. Subsystems sales were $1,497,000 during the second
quarter of fiscal 1999 compared to $1,586,000 during the prior fiscal year.
11
<PAGE>
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the second quarter of fiscal 1999 was
25.7% compared to 21.5% for the 1998 fiscal quarter. The thermal management
segment's gross profit percentage increased to 25.1% from 20.3% for fiscal 1998
second quarter as a result of the Company's programs to forgo lower margin
sales, enhance productivity and lower costs. During the fourth quarter of fiscal
1998, the Company implemented cost reduction measures, primarily a reduction in
workforce, to bring expenses in line with current sales levels. In addition, the
Company has increased its focus on manufacturing efficiencies. In the second
quarter of fiscal 1999, the thermal management segment's cost of sales included
$169,000 in severance and moving costs which had the effect of reducing the
gross profit percentage.
The connector segment's gross profit percentage increased to 28.5% for the
second quarter of fiscal 1999 from 25.7% for the 1998 quarter. This increase is
attributable to reductions in operating expenses, primarily workforce
reductions. The gross profit percentage at the Company's subsystems operation
decreased to 25.1% for the second quarter of fiscal 1999 from 26.4% for the
1998.
Research and Development Expense. Research and development expenses for
the quarter ended May 2, 1999 were $176,000, or 1.1% of sales, compared to
$579,000, or 2.6% of sales, for the prior year quarter. The reduction in
research and development expenses resulted from the Company's decision to focus
its research and development efforts on solving customers current thermal
management problems rather than the development of next generation solutions.
Because of this change in focus, the Company expects its product research and
development expense to decrease in fiscal 1999 compared with fiscal 1998.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the quarter ended May 2, 1999 were $2,870,000, or
17.8% of sales. This compares to $3,451,000, or 15.5% of sales, for the prior
year quarter. The $581,000 decrease in SG&A expenses for the second quarter of
1999, compared to the 1998 quarter, is attributable to a reduction in
operating expenses, primarily workforce reductions which occurred during the
fourth quarter of fiscal 1998. SG&A expenses, as a percentage of sales,
increased due to lower sales volume in the second quarter of 1999 as compared to
the prior year quarter.
Restructuring and Other Expenses. During the second quarter of fiscal 1998,
the Company incurred restructuring charges of $42,000 related to downsizing
severance payments at the Company's connector subsidiary.
Six Months to Six Months Comparison
Net Income/Loss. Net income for the first six months of fiscal 1999 was
$1,365,000 compared to net income of $906,000 for the first six months of fiscal
1998, which included a restructuring charge of $42,000 related to severance
payments, a $70,000 gain from the sale of equipment and other income of $59,000.
This improvement is primarily the result of improved gross profit and control of
operating expenses.
12
<PAGE>
Net income from thermal management operations for the first six months of
fiscal 1999, before the allocation of Alpha corporate expenses ("corporate
allocation"), was $1,664,000 compared to $875,000 for the 1998 period. Results
from operations improved primarily due to an increase in gross profit margin and
a decrease in operating expenses.
Net income from the connector products segment for the first six months of
fiscal 1999, before corporate allocation, was $462,000 compared to $354,000 for
the first six months of fiscal 1998, which included a $42,000 restructuring
charge related to severance payments and a $70,000 gain related to the sale of
certain equipment. The improvement in the first six months of fiscal 1999 was
primarily due to higher gross profits and improved expense management.
Net income from the Company's subsystems operation for the first six months
of fiscal 1999, before corporate allocation, was $188,000 compared to $258,000
for the first six months of fiscal 1998. The decrease in net income is primarily
attributable to a an increase in sales and marketing expenses.
Sales. The Company's sales for the first six months of fiscal 1999
decreased to $32,475,000 from $42,695,000 for the same period of fiscal 1998.
Thermal management sales decreased to $23,596,000 for the first half of fiscal
1999 from $33,366,000 for the first six months of fiscal 1998. The decrease in
thermal management sales primarily resulted from the Company's decision to no
longer pursue certain low margin sales opportunities. Consequently, the Company
is focusing its efforts on serving thermal management customers who typically
purchase highly customized products, including products serving the personal
computer industry. These customers typically utilize the Company's expertise in
developing solutions to their thermal management problems.
Connector sales were $5,768,000 during the first six months of fiscal 1999
compared to $6,490,000 during the prior fiscal year period. Management believes
that the 11.1% decrease during fiscal 1999 was due to the slowdown in the
electronics industry. Subsystems sales were $3,111,000 during the first six
months of fiscal 1999 compared to $2,839,000 during the prior fiscal year.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the first six months of fiscal 1999 was
24.8% compared to 20.6% for the 1998 period. The thermal management segment's
gross profit percentage was 23.5% and 19.4% for the first six months of fiscal
1999 and 1998, respectively. This increase was due to the effects of programs to
forgo lower margin sales, enhance productivity and lower costs. During the
fourth quarter of fiscal 1998, the Company implemented cost reduction measures,
primarily a reduction in workforce, to bring expenses in line with current sales
levels. In addition, the Company has increased its focus on manufacturing
efficiencies. In the second quarter of fiscal 1999, the thermal management
segment's cost of sales included $169,000 in severance and moving costs, which
had the effect of reducing the gross profit percentage.
13
<PAGE>
The connector products segment's gross profit percentage increased to 30.4%
for the first six months of fiscal 1999 from 25.5% for the 1998 period. This
increase is attributable to the reductions in operating expenses, primarily
workforce reductions, which primarily occurred during the second quarter of
fiscal 1998. The gross profit percentage at the Company's subsystems operation
increased to 24.4% for the first six months of fiscal 1999 from 23.5% for the
1998 period.
Research and Development Expense. Research and development expenses for
the six months ended May 2, 1999 were $374,000, or 1.2% of sales, compared to
$987,000, or 2.3% of sales, for the prior year period. The reduction in
research and development expenses resulted from the Company's decision to focus
its research and development efforts on solving customers current thermal
management problems rather than the development of next generation solutions.
Because of this change in focus, the Company expects its product research and
development expense to decrease in fiscal 1999 compared with fiscal 1998.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the six months ended May 2, 1999 were $5,788,000, or
17.8% of sales, including $180,000 accrued in the first quarter for the
cancellation of a contractual obligation. This compares to $6,567,000, or 15.4%
of sales for the prior year period. The $959,000 (excluding the $180,000
accrual) decrease in SG&A expenses for the first half of fiscal 1999, compared
to the same period of 1998, is attributable to a reduction in operating
expenses, primarily workforce reductions which occurred during the fourth
quarter of fiscal 1998. SG&A expenses, as a percentage of sales, increased due
to lower sales volume in the first half of 1999 as compared to the prior year.
Restructuring and Other Expenses. During the second quarter of fiscal 1998,
the Company incurred a restructuring charge of $42,000 which related to
downsizing severance payments at the Company's connector subsidiary.
Interest and Other Income (Net). Interest expense was $500,000 and $458,000
for the first six months of fiscal 1999 and 1998, respectively. This increase
was due to an increase in the average interest rate paid on outstanding debt.
The Company recorded other income for the first six months of 1998 of $142,000
which was primarily a result of a gain on the sale of equipment by the connector
segment's operation in South Pasadena, CA.
Year 2000 The Company continues to use its existing staff to
comprehensively review existing systems and equipment that need to be updated or
changed as a result of the Year 2000. To date, the Company's staff has
determined that some computer software requires upgrading and has begun the
process of making its systems year 2000 compliant. Based on current estimates,
the cost related to these upgrades is immaterial. The Company's computerized
production equipment is also being systematically evaluated for compliance. The
Company is in contact with its vendors and customers and no major problem has
been discovered to date. In fiscal 1999, the Company will prepare a contingency
plan.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On May 2, 1999, the Company had cash of approximately $398,000 compared to
$1,387,000 on October 25, 1998. Cash provided by operations was used to reduce
accounts payable by $2,032,000, to reduce long term debt and for capital
equipment purchases.
For the six months ended May 2, 1999, $1,148,000 was provided by operating
activities primarily from net income and by a $1,602,000 decrease in inventory.
In addition to reducing debt, cash was used to decrease accounts payable by
$2,032,000. Capital equipment purchases of $253,000 were made to improve
manufacturing capabilities and to refurbish and upgrade existing machinery. For
fiscal 1999, management expects capital equipment expenditures to be
approximately $1,000,000.
Effective April 16, 1999, the Company and its subsidiaries (hereinafter
referred to as "Borrowers") became parties to a loan and security agreement (the
"Agreement") with a commercial lender which provides for revolving loans of up
to $10,500,000, a $5,400,000 term note payable monthly over five years, and an
equipment acquisition facility of up to $1,000,000 for fiscal 1999. An
additional $2,000,000 of Equipment Loans will be made available to Borrowers if
the Borrower's earnings before provision for income taxes, excluding all
extraordinary and nonrecurring items, equals or exceeds $1.00 for the fiscal
year ending October 31, 1999, or for any fiscal year thereafter. The advances
on the revolving loans are based on the eligible accounts receivable and
inventories and the advances on the equipment acquisition facility may be used
only for the purpose of funding capital equipment purchases by the Borrowers.
The maturity date of the Agreement is April 15, 2004.
On May 2, 1999, $4,203,000 was oustanding on the revolving credit facility
with interest accruing at the prime rate announced by First Union National Bank
plus .5% (8.25% per annum on May 2, 1999). There is an unused line fee equal to
.5% per annum on the difference between $10,500,000 and the average daily
outstanding principal balance of Revolving Loans during each month payable
monthly in arrears on the first day of each month. The $5,400,000 term note
accrues interest at the prime rate announced by First Union National Bank plus
.5% (8.25% per annum on May 2, 1999) and is payable in fifty-nine (59) equal
monthly installments of $90,000 beginning April 30, 1999 and a final installment
equal to all unpaid principal on March 31, 2004, together, in each instance,
with interest thereon to the date of payment. On May 2, 1999, $5,400,000 was
outstanding on the term loan and no borrowings on the equipment acquisition
facility. The obligations under the Agreement are secured by a first lien on and
assignment of all of the assets of the Borrowers which in aggregate total
$35,131,000 on May 2, 1999.
Working capital on May 2, 1999 was $9,711,000 compared to $9,099,000 on
October 25, 1998. The increase in working capital is attributable to a decrease
in current liabilities funded by the Company's cash flow from operations. The
Company believes that its currently available cash, anticipated cash flow from
operations and availability under credit facilities is sufficient to fund its
operations in the near-term.
15
<PAGE>
FORWARD LEADING STATEMENTS
In conjunction with the provisions of the "Safe Harbor" section of the
Private Securities Litigation Reform Act of 1995, this quarterly report Form
10-Q may contain forward-looking statements pertaining to future anticipated
projected plans, performance and developments, as well as other statements
relating to future operations. All such forward-looking statements are
necessarily only estimates of future results and there can be no assurance that
actual results will not materially differ from expectations. Further information
on potential factors which could affect the Company, including, but not limited
to, the impact of competitive products and pricing, product demand and market
acceptance, new product development, reliance on key strategic alliances,
availability of raw materials, fluctuations in operating results, ability to
retain and attract personnel including management and other risks detailed
herein and in the Company's other filings with the Securities and Exchange
Commission.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During 1997, Aerospace Aluminum Heat Treating, Inc. ("AAHT") instituted an
action in the United States District Court for the Central District of
California against Soco-Lynch Corporation and the Company's Lockhart subsidiary.
AAHT operates a facility neighboring Lockhart's facility in Paramount,
California. The complaint alleges that Lockhart released certain hazardous
chemicals into the ground, and that some of these chemicals have contaminated
the ground and/or groundwater below the AAHT facility and an adjoining property.
The complaint also alleges that Soco-Lynch is a supplier of industrial
chemicals, and that Soco-Lynch spilled certain chemicals at the AAHT facility.
The plaintiff has claimed that its damages are between $200,000 and $750,000. To
date, the Company has incurred $263,000 in the defense of this litigation.
Preliminary investigation indicates that the underground water flows in a
direction that would not support AAHT's claims. In addition, because of the
depth of the groundwater, even if AAHT's claim were supportable, the Company
believes that any release by Lockhart would predate the Company's ownership of
Lockhart. The former owner of Lockhart agreed to indemnify the Company against
such claims, and has been put on notice of AAHT's complaint. Such
indemnification obligations are payable in shares of the Company's common stock,
which are currently held in escrow, and are to be valued at $9 per share.
Some discovery has been concluded and additional discovery may be taken. A
non-binding mediation was held on January 21, 1999. No resolution was reached,
but the parties agreed to further testing and to attempt to negotiate a
settlement thereafter. The testing was conducted and led to results that, in the
opinion of Lockhart's expert consultants, suggest that contamination flowed from
the AAHT property to the Lockhart property, rather than the other way around.
Lockhart had already asserted a counterclaim against AAHT in the referenced
litigation, and is now preparing to press that counterclaim unless the matter
can be resolved amicably. A telephone conference of the parties' respective
experts and counsel, on June 2, 1999, failed to reach agreement, and the parties
are now discussing the possibility of arbitrating the dispute. If the parties
are unable to resolve the litigation through negotiation, additional discovery
and a trial may be necessary. The Company cannot evaluate the likelihood of an
unfavorable outcome or estimate the amount or range of potential loss, if any.
Lockhart intends to vigorously defend this action.
On August 5, 1998, an attorney for a group called California Community
Health Advocates wrote a letter to Lockhart Industries alleging that the
Lockhart was in violation of the California Safe Drinking Water Act, California
Health and Safety Code secs. 25249 et seq. (commonly known as Proposition 65)
because of its alleged failure to post certain notices and to provide certain
warnings to neighboring businesses and residents. If all of these allegations
were true, Lockhart could be subjected to penalties of up to $2,500 per day. In
response, Lockhart has agreed to undertake efforts to reduce or eliminate its
use of certain chemicals, and to provide appropriate warnings for past and
current usage of such chemicals, as a way of shielding itself from
17
<PAGE>
such claims in the future. The parties are now discussing a possible settlement
if this matter. The Company cannot predict the future cost or liability, if any,
with respect to these allegations.
Other than as set forth above, there are no material pending legal
proceedings against the Company and, to the Company's knowledge, no such
proceedings are threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on May 26, 1999 in New
York, New York the stockholders elected the following management nominees:
Nominee Votes For Votes Withheld
------- --------- --------------
Marshall D. Butler 5,726,557 484,809
Lawrence Butler 5,726,557 484,809
Donald K. Grierson 5,726,557 484,809
Frederic A. Heim 5,726,557 484,809
Dr. Kenneth W. Rind 5,726,557 484,809
Robert C. Streiter 5,726,557 484,809
In addition, the stockholders approved the amendment to the 1994 Stock
Option Plan to increase the number of shares which may be granted thereunder:
Votes For Votes Against Abstentions
--------- ------------- -----------
5,277,328 842,823 91,215
18
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.24 Loan and Security Agreement by and between Congress Financial
Corporation as Lender and Alpha Technologies Group, Inc.,
Wakefield Engineering, Inc., Lockhart Industries, Inc., Malco
Technologies, Inc., Wakefield Extrusion Corp., and Uni-Star
Industries, Inc. as Borrowers dated April 16, 1999.
10.25 Employment agreement dated March 23, 1999 between Robert C.
Streiter and Alpha Technologies Group, Inc.
11.1 Statement re Computation of Per Share Earnings for the quarters
and six months ended April 26, 1998 and May 2, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports for Form 8-K filed by the Company during the quarter
ended May 2, 1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alpha Technologies Group, Inc.
