<TABLE>
<CAPTION>
U.S. Securities and Exchange Commission
Washington, D. C. 20549
---------------------
FORM 10-QSB
(Mark One)
<S> <C>
[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
...............................................................................
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ....... to ....................................................................
Commission File Number 0-13324
...................................................................................
QUESTRON TECHNOLOGY, INC.
.......................................................................................................................
(Exact name of small business issuer
as specified in its charter)
Delaware 23-2257354
......................................................................................................................
(State or other jurisdiction (I. R. S. Employer
of incorporation or organization) Identification Number)
6400 Congress Avenue, Suite 200A, Boca Raton, FL 33487
...............................................................................
(Address of principal executive offices)
(561) 241-5251
...........................................................
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days Yes X
...................
No
....................
As of November 6, 1998, there were 4,736,935 shares of the issuer's Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
.................... ....................
</TABLE>
778321.3
<PAGE>
<TABLE>
<CAPTION>
QUESTRON TECHNOLOGY, INC.
INDEX
Page No.
<S> <C>
PART I. Financial Information............................................................. 3
Item 1. Financial Statements (Unaudited).................................................. 3
Consolidated Balance Sheet -
At September 30, 1998 and December 31,
1997..................................................................... 3
Consolidated Statement of Operations -
For the Three Month and Nine Month Periods Ended
September 30, 1998 and 1997.............................................. 4
Consolidated Statement of Cash Flows -
For the Nine Month Periods Ended September 30, 1998
and 1997................................................................. 5
Notes to Consolidated Financial Statements............................... 6 - 11
Item 2. Management's Discussion and Analysis or Plan of Operation......................... 12 - 15
PART II. Other Information................................................................. 16
SIGNATURES........................................................................................ 17
</TABLE>
778321.3
2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
September 30, December 31,
1998 1997
----------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 87,587 $ 875,080
Accounts receivable, less allowance for
doubtful accounts of $138,646 and $93,561, respectively 10,735,414 4,740,678
Other receivables 61,866 77,733
Inventories 17,284,914 8,415,777
Other current assets 477,625 158,597
----------------- -----------------
Total current assets 28,647,406 14,267,865
Property and equipment - net 1,452,292 910,988
Cost in excess of net assets of businesses acquired,
less accumulated amortization of $978,743 and $549,566, respectively 32,910,866 16,549,726
Deferred income taxes 2,927,012 3,192,947
Other assets 2,420,611 273,321
Total assets $ 68,358,187 $ 35,194,847
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,186,022 $ 2,378,381
Accrued expenses 1,753,597 839,514
Income taxes payable 1,209,317 201,477
Current portion of long-term debt 2,046,111 1,801,667
----------------- -----------------
Total current liabilities 10,195,047 5,221,039
Deferred income taxes payable 373,754 182,552
Long-term debt 30,566,428 9,893,521
----------------- -----------------
Total liabilities 41,135,229 15,297,112
----------------- -----------------
Commitments and contingencies
Common stock subject to put option agreement 362,343 622,857
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000
shares; none issued in 1998 and 1,150,000 issued in 1997 -- 11,500
Common stock, $.001 par value; authorized 20,000,000
shares; issued 4,736,935 shares in 1998 and 2,122,439 in 1997 4,732 2,122
Additional paid-in capital 39,830,354 33,462,524
Accumulated deficit (12,618,993) (13,845,790)
----------------- -----------------
27,216,093 19,630,356
Less: Treasury stock, 11,849 shares, at cost (355,478) (355,478)
----------------- -----------------
Total shareholders' equity 26,860,615 19,274,878
----------------- -----------------
Total liabilities and shareholders' equity $ 68,358,187 $ 35,194,847
================= =================
See notes to Consolidated Financial Statements.
</TABLE>
778321.3
3
<PAGE>
<TABLE>
<CAPTION>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 17,799,542 $ 6,645,650 $ 38,871,478 $ 15,738,987
-------------- -------------- -------------- --------------
Operating costs and expenses:
Cost of products and services sold 10,660,308 4,048,925 23,222,131 9,508,193
Selling, general & administrative expenses 4,053,074 1,692,182 9,116,655 4,212,025
Depreciation and amortization 322,296 127,325 655,455 308,752
15,035,678 5,868,432 32,994,241 14,028,970
-------------- -------------- -------------- --------------
Operating income 2,763,864 777,218 5,877,237 1,710,017
Interest expense 1,008,785 79,433 1,621,558 206,532
-------------- -------------- -------------- --------------
Income before income taxes 1,755,079 697,785 4,255,679 1,503,485
Provision for income taxes 719,582 288,185 1,744,828 620,939
Net income $ 1,035,497 $ 409,600 $ 2,510,851 $ 882,546
============== ============== ============== ==============
Net income $ 1,035,497 $ 409,600 $ 2,510,851 $ 882,546
Deduct: Preferred stock dividend 99,185 33,063 165,311 99,189
Imputed non-cash preferred stock dividend 663,510 192,329 1,075,988 346,304
-------------- -------------- -------------- --------------
Net income used in per common share calculation $ 272,802 $ 184,208 $ 1,269,552 $ 437,053
============== ============== ============== ==============
Net income per common share (*) $ .06 $ .11 $ .31 $ .28
============== ============== ============== ==============
Net income per diluted common share (*) $ .06 $ .11 $ .31 $ .28
============== ============== ============== ==============
Average number of common shares outstanding 4,738,766 1,646,636 4,099,800 1,578,436
============== ============== ============== ==============
Average number of diluted common shares outstanding 4,807,210 3,801,597 4,807,796 2,870,122
============== ============== ============== ==============
(*) Net income per common share and net income per diluted common share for the
three and nine month periods ended September 30, 1998 reflect deductions for
preferred stock dividends, including one-time, non-cash dividends associated
with the conversion of preferred stock into common stock. Before such
deductions, net income per common share was $.22 and $.61 for the three and nine
month periods ended September 30, 1998, respectively; and net income per diluted
common share was $.22 and $.52 for the three and nine month periods ended
September 30, 1998, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
778321.3
4
<PAGE>
<TABLE>
<CAPTION>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
September 30, September 30,
1998 1997
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,510,851 $ 882,546
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 655,455 308,752
Provision for doubtful accounts 39,085 62,093
Recognition of income tax benefit of net
operating loss carryforward 265,935 435,064
Change in assets and liabilities:
Increase in accounts receivable (3,316,642) (838,531)
Decrease in other receivables 15,867 114,205
Increase in inventories (4,194,867) (303,490)
Increase (decrease) in accounts payable 1,217,985 (227,436)
Increase in accrued expenses 522,967 561,271
Increase in income taxes payable 1,007,840 45,065
Increase in deferred income taxes 191,202 34,811
(Increase) decrease in prepaid expenses and other assets (303,768) 194,065
--------------------- -------------------
Net cash (used) provided by operating activities (1,388,090) 1,268,415
--------------------- -------------------
Cash flows from investing activities:
Net cash consideration paid for acquired business (17,672,524) (13,083,485)
Acquisition of property and equipment (568,769) (78,759)
Net cash used for investing activities (18,241,203) (13,162,244)
--------------------- --------------------
Cash flows from financing activities:
Proceeds from borrowings under revolving facility 5,647,799 --
Proceeds from convertible preferred stock unit offering -- 6,900,000
Proceeds from capital lease for computer system 371,228 --
Proceeds from long-term debt financing 30,000,000 10,000,000
Fees and expenses associated with long-term debt financing (1,976,300) --
Notes issued for acquired businesses -- 625,000
Costs associated with convertible preferred stock unit offering -- (1,260,447)
Repayment of long-term debt (9,583,334) (1,375,000)
Repayment of revolving facilities (5,472,340) (2,143,747)
Payments on capital leases (63,943) --
Payments on note issued for acquired business (81,310) (29,668)
--------------------- ---------------------
Net cash provided by financing activities 18,841,800 12,716,138
--------------------- ---------------------
(Decrease) increase in cash and cash equivalents (787,493) 822,309
Cash and cash equivalents at beginning of period 875,080 258,548
--------------------- ---------------------
Cash and cash equivalents at end of period $ 87,587 $ 1,080,857
===================== =====================
See Notes to Consolidated Financial Statements.
</TABLE>
778321.3
5
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Note 1. Basis of presentation.
The accompanying unaudited consolidated financial statements
include the accounts of the Company and its subsidiaries. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the Securities and Exchange Commission's instructions for a Quarterly Report on
Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Management believes that all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. The consolidated balance sheet at December 31, 1997
reflects the audited balance sheet at that date. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1997.
Note 2. Acquisition of Webb Distribution.
In March 1997, the Company acquired 100% of the issued and
outstanding capital stock of Comp Ware, Inc. d/b/a Webb Distribution ("Webb"), a
privately owned company. The business of Webb is substantially similar to the
fastener, electronic hardware, and related products value-added distribution
business of the Company, serving customers in the high-technology equipment
manufacturing industry. The purchase price for Webb consisted of:
(i) $3,250,000 in cash;
(ii) Note A in the amount of $375,000. Principal and
interest at the rate of 10% are due and payable 18
months from the effective date of the closing;
(iii) Note B in the amount of $375,000. Principal and
interest at the rate of 10% are payable monthly over
five years from the effective date of the closing;
and
(iv) 1,500,000 Series IV Warrants (the "Webb Warrants")
issued to the majority shareholder of Webb as a down
payment under the Stock Purchase Agreement.
6
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Such acquisition was effected pursuant to a Stock Purchase Agreement
dated as of December 16, 1996. The Company has accounted for such acquisition
using the purchase method of accounting. In connection with this acquisition,
the Company recorded $3,723,277 of cost in excess of net assets of the business
acquired.
In connection with the sale of the Webb warrants by the majority
shareholder of Webb, Note A (as described in (ii) above) was satisfied pursuant
to the terms of the acquisition agreement, effectively resulting in a $375,000
reduction in the cost of the acquisition.
Note 3. Convertible Preferred Stock Unit Offering.
In March 1997, the Company completed an Offering of 1,150,000 Units of
its securities. Each Unit consisted of one share of Series B Convertible
Preferred Stock and one Series IV Common Stock Purchase Warrant. The net
proceeds to the Company, after deducting underwriting discounts and other
expenses of the Offering, were $5,639,553. These proceeds were used in part to
finance the cash portion of the purchase price of Webb. The remaining cash
($2,389,553) was used to repay the outstanding balance on the Company's
revolving credit facility ($750,000) and to repay the outstanding balance on
Webb's revolving credit facility ($1,000,000), with the remaining balance
($639,553) retained by the Company for working capital. On July 2, 1998, the
1,150,000 shares of Series B Convertible Preferred Stock converted into
1,653,125 shares of common stock.
Note 4. Acquisition of Integrated Material Systems, Inc.
In June 1997, the Company acquired 100% of the issued and outstanding
capital stock of Integrated Material Systems, Inc. ("IMS"), a privately owned
company. The purchase price for IMS consisted of 50,000 shares of the Company's
common stock and an additional 75,000 shares of the Company's common stock to be
earned if IMS attains certain earnings targets. In addition, the acquisition
agreement calls for deferred purchase payments of up to $1,500,000 in cash based
on the future earnings of IMS, payable in increments not to exceed $300,000 per
year over five years.
Note 5. Acquisition of Power Components, Inc.
In September 1997, the Company purchased the net operating assets of
Power Components, Inc. ("PCI"), a privately owned Philadelphia distributor of
lithium batteries and customized battery packs and assemblies, through a
simultaneously acquired wholly-owned subsidiary. The purchase price for PCI
consisted of:
(i) $900,000 in cash;
(ii) 50,000 shares of the Company's common stock;
(iii) a note payable in the amount of $250,000;
7
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
(iv) 100,000 shares of the Company's common stock to be
earned if PCI attains certain earnings targets; and
(v) deferred purchase payments of up to $900,000 in cash
based on the future earnings of PCI, payable in
increments not to exceed $300,000 per year over three
years.
Such transactions were effected pursuant to an Asset Purchase Agreement
and a Stock Purchase Agreement dated September 4, 1997. The Company has
accounted for such transactions using the purchase method of accounting. In
connection with these transactions, the Company recorded $1,237,028 of cost in
excess of net assets of the business acquired.
Note 6. Acquisition of California Fasteners, Inc.
In September 1997, the Company acquired 100% of the issued and
outstanding capital stock of California Fasteners, Inc. ("Calfast"), a privately
owned company. The purchase price for Calfast consisted of:
(i) $6,594,441 in cash;
(ii) the assumption of $1,058,712 in debt net of cash on
hand;
(iii) 475,106 shares of the Company's common stock,
including 125,896 shares of the Company's common
stock which sellers of Calfast may put to the
Company, valued at $2,981,288;
(iv) up to $795,559 in cash to be paid if Calfast attained
certain earnings targets for the four month period
ended December 31, 1997, of which $600,000 was paid
in March 1998; and
(v) up to $3,500,000 (50% in cash and 50% in shares of
the Company's common stock) if Calfast attains
certain earnings targets for the year ending December
31, 1998.
The acquisition of Calfast was effected pursuant to a Stock Purchase
Agreement dated as of August 29, 1997. The Company has accounted for such
acquisition using the purchase method of accounting. In connection with this
acquisition, the Company recorded $8,355,314 of cost in excess of net assets of
the business acquired.
Note 7. Acquisition of Fas-Tronics, Inc.
In September 1998, the Company completed the acquisition of 100% of the
issued and outstanding capital stock of Fas-Tronics, Inc. ("Fas-Tronics"), a
privately owned company.
8
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
The purchase price for Fas-Tronics consisted of:
(i) $7,422,803 in cash;
(ii) 421,941 shares of the Company's common stock, valued
at $1,930,380; and
(iii) up to $4,000,000 (80% in cash and 20% in shares of
the Company's common stock) if Fas-Tronics attains
certain earnings targets for the twelve months ending
June 30, 1999.
The acquisition of Fas-Tronics was effected pursuant to a Stock
Purchase Agreement dated as of June 12, 1998, as amended, with an effective date
of July 1, 1998. The Company has accounted for such acquisition using the
purchase method of accounting. In connection with this acquisition, the Company
recorded $6,713,103 of cost in excess of net assets of the business acquired.
Note 8. Acquisition of Fortune Industries, Inc.
In September 1998, the Company completed the acquisition of 100% of the
issued and outstanding capital stock of Fortune Industries, Inc. ("Fortune"), a
privately owned company.
The purchase price for Fortune consisted of:
(i) $9,830,660 in cash;
(ii) 518,102 shares of the Company's common stock, valued
at $2,370,317; and
(iii) up to $2,000,000 (81% in cash and 19% in shares of
the Company's common stock) if Fortune attains
certain earnings targets for the year ending December
31, 1998.
The acquisition of Fortune was effected pursuant to a Stock Purchase
Agreement dated as of June 12, 1998, as amended, with an effective date of July
1, 1998. The Company has accounted for such acquisition using the purchase
method of accounting. In connection with this acquisition, the Company recorded
$9,491,148 of cost in excess of net assets of the business acquired.
9
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Note 9. Acquisitions - Pro forma Financial Information.
The following unaudited pro forma information presents the combined
operating results of the Company, Webb, CalFast, Fas-Tronics and Fortune as
though each of the acquisitions had been made on January 1, 1997. The unaudited
pro forma combined summary of operations includes the additional interest
expense on debt incurred in connection with the acquisitions as if the debt had
been outstanding from the beginning of the periods presented. The pro forma net
income per common share and diluted common share for both 1998 and 1997 assume
that all shares of common stock and Series IV Warrants of the Company
outstanding as of September 30, 1998 were outstanding as of January 1, 1997.
This pro forma information does not purport to be indicative of what would have
occurred had the acquisitions been completed as of January 1, 1997 or results
which may occur in the future:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
------------------ ------------------ ------------------ --------------------
Sales $ 17,799,542 $ 14,514,520 $ 50,031,939 $ 40,475,535
----------------- ----------------- ------------------ ------------------
Operating income 3,086,160 2,141,451 8,940,142 6,325,007
----------------- ----------------- ------------------ ------------------
Net income $ 1,035,497 $ 622,881 $ 3,186,454 $ 1,828,974
================= ================= ================== ==================
Net income $ 1,035,497 $ 622,881 $ 3,186,454 $ 1,828,974
Less:
Preferred stock dividends 99,185 33,063 165,311 99,189
Imputed non-cash dividend 663,510 192,329 1,075,988 346,304
----------------- ----------------- ------------------ ------------------
Net income used in per
Common share calculation $ 272,802 $ 397,489 $ 1,945,155 $ 1,383,481
================= ================= ================== ==================
Pro forma net income per common share (*) $ .06 $ .13 $ .41 $ .45
======== ======== ======== ========
Pro forma net income per diluted common
share (*) $ .06 $ .12 $ .41 $ .42
======== ======== ======== ========
Average number of common shares
outstanding 4,738,766 3,050,633 4,723,052 3,050,633
================= ================= ================== ==================
Average number of diluted
common shares outstanding 4,807,210 5,205,594 5,431,048 4,342,319
================= ================= ================== ==================
</TABLE>
(*) Pro forma net income per common share and pro forma net income per diluted
common share for the three and nine month periods ended September 30, 1998
reflect deductions for preferred stock dividends, including one-time, non-cash
dividends associated with the conversion of preferred stock into common stock.
Before such deductions, pro forma net income per common share was $.22 and $.67
for the three and nine month periods ended September 30, 1998, respectively, and
pro forma net income per diluted common share was $.22 and $.59 for the three
and nine month periods ended September 30, 1998, respectively.
10
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Note 10. Revolving Credit Facility and Long-Term Debt.
In connection with the acquisitions of Fas-Tronics and Fortune, the
Company entered into a Loan and Security Agreement with Madeleine L.L.C. and
Congress Financial Corporation (Florida). The agreement provides for a
$45,000,000 credit facility consisting of a five-year term loan for $30,000,000
and a $15,000,000 revolving credit facility. The term loan is divided into two
notes: Note A for $25,000,000 and Note B for $5,000,000. The loan agreement
includes a provision for the calculation of a borrowing base, which determines
the amount of borrowings available under the revolving facility. At September
30, 1998, $472,596 was borrowed and outstanding under the revolving facility. Of
the remaining amount of the $15,000,000 revolving credit facility, or
$14,527,404, $14,205,294 was available at September 30, 1998 for future working
capital needs. Interest on the revolving facility is due monthly at the prime
rate plus 1%, with a minimum rate of interest of 9% per annum. Interest on the
five-year term loan Note A is due monthly at the prime rate plus 1.5% with a
minimum rate of interest of 9.5% per annum. Interest on the five-year term loan
Note B is due monthly at the prime rate plus 3% with a minimum rate of interest
of 11% per annum.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
For the three month and nine month periods ended September 30, 1998.
The results of operations through September 30, 1998 include the
operating results of the Company's inventory logistics management business,
Questron Distribution Logistics, Inc. ("QDL"), its master distribution of
fasteners business, Integrated Material Systems, Inc. ("IMS") and its lithium
battery and battery pack distribution business, Power Components, Inc. (PCI").
QDL includes the operating results of Quest Electronic Hardware, Inc. ("Quest"),
Webb Distribution ("Webb"), California Fasteners, Inc. ("Calfast"), Fas-Tronics,
Inc. ("Fas-Tronics") and Fortune Industries, Inc. ("Fortune").
The Company's revenues for the three month and nine month periods ended
September 30, 1998 amounted to $17,799,542 and $38,871,478, respectively, which
represent a record level of revenues for the Company, compared with $6,645,650
and $15,738,987 for the comparable prior year periods. The significant growth in
the Company's revenues for such periods is primarily attributable to the
acquisitions of Calfast, Fas-Tronics and Fortune, as well as the internal growth
of the other QDL branches and the opening of a new QDL branch in Grand Rapids,
MI during the second quarter of 1998. The revenues associated with the acquired
businesses of Calfast, Fas-Tronics and Fortune for the three and nine month
periods ended September 30, 1998 amounted to $9,957,463 and $17,136,913,
respectively, compared with $939,119 for both the three and nine month periods
ended September 30, 1997.
The Company's operating income was $2,763,864 and $5,877,237,
respectively, for the three month and nine month periods ended September 30,
1998, compared with operating income of $777,218 and $1,710,017 for the
comparable prior year periods. The increase in operating income for the three
month and nine month periods ended September 30, 1998, compared with the
comparable prior year periods, is primarily due to the increased operating
income attributable to the acquired businesses, as well as internal growth.
Operating income as a percentage of sales for the three and nine month periods
ended September 30, 1998 amounted to 15.5% and 15.1%, respectively, compared
with 11.7% and 10.9% for the three month and nine month periods ended September
30, 1997, respectively. This improvement is attributable to the successful
integration of the acquired businesses and the resultant cost savings from the
combination of these businesses with the Company.
Interest expense, which reflects the cost of borrowings associated with
the acquisition of Calfast in September 1997 and the acquisitions of Fas-Tronics
and Fortune as of July 1, 1998, as well as borrowings associated with QDL's
working capital needs, for the three month and nine month periods ended
September 30, 1998 amounted to $1,008,785 and $1,621,558, respectively. For the
comparable periods of the prior year, the Company's results include interest
expense of $79,433 and $206,532, respectively. The increase in interest expense
principally reflects the costs of increased borrowings to
12
<PAGE>
complete the acquisitions of Calfast, Fas-Tronics and Fortune, and to support
the working capital needs of QDL.
The provision for income taxes for the three month and nine month
periods ended September 30, 1998 and 1997, respectively, reflects a federal
income tax provision at an effective rate of 35% and 35.1%, respectively, and a
state income tax provision at an effective rate of 6% and 6.2%, respectively,
for the states in which the Company does business.
Net income for the three month and nine month periods ended September
30, 1998 amounted to $1,035,497 and $2,510,851, respectively, compared with net
income of $409,600 and $882,546 for the comparable prior year periods. This
improvement reflects the increased operating income attributable to the acquired
businesses, as well as continued internal growth, partially reduced by increased
corporate expenses, interest expense, and income taxes.
Net income per share reflects a deduction for preferred stock
dividends, including one-time, non-cash dividends associated with the automatic
conversion of preferred stock into common stock. The preferred stock converted
into common stock on July 2, 1998, causing the acceleration of the amortization
of the imputed one-time, non-cash dividend. Accordingly, the common stock into
which the preferred stock converted (1,653,125 shares of common stock) is
included in the common shares outstanding for the three months ended September
30, 1998 and is included for one quarter in the weighted average number of
common shares outstanding for the nine months ended September 30, 1998. The
effect of this one-time, non-cash dividend is anti-dilutive, accordingly, the
presentation of net income per diluted common share is presented on the face of
the income statement as the same amount as net income per common share. Before
such deduction, however, the net income per diluted common share is $.22 and
$.52 for the three months and nine months ended September 30, 1998,
respectively. Net income per common share and net income per diluted common
share in the fourth quarter of 1998 will not be impacted by such non-cash
dividends.
Liquidity and Capital Resources
At September 30, 1998, the Company had $87,587 in cash and short-term
investments, compared to $875,080 as of December 31, 1997. As of September 30,
1998, the Company had working capital of $18,411,641, compared with working
capital of $9,046,826 as of December 31, 1997.
For the nine months ended September 30, 1998, the net cash used by the
Company's operating activities amounted to $1,388,090, principally reflecting
the increase in inventories, receivables, prepaid expenses and other assets,
offset in part by the profits of the Company and the increases in accounts
payable, accrued expenses, income taxes payable and deferred income taxes.
For the nine months ended September 30, 1998, the net cash used in the
Company's investing activities amounted to $18,241,203, including $17,066,558
net cash
13
<PAGE>
consideration paid in connection with the acquisitions of Fas-Tronics and
Fortune and $600,000 net cash consideration paid in connection with the deferred
purchase price of Calfast. The Company also had capital expenditures $568,679
for the acquisition of fixed assets, $392,040 of which represents the purchase
and installation of a new on-line, real-time computer system. The Company does
not have significant commitments for capital expenditures as of September 30,
1998 and no significant commitments are anticipated for the next twelve months.
For the nine months ended September 30, 1998, the net cash provided by
the Company's financing activities amounted to $18,841,800, which consists of
$30,000,000 of bank financing associated with the acquisitions of Fas-Tronics
and Fortune and the refinancing of existing bank debt, $5,647,799 of bank
borrowings under the Company's revolving credit facility, as well as $371,228 of
net proceeds from a capital lease for the purchase of the Company's computer
system, reduced by long-term debt principal payments of $9,583,334, revolving
facility repayments of $5,472,340, fees and expenses associated with the bank
financing of $1,976,300, principal payments of $63,943 on various capital leases
and principal payments of $81,310 on notes issued for acquired businesses.
In connection with the acquisitions of Fas-Tronics and Fortune, the
Company entered into a $45,000,000 Loan and Security Agreement with Madeleine
L.L.C. and Congress Financial Corporation (Florida) providing for term debt of
$30,000,000 and a revolving credit facility of $15,000,000. At September 30,
1998, $472,596 was borrowed and outstanding under the revolving facility. Of the
remaining amount of the $15,000,000 revolving credit facility, or $14,527,404,
$14,205,294 was available at September 30, 1998 for future working capital
needs. Amounts outstanding under the revolving facility bear interest at a rate
equal to 1.0% above the lender's prime rate with a minimum rate of interest of
9% per annum. As of November 10, 1998, the interest rate under the revolving
facility was 9%. In order to secure the obligations of the Company and its
subsidiaries under the revolving facility and the related term loan facility
under the loan and security agreement with the lender, the Company entered into
a stock pledge agreement with the lender whereby the Company pledged to the
lender the shares of capital stock of each of its subsidiaries at the date of
such agreement and any shares of its subsidiaries in which the Company may
thereafter acquire an interest. In addition, the Company and its subsidiaries
granted a security interest in substantially all of their assets to the lender.
The Company intends to continue to identify and evaluate potential
merger and acquisition candidates engaged in businesses complementary to its
business. While certain of such additional potential acquisition opportunities
are at various stages of consideration and evaluation, none is at any definitive
stage at this time. Management believes that its working capital, funds
available under its credit agreement, and funds generated from operations will
be sufficient to meet its obligations through 1999, exclusive of cash
requirements associated with any business acquisitions.
Certain information contained in this report on Form 10-QSB includes
"Forward-Looking Statements" within the meaning of the Private Securities
Litigation Reform Act
14
<PAGE>
of 1995 and is subject to certain risks and uncertainties, including those "Risk
Factors" set forth in the Company's current annual report on Form 10-KSB for the
year ended December 31, 1997. 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 release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect unanticipated events or developments.
Readiness for Year 2000 Compliance
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. It may also include additional business and
competitive differentiation. Aside from the well-known calculation problems with
the use of 2-digit date formats as the year changes from 1999 to 2000, the Year
2000 is a special case leap year and in many organizations using older
technology, dates were used for special programmatic functions.
The Year 2000 issue may affect the Company's internal systems,
including information technology (IT) and non-IT systems. While the Company's IT
system is prepared to handle all dating implications associated with the new
millenium, the Company's management is presently engaged in an ongoing
assessment of the readiness of all its systems for handling the Year 2000.
Although the assessment is still underway, management currently believes that it
will be successful in identifying and resolving any potential deficiencies in
its non-IT systems with respect to the Year 2000 issue by June 1999 and that all
such material systems will be compliant by the Year 2000 and that the cost to
address the issues is not material. Nevertheless, the Company expects to assess
its need to create contingency plans during 1999 for certain internal systems in
the event management determines that such contingency plans may become
warranted.
All organizations dealing with the Year 2000 issue must address the
effect this issue will have on their third-party supply chain. The Company plans
to also undertake steps to identify whether its vendors have sufficiently
identified and are taking steps to address the Year 2000 issue. Management is
presently formulating a survey and plan for working with key third-parties to
understand their ability to continue providing services and products through the
change to 2000. The Company will work directly with its key vendors,
distributors, and resellers, and coordinate its action with respect to the Year
2000 issue with them, if necessary, to avoid any business interruptions in 2000.
For these key third-parties, contingency plans may be required.
The Company's management believes the impact of the Year 2000will not
cause any material disruptions in the Company's operations. However, the impact
of such potential disruptions is difficult to discern.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
On June 30, 1998, the Company filed an amendment to the
Certificate of Designation of the Company with the Secretary of State of the
State of Delaware, providing that (i) each share of the Company's Series B
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock") would automatically convert as of the close of business on July 2, 1998
(the "Conversion Date"), without any action on the part of the holder thereof or
the Company, into 1.4375 shares of common stock, par value $.001 ("Common
Stock"); (ii) holders of the Series B Preferred Stock would be entitled, when
and as declared by the Board of Directors of the Company (the "Board"), to
receive an annual dividend per share equal to $0.115 per share; (iii) such
dividends would accrue from March 4, 1997 and would be payable on March 4, 1998
and on the Conversion Date (payable with respect to a full year), in cash or
shares of Common Stock of the Company; (iv) the aforementioned dividends would
be cumulative and no dividends would be paid or set apart in respect of the
Common Stock or any other class of securities which ranks junior to the Series B
Preferred Stock unless and until all accrued and unpaid dividends upon such
Series B Preferred Stock had been paid or set apart in full; and (v) no interest
would accrue with respect to dividends in arrears.
On the Conversion Date, each share of Series B Preferred Stock
was converted into Common Stock at a rate of 1.4375 shares of Common Stock and
received $0.115 per share in Common Stock for the related dividend.
On October 23, 1998, the Board (i) created a series of
preferred stock, par value $.01 per share, of the Company (the "Series A Junior
Participating Preferred Stock"), with the designation and number of shares
thereof and other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications, limitations
and restrictions thereof set forth in the Certificate of Designation of Series A
Junior Participating Preferred Stock of the Company, filed with the Secretary of
State of the State of Delaware on November 5, 1998 and (ii) declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
common stock, par value $.001 per share, of the Company (the "Common Stock").
The dividend is payable to stockholders of record on November 16, 1998. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share, of the Company (the "Preferred Stock") at a price of $30
per one one-thousandth of a share of Preferred Stock, subject to adjustment.
The description and terms of the Rights are set forth in a
Rights Agreement dated as of October 23, 1998, as the same may be amended from
time to time (the "Rights Agreement"), between the Company and American Stock
Transfer & Trust Company, as Rights Agent (the "Rights Agent"). The Rights
Agreement provides that, until the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(with certain exceptions, an "Acquiring Person") has acquired beneficial
ownership of 15% or more of the outstanding shares of Common Stock or (ii) 10
business days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding shares of Common Stock (or earlier expiration of the Rights),
the Rights will be transferred with and only with the Common Stock. A copy of
the Rights Agreement was filed with the Securities and Exchange Commission as an
Exhibit to a Registration Statement on Form 8-A with the Securities and Exchange
Commission on November 6, 1998.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits.
See Exhibit Index immediately following the signature
page.
b) Reports on Form 8-K.
During the fiscal quarter ended September 30, 1998, the
Company filed a Current Report on Form 8-K, dated
September 24, 1998, (i) reporting under Item 2
"Acquisition or Disposition of Assets" the acquisitions of
Fas-Tronics, Inc. a Texas corporation, and Fortune
Industries, Inc., a Texas corporation, (ii) reporting
under Item 4 "Changes in Registrant's Certifying
Accountant" the termination of Moore Stephens, P.C. as the
Company's independent accountant and the appointment of
Ernst & Young LLP as the Company's new independent
accountant and (iii) including under Item 7 "Financial
Statements and Exhibits" the Amendment to the Fas-Tronics
Stock Purchase Agreement, the Amendment to the Fortune
Stock Purchase Agreement and the Registration Rights
Agreement relating to the events described in Item 2,
together with the press release relating to the event
reported in Item 4.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUESTRON TECHNOLOGY, INC.
(1) Principal Executive Officer:
Date: November 16, 1998 /s/ Dominic A. Polimeni
------------------------------
Dominic A. Polimeni
Chief Executive Officer
(2) Principal Financial and Accounting
Officer:
Date: November 16, 1998 /s/ Milton M. Adler
------------------------------
Milton M. Adler
Treasurer
17
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this quarterly report on Form
10-Q:
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
--- ----------- --------
<S> <C>
3.0 Certificate of Incorporation, incorporated by reference to
Exhibit 3(i) to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1987 (File No. 0-13324)
3.1 Certificate of Amendment, dated March 20, 1985, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.3 Certificate of Amendment, dated June 9, 1989, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.4 Certificate of Correction, dated May 17, 1991, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.5 Certificate of Amendment, dated December 20, 1993, to Certificate
of Incorporation of the Registrant, incorporated by reference to
Exhibit 3(i) to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1993 (File No. 0-13324)
3.6 Certificate of Correction, dated July 19, 1994, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.7 Certificate of Amendment, dated April 2, 1996, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 3.5 to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1995 (File No. 0-13324)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
--- ----------- --------
<S> <C>
3.8 Certificate of Amendment, filed December 31, 1996, to Certificate
of Incorporation of the Registrant, incorporated by reference to
Exhibit 3.10 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
3.9 By-Laws of the Registrant, incorporated by reference to Exhibit
3b(ii) to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31,
1987 (File No. 0-13324)
3.10 Amendment to By-Laws of the Registrant, incorporated by reference
to Exhibit 3.4 of the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1992 (File No. 0-13324)
4.0 Specimen Common Stock Certificate, incorporated by reference to
Exhibit 4.0 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.1 Specimen Preferred Stock Certificate, incorporated by reference
to Exhibit 4.1 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.2 Certificate of Designations, Preferences and Rights of the
Registrant's Series B Convertible Preferred Stock, incorporated
by reference to Exhibit 4.2 to Amendment No. 1 to the
Registrant's Form SB-2 filed with the Securities and Exchange
Commission on February 25, 1997 (File No. 333-18243)
4.3 Form of Series IV Warrant Agreement, incorporated by reference to
Exhibit 4.3 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.4 Form of Series III Warrant Agreement, dated as of November 7,
1994, incorporated by reference to Exhibit 10.22 to the
Registrant's Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324)
4.5 Form of Underwriters' Purchase Option, incorporated by reference
to Exhibit 4.5 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.6 Stock Purchase Warrant Certificate for Purchase of Common Stock
of Questron Technology, Inc., incorporated by reference to
Exhibit 4.6 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.7 Amended Certificate of Designation Establishing a Series of
Preferred Stock of Questron Technology, Inc., incorporated by
reference to Exhibit 4.7 to the Registrant's Quarterly Report on
Form 10-Q/SB for the three-month period ended June 30, 1998 (File
No. 0-13324)
4.8 Registration Rights Agreement, dated as of September 24, 1998, by
and between the Company and the persons listed on Schedule A
thereto, incorporated by reference to the Company's current
report on Form 8-K, filed with the Securities and Exchange
commission on October 8, 1998 (File No. 0-13324).
4.9 Certificate of Designation of Series A Junior Participating
Preferred Stock of Questron Technology, Inc.
10.1 1996 Stock Option Plan, incorporated by reference to Exhibit
10.19 to Amendment No. 1 to the Company's Registration Statement
on Form SB-2 filed with the Securities and Exchange Commission on
February 25, 1997 (File No. 333-18243)
10.2 Exchange Agreement, dated November 8, 1996 by and among the
Company, Gulfstream Financial Group, Inc. and Phillip D.
