<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934 from _____ to_____________.
Commission File Number 1-10397
AMERIQUEST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0244136
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 PRIVET ROAD, HORSHAM, PENNSYLVANIA, 19044
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (215) 675-9300
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
filing requirements for the past 90 days. Yes X No
At July 30, 1998 there were 66,881,906 shares of the Registrant's Common
Stock outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
AMERIQUEST TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
ITEM 1. FINANCIAL STATEMENTS
The financial statements included herein have been prepared by AMERIQUEST
TECHNOLOGIES, INC. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
normally included in the financial statements prepared in accordance with
generally accepted accounting principles has been omitted pursuant to such rules
and regulations. However, the Company believes that the financial statements,
including the disclosures herein, are adequate to make the information presented
not misleading. It is suggested that the financial statements be read in
conjunction with the Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 as filed with the Securities and Exchange Commission.
In the opinion of management, the consolidated condensed financial statements
include proforma statement presentations necessary to present fairly the
financial position of the Company following the recapitalization on July 20,
1998 that consumated the transactions contemplated by the "Disposition and
Reorganization Agreement" executed and announced on July 2, 1998.
2
<PAGE> 3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30, PROFORMA
ASSETS 1998 1997 JUNE 30, 1998
--------- --------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,710 $ 7,680 (1,5) $ 2,655
Accounts receivable, less allowance for doubtful accounts of $1,610
And $2,156 as of June 30, 1998 and September 30, 1997, respectively 5,588 9,006 5,588
Inventories, net of valuation allowance 6,976 7,066 6,976
Prepaid and other current assets 627 935 627
--------- --------- ---------
Total current assets 15,901 24,687 15,846
--------- --------- ---------
Property and equipment, net 620 1,272 620
Other assets 120 120 120
--------- --------- ---------
Total assets $ 16,641 $ 26,079 $ 16,586
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Lines of credit $ 4,657 $ 3,064 (1,5,6) $ 0
Due to Computer 2000 27,664 27,664 (3) 0
Accounts payable 5,304 9,492 (3,4,6) 4,333
Other current liabilities 3,737 9,251 3,737
--------- --------- ---------
Total current liabilities 41,362 49,471 8,070
--------- --------- ---------
Stockholders' Equity (Deficit)
Preferred Stock, $.01 par value, 7% cumulative dividend, convertible
into Common Stock, 300,000 shares authorized and outstanding;
entitled to $30,000,000 in involuntary liquidation 30,000 30,000 (2) 0
Common stock, $.01 par value; authorized 200,000,000 shares; issued
And outstanding 66,881,906 shares as of June 30, 1998 and
September 30, 1997, respectively 669 669 669
Additional paid-in capital 111,145 111,145 (2,3,4,5) 174,382
Accumulated deficit (166,535) (165,206) (166,535)
--------- --------- ---------
Total stockholders' equity (deficit) (24,721) (23,392) 8,516
--------- --------- ---------
Total liabilities and stockholders' equity (deficit) $ 16,641 $ 26,079 $ 16,586
========= ========= =========
</TABLE>
PROFORMA FOOTNOTES (SEE FOOTNOTE 10):
1. Disbursement of cash to pay off IBMCC - $3,055
2. Contribution of Preferred Shares to Paid in Capital - $30,000
3. Contribution of Intercompany Loans to Paid in Capital - $27,664
4. Contribution of Preferred Dividends and Interest to Paid in Capital - $2,573
5. Contribution of Cash to Paid-in Capital - $3,000
6. Reclassification of balance no longer due to IBMCC to IBM Accounts Payable
pending contractual return of $1,602 of inventory
3
<PAGE> 4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 18,260 $ 35,016 $ 47,371 $ 199,640
Cost of sales 16,300 29,754 42,554 184,866
------------ ------------ ------------ ------------
Gross profit 1,960 5,262 4,817 14,774
Operating Expenses:
Selling, general and administrative 1,516 8,639 4,082 30,555
Depreciation and amortization 79 576 241 2,216
Restructuring costs 0 0 0 20,437
------------ ------------ ------------ ------------
Income (Loss) from operations 365 (3,953) 494 (38,434)
Interest income (37) 0 (197) 0
Interest expense 340 713 445 3,054
------------ ------------ ------------ ------------
Net Income (loss) $ 62 ($ 4,666) $ 246 ($ 41,488)
