UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 No. 0-11560
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SAVOIR TECHNOLOGY GROUP, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2414428
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
254 E. HACIENDA AVENUE, CAMPBELL, CA
---------------------------------------------
(Address of principal executive offices)
95008
-----------
(Zip Code)
(408) 379-0177
-------------------
(Registrant's telephone number,
including area code)
N/A
-----
(Former name, former address and former
fiscal year, if changed since last report)
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 at least the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 1, 1998
----- -------------------------------
Common Stock $0.01 par value 10,611,772
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SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1998 and 1997 3
Consolidated Balance Sheets at September 30, 1998 and December 31,
1997 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Index to Exhibits 26
When used in this Report, the words "estimate," "project," "intend" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. For a discussion of certain such
risks, see "Factors That May Affect Future Results" on page 15. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release updates or revisions to these statements.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 149,809 $ 46,139 $ 373,233 $ 121,975
Cost of goods sold 132,561 39,297 328,035 102,571
-------------- ---------------- -------------- ---------------
Gross profit 17,248 6,842 45,198 19,404
-------------- ---------------- -------------- ---------------
Gross profit as % of sales 11.51% 14.83% 12.11% 15.91%
Selling, general and administrative expenses 12,177 5,471 32,030 15,843
-------------- ---------------- -------------- ---------------
Operating income 5,071 1,371 13,168 3,561
Interest expense 605 604 3,277 1,532
-------------- ---------------- -------------- ---------------
Income before income taxes and extraordinary item 4,466 767 9,891 2,029
Provision for income taxes 2,179 -- 4,830 312
-------------- ---------------- -------------- ---------------
Income before extraordinary item 2,287 767 5,061 1,717
Extraordinary item, net of tax effect -- -- (2,338) --
-------------- ---------------- -------------- ---------------
Net income $ 2,287 $ 767 $ 2,723 $ 1,717
============== ================ ============== ===============
Net income (loss) per share:
Basic income (loss) before extraordinary item $ (0.20) $ 0.16 $ 0.00 $ 0.36
Extraordinary item, net of tax effect -- -- (0.30) --
-------------- ---------------- -------------- ---------------
Basic net income (loss) $ (0.20) $ 0.16 $ (0.30) $ 0.36
============== ================ ============== ===============
Diluted income (loss) before extraordinary item $ (0.20) $ 0.15 $ 0.00 $ 0.33
Extraordinary item, net of tax effect -- -- (0.28) --
-------------- ---------------- -------------- ---------------
Diluted net income (loss) $ (0.20) $ 0.15 $ (0.28) $ 0.33
============== ================ ============== ===============
Number of shares used in per share calculations:
Basic 9,599 4,842 7,876 4,751
============== ================ ============== ===============
Diluted 9,599 5,144 8,442 5,138
============== ================ ============== ===============
The accompanying notes are an integral
part of these financial statements
</TABLE>
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<TABLE>
SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 2,920 $ 2,919
Trade accounts receivable, net of allowance for doubtful
accounts of $774 at September 30, 1998 and $319 at
December 31, 1997 106,629 76,664
Inventories 43,870 36,841
Other current assets 20,185 7,388
------------------ ------------------
Total current assets 173,604 123,812
Property and equipment, net 4,865 4,920
Excess of cost over acquired net assets and other
intangibles, net 82,353 57,537
Other assets 702 619
------------------ ------------------
$ 261,524 $ 186,888
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 23,667 $ 7,063
Current portion of long-term debt 1,019 8,516
Accounts payable 133,892 96,143
Accrued expenses 11,849 5,636
------------------ ------------------
Total current liabilities 170,427 117,358
Long-term debt, less current portion 1,120 22,330
Other 31 120
Commitments and contingencies -- --
Stockholders' Equity:
Preferred Stock, $0.01 par value, 10,000,000 shares
authorized; issued and outstanding: 1,986,500 shares Series
A at September 30, 1998 and 2,242,500 at December 31, 1997
and 10 shares of Series B at September 30, 1998 and December
31, 1997; liquidation preference of $18,996 at
September 30, 1998 and $21,444 at December 31, 1997 20 22
Common Stock, $0.01 par value, 25,000,000 shares authorized;
issued and outstanding: 10,004,764 at September 30, 1998
and 5,357,678 at December 31, 1997 100 54
Additional paid-in capital 91,349 46,039
Retained earnings (1,523) 965
------------------ ------------------
Total stockholders' equity 89,946 47,080
------------------ ------------------
$ 261,524 $ 186,888
================== ==================
The accompanying notes are an integral
part of these financial statements
</TABLE>
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<TABLE>
SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<CAPTION>
For the Nine Months
Ended September 30,
------------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,723 $ 1,717
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,387 1,253
Accretion on long-term debt obligations 732 --
Provision for doubtful accounts receivable 427 372
Loss on sale of fixed assets 117 --
Deferred taxes 100 --
Write-off of unamortized warrant discount 2,773 --
Changes in assets and liabilities:
Accounts receivable (26,490) (14,449)
Inventories (7,046) 6,472
Other current assets (12,897) (4,706)
Accounts payable 33,951 2,932
Accrued expenses and other 6,213 (105)
---------------- ----------------
Net cash provided by (used in) operating activities 4,990 (6,514)
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of fixed assets 6 --
Acquisition of businesses, net of cash acquired (16,073) (36,259)
Acquisition of other assets (1,133) (500)
Acquisition of property and equipment (1,232) (917)
---------------- ----------------
Net cash used in investing activities (18,432) (37,676)
---------------- ----------------
Cash flows from financing activities:
Proceeds from short-term borrowings 202,993 50,083
Payments on short-term borrowings (200,984) (46,150)
Payments on long-term debt obligations (32,579) (162)
Proceeds from issuance of common stock 28,683 --
Proceeds from issuance of debt 15,000 25,000
Proceeds from issuance of preferred stock (284) 19,263
Proceeds from exercise of stock options and warrants 311 67
Proceeds from employee stock purchase plan 303 260
Proceeds from equipment loan -- 557
---------------- ----------------
Net cash provided by financing activities 13,443 48,918
---------------- ----------------
Net increase in cash 1 4,728
Cash--beginning of period 2,919 384
---------------- ----------------
Cash--end of period $ 2,920 $ 5,112
================ ================
The accompanying notes are an integral
part of these financial statements
</TABLE>
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SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1: The unaudited consolidated financial statements which include the
accounts of Savoir Technology Group, Inc. and its subsidiaries (the
Company) have been prepared in accordance with the instructions to Form
10-Q and do not include all information and footnotes necessary to
comply with generally accepted accounting principles. In the opinion of
management, all normal recurring adjustments considered necessary for a
fair presentation have been included. The consolidated statements of
operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for a full year or
for any other period. The December 31, 1997 balance sheet was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. It is suggested
that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
latest audited financial statements for the year ended December 31,
1997.
Note 2: The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," effective January
1, 1998. This statement requires the disclosure of comprehensive income
and its components in a full set of general-purpose financial
statements. Comprehensive income is defined as net income plus
revenues, expenses, gains and losses that, under generally accepted
accounting principles, are excluded from net income. The components of
comprehensive income which are excluded from net income are not
significant, individually or in the aggregate, and therefore, no
separate statement of comprehensive income has been presented.
Note 3: In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures
about Segments of an Enterprise and Related Information." This
statement establishes standards for disclosure about operating segments
in annual financial statements and selected information in interim
financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. This statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise." The new standard becomes effective for fiscal
years beginning after December 15, 1997, with interim reporting
disclosures required in the first quarter immediately subsequent to the
year in which SFAS 131 is adopted, and requires that comparative
information from earlier years be restated to conform to the
requirements of this standard. The Company is evaluating the
requirements of SFAS 131 and the effects, if any, on the Company's
current reporting and disclosures.
Note 4: The Company has an inventory and working capital financing agreement
(the IBMCC Credit Facility) with IBM Credit Corporation (IBMCC), an
affiliate of International Business Machines Corporation (IBM), whereby
purchases from IBM and cash advances from IBMCC are directly charged to
the IBMCC Credit Facility and are paid by the Company based on payment
terms outlined in the agreement. Total borrowings under the IBMCC
Credit Facility are based on eligible accounts receivable and
inventory, as defined in the IBMCC Credit Facility, and are limited to
$125,000,000. The IBMCC Credit Facility is renewable in September 2000
and contains restrictive covenants which include the maintenance of
minimum current ratio, tangible net worth and times interest earned
ratio, as defined in the IBMCC Credit Facility, and is collateralized
by substantially all assets of the Company. The Company was not in
compliance with the tangible net worth covenant at September 30, 1998.
IBMCC granted a waiver as of September 30, 1998 for the specific
violation. Cash advances under the IBMCC Credit Facility were
$8,653,000 at September 30, 1998. Cash
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advances bear interest at prime (8.5% at September 30, 1998) plus
1.875%. Based on eligible assets, as of September 30, 1998, the Company
had borrowings available of approximately $29,623,000.
Note 5: Revenue Recognition and Accounts Receivable: The Company records
revenue, net of allowances for estimated returns, at the time of
product shipment. To reduce credit risk, the Company performs ongoing
credit evaluations and has credit insurance.
Note 6: Inventories, consisting primarily of purchased product held for resale,
are stated at the lower of cost (average) or net realizable value.
Note 7: Supplemental Cash Flow Information: Cash paid for interest in the
nine-month periods ended September 30, 1998 and 1997 was $2,669,000 and
$1,465,000, respectively. Cash paid for income taxes during the nine
month periods ended September 30, 1998 and 1997 was $3,278,000 and
$106,000, respectively.
Note 8: In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted
EPS is provided as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Numerator--basic and diluted EPS
Net income before extraordinary item $ 2,287 $ 767 $ 5,061 $ 1,717
Less: preferred stock dividends (4,191) -- (5,059) --
----------- ------------ ----------- ------------
Income (loss) available to common stockholders, before
extraordinary item (1,904) 767 2 1,717
Extraordinary item, net of tax effect -- -- (2,338) --
----------- ------------ ----------- ------------
Net income (loss)--basic (1,904) 767 (2,336) 1,717
Plus: impact of assumed conversion -- -- -- --
----------- ------------ ----------- ------------
Net income (loss)--diluted $ (1,904) $ 767 $ (2,336) $ 1,717
=========== ============ =========== ============
Denominator--basic EPS
Weighted average shares outstanding 9,599 4,842 7,876 4,751
=========== ============ =========== ============
Basic EPS
Income (loss) before extraordinary item $ (0.20) $ 0.16 $ 0.00 $ 0.36
Extraordinary item, net of tax effect -- -- (0.30) --
----------- ------------ ----------- ------------
Net income (loss) $ (0.20) $ 0.16 $ (0.30) $ 0.36
=========== ============ =========== ============
Denominator--diluted EPS
Denominator--basic EPS 9,599 4,842 7,876 4,751
Effect of dilutive securities:
Common Stock options and warrants -- 302 566 387
----------- ------------ ----------- ------------
9,599 5,144 8,442 5,138
=========== ============ =========== ============
Diluted EPS
Income (loss) before extraordinary item $ (0.20) $ 0.15 $ 0.00 $ 0.33
Extraordinary item, net of tax effect -- -- (0.28) --
----------- ------------ ----------- ------------
Net income (loss) $ (0.20) $ 0.15 $ (0.28) $ 0.33
=========== ============ =========== ============
</TABLE>
Options to purchase 1,233,721 and 142,437 shares of Common Stock were
outstanding at September 30, 1998 and 1997, respectively, but were not
included in the calculation of net income per share because the
options' exercise price was greater than the average market price of
the common shares.
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<PAGE>
Note 9: On April 29, 1998, the Company completed the public offering of
3,000,000 shares of its Common Stock at a price of $10.50 per share.
After deducting the underwriting discount and offering expenses, the
net proceeds to the Company were $28,683,000. The Company used the
proceeds of the offering to reduce its outstanding debt obligations,
exclusive of the outstanding cash advances on the IBMCC Credit
Facility.
Note 10: In connection with the repayment of its outstanding debt obligations
(see Note 9 above), the Company recorded an extraordinary charge of
$2,338,000, net of tax, resulting from a prepayment penalty, the
write-off of unamortized discounts relating to certain warrants issued
to debt holders and other related expenses.
Note 11: On May 15, 1998, the Company purchased substantially all of the
UniDirect catalog and VarCity distribution business and related
electronic software distribution organization of UniDirect Corporation
(UDC) for $4,600,000, comprised of $2,900,000 in cash and a $1,700,000
promissory note. The promissory note bears interest at 8.25% and is
payable over a two-year period. This transaction has been accounted for
as a purchase with the result that UDC operations are included in the
Company's financial statements from the date of purchase. In connection
with the acquisition, the Company recorded approximately $4,900,000 of
goodwill and other intangible assets. During the year ended December
31, 1997, the acquired businesses had unaudited revenues of
approximately $18,000,000.
UniDirect specializes in the sales and support of technically advanced
software products. VarCity is a nationwide distributor of client/server
and Internet software products to resellers. Software solutions sold by
both companies include products for areas such as web and intranet
development and related management tools, UNIX and Windows NT
applications and utilities, client/server applications, advanced
operating systems and databases, and PC connectivity applications.
Note 12: On June 5, 1998, the Company acquired all of the outstanding shares of
MCBA Systems, Inc.'s (MCBA) common stock for $487,000 of canceled
indebtedness and 852,854 shares of the Company's common stock. In
addition, the selling stockholders of MCBA can earn an additional
1,500,000 shares of the Company's common stock based upon attainment of
certain performance goals in calendar 1998 and 1999. The acquisition
has been accounted for as a purchase with the result that MCBA
operations are included in the Company's financial statements from the
date of purchase. In connection with the acquisition, the Company
recorded approximately $9,800,000 of goodwill and other intangible
assets. The fair values of assets acquired from MCBA were approximately
$4,045,000 and liabilities assumed were approximately $3,945,000.
MCBA is a value-added wholesale distributor and reseller of IBM
commercial mid-range servers, including the AS/400 and RS/6000, and
software. MCBA is also one of four authorized distributors of IBM's
S/390 mainframe systems. In addition to the products it offers, MCBA
provides network configuration and technical support services to its
customers. MCBA's unaudited revenue for the year ended December 31,
1997 was approximately $26,900,000.
Note 13: On September 8, 1998, the Company acquired the distribution segment of
REAL Applications, Ltd. (REAL) from its parent company, El Camino
Resources, Ltd. (El Camino) for $12,875,000. In connection with the
acquisition, the Company recorded approximately $13,141,000 of goodwill
and other intangible assets. The acquisition has been accounted for as
a purchase with the result that REAL operations are included in the
Company's financial statements from the date of purchase.
REAL is a reseller of IBM commercial mid-range servers, including the
AS/400 and RS/6000, as well as high end data storage and IBM Netfinity
servers. REAL is also one of four authorized distributors of IBM's
S/390 mainframe systems. REAL had unaudited revenues of approximately
$80,000,000 for the year ended April 30, 1998.
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The following presents unaudited pro forma combined net sales, net
income and earnings per share of the Company and REAL for the fiscal
year ended December 31, 1997 and the nine months ended September 30,
1998. The pro forma information is presented for informational purposes
only, and is not necessarily indicative of the operating results that
would have occurred if the REAL acquisition had been consummated at the
earliest period presented, nor is it indicative of future operating
results.
Year Ended Nine Months Ended
December 31, 1997 September 30, 1998
----------------- -------------------
Net Sales $ 299,927,000 $ 426,467,000
Net Income $ 3,360,000 $ 3,264,000
Net Income (loss) per share -
basic $ 0.58 $ (0.05)
Net Income (loss) per share -
diluted $ 0.56 $ (0.04)
Net loss per share for the nine months ended September 30, 1998 is due
to an extraordinary item and dividends paid on preferred stock, see
Notes 8 and 10.
Note 14: On September 8, 1998, the Company executed an amendment to its credit
facility with IBMCC, pursuant to which the Company obtained an
additional loan of $15,000,000 to consummate the REAL transaction (see
Note 13 above). The loan bears interest at prime (8.5% at September 30,
1998) plus 2.0% and is due in September, 1999.
Note 15: On September 19, 1998, the Company declared a special dividend, payable
in common stock, due to the holders of the Company's Series A Preferred
Stock. The Company issued approximately 600,000 shares of its common
stock with a fair market value of approximately $3,800,000. The
dividend was paid as a result of the average common stock price falling
below a predetermined level in the five trading days prior to September
19, 1998, as stipulated in the Series A Preferred Stock Agreement.
Note 16: Certain amounts in the financial statements have been reclassified to
conform with the current period's presentation. These reclassifications
did not change previously reported total assets, liabilities,
stockholders' equity or net income.
Note 17: Year 2000 Compliance Issues: See "Management's Discussion and Analysis
of Financial Condition and Results of Operations; Year 2000 Compliance
Issues."
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RECENT EVENTS
On April 29, 1998, the Company completed the public offering of 3,000,000
shares of its Common Stock at a price of $10.50 per share. After deducting the
underwriting discount and offering expenses, the net proceeds to the Company
were $28,683,000. The Company used the proceeds of the offering to reduce its
outstanding debt obligations, exclusive of the outstanding cash advances on the
IBMCC Credit Facility.
On May 15, 1998, the Company purchased substantially all of the UniDirect
catalog and VarCity distribution business and related electronic software
distribution organization of UDC for $4,600,000, comprised of $2,900,000 in cash
and a $1,700,000 promissory note. The promissory note bears interest at 8.25%
and is payable over a two-year period. This transaction has been accounted for
as a purchase with the result that UDC operations are included in the Company's
financial statements from the date of purchase. In connection with the
acquisition, the Company recorded approximately $4,900,000 of goodwill and other
intangible assets. During the year ended December 31, 1997, the acquired
businesses had unaudited revenues of approximately $18,000,000.
UniDirect specializes in the sales and support of technically advanced
software products. VarCity is a nationwide distributor of client/server and
internet software products to resellers. Software solutions sold by both
companies include products for areas such as web and intranet development and
related management tools, UNIX and Windows NT applications and utilities,
client/server applications, advanced operating systems and databases, and PC
connectivity applications.
On June 5, 1998, the Company acquired all of the outstanding shares of
MCBA common stock for $487,000 of canceled indebtedness and 852,854 shares of
the Company's common stock. In addition, the selling stockholders of MCBA can
earn an additional 1,500,000 shares of the Company's common stock based upon
attainment of certain performance goals in calendar 1998 and 1999. The
acquisition has been accounted for as a purchase with the result that MCBA
operations are included in the Company's financial statements from the date of
purchase. In connection with the acquisition, the Company recorded approximately
$9,800,000 of goodwill and other intangible assets. The fair values of assets
acquired from MCBA were approximately $4,045,000 and liabilities assumed were
approximately $3,945,000.
MCBA is a value-added wholesale distributor and reseller of IBM
commercial mid-range servers, including the AS/400 and RS/6000, and software.
MCBA is also one of four authorized distributors of IBM's S/390 mainframe
systems. In addition to the products it offers, MCBA provides network
configuration and technical support services to its customers. MCBA's unaudited
revenue for the year ended December 31, 1997 was approximately $26,900,000.
On September 8, 1998, the Company acquired the distribution segment of
REAL from its parent company, El Camino for $12,875,000. In connection with the
acquisition, the Company recorded approximately $13,141,000 of goodwill and
other intangible assets. The acquisition has been accounted for as a purchase
with the result that REAL operations are included in the Company's financial
statements from the date of purchase.
REAL is a reseller of IBM commercial mid-range servers, including the
AS/400 and RS/6000, as well as high end data storage and IBM Netfinity servers.
REAL is also one of four authorized distributors of IBM's S/390 mainframe
systems. REAL had unaudited revenues of approximately $80,000,000 for the year
ended April 30, 1998.
On September 8, 1998, the Company executed an amendment to its credit
facility with IBMCC, pursuant to which the Company obtained an additional loan
of $15,000,000 to consummate the REAL transaction. The loan bears interest at
prime (8.5% at September 30, 1998) plus 2.0% and is due in September, 1999.
On September 19, 1998, the Company declared a special dividend, payable
in common stock, to the holders of the Company's Series A Preferred Stock. The
Company issued approximately 600,000 shares of its common
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stock with a fair market value of approximately $3,800,000. The dividend was
paid as a result of the average common stock price falling below a predetermined
level in the five trading days prior to September 19, 1998, as stipulated in the
Series A Preferred Stock Agreement.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales consists of sales of commercial mid-range servers, integrated
personal computers, workstations, peripheral equipment, storage products,
software and remarketed installation and technical support services, net of
sales discounts and returns. Net sales for the three months ended September 30,
1998 of $149,809,000 were 225% higher than the net sales of $46,139,000 for the
corresponding period in 1997. Sales increased due to the continued expansion of
the Company's computer systems distribution business, particularly through the
acquisition of Star Management Services, Inc. (SMS) in the third quarter of
1997. The acquisitions of MCBA and REAL, the opening of a sales office in Canada
and increased software sales, primarily as a result of the acquisition of UDC,
also contributed to the rise in revenue. MCBA, UDC and REAL accounted for
approximately $17.3 million of net sales during the three months ended September
30, 1998. The recruitment of new customers, increased integration and storage
product sales in the Company's Computer Peripherals Group Division (CPG) and
general market demand for computer systems also contributed to the overall rise
in revenue.
During the quarter ended September 30, 1998, sales to Sirius Computer
Solutions, Ltd. (Sirius) accounted for approximately 15% of the Company's net
sales. The Company's sales to Sirius are made under the Industry Remarketer
Affiliate Agreement between the Company and Sirius dated as of September 30,
1997 (the Sirius Agreement), pursuant to which the Company appointed Sirius as
one of its industry remarketer affiliates of IBM products. The Sirius Agreement
provides that Sirius may not enter into any similar arrangement with any third
party for the purpose of selling IBM products to its end user customers and also
provides a favorable pricing structure to Sirius. As a result, Sirius is
expected to remain the Company's largest customer for the duration of the Sirius
Agreement and to account for approximately the same percentage of the Company's
net sales for the remainder of 1998 as it represented in the third quarter of
1998. The Sirius Agreement expires on September 30, 2000, but may be terminated
earlier under certain conditions, not including termination at will. Any
disruption, change or termination of the Company's relationship with Sirius or a
reduction in purchases from the Company by Sirius could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
Cost of sales is comprised of purchase costs, net of early payment and
volume discounts and product freight and does not include any depreciation or
amortization expense. Gross profit increased 152% to $17,248,000 in the quarter
ended September 30, 1998 from $6,842,000 in the quarter ended September 30,
1997. As a percentage of net sales, gross profit decreased to 11.5% for the
three months ended September 30, 1998 from 14.8% for the corresponding period in
1997. This decrease is a result of a shift in the relative mix of products being
sold, a higher proportion of large orders on which the Company extends volume
discounts to customers and the historically lower gross profit percentages of
SMS, MCBA and REAL.
Selling, general and administrative expenses include: salaries and
commissions paid to sales representatives; compensation paid to marketing,
product management, technical and administrative personnel; depreciation of
infrastructure costs, including the Company's information system and leasehold
improvements; amortization of intangibles resulting from goodwill recorded from
acquisitions; facility lease expenses; telephone and data line expenses and
provision for bad debt losses. Selling, general and administrative expenses
increased 123% to $12,177,000 in the three months ended September 30, 1998 from
$5,471,000 in the same period a year ago due to the acquisitions of SMS, MCBA,
UDC and REAL, necessary increase in personnel costs, higher depreciation costs
incurred as a result of additions to the Company's infrastructure, start-up
costs associated with opening an office in Canada and a higher amortization
expense as a result of increased goodwill related to acquisitions. As a
percentage of net sales, selling, general and administrative expenses were 8.1%
for the three months ended September 30, 1998, compared to 11.9% for the same
period in 1997. The decrease is primarily a result of increased operating
leverage due to the higher sales volumes.
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Interest expense remained constant at $605,000 in the quarter ended
September 30, 1998 versus $604,000 from the same period in 1997 due to increased
collection efforts as well as an emphasis on cash management.
The Company's effective tax rate is 49% versus the statutory rate of 34%
due primarily to non-deductible goodwill and other intangibles.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales for the nine months ended September 30, 1998 of $373,233,000
were 206% higher than the net sales of $121,975,000 for the corresponding period
in 1997. Sales increased due to the expansion of the Company's computer systems
distribution business, particularly through the acquisition of SMS in the third
quarter of 1997. The acquisitions of MCBA and REAL, the opening of a sales
office in Canada in June of 1998 and increased software sales, primarily as a
result of the acquisition of UDC, also contributed to the rise in revenue. The
acquisition of MCBA, UDC and REAL accounted for approximately $23.6 million of
net sales in the nine months ended September 30, 1998. The recruitment of new
customers, hiring of additional sales representatives, increased integration
orders and higher storage product sales in CPG as well as general market demand
for computer systems also contributed to the overall rise in revenue.
During the nine months ended September 30, 1998, sales to Sirius
accounted for approximately 18% of the Company's net sales.
Gross profit increased 133% to $45,198,000 in the nine months ended
September 30, 1998 from $19,404,000 in the nine months ended September 30, 1997.
As a percentage of net sales, gross profit decreased to 12.1% for the nine
months ended September 30, 1998 from 15.9% for the corresponding period in 1997.
This decrease is a result of a shift in the relative mix of products being sold,
a higher proportion of large orders on which the Company extends volume
discounts to customers and the historically lower gross profit percentages of
SMS, MCBA and REAL.