------------------------------
(Registrant)
Date: June 15, 1999 By: /s/ Lawrence Butler
----------------------------- -----------------------------
Lawrence Butler
Chief Executive Officer
(Principal Executive Officer)
Date: June 15, 1999 By: /s/ Johnny J. Blanchard
----------------------------- -----------------------------
Johnny J. Blanchard
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
------- --------
10.24 Loan and Security Agreement by and between Congress
Financial Corporation as Lender and Alpha Technologies
Group, Inc., Wakefield Engineering, Inc., Lockhart
Industries, Inc., Malco Technologies, Inc., Wakefield
Extrusion Corp., and Uni-Star Industries, Inc. as
Borrowers dated April 15, 1999.
10.25 Employment agreement dated March 23, 1999 between
Robert C. Streiter and Alpha Technologies Group, Inc.
11.1 Statement re Computation of Per Share Earnings for the
quarters and six months ended April 26, 1998 and
May 2, 1999.
27.1 Financial Data Schedule
21
<PAGE>
EXHIBIT 10.24
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND)
as Lender
and
ALPHA TECHNOLOGIES GROUP, INC.
WAKEFIELD ENGINEERING, INC.,
LOCKHART INDUSTRIES, INC.,
MALCO TECHNOLOGIES, INCORPORATED,
WAKEFIELD EXTRUSION CORP., AND
UNI-STAR INDUSTRIES, INC.
as Borrowers
Dated: April 16, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. DEFINITIONS 1
2. CREDIT FACILITIES 11
2.1 REVOLVING LOANS 11
2.2 INTENTIONALLY OMITTED 12
2.3 TERM LOAN 12
2.4 AVAILABILITY RESERVES 12
2.5 EQUIPMENT ACQUISITION FACILITY 12
2.6 APPOINTMENT OF AGENT 13
3. INTEREST AND FEES 14
3.1 INTEREST 14
3.2 CLOSING FEE 15
3.3 INTENTIONALLY OMITTED 15
3.4 SERVICING FEE 16
3.5 UNUSED LINE FEE 16
3.6 CHANGES IN LAWS AND INCREASED COSTS OF LOANS 16
4. CONDITIONS PRECEDENT 17
4.1 CONDITIONS PRECEDENT TO INITIAL LOANS 17
4.2 CONDITIONS PRECEDENT TO ALL LOANS 18
5. GRANT OF SECURITY INTEREST 18
5.1 SECURITY INTEREST. 18
5.2 EXCLUSION FOR CERTAIN EQUIPMENT 19
(i)
<PAGE>
6. COLLECTION AND ADMINISTRATION 20
6.1 BORROWER'S LOAN ACCOUNT 20
6.2 STATEMENTS 20
6.3 COLLECTION OF ACCOUNTS 20
6.4 PAYMENTS 21
6.5 AUTHORIZATION TO MAKE LOANS 21
6.6 USE OF PROCEEDS 22
7. COLLATERAL REPORTING AND COVENANTS 22
7.1 COLLATERAL REPORTING 22
7.2 ACCOUNTS COVENANTS 23
7.3 INVENTORY COVENANTS 24
7.4 EQUIPMENT COVENANTS 25
7.5 POWER OF ATTORNEY 25
7.6 RIGHT TO CURE 26
7.7 ACCESS TO PREMISES 26
8. REPRESENTATIONS AND WARRANTIES 26
8.1 CORPORATE EXISTENCE, POWER AND AUTHORITY; SUBSIDIARIES 26
8.2 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE 27
8.3 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS 27
8.4 PRIORITY OF LIENS; TITLE TO PROPERTIES 27
8.5 TAX RETURNS 27
8.6 LITIGATION 28
8.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS 28
8.8 BANK ACCOUNTS 28
8.9 EMPLOYEE BENEFITS. 28
8.10 ENVIRONMENTAL COMPLIANCE. 29
8.11 INTERDEPENDENT BUSINESSES AND OPERATIONS 29
(ii)
<PAGE>
8.12 YEAR 2000 30
8.13 SOLVENCY 30
8.14 ACCURACY AND COMPLETENESS OF INFORMATION 30
8.15 SURVIVAL OF WARRANTIES; CUMULATIVE 30
9. AFFIRMATIVE AND NEGATIVE COVENANTS 31
9.1 MAINTENANCE OF EXISTENCE 31
9.2 NEW COLLATERAL LOCATIONS 31
9.3 COMPLIANCE WITH LAWS, REGULATIONS, ETC. 31
9.4 PAYMENT OF TAXES AND CLAIMS 32
9.5 INSURANCE 32
9.6 FINANCIAL STATEMENTS AND OTHER INFORMATION 33
9.7 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC. 34
9.8 ENCUMBRANCES 34
9.9 INDEBTEDNESS 35
9.10 LOANS, INVESTMENTS, GUARANTEES, ETC. 35
9.11 DIVIDENDS AND REDEMPTIONS 36
9.12 TRANSACTIONS WITH AFFILIATES 36
9.13 ADDITIONAL BANK ACCOUNTS 36
9.14 WORKING CAPITAL 37
9.15 ADJUSTED NET WORTH 37
9.16 COSTS AND EXPENSES 37
9.17 COMPLIANCE WITH ERISA. 37
9.18 FURTHER ASSURANCES 38
10. EVENTS OF DEFAULT AND REMEDIES 38
10.1 EVENTS OF DEFAULT 38
10.2 REMEDIES 40
(iii)
<PAGE>
11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 41
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS;
JURY TRIAL WAIVER 41
11.2 WAIVER OF NOTICES 42
11.3 AMENDMENTS AND WAIVERS 43
11.4 WAIVER OF COUNTERCLAIMS 43
11.5 INDEMNIFICATION 43
12. TERM OF AGREEMENT; MISCELLANEOUS 43
12.1 TERM 43
12.2 NOTICES 45
12.3 PARTIAL INVALIDITY 45
12.4 SUCCESSORS 45
12.5 JOINT AND SEVERAL LIABILITY 45
12.6 SURETYSHIP WAIVERS AND CONSENTS 46
12.7 CONTRIBUTION AGREEMENT 48
12.8 ENTIRE AGREEMENT 48
(iv)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificates
Exhibit B Form of Equipment Loan Promissory Note
Exhibit C Form of Legal Opinion From Borrower's Counsel
Schedule 8.4 Existing Liens
Schedule 8.8 Bank Accounts
Schedule 8.11 Environmental Matters
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(v)
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated April 16, 1999 is entered into by and
between Congress Financial Corporation (New England), a Massachusetts
corporation ("Lender") and Alpha Technologies Group, Inc., a Delaware
corporation ("Alpha"), Wakefield Engineering, Inc., a Delaware corporation
("WEI"), Lockhart Industries, Inc., a California corporation ("Lockhart"),
Wakefield Extrusion Corp., a California corporation ("WEC"), Malco Technologies,
Incorporated, a Delaware corporation ("Malco") and Uni-Star Industries, Inc., a
Delaware corporation ("Uni-Star", and together with WEI, Lockhart, WEC, Malco
and Uni-Star, each a "Borrower" and collectively, a "Borrowers").
W I T N E S S E T H:
WHEREAS, Borrowers have requested that Lender enter into certain financing
arrangements with Borrowers pursuant to which Lender will, subject to the terms
and conditions set forth herein, make loans and provide other financial
accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower, Borrowers and Lender pursuant
to the definitions set forth in the recitals hereto, or to any other person
herein, shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this Agreement now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in accordance with Section
11.3 or is cured in a manner satisfactory to Lender, if such Event of Default is
capable of being cured as determined by Lender. Any accounting term used herein
unless otherwise defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:
1
<PAGE>
1.1 "Accounts" shall mean all present and future rights of Borrowers to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book values all appropriate reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence, depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other liabilities of such
Person and its subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries which is subordinated in right
of payment to the full and final payment of all of the Obligations on terms and
conditions acceptable to Lender.
1.4 "Appraised Value" shall mean, as determined by Lender in good faith,
with respect to the Inventory, the appraised orderly liquidation value thereof
as set forth in an appraisal of such Inventory prepared by an independent
appraiser acceptable to Lender and in form and substance satisfactory to Lender.
1.5 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans which would otherwise be available to
Borrowers under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined by Lender in
good faith, do or are reasonably likely to affect either (i) the Collateral or
any other property which is security for the Obligations or its value, (ii) the
assets, business or prospects of Borrowers or any Obligor or (iii) the security
interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of any Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c) in respect
of any state of facts which Lender determines in good faith constitutes an Event
of Default or is reasonably likely, with notice or passage of time or both, to
constitute an Event of Default.
2
<PAGE>
1.6 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.7 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina, and a day on
which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.8 "Change in Control" shall be deemed to have occurred at such time as
(i) a "person" or "Group" (within the meaning of Section 13(d) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended, becomes the beneficial owner
(as defined in Rule 13a-3 of the Securities Exchange Act of 1934, as amended),
directly or indirectly, of more than thirty (30%) percent of the total voting
power of all classes of stock of Parent entitled to vote in the election of
directors (provided that such person or Group was not the beneficial owner of at
least such percentage of such stock on the date of this Agreement), or (ii) a
change in the Board of Directors of Parent occurs in which individuals who
constituted the Board of Directors at the beginning of the two year period
immediately preceding such change (together with any other director whose
nomination for election by the shareholders of Parent was approved by a vote of
at least seventy-five (75%) percent of the directors at the beginning of such
period or whose nomination and election was previously so approved) cease for
any reason to constitute a majority of directors therein office.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.10 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.11 "Eligible Accounts" shall mean Accounts created by Borrowers which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrowers or rendition of services by Borrowers in the
ordinary course of its business which transactions are completed in
accordance with the terms and provisions contained in any documents related
thereto;
(b) such Accounts are not unpaid more than sixty (60) days after the
original due date thereof and in any event are not unpaid more than ninety
(90) days after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
3
<PAGE>
(d) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment
by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to a Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S.
dollars, sufficient to cover such Account, in form and substance
satisfactory to Lender and, if required by Lender, the original of such
letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof notified of the assignment of the proceeds of such letter of
credit to Lender, or (ii) such Account is subject to credit insurance
payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender, or (iii) such Account is otherwise acceptable in all
respects to Lender (subject to such lending formula with respect thereto as
Lender may determine);
(f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor,
in form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay
such invoice;
(g) the account debtor with respect to such Accounts has not asserted
a counterclaim, defense or dispute and does not have, and does not engage
in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess
of the amount at any time and from time to time owed by Borrowers to such
account debtor or claimed owed by such account debtor may be deemed
Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are
not, and were not at the time of the sale thereof, subject to any liens
except those permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or
agent of or affiliated with any Borrower directly or indirectly by virtue
of family membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the
4
<PAGE>
Federal Assignment of Claims Act of 1940, as amended or any similar State
or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which
might result in any material adverse change in any such account debtor's
financial condition;
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than twenty (20%) percent of all otherwise Eligible
Accounts or such greater percentage as Lender may agree in writing from
time to time with respect to specific account debtors (but the portion of
the Accounts not in excess of such percentage may be deemed Eligible
Accounts);
(n) such Accounts are not owed by an account debtor who has Accounts
unpaid more than sixty (60) days after the date of the original invoice for
them which constitute more than fifty (50%) percent of the total Accounts
of such account debtor;
(o) such Accounts are owed by account debtors whose total indebtedness
to Borrowers does not exceed the credit limit with respect to such account
debtors as determined by Lender from time to time (but the portion of the
Accounts not in excess of such credit limit may be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender, as determined by Lender in good faith.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.12 "Eligible Equipment" shall mean Equipment acquired by a Borrower after
the date hereof, which is in new and unused condition, located at a Borrower's
premises and acceptable to Lender in all respects. General criteria for Eligible
Equipment may be established and revised from time to time by Lender in Lender's
good faith judgment. In determining such eligibility Lender may, but need not,
rely on reports furnished to Lender by Borrowers, but reliance thereon by Lender
from time to time shall not be deemed to limit Lender's right, in good faith, to
revise standards of eligibility at any time. In general, except in Lender's good
faith discretion, Eligible Equipment shall not include (a) Equipment at the
premises of third parties or subject to a security interest or lien in favor of
any third parties, (b) Equipment which is not subject to Lender's perfected
security interest, (c) fixtures, (d) defective Equipment or (e) Equipment not
used or usable in the ordinary course of a Borrower's business as presently
conducted; provided, however, any Equipment which would otherwise be deemed
Eligible Equipment at locations which are not owned and operated by a Borrower
may nevertheless be considered Eligible Equipment if Lender shall have received
an agreement in writing, in form and substance satisfactory to Lender, from the
owner and/or operator of such location, as the case may be, pursuant to which
such owner and/or operator, if required by Lender: (i) acknowledges the first
priority lien of Lender on such Equipment, (ii) agrees to waive any and all
claims such owner and/or operator may, at any time, have against such Equipment
and (iii) grants to Lender the right to enter and remain on the premises in
order to exercise Lender's rights and remedies on terms
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acceptable to Lender. Any Equipment which Lender determines to be ineligible or
unacceptable for purposes of the lending formula shall nevertheless be and
remain at all times part of the Collateral.
1.13 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of WEI, Lockhart or WEC
and raw materials for such finished goods which are acceptable to Lender in good
faith based on the criteria set forth below. In general, Eligible Inventory
shall not include (a) work-in-process; (b) components which are not part of
finished goods; (c) spare parts for equipment; (d) packaging and shipping
materials; (e) supplies used or consumed in any Borrower's business; (f)
Inventory at premises other than those owned and controlled by WEI, Lockhart or
WEC, except if Lender shall have received an agreement in writing from the
person in possession of such Inventory and/or the owner or operator of such
premises in form and substance satisfactory to Lender acknowledging Lender's
first priority security interest in the Inventory, waiving or subordinating
security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) bill and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) returned, damaged and/or defective Inventory; and (l) Inventory
purchased or sold on consignment. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.
1.14 "Environmental Law" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between any Borrower and any
governmental authority: relating to pollution and the protection, preservation
or restoration of the environment (including air, water vapor, surface water,
ground water, drinking water, drinking water supply, surface land, subsurface
land, plant and animal life or any other natural resource), or to human health
or safety, (b) relating to the exposure to, or the use, storage, recycling,
treatment, generation, manufacture, processing, distribution, transportation,
handling, labeling, production, release or disposal, or threatened release, of
Hazardous Materials, or (c) relating to all laws with regard to recordkeeping,
notification, disclosure and reporting requirements respecting Hazardous
Materials. The term "Environmental Laws" includes (i) the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Federal
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii)
applicable state counterparts to such laws, and (iii) any common law or
equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to any
Hazardous Materials.
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1.15 "Equipment" shall mean all of Borrowers' now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.16 "Equipment Loans" shall mean the loans made by Lender to Borrowers as
provided in Section 2.5 hereof.
1.17 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.18 "ERISA Affiliate" shall mean any person required to be aggregated with
any Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
1.19 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.20 "Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrowers and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrowers in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.21 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.22 "Excess Availability" shall mean the amount, as determined by Lender
in good faith, calculated at any time, equal to the lesser of: (i) the amount of
the Revolving Loans available to Borrowers as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and the Value of Eligible Inventory, as determined by Lender in good faith, and
subject to the sublimits and Availability Reserves from time to time established
by Lender hereunder, and (ii) the Revolving Loan Limit, minus the sum of: (i)
the amount of all then outstanding and unpaid Revolving Loans and other
Obligations (but not including for this purpose the then outstanding principal
amount of the Term Loan and the Equipment Loans), plus (ii) the aggregate amount
of all then outstanding and unpaid trade payables of Borrowers which are more
than sixty (60) days past due as of such time, plus (iii) the amount of checks
issued by Borrowers to pay trade payables, but not yet sent and the book
overdraft of Borrowers but without duplication for trade payable counted under
the prior clause.