Schwiebert, incorporated by reference to Exhibit 10.21 to
Amendment No. 1 to the Registrant's Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on
February 25, 1997 (File No. 333-18243)
10.3 Stock Purchase Agreement dated as of December 16, 1996 relating
to Webb Distribution, Inc., incorporated by reference to Exhibit
2.0 to Amendment No. 1 to the Company' Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on
February 25, 1997 (File No. 333-18243).
10.4 Form of Underwriting Agreement, incorporated by reference to
Exhibit 2.0 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on February 25, 1997 (File No. 333-18243).
10.5 Stock Option Grant Agreement between the Company and Gulfstream
Financial Group, Inc. made as of November 8, 1996, incorporated
by reference to Exhibit 10.22 to the Registrant's Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission
for the fiscal year ended December 31, 1996 (File No. 0-13324).
10.6 Stock Option Grant Agreement between the Company and Phillip D.
Schwiebert made as of November 8, 1996, incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1996 (File No. 0-13324).
10.7 Amendment No. 4, dated as of April 9, 1997, to the Loan and
Security Agreement, dated as of March 31, 1995, between Silicon
Valley Bank and Quest Electronics Hardware, Inc., incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the three month period ended March 31, 1997 (File
No. 0-13324).
10.8 Stock Purchase Agreement dated as of August 29, 1997 relating to
the acquisition of all of the outstanding stock of California
Fasteners, Inc., incorporated by reference to the Company's
Current Report on Form 8-K filed October 7, 1997 (File No.
0-13324).
10.9 Asset Purchase Agreement dated September 4, 1997 relating to the
acquisition of substantially all of the assets of Power
Components, Inc. with the related Stock Purchase Agreement dated
September 4, 1997 relating to the acquisition of all of the stock
of AR Acquisition Company, incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB for the
three month period ended September 30, 1997 (File No. 0-13324).
10.10 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Gregory Fitzgerald, Valerie Fitzgerald and
Fas-Tronics, Inc., incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-QSB for the three month
period ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998 (File No. 0-13324).
10.11 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Fortune Industries, Inc. and the
Stockholders of the Company listed on Schedule 1.1 thereto (the
"Fortune Stock Purchase Agreement"), incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for
the three month period ended June 30, 1998 filed with the
Securities and Exchange Commission on August 14, 1998 (File No.
0-13324).
10.12 Letter Agreement, dated July 29, 1998, by and between the
Company, Gregory Fitzgerald, Valerie Fitzgerald and Fas-Tronics,
Inc., incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
June 30, 1998 filed with the Securities and Exchange Commission
on August 14, 1998 (File No. 0-13324).
10.13 Letter Agreement, dated July 29, 1998, by and between the
Company, Fortune Industries, Inc. and the Stockholders of the
Company listed on Schedule 1.1 to the Fortune Stock Purchase
Agreement, incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the three month
period ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998 (File No. 0-13324).
10.14 Second Amendment to the Fas-Tronics Stock Purchase Agreement,
incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on October
8, 1998 (File No. 0-13324).
10.15 Second Amendment to the Fortune Stock Purchase Agreement,
incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on October
8, 1998 (File No. 0-13324).
10.16 Rights Agreement dated as of October 23, 1998, between the
Company and American Stock Transfer & Trust Company, as Rights
Agent, incorporated by reference to the Company's Registration
Statement on Form 8-A, filed November 6, 1998 (File No. 0-13324).
10.17 Loan and Security Agreement dated as of September 24, 1998, by
and among the Company, Questron Distribution Logistics, Inc.,
Integrated Material Systems, Inc., Power Components, Inc.,
California Fasteners, Inc., Comp Ware, Inc., Fas-Tronics, Inc.,
Fortune Industries, Inc., each of the signatories which is a
signatory thereto, Congress Financial Corporation (Florida), as
administrative agent and Madeleine L.L.C., as collateral agent.
10.18 Amendment Number One to the Loan and Security Agreement, dated as
of November 2, 1998, by and among the Company, Questron
Distribution Logistics, Inc., Integrated Material Systems, Inc.,
Power Components, Inc., California Fasteners, Inc., Comp Ware,
Inc., Fas-Tronics, Inc., Fortune Industries, Inc., each of the
Lenders, Congress Financial Corporation (Florida), as
Administrative Agent and Madeleine L.L.C., as Collateral Agent.
27.1 Financial Data Schedule
</TABLE>
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
QUESTRON TECHNOLOGY, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Questron Technology, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on October 23, 1998 adopted the
following resolution creating a series of 10,000 shares of Preferred Stock
designated as "Series A Junior Participating Preferred Stock:"
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of
the Certificate of Incorporation, a series of Preferred Stock, par
value $.01 per share, of the Corporation be and hereby is created, and
that the designation and number of shares thereof and the voting and
other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:
Series A Junior Participating Preferred Stock
1. Designation and Amount. There shall be a series of Preferred Stock
that shall be designated as "Series A Junior Participating Preferred Stock," and
the number of shares constituting such series shall be 10,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series
A Junior Participating Preferred Stock to less than the number of shares then
issued and outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
772000.1
<PAGE>
2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders of
any shares of any class or series of stock of the Corporation ranking prior and
superior to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Series A Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June,
September and December, in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.001 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. The "Adjustment Number" shall initially be 1,000. In the event the
Corporation shall at any time after November 16, 1998 (i) declare and pay any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series
772000.1
<PAGE>
A Junior Participating Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 60 days prior to the date fixed for the payment
thereof.
3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred
Stock shall entitle the holder thereof to a number of votes equal to the
Adjustment Number on all matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as required by law, by Section 3(C) and by Section
10 hereof, holders of Series A Junior Participating Preferred Stock shall have
no special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
(C) If, at the time of any annual meeting of stockholders for
the election of directors, the equivalent of six quarterly dividends (whether or
not consecutive) payable on any share or shares of Series A Junior Participating
Preferred Stock are in default, the number of directors constituting the Board
of Directors of the Company shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of
the Company, the holders of record of the Series A Junior Participating
Preferred Stock, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears on
the Series A Junior Participating Preferred Stock have been paid or declared and
set apart for payment prior thereto, to vote for the election of two directors
of the Company, the holders of any Series A Junior Participating Preferred Stock
being entitled to cast a number of votes per share of Series A Junior
Participating Preferred Stock as is specified in paragraph (A) of this Section
3. Until the default in payments of all dividends which permitted the election
of said directors shall cease to exist, any director who shall have been so
elected pursuant to the next preceding sentence may be removed at any time,
without cause, only by the affirmative vote of the holders of the shares of
Series A Junior Participating Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If and when such
default shall cease to exist, the holders of the Series A Junior Participating
Preferred Stock shall be divested of the foregoing special voting rights,
subject to revesting in the event of each and every subsequent like default in
payments of dividends. Upon the termination of the foregoing special voting
rights, the terms of office of all persons who may have been elected directors
pursuant to said special voting rights shall forthwith terminate, and the number
of directors constituting the Board of Directors shall be reduced by two. The
voting rights granted by this Section 3(c) shall be in addition to any other
772000.1
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voting rights granted to the holders of the Series A Junior Participating
Preferred Stock in this Section 3.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeemer purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Junior Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of Series
A Junior Participating Preferred Stock, or to such holders and holders of any
such shares ranking on a parity therewith, upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such shares at
such time and in such manner.
5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired promptly after the acquisition
thereof. All such shares shall upon their retirement become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to any conditions and restrictions on issuance set forth
herein.
772000.1
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6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation, dissolution or winding up of the Corporation, voluntary or
otherwise, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount per share (the "Series A Liquidation Preference")
equal to the greater of (i) $10 plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (ii) the Adjustment Number times the per share amount of all
cash and other property to be distributed in respect of the Common Stock upon
such liquidation, dissolution or winding up of the Corporation.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of the Series A
Liquidation Preference and the liquidation preferences of all other classes and
series of stock of the Corporation, if any, that rank on a parity with the
Series A Junior Participating Preferred Stock in respect thereof, then the
assets available for such distribution shall be distributed ratably to the
holders of the Series A Junior Participating Preferred Stock and the holders of
such parity shares in proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the
Corporation into or with
another corporation nor the merger or consolidation of any other corporation
into or with the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 6.
7. Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the outstanding shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. No Redemption. Shares of Series A Junior Participating
Preferred Stock shall not be subject to redemption by the Company.
9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Preferred Stock as to the payment
of dividends and as to the distribution of assets upon liquidation, dissolution
or winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters.
10. Amendment. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Certificate of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series A Junior Participating Preferred Stock, voting separately as a class.
772000.1
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11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this 23rd day of October, 1998.
QUESTRON TECHNOLOGY, INC.
By: /s/ Dominic A. Polimeni
--------------------------------
Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
772000.1
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QUESTRON TECHNOLOGY, INC.
and its Subsidiaries
---------------------------------------
---------------------------------------
---------------------------------------
LOAN AND SECURITY AGREEMENT
Dated as of September 24, 1998
$45,000,000
---------------------------------------
---------------------------------------
---------------------------------------
CONGRESS FINANCIAL CORPORATION (FLORIDA), AS ADMINISTRATIVE AGENT
MADELEINE L.L.C., AS COLLATERAL AGENT
---------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. CREDIT FACILITY.............................................................................1
1.1 Revolving Credit Loans.............................................................1
1.2 Term Loans.........................................................................2
1.3 Discretionary Additional Term Loan.................................................3
SECTION 2. INTEREST, FEES AND CHARGES..................................................................3
2.1 Interest...........................................................................3
2.2 Computation of Interest and Fees...................................................4
2.3 Rate Elections.....................................................................5
2.4 LIBOR Option.......................................................................5
2.5 Fee Letter Fees....................................................................7
2.6 Administrative Agency Fee..........................................................7
2.7 [Intentionally Omitted]............................................................7
2.8 Unused Line Fee....................................................................7
2.9 [Intentionally Omitted]............................................................7
2.10 Audit and Appraisal Fees...........................................................7
2.11 Reimbursement of Expenses..........................................................7
2.12 Bank Charges.......................................................................8
SECTION 3. LOAN ADMINISTRATION.........................................................................8
3.1 Manner of Borrowing Revolving Credit Loans.........................................8
3.2 Payments..........................................................................11
3.3 Mandatory Prepayments.............................................................15
3.4 Application of Payments and Collections...........................................16
3.5 All Loans to Constitute One Obligation............................................16
3.6 Loan Account......................................................................16
3.7 Statements of Account.............................................................17
3.8 General Provisions................................................................17
3.9 Pro Rata Treatment................................................................17
3.10 Sharing of Payments, Etc..........................................................18
SECTION 4. TERM AND TERMINATION.......................................................................18
4.1 Term of Agreement.................................................................18
4.2 Termination.......................................................................19
SECTION 5. SECURITY INTERESTS.........................................................................19
5.1 Interest in Collateral............................................................19
5.2 Lien Perfection, Further Assurances...............................................20
5.3 [Intentionally Omitted]...........................................................20
SECTION 6. COLLATERAL ADMINISTRATION..................................................................20
6.1 General...........................................................................20
</TABLE>
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<S> <C> <C>
6.2 Administration of Accounts........................................................21
6.3 Administration of Inventory.......................................................23
6.4 Administration of Equipment.......................................................23
6.5 Payment of Charges................................................................24
SECTION 7. REPRESENTATIONS AND WARRANTIES.............................................................24
7.1 General Representations and Warranties............................................24
7.2 [Intentionally Omitted]...........................................................31
7.3 Survival of Representations and Warranties........................................31
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS........................................................31
8.1 Affirmative Covenants.............................................................31
8.2 Negative Covenants................................................................34
8.3 Specific Financial Covenants......................................................37
SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS....................................................38
9.1 Documentation.....................................................................39
9.2 Other Loan Documents..............................................................39
9.3 Certificates of Title.............................................................39
9.4 Approvals and Consents............................................................40
9.5 Certified Documents of Borrower...................................................40
9.6 Confirmation Searches.............................................................40
9.7 Opinion of Counsel................................................................40
9.8 Pay-Off Letter and UCC Termination Statements, Etc................................40
9.9 Projections.......................................................................41
9.10 Closing Date......................................................................41
9.11 Availability......................................................................41
9.12 No Litigation.....................................................................41
9.13 Acquisitions......................................................................41
9.14 [Intentionally Omitted]...........................................................41
9.15 Appraisals........................................................................41
9.16 Reference Checks..................................................................41
9.17 Pro Forma Balance Sheet...........................................................42
SECTION 9A. CONDITIONS PRECEDENT TO ALL CREDITS........................................................42
9A.1 No Default........................................................................42
9A.2 Representations and Warranties....................................................42
9A.3 Adverse Changes...................................................................42
9A.4 Injunctions.......................................................................42
SECTION 10. EVENTS OF DEFAULT, RIGHTS AND REMEDIES ON DEFAULT..........................................42
10.1 Events of Default.................................................................42
10.2 Acceleration of the Obligations...................................................45
10.3 Other Remedies....................................................................45
10.4 Remedies Cumulative, No Waiver....................................................46
SECTION 11. THE AGENTS.................................................................................47
</TABLE>
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<S> <C> <C>
11.1 Appointment Powers and Immunities; Delegation of Duties; Liability of
Agents............................................................................47
11.2 Reliance by Agent.................................................................49
11.3 Defaults..........................................................................49
11.4 Rights as a Lender................................................................50
11.5 Costs and Expenses; Indemnification...............................................50
11.6 Nonreliance on Agent and Other Lenders............................................51
11.7 Failure to Act....................................................................51
11.8 Resignation of Agent..............................................................52
11.9 Collateral Sub-Agents.............................................................52
11.10 Communications by Borrower........................................................52
11.11 Collateral Matters................................................................53
11.12 Restrictions on Actions by Administrative Agent and the Lenders; Sharing
of Payments.......................................................................54
11.13 Withholding Tax...................................................................54
11.14 Several Obligations; No Liability.................................................55
SECTION 12. MISCELLANEOUS..............................................................................56
12.1 Power of Attorney.................................................................56
12.2 Indemnity.........................................................................57
12.3 Amendments, Etc...................................................................57
12.4 Successors; Assignments and Participations........................................59
12.5 Concerning the Collateral and Related Loan Documents..............................62
12.6 Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information............................................62
12.7 Severability......................................................................63
12.8 Successors and Assigns............................................................63
12.9 Cumulative Effect, Conflict of Terms..............................................63
12.10 Execution in Counterparts.........................................................64
12.11 Notice............................................................................64
12.12 Lender Group's Consent............................................................65
12.13 Credit Inquiries..................................................................65
12.14 Certain Matters of Construction...................................................66
12.15 Entire Agreement..................................................................66
12.16 Interpretation....................................................................66
12.17 GOVERNING LAW; CONSENT TO FORUM...................................................66
12.18 WAIVERS BY BORROWER...............................................................67
</TABLE>
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made as of September 24,
1998, by and among QUESTRON TECHNOLOGY, INC., a Delaware corporation ("QTI"),
with its chief executive office and principal place of business at 6400 Congress
Avenue, Suite 200A, Boca Raton, Florida 33487, QUESTRON DISTRIBUTION LOGISTICS,
INC., a Delaware corporation ("QDLI"), with its chief executive office and
principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton,
Florida 33487, INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation
("IMSI"), with its chief executive office and principal place of business at
6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, POWER COMPONENTS,
INC., a Pennsylvania corporation ("PCI"), with its chief executive office and
principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton,
Florida 33487, CALIFORNIA FASTENERS, INC., a California corporation ("CFI"),
with its chief executive office and principal place of business at 6400 Congress
Avenue, Suite 200A, Boca Raton, Florida 33487, COMP WARE, INC., a Delaware
corporation doing business as Webb Distribution ("CWI"), with its chief
executive office and principal place of business at 6400 Congress Avenue, Suite
200A, Boca Raton, Florida 33487, FAS-TRONICS, INC., a Texas corporation ("FTI"),
with its chief executive office and principal place of business at 6400 Congress
Avenue, Suite 200A, Boca Raton, Florida 33487, FORTUNE INDUSTRIES, INC., a Texas
corporation ("FII"), with its chief executive office and principal place of
business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487 (QTI,
QDLI, IMSI, PCI, CFI, CWI, FTI, and FII, individually and collectively, and
jointly and severally, are referred in this Agreement and the other Loan
Documents as "Borrower"), each of the lenders that is a signatory to this
Agreement (together with its successors and permitted assigns, individually,
"Lender" and, collectively, "Lenders"), CONGRESS FINANCIAL CORPORATION
(FLORIDA), a Florida corporation, as administrative agent for the Lenders (in
such capacity, together with its successors, if any, in such capacity,
"Administrative Agent"), with an office at 777 Brickell Avenue, Suite 808,
Miami, Florida 33131, and MADELEINE L.L.C., a New York limited liability
company, as collateral agent for the Lender Group (in such capacity, together
with its successors, if any, in such capacity, "Collateral Agent"), with an
office at 450 Park Avenue, 28th Floor, New York, New York 10022. Capitalized
terms used in this Agreement have the meanings assigned to them in Appendix A
attached hereto. Accounting terms not otherwise specifically defined herein
shall be construed in accordance with GAAP, consistently applied.
CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and the other Loan
Documents, the Lenders agree to make a Total Credit Facility of (subject to
Section 1.3) up to $45,000,000 available upon Borrower's request therefor, as
follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Each Revolving Credit Lender
agrees, ratably in accordance with its respective Revolving Credit Commitment,
and subject to the satisfaction
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of the applicable conditions precedent set forth in Sections 9 and 9A hereof, to
make Revolving Credit Loans to Borrower from time to time, as requested by
Borrower in the manner set forth in Section 3.1.1 hereof, up to a maximum
principal amount at any time outstanding not to exceed such Lender's Pro Rata
Share (in accordance with its Revolving Credit Commitment) of an amount equal to
the lesser of (a) the Maximum Amount, or (b) the Borrowing Base at such time
minus the amount of reserves, if any, established by Administrative Agent as set
forth below. Administrative Agent shall have the right to establish reserves in
such amounts, and with respect to such matters, as Administrative Agent deem in
good faith necessary or appropriate, against the amount of Revolving Credit
Loans which Borrower may otherwise request under this Section 1.1.1, including,
without limitation, with respect to (i) price adjustments, damages, unearned
discounts, returned products or other matters for which credit memoranda are
issued in the ordinary course of Borrower's business, (ii) shrinkage, spoilage,
and obsolescence of Inventory, (iii) slow moving Inventory, (iv) sums chargeable
against Borrower's Loan Account as Revolving Credit Loans under any section of
this Agreement, (v) amounts owing by Borrower to any Person to the extent
secured by a Lien on, or trust over, any Property of Borrower, and (vi) such
other matters, events, conditions, or contingencies as to which Administrative
Agent, in its good faith sole credit judgment, determines reserves should be
established from time to time hereunder. The Revolving Credit Loans shall be
evidenced hereby and by the Revolving Notes, shall be secured by all of the
Collateral, and shall constitute Obligations.
1.1.2 Use of Proceeds. The Revolving Credit Loans shall
be used solely (a) on the Closing Date, for (i) the satisfaction in full of
existing Indebtedness of Borrower to Existing Lender, (ii) payment of
transactional costs, expenses, and fees incurred in connection with this
Agreement and the other Loan Documents, and (iii) funding the cash portion of
the purchase price of each of the Acquisitions, and (b) from and after the
Closing Date, for Borrower's general corporate purposes in a manner consistent
with the provisions of this Agreement (including funding (i) cash payments for
deferred purchase price adjustments pursuant to acquisition agreements
(irrespective of whether related to acquisitions consummated prior to the
Closing Date, the Acquisition Documents, or acquisition agreements related to
Permitted Acquisitions consummated after the Closing Date), and (ii) such cash
portion of the purchase price of Permitted Acquisitions as the Required Lenders
may permit in their sole and absolute discretion) and all applicable laws.
1.2 Term Loans.
1.2.1 Term Loan A. Lenders agree, ratably in accordance
with their respective Term Loan A Commitments, and subject to the satisfaction
of the applicable conditions precedent set forth in Sections 9 and 9A hereof, to
make term loans (collectively, "Term Loan A") to Borrower on the Closing Date in
an aggregate principal amount of $25,000,000, which Term Loan A shall be
repayable in accordance with the terms of Term Note A, shall be secured by all
of the Collateral, and shall constitute Obligations. The proceeds of Term Loan A
shall be used solely for the purposes set forth in Section 1.1.2 above.
1.2.2 Term Loan B. Lenders agree, ratably in accordance
with their respective Term Loan B Commitments, and subject to the satisfaction
of the applicable conditions precedent set forth in Sections 9 and 9A hereof, to
make term loans (collectively, "Term Loan B") to Borrower on the Closing Date in
an aggregate principal amount of
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$5,000,000, which Term Loan B shall be repayable in accordance with the terms of
Term Note B, shall be secured by all of the Collateral, and shall constitute
Obligations. The proceeds of Term Loan B shall be used solely for the purposes
set forth in Section 1.1.2 above.
1.3 Discretionary Additional Term Loan. Upon the written
request therefor by Borrower and the written approval by all Lenders, which
approval may be withheld or conditioned in the sole and absolute discretion of
any Lender, the Term Loan Lenders (or a subset of such Term Loan Lenders) may
make additional term loans to Borrower in an aggregate amount of up to an
additional $15,000,000 after the Closing Date, which additional term loans would
be repayable in accordance with terms and conditions satisfactory to all of the
Term Loan Lenders in their sole and absolute discretion (it being understood
that, in no event, would the repayment of such additional term loans following
an Event of Default be prior to the repayment of the Revolving Credit Loans),
shall be secured by Collateral Agent's Liens on all of the Collateral, and shall
constitute Obligations. The proceeds of such additional term loans shall be used
solely to fund the cash portions of such additional acquisitions by Borrower (if
any) as all of the Term Loan Lenders, Administrative Agent, and Collateral Agent
in their sole and absolute discretion may permit in writing. If and to the
extent that the Term Loan Lenders agree to make such additional term loans on
the conditions set forth above (including the non-impairment of the priority of
repayment of the Revolving Credit Loans), the Revolving Credit Lenders and
Administrative Agent agree to execute and deliver any amendment to this
Agreement, approved by Borrower, each of the Term Loan Lenders, Administrative
Agent, and Collateral Agent, that provides for the incurrence, securing, and
repayment of such additional term loans and permits the consummation of such
additional acquisitions as are to be consummated with the proceeds of such
additional term loans.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest.
(a) Term Loan A and Term Loan B. Interest shall
accrue on Term Loan A and be payable in accordance with the
terms of Term Note A. Interest shall accrue on Term Loan B and
be payable in accordance with the terms of Term Note B.
(b) Revolving Loans.
(i) During all times that a Base
Rate Election is in effect, interest shall accrue on
the principal amount of the Base Rate Revolving
Credit Portion outstanding at the end of each day at
the greater of (y) 9% per annum, and (z) a
fluctuating rate per annum equal to the Base Rate
plus 1%. The rate of interest set forth in the
foregoing clause (z) shall increase or decrease by
an amount equal to any increase or decrease in the
Base Rate, effective as of the opening of business
on the day that any such change in the Base Rate
occurs.
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(ii) During all times that a LIBOR
Rate Election is in effect, interest shall accrue on
the principal amount of the LIBOR Revolving Credit
Portions outstanding at the end of each day at the
greater of (y) 9% per annum, and (z) a rate per
annum equal to the LIBOR Rate applicable to the
relevant LIBOR Revolving Credit Portion for the
corresponding LIBOR Period plus the LIBOR Revolving
Credit Margin.
2.1.2 Default Rate of Interest. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, the
principal amount of all Loans shall bear interest at a rate per annum equal to
3% above the interest rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any Revolving Note
or Term Note and charged or collected pursuant to the terms of this Agreement or
pursuant to any Revolving Note or Term Note exceed the highest rate permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. If any provisions of this Agreement or
any Revolving Note or Term Note are in contravention of any such law, such
provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest and unused line
fees hereunder shall be calculated daily and shall be computed on the actual
number of days elapsed over a year of 360 days. For the purpose of computing
interest hereunder, all items of payment received by Administrative Agent for
the account of the Lender Group shall be deemed applied by Administrative Agent
on account of the Obligations (subject to final payment of such items) on the
Business Day of receipt by Administrative Agent of such items (in immediately
available funds) in Administrative Agent's Account.
2.3 Rate Elections. Unless one or more LIBOR Rate Elections by
Borrower are in effect, Borrower shall be deemed to have made an effective Base
Rate Election as to all of the Revolving Credit Loans, Term Loan A, and Term
Loan B. If one or more LIBOR Rate Elections have been made by Borrower and are
in effect, then Borrower shall be deemed to have made a LIBOR Rate Election as
to the Revolving Credit Loans, Term Loan A, or Term Loan B, as applicable, that
are the subject thereof and Borrower shall be deemed to have made an effective
Base Rate Election as to the balance of the Revolving Credit Loans, Term Loan A,
and Term Loan B that are not the subject thereof.
2.4 LIBOR Option.
(a) Upon the conditions that: (i)
Administrative Agent shall have received a LIBOR Request from
Borrower at least 3 Business Days prior to the first day of
the LIBOR Period requested, (ii) there shall have occurred no
change in applicable law which would make it unlawful for
Administrative Agent or any Revolving Credit Lender with
respect to Revolving Credit Loans or Collateral Agent or any
Term Loan Lender with respect to Term Loans to obtain deposits
of U.S. dollars in the London interbank foreign currency
deposits market, (iii) as of the date of the LIBOR Request and
the first day of the LIBOR Period, there shall
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exist no Default or Event of Default, (iv) Administrative
Agent with respect to Revolving Credit Loans or Collateral
Agent with respect to Term Loans is able to determine the
LIBOR Rate in respect of the requested LIBOR Period, or
Administrative Agent with respect to Revolving Credit Loans or
Collateral Agent with respect to Term Loans is able to obtain
deposits of U.S. dollars in the London interbank foreign
currency deposits market in the applicable amounts and for the
requested LIBOR Period, (v) as of the first date of the LIBOR
Period, there are no more than 4 outstanding LIBOR Portions,
including the LIBOR Portion being requested, and (vi) each
such election is in respect of a LIBOR Portion of not less
than $2,500,000 or an integral multiple thereof, then interest
on the LIBOR Portion requested during the LIBOR Period
requested will be based on the applicable LIBOR Rate.
(b) Each LIBOR Request shall be irrevocable
and binding on Borrower. Borrower shall indemnify the Lender
Group for any loss, penalty, or expense incurred by Lenders
due to failure on the part of Borrower to fulfill, on or
before the date specified in any LIBOR Request, the applicable
conditions set forth in this Agreement or due to the
prepayment of the applicable LIBOR Portion prior to the last
day of the applicable LIBOR Period, including, without
limitation, any loss (including loss of anticipated profits)
or expense incurred by reason of the liquidation or
redeployment of deposits or other funds acquired by the Lender
Group to fund or maintain the requested LIBOR Portion.
(c) If any Legal Requirement shall (i) make
it unlawful for Administrative Agent or any Revolving Credit
Lender with respect to Revolving Credit Loans, or Collateral
Agent or any Term Loan Lender with respect to Term Loans, to
fund through the purchase of U.S. dollar deposits any LIBOR
Portion, or otherwise give effect to its obligations as
contemplated under this Section 2.4, or (ii) impose on
Administrative Agent or any Revolving Credit Lender with
respect to Revolving Credit Loans, or Collateral Agent or any
Term Loan Lender with respect to Term Loans any costs based on
or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of such
member of the Lender Group which includes deposits by
reference to which the LIBOR Rate is determined as provided
herein or a category of extensions of credit or other assets
of such member of the Lender Group which includes any LIBOR
Portion, or (iii) impose on Administrative Agent or any
Revolving Credit Lender with respect to Revolving Credit
Loans, or Collateral Agent or any Term Loan Lender with
respect to Term Loans any restrictions on the amount of such a
category of liabilities or assets which such member of the
Lender Group may hold, then, in each such case, Administrative
Agent with respect to Revolving Credit Loans or Collateral
Agent with respect to Term Loans may, by notice thereof to
Borrower, terminate the LIBOR Rate Election. Any LIBOR Portion
subject thereto shall immediately bear interest thereafter at
the rate and in the manner provided for Base Rate Portions
pursuant hereto. Borrower shall indemnify the Lender Group
against any loss, penalty, or expense incurred by the Lender
Group due to liquidation or redeployment of deposits or other
funds
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acquired by the Lender Group to fund or maintain any LIBOR
Portion that is prepaid by Borrower or terminated hereunder.
(d) Lenders shall receive payments of
amounts of principal of and interest on the Loans with respect
to the LIBOR Portions free and clear of, and without deduction
for, any Taxes. If (i) Lenders shall be subject to any Tax in
respect of any LIBOR Portion, or any part thereof, or, (ii)
Borrower shall be required to withhold or deduct any Tax from
any such amount, the LIBOR Rate applicable to such LIBOR
Portion shall be adjusted by Administrative Agent on behalf of
the Lender Group to reflect all additional costs incurred by
the Lender Group in connection with the payment by the Lender
Group or the withholding by Borrower of such Tax and Borrower
shall provide Administrative Agent on behalf of the Lender
Group with a statement detailing the amount of any such Tax
actually paid by Borrower. Determination by Administrative
Agent on behalf of the Lender Group of the amount of such
costs shall, in the absence of manifest error, be conclusive.
If after any such adjustment any part of any Tax paid by the
Lender Group is subsequently recovered by the Lender Group,
the applicable members of the Lender Group shall reimburse
Borrower to the extent of the amount so recovered. A
certificate of an officer of Administrative Agent setting
forth the amount of such recovery and the basis therefor
shall, in the absence of manifest error, be conclusive.
2.5 Fee Letter Fees. Borrower shall pay to the Collateral
Agent the fees set forth in the Fee Letter in accordance with the terms thereof
and such fees are Obligations hereunder.
2.6 Administrative Agency Fee. Borrower shall pay to
Administrative Agent (for its sole and separate account), on the Closing Date
and on first day of each month thereafter, an administrative agency fee of
$2,000 per month. Such fee, once paid, shall be fully earned and nonrefundable.
2.7 [Intentionally Omitted]
2.8 Unused Line Fee. Borrower shall pay to Administrative
Agent (for its sole and separate account), a fee equal to 0.25% per annum of the
average monthly amount by which (a) the Maximum Amount exceeds (b) the Revolving
Facility Usage.
2.9 [Intentionally Omitted]
2.10 Audit and Appraisal Fees. Borrower shall pay to
Administrative Agent: (a) for the sole and separate account of Administrative
Agent, all out-of-pocket costs and expenses incurred by Administrative Agent in
connection with audits of Borrower's books and records related to the
Collateral; and (b) for the benefit of Collateral Agent for the sole and
separate account of Collateral Agent, all out-of-pocket costs and expenses
incurred by Collateral Agent in connection with (i) so long as no Event of
Default has occurred and is continuing, confirmations of Borrower's financial
and Collateral reporting, and (ii) upon the occurrence and during the
continuation of an Event of Default, confirmations of Borrower's financial and
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Collateral reporting and appraisals of the Collateral, plus, in each case, all
fees and expenses incurred by Collateral Agent in connection with any such
confirmations or appraisals of the Collateral commissioned by Collateral Agent
and performed by third party confirming parties and appraisers. All such fees,
costs, and expenses shall be payable pursuant to Section 3.1.3.
2.11 Reimbursement of Expenses. If, at any time or times
regardless of whether an Event of Default then exists, Administrative Agent,
Collateral Agent, or any Lender incurs legal or accounting expenses or any other
costs or out-of-pocket expenses in connection with (a) the negotiation and
preparation of this Agreement or any of the other Loan Documents, or any
amendment of or modification of this Agreement or any of the other Loan
Documents, (b) the administration of this Agreement or any of the other Loan
Documents and the transactions contemplated hereby and thereby, (c) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
the Lender Group, Borrower, or any other Person) in any way relating to the
Collateral, this Agreement or any of the other Loan Documents or Borrower's
affairs, (d) any attempt to enforce any rights of the Lender Group against
Borrower or any other Person which may be obligated to the Lender Group by
virtue of this Agreement or any of the other Loan Documents, or (e) any attempt
to inspect, verify, protect, preserve, restore, collect, sell, liquidate or
otherwise dispose of or realize upon the Collateral, then all such reasonable
legal and accounting expenses, other costs and out-of-pocket expenses of the
Lender Group shall be charged to Borrower. All amounts chargeable to Borrower
under this Section 2.11 shall be Obligations secured by all of the Collateral,
shall be payable on demand to Administrative Agent for the benefit of the
applicable members of the Lender Group, and shall bear interest from the date
such demand is made until paid in full at the rate applicable to Revolving
Credit Loans from time to time. Borrower also shall reimburse Collateral Agent
for expenses incurred by Collateral Agent in its administration of the
Collateral to the extent and in the manner provided in Section 6 hereof.
2.12 Bank Charges. Borrower shall pay to the Lender Group in
accordance with Section 3.1.1(b) any and all fees, costs, or expenses that the
Lender Group pays to a bank or other similar institution arising out of or in
connection with (a) the forwarding to Borrower or any other Person on behalf of
Borrower, by the Lender Group, of proceeds of Loans made by the Lender Group to
Borrower pursuant to this Agreement, and (b) the depositing for collection by
the Lender Group, of any check or item of payment received by or delivered to
the Lender Group on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings
under the credit facility established pursuant to Section 1.1 hereof shall be as
follows:
3.1.1 Loan Requests. A request for a Revolving Credit
Loan shall be made, or shall be deemed to be made, in the following manner: (a)
Borrower may give Administrative Agent notice of its intention to borrow, in
which notice Borrower shall specify the amount of the proposed borrowing and the
proposed borrowing date, no later than 11:00 a.m. (New York time) on the
proposed borrowing date (which also shall be a Business Day); provided, however,
that no such request may be made at a time when the conditions precedent set
forth in Section 9A hereof are not satisfied, and (b) the becoming due of any
amount required
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to be paid under this Agreement, the Fee Letter, any Revolving Note or Term
Note, or any other Loan Document, whether of principal or interest or for any
other Obligation, shall be deemed irrevocably to be a request for a Revolving
Credit Loan on the due date in the amount required to pay such principal,
interest, or other Obligation. As an accommodation to Borrower, Administrative
Agent may permit telephonic requests for Revolving Credit Loans and electronic
transmittal of instructions, authorizations, agreements, or reports to
Administrative Agent by Borrower. Unless Borrower specifically directs
Administrative Agent in writing not to accept or act upon telephonic or
electronic communications from Borrower, neither Agent nor any other member of
the Lender Group shall have any liability to Borrower for any loss or damage
suffered by Borrower as a result of Administrative Agent's honoring of any
requests, execution of any instructions, authorizations, or agreements, or
reliance on any reports communicated to it telephonically or electronically and
purporting to have been sent to Administrative Agent by Borrower, and
Administrative Agent shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
3.1.2 Funding by Lenders. Administrative Agent shall from
time to time, but no less frequently than weekly, notify each Revolving Credit
Lender of the date such Lender is to fund its Revolving Credit Loans and the
amount to be made available by it. If and to the extent that a Revolving Credit
Lender and Administrative Agent so agree, at Administrative Agent's discretion,
the amount to be made available by such Revolving Credit Lender on any date may
be netted against any amount owing to such Lender and otherwise payable by
Administrative Agent on account of payments received by it from Borrower on such
date. The amount to be made available by each Revolving Credit Lender on any
date shall be made available by it on such date to Administrative Agent at
Administrative Agent's Account, in immediately available funds, not later than
1:00 p.m. (New York time) on any day in the case of fundings of which such
Lenders have received notice not later than 11:00 a.m. (New York time) on such
day (or, if notice is received after such time, not later than 12:00 p.m. (New
York time) on the next succeeding Business Day). The obligation of each
Revolving Credit Lender to Administrative Agent (as opposed to Borrower) to fund
its Revolving Credit Loans on the date specified by Administrative Agent is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including (a) any set off counterclaim, recoupment, defense or other
right which such Lender may have against Administrative Agent, Borrower or any
other Person for any reason whatsoever, (b) the financial condition or prospects
of Borrower, (c) the failure of any other such Lender to make funds available to
Agent with respect to its Revolving Credit Loans, (d) the occurrence or
continuation of an Event of Default, whether the same shall occur before or
after Administrative Agent shall have made the Revolving Credit Loans, or (e)
any other circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing.