Selling, general and administrative expenses increased 102% to
$32,030,000 in the nine months ended September 30, 1998 from $15,843,000 in the
same period a year ago due to the acquisitions of SMS, MCBA, UDC and REAL,
necessary increase in personnel costs, higher depreciation costs incurred as a
result of additions to the Company's infrastructure, start-up costs associated
with opening an office in Canada and a higher amortization expense as a result
of increased goodwill related to acquisitions. As a percentage of net sales,
selling, general and administrative expenses were 8.6% for the nine months ended
September 30, 1998, compared to 13.0% for the same period in 1997. The decrease
is primarily a result of increased operating leverage due to the higher sales
volumes.
Interest expense increased 114% to $3,277,000 in the nine months ended
September 30, 1998 versus $1,532,000 from the same period in 1997 due to
additional borrowings associated with the acquisition of SMS and an overall
increase in line-of-credit borrowings. The increased borrowings were necessary
in order to fund infrastructure additions, expanded operations and overall
Company growth. Interest expense for the nine months ended September 30, 1998
also increased due to the amortization of a discount on warrants issued in
September 1997. The warrants were originally determined to have a fair market
value of $1,330,000, which was recorded as discount on notes payable. During the
first quarter of 1998, the warrants were revalued at $2,721,000. The Company
recorded approximately $330,000 in interest expense for the discount on the
warrants during the nine months ended September 30, 1998. The Company will not
incur an additional expense resulting from the warrants as the unamortized value
was expensed as a result of the Company's public offering and subsequent payoff
of the debt underlying the warrants.
The Company's effective tax rate is 49% versus the statutory rate of 34%
due primarily to non-deductible goodwill and other intangibles.
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In connection with the repayment of its outstanding debt obligations, the
Company recorded an extraordinary charge of $2,338,000, net of tax, resulting
from a prepayment penalty, the write-off of unamortized discounts relating to
certain warrants issued to debt holders and other related expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the nine months ended
September 30, 1998 totaled $4,990,000 compared to the net cash used in operating
activities of $6,514,000 for the nine months ended September 30, 1997. Net cash
from operating activities increased due to a rise in accounts payable of
$33,951,000, which was primarily due to sales volume, and depreciation and
amortization of $4,212,000 and overall profitability. This was offset by an
increase in accounts receivable of $26,490,000, which was the result of a
significant amount of sales in the last three weeks of the quarter, as well as
an increase in other assets of $12,897,000 from the payment of estimated income
taxes and an increase in rebates receivable.
Net cash used in investing activities during the nine months ended
September 30, 1998 was $18,432,000 compared to net cash used in investing
activities of $37,676,000 during the nine months ended September 30, 1997.
Investing activities in 1998 consisted of the acquisition of MCBA, UDC and REAL
and continuing leasehold and computer hardware and software investments made at
the Company's headquarters, sales office and warehouse and integration center
sites.
Net cash provided by financing activities during the nine months ended
September 30, 1998 was $13,443,000 compared to $48,918,000 provided during the
nine months ended September 30, 1997. Financing activities in 1998 consisted of
a public offering of common stock and cash advances under the IBMCC Credit
Facility. On April 29, 1998, the Company completed the public offering of
3,000,000 shares of its Common Stock at a price of $10.50 per share. After
deducting the underwriting discount and offering expenses, the net proceeds to
the Company were $28,683,000. The Company used the proceeds of the offering to
reduce its outstanding debt obligations, exclusive of the outstanding cash
advances on the IBMCC Credit Facility. The IBMCC Credit Facility cash proceeds
were used for the payment of debt obligations and to fund the growth of the
Company.
Under the IBMCC Credit Facility, the Company's purchases from IBM and
cash advances from IBMCC are directly charged to the IBMCC Credit Facility and
are paid by the Company based on payment terms outlined in the agreement. Total
borrowings under the IBMCC Credit Facility are based on eligible accounts
receivable and inventory, as defined in the IBMCC Credit Facility, and are
limited to $125,000,000. The IBMCC Credit Facility is renewable in September
2000 and contains restrictive covenants which include the maintenance of minimum
current ratio, tangible net worth and times interest earned ratio, as defined in
the IBMCC Credit Facility, and is collateralized by substantially all assets of
the Company. The Company was not in compliance with the tangible net worth
covenant at September 30, 1998. IBMCC granted a waiver as of September 30, 1998
for the specific violation. Cash advances under the IBMCC Credit Facility were
$8,653,000 at September 30, 1998. Cash advances bear interest at prime (8.5% at
September 30, 1998) plus 1.875%. Based on eligible assets, as of September 30,
1998, the Company had borrowings available of approximately $29,623,000.
On September 8, 1998, the Company executed an amendment to its credit
facility with IBMCC, pursuant to which the Company obtained an additional loan
of $15,000,000 to consummate the REAL transaction. The loan bears interest at
prime (8.5% at September 30, 1998) plus 2.0% and is due in September of 1999.
The Company has required substantial working capital to finance accounts
receivable, inventories and capital expenditures and has financed its working
capital requirements, capital expenditures and acquisitions primarily through
bank borrowings, cash generated from operations and sales of Common Stock and
Preferred Stock Units. The Company believes that its existing cash and available
bank borrowings are sufficient to fund the Company's operations through the end
of 1998. The Company is actively considering other alternatives for raising
additional cash including public equity, private equity, or appropriate
alternative debt financing. There can be no assurance that the Company will be
able to obtain additional financing on acceptable terms or at sufficient levels.
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YEAR 2000 COMPLIANCE ISSUES
GENERAL
The Company is in the process of conducting a Year 2000 compliance audit
and developing and implementing a company-wide Year 2000 Compliance Project (the
"Project"). The Project addresses a broad range of issues affecting the Company
as a result of the programming code in existing computer, and computer related,
systems as the year 2000 approaches. The Year 2000 problem is complex, as many
computer systems will be affected in some way by the rollover of the two-digit
year value to 00. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail. The Year 2000 issue creates
risks for the Company from problems in its own computer and embedded systems and
from third parties with whom the Company deals on financial and other
transactions. Failure of the Company's and/or third parties' computer systems
could have a material adverse impact on the Company's ability to conduct its
business. The Company's Project is being headed up by the Company's Vice
President of Information Technology, who reports directly to the Chief Financial
Officer.
INTERNAL SYSTEMS
The Company's business software system includes an enterprise-wide
solution which was upgraded to the most recent version in fiscal 1998. This
system handles the Company's most critical functions, including, finance,
inventory control, warehousing, shipping and receiving, logistics, purchasing,
sales and order taking. Over the last three months, the Company's business
software system was upgraded to a more current version, which the Company
believes to be Year 2000 compliant. Certain of the Company's offices (including
one in San Antonio, which is one of the Company's largest and most critical
offices) are not yet fully integrated into the Company's enterprise-wide
business software system. It is expected that the San Antonio office will be
transitioned to the enterprise-wide system this month, and that the Company's
newly acquired offices in Huntsville, Alabama and Canada will be integrated over
the next four months.
Once all of the Company's offices are up and running on the business
software system, the Company will still need to upgrade the associated database
and hardware systems on which the software system runs. The hardware upgrade is
expected to be completed by March 1999 and will cost approximately $150,000. The
database upgrade involves migrating to the next version of the software and is
expected to be completed by April 1999. Since the Company's most critical
functions are run on the enterprise-wide business software system, any Year 2000
problems at the hardware or software level could have a material adverse effect
on the Company. If the system failed to work on January 1, 2000 it could prevent
the Company from controlling its inventory, taking orders, buying inventory and
billing its customers.
The Company is inventorying and analyzing its remaining centralized
computer and embedded systems, as well as its WAN Data services, WAN hardware,
networking equipment, voice-mail equipment and access and alarm systems, to
identify any potential Year 2000 issues and will take appropriate corrective
action based on the results of such analysis. The Company currently expects to
substantially complete remediation and validation of its internal systems, as
well as to develop contingency plans, by mid-1999.
THIRD PARTY SUPPLIERS AND VENDORS
The Company is currently in the process of developing a plan for
contacting its critical suppliers, manufacturers, distributors and other vendors
to determine if their operations and the projects and services that they provide
to the Company are Year 2000 compliant. The Company's largest supplier of
product is IBM, with more than 65% of the Company's revenue derived from sales
of such products. As a result, the Company will devote substantial effort in
dealing with IBM in addressing any potential Year 2000 problems. Absent written
assurances of Year 2000 compliance by such third parties, the Company will
assume that such third parties will not be Year 2000 compliant and will attempt
to mitigate its risks with respect to the failure of such third parties to be
Year 2000 ready by developing contingency plans. However, there can be no
assurance that in all instances contingency
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plans can be adopted or that they will adequately serve the needs of the
Company's customers and other constituents.
PRODUCTS
Because the Company is a distributor of mid-range computers, software and
peripheral products, the Year 2000 issue is likely to have a substantial affect
on the products that the Company sells. The Company will deal directly with the
manufacturers of its products to determine whether such products are Year 2000
compliant. As a distributor, the Company will not make representations and
warranties to its customers regarding Year 2000 compliance of the products its
sells. Rather, the Company assigns to its customers the manufacturer's
warranties. However, if there are year 2000 compliance issues it could increase
the Company's risk of product returns, increased inventory and/or reduced sales.
While the Company believes that the Company's largest line of products, IBM
AS/400 and RS/6000 mid-range servers, are Year 2000 compliant, there can be no
assurance that the Company's other products do not contain undetected errors or
defects associated with Year 2000 that may result in material costs to the
Company. Should IBM product fail to be Year 2000 compliant or should IBM be
unable to supply product because of Year 2000 issues, the effect on the
Company's results of operations, liquidity and financial condition would be
severe.
YEAR 2000 COSTS
The total cost associated with the Year 2000 audit and required
modifications to become Year 2000 compliant is not expected to be material to
the Company's financial position based on preliminary assessments resulting from
the early phases of the Project. The estimated total cost of the Project is
approximately $1,200,000, $200,000 of which has already been spent to hire a
Year 2000 project manager and upgrade some non-Year 2000 compliant software and
systems. It is possible that as the Company continues its audit and detects
problems that are not currently known to the Company, additional costs may be
incurred, which could be substantial.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the inherent
uncertainty in the Year 2000 problem, resulting in part from the uncertainty of
the Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of the Year 2000
failures will have a material impact on the Company's results of operations,
liquidity or financial condition.
FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE UPON IBM AND VENDOR CONCENTRATION. Our business depends
largely on our relationship with International Business Machines Corporation
("IBM") and on the continued market acceptance of IBM commercial mid-range
servers. During the years ended December 31, 1995, 1996 and 1997, the sale of
IBM products generated approximately 30%, 50% and 65%, respectively, of our net
sales. We expect this percentage to increase in 1998. We have an agreement with
IBM to distribute IBM products. IBM may unilaterally modify this agreement with
us upon 30 days' written notice. This agreement also renews automatically but
may be terminated by IBM upon written notice given not less than 90 days prior
to the renewal date (January 1, 1999), provides no franchise rights and may not
be assigned by us. As wholesale distributors of commercial mid-range servers
continue to consolidate, IBM may raise the sales volume level required to
maintain most favorable volume discount status. In order to maintain most
favorable volume discount status with IBM and to pursue our business strategy,
we have recently completed several acquisitions and are actively seeking
additional acquisitions and potential equity investments. We may not be
successful in completing any future acquisitions or in making any such equity
investments. Our failure to do so or to otherwise increase our sales volume
through internal growth, could cause us to lose our most favorable volume
discount status with IBM, which would, in turn, have a material adverse effect
on our relationship with IBM and on our business, financial condition and
results of operations. Our business may also be adversely affected by any
disruption, change or termination in our relationship with IBM or in the manner
in which IBM distributes its products, the failure of IBM to develop new
products which are accepted by our customers, the failure by us to maintain
certain operational and administrative capabilities, the failure by us to
maintain sufficient
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sales volumes of certain IBM products to maintain most favorable volume discount
status or the addition of other wholesale distributors by IBM.
The balance of our net sales comes from the sale of products from a
limited number of other vendors. During the years ended December 31, 1995, 1996
and 1997, approximately 22%, 28% and 19%, respectively, of our net sales were
derived from the sale of products manufactured by Data General Corporation, NCR
Corporation and Unisys Corporation, collectively. To become an authorized
distributor for these vendors, we typically enter into a non-exclusive agreement
that is cancelable by either party upon 30 to 120 days' prior written notice.
Our business would be unilaterally and adversely affected by:
o any disruption, change or termination in our relationship with any
such vendor or in the manner in which any such vendor distributes
its products,
o the failure of any such vendor to develop new products which are
accepted by our customers,
o our failure to maintain certain operational and administrative
capabilities,
o our failure to maintain sufficient sales volumes of certain
vendors' products to maintain most favorable volume discount
status, or
o the addition of other wholesale distributors by any such vendor.
As is typical in our industry, we receive volume discounts and market
development funds from most of our vendors. These volume discounts directly
affect our gross profit. In addition, we often use market development funds to
offset a portion of our sales and marketing expenses. Any change in the
availability of these discounts or market development funds or our failure to
obtain vendor financing on satisfactory terms and conditions would have a
material adverse effect on our business, financial condition and results of
operations.
FLUCTUATIONS IN OPERATING RESULTS. Our quarterly net sales and operating
results may fluctuate as a result of a variety of factors, including, but not
limited to:
o changes in the supply and demand for commercial mid-range servers;
peripheral equipment; software and related services;
o the cost, timing and integration of acquisitions;
o the addition or loss of a key vendor or customer;
o the introduction of new technologies;
o changes in manufacturers' prices, price protection policies or
stock rotation privileges;
o changes in market development funds;
o changes in the level of operating expenses;
o product supply shortages;
o disruption of warehousing or shipping channels;
o inventory adjustments;
o increases in the amount of accounts receivable written off; and
o price competition and changes in the mix of products sold through
distribution channels and in the mix of products purchased by
OEMs.
Our operating results could also be adversely affected by general economic and
other conditions affecting the timing of customer orders and capital spending, a
downturn in the market for commercial mid-range servers and order cancelations
or rescheduling. In addition, historically, a substantial portion of our net
sales are made in the last few days of a quarter. Therefore, our quarterly
operating results are difficult to predict and delays in the closing of sales
near the end of a quarter could cause quarterly net sales to be far less than
expected and reduce our profitability. We believe that period-to-period
comparisons of our operating results are not necessarily meaningful and you
should not rely on them as an indication of future performance. Our future
operating results are expected to fluctuate as a result of these and other
factors, which could have a material adverse effect on our business, financial
condition and results of operations and on the price of our Common Stock. It is
possible that in the future, our operating results may be below the expectations
of securities analysts and investors. In such event, the market price of the
Common Stock would likely be materially and adversely affected. See "--Possible
Volatility of Stock Price."
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SUBSTANTIAL COMPETITION. We operate in highly competitive markets.
Competition is based primarily on:
o product availability;
o price;
o credit availability;
o speed of delivery;
o ability to tailor specific solutions to customer needs;
o breadth and depth of product lines and services;
o technical expertise; and
o pre- and post-sale service and support
Increased competition may result in the need for further price reductions,
reduced gross profit margins and loss of market share, any of which could
materially and adversely affect our business, financial condition and results of
operations.
Through our Mid-Range Systems Division, we compete with national,
regional and local distributors, including, but not limited to, Gates/Arrow
Commercial Systems, a division of Arrow Electronics, Inc., Hamilton Hall-Mark
Computer Products, a subsidiary of Avnet, Inc., and Dickens Data Systems, Inc.,
a division of Pioneer Standard Electronics, Inc. and, in some limited
circumstances, our own vendors. In the distribution of storage products, we
compete with national, regional and local distributors. Through CPG, we compete
with contract manufacturers, systems integrators and certain assemblers of
computer products. We have experienced increased competition from current and
potential competitors, many of which have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and a larger customer base than we do. Therefore, such competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion and sale of their products than we do. Competitors which are larger
than us may be able to obtain more favorable pricing and terms from vendors than
we can. If we fail to compete successfully against these larger companies, our
business, financial condition and results of operations would be materially and
adversely affected.
RELIANCE ON SIRIUS COMPUTER SOLUTIONS, LTD. During the year ended
December 31, 1997 and nine months ended September 30, 1998, sales to Sirius
Computer Solutions, Ltd. ("Sirius") accounted for approximately 11% and 18%,
respectively, of our net sales. Our sales to Sirius are made under the Industry
Remarketer Affiliate Agreement between us and Sirius dated as of September 30,
1997 (the "Sirius Agreement"), pursuant to which we appointed Sirius as one of
our industry remarketer affiliates of IBM products. Under the Sirius Agreement,
Sirius may not enter into any similar arrangement with any third party for the
purpose of selling IBM products to its end-user customers and also provides a
favorable pricing structure to Sirius. As a result, Sirius is expected to remain
our largest customer for the duration of the Sirius Agreement and to account for
approximately the same percentage of our net sales in 1998 as it represented in
the first nine months of 1998. The Sirius Agreement expires on September 30,
2000, but may be terminated earlier under certain conditions, except that it may
not be terminated at will. Any disruption, change or termination of our
relationship with Sirius or a reduction in purchases by Sirius could have a
material adverse effect upon our business, financial condition and results of
operations.
INTEGRATION RISKS RELATING TO ACQUISITIONS. Since December 1994, we have
completed ten acquisitions. To successfully combine our business with
businesses we acquire, we must:
o integrate our respective management teams and sales and other
personnel;
o coordinate sales and marketing efforts;
o convert computer systems (including inventory control, order entry
and financial reporting); and
o integrate our respective products and physical facilities.
We will also need to coordinate geographically separate organizations. The
integration of certain operations will require the dedication of management
resources which may temporarily divert attention away from the day-to-day
business of the combined company. Our inability to integrate successfully the
operations of acquired businesses could have a material adverse effect on our
business, financial condition and results of operations. In addition,
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during the integration phase, competitors may try to attract customers and to
recruit key employees through various incentives. Acquisitions may materially
and adversely affect the selling patterns of vendors and the buying patterns of
our present and potential customers and this might materially and adversely
affect our business, financial condition and results of operations.
Our ability to achieve the anticipated benefits of the acquisitions of
MCBA, REAL and UDC or any other acquisition depends in part upon whether we can
effectively and efficiently integrate our business with that of the acquired
business. The SMS Acquisition and other acquisitions and investments have
placed, and will continue to place, substantial demands on our management team
and financial resources. The integration of the operations of SMS and the other
acquired companies has occasionally been slower, more difficult and more costly
than we originally anticipated. We will encounter similar uncertainties and
risks in any future acquisitions and investments. Although we expect to reduce
costs and increase sales as a result of the recent and proposed acquisitions, we
do not know if this will occur, or if any cost reductions will be offset by
increases in other expenses or operating losses. See "--Uncertainty of Future
Acquisitions and Expansion."
UNCERTAINTY OF FUTURE ACQUISITIONS AND EXPANSION. Acquisitions are an
important part of our business strategy, and we believe that additional
acquisitions are important to our growth, development and continued ability to
compete effectively. We evaluate potential acquisitions and strategic
investments on an ongoing basis. It is difficult to predict whether we will be
able to compete successfully for available acquisition or investment candidates
or to complete future acquisitions and investments or as to the financial effect
of any acquired businesses or equity investments. Our future acquisitions and
investments, if any, may involve significant cash expenditures and may cause us
to incur additional debt, interest and amortization expense or decreased
operating income, any of which could adversely affect our business, financial
condition and results of operations. In addition, we will need additional
financing to fund our working capital requirements and to finance future
acquisitions and strategic equity investments, if any. We may not be able to
raise financing on satisfactory terms and conditions, if at all. See "--Future
Capital Needs; Uncertainty of Additional Financing." If we cannot successfully
implement our acquisition and investment strategy, our business, financial
condition and results of operations could be materially and adversely affected.
See "--Integration Risks Relating to Acquisitions" and "--Future Dilution Due to
Acquisitions."
MANAGEMENT OF GROWTH. Since 1997, we have experienced significant growth
in the number of our employees and in the scope of our operating and financial
systems. To manage future growth effectively, we will need to continue to
improve our operational, financial and management information systems,
procedures and controls and expand, train, motivate, retain and manage our
employee base. Our failure to successfully manage any future expansion or
identify, attract and retain key personnel, could have a material adverse effect
on our business, financial condition and results of operations. See
"--Dependence on Key Personnel."
DEPENDENCE ON KEY PERSONNEL. Our future success depends in part on the
continued service of our key management, sales and marketing personnel and our
ability to identify and hire additional personnel. Competition for qualified
management, sales and marketing personnel is intense and we may not be able to
retain and recruit adequate personnel to operate our business. Our success is
largely dependent on the skills, experience and efforts of our key personnel,
particularly P. Scott Munro, Chairman of the Board, Chief Executive Officer,
President and Secretary, and Carlton Joseph Mertens II, Chief Executive Officer
and President of the Company's subsidiary, Business Partner Solutions, Inc.,
both of whom have employment agreements with us. The loss of either of these
individuals or other key personnel could have a material adverse effect on our
business, financial condition and results of operations. We maintain life
insurance on Messrs. Munro and Mertens in the amounts of $7.9 million and $10.0
million, respectively. We are contractually obligated to apply any proceeds from
these policies to repay the IBMCC Credit Advance (as defined herein).
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. Our operations
to date have required substantial amounts of working capital to finance accounts
receivable and product inventories. Although we believe we have sufficient
funds, or alternate sources of funds, to carry on our business as presently
conducted through 1998, we will need to raise additional amounts through public
or private debt or equity financings in order to achieve the growth contemplated
by our business plan. Additional financing of any type may not be available on
acceptable
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terms, or at all. Any failure to obtain such financing could have a material
adverse effect upon our business, financial condition and results of operations.
See "--Limitations Upon Incurrence of Additional Indebtedness."
DEPENDENCE ON AVAILABILITY OF CREDIT AND IBMCC CREDIT FACILITY. In order
to obtain necessary working capital, we rely primarily on a line of credit that
is collateralized by substantially all of our assets. The amount of credit
available to us may be adversely affected by numerous factors beyond our
control, including:
o delays in collection or deterioration in the quality of our
accounts receivable;
o economic trends in the technology industry;
o interest rate fluctuations; and
o the lending policies of our creditors.
Our ability to fill existing sales orders or expand our sales levels will be
limited by any decrease or material limitation on the amount available to us
under available credit or other financing arrangements. This would have a
material adverse effect on our business, financial condition and results of
operations. In addition, any significant increase in interest rates will
increase our cost of financing and could have a material adverse effect on our
business, financial condition and results of operations. We are dependent on the
availability of accounts receivable financing on reasonable terms and at levels
that are high relative to our equity base in order to maintain and increase our
sales. Such financing may not continue to be available to us or available under
terms acceptable to us. Our inability to have continuous access to such
financing at reasonable costs would materially and adversely impact our
business, financial condition, results of operations and cash flows.
Our working capital requirements are primarily funded through a
$125,000,000 Inventory and Working Capital Agreement (the "IBMCC Credit
Facility") with "IBMCC". Our borrowings under the IBMCC Credit Facility are
collateralized by substantially all of our assets, including accounts
receivable, inventories and equipment. The IBMCC Credit Facility provides that
the outstanding interest-bearing cash advance balance is subject to interest at
the annual rate of prime plus 1.875% (10.375% at September 30, 1998) and is
renewable in September, 2000. IBMCC may terminate the IBMCC Credit Facility at
any time upon the occurrence of, and subsequent failure to cure, an "Event of
Default" (as such term is defined in the IBMCC Credit Facility). If the IBMCC
Credit Facility is terminated, our outstanding borrowings under the IBMCC Credit
Facility become immediately due and payable. If the IBMCC Credit Facility is
terminated and we cannot secure a replacement credit facility on terms and
conditions at least as favorable as those contained in the IBMCC Credit
Facility, our business, financial condition and results of operations would be
materially and adversely affected.
LIMITATIONS UPON INCURRENCE OF ADDITIONAL INDEBTEDNESS. Under the IBMCC
Credit Facility, we must obtain the consent of IBMCC before we incur certain
additional debt, including any additional senior or subordinated debt. We may
incur additional debt without IBMCC's consent through capital leases and general
business commitments which are on terms commercially reasonable and consistent
with prior business practices. The IBMCC Credit Facility and our anticipated
cash flows may not provide enough funding to achieve the growth contemplated by
our business plan. Therefore, we may need to obtain the consent of IBMCC to
incur additional debt. If we cannot obtain IBMCC's consent or obtain an
alternate credit facility, our business, financial condition and results of
operations could be materially and adversely affected.
RAPID TECHNOLOGICAL CHANGE, PRICE REDUCTIONS AND INVENTORY RISK. The
markets in which we sell our products are extremely competitive and are
characterized by declining selling prices over the life of a particular product
and rapid technological change. Since we acquire inventory prior to product
shipments, and because the markets for our products are volatile and subject to
rapid technological and price changes, there is a risk that we will forecast
incorrectly and have too much or too little inventory of particular products.