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1.23 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by any
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.24 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.14 and 9.15 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.25 "Hard Cost of Eligible Equipment" shall mean the price paid by
Borrowers for Eligible Equipment excluding any and all "soft costs", as
determined in good faith by Lender, including, without limitation, shipping,
engineering, labor, installation, setup, testing and software costs and expenses
and further excluding all commissions, fees and sales, excise and other taxes.
1.26 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.27 "Information Certificate" shall mean the Information Certificates of
Borrowers constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrowers to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.28 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as Borrowers may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrowers may
not elect an Interest Period which will end after the last day of the then-
current term of this Agreement.
1.29 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one half
of one (.5%) percent per annum in excess of the Prime Rate and, as to Eurodollar
Rate Loans, a rate of two and three quarter (2.75%) percent per annum in excess
of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the
Interest Period selected by Borrower as in effect two (2) Business Days prior to
the commencement of the Interest Period selected by Borrowers in
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accordance with the terms hereof, whether such rate is higher or lower than any
rate previously quoted to Borrowers); provided, that, the Interest Rate shall
mean the rate of three and one half (3.5%) percent per annum in excess of the
Prime Rate as to Prime Rate Loans and the rate of five and three quarters
(5.75%) percent per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (a) for the period
(i) from and after the date of termination or non-renewal hereof until Lender
has received full and final payment of all obligations (notwithstanding entry of
a judgment against Borrower) and (ii) from and after the date of the occurrence
of an Event of Default for so long as such Event of Default is continuing as
determined by Lender, and (b) on the Revolving Loans at any time outstanding in
excess of the amounts available to Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge or consent
(unless the Lender shall have consented in writing in advance to such excess and
agreed with Borrower on the compensation to be paid to Lender with respect
thereto) and whether made before or after an Event of Default); and provided,
further, that, so long as no Event of Default or event which with notice or
passage of time or both might constitute an Event of Default exists or has
occurred and is continuing, Interest Rate shall mean, as to Prime Rate Loans,
the rate of one quarter of one (.25%) percent per annum in excess of the Prime
Rate and, as to Eurodollar Rate Loans, a rate of two and one-half (2.50%)
percent per annum in excess of the Adjusted Eurodollar Rate, effective for Prime
Rate Loans on and effective for Eurodollar Rate Loans made on or after the first
day of the calendar month following the date that Lender receives the Borrowers'
audited financial statements pursuant to Section 9.6(a)(ii) that evidence that
Borrowers' earnings before provision for income taxes and excluding all
extraordinary or nonrecurring items, determined in accordance with GAAP, for the
fiscal year ending October 31, 1999 equaled or exceeded $1.00, but if such
financial statements evidence a loss, before provision for income taxes and
excluding all extraordinary and nonrecurring items, determined in accordance
with GAAP, for such period, Interest Rate shall mean, as to Prime Rate Loans,
the rate of three quarters (.75%) percent per annum in excess of the Prime Rate
and, as to Eurodollar Rate Loans, a rate of three (3.00%) percent in excess of
the Adjusted Eurodollar Rate, effective for Prime Rate Loans on and effective
for Eurodollar Rate Loans made on or after the first day of the calendar month
following the receipt by Lender of such financial statements.
1.30 "Inventory" shall mean all of Borrowers' now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.31 "Investment Property" shall mean all of Borrowers' now owned and
hereafter existing or acquired securities, financial assets, securities
accounts, securities entitlements and all other investment property of
whatsoever kind or nature, wherever located, including, without limitation,
securities issued by any subsidiary of any Borrower.
1.32 Intentionally Omitted.
1.33 "Loans" shall mean the Revolving Loans, the Term Loan and the
Equipment Loans.
1.34 "Maximum Credit" shall mean the amount of $18,900,000.00.
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1.35 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.36 "Obligations" shall mean any and all Revolving Loans, the Term Loan,
the Equipment Loans and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by any Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to any Borrower under the United States Bankruptcy Code or any
similar statute (including the payment of interest and other amounts which would
accrue and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Lender.
1.37 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations including, without
limitation, Parent or who is the owner of any property which is security for the
Obligations, other than any Borrower.
1.38 "Parent" shall mean Alpha Technologies Group, Inc., a Delaware
corporation, and its successors and assigns.
1.39 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.40 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Internal Revenue Code of 1986, as amended), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.41 "Prime Rate" shall mean the rate announced by First Union National
Bank, or its successors, from time to time as its prime rate, whether or not
such announced rate is the best rate available at such bank.
1.42 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.43 "Records" shall mean all of Borrowers' present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrowers with respect to the
foregoing maintained with or by any other person).
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1.44 "Reference Bank" shall mean First Union National Bank, or such other
bank as Lender may from time to time designate.
1.45 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrowers on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.46 "Revolving Loan Limit" shall mean the amount of $10,500,000.00.
1.47 "Term Loan" shall mean the term loan made by Lender to Borrowers as
provided for in Section 2.3 hereof.
1.48 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.49 "Working Capital" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to the difference between: (a) the
aggregate net book value of all current assets of such Person and its
subsidiaries (as determined in accordance with GAAP); calculating the book value
of inventory for this purpose on a first-in-first-out basis, and (b) all current
liabilities of such Person and its subsidiaries (as determined in accordance
with GAAP), provided, that, as to Borrowers, for purposes of Section 9.14, the
liabilities of Borrowers and their subsidiaries to Lender under this Agreement
shall not be considered current liabilities (whether or not classified as
current liabilities in accordance with GAAP).
2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrowers from time to time in
amounts requested by Borrowers up to the amount equal to the lesser of (i)
the Revolving Loans Limit or (ii) the sum of:
(A) eighty-two and one half (82.5%) percent of the Net Amount of
Eligible Accounts, plus
(B) the lesser of: (1) eighty (80%) percent of the Appraised
Value of Eligible Inventory or (2) $1,250,000.00, less
(C) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrowers, (i) reduce the lending
formula with respect to Eligible Accounts to the extent that Lender
determines in good faith that: (A) the dilution with respect to the
Accounts for any period (based on the ratio of (1) the aggregate amount of
reductions in
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Accounts other than as a result of payments in cash to (2) the aggregate
amount of total sales) has increased in any material respect or may be
reasonably anticipated to increase in any material respect above historical
levels, or (B) the general creditworthiness of account debtors has declined
or (ii) reduce the lending formula(s) with respect to Eligible Inventory to
the extent that Lender determines in good faith that: (A) the number of
days of the turnover of the Inventory for any period has changed in any
material respect or (B) the liquidation value of the Eligible Inventory, or
of any material category thereof, has decreased, or (C) the nature and
quality of the Inventory has deteriorated. In determining whether to reduce
the lending formula(s), Lender may consider events, conditions,
contingencies or risks which are also considered in determining Eligible
Accounts, Eligible Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the Loans
outstanding at any time shall not exceed the Maximum Credit and the
aggregate amount of Revolving Loans outstanding at any time shall not
exceed the Revolving Loan Limit. In the event that the outstanding amount
of any component of the Loans, or the aggregate amount of the outstanding
Loans, exceed the amounts available under the lending formulas, the
Revolving Loan Limit or the Maximum Credit, as applicable, such event shall
not limit, waive or otherwise affect any rights of Lender in that
circumstance or on any future occasions and Borrowers shall, upon demand by
Lender, which may be made at any time or from time to time, immediately
repay to Lender the entire amount of any such excess(es) for which payment
is demanded.
2.2 Intentionally Omitted.
2.3 Term Loan. Lender is making a Term Loan to Borrowers in the original
principal amount of $5,400,000.00. The Term Loan is (a) evidenced by a Term
Promissory Note in such original principal amount duly executed and delivered by
Borrowers to Lender concurrently herewith; (b) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the Term
Promissory Note, and the other Financing Agreements and (c) secured by all of
the Collateral.
2.4 Availability Reserves. All Revolving Loans otherwise available to
Borrowers pursuant to the lending formulas and subject to the Maximum Credit,
Revolving Loan Limit and other applicable limits hereunder shall be subject to
Lender's continuing right to establish and revise Availability Reserves. In
addition to the foregoing, on the date hereof the Lender has established a
$500,000.00 initial Availability Reserve which shall be released, so long as no
Event of Default or event or condition which with notice or passage of time or
both might constitute an Event of Default exists or has recurred and is
continuing, five (5) business days after Lender's receipt of the Borrower's
audited financial statements for their fiscal year ending October 31, 1999
pursuant to Section 9.6(a)(ii) hereof that evidence that Borrowers' earnings
before provision for income taxes and excluding all extraordinary and
nonrecurring items, determined in accordance with GAAP, equals or exceeded
$1.00.
2.5 Equipment Acquisition Facility.
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Equipment Loans to Borrowers from time to time, up to
the amount equal seventy-five (75%) percent of the Hard Cost of Eligible
Equipment acquired with such Equipment
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Loan, provided that the outstanding principal amount of all Equipment Loans
shall not exceed $1,000,000.00 for the period of the Borrowers' fiscal year
ending October 31, 1999. An additional $2,000,000.00 of Equipment Loans
will be made available to Borrowers if their annual audited financial
statements for their fiscal year ending October 31, 1999 or for any fiscal
year thereafter pursuant to Section 9.6(a)(ii) hereof evidence that
Borrowers' earnings before provision for income taxes and excluding all
extraordinary and nonrecurring items, determined in accordance with GAAP,
equal or exceed $1.00. Lender may, in its good faith discretion, from time
to time upon written notice to Borrowers reduce the lending formula with
respect to Equipment Loans requested after such notice to the extent that
Lender determines in good faith that the liquidation value of the Eligible
Equipment or any portion thereof, has decreased or the nature and quality
of the Eligible Equipment has deteriorated.
(b) Each Equipment Loan requested by Borrowers hereunder shall be in a
minimum amount of $50,000. Each request by Borrowers for an Equipment Loan
shall be accompanied by copies of all purchase orders, invoices and other
documentation relating to the Eligible Equipment to be purchased with the
proceeds of such Equipment Loan, including a list and description of the
Eligible Equipment (by model, make, manufacturer, serial no. (if available)
and/or such other identifying information as may be required by Lender) and
such other information and documents as may be reasonably requested by
Lender. Each Equipment Loan shall be (a) evidenced by an Equipment Loan
Promissory Note substantially in the form attached as Exhibit B hereto,
completed, executed and delivered by Borrowers to Lender (in a manner
satisfactory to Lender) prior to the making of any Equipment Loan or by the
records and loan accounts maintained by Lender; (b) repaid, together with
interest and other amounts, in accordance with this Agreement, the
Equipment Loan Promissory Note, and the other Financing Agreements and (c)
secured by a first and only security interest on the acquired Equipment and
by all the other Collateral. Borrowers shall deliver to Lender upon request
evidence of full payment for all Eligible Equipment acquired with the
proceeds of an Equipment Loan and the absence of liens thereon. The
principal amount of each Equipment Loan shall be repaid in equal
consecutive monthly payments, payable on the first day of each calendar
month, commencing on the first such day to occur after the date each such
Loan is made. The principal amount shall be amortized over a sixty (60)
month period and the outstanding principal balance thereof and all accrued
and unpaid interest, fees and charges shall be due and payable on the first
to occur of (a) the election of Lender upon and following an Event of
Default and (b) the date of termination or nonrenewal of this Agreement.
The making of each Equipment Loan shall be subject to the terms of this
provision, the conditions precedent of Section 4.2 hereof and to the
further condition that the Borrowers' financial statements delivered to
Lender pursuant to Section 9.6(a)(i) hereof shall evidence that for the
prior six consecutive calendar months Borrowers had for such six month
period earnings before provision for income taxes and exclusive of
extraordinary and nonrecurring items, as determined in accordance with
GAAP, of not less than $1.00. Interest on the Equipment Loans shall be
computed and paid in accordance with Section 3.1 hereof.
2.6 Appointment of Agent. Borrowers hereby irrevocably appoint and
constitute Alpha, or any other Borrower selected by the Lender from time to time
upon and during the continuance of an Event of Default in the Lender's sole and
exclusive discretion (a "Replacement Agent"), as their agent to request Loans
and to take all actions required or permitted hereunder in the name of and on
behalf of each and all the Borrowers including, without limitation, requesting
the
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conversion to or continuation of Eurodollar Rate Loans under Section 3.1(d)
hereof and any Equipment Loans. This appointment shall include, without implied
limitation, the designation of Alpha (or the Replacement Agent) as the agent of
the Borrowers to furnish all notices to the Lender including, without
limitation, any notice under subsection 4.2.2 hereof, and to receive all notices
from the Lender including, without limitation, all statements of Loan Account(s)
under this Agreement. This appointment may not be terminated while this
Agreement is in effect or the Obligations are outstanding without the prior
written consent of Lender. Loans may be made by Lender to Alpha (or the
Replacement Agent) for the benefit of the Borrowers and shall be disbursed by
Alpha (or the Replacement Agent) to the other Borrowers in accordance with the
lending formulas under Section 1.1, and the Net Amount of the Eligible Accounts,
the Appraisal Value of Eligible Inventory of each Borrower and the loan formulas
applicable thereto as provided herein and the Hard Cost of Eligible Equipment
and the advance rate applicable to Eligible Equipment. At any time the Lender
may, in its discretion, disburse Loans to the Borrowers directly (i.e., not
first to Alpha or any Replacement Agent) or as otherwise provided in this
Agreement.
3. INTEREST AND FEES
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate.
All interest accruing hereunder on and after the date of any Event of
Default or termination or non-renewal hereof shall be payable on demand.
(b) Borrowers may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans continue for an additional Interest Period. Such request from
Borrowers shall specify the amount of the Prime Rate Loans which will
constitute Eurodollar Rate Loans (subject to the limits set forth below)
and the Interest Period to be applicable to such Eurodollar Rate Loans.
Subject to the terms and conditions contained herein, three (3) Business
Days after receipt by Lender of such a request from Borrowers, such Prime
Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar
Rate Loans shall continue, as the case may be, provided, that, (i) no Event
of Default, or event which with notice or passage of time or both would
constitute an Event of Default exists or has occurred and is continuing,
(ii) no party hereto shall have sent any notice of termination or non-
renewal of this Agreement, (iii) Borrowers shall have complied with such
customary procedures as are established by Lender and specified by Lender
to Borrowers from time to time for requests by Borrowers for Eurodollar
Rate Loans, (iv) no more than four (4) Interest Periods may be in effect at
any one time, (v) the aggregate amount of the Eurodollar Rate Loans must be
in an amount not less than $5,000,000 or an integral multiple of $1,000,000
in excess thereof, (vi) the maximum amount of the Eurodollar Rate Loans at
any time requested by Borrowers shall not exceed the amount equal to (A)
the principal amount of the Term Loan and Equipment Loans which it is
anticipated will be outstanding as of the last day of the applicable
Interest Period plus (B) eighty (80%) percent of the lowest principal
amount of the Revolving Loans which it is anticipated will be outstanding
during the applicable Interest Period, in each case as determined by Lender
(but with no obligation of Lender to make such Revolving Loans) and (vii)
Lender shall
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have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Lender through the Reference Bank and can be readily
determined as of the date of the request for such Eurodollar Rate Loan by
Borrowers. Any request by Borrowers to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans
shall be irrevocable. Notwithstanding anything to the contrary contained
herein, Lender and Reference Bank shall not be required to purchase United
States Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the
provisions hereof shall be deemed to apply as if Lender and Reference Bank
had purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate
Loan at least three (3) Business Days prior to such last day in accordance
with the terms hereof. Any Eurodollar Rate Loans shall, at Lender's option,
upon notice by Lender to Borrowers, convert to Prime Rate Loans in the
event that (i) an Event of Default or event which, with the notice or
passage of time, or both, would constitute an Event of Default, shall
exist, (ii) this Agreement shall terminate or not be renewed, or (iii) the
aggregate principal amount of the Prime Rate Loans which have previously
been converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans
continued, as the case may be, at the beginning of an Interest Period shall
at any time during such Interest Period exceed either (A) the aggregate
principal amount of the Loans then outstanding, or (B) the sum of the then
outstanding principal amount of the Term Loan plus the Revolving Loans then
available to Borrowers under Section 2 hereof. Borrowers shall pay to
Lender, upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrowers) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss
of anticipated profits), cost or expense incurred by such person, as a
result of the conversion of Eurodollar Rate Loans to Prime Rate Loans
pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed. The interest rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by an amount equal to
each increase or decrease in the Prime Rate effective on the first day of
the month after any change in such Prime Rate is announced based on the
Prime Rate in effect on the last day of the month in which any such change
occurs. In no event shall charges constituting interest payable by
Borrowers to Lender exceed the maximum amount or the rate permitted under
any applicable law or regulation, and if any such part or provision of this
Agreement is in contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the amount
of $189,000.00, which shall be fully earned as of the date hereof and payable in
two installments of $169,000 on the date hereof and $20,000 at such time as the
additional $2,000,000 of the Equipment Acquisition Facility is made available to
Borrower hereunder.