============ ============ ============ ============
Basic loss per common share $ (0.01) $ (0.07) $ (0.02) $ (0.62)
------------ ------------ ------------ ------------
Diluted loss per common share $ (0.01) $ (0.07) $ (0.02) $ (0.62)
------------ ------------ ------------ ------------
Basic Common shares outstanding (Note 2) 66,881,906 66,881,906 66,881,906 66,881,906
------------ ------------ ------------ ------------
Diluted Common shares outstanding (Note 2) 66,881,906 66,881,906 66,881,906 66,881,906
------------ ------------ ------------ ------------
</TABLE>
4
<PAGE> 5
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net Income (loss) $ 62 ($ 4,666) $ 246 ($41,488)
-------- -------- -------- --------
Gain on sale of subsidiaries 0 (385) (184) (385)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 79 576 241 2,216
Restructuring costs 0 0 0 20,437
Provision for losses on accounts receivable 2,249 7,527
Provision for losses on inventory 0 (1,013) 348 2,562
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,086 18,452 997 33,072
(Increase) decrease in inventories 8,019 20,195 (683) 28,999
(Decrease) in accounts payable and accrued expenses (1,525) (18,505) (6,493) (27,665)
(Increase) decrease in other assets (134) (264) (1,418) (295)
-------- -------- -------- --------
Net cash provided by (used in) operating activities 7,587 16,639 (6,946) 24,980
-------- -------- -------- --------
Cash flow from investing activities:
Net cash received from sale of subsidiaries 0 3,550 450 3,550
Capital expenditures, net of disposals (2) (37) (67) (408)
-------- -------- -------- --------
Net cash provided by (used in) investing activities (2) 3,513 383 3,142
-------- -------- -------- --------
Cash flow from financing activities:
Net borrowings (repayment) under lines of credit (7,998) (47,455) 1,593 (55,805)
Issuance of Preferred Stock 0 30,000 0 30,000
-------- -------- -------- --------
Net cash provided by (used in) financing activities (7,998) (17,455) 1,593 (25,805)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents (413) 2,697 (4,970) 2,317
-------- -------- -------- --------
Cash and cash equivalents at beginning of period $ 3,123 $ 1,920 7,680 2,300
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 2,710 $ 4,617 $ 2,710 $ 4,617
======== ======== ======== ========
</TABLE>
Supplemental Disclosures of Cash Flow Information
Interest on lines of credit:
During the nine months ended June 30, 1998 and 1997, the
Company paid interest of $248 and $3,054, respectively.
Income taxes:
During the nine months ended June 30, 1998 and 1997, the
Company made no federal income tax payments.
PROFORMA ADJUSTMENTS TO CASH FLOW INFORMATION
On July 20, 1998, the Company received a capital contribution of $3,000 from
Computer 2000, Inc. as part of closing of the transaction further described in
footnote 10 and the management discussion below. Additionally, the line of
credit due IBM Credit Corporation of $4,657 was paid in full on July 20, 1998.
5
<PAGE> 6
AMERIQUEST TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
NINE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30, 1997............. 300,000 $30,000 66,881,906 $669 $111,145 ($165,206)
========= ======== ========== ======= ======== =========
Accrued dividend on Preferred stock........ (525)
Net Income for the Quarter ended
December 31, 1997................... 95
Accrued dividend on Preferred stock........
(525)
Net Income for the Quarter ended
March 31, 1998......................
89
Accrued dividend on Preferred stock........
(525)
Net Income for the Quarter ended
June 30, 1998....................... 62
-------
BALANCES AT JUNE 30, 1998.................. 300,000 $30,000 66,881,906 $669 $111,145 ($166,535)
========= ======== ========== ======= ======== =========
PROFORMA ADJUSTMENTS
(SEE FOOTNOTE 10)
Contribution of Preferred Shares to
Paid in Capital..................... (300,000) (30,000) 30,000
Contribution of Intercompany Loans to
Paid in Capital..................... 27,664
Contribution of Preferred Dividends and
Accrued Interest to Paid in Capital. 2,573
Contribution of Cash to Paid-in Capital.... 3,000
-----
PROFORMA BALANCES AT JUNE 30, 1998.......... 0 $0 66,881,906 $669 $174,382 ($166,535)
========= ======== ========== ======= ======== =========
</TABLE>
6
<PAGE> 7
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments and accruals) considered necessary for
a fair presentation are included. For further information, refer to the audited
Consolidated Financial Statements and Notes thereto included in AmeriQuest
Technologies, Inc. Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, as filed with the Securities and Exchange Commission.