Our business, like that of other wholesale distributors, is subject to the risk
that the value of our inventory will be threatened by price reductions by
manufacturers or by technological changes affecting the usefulness or
desirability of the products in our inventory. Many manufacturers of technology
products have a policy of protecting wholesale distributors such as us from the
loss in value of inventory due to technological change or reductions in the
manufacturers' prices. Under the terms of most of our agreements, vendors will
generally credit us for inventory losses resulting from the vendor's price
reductions if we comply with certain conditions. In addition, generally under
such agreements,
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we have the right to return for credit or exchange for other products a portion
of its slow moving or obsolete inventory items within designated periods of
time. We may not be able to comply with all necessary conditions or manage
successfully such price protection or stock rotation opportunities, if
available. Also, a manufacturer which elects to terminate a distribution
agreement generally will repurchase its products carried in a wholesale
distributor's inventory. These industry practices are sometimes not included in
written agreements and do not protect us in all cases from declines in inventory
value, excess inventory or product obsolescence. Manufacturers may not continue
such practices or we may not be able to manage successfully our existing and
future inventories. Historically, we have not experienced losses due to obsolete
inventory in excess of established inventory reserves. Significant declines in
inventory value in excess of established inventory reserves or dramatic changes
in prevailing technology could have a material adverse effect on our business,
financial condition and results of operations.
Certain major systems vendors, including IBM, have developed and will
continue to implement programs which allow us to assemble systems from
components provided by the vendors. While we have developed the ability to
integrate and configure computer products, the process of assembling large
volumes of systems from components will require us to implement new business
practices. It is also uncertain how the vendors will apply policies related to
price protection, stock rotation and other protections against the decline in
inventory value of such system components. We may not be successful in the
integration and configuration of computer products or that certain vendors will
apply price protection and stock rotation policies to our component inventories.
LOW PROFIT MARGINS. As a result of price competition, we have low gross
profit and operating income margins. These low margins magnify the impact on
operating results of variations in net sales and operating costs. We have
partially offset the effects of our low gross profit margins by increasing net
sales, taking advantage of large volume purchase discount opportunities and
reducing selling, general and administrative expenses as a percentage of net
sales. However, we may not be able to maintain or increase net sales, continue
to use large volume purchase discount opportunities or further reduce selling,
general and administrative expenses as a percentage of net sales. Future gross
profit margins may be materially and adversely affected by changes in product
mix, vendor pricing actions and competitive and economic pressures.
PRODUCT SUPPLY SHORTAGES. We depend on the supply of products available
from our vendors. From time to time, the industry has experienced product
shortages for certain products we distribute due to vendors' difficulty in
projecting demand. When such product shortages occur, we typically receive an
allocation of product from the vendor. Vendors may not be able to maintain an
adequate supply of products to fulfill all of our orders on a timely basis. If
such supplies are available to competitors and we cannot obtain adequate
supplies, it would have a material adverse effect on our business, financial
condition and results of operations.
EXTENSION OF CREDIT TO CUSTOMERS WITHOUT REQUIRING COLLATERAL. We sell
products to a broad geographic and demographic base of customers and offers
unsecured credit terms to our customers. Sirius accounted for 16% of our
outstanding accounts receivable at September 30, 1998. To reduce credit risk, we
perform ongoing credit evaluations of our customers, maintain an allowance for
doubtful accounts and have credit insurance. Historically, we have not
experienced losses from write-offs in excess of established reserves. If the
rate at which our customers default on payments due increases, and if we are
unable to collect such amounts, our business, financial condition and results of
operations could be materially and adversely affected.
SEASONALITY. The computer distribution industry experiences seasonal
trends and, within each quarter, a substantial amount of products are generally
sold in the last few days of the quarter. Our largest vendor, IBM, sells
approximately 35-40% of its products in the last calendar quarter, and such
continuing pattern could have an effect on our quarterly net sales.
Historically, we make a substantial portion of our net sales in the last few
days of a quarter. Due to our recent significant growth through acquisitions and
our increased dependence on the sale of IBM products, variations experienced by
IBM and us may be magnified in the future and could have a material adverse
effect on our business, financial condition and results of operations. See
"--Fluctuations in Operating Results."
EXPANDING SERVICE CAPABILITIES. We are expanding the nature and scope of
our value-added services. We may not be able to successfully integrate such
value-added services with our commercial mid-range server and
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related products distribution business. If we cannot provide value-added
services effectively, we may not be able to compete effectively for the business
of certain customers which require the provision of such services as a condition
to purchasing products. In addition, we will be subject to risks commonly
associated with a value-added services business, including dependence on
reputation, fluctuations in workload and dependence on the ability to identify,
recruit and retain qualified technical personnel. The expansion of our
value-added services is expected to require a significant capital investment,
including an increase in the number of technical employees. One or more of such
factors may have a material adverse effect on our business, financial condition
and results of operations.
DEPENDENCE ON THIRD-PARTY SHIPPERS. We ship a majority of our products
from our warehouses via Federal Express Corporation ("FedEx"), but we also ship
via United Parcel Service of America, Inc. ("UPS") and other common carriers. In
addition, certain of our products are drop-shipped to our customers via these
carriers. Changes in shipping terms or the inability of FedEx, UPS or any other
third-party shipper to perform effectively (whether as a result of mechanical
failure, casualty loss, labor stoppage, other disruption or any other reason)
could have a material adverse effect on our business, financial condition and
results of operations. We may not be able to maintain favorable shipping terms
or replace such shipping services on a timely or cost-effective basis.
PLANNED INTERNATIONAL EXPANSION. Although we have not generated
significant sales from international operations to date, one of the elements of
our business strategy is to expand internationally. We recently began to
distribute IBM's AS/400 products in Canada. We may not be able to expand
successfully its international business. Risks inherent in doing business on an
international level include:
o management of remote operations;
o unexpected changes in regulatory requirements;
o export restrictions, tariffs and other trade barriers;
o difficulties in staffing and managing foreign operations;
o longer payment cycles;
o problems in collecting accounts receivable;
o political instability;
o fluctuations in currency exchange rates; and
o potentially adverse tax consequences.
Any of these factors could adversely impact the success of our international
operations and may have a material adverse effect on our future international
operations and, consequently, on our business, financial condition and results
of operations.
NO CASH DIVIDENDS ON COMMON STOCK. We have never declared or paid a cash
dividend on our Common Stock. We currently expect to keep all available funds to
operate our business, including possible acquisitions, and we do not intend to
pay any cash dividends in the foreseeable future. Our Board of Directors has the
discretion to decide whether to pay any dividends in the future and such
decision will depend upon, among other factors, future earnings, operations,
capital requirements, acquisitions and strategic investment opportunities, our
general financial condition and general business conditions. Further, the IBMCC
Credit Facility currently restricts our ability to pay cash dividends. The terms
of future credit facilities or other agreements may also contain similar
restrictions. In addition, our Certificate of Designation with respect to the
Series A Preferred Stock prohibits the payment of dividends on the Common Stock
unless and until dividends are paid on the Series A Preferred Stock in
accordance with its terms. If we fail to pay dividends on our Series A Preferred
Stock when due, the holders thereof may sue or take other action against us.
FUTURE DILUTION DUE TO ACQUISITIONS. In connection with certain of our
acquisitions, we expect to issue up to approximately 1,700,000 additional shares
of Common Stock pursuant to earnout provisions based on the attainment of
performance goals. We anticipate issuing additional shares of Common Stock or
other equity or convertible debt securities to acquire other businesses or for
other corporate purposes. If we issue additional equity, the percentage
ownership of our stockholders will be reduced, and stockholders may experience
additional dilution.
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POSSIBLE VOLATILITY OF STOCK PRICE. The market price of our Common Stock
has been and is likely to continue to be highly volatile, and may be
significantly affected by factors such as:
o actual or anticipated fluctuations in our quarterly operating
results;
o announcements of technological innovations;
o industry conditions and trends;
o changes in or our failure to meet the expectations of securities
analysts and investors;
o general market conditions; and
o other factors.
It is possible that in some future quarter, our operating results may be below
the expectations of securities analysts and investors. If this happens, the
price of our Common Stock would likely decline, perhaps substantially. In
addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices of the stocks of
technology companies. These broad market fluctuations may adversely affect the
market price of our Common Stock. In the past, securities class action lawsuits
have often been filed after periods of volatility in the market price of a
particular company's securities. Such litigation may occur in the future against
us. Such litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE
LAW. Certain provisions of our Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Amended and Restated Bylaws (the
"Bylaws") may make it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors may be willing to pay in
the future for shares of our Common Stock. We have issued 2,242,500 shares of
Series A Preferred Stock and 10 shares of Series B Preferred Stock, and have the
authority to issue up to an additional 7,757,490 shares of preferred stock and
to determine the price, rights, preferences, qualifications, limitations and
restrictions, including voting rights, of such additional preferred stock
without any further vote or action by the stockholders, subject to the terms of
the outstanding shares of Series A Preferred Stock and Series B Preferred Stock.
Although issuing additional preferred stock may make it easier for us to acquire
additional companies or to pursue other corporate purposes, it may also delay or
prevent a third party from acquiring a majority of our outstanding voting stock.
Further, section 203 of the General Corporation Law of Delaware prohibits us
from engaging in certain business combinations with interested stockholders.
These provisions may delay or prevent a change in control of our company without
action by the stockholders, and therefore could adversely affect the market
price of our Common Stock.
YEAR 2000 COMPLIANCE ISSUES. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations; Year 2000 Compliance Issues."
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Annual
Meeting of Stockholders on August 5, 1998, the following proposals were
voted on and approved by the holders 6,638,564 shares of common stock
and 267,000 shares of Series A Preferred Stock representing 57.8% of
the outstanding shares on an as converted basis the record date those
shares:
(1) To elect a Board of seven (7) directors to hold office until the
next annual meeting of stockholders or until their respective
successors have been elected and qualified:
DIRECTOR VOTES FOR WITHHELD
----------------------------------- --------- --------
P. Scott Munro..................... 6,893,684 11,880
Carlton Joseph Mertens II.......... 6,893,684 11,880
Angelo Guadagno.................... 6,893,084 12,480
James J. Heffernan................. 6,893,084 12,480
K. William Sickler................. 6,893,184 12,380
J. Larry Smart..................... 6,893,684 11,880
Guy M. Lammle...................... 6,893,684 11,880
(2) To approve the amendment of the Company's 1994 Stock Option Plan
increasing the number of shares reserved for option grants:
VOTES FOR AGAINST ABSTAIN BROKER NON-VOTES
--------- ------- ------- ----------------
6,606,399 266,187 32,978 0
(3) To ratify the designation of PriceWaterhouseCoopers L.L.P. as
independent accountants for the period ending December 31, 1998:
VOTES FOR AGAINST ABSTAIN BROKER NON-VOTES
--------- ------- ------- ----------------
6,877,576 26,220 1,768 0
Item 5. OTHER INFORMATION.
ADVANCE NOTICE PROVISION
A stockholder proposal not included in the Company's proxy statement
for the 1999 Annual Meeting will be ineligible for presentation at the meeting
unless the stockholder gives timely notice of the proposal in writing to the
Secretary of the Company at the principal executive offices of the Company and
otherwise complies with the provisions of the Company's Bylaws. To be timely,
the Company's Bylaws provide that the Company must have received the
stockholder's notice not less than 35 days nor more than 60 days prior to the
scheduled date of
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such meeting. However, if notice or prior public disclosure of
the date of the annual meeting is given or made to stockholders less than 50
days prior to the meeting date, the Company must receive the stockholder's
notice by the earlier of (i) the close of business on the 15th day after the
earlier of the day on which the Company mailed notice of the annual meeting date
or provided such public disclosure of the meeting date and (ii) two days prior
to the scheduled date of the annual meeting.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS
The exhibits listed in the accompanying index to exhibits are
filed or incorporated by reference (as stated therein) as part of this report on
Form 10-Q.
B. REPORTS ON FORM 8-K.
The following reports on Form 8-K, or amendments to previously
filed reports on Form 8-K, were filed during the quarter ended September 30,
1998.
Date of
FILED DATE REPORT ITEMS REPORTED FINANCIAL STATEMENTS FILED
- ---------- ------- -------------- --------------------------
9/23/98 9/8/98 Item 2. Acquisition or
(Form 8-K) Disposition of
Assets.
Item 7. Financial Statements Financial statements of
and Exhibits. the business acquired
and pro forma financial
information will be filed
by an amendment within the
time period provided by
Item 7.
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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.
Registrant:
SAVOIR TECHNOLOGY GROUP, INC.
Dated: November 13, 1998 By /s/ P. Scott Munro
------------------------------------
P. Scott Munro
Chief Executive Officer
Dated: November 13, 1998 By /s/ James W. Dorst
------------------------------------
James W. Dorst
Chief Financial Officer
Dated: November 13, 1998 By /s/ Dennis J. Polk
------------------------------------
Dennis J. Polk
Chief Accounting Officer
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INDEX TO EXHIBITS
EXHIBIT
- -------
2.1* Asset Purchase Agreement by and between Business Partner Solutions,
Inc., a subsidiary of Savoir Technology Group, Inc. and REAL
Applications Ltd. dated as of September 8, 1998, filed as Exhibit 2.1
to the Company's Current Report on Form 8-K dated September 8, 1998 and
incorporated herein by this reference.
3(i) Restated Certificate of Incorporation of Savoir Technology Group, Inc.,
a Delaware corporation, filed as Exhibit 3(ii) to the Company's Current
Report on Form 8-K dated July 23, 1997, filed on August 14, 1997 and
incorporated herein by this reference.
3(ii) Amended and Restated Bylaws of Savoir Technology Group, Inc., a
Delaware corporation, filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by this reference.
4.1 Certificate of Designation, Preferences and Rights of the Company's
Series A Preferred Stock, filed as Exhibit 3.2 to the Company's Current
Report on Form 8-K dated October 10, 1997, and incorporated herein by
this reference.
4.2 Certification of Designation, Preferences and Rights of the Company's
Series B Preferred Stock, filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated October 10, 1997, and incorporated herein by
this reference.
4.3 Registration and Put Rights Agreement among the Company and the
Purchasers dated September 30, 1997, filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated October 10, 1997, and
incorporated herein by this reference.
4.4 Warrant Agreement of Western Micro Technology, Inc. between the Company
and the Purchasers dated September 30, 1997 filed as Exhibit 4.3 to the
Company's Current Report on Form 8-K dated October 10, 1997, and
incorporated herein by this reference.
4.5 Common Stock Purchase Warrant in favor of Robert Fleming Inc., filed as
Exhibit 4.4 to the Company's Current Report on Form 8-K dated October
10, 1997, and incorporated herein by this reference.
4.6 Common Stock Purchase Warrant in favor of CanPartners Investments IV,
LLC filed as Exhibit 4.5 to the Company's Current Report on Form 8-K
dated October 10, 1997, and incorporated herein by this reference.
4.7 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in
favor of Robert Fleming Inc., filed as Exhibit 4.6 to the Company's
Current Report on Form 8-K dated October 10, 1997, and incorporated
herein by this reference.
- --------------
* Confidential Treatment requested pursuant to a request for confidential
treatment filed with the Commission on September 23, 1998. The portions of the
exhibit for which confidential treatment has been requested have been omitted
from the exhibit. The omitted information has been filed separately with the
Commission as part of the confidential treatment request.
<PAGE>
EXHIBIT
- -------
4.8 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in
favor of Robert Fleming Inc., filed as Exhibit 4.7 to the Company's
Current Report on Form 8-K dated October 10, 1997, and incorporated
herein by this reference.
4.9 Promissory Note of Registrant in the amount of Ten Million Dollars
($10,000,000) in favor of ICC dated September 30, 1997, filed as
Exhibit 4.8 to the Company's Current Report on Form 8-K dated October
10, 1997, and incorporated herein by this reference.
4.10 Warrant Agreement of Western Micro Technology, Inc. between the Company
and ICC dated September 30, 1997, filed as Exhibit 4.9 to the Company's
Current Report on Form 8-K dated October 10, 1997, and incorporated
herein by this reference.
4.11 Registration and Put Rights Amendment between the Company and ICC,
filed as Exhibit 4.10 to the Company's Current Report on Form 8-K dated
October 10, 1997, and incorporated herein by this reference.
4.12 Common Stock Purchase Warrant in favor of ICC, filed as Exhibit 4.11 to
the Company's Current Report on Form 8-K dated October 10, 1997, and
incorporated herein by this reference.
10.1* Solution Provider Agreement by and between Business Partner Solutions,
Inc., a subsidiary of Savoir Technology Group, Inc. and REAL
Applications Ltd. dated as of September 8, 1998, filed as Exhibit 10.1
to the Company's Current Report on Form 8-K dated September 8, 1998 and
incorporated herein by this reference.
10.2 Inventory and Working Capital Financing Agreement dated _______, 1998
by and among the Company, Business Partners Solutions, Inc. and MCBA
Systems, Inc.
27.1 Financial Data Schedule.
- --------------
* Confidential Treatment requested pursuant to a request for confidential
treatment filed with the Commission on September 23, 1998. The portions of the
exhibit for which confidential treatment has been requested have been omitted
from the exhibit. The omitted information has been filed separately with the
Commission as part of the confidential treatment request.
SAVOIR TECHNOLOGY GROUP, INC.
BUSINESS PARTNER SOLUTIONS, INC.
MCBA SYSTEMS, INC.
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
Table of Contents
Section 1. DEFINITIONS; ATTACHMENTS ..........................................2
1.1. Special Definitions .....................................................2
1.2. Other Defined Terms .....................................................2
1.3. Attachments .............................................................9
Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES .........................9
2.1. Credit Line .............................................................9
2.2. Term Loan Commitment ....................................................9
2.3. Product Advances ........................................................9
2.4. A/R Advances ...........................................................11
2.5. Term Loan Principal Payments ...........................................12
2.6. Finance and Other Charges ..............................................12
2.7. Statements Regarding Customer ..........................................13
2.8. Shortfall ..............................................................13
2.9. Application of Payments ................................................13
2.10. Prepayment and Reborrowing By Customer ................................13
Section 3. CREDIT LINE ADDITIONAL PROVISIONS ................................13
3.1. Ineligible Accounts ....................................................13
3.2. Reimbursement for Charges ..............................................15
3.3. Lockbox and Special Account ............................................15
3.4. Collections ............................................................15
3.5. Application of Remittances and Credits..................................16
3.6. Power of Attorney ......................................................16
3.7. Concentration Accounts .................................................17
Section 4. SECURITY - COLLATERAL ............................................17
4.1. Grant ..................................................................17
4.2. Further Assurances .....................................................18
4.3 Additional Collateral ...................................................18
4.4. Assignment of Additional Collateral ....................................18
Section 5. CONDITIONS PRECEDENT .............................................19
5.1. Conditions Precedent to the Effectiveness of this Agreement ............19
5.2. Conditions Precedent to Each Advance ...................................20
Section 6. REPRESENTATIONS AND WARRANTIES ...................................20
6.1. Organization and Qualifications ........................................20
6.2. Rights in Collateral; Priority of Liens ................................21
6.3. No Conflicts ...........................................................21
6.4. Enforceability .........................................................21
6.5. Locations of Offices, Records and Inventory ............................21
6.6. Fictitious Business Names ..............................................21
6.7. Organization ...........................................................21
6.8. No Judgments or Litigation .............................................21
6.9. No Defaults ............................................................22
6.10. Labor Matters .........................................................22
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6.11. Compliance with Law ...................................................22
6.12. ERISA .................................................................22
6.13. Compliance with Environmental Laws. ...................................22
6.14. Intellectual Property .................................................23
6.15. Licenses and Permits ..................................................23
6.16. Investment Company ....................................................23
6.17. Taxes and Tax Returns .................................................23
6.18. Status of Accounts ....................................................23
6.19. Affiliate/Subsidiary Transactions .....................................23
6.20. Accuracy and Completeness of Information ..............................23
6.21. Recording Taxes .......................................................24
6.22. Indebtedness ..........................................................24
Section 7. AFFIRMATIVE COVENANTS ............................................24
7.1. Financial and Other Information. .......................................24
7.2. Location of Collateral .................................................26
7.3. Changes in Customer ....................................................26
7.4. Corporate Existence ....................................................26
7.5. ERISA ..................................................................26
7.6. Environmental Matters ..................................................26
7.7. Collateral Books and Records/Collateral Audit ..........................27
7.8. Insurance; Casualty Loss ...............................................27
7.9. Taxes ..................................................................28
7.10. Compliance With Laws ..................................................28
7.11. Fiscal Year ...........................................................28
7.12. Intellectual Property .................................................28
7.13. Maintenance of Property ...............................................28
7.14. Collateral ............................................................28
7.15. Subsidiaries ..........................................................29
7.16. Financial Covenants; Additional Covenants .............................29
7.17. Joint and Several Guaranty ............................................29
Section 8. NEGATIVE COVENANTS ...............................................31
8.1. Liens ..................................................................31
8.2. Disposition of Assets ..................................................31
8.3. Corporate Changes ......................................................31
8.4. Guaranties .............................................................31
8.5. Restricted Payments ....................................................31
8.6. Investments ............................................................31
8.7. Affiliate/Subsidiary Transactions ......................................32
8.8. ERISA ..................................................................32
8.9. Additional Negative Pledges ............................................32
8.10. Storage of Collateral with Bailees and Warehousemen ...................32
8.11. Use of Proceeds .......................................................33
8.12. Accounts ..............................................................33
8.13. Indebtedness ..........................................................33
8.14. Loans .................................................................33
Section 9. DEFAULT ..........................................................33
9.1. Event of Default .......................................................33
9.2. Acceleration ...........................................................34
9.3. Remedies ...............................................................35
9.4. Waiver .................................................................36
Section 10. MISCELLANEOUS ...................................................36
10.1. Term;Termination ......................................................36
ii
<PAGE>
10.2. Indemnification .......................................................36
10.3. Additional Obligations ................................................37
10.4. LIMITATION OF LIABILITY ...............................................37
10.5. Alteration/Waiver .....................................................37
10.6. Severability ..........................................................37
10.7. One Loan ..............................................................37
10.8. Additional Collateral .................................................37
10.9. No Merger or Novations ................................................38
10.10. Paragraph Titles .....................................................38
10.11. Binding Effect; Assignment` ..........................................38
10.12. Obligations ..........................................................38
10.13. Notices ..............................................................38
10.14. Counterparts .........................................................39
10.15. ATTACHMENT A MODIFICATIONS ...........................................39
10.16. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW .............39
10.17. JURY TRIAL WAIVER ....................................................40
iii
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INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended,
supplemented or otherwise modified from time to time, this "Agreement") amends
and restates (i) that certain Inventory and Working Capital Financing Agreement
dated December 31, 1996 between IBM Credit and Western Micro Technology, Inc.,
(ii) that certain Inventory and Working Capital Financing Agreement dated July
18, 1996 between IBM Credit and Star Data Systems, Inc., and (iii) that certain
Agreement for Wholesale Financing dated October 20, 1992 between IBM Credit and
MCBA Systems, Inc. (collectively, as amended from time to time, the "Financing
Agreement") and is hereby made this day of , 1998, by and among IBM CREDIT
CORPORATION with a place of business at 5000 Executive Parkway, Suite 450, San
Ramon, CA 94583, a Delaware corporation, ("IBM Credit"), SAVOIR TECHNOLOGY
GROUP, INC. with a place of business at 254 E. Hacienda Avenue, Campbell, CA
95008, a Delaware corporation ("Savoir"), BUSINESS PARTNER SOLUTIONS, INC., with
a place of business at 888 Isom Road, San Antonio, TX 78216, a Texas
corporation, ("BPS") and MCBA SYSTEMS, INC. with a place of business at 4955
Corporate Drive, Suite 300, Huntsville, AL 35805, an Alabama corporation
("MCBA") (Savoir and BPS and MCBA are each referred to herein as a "Customer or,
collectively, the "Customers"). Notwithstanding the foregoing, and unless
otherwise indicated, any obligation of a "Customer" or "Customers" herein shall
be the joint and several obligation of Savoir, BPS and MCBA.
WITNESSETH
WHEREAS, IBM Credit and the former Western Micro Technology, Inc. ("Old
Western") entered into that certain Inventory and Working Capital Financing
Agreement, dated December 31, 1996 (as amended, modified or supplemented, the
"Old Western IWCF"); and
WHEREAS, IBM Credit and Star Data Systems, Inc. ("Star Data"), a
wholly-owned subsidiary of the company formerly known as Star Management
Services, Inc. ("Star Management"), entered into that certain Inventory and
Working Capital Financing Agreement, dated July 18, 1996 (as amended, modified
or supplemented, the "Star Data IWCF"); and
WHEREAS, on or about September 30, 1997, Old Western acquired all or
substantially all of the capital stock of Star Management and concurrently
changed the name of Star Data to Business Partner Solutions, Inc. ("BPS") and
assumed the obligations of Star Data to IBM Credit under the Star Data IWCF; and
WHEREAS, on or about November 18, 1997, Old Western effected a merger
of the former Savoir Technology Group, Inc., a wholly-owned subsidiary of Old
Western, whereby Old Western remained the surviving entity (the "Merger") and,
upon the effective date of the Merger, Old Western changed its name to Savoir
Technology Group, Inc.; and
WHEREAS, IBM Credit and MCBA entered into that certain Agreement for
Wholesale Financing dated October 20, 1992 (as amended, modified or
supplemented, the "MCBA AWF"); and
WHEREAS, on or about June 5, 1998, Savoir acquired all or substantially
all of the capital stock of MCBA, which is now a wholly owned subsidiary of
Savoir;
WHEREAS, IBM Credit and Savoir desire to amend and restate the Old
Western IWCF, the Star Data IWCF and the MCBA AWF; and
WHEREAS, in the course of Customers' operations, Customers intend to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer
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hardware and software products manufactured or distributed by or bearing any
trademark or trade name of such Authorized Suppliers (the "Products") (as of the
date hereof the Authorized Suppliers are as set forth on Attachment E hereto);
WHEREAS, Customers have requested that IBM Credit finance their
respective purchases of Products from such Authorized Suppliers, their working
capital requirements, and provide a term loan acquisition facility, and IBM
Credit is willing to provide such financing to Customers subject to the terms
and conditions set forth in this amended and restated Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the Financing Agreement is hereby
amended and restated in its entirety as follows:
SECTION 1. DEFINITIONS; ATTACHMENTS
1.1. SPECIAL DEFINITIONS. The following terms shall have the following
respective meaning in this Agreement:
"A/R Advance": any loan or advance of funds made by IBM Credit to or on behalf
of any Customer pursuant to Section 2.4 of this Agreement, including, as the
context may require, a WCO Advance, a PRO Advance and a Takeout Advance.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.