3.3 Intentionally Omitted.
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3.4 Servicing Fee. Borrowers shall pay to Lender monthly a servicing fee in
an amount equal to $2,000.00 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each month
hereafter.
3.5 Unused Line Fee. Borrowers shall pay to Lender monthly an unused line
fee at a rate equal to one half of one (.50%) percent per annum calculated upon
the amount by which the Revolving Loan Limit exceeds the average daily principal
balance of the outstanding Revolving Loans during the immediately preceding
month (or part thereof) while this Agreement is in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be payable
on the first day of each month in arrears.
3.6 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either
(A) make it unlawful for Lender, Reference Bank or any participant to make
or maintain Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in the
increase in the costs to Lender, Reference Bank or any participant of
making or maintaining any Eurodollar Rate Loans by an amount deemed by
Lender to be material, or (C) reduce the amounts received or receivable by
Lender in respect thereof, by an amount deemed by Lender to be material or
(ii) the cost to Lender, Reference Bank or any participant of making or
maintaining any Eurodollar Rate Loans shall otherwise increase by an amount
deemed by Lender to be material. Borrowers shall pay to Lender, upon demand
by Lender (or Lender may, at its option, charge any loan account of
Borrower) any amounts required to compensate Lender, the Reference Bank or
any participant with Lender for any loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of the
foregoing, including, without limitation, any such loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by such person to make or maintain the Eurodollar Rate Loans
or any portion thereof. A certificate of Lender setting forth the basis for
the determination of such amount necessary to compensate Lender as
aforesaid shall be delivered to Borrowers and shall be conclusive, absent
manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of
collections under Section 6.3 or any other payments made with the proceeds
of Collateral, Borrowers shall pay to Lender upon demand by Lender (or
Lender may, at its option, charge any loan account of Borrowers) any
amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any additional loss (including loss of
anticipated profits), cost or expense incurred by such person as a result
of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
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4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans. Each of the following is a
condition precedent to Lender making the initial Loans hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lender
or lenders to Borrowers of their respective financing arrangements with
Borrowers and the termination and release by it or them, as the case may
be, of any interest in and to any assets and properties of each Borrower
and each Obligor, duly authorized, executed and delivered by it or each of
them, including, but not limited to, (i) UCC termination statements for all
UCC financing statements previously filed by it or any of them or their
predecessors, as secured party and any Borrower or any Obligor, as debtor
and (ii) satisfactions and discharges of any mortgages, deeds of trust or
deeds to secure debt by each Borrower or any Obligor in favor of such
existing lender or lenders, in form acceptable for recording in the
appropriate government office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property
which is intended to be security for the Obligations or the liability of
any Obligor in respect thereof, subject only to the security interests and
liens permitted herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all
information and copies of all documents, including records of requisite
corporate action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or its
counsel to be certified by appropriate corporate officers or governmental
authorities;
(d) no material adverse change shall have occurred in the assets,
business or prospects of any Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would
impair the ability of any Borrower or any Obligor to perform its
obligations hereunder or under any of the other Financing Agreements to
which it is a party or of Lender to enforce the Obligations or realize upon
the Collateral;
(e) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrowers, the results
of which shall be satisfactory to Lender, not more than three (3) business
days prior to the date hereof;
(f) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from
third persons which Lender may deem necessary or desirable in order to
permit, protect and perfect its security interests in and liens upon the
Collateral or to effectuate the provisions or purposes of this Agreement
and the other Financing Agreements, including acknowledgments by lessors,
mortgagees and
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warehousemen of Lender's security interests in the Collateral, waivers by
such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and
the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(g) Lender shall have received, in form and substance satisfactory to
Lender, a letter from Joseph Finn confirming that Lender may rely upon
Finn's appraisals of the Inventory and Equipment and confirming the amount
of the forced liquidation value of the Equipment as determined by Finn;
(h) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as an additional insured and a
loss payee, as the case may be;
(i) Lender shall have received, in substantially the form attached
hereto as Exhibit C, such opinion letters of counsel to Borrowers with
respect to the Financing Agreements and such other matters as Lender may
request; and
(j) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to
Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans. Each of the following is an
additional condition precedent to Lender making Loans to Borrowers, including
the initial Loans and any future Loans:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties
had been made on and as of the date of the making of each such Loan and
after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation
and after giving effect thereto.
5. GRANT OF SECURITY INTEREST
5.1 Security Interest. To secure payment and performance of all
Obligations, each Borrower hereby grants to Lender a continuing security
interest in, a lien upon, and a right of set off against, and hereby assigns to
Lender as security, the following property and interests in property of each
such Borrower, whether now owned or hereafter acquired or existing, and wherever
located (collectively, the "Collateral"):
(a) Accounts;
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(b) all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints,
customer lists, licenses, whether as licensor or licensee, choses in action
and other claims and existing and future leasehold interests in equipment,
real estate and fixtures), chattel paper, documents, instruments,
securities and other investment property, letters of credit, bankers'
acceptances and guaranties;
(c) all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of each Borrower now or
hereafter held or received by or in transit to Lender or its affiliates or
at any other depository or other institution from or for the account of
such Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security
interests, rights, remedies, title and interest in, to and in respect of
Accounts and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and
credit and other insurance related to the Collateral, (ii) rights of
stoppage in transit, replevin, repossession, reclamation and other rights
and remedies of an unpaid vendor, lienor or secured party, (iii) goods
described in invoices, documents, contracts or instruments with respect to,
or otherwise representing or evidencing, Accounts or other Collateral,
including returned, repossessed and reclaimed goods, and (iv) deposits by
and property of account debtors or other persons securing the obligations
of account debtors;
(d) Inventory;
(e) Equipment;
(f) Investment Property;
(g) Records; and
(h) all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage
to or destruction of any or all of the foregoing.
5.2 Exclusion for Certain Equipment. Notwithstanding anything to the
contrary contained in Section 5.1 above, the types or items of Collateral
described in such Section shall not include any Equipment which is, or at the
time of a Borrower's acquisition thereof shall be, subject to a purchase money
mortgage or other purchase money lien or security interest (including
capitalized or finance leases) permitted under Section 9.8 hereof if: (a) the
valid grant of a security interest or lien to Lender in such item of Equipment
is prohibited by the terms of the agreement between a Borrower and the holder of
such purchase money mortgage or other purchase money lien or security interest
or under applicable law and such prohibition has not been or is not waived, or
the consent of the holder of the purchase money mortgage or other purchase money
lien or security interest has not been or is not otherwise obtained, or under
applicable law such prohibition cannot be waived, (b) the purchase money
mortgage or other purchase money lien or security interest on such item of
Equipment is or shall become valid and perfected, and (c)
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such Equipment is not intended to constitute Eligible Equipment for the purpose
of the making of any Equipment Loan.
6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrowers and (c) all other appropriate debits and credits as provided in this
Agreement, including fees, charges, costs, expenses and interest. All entries in
the loan account(s) shall be made in accordance with Lender's customary
practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrowers each month a statement
setting forth the balance in the Borrowers' loan account(s) maintained by Lender
for Borrowers pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrowers and conclusively binding
upon Borrowers as an account stated except to the extent that Lender receives a
written notice from Borrowers of any specific exceptions of Borrowers thereto
within forty-five (45) days after the date such statement has been mailed by
Lender. Until such time as Lender shall have rendered to Borrowers a written
statement as provided above, the balance in Borrowers' loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by Borrowers.
6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense, blocked
accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are
acceptable to Lender into which Borrowers shall promptly deposit and direct
its account debtors to directly remit all payments on Accounts and all
payments constituting proceeds of Inventory or other Collateral in the
identical form in which such payments are made, whether by cash, check or
other manner. The banks at which the Blocked Accounts are established shall
enter into an agreement, in form and substance satisfactory to Lender,
providing that all items received or deposited in the Blocked Accounts are
the property of Lender, that the depository bank has no lien upon, or right
to setoff against, the Blocked Accounts, the items received for deposit
therein, or the funds from time to time on deposit therein and that the
depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrowers agree that all
payments made to such Blocked Accounts or other funds received and
collected by Lender, whether on the Accounts or as proceeds of Inventory or
other Collateral or otherwise shall be the property of Lender to the extent
of the aggregate amount of the Obligations outstanding from time to time.
(b) For purposes of calculating the amount of the Loans available to
Borrowers, such payments will be applied (conditional upon final
collection) to the Obligations on the business day of receipt by Lender of
immediately available funds in the Payment Account
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provided such payments and notice thereof are received in accordance with
Lender's usual and customary practices as in effect from time to time and
within sufficient time to credit Borrowers' loan account on such day, and
if not, then on the next business day. For the purposes of calculating
interest on the Obligations, such payments or other funds received will be
applied (conditional upon final collection) to the Obligations one (1)
business day(s) following the date of receipt of immediately available
funds by Lender in the Payment Account provided such payments or other
funds and notice thereof are received in accordance with Lender's usual and
customary practices as in effect from time to time and within sufficient
time to credit Borrowers' loan account on such day, and if not, then on the
next business day.
(c) Borrowers and all of their affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender,
receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other
Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be
deposited in the Blocked Accounts, or remit the same or cause the same to
be remitted, in kind, to Lender. In no event shall the same be commingled
with Borrowers' own funds. Borrowers agree to reimburse Lender on demand
for any amounts owed or paid to any bank at which a Blocked Account is
established or any other bank or person involved in the transfer of funds
to or from the Blocked Accounts arising out of Lender's payments to or
indemnification of such bank or person. The obligation of Borrowers to
reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrowers or for the
account of Borrowers (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations, whether or not then
due, in such order and manner as Lender determines. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrowers. Borrowers shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrowers shall be liable to pay to Lender, and
do hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
based upon telephonic or other instructions received from anyone purporting to
be an officer of Alpha
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identified on the Information Certificate for Alpha attached hereto, as the same
may be amended from time to time, as agent for the Borrowers, or from anyone
purporting to be an officer of and to be authorized under the Information
Certificate of Replacement Agent or of any other Borrower or other authorized
person or, at the discretion of Lender, if such Loans are necessary to satisfy
any Obligations. All requests for Loans hereunder shall specify the date on
which the requested advance is to be made (which day shall be a business day)
and the amount of the requested Loan. Requests received after 11:00 a.m. Boston,
Massachusetts time on any day shall be deemed to have been made as of the
opening of business on the immediately following business day. All Loans under
this Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrowers when deposited to the credit of
Borrowers or otherwise disbursed or established in accordance with the
instructions of Alpha, as agent for the Borrowers, or of the Replacement Agent
or of any other Borrower or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans
provided by Lender to Borrowers hereunder only for: (a) payments to each of the
persons listed in the disbursement direction letter furnished by Borrowers to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made by Lender to
Borrowers pursuant to the provisions hereof shall be used by Borrowers only for
general operating, working capital and other proper corporate purposes of
Borrowers not otherwise prohibited by the terms hereof. None of the proceeds
will be used, directly or indirectly, for the purpose of purchasing or carrying
any margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, as amended.
7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrowers shall provide Lender with the following
documents in a form satisfactory to Lender: (a) on a regular basis as required
by Lender, a schedule of Accounts, sales made, credits issued and cash received;
(b) on a monthly basis or more frequently as Lender may request, (i) perpetual
inventory reports, (ii) inventory reports by category and (iii) agings of
accounts payable, (c) upon Lender's request, (i) copies of customer statements
and credit memos, remittance advices and reports, and copies of deposit slips
and bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by any Borrower; (d) agings of accounts receivable on a
monthly basis or more frequently as Lender may request; and (e) such other
reports as to the Collateral as Lender shall request from time to time. If any
of Borrowers' records or reports of the Collateral are prepared or maintained by
an accounting service, contractor, shipper or other agent, each Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
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7.2 Accounts Covenants.
(a) Borrowers shall notify Lender promptly of: (i) any material delay
in any Borrower's performance of any of its obligations to any account
debtor or the assertion of any claims, offsets, defenses or counterclaims
by any account debtor, or any disputes with account debtors, or any
settlement, adjustment or compromise thereof, (ii) all material adverse
information relating to the financial condition of any account debtor and
(iii) any event or circumstance which, to any Borrower's knowledge would
cause Lender to consider any then existing Accounts as no longer
constituting Eligible Accounts. No credit, discount, allowance or extension
or agreement for any of the foregoing shall be granted to any account
debtor without Lender's consent, except in the ordinary course of a
Borrower's business in accordance with practices and policies as disclosed
by Borrowers from time to time in writing to Lender. So long as no Event of
Default exists or has occurred and is continuing, Borrowers shall settle,
adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred
and is continuing, Lender shall, at its option and upon notice to
Borrowers, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) Without limiting the obligation of Borrowers to deliver any other
information to Lender, Borrowers shall promptly report to Lender any return
of Inventory by any one account debtor if the inventory so returned in such
case has a value in excess of $25,000.00. At any time that Inventory is
returned, reclaimed or repossessed, the Account (or portion thereof) which
arose from the sale of such returned, reclaimed or repossessed Inventory
shall not be deemed an Eligible Account to the extent of the portion
thereof attributed to the returned, reclaimed or repossessed Inventory. In
the event any account debtor returns Inventory when an Event of Default
exists or has occurred and is continuing, Borrowers shall, upon Lender's
request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii)
dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true
and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement,
(iii) no credit, discount, allowance or extension or agreement for any of
the foregoing shall be granted to any account debtor except as reported to
Lender in accordance with this Agreement and except for credits, discounts,
allowances or extensions made or given in the ordinary course of a
Borrower's business in accordance with practices and policies disclosed by
Borrowers from time to time to Lender, (iv) there shall be no setoffs,
deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance
with the terms of this Agreement, (v) none of the transactions giving rise
thereto will violate any applicable State or Federal laws or regulations,
all documentation relating thereto will be legally sufficient under such
laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
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(d) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrowers shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrowers,
all chattel paper and instruments which any Borrower now owns or may at any
time acquire immediately upon such Borrower's receipt thereof, except as
Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a
security interest therein and Lender may direct any or all accounts debtors
to make payment of Accounts directly to Lender, (ii) extend the time of
payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all
Accounts or other obligations included in the Collateral and thereby
discharge or release the account debtor or any other party or parties in
any way liable for payment thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not
be liable for its failure to collect or enforce the payment thereof nor for
the negligence of its agents or attorneys with respect thereto and (iv)
take whatever other action Lender may deem necessary or desirable for the
protection of its interests. At any time that an Event of Default exists or
has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts and
such other obligations have been assigned to Lender and are payable
directly and only to Lender and Borrowers shall deliver to Lender such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrowers shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, each Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrowers shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrowers shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrowers'
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrowers
shall, at their expense, no more than twice in any twelve (12) month period, but
at any time or times as Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written reports or appraisals as to
the Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) Borrowers shall produce, use, store and
maintain the Inventory with all reasonable care and caution and in accordance
with applicable standards of any insurance and in conformity with applicable
laws (including the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all
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rules, regulations and orders related thereto); (f) Borrowers assume all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrowers shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate any Borrower to repurchase such Inventory;
(h) Borrowers shall keep the Inventory in good and marketable condition; and (i)
Borrowers shall not, without prior written notice to Lender, acquire or accept
any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrowers shall, at their expense, once each year during the term of
this Agreement or at any time or times as Lender may request on or after an
Event of Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Equipment in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender; (b) Borrowers shall keep the
Equipment in good order, repair, running and marketable condition (ordinary wear
and tear excepted); (c) Borrowers shall use the Equipment with all reasonable
care and caution and in accordance with applicable standards of any insurance
and in conformity with all applicable laws; (d) the Equipment is and shall be
used in Borrowers' businesses and not for personal, family, household or farming
use; (e) Borrowers shall not remove any Equipment from the locations set forth
or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of any Borrower or
to move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of any Borrower in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and Borrowers shall not
permit any of the Equipment to be or become a part of or affixed to real
property; and (g) Borrowers assume all responsibility and liability arising from
the use of the Equipment.