The results of operations and cash flows for the three and nine month periods
ended June 30, 1998 are not necessarily indicative of the results of operations
or cash flows which may be reported for the remainder of fiscal 1998.
(2) LOSS PER SHARE
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" effective for periods ending after December 15, 1997. SFAS
No. 128 simplifies the calculation of earnings per share to measure the
performance of an entity over a reporting period for both basic earnings per
share and diluted earnings per share. The Company has accordingly adopted the
provisions of SFAS 128 for the current year. Previously reported earnings per
share amounts have been restated, if applicable.
Basic loss per common share is computed by dividing net income (loss) less
dividends applicable to convertible preferred stock by the weighted average
number of common stock outstanding during the period. Diluted loss per common
share is computed using the "if-converted method" applicable for convertible
preferred stock. The "if-converted method" is not applied if the preferred
dividend adjustment results in a loss for basic earnings per share and income
for diluted earnings per share. Because of the net loss attributable to common
shareholders, options of 565,504 and warrants of 9,392,515 outstanding on June
30, 1998 are antidilutive. Accordingly, the basic and diluted per share loss is
the same.
(3) DERIVATIVE INVESTMENTS
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 133,
"Derivative Investments" effective for periods ending after December 15, 1997.
SFAS No. 133 requires a definitive statement that the Company has no derviative
investments. The Company asserts that it has no such investments.
(4) FISCAL PERIODS
The Company's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to September 30 and its fiscal quarters are the 13- or 14-week periods
ending on the Saturday nearest to December 31, March 31, June 30 or September
30. For clarity of presentation, the Company has presented year-ends as if the
years ended on September 30; and quarter-ends are presented as if the quarters
ended on December 31, March 31, and June 30. The 1997 and 1998 fiscal years are
52 weeks, while the quarters presented are 13 weeks in duration.
(5) COMMON AND PREFERRED STOCK
On May 6, 1997 the Company issued and sold to Computer 2000 AG ("C-2000")
300,000 shares of its Series H Cumulative Convertible Preferred Stock
("Preferred Stock") for a purchase price of $30.0 million. The proceeds of the
sale were used to partially pay down the Company's outstanding bank lines of
credit. The Preferred stock is convertible at the option of C-2000 into
41,958,042 shares of the Company's Common Stock. The Preferred Stock has a 7%
per annum cumulative dividend payable in either company shares or cash until
June 30, 1998, at the option of the Company. Thereafter such dividends were to
be paid in cash.
On July 20, 1998, Listen Group Partners, LLC, a group headed by AmeriQuest's
senior management, Alex Kramer (CEO) and Jon Jensen (CFO), completed an
agreement to acquire the 36,349,878 shares of AmeriQuest common stock owned by
Computer 2000. As part of the transaction, Computer 2000 contributed to the
capital of AmeriQuest approximately $28 million in intercompany debt
7
<PAGE> 8
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(5) COMMON AND PREFERRED STOCK (CONTINUED)
obligations and an additional $3 million in cash. Computer 2000 further agreed
to the redemption by AmeriQuest of all of the outstanding AmeriQuest Preferred
Stock, and to the cancellation of all outstanding AmeriQuest options and
warrants held by Computer 2000. As a result of the transaction, the number of
outstanding shares of AmeriQuest, assuming conversion by Computer 2000 of all
Preferred Stock, warrants and options, was reduced from 118,232,465 to
66,881,906.
See Note 10 regarding contribution of Preferred Stock to Paid in Capital and
cancellation of warrants subsequent to June 30, 1998.
(6) LINES OF CREDIT
At June 30, 1998, the Company's line of credit with IBM Credit Corporation
(IBMCC) utilizing a floor planning arrangement, totalled $8.5 million. The IBMCC
$8.5 million line of credit was to be reduced to $6.5 million on July 1, 1998,
to $5 million on August 1, 1998 and to expire on September 30, 1998. At June 30,
1998, the terms of the IBM Credit Corporation ("IBMCC") lending agreement
included certain restrictive covenants which required the maintenance of
specified financial ratios generally related to net income, tangible net worth,
and working capital. The Company was not in compliance with the year to date net
income covenant of $300,000 as of June 30, 1998. The weighted average interest
rate for all borrowings under the above IBMCC credit facilities was 12.3% at
June 30, 1998, reflecting a penalty rate of 6.5% on a portion of the debt due
IBMCC. All IBMCC debt was retired on July 20, 1998. On July 20, 1998 the Company
paid IBMCC in full and replaced the IBMCC line of credit with a three year,
$10,000,000 line of credit facility from Fleet Financial Corporation.