3.1.3 Disbursement by Administrative Agent. Borrower and
the Lender Group hereby irrevocably authorize Administrative Agent to disburse
the proceeds of each Revolving Credit Loan requested, or deemed to be requested,
pursuant to this Section 3.1 as follows: (a) the proceeds of each Revolving
Credit Loan requested under Section 3.1.1(a) hereof shall (subject to receipt by
Administrative Agent of funds from the Revolving Credit Lenders) be disbursed by
Administrative Agent in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of a written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by
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wire transfer to such bank account as may be agreed upon by Borrower and
Administrative Agent from time to time or elsewhere if pursuant to a written
direction from Borrower, and (b) the proceeds of each Revolving Credit Loan
requested under Section 3.1.1(b) hereof shall be charged to the Loan Account and
disbursed by Administrative Agent by way of direct payment of the relevant
interest or other Obligation.
3.1.4 [Intentionally Omitted]
3.1.5 Authorization. Borrower and the Lender Group hereby
irrevocably authorizes and directs Administrative Agent to charge to Borrower's
Loan Account hereunder, as a Revolving Credit Loan deemed made to Borrower, a
sum sufficient to pay all principal of Term Loans due and all interest accrued
on the Obligations during the immediately preceding month and to pay all costs,
fees, and expenses at any time owed by Borrower to the Lender Group hereunder or
under any of the Loan Documents (including the Fee Letter); provided, however,
that Administrative Agent may, but shall not be required to, so charge
Borrower's Loan Account during the existence of an Event of Default or if and to
the extent such charge would result in an Overadvance. Amounts advanced pursuant
to this Section shall be deemed to have been requested by Borrower pursuant to
Section 3.1.1(b), and the provisions of Sections 3.1.2 and 3.1.3 shall be
applicable to each such advance.
3.1.6 Settlements.
(a) Revolving Credit Loans and payments will
be settled among Administrative Agent and the Revolving Credit
Lenders according to such procedures as Administrative Agent
and such Lenders may agree in writing from time to time. These
procedures notwithstanding, each such Lender's obligation to
fund its portion of the Revolving Credit Loans made by
Administrative Agent to Borrower shall commence on the date
such Revolving Credit Loans are made by Administrative Agent.
Such payments to Administrative Agent will be made by such
Lenders without set-off, counterclaim or reduction of any
kind.
(b) Administrative Agent may require the
Revolving Credit Lenders to settle Revolving Credit Loans and
payments on a daily basis (or such lesser frequency as
Administrative Agent may determine) (each day of settlement
being a "Settlement Date"). Administrative Agent will advise
each Revolving Credit Lender by telephone or telecopy of the
amount of each such Lender's Pro Rata Share (in accordance
with its Revolving Credit Commitment) of the Revolving
Facility Usage as of the close of business of the Business Day
immediately preceding the Settlement Date. In the event that
payments are necessary to adjust such Lender's actual Pro Rata
Share (in accordance with its Revolving Credit Commitment) of
the Revolving Facility Usage as of any Settlement Date to
equal the amount of such Lender's required Pro Rata Share (in
accordance with its Revolving Credit Commitment) of the
Revolving Facility Usage, the party from which such payment is
due will pay the other, in same day funds, by wire transfer to
the other's account not later than the applicable time set
forth on Section 3.1.2.
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(c) If any such payment is not made to
Administrative Agent by any such Lender on the Settlement Date
applicable thereto to the extent required by the terms hereof,
such Lender shall be a Defaulting Lender and Administrative
Agent shall be entitled to recover for its account such amount
on demand from such Lender together with interest thereon at
the Defaulting Lenders Rate. Administrative Agent shall not be
obligated to transfer to a Defaulting Lender any payments made
by Borrower to Administrative Agent for the Defaulting
Lender's benefit on account of its Revolving Credit Loans. Any
such amounts payable to a Defaulting Lender shall instead be
paid to or retained by Administrative Agent. Administrative
Agent may hold and, in its discretion, re-lend to Borrower as
Revolving Credit Loans the amount of all such payments
received or retained by it for the account of such Defaulting
Lender. Solely for the purposes of voting or consenting to
matters with Defaulting Lender shall be deemed not to be a
"Lender" (in respect of its Revolving Credit Loans and
Revolving Credit Commitment) and such Defaulting Lender's
Revolving Credit Commitment with respect to the Revolving
Credit Loans shall be deemed to be zero (-0-). This section
shall remain effective with respect to such Lender until (x)
the Obligations under this Agreement shall have been declared
or shall have become immediately due and payable or (y) the
Revolving Credit Lenders that are non-Defaulting Lenders and
Administrative Agent shall have waived such Lender's default
in writing. The operation of this section shall not be
construed to increase or otherwise affect the Commitments of
any Lender other than such Defaulting Lender, or relieve or
excuse the performance by Borrower of its duties and
obligations hereunder.
3.2 Payments. Except where evidenced by notes or other
instruments (including the Revolving Notes and the Term Notes) issued or made by
Borrower to the Lender specifically containing payment provisions which are in
conflict with this Section 3.2 (in which event the conflicting provisions of
said notes or other instruments shall govern and control), the Obligations shall
be payable as follows:
3.2.1 Principal. Principal payable on account of
Revolving Credit Loans shall be repayable in full by Borrower to Administrative
Agent for the account of the Revolving Credit Lenders immediately upon the
earliest of (a) the receipt by Administrative Agent or Borrower of any net cash
proceeds of any of the Collateral (other than proceeds consisting of
Non-Ordinary Course Proceeds unless and until all of the Obligations have become
due and payable or as otherwise provided in Section 3.2.6), to the extent of
said proceeds, except that, so long as no Default or Event of Default exists, if
all Revolving Credit Loans outstanding at the time of receipt by Borrower of any
such proceeds are LIBOR Portions, then Borrower may direct that such proceeds be
held by Administrative Agent in a non-interest bearing cash collateral account
maintained by Administrative Agent on its books and records (which funds may be
commingled with other funds of Administrative Agent) to be applied to the
payment of principal on the last day of the LIBOR Period applicable to each
LIBOR Portion in the order of maturity, (b) the occurrence of an Event of
Default in consequence of which Administrative Agent or Required Lenders elect
to accelerate the maturity and payment of the Obligations, or (c) termination of
this Agreement pursuant to Section 4 hereof; provided, however, that if an
Overadvance shall exist, Borrower shall, on demand in writing by any Lender,
repay the
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Overadvance. Principal payable on account of the Term Loans shall be payable in
accordance with the terms of the respective Term Notes.
3.2.2 Interest.
(a) Base Rate Portion. Interest accrued on
Base Rate Portions shall be due on the earliest of (i) the
first calendar day of each month (for the immediately
preceding month), computed through the last calendar day of
the preceding month, (ii) the occurrence of an Event of
Default in consequence of which Administrative Agent or
Required Lenders elect to accelerate the maturity and payment
of the Obligations, or (iii) termination of this Agreement
pursuant to Section 4 hereof.
(b) LIBOR Portion. Interest accrued on each
LIBOR Portion shall be due and payable on the earliest of (i)
the first calendar day of each month (for the immediately
preceding month), computed through the last calendar day of
the preceding month, (ii) the last day of the Interest Period
applicable to such LIBOR Portion, (iii) the occurrence of an
Event of Default in consequence of which Administrative Agent
or Required Lenders elect to accelerate the maturity and
payment of the Obligations, or (iv) termination of this
Agreement pursuant to Section 4 hereof.
3.2.3 Costs, Fees, and Charges. Costs, fees, and charges
payable pursuant to this Agreement (or the other Loan Documents) shall be
payable by Borrower as and when provided in the Loan Documents (including
Section 2 hereof) to Administrative Agent, to any other member of the Lender
Group (including Collateral Agent) to the extent expressly provided in this
Agreement, the Fee Letter, or the other Loan Documents, or to any other Person
designated by them in writing.
3.2.4 Other Obligations. The balance of the Obligations
requiring the payment of money, if any, shall be payable by Borrower to
Administrative Agent, for the account of the Lender Group as and when provided
in this Agreement or the other Loan Documents or, if no time is specified, on
demand therefor by Administrative Agent.
3.2.5 Return of Payments. Unless Administrative Agent
receives notice from Borrower prior to the date on which any payment is due to
the Lender Group that Borrower will not make such payment in full as and when
required, Administrative Agent may assume that Borrower has made such payment in
full to Administrative Agent on such date in immediately available funds and
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to the applicable members of the Lender Group on such due
date an amount equal to the amount then due such member of the Lender Group. If
and to the extent Borrower has not made such payment in full to Administrative
Agent, each member of the Lender Group shall repay to Administrative Agent on
demand such amount distributed to such member of the Lender Group, together with
interest thereon at the Base Rate for each day from the date such amount is
distributed to such member of the Lender Group until the date repaid by such
member of the Lender Group.
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3.2.6 Apportionment and Application of Payments. Except
as otherwise provided with respect to Defaulting Lenders, aggregate principal
payments and interest payments shall be apportioned ratably among the Lenders
(according to their applicable Pro Rata Shares) and payments of the fees (other
than fees designated for Administrative Agent's sole and separate account, fees
designated for Collateral Agent's sole and separate account, and fees payable in
accordance with the Fee Letter) shall, as applicable, be apportioned ratably
among the Lenders. All payments shall be remitted to Administrative Agent and
all such payments (but, so long as no Event of Default has occurred and is
continuing, except for payments designated in writing by Borrower to
Administrative Agent and Collateral Agent as a prepayment of the Term Loans
hereunder, which may be so applied) and all Collections and all proceeds of
Collateral received by any Agent, shall be applied as follows:
(a) unless all of the Obligations have become or been declared due and
payable:
(i) all Non-Ordinary Course Proceeds consisting of cash
proceeds of sales or other issuances of the Securities or
Subordinated Debt of Borrower (to the extent permitted
hereunder) shall be applied in the following order:
first, to pay any fees, or expense reimbursements
then due to Administrative Agent or Collateral Agent
from Borrower until paid in full;
second, to pay any fees or expense reimbursements
then due to the Lenders from Borrower until paid in
full;
third, to pay interest due in respect of all Loans
until paid in full (if such proceeds are insufficient
to pay all such interest in full, then such amount
shall be applied pro rata to interest accrued and
unpaid with respect to each of the Loans);
fourth, to repay the principal of the Revolving
Credit Loans until paid in full;
fifth, to pay any other Obligations due to the Lender
Group (but exclusive of principal of the Term Loans);
sixth, if and to the extent Borrower elects in
writing to do so pursuant to a notice to
Administrative Agent and Collateral Agent, to pay or
prepay principal of Term Loan A, in inverse order of
maturity of the installments thereof, until paid in
full; and
seventh, if and to the extent Borrower elects in
writing to do so pursuant to a notice to
Administrative Agent and Collateral Agent, to pay or
prepay principal of Term Loan B, in inverse order of
maturity of the installments thereof, until paid in
full.
(ii) all other Non-Ordinary Course Proceeds shall be applied
in the following order:
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first, to pay any fees, or expense reimbursements
then due to Administrative Agent or Collateral Agent
from Borrower until paid in full;
second, to pay any fees or expense reimbursements
then due to the Lenders from Borrower until paid in
full;
third, to pay interest due in respect of all Loans
until paid in full (if such proceeds are insufficient
to pay all such interest in full, then such amount
shall be applied pro rata to interest accrued and
unpaid with respect to each of the Loans);
fourth, to pay or prepay principal of Term Loan A, in
inverse order of maturity of the installments
thereof, until paid in full;
fifth, to pay or prepay principal of Term Loan B, in
inverse order of maturity of the installments
thereof, until paid in full;
sixth, to repay the principal of the Revolving Credit
Loans until paid in full; and
seventh, to pay any other Obligations due to the
Lender Group.
(iii) all other Collections and all other proceeds of
Collateral shall be applied in the following order:
first, to pay any fees, or expense reimbursements
then due to Administrative Agent or Collateral Agent
from Borrower until paid in full;
second, to pay any fees or expense reimbursements
then due to the Lenders from Borrower until paid in
full;
third, to pay interest due in respect of all Loans
until paid in full (if such proceeds are insufficient
to pay all such interest in full, then such amount
shall be applied pro rata to interest accrued and
unpaid with respect to each of the Loans);
fourth, to repay the principal of the Revolving
Credit Loans until paid in full; and
fifth, to pay any other Obligations due to the Lender
Group.
(b) from and after the date that all Obligations have
become, or been declared by the Lender Group, due and payable or that
all Obligations and Collateral have become, or been declared by the
Lender Group, in liquidation, all Collections and all other proceeds of
Collateral (irrespective of whether constituting Non-Ordinary Course
Proceeds) shall be applied in the following order:
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first, to pay any fees, or expense reimbursements
then due to Administrative Agent or Collateral Agent
from Borrower until paid in full;
second, to pay any fees or expense reimbursements
then due to the Lenders from Borrower until paid in
full;
third, to pay interest due in respect of all Loans
(other than accrued but unpaid interest on the Term
Loans previously deferred by the Lender Group in
writing or permitted by the Lender Group to be paid
by being added to the principal balance of the Term
Loans in excess of an amount equal to 5 months of
such interest on the Term Loans at the applicable
rates under this Agreement or the Term Notes in
effect on the date hereof) until paid in full (if
such proceeds are insufficient to pay all such
interest in full, then such amount shall be applied
pro rata to interest accrued and unpaid with respect
to each of the Loans);
fourth, to repay the principal of the Revolving
Credit Loans until paid in full;
fifth, to pay all interest due in respect of all
Loans to the extent not paid under clause "third" of
this Section 3.2.6(b) until paid in full;
sixth, to pay or prepay principal of the Term Loans,
ratably until paid in full; and
seventh, to pay any other Obligations due to the
Lender Group.
3.3 Mandatory Prepayments.
3.3.1 Non-Ordinary Course Proceeds. Unless all
Obligations have become, or been declared by the Lender Group in writing, due
and payable or all Obligations and Collateral have become, or been declared in
writing by the Lender Group, to be in liquidation, and except as provided for in
Section 6.4.2, Borrower shall pay to Administrative Agent all Non-Ordinary
Course Proceeds and each such payment shall be applied in accordance with the
provisions of Section 3.2.6(a)(i) or (ii), as applicable.
3.3.2 Excess Cash Flow Recapture. Borrower shall prepay
the Term Loans in amounts equal to the Excess Cash Flow Recapture Amount with
respect to each fiscal year of Borrower during the Term hereof, such prepayments
to be made within 5 days following the due date for delivery by Borrower to
Administrative Agent of the annual financial statements required by Section
8.1.3(a) hereof; provided, however, that if an Event of Default has occurred and
is continuing at the time of such required prepayment, such prepayment shall not
be made until such Event of Default no longer exists. Each such prepayment made
pursuant to this Section 3.3.2 shall be applied in accordance with the
provisions of Section 3.2.6(a)(ii) or Section 3.2.6(b) hereof, as the case may
be.
3.4 Application of Payments and Collections. For purposes of
calculating Availability, all items of payment received by Administrative Agent
by 1:00 p.m. (New York
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time) on any Business Day shall be deemed received on that Business Day. All
items of payment received in immediately available funds after 1:00 p.m. (New
York time) on any Business Day shall be deemed received on the following
Business Day. Borrower irrevocably waives the right to direct the application of
any and all payments and collections at any time or times hereafter received by
Administrative Agent or any other member of the Lender Group from or on behalf
of Borrower, and Borrower does hereby irrevocably agree that, subject to Section
3.2 hereof, Administrative Agent shall have the continuing exclusive right to
apply and reapply any and all such payments and collections received at any time
or times hereafter by Administrative Agent or the other members of the Lender
Group (or their respective agents) against the Obligations, in such manner as
Administrative Agent may deem advisable, notwithstanding any entry by
Administrative Agent upon any of its books and records. If as the result of
collections of Accounts as authorized by Section 6.2.6 hereof a credit balance
exists in the Loan Account, such credit balance shall not accrue interest in
favor of Borrower, but shall be available to Borrower at any time or times for
so long as no Default or Event of Default exists. Such credit balance shall not
be applied or be deemed to have been applied as a prepayment of the Term Loans,
except that Administrative Agent (on the written direction by the Required
Lenders) may offset such credit balance against the Obligations upon and after
the occurrence of an Event of Default.
3.5 All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by
Collateral Agent's Lien upon all of the Collateral, for the benefit of the
Lender Group.
3.6 Loan Account. Administrative Agent shall enter all Loans
as debits to the Loan Account and also shall record in the Loan Account all
payments made by Borrower on any Obligations and all proceeds of Collateral
which are finally paid to the Lender Group, and may record therein, in
accordance with its customary practices, other debits and credits, including
interest and all charges and expenses properly chargeable to Borrower.
3.7 Statements of Account. Administrative Agent will account
to Borrower monthly with a statement of Loans, charges, and payments made
pursuant to this Agreement, and such accounting rendered by Administrative Agent
shall be deemed final, binding and conclusive upon Borrower unless
Administrative Agent is notified by Borrower in writing to the contrary within
30 days of the date each accounting is mailed to Borrower. Such notice only
shall be deemed an objection to those items specifically objected to therein.
3.8 General Provisions.
3.8.1 Except to the extent otherwise provided in this
Agreement or any other Loan Document, all payments of any Obligations shall be
made in U.S. dollars, in immediately available funds, without deduction, set-off
or counterclaim, to Administrative Agent at Administrative Agent's Account, not
later than 1:00 p.m. (New York time) on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
3.8.2 Each payment received by Administrative Agent under
this Agreement of any Obligation for the account of any member of the Lender
Group shall (subject
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to Section 3.1.2 hereof) be paid by Administrative Agent promptly to such member
of the Lender Group, in immediately available funds, to the account of such
member of the Lender Group as specified from time to time by such member of the
Lender Group in a written notice to Administrative Agent.
3.8.3 If the due date of any payment of any Obligation
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
3.9 Pro Rata Treatment. Except to the extent otherwise
provided in this Agreement: (a) (i) the making and conversion of Revolving
Credit Loans shall be made pro rata among the Revolving Credit Lenders according
to the amounts of their respective Revolving Credit Commitments or their
respective Revolving Credit Loans, and (ii) the making and conversion of Term
Loans shall be made pro rata among the Term Loan Lenders according to the
amounts of their respective Term Loan A Commitments and Term Loan B Commitments
or their respective Term Loans; and (b) each payment on account of any
Obligations to or for the account of one or more members of the Lender Group in
respect of any Obligations due on a particular day shall be allocated among the
members of the Lender Group entitled to such payments pro rata in accordance
with the respective amounts due and payable to such members of the Lender Group
on such day and shall be distributed accordingly.
3.10 Sharing of Payments, Etc.
3.10.1 Borrower agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien, or counterclaim any Lender
may otherwise have, each Lender shall be entitled during the continuation of an
Event of Default, at its option but only with the prior written consent of all
Lenders, to offset balances held by it for the account of Borrower at any of its
offices, in U.S. dollars or in any other currency, against any Obligations of
Borrower to such Lender that are not paid when due (regardless of whether such
balances are then due to Borrower). Any Lender so entitled shall promptly notify
Borrower, Collateral Agent, and Administrative Agent of any offset effected by
it; provided, however, that such Lender's failure to give such notice shall not
affect the validity of such offset.
3.10.2 If any Lender shall obtain from Borrower payment
of any Obligation through the exercise of any right of set-off, banker's lien,
or counterclaim or similar right or otherwise (other than from Administrative
Agent as provided in this Agreement), and, as a result of such payment, such
Lender shall have received a greater amount of the Obligations than the amount
allocable to such Lender hereunder, Administrative Agent and the other members
of the Lender Group (including such Lender) shall promptly make such adjustments
from time to time as shall be equitable, to the end that the Lender Group shall
share the benefit of such excess payment (net of any expenses that may be
incurred by such Lender in obtaining or preserving such excess payment) in
accordance with Section 3.2.6. To such end the Lender Group shall make
appropriate adjustments among themselves if such payment is rescinded or must
otherwise be restored.
3.10.3 [intentionally omitted]
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3.10.4 Nothing contained in this Section 3.10 shall
require any Lender to exercise any such right or shall affect the right of any
Lender to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of Borrower. If, under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a set-off to which this Section 3.10 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of Lenders entitled under
this Section 3.10 to share in the benefits of any recovery on such secured
claim.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to the right of the Lender
Group to cease making Loans to Borrower upon or after the occurrence of any
Default or Event of Default, this Agreement shall be in effect for a period of 5
years from the date hereof, through and including September 24, 2003 (the
"Term"), unless sooner terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Agent. Administrative Agent (acting
on the written instructions of the Required Lenders) or Collateral Agent (acting
on the written instructions of the Required Lenders) may terminate this
Agreement at any time without notice upon or after the occurrence of an Event of
Default.
4.2.2 Termination by Borrower. Upon at least 60 days
prior written notice to Administrative Agent, Borrower may, at its option,
terminate this Agreement without penalty or premium (other than as may be
required by the provisions of Section 2.4); provided, however, that no such
termination shall be effective until Borrower has paid all of the Obligations in
immediately available funds. Any notice of termination given by Borrower shall
be irrevocable unless the Required Lenders otherwise agree in writing, and the
Lender Group shall have no obligation to make any Loans on or after the
termination date stated in such notice. Borrower may elect to terminate this
Agreement in its entirety only. No section of this Agreement or type of Loan
available hereunder may be terminated singly.
4.2.3 [Intentionally Omitted].
4.2.4 Effect of Termination. All of the Obligations shall
be immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties, and representations of Borrower contained in the Loan Documents
shall survive any such termination, and, notwithstanding such termination,
Collateral Agent shall retain its Liens in the Collateral for the benefit of the
Lender Group, and the Lender Group shall retain all of its rights and remedies
under the Loan Documents, until Borrower has paid to Administrative Agent, for
the account of the Lender Group, all of Borrower's Obligations to the Lender
Group, in full, in immediately available funds, together with the applicable
termination charge, if any. Notwithstanding the payment in full of the
Obligations, Collateral Agent shall not be required to terminate its security
interests in the Collateral unless, with respect to any loss or damage the
Lender Group may incur as a result of dishonored checks or other items of
payment received by the Lender Group from Borrower or
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any Account Debtor and applied to the Obligations, Administrative Agent shall,
at its option, (a) have received a written agreement, executed by Borrower and
by any Person whose loans or other advances to Borrower are used in whole or in
part to satisfy the Obligations, indemnifying the Lender Group from any such
loss or damage, or (b) have retained such monetary reserves, and Collateral
Agent shall have retained such Liens on the Collateral, for such period of time
as such Agents, in their reasonable discretion, may deem necessary to protect
the Lender Group from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Interest in Collateral. To secure the prompt payment and
performance to the Lender Group of the Obligations, each Borrower hereby grants
to Collateral Agent, for the benefit of the Lender Group, a continuing Lien upon
all right, title, and interest of such Borrower in and to all currently existing
and hereafter acquired or arising Collateral (excluding, however, any real
Property or estates or interests therein). Collateral Agent's Liens on all such
Collateral shall attach thereto without further act on the part of the Lender
Group or Borrower.
5.2 Lien Perfection, Further Assurances. Borrower shall
execute such UCC-1 financing statements as are required by the Code and such
other instruments, assignments, or documents as are necessary to perfect
Collateral Agent's Lien upon any of the Collateral and shall take such other
action as may be required to perfect or to continue the perfection of Collateral
Agent's Lien upon the Collateral. Unless prohibited by applicable law, Borrower
hereby authorizes Collateral Agent to execute and file any such financing
statement on Borrower's behalf. The parties agree that a carbon, photographic,
or other reproduction of this Agreement shall be sufficient as a financing
statement and may be filed in any appropriate office in lieu thereof. At
Collateral Agent's request, Borrower also shall promptly execute or cause to be
executed and shall deliver to Collateral Agent any and all documents,
instruments, and agreements deemed necessary by Collateral Agent to give effect
to or carry out the terms or intent of the Loan Documents.
5.3 [Intentionally Omitted]
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General.
6.1.1 Location of Collateral. All Collateral, other than
Inventory in transit and motor vehicles, will at all times be kept by Borrower
and its Subsidiaries at one or more of the business locations set forth in
Schedule 6.1.1 attached hereto and shall not, without the prior written approval
of Collateral Agent, be moved therefrom except, prior to an Event of Default and
the Lender Group's acceleration of the maturity of the Obligations in
consequence thereof, for (a) sales of Inventory in the ordinary course of
business, and (b) removals in connection with dispositions of Equipment that are
authorized by Section 6.4.2 hereof; provided, however, that Borrower may amend
Schedule 6.1.1 to identify a new location so long as such amendment occurs by
written notice to Administrative Agent and Collateral Agent not less than 30
days prior to the date that such Collateral is moved to such new location, so
long as such new location is within the continental United States, and so long
as, at the time of such written
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notification, Borrower executes and delivers to Collateral Agent any financing
statements or fixture filings necessary to perfect and continue perfected
Collateral Agent's Liens on such Collateral and also provides to Collateral
Agent a fully executed Collateral Access Agreement relative to such new
location.
6.1.2 Insurance of Collateral. Borrower shall maintain
and pay for insurance upon all Collateral wherever located and with respect to
Borrower's business, covering casualty, hazard, public liability, and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Collateral Agent. Borrower shall deliver the originals of such
policies to Collateral Agent with 438 BFU lender's loss payable endorsements or
other satisfactory lender's loss payable endorsements, naming Collateral Agent
(on behalf of the Lender Group) as sole loss payee, assignee, or additional
insured, as appropriate. Each policy of insurance or endorsement shall contain a
clause requiring the insurer to give not less than 30 days prior written notice
to Collateral Agent in the event of cancellation of the policy for any reason
whatsoever and a clause specifying that the interest of Collateral Agent shall
not be impaired or invalidated by any act or neglect of Borrower or the owner of
the Property or by the occupation of the premises for purposes more hazardous
than are permitted by said policy. If Borrower fails to provide and pay for such
insurance, Collateral Agent may, at its option, but shall not be required to,
procure the same and charge Borrower therefor. Borrower agrees to deliver to
Collateral Agent, promptly as rendered, true copies of all reports made in any
reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of
protecting, storing, warehousing, insuring, handling, maintaining, and shipping
the Collateral, any and all excise, property, sales, and use taxes imposed by
any state, federal, or local authority on any of the Collateral or in respect of
the sale thereof shall be borne and paid by Borrower. If Borrower fails to
promptly pay any portion thereof when due, Collateral Agent may, at its option,
but shall not be required to, pay the same and charge Borrower therefor.
Collateral Agent shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Collateral
Agent's actual possession) or for any diminution in the value thereof, but the
same shall be at Borrower's sole risk.
6.2 Administration of Accounts.
6.2.1 Records, Schedules, and Assignments of Accounts.
Borrower shall keep accurate and complete records of its Accounts that compose
the Collateral and all payments and collections thereon, and shall submit to
Administrative Agent on such periodic basis as Administrative Agent shall
request a sales and collections report for the preceding period, in form
satisfactory to Administrative Agent. On or before 9:00 a.m. (New York time) on
the 2nd Business Day of each week from and after the date hereof, Borrower shall
deliver a Borrowing Base Certificate to Administrative Agent; provided, however,
that, so long as Availability is less than or equal to $1,500,000,
Administrative Agent may require that Borrower deliver a Borrowing Base
Certificate on such frequency (including on a daily basis) as Administrative
Agent may require. No later than 9:00 a.m. (New York time) on the 20th day of
each month from and after the date hereof, Borrower shall deliver to
Administrative Agent, in form and substance satisfactory to Administrative
Agent, a detailed aged trial balance of all Accounts
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existing as of the last Business Day of the immediately preceding week,
specifying the names, addresses, face value, dates of invoices, and due dates
for each Account Debtor obligated on an Account so listed ("Schedule of
Accounts"), and, upon Administrative Agent's request therefor, copies of proof
of delivery and the original copy of all documents, including, without
limitation, repayment histories and present status reports relating to the
Accounts so scheduled, and such other matters and information relating to the
status of then existing Accounts as Administrative Agent shall reasonably
request. In addition, if an aggregate face amount of more than $250,000 of
Accounts owed by any Account Debtor (together with its Affiliates) become
ineligible because they fall within one of the specified categories of
ineligibility set forth in the definition of Eligible Accounts or otherwise
established by Administrative Agent, Borrower shall notify Administrative Agent
of such occurrence on the first Business Day following such occurrence, and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence. If
requested by Administrative Agent, Borrower shall execute and deliver to
Administrative Agent formal written assignments in favor of Collateral Agent of
all of Borrower's Accounts weekly or daily, which shall include all Accounts
that have been created since the date of the last assignment, together with
copies of invoices or invoice registers related thereto.
6.2.2 Discounts Allowances, Disputes. If Borrower grants
any discounts, allowances, or credits that are not shown on the face of the
invoice for the Account involved, Borrower shall report such discounts,
allowances, or credits, as the case may be, to Administrative Agent as part of
the next required Schedule of Accounts. If any amounts due and owing in excess
of $100,000 are in dispute between Borrower and any Account Debtor, Borrower
shall provide Administrative Agent with written notice thereof at the time of
submission of the next Schedule of Accounts, explaining in detail the reason for
the dispute, all claims related thereto, and the amount in controversy. Upon and
after the occurrence of an Event of Default, Administrative Agent shall have the
right to (a) settle or adjust all disputes and claims directly with the Account
Debtor, (b) compromise the amount or extend the time for payment of the Accounts
upon such terms and conditions as Administrative Agent may deem advisable, and
(c) charge the deficiencies, costs and expenses thereof, including attorneys'
fees, to Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax
payable to any governmental taxing authority, Administrative Agent is
authorized, in its sole discretion, to pay the amount thereof to the proper
taxing authority for the account of Borrower and to charge Borrower therefor;
provided, however, that Administrative Agent shall not be liable for any taxes
to any governmental taxing authority that may be due by Borrower.
6.2.4 Account Verification. Whether or not a Default or
an Event of Default has occurred, any of Administrative Agent's officers,
employees or agents shall have the right, at any time or times hereafter, in the
name of Administrative Agent, any Lender, any designee of any of them, or
Borrower, to verify the validity, amount, or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate
fully with Administrative Agent in an effort to facilitate and promptly conclude
any such verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall
maintain a Dominion Account pursuant to one or more dominion account agreements
(each, a "Dominion Account Agreement") in form and substance satisfactory to
Administrative Agent with such
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banks as may be selected by Borrower and be acceptable to Administrative Agent
(including Wells Fargo Bank). Borrower shall issue to any such banks an
irrevocable letter of instruction directing such banks to deposit all payments
or other remittances received in the lockbox to the Dominion Account for
application on account of the Obligations. All funds deposited in the Dominion
Account shall immediately become the property of Administrative Agent, for the
benefit of the Lender Group, and Borrower shall obtain the agreement by such
banks in favor of Agent for the benefit of the Lender Group to waive any offset
rights against the funds so deposited. The Lender Group and Administrative Agent
on behalf thereof assume no responsibility for such lockbox arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To
expedite collection, Borrower shall endeavor in the first instance to make
collection of its Accounts for the Lender Group. All remittances received by
Borrower on account of Accounts, together with the proceeds of any other
Collateral, shall be held as the Lender Group's property by Borrower as trustee
of an express trust for the Lender Group's benefit, and Borrower shall
immediately deposit same in kind in the Dominion Account. Administrative Agent
retains the right at all times after the occurrence of a Default or an Event of
Default, and Borrower hereby irrevocably designates, makes, constitutes, and
appoints Administrative Agent (and all Persons designated by Administrative
Agent) as Borrower's true and lawful attorney (and agent-in-fact), to notify
Account Debtors that Accounts have been assigned to Collateral Agent and to
collect Accounts directly in the name of the Lender Group and to charge the
collection costs and expenses, including attorneys fees, to Borrower.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall
keep accurate and complete records of its Inventories that compose the
Collateral. Borrower shall furnish Administrative Agent Inventory reports in
form and detail satisfactory to Administrative Agent at such times as
Administrative Agent may request, but at least once each month, not later than
the twentieth day of such month. Borrower shall conduct a physical inventory, no
less frequently than annually, of not less than such portion of the Inventory
sufficient to permit Borrower to produce unqualified audited financial
statements prepared in accordance with GAAP (and Borrower may so conduct such
physical inventory, from and after the date Borrower gives written notice to
Administrative Agent of Borrower's election to do so, on a cycle count basis, of
not less than such portion of the Inventory sufficient to permit Borrower to
produce unqualified audited financial statements prepared in accordance with
GAAP ), and shall provide to Administrative Agent a report based on each such
physical inventory promptly thereafter, together with such supporting
information as Administrative Agent reasonably shall request.
6.3.2 Returns of Inventory. If, at any time or times
hereafter, any Account Debtor returns any Inventory to Borrower the shipment of
which generated an Account on which such Account Debtor is obligated in excess
of $25,000, Borrower shall immediately notify Administrative Agent of the same,
specifying the reason for such return and the location, condition and intended
disposition of the returned Inventory.
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6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall
keep accurate records itemizing and describing the kind, type, quality,
quantity, and value of its Equipment that composes the Collateral and all
dispositions made in accordance with Section 6.4.2 hereof, and shall furnish
Administrative Agent and Collateral Agent with copies of a current schedule
containing the foregoing information on at least an annual basis and more often
if requested by Administrative Agent or Collateral Agent. Immediately on request
therefor by Administrative Agent or Collateral Agent, Borrower shall deliver to
Collateral Agent any and all certificates of title with respect to that portion
of the Equipment that composes the Collateral and that is subject to
certificates of title.