7.5 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as such Borrower's true
and lawful attorney-in-fact, and authorizes Lender, in each such Borrower's or
Lender's name, to: (a) at any time an Event of Default or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other proceeds
of Inventory or other Collateral, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of Borrowers' rights and remedies
to collect any Account or other Collateral, (iv) sell or assign any Account upon
such terms, for such amount and at such time or times as the Lender deems
advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi)
discharge and release any Account, (vii) prepare, file and sign each Borrower's
name on any proof of claim in bankruptcy or other similar document against an
account debtor, (viii) notify the post office authorities to change the address
for delivery of each Borrower's mail to an address designated by Lender, and
open and dispose of all mail addressed to any Borrower, and (ix) do all acts and
things which are necessary, in Lender's determination, to fulfill Borrowers'
obligations under this Agreement and the other Financing Agreements and (b) at
any time to (i) take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which any Borrower's
mail is deposited for the purpose of ensuring compliance with Section 6.3
hereof, (iii) endorse each Borrower's name upon any items of payment or proceeds
thereof and deposit the same in the Lender's account for application to the
Obligations, (iv) endorse each Borrower's name upon any chattel paper, document,
instrument, invoice, or
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similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign each Borrower's name on any
verification of Accounts and notices thereof to account debtors and (vi) execute
in each Borrower's name and file any UCC financing statements or amendments
thereto. Each Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or willful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option upon notice to Borrowers, (a)
cure any default by any Borrower under any agreement with a third party or pay
or bond on appeal any judgment entered against any Borrower, (b) discharge
taxes, liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and (c) pay any amount, incur any
expense or perform any act which, in Lender's good faith judgment, is necessary
or appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Lender with respect thereto. Lender may add any amounts so expended to
the Obligations and charge Borrowers' account therefor, such amounts to be
repayable by Borrowers on demand. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrowers. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrowers, (a) Lender or its designee shall have complete
access to all of Borrowers' premises during normal business hours and after
notice to Borrowers, or at any time and without notice to Borrowers if an Event
of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrowers' books
and records, including the Records, and (b) Borrowers shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrowers' personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
8. REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans by Lender to
Borrowers:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on any Borrower's financial condition,
results of operation or
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business or the rights of Lender in or to any of the Collateral. The execution,
delivery and performance of this Agreement, the other Financing Agreements and
the transactions contemplated hereunder and thereunder are all within each
Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of any Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which any Borrower is a party or by which any
Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of each Borrower
enforceable in accordance with their respective terms. Borrowers do not have any
subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrowers as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Borrowers to Lender prior to the date
of this Agreement, there has been no material adverse change in the assets,
liabilities, properties and condition, financial or otherwise, of any Borrower,
since the date of the most recent audited financial statements furnished by
Borrowers to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower and each Borrower's Records concerning Accounts are
located only at the addresses set forth below on the signature pages hereof and
their only other places of business and the only other locations of Collateral,
if any, are the addresses set forth in the Information Certificates, subject to
the right of Borrowers to establish new locations in accordance with Section 9.2
below. The Information Certificates correctly identify any of such locations
which are not owned by a Borrower and sets forth the owners and/or operators
thereof and to the best of Borrowers' knowledge, the holders of any mortgages on
such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Each Borrower has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Each Borrower
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrowers and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the
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payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificates, there
is no present investigation by any governmental agency pending, or to the best
of any Borrower's knowledge threatened, against or affecting any Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of any Borrower's knowledge threatened, against
any Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against any
Borrower would result in any material adverse change in the assets, business or
prospects of any Borrower or would impair the ability of any Borrower to perform
its obligations hereunder or under any of the other Financing Agreements to
which it is a party or of Lender to enforce any Obligations or realize upon any
Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. No Borrower is in
default in any material respect under, or in violation in any material respect
of any of the terms of, any agreement, contract, instrument, lease or other
commitment to which it is a party or by which it or any of its assets are bound
and each Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by any Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.8 hereto, subject to the
right of Borrowers to establish new accounts in accordance with Section 9.13
below.
8.9 Employee Benefits.
(a) No Borrower has engaged in any transaction in connection with
which a Borrower or any of its ERISA Affiliates could be subject to either
a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Code, including any accumulated funding
deficiency described in Section 8.10(c) hereof and any deficiency with
respect to vested accrued benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by Borrowers to be incurred with respect to any employee
benefit plan of any Borrower or any of its ERISA Affiliates. There has been
no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any employee pension benefit plan
of any Borrower or any of its ERISA Affiliates which presents a risk of
termination of any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which any Borrower or
any of its ERISA Affiliates is required under Section 302 of ERISA and
Section 412 of the Code to have paid under the terms of each employee
benefit plan as contributions to such plan as of the last day of the most
recent fiscal year of such plan ended prior to the date hereof, and no
accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to any
employee benefit plan, including any penalty or tax
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described in Section 8.10(a) hereof and any deficiency with respect to
vested accrued benefits described in Section 8.10(d) hereof.
(d) The current value of all vested accrued benefits under all
employee benefit plans maintained by Borrowers that are subject to Title IV
of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.10(a) hereof and any accumulated funding deficiency
described in Section 8.10(c) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) No Borrower nor any of their ERISA Affiliates is or has ever been
obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of
ERISA.
8.10 Environmental Compliance.
(a) Except as set forth on Schedule 8.10 hereto, no Borrower has
generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time violates any
applicable Environmental Law or any license, permit, certificate, approval
or similar authorization thereunder and the operations of Borrowers comply
in all material respects with all Environmental Laws and all licenses,
permits, certificates, approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.10 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending
or to the best of any Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental
Law by any Borrower or the release, spill or discharge, threatened or
actual, of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of
any Hazardous Materials or any other environmental, health or safety
matter, which affects any Borrower or its business, operations or assets or
any properties at which any Borrower has transported, stored or disposed of
any Hazardous Materials.
(c) No Borrower has any material liability (contingent or otherwise)
in connection with a release, spill or discharge, threatened or actual, of
any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any
Hazardous Materials.
(d) Each Borrower has all licenses, permits, certificates, approvals
or similar authorizations required to be obtained or filed in connection
with the operations of such Borrower under any Environmental Law and all of
such licenses, permits, certificates, approvals or similar authorizations
are valid and in full force and effect.
8.11 Interdependent Businesses and Operations. Each of the Borrowers
acknowledges and agrees that it acts interdependently with the other Borrowers
as part of a common business enterprise and relies upon the other Borrowers in
its operations and business. Each of the
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Borrowers further acknowledges and agrees that the Loans made and to be made
hereunder by Lender would not be made except on the basis of the joint and
several liability of the Borrowers and that each Borrower has derived and will
derive substantial direct and indirect economic benefits from the Loans made and
to be made hereunder by Lender to the other Borrowers.
8.12 Year 2000. Each Borrower has taken all necessary action to access and
evaluate all of the hardware, software, embedded microchips and other processing
capabilities it uses and which is used in the products it sells, directly or
indirectly, and has made inquiry of each Borrower's material suppliers and
vendors, to be able to ensure that each Borrower and each product it sells will
be able to function accurately and without interruption using date information
before, during and after January 1, 2000. Any reprogramming of any computer
systems or equipment required to permit the proper functioning of the Borrowers
and their business and each product they sell following January 1, 2000 and any
testing of such systems and equipment and each product they sell will be
completed by July 31, 1999, and the cost of such reprogramming and testing will
not result in a material adverse change in the operations, business, financial
condition or prospects of any Borrower.
8.13 Solvency Each Borrower is solvent and will continue to be solvent
after the creation of the Obligations, the security interests of Lender and the
other transactions contemplated hereunder, is able to pay its debts as they
mature and has (and has reason to believe it will continue to have) sufficient
capital (and not unreasonably small capital) to carry on its business and all
businesses in which it is about to engage. The assets and properties of each
Borrower at a fair valuation and at their present fair salable value are, and
will be, greater than the liabilities and indebtedness of each such Borrower,
and including subordinated and contingent liabilities computed at the amount
which, to the best of Borrowers' knowledge, represents an amount which can
reasonably be expected to become an actual or matured liability.
8.14 Accuracy and Completeness of Information. All information furnished by
or on behalf of Borrowers in writing to Lender in connection with this Agreement
or any of the other Financing Agreements or any transaction contemplated hereby
or thereby, including all information on the Information Certificates is true
and correct in all material respects on the date as of which such information is
dated or certified and does not omit any material fact necessary in order to
make such information not misleading. No event or circumstance has occurred
which has had or could reasonably be expected to have a material adverse affect
on the business, assets or prospects of any Borrower, which has not been fully
and accurately disclosed to Lender in writing.
8.15 Survival of Warranties; Cumulative. All representations and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed to have been
relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrowers shall now or hereafter give, or cause to be given, to Lender.
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9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrowers shall give Lender thirty (30) days prior written notice of
any proposed change in any Borrower's corporate name, which notice shall set
forth the new name and Borrowers shall deliver to Lender a copy of the amendment
to the Certificate of Incorporation of such Borrower providing for the name
change certified by the Secretary of State of the jurisdiction of incorporation
of such Borrower as soon as it is available.
9.2 New Collateral Locations. Any Borrower may open any new location within
the continental United States provided Borrowers (a) give Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) execute and deliver, or cause to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrowers shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local governmental authority, including the Employee Retirement Security
Act of 1974, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, and all
statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including all of
the Environmental Laws.
(b) Borrowers shall establish and maintain, at their expense, a system
to assure and monitor their continued compliance with all Environmental
Laws in all of their operations, which system shall include annual reviews
of such compliance by employees or agents of Borrowers who are familiar
with the requirements of the Environmental Laws. Copies of all
environmental surveys, audits, assessments, feasibility studies and results
of remedial investigations shall be promptly furnished, or caused to be
furnished, by Borrowers to Lender. Borrowers shall take prompt and
appropriate action to respond to any non-compliance with any of the
Environmental Laws and shall regularly report to Lender on such response.
(c) Borrowers shall give both oral and written notice to Lender
immediately upon any Borrower's receipt of any notice of, or any Borrower's
otherwise obtaining knowledge of, (i) the occurrence of any event involving
the release, spill or discharge, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by any Borrower or (B) the release, spill or discharge,
of any Hazardous Material or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety
matter, which affects
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any Borrower or its business, operations or assets or any properties at
which any Borrower transported, stored or disposed of any Hazardous
Materials.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of any Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrowers shall, at
Lender's request and Borrowers' expense: (i) cause an independent
environmental engineer acceptable to Lender to conduct such tests of the
site where Borrowers' non-compliance or alleged non-compliance with such
Environmental Laws has occurred as to such non-compliance and prepare and
deliver to Lender a report as to such non-compliance setting forth the
results of such tests, a proposed plan for responding to any environmental
problems described therein, and an estimate of the costs thereof and (ii)
provide to Lender a supplemental report of such engineer whenever the scope
of such non-compliance, or Borrowers' response thereto or the estimated
costs thereof, shall change in any material respect.
(e) Borrowers shall indemnify, defend and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives,
successors and assigns, from and against any and all losses, claims,
damages, liabilities, costs, and expenses (including attorneys' fees and
legal expenses) directly or indirectly arising out of or attributable to
the use, generation, manufacture, reproduction, storage, release,
threatened release, spill, discharge, disposal or presence of a Hazardous
Material, including the costs of any required or necessary repair, cleanup
or other remedial work with respect to any property of Borrowers and the
preparation and implementation of any closure, remedial or other required
plans. All representations, warranties, covenants and indemnifications in
this Section 9.3 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrowers and with respect to which adequate reserves have been set
aside on their books. Borrowers shall be liable for any tax or penalties imposed
on Lender as a result of the financing arrangements provided for herein and each
Borrower agrees to indemnify, defend and hold Lender harmless with respect to
the foregoing, and to repay to Lender on demand the amount thereof, and until
paid by Borrowers such amount shall be added and deemed part of the Loans,
provided, that, nothing contained herein shall be construed to require Borrowers
to pay any income or franchise taxes attributable to the income of Lender from
any amounts charged or paid hereunder to Lender. The foregoing indemnity shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
9.5 Insurance. Borrowers shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrowers shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrowers fail to do
so, Lender is authorized, but not required, to obtain
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such insurance at the expense of Borrowers. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrowers in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance.
Borrowers shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) under such insurance
policies and Borrowers shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance satisfactory to
Lender. Such lender's loss payable endorsements shall specify that the proceeds
of such insurance shall be payable to Lender as its interests may appear and
further specify that Lender shall be paid regardless of any act or omission by
Borrowers or any of its affiliates. At its option, Lender may apply any
insurance proceeds received by Lender at any time to the cost of repairs or
replacement of Collateral and/or to payment of the Obligations, whether or not
then due, in any order and in such manner as Lender may determine or hold such
proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrowers and their
subsidiaries (if any) in accordance with GAAP and Borrowers shall furnish
or cause to be furnished to Lender: (i) within thirty(30) days after the
end of each fiscal month, monthly unaudited consolidated financial
statements, and, if any Borrower has any subsidiaries, unaudited
consolidating financial statements (including in each case balance sheets,
statements of income and loss, statements of cash flow, and statements of
shareholders' equity), all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrowers and their
subsidiaries as of the end of and through such fiscal month and (ii) within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements and, if any Borrower has any subsidiaries, unaudited
management prepared consolidating financial statements of Borrowers and
their subsidiaries (including in each case balance sheets, statements of
income and loss, statements of cash flow and statements of shareholders'
equity), and the accompanying notes thereto, all in reasonable detail,
fairly presenting the financial position and the results of the operations
of Borrowers and their subsidiaries as of the end of and for such fiscal
year, together with the unqualified opinion of independent certified public
accountants, which accountants shall be an independent accounting firm
selected by Borrowers and reasonably acceptable to Lender, that the audited
consolidated financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial condition
of Borrowers and their subsidiaries as of the end of and for the fiscal
year then ended.