The terms of the Fleet Finacial Corporation ("Fleet") lending agreement include
certain restrictive covenants which require the maintenance of specified
financial ratios generally related to net income and tangible net worth.
(7) NEED FOR ADDITIONAL REVENUE
It is important to note that to date the Company has not been profitable in
prior quarterly periods without benefit of non-operating income. Therefore,
management estimates that a 15% increase in sales would be required in order for
AQS to achieve profitability on a consistent basis without benefit of such
non-operating income. No assurance can be given that such a sales increase will
occur or that the Company will be consistently profitable on an operating basis
only.
(8) NEGATIVE TANGIBLE NET WORTH
As of June 30, 1998, the Company has a working capital deficit and Stockholder's
deficit of $25.5 and $24.7 million, respectively. As a result of the events
outlined in Note 10, the Company's tangible net worth increased, on a proforma
basis at June 30, 1998, to $8,516,000 as further detailed in the preceeding
statement of stockholder's equity.
(9) SALE OF SUBSIDIARIES
AmeriQuest/Kenfil Inc. sold its wholly-owned subsidiaries Kenfil Distribution
(Far East) Limited, a Hong Kong corporation and Kenfil Distribution (M) Sdn.
Bhd., a Malaysian corporation, to Regentland Holdings Ltd. for proceeds of
$2,939,062, pursuant to a Stock Purchase Agreement dated November 20, 1997. The
purchase price was equivalent to repayment of a loan and the net book value of
the assets sold plus a premium of $450,000, and was paid by issuance of a
dividend from Kenfil Distribution (Far East) Limited to AmeriQuest/Kenfil Inc.
in the amount of $1,717,106, the loan repayment of $771,956 from Kenfil
Distribution (Far East) Limited to AmeriQuest/Kenfil Inc., and the payment of
$450,000 from Regentland Holdings Ltd. The Company recognized a gain, net of
expenses, of $184,000 during the first quarter of fiscal 1998. The gain was
included in "Selling, General and Administrative Expenses" in the accompanying
Statement of Operations.
8
<PAGE> 9
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(10) ACQUISITION OF COMPUTER 2000 AG MAJORITY STOCK HOLDINGS BY SENIOR
MANAGEMENT
On July 2, 1998, Listen Group Partners, LLC, a group headed by AmeriQuest's
senior management, Alex Kramer (CEO) and Jon Jensen (CFO), signed an agreement
to acquire the 36,349,878 shares of AmeriQuest common stock owned by Computer
2000. The transaction was approved by the outside directors of AmeriQuest and by
the full Board of Directors of AmeriQuest.
In taking over majority control of AmeriQuest from Computer 2000, AmeriQuest's
management arranged for a new $10 million asset-backed bank credit line for
AmeriQuest, in part to release Computer 2000 from its guarantee of IBMCC,
obtained the release of Computer 2000 and its affiliates from all other
guarantees of AmeriQuest obligations, and agreed to pay certain transaction
costs totaling approximately $220,000.
As part of the transaction, completed on July 20, 1998, Computer 2000
contributed to the capital of AmeriQuest approximately $28 million in
intercompany debt obligations and an additional $3 million in cash. Computer
2000 further agreed to the redemption by AmeriQuest of all of the outstanding
AmeriQuest preferred stock, convertible into approximately 42 million common
shares, and to the cancellation of all outstanding dividends, interest and
AmeriQuest options and warrants held by Computer 2000. As a result of the
transaction, the number of outstanding shares of AmeriQuest, on a fully diluted
basis, was reduced from approximately 118 million to approximately 67 million.
The Board of Directors of the Company agreed to reserve 6.7 million shares of
common stock for future issuance to AmeriQuest employees as incentive
compensation pursuant to terms to be approved by outside directors of the board.