6.4.2 Dispositions of Equipment. Borrower will not sell,
lease or otherwise dispose of or transfer any of the Equipment or any part
thereof without the prior written consent of (a) in the case of dispositions of
Equipment which, in the aggregate with all other dispositions of Equipment, has
a fair market value or book value, whichever is less, of $500,000 or less,
Collateral Agent, or (b) in all other cases, Collateral Agent (acting on the
written instructions of all of the Lenders); provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $10,000 or less, provided that all proceeds thereof are
remitted to Administrative Agent for application to the Obligations in
accordance herewith, or (ii) replacements of Equipment that is substantially
worn, damaged or obsolete with Equipment of like kind, function and value,
provided that the replacement Equipment shall be acquired prior to or
concurrently with any disposition of the Equipment that is to be replaced, the
replacement Equipment shall be free and clear of Liens other than Permitted
Liens that are not Purchase Money Liens, and Borrower shall have given
Collateral Agent at least 5 days prior written notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower
under Section 6 hereof shall be Obligations secured by all of the Collateral,
shall be payable on demand, and shall bear interest from the date such advance
was made until paid in full at the rate applicable to Revolving Credit Loans
from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. In order to induce
the Lender Group to enter into this Agreement and to extend credit hereunder,
each Borrower hereby jointly and severally with each other Borrower makes the
following representations and warranties which shall be true, correct, and
complete in all material respects as of the date hereof, and, subject to the
ability of Borrower to modify certain provisions thereof pursuant to the terms
of Section 7.3 hereof, shall be true, correct, and complete in all material
respects as of the Closing Date, and at and as of the date of the making of each
Loan made hereafter, as though made on and as of the date of such Loan (except
to the extent that such representations and warranties relate solely to an
earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
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7.1.1 Organization and Qualification. Each Borrower and
each of its Subsidiaries is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation. Each
Borrower and each of its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in each jurisdiction
listed on Schedule 7.1.1 attached hereto and, except as set forth on Schedule
7.1.1, in all other states and jurisdictions where the character of its
Properties or the nature of its activities make such qualification necessary.
7.1.2 Corporate Power and Authority. Each Borrower and
each of its Subsidiaries is duly authorized and empowered to execute, deliver,
and perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of the
other Loan Documents have been duly authorized by all necessary corporate action
and do not and will not (a) require any consent or approval of the shareholders
of any Borrower or any of its Subsidiaries (except for any such approvals or
consents that have been, or on or prior to the Closing Date shall be, obtained),
(b) contravene any Borrower's or any of its Subsidiaries' charter, articles or
certificate of incorporation or by-laws, (c) violate, or cause any Borrower or
any of its Subsidiaries to be in default under, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination, or award
in effect having applicability to any Borrower or any of its Subsidiaries, (d)
result in a material breach of or constitute a material default under any
indenture or loan or credit agreement or any other material agreement, lease, or
instrument to which any Borrower or any of its Subsidiaries is a parry or by
which it or its Properties may be bound or affected, or (e) result in, or
require, the creation or imposition of any Lien (other than Permitted Liens)
upon or with respect to any of the Properties now owned or hereafter acquired by
any Borrower or any of its Subsidiaries.
7.1.3 Legally Enforceable Agreement. As to each
Borrower, this Agreement is, and each of the other Loan Documents to which it is
a party, when delivered under this Agreement, will be, a legal, valid, and
binding obligation of such Borrower, enforceable against it in accordance with
its respective terms.
7.1.4 Capital Structure. Schedule 7.1.4 attached hereto
states (a) the correct name of each of the Subsidiaries of Borrower, its
jurisdiction of incorporation, and the percentage of its Voting Stock owned by
Borrower, (b) the name of each of Borrower's corporate or joint venture
Affiliates, and the nature of the affiliation, (c) the number, nature, and
holder of all outstanding Securities of Borrower and each Subsidiary of
Borrower, and (d) the number of authorized, issued and treasury shares of
Borrower and each Subsidiary of Borrower. Borrower has good title to all of the
shares it purports to own of the stock of each of its Subsidiaries, free and
clear in each case of any Lien other than Permitted Liens. All such shares have
been duly issued and are fully paid and non-assessable. Except as set forth on
Schedule 7.1.4, there are no outstanding options to purchase, or any rights or
warrants to subscribe for, or any commitments or agreements to issue or sell, or
any Securities or obligations convertible into, or any powers of attorney
relating to, shares of the capital stock of Borrower or any of its Subsidiaries.
There are no outstanding agreements or instruments binding upon any of
Borrower's shareholders relating to the ownership of its shares of capital
stock.
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7.1.5 Corporate Names. Neither any Borrower nor any of
its Subsidiaries has been known as or used any corporate, fictitious, or trade
names except those listed on Schedule 7.1.5 attached hereto. Except as set forth
on Schedule 7.1.5 attached hereto, neither any Borrower nor any of its
Subsidiaries has been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any Person.
7.1.6 Business Locations, Agent for Process. Each
Borrower's and each of its Subsidiaries' chief executive office and other places
of business are as listed on Schedule 6.1.1 attached hereto. During the
preceding 1-year period, neither any Borrower nor any of its Subsidiaries has
had an office, place of business, or agent for service of process other than as
listed on Schedule 6.1.1 attached hereto. Except as shown on Schedule 6.1.1
attached hereto, no Inventory is stored with a bailee, warehouseman or similar
party, nor is any Inventory consigned to any Person.
7.1.7 Title to Properties, Priority of Liens. Each
Borrower and each of its Subsidiaries has good and marketable title to, and fee
simple ownership of or valid and subsisting leasehold interests in, all of its
real Property (except for minor defects in title thereto that individually and
in the aggregate do not materially interfere with the ability of any Borrower or
any Subsidiary thereof to conduct its business as now conducted), and good title
to all of the Collateral and all of its other Property, in each case, free and
clear of all Liens except Permitted Liens. Subject to the Acquisition
Qualification, each Borrower has paid or discharged all lawful claims which, if
unpaid, might become a Lien against any of Borrower's Properties that is not a
Permitted Lien. The Liens granted to Collateral Agent under Section 5 hereof are
first priority Liens, subject only to Permitted Liens.
7.1.8 Accounts. Administrative Agent may rely, in
determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts. Unless
otherwise indicated in writing to Administrative Agent, with respect to each
Account:
(a) It is genuine and in all respects what
it purports to be, and it is not evidenced by a judgment;
(b) It arises out of a completed, bona fide
sale and delivery of goods or rendition of services by
Borrower in the ordinary course of its business, and in
accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and
forming a part of the contract between Borrower and the
Account Debtor;
(c) it is for a liquidated amount maturing
as stated in the duplicate invoice covering such sale or
rendition of services, a copy of which has been furnished or
is available to Administrative Agent;
(d) Such Account, and the Lender Group's
security interest therein, is not, and will not (by voluntary
act or omission of Borrower) be in the future, subject to any
offset, Lien, deduction, defense, dispute, counterclaim, or
any other adverse condition except for disputes resulting in
returned goods where
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the amount in controversy is deemed by Administrative Agent to
be immaterial, and each such Account is absolutely owing to
the relevant Borrower, and is not contingent in any respect or
for any reason;
(e) No Borrower has made any agreement with
any Account Debtor thereunder for any extension, compromise,
settlement, or modification of any such Account or any
deduction therefrom, except discounts or allowances which are
granted by the relevant Borrower in the ordinary course of its
business for prompt payment, and which are reflected in the
calculation of the net amount of each respective invoice
related thereto, and which are reflected in the Schedules of
Accounts submitted to Agent pursuant to Section 6.2.1 hereof;
(f) Subject to the Acquisition
Qualification, there are no facts, events or occurrences which
in any way impair in any material respect the validity or
enforceability of any Accounts, or which would reduce the
amount payable thereunder from the face amount of the invoice
and statements delivered to Administrative Agent with respect
thereto;
(g) To the best of Borrower's knowledge, the
Account Debtor thereunder (i) had the capacity to contract at
the time any contract or other document giving rise to the
Account was executed, and (ii) such Account Debtor is Solvent;
and
(h) To the best of Borrower's knowledge,
there are no proceedings or actions which are threatened or
pending against any Account Debtor thereunder which might
result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account.
7.1.9 Equipment. Subject to the Acquisition
Qualification, the Equipment is in good operating condition and repair.
7.1.10 Financial Statements, Fiscal Year. The
Consolidated balance sheets of Borrower (including the accounts of all
Subsidiaries of Borrower for the period during which a Subsidiary relationship
existed) as of June 30, 1998, and the related statements of income, changes in
stockholder's equity, and changes in financial position for the period ended on
such date, have been prepared in accordance with GAAP, and present fairly the
financial positions of Borrower at such date and the results of Borrower's
operations for such period. Since June 30, 1998, there has been no material
adverse change in the condition, financial or otherwise, of Borrower as shown on
the Consolidated balance sheet as of such date and no change in the aggregate
value of Equipment and real Property owned by Borrower, except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse. The fiscal year of Borrower and each of its
Subsidiaries ends on December 31 of each year.
7.1.11 Full Disclosure. The financial statements referred
to in Section 7.1.10 hereof do not, nor does this Agreement or any other written
statement of any Borrower to the Lender Group, contain any untrue statement of a
material fact or omit a material
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fact necessary to make the statements contained therein or herein not
misleading. There is no fact which any Borrower has failed to disclose to in
writing that results in, or, so far as each Borrower can now foresee, will
result in, a Material Adverse Change.
7.1.12 Solvent Financial Condition. Borrower, and each of
its Subsidiaries, taken as a whole, is and, after giving effect to the Loans to
be made hereunder, will be, Solvent.
7.1.13 Surety Obligations. Except as set forth on
Schedule 7.1.13, neither any Borrower nor any of its Subsidiaries is obligated
as surety or indemnitor under any surety or similar bond or other contract
issued or entered into any agreement to assure payment, performance, or
completion of performance of any undertaking or obligation of any Person.
7.1.14 FEIN; Taxes. The federal tax identification number
of each Borrower and each of its Subsidiaries is shown on Schedule 7.1.14
attached hereto. Each Borrower and each of its Subsidiaries (a) has filed all
federal, state, and local tax returns and other reports it is required by law to
file (other than tax returns in respect of taxes that (i) are not franchise,
capital, income, or payroll taxes, (ii) are not material individually or in the
aggregate, and (iii) if unpaid, would not result in the imposition of any Lien
on any Property of any Borrower or any Subsidiary thereof), and (b) has paid, or
made provision for the payment of, all taxes, assessments, fees, levies, and
other governmental charges upon it, its income and Properties as and when such
taxes, assessments, fees, levies, and charges that are due and payable, unless
and to the extent any such taxes, assessments, fees, levies, or charges
(exclusive of federal income taxes and payroll taxes) are being actively
contested in good faith and by appropriate proceedings, and Borrower maintains
reasonable reserves on its books therefor. The provision for taxes on the books
of each Borrower and each of its Subsidiaries are adequate for all years not
closed by applicable statutes and for its current fiscal year.
7.1.15 Brokers. Except as set forth in Schedule 7.1.15,
there are no claims for brokerage commissions, finder's fees, or investment
banking fees in connection with the transactions contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights, and Licenses.
Each Borrower and each of its Subsidiaries owns or possesses all the patents,
trademarks, service marks, trade names, copyrights, and licenses necessary for
the present and planned future conduct of its business without any known
conflict with the rights of others. All such patents, trademarks, service marks,
trade names, copyrights, licenses, and other similar rights are listed on
Schedule 7.1.16 attached hereto.
7.1.17 Governmental Consents. Each Borrower and each of
its Subsidiaries has, and is in good standing with respect to, all governmental
consents, approvals, licenses, authorizations, permits, certificates,
inspections, and franchises (collectively, "Permits") necessary to continue to
conduct its business as now conducted by it and to own or lease and operate its
Properties as now owned or leased by it, other than Permits that individually
and in the aggregate are immaterial.
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7.1.18 Compliance with Laws. Each Borrower and each of
its Subsidiaries has duly complied with, and its Properties, business operations
and leaseholds are in compliance in all material respects with, the provisions
of all federal, state, and local laws, rules, and regulations applicable to such
Borrower or such Subsidiary, as applicable, its Properties or the conduct of its
business, and. There have been no citations, notices, or orders of noncompliance
issued to any Borrower or any of its Subsidiaries under any such law, rule, or
regulation, except as to such non-compliance that individually and in the
aggregate is immaterial. Each Borrower and each of its Subsidiaries has
established and maintains an adequate monitoring system to insure that it
remains in compliance with all federal, state, and local laws, rules, and
regulations applicable to it. No Inventory has been produced in violation of the
Fair Labor Standards Act (29 U.S.C. ss. 201 et seq.), as amended.
7.1.19 Restrictions. Neither any Borrower nor any of its
Subsidiaries is a party or subject to any contract, agreement, or charter or
other corporate restriction, which materially and adversely affects its business
or the use or ownership of any of its Properties. Neither any Borrower nor any
of its Subsidiaries is a party or subject to any contract or agreement which
restricts its right or ability to incur Indebtedness, other than as set forth on
Schedule 7.1.19 attached hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by any Borrower or
any of its Subsidiaries, as applicable.
7.1.20 Litigation. Except as set forth on Schedule
7.1.20 attached hereto, there are no actions, suits, proceedings, or
investigations pending, or to the knowledge of each Borrower, threatened,
against or affecting any Borrower or any of its Subsidiaries, or the business,
operations, Properties, prospects, profits, or condition of Borrower or any of
its Subsidiaries. Neither any Borrower nor any of its Subsidiaries is in default
with respect to any order, writ, injunction, judgment, decree, or rule of any
court, governmental authority or arbitration board, or tribunal.
7.1.21 No Defaults. No event has occurred and no
condition exists which would, upon or after the execution and delivery of this
Agreement or any Borrower's performance hereunder, constitute an Event of
Default or, to the best of Borrower's knowledge, a Default. Neither any Borrower
nor any of its Subsidiaries is in default, and, to the best of Borrower's
knowledge, no event has occurred and no condition exists which constitutes, or
which with the passage of time or the giving of notice or both would constitute,
a default in the payment of any Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Schedule 7.1.22(A) attached hereto
identifies all capitalized leases of each Borrower and its Subsidiaries and
Schedule 7.1.22(B) attached hereto identifies all operating leases of each
Borrower and its Subsidiaries. Each Borrower and each of its Subsidiaries is in
compliance with all of its obligations under the terms of each of its respective
capitalized and operating leases, except for such noncompliance that
individually and in the aggregate is immaterial.
7.1.23 Pension Plans. Except as disclosed on Schedule
7.1.23 attached hereto, neither any Borrower nor any of its Subsidiaries has any
Plan. Subject to the Acquisition Qualification, each Borrower and each of its
Subsidiaries is in compliance in all material respects
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with the requirements of ERISA and the regulations promulgated thereunder with
respect to each Plan (other than the failure by FTI to file on a timely basis a
so-called IRS Form 5500 for the fiscal year ended December 31, 1996). No fact or
situation that could result in a Material Adverse Change exists in connection
with any Plan. Neither any Borrower nor any of its Subsidiaries has any
withdrawal liability in connection with a Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or
threatened (in writing) termination, cancellation, or limitation of, or any
modification or change in, the business relationship between any Borrower or any
of its Subsidiaries and any customer or any group of customers whose purchases
individually or in the aggregate are material to the business of any Borrower or
any of its Subsidiaries, or with any material supplier, and there exists no
present condition or state of facts or circumstances which would result in a
Material Adverse Change or prevent any Borrower or any of its Subsidiaries from
conducting such business after the consummation of the transaction contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
7.1.25 Labor Relations. Except as described on Schedule
7.1.25 attached hereto, neither any Borrower nor any of its Subsidiaries is a
party to any collective bargaining agreement. There are no material grievances
disputes or controversies with any union or any other organization of Borrower's
or any of its Subsidiaries' employees, or threats of strikes, work stoppages, or
any asserted pending demands for collective bargaining by any union or
organization.
7.1.26 Eligible Inventory. All Inventory identified on
any Borrowing Base Certificate as Eligible Inventory is (subject to the
Acquisition Qualification) of good and merchantable quality and free from
defects (except to the extent that a reserve has been taken with respect to any
such defects).
7.1.27 Acquisitions. No default has occurred under any of
the Acquisition Documents. Each of the Acquisitions has been consummated
substantially in accordance with the terms of the applicable Acquisition
Documents and with all applicable laws, including laws respecting bulk transfer
of assets and the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended.
7.1.28 No Violation of Federal Reserve Board Regulations.
The making by the Lender Group of the Loans, and the use by each Borrower of the
proceeds of any and all Loans, do not and will not violate any of Regulations T,
U, and X of the Federal Reserve Board.
7.1.29 Collateral Agent's Liens. The Liens granted by
Borrower to Collateral Agent for the benefit of the Lender Group on the
Collateral pursuant to this Agreement and the other Loan Documents are validly
created, perfected, and first priority Liens.
7.1.30 Environmental Condition. None of the Properties or
assets of any Borrower or any Subsidiary thereof has ever been used by any
Borrower or any Subsidiary thereof or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials. None of the
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Properties or assets of any Borrower or any Subsidiary has ever been designated
or identified in any manner pursuant to any environmental protection statute as
a Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No Lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by any Borrower or any Subsidiary thereof. Neither
any Borrower nor any Subsidiary thereof has received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by any
Borrower or any Subsidiary thereof resulting in the releasing or disposing of
Hazardous Materials into the environment.
7.2 [Intentionally Omitted]
7.3 Survival of Representations and Warranties. All
representations and warranties of Borrower contained in this Agreement or any of
the other Loan Documents shall survive the execution, delivery, and acceptance
thereof by Agent and Lenders and the parties thereto and the closing of the
transactions described therein or related thereto. To the extent that Borrower
timely complies with the notice provision set forth in Section 8.1.2 in respect
of events or facts after the Closing Date that would render the representations
and warranties set forth in any of Section 7.1.5, Section 7.1.6, Section 7.1.13,
Section 7.1.16, Section 7.1.22 (exclusive of the second sentence thereof), and
Section 7.1.23 inaccurate, incomplete, or misleading and the fact or event so
disclosed by Borrower is not otherwise prohibited by this Agreement or any other
Loan Document, then the applicable Schedule referenced in that Section shall be
deemed to be amended to include and reflect such disclosed event or fact.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations to the Lender Group,
Borrower covenants that, unless otherwise consented to by Administrative Agent
and Collateral Agent (each acting upon the instruction of the Required Lenders)
in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of
Administrative Agent, Collateral Agent, or any Lender:
(a) so long as no Event of Default has occurred and is continuing, from
time to time, as often as may be reasonably requested, but only during
normal business hours; provided, however, that, under this clause (a)
(as opposed to under clause (b)), Borrower only shall be obligated to
reimburse Administrative Agent, Collateral Agent, and any Lender for
the costs and expenses of one such visit and inspection in any 3 month
period, and
(b) upon the occurrence and during the continuation of an Event of
Default, from time to time without prior notification or request to
Borrower and at any time or times determined by Administrative Agent,
Collateral Agent, or such Lender, as the case may be, in its sole
discretion; it being understood that Borrower shall be obligated to
reimburse Administrative Agent, Collateral Agent, and any Lender for
the costs and expenses of all such visits and inspections performed
under this clause (b),
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to visit and inspect the Properties of Borrower and each of its Subsidiaries,
inspect, audit, and make extracts from its books and records, and discuss with
its officers, its employees, and its independent accountants, Borrower's and
each of its Subsidiaries' business, assets, liabilities, financial condition,
business prospects, and results of operations.
8.1.2 Notices. Promptly, but in any event no later than 5
days after the date on which Borrower is aware thereof, notify Administrative
Agent (with sufficient copies for each member of the Lender Group) in writing of
the occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete, or misleading.
8.1.3 Financial Statements. Keep, and cause each
Subsidiary to keep, adequate records and books of account with respect to its
business activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and cause to be prepared and
furnished to Administrative Agent (with sufficient copies for each member of the
Lender Group) the following (all to be prepared in accordance with GAAP applied
on a consistent basis, unless Borrower's certified public accountants concur in
any change therein and such change is disclosed to Administrative Agent and is
consistent with GAAP):
(a) promptly upon Borrower's receipt thereof
and in any event not later than 105 days after the close of
each fiscal year of Borrower, unqualified audited financial
statements of Borrower and its Subsidiaries as of the end of
such year, on a Consolidated basis, certified by a firm of
independent certified public accountants of recognized
standing selected by Borrower but acceptable to Administrative
Agent (except for a qualification for a change in accounting
principles with which the accountant concurs);
(b) not later than 30 days after the end of
each month hereafter, including the last month of Borrower's
fiscal year, unaudited interim financial statements of
Borrower and its Subsidiaries as of the end of such month and
of the portion of Borrower's financial year then elapsed, on a
Consolidated basis, certified by a Responsible Officer of
Borrower as prepared in accordance with GAAP and fairly
presenting the Consolidated financial position and results of
operations of Borrower and its Subsidiaries for such month and
period subject only to changes from audit and year-end
adjustments and except that such statements need not contain
notes;
(c) promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements,
financial statements, or reports which Borrower has made
available to its shareholders and copies of any regular,
periodic, and special reports or registration statements which
Borrower files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefor,
or any national securities exchange;
(d) promptly after the filing thereof,
copies of any annual report required by ERISA to be filed in
connection with each Plan; and
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(e) such other data and information
(financial and otherwise) as Administrative Agent or
Collateral Agent, from time to time, reasonably may request,
bearing upon or related to the Collateral or Borrower's and
each of its Subsidiaries' financial condition or results of
operations.
As promptly as practicable and in no event later than 180 days
after the close of each fiscal year of Borrower, Borrower shall forward to
Administrative Agent a copy of the accountants' letter to Borrower's management
that is prepared in connection with the financial statements described in clause
(a) of this Section 8.1.3. Concurrently with the delivery of the financial
statements described in clause (a) of this Section 8.1.3, Borrower shall cause
to be prepared and shall furnish to Administrative Agent a certificate of the
aforesaid certified public accountants certifying to Administrative Agent that,
based upon their examination of the financial statements of Borrower and its
Subsidiaries performed in connection with their examination of said financial
statements, they are not aware of any Default or Event of Default, or, if they
are aware of such Default or Event of Default, specifying the nature thereof,
and acknowledging, in a manner satisfactory to Administrative Agent, that they
are aware that the Lender Group is relying on such financial statements in
making its decisions with respect to the Loans. Concurrently with the delivery
of the financial statements described in clauses (a) and (b) of this Section
8.1.3, or more frequently if requested by Administrative Agent, Borrower shall
cause to be prepared and furnished to Administrative Agent a Compliance
Certificate in the form of Exhibit 8.1.3 attached hereto executed by a
Responsible Officer.
8.1.4 Landlord and Storage Agreements. Provide Collateral
Agent with copies of all agreements between Borrower or any of its Subsidiaries
and any landlord or warehouseman which owns any premises at which any Inventory
may, from time to time, be kept.
8.1.5 Year 2000 Compliance. Take all action necessary to
assure that at all times the computer-based systems utilized by Borrower and
each of its Subsidiaries are able to effectively interpret, process and
manipulate data, including dates before, on and after June 30, 1999. At Lender's
request, Borrower shall provide to Lender assurance reasonably satisfactory to
Lender that the computer-based systems utilized by Borrower and each of its
Subsidiaries are able to recognize and perform without error functions involving
dates before, on and after June 30, 1999.
8.1.6 Projections. No later than the end of each fiscal
year of Borrower deliver to the Lender Group Projections of Borrower for the
forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by
month.
8.1.7 Equipment. Make all necessary replacements of and
repairs to the Equipment so that the value and operating efficiency thereof
shall be maintained and preserved, ordinary depreciation and reasonable wear and
tear excepted.
8.1.8 Taxes. (a) File on a timely basis all federal,
state, and local tax returns and other reports it is required by law to file
(other than tax returns in respect of taxes that (i) are not franchise, capital,
income, or payroll taxes, (ii) are not material individually or in the
aggregate, and (iii) if unpaid, would not result in the imposition of any Lien
on any Property
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of any Borrower or any Subsidiary thereof), and (b) pay, or make provision for
the payment of, all taxes, assessments, fees, levies, and other governmental
charges upon it, its income and Properties as and when such taxes, assessments,
fees, levies, and charges become are due and payable, unless and to the extent
any such taxes, assessments, fees, levies, or charges (exclusive of federal
income taxes and payroll taxes) are being actively contested in good faith and
by appropriate proceedings, and Borrower maintains reasonable reserves on its
books therefor.
8.1.9 Compliance with Laws. Comply with the requirements
of all applicable laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act, the Americans With
Disabilities Act, and all laws relative to Hazardous Materials, other than laws,
rules, regulations, and orders the non-compliance with which, individually or in
the aggregate, would not result in and reasonably could not be expected to
result in a Material Adverse Change.
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to the Lender Group,
Borrower covenants that, unless Administrative Agent and Collateral Agent
(acting upon the written instructions of the Required Lenders) has first
consented thereto in writing, it will not:
8.2.1 Mergers, Consolidations, Acquisitions. Except for
Permitted Acquisitions, merge or consolidate, or permit any Subsidiary of
Borrower to merge or consolidate, with any Person, nor acquire, nor permit any
of its Subsidiaries to acquire, all or any substantial part of the Properties of
any Person.
8.2.2 Loans. Make, or permit any Subsidiary of Borrower
to make, any loans or other advances of money (other than for salary, travel
advances, advances against commissions, and other similar advances in the
ordinary course of business) to any Person in excess of $150,000 in the
aggregate for all such loans and other advances to all Persons.
8.3.3 Total Indebtedness. Create, incur, assume, or
suffer to exist, or permit any Subsidiary of Borrower to create, incur, or
suffer to exist, any Indebtedness, except:
(a) Obligations owing to the Lender Group;
(b) Indebtedness identified on Schedule
8.2.3;
(c) Indebtedness of any Subsidiary of
Borrower to Borrower;
(d) accounts payable to trade creditors and
current operating expenses (other than for Money Borrowed)
which are not aged more than 120 days from billing date or
more than 30 days from the due date, in each case, incurred in
the ordinary course of business and paid within such time
period, unless the same are being actively contested in good
faith and by appropriate and lawful proceedings, and Borrower
or such Subsidiary shall have set aside such reserves, if any,
with respect thereto as are required by GAAP and deemed
adequate by Borrower or such Subsidiary and its independent
accountants;
(e) Obligations to pay Rentals permitted by
Section 8.2.13 hereof;
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(f) Permitted Purchase Money Indebtedness;
(g) Subordinated Debt in amounts and on
terms acceptable to the Required Lenders;
(h) Indebtedness evidenced by Permitted
Interest Rate or Currency Protection Agreements of Borrower;
(i) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for
deposit or collection in the ordinary course of business; and
(j) Indebtedness not included in paragraphs
(a) through (g) above which does not exceed at any time, in
the aggregate, the sum of $100,000.
8.2.4 Affiliate Transactions. Enter into, or be a party
to, or permit any Subsidiary of Borrower to enter into or be a party to, any
transaction with any Affiliate of Borrower or stockholder, except as set forth
on Schedule 8.2.4 and except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's or such Subsidiary's business and upon
fair and reasonable terms that are fully disclosed to Administrative Agent and
Collateral Agent and are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a Person not an Affiliate or
stockholder of Borrower or such Subsidiary.
8.2.5 Limitation on Liens. Create or suffer to exist, or
permit any Subsidiary of Borrower to create or suffer to exist, any Lien upon
any of its Property, income, or profits, whether now owned or hereafter
acquired, except:
(a) Liens at any time granted in favor of
Collateral Agent for the benefit of the Lender Group;
(b) Liens for taxes (excluding any Lien
imposed pursuant to any of the provisions of ERISA) not yet
due, or being contested in the manner described in Section
7.1.14 hereof, but only if in Collateral Agent's judgment such
Lien does not adversely affect the Lender Group's rights or
the priority of Collateral Agent's Lien in the Collateral;
(c) Liens arising in the ordinary course of
Borrower's business by operation of law or regulation, but
only if payment in respect of any such Lien is not at the time
required and such Liens do not, in the aggregate, materially
detract from the value of the Property of Borrower or
materially impair the use thereof in the operation of
Borrower's business;
(d) Purchase Money Liens securing Permitted
Purchase Money Indebtedness;
(e) Liens securing Indebtedness of one of
Borrower's Subsidiaries to Borrower or another such
Subsidiary;
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(f) such other Liens as appear on Schedule
8.2.5 attached hereto; and
(g) such other Liens as both Collateral
Agent and Administrative Agent may hereafter approve (in their
sole discretion) in writing (including as so approved relative
to Permitted Acquisitions).
8.2.6 Suspension, etc.; Nature of Business; Change of
Name, etc. (a) Cause, suffer, or permit any Borrower or any Subsidiary thereof
to be suspended or go out of business or to be liquidated, wound up, or
dissolved; (b) make any change in the principal nature of Borrower's business;
and (c) change the name, FEIN, corporate structure (within the meaning of
Section 9-402(7) of the Code), or identity, or add any new fictitious name, of
any Borrower or any Subsidiary thereof.
8.2.7 Distributions. Declare or make, or permit any
Subsidiary of Borrower (other than a Subsidiary that composes Borrower) to
declare or make, any Distributions.
8.2.8 Capital Expenditures. Make Capital Expenditures
(including, without limitation, by way of capitalized leases) which, in the
aggregate, as to Borrower and its Subsidiaries, exceed $500,000 during any
fiscal year of Borrower.
8.2.9 Disposition of Assets. Sell, lease, or otherwise
dispose of any of, or permit any Subsidiary of Borrower to sell, lease, or
otherwise dispose any of, its Properties, including any disposition of Property
as part of a sale and leaseback transaction, to or in favor of any Person,
except (a) sales of Inventory in the ordinary course of business for so long as
no Event of Default exists hereunder, (b) a transfer of Property to Borrower by
a Subsidiary of Borrower, or (c) dispositions expressly authorized by this
Agreement.
8.2.10 Stock of Subsidiaries. Permit any of its
Subsidiaries to (a) issue any additional shares of its capital stock except
director's qualifying shares or (b) form or capitalize any new Subsidiary of
Borrower (other than in connection with Permitted Acquisitions).
8.2.11 Bill-and-Hold Sales, Etc. Except as set forth on
Schedule 8.2.11, make a sale to any customer on a bill-and-hold, guaranteed
sale, sale and return, sale on approval or consignment basis, or any sale on a
repurchase or return basis.
8.2.12 Restricted Investment. Make or have, or permit any
Subsidiary of Borrower to make or have, any Restricted Investment.
8.2.13 Leases. Become, or permit any of its Subsidiaries
to become, a lessee under any operating lease (other than a lease under which
Borrower or any of its Subsidiaries is lessor) of Property if the aggregate
Rentals payable during any current or future period of 12 consecutive months
under the lease in question and all other leases under which Borrower or any of
its Subsidiaries is then lessee would exceed $1,250,000 (or such higher amount
as both Collateral Agent and Administrative Agent may agree in writing in their
sole
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discretion as a result of a Permitted Acquisition). The term "Rentals" means, as
of the date of determination, all payments which the lessee is required to make
by the terms of any lease.
8.2.14 Tax Consolidation. File or consent to the filing
of any consolidated income tax return with any Person other than any other
Borrower or a Subsidiary of any Borrower.
8.2.15 Equipment. Cause, suffer, or permit any of the
Equipment to become affixed to any real Property leased to Borrower so that an
interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real Property has executed a landlord
waiver or leasehold mortgage in favor of and in form acceptable to Collateral
Agent, and Borrower will not permit any of the Equipment to become an accession
to any personal Property other than Equipment that is subject to first priority
Liens in favor of Collateral Agent.
8.2.16 Prepayments. Prepay any Indebtedness of Borrower
owing to any Person (other than the Lender Group).
8.2.17 Preferred Stock. Issue any Preferred Stock other
than Permitted Preferred Stock.
8.2.18 Guarantees. Guarantee or otherwise become in any
way liable with respect to the obligations of any third Person except by
endorsement of instruments or items of payment for deposit to the account of
Borrower or which are transmitted or turned over to Administrative Agent for the
benefit of the Lender Group.
8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to the Lender
Group, Borrower covenants that, unless otherwise consented to by Administrative
Agent and Collateral Agent (acting upon the written instructions of the Required
Lenders) in writing, it shall:
8.3.1 Net Worth. From and after September 30, 1998,
maintain, at all times, Net Worth of not less than an amount equal to (a) QTI's
Net Worth as of September 30, 1998 (which shall be in an amount not less than
$25,000,000), plus (b) with respect to any fiscal quarter ended after September
30, 1998, as of the last day of such fiscal quarter then ended, an amount equal
to the sum of (i) 75% of QTI's Consolidated net income (if and to the extent
such net income is a positive number) for such fiscal quarter then ended, plus
(ii) 75% of QTI's Consolidated net income for each other fiscal quarter ended
after September 30, 1998 (calculated, for each such other fiscal quarter, if and
to the extent that, for each such other fiscal quarter, such net income is a
positive number).
8.3.2 Minimum EBITDA. Maintain EBITDA for each of the
following fiscal periods of not less than the amount shown below for the period
corresponding thereto:
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Fiscal Period Minimum EBITDA
fiscal quarter ended 9/30/98 $2,500,000
fiscal quarter ended 12/31/98 $2,500,000
fiscal quarter ended 3/31/99 $3,200,000
fiscal quarter ended 6/30/99 $3,200,000
fiscal quarter ended 9/30/99 $3,200,000
fiscal quarter ended 12/31/99 $3,200,000
fiscal quarter ended 3/31/00 $3,800,000
fiscal quarter ended 6/30/00 $3,800,000
fiscal quarter ended 9/30/00 $3,800,000
fiscal quarter ended 12/31/00 $3,800,000
fiscal quarter ended 3/31/01 $4,400,000
fiscal quarter ended 6/30/01 $4,400,000
fiscal quarter ended 9/30/01 $4,400,000
fiscal quarter ended 12/31/01 $4,400,000
fiscal quarter ended 3/31/02 and each $5,100,000
fiscal quarter ended thereafter
8.3.3 Senior Debt Coverage Ratio. Maintain a Senior Debt
Coverage Ratio not greater than 4.0:1.0 with respect to each fiscal quarter
ending on or after December 31, 1998.
8.3.4 Fixed Charge Coverage Ratio. Maintain at the end of
each of the following fiscal periods, a Fixed Charge Coverage Ratio of not less
than the ratio shown below for the period corresponding thereto:
Fiscal Period Minimum Ratio
fiscal quarter ended 12/31/98 2.5:1.0
fiscal quarter ended 3/31/99 2.5:1.0
fiscal quarter ended 6/30/99 2.5:1.0
fiscal quarter ended 9/30/99 2.0:1.0
fiscal quarter ended 12/31/99 2.0:1.0
fiscal quarter ended 3/31/00 2.5:1.0
fiscal quarter ended 6/30/00 2.5:1.0
fiscal quarter ended 9/30/00 and each 2.5:1.0
quarter thereafter
SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS
Any other provision of this Agreement or any of the other Loan
Documents notwithstanding, and without affecting in any manner the rights of
Agent or the Lenders under
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the other sections of this Agreement, Agent and the Lenders shall not be
required to make the initial Loan under this Agreement unless and until each of
the following conditions has been and continues to be satisfied:
9.1 Documentation. Administrative Agent and Collateral Agent
shall have received each of the following Loan Documents, in form and substance
satisfactory to Administrative Agent and Collateral Agent and their respective
counsel, duly executed, and each such document shall be in full force and
effect:
(a) the Revolving Notes;
(b) the Term Notes A and the Term Notes B;
(c) the Suretyship Agreement;
(d) the Dominion Account Agreements;
(e) the Stock Pledge Agreement, together with the shares
of capital stock of each Subsidiary of QTI, as well as stock powers with respect
thereto endorsed in blank;
(f) such Collateral Access Agreements as Administrative
Agent or Collateral Agent may require in its discretion;
(g) the Fee Letter, the Lender Group Side Letter, and the
Post-Closing Letter;
(h) the Trademark Security Agreement;
(i) the Subordination Agreement; and
(j) a letter agreement between Administrative Agent (for
and on behalf of the Revolving Credit Lenders) and Borrower, in form and
substance satisfactory to Administrative Agent, relative to Revolving Credit
Loans based on the Inventory portion of the Borrowing Base.