(b) Borrowers shall promptly notify Lender in writing of the details
of (i) any loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in any
Borrower's business, properties, assets, goodwill or condition, financial
or otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
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(c) Borrowers shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which any
Borrower or any Obligor sends to its stockholders generally and copies of
all reports and registration statements which any Borrower or any Obligor
files with the Securities and Exchange Commission, any national securities
exchange or the National Association of Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrowers to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Each Borrower hereby
irrevocably authorizes and directs all accountants or auditors to deliver
to Lender, at Borrowers' expense, copies of the financial statements of
Borrowers and any reports or management letters prepared by such
accountants or auditors on behalf of Borrowers and to disclose to Lender
such information as they may have regarding the business of Borrowers. Any
documents, schedules, invoices or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1) year after the same
are delivered to Lender, except as otherwise designated by Borrowers to
Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower
shall, directly or indirectly, (a) merge into or with or consolidate with any
other Person or permit any other Person to merge into or with or consolidate
with it (except that a Borrower may merge with another Borrower or Obligor, so
long as a Borrower is the surviving corporation), or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or indebtedness to any other
Person or any of its assets to any other Person (except for (i) sales of
Inventory in the ordinary course of business and (ii) the disposition of worn-
out or obsolete Equipment or Equipment no longer used in the business of
Borrower so long as (A) any proceeds are paid to Lender and (B) such sales do
not involve Equipment having an aggregate fair market value in excess of
$150,000 for all such Equipment disposed of in any fiscal year of Borrowers), or
(c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve or
(e) agree to do any of the foregoing.
9.8 Encumbrances. No Borrower shall create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including the
Collateral, except: (a) liens and security interests of Lender; (b) liens
securing the payment of taxes, either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrowers and with respect to which adequate reserves have been
set aside on its books; (c) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of Borrowers'
businesses to the extent: (i) such liens secure indebtedness which is not
overdue or (ii) such liens secure indebtedness relating to claims or liabilities
which are fully insured and being defended at the sole cost and expense and at
the sole risk of the insurer or being contested in good faith by appropriate
proceedings diligently pursued and available to Borrowers, in each case prior to
the commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books; (d) zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of real property which do not interfere in any material respect with the
use of such real property or ordinary conduct of the
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business of Borrowers as presently conducted thereon or materially impair the
value of the real property which may be subject thereto; (e) purchase money
security interests in Equipment (including capital leases) and purchase money
mortgages on real estate not to exceed $890,000 in the aggregate at any time
outstanding, being the aggregate amount thereof outstanding on the date hereof,
so long as such security interests and mortgages do not apply to any property of
any Borrower other than the Equipment or real estate so acquired, and the
indebtedness secured thereby does not exceed the cost of the Equipment or real
estate so acquired, as the case may be; and (f) the security interests and liens
set forth on Schedule 8.4 hereto.
9.9 Indebtedness. No Borrower shall incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except: (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which a Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to such
Borrower, and with respect to which adequate reserves have been set aside on its
books; (c) purchase money indebtedness (including capital leases) to the extent
not incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement; (d) unsecured indebtedness and obligations in
the ordinary course of business among and between the Borrowers which
indebtedness and obligations Borrowers agree are and shall be subject and
subordinate in right of payment to the right of Lender to receive the final
indefeasible payment in full of the Obligations; provided, that, each Borrower
remains solvent as provided under Section 8.13 hereof and Borrowers may make
payments thereon in the ordinary course of business unless an Event of Default
or an event or condition which with notice or passage of time or both might
constitute an Event of Default shall exist or have occurred and be continuing;
and (e) the indebtedness set forth on Schedule 9.9 hereto; provided, that, (i)
Borrowers may only make regularly scheduled payments of principal and interest
in respect of such indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving rise to such indebtedness as in effect on the
date hereof, (ii) Borrowers shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set
aside or otherwise deposit or invest any sums for such purpose, and (iii)
Borrowers shall furnish to Lender all notices or demands in connection with such
indebtedness either received by any Borrower or on its behalf, promptly after
the receipt thereof, or sent by Borrowers or on its behalf, concurrently with
the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. No Borrower shall, directly or
indirectly, make any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a) the
endorsement of instruments for collection or deposit in the ordinary course of
business; (b) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of a Borrower or to bearer and
delivered to Lender, and (iii) commercial paper rated A1 or P1; provided, that,
as to any of the foregoing, unless waived in writing by Lender, Borrowers shall
take such actions as are deemed necessary by
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Lender to perfect the security interest of Lender in such investments, (c) the
loans, advances and guarantees set forth on Schedule 9.10 hereto; provided,
that, as to such loans, advances and guarantees, (i) Borrowers shall not,
directly or indirectly, (A) amend, modify, alter or change the terms of such
loans, advances or guarantees or any agreement, document or instrument related
thereto, or (B) as to such guarantees, redeem, retire, defease, purchase or
otherwise acquire the obligations arising pursuant to such guarantees, or set
aside or otherwise deposit or invest any sums for such purpose, and (ii)
Borrowers shall furnish to Lender all notices or demands in connection with such
loans, advances or guarantees or other indebtedness subject to such guarantees
either received by Borrowers or on their behalf, promptly after the receipt
thereof, or sent by Borrowers or on their behalf, concurrently with the sending
thereof, as the case may be; (d) loans and investments among the Borrowers in
the ordinary course of business provided that the indebtedness so incurred is in
compliance with Section 9.9(d) hereof and each Borrower remains solvent as
provided in Section 8.13; and (e) loans and advances to employees with respect
to commissions and other items incurred in the ordinary course of business not
to exceed $50,000 for any employee and $200,000 in the aggregate for all
employees of all Borrowers.
9.11 Dividends and Redemptions. No Borrower shall, directly or indirectly,
declare or pay any dividends on account of any shares of class of capital stock
of a Borrower now or hereafter outstanding, or set aside or otherwise deposit or
invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any consideration
other than common stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing; provided, however, that so long as
no Event of Default or event or condition which with notice or the passage of
time or both would constitute an Event of Default exists or has occurred and is
continuing, Alpha may undertake stock repurchase program(s) to repurchase its
common stock so long as for sixty consecutive days prior to and after giving
effect to any such purchase the Borrowers maintain daily Excess Availability of
greater than $1,000,000.
9.12 Transactions with Affiliates. No Borrower shall, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with any Borrower, except in the ordinary course of and pursuant to
the reasonable requirements of each Borrowers' business and upon fair and
reasonable terms no less favorable to such Borrower than such Borrower would
obtain in a comparable arm's length transaction with an unaffiliated person or
(b) make any payments of management, consulting or other fees for management or
similar services, or of any indebtedness owing to any officer, employee,
shareholder, director or other person affiliated with any Borrower except
reasonable compensation to Alpha and to officers, employees and directors of the
Borrowers for services rendered to Borrowers in the ordinary course of business.
9.13 Additional Bank Accounts. Borrowers shall not, directly or indirectly,
open, establish or maintain any deposit account, investment account or any other
account with any bank or other financial institution, other than the Blocked
Accounts and the accounts set forth in Schedule 8.8 hereto, except: (a) as to
any new or additional Blocked Accounts and other such new or additional accounts
which contain any Collateral or proceeds thereof, with the prior written consent
of Lender and subject to such conditions thereto as Lender may establish and (b)
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as to any accounts used by Borrowers to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
9.14 Working Capital. Borrowers shall, at all times, maintain Working
Capital of not less than $8,100,000.00.
9.15 Adjusted Net Worth. Borrowers shall, at all times, maintain Adjusted
Net Worth of not less than $15,600,000.00.
9.16 Costs and Expenses. Borrowers shall pay to Lender on demand all costs,
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) costs and expenses and
fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) costs and expenses
of preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); (f)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrowers' operations, plus a per diem charge at the rate of $650
per person per day for Lender's examiners in the field and office; and (g) the
reasonable fees and disbursements of counsel (including legal assistants) to
Lender in connection with any of the foregoing.
9.17 Compliance with ERISA.
(a) No Borrower shall with respect to any "employee benefit plans"
maintained by a Borrower or any of its ERISA Affiliates: (i) terminate any
of such employee benefit plans so as to incur any liability to the Pension
Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or
suffer to exist any prohibited transaction involving any of such employee
benefit plans or any trust created thereunder which would subject such
Borrower or such ERISA Affiliate to a tax or penalty or other liability on
prohibited transactions imposed under Section 4975 of the Code or ERISA,
(iii) fail to pay to any such employee benefit plan any contribution which
it is obligated to pay under Section 302 of ERISA, Section 412 of the Code
or the terms of such plan, (iv) allow or suffer to exist any accumulated
funding deficiency, whether or not waived, with respect to any such
employee benefit plan, (v) allow or suffer to exist any occurrence of a
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reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee benefit plan that is a single employer plan, which termination
could result in any liability to the Pension Benefit Guaranty Corporation
or (vi) incur any withdrawal liability with respect to any multiemployer
pension plan.
(b) As used in this Section 9.17, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the
Code and ERISA.
9.18 Further Assurances. At the request of Lender at any time and from time
to time, each Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrowers representing that all conditions precedent to the making of Loans
contained herein are satisfied. In the event of such request by Lender, Lender
may, at its option, cease to make any further Loans until Lender has received
such certificate and, in addition, Lender has determined that such conditions
are satisfied. Where permitted by law, each Borrower hereby authorizes Lender to
execute and file one or more UCC financing statements signed only by Lender.
10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower fails to pay when due any of the Obligations or
(ii) any Borrower or any Obligor fails to perform any of the covenants
contained in Sections 9.2, 9.6, 9.10, 9.12, 9.13 and 9.17 of this Agreement
and such failure shall continue for ten (10) days; provided, that, such ten
(10) day period shall not apply in the case of: (A) any failure to observe
any such covenant which is not capable of being cured at all or within such
ten (10) day period or which has been the subject of a prior failure within
a six (6) month period or (B) an intentional breach of any Borrower or any
Obligor of any such covenant or (iii) any Borrower fails to perform any of
the terms, covenants, conditions or provisions contained in this Agreement
or any of the other Financing Agreements other than those described in
Sections 10.1(a)(i) and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when
made or deemed made be false or misleading in any material respect;
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(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against any
Borrower or any Obligor in excess of $50,000.00 in any one case or in
excess of $100,000.00 in the aggregate and shall remain undischarged or
unvacated for a period in excess of thirty (30) days or execution shall at
any time not be effectively stayed, or any judgment other than for the
payment of money, or injunction, attachment, garnishment or execution is
rendered against any Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or any Borrower or any Obligor, which
is a partnership, limited liability company, limited liability partnership
or a corporation, dissolves or suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or
sends notice of a bulk transfer or calls a meeting of its creditors or
principal creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against any Borrower or any Obligor
or all or any part of its properties and such petition or application is
not dismissed within thirty (30) days after the date of its filing or any
Borrower or any Obligor shall file any answer admitting or not contesting
such petition or application or indicates its consent to, acquiescence in
or approval of, any such action or proceeding or the relief requested is
granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at a law or equity) is filed by any Borrower or any Obligor or for
all or any part of its property; or
(i) any default by any Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money
owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee,
letter of credit, indemnity or similar type of instrument in favor of any
person other than Lender, in any case in an amount in excess of $50,000.00,
which default continues for more than the applicable cure period, if any,
with respect thereto, or any default by any Borrower or any Obligor under
any material contract, lease, license or other obligation to any person
other than Lender, which default continues for more than the applicable
cure period, if any, with respect thereto;
(j) any change in the ownership of any Borrower or any Change in
Control of Parent;
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(k) the indictment or threatened indictment of any Borrower or any
Obligor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against any Borrower or any
Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of any
Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets
or prospects of the Borrowers taken as a whole or any Obligor after the
date hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and
other applicable law, all of which rights and remedies may be exercised
without notice to or consent by any Borrower or any Obligor, except as such
notice or consent is expressly provided for hereunder or required by
applicable law. All rights, remedies and powers granted to Lender
hereunder, under any of the other Financing Agreements, the Uniform
Commercial Code or other applicable law, are cumulative, not exclusive and
enforceable, in Lender's discretion, alternatively, successively, or
concurrently on any one or more occasions, and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by any Borrower of this Agreement or
any of the other Financing Agreements. Lender may, at any time or times,
proceed directly against any Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and
demand immediate payment thereof to Lender (provided, that, upon the
occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii)
require each Borrower, at Borrowers' expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff
and realize upon any and all Collateral, (v) remove any or all of the
Collateral from any premises on or in which the same may be located for the
purpose of effecting the sale, foreclosure or other disposition thereof or
for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into
contracts with respect thereto, public or private sales at any exchange,
broker's board, at any office of Lender or elsewhere) at such prices or
terms as Lender may deem commercially reasonable, for cash, upon credit or
for future delivery, with the Lender having the right to purchase the whole
or any part of the Collateral at any such public sale, all of the foregoing
being free from any right or equity of redemption of each Borrower, which
right or equity of redemption is hereby expressly waived and released by
each
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Borrower and/or (vii) terminate this Agreement. If any of the Collateral is
sold or leased by Lender upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, five (5) days prior notice by Lender to Borrowers
designating the time and place of any public sale or the time after which
any private sale or other intended disposition of Collateral is to be made,
shall be deemed to be reasonable notice thereof and each Borrower waives
any other notice. In the event Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, each Borrower waives the posting of any bond which might otherwise
be required.
(c) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such
order as Lender may elect, whether or not then due. Each Borrower shall
remain liable to Lender for the payment of any deficiency with interest at
the highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice,
(i) cease making Loans or reduce the lending formulas or amounts of
Revolving Loans available to Borrower and/or (ii) terminate any provision
of this Agreement providing for any future Loans to be made by Lender to
Borrower.
(e) Each Borrower acknowledges and agrees that each and every Event of
Default described above shall be of equal weight and significance, and
equally and fully shall allow Lender to exercise its rights and remedies
hereunder. Each Borrower acknowledges and agrees that each such Event of
Default has been a material inducement for Lender to enter into this
Agreement and that Lender would be irreparably harmed if Lender, in any
way, were unable to exercise its rights and remedies on the basis that
certain Events of Default (for example, Events of Default not relating to
payment) were of less weight or significance than certain other Events of
Default (for example, Events of Default relating to payment).
11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity
or otherwise, shall be governed by the internal laws of the Commonwealth of
Massachusetts (without giving effect to principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Superior Court of Suffolk County of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts and waive any objection based on venue or forum
non conveniens with respect to any action instituted therein arising under
this Agreement or any of the other Financing Agreements or in any way
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connected with or related or incidental to the dealings of the parties
hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising, and whether in contract, tort,
equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against each
and every Borrower or its property in the courts of any other jurisdiction
which Lender deems necessary or appropriate in order to realize on the
Collateral or to otherwise enforce its rights against Borrowers or their
property).
(c) Each Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made
by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to
be completed five (5) days after the same shall have been so deposited in
the U.S. mails, or, at Lender's option, by service upon each and every
Borrower in any other manner provided under the rules of any such courts.
Within thirty (30) days after such service, each Borrower shall appear in
answer to such process, failing which Borrowers shall be deemed in default
and judgment may be entered by Lender against Borrowers for the amount of
the claim and other relief requested.
(d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE. EACH BORROWER AND LENDER HEREBY AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY
COURT TRIAL WITHOUT A JURY AND THAT EACH BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY.