"A/R Advance Term": shall be the collective or individual reference, as the
context may require, to a PRO Advance Term and a WCO Advance Term.
"A/R Finance Charges": as defined on Attachment A.
"Accounts": as defined in the U.C.C.
"Advance": any loan or other extension of credit by IBM Credit to or on behalf
of any Customer pursuant to this Agreement including, without limitation, (i)
Product Advances, (ii) A/R Advances, (iii) a Term A Loan, and (iv) a Term B
Loan.
"Affiliate": with respect to any Person, any other Person (the "Affiliate")
meeting one of the following: (i) at least 10% of the Affiliate's equity is
owned, directly or indirectly, by such Person; (ii) at least 10% of such
Person's equity is owned, directly or indirectly, by the Affiliate; or (iii) at
least 10% of such Person's equity and at least 10% of the Affiliate's equity is
owned, directly or indirectly, by the same Person or Persons. All of a Customers
officers, directors, joint venturers, and partners shall also be deemed to be
Affiliates of such Customer for purposes of this Agreement.
"Agreement": as defined in the caption.
"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customers and satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.
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"Average Daily Balance": the sum of the unpaid principal of Outstanding Product
Advances, Outstanding A/R Advances, Outstanding Term A Loans or Outstanding Term
B Loans, as the case may be, as of each day during a calendar month, divided by
the number of days in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by Customers to IBM
Credit from time to time, as provided herein, signed by the chief executive
officers or chief financial officers of Savoir, BPS and MCBA, substantially in
the form and detail of Attachment F hereto, detailing and certifying, among
other items: a summary of Customers' inventory on hand financed by IBM Credit
and Customers' Eligible Accounts, the amounts and aging of all of Customers'
Accounts, Customers' inventory on hand financed by IBM Credit by quantity, type,
model, Authorized Supplier's invoice price to Customer and the total of the line
item values for all inventory listed on the report, the amounts and aging of
Customers' accounts payable as of a specified date, all of Customers' IBM Credit
borrowing activity during a specified period and the total amount of Customers'
Borrowing Base as well as Customers' Outstanding A/R Advances, Outstanding
Product Advances, Available Credit and any Shortfall Amount as of a specified
date.
"Common Due Date": (1) the fifth day of a calendar month if the Product
Financing Period or A/R Advance Term, whichever is applicable, expires on the
first through tenth of such calendar month; (2) the fifteenth day of a calendar
month if the Product Financing Period or A/R Advance Term, whichever is
applicable, expires on the eleventh through twentieth of such calendar month;
and (3) the twenty-fifth day of a calendar month if the Product Financing Period
or A/R Advance Term, whichever is applicable, expires on the twenty-first
through the last day of such calendar month.
"Compliance Certificate": a certificate substantially in the form of Attachment
C.
"Concentration Accounts": shall mean an Eligible Account that, individually, or
when aggregated with all other outstanding Accounts of the same Account debtor
and such Account debtor's Affiliates, constitute more than five percent (5%) of
the net outstanding balance of all Eligible Accounts of the Customers' then
outstanding for all Account debtors.
"Concentration Account Debtor": shall mean, at any time, any Account debtor
obligated to Customers with respect to, or on account of, a Concentration
Account.
"Credit Line": as defined in Section 2.1.
"Customers": as defined in the caption.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
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"Eligible Accounts": as defined in Section 3.1.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any
successor statutes.
"Event of Default": as defined in Section 9.1.
"Financial Statements": the consolidated and consolidating balance sheets
(including, without limitation, securities such as stocks and investment bonds),
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of Customers and their Subsidiaries for the period
specified, prepared in accordance with GAAP and consistent with prior practices.
"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to any Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Customers a financing charge. IBM Credit shall
calculate the Customers' Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. The Customers understand that IBM Credit may not offer, may change or
may cease to offer a Free Financing Period for the Customers' purchases of
Products.
"Free Financing Period Exclusion Fee": as defined in Attachment A.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.
"IBM Credit": as defined in the caption.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases (including obligations under any leases any Customer may enter
into, now or in the future, with IBM Credit), (3) all obligations of such Person
in respect of letters of credit, banker's acceptances or similar obligations
issued or created for the account of such Person, (4) liabilities arising under
any interest rate protection, future,
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option swap, cap or hedge agreement or arrangement under which such Person is a
party or beneficiary, (5) all obligations under guaranties of such Person and
(6) all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof.
"Investment": with respect to any Person (the "Investor"), (1) any investment by
the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of any
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving consideration to
reasonably likely delays in payment and reasonable costs of enforcement) in the
liquidation of such Collateral to recover the Obligations in full, or (3) on the
rights and remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Customer, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind
and nature whatsoever now or hereafter arising, owing, due or payable from
Customers to IBM Credit.
"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by Customers and delivered to IBM Credit, pursuant to this Agreement or
otherwise, and all amendments, supplements and other modifications to the
foregoing from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the unpaid
principal amount of all Advances made by IBM Credit under this Agreement, and
(2) any finance charge, fee, expense or other amount related to Advances charged
to Customers' account with IBM Credit.
"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all AIR Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customers' account with IBM Credit.
"Outstanding Product Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all Product Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
Product Advances charged to Customers' account with IBM Credit.
"Outstanding Term A Loans": at any time of determination, the sum of (1) the
unpaid principal amount of all Term A Loans made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
Term A Loans charged to Customers' account with IBM Credit.
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"Outstanding Term B Loans": at any time of determination, the sum of (1) the
unpaid principal amount of all Term B Loans made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
Term B Loans charged to Customers' account with IBM Credit.
"Permitted Acquisition": shall mean (i) the purchase by any Customer of the
capital stock, partnership or other ownership interests, or the assets or the
business, of any other Person (or of any operating division or unit thereof, in
the same businesses as those permitted to be conducted by the Customers as set
forth in Section 7.4, provided that Customers shall obtain the written consent
of IBM Credit prior to such purchase, and (ii) the REAL Acquisition.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Indebtedness to any Floor Plan Lender;
(4) Purchase Money Indebtedness;
(5) guaranties in favor of IBM Credit; and
(6) other Indebtedness consented to by IBM Credit in writing prior to incurring
such Indebtedness.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(5) attachment or judgment Liens individually or in the aggregate not in excess
of $100,000.00 (exclusive of (A) any amounts that are duly bonded to the
satisfaction of IBM Credit or (B) any amount fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such judgment
in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of any Customer;
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(7) extensions and renewals of the foregoing Permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness which it secures, (B) such Liens
do not extend to any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and conditions no
more restrictive than the terms and conditions of the Liens being extended or
renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of any Customer's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(10) Liens arising out of deposits in connection with workers" compensation,
unemployment insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement; and
(12) other Liens consented to by IBM Credit in writing prior to incurring such
Lien.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by Customers
under this Agreement or any of the Other Documents.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., Chase Manhattan Bank and Bank of America
National Trust & Savings Association (or any other bank which IBM Credit uses in
its normal course of business of determining Prime Rate) as their prime or base
rate, as of the last Business Day of the calendar month immediately preceding
the date of determination, whether or not such announced rates are the actual
rates charged by such banking institutions to their most creditworthy borrowers.
"PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to
itself on behalf of any Customer to repay all or a portion of a Product Advance
that is due and payable.
"PRO Advance Term": for each PRO Advance, a period, in increments of ten days as
specified by any Customer in the Request for A/R Advance with respect to such
PRO Advance, but in no event in excess of thirty days, commencing on the A/R
Advance Date for such PRO Advance.
"Product Advance": any advance of funds made or committed to be made by IBM
Credit for the account of any Customer to an Authorized Supplier in respect of
an invoice delivered or to be delivered by such Authorized Supplier to IBM
Credit describing Products purchased by Customer, including any such advance
made or committed to be made as of the date hereof pursuant to the Financing
Agreement.
"Product Financing Charge": as defined on Attachment A.
"Product Financing Period": for each Product Advance, a period of days equal to
that set forth in Attachment A from time to time, commencing on the invoice date
of such Product Advance.
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"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured or
distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in the Customers' business not to exceed the lesser of (1)
the purchase price or acquisition cost of such asset and (2) the fair market
value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"REAL Acquisition": shall mean the purchase by Savoir of all or substantially
all of the assets of REAL Applications, Ltd. pursuant to that certain Asset
Purchase Agreement dated on or about August 15, 1998 by and between Savoir
Technology Group, Inc. and REAL Applications, Ltd.
"Request for A/R Advance": as defined in Section 2.4.
"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.8.
"Shortfall Transaction Fee": as defined in Attachment A.
"Stated Maturity Date": August 31, 1999.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Takeout Advance": upon request by a Customer, an A/R Advance made, only on the
Closing Date, to existing creditor(s) of the requesting Customer on behalf of
the requesting Customer, in an amount sufficient to discharge the requesting
Customer's indebtedness to such creditor(s).
"Term Loan": a Term A Loan or a Term B Loan.
"Term A Loan": any loan or advance of funds made by IBM Credit to or on behalf
of any Customer pursuant to Section 2.2(A).
"Term A Loan Commitment": as defined in Attachment A.
"Term B Loan": any loan or advance of funds made by IBM Credit to or on behalf
of any Customer pursuant to Section 2.2(B).
"Term B Loan Commitment": as defined in Attachment A.
"Term Loan Finance Charge": as defined in Attachment A.
"Termination Date": shall mean (i) August 31, 2000, or (ii) such other date as
IBM Credit and Customer may agree to in writing from time to time other than as
a result of an Event of Default.
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"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
"WCO Advance": an A/R Advance, with a WCO Advance Term.
"WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180)
days commencing on the A/R Advance Date for such WCO Advance.
1.2. OTHER DEFINED TERMS. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
1.3. ATTACHMENTS. All attachments, exhibits, schedules and other addenda hereto,
including, without limitation, Attachment A and Attachment B, are specifically
incorporated herein and made a part of this Agreement.
SECTION 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES
2.1. CREDIT LINE. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10 and (y) the date on which IBM Credit terminates the Credit Line
pursuant to Section 9, IBM Credit agrees to extend to Savoir, BPS and MCBA a
credit line ("Credit Line") in the aggregate amount set forth in Attachment A
pursuant to which IBM Credit will make to Savoir, BPS and MCBA, from time to
time, Product Advances and A/R Advances in an aggregate amount at any one time
outstanding not to exceed the Maximum Advance Amount. Notwithstanding any other
term or provision of this Agreement, IBM Credit may, at any time and from time
to time, in its sole discretion (x) temporarily increase the amount of the
Credit Line above the amount set forth in Attachment A and decrease the amount
of the Credit Line back to the amount of the Credit Line set forth in Attachment
A, in each case upon written notice to the Customers and (y) make Product
Advances and A/R Advances pursuant to this Agreement upon the request of any
Customer in an aggregate amount at any one time outstanding in excess of the
Credit Line.
2.2. TERM LOAN COMMITMENT. (A) Subject to the terms and conditions set forth in
this Agreement, on the Closing Date, IBM Credit agrees to make to Savoir, and
Savoir agrees to borrow, a Term A Loan in an amount not to exceed the Term A
Loan Commitment.
(B) Subject to the terms and conditions set forth in this Agreement, on
or after the Closing Date to but not including the date that is the earlier of
(x) the date on which this Agreement is terminated pursuant to Section 10, (y)
the date on which IBM Credit terminates the Credit Line pursuant to Section 9,
and (z) the Stated Maturity Date, IBM Credit agrees to make to any Customer, and
such Customer agrees to borrow, a Term B Loan in an amount not to exceed the
Term B Loan Commitment.
2.3. PRODUCT ADVANCES. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Customers'
purchase of Products from Authorized Suppliers (as defined under WITNESSETH).
Customers hereby authorize and direct IBM Credit to pay the proceeds of Product
Advances directly to the applicable Authorized Supplier in respect of invoices
delivered to IBM Credit for such Products by such Authorized Supplier and
acknowledge that each such Product Advance constitutes a loan by IBM Credit to
Customers pursuant to this Agreement as if the Customers received the proceeds
of the Product Advance directly from IBM Credit. IBM Credit may, upon written
notice to Customers, cease to include a supplier as an Authorized Supplier.
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(B) No finance charge shall accrue on any Product Advance during the
Free Financing Period, if any, applicable to such Product Advance. Each Product
Advance shall be due and payable on the Common Due Date for such Product
Advance. Customers may, at their option, repay each Product Advance by
requesting IBM Credit to apply all or any part of the principal amount of an A/R
Advance to the Outstanding Product Advances. Customers' request for such
application shall be made in accordance with Section 2. When so requested and
subject to the terms and conditions of this Agreement, IBM Credit shall apply
the amount so requested to the amounts due in respect of the Outstanding Product
Advances. Nothing contained herein shall relieve Customers of their obligation
to repay Product Advances when due. Each Product Advance shall accrue a finance
charge on the Average Daily Balance thereof from and including the first (1st)
day following the end of the Free Financing Period, if any, for such Product
Advance, or if no such Free Financing Period shall be in effect, from and
including the date of invoice for such Product Advance, in each case, to and
including the date such Product Advance shall become due and payable in
accordance with the terms of this Agreement, at a per annum rate equal to the
lesser of (a) the finance charge set forth in Attachment A to this Agreement as
the "Product Financing Charge" and (b) the highest rate from time to time
permitted by applicable law.
In addition, for any Product Advance with respect to which a Free Financing
Period shall not be in effect, Customers shall pay a Free Financing Period
Exclusion Fee. Such fee shall be due and payable on the Common Due Date for such
Product Advance. If it is determined that amounts received from Customers were
in excess of the highest rate permitted by law, then the amount representing
such excess shall be considered reductions to principal of Advances.
(C) Customers acknowledge that IBM Credit does not warrant the
Collateral. Customers shall be obligated to pay IBM Credit in full even if the
Collateral is defective or fails to conform to the warranties extended by the
Authorized Supplier. The Obligations of Customers shall not be affected by any
dispute any Customer may have with any manufacturer, distributor or Authorized
Supplier. Customer may not assert any claim or defense which it may have against
any manufacturer, distributor or Authorized Supplier against IBM Credit.
(D) Each Customer hereby authorizes IBM Credit to collect directly from
any Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to such Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding Advances.
Any Supplier Credits collected by IBM Credit shall in no way reduce Customers'
debt to IBM Credit in respect of the Outstanding Advances until such Supplier
Credits are applied by IBM Credit.
(E) IBM Credit may apply any payments and Supplier Credits received by
IBM Credit to reduce finance charges first and then to principal amounts of
Outstanding Product Advances owed by Customers. IBM Credit may apply principal
payments to the oldest (earliest) invoices (and related Product Advances) first,
unless a Customer has instructed IBM Credit to apply a payment otherwise.
Notwithstanding the foregoing, in any case, (i) all principal payments will be
applied in respect of the Outstanding Product Advances made for Products which
have been sold, lost, stolen, destroyed, damaged or otherwise disposed of prior
to any other application thereof and (ii) upon the occurrence and during the
continuance of an Event of Default, IBM Credit may apply payments and Supplier
Credits to reduce finance charges first and then to the oldest (earliest)
invoices (and related Product Advances), regardless of any Customer's
instructions.
(F) Customers will indemnify and hold IBM Credit harmless from and
against any claims or demands asserted by any Person relating to or arising from
the Collateral for any reason whatsoever, including, without limitation, the
condition of the Collateral, any misrepresentation made about the Collateral by
any representative of Customers, or any act or failure to act by Customers
except to the extent such claims or demands are directly attributable to IBM
Credit's gross negligence or willful misconduct. Nothing
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contained in the foregoing shall impair any rights or claims which the Customers
may have against any manufacturer, distributor or Authorized Supplier.
2.4. AIR ADVANCES. (A) Whenever a Customer shall desire IBM Credit to provide an
A/R Advance, such Customer shall deliver to IBM Credit written notice of such
Customer's request for such an Advance ("Request for A/R Advance"). For any
requested A/R Advance pursuant to which monies will be disbursed to any Customer
or any Person other than IBM Credit, a Request for A/R Advance shall be
delivered to IBM Credit on or prior to 1:00 p.m. (eastern time) one Business Day
prior to the requested A/R Advance Date. The Request for A/R Advance shall
specify (i) the requested A/R Advance Date; (ii) the amount of the requested A/R
Advance; (iii) whether such A/R Advance is a WCO Advance or a PRO Advance; (iv)
if applicable, the PRO Advance Term for such A/R Advance; (v) for each PRO
Advance, the month, day and year of the Common Due Date, as set forth in
Customers' applicable billing statement from IBM Credit, for the Product Advance
to which the PRO Advance is to be applied; and (vi) if applicable, the amount of
the requested A/R Advance that should be applied to the Outstanding Product
Advances (provided that all PRO Advances shall be applied to Outstanding Product
Advances). Customers may deliver a Request for A/R Advance via facsimile. Any
Request for A/R Advance delivered to IBM Credit shall be irrevocable.
Notwithstanding any other provision of this Agreement, Customers shall not (i)
request more than one PRO Advance in respect of any Product Advance; and (ii)
request a PRO Advance for any Common Due Date on which Customers will take a
discount offered by IBM Credit for invoice amounts paid in full within fifteen
days of the invoice date under IBM Credit's High Turnover Option ("HTO")
Program.
(B) Subject to the terms and conditions of this Agreement, on the A/R
Advance Date specified in a Request for A/R Advance, IBM Credit shall make the
principal amount of each A/R Advance available to Customers in immediately
available funds to an account maintained by the requesting Customer (or in the
case of a Takeout Advance, as directed by such Customer). If IBM Credit is
making an A/R Advance hereunder on a day on which a Customer is to repay all or
any part of an Outstanding Advance (or any other amount owing hereunder), IBM
Credit shall apply the proceeds of the A/R Advance to such repayment and only an
amount equal to the difference, if any, between the amount of the A/R Advance
and the amount being repaid shall be made available to such Customer as provided
in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid
principal amount thereof, from and including the date of each A/R Advance to and
including the date such A/R Advance is due and payable in accordance with the
terms of this Agreement, at a per annum rate equal to the lesser of (a) the
finance charge set forth in Attachment A to this Agreement under the caption
"A/R Finance Charge" for such type of A/R Advance, and (b) the highest rate from
time to time permitted by applicable law. If it is determined that amounts
received from the Customers were in excess of such highest rate, then the amount
representing such excess shall be considered reductions to principal of
Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance, other than a Takeout Advance, shall be due
and payable on the applicable Common Due Date. Unless otherwise notified by a
Customer in writing prior to the day the principal amount of any WCO Advance
becomes due and payable, the Customers shall be deemed to have provided IBM
Credit with a Request for A/R Advance requesting a WCO Advance on the day such
principal amount is due and payable in an amount equal to the unpaid principal
amount of the WCO Advance so due. Subject to the terms and conditions of this
Agreement, the principal amount of such WCO Advance shall automatically renew
for an additional WCO Advance Term. Notwithstanding any other provision of this
Agreement, a Takeout Advance may only be requested on the Closing Date and such
Takeout Advance shall be limited to an amount sufficient to discharge the
indebtedness that is the subject of a Takeout Advance.
Unless otherwise agreed in writing, a Takeout Advance shall be due pursuant to
the Schedule of Repayments in Attachment D to this Agreement.
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2.5. TERM LOAN ADVANCES: (A) Whenever a Customer shall desire IBM Credit to
provide a Term Loan, such Customer shall deliver to IBM Credit written notice of
such Customer's request for such an Advance ("Request for Term Loan Advance"). A
Request for Term Loan Advance shall be delivered to IBM Credit on or prior to
1:00 p.m. (eastern time) one Business Day prior to the date on which the Term
Loan is desired by such Customer. The Request for Term Loan Advance shall
specify (i) date on which the Term Loan is desired and (ii) the amount of the
requested Term Loan Advance (the amount of a requested Term B Loan shall not be
less than One Million Dollars ($1,000,000.00)). Customer may deliver a Request
for a Term Loan via facsimile.
(B) Subject to the terms and conditions of this Agreement, IBM Credit
shall make the principal amount of each Term Loan available to Customers in
immediately available funds to an account maintained by the requesting Customer
or as directed by such Customer.
(C) Each Term Loan shall accrue a finance charge on the unpaid
principal amount thereof, from and including the date of each Term Loan to and
including the date such Term Loan is repaid in accordance with the terms of this
Agreement, at a per annum rate equal to the lesser of (a) the Term Loan Finance
Charge and (b) the highest rate from time to time permitted by applicable law.
If it is determined that the amounts received from Customers were in excess of
such highest rate, then the amount representing such excess shall be considered
reductions to principal of Advances.
(D) The Customers shall pay in full all unpaid principal of each Term
Loan on the Term Loan Stated Maturity Date (or such earlier date as a Term Loan
may become or be declared due and payable pursuant to Section 9).
(E) In the event of, and within three (3) days after (i) a public
offering of private placement of shares of any Customer or any Customer's
Subsidiaries or (ii) an offering of public or private debt by any Customer or
any Customer's Subsidiaries, such Customer shall make a mandatory prepayment of
Term Loans in an amount equal to the net cash proceeds received from such
offering or private placement, net of reasonable transaction costs (including,
without limitation, income taxes estimated to be payable as a result of such
offering or placement, any underwriting, brokerage or other customary selling
commissions and reasonable legal, advisory and other fees and expenses), but not
to exceed the sum of the Outstanding Term A Loans and Outstanding Term B Loans.
2.6. FINANCE AND OTHER CHARGES. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Product Financing Charge, A/R
Finance Charge or Term Loan Finance Charge provided for in this Agreement by
Customers' applicable Average Daily Balance. The Delinquency Fee Rate, the
Product Financing Charge, the various A/R Finance Charges and the Term Loan
Finance Charge provided for in this Agreement are each computed on the basis of
actual days elapsed, and a 360-day year.
(B) The Customers hereby agree to pay to IBM Credit the charges set
forth as "Other Charges" in Attachment A. The Customers also agree to pay IBM
Credit additional charges for any returned items of payment received by IBM
Credit. The Customers hereby acknowledge that any such charges are not interest
but that such charges, if unpaid, will constitute part of the Outstanding
Advances.
(C) The finance charges and Other Charges owed under this Agreement,
and any charges hereafter agreed to in writing by the parties, are payable
monthly on receipt of IBM Credit's bill or statement therefor or IBM Credit may,
in its sole discretion, add unpaid finance charges and Other Charges to the
Customers' Outstanding Advances.
(D) If any amount owed under this Agreement, including, without
limitation, any Advance, is not paid when due (whether at maturity, by
acceleration or otherwise), the unpaid amount thereof will bear a
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late charge from and including the day after such Advance was due and payable to
and including the date IBM Credit receives payment thereof, at a per annum rate
equal to the lesser of (a) the amount set forth in Attachment A to this
Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time to
time permitted by applicable law. In addition, if any Shortfall Amount shall not
be paid when due pursuant to Section 2.8 hereof, Customers shall pay IBM Credit
a Shortfall Transaction Fee. If it is determined that amounts received from
Customers were in excess of such highest rate, then the amount representing such
excess shall be considered reductions to principal of Advances.
2.7. STATEMENTS REGARDING CUSTOMER'S ACCOUNT. IBM Credit will send statements of
each transaction hereunder as well as monthly billing statements to the
Customers with respect to Advances and other charges due on Customers' account
with IBM Credit. Each statement of transaction and monthly billing statement
shall be deemed, absent manifest error, to be correct and shall constitute an
account stated with respect to each transaction or amount described therein
unless within fourteen (14) calendar days after such statement of transaction or
billing statement is received by the Customers, the Customers provide IBM Credit
written notice objecting that such amount or transaction is incorrectly
described therein and specifying the error(s), if any, contained therein. IBM
Credit may at any time adjust such statements of transaction or billing
statements to comply with applicable law and this Agreement.
2.8. SHORTFALL. If, on any date, the Outstanding Advances other than the
Outstanding Term A Loans and Outstanding Term B Loans shall exceed the Maximum
Advance Amount (such excess, the "Shortfall Amount"), then Customers shall on
such date prepay the Outstanding Advances other than the Outstanding Term A
Loans and Outstanding Term B Loans in an amount equal to such Shortfall Amount.
2.9. APPLICATION OF PAYMENTS. The Customers hereby agree that all checks and
other instruments delivered to IBM Credit on account of Customers' Obligations
shall constitute conditional payment until such items are actually collected by
IBM Credit. Following the occurrence of or during the continuation of an Event
of Default, the Customers waive the right to direct the application of any and
all payments at any time or times hereafter received by IBM Credit on account of
the Customers' Obligations. Customers agree that IBM Credit shall have the
continuing exclusive right to apply and reapply any and all such payments to
Customers' Obligations in such manner as IBM Credit may deem advisable
notwithstanding any entry by IBM Credit upon any of its books and records.