9.2 Other Loan Documents. Each of the conditions precedent set
forth in the other Loan Documents shall have been satisfied.
9.3 Certificates of Title. Collateral Agent shall have
received duly executed certificates of title with respect to that portion of the
Collateral that is subject to certificates of title.
9.4 Approvals and Consents. Borrower shall have received all
governmental consents, approvals, licenses, authorizations, permits,
certificates, inspections, and franchises necessary for the consummation of the
transactions contemplated by the Loan Documents.
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9.5 Certified Documents of Borrower. On or before the Closing
Date, each Borrower shall have delivered to Administrative Agent copies of the
following documents, duly certified, or the following certificates, as
applicable:
(a) Resolutions of the Board of Directors of such Borrower
authorizing (i) the execution, deliver, and performance of the Loan Documents to
which such Borrower is a party, (ii) the consummation of the transactions
contemplated by the Loan Documents to which such Borrower is a party, and (iii)
all other actions to be taken by such Borrower in connection with the Loan
Documents to which Borrower is a party;
(b) A certificate, signed by the Secretary or an Assistant
Secretary of such Borrower, dated as of the Closing Date, as to (i) the
incumbency, and containing the specimen signature or signatures, of the Person
or Persons authorized to execute the Loan Documents to which such Borrower is a
party on behalf of such Borrower, together with evidence of the incumbency of
such Secretary or Assistant Secretary, and (ii) the authenticity and
completeness of the certificate or articles of incorporation and by-laws of such
Borrower; and
(c) Certificates of status or good standing of such Borrower
from the Secretary of State of its organization, dated within 10 days of the
Closing Date, and of each state or other jurisdiction in which such Borrower is
qualified to do business, dated within 15 days of the Closing Date.
9.6 Confirmation Searches. Collateral Agent shall have
received searches reflecting the filing of its financing statements and/or
fixture filings with respect to Borrower.
9.7 Opinion of Counsel. The Lender Group shall have received
from counsel for Borrower a legal opinion in form and substance satisfactory to
Collateral Agent and its counsel.
9.8 Pay-Off Letter and UCC Termination Statements, Etc. Each
Existing Lender shall have executed and delivered a Pay-Off Letter, which shall
be in full force and effect, together with original share certificates
evidencing the capital stock of the relevant Borrowers, and UCC termination
statements, mortgage releases, and other documentation evidencing the
termination of its Liens on the Properties or capital stock, as the case may be,
of Borrower.
9.9 Projections. The Lender Group shall have received
Projections of Borrower for the forthcoming 3 years, year by year, and for the
current fiscal year, month by month in form and substance satisfactory to the
Lender Group.
9.10 Closing Date. The Closing Date shall occur on or before
September 30, 1998.
9.11 Availability. Administrative Agent shall have determined
that immediately after the Lender Group have made the initial Loans, and all
closing fees, costs, and expenses incurred in connection with the transactions
contemplated hereby and the Fee Letter,
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Availability shall not be less than $10,000,000, provided that Borrower's trade
payables are at a level and are aged consistent with the historical practices of
Borrower (inclusive of FTI and FII).
9.12 No Litigation. No action proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby.
9.14 Acquisitions. Administrative Agent and Collateral Agent
shall have received and reviewed copies, certified as true, correct, and
complete by an appropriate officer of Borrower, of each of the Acquisition
Documents, the form and substance of which shall be reasonably satisfactory to
Administrative Agent and Collateral Agent. Each of the Acquisitions shall have
been consummated substantially in accordance with the terms of the applicable
Acquisition Documents. Administrative Agent and Collateral Agent shall have
received evidence, satisfactory to Administrative Agent and Collateral Agent,
that each Acquisition has been consummated in accordance with all applicable
laws, including laws respecting bulk transfer of assets and the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended.
9.14 [Intentionally Omitted].
9.15 Appraisals. Collateral Agent shall have received
appraisals and valuations of the tangible and intangible Property and assets of
Borrower, and the results shall be acceptable to the Lender Group in its sole
discretion.
9.16 Reference Checks. The Lender Group shall have received
satisfactory reference checks relative to key officers or directors of Borrower.
9.17 Pro Forma Balance Sheet. The Lender Group shall have
received Borrower's Pro Forma Balance Sheet, which shall be satisfactory to the
Lender Group in its sole discretion.
SECTION 9A. CONDITIONS PRECEDENT TO ALL CREDITS
Any other provision of this Agreement or any of the other Loan
Documents notwithstanding, and without affecting in any manner the rights of the
Lender Group under the other sections of this Agreement, the Lender Group shall
not be required to make any Loans under this Agreement unless and until each of
the following conditions has been and continues to be satisfied:
9A.1 No Default. No Default or Event of Default shall exist.
9A.2 Representations and Warranties. The representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all respects on and as of the date of such Loan (except to
the extent that such representations and warranties relate solely to an earlier
date).
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9A.3 Adverse Changes. No material adverse change shall have
occurred with respect to Borrower.
9A.4 Injunctions. No injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the extension of
such credit shall have been issued and remain in force by any governmental
authority against Borrower, the Lender Group, or any of their Affiliates.
SECTION 10. EVENTS OF DEFAULT, RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default":
10.1.1 [Intentionally Omitted]
10.1.2 Payment of Obligations. Borrower shall fail to pay
any of the Obligations on or before the due date thereof (whether due at stated
maturity, on demand, upon acceleration, or otherwise).
10.1.3 Misrepresentations. Any representation, warranty,
or other statement made or furnished to Agent or any Lender by or on behalf of
Borrower in this Agreement, any of the other Loan Documents, or any instrument,
certificate, or financial statement furnished in compliance with or in reference
thereto proves to have been false or misleading in any material respect when
made or furnished or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. Borrower shall fail
or neglect to perform, keep, or observe any covenant contained in Sections 5.2,
6.1.1, 6.2, 8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is
required to perform, keep or observe such covenant; provided, however, that, so
long as Availability exceeds $1,500,000, with respect to Borrower's obligation
under Section 6.2.1 to deliver to Administrative Agent a Borrowing Base
Certificate not later than 9:00 a.m. (New York time) on the 2nd Business Day of
each week, Borrower shall be permitted with respect to not more than 1 week in
any consecutive 3 month period to deliver the relevant Borrowing Base
Certificate as late as 9:00 a.m. (New York time) on the 4th Business Day of such
week without such late delivery constituting an Event of Default under this
Section 10.1.4.
10.1.5 Breach of Other Covenants. Borrower shall fail or
neglect to perform, keep, or observe any covenant contained in this Agreement
(other than a covenant that is dealt with specifically elsewhere in Section 10.1
hereof) and the breach of such other covenant is not cured to the Required
Lenders' satisfaction within 20 days after the sooner to occur of Borrower's
receipt of notice of such breach from Agent or the date on which such failure or
neglect first becomes known to any officer of Borrower.
10.1.6 Default Under Loan Documents/Acquisition
Documents. Any event of default shall occur under, or Borrower shall default in
the performance or observance of any term, covenant, condition, or agreement
contained in, any of the other Loan Documents or the Acquisition Documents and
such default shall continue beyond any applicable grace period.
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10.1.7 Other Defaults. There shall occur any default or
event of default on the part of Borrower under any agreement, document, or
instrument to which Borrower is a party or by which Borrower or any of its
Property is bound, creating or relating to any Indebtedness (other than the
Obligations) if the payment or maturity of such Indebtedness is accelerated in
consequence of such event of default or demand for payment of such Indebtedness
is made.
10.1.8 Uninsured Losses. Any loss, theft, damage, or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Collateral Agent shall have permitted) by insurance in excess of
$500,000.
10.1.9 Adverse Changes. There shall occur any Material
Adverse Change with respect to Borrower.
10.1.10 Insolvency and Related Proceedings. Any Borrower
shall cease to be Solvent or shall suffer the appointment of a receiver,
trustee, custodian, or similar fiduciary, or shall make an assignment for the
benefit of creditors, or any petition for an order for relief shall be filed by
or against any Borrower or under the Bankruptcy Code (if against any Borrower,
the continuation of such proceeding for more than 45 days), or any Borrower
shall make any offer of settlement, extension, or composition to their
respective unsecured creditors generally.
10.1.11 Business Disruption, Condemnation. There shall
occur a cessation of a substantial part of the business of any Borrower or any
Subsidiary thereof for a period which significantly affects such Borrower's or
such Subsidiary's capacity to continue its business, on a profitable basis, or
any Borrower or any Subsidiary thereof shall suffer the loss or revocation of
any material Permit now held or hereafter acquired by such Borrower or such
Subsidiary that is necessary to the continued or lawful operation of its
business, or any Borrower or any Subsidiary thereof shall be enjoined,
restrained or in any way prevented by court, governmental or administrative
order from conducting all or any material part of its business affairs, or any
material lease or agreement pursuant to which any Borrower or any Subsidiary
thereof leases, uses or occupies any Property shall be canceled or terminated
prior to the expiration of its stated term, or any material part of the
Collateral shall be taken through condemnation or the value of such Property
shall be materially impaired through condemnation.
10.1.12 Change of Control or Ownership. (a) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than the Permitted
Holders, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 20% of the total voting
power of all classes of Voting Stock then outstanding of QTI entitled to vote in
the election of directors; or (b) a majority of the members of the board of
directors of QTI shall not be Continuing Directors; or (c) Borrower shall cease
to own and control, directly or indirectly, 100% of the issued and outstanding
Voting Stock of each Borrower other than QTI; or (d) the Polimeni Parties shall
cease to own and control, directly and of record, at least 5% (calculated on a
fully diluted basis) of the issued and outstanding capital Stock of QTI; or (e)
Mr. Dominic A. Polimeni shall cease to be the Chairman and Chief Executive
Officer of QTI (other than by reason of death or disability); provided, however,
that the cessation of such Person to be
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so employed shall not constitute a "Change of Control" if, within a period of 90
days after the first date of such cessation, the Board of Directors of Borrower
appoints a successor to such Person and such successor is reasonably
satisfactory to the Required Lenders and such successor agrees to so serve in
that position.
10.1.13 ERISA. A Reportable Event shall occur which
Administrative Agent and Collateral Agent determine in good faith to be
reasonably likely to constitute grounds for the termination by the Pension
Benefit Guaranty Corporation of any Plan or for the appointment by the
appropriate United States district court of a trustee for any Plan, or if any
Plan shall be terminated or any such trustee shall be requested or appointed, or
if Borrower, or any Subsidiary of Borrower, is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from Borrower's, or such Subsidiary's, complete or partial withdrawal
from such Plan.
10.1.14 Challenge to Agreement. Borrower, or any
Subsidiary of Borrower, or any Affiliate of any of them, shall challenge or
contest in any action, suit, or proceeding the validity or enforceability of
this Agreement, or any of the other Loan Documents, the legality or
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Agent.
10.1.15 [intentionally omitted].
10.1.16 Criminal Forfeiture. Borrower, or any Subsidiary
of Borrower, shall be criminally indicted or convicted under any law that could
lead to a forfeiture of any Property of Borrower, or any Subsidiary of Borrower.
10.1.17 Judgments. If one or more judgments or other
claims involving an aggregate amount of $500,000, or more, and not fully covered
by insurance, becomes a Lien or encumbrance upon any material portion of the
Properties of any Borrower and its Subsidiaries, taken as a whole, and the Lien
or encumbrance is not released, discharged, or bonded against before the earlier
of 30 days of the date it first arises or 5 days of the date when such property
or asset is subject to being forfeited; provided, however, that during such
period Administrative Agent shall be entitled to create and maintain (and
Collateral Agent shall be entitled to cause Administrative Agent to create and
maintain) a reserve against the Borrowing Base in an amount sufficient to
discharge such Lien or encumbrance and any and all penalties or interest payable
in connection therewith.
10.2 Acceleration of the Obligations. Without in any way
limiting the right of Administrative Agent (acting on the instructions of the
Required Lenders) to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence of an Event of Default, all or any portion of the Obligations shall,
at the option of Administrative Agent (acting upon the instructions of the
Required Lenders) and without presentment, demand, protest, or further notice by
the Lender Group, become at once due and payable, and Borrower forthwith shall
pay to Administrative Agent for the benefit of the Lender Group the full amount
of such Obligations; provided that upon the occurrence of an Event of Default
specified in Section 10.1.10 hereof, all of the Obligations shall
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become automatically due and payable without declaration, notice, or demand by
the Lender Group.
10.3 Other Remedies. Upon and after the occurrence of an Event
of Default, the Lender Group shall have and Collateral Agent, as the case may
be, may exercise from time to time the following rights and remedies:
10.3.1 All of the rights and remedies of a secured party
under the Code or under other applicable law, and all other legal and equitable
rights to which the Lender Group may be entitled, all of which rights and
remedies shall be cumulative and shall be in addition to any other rights or
remedies contained in this Agreement or any of the other Loan Documents, and
none of which shall be exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (a) require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Collateral Agent at a place
designated by Collateral Agent which is reasonably convenient to both parties,
and (b) enter any premises where any of the Collateral shall be located and to
keep and store the Collateral on said premises until sold (and if said premises
be the Property of Borrower, Borrower agrees not to charge the Lender Group for
storage thereof).
10.3.3 The right to sell or otherwise dispose of all or
any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Collateral
Agent, in its sole discretion, may deem advisable. Borrower agrees that 10 days
written notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Collateral Agent may designate in said notice. Collateral Agent
shall have the right to conduct such sales on Borrower's premises, without
charge therefor, and such sales may be adjourned from time to time in accordance
with applicable law. Collateral Agent shall have the right to sell, lease, or
otherwise dispose of the Collateral, or any part thereof, for cash, credit, or
any combination thereof, and Collateral Agent on behalf of the Lender Group may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Obligations. The proceeds realized from the
sale of any Collateral may be applied, after allowing 5 days for collection, (a)
first, to the costs, expenses, and attorneys fees incurred by the Collateral
Agent in collecting the Obligations, in enforcing the rights of the Lender Group
under the Loan Documents, and in collecting, retaking, completing, protecting,
removing, storing, advertising for sale, selling, and delivering any Collateral,
(b) second, in accordance with the provisions of Section 3.2.6(b). If any
deficiency shall arise, Borrower shall remain jointly and severally liable to
the Lender Group therefor.
10.3.4 Collateral Agent is hereby granted a license or
other right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, and
advertising matter, or any Property of a similar nature as it pertains to the
Collateral, in advertising for sale and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Collateral
Agent's benefit.
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10.3.5 [intentionally omitted]
10.4 Remedies Cumulative, No Waiver. All covenants,
conditions, provisions, warranties, guaranties, indemnities, and other
undertakings of Borrower contained in this Agreement and the other Loan
Documents, or in any document referred to herein or contained in any agreement
supplementary hereto or in any schedule or contained in any other agreement
between the Lender Group and Borrower, heretofore, concurrently, or hereafter
entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of
Borrower contained herein. The failure or delay of the Lender Group to require
strict performance by Borrower of any provision of this Agreement or to exercise
or enforce any rights, Liens, powers, or remedies hereunder or under any of the
aforesaid agreements or other documents or security or Collateral shall not
operate as a waiver of such performance, Liens, rights, powers, and remedies,
but all such requirements, Liens, rights, powers, and remedies shall continue in
full force and effect until all Loans and all other Obligations owing or to
become owing from Borrower to Lenders shall have been fully satisfied. None of
the undertakings, agreements, warranties, covenants, and representations of
Borrower contained in this Agreement or any of the other Loan Documents, and no
Event of Default by Borrower under this Agreement or any other Loan Documents
shall be deemed to have been suspended or waived by the Lender Group, unless
such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by duly authorized representative of
Administrative Agent and Collateral Agent (in each case, acting on written
instructions of the Required Lenders) and directed to Borrower.
SECTION 11. THE AGENTS
11.1 Appointment Powers and Immunities; Delegation of Duties;
Liability of Agents
11.1.1 Each member of the Lender Group hereby designates
and appoints Administrative Agent as its administrative agent under this
Agreement and the other Loan Documents and Collateral Agent as its collateral
agent under this Agreement and the other Loan Documents. Each member of the
Lender Group hereby irrevocably authorizes each such Agent to take such action
on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Each such Agent
agrees to act as such on the express conditions contained in this Article 11.
The provisions of this Article 11 are solely for the benefit of the
Administrative Agent, Collateral Agent, and the Lenders. Borrower shall have no
rights as a third party beneficiary of any of the provisions contained herein;
provided, however, that certain of the provisions of Section 11.13 hereof also
shall be for the benefit of Borrower. Any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document notwithstanding, each
such Agent shall not have any duties or responsibilities, except those expressly
set forth herein, nor shall each such Agent have or be deemed to have any
fiduciary relationship with any other member of the Lender Group, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against each such Agent; it being expressly understood and agreed that the use
of the word "Agent" is for convenience only and that each
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such Agent is merely the representative of the other members of the Lender
Group, and has only the contractual duties set forth in this Agreement and the
other Loan Documents. Except as expressly otherwise provided in this Agreement,
each such Agent shall have and may use its sole discretion with respect to
exercising or refraining from exercising any discretionary rights or taking or
refraining from taking any actions which such Agent is expressly entitled to
take or assert under or pursuant to this Agreement and the other Loan Documents.
No member of the Lender Group shall have any right of action whatsoever against
each such Agent as a result of such Agent acting or refraining from acting
hereunder pursuant to such discretion and any action taken or failure to act
pursuant to such discretion shall be binding on the Lender Group. Without
limiting the generality of the foregoing, or of any other provision of the Loan
Documents that provides rights or powers to Administrative Agent or Collateral
Agent, each of the members of the Lender Group agree that, as long as this
Agreement remains in effect: (a) (i) Administrative Agent shall have the right
to maintain, in accordance with its customary business practices, ledgers and
records reflecting the status of the Obligations, the Revolving Credit Loans,
the Term Loans, the Collections, and related matters, and (ii) Collateral Agent
shall have the right to maintain, in accordance with its customary business
practices, ledgers and records reflecting the status of the Collateral and
related matters; (b) Collateral Agent shall have the right to execute or file
any and all financing or similar statements or notices, amendments, renewals,
supplements, documents, instruments, proofs of claim, notices and other written
agreements with respect to the Loan Documents; (c) Administrative Agent shall
have the right to make the Revolving Credit Loans, for itself or on behalf of
the applicable Lenders as provided in the Loan Documents; (d) Administrative
Agent shall have the right to exclusively receive, apply, and distribute the
Collections as provided in the Loan Documents; (e) Administrative Agent shall
have the right to open and maintain such bank accounts and lock boxes as
Administrative Agent deems necessary and appropriate in accordance with the Loan
Documents for the foregoing purposes with respect to the Collections and, on
behalf of Collateral Agent, the Collateral; (f) (i) Administrative Agent shall
have the right to perform, exercise, and enforce any and all other rights and
remedies of the Lender Group with respect to Borrower, the Obligations, the
Collections, or otherwise related to any of same as provided in the Loan
Documents, and (ii) Collateral Agent shall have the right to perform, exercise,
and enforce any and all other rights and remedies of the Lender Group with
respect to Borrower, the Obligations, the Collateral, or otherwise related to
any of same as provided in the Loan Documents; and (g) Administrative Agent and
Collateral Agent each shall have the right to incur and pay such fees, charges,
and expenses under the Loan Documents as such Agent reasonably may deem
necessary or appropriate for the performance and fulfillment of its functions
and powers pursuant to the Loan Documents. Administrative Agent may deem and
treat the payee of any Obligation as the holder thereof for all purposes of the
Loan Documents unless and until a notice of the assignment or transfer of such
Obligation shall have been filed with Administrative Agent. Each member of the
Lender Group further consents to (y) the execution, delivery, and performance by
Administrative Agent or Collateral Agent of each Loan Document entered into by
such Agent on behalf of the Lender Group as contemplated by this Agreement, and
(z) the terms of such Loan Documents.
11.1.2 Except as otherwise provided in this section, each
of Administrative Agent and Collateral Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Each of Administrative Agent and Collateral
Agent shall not be responsible for the negligence or
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misconduct of any agent or attorney-in-fact that it selects as long as such
selection was made in compliance with this section and without gross negligence
or willful misconduct.
11.1.3 None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any members of the Lender Group for any
recital, statement, representation or warranty made by Borrower or any
Subsidiary or Affiliate of Borrower, or any officer or director thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by Administrative Agent or Collateral Agent under or in connection
with, this Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of Borrower or any other party to any Loan Document
to perform its obligations hereunder or thereunder. No Agent-Related Person
shall be under any obligation to any member of the Lender Group to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of Borrower or any of Borrower's
Subsidiaries or Affiliates.
11.2 Reliance by Agent. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person,
and upon advice and statements of legal counsel (including counsel to Borrower
or counsel to any member of the Lender Group), independent accountants and other
experts selected by such Agent. Each Agent shall be fully justified in failing
or refusing to take any action under this Agreement or any other Loan Document
unless it first shall receive such advice or concurrence of the Lenders as it
deems appropriate and until such instructions are received, such Agent shall
act, or refrain from acting, as it deems advisable. If any Agent so requests, it
first shall be indemnified to its reasonable satisfaction by the Lender Group
against any and all liability and expense that may be incurred by it by reason
of taking or continuing to take any such action. Each Agent in all cases shall
be fully protected in acting, or in refraining from acting, under this Agreement
or any other Loan Document in accordance with a request or consent of the Lender
Group and such request and any action taken or failure to act pursuant thereto
shall be binding upon all members of the Lender Group.
11.3 Defaults. Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Administrative Agent for the account of the
Lender Group, except with respect to Events of Default of which Administrative
Agent has actual knowledge, and unless Administrative Agent shall have received
written notice from a Lender or Borrower referring to this Agreement, describing
such Default or Event of Default, and stating that such notice is a "Notice of
Default." Administrative Agent promptly will notify the Lender Group of its
receipt of any such notice or of any Event of Default of which Administrative
Agent has actual knowledge. If any Lender obtains actual knowledge of any Event
of Default, such Lender promptly shall notify the other Lenders and
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each Agent of such Event of Default. Each Lender shall be solely responsible for
giving any notices to its Participants, if any. Subject to Sections 11.2 and
11.7, each Agent shall take such action with respect to such Default or Event of
Default as may be requested by the Required Lenders in accordance with Section
10; provided, however, that unless and until such Agent has received any such
request, such Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable.
11.4 Rights as a Lender. (a) With respect to its Commitments
and the Loans made by it, Congress Financial Corporation (Southern) (and any
successor acting as Administrative Agent, if any, as permitted by Section
11.8(a) hereof) in its capacity as a Lender under the Loan Documents shall have
the same rights, privileges and powers under the Loan Documents as any other
Lender and may exercise the same as though it were not acting as Administrative
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include Administrative Agent in its individual capacity. Congress
Financial Corporation (Southern) (and any successor acting as Administrative
Agent) and its affiliates may (without having to account for the same to any
member of the Lender Group) accept deposits from, lend money to, make
investments in and generally engage in any kind of banking, trust or other
business with Borrower (and any of its Subsidiaries or Affiliates) as if it were
not acting as Administrative Agent, and Congress Financial Corporation
(Southern) (and its successors) and its affiliates may accept fees and other
consideration from Borrower for services in connection with this Agreement or
otherwise without having to account for the same to the Lender Group.
(b) With respect to its Commitments and the Loans made by it,
Madeleine L.L.C. (and any successor acting as Collateral Agent, if any, as
permitted by Section 11.8(b) hereof) in its capacity as a Lender under the Loan
Documents shall have the same rights, privileges and powers under the Loan
Documents as any other Lender and may exercise the same as though it were not
acting as Collateral Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include Collateral Agent in its individual
capacity. Madeleine L.L.C. (and any successor acting as Collateral Agent) and
its affiliates may (without having to account for the same to any member of the
Lender Group) accept deposits from, lend money to, make investments in and
generally engage in any kind of banking, trust or other business with Borrower
(and any of its Subsidiaries or Affiliates) as if it were not acting as
Collateral Agent, and Madeleine L.L.C. and its affiliates may accept fees and
other consideration from Borrower for services in connection with this Agreement
or otherwise without having to account for the same to the Lender Group.
11.5 Costs and Expenses; Indemnification. Each Agent may incur
and pay fees, costs, and expenses under the Loan Documents to the extent such
Agent deems reasonably necessary or appropriate for the performance and
fulfillment of its functions, powers, and obligations pursuant to the Loan
Documents, including without limiting the generality of the foregoing, court
costs, reasonable attorneys fees and expenses, costs of collection by outside
collection agencies and auctioneer fees and costs of security guards or
insurance premiums paid to maintain the Collateral, whether or not Borrower is
obligated to reimburse the Lender Group for such expenses pursuant to the Loan
Agreement or otherwise. Each Lender hereby agrees that it is and shall be
obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata
Share thereof (in accordance with its Total Commitments). Whether or not the
transactions
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contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (without limiting the obligation of Borrower to do so),
according to their Pro Rata Shares (in accordance with their respective Total
Commitments), from and against any and all Indemnified Liabilities (including
without limitation Indemnified Liabilities arising under any Environmental Law
as provided in Section 12.2); provided, however, that no Lender shall be liable
for the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse
Administrative Agent or Collateral Agent, as the case may be, upon demand for
such Lender's ratable share of any costs or out-of-pocket expenses (including
attorneys fees and expenses) incurred by such Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein.
The undertaking in this section shall survive the payment of all Obligations
hereunder and the resignation or replacement of any Agent.
11.6 Nonreliance on Agent and Other Lenders. Each Lender
acknowledges that none of the Agent-Related Persons has made any representation
or warranty to it, and that no act by any Agent hereinafter taken, including any
review of the affairs or Property of Borrower and its Subsidiaries or
Affiliates, shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Lender. Each Lender represents to each Agent that it
has, independently and without reliance upon any Agent-Related Person and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
Property, financial and other condition and creditworthiness of Borrower and any
other Person (other than the Lender Group) party to a Loan Document, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to Borrower. Each Lender also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower and any
other Person (other than the Lender Group) party to a Loan Document. Except for
notices, reports and other documents expressly herein required to be furnished
to the Lender Group by Agent, no Agent shall have any duty or responsibility to
provide any member of the Lender Group with any credit or other information
concerning the business, prospects, operations, Property, financial and other
condition or creditworthiness of Borrower and any other Person party to a Loan
Document that may come into the possession of any of the Agent-Related Persons.
11.7 Failure to Act. Except for action expressly required of
any Agent under the Loan Documents, such Agent shall in all cases be fully
justified in failing or refusing to act under any Loan Document unless it shall
receive further assurances to its satisfaction from the Lenders of their
indemnification obligations under Section 11.5 against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action.
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11.8 Resignation of Agent. (a) Subject to the appointment and
acceptance of a successor Administrative Agent as provided below, Administrative
Agent may resign at any time by notice to the Lender Group and Borrower. Upon
any such resignation, Required Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been appointed by Required Lenders and have accepted such appointment within 30
days after the retiring Administrative Agent's giving of notice of resignation,
then the retiring Administrative Agent may, on behalf of Lenders, appoint a
successor Administrative Agent. Upon the acceptance of any appointment as
Administrative Agent by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, remedies, powers, privileges, duties and obligations of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations, under the Loan Documents. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 11 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as Administrative
Agent.
(b) Subject to the appointment and acceptance of a successor
Collateral Agent as provided below, Collateral Agent may resign at any time by
notice to the Lender Group and Borrower. Upon any such resignation, Required
Lenders shall have the right to appoint a successor Collateral Agent. If no
successor Collateral Agent shall have been appointed by Required Lenders and
have accepted such appointment within 30 days after the retiring Collateral
Agent's giving of notice of resignation, then the retiring Collateral Agent may,
on behalf of Lenders, appoint a successor Collateral Agent. Upon the acceptance
of any appointment as Collateral Agent by a successor Collateral Agent, such
successor Collateral Agent shall thereupon succeed to and become vested with all
the rights, remedies, powers, privileges, duties and obligations of the retiring
Collateral Agent, and the retiring Collateral Agent shall be discharged from its
duties and obligations, under the Loan Documents. After any retiring Collateral
Agent's resignation as Collateral Agent, the provisions of this Section 11 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Collateral Agent.
11.9 Collateral Sub-Agents. Each member of the Lender Group by
its execution and delivery of this Agreement agrees that, in the event it shall
hold any monies or other investments on account of Borrower, such monies or
other investments shall be held in the name and under the control of such member
of the Lender Group, and such member of the Lender Group shall hold such monies
or other investments as a collateral sub-agent for Collateral Agent under this
Agreement and the other Loan Documents. Borrower by its execution and delivery
of this Agreement hereby consents to the foregoing.
11.10 Communications by Borrower. Except as otherwise provided
in this Agreement, Borrower's communications with respect to the Loan Documents
shall be with Administrative Agent or Collateral Agent, as the case may be, and
Borrower shall not be under any obligation to communicate directly with the
Lenders.
11.11 Collateral Matters.
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(a) The Lenders hereby irrevocably authorize Collateral Agent,
at its option and in its sole discretion, to release any Lien on any Collateral
(i) upon the termination of the Commitments and payment and satisfaction in full
by Borrower of all Obligations; (ii) constituting property being sold or
disposed of if a release is required or desirable in connection therewith and if
Borrower certifies in writing to Collateral Agent that the sale or disposition
is permitted under this Agreement or the other Loan Documents (and Collateral
Agent may rely conclusively on any such certificate, without further inquiry);
(iii) constituting property in which Borrower owned no interest at the time the
security interest was granted or at any time thereafter; (iv) constituting
property leased to Borrower under a lease that has expired or is terminated in a
transaction permitted under this Agreement, or (v) which, in the aggregate with
all other dispositions of Equipment, has a fair market value or book value,
whichever is less, of $500,000 or less. Except as provided above or expressly
provided in any other Loan Document, Collateral Agent will not execute and
deliver a release of any Lien on any Collateral without the prior written
authorization of all of the Lenders. Upon request by Collateral Agent or
Borrower at any time, Administrative Agent and the Lenders will confirm in
writing Collateral Agent's authority to release any such Liens on particular
types or items of Collateral pursuant to this Section 11.11; provided, however,
that (1) Collateral Agent shall not be required to execute any document
necessary to evidence such release on terms that, in Collateral Agent's opinion,
would expose Collateral Agent to liability or create any obligation or entail
any consequence other than the release of such Lien without recourse,
representation, or warranty, and (2) such release shall not in any manner
discharge, affect, or impair the Obligations or any Liens (other than those
expressly being released) upon (or obligations of Borrower in respect of) all
interests retained by Borrower, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(b) Collateral Agent shall have no obligation whatsoever to
any other member of the Lender Group to assure that the Collateral exists or is
owned by Borrower or is cared for, protected, or insured or has been encumbered,
or that the Collateral Agent's Liens have been properly or sufficiently or
lawfully created, perfected, protected, or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Collateral Agent pursuant
to any of the Loan Documents, it being understood and agreed that in respect of
the Collateral, or any act, omission or event related thereto, subject to the
terms and conditions contained herein, Collateral Agent may act in any manner it
may deem appropriate, in its sole discretion given Collateral Agent's own
interest in the Collateral in its capacity as one of the Lenders and that
Collateral Agent shall have no other duty or liability whatsoever to any other
member of the Lender Group as to any of the foregoing, except as otherwise
provided herein.
11.12 Restrictions on Actions by Administrative Agent and the
Lenders; Sharing of Payments. (a) Administrative Agent and each of the Lenders
agrees that it shall not, without the express consent of Collateral Agent, and
that it shall, to the extent it is lawfully entitled to do so, upon the request
of Administrative Agent and Collateral Agent, set off against the Obligations,
any amounts owing by such member of the Lender Group to Borrower or any accounts
of Borrower now or hereafter maintained with such member of the Lender Group.
Administrative Agent and each of the Lenders further agrees that it shall not,
unless specifically requested to do so by Collateral Agent, take or cause to be
taken any action,
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including, the commencement of any legal or equitable proceedings, to foreclose
any Lien on, or otherwise enforce any security interest in, any of the
Collateral the purpose of which is, or could be, to give such member of the
Lender group any preference or priority against the other members of the Lender
group with respect to the Collateral.
(b) Subject to Section 11.4, if, at any time or times any
Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any
proceeds of Collateral or any payments with respect to the Obligations arising
under, or relating to, this Agreement or the other Loan Documents, except for
any such proceeds or payments received by such Lender from Administrative Agent
pursuant to the terms of this Agreement, or (ii) payments from Administrative
Agent in excess of such Lender's ratable portion of all such distributions by
Administrative Agent, such Lender promptly shall turn the same over to
Administrative Agent, in kind, and with such endorsements as may be required to
negotiate the same to Administrative Agent, or in same day funds, as applicable,
for the account of the Lender Group and for apportionment and application to the
Obligations in accordance with Section 3.2.6 hereof.
11.13 Withholding Tax. (a) If any Lender is a "foreign
corporation, partnership or trust" within the meaning of the IRC and such Lender
claims exemption from, or a reduction of, U.S. withholding tax under Sections
1441 or 1442 of the IRC, such Lender agrees with and in favor of Administrative
Agent and Borrower, to deliver to Administrative Agent and Borrower.
(i) if such Lender claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8 before the payment of any interest in the first
calendar year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under
the IRC or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees promptly to notify Administrative Agent and Borrower of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of Borrower to such Lender, such Lender agrees to
notify Administrative Agent of the percentage amount in which it is no longer
the beneficial owner of Obligations of Borrower to such Lender. To the extent of
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such percentage amount, Administrative Agent will treat such Lender's IRS Form
1001 as no longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with Administrative Agent sells,
assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of Borrower to such Lender, such Lender agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the IRC.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, Administrative Agent may withhold from any interest payment to
such Lender an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required by
clause (a) of this Section are not delivered to Administrative Agent, then
Administrative Agent may withhold from any interest payment to such Lender not
providing such forms or other documentation an amount equivalent to the
applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that Administrative Agent
did not properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify Administrative Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender shall
indemnify Administrative Agent fully for all amounts paid, directly or
indirectly, by Administrative Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to Administrative Agent under this Section, together with all costs and
expenses (including attorneys fees and expenses). The obligation of the Lenders
under this Section shall survive the payment of all Obligations and the
resignation or replacement of Administrative Agent.
11.14 Several Obligations; No Liability. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be executed
only by or in favor of an Agent in its capacity as such, and not by or in favor
of the Lenders, any and all obligations on the part of Administrative Agent (if
any) to make any credit available hereunder shall constitute the several (and
not joint) obligations of the respective Lenders on a ratable basis, according
to their respective Commitments, to make an amount of such credit not to exceed,
in principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any member of the Lender
Group any interest in, or subject any member of the Lender Group to any
liability for, or in respect of, the business, assets, profits, losses, or
liabilities of any other member of the Lender Group. Each Lender shall be solely
responsible for notifying its Participants of any matters relating to the Loan
Documents to the extent any such notice may be required, and no member of the
Lender Group shall have any obligation, duty, or liability to any Participant of
any other Lender. Except as provided in Section 11.5, no Agent or any Lender
shall have any liability for the acts of the other Agent or any other Lender. No
Lender shall be responsible to Borrower or any other Person for any failure by
any other Lender to fulfill its obligations to make credit available hereunder,
nor to advance for it or on its behalf
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in connection with its Commitment, nor to take any other action on its behalf
hereunder or in connection with the financing contemplated herein.