(e) Lender shall not have any liability to any Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by any Borrower in
connection with, arising out of, or in any way related to the transactions
or relationships contemplated by this Agreement, or any act, omission or
event occurring in connection herewith, unless it is determined by a final
and non-appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross negligence
or willful misconduct. In any such litigation, Lender shall be entitled to
the benefit of the rebuttable presumption that it acted in good faith.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations,
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the Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on any Borrower which Lender may elect to give
shall entitle Borrowers to any other or further notice or demand in the same,
similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrowers. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Until such time as the Obligations are
indefeasibly paid in full in cash or immediately available funds, each Borrower
waives all rights to interpose any claims, deductions, setoffs or counterclaims
of any nature (other then compulsory counterclaims) in any action or proceeding
with respect to this Agreement, the Obligations, the Collateral or any matter
arising therefrom or relating hereto or thereto.
11.5 Indemnification. Each Borrower shall indemnify, defend and hold
Lender, and its directors, agents, employees and counsel, harmless from and
against any and all losses, claims, damages, liabilities, costs or expenses
imposed on, incurred by or asserted against any of them in connection with any
litigation, investigation, claim or proceeding commenced or threatened related
to the negotiation, preparation, execution, delivery, enforcement, performance
or administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel, except to the extent that a court of competent jurisdiction determines
by a final and nonappealable order binding on Lender, that the losses, claims,
damages, liabilities, costs and expenses were the result of the Lender's acts or
omissions constituting gross negligence or willful misconduct. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law or public policy,
Borrowers shall pay the maximum portion which it is permitted to pay under
applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date five (5)
years from the date hereof (the "Renewal Date"), and from year to
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year thereafter, unless sooner terminated pursuant to the terms hereof.
Lender or Borrowers may terminate this Agreement and the other Financing
Agreements effective on the Renewal Date or on the anniversary of the
Renewal Date in any year by giving to the other party at least sixty (60)
days prior written notice; provided, that, this Agreement and all other
Financing Agreements must be terminated simultaneously. Upon the effective
date of termination or non-renewal of the Financing Agreements, Borrowers
shall pay to Lender, in full, all outstanding and unpaid Obligations and
shall furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including checks or other
payments provisionally credited to the Obligations and/or as to which
Lender has not yet received final and indefeasible payment. Such payments
in respect of the Obligations and cash collateral shall be remitted by wire
transfer in Federal funds to such bank account of Lender, as Lender may, in
its discretion, designate in writing to Borrowers for such purpose.
Interest shall be due until and including the next business day, if the
amounts so paid by Borrowers to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Boston, Massachusetts
time. Upon the indefeasible payment in full of all of the Obligations in
cash or immediately available funds and the provision of cash collateral as
provided above, the Lender shall, at Borrowers' expense, release its
security interests and liens in the Collateral.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge any Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing
Agreements until all Obligations have been fully and finally discharged and
paid, and Lender's continuing security interest in the Collateral and the
rights and remedies of Lender hereunder, under the other Financing
Agreements and applicable law, shall remain in effect until all such
Obligations have been fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end of
the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits as a result thereof and as a result of Lender's deferral of
payment of fees that would be payable at the inception and during the term
of this Agreement, Borrowers agree to pay to Lender, upon the effective
date of such termination, an early termination fee in the amount set forth
below if such termination is effective in the period indicated:
Amount Period
----------------- -----------------------------------------
(i) 3% of Maximum From the date hereof to and including
Credit the first anniversary of the date hereof;
(ii) 2% of Maximum From the day after the first anniversary
Credit of the date hereof to and including the
second anniversary of the date hereof;
and
(iii) 1% of Maximum From the day after the second
Credit anniversary of the date hereof to and
including the fifth anniversary of the
date hereof.
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Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrowers agree
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrowers or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
at their respective chief executive offices set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that Borrowers may not assign their rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrowers, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, or any other interest
herein to another financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.5 Joint and Several Liability. All Loans made hereunder are made to or
for the benefit of each of the Borrowers. The Borrowers are jointly and
severally, directly and primarily, absolutely and unconditionally liable for the
full and indefeasible payment when due and performance of all Obligations and
for the prompt and full payment and performance of all of the promises,
covenants, representations, and warranties made or undertaken by each Borrower
under
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the Financing Agreements and Borrowers agree that such liability is independent
of the duties, obligations, and liabilities of each of the joint and several
Borrowers.
12.6 Suretyship Waivers and Consents.
(a) Each Borrower acknowledges and agrees that the Obligations
undertaken herein are direct and primary obligations and that each such
Borrower is jointly and severally obligated thereon with the other
Borrowers. In full recognition thereof, each Borrower consents and agrees
that Lender may, at any time and from time to time, without notice or
demand, (except as provided in and in accordance with the terms of this
Agreement), whether before or after any actual or purported termination,
repudiation or revocation of this Agreement by any Borrower, and without
affecting the enforceability or continuing effectiveness hereof as to each
Borrower: (i) increase, extend, or otherwise change the time for payment or
the terms of the Obligations or any part thereof; (ii) supplement, restate,
modify, amend, increase, decrease, or waive, or enter into or give any
agreement, approval or consent with respect to, the Obligations or any part
thereof, or any of the Financing Agreements or any additional security or
guarantees, or any condition, covenant, default, remedy, right,
representation, or term thereof or thereunder; (iii) accept new or
additional instruments, documents, or agreements in exchange for or
relative to any of the Financing Agreements or the Obligations or any part
thereof; (iv) accept partial payments on the Obligations; (v) receive and
hold additional security or guarantees for the Obligations or any part
thereof; (vi) release, reconvey, terminate, waive, abandon, fail to
perfect, subordinate, exchange, substitute, transfer, or enforce any
Collateral, security or guarantees, and apply any Collateral or security
and direct the order or manner of sale thereof as Lender in its sole and
absolute discretion may determine; (vii) release any person from any
personal liability with respect to the Obligations or any part thereof;
(viii) settle, release on terms satisfactory to Lender or by operation of
applicable laws or otherwise liquidate or enforce any Obligations and any
Collateral or security therefor or guaranty thereof in any manner, consent
to the transfer of any Collateral or security and bid and purchase at any
sale; or (ix) consent to the merger, change, or any other restructuring or
termination of the corporate or partnership existence of any Borrower, and
any corresponding restructuring of the Obligations, and any such merger,
change, restructuring, or termination shall not affect the liability of any
Borrower or the continuing effectiveness hereof, or the enforceability
hereof with respect to all or any part of the Obligations.
(b) Lender may enforce this Agreement independently as to each
Borrower and independently of any other remedy or security Lender at any
time may have or hold in connection with the Obligations, and it shall not
be necessary for Lender to marshal assets in favor of any Borrower or any
Obligor or to proceed upon or against or exhaust any Collateral or security
or remedy before proceeding to enforce this Agreement. Each Borrower
expressly waives any right to require Lender to marshal assets in favor of
any Borrower or any guarantor of the Obligations or to proceed against any
other Borrower, and agrees that Lender may proceed against Borrowers or any
Collateral in such order as Lender shall determine in its sole an absolute
discretion.
(c) Lender may file a separate action or actions against any Borrower,
whether such action is brought or prosecuted with respect to any security
or against any guarantor of the Obligations, or whether any other person is
joined in any such action or actions. Each Borrower
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agrees that Lender and each Borrower and any affiliate of any Borrower may
deal with each other in connection with the Obligations or otherwise, or
alter any contracts or agreements now or hereafter existing between any of
them, in any manner whatsoever, all without in any way altering or
affecting the continuing enforceability of this Agreement. Each Borrower,
as a joint and several Borrower hereunder, expressly waives the benefit of
any statute of limitations affecting its joint and several liability
hereunder (but not its primary liability) or the enforcement of the
Obligations or any rights of Lender created or granted herein.
(d) Lender's rights hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount
at any time paid on account of the Obligations which thereafter shall be
required to be restored or returned by Lender, all as though such amount
had not been paid. The rights of Lender created or granted herein and the
enforceability of this Agreement at all times shall remain effective to
cover the full amount of all the Obligations even though the Obligations,
including any part thereof or any Collateral, other security or guaranty
therefor, may be or hereafter may become invalid or otherwise unenforceable
as against any Borrower and whether or not any Borrower shall have any
personal liability with respect thereto.
(e) Each Borrower expressly waives any and all defenses now or
hereafter arising or asserted by reason of (i) any disability or other
defense of any other Borrower with respect to the Obligations; (ii) the
unenforceability or invalidity of any security or guaranty for the
Obligations or the lack of perfection or continuing perfection or failure
of priority of any security for the Obligations; (iii) the cessation for
any cause whatsoever of the liability of any other Borrower (other than by
reason of the full payment and performance of all Obligations); (iv) any
failure of Lender to marshal assets in favor of any Borrower; (v) any act
or omission of Lender or others that directly or indirectly results in or
aids the discharge or release of any Borrower or the Obligations of any
Borrower or any security or guaranty therefor by operation of law or
otherwise; (vi) any law which provides that the obligation of a surety or
guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety's or
guarantor's obligation in proportion to the principal obligation; (vii) any
failure of Lender to file or enforce a claim in any bankruptcy or other
proceeding with respect to any Borrower; (viii) the avoidance of any lien
or security interest in assets of any Borrower in favor of Lender for any
reason; or (ix) any action taken by Lender that is authorized by this
section or any other provision of any Financing Agreements. Until such
time, if any, as all of the Obligations have been indefeasibly paid and
performed in full and no portion of any commitment of Lender to Borrowers
under any Financing Agreement remains in effect, each Borrower's
indebtedness, claims and rights of subrogation, contribution,
reimbursement, or indemnity against the other Borrowers shall be fully and
completely subordinated to the indefeasible repayment in full of the
Obligations, and each Borrower expressly waives until such indefeasible
payment any right to enforce any remedy that it now has or hereafter may
have against any other Person and waives the benefit of, or any right to
participate in, any Collateral now or hereafter held by Lender.
(f) To the fullest extent permitted by applicable law, each Borrower
expressly waives and agrees not to assert, any and all defenses in its
favor based upon an election of remedies by Lender which destroys,
diminishes, or affects such Borrower's subrogation rights
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<PAGE>
against the other Borrowers, or against any other Obligor, and/or (except
as explicitly provided for herein) any rights to proceed against each other
Borrower, or any other party liable to Lender, for reimbursement,
contribution, indemnity, or otherwise.
(g) Borrowers and each of them warrant and agree that each of the
waivers and consents set forth herein are made after consultation with
legal counsel and with full knowledge of their significance and
consequences, with the understanding that events giving rise to any defense
or right waived may diminish, destroy, or otherwise adversely affect rights
which Borrowers otherwise may have against each other, Lender, or others,
or against Collateral, and that, under the circumstances, the waivers and
consents herein given are reasonable and not contrary to public policy or
law. If any of the waivers or consents herein are determined to be contrary
to any applicable law or public policy, such waivers and consents shall be
effective to the maximum extent permitted by law.
12.7 Contribution Agreement. As an inducement to Lender to enter into the
Financing Agreements and to make the loans and extend credit to the Borrowers,
each Borrower agrees to indemnify and hold the other harmless from and each
shall have a continuing right of contribution against the other Borrowers, if
and to the extent that a Borrower makes or is caused to make disproportionate
payments in excess of that Borrower's Proportionate Share (as defined herein) of
the Loans or contributions (from dispositions of its assets or otherwise) to the
repayment and satisfaction of the Obligations. These indemnification and
contribution obligations shall be unconditional and continuing obligations of
the Borrowers and shall not be waived, rescinded, modified, limited or
terminated in any way whatsoever without the prior written consent of Lender, in
its sole discretion. These indemnification and contribution obligations are
subordinated to the prior indefeasible payment in full in cash of all
Obligations. For purposes hereof, Proportionate Share shall mean the amount of
Loans made in respect of a Borrower based upon the lending formulas and other
provisions of Section 2 hereof as shown on the loan account(s) and records
maintained by the Lender.
12.8 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
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IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWERS
- ------ ---------
CONGRESS FINANCIAL CORPORATION WAKEFIELD ENGINEERING, INC.
(NEW ENGLAND)
By: /s/ Edward I. Shifman, Jr. By: /s/ Johnny J. Blanchard
--------------------------- ------------------------
Name: Edward I. Shifman, Jr. Name: Johnny J. Blanchard
Title: Sr. Vice President Title: Asst. Secretary
Address: Chief Executive Office:
One Financial Center 100 Cummings Center, Suite 157H
Boston, MA 02111 Beverly, MA 01915
LOCKHART INDUSTRIES, INC.
By: /s/ Johnny J. Blanchard
-----------------------
Name: Johnny J. Blanchard
Title: Secretary
Chief Executive Office
15555 Texaco Street
Paramount, CA 90723
MALCO TECHNOLOGIES, INCORPORATED
By: /s/ Johnny J. Blanchard
-----------------------
Name: Johnny J. Blanchard
Title: Secretary
Chief Executive Office
94 County Line Road
Colmer, PA 18915
49
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WAKEFIELD EXTRUSION CORP.
By: /s/ Johnny J. Blanchard
------------------------
Name: Johnny J. Blanchard
Title: Secretary
Chief Executive Office
1580 E. Kimberly Avenue
Fullerton, CA 92831-5213
UNI-STAR INDUSTRIES, INC.
By: /s/ Johnny J. Blanchard
------------------------
Name: Johnny J. Blanchard
Title: Secretary
Chief Executive Office
306 Pasadena Avenue
South Pasadena, CA 91030
ALPHA TECHNOLOGIES GROUP, INC.
By: /s/ Johnny J. Blanchard
------------------------
Name: Johnny J. Blanchard
Title: Secretary
Chief Executive Office
9465 Wilshire Boulevard
Suite 980
Beverly Hills, CA 90212
50
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STATE:
COUNTY: April 16, 1999
Then personally appeared the above-named Edward I Shifman, Jr. and
stated that he is a duly authorized Sr. Vice President of Congress Financial
Corporation (New England) (the "Bank") and acknowledged the foregoing instrument
to be his free act and deed, and the free act and deed of said Bank, before me,
/s/ Constance M. Michael
_________________________
Notary Public
My Commission Expires:
STATE: Texas
COUNTY: Harris April 16, 1999
Then personally appeared the above-named Johnny Blanchard and stated
that he is a duly authorized Asst. Secretary of Wakefield Engineering, Inc. (the
"Corporation") and acknowledged the foregoing instrument to be his free act and
deed, and the free act and deed of said Corporation, before me,
/s/ Patricia Faller Grimes
---------------------------
Notary Public
My Commission Expires: 10/18/2000
STATE: Texas
COUNTY: Harris April 16, 1999
Then personally appeared the above-named Johnny Blanchard and stated
that he is a duly authorized Secretary of Lockhart Industries, Inc. (the
"Corporation") and acknowledged the foregoing instrument to be his free act and
deed, and the free act and deed of said Corporation, before me,
/s/ Patricia Faller Grimes
---------------------------
Notary Public
My Commission Expires: 10/18/2000
51
<PAGE>
STATE: Texas
COUNTY: Harris April 16, 1999
Then personally appeared the above-named Johnny Blanchard and stated
that he is a duly authorized Secretary of Malco Technologies, Incorporated (the
"Corporation") and acknowledged the foregoing instrument to be his free act and
deed, and the free act and deed of said Corporation, before me,
/s/ Patricia Faller Grimes
---------------------------
Notary Public
My Commission Expires: 10/18/2000
STATE: Texas
COUNTY: Harris April 16, 1999
Then personally appeared the above-named Johnny Blanchard and stated
that he is a duly authorized Secretary of Wakefield Extrusion Corp. (the
"Corporation") and acknowledged the foregoing instrument to be his free act and
deed, and the free act and deed of said Corporation, before me,
/s/ Patricia Faller Grimes
---------------------------
Notary Public
My Commission Expires: 10/18/2000
STATE: Texas
COUNTY: Harris April 16, 1999
Then personally appeared the above-named Johnny Blanchard and stated
that he is a duly authorized Secretary of Uni-Star Industries, Inc. (the
"Corporation") and acknowledged the foregoing instrument to be his free act and
deed, and the free act and deed of said Corporation, before me,
/s/ Patricia Faller Grimes
---------------------------
Notary Public
My Commission Expires: 10/18/2000
52
<PAGE>
STATE: Texas
COUNTY: Harris April 16, 1999
Then personally appeared the above-named Johnny Blanchard and stated
that he is a duly authorized Secretary of Alpha Technologies Group, Inc. (the
"Corporation") and acknowledged the foregoing instrument to be his free act and
deed, and the free act and deed of said Corporation, before me,
/s/ Patricia Faller Grimes
---------------------------
Notary Public
My Commission Expires: 10/18/2000
[remainder of page intentionally left blank]
53
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EXHIBIT 10.25
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), effective as of March 23, 1999 (the
"Effective Date"), between Alpha Technologies, Group, Inc., a Delaware
corporation (the "Company"), and ROBERT C. STREITER, (the "Employee").