2.10. PREPAYMENT AND REBORROWING BY CUSTOMER. (A) Customers may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply payments made to it (whether by the Customers or
otherwise) to pay finance charges and other amounts owing under this Agreement
first and then to the principal amount owed by the Customers.
(B) Neither a Term A Loan nor a Term B Loan may be reborrowed by
Customers notwithstanding repayment or prepayment of a Term A Loan or Term B
Loan. Subject to the terms and conditions of this Agreement, any amount prepaid
or repaid to IBM Credit in respect to the Outstanding Advances other than the
Outstanding Term A Loans and Outstanding Term B Loans may be reborrowed by
Customers in accordance with the provisions of this Agreement.
SECTION 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1. INELIGIBLE ACCOUNTS. IBM Credit and Customers agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base:
(A) Accounts (i) created from the sale of goods and/or performance of
services on non-standard terms or (ii) that allow for payment to be made more
than forty-five (45) days from the date of
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such sale or performance of services, except that Accounts that allow for
payment more than forty-five (45) days from date of invoice but less than or
equal to sixty (60) from date of invoice will be deemed eligible up to a maximum
of five percent (5%) of the total of Accounts;
(B) Accounts unpaid more than ninety (90) days from date of invoice;
(C) Accounts payable by an Account debtor if fifty percent (50%) or
more of the aggregate outstanding balance of all such Accounts remain unpaid for
more than ninety (90) days from the date of Invoice;
(D) Accounts payable by an Account debtor that is an Affiliate of any
Customer, or an officer, employee, agent, guarantor, stockholder of any Customer
or an Affiliate of any Customer, or is related to or has common shareholders,
officers or directors with any Customer;
(E) Accounts arising from consignment sales;
(F) Except for state, local and United States government institutions
and public educational institutions, Accounts with respect to which the payment
by the Account debtor is or may be conditional;
(G) Except for state, local and United States government institutions
and public educational institutions, and Accounts arising from sales within the
Commonwealth of Puerto Rico, Accounts with respect to which:
(i) the Account debtor is not a commercial entity, or
(ii) the Account debtor is not a resident of the United
States;
(H) Accounts payable by any Account debtor to which a Customer is or
may become liable for goods sold or services rendered by such Account debtor to
such Customer;
(1) Accounts arising from the sale or lease of goods purchased for a
personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods that
have been used for demonstration purposes or loaned or leased by a Customer to
another party, when such sale or disposition is or may be conditional;
(K) Accounts which are progress payment accounts or contra accounts;
(L) Accounts upon which IBM Credit does not have a valid, perfected,
first priority security interest;
(M) Accounts payable by an Account debtor that is or a Customer knows
will become, subject to proceedings under United States Bankruptcy Law or other
law for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any Account debtor that is a remarketer of
computer hardware and software products and whose purchases of such products
from a Customer have been financed by another person, other than IBM Credit, who
pays the proceeds of such financing directly to such Customer on behalf of such
debtor ("Third Party Financer") unless (i) such Third Party Financer does not
have a separate
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financing relationship with such Customer or (ii) such Third Party Financer has
a separate financing relationship with such Customer and has waived its right to
set off its obligations to such Customer;
(P) Accounts arising from the sale or lease of goods which are billed
to any Account debtor but have not yet been shipped by a Customer;
(Q) Accounts with respect to which a Customer has permitted or agreed
to any extension, compromise or settlement, or made any change or modification
of any kind or nature, including, but not limited to, any change or modification
to the terms relating thereto;
(R) Accounts that do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the invoices,
purchase orders and contracts relating thereto;
(S) Accounts that are discounted for the full payment term specified in
a Customer's terms and conditions with its Account debtors, or for any longer
period of time;
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts that are
billed in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts,
credits, and refunds from a supplier, other than verifiable incentive payments
from an Authorized Supplier for which there is no right of offset; and
(X) Any and all other Accounts that IBM Credit deems, in its sole and
absolute discretion, to be ineligible, except that IBM Credit agrees that it
will not deem any Accounts to be ineligible retroactively.
The aggregate of all Accounts that are not ineligible Accounts shall hereinafter
be referred to as "Eligible Accounts".
3.2. REIMBURSEMENT FOR CHARGES. Customers agree to pay for all costs and
expenses of Customers' bank in respect to collection of checks and other items
of payment, all fees relating to the use and maintenance of the Lockbox and the
Special Account (each as defined in Section 3.3) and with respect to remittances
of proceeds of the Advances hereunder.
3.3. LOCKBOX AND SPECIAL ACCOUNT. Each Customer shall establish and maintain
lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A
with the financial institution(s) listed in Attachment A (each, a "Bank")
pursuant to an agreement between each Customer and each Bank in form and
substance satisfactory to IBM Credit. Each Customer shall also establish and
maintain a deposit account which shall contain only proceeds of Customers'
Accounts ("Special Account") with each Bank. Each Customer shall enter into and
maintain a contingent blocked account agreement with each Bank for the benefit
of IBM Credit in form and substance satisfactory to IBM Credit pursuant to
which, among other things, such Bank shall agree that, upon notice from IBM
Credit, disbursements from the Special Account shall be made only as IBM Credit
shall direct.
3.4. COLLECTION. Each Customer shall instruct all Account debtors to remit
payments directly to a Lockbox. In addition, each Customer shall have such
instruction printed in conspicuous type on all invoices. Each Customer shall
instruct such Bank to deposit all remittances to such Bank's Lockbox into its
Special Account. Each Customer further agrees that it shall not deposit or
permit any deposits of funds other than
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remittances paid in respect of the Accounts into the Special Account(s) or
permit any commingling of funds with such remittances in any Lockbox or Special
Account.
Without limiting any Customer's foregoing obligations, if, at any time, any
Customer receives a remittance directly from an Account debtor, then such
Customer shall make entries on its books and records in a manner that shall
reasonably identify such remittances and shall keep a separate account on its
record books of all remittances so received and deposit the same into a Special
Account. Until so deposited into the Special Account, each Customer shall keep
all remittances received in respect of Accounts separate and apart from such
Customer's other property so that they are capable of identification as the
proceeds of Accounts in which IBM Credit has a security interest.
3.5. APPLICATION OF REMITTANCES AND CREDITS. Customers shall apply all
remittances against the aggregate of their respective outstanding Accounts no
later than the end of the Business Day on which such remittances are deposited
into the Special Account. Customers also agree to apply each remittance against
its respective Account no later than three (3) Business Days from the date such
remittance is deposited into the Special Account. In addition, Customers shall
promptly apply any credits owing in respect to any Account when due.
3.6. POWER OF ATTORNEY. Each Customer hereby irrevocably appoints IBM Credit,
with full power of substitution, as its true and lawful attorney-in-fact with
full power, in good faith and in compliance with commercially reasonable
standards, in the discretion of IBM Credit, to:
(A) sign the name of the applicable Customer on any document or
instrument that IBM Credit shall deem necessary or appropriate to perfect and
maintain perfected the security interest in the Collateral contemplated under
this Agreement and the Other Documents;
(B) endorse the name of the applicable Customer upon any of the items
of payment of proceeds and deposit the same in the account of IBM Credit for
application to the Obligations; and
upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all
Customers' rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to
collect any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and
at such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign the applicable Customer's name on any Proof
of Claim in Bankruptcy or similar document against any Account debtor;
(I) prepare, file and sign the applicable Customer's name on any notice
of lien, claim of mechanic's lien, assignment or satisfaction of lien or
mechanic's lien, or similar document in connection with any Accounts;
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(J) endorse the name of the applicable Customer upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to any Account or goods pertaining thereto;
(K) endorse the name of the applicable Customer upon any of the items
of payment of proceeds and deposit the same in the account of IBM Credit for
application to the Obligation;
(L) sign the name of the applicable Customer to requests for
verification of Accounts and notices thereof to Account debtors;
(M) sign the name of the applicable Customer on any document or
instrument that IBM Credit shall deem necessary or appropriate to enforce any
and all remedies it may have under this Agreement, at law or otherwise;
(N) make, settle and adjust claims under the Policies with respect to
the Collateral and endorse the applicable Customer's name on any check, draft,
instrument or other item of payment of the proceeds of the Policies with respect
to the Collateral; and
(O) take control in any manner of any term of payment or proceeds and
for such purpose to notify the postal authorities to change the address for
delivery of mail addressed to the applicable Customer to such address as IBM
Credit may designate.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customers' Obligations other than
Customers' payment Obligations to the extent IBM Credit has received monies.
3.7. CONCENTRATION ACCOUNTS. Without limiting IBM Credit's other rights, IBM
Credit reserves the right to, from time to time in its sole discretion, modify
the percentage of the amount of Customers' Concentration Accounts used in
calculating Customers' Borrowing Base or eliminate Concentration Accounts in
calculating Customers' Borrowing Base.
SECTION 4. SECURITY -- COLLATERAL
4.1. GRANT. To secure Customers' full and punctual payment and performance of
the Obligations (including obligations under any leases any Customer may enter
into, now or in the future, with IBM Credit) when due (whether at the stated
maturity, by acceleration or otherwise), each Customer hereby grants IBM Credit
a security interest in all of Customers' right, title and interest in and to the
following property, whether now owned or hereafter acquired or existing and
wherever located:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to any Customer, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services and all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing;
(C) general intangibles;
(D) all rights now or hereafter existing in and to all mortgages,
security agreements, leases or other contracts securing or otherwise relating to
any of the foregoing; and
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(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral". Each Customer covenants and agrees with IBM Credit that: (a) the
security constituted to by this Agreement is in addition to any other security
from time to time held by IBM Credit; (b) the security hereby created is a
continuing security interest and will cover and secure the payment of all
Obligations both present and future of Customers to IBM Credit; and (c) any
transfer of Collateral between Savoir, BPS and MCBA is subject to IBM Credit's
continuing security interest in the Collateral of the transferor as well as IBM
Credit's continuing security interest in the Collateral of the transferee.
4.2. FURTHER ASSURANCES. Each Customer shall, from time to time upon the request
of IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents. Each Customer shall
make appropriate entries on its books and records disclosing IBM Credit's
security interests in the Collateral.
4.3. ADDITIONAL COLLATERAL. To secure each Customer's full and punctual payment
and performance of their respective obligations to each other when due (whether
at the stated maturity, by acceleration or otherwise) (the "Intercompany
Obligations"), each Customer hereby grants to the other Customer or Customers a
security interest in all of the granting Customer's right, title and interest in
and to the following property, whether now owned or hereafter acquired or
existing and wherever located: (i) all inventory and equipment, and all parts
thereof, attachments, accessories and accessions thereto, products thereof and
documents therefor; (ii) all accounts, contract rights, chattel paper,
instruments, deposit accounts, obligations of any kind owing to such granting
Customer, whether or not arising out of or in connection with the sale or lease
of goods or the rendering of services and all books, invoices, documents and
other records in any form evidencing or relating to any of the foregoing; (iii)
general intangibles; (iv) all rights now or hereafter existing in and to all
mortgages, security agreements, leases or other contracts securing or otherwise
relating to any of the foregoing; and (v) all substitutions and replacements for
all of the foregoing, all proceeds of all of the foregoing and, to the extent
not otherwise included, all payments under insurance or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing.
For purposes of this Section 4.3, all of the above assets shall be collectively
defined herein as the "Intercompany Collateral".
Each Customer shall, from time to time upon the request of IBM Credit, execute
and deliver to each other Customer and to IBM Credit, or cause to be executed
and delivered, at such time or times as IBM Credit may request, UCC financing
statements and such other and further documents, certificates and instruments
necessary to perfect and maintain perfected the security interests in the
Intercompany Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents. Each Customer shall
make appropriate entries on its books and records disclosing the security
interests in the Intercompany Collateral.
4.4. ASSIGNMENT OF ADDITIONAL COLLATERAL. (A) As additional Collateral, each
Customer hereby assigns to IBM Credit the security interest each Customer has in
the Intercompany Collateral of any other Customer. The UCC financing statements
delivered to IBM Credit pursuant to Section 4.3 shall disclose the
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assignment of the security interest in the Intercompany Collateral and indicate
the name and address of IBM Credit as assignee.
(B) Each Customer agrees that upon the occurrence and during the
continuance of a default of the Intercompany Obligations by any Customer, IBM
Credit may exercise any or ail rights and remedies of a secured party under the
U.C.C., and that IBM Credit has the right to take possession of or dispose of
the Intercompany Collateral of such defaulting Customer in the same manner
provided in Section 9 of this Agreement.
SECTION 5. CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:
(A) this Agreement executed and delivered by each Customer and IBM
Credit;
(B) a favorable opinion of counsel for each Customer, each in
substantially the form of Attachment H except that such opinion of counsel need
not be furnished to IBM Credit to satisfy the definition of Closing Date but
must be delivered within 90 days after the Closing Date;
(C) a certificate of the secretary or an assistant secretary of each
Customer, substantially in the form and substance of Attachment I hereto,
certifying that, among other items, (i) each Customer is a corporation organized
under the laws of the State of its incorporation and has its principal place of
business as stated therein, (ii) each Customer is registered to conduct business
in specified states and localities, (iii) true and complete copies of the
articles of incorporation and by-laws of each Customer are delivered therewith,
together with all amendments and addenda thereto as in effect on the date
thereof, (iv) the resolution as stated in the certificate is a true, accurate
and compared copy of the resolution adopted by each Customer's Board of
Directors authorizing the execution, delivery and performance of this Agreement
and each Other Document executed and delivered in connection herewith, and (v)
the names and true signatures of the officers of each Customer authorized to
sign this Agreement and the Other Documents;
(D) certificates dated as of a recent date from the Secretary of State
or other appropriate authority evidencing the good standing of each Customer in
the jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;
(E) copies of all approvals and consents from any Person, in each case
in form and substance satisfactory to IBM Credit, which are required to enable
each Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Documents, and
(b) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Documents;
(F) a lockbox agreement executed by each Customer and each Bank, in
form and substance satisfactory to IBM Credit;
(G) a contingent blocked account agreement executed by each Customer
and each Bank in form and substance satisfactory to IBM Credit;
(H) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
the Customers as set forth in Attachment A;
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(I) UCC-1 financing statements for each jurisdiction reasonably
requested by IBM Credit executed by each Customer and each guarantor whose
guaranty to IBM Credit is intended to be secured by a pledge of its assets;
(J) UCC-1 financing statements for each jurisdiction reasonably
requested by IBM Credit executed by each Customer as necessary to perfect the
security interests contemplated by Section 4.3 of this Agreement.
(K) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B;
(L) any fees specified in Attachment A as additional Conditions
Precedent; and
(M) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2. CONDITIONS PRECEDENT TO EACH ADVANCE. No Advance will be required to be
made or renewed by IBM Credit under this Agreement unless, on and as of the date
of such Advance, the following statements shall be true to the satisfaction of
IBM Credit:
(A) The representations and warranties contained in this Agreement or
in any document, instrument or agreement executed in connection herewith are
true and correct in all material respects on and as of the date of such Advance
as though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to
such Advance or the application of the proceeds thereof would result in or would
constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance,
no Shortfall Amount exists.
(E) If the advance is a Term B Loan, the Customers shall have obtained
the prior written consent of IBM Credit for the acquisition proposed to be
financed with the proceeds of the Term B Loan.
Except as Customers have otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.4 (D)) for
an Advance hereunder and the receipt (or deemed receipt) by any Customer of the
proceeds of any Advance hereunder shall be deemed to be a representation and
warranty by Customers that, as of and on the date of such Advance, the
statements set forth in (A) through (D) above are true statements. No such
disclosures by Customers to IBM Credit shall in any manner be deemed to satisfy
the conditions precedent to each Advance that are set forth in this Section 5.2.
SECTION 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, each Customer represents and
warrants to IBM Credit as follows:
6.1. ORGANIZATION AND QUALIFICATIONS. Each Customer and each of its Subsidiaries
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii)
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has the power and authority to own its properties and assets and to transact the
businesses in which it presently is engaged and (iii) is duly qualified and is
authorized to do business and is in good standing in each jurisdiction where it
presently is engaged in business and is required to be so qualified.
6.2. RIGHTS IN COLLATERAL; PRIORITY OF LIENS. Each Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by each
Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties
and the Other Documents in the Collateral constitute the valid and enforceable
first, prior and perfected Liens on the Collateral, except to the extent any
Liens that are prior to IBM Credit's Liens are (i) the subject of an
Intercreditor Agreement or (ii) Purchase Money Security Interests in product of
a brand that is not financed by IBM Credit.
6.3. NO CONFLICTS. The execution, delivery and performance by each Customer of
this Agreement and each of the Other Documents (i) are within their respective
corporate power; (ii) are duly authorized by all necessary corporate action;
(iii) are not in contravention in any material respect of any Requirement of Law
or any indenture, contract, lease, agreement, instrument or other commitment to
which any Customer is a party or by which any Customer or any of its respective
properties are bound; (iv) do not require the consent, registration or approval
of any Governmental Authority or any other Person (except such as have been duly
obtained, made or given, and are in full force and effect); and (v) will not,
except as contemplated herein, result in the imposition of any Liens upon any of
their respective properties.
6.4. ENFORCEABILITY. This Agreement and all of the other documents executed and
delivered by the Customers in connection herewith are the legal, valid and
binding obligations of each Customer, and are enforceable in accordance with
their terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. LOCATIONS OF OFFICES, RECORDS AND INVENTORY. The address of the principal
place of business and chief executive office of each Customer is as set forth on
Attachment B or on any notice provided by each Customer to IBM Credit pursuant
to Section 7.7(C) of this Agreement. The books and records of each Customer, and
all of its chattel paper (other than the chattel paper delivered to IBM Credit
pursuant to Section 7.1 4(E)) and records of Accounts, are maintained
exclusively at such location.
There is no jurisdiction in which any Customer has any assets, equipment or
inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided by
a Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement.
Attachment B, as amended from time to time by any notice provided by a Customer
to IBM Credit in accordance with Section 7.7(C) of this Agreement, also contains
a complete list of the legal names and addresses of each warehouse at which any
Customer's inventory is stored. None of the receipts received by Customers from
any warehouseman states that the goods covered thereby are to be delivered to
bearer or to the order of a named person or to a named person and such named
person's assigns.
6.6. FICTITIOUS BUSINESS NAMES. No Customer has used any corporate or fictitious
name during the five (5) years preceding the date of this Agreement, other than
those listed on Attachment B.
6.7. ORGANIZATION. All of the outstanding capital stock of each Customer has
been validly issued, is fully paid and nonassessable.
6.8. NO JUDGMENTS OR LITIGATION. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against any Customer
individually or which in the aggregate exceed $100,000.00 or would have a
Material Adverse Effect, nor is there now pending or, to the best of Customers'
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knowledge after due inquiry, threatened, any litigation, contested claim,
investigation, arbitration, or governmental proceeding by or against such
Customer.
6.9. NO DEFAULTS. No Customer is in default under any material term of any
indenture, contract, lease, agreement, instrument or other commitment to which
it is a party or by which it, or any of its properties are bound. No Customer
has knowledge of any dispute regarding any such indenture, contract, lease,
agreement, instrument or other commitment. No Default or Event of Default has
occurred and is continuing.
6.10. LABOR MATTERS. Except as set forth on any notice provided by a Customer to
IBM Credit pursuant to Section 7.1(G) of this Agreement, no Customer is a party
to any labor dispute which could reasonably be expected to have a Material
Adverse Effect. There are no strikes or walkouts or labor controversies pending
or threatened against any Customer which could reasonably be expected to have a
Material Adverse Effect.
6.11. COMPLIANCE WITH LAW. No Customer has violated or failed to comply with any
Requirement of Law or any requirement of any self regulatory organization, which
violation or failure to comply would have a Material Adverse Effect.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plane, which any Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan. No
Customer has a "multi-employer benefit plan".
As used in this Agreement the terms "employee benefit plan", "employee pension
benefit plan", "defined benefit plan", and "multi-employer benefit plan" have
the respective meanings assigned to them in Section 3 of ERISA and any
applicable rules and regulations thereunder. No Customer has incurred any
"accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection
with a Plan (other than for premiums due in the ordinary course).
6.13. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as otherwise disclosed in
Attachment B:
(A) Each Customer has obtained all government approvals required with
respect to the operation of their businesses under any Environmental Law.
(B) (i) No Customer has generated, transported or disposed of any
Hazardous Substances; (ii) no Customer is currently generating, transporting or
disposing of any Hazardous Substances; (iii) no Customer has knowledge that (a)
any of its real property (whether owned, leased, or otherwise directly or
indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substances, or (b) any of its business operations
have contaminated lands or waters of others with any Hazardous Substances; (iv)
no Customer nor any of their respective assets are not subject to any
Environmental Liability and, to the best of each Customers' knowledge, any
threatened Environmental Liability which could have a Material Adverse Effect;
(v) no Customer has received any notice of or otherwise learned of any
governmental investigation evaluating whether any remedial action is necessary
to respond to a release or threatened release of any Hazardous Substances for
which any Customer may be liable; (vi) no Customer is in violation of any
Environmental Law, which violation could have a Material Adverse Effect; (vii)
there are no proceedings or investigations pending against any Customer with
respect to any violation or alleged violation of any Environmental Law; provided
however, that the parties acknowledge that any generation, transportation, use,
storage and disposal of certain such Hazardous Substances in Customers' or their
Subsidiaries' business shall be excluded from representations (i) and (ii)
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above, provided, further, that each Customer is at all times generating,
transporting, utilizing, storing and disposing such Hazardous Substances in
accordance with all applicable Environmental Laws and in a manner designed to
minimize the risk of any spill, contamination, release or discharge of Hazardous
Substances other than as authorized by Environmental Laws.
6.14. INTELLECTUAL PROPERLY. Each Customer possesses such assets, licenses,
patents, patent applications, copyrights, service marks, trademarks, trade names
and trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.15. LICENSES AND PERMITS. Each Customer has obtained and holds in full force
and effect all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary for the operation of its businesses as presently
conducted. No Customer is in violation of the terms of any such franchise,
license, lease, permit, certificate, authorization, qualification, easement,
right of way, right or approval.
6.16. INVESTMENT COMPANY. No Customer is (i) an investment company or a company
controlled by an investment company within the meaning of the Investment Company
Act of 1940, as amended, (ii) a holding company or a subsidiary of a holding
company, or an Affiliate of a holding company or of a subsidiary of a holding
company, within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (iii) subject to any other law which purports to regulate or
restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Documents or to perform its
obligations hereunder or thereunder.
6.17. TAXES AND TAX RETURNS. Each Customer has timely filed all federal, state,
and local tax returns and other reports which it is required by law to file, and
has either duly paid all taxes, fees and other governmental charges indicated to
be due on the basis of such reports and returns or pursuant to any assessment
received by any Customer, or made provision for the payment thereof in
accordance with GAAP. The charges and reserves on the books of each Customer in
respect of taxes or other governmental charges are in accordance with GAAP. No
tax liens have been filed against any Customer or any of its property, which
have not been stayed or which have not been satisfied within seven (7) days of a
Customer receiving notice of such filing.
6.18. STATUS OF ACCOUNTS. Each Account is based on an actual and bona fide sale
and delivery of goods or rendition of services to customers, made by a Customer,
in the ordinary course of its business; the goods and inventory being sold and
the Accounts created are its exclusive property and are not and shall not be
subject to any Lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever (other than Permitted Liens). Each Customer's
customers have accepted goods or services and owe and are obligated to pay the
full amounts stated in the invoices according to their terms. There are no
proceedings or actions known to any Customer which are pending or threatened
against any Material Account Debtor (as defined in Section 7.14(B) of this
Agreement) of any of the Accounts which could reasonably be expected to result
in a Material Adverse Effect on the debtor's ability to pay the full amounts due
to Customer.
6.19. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Customer is a party to or bound by
any agreement or arrangement (whether oral or written) to which any Affiliate or
Subsidiary of any Customer is a party except (i) in the ordinary course of and
pursuant to the reasonable requirements of Customers' business and (ii) upon
fair and reasonable terms no less favorable to such Customer than it could
obtain in a comparable arm's-length transaction with an unaffiliated Person.
6.20. ACCURACY AND COMPLETENESS OF INFORMATION. All factual information
furnished by or on behalf of any Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any
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Other Document, or any transaction contemplated hereby or thereby is or will be
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading at such time.
6.21. RECORDING TAXES. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by each Customer or arrangements for the
payment of such amounts by each Customer have been made to the satisfaction of
IBM Credit.
6.22. INDEBTEDNESS. Customers (i) have no Indebtedness, other than Permitted
Indebtedness; and (ii) have not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).