Proforma adjustments to the June 30, 1998 balance sheet, reflecting the above
described transactions that occurred on 20, 1998 are shown below:
<TABLE>
<CAPTION>
JUNE 30 PROFORMA Foot PROFORMA
Current Assets: 1998 ADJUSTMENTS Notes JUNE 30, 1998
- --------------- ---- ----------- ----- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................................... $ 2,710 $ (3,055) 1 $2,655
3,000 5
-------
Total assets............................................... $ 16,641 $(55) $16,586
======== ======= =======
Current liabilities:
Lines of credit................................................... $ 4,657 $ (3,055) 1
(1,602) 6 $ 0
Due to Computer 2000.............................................. 27,664 (27,664) 3 0
Accounts payable.................................................. 5,304 (2,573) 4
1,602 6 4,333
Total current liabilities.................................. 41,362 8,070
-------- -----
Stockholders' Equity (Deficit)
Preferred Stock, $.01 par value, 7% cumulative dividend.............. 30,000 (30,000) 2 0
Common stock, $.01 par value; outstanding 66,881,906 shares.......... 669 669
Additional paid-in capital........................................... 111,145 30,000 2
27,664 3
2,573 4
3,000 5 174,382
--------
Accumulated deficit.................................................. (166,535) (166,535)
-------- ---------
Total stockholders' equity (deficit)....................... (24,721) 8,516
-------- -----
Total liabilities and stockholders' equity (deficit)....... $16,641 $(55) $16,586
======== ===== =======
</TABLE>
Footnotes:
1. Disbursement of cash to pay off IBMCC
2. Contribution of Preferred Shares to Paid in Capital
3. Contribution of Intercompany Loans to Paid in Capital
4. Contribution of Preferred Dividends and Interest to Paid in Capital
5. Contribution of Cash to Paid-in Capital
6. Reclassification of balance no longer due to IBMCC to IBM Accounts Payable
pending contractual return of $1,602 of inventory
9
<PAGE> 10
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(11) NYSE LISTING
The New York Stock Exchange ("NYSE") suspended trading of the Company's Common
Stock before the opening of trading on Tuesday, March 10, 1998. Following
suspension, the NYSE delisted the Company's Common Stock. The NYSE's action is
based on the fact that the Company fell below the NYSE' continued listing
criteria related to net tangible assets available to common stock (less than $12
million) and average net income for the last three years (less than $600,000);
and aggregate market value of publicly held shares (less than $8 million).
The Company's Common Stock is currently traded on the Bulleting Board of NASDAQ
under the "AMQT" symbol.
(12) SALE OF COMPUTER 2000 AG
In April 1998, Tech-Data Corp. of Clearwater, Florida entered into an agreement
with Kloeckner & Co. AG to purchase the latters 80% interest in Computer 2000
AG, the majority stockholder of the Company. The transaction was completed on
June 30, 1998.
10
<PAGE> 11
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
AmeriQuest is primarily a national valued-added wholesale distributor of micro,
mini and mid-range computers and related products to value-added resellers
("VARs") and systems integrators. Mid-range computers range in price from
$15,000 to $500,000. AmeriQuest markets, sells and supports a variety of
products ranging from individual components to complete systems that have been
fully configured, assembled and tested prior to delivery to the customer.
AmeriQuest's strategy is to emphasize the sale of complete systems and to
provide a high level of value-added services, including consultation on
component selection and system assembly and configuration, testing and technical
support services. AmeriQuest also provides a variety of programs and seminars
designed to enhance its customers' technical capabilities.
The Company had net income of $62,000 for the quarter ended June 30, 1998
compared to a net loss of $4,666,000 for the quarter ended June 30, 1997.
Revenue for the current quarter of $18,260,000 included the sale of
approximately $5,000,000 of IBM Risc product inventory at either low margin or
cumulative discount of $730,000 for cash prepayment. The low margin and cash
discount losses resulting from such sales were offset by release of inventory
loss reserves of $732,000 that had been set aside for that specific purpose.
Since the Company had non-recurring net interest expense of $303,000 and
achieved bad debt recoveries of $53,000 during the quarter, operating profit
without benefit of such recovery, or penalty from inventory liquidation, was
$310,000.
It is important to note that to date the Company has not been profitable in
prior quarterly periods without benefit of non-operating income. Therefore,
management estimates that a 15% increase in sales would be required in order for
the Company to achieve profitability on a consistent basis without benefit of
such non-operating income. No assurance can be given that such a sales increase
will occur or that the Company will be consistently profitable on an operating
basis only.
-------------------------------------
The following table sets forth certain items in the Consolidated Condensed
Statements of Income as a percent of net sales.