SECTION 12. MISCELLANEOUS
12.1 Power of Attorney. Borrower hereby irrevocably
designates, makes, constitutes, and appoints Collateral Agent (and all Persons
designated by Collateral Agent) as Borrower's true and lawful attorney (and
agent-in-fact), and Collateral Agent, or Collateral Agent's agent, may, without
notice to Borrower and in either Borrower's or Collateral Agent's name, but at
the cost and expense of Borrower:
12.1.1 At such time or times upon or after the occurrence
of a Default or an Event of Default as Collateral Agent or said agent (including
Administrative Agent), in its sole discretion, may determine, endorse Borrower's
name on any checks, notes, acceptances, drafts, money orders, or any other
evidence of payment or proceeds of the Collateral which come into the possession
of the Lender Group or under the Lender Group's control and shall deposit such
item of payment into the Dominion Account or credit the amount thereof (in
accordance with the provisions of this Agreement) to the Obligations.
12.1.2 At such time or times upon or after the occurrence
of an Event of Default as Collateral Agent or its agent, in its sole discretion,
may determine: (a) demand payment of the Accounts from the Account Debtors,
enforce payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of Borrower's rights and remedies with respect to the collection of
the Accounts, (b) settle, adjust, compromise, discharge, or release any of the
Accounts or other Collateral or any legal proceedings brought to collect any of
the Accounts or other Collateral, (c) sell or assign any of the Accounts and
other Collateral upon such terms, for such amounts, and at such time or times as
Collateral Agent deems advisable, (d) take control, in any manner, of any item
of payment or proceeds relating to any Collateral, (e) prepare, file, and sign
Borrower's name to a proof of claim in bankruptcy or similar document against
any Account Debtor, or to any notice of lien, assignment, or satisfaction of
lien or similar document in connection with any of the Collateral, (f) receive,
open and dispose of all mail addressed to Borrower, and notify postal
authorities to change the address for delivery thereof to such address as
Collateral Agent may designate, (g) endorse the name of Borrower upon any of the
items of payment or proceeds relating to any Collateral, and deposit the same to
the account of Collateral Agent on account of the Obligations, (h) endorse the
name of Borrower upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document, or agreement relating to the Accounts,
Inventory and any other Collateral, (i) use Borrower's stationery and sign the
name of Borrower to verifications of the Accounts and notices thereof to Account
Debtors, (j) use the information recorded on or contained in any data processing
equipment, computer hardware, and software relating to the Accounts, Inventory,
Equipment, and any other Collateral, (k) make and adjust claims under policies
of insurance, and (l) do all other acts and things necessary, in Collateral
Agent's determination, to fulfill Borrower's obligations under this Agreement.
12.2 Indemnity. Borrower hereby agrees to pay, indemnify,
defend (with counsel selected by Borrower and reasonably acceptable to the
Indemnified Person), and hold the Agent-Related Persons, the Lender-Related
Persons with respect to each Lender, each
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Participant, and each of their respective officers, directors, employees,
counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless
(to the fullest extent permitted by law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all
reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them in connection with or as a result of or related
to the this Agreement and any other Loan Documents (including the enforcement,
performance, and administration thereof, or any consents or waivers hereunder or
thereunder or any amendment or modifications hereof or thereof) or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 12.2 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. Without limiting the generality of the foregoing, these indemnities
shall extend to any claims asserted against Agent or any Lender by any Person
under any Environmental Laws or similar laws by reason of Borrower's or any
other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. Any contrary provision in this
Agreement notwithstanding, (a) the foregoing shall not be deemed to be a waiver
of Agent's obligations, if any, under Section 9-207 of the Code, and (b) the
obligation of Borrower under this Section 12.2 shall survive the payment in full
of the Obligations and the termination of this Agreement.
12.3 Amendments, Etc.
12.3.1 Amendments and Waivers. No amendment or waiver of
any provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by Borrower therefrom, shall be effective unless the
same shall be in writing and signed by the Required Lenders (or by
Administrative Agent and Collateral Agent, in each case, at the written request
of the Required Lenders) and Borrower and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by Borrower, all the Lenders, Administrative
Agent, and Collateral Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Lenders (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or any fees or other amounts payable hereunder or under any
other Loan Document, or forgive, compromise, or cancel any of the Obligations;
provided, however, that no consent of the Term Loan Lenders shall be required
for the compromise of any Obligation
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relating solely to Revolving Credit Loans and no consent of the Revolving Credit
Lenders shall be required for the compromise of any Obligation relating solely
to Term Loans;
(d) change the percentage of the Commitments that is required
for the Lenders or any of them to take any action hereunder;
(e) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders;
(f) release Collateral other than as permitted by Section
11.11, or subordinate any security interests or liens of Collateral Agent for
the benefit of the Lender Group;
(g) change the definition of "Required Lenders";
(h) release Borrower from any Obligation for the payment of
money, or agree to subordinate any of the Obligations in right of payment to any
other Indebtedness;
(i) amend the provisions of Section 3.2.6;
(j) increase the advance rate with respect to the Eligible
Accounts or Eligible Inventory or any sublimit in the Borrowing Base applicable
thereto;
(k) permit the sale of all or substantially all of the capital
stock of any Borrower or any of its Subsidiaries;
(l) amend any of the provisions of Section 11;
and, provided further, however, that (1) no amendment, waiver or consent shall,
unless in writing and signed by Administrative Agent, affect the rights or
duties of Administrative Agent under this Agreement or any other Loan Document,
and (2) no amendment, waiver or consent shall, unless in writing and signed by
Collateral Agent, affect the rights or duties of Collateral Agent under this
Agreement or any other Loan Document. The foregoing notwithstanding, any
amendment, modification, waiver, consent, termination, or release of or with
respect to any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrower, shall not require consent
by or the agreement of Borrower.
12.3.2 No Waivers; Cumulative Remedies. No failure by the
Lender Group to exercise any right, remedy, or option under this Agreement, any
other Loan Document, or any present or future supplement hereto or thereto, or
in any other agreement between or among Borrower and the Lender Group, or delay
by the Lender Group in exercising the same, will operate as a waiver thereof. No
waiver by the Lender Group will be effective unless it is in writing, and then
only to the extent specifically stated. No waiver by the Lender Group on any
occasion shall affect or diminish the Lender Group's rights thereafter to
require strict performance by Borrower of any provision of this Agreement. The
Lender Group's rights under
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this Agreement and the other Loan Documents will be cumulative and not exclusive
of any other right or remedy which the Lender Group may have.
12.4 Successors; Assignments and Participations.
12.4.1 This Agreement shall bind and inure to the benefit
of the respective successors and assigns of each of the parties; provided,
however, that Borrower may not assign this Agreement or any rights or duties
hereunder without the prior written consent of Administrative Agent, Collateral
Agent, and each of the Lenders, and any prohibited assignment shall be
absolutely void ab initio. No consent to assignment by the Lender Group shall
release Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 12.4.2 hereof and, except as expressly required pursuant to
Section 12.4.2 hereof, no consent or approval by Borrower is required in
connection with any such assignment.
12.4.2 (a) Any Lender may, with the written consent of
Collateral Agent (which consent shall not be unreasonably withheld nor shall it
be required in respect to an assignment of the Term Loans), assign and delegate
to one or more assignees (provided that no written consent of Collateral Agent
shall be required in connection with any assignment and delegation by a Lender
to an Eligible Transferee) (each an "Assignee") all, or any part of all, of the
Obligations, the Commitments and the other rights and obligations of such Lender
hereunder and under the other Loan Documents, in a minimum amount of $5,000,000;
provided, however, that Borrower, Collateral Agent, and Administrative Agent may
continue to deal solely and directly with such Lender in connection with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been given to Borrower, Collateral Agent,
and Administrative Agent by such Lender and the Assignee; (ii) such Lender and
its Assignee shall have delivered to Borrower, Collateral Agent, and
Administrative Agent an Assignment and Acceptance in the form of Exhibit A-1
("Assignment and Acceptance") in form and substance satisfactory to Collateral
Agent; and (iii) the assignor Lender or Assignee has paid to Collateral Agent
for Collateral Agent's sole and separate account a processing fee in the amount
of $2,500. Anything contained herein to the contrary notwithstanding, the
consent of Collateral Agent shall not be required if such assignment is in
connection with any merger, consolidation, sale, transfer, or other disposition
of all or any substantial portion of the business or loan portfolio of such
Lender.
(b) From and after the date that Collateral Agent notifies the
assignor Lender that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (except with respect to Section
12.2 hereof) and be released from its obligations under this Agreement (except
with respect to Section 11.5 hereof) (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement and the other Loan Documents, such Lender
shall
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cease to be a party hereto and thereto), and such assignment shall effect
a novation among Borrower, the assignor Lender, and the Assignee.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto; (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance or observance by Borrower of any of its obligations
under this Agreement or any other Loan Document furnished pursuant hereto; (3)
such Assignee confirms that it has received a copy of this Agreement, together
with such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance; (4) such Assignee will, independently and without reliance upon
Administrative Agent, Collateral Agent, such assigning Lender, or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (5) such Assignee appoints and authorizes each of
Administrative Agent and Collateral Agent to take such action as Administrative
Agent or Collateral Agent (as the case may be) on its behalf and to exercise
such powers under this Agreement as are delegated to Administrative Agent or
Collateral Agent (as the case may be) by the terms hereof, together with such
powers as are reasonably incidental thereto; and (6) such Assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitments allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written consent of
Collateral Agent, sell to one or more commercial banks, financial institutions,
or other Persons not Affiliates of such Lender (a "Participant") participating
interests in the Obligations, the Commitments, and the other rights and
interests of that Lender (the "originating Lender") hereunder and under the
other Loan Documents (provided that no written consent of Collateral Agent shall
be required in connection with any sale of any such participating interests by a
Lender to an Eligible Transferee); provided, however, that (i) the originating
Lender's obligations under this Agreement shall remain unchanged, (ii) the
originating Lender shall remain solely responsible for the performance of such
obligations, (iii) Borrower, Collateral Agent, and Administrative Agent shall
continue to deal solely and directly with the originating Lender in connection
with the originating Lender's rights and obligations under this Agreement and
the other Loan Documents, (iv) no Lender shall transfer or grant any
participating interest under which the Participant has the sole and exclusive
right to approve any amendment to, or any consent or waiver with respect to,
this Agreement or any other Loan Document, except to the extent such
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amendment to, or consent or waiver with respect to, this Agreement or of any
other Loan Document would (A) extend the final maturity date of the Obligations
hereunder in which such Participant is participating; (B) reduce the interest
rate applicable to the Obligations hereunder in which such Participant is
participating; (C) release all or a material portion of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating; (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through such Lender; or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums; (v) all amounts payable by Borrower hereunder shall be determined as
if such Lender had not sold such participation and (vi) any such participation
shall be in a minimum amount of $5,000,000. The rights of any Participant only
shall be derivative through the originating Lender with whom such Participant
participates and no Participant shall have any direct rights as to the other
Lenders, Administrative Agent, Collateral Agent, Borrower, the Collections, the
Collateral, or otherwise in respect of the Obligations. No Participant shall
have the right to participate directly in the making of decisions by the Lender
Group among themselves.
(f) In connection with any such assignment or participation or
proposed assignment or participation, a Lender may disclose all documents and
information which it now or hereafter may have relating to Borrower or
Borrower's business; provided in each case that such assignee or participant (or
prospective assignee or participant) shall agree to maintain the confidentiality
of such information in accordance with its normal business practices.
(g) Any other provision in this Agreement notwithstanding, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank
or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
12.4.3 Notwithstanding anything in this Section 12.4 to
the contrary, no Lender may assign or participate to Borrower or any of its
Affiliates or Subsidiaries, if any, any interest in any Obligation or Commitment
(or any related rights, remedies, powers or privileges) without the prior
written consent of each Lender, Collateral Agent, and Administrative Agent.
12.5 Concerning the Collateral and Related Loan Documents.
Each Lender authorizes and directs Collateral Agent to enter into this Agreement
and the other Loan Documents relating to the Collateral, for the benefit of the
Lenders. Each Lender agrees that any action taken by Collateral Agent or
Required Lenders, as applicable, in accordance with the terms of this Agreement
or the other Loan Documents relating to the Collateral and the exercise by
Collateral Agent or Required Lenders, as applicable, of their respective powers
set forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.
12.6 Field Audits and Examination Reports; Confidentiality;
Disclaimers by Lenders; Other Reports and Information. By signing this
Agreement, each Lender:
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(a) is deemed to have requested that Administrative Agent or
Collateral Agent, as the case may be, furnish such Lender, promptly after it
becomes available, a copy of each field audit or examination report (each a
"Report" and collectively, "Reports") prepared by such Agent, and such Agent
shall so furnish each Lender with such Reports;
(b) expressly agrees and acknowledges that neither Congress
Financial Corporation (Southern) and Administrative Agent nor Madeleine L.L.C.
and Collateral Agent (i) makes any representation or warranty as to the accuracy
of any Report, or (ii) shall be liable for any information contained in any
Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that the applicable Agent or other party
performing any audit or examination will inspect only specific information
regarding Borrower and will rely significantly upon Borrower's books and
records, as well as on representations of Borrower's personnel;
(d) agrees to keep all Reports and other material, non-public
information regarding Borrower and its Subsidiaries and their operations,
assets, and existing and contemplated business plans in a confidential manner;
it being understood and agreed by Borrower that in any event such Lender may
make disclosures (a) to counsel for and other advisors, accountants, and
auditors to such Lender, (b) reasonably required by any bona fide potential or
actual Assignee, transferee, or Participant in connection with any contemplated
or actual assignment or transfer by such Lender of an interest herein or any
participation interest in such Lender's rights hereunder, (c) of information
that has become public by disclosures made by Persons other than such Lender,
its Affiliates, assignees, transferees, or participants, or (d) to the extent
required by any court, governmental or administrative agency, pursuant to any
subpoena or other legal process, or by any law, statute, regulation, or court
order; provided, however, that, unless prohibited by applicable law, statute,
regulation, or court order, such Lender shall notify Borrower of any request by
any court, governmental or administrative agency, or pursuant to any subpoena or
other legal process for disclosure of any such non-public material information
concurrent with, or where practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold any
Agent and any such other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to Borrower, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of Borrower; and (ii) to pay and protect, and indemnify,
defend and hold any Agent and any such other Lender preparing a Report harmless
from and against, the claims, actions, proceedings, damages, costs, expenses and
other amounts (including reasonable attorneys fees) incurred by any such Agent
and any such other Lender preparing a Report as the direct or indirect result of
any third parties who might obtain all or part of any Report through the
indemnifying Lender.
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In addition to the foregoing: (x) Any Lender may from time to time request of
any Agent in writing that such Agent provide to such Lender a copy of any report
or document provided by Borrower to such Agent that has not been
contemporaneously provided by Borrower to such Lender, and, upon receipt of such
request, such Agent shall provide a copy of same to such Lender promptly upon
receipt thereof from Borrower; (y) To the extent that any Agent is entitled,
under any provision of the Loan Documents, to request additional reports or
information from Borrower, any Lender may, from time to time, reasonably request
such Agent to exercise such right as specified in such Lender's notice to such
Agent, whereupon such Agent promptly shall request of Borrower the additional
reports or information specified by such Lender, and, upon receipt thereof from
Borrower, such Agent promptly shall provide a copy of same to such Lender; and
(z) Any time that Administrative Agent renders to Borrower a statement regarding
the Loan Account, Administrative Agent shall send a copy of such statement to
each Lender and Collateral Agent.
12.7 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12.8 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding upon and inure to the benefit of the successors and
assigns of Borrower, Administrative Agent, Collateral Agent, and each of the
Lenders permitted under Section 11.3 hereof.
12.9 Cumulative Effect, Conflict of Terms. The provisions of
the other Loan Documents are hereby made cumulative with the provisions of this
Agreement. Except as otherwise provided in Section 3.2 hereof and except as
otherwise provided in any of the other Loan Documents by specific reference to
the applicable provision of this Agreement, if any provision contained in this
Agreement is in direct conflict with, or inconsistent with, any provision in any
of the other Loan Documents, the provision contained in this Agreement shall
govern and control; provided, however, that the inclusion in such other Loan
Documents of additional duties and obligations of Borrower or of additional
rights, powers, and remedies in favor of the Lender Group shall not constitute
such a conflict.
12.10 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts taken together shall
constitute but one and the same instrument.
12.11 Notice. Except as otherwise provided herein, all
notices, requests and demands to or upon a party hereto, to be effective, shall
be in writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given, or delivered immediately when delivered against
receipt, 1 Business Day after deposit in the mail, postage prepaid, or with an
overnight courier or, in the case of facsimile notice, when sent, addressed as
follows:
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If to Collateral Agent
or Madeleine L.L.C.:
MADELEINE L.L.C.
450 Park Avenue
New York, New York 11556
Attention: Dan Wolf, Managing Director
Facsimile No.: 212.755.3009
With a copy to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Facsimile No.: 213.239.1324
If to Administrative
Agent or Congress
Financial Corporation: CONGRESS FINANCIAL CORPORATION (SOUTHERN)
777 Brickell Avenue, Suite 808
Miami, Florida 33131
Attention: Steven Harnick
Facsimile No.: 305.371.9456
With a copy to: OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
230 Park Avenue
New York, New York 10169
Attention: David Morse, Esq.
Facsimile No.: 212.682.6104
If to any Borrower: c/o QUESTRON TECHNOLOGY, INC.
6400 Congress Avenue, Suite 200A
Boca Raton, Florida 33487
Attention: Mr. Dominic A. Polimeni,
Chief Executive Officer
Facsimile No.: 561.241.2866
With a copy to: BATTLE FOWLER LLP
75 East 55th Street
New York, New York 10022
Attention: Gregory M. Weston, Esq.
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Facsimile No.: 212.856.7822
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request, or demand to or upon Administrative Agent pursuant to Sections 3.1.1 or
4.2.2 hereof shall not be effective until received by Administrative Agent.
12.12 Lender Group's Consent. Whenever Administrative Agent's,
Collateral Agent's, or a Lender's consent or approval is required to be obtained
under this Agreement or any other Loan Document as a condition to any action,
inaction, condition, or event, such Agent or such Lender shall be authorized to
give or withhold such consent or approval in its sole and absolute discretion,
and to condition its consent or approval upon the giving of additional
collateral security for the Obligations, the payment of money, or any other
matter.
12.13 Credit Inquiries. Borrower hereby authorizes and permits
Administrative Agent or Collateral Agent to respond to usual and customary
credit inquiries from third parties concerning Borrower or any of its
Subsidiaries.
12.14 Certain Matters of Construction. The terms "herein,"
"hereof," and "hereunder," and other words of similar import refer to this
Agreement as a whole and not to any particular section, Section, paragraph, or
subdivision. Any pronoun used herein shall be deemed to cover all genders. The
section titles, table of contents, and list of exhibits appear as a matter of
convenience only and shall not affect the interpretation of this Agreement. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to any of the
Loan Documents shall include any and all modifications and supplements thereto
and any and all extensions or renewals thereof. All terms contained in this
Agreement shall have the meanings provided for by the Code to the extent the
same are used or defined therein.
12.15 Entire Agreement. This Agreement and the other Loan
Documents, together with all other instruments, agreements, and certificates
executed by the parties in connection therewith or with reference thereto,
embody the entire understanding and agreement between the parties hereto and
thereto with respect to the subject matter hereof and thereof and supersede all
prior agreements, understandings, and inducements, whether express or implied,
oral or written.
12.16 Interpretation. No provision of this Agreement or any of
the other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
12.17 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED, AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
NEW YORK, NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION
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OTHER THAN NEW YORK, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD,
MANNER, AND PROCEDURE FOR FORECLOSURE OF COLLATERAL AGENT'S LIEN UPON SUCH
COLLATERAL AND THE ENFORCEMENT OF THE LENDER GROUP'S OTHER REMEDIES IN RESPECT
OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE
DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW YORK. AS PART OF THE
CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE
DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR THE LENDER GROUP,
BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW YORK, NEW
YORK, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND THE LENDER GROUP PERTAINING TO THIS
AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR
FORUM NON CONVENIENS, HEREBY CONSENTS TO THE EXERCISE OF PERSONAL JURISDICTION
OF SUCH COURT, AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS
SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN
THE U.S. MAIL, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED
OR OPERATE TO AFFECT THE RIGHT OF THE LENDER GROUP TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE LENDER
GROUP OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY
ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
12.18 WAIVERS BY BORROWER. BORROWER WAIVES (A) THE RIGHT TO
TRIAL BY JURY (WHICH THE LENDER GROUP HEREBY ALSO WAIVES) IN ANY ACTION, SUIT,
PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE
LOAN DOCUMENTS, THE OBLIGATIONS, OR THE COLLATERAL, (B) PRESENTMENT, DEMAND, AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL
PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND
GUARANTIES AT
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ANY TIME HELD BY AGENT OR ANY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE
AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR SUCH LENDER MAY DO IN THIS
REGARD, (C) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR
ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING
AGENT TO EXERCISE ANY OF THE LENDER GROUP'S REMEDIES, (D) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT, AND EXEMPTION LAWS, AND (E) NOTICE OF ACCEPTANCE
HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO THE LENDER GROUP'S ENTERING INTO THIS AGREEMENT AND THAT THE
LENDER GROUP IS RELYING UPON THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH
BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the day and the year specified at the beginning of this Agreement.
QUESTRON TECHNOLOGY, INC.,
a Delaware corporation
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman, President and Chief Executive Officer
QUESTRON DISTRIBUTION LOGISTICS, INC.,
a Delaware corporation
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman, Chief Executive Officer and Chief Financial
Officer
INTEGRATED MATERIAL SYSTEMS, INC.,
an Arizona corporation
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman, Chief Executive Officer and Chief Financial
Officer
POWER COMPONENTS, INC.,
a Pennsylvania corporation
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman, Chief Executive Officer and Chief Financial
Officer
CALIFORNIA FASTENERS, INC.,
a California corporation
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman, Chief Executive Officer and Chief Financial
Officer
S-1
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COMP WARE, INC.,
a Delaware corporation doing business as Webb Distribution
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman, Chief Executive Officer and Chief Financial
Officer
FAS-TRONICS, INC.,
a Texas corporation
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman of the Board, Chief Executive Officer and
Chief Financial Officer
FORTUNE INDUSTRIES, INC.,
a Texas corporation
By:/s/ Dominic A. Polimeni
----------------------
Title: Chairman of the Board, Chief Executive Officer and
Chief Financial Officer
CONGRESS FINANCIAL CORPORATION (FLORIDA),
a Florida corporation, as Administrative Agent and a
Lender
By: /s/ Daniel Cott
---------------
Title: Vice President
S-2
<PAGE>
MADELEINE, L.L.C.,
a New York limited liability company, as Collateral Agent
and a Lender
By: /s/ Daniel Wolf
---------------
Title: Authorized Signatory
S-3
<PAGE>
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement, dated as of
September 24, 1998, by and among QUESTRON TECHNOLOGY, INC., a Delaware
corporation, QUESTRON DISTRIBUTION LOGISTICS, INC., a Delaware corporation,
INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation, POWER COMPONENTS,
INC., a Pennsylvania corporation, CALIFORNIA FASTENERS, INC., a California
corporation, COMP WARE, INC., a Delaware corporation doing business as Webb
Distribution, FAS-TRONICS, INC., a Texas corporation, and FORTUNE INDUSTRIES,
INC., a Texas corporation (individually and collectively, and jointly and
severally, "Borrower"), each of the lenders that is a signatory thereto
(together with its successors and permitted assigns, individually, "Lender" and,
collectively, "Lenders"), CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida
corporation, as administrative agent for the Lenders (in such capacity, together
with its successors, if any, in such capacity, "Administrative Agent"), and
MADELEINE L.L.C., a New York limited liability company, as collateral agent for
the Lender Group (in such capacity, together with its successors, if any, in
such capacity, "Collateral Agent"), the following terms shall have the following
meanings (terms defined in the singular to have the same meaning when used in
the plural and vice versa):
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter acquires
any interest.
Acquisitions - individually and collectively, the purchase by
QTI of the stock of FII pursuant to the Acquisition Documents relative
thereto and the purchase by QTI of the stock of FTI pursuant to the
Acquisition Documents relative thereto.
Acquisition Documents - individually and collectively, (a) the
Stock Purchase Agreement, dated as of June 12, 1998 (as amended), by
and among QTI, FII, and the stockholders of FII identified on Schedule
1.1 thereto, and all documents and instruments to be executed or
delivered in connection therewith, and (b) the Stock Purchase
Agreement, dated as of June 12, 1998 (as amended), by and among QTI,
Gregory Fitzgerald, Valerie Fitzgerald, and FTI, and all documents and
instruments to be executed or delivered in connection therewith.
Acquisition Qualification - with respect to any representation
or warranty hereunder that is expressly qualified by the phrase
"subject to the Acquisition Qualification" and solely to the extent
such representation or warranty relates to (a) FII or FTI (as the case
may be) as of the Closing Date, or (b) Property of FII or FTI (as the
case may be) in existence and owned by such Borrower on the Closing
Date, a qualification that such representation or warranty is made to
the best of Borrower's knowledge; it being expressly understood and
agreed that the Acquisition Qualification shall not apply
<PAGE>
to such representation or warranty relative to (1) FII or FTI after the
Closing Date, or (2) any Property of FII or FTI acquired or arising
after the Closing Date.
Administrative Agent - Congress Financial Corporation
(Southern), a Florida corporation, solely in its capacity as
administrative agent for the Lenders, and shall include any successor
administrative agent.
Administrative Agent's Account - account number 322-020565 (or
such other account as Administrative Agent shall have designated in
writing to the Lender Group, as applicable, from time to time)
maintained by Administrative Agent with The Chase Manhattan Bank, 4 New
York Plaza, New York, New York.
Affiliate - a Person (other than a Subsidiary): (a) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, a Person, (b) which
beneficially owns or holds 5% or more of any class of the Voting Stock
of a Person, or (c) 5% or more of the Voting Stock (or in the case of a
Person which is not a corporation, 5% or more of the equity interest)
of which is beneficially owned or held by a Person or a Subsidiary of a
Person, or (d) which, in the case of any Lender, (i) is an investment
fund or managed account managed by such Lender or any other Person
referred to in clause (a) above in respect of such Lender, or (ii) is
an investment manager of such investment fund or managed account.
Agent - Administrative Agent or Collateral Agent, as the
context requires.
Agent-Related Persons - Administrative Agent and any successor
agents thereto, and Collateral Agent and any successor agents thereto,
together with their respective Affiliates, and the officers, directors,
employees, counsel, agents, and attorneys-in-fact of such Persons and
their Affiliates.
Agreement - the Loan and Security Agreement referred to in the
first sentence of this Appendix A, all Schedules, Exhibits, and
Appendices thereto, including this Appendix A.
Assignment and Acceptance - as defined in Section 12.4.2(a) of
this Agreement.
Availability - the amount of money that Borrower is entitled
to borrow from time to time as Revolving Credit Loans, such amount
being the difference derived when (a) the Revolving Facility Usage
(including any amounts that Agent or any of the Lenders may have paid
for the account of Borrower pursuant to any of the Loan Documents and
that have not been reimbursed by Borrower) is subtracted from (b) the
lesser of (i) the Borrowing Base, or (ii) the Maximum Amount. If the
amount outstanding is equal to or greater than the Borrowing Base or
the Maximum Amount, Availability is 0.
Bank - First Union National Bank.
Base Rate - the rate of interest announced or quoted by Bank
from time to time as its prime rate for commercial loans, whether such
rate is the lowest rate charged by Bank to its most preferred
borrowers, and, if such prime rate for commercial loans is
2.
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discontinued by Bank as a standard, a comparable reference rate
designated by Bank as a substitute therefor shall be the Base Rate.
Base Rate Portion - a Base Rate Term Portion or a Base Rate
Revolving Credit Portion.
Base Rate Election - the election deemed to be made by
Borrower and in effect under Section 2.3 to have interest based on the
Base Rate apply to all or the balance of the Revolving Credit Loans or
the Term Loans not subject to an effective LIBOR Rate Election.
Base Rate Revolving Credit Portion - that portion of the
Revolving Credit Loans that is not subject to an effective LIBOR Rate
Election.
Base Rate Term Portion - that portion of the Term Loan that is
not subject to an effective LIBOR Rate Election.
Borrower -has the meaning set forth in the preamble to this
Agreement.
Borrowing Base - as at any date of determination, an amount
equal to:
(a) 85% of the net amount of Eligible
Accounts outstanding at such date, PLUS
(b) the lesser of (1) $7,500,000 or (2) 50%,
of the value of Eligible Inventory at such date
calculated on the basis of the lower of cost or
market with the cost of finished goods calculated on
a first-in, first-out basis.
For purposes hereof, the net amount of Eligible Accounts at
any time shall be the face amount of such Eligible Accounts less any and all
returns, rebates, discounts (which may, at Administrative Agent's option, be
calculated on shortest terms), credits, allowances or excise taxes of any nature
at any time issued, owing, claimed by Account Debtors, granted, outstanding or
payable in connection with such Accounts at such time.
Borrowing Base Certificate - a borrowing base certificate in
the form of Exhibit B-1 attached hereto.
Business Day - (a) when used with respect to the LIBOR Rate
Election, shall mean a day on which dealings may be effected in
deposits of United States Dollars in the London interbank foreign
currency deposits market and on which Agent or its affiliates are
conducting and other banks may conduct business in London, England, or
in the State of New York, and (b) when used with respect to any other
provision of the Agreement, any day excluding Saturday, Sunday, and any
day which is a legal holiday under the laws of the State of New York or
is a day on which banking institutions located in such state are
closed.
3.
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Capital Expenditures - expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements,
replacements, substitutions, or additions thereto that have a useful
life of more than 1 year, including the total principal portion of
Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
CFI - has the meaning set forth in the preamble to this
Agreement.
Closing Date - the date on which the initial Loan is made
under the Agreement.
Code - the Uniform Commercial Code as adopted and in force in
the State of New York as from time to time in effect, except that in
those circumstances where the New York Commercial Code requires the
application of the Uniform Commercial Code of another jurisdiction, the
term Code shall refer to the Uniform Commercial Code as enacted in such
jurisdiction.
Collateral - all of the Property and interests in Property of
Borrower, whether now owned or existing or hereafter created, acquired,
or arising and wheresoever located, including:
(a) Accounts;
(b) Inventory;
(c) Equipment;
(d) General Intangibles;
(e) Investment Property;
(f) All monies and other Property of any
kind now or at any time or times hereafter in the
possession or under the control of Collateral Agent
or any member of the Lender Group or any bailee or
any Affiliate of Collateral Agent or any member of
the Lender Group;
(g) All accessions to, substitutions for and
all replacements, products and cash and non-cash
proceeds of (a) through (f) above, including, without
limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the
Collateral; and
(h) All books and records (including,
without limitation, customer lists, credit files,
computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any
of (a) through (g) above.
4.
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Collateral Agent - Madeleine L.L.C., a New York limited
liability company, solely in its capacity as collateral agent for the
Lender Group, and shall include any successor collateral agent.
Collateral Access Agreement - a landlord waiver or consent,
mortgagee waiver or consent, Equipment lessor or Equipment secured
financier waiver or consent, bailee letter, or a similar
acknowledgement agreement of any warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or
interests in the Collateral consisting of goods, or of lessors or
secured financiers of Equipment to Borrower, in each case, in form and
substance satisfactory to Collateral Agent.
Collections - all cash, checks, notes, instruments, and other
items of payment (including insurance and condemnation proceeds, cash
proceeds of sales and other voluntary or involuntary dispositions of
Property, rental proceeds, and tax refunds).
Commitment - Revolving Credit Commitment, Term Loan
Commitment, or Total Commitment, as the context requires.
Commitment Percentage - with respect to any Lender the ratio
of (i) the amount of the Commitment of such Lender to (ii) the
aggregate amount of the Commitments of all of the Lenders.
Consolidated - the consolidation in accordance with GAAP of
the accounts or other items as to which such term applies.
Continuing Director - as of any date of determination, a
member of the board of directors of QTI who (a) was a member of the
board of directors of QTI on the Closing Date, or (b) was nominated to
be a member of the board of directors of QTI by a majority of the
Continuing Directors then in office to fill a vacancy left by the
death, expiration of term, permanent disability, or resignation of a
Continuing Director.
CWI - has the meaning set forth in the preamble to this
Agreement.
Default - an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, become an
Event of Default.
Default Rate - as defined in Section 2.1.2 of the Agreement.
Defaulting Lender - any Lender with a Rendering Credit
Commitment that fails to make any payment to Administrative Agent that
it is required to make hereunder on any Settlement Date and that has
not cured such failure by making such payment within 1 Business Day
after written demand upon it by Administrative Agent to do so.
Defaulting Lenders Rate - the Base Rate for the first 3 days
from and after the date the relevant payment is due and, thereafter, at
the interest rate then applicable to the relevant Revolving Credit
Loan.
5.
<PAGE>
Distribution - in respect of any corporation means and
includes: (a) the payment of any dividends or other distributions on
capital stock of the corporation (except distributions in such stock or
rights to acquire such stock), and (b) the redemption or acquisition of
Securities, unless made contemporaneously from the net proceeds of the
sale of Securities.
Dominion Account - a special account of Administrative Agent
established by Borrower pursuant to the Agreement at a bank selected by
Borrower, but acceptable to Administrative Agent in its reasonable
discretion, and over which Administrative Agent shall have sole and
exclusive access and control for withdrawal purposes.
Dominion Account Agreements - as defined in Section 6.2.5 of
the Agreement.
EBIT - with respect to any fiscal period, the sum of
Borrower's Consolidated net earnings (or loss) before interest expense
and taxes for said period as determined in accordance with GAAP,
excluding any extraordinary gains or losses.
EBITDA - with respect to any fiscal period, the sum of a
Person's (a) EBIT, plus (b) depreciation and amortization, as
determined on a Consolidated basis in accordance with GAAP.
Eligible Account - an Account arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services
which Administrative Agent, in its sole credit judgment, deems to be
and Eligible Account. Without limiting the generality of the foregoing,
no Account shall be an Eligible Account if:
(a) it arises out of a sale made by Borrower to a
Subsidiary or an Affiliate of Borrower, or to a Person controlled by an
Affiliate of Borrower; or
(b) it is unpaid for more than 60 days after the
original due date shown on the invoice, or it is due or unpaid more
than 90 days after the original invoice date; or
(c) 50% or more of the Accounts from the Account
Debtor owing such Account are not deemed Eligible Accounts hereunder,
or
(d) the total unpaid Accounts of the Account Debtor
exceed 10% of the net amount of all Eligible Accounts, to the extent of
such excess; provided, however, that, in the case of Steelcase, Inc.
and such other Account Debtors as to which Administrative Agent and
Collateral Agent have agreed in writing from time to time, the
foregoing percentage may, in the reasonable credit judgment of
Administrative Agent and Collateral Agent, be increased to up to 25%
before the excess would be deemed ineligible; or
(e) any covenant, representation, or warranty
contained in the Agreement with respect to such Account has been
breached; or
6.