SECTION 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. FINANCIAL AND OTHER INFORMATION. Customers shall cause the following
information to be delivered to IBM Credit within the following time periods:
(A) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Customer (i) audited Financial Statements
(provided that, to the extent not otherwise audited by the Auditors, the
consolidating Financial Statements may be unaudited) as of the close of the
fiscal year and for the fiscal year, together with a comparison to the Financial
Statements for the prior year, in each case accompanied by (a) either an opinion
of the Auditors without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit or, if so qualified, an
opinion which shall be in scope and substance reasonably satisfactory to IBM
Credit, (b) such Auditors' "Management Letter" to Customer, if any (such
"Management Letter" shall be provided to IBM Credit within 120 days after the
end of each fiscal year), (c) a written statement signed by the Auditors stating
that in the course of the regular audit of the business of Customers and their
consolidated Subsidiaries, which audit was conducted by the Auditors in
accordance with generally accepted auditing standards, the Auditors have not
obtained any knowledge of the existence of any Default under any provision of
this Agreement, or, if such Auditors shall have obtained from such examination
any such knowledge, they shall disclose in such written statement the existence
of the Default and the nature thereof, it being understood that such Auditors
shall have no liability, directly or indirectly, to anyone for failure to obtain
knowledge of any such Default; and (ii) a Compliance Certificate along with a
schedule, in substantially the form of Attachment C hereto, of the calculations
used in determining, as of the end of such fiscal year, whether Customers are in
compliance with the financial covenants set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days
after the end of each fiscal quarter of Customer (i) Financial Statements as of
the end of such period and for the fiscal year to date, together with a
comparison to the Financial Statements for the same periods in the prior year,
all in reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of each Customer as having been prepared in
accordance with GAAP; and (ii) a Compliance Certificate along with a schedule,
in substantially the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal quarter, whether Customers are in
compliance with the financial covenants set forth in Attachment A;
(C) as soon as available and in any event within forty-five (45) days
after the end of each fiscal month of Customer Financial Statements as of the
end of such period and for the fiscal year to date, together with a comparison
to the Financial Statements for the same periods in the prior year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the
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absence of footnotes) by the chief executive officer or chief financial officer
of each Customer as having been prepared in accordance with GAAP;
(D) as soon as available and in any event within forty-five (45) days
after the end of each fiscal year of Customer (i) projected Financial
Statements, broken down by quarter, for the current fiscal year; and (ii) if
composed, a narrative discussion relating to such projected Financial
Statements,
(E) as soon as available and in any event within thirty (30) days after
the end of each fiscal quarter of Customer, revised projected Financial
Statements, broken down by quarter, for (i) the current fiscal year from the
beginning of such fiscal quarter to the fiscal year end and (ii) sufficient
quarters of the following fiscal year to provide twelve months of projected
data;
(F) promptly after any Customer obtains knowledge of (i) the occurrence
of a Default or Event of Default, or (ii) the existence of any condition or
event which would result in any Customer's failure to satisfy the conditions
precedent to Advances set forth in Section 5, a certificate of the chief
executive officer or chief financial officer of the applicable Customer
specifying the nature thereof and such Customer's proposed response thereto,
each in reasonable detail;
(G) promptly after any Customer obtains knowledge of (i) any
proceeding(s) being instituted or threatened to be instituted by or against any
Customer in any federal, state, local or foreign court or before any commission
or other regulatory body (federal, state, local or foreign), or (ii) any actual
or prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate of
the chief executive officer or chief financial officer of the applicable
Customer specifying the nature thereof and the Customer's proposed response
thereto, each in reasonable detail;
(H) promptly after any Customer obtains knowledge that (i) any order,
judgment or decree in excess of $100,000.00 (exclusive of (a) any amounts that
are duly bonded to the satisfaction of IBM Credit or (b) any amount fully
covered by insurance as to which the insurance company has acknowledged its
obligation to pay such judgment in full) shall have been entered against any
Customer or any of its properties or assets, or (ii) it has received any
notification of a material violation of any Requirement of Law from any
Governmental Authority, a certificate of the chief executive officer or chief
financial officer of the applicable Customer specifying the nature thereof and
such Customer's proposed response thereto, each in reasonable detail;
(I) promptly after any Customer learns of any material labor dispute to
which any Customer may become a party, any strikes or walkouts relating to any
of its plants or other facilities, and the expiration of any labor contract to
which any Customer is a party or by which it is bound, a certificate of the
chief executive officer or chief financial officer of the applicable Customer
specifying the nature thereof and such Customer's proposed response thereto,
each in reasonable detail;
(J) within five (5) Business Days after request by IBM Credit, any
written certificates, schedules and reports together with all supporting
documents as IBM Credit may reasonably request relating to the Collateral or any
Customer's or any guarantor's business affairs and financial condition;
(K) by the tenth (10th) Business Day of each month, or as otherwise
agreed in writing, a Collateral Management Report as of a date no earlier than
the last day of the immediately preceding month;
(L) along with the Financial Statements set forth in Section 7.1(A) and
(B), the name, address and phone number of each Customer's Account debtors'
primary contacts for each Account on the Accounts aging report contained in
Customers' most recent Collateral Management Report; and
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(M) within five (5) days after the same are sent, copies of all
Financial Statements and reports which Customer sends to its stockholders, and
within five (5) days after the same are filed, copies of all Financial
Statements and reports which Customer may make to, or file with, the Securities
and Exchange Commission or any successor or analogous governmental authority.
The requirement of this paragraph 7.1(M) can be fulfilled by notification to IBM
Credit that the required information is available on publicly accessible
electronic databases.
Each certificate, schedule and report provided by Customers to IBM Credit shall
be signed by the respective authorized officer of each Customer, and which
signature shall be deemed a representation and warranty that the information
contained in such certificate, schedule or report is true and accurate in all
material respects on the date as of which such certificate, schedule or report
is made and does not omit to state a material fact necessary in order to make
the statements contained therein not misleading at such time. Each Financial
Statement delivered pursuant to this Section 7.1 shall be prepared in accordance
with GAAP applied consistently throughout the periods reflected therein and with
prior periods.
7.2. LOCATION OF COLLATERAL. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by a Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.
7.3. CHANGES IN CUSTOMERS. Each Customer shall provide thirty (30) days prior
written notice to IBM Credit of any change in such Customer's name, chief
executive office and principal place of business, organization, form of
ownership or corporate structure; provided, however, that Customers' compliance
with this covenant shall not relieve them of any of their other obligations or
any other provisions under this Agreement or any Other Document limiting actions
of the type described in this Section.
7.4. CORPORATE EXISTENCE. Each Customer shall (A) maintain its corporate
existence, maintain in full force and effect all licenses, bonds, franchises,
leases and qualifications to do business, and all contracts and other rights
necessary to the profitable conduct of its business, (B) continue in, and limit
its operations to, the same general lines of business as presently conducted by
it unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.
7.5. ERISA. Each Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC (as defined in Section 6.12 of this Agreement) has instituted or
will institute proceedings to terminate any Plan. Notwithstanding the foregoing,
a Customer shall have no obligation to notify IBM Credit as to any "reportable
event" as to which the 30-day notice requirement of Section 4043(b) has been
waived by the PBGC, until such time as such Customer is required to notify the
PBGC of such reportable event.
Such notification shall include a certificate of the chief financial officer of
such Customer setting forth details as to such "reportable event" and the action
which such Customer proposes to take with respect thereto, together with a copy
of any notice of such "reportable event" which may be required to be filed with
the PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, each Customer shall furnish, or
cause the plan administrator to furnish, to IBM Credit the most recently filed
annual report for each Plan.
7.6. ENVIRONMENTAL MATTERS. (A) Each Customer and any other Person under a
Customer's control (including, without limitation, agents and Affiliates under
such control) shall (i) comply with all Environmental Laws in all material
respects, and (ii) undertake to use commercially reasonable efforts to prevent
any unlawful release of any Hazardous Substance by Customers or such Person
into, upon, over or under any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customers.
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(B) Each Customer shall notify IBM Credit, promptly upon its obtaining
knowledge of (i) any non-routine proceeding or investigation by any Governmental
Authority with respect to the presence of any Hazardous Substances on or in any
property now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by such Customer, (ii) all claims made or threatened by any Person
or Governmental Authority against such Customer or any of such Customer's assets
relating to any loss or injury resulting from any Hazardous Substance, (iii) a
Customer's discovery of evidence of unlawful disposal of or environmental
contamination by any Hazardous Substance on any property now or hereinafter
owned, leased or otherwise controlled (directly or indirectly) by such Customer,
and (iv) any occurrence or condition which could constitute a violation of any
Environmental Law.
7.7. COLLATERAL BOOKS AND RECORDS/COLLATERAL AUDIT. (A) Each Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, and agrees that such books
and records will reflect IBM Credit's interest in the Accounts.
(B) Each Customer agrees that IBM Credit or its agents may enter upon
the premises of such Customer at any time and from time to time, during normal
business hours and upon reasonable notice under the circumstances, and at any
time at all on and after the occurrence and during the continuance of an Event
of Default for the purposes of (i) inspecting the Collateral, (ii) inspecting
and/or copying (at Customers' expense) any and all records pertaining thereto,
(iii) discussing the affairs, finances and business of such Customer with any
officers, employees and directors of such Customer or with the Auditors and (iv)
verifying Eligible Accounts and other Collateral. Each Customer also agrees to
provide IBM Credit with such reasonable information and documentation that IBM
Credit deems necessary to conduct the foregoing activities, including, without
limitation, reasonably requested samplings of purchase orders, invoices and
evidences of delivery or other performance.
Upon the occurrence and during the continuance of an Event of Default which has
not been waived by IBM Credit in writing, IBM Credit may conduct any of the
foregoing activities in any manner that IBM Credit deems reasonably necessary.
(C) Each Customer shall give IBM Credit thirty (30) days prior written
notice of any change in the location of any Collateral, the location of its
books and records or in the location of its chief executive office or place of
business from the locations specified in Attachment B, and will execute in
advance of such change and cause to be filed and/or delivered to IBM Credit any
financing statements, landlord or other lien waivers, or other documents
reasonably required by IBM Credit, all in form and substance reasonably
satisfactory to IBM Credit.
(D) Each Customer agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity or
quality of the Collateral, or any event which could reasonably be expected to
have a Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
7.8. INSURANCE; CASUALTY LOSS. (A) Each Customer agrees to maintain with
financially sound and reputable insurance companies: (i) insurance on its
properties, (ii) public liability insurance against claims for personal injury
or death as a result of the use of any products sold by it and (iii) insurance
coverage against other business risks, in each case, in at least such amounts
and against at least such risks as are usually and prudently insured against in
the same general geographical area by companies of established repute engaged in
the same or a similar business. Each Customer will furnish to IBM Credit, upon
its written request, the insurance certificates with respect to such insurance.
In addition, all Policies so maintained are to name IBM Credit as an additional
insured as its interest may appear.
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(B) Without limiting the generality of the foregoing, each Customer
shall keep and maintain, at its sole expense, the Collateral insured for an
amount not less than the amount set forth on Attachment A from time to time
opposite the caption "Collateral Insurance Amount" against all loss or damage
under an "all risk" Policy with companies mutually acceptable to IBM Credit and
Customer, with a lender's loss payable endorsement or mortgagee clause in form
and substance reasonably satisfactory to IBM Credit designating that any loss
payable thereunder with respect to such Collateral shall be payable to IBM
Credit. Upon receipt of proceeds by IBM Credit the same shall be applied on
account of the Customers' Outstanding Product Advances first, then to the
Outstanding A/R Advances. Each Customer agrees to instruct each insurer to give
IBM Credit, by endorsement upon the Policy issued by it or by independent
instruments furnished to IBM Credit, at least ten (10) days written notice
before any Policy shall be altered or canceled and that no act or default of
such Customer or any other person shall affect the right of IBM Credit to
recover under the Policies. Each Customer hereby agrees to direct all insurers
under the Policies to pay all proceeds with respect to the Collateral directly
to IBM Credit.
If any Customer fails to pay any cost, charges or premiums, or if any Customer
fails to insure the Collateral, IBM Credit may pay such costs, charges or
premiums. Any amounts paid by IBM Credit hereunder shall be considered an
additional debt owed by Customers to IBM Credit and are due and payable
immediately upon receipt of an invoice by IBM Credit.
7.9. TAXES. Each Customer agrees to pay, when due, all taxes lawfully levied or
assessed against such Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. COMPLIANCE WITH LAWS. Each Customer agrees to comply with all Requirements
of Law applicable to the Collateral or any part thereof, or to the operation of
its business in a manner which does not cause a Material Adverse Effect.
7.11. FISCAL YEAR. Each Customer agrees to maintain its fiscal year as a year
ending December 31 unless Customer provides IBM Credit at least thirty (30) days
prior written notice of any change thereof.
7.12. INTELLECTUAL PROPERTY. Each Customer shall do and cause to be done all
things necessary to preserve and keep in full force and effect all registrations
of Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. MAINTENANCE OF PROPERTY. Each Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.
7.14. COLLATERAL. Each Customer shall:
(A) from time to time upon request of IBM Credit, provide IBM Credit
with access to copies of all invoices, delivery evidences and other such
documents relating to each Account;
(B) promptly upon any Customer's obtaining knowledge thereof, furnish
to and inform IBM Credit of all material adverse information relating to the
financial condition of any Account debtor whose outstanding obligations to such
Customer constitute two percent (2%) or more of the Accounts at such time (a
"Material Account Debtor");
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(C) promptly upon any Customer's learning thereof, notify IBM Credit in
writing of any event which would cause any obligation of a Material Account
Debtor to become an Ineligible Account;
(D) keep all goods rejected or returned by any Account debtor and all
goods repossessed or stopped in transit by a Customer from any Account debtor
segregated from other property of such Customer, holding the same in trust for
IBM Credit until Customer applies a credit against such Account debtor's
outstanding obligations to such Customer or sells such goods in the ordinary
course of business, whichever occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are subject
to IBM Credit's security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Each Customer shall diligently file and
prosecute its claim for any award or payment in connection with any such loss,
theft, destruction of or damage to Collateral. Each Customer shall, upon demand
of IBM Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM Credit,
free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform
all matters and things necessary or expedient to be observed or performed under
or by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof; and
(J) at any time and from time to time, upon the request of IBM Credit,
and at the sole expense of Customers, promptly and duly execute and deliver such
further instruments and documents and take such further action as IBM Credit may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted, including,
without limitation, the filing of any financing or continuation statements under
the Uniform Commercial Code in effect in any jurisdiction with respect to the
security interests granted herein and the payment of any and all recording taxes
and filing fees in connection therewith.
7.15. SUBSIDIARIES. IBM Credit may require that any Subsidiaries of any Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties. Each Customer will comply, and
cause ail of their respective Subsidiaries to comply with Sections 7 and 8 of
this Agreement, as if such sections applied directly to such Subsidiaries.
7.16. FINANCIAL COVENANTS; ADDITIONAL COVENANTS. Each Customer acknowledges and
agrees that Customer shall maintain the financial covenants and other covenants
set forth in the attachments, exhibits and other addenda incorporated in this
Agreement.
7.17. JOINT AND SEVERAL GUARANTY. (A) Each Customer hereby jointly and severally
guarantees to IBM Credit the prompt payment when due and the full, prompt, and
faithful performance of any and all
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Obligations upon which any Customer is in any manner obligated, heretofore, now,
or hereafter owned, contracted or acquired by IBM Credit pursuant to this
Agreement, whether the same are individual, joint or several, primary,
secondary, direct, contingent or otherwise. Each Customer irrevocably
subordinates to the full payment of amounts due IBM Credit any and all rights to
which it may be entitled, by operation of law or otherwise, upon making any
payment hereunder (i) to be subrogated to the rights of IBM Credit against
another Customer hereto with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by another Customer in respect thereof, or
(ii) to receive any payment, in the nature of contribution or for any other
reason, from another Customer hereto with respect to such payment.
(B) Notwithstanding any provision herein to the contrary, the liability
of each Customer hereunder shall in no event exceed the maximum amount that is
valid and enforceable in any action or proceeding involving any applicable state
corporate law or any applicable state or federal bankruptcy, insolvency,
reorganization, fraudulent conveyance or other law involving the rights of
creditors generally.
(C) The liability of each Customer hereunder is direct, absolute and
unconditional and shall not be affected by any extension, renewal or other
change in the terms of payment or performance thereof, or the release,
settlement or compromise of or with any party liable for the payment or
performance thereof, the release or nonperfection of any security thereunder, or
any change in any Customer's financial condition. Each Customer's obligation
pursuant to this Section 7.17 shall continue for so long as any sums owing to
IBM Credit by either Customer remains outstanding and unpaid, unless terminated
in the manner provided herein. Each Customer acknowledges that its obligations
hereunder are in addition to and independent of any agreement or transaction
between IBM Credit and any other Customer or any other Person creating or
reserving any lien, encumbrance or security interest in any property of any
other Customer or any other Person as security for any obligation of such
Customer.
(D) Each Customer has made an independent investigation of the
financial condition of each other Customer and guarantees the Obligations based
on that investigation and not upon any representations made by IBM Credit. Each
Customer acknowledges that it has access to current and future Customer
financial information which will enable each Customer to continuously remain
informed of each other Customer's financial condition. Each Customer also
consents to and agrees that the guarantees provided in this Section 7.17 and the
Obligations shall not be affected by IBM Credit's subsequent increases or
decreases in the credit line that IBM Credit may grant to any Customer;
substitutions, exchanges or releases of all or any part of the Collateral now or
hereafter securing any of the Obligations; sales or other dispositions of any or
ail of the Collateral now or hereafter securing any of the Obligations without
demands, advertisement or notice of the time or place of the sales or other
dispositions, realizing on the Collateral to the extent IBM Credit, in its sole
discretion deems proper.
(E) With respect to the guaranties provided hereunder, each Customer,
in its capacity as a guarantor, waives if permitted by applicable law (1)
demand, protest and all notices of protest or dishonor, (2) all notices of
payment and nonpayment, (3) all notices required by law, (4) any and all
defenses, including but not limited to any defense of any Customer to the
Obligations or any defense based upon a claim that any Customer may have against
any manufacturer, distributor or Authorized Supplier, (5) any and all rights of
set-off Customers may have against IBM Credit and (6) all notices of nonpayment
at maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guarantees at any time held by IBM Credit on which any Customer may,
in any way, be liable and each Customer hereby ratifies and confirms whatever
IBM Credit may do in that regard.
(F) This guaranty obligation and any and all obligations, liabilities,
terms and provisions herein shall survive any and all bankruptcy or insolvency
proceedings, actions and/or claims brought by or against either Customer,
whether such proceedings, actions and/or claims are federal and/or state.
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SECTION 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations hereunder:
8.1. LIENS. No Customer will, directly or indirectly mortgage, assign, pledge,
transfer, create, incur, assume, permit to exist or otherwise permit any Lien or
judgment to exist on any of its property, assets, revenues or goods, whether
real, personal or mixed, whether now owned or hereafter acquired, except for
Permitted Liens.
8.2. DISPOSITION OF ASSETS. No Customer will, directly or indirectly, sell,
lease, assign, transfer or otherwise dispose of any assets other than (i) sales
of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to such Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn out property in
the ordinary course of business, provided, that the aggregate book value of all
such assets and property so sold or disposed of under this Section 8.2 (ii) in
any fiscal year shall not exceed 5% of the consolidated assets of the Customer
as of the beginning of such fiscal year.
8.3. CORPORATE CHANGES. No Customer will, without the prior written consent of
IBM Credit (which consent shall not be unreasonably withheld), directly or
indirectly, merge, consolidate, liquidate, dissolve or enter into or engage in
any operation or activity materially different from that presently being
conducted by such Customer, except for Permitted Acquisitions.
8.4. GUARANTIES. No Customer will, directly or indirectly, assume, guaranty,
endorse, or otherwise become liable upon the obligations of any other Person,
except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (ii) by
the giving of indemnities in connection with the sale of inventory or other
asset dispositions permitted hereunder, and (iii) for guaranties in favor of IBM
Credit.
8.5. RESTRICTED PAYMENTS. No Customer will, directly or indirectly: (i) declare
or pay any dividend (other than dividends payable solely in common stock of such
Customer) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of such Customer; or (ii) make any optional payment or prepayment on
or redemption (including, without limitation, by making payments to a sinking or
analogous fund) or repurchase of any Indebtedness (other than the Obligations)
if such payment or prepayment will cause a Material Adverse Effect or will cause
Customer to be out of compliance with any financial covenant.
Notwithstanding subsection 8.5(i) above, Savoir may pay (i) dividends in cash
(up to a maximum of $3,000 in the aggregate for all shareholders total per
fiscal quarter) to holders of fractional shares of Savoir's capital stock, in
lieu of issuing additional fractional shares, and (ii) payments to meet Federal
tax withholding requirements for non-U.S. shareholders (up to a maximum of
$30,000.00 in the aggregate for all such non-U.S. shareholders per fiscal
quarter).
8.6. INVESTMENTS. No Customer will, directly or indirectly, make, maintain or
acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of
deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC")
or a similar federal insurance program;
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(B) direct obligations of the government of the United States of
America or any agency or instrumentality thereof or obligations guaranteed as to
principal and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customers in settlement of claims
against others by reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of such Customer;
(D) stock or other Instruments representing Investments in other
companies, up to an aggregate total of $1,000,000.00;
(E) commercial paper of any corporation organized under the laws of any
State of the United States or any bank organized or licensed to conduct a
banking business under the laws of the United States or any State thereof having
the short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation; and
(F) Permitted Acquisitions.
8.7. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Customer will, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of any Customer except
in the ordinary course of business and pursuant to the reasonable requirements
of such Customer's business upon fair and reasonable terms no less favorable to
such Customer than could be obtained in a comparable arm's-length transaction
with an unaffiliated Person.
8.8. ERISA. No Customer will (A) terminate any Plan so as to incur a material
liability to the PBGC (as defined in Section 6.12 of this Agreement), (B) permit
any "prohibited transaction" involving any Plan (other than a "multi-employer
benefit plan') which would subject such Customer to a material tax or penalty on
"prohibited transactions" under the Code or ERISA, (C) fail to pay to any Plan
any contribution which they are obligated to pay under the terms of such Plan,
if such failure would result in a material "accumulated funding deficiency",
whether or not waived, (D) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Plan (other than a "multi-employer
benefit plan'), or (E) fail to notify IBM Credit as required in Section 7.5. As
used in this Agreement, the terms "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
the Code and ERISA. For purposes of this Section 8.8, the terms "material
liability", "tax", "penalty", "accumulated funding deficiency" and "risk of
termination" shall mean a liability, tax, penalty, accumulated funding
deficiency or risk of termination which could reasonably be expected to have a
Material Adverse Effect.
8.9. ADDITIONAL NEGATIVE PLEDGES. No Customer will, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.10. STORAGE OF COLLATERAL WITH BAILEES AND WAREHOUSEMEN. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customers will, concurrently with the delivery of
such Collateral to such party, cause such party to issue and deliver to IBM
Credit, warehouse receipts in the name of IBM Credit evidencing the storage of
such Collateral.
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8.11. USE OF PROCEEDS. No Customer shall use any portion of the proceeds of any
Advances other than (i) to acquire Products from Authorized Suppliers, (ii) for
its general working capital requirements and (iii) for Permitted Acquisitions.
8.12. ACCOUNTS. No Customer shall permit or agree to any extension, compromise
or settlement or make any change or modification of any kind or nature with
respect to any Account, including any of the terms relating thereto, which would
affect IBM Credit's ability to collect payment on any Account in whole or in
part, except for such extensions, compromises or settlements made by such
Customer in the ordinary course of its business, provided, however, that the
aggregate amount of such extensions, compromises or settlements does not exceed
five percent (5%) of such Customer's Accounts at any time.
8.13. INDEBTEDNESS. No Customer will create, incur, assume or permit to exist
any Indebtedness, except for Permitted Indebtedness.
8.14. LOANS. No Customer will make any loans, advances, contributions or
payments of money or goods exceeding $250,000.00 in the aggregate to any
Subsidiary, Affiliate or parent corporation or to any officer, director or
stockholder of any Customer or of any such corporation (except for compensation
for personal services actually rendered), except for transactions expressly
authorized in this Agreement, if such loans, advances, contributions or payments
will cause a Material Adverse Effect or would cause Customer to be out of
compliance with any financial covenants.