<TABLE>
<CAPTION>
PERCENT OF SALES
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0 100.0 100.0 100.0
Cost of sales 89.3 85.0 89.8 92.6
Gross profit 10.7 15.0 10.2 7.4
Selling, general and administrative 8.3 24.7 8.6 15.3
Depreciation and amortization 0.4 1.6 0.5 1.1
Restructuring costs -- -- -- 10.2
Interest income (expense), net (1.7) (2.0) (0.5) (1.5)
Net Income (Loss) 0.3 (13.3) 0.5 (20.8)
</TABLE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998
Sales for the quarter ended June 30, 1998 declined by 48% from $35,016,000 for
the quarter ended June 30, 1997 to $18,260,000, reflecting the closing of the
standard distribution business, the sale of the Company's Asian subsidiaries and
the sale of the assets of CMS Enhancements, Inc. Revenue for the current quarter
of $18,260,000 included the sale of approximately $5,000,000 of the IBM Risc
product inventory at either low margin or cumulative discount of $730,000 for
cash prepayment.
11
<PAGE> 12
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998 (CONTINUED)
Cost of sales increased to 89.3% of sales for the quarter ended June 30, 1998
compared to 85.0% of sales in the same quarter for the prior year primarily as a
result of the favorable liquidation of inventory that occurred in the year ago
quarter from the closing of the the standard and export distribution businesses.
Gross profit performance for the current quarter was maintained at above single
digit margins (10.7%), despite the sale of IBM Risc inventory at either low
margin or cumulative discount of $730,000 for cash prepayment. This was due to
release of inventory loss reserves of $732,000 that had been set aside for that
specific purpose.
Selling, general and administrative expenses of $1,516,000 decreased by
$7,123,000 for the quarter ended June 30, 1998 compared to the expenditure of
$8,639,000 for the same quarter of the prior year, primarily as a result of the
closing of the standard and export distribution businesses, the sale of the
Company's Asian subsidiaries and the sale of the assets of CMS Enhancements,
Inc. Additionally, the Company achieved net bad debt recoveries of $53,000
during the quarter, thereby reducing total expenditures.
Depreciation and amortization of $79,000 for the quarter ended June 30, 1998
decreased from $576,000 in the quarter ended June 30, 1997 primarily as a result
of sale or disposal of assets related to the standard and export distribution
businesses, the Company's Asian subsidiaries and the assets of CMS Enhancements,
Inc.
Net interest expense of $303,000 in the quarter ended June 30, 1998 compares to
$576,000 for the quarter ended June 30, 1997. The reduction is primarily as a
result of repayment of $30 million in bank debt by the Company, from proceeds
derived from the sale of 300,000 shares of the Company's Series H Cumulative
Convertible Preferred Stock (the "Preferred Stock"), and the repayment of all
other outstanding bank debt by Computer 2000 AG, the guarantor of such debt.
Interest expense was high for the quarter compared to the previous two quarters
of the current fiscal year due to the delay in liquidation of the IBM Risc
inventory and the resultant delay in payment to IBMCC of the associated debt.
The debt carried a penalty of 6-1/2% over the prime rate for payment beyond
terms, a period that lasted from mid May to mid June.
No income tax expense was recorded against net operating profit at June 30, 1998
nor was an income tax benefit recorded on the net operating loss at June 30,
1997 as valuation allowances were provided, because it is not more likely than
not, as defined in SFAS 109, that deferred tax benefits will be realized through
operations. The valuation allowances recorded against deferred tax assets are
based on management's estimates related to the Company's ability to realize
these benefits. Appropriate adjustments will be made to the valuation allowances
if circumstances warrant in future periods. Such adjustments may have a
significant impact on the Company's financial statements.
The Company had net income of $62,000 for the quarter ended June 30, 1998
compared to a net loss of $4,666,000 for the quarter ended June 30, 1997.
Revenue for the current quarter of $18,260,000 included the sale of
approximately $5,000,000 of the IBM Risc product inventory at either low margin
or cumulative discount of $730,000 for cash prepayment. The low margin and cash
discount losses resulting from such sales were offset by release of inventory
loss reserves of $732,000 that had been set aside for that specific purpose.