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(f) it arises from a sale to an Account Debtor
outside the United States, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case acceptable to Agent in its
sole discretion; or
(g) the Account is subject to a Lien other than a
Permitted Lien.
Eligible Inventory - such Inventory of Borrower (other than
packaging materials and supplies) which Administrative Agent, in its
sole credit judgment, deems to be Eligible inventory. Without limiting
the generality of the foregoing, no Inventory shall be Eligible
Inventory if:
(a) it is not finished goods that is, in
Administrative Agent's opinion, readily marketable in its current form,
or
(b) it is not in good, new, and saleable condition,
or
(c) it is slow-moving, obsolete (i.e., it has been in
Borrower's inventory for more than 365 days), or unmerchantable, or
(d) it does not meet all standards imposed by any
governmental agency or authority, or
(e) it does not conform in all respects to the
warranties and representations set forth in the Agreement,
(f) it is not at all times subject to Collateral
Agent's duly perfected first priority security interest, and is not
subject to any other Lien except a Permitted Lien, or
(g) it is not situated at a location in compliance
with the Agreement (including any location that is neither owned by
Borrower nor the subject of a Collateral Access Agreement in full force
and effect) or is in transit.
Eligible Transferee - means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having
total assets in excess of $100,000,000; (b) a commercial bank organized
under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development or a political
subdivision of any such country, and having total assets in excess of
$100,000,000; provided that such bank is acting through a branch or
agency located in the United States; (c) a finance company, insurance
company or other financial institution or fund that is engaged in
making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and having total assets in excess of
$100,000,000; (d) any Affiliate (other than individuals) of a
pre-existing Lender; (e) so long as no Event of Default has occurred
and is continuing, any other Person approved by Agent and Borrower; and
(f) during the continuation of an Event of Default, any other Person
approved by Agent.
7.
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Environmental Laws - all federal, state, and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders,
and consent decrees relating to health, safety, and environmental
matters.
Equipment - all machinery, apparatus, equipment, fittings,
furniture, fixtures, motor vehicles, and other tangible personal
Property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower or in which Borrower has an
interest, whether now owned or hereafter acquired by Borrower and
wherever located, and all parts, accessories, and special tools, and
all increases and accessions thereto and substitutions and replacements
therefor.
ERISA - the Employee Retirement Income Security Act of 1974,
as amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 10.1 of the
Agreement.
Excess Cash Flow - with respect to any fiscal period of
Borrower, the amount derived by adding to EBIT for such fiscal period
depreciation and amortization for such fiscal period and subtracting
from such sum: (a) regularly scheduled payments of principal on the
Term Loans and Capital Expenditures which are not financed; (b)(i) cash
payments for deferred purchase price adjustments pursuant to
acquisition agreements in effect as of the Closing Date, the
Acquisition Documents, and acquisition agreements in connection with
Permitted Acquisitions consummated after the Closing Date, and (ii) the
cash portion of the purchase price relative to Permitted Acquisitions);
(c) taxes; and (d) interest; in each case, for such fiscal period.
Excess Cash Flow Recapture Amount - 50% of the amount of
Borrower's Excess Cash Flow for the applicable period.
Existing Lenders - (a) Silicon Valley Bank, (b) Landmark Bank
- Mid Cities, as assignee of Bank of West, and (c) Mr. Noel Edmond
Hutchins and Mrs. Betty Hutchins.
Family Member - with respect to any individual, any other
individual having a relationship by blood (to the second degree of
consanguinity), marriage, or adoption to such individual.
Family Trust - with respect to any individual, trusts or other
estate planning vehicles established for the benefit of Family Members
of such individual and in respect of which such individual serves as
trustee or in a similar capacity.
Fee Letter - that certain letter agreement, dated as of
September 24, 1998, among Borrower and Collateral Agent, setting forth
certain fees payable to Collateral Agent.
FII - has the meaning set forth in the preamble to this
Agreement.
Fixed Charges - for any accounting period, the scheduled
principal and interest payments (including any imputed principal and
interest payments due under or in respect
8.
<PAGE>
of any capital leases) required to be made during such period in
respect of Money Borrowed, determined in accordance with GAAP.
Fixed Charge Coverage Ratio - with respect to any period, the
ratio of (a) Borrower's EBITDA for such period minus Capital
Expenditures, to (b) Borrower's Fixed Charges for such period, all as
determined on a Consolidated basis in accordance with GAAP. For
purposes of this definition, "EBITDA" shall be calculated after giving
effect to adjustments to eliminate expense items that would not have
been incurred and include income items that would have been recognized,
in each case, if each Permitted Acquisition consummated during the
applicable period had been accomplished on the first day of the
applicable period; such eliminations and inclusions to be mutually
agreed upon by Borrower, Administrative Agent, and Collateral Agent.
FTI - has the meaning set forth in the preamble to this
Agreement.
GAAP - as of any date of determination, generally accepted
accounting principles in the United States of America then in effect;
provided, however, that, for purposes of calculating the financial
covenants contained in Section 8.3 hereof (and the related
definitions), GAAP shall mean generally accepted accounting principles
in effect in the United States as of the Closing Date and, if there is
any changes in GAAP after the Closing Date, the financial reporting of
Borrower shall be produced both under GAAP as then in effect and also
under GAAP as in effect on the Closing Date.
General Intangibles - all personal property of Borrower
(including things in action) other than goods, Accounts, chattel paper,
documents, instruments, and money, whether now owned or hereafter
created or acquired by Borrower.
Hazardous Materials - (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil,
petroleum, or petroleum derived substances, natural gas, natural gas
liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable
substances or explosives or any radioactive materials, and (d) asbestos
in any form or electrical equipment that contains any oil or dielectric
fluid containing levels of polychlorinated biphenyls in excess of 50
parts per million.
Indebtedness - as applied to a Person means, without
duplication;
(a) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,
9.
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(b) all obligations of other Persons which such
Person has guaranteed,
(c) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the account
of such Person, and
(d) in the case of Borrower (without duplication),
the Obligations.
IMSI - has the meaning set forth in the preamble to
this Agreement.
Interest Rate or Currency Protection Agreement - any forward
contract, futures contract, swap, option, or other financial
arrangement (including caps, floors, collars, and similar arrangements)
relating to, or the value of which is dependent upon, interest rates or
currency exchange rates or indices.
Inventory - all of Borrower's inventory, whether now owned or
hereafter acquired, including, but not limited to, all goods intended
for sale or lease by Borrower, or for display or demonstration, all
work in process, all raw materials and other materials and supplies of
every nature and description used or which might be used in connection
with the manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or
consumed in Borrower's business, and all documents evidencing and
General Intangibles relating to any of the foregoing, whether now owned
or hereafter acquired by Borrower.
Investment Property - means all of Borrower's now owned and
hereafter acquired "investment property" as that term is defined in
Section 9-115 of the Code.
Legal Requirement - any requirement imposed upon any Lender by
any law of the United States of America or the United Kingdom or by any
regulation, order, interpretation, ruling, or official directive
(whether or not having the force of law) of the Federal Reserve Board,
the Bank of England, or any other board, central bank or governmental
or administrative agency, institution or authority of in the United
States of America, the United Kingdom, or any political subdivision of
either thereof.
Lender and Lenders - have the respective meanings set forth in
the preamble to this Agreement, and shall include any other Person made
a party to this Agreement as a "Lender" in accordance with the
provisions hereof.
Lender Group - individually and collectively, each of the
individual Lenders, Administrative Agent, and Collateral Agent.
Lender Group Side Letter - that certain letter agreement,
dated as of September 24, 1998, among Administrative Agent, Collateral
Agent, and the Lenders.
Lender-Related Persons - with respect to any Lender, such
Lender, together with such Lender's Affiliates, and the officers,
directors, employees, counsel, agents, and attorneys-in-fact of such
Lender and such Lender's Affiliates.
10.
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LIBOR Interest Payment Date - with respect to any LIBOR
Revolving Credit Portion or any LIBOR Term Portion, the first day of
each calendar month during the applicable LIBOR Period.
LIBOR Period - any period of 1 month, 2 months, or 3 months
commencing on a Business Day, selected as provided in Section 2.4 of
the Agreement; provided, however, that no LIBOR Period shall extend
beyond the last day of the Term unless Borrower and the Lender Group
have agreed to an extension of the Term beyond the expiration of the
LIBOR Period in question and that, with respect to any LIBOR Term
Portion, no applicable LIBOR Period shall extend beyond the scheduled
installment payment date for such LIBOR Term Portion. If any LIBOR
Period so selected shall end on a date that is not a Business Day, such
LIBOR Period shall instead end on the next preceding or succeeding
Business Day as determined by Administrative Agent in accordance with
the then current banking practice in London; provided that Borrower
shall not be required to pay double interest, even though the preceding
LIBOR Period ends and the new LIBOR Period begins on the same day. Each
determination by Administrative Agent of the LIBOR Period shall, in the
absence of manifest error, be conclusive.
LIBOR Portion - a LIBOR Revolving Credit Portion or a LIBOR
Term Portion, as applicable.
LIBOR Rate - with respect to any LIBOR Portion for the related
LIBOR Period, an interest rate per annum (rounded upwards, if
necessary, to the next higher 1/8 of 1% equal to the product of (a) the
Base LIBOR Rate (as hereinafter defined) multiplied by (b) Statutory
Reserves. For purposes of this definition, the term "Base LIBOR Rate"
shall mean the rate (rounded to the nearest 1/8 of 1% or, if there is
not nearest 1/8 of 1%, the next higher 1/8 of 1%) at which deposits of
U.S. dollars approximately equal in principal amount to the LIBOR
Portion specified in the applicable LIBOR Request are offered to
Lenders by prime banks in the London interbank foreign currency
deposits market at approximately 11:00 a.m., London time, 2 Business
Days prior to the commencement of such LIBOR Period, for delivery on
the first day of such LIBOR Period. Each determination by
Administrative Agent of any LIBOR Rate shall, in the absence of
manifest error, be conclusive.
LIBOR Rate Election - the option granted pursuant to Section
2.4 to have the interest on all or any portion of the principal amount
of the Revolving Credit Loans or the Term Loans based on a LIBOR Rate.
LIBOR Request - a notice in writing (or by telephone confirmed
by telex, telecopy or other facsimile transmission on the same, day as
the telephone request) from Borrower to Administrative Agent requesting
that interest on a Revolving Credit Loan or a Term Loan be based on the
LIBOR Rate, specifying: (a) the first day of the LIBOR Period, (b) the
length of the LIBOR Period consistent with the definition of that term,
and (c) the dollar amount of the LIBOR Portion, consistent with the
definition of such terms.
LIBOR Revolving Credit Margin - at all times, the result of
(a) the Base Rate plus 1% minus (ii) the LIBOR Rate applicable to the
relevant LIBOR Portion; it being
11.
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understood that the LIBOR Revolving Credit Margin shall increase or
decrease by an amount equal to any increase or decrease in the Base
Rate, effective as of the opening of business on the day that any
change in the Base Rate occurs.
LIBOR Revolving Credit Portion - that portion of the Revolving
Credit Loans specified in a LIBOR Request (including any portion of
Revolving Credit Loans that is being borrowed by Borrower concurrently
with such LIBOR Request) that is not less than $2,500,000 or an
integral multiple thereof, that does not exceed the outstanding balance
of Revolving Credit Loans not already subject to an effective LIBOR
Rate Election and, that, as of the date of the LIBOR Request specifying
such LIBOR Revolving Credit Portion, has met the conditions for basing
interest on the LIBOR Rate in Section 2.1.1(b) of the Agreement, and
the LIBOR Period of which was commenced and not terminated.
LIBOR Term Loan A Margin - at all times, the result of (a) the
Base Rate plus 1.5% minus (ii) the LIBOR Rate applicable to the
relevant LIBOR Term Portion; it being understood that the LIBOR Term
Loan A Margin shall increase or decrease by an amount equal to any
increase or decrease in the Base Rate, effective as of the opening of
business on the day that any change in the Base Rate occurs.
LIBOR Term Loan B Margin - at all times, the result of (a) the
Base Rate plus 3.0% minus (ii) the LIBOR Rate applicable to the
relevant LIBOR Term Portion; it being understood that the LIBOR Term
Loan B Margin shall increase or decrease by an amount equal to any
increase or decrease in the Base Rate, effective as of the opening of
business on the day that any change in the Base Rate occurs.
LIBOR Term Portion - that portion of the Term Loan specified
in a LIBOR Request that is not less than $2,500,000 and an integral
multiple thereof, that does not exceed the outstanding balance of the
applicable Term Loan not already subject to an effective LIBOR Rate
Election and, that, as of the date of the LIBOR Request specifying such
LIBOR Term Portion, has met the conditions for basing interest on the
LIBOR Rate in Section 2.1.1(b) of the Agreement, and the LIBOR Period
of which was commenced and not terminated. Each LIBOR Term Portion
shall be allocated among Lenders in accordance with their respective
Pro Rata Share of the applicable Term Loan.
Lien - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on common law, statute, or contract. The
term "Lien" also shall include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting Property. For the
purpose of the Agreement, a Person shall be deemed to be the owner of
any Property that it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for
security purposes.
Loan Account - the loan account established on the books of
Agent pursuant to Section 3.6 of the Agreement.
12.
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Loan Documents - the Agreement, the Other Agreements, and the
Security Documents.
Loans - all Revolving Credit Loans, Term Loans, and other
loans and advances of any kind made by the Lender Group pursuant to the
Agreement.
Material Adverse Change - (a) a material adverse change in the
business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower (taken as
a whole), (b) the material impairment of Borrower's (taken as a whole)
ability to perform its obligations under the Loan Documents to which it
is a party or of the Lender Group to enforce the Obligations or realize
upon the Collateral, (c) a material adverse effect on the value of the
Collateral or the amount that the Lender Group would be likely to
receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral, or (d) a material
impairment of the priority of the Lender Group's Liens with respect to
the Collateral.
Maximum Amount - $15,000,000.
Money Borrowed - means (a) Indebtedness arising from the
lending of money by any Person to Borrower, (b) Indebtedness, whether
or not in any such case arising from the lending by any Person of money
to Borrower, (i) which is represented by notes payable or drafts
accepted that evidence extensions of credit, (ii) which constitutes
obligations evidenced by bonds, debentures, notes or similar
instruments, or (iii) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or
partial payment for Property, (c) Indebtedness that constitutes a
Capitalized Lease Obligation, (d) reimbursement obligations with
respect to letters of credit or guaranties of letters of credit, and
(e) Indebtedness of Borrower under any guaranty of obligations that
would constitute Indebtedness for Money Borrowed under clauses (a)
through (c) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
Net Worth - as of any date of determination, QTI's total
stockholder's equity calculated on a Consolidated basis in accordance
with GAAP.
Non-Ordinary Course Proceeds - (a) tax refunds of Borrower,
(b) net cash proceeds of sales or other voluntary or involuntary
dispositions of Equipment or real Property of Borrower, (c) net cash
proceeds of sales or other issuances of Securities or Subordinated Debt
of Borrower, (d) cash proceeds of sales or other voluntary or
involuntary dispositions of other Property (other than cash proceeds of
sales or other voluntary or involuntary dispositions of Accounts and
Inventory) of Borrower not in the ordinary course of business, and (e)
net cash proceeds of transactions (other than any sales or other
dispositions of Property) by Borrower not in the ordinary course of
business.
Obligations - all Loans and all other advances, debts,
liabilities, obligations, covenants, and duties, together with all
interest, fees, and other charges owing, arising, due or payable from
Borrower to any Lender of any kind or nature, present or future,
13.
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whether or not evidenced by any note, guaranty, or other instrument,
whether arising under the Agreement or any of the other Loan Documents
or otherwise whether direct or indirect (including those acquired by
assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising, and however acquired.
Other Agreements - the Fee Letter, the Suretyship Agreement,
the Revolving Notes, the Term Notes, the Subordination Agreement, the
Post-Closing Letter, the Dominion Account Agreements, and any and all
other agreements, instruments, and documents (other than this Agreement
and the Security Documents), heretofore, now, or hereafter executed by
Borrower, any Subsidiary of Borrower, or any other third party and
delivered to the Lender Group in respect of the transactions
contemplated by the Agreement.
Overadvance - the amount, if any, by which the Revolving
Facility Usage exceeds the lesser of (a) the Borrowing Base or (b) the
Maximum Amount.
Participant - as defined in Section 12.4.2(e) of the
Agreement.
Pay-Off Letter - a letter, in form and substance satisfactory
to Agent, from each Existing Lender respecting the amount necessary to
repay in full all of the obligations of Borrower owing to such Existing
Lender and to obtain a termination or release of all of the Liens
existing in favor of such Existing Lender on the Properties or capital
stock, as the case may be, of Borrower.
Permits - as defined in Section 7.1.17 of the Agreement.
Permitted Acquisitions - any purchase or other acquisition by
Borrower of all or substantially all of the assets or Voting Stock of
any other Person that is approved in writing by the Required Lenders,
which approval may be given or withheld in their sole and absolute
discretion.
Permitted Holders - each of the Persons identified on Schedule
P-1, and the respective Family Members (if any) and Family Trusts (if
any) of each such Person.
Permitted Interest Rate or Currency Protection Agreement -
with respect to any Person, any Interest Rate or Currency Protection
Agreement of such Person entered into with Bank (in its individual
capacity and not as a member of the Lender Group) in the ordinary
course of business that is designed to protect such Person against
fluctuations in interest rates or currency exchange rates with respect
to Indebtedness of such Person and which shall have a notional amount
not greater than the payments due with respect to the Indebtedness
hedged thereby and not for purposes of speculation.
Permitted Preferred Stock - any Preferred Stock issued by QTI
that is not Prohibited Preferred Stock.
Permitted Liens - any Lien of a kind specified in Section
8.2.5 of the Agreement.
14.
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Permitted Purchase Money Indebtedness - Purchase Money
Indebtedness of Borrower incurred after the date hereof which is
secured by a Purchase Money Lien and which, when aggregated with
Capitalized Lease Obligations of Borrower incurred after the Closing
Date, does not exceed $500,000.
Person - an individual, partnership, corporation, limited
liability company, joint stock company, land trust, business trust, or
unincorporated organization, or a government or agency or political
subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained
for employees of Borrower that is covered by Title IV of ERISA.
PCI - has the meaning set forth in the preamble to this
Agreement.
Polimeni Parties - Mr. Dominic A. Polimeni, his Family
Members, and his Family Trusts.
Post-Closing Letter - that certain letter agreement, dated as
of September 24, 1998, among Borrower, Administrative Agent, Collateral
Agent, and the Lenders, in form and substance satisfactory to
Collateral Agent and Administrative Agent, relative to the completion
of certain matters following the Closing Date.
Preferred Stock - with respect to any Person, any class or
series of equity Securities of such Person that is entitled, upon
distribution of assets of such Person, whether by dividend or
liquidation, to a preference over another class or series of equity
Securities of such Person.
Pro Forma Balance Sheet - a pro forma balance sheet of
Borrower, dated as of the Closing Date and based upon the financial
statements of Borrower (other than FTI and FII) as of June 30, 1998, of
FTI as of June 30, 1998, and of FII as of June 30, 1998, which balance
sheet shall (a) reflect the effect of the transactions contemplated by
the Acquisition Documents and the Loan Documents, and (b) contain a
Certificate of a Responsible Officer to the effect that the pro forma
balance sheet reflects such officer's good faith best estimate as to
the financial position of Borrower as of the Closing Document, after
giving effect to such transactions.
Prohibited Preferred Stock - any Preferred Stock of Borrower
the terms and conditions of issuance, and rights and preferences, of
which are not approved in writing by the Required Lenders in their sole
and absolute discretion, including any Preferred Stock of Borrower that
by its terms is mandatorily redeemable or subject to any other payment
obligation (including any obligation to pay dividends, other than
dividends of Preferred Stock of the same class and series payable in
kind or dividends of common Stock) on or before a date not earlier than
2 years after the end of the Term or, on or before a date not earlier
than 2 years after the end of the Term, is redeemable at the option of
the holder thereof for cash (or assets or securities other than
distributions in kind of Preferred Stock of the same class and series
or of common Stock).
15.
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Projections - Borrower's forecasted Consolidated (giving
effect to the Acquisitions) (a) balance sheets, (b) profit and loss
statements, (c) cash flow statements, and (d) capitalization
statements, all prepared on a consistent basis with Borrower's
historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions.
Property - any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
Pro Rata Share - (a) with respect to a Lender's obligation to
make Revolving Credit Loans and receive payments relative thereto, the
percentage obtained by dividing (i) such Lender's Revolving Credit
Commitment, as set forth on Schedule C-1, by (ii) the aggregate
Revolving Credit Commitments of all Lenders, as set forth on Schedule
C-1;
(b) with respect to a Lender's obligation to make Term Loan A
and receive payments relative thereto, the percentage obtained by
dividing (i) such Lender's Term Loan A Commitment, as set forth on
Schedule C-1, by (ii) the aggregate Term Loan A Commitments of all
Lenders, as set forth on Schedule C-1.
(c) with respect to a Lender's obligation to make Term Loan B
and receive payments relative thereto, the percentage obtained by
dividing (i) such Lender's Term Loan B Commitment, as set forth on
Schedule C-1, by (ii) the aggregate Term Loan B Commitments of all
Lenders, as set forth on Schedule C-1; and
(d) with respect to all other matters (including the
indemnification obligations arising under Section 11.5), the percentage
obtained by dividing (i) such Lender's Total Commitments to make Loans,
as set forth on Schedule C-1, by (ii) the aggregate Total Commitments
of all Lenders, as set forth on Schedule C-1.
Purchase Money Indebtedness - means and includes (a)
Indebtedness (other than the Obligations) for the payment of all or any
part of the purchase price of any fixed assets, (b) any Indebtedness
(other than the Obligations) incurred at the time of or within 10 days
prior to or after the acquisition of any fixed assets for the purpose
of financing all or any part of the purchase price thereof, and (c) any
renewals, extensions, or refinancings thereof, but not any increases in
the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets that secures
Purchase Money Indebtedness, but only if such Lien shall at all times
be confined solely to the fixed assets the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness
secured by such Lien.
QDLI - has the meaning set forth in the preamble to this
Agreement.
QTI - has the meaning set forth in the preamble to this
Agreement.
Rentals - as defined in Section 8.2.13 of the Agreement.
16.
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Reportable Event - any of the events set forth in Section
4043(c) of ERISA.
Required Lenders - at any time, Lenders whose Pro Rata Shares
aggregate at least 66-2/3% of the Commitments or, if the Commitments
shall have been terminated irrevocably, Lenders holding at least
66-2/3% of the Obligations then outstanding.
Responsible Officer - any of the duly appointed or elected
Chief Executive Officer, Chief Financial Officer, or Chief Accounting
Officer of QTI.
Restricted Investment - any investment made in cash or by
delivery of Property to any Person, whether by acquisition of stock,
Indebtedness or other obligation or Security, or by loan, advance or
capital contribution, or otherwise, or in any Property except the
following:
(a) investments in one or more Subsidiaries of
Borrower to the extent existing on the Closing Date;
(b) Property to be used in the ordinary course of
business;
(c) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower and its
Subsidiaries;
(d) investments in direct obligations of the United
States of America, or any agency thereof or obligations guaranteed by
the United States of America, provided that such obligations mature
within 1 year from the date of acquisition thereof;
(e) investments in certificates of deposit maturing
within 1 year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital surplus and undivided profits aggregating at
least $100,000,000;
(f) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than
270 days from the date of creation thereof; and
(g) investments in Permitted Interest Rate and
Currency Protection Agreements.
Revolving Credit Commitment - for each Lender, the obligation
of such Lender to fund Revolving Credit Loans, in an aggregate amount
at one time outstanding with respect to each such Lender up to but not
exceeding the amount set forth opposite the name of such Lender under
Revolving Credit Commitment on Schedule C-1.
Revolving Credit Lenders - individually and collectively, the
Lenders with a Revolving Credit Commitment greater than zero.
Revolving Credit Loan - a Loan made by Lenders as provided in
Section 2.1 of the Agreement.
17.
<PAGE>
Revolving Facility Usage - as of any date of determination,
the sum of the aggregate amount of Revolving Credit Loans outstanding.
Revolving Note - individually and collectively, the Secured
Promissory Notes executed and delivered by Borrower on or before the
Closing Date in favor of each Revolving Credit Lender to evidence the
Revolving Credit Loans, each in the form of Exhibit R-1 to the
Agreement.
Schedule of Accounts - as defined in Section 6.4.1 of the
Agreement.
Security - shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
Security Documents - the Stock Pledge Agreement, the Trademark
Security Agreement, and all other instruments and agreements, securing
the whole or any part of the Obligations.
Senior Debt - as of any date of determination, all outstanding
obligations of Borrower with respect to Money Borrowed (exclusive of
Borrower's obligations in respect of Subordinated Debt).
Senior Debt Coverage Ratio - with respect to any period, the
ratio of (a) Borrower's Senior Debt as of the last day of such period,
to (b) Borrower's EBITDA for the 12 month period ended as of the end of
such period (except that in the case of periods ended on or prior to
June 30, 1999, the calculation shall be made using FII's and FTI's
EBITDA for the applicable 12 month period irrespective of whether they
were Subsidiaries of QTI during the relevant period), all as determined
on a Consolidated basis in accordance with GAAP.. For purposes of this
definition, "EBITDA" shall be calculated after giving effect to
adjustments to eliminate expense items that would not have been
incurred and include income items that would have been recognized, in
each case, if each Permitted Acquisition consummated during the
applicable period had been accomplished on the first day of the
applicable period; such eliminations and inclusions to be mutually
agreed upon by Borrower, Administrative Agent, and Collateral Agent.
Solvent - as to any Person, such Person (a) owns Property
whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent debts), (b) is
able to pay all of its Indebtedness as such Indebtedness matures, and
(c) has capital sufficient to carry on its business and transactions
and all business and transactions in which it is about to engage.
Statutory Reserves - a fraction (expressed as a decimal) the
numerator of which is the number 1, and the denominator of which is the
number 1 minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency, or
supplemental reserves), expressed as a decimal, established by the
Board of Governors of the Federal Reserve System and any other banking
authority to which Bank or any Lender is subject for Eurocurrency
Liabilities (as defined in Regulation D of
18.
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the Board of Governors of the Federal Reserve System or any successor
thereto). Such reserve percentages shall include, without limitation,
those imposed under such Regulation D. LIBOR Portions shall be deemed
to constitute Eurocurrency Liabilities and as such shall be deemed to
be subject to such reserve requirements without benefit of or credit
for proration, exceptions, or offsets which may be available from time
to time to Bank or any Lender under such Regulation D. Statutory
Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentages.
Stock Pledge Agreement - a Stock Pledge Agreement between
Collateral Agent and each Person composing Borrower that owns any
interest in any other Person composing Borrower, in form and substance
satisfactory to Collateral Agent.
Subordinated Debt - Indebtedness of Borrower that is
subordinated to the Obligations in a manner satisfactory to the
Required Lenders.
Subordination Agreement - a Subordination Agreement between
Borrower and the Lender Group, in form and substance satisfactory to
Collateral Agent.
Subsidiary - any corporation of which a Person owns, directly
or indirectly through one or more intermediaries, more than 50% of the
Voting Stock at the time of determination.
Suretyship Agreement - a suretyship agreement by each of the
Borrowers in favor of Collateral Agent for the benefit of the Lender
Group, in form and substance satisfactory to Collateral Agent.
Tax - in relation to any LIBOR Portion and the applicable
LIBOR Rate, any tax, levy, impost, duty, deduction, withholding or
charges of whatever nature required by any Legal Requirement (a) to be
paid by a Lender and/or (b) to be withheld or deducted from any payment
otherwise required hereby to be made by Borrower to a Lender; provided,
that the term "Tax" shall not include any taxes imposed upon the net
income of a Lender by the United States of America, United Kingdom, or
any political subdivision thereof.
Term - as defined in Section 4.1 of the Agreement.
Term Loan A - the Loan described in Section 1.2.1 of the
Agreement.
Term Loan A Commitment - for each Lender, the obligation of
such Lender to fund Term Loan A, in an aggregate amount with respect to
each such Lender equal to the amount set forth opposite the name of
such Lender under Term Loan A Commitment on Schedule C-1.
Term Loan B - the Loan described in Section 1.2.2 of the
Agreement.
Term Loan B Commitment - for each Lender, the obligation of
such Lender to fund Term Loan B, in an aggregate amount with respect to
each such Lender equal to the amount set forth opposite the name of
such Lender under Term Loan B Commitment on Schedule C-1.
19.
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Term Loan Lenders - individually and collectively, the Lenders
with a Term Loan A Commitment greater than zero or a Term Loan B
Commitment greater than zero.
Term Loans - individually and collectively, Term Loan A and
Term Loan B.
Term Note A - individually and collectively, the Secured
Promissory Notes executed and delivered by Borrower on or before the
Closing Date in favor of each Lender with a Term Loan A Commitment to
evidence Term Loan A, each in the form of Exhibit T-1 to the Agreement.
Term Note B - individually and collectively, the Secured
Promissory Notes executed and delivered by Borrower on or before the
Closing Date in favor of each Lender with a Term Loan B Commitment to
evidence Term Loan B, each in the form of Exhibit T-2 to the Agreement.
Term Notes - individually and collectively, Term Note A and
Term Note B.
Total Commitment - for each Lender, the obligation of such
Lender to fund Loans, with respect to each type of Loan in the amount
set forth opposite the name of such Lender under the Commitment
relative to such Loan type on Schedule C-1, and in an aggregate amount
will respect to such Lender equal to the amount set forth opposite the
name of such Lender under Total Commitment on Schedule C-1.
Total Credit Facility - subject to Section 1.3, $45,000,000.
Trademark Security Agreement - a Trademark Security Agreement
between Collateral Agent and Borrower, in form and substance
satisfactory to Collateral Agent.
Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors
(or Persons performing similar functions).
Other Terms. All other terms contained in the Agreement shall
have, when the context so indicates, the meanings provided for by the
Code to the extent the same are used or defined therein.
20.
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LIST OF SCHEDULES AND EXHIBITS
Schedule C-1 Commitments
Schedule P-1 Permitted Holders
Schedule 6.1.1 Borrower's and each Subsidiary's Business Locations
Schedule 7.1.1 Jurisdictions in which Borrower and each Subsidiary is
Authorized to do Business
Schedule 7.1.4 Capital Structure of Borrower
Schedule 7.1.5 Corporate Names
Schedule 7.1.13 Surety Obligations
Schedule 7.1.14 Tax Identification Numbers of Subsidiaries
Schedule 7.1.15 Brokers
Schedule 7.1.16 Patents, Trademarks, Copyrights and Licenses
Schedule 7.1.19 Contracts Restricting Borrower's Right to Incur Debts
Schedule 7.1.20 Litigation
Schedule 7.1.22(A) Capitalized Leases
Schedule 7.1.22(B) Operating Leases
Schedule 7.1.23 Pension Plans
Schedule 7.1.25 Labor Contracts
Schedule 8.2.3 Permitted Indebtedness
Schedule 8.2.4 Affiliate Transactions
Schedule 8.2.5 Permitted Liens
Schedule 8.2.11 Consignments
Exhibit A-1 Form of Assignment and Acceptance
Exhibit B-1 Form of Borrowing Base Certificate
Exhibit R-1 Form of Revolving Note
Exhibit T-1 Form of Term A Note
Exhibit T-2 Form of Term B Note
Exhibit 8.1.3 Form of Compliance Certificate
21.
AMENDMENT NUMBER ONE
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT, dated as of
November 2, 1998 (this "Amendment"), is entered into by and among QUESTRON
TECHNOLOGY, INC., a Delaware corporation, QUESTRON DISTRIBUTION LOGISTICS, INC.,
a Delaware corporation, INTEGRATED MATERIAL SYSTEMS, INC., an Arizona
corporation, POWER COMPONENTS, INC., a Pennsylvania corporation, CALIFORNIA
FASTENERS, INC., a California corporation, COMP WARE, INC., a Delaware
corporation doing business as Webb Distribution, FAS-TRONICS, INC., a Texas
corporation, and FORTUNE INDUSTRIES, INC., a Texas corporation (individually and
collectively, and jointly and severally, "Borrower"), each of the Lenders,
CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as
Administrative Agent, and MADELEINE L.L.C., a New York limited liability
company, as Collateral Agent.
This Amendment is entered into with reference to the following facts:
A. Borrower heretofore entered into that certain Loan and Security
Agreement, dated as of September 24, 1998 (as amended, restated,
supplemented, or otherwise modified from time to time, the
"Agreement") with the financial institutions identified therein as the
"Lenders", Congress Financial Corporation (Florida), a Florida
corporation, as Administrative Agent, and Madeleine L.L.C., as
Collateral Agent (individually and collectively, the "Lender Group").
B. Borrower has requested the Lender Group to amend the Agreement to,
among other things, provide a letter of credit facility in accordance
with the terms and conditions hereof and the Lender Group is willing
to so amend the Agreement in accordance with the terms and conditions
hereof.
D. All capitalized terms used herein and not defined herein shall have
the meanings ascribed to them in the Agreement, as amended hereby.
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein, Borrower and the Lender Group hereby agree as
follows:
1. Amendments to Agreement.
a. The following definitions set forth in Appendix A of the Agreement
hereby are amended and restated in their entirety to read as follows:
Commitment - Revolving Credit Commitment, Letter of Credit
Sub-Commitment, Term Loan Commitment, or Total Commitment, as the
context requires.
<PAGE>
Eligible Inventory - such Inventory of Borrower (other than
packaging materials and supplies) which Administrative Agent, in its
sole credit judgment, deems to be Eligible inventory. Without limiting
the generality of the foregoing, no Inventory shall be Eligible
Inventory if:
(a) it is not finished goods that is, in
Administrative Agent's opinion, readily marketable in its
current form, or
(b) it is not in good, new, and saleable
condition, or
(c) it is slow-moving, obsolete (i.e., it has been
in Borrower's inventory for more than 365 days), or
unmerchantable, or
(d) it does not meet all standards imposed by any
governmental agency or authority, or
(e) it does not conform in all respects to the
warranties and representations set forth in the Agreement,
or
(f) it is not at all times subject to Collateral
Agent's duly perfected first priority security interest, and
is not subject to any other Lien except a Permitted Lien, or
(g) it is not situated at a location in compliance
with the Agreement (including any location that is neither
owned by Borrower nor the subject of a Collateral Access
Agreement in full force and effect) or is in transit, or
(h) it is purchased under a Commercial Letter of
Credit, unless such Commercial Letter of Credit either has
been drawn in full and reimbursed or has expired undrawn.
Obligations - all Loans and all other advances, debts,
liabilities, obligations (including contingent reimbursement
obligations under any outstanding Letter of Credit Accommodations),
covenants, and duties, together with all interest, fees, and other
charges owing, arising, due or payable from Borrower to any Lender of
any kind or nature, present or future, whether or not evidenced by any
note, guaranty, or other instrument, whether arising under the
Agreement or any of the other Loan Documents or otherwise whether
direct or indirect (including those acquired by assignment), absolute
or contingent, primary or secondary, due or to become due, now
existing or hereafter arising, and however acquired.