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, the parties hereto agree as follows:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs the Employee, for the Term (as
hereinafter defined), to render exclusive full-time services to the business of
the Company as the President of the Company, subject to the direction of the
Board of Directors of the Company and the Chairman of the Company, and in
connection therewith, to perform such executive, marketing, product development,
administrative and managerial duties as he shall reasonably be directed by the
Board of Directors of the Company.
1.2 Acceptance of Employment by the Employee. The Employee hereby
accepts such employment and agrees to render the executive and managerial
services described above on the terms and conditions set forth.
1.3 Place of Employment. The services to be performed hereunder by
the Employee shall be performed primarily at the offices of the Company, which
are currently located in South Pasadena, California, subject to reasonable
travel requirements on behalf of the Company.
1.4 Vacation. The Employee shall be entitled to vacation at the rate
of three weeks for each twelve months of his employment during the Term, without
compensation for any accrued and unused vacation days as of the end of the Term.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Term") shall commence on Effective Date and shall end on March
22, 2001, unless sooner terminated pursuant to Article 4 of this Agreement.
3. Compensation.
3.1 Salary and Benefits. As full regular compensation for all
services to be rendered pursuant to this Agreement, the Company agrees to pay
the Employee, during the Term, a salary at the fixed rate of $200,000 per annum
(the "Annual Salary"). Said Annual Salary will be payable in such payroll
installments as the Company ordinarily pays its salaried employees, less such
deductions and withholdings as shall be required by applicable law and
regulations.
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3.2 Bonus Compensation. Employee shall be eligible to participate in,
and to receive bonuses in accordance with, the Company's bonus plan. All such
payments shall be less such deductions and withholdings as may be required by
applicable law and regulations.
3.3 Options. Employee shall be eligible to participate in, and to
receive bonuses in accordance with, the Company's bonus plan.
3.4 Expenses. The Company shall reimburse the Employee for all
reasonable expenses actually incurred or paid by him during the Term in the
performance of his services under this Agreement, upon presentation of expense
statements or vouchers of such other supporting information as it may require;
provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Chairman of the Board of Directors.
3.5 Benefits. The Employee shall be eligible to all rights and
benefits under any pension, group insurance or other so-called "fringe" benefits
which the Company may, in its sole discretion, provide for him and its senior
employees generally.
4. Termination.
4.1 Termination upon Death. If the Employee shall die during the
Term, this Agreement shall terminate, except that the Employee's legal
representatives shall be entitled to receive the Annual Salary provided for in
Section 3.1 of this Agreement to the 60th day after the date of the Employee's
death.
4.2 Termination upon Disability. If during the Term the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his services hereunder for (i) a
period of three consecutive months, or (ii) for shorter periods aggregating
three months during any twelve month period, the Company may at any time after
the last day of the third consecutive month of disability or the day on which
the shorter periods of disability shall have equaled an aggregate of three
months, by written notice to the Employee (but before the Employee has recovered
from such disability), terminate the term of the Employee's employment
hereunder. Notwithstanding such disability, the Company shall continue to pay
the Employee the Annual Salary herein provided for in Section 3.1 up to and
including the date of such termination. Nothing in this Section 4.2 shall be
deemed to extend the Term.
4.3 Termination for Cause. Nothing contained herein shall preclude
the Company from terminating this Agreement for cause without notice, in which
case the Company shall have no further obligation to the Employee. Upon such
termination, no incentive compensation shall be payable for the fiscal year in
which the termination took place. As used herein, the term "for cause" shall be
deemed to include, with respect to the Employee breach of any of his
representations in this Agreement, chronic alcoholism, drug addiction, criminal
dishonesty, conviction of the Employee of any felony, or of any lesser
2
<PAGE>
crime or offense involving the property or affairs of the company,
misappropriation of any money or other assets or properties of the Company or
any of its subsidiaries or operations, willful violation of specific and lawful
directions from the Board of Directors of the Company (which directions must not
be inconsistent with the provisions of this Agreement), failure or refusal to
perform the services required of the Employee under this Agreement, willful
misconduct by the Employee in connection with the performance of his duties
hereunder, or any other misconduct on the part of the Employee seriously
detrimental to the best interest of the company or that of its subsidiaries or
operations.
5. Employee's Representations.
5.1 Representations. The Employee represents and warrants to the
Company that: (a) he is subject to no contractual, fiduciary or other
obligation which may affect or limit the performance of his duties under this
Agreement, (b) he has delivered to the company his completed and signed
Officer's Questionnaire, (c) his answers therein are true and complete, and (d)
his employment with the Company will not require him to use or disclose
proprietary or confidential information of any other person or entity.
6. Confidentiality; Non-Solicitation Agreements; Proprietary Information.
(a) The Employee realizes that his employment with the Company will
involve access to information, whether or not in tangible form, which is the
property of the Company and which is not known in the trade or generally by the
public, and to information which is identified as confidential by the Company,
or which the Employee has reason to believe is being maintained in confidence,
whether embodied in memoranda, manuals, letters or other documents, computer
disks, tapes or other information storage devices or any other media or vehicle
("Proprietary Information"). Proprietary Information includes all results,
intermediate and final, of the Company's business plans and product and
marketing activities in which the Employee may participate or of which the
Company, together with business, manufacturing, development and research
methods, including (without limitation) product design and specifications,
manufacturing procedures and tolerances, research and development tools, test
procedures, prices and pricing formulae, cost information, customers' special
materials, and produce specifications and requirements, sales records,
salesmen's reports, customers lists, customer contact reports, and customer
records. Employee agrees to treat Proprietary Information as confidential both
during the Term and thereafter and to recognize and protect the property rights
of the Company. The Employee agrees that during the term of his employment and
thereafter, he will not use such information for himself or others, or divulge
or convey such information to others, and at all times will hold such
information in strictest confidence; provided, however, that the Employee shall
not be liable for disclosure of that information if (A) the information is in;
or becomes part of the public domain, other than by the Employee's disclosure of
the information or (B) the information is disclosed by the Employee with the
prior written approval of the Board of Directors of the Company.
3
<PAGE>
(b) The Employee agrees that, during the Term, and for a period of one
year after its termination, but for a minimum period of two years from the date
of this Agreement, he shall not solicit for employment, directly or indirectly,
or advise or recommend to any other person that such person employ or solicit
for employment, any person who is or was employed by the Company within one year
of the termination of Employee's employment.
(c) It is understood and agreed that the Company would suffer
irreparable harm for which there is no adequate remedy available at law in the
event of a breach of this Section 6 by the Employee, and, in addition to
remedies available at law, the Company shall be entitled to enforce the
provisions of this Section 6 through actions in equity, including injunctive and
similar remedies.
(d) The provisions of this Section 6 shall be non-exclusive and shall
not limit any rights the Company may have at law, and no action taken by the
Company pursuant to this Section 6 shall constitute a waiver of any rights the
Company may have at law.
(e) If for any reason any court of competent jurisdiction shall have
deemed the provisions of this Section 6 unreasonable in duration or in
geographic scope or otherwise unenforceable, the prohibitions herein contained
shall be restricted to such time and geographic area or shall otherwise be
reformed in such manner as the court determines to be reasonable.
(f) The Employee recognizes that, because of the nature of the subject
matter of Section 6, it would be impractical and extremely difficult to
determine the Company's actual damages in the event of his breach of Section 6.
Accordingly, if the employee commits a breach or threatens to commit a breach,
of any of the provisions of the Section, the Company shall be entitled to have
the provisions of said Section specifically enforced by temporary, preliminary
and permanent injunctive relief without the posting of bond or other security by
a court of competent jurisdiction, notwithstanding the provisions of Section 9
hereof.
7. Ownership of Employee Developments.
(a) All copyrights, patents, trade secrets, or other intellectual
property rights associated with any ideas, concepts, techniques, inventions,
processes, or works of authorship developed or created by the Employee during
the Term (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
employee for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Employee for hire for the Company, the Employee agrees to assign, and
automatically assigns to the Company at the time of creation of the Work
Product, without any requirement of further consideration, any right, title or
interest the employee may have in such Work Product.
4
<PAGE>
Upon request of the Company, the Employee shall take such further actions,
including execution and delivery of instruments of conveyance, as may be
appropriate to give full and proper effect to such assignment.
(b) The Employee assigns to the Company, will hold for the Company's
exclusive benefit, and will confirm assignment thereof in writing without
additional payment, all Employee's right, title and interest in; and to
discoveries, inventions and improvements conceived or made by the Employee,
whether solely or jointly with others, during his employment with the Company
(including periods prior to the effective date of this Agreement) and which fall
within the scope of the Company's, Alpha's or any of its subsidiaries or
affiliates actual or anticipated business or research and development whether
made within or outside of usual work hours, and whether on or off Company
premises. The Employee will make prompt and full disclosure thereof to the
Company and maintain records of creative or inventive activities and deliver
such records to the Company at termination of employment or as requested by the
Company. The Employee will assist the Company both during and after his
employment with the Company in every proper manner and at the Company's expense
and without cost to the Employee to obtain for the Company in any and all
countries and to maintain and enforce patents, on all discoveries, inventions,
improvements, or refinements assigned by the Employee to the Company as provided
above, or which the executive is bound to assign to the Company, and for that
purpose, the Employee will sign all documents which the Company deems necessary
or desirable.
8. Avoidance of Conflicts of Interest. During the Term, the Employee
shall not engage in any business activity that conflicts with the interests of
the Company or his duties under the Agreement. He shall not have any direct or
indirect financial interest in, or receive any direct or indirect benefit from,
any competitor, except for minor investments, as part of a diversified
portfolio, in the securities of a competitor whose stock is traded on a national
securities exchange.
9. Disputes; Arbitration. In the event that a dispute should arise
between the Company and the Employee, and such dispute shall not have been
resolved within 30 days after is arose, then such dispute, subject to the
provisions of Section 6(f) hereof, shall be submitted to arbitration. Such
arbitration shall be conducted in Los Angeles, California, under the rules of
the American Arbitration Association then obtaining. The arbitrator(s) shall
award the predominantly prevailing party in the arbitration its reasonable
attorneys' fees and other costs and expenses in connection with the arbitration.
Such award shall be final and binding, and judgment upon such award may be
entered in any court having jurisdiction thereof.
10. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
deemed to have been duly given if delivered personally, or mailed first-class,
postage prepaid by registered or certified mail (notices shall be deemed to have
been given when so delivered personally or, if mailed, two days after the date
of mailing) as follows, or to such other address as
5
<PAGE>
either party shall designate by notice so given to the other in accordance
herewith:
If to the Company, to:
Alpha Technologies Group, Inc.
9465 Wilshire Boulevard
Suite 980
Beverly Hills, CA 90212
If to the Employee, to:
Robert Streiter
c/o Uni-Star Industries, Inc.
306 Pasadena Avenue
South Pasadena, CA 91030
11. General.
11.1 This Agreement shall be governed by and construed and enforced in
accordance with the local laws of the State of California applicable to
agreements made and to be performed entirely in California.
11.2 The article and section headings contained herein are for
reference purposes only and shall not in any way effect the meaning or
interpretation of this Agreement.
11.3 This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof. No representation, promise or inducement has been made
by either party that is not embodied in this Agreement, and neither party shall
be bound by or liable for any alleged representation, promise or inducement not
so set forth.
11.4 This Agreement, and the Employee's rights and obligations
hereunder; may not be assigned by the Employee. The Company may assign its
rights, together with its obligations, hereunder in connection with any sale,
transfer or other disposition of all or substantially all of its business or
assets; in any event the obligations of the Company hereunder shall be binding
on its successors or assigns, whether by merger, consolidation or acquisition of
all or substantially all of its business or assets.
6
<PAGE>
11.5 This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by the part to be charged therewith. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement. The invalidity or unenforceability of any term or provision of
this Agreement shall in no way impair or affect the balance thereof, which shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
ALPHA TECHNOLOGIES GROUP, INC.
By: /s/ Lawrence Butler
--------------------
Lawrence Butler
Chief Executive Officer
/s/ Robert C. Streiter
-----------------------
ROBERT C. STREITER
7
<PAGE>
Exhibit 11.1
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTERS AND SIX MONTHS ENDED APRIL 26, 1998 AND MAY 2, 1999
(Unaudited)
(In Thousands, Except per Share Date)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------- ----------------------------------
April 26, May 2, April 26, May 2,
1998 1999 1998 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares:
Weighted average common shares outstanding 6,695 6,933 6,694 6,933
Net common shares issuable on exercise of
stock options 214 80 165 27
--------------- --------------- --------------- ---------------
Weighted average common and common equivalent
shares outstanding 6,909 7,013 6,859 6,960
=============== =============== =============== ===============
Net income $ 509 $ 861 $ 906 $1,365
=============== =============== =============== ===============
Basic and diluted net income per common and
common equivalent share
Basic $ 0.08 $ 0.12 $ 0.14 $ 0.20
=============== =============== =============== ===============
Diluted $ 0.07 $ 0.12 $ 0.13 $ 0.20
=============== =============== =============== ===============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET MAY 2, 1999 AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX
MONTHS ENDED MAY 2, 1999 AND APRIL 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-25-1998
<PERIOD-START> OCT-26-1998 OCT-27-1997
<PERIOD-END> MAY-02-1999 APR-26-1998
<CASH> 398 0
<SECURITIES> 0 0
<RECEIVABLES> 8,684 0
<ALLOWANCES> 0 0
<INVENTORY> 7,944 0
<CURRENT-ASSETS> 18,065 0
<PP&E> 21,379 0
<DEPRECIATION> 9,326 0
<TOTAL-ASSETS> 35,131 0
<CURRENT-LIABILITIES> 8,354 0
<BONDS> 0 0
0 0
0 0
<COMMON> 238 0
<OTHER-SE> 17,575 0
<TOTAL-LIABILITY-AND-EQUITY> 35,131 0
<SALES> 32,475 42,695
<TOTAL-REVENUES> 32,475 42,695
<CGS> 24,418 33,902
<TOTAL-COSTS> 24,418 33,902
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 530 291
<INCOME-PRETAX> 1,365 906
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,365 906
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,365 906
<EPS-BASIC> 0.20 0.14
<EPS-DILUTED> 0.20 0.13
</TABLE>