SECTION 9. DEFAULT
9.1. EVENT OF DEFAULT. Any one or more of the following events shall constitute
an Event of Default by the Customers under this Agreement and the Other
Documents:
(A) The failure of any Customer to make timely payment of the
Obligations or any part thereof when due and payable;
(B) Any Customer fails to comply with or observe any term, covenant or
agreement contained in this Agreement or any Other Documents;
(C) Any representation, warranty, statement, report or certificate made
or delivered by or on behalf of any Customer or any of its officers, employees
or agents or by or on behalf of any guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;
(D) The occurrence of any event or circumstance which could reasonably
be expected to have a Material Adverse Effect;
(E) Any Customer, any Subsidiary or any guarantor shall generally not
pay its debts as such debts become due, become or otherwise declare itself
insolvent, file a voluntary petition for bankruptcy protection, have filed
against it any involuntary bankruptcy petition, cease to do business as a going
concern, make any assignment for the benefit of creditors, or a custodian,
receiver, trustee, liquidator, administrator or person with similar powers shall
be appointed for any Customer, any Subsidiary or any guarantor or any of its
respective properties or have any of its respective properties seized or
attached, or take any action to authorize, or for the purpose of effectuating,
the foregoing, provided, however, that a Customer, any Subsidiary or any
guarantor shall have a period of forty-five (45) days within which to discharge
any involuntary petition for bankruptcy or similar proceeding;
(F) The use of any funds borrowed from IBM Credit under this Agreement
for any purpose other than as provided in this Agreement;
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(G) The entry of any judgment against any Customer or any guarantor in
an amount in excess of $100,000.00 and such judgment is not satisfied,
dismissed, stayed or superseded by bond within thirty (30) days after the day of
entry thereof (and in the event of a stay or supersedeas bond, such judgment is
not discharged within thirty (30) days after termination of any such stay or
bond) or such judgment is not fully covered by insurance as to which the
insurance company has acknowledged its obligation to pay such judgment in full;
(H) The dissolution or liquidation of any Customer, any Subsidiary or
any guarantor, or any Customer or any guarantor or its directors or stockholders
shall take any action to dissolve or liquidate any Customer or any guarantor;
(I) Any "going concern" or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of its opinion
relative to any Financial Statement delivered to IBM Credit under this
Agreement;
(J) There issues a warrant of distress for any rent or taxes with
respect to any premises occupied by any Customer in or upon which the
Collateral, or any part thereof, may at any time be situated and such warrant
shall continue for a period of ten (10) Business Days from the date such warrant
is issued;
(K) Any Customer suspends business;
(L) The occurrence of any event or condition that permits the holder of
any Indebtedness arising in one or more related or unrelated transactions, in
aggregate principal amount exceeding $200,000.00 to accelerate the maturity
thereof or the failure of any Customer to pay when due any such Indebtedness;
(M) Any guaranty of any or all of the Customers' Obligations executed
by any guarantor in favor of IBM Credit, shall at any time for any reason cease
to be in full force and effect or shall be declared to be null and void by a
court of competent jurisdiction or the validity or enforceability thereof shall
be contested or denied by any such guarantor, or any such guarantor shall deny
that it has any further liability or obligation thereunder or any such guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;
(N) Any Customer is in default under the material terms of any of the
Other Documents after the expiration of any applicable cure periods;
(O) There shall occur a "reportable event" with respect to any Plan, or
any Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of any Customer to the PBGC which in the reasonable
opinion of IBM Credit will have a Material Adverse Effect;
(P) Any "person" (as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) acquires a beneficial interest in 50% or more
of the Voting Stock of any Customer without the prior written consent of IBM
Credit (which consent shall not be unreasonably withheld).
9.2. ACCELERATION. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
its sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against the Customers: (a) declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in Section
9.1(E) hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice or other demand)
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without presentment, demand, protest or any other action or obligation of IBM
Credit; and (b) immediately terminate the Credit Line, the Term A Loan
Commitment and the Term B Loan Commitment hereunder.
9.3. REMEDIES. (A) Upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files and
records (including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Accounts, or IBM Credit may use (at
the expense of the Customers) such of the supplies or space of Customers at
Customers' place of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (ii) bring suit, in the name of any Customer (as
appropriate or necessary) or IBM Credit and generally shall have all other
rights respecting said Accounts, including without limitation the right to
accelerate or extend the time of payment, settle, compromise, release in whole
or in part any amounts owing on any Accounts and issue credits in the name of a
Customer or IBM Credit; (iii) sell, assign and deliver the Accounts and any
returned, reclaimed or repossessed merchandise, with or without advertisement,
at public or private sale, for cash, on credit or otherwise, at IBM Credit's
sole option and discretion, and IBM Credit may bid or become a purchaser at any
such sale; and (iv) foreclose the security interests created pursuant to this
Agreement by any available judicial procedure, or to take possession of any or
all of the Collateral without judicial process and to enter any premises where
any Collateral may be located for the purpose of taking possession of or
removing the same.
(B) Upon the occurrence and during the continuance of any Event of
Default which has not been waived in writing by IBM Credit, IBM Credit shall
have the right to sell, lease, or otherwise dispose of all or any part of the
Collateral, whether in its then condition or after further preparation or
processing, in the name of any Customer or IBM Credit, or in the name of such
other party as IBM Credit may designate, either at public or private sale or at
any broker's board, in lots or in bulk, for cash or for credit, with or without
warranties or representations, and upon such other terms and conditions as IBM
Credit in its sole reasonable discretion may deem advisable, and IBM Credit
shall have the right to purchase at any such sale.
If IBM Credit, in its sole reasonable discretion determines that any of the
Collateral requires rebuilding, repairing, maintenance or preparation, IBM
Credit shall have the right, at its option, to do such of the aforesaid as it
deems necessary for the purpose of putting such Collateral in such saleable form
as IBM Credit shall deem appropriate. Each Customer hereby agrees that any
disposition by IBM Credit of any Collateral pursuant to and in accordance with
the terms of a repurchase agreement between IBM Credit and the manufacturer or
any supplier (including any Authorized Supplier) of such Collateral constitutes
a commercially reasonable sale. The Customers agree, at the request of IBM
Credit, to assemble the Collateral and to make it available to IBM Credit at
places which IBM Credit shall select, whether at the premises of a Customer or
elsewhere, and to make available to IBM Credit the premises and facilities of
such Customer for the purpose of IBM Credit's taking possession of, removing or
putting such Collateral in saleable form. If notice of intended disposition of
any Collateral is required by law, it is agreed that ten (10) Business Days
notice shall constitute reasonable notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM
Credit is hereby granted, upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, an
irrevocable, non-exclusive license to use, assign, license or sublicense all
computer software programs, data bases, processes and materials used by a
Customer in its businesses or in connection with any of the Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any
of the foregoing rights (after deducting all charges, costs and expenses,
including reasonable attorneys' fees) shall be applied by
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IBM Credit to the payment of Customers' Obligations, whether due or to become
due, in such order as IBM Credit may in it sole discretion elect. Customers
shall remain liable to IBM Credit for any deficiencies, and IBM Credit in turn
agrees to remit to Customers or their successors or assigns, any surplus
resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
9.4. WAIVER. If IBM Credit seeks to take possession of any of the Collateral by
any court process Customers hereby irrevocably waive to the extent permitted by
applicable law any bonds, surety and security relating thereto required by any
statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customers waive to the extent
permitted by applicable law all rights of set-off it may have against IBM
Credit. Customers further waive to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
SECTION 10. MISCELLANEOUS
10.1. TERM; TERMINATION. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that they intend to terminate this Agreement which date shall be
no less than ninety (90) days following the receipt by IBM Credit of such
written notice, and (iii) termination by IBM Credit after the occurrence and
during the continuance of an Event of Default. Upon the date that this Agreement
is terminated, all of Customer's Obligations shall be immediately due and
payable in their entirety, even if they are not yet due under their terms.
(B) If this Agreement is terminated pursuant to 10.1(A)(ii) or
10.1(A)(iii), then Customers shall pay to IBM Credit, in addition to any other
Obligations which may be due at the time, an early termination fee of (i) one
and one quarter percent (1.25%) of the then current Credit Line if the effective
date of termination is on or prior to August 31, 1999, or (ii) one half percent
(0.50%) of the then current Credit Line if the effective date of termination is
after August 31, 1999 and prior to August 31, 2000. Such early termination fee
shall be due on the effective date of such termination.
(C) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Documents
shall in any way affect or impair (i) Customers' Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to and
after such termination, or (ii) IBM Credit's rights hereunder, including,
without limitation IBM Credit's security interest in the Collateral. On and
after a Termination Date IBM Credit may, but shall not be obligated to, upon the
request of a Customer, continue to provide Advances hereunder.
10.2. INDEMNIFICATION. Customers hereby jointly and severally indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) any Customer, (ii)
any Person that shall be acquired by any Customer or (iii) any Person that any
Customer may acquire all or substantially all of the assets of, or (b) directly
or indirectly, relating to the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby or thereby
or to any of the Collateral or to any act or omission of a Customer in
connection therewith. Notwithstanding the foregoing, the Customers shall not be
obligated to indemnify IBM Credit for any Losses incurred by IBM Credit which
are a result of IBM Credit's
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negligence or willful misconduct. The indemnity provided herein shall survive
the termination of this Agreement.
10.3. ADDITIONAL OBLIGATIONS. IBM Credit, without waiving or releasing any
Obligation or Default of the Customers, may perform any Obligations of any
Customer that such Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation to do so, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM Credit
in performing in satisfaction or on account of the foregoing and any expenses,
including reasonable attorney's fees, court costs, and other charges relating
thereto, shall be a part of the Obligations, payable on demand and secured by
the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY ANY CUSTOMER IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR
SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO ANY
CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT
OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
10.5. ALTERATION/WAIVER. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by Customers and by
IBM Credit. No delay or omission of IBM Credit to exercise any right or remedy
hereunder, whether before or after the occurrence of any Event of Default, shall
impair any such right or remedy or shall operate as a waiver thereof or as a
waiver of any such Event of Default. In the event that IBM Credit at any time or
from time to time dispenses with any one or more of the requirements specified
in this Agreement or any of the Other Documents, such dispensation may be
revoked by IBM Credit at any time and shall not be deemed to constitute a waiver
of any such requirement subsequent thereto. IBM Credit's failure at any time or
times to require strict compliance and performance by the Customers of any
undertakings, agreements, covenants, warranties and representations of this
Agreement or any Other Document shall not waive, affect or diminish any right of
IBM Credit thereafter to demand strict compliance and performance thereof. Any
waiver by IBM Credit of any Default by any Customer under this Agreement or any
of the Other Documents shall not waive or affect any other Default by any
Customer under this Agreement or any of the Other Documents, whether such
Default is prior or subsequent to such other Default and whether of the same or
a different type. None of the undertakings, agreements, warranties, covenants,
and representations of the Customers contained in this Agreement or the Other
Documents and no Default by any Customer shall be deemed waived by IBM Credit
unless such waiver is in writing signed by an authorized representative of IBM
Credit.
10.6. SEVERABILITY. If any provision of this Agreement or the Other Documents or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Documents being
severable in any such instance.
10.7. ONE LOAN. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Documents
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customers to IBM
Credit or any assignor of IBM Credit.
10.8. ADDITIONAL COLLATERAL. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customers in possession of IBM Credit at any time or times
Page 37 of 40
<PAGE>
hereafter are hereby pledged by Customers to IBM Credit as security for the
payment of Customers' Obligations and shall be applied promptly by IBM Credit on
account of the Customers' Obligations; provided, however, IBM Credit may release
to the Customers such portions of such monies, reserves and proceeds as IBM
Credit may from time to time determine, in its sole discretion.
10.9. NO MERGER OR NOVATIONS. (A) Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by the Customers and IBM
Credit that the claims of IBM Credit arising hereunder and existing as of the
date hereof constitute continuing claims arising out of the Obligations of
Customers under the Financing Agreement and any Other Document. Customers
acknowledge and agree that such Obligations outstanding as of the date hereof
have not been satisfied or discharged and that this Agreement is not intended to
effect a novation of the Customers' Obligations under the Financing Agreement or
any Other Document.
(B) Neither the obtaining of any judgment nor the exercise of any power
of seizure or sale shall operate to extinguish the Obligations of the Customers
to IBM Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.
10.10. PARAGRAPH TITLES. The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.
10.11. BINDING EFFECT; ASSIGNMENT. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the Customers and
their respective successors and assigns; provided, that the Customers shall have
no right to assign this Agreement or any of the Other Documents without the
prior written consent of IBM Credit.
10.12. OBLIGATIONS. The Obligations are joint and several, shall be binding upon
each Customer and each Customer's successors and assigns, and will be for IBM
Credit's benefit and the benefit of IBM Credit's successors and assigns. The
Obligations and any terms and provisions herein may be modified or amended only
by a document sign by IBM Credit and each Customer.
10.13. NOTICES. Except as otherwise expressly provided in this Agreement, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(A) upon receipt if deposited in the United States mails, first class mail, with
proper postage prepaid, (B) upon receipt of confirmation or answerback if sent
by telecopy, or other similar facsimile transmission, (C) one Business Day after
deposit with a reputable overnight courier with all charges prepaid, or (D) when
delivered, if hand-delivered by messenger, all of which shall be properly
addressed to the party to be notified and sent to the address or number
indicated as follows:
Page 38 of 40
<PAGE>
(i) If to IBM Credit at: (ii) If to Savoir at:
IBM Credit Corporation Savoir Technology Group, Inc.
5000 Executive Parkway, Suite 450 254 E. Hacienda Avenue
San Ramon, CA 94583 Campbell, CA 95008
Attention: Remarketer Finance Attention: James W. Dorst
Center Manager
Facsimile: (510)277-5675 Facsimile: (800)725-5496
(iii) If to BPS at: (iv) If to MCBA at:
Business Partner Solutions, Inc. MCBA Systems, Inc.
888 Isom Road 4955 Corporate Drive, Suite 300
San Antonio, TX 78216 Huntsville, AL 35805
Attention: Mr. Terry Johnson Attention: Mr. Michael Gunnells
Facsimile: (210)377-3796 Facsimile: ( )
or to such other address or number as each party designates to the other in the
manner prescribed herein.
10.14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
10.15. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Financing
Period set forth in Attachment A from time to time if on at least two occasions
during any three-month period a Shortfall Amount has become due and payable and
may modify the Collateral Insurance Amount set forth in Attachment A from time
to time, in each case, by providing Customers with a new Attachment A. Any such
new Attachment A shall be effective as of the date specified in the new
Attachment A. IBM Credit agrees that the Product Financing Period will not be
reduced more than one time within any three-month period.
10.16. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, EACH CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY
BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMERS AT THEIR
RESPECTIVE ADDRESSES SET FORTH IN SECTION 10.13 OR AT SUCH OTHER ADDRESS OF
WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
Page 39 of 40
<PAGE>
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE
IN ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.17. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMERS HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER
ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
IN WITNESS WHEREOF, each Customer has read this entire Agreement, and
has caused its authorized representatives to execute this Agreement and has
caused its corporate seal to be affixed hereto as of the date first written
above.
SAVOIR TECHNOLOGY GROUP, INC. BUSINESS PARTNER SOLUTIONS, INC.
By: _________________________________ By: _________________________________
Print Name: _________________________ Print Name: _________________________
Title: ______________________________ Title: ______________________________
IBM CREDIT CORPORATION MCBA SYSTEMS, INC.
By: _________________________________ By: _________________________________
Print Name: _________________________ Print Name: _________________________
Title: ______________________________ Title: ______________________________
Page 40 of 40
<PAGE>
ATTACHMENT A, EFFECTIVE DATE __________, 1998 ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED __________, 1998
Customers: SAVOIR TECHNOLOGY GROUP, INC.;
BUSINESS PARTNER SOLUTIONS, INC.;
MCBA SYSTEMS, INC.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: One Hundred Twenty Five Million Dollars
($125,000,000.00);
(B) Term Loan Commitment:
(i) Term A Loan: Fifteen Million Dollars ($15,000,000.00)
(ii) Term B Loan: Five Million Dollars ($5,000,000.00)
(C) Borrowing Base:
(i) 85% of the amount of the Customers' Eligible Accounts other than
Concentration Accounts as of the date of determination as reflected in
the Customers' most recent Collateral Management Reports;
(ii) a percentage, determined from time to time by IBM Credit in its
sole discretion, of the amount of Customers' Concentration Accounts for
a specific Concentration Account Debtor as of the date of determination
as reflected in the Customers' most recent Collateral Management
Report; unless otherwise notified by IBM Credit, in writing, the
percentage for Concentration Accounts for a specific Concentration
Account Debtor shall be the same as the percentage set forth in
paragraph (i) of the Borrowing Base;
(iii) 85% of the amount of the Customers' Eligible Accounts arising
from the sale of goods to or the performance of services for Customers'
clients in Puerto Rico ("Eligible Puerto Rico Accounts") as of the date
of determination as reflected in the Customers' most recent Collateral
Management Reports, PROVIDED HOWEVER that Eligible Puerto Rico Accounts
shall be limited to the lesser of (a) an amount equal to 10% of
Eligible Accounts, or (b) $25,000.00;
(iv) 100% of amount of the Customer's Eligible IBM Accounts as of the
date of determination as reflected in the Customer's most recent
Collateral Management Report;
(v) 100% of the Customers' inventory in the Customers' possession as of
the date of determination as reflected in the Customers' most recent
Collateral Management Report constituting Products (other than service
parts) financed through a Product Advance by IBM Credit, provided,
however, IBM Credit has a
Page 1 OF 31
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (continued):
first priority security interest in such Products and such Products are
in new and in un opened boxes. The value to be assigned to such
inventory shall be based upon the Authorized Supplier's invoice price
to Customers for Products net of all applicable price reduction
credits;
(vi) 30% of the value of other inventory in which IBM Credit has a
first priority security interest and ordered from parties other than
Authorized Suppliers which are on such parties' current price list, UP
TO a maximum collateral value of $6,000,000.00. The value to be
assigned to such inventory shall be based upon the supplier's invoice
price to Customers for such products net of all applicable price
reduction credits;
(vii) 20% of the value of Customers' IBM new parts inventory purchased
from IBM. The value to be assigned to such inventory shall be based
upon the supplier's invoice price to Customers for such products net of
all applicable price reduction credits;
(viii) 75% of used equipment purchased from IBM Credit;
(x) 75% of verifiable prepaid expenses to IBM Credit End User Financing
for used equipment.
(D) Product Financing Charge: Prime Rate plus 1.625%.
(E) Product Financing Period: 75 days.
(F) Collateral Insurance Amount: Forty Million Dollars ($40,000,000.00).
Such insurance shall also include coverage against earthquake peril for
at least 30% of the value of inventory stored in California.
(G) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 1.875%.
(ii) WCO Advance Charge: Prime Rate plus 1.875%.
(H) Term Loan Finance Charges:
(i) Term A Loan: Prime Rate plus 2.000%
(ii) Term B Loan: Prime Rate plus 2.000%
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<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (continued):
(I) Delinquency Fee Rate: Prime Rate plus 6.500%
(J) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
(K) Free Financing Period Exclusion Fee: Product Advance multiplied
by 0.40%
(L) Other Charges:
(i) Monthly Service Fee: $1,500.00.
(ii) Commitment Fee: from and including March 1, 1999 to and
including February 29,2000, one half of
one percent (0.50%) per annum of the
difference between the then current
Credit Line and the Average of the sum
of the Product Advances, PRO Advances
and WCO Advances calculated and billed
at the end of each month
(iii) Closing Fee $200,000 payable on the Closing Date.
II. Bank Account
(A) Customers' Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank: _Silicon Valley Bank_____________________________________________
Address: ______3003 Tasman Drive_______________________________________________
_______________Santa Clara, CA 95054___________________________________________
Phone: _ (408) 654-7400__________________________________________________
Lockbox Address: Dept. CH10917________________________________________________
Palatine, IL 60055-0917______________________________________
Special Account #: _341822772__________________________________________________
Page 3 OF 31
<PAGE>
II. Bank Account (continued):
Name of Bank: _Silicon Valley Bank__________________________________________
Address: _________3003 Tasman Drive____________________________________________
__________________Santa Clara, CA 95054________________________________________
Phone: _ (408) 654-7400_______________________________________________
Lockbox Address: Dep. LA21955_________________________________________________
Pasadena, CA 91185-1955______________________________________
Special Account #: _341822772__________________________________________________
Name of Bank: Silicon Valley Bank ____________________________________________
Address: ______3003 Tasman Drive ______________________________________________
_______________Santa Clara, CA 95054___________________________________________
Phone: _______(408) 654-7400___________________________________________________
Account #: ____341822770_ (operating account)______________________
Page 4 OF 31
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Attachment A. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability for purposes of determining compliance with the Financial
Covenants.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible assets,
investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within
twelve months from such date but are renewable or extendible at the option
of the debtor to a date more than twelve months from the date of
determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Net Profit before Tax shall mean Revenue plus all other income, minus all
costs, excluding applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customers' indebtedness to third parties as
evidenced by an executed Notes Payable Subordination Agreement in favor of
IBM Credit.
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<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses, deferred
charges, research and development expenses, software
development costs, leasehold expenses, trademarks, trade names,
copyrights, patents, patent applications, privileges,
franchises, licenses and rights in any thereof, and other
similar intangibles (but not including contract rights) and
other current and non-current assets as identified in
Customers' financial statements (except for those assets
identified in Attachment B, Section VII or otherwise mutually
agreed to in writing by Customers and IBM Credit); and
(b) all accounts receivable from employees, officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock (with the exception of
preferred stock redeemable for other equity securities, and up
to $21.6 million of that preferred stock issued concurrent with
the acquisition of Star Management Services, Inc).
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities and Long Term Debt
less Subordinated Debt, resulting from past or current transactions,
that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
Page 6 OF 31
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customers will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review by
IBM Credit, based upon the consolidated financial statements of Savoir
Technology Group, Inc.:
a) Current Assets to Current Liabilities ratio greater than 1.0 : 1.0
from on and after the Closing Date through and including December
31, 1998; greater than 1.05 : 1.0 from on and after January 1, 1999
through and including December 31, 1999; greater than 1.10 : 1.0
thereafter;
b) Net Profit after Tax to Revenue percentage equal to or greater than
0.9 percent from on and after the Closing Date through and including
December 31, 1998; equal to or greater than 1.4 percent from on and
after January 1, 1999 through and including December 31, 1999; equal
to or greater than 1.5 percent thereafter;
c) Tangible Net Worth equal to or greater than $0.00 from on and after
the Closing Date through and including December 31, 1998; greater
than $5.0 million from on and after January 1, 1999 through and
including December 31, 1999; $35 million thereafter;
d) Net Profit before Tax and interest expense to interest expense ratio
equal to or greater than 2.25 : 1.0.
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement:
o Executed Contingent Blocked Account Amendments;
o Executed Waiver of Landlord Lien for all premises in which a landlord
has the right of levy for rent;
o Executed Termination Notices of those Intercreditor Agreements dated
9/30/97 between Canpartners Investments IV, Robert Fleming, Inc. and IBM
Credit, and Harvey Najim, C. Joseph Mertens and IBM Credit;
o Fiscal year-end financial statements of Customers as of end of
Customers' prior fiscal year audited by an independent certified public
accountant;
o A Certificate of Location of Collateral whereby each Customer certifies
where Customer presently keeps or sells inventory, equipment and other
tangible Collateral;
Page 7 OF 31
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement: (continued
o Subordination or Intercreditor Agreements from all creditors having a
lien which is superior to IBM Credit in any assets that IBM Credit
relies on to satisfy Customers' obligations to IBM Credit;
o Listing of all creditors providing accounts receivable financing to
Customers;
o A Collateral Management Report in the form of Attachment F as of the
Closing Date;
o A Compliance Certificate as to Customers' compliance with the financial
covenants set forth in Attachment A as of the last fiscal month of
Customers for which financial statements have been published;
o An Opinion of Counsel substantially in the form and substance of
Attachment H whereby the Customers' counsel states his or her opinion
about the execution, delivery and performance of the Agreement and other
documents by the Customers to be delivered to IBM Credit within 90 days
of Closing Date;
o A Corporate Secretary's Certificate from each Customer substantially in
the form and substance of Attachment I certifying to, among other items,
the resolutions of Customer's Board of Directors authorizing borrowing
by Customer;
o Termination or release of Uniform Commercial Code filing by other
creditors as required by IBM Credit;
o A copy of an all-risk insurance certificate pursuant to Section 7.8 (B)
of the Agreement;
o Payment of the Closing Fee on the Closing Date;
Page 8 OF 31
<PAGE>
IWCF ATTACHMENT B TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
Customers: SAVOIR TECHNOLOGY GROUP, INC.
BUSINESS PARTNER SOLUTIONS, INC.
MCBA SYSTEMS, INC.
I. Liens.
(see attached)
II. Locations of Offices, Records and Inventory.
(A) Principal Place of Business and Chief Executive Office
Corporate Office
254 E. Hacienda Avenue
Campbell, CA 95008
(B) Locations of Assets, Inventory and Equipment (including warehouses)
Location Leased (Y/N)
1) 254 East Hacienda Avenue YES
Campbell, CA 95008
2) 44951 Industrial YES
Fremont, CA 94538
3) 888 Isom Road YES
San Antonio, TX 78216
4) 139 Newbury Street YES
Framingham, MA 01701
5) 341 Shore Drive YES
Burr Ridge, Il 60521
6) 10 Holland YES
Irvine, CA 92618
7) 8001 Angling Road YES
Kalamazoo, MI 49002
8) 3715 Parkmoor Village Drive #103 YES
Co Springs, CO 80917
9) 5051 Peach Tree Corners Circle YES
Norcross, GA 30092
10) 12029 Isom Road YES
San Antonio, TX 78216
Page 9 OF 31
<PAGE>
11) 5144 Droinningens Gade NO
St. Thomas, VI 00802
12) 6550 North Loop, 1604 East YES
San Antonio, TX 78247
13) 4955 Corporate, Ste 300 YES
Huntsville, AL 35805
14) 801 South Main Street YES
Wayland, MI 49348
EQUIPMENT/SALES LOCATION
1) 14985 Coleman Valley Road NO
Occidental, CA 95465
2) 5946 East Nichols Lane NO
Englewood, CO 80112
3) 7 Kings Lane NO
Essex, CT 06428
4) 143 Tredeau Street NO
Hartford, CT 06114
5) 708 West Grove NO
Arlington Heights, IL 60005
6) 11940 Morning Mist Drive NO
Alpharetta, GA 30005
7) 4201 Bridgemont Lane NO
Lexington, KY 40515
8) 5010 Dorsey Hall Drive #203 YES
Ellicott City, MD 21042
9) PO Box 959 NO
Pine Island, MN 55963
10) 2 Normandy Road NO
Marlton, NJ 08053
11) 10 Cedar Avenue NO
Lake Grove, NY 11756
12) 3625 Chiswick Court NO
Charlotte, NC 27609
13) 7612 Aubudon Drive NO
Raleigh, NC 27615
14) 710 Ramblewood Lane NO
Wilimington, NC 2840
Page 10 OF 31
<PAGE>
15) 299 West Granville Road NO
Worthington, OH 43085
16) 7865 SW Nimbus Avenue #29G YES
Beaverton, OR 97008
17) 12320 Willow Bend Drive NO
Austin, TX 78758
18) 4219 27th Avenue NO
Gig Harbor, WA 98335
19) 129 Smohalla Court NO
Waleska, GA 30183
20) 534 Willowgate Drive NO
Webster, NY 14580
21) 201 City Center Drive, Suite 400 NO
Mississauga, ON L5B 2T4
22) 1987 E. Roxboro Road NO
Atlanta, GA 30324
23) 8558 S. Kilpatrick Avenue NO
Chicago, IL 60652
24) 2775 Avalon Avenue NO
Carlsbad, CA 92008
25) 15851 N. Dallas Pkwy., Ste 500 Office 561 NO
Dallas, TX 74248
26) 8888 Keystone Crossing, Ste 1300 NO
Indianapolis, IN 46240
27) 8511 NE Lauderdale Lane NO
Meridian, MS 39305
28) 1550 Rue Ampere, Suite #300 YES
Boucherville, Quebec J4B 7LA
III. Fictitious Names.
The Company has the following D.B.A. and subsidiary names STAR Technologies,
Inc., International Data Products, International Parts, IPI, Star Data
Systems, Business Partner Solutions, Inc., Business Partner Solutions LTD.,
Sirius Investments, Inc., MCBA Systems, Inc., UniDirect., VarCity and Think
Enterprise Solutions.