Other Agreements - the Fee Letter, the Suretyship Agreement,
the Revolving Notes, the Term Notes, the Subordination Agreement, the
Post-Closing Letter, the Dominion Account Agreements, the Letter of
Credit Accommodations, and any and all other agreements, instruments,
and documents (other than this Agreement and the Security Documents),
heretofore, now, or hereafter executed by Borrower, any Subsidiary of
Borrower, or any other third party and delivered
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<PAGE>
to the Lender Group in respect of the transactions contemplated by the
Agreement.
Pro Rata Share - (a) with respect to a Lender's obligation
to make Revolving Credit Loans and receive payments relative thereto,
the percentage obtained by dividing (i) such Lender's Revolving Credit
Commitment, as set forth on Schedule C-1, by (ii) the aggregate
Revolving Credit Commitments of all Lenders, as set forth on Schedule
C-1;
(b) with respect to a Lender's obligation to participate in
Letter of Credit Accommodations, and receive payments of fees with
respect thereto, the percentage obtained by dividing (i) such Lender's
Letter of Credit Sub-Commitment, as set forth on Schedule C-1, by (ii)
the aggregate Letter of Credit Sub-Commitments of all Lenders, as set
forth on Schedule C-1
(c) with respect to a Lender's obligation to make Term Loan
A and receive payments relative thereto, the percentage obtained by
dividing (i) such Lender's Term Loan A Commitment, as set forth on
Schedule C-1, by (ii) the aggregate Term Loan A Commitments of all
Lenders, as set forth on Schedule C-1;
(d) with respect to a Lender's obligation to make Term Loan
B and receive payments relative thereto, the percentage obtained by
dividing (i) such Lender's Term Loan B Commitment, as set forth on
Schedule C-1, by (ii) the aggregate Term Loan B Commitments of all
Lenders, as set forth on Schedule C-1; and
(e) with respect to all other matters (including the
indemnification obligations arising under Section 11.5), the
percentage obtained by dividing (i) such Lender's Total Commitments to
make Loans, as set forth on Schedule C-1, by (ii) the aggregate Total
Commitments of all Lenders, as set forth on Schedule C-1.
Revolving Facility Usage - as of any date of determination,
the sum of the aggregate amount of Revolving Credit Loans outstanding
and the LC Amount.
b. Appendix A of the Agreement hereby is amended by adding
thereto the following new definitions in proper alphabetical
order:
Commercial Letter of Credit - means a documentary letter of
credit issued by Administrative Agent or any of Administrative Agent's
Affiliates for the account of Borrower to support the purchase by
Borrower of Inventory prior to transit to a location set forth on
Schedule 6.1.1, that provides that all draws thereunder must require
presentation of customary documentation (including, if applicable,
commercial invoices, packing list, certificate of origin, bill of
lading or airwaybill, customs clearance documents, quota statement,
inspection certificate, beneficiaries statement, and bill of exchange,
bills of lading, dock
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warrants, dock receipts, warehouse receipts, or other documents of
title) in form and substance satisfactory to Administrative Agent and
reflecting the passage to Borrower of title to first quality Inventory
conforming to Borrower's contract with the seller thereof. Any such
Letter of Credit shall cease to be a "Commercial Letter of Credit" at
such time, if any, as the goods purchased thereunder become Eligible
Inventory.
LC Amount - at any time, an amount equal to the sum of (a)
100% of the aggregate undrawn face amount of all Standby Letters of
Credit and LC Guaranties of Standby Letters of Credit then
outstanding, and (b) 50% of the aggregate undrawn face amount of all
Commercial Letters of Credit and LC Guaranties of Commercial Letters
of Credit then outstanding.
LC Exposure - at any time, an amount equal to the sum of (a) 100%
of the aggregate undrawn face amount of all Standby Letters of Credit
and LC Guaranties of Standby Letters of Credit then outstanding, and
(b) 100% of the aggregate undrawn face amount of all Commercial
Letters of Credit and LC Guaranties of Commercial Letters of Credit
then outstanding.
LC Guaranty - any guaranty pursuant to which Administrative Agent
or any Affiliate of Administrative Agent shall guaranty the payment or
performance by Borrower of its reimbursement obligation under any
letter of credit.
Letter of Credit - any Standby Letter of Credit or Commercial
Letter of Credit.
Letter of Credit Accommodations - Letters of Credit or LC
Guaranties.
Letter of Credit Sub-Commitment - for each Lender, the obligation
of such Lender to participate in Letter of Credit Accommodations, in
an aggregate amount at one time outstanding with respect to each such
Lender up to but not exceeding the amount set forth opposite the name
of such Lender under Letter of Credit Sub-Commitment on Schedule C-1.
The Letter of Credit Sub-Commitment of any Lender is a sub-commitment
of such Lender's Revolving Credit Commitment and is not to be added to
such Lender's Revolving Credit Commitment or Total Commitment.
Standby Letter of Credit - any letter of credit issued by
Administrative Agent or any of Administrative Agent's Affiliates for
the account of Borrower other than a Commercial Letter of Credit.
c. Section 1.1.1 of the Agreement hereby is amended and restated in its
entirety to read as follows:
1.1.1 Loans and Reserves. Each Revolving Credit Lender agrees,
ratably in accordance with its respective Revolving Credit Commitment,
and subject to the satisfaction of the applicable conditions precedent
set forth in
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Sections 9 and 9A hereof, to make Revolving Credit Loans to Borrower
from time to time, as requested by Borrower in the manner set forth in
Section 3.1.1 hereof, up to a maximum principal amount at any time
outstanding not to exceed such Lender's Pro Rata Share (in accordance
with its Revolving Credit Commitment) of an amount equal to the lesser
of (a) the Maximum Amount minus the LC Amount, or (b) the Borrowing
Base at such time minus the LC Amount and the amount of reserves, if
any, established by Administrative Agent as set forth below.
Administrative Agent shall have the right to establish reserves in
such amounts, and with respect to such matters, as Administrative
Agent deem in good faith necessary or appropriate, against the amount
of Revolving Credit Loans which Borrower may otherwise request under
this Section 1.1.1, including, without limitation, with respect to (i)
price adjustments, damages, unearned discounts, returned products or
other matters for which credit memoranda are issued in the ordinary
course of Borrower's business, (ii) shrinkage, spoilage, and
obsolescence of Inventory, (iii) slow moving Inventory, (iv) sums
chargeable against Borrower's Loan Account as Revolving Credit Loans
under any section of this Agreement, (v) amounts owing by Borrower to
any Person to the extent secured by a Lien on, or trust over, any
Property of Borrower, and (vi) such other matters, events, conditions,
or contingencies as to which Administrative Agent, in its good faith
sole credit judgment, determines reserves should be established from
time to time hereunder. The Revolving Credit Loans shall be evidenced
hereby and by the Revolving Notes, shall be secured by all of the
Collateral, and shall constitute Obligations.
d. A new Section 1.4 of the Agreement hereby is added to the Agreement in
proper alphanumerical order as follows:
1.4 Letter of Credit Accommodations.
(a) For so long as no Default or Event of Default exists and
subject to and upon the terms and conditions contained herein
(including Sections 9 and 9A), at the written request of Borrower,
Administrative Agent, on behalf of the Revolving Credit Lenders
(ratably in accordance with their respective Letter of Credit
Sub-Commitments), agrees to provide or arrange for Letter of Credit
Accommodations for the account of Borrower containing terms and
conditions acceptable to Administrative Agent and (if other than
Administrative Agent) the issuer thereof.
(b) In addition to any charges, fees or expenses charged by
any bank or issuer in connection with the Letter of Credit
Accommodations, Borrower shall pay to Administrative Agent, for the
ratable benefit of the Revolving Credit Lenders, a Letter of Credit
Accommodation fee at a rate equal to 2.75% per annum on the daily
outstanding balance of the Letter of Credit Accommodations for the
immediately preceding month (or part thereof), payable in arrears as
of the first day of each succeeding month, except that Borrower shall
pay to Administrative Agent, for the ratable benefit of the Revolving
Credit Lenders,
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such Letter of Credit Accommodation fee, at the Required Lender's
option, without notice, at a rate equal to 5.75% per annum on such
daily outstanding balance for: (i) the period from and after the date
of termination hereof until the Lender Group has received full and
final payment of all Obligations (notwithstanding the entry of any
judgment against Borrower) and (ii) the period from and after the date
of the occurrence of an Event of Default for so long as such Event of
Default is continuing as determined by the Required Lenders. Such
Letter of Credit Accommodation fee shall be calculated on the basis of
a three hundred sixty (360) day year and actual days elapsed and the
obligation of Borrower to pay such fee shall survive the termination
of this Agreement. Any and all charges, commissions, fees, and costs
incurred by the Lender Group relating to the Letters of Credit
Accommodations shall be considered Obligations for purposes of this
Agreement and immediately shall be reimbursable by Borrower to
Administrative Agent for the benefit of the Lender Group.
(c) Letter of Credit Accommodations shall be available only
if and to the extent that, on the date of the proposed issuance of any
Letter of Credit Accommodations, the LC Exposure shall not exceed the
lesser of (i) $1,000,000, and (ii) the lesser of (1) the Maximum
Amount minus the then aggregate outstanding principal amount of
Revolving Credit Loans, or (2) the Borrowing Base at such time minus
the then aggregate outstanding principal amount of Revolving Credit
Loans.
(d) Without the prior written consent of the Required
Lenders, Borrower shall not request any Letter of Credit Accommodation
with an expiration date that is after the last day of the Term.
Borrower agrees immediately to reimburse Administrative Agent for the
benefit of the Lender Group for any amounts paid by the Lender Group
with respect to Letter of Credit Accommodations and Borrower and the
Lender Group agree that any amounts paid by the Lender Group under any
Letter of Credit Accommodation and not reimbursed by Borrower shall
constitute additional Revolving Credit Loans pursuant to Section
3.1.1(b), shall be secured by all of the Collateral, and shall bear
interest and be payable at the same rate and in the same manner as all
other Revolving Credit Loans.
(e) Immediately upon issuance of any Letter of Credit
Accommodation in accordance with this Section 1.4, each Revolving
Credit Lender shall be deemed to have irrevocably and unconditionally
purchased and received, without recourse or warranty, an undivided
interest and participation in the credit support or enhancement
provided through Administrative Agent to such issuer in connection
with the issuance of such Letter of Credit Accommodation equal to such
Lender's Pro Rata Share (based upon its respective Letter of Credit
Sub-Commitment) of the face amount of such Letter of Credit
Accommodation (including, without limitation, all obligations of
Borrower with respect thereto, and any security therefor or guaranty
pertaining thereto). In the event any payment by or on behalf of
Borrower received by Administrative Agent with respect to any Letter
of Credit Accommodation (or any guaranty by Borrower or reimbursement
obligation of Borrower relating thereto) and distributed by
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Administrative Agent to the Revolving Credit Lenders on account of
their respective participations therein is thereafter set aside,
avoided, or recovered from Administrative Agent in connection with any
receivership, liquidation, or bankruptcy proceeding, each of the
Revolving Credit Lenders shall, upon demand by Administrative Agent,
pay to Administrative Agent such Lender's Pro Rata Share (based upon
its respective Letter of Credit Sub-Commitment) of such amount set
aside, avoided, or recovered, together with interest at the rate
required to be paid by Administrative Agent upon the amount required
to be repaid by it.
(f) Borrower shall indemnify and hold the Lender Group
harmless from and against any and all losses, claims, damages,
liabilities, costs and expenses which the Lender Group may suffer or
incur in connection with any Letter of Credit Accommodations and any
documents, drafts or acceptances relating thereto, including any
losses, claims, damages, liabilities, costs and expenses due to any
action taken by any issuer or correspondent with respect to any Letter
of' Credit Accommodation. Borrower assumes all risks with respect to
the acts or omissions of the drawer under or beneficiary of any Letter
of Credit Accommodation and for such purposes the drawer or
beneficiary shall be deemed Borrower's agent. Borrower assumes all
risks for, and agrees to pay, all foreign, federal, state, and local
taxes, duties and levies relating to any goods subject to any Letter
of Credit Accommodations or any documents, drafts or acceptances
thereunder. Borrower hereby releases and holds the Lender Group
harmless from and against any acts, waivers, errors, delays or
omissions, whether caused by Borrower, by any issuer or correspondent
or otherwise with respect to or relating to any Letter of Credit
Accommodation, The provisions of this Section 1.4(f) shall survive the
payment of Obligations and the termination or non-renewal of this
Agreement.
(g) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of the
Lender Group in any manner. The Lender Group shall have no liability
of any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Administrative Agent unless
Administrative Agent has duly executed and delivered to such issuer
the application or a guarantee or indemnification in writing with
respect to such Letter of Credit Accommodation. Borrower shall be
bound by any interpretation made in good faith by Administrative
Agent, or any other issuer or correspondent under or in connection
with any Letter of Credit Accommodation or any documents, drafts or
acceptances thereunder, notwithstanding that such interpretation may
be inconsistent with any instructions of Borrower. Administrative
Agent shall have the sole and exclusive right and authority to, and
Borrower shall not: (i) at any time an Event of Default exists or has
occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to
acceptance or rejection of any documents or goods, or (C) execute any
and all applications for steamship or airway guaranties, indemnities
or delivery orders; and (ii) at all times, (A) grant any extensions of
the maturity of, time of payment for, or time of presentation of, any
drafts, acceptances, or documents, and (B) agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any
of the terms
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<PAGE>
or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any
letters of credit included in the Collateral. Administrative Agent may
take such actions either in its own name or in Borrower's name.
(h) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other
agreement in favor of any issuer or correspondent relating to any
Letter of Credit Accommodation, shall be deemed to have been granted
or undertaken by Borrower to Administrative Agent for the benefit of
the Lender Group. Any duties or obligations undertaken by
Administrative Agent to any issuer or correspondent in any application
for any Letter of Credit Accommodation, or any other agreement by
Administrative Agent in favor of any issuer or correspondent relating
to any Letter of Credit Accommodation, shall be deemed to have been
undertaken by Borrower to the Lender Group and to apply in all
respects to Borrower.
(i) Borrower hereby authorizes and directs any issuing bank
that issues a Letter of Credit Accommodation to deliver to
Administrative Agent all instruments, documents, and other writings
and property received by the issuing bank pursuant to such Letter of
Credit Accommodation, and to accept and rely upon Administrative
Agent's instructions and agreements with respect to all matters
arising in connection with such Letter of Credit Accommodation and the
related application. Borrower shall be the "applicant" or "account
party" with respect to such Letter of Credit Accommodation.
(j) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or
application by any governmental authority of any such applicable law,
treaty, rule, or regulation, or (ii) compliance by the issuing bank or
the Lender Group with any direction, request, or requirement
(irrespective of whether having the force of law) of any governmental
authority or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement
is or shall be imposed or modified in respect of any Letter
of Credit Accommodation issued hereunder, or
(ii) there shall be imposed on the issuing bank or
the Lender Group any other condition regarding any Letter of
Credit Accommodation issued pursuant hereto;
and the result of the foregoing is to increase, directly or
indirectly, the cost to the Lender Group of issuing any Letter of
Credit Accommodation, or to reduce the amount receivable in respect
thereof the Lender Group, then, and in any such case, Administrative
Agent may, at any time within a reasonable period after the additional
cost is incurred or the amount received is reduced, notify
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<PAGE>
Borrower, and Borrower shall pay on demand such amounts as
Administrative Agent may specify to be necessary to compensate the
Lender Group for such additional cost or reduced receipt, together
with interest on such amount from the date of such demand until
payment in full thereof at the rate then applicable to Revolving
Credit Loans pursuant hereto. The determination by Administrative
Agent of any amount due pursuant to this Section 1.4(j), as set forth
in a certificate setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
e. Section 3.1.2 of the Agreement hereby is amended and restated in its
entirety to read as follows:
3.1.2 Funding by Lenders. Administrative Agent shall from time to
time, but no less frequently than weekly, notify each Revolving Credit
Lender of the date such Lender is to fund its Revolving Credit Loans,
and fund any amounts paid under any Letter of Credit Accommodation,
and the amount to be made available by it. If and to the extent that a
Revolving Credit Lender and Administrative Agent so agree, at
Administrative Agent's discretion, the amount to be made available by
such Revolving Credit Lender on any date may be netted against any
amount owing to such Lender and otherwise payable by Administrative
Agent on account of payments received by it from Borrower on such
date. The amount to be made available by each Revolving Credit Lender
on any date shall be made available by it on such date to
Administrative Agent at Administrative Agent's Account, in immediately
available funds, not later than 1:00 p.m. (New York time) on any day
in the case of fundings of which such Lenders have received notice not
later than 11:00 a.m. (New York time) on such day (or, if notice is
received after such time, not later than 12:00 p.m. (New York time) on
the next succeeding Business Day). The obligation of each Revolving
Credit Lender to Administrative Agent (as opposed to Borrower) to fund
its Revolving Credit Loans, and any payments under any Letter of
Credit Accommodation, on the date specified by Administrative Agent is
absolute and unconditional and shall not be affected by any
circumstance whatsoever, including (a) any set off counterclaim,
recoupment, defense or other right which such Lender may have against
Administrative Agent, Borrower or any other Person for any reason
whatsoever, (b) the financial condition or prospects of Borrower, (c)
the failure of any other such Lender to make funds available to Agent
with respect to its Revolving Credit Loans or any payments under any
Letter of Credit Accommodation, (d) the occurrence or continuation of
an Event of Default, whether the same shall occur before or after
Administrative Agent shall have made the Revolving Credit Loans or
Letter of Credit Accommodations, or (e) any other circumstance,
happening or event whatsoever, whether or not similar to any of the
foregoing.
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<PAGE>
f. Section 3.1.6 of the Agreement hereby is amended and restated in its
entirety to read as follows:
3.1.6 Settlements.
(a) Revolving Credit Loans, Letter of Credit Accommodations,
and payments will be settled among Administrative Agent and the
Revolving Credit Lenders according to such procedures as
Administrative Agent and such Lenders may agree in writing from time
to time. These procedures notwithstanding, each such Lender's
obligation to fund its portion of the Revolving Credit Loans and
amounts paid under Letter of Credit Accommodations made by
Administrative Agent to Borrower shall commence on the date such
Revolving Credit Loans and Letter of Credit Accommodations are made by
Administrative Agent. Such payments to Administrative Agent will be
made by such Lenders without set-off, counterclaim or reduction of any
kind.
(b) Administrative Agent may require the Revolving Credit
Lenders to settle Revolving Credit Loans, amounts paid under Letter of
Credit Accommodations, and payments on a daily basis (or such lesser
frequency as Administrative Agent may determine) (each day of
settlement being a "Settlement Date"). Administrative Agent will
advise each Revolving Credit Lender by telephone or telecopy of the
amount of each such Lender's Pro Rata Share (in accordance with its
Revolving Credit Commitment and its Letter of Credit Sub-Commitment)
of the Revolving Facility Usage as of the close of business of the
Business Day immediately preceding the Settlement Date. In the event
that payments are necessary to adjust such Lender's actual Pro Rata
Share (in accordance with its Revolving Credit Commitment and its
Letter of Credit Sub-Commitment) of the Revolving Facility Usage as of
any Settlement Date to equal the amount of such Lender's required Pro
Rata Share (in accordance with its Revolving Credit Commitment and its
Letter of Credit Sub-Commitment) of the Revolving Facility Usage, the
party from which such payment is due will pay the other, in same day
funds, by wire transfer to the other's account not later than the
applicable time set forth on Section 3.1.2.
(c) If any such payment is not made to Administrative Agent
by any such Lender on the Settlement Date applicable thereto to the
extent required by the terms hereof, such Lender shall be a Defaulting
Lender and Administrative Agent shall be entitled to recover for its
account such amount on demand from such Lender together with interest
thereon at the Defaulting Lenders Rate. Administrative Agent shall not
be obligated to transfer to a Defaulting Lender any payments made by
Borrower to Administrative Agent for the Defaulting Lender's benefit
on account of its Revolving Credit Loans and participations in Letter
of Credit Accommodations. Any such amounts payable to a Defaulting
Lender shall instead be paid to or retained by Administrative Agent.
Administrative Agent may hold and, in its discretion, re-lend to
Borrower as Revolving Credit Loans the amount of any or all such
payments received or retained by it for the account of such Defaulting
Lender or treat any or all such amounts as participations in Letter of
Credit Accommodations made for
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Borrower's account. Solely for the purposes of voting or consenting to
matters with respect to the Loan Documents and determining Required
Lenders, Defaulting Lender shall be deemed not to be a "Lender" (in
respect of its Revolving Credit Loans, participations in Letter of
Credit Accommodations, Revolving Credit Commitment, and Letter of
Credit Sub-Commitment) and such Defaulting Lender's Revolving Credit
Commitment with respect to the Revolving Credit Loans and Letter of
Credit Sub-Commitment with respect to the Letter of Credit
Accommodations shall be deemed to be zero (-0-). This section shall
remain effective with respect to such Lender until (x) the Obligations
under this Agreement shall have been declared or shall have become
immediately due and payable or (y) the Revolving Credit Lenders that
are non-Defaulting Lenders and Administrative Agent shall have waived
such Lender's default in writing. The operation of this section shall
not be construed to increase or otherwise affect the Commitments of
any Lender other than such Defaulting Lender, or relieve or excuse the
performance by Borrower of its duties and obligations hereunder.
g. Clause "fourth" of Section 3.2.6(a)(i) of the Agreement hereby is
amended and restated in its entirety to read as follows:
fourth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative Agent
as cash collateral hereunder with respect to unreimbursed
obligations in respect of Letter of Credit Accommodations;
h. Clause "sixth" of Section 3.2.6(a)(ii) of the Agreement hereby is
amended and restated in its entirety to read as follows:
sixth, to repay the principal of the Revolving Credit Loans until
paid in full, and then to be held by Administrative Agent as cash
collateral hereunder with respect to unreimbursed obligations in
respect of Letter of Credit Accommodations;
i. Clause "fourth" of Section 3.2.6(a)(iii) of the Agreement hereby is
amended and restated in its entirety to read as follows:
fourth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative Agent
as cash collateral hereunder with respect to unreimbursed
obligations in respect of Letter of Credit Accommodations;
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<PAGE>
j. Clause "fourth" of Section 3.2.6(b) of the Agreement hereby is amended
and restated in its entirety to read as follows:
fourth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative Agent
as cash collateral hereunder with respect to unreimbursed
obligations in respect of Letter of Credit Accommodations;
k. Section 4.2.2 of the Agreement hereby is amended and restated in its
entirety to read as follows:
4.2.2 Termination by Borrower. Upon at least 60 days prior
written notice to Administrative Agent, Borrower may, at its option,
terminate this Agreement without penalty or premium (other than as may
be required by the provisions of Section 2.4); provided, however, that
no such termination shall be effective until Borrower has paid all of
the Obligations in immediately available funds and all Letter of
Credit Accommodations have expired or have been cash collateralized to
Administrative Agent's satisfaction. Any notice of termination given
by Borrower shall be irrevocable unless the Required Lenders otherwise
agree in writing, and the Lender Group shall have no obligation to
make any Loans or procure any Letter of Credit Accommodations on or
after the termination date stated in such notice. Borrower may elect
to terminate this Agreement in its entirety only. No section of this
Agreement or type of Loan available hereunder may be terminated
singly.
l. The first paragraph of Section 7.1 of the Agreement hereby is amended
and restated in its entirety to read as follows:
7.1 General Representations and Warranties. In order to induce
the Lender Group to enter into this Agreement and to extend credit
hereunder, each Borrower hereby jointly and severally with each other
Borrower makes the following representations and warranties which
shall be true, correct, and complete in all material respects as of
the date hereof, and, subject to the ability of Borrower to modify
certain provisions thereof pursuant to the terms of Section 7.3
hereof, shall be true, correct, and complete in all material respects
as of the Closing Date, and at and as of the date of the making of
each Loan or Letter of Credit Accommodation made hereafter, as though
made on and as of the date of such Loan (except to the extent that
such representations and warranties relate solely to an earlier date)
and such representations and warranties shall survive the execution
and delivery of this Agreement:
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<PAGE>
m. Section 7.1.12 of the Agreement hereby is amended and restated in its
entirety to read as follows:
7.1.12 Solvent Financial Condition. Borrower, and each of its
Subsidiaries, taken as a whole, is and, after giving effect to the
Loans to be made hereunder, will be, Solvent.
n. Section 7.1.28 of the Agreement hereby is amended and restated in its
entirety to read as follows:
7.1.28 No Violation of Federal Reserve Board Regulations. The
making by the Lender Group of the Loans and Letter of Credit
Accommodations, and the use by each Borrower of the proceeds of any
and all Loans and Letter of Credit Accommodations, do not and will not
violate any of Regulations T, U, and X of the Federal Reserve Board.
o. The first paragraph of Section 9A of the Agreement hereby is amended
and restated in its entirety to read as follows:
Any other provision of this Agreement or any of the other Loan
Documents notwithstanding, and without affecting in any manner the
rights of the Lender Group under the other sections of this Agreement,
the Lender Group shall not be required to make any Loans or Letter of
Credit Accommodations under this Agreement unless and until each of
the following conditions has been and continues to be satisfied:
p. Section 10.3.5 of the Agreement hereby is amended and restated in its
entirety to read as follows:
10.3.5 Administrative Agent may, at its option, require Borrower
to deposit with Administrative Agent funds equal to the LC Exposure
and, if Borrower fails to promptly make such deposit, Administrative
Agent may advance such amount as a Revolving Credit Loan (whether or
not an Overadvance is created thereby). Any such deposit or advance
shall be held by Administrative Agent as a reserve to fund future
payments on such LC Guaranties and future drawings against such
Letters of Credit. At such time as all LC Guaranties have been paid or
terminated and all Letters of Credit have been drawn upon or expired,
any amounts remaining in such reserve shall be applied against any
outstanding Obligations, or, if all Obligations have been indefeasibly
paid in full, returned to Borrower.
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q. Clause (a)(i) of the eighth sentence of Section 11.1.1 of the
Agreement hereby is amended and restated in its entirety to read as
follows:
(a)(i) Administrative Agent shall have the right to maintain, in
accordance with its customary business practices, ledgers and records
reflecting the status of the Obligations, the Revolving Credit Loans,
the Letter of Credit Accommodations, the Term Loans, the Collections,
and related matters, and
r. Clause (c) of the eighth sentence of Section 11.1.1 of the Agreement
hereby is amended and restated in its entirety to read as follows:
(c) Administrative Agent shall have the right to make the Revolving
Credit Loans and the Letter of Credit Accommodations, for itself or on
behalf of the applicable Lenders as provided in the Loan Documents;
s. Section 12.11 of the Agreement hereby is amended to include therein
the following additional notice information:
If to KZH ING-2 LLC: KZH ING-2 LLC
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Virginia Conway
Facsimile: 212.946.7776
With copies to: ING Capital Advisors, Inc.
333 S. Grand Ave., Suite 4250
Los Angeles, California 90071
Attention: Lenore Crummey-Benoit
Facsimile: 213.626.6552
and to: Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
Attention: Shan McSweeney, Esq.
Facsimile: 212.351.5330
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<PAGE>
If to KZH ING-3 LLC: KZH ING-3 LLC
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Virginia Conway
Facsimile: 212.946.7776
With copies to: ING Capital Advisors, Inc.
333 S. Grand Ave., Suite 4250
Los Angeles, California 90071
Attention: Lenore Crummey-Benoit
Facsimile: 213.626.6552
and to: Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
Attention: Shan McSweeney, Esq.
Facsimile: 212.351.5330
t. The Agreement and the other Loan Documents in effect as of the date
hereof hereby are amended such that all references to "Congress
Financial Corporation (Southern)" therein (including in Sections
11.4(a), 12.6(b), and 12.11 and in the definition of "Administrative
Agent" in Appendix A of the Agreement) shall be replaced by references
to "Congress Financial Corporation (Florida)".
u. Schedule C-1 of the Agreement hereby is amended, restated, and
replaced in its entirety by Schedule C-1 attached hereto.
2. Representations and Warranties. Borrower hereby represents and warrants to
Agent that (a) the execution, delivery, and performance of this Amendment and of
the Agreement, as amended by this Amendment, are within its corporate powers,
have been duly authorized by all necessary corporate action, and are not in
contravention of any law, rule, or regulation, or any order, judgment, decree,
writ, injunction, or award of any arbitrator, court, or governmental authority,
or of the terms of its charter or bylaws, or of any contract or undertaking to
which it is a party or by which any of its properties may be bound or affected,
and (b) this Amendment and the Agreement, as amended by this Amendment,
constitute Borrower's legal, valid, and binding obligation, enforceable against
Borrower in accordance with its terms.
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3. Conditions Precedent to Amendment. The satisfaction of each of the following,
unless waived or deferred by the Lender Group in its sole discretion, shall
constitute conditions precedent to the effectiveness of this Amendment:
a. Collateral Agent shall have received that certain letter agreement,
dated as of even date herewith, between Administrative Agent and the Revolving
Credit Lenders, on the one hand, and Collateral Agent, on the other hand, in
form and substance satisfactory to Collateral Agent, duly executed, and such
document shall be in full force and effect.
b. The representations and warranties in this Amendment, the Agreement as
amended by this Amendment, and the other Loan Documents shall be true and
correct in all respects on and as of the date hereof, as though made on such
date (except to the extent that such representations and warranties relate
solely to an earlier date);
c. No Event of Default or event which with the giving of notice or passage
of time would constitute an Event of Default shall have occurred and be
continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein;
d. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to
Collateral Agent and Administrative Agent.
4. Further Assurances. Borrower shall execute and deliver all agreements,
documents, and instruments, in form and substance satisfactory to Administrative
Agent and Collateral Agent, and take all actions as Administrative Agent or
Collateral Agent reasonably may request from time to time fully to consummate
the transactions contemplated under this Amendment and the Agreement, as amended
by this Amendment.
5. Effect on Agreement. The Agreement, as amended hereby, shall be and remain in
full force and effect in accordance with its terms and hereby is ratified and
confirmed in all respects. The execution, delivery, and performance of this
Amendment shall not operate as a waiver of or, except as expressly set forth
herein, as an amendment of any right, power, or remedy of the Lender Group under
the Agreement, as in effect prior to the date hereof.
6. Choice of Law and Venue; Jury Trial Waiver.
THIS AMENDMENT HAS BEEN NEGOTIATED, EXECUTED, AND DELIVERED AT AND SHALL BE
DEEMED TO HAVE BEEN MADE IN NEW YORK, NEW YORK. THIS AMENDMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED,
16
<PAGE>
HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION
OTHER THAN NEW YORK, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD,
MANNER, AND PROCEDURE FOR FORECLOSURE OF COLLATERAL AGENT'S LIEN UPON SUCH
COLLATERAL AND THE ENFORCEMENT OF THE LENDER GROUP'S OTHER REMEDIES IN RESPECT
OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE
DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW YORK. AS PART OF THE
CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE
DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR THE LENDER GROUP,
BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW YORK, NEW
YORK, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND THE LENDER GROUP PERTAINING TO THIS
AMENDMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR
FORUM NON CONVENIENS, HEREBY CONSENTS TO THE EXERCISE OF PERSONAL JURISDICTION
OF SUCH COURT, AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS
SET FORTH IN THE AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN
THE U.S. MAIL, PROPER POSTAGE PREPAID. NOTHING IN THIS AMENDMENT SHALL BE DEEMED
OR OPERATE TO AFFECT THE RIGHT OF THE LENDER GROUP TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE LENDER
GROUP OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY
ACTION UNDER THE AGREEMENT OR THIS AMENDMENT TO ENFORCE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.
BORROWER WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH THE LENDER GROUP
HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS, OR THE
COLLATERAL, (B) PRESENTMENT, DEMAND, AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTIES AT ANY TIME HELD BY
17
<PAGE>
AGENT OR ANY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER AGENT OR SUCH LENDER MAY DO IN THIS REGARD, (C)
NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT TO
EXERCISE ANY OF THE LENDER GROUP'S REMEDIES, (D) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT, AND EXEMPTION LAWS, AND (E) NOTICE OF ACCEPTANCE HEREOF. BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO THE LENDER
GROUP'S ENTERING INTO THIS AMENDMENT AND THAT THE LENDER GROUP IS RELYING UPON
THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL
AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AMENDMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
7. Miscellaneous.
a. Upon the effectiveness of this Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like
import referring to the Agreement shall mean and refer to the Agreement as
amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in the Loan
Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words
of like import referring to the Agreement shall mean and refer to the Agreement
as amended by this Amendment.
c. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Amendment by signing any such counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile also shall deliver a manually executed counterpart of this
Amendment but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
[signature page follows]
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment Number One to
Loan and Security Agreement to be executed and delivered as of the date first
written above.
QUESTRON TECHNOLOGY, INC.,
a Delaware corporation
QUESTRON DISTRIBUTION LOGISTICS,INC.,
a Delaware corporation
INTEGRATED MATERIAL SYSTEMS, INC.,
an Arizona corporation
POWER COMPONENTS, INC.,
a Pennsylvania corporation
CALIFORNIA FASTENERS, INC.,
a California corporation
COMPWARE, INC.,
a Delaware corporation
doing business as Webb Distribution
FAS-TRONICS, INC.,
a Texas corporation
FORTUNE INDUSTRIES, INC.,
a Texas corporation
By:/s/ Dominic A. Polimeni
-----------------------
Title: a Responsible Officer of each of
the above-named Persons
CONGRESS FINANCIAL CORPORATION
(FLORIDA), a Florida corporation, as
Administrative Agent and a Lender
By:/s/ Daniel Cott
---------------
Title:Vice President
MADELEINE L.L.C., a New York limited
liability company, as Collateral Agent
and a Lender
By:/s/ Daniel Wolf
---------------
Title:Authorized Signatory
<PAGE>
KZH ING-2 LLC, a Delaware limited
liability company, as a Lender
By:/s/ Virginia Conway
-------------------
Title:Authorized Signatory
KZH ING-3 LLC, a Delaware limited
liability company, as a Lender
By:/s/ Virginia Conway
-------------------
Title:Authorized Signatory
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1998
AND THE CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 87,587
<SECURITIES> 0
<RECEIVABLES> 10,735,414
<ALLOWANCES> 138,646
<INVENTORY> 17,284,914
<CURRENT-ASSETS> 28,647,406
<PP&E> 1,452,292
<DEPRECIATION> 915,177
<TOTAL-ASSETS> 68,358,187
<CURRENT-LIABILITIES> 10,195,047
<BONDS> 0
0
0
<COMMON> 4,732
<OTHER-SE> 26,855,883
<TOTAL-LIABILITY-AND-EQUITY> 68,358,187
<SALES> 38,871,478
<TOTAL-REVENUES> 38,871,478
<CGS> 23,222,131
<TOTAL-COSTS> 32,338,786
<OTHER-EXPENSES> 655,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,621,558
<INCOME-PRETAX> 4,255,679
<INCOME-TAX> 1,744,828
<INCOME-CONTINUING> 2,510,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,510,851
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