Page 11 OF 31
<PAGE>
IV. Organization.
(A) Subsidiaries
Name Jurisdiction Owner Percent
Owned
1) Western Micro DE Savoir Technology 100%
Technology, Inc. Group, Inc.
2) WMT Acquisition CA Western Micro 100%
Corp. Technology, Inc.
3) Star Management DE Savoir Technology 100%
Services, Inc. Group, Inc.
4) Sirius Investment, NV Star Management 100%
Inc. Services, Inc.
5) Business Partner TX Sirius Investment, 100%
Solutions, Inc. Inc.
6) INET Systems, Inc. TX Star Data Systems, 100%
Inc.
7) Star Data Virgin Star Data Systems, 100%
International, Inc. Islands Inc.
8) MCBA Systems, Inc. AL Star Data Systems, 100%
Inc.
9) Business Partner Canada Business Partner 100%
Solutions LTD Solutions, Inc.
Page 12 OF 31
<PAGE>
IWCF ATTACHMENT B TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
(B) Affiliates
Name Capacity
NONE
V. Judgments or Litigation.
The Company has no outstanding judgements or pending material litigation
not previously disclosed with the following exceptions:
* Case 768518 filed in Santa Clara Superior Court Worldcom Network
Systems, Inc. vs. Western Micro Technology, Inc. Amount =
$30,636.52
VI. Environmental Matters.
The Company as no material Environmental Matters not previously disclosed.
VII. Indebtedness.
The Company has no indebtedness other than trade creditors, creditors
involved in the normal course of doing business and various office operating
leases (i.e. copiers, faxes, cubicles, file cabinets, etc.).
VIII.
There are no modifications to the Total Net Worth formula described in
Attachment A, Section III.
Page 13 OF 31
<PAGE>
IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
COMPLIANCE CERTIFICATE
TO: IBM CREDIT CORPORATION
5000 EXECUTIVE PARKWAY
SUITE 450
SAN RAMON, CA 94583
The undersigned authorized officers of Savoir Technology Group, Inc.
("Savoir"), hereby certify on behalf of the Customers, with respect to the
Inventory and Working Capital Financing Agreement executed by and between
Customers and IBM Credit Corporation ("IBM Credit") on __________, 1998, as
amended from time to time (the "Agreement"), that (A) Customers have been in
compliance for the period from April 1 , 1998 to June 30, 1998 with the
financial covenants set forth in Attachment A to the Agreement, as demonstrated
below, and (B) no Default has occurred and is continuing as of the date hereof,
except, in either case, as set forth below. All capitalized terms used herein
and not otherwise defined shall have the meanings assigned to them in the
Agreement.
I. Financial Covenants.
FINANCIAL COVENANTS REQUIRED ACTUAL
Current Assets to 1.0 : 1.0 1.09
Current Liabilities through 12/31/98,
1.05 : 1.0
through 12/31/99,
1.10 : 1.0
thereafter
Net Profit After 0.9% through 12/31/98, 1.37%
Tax to Revenue 1.4% through 12/31/99,
1.5% thereafter
Tangible Net Worth $0.0 through 12/31/98, $9.8M
($MM) $5.0 through 12/31/99,
$35.0 thereafter
EBIT to 2.25 : 1.0 4.43
Interest Expense
Page 14 OF 31
<PAGE>
IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Calculation of Tangible Net Worth.
Total Assets MINUS Total Liabilities __$87,265__________
LESS:
goodwill __$69,817__________
organizational expenses ___________________
pre-paid expenses __$5,478___________
deferred charges, etc. ___________________
leasehold expenses __$1,350___________
all other __$738_____________
callable/redeemable preferred stock ___________________
officer, employee, director, stockholder __$50______________
and affiliate receivables
Total Tangible Net Worth $9,832 K
===================
Attached hereto are Financial Statements as of and for the end of the
fiscal quarter 6/30/98 ended on the applicable date, as required by Section 7.1
of the Inventory and Working Capital Financing Agreement.
Submitted by:
SAVOIR TECHNOLOGY GROUP, INC.
By:______________________________
Print Name:______________________
Title:___________________________
Page 15 OF 31
<PAGE>
IWCF ATTACHMENT E TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
Customers: SAVOIR TECHNOLOGY GROUP, INC.;
BUSINESS PARTNER SOLUTIONS, INC.;
MCBA SYSTEMS, INC.
AUTHORIZED SUPPLIERS
INGRAM MICRO, INC.
LEMARK INTERNATIONAL, INC.
IBM CORPORATION (MO)
IBM PRINTING SYSTEMS COMPANY (PCC)
PENNANT
TELXON CORPORATION
Page 16 OF 31
<PAGE>
IWCF ATTACHMENT F TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
SEE ATTACHED
(Customers Legal Name)
Collateral Management Report (CMR)
Accounts as of: (Date)
COLLATERAL STATUS
- -----------------
Oth. Gross Advance Net
Values Collateral % Collateral
1. Previous assigned A/R balance: $0
(previous CMR line 4) Date: __/__/__
2. Additions to A/R (2A+B): $0
A. New Billings $0
B. Adjustments $0
3. Deductions from A/R (3A+B+C): $0
A. Cash Receipts $0
B. Credits $0
C. Adjustments $0
4. New Assigned A/R balance (1+2-3): $0
5. A/R Aging Report (Date: __/__/__) $0
* * New Assigned A/R Balance and A/R Aging Report (Lines 4 and 5)
must equal * *
- -------------------------------------------------------------------------------
6. Less Adjustments: $0
A. Unapplied Cash $0
B. Other $0
7. Adj. assigned A/R balance (4-6): $0
8. Less Ineligible A/R: $0
A. A/R Over 90 Days $0
B. 50% Rule $0
C. Contra Accts (A/P Offset) $0
D. Other $0
E. __________ $0
F. __________ $0
G. __________ $0
H. __________ $0
9. Total A/R Eligible Collateral: $0 85% $0
(Line 7 - Line 8 X Advance Rate)
10. Other A/R Collateral
A. __________ $0 0% $0
B. __________ $0 0% $0
11. Inventory Collateral
A. IBM Credit Financed Eligible Inventory $0 0% $0
B. __________ $0 0% $0
C. __________ $0 0% $0
12. Other Collateral
A. RMA $0 0% $0
B. Price Protection $0 0% $0
C. __________ $0 0% $0
Page 17 OF 31
<PAGE>
D. __________ $0 0% $0
13 Total Net Eligible Collateral( 9+10+11+12) $0
- -------------------------------------------------------------------------------
LOAN STATUS
- -----------
Oth. Gross Advance Net
Values Collateral % Collateral
1. Net IBM Credit Outstandings $0
(1A-B-C-D-E-F-G-H-I+J)
A. Gross IBM Credit
Outstandings (RFS) $0
Less:
B. Suspense
C. Disputes
D. In Transit (_____ Days) $0
E. QSL / QLA $0
F. Other $0
G. __________ $0
H. __________ $0
I. __________ $0
Plus:
J. Product Received Not $0
Billed (RNB)
2. Funds in Lockbox (2A+B) $0
A. Cleared Funds $0
(transferred not posted)
B. Unavailable Funds (float) $0
3. Loan Balance (Line1 - Line 2) $0
4. Collateral Excess / Shortfall (Collateral $0
line 13 - Loan line 3):
(Loan balance available)
5. Advances from IBM Credit to Customers $0
(5A+B+C)
A. Cash Adv. from Lockbox $0
B. Cash Adv. from IBM Credit $0
C. WCO Cash Advance $0
6. New Adjusted O/S Balance (3+5) $0
7. Remaining Credit Line Availability $0
(Collateral line 14 - Loan line 6)
8. WCO Payment Advance $0
Signatures:
__________________________________________
Authorized Customer Signature (Date)
__________________________________________
IBM Credit Corporation (Date)
The above officer or delegated individual of (Customer's Legal Name) certifies
that he/she is authorized to provide this information on behalf of (Customer's
Legal Name) and agrees that to the best of his/her knowledge the information is
accurate.
Page 18 OF 31
<PAGE>
IWCF ATTACHMENT G TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT')
CERTIFICATE OF LOCATION OF COLLATERAL
The undersigned, the Chief Financial Officer of Savoir Technology
Group, Inc., Business Partner Solutions, Inc., MCBA Systems, Inc. ("Savoir"),
hereby certifies with reference to the Inventory and Working Capital Financing
Agreement,dated dated __________, 1998 between
("Savoir") and IBM Credit Corporation as follows:
(a) The following are all the locations where Savoir presently keeps or sells
inventory, equipment or other tangible Collateral:
LOCATION LEASE (YES/NO)
PRINCIPAL PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE
1) 254 East Hacienda Avenue YES
Campbell, CA 95008
WAREHOUSE/INVENTORY LOCATIONS
1) 254 East Hacienda Avenue YES
Campbell, CA 95008
2) 44951 Industrial YES
Fremont, CA 94538
3) 888 Isom Road YES
San Antonio, TX 78216
4) 139 Newbury Street YES
Framingham, MA 01701
5) 341 Shore Drive YES
Burr Ridge, Il 60521
6) 10 Holland YES
Irvine, CA 92618
7) 8001 Angling Road YES
Kalamazoo, MI 49002
8) 3715 Parkmoor Village Drive #103 YES
Co Springs, CO 80917
9) 5051 Peach Tree Corners Circle YES
Norcross, GA 30092
Page 19 OF 31
<PAGE>
10) 12029 Isom Road YES
San Antonio, TX 78216
11) 5144 Droinningens Gade NO
St. Thomas, VI 00802
12) 6550 North Loop, 1604 East YES
San Antonio, TX 78247
13) 4955 Corporate, Ste 300 YES
Huntsville, AL 35805
14) 801 South Main Street YES
Wayland, MI 49348
EQUIPMENT/SALES LOCATION
1) 14985 Coleman Valley Road NO
Occidental, CA 95465
2) 5946 East Nichols Lane NO
Englewood, CO 80112
3) 7 Kings Lane NO
Essex, CT 06428
4) 143 Tredeau Street NO
Hartford, CT 06114
5) 708 West Grove NO
Arlington Heights, IL 60005
6) 11940 Morning Mist Drive NO
Alpharetta, GA 30005
7) 4201 Bridgemont Lane NO
Lexington, KY 40515
8) 5010 Dorsey Hall Drive #203 YES
Ellicott City, MD 21042
9) PO Box 959 NO
Pine Island, MN 55963
10) 2 Normandy Road NO
Marlton, NJ 08053
11) 10 Cedar Avenue NO
Lake Grove, NY 11756
12) 3625 Chiswick Court NO
Charlotte, NC 27609
13) 7612 Aubudon Drive NO
Raleigh, NC 27615
Page 20 OF 31
<PAGE>
14) 710 Ramblewood Lane NO
Wilimington, NC 2840
15) 299 West Granville Road NO
Worthington, OH 43085
16) 7865 SW Nimbus Avenue #29G YES
Beaverton, OR 97008
17) 12320 Willow Bend Drive NO
Austin, TX 78758
18) 4219 27th Avenue NO
Gig Harbor, WA 98335
19) 129 Smohalla Court NO
Waleska, GA 30183
20) 534 Willowgate Drive NO
Webster, NY 14580
21) 201 City Center Drive, Suite 400 NO
Mississauga, ON L5B 2T4
22) 1987 E. Roxboro Road NO
Atlanta, GA 30324
23) 8558 S. Kilpatrick Avenue NO
Chicago, IL 60652
24) 2775 Avalon Avenue NO
Carlsbad, CA 92008
25) 15851 N. Dallas Pkwy., Ste 500 Office 561 NO
Dallas, TX 74248
26) 8888 Keystone Crossing, Ste 1300 NO
Indianapolis, IN 46240
27) 8511 NE Lauderdale Lane NO
Meridian, MS 39305
IN WITNESS WHEREOF, I have hereunto set my hand this day of________
_______________, 1998.
SAVOIR TECHNOLOGY GROUP, INC.;
BUSINESS PARTNER SOLUTIONS, INC.;
MCBA SYSTEMS, INC.
By:______________________________
Title:___________________________
Page 21 OF 31
<PAGE>
dd
ATTACHMENT H
SEE ATTACHED
{LETTERHEAD OF CUSTOMER'S COUNSEL}
{DATE}
IBM Credit Corporation
__________________________
__________________________
Re: ____________________
Ladies and Gentlemen:
We have acted as counsel for ____________________, a __________
corporation (the "Borrower") in connection with (A) the execution and delivery
of that certain Inventory and Working Capital Financing Agreement, dated as of
__________, 19__ (the "Financing Agreement"), by and among the Borrower and IBM
Credit Corporation ("IBM Credit"), and (B) the other agreements, instruments,
and documents executed and delivered by the Borrower in connection with the
Financing Agreement. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Financing
Agreement.
In this connection, we have examined the following documents:
(i) The Certificate of Incorporation and the By-laws of the
Borrower, each as amended to date;
(ii) The records of the proceedings taken by the Board of Directors of
the Borrower in connection with the execution, delivery, and performance of the
Financing Documents to which they are a party (as defined below);
(iii) The Financing Agreement;
(iv) The Contingent Blocked Account Amendment;
(v) Acknowledgement copies of the UCC-1 Financing Statements listed on
Exhibit A hereto (the "Financing Statements") executed by the Borrower naming it
as Debtor and IBM Credit as Secured Party and filed in the offices set forth on
Exhibit A;
(vi) {Additional Documents if necessary}
The documents referred to in clauses (iii) through (vi) above are
hereinafter referred to as the Financing Documents.
Page 22 OF 31
<PAGE>
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter--documents, and, regarding
documents executed by parties other than the Borrower, that those parties had
the power and the capacity to enter into, execute, deliver and perform all
obligations under such documents, the due authorization of all requisite action
with respect to such documents, and the validity and binding effect of such
documents upon such other parties.
As to any facts material to this opinion, we have relied upon the
representations and warranties of the Borrower contained in each of the
Financing Documents, and in certificates delivered by the Borrower pursuant to
each of the Financing Documents, statements, and representations of officers and
other representatives of the Borrower, and, as to the matters addressed therein,
certificates or correspondence from public officials. For purposes of the
opinion set forth in Paragraph 4, the term "Material Contracts" means the
agreements and instruments to which the Borrower is subJect which have been
identified to us by officers of the Borrower and set forth on Exhibit B hereto
as the agreements and instruments which are material to the business or
financial condition of the Borrower; and the term "Material Orders" means those
orders and decrees to which the Borrower is subject which have been identified
to us by officers of the Borrower and set forth in Exhibit C hereto as the
orders and decrees, agreements, and instruments which are material to the
business or financial condition of the Borrower.
As used herein, the term "UCC" refers to the Uniform Commercial Code as
in effect in the State of New York.
We are members of the bar in the State of __________ and express no
opinion as to the laws of any other jurisdiction except the General Corporation
Law of the State of __________ and the federal laws of the United States of
America.
Based on the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
1. Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and is
duly qualified and authorized to do business and in good standing as a foreign
corporation in each Jurisdiction where, to our knowledge, it presently is
engaged in business and is required to be qualified.
2. Borrower has all requisite corporate power and authority (a) to own,
lease, and operate its properties and assets and to carry on its business as now
being conducted; and (b) to execute, delivery, and performance of the Financing
Documents to which it is a party.
Page 23 OF 31
<PAGE>
3. All corporate action on the part of the Borrower requisite for the
execution, delivery, and performance of the Financing Documents to which it is a
party has been duly taken.
4. The execution, delivery, and performance by the Borrower of the
Financing Documents to which it is a party will not (a) violate, be in conflict
with, result in the breach of, or constitute (with due notice or lapse of time,
or both) a default under (i) the Certificate of Incorporation or By-laws of
Borrower or any resolution of its Board of Directors or any committee thereof,
(ii) any Material Contract, or (iii) any federal or state law (including,
without limitation, environmental or occupational health, and safety law),
regulation, rule, Material Order, or legal requirement of any federal, state, or
public authority or agency applicable to Borrower; or (b) result in the creation
or imposition of a lien of any nature whatsoever upon any of the Borrower's
property or assets other than as represented by the Financing Documents.
5. Borrower has obtained any and all consents, approvals, or other
authorizations required to be obtained pursuant to its Certificate of
Incorporation and By-laws in connection with the execution, delivery, and
performance of the Financing Documents. No consent, approval, or authorization
of or by any court, administrative agency, other governmental authority, or any
other Person is required in connection with the execution, delivery, and
performance by the Borrower of the Financing Documents that has not already been
obtained.
6. To our knowledge, there are no actions, proceedings, or
investigations pending or threatened against the Borrower which question the
validity of the Financing Documents to which it is a party or relating to the
transactions contemplated thereby.
7. Each of the Financing Documents has been duly executed and delivered
by duly authorized officer of the Borrower and constitutes the legal, valid, and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except that, in each case, (i) enforcement may be
subJect to and limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws now or hereafter in effect relating to creditors'
rights generally, (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought, and
(iii) certain of the remedial provisions including waivers with respect to the
exercise of remedies against the Collateral contained in the Financing Documents
may be unenforceable in whole or in part, but the inclusion of such provisions
does not affect the validity of the Financing Documents, each taken as a whole
and, the Financing Documents, each taken as a whole, contain adequate remedial
provisions for the practical realization of the security purported to be
afforded thereby.
Page 24 OF 31
<PAGE>
8. The Financing Agreement is effective to create in favor of IBM
Credit a valid security interest within the meaning of the UCC in the Collateral
as security for the obligations purported to be secured thereby; and (ii) the
Financing Statements are in appropriate form and upon filing in the state where
Customers' principal place of business and chief executive office is located
will result in a perfected security interest (as such term is defined in Section
9-303 of the UCC) of IBM Credit in the Collateral in which security interests to
which Article 9 of the UCC applies.
9. Borrower is not an "investment company" or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
This opinion is rendered solely to and for the benefit of IBM Credit in
connection with the execution and delivery of the Financing Documents and may
not be relied upon by any other person, firm, or corporation without our prior
written consent, except that it may be furnished to any prospective purchaser of
a participation in the rights of IBM Credit and may be furnished to and relied
upon by any Person which hereafter acquires such a participation.
This opinion is limited to laws as currently in effect on the date
hereto and to the facts as they currently exist. We assume no obligation to
revise, supplement or otherwise update this opinion.
Very truly yours,
Page 25 OF 31
<PAGE>
EXHIBIT A
UCC-1 FINANCING STATEMENT
Page 26 OF 31
<PAGE>
EXHIBIT B
MATERIAL CONTRACTS
Page 27 OF 31
<PAGE>
EXHIBIT C
MATERIAL ORDERS
Page 28 OF 31
<PAGE>
ATTACHMENT I
CORPORATE SECRETARY'S CERTIFICATE AS TO RESOLUTIONS
AUTHORIZING BORROWING BY CORPORATION
IBM CREDIT CORPORATION
_________________________
_________________________
_________________________
I, __________, certify that I am the Secretary of __________
____________________ ("Customer") and that I am custodian of the Customer's
organizational books and records, including the minutes of the meetings of the
Customer's Board of Directors. I further certify as follows:
1. Customer is a corporation organized under the laws of the State of
__________, and has its principal place of business at
_____________________________________________________________________________
_____________________________________________________________________________.
2. Customer is registered to conduct business or as otherwise required
in the following states and localities:
_____________________________________________________________________________
_____________________________________________________________________________
3. True and complete copies of the Customer's Articles of Incorporation
and By-laws ("Governing Documents") are delivered herewith, together with all
amendments and addenda thereto as in effect on the date hereof.
4. The following is a true, accurate and compared copy of a Resolution
(the "Resolution") adopted by the Customer's Board of Directors at a special
meeting thereof held on due notice at which there was present a quorum
authorized to adopt the Resolution and the entire proceedings of which were
proper and in accordance with the Customer's Governing Documents. The Resolution
was duly made, seconded and unanimously adopted, remains in full force and
effect and has not been revoked, annulled, amended or modified in any manner
whatsoever, and each authorization and empowerment contained in the Resolution
is permitted and proper under the Customer's Governing Documents:
"Resolved, that:
(a) Each executive or managing officer and agent of the Company
(each an "Authorized Person") is and shall be authorized and empowered,
separately or collectively, to obtain financing from IBM Credit Corporation, a
Delaware corporation ("IBM Credit") on behalf of the Company, from time to time,
ln amounts and upon terms and conditions as such Authorized Person deems proper,
and for that purpose: (1) to execute notes, financing statements and other
evidences of the Company's indebtedness with respect thereto; (2) to enter into
financing agreements, loan agreements, security agreements, pledge agreements
and any other agreements with IBM Credit and third parties relating to the terms
and
Page 29 OF 31
<PAGE>
conditions upon which any such financing may be obtained and to the security to
be furnished by the Company thereof; (3) to enter into, as lessor or lessee, or
to assign or sell any interest Company may have in, any lease or similar rental
agreement; (4) to modify, supplement or amend any such agreements, any such
terms or conditions in such agreements and any such security therefor; (5) to
grant powers of attorney, (6) to pledge, assign, guarantee, mortgage, consign,
grant security interest in and otherwise transfer to IBM Credit as collateral
security for any and all debts and obligations of the Company to IBM Credit or
its affiliates, whenever and however arising, any assets of this Company; (7) to
execute and deliver any and all assignments, schedules, transfers, endorsements,
contracts, guarantees, agreements, designations, consignments, deeds of trust,
mortgages, instruments of pledge or other instruments in respect thereof and to
make remittances and payments in respect thereof by checks, drafts or otherwise;
and (8) to do and perform all other acts and things deemed by such Authorized
Person to be necessary, convenient or proper to carry out any of the foregoing.
(b) The authorization contained herein shall apply whether or not
proceeds of any loans or advances made at the request of any Authorized Person
shall be paid or credited by IBM Credit to the Company or shall be paid or
credited to the individual order of any affiliates of the Company or other third
party, and IBM Credit shall be under no obligation to inquire as to the
application or disposition of the proceeds of any such loan or advance.
(c) Hereby ratified, approved, confirmed and consented to are all
that any Authorized Person has done or may do in the premises."
5. Appearing below are the names, titles and specimen signatures of at
least two Authorized Persons, as defined in the Resolution cited in the
preceding paragraph, (list at least three such Authorized Persons):
Authorized Person(s) Title Signature
(print) (print)
____________________________ ________________________ ________________________
____________________________ ________________________ ________________________
____________________________ ________________________ ________________________
____________________________ ________________________ ________________________
The foregoing is not intended to be a comprehensive or exclusive list of the
Customer's Authorized Persons. Upon request, Customer will promptly provide to
IBM Credit additional certificates containing the name, title and specimen
signature of other Authorized Persons, and IBM Credit may now and in the future
rely on the signature of any Authorized Person whether or not listed on this or
any other certificate or on the signature page(s) hereof. Nevertheless, it is
hereby certified that each name, title and signature appearing above or on the
signature page(s) hereof, is consistent with the books and records of the
Customer..
Page 30 OF 31
<PAGE>
IN WITNESS WHEREOF, I have signed this certificate this ______ day of
__________, 19__.
______________________________
Name: ______________________________
Page 31 OF 31
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,920
<SECURITIES> 0
<RECEIVABLES> 107,403
<ALLOWANCES> 774
<INVENTORY> 43,870
<CURRENT-ASSETS> 173,604
<PP&E> 10,410
<DEPRECIATION> 5,545
<TOTAL-ASSETS> 261,524
<CURRENT-LIABILITIES> 170,427
<BONDS> 0
0
20
<COMMON> 100
<OTHER-SE> 91,349
<TOTAL-LIABILITY-AND-EQUITY> 261,524
<SALES> 149,809
<TOTAL-REVENUES> 149,809
<CGS> 132,561
<TOTAL-COSTS> 132,561
<OTHER-EXPENSES> 12,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 605
<INCOME-PRETAX> 4,466
<INCOME-TAX> 2,179
<INCOME-CONTINUING> 2,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,287
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