Since the Company had non-recurring net interest expense of $303,000 and
achieved bad debt recoveries of $53,000 during the quarter, operating profit
without benefit of such recovery, or penalty from inventory liquidation, was
$310,000.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1998
Sales for the nine months ended June 30, 1998 declined by 76% from $199,640,000
for the nine months ended June 30, 1997 to $47,371,000, reflecting the closing
of the standard distribution business, the sale of the Company's Asian
subsidiaries and the sale of the assets of CMS Enhancements, Inc.
Cost of sales decreased to 89.8% of sales for the nine months ended June 30,
1998 compared to 92.6% of sales in the same nine months for the prior year
primarily as a result of the improved profit mix of the ASG business this year
compared to the prior fiscal year which included the lower gross margin standard
and export distribution businesses.
12
<PAGE> 13
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1998 (CONTINUED)
Selling, general and administrative expenses of $4,082,000 decreased by
$26,473,000 for the nine months ended June 30, 1998 compared to the expenditure
of $30,555,000 for the same nine months of the prior year, primarily as a result
of the closing of the standard and export distribution businesses, the sale of
the Company's Asian subsidiaries and the sale of the assets of CMS Enhancements,
Inc.
Depreciation and amortization of $241,000 for the nine months ended June 30,
1998 decreased from $2,216,000 in the nine months ended June 30, 1997 primarily
as a result of sale or disposal of assets related to the standard and export
distribution businesses, the Company's Asian subsidiaries and the assets of CMS
Enhancements, Inc.
Net interest expense of $248,000 in the nine months ended June 30, 1998 compares
to $3,054,000 for the nine months ended June 30, 1997. The reduction is
primarily as a result of repayment of $30 million in bank debt by the Company,
from proceeds derived from the sale of 300,000 shares of the Company's Series H
Cumulative Convertible Preferred Stock (the "Preferred Stock"), and the
repayment of all other outrstanding bank debt by Computer 2000 AG, the guarantor
of such debt, and because most of the payments under the lending arrangement
with IBM Credit Corporation were made before the end of the free financing
period of 75 days.
No income tax expense was recorded against net operating profit at June 30, 1998
nor was an income tax benefit recorded on the net operating loss at June 30,
1997 as valuation allowances were provided, because it is not more likely than
not, as defined in SFAS 109, that deferred tax benefits will be realized through
operations. The valuation allowances recorded against deferred tax assets are
based on management's estimates related to the Company's ability to realize
these benefits. Appropriate adjustments will be made to the valuation allowances
if circumstances warrant in future periods. Such adjustments may have a
significant impact on the Company's financial statements.
VARIABILITY OF QUARTERLY RESULTS
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis and expects these patterns to continue in
the future. Management believes that the factors influencing quarterly
variability include: (i) the overall growth and seasonal fluctuations in market
demand in the microcomputer industry; (ii) shifts in short-term demand for the
Company's products resulting, in part, from the introduction of new products or
updates of existing products; and (iii) the fact that virtually all sales in a
given quarter result from orders booked in that quarter. Due to the factors
noted above, as well as the fact that the Company participates in a highly
dynamic industry, the Company's revenues and earnings may be subject to material
volatility, particularly on a quarterly basis. In addition the decision to close
the standard distribution and export businesses could involve unforseeable
additional expenses and impede the prospects for ASG to obtain the additional
sales needed to achieve operating profitablity.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $2,710,000 in cash and had borrowed $4,657,000
against its existing lines of credit. The Company generated $7,587,000 of cash
from operating activities in the quarterly period ended June 30, 1998, primarily
due to liquidation of excess inventories related to the 2nd tier IBM Risc
business. The funds were utilized to partially retire the IBMCC borrowings. On
July 20, 1998, the Company utilized a capital infusion from C-2000 and its own
cash to pay in full the IBMCC debt.
On September 30, 1997, C-2000 paid the outstanding bank lines of credit which
totalled $27.7 million and converted the loans to a non-interest bearing
intercompany demand loan, and agreed to defer demand of payment through
September 30, 1998. IBMCC received a $5 million guarantee from C-2000 in support
of the Company's line of credit. C-2000 had also guaranteed certain amounts to
two of the Company's suppliers.
13
<PAGE> 14
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company also maintained an $8.5 million line of credit with IBMCC which was
secured by substantially all of the Company's assets. The line of credit was
scheduled to be reduced to $6.5 million on July 1, 1998, to $5 million on August
1, 1998 and to expire on September 30, 1998. Borrowings under the IBMCC line of
credit at June 30, 1998 totalled $4.7 million. The Company replaced its line of
credit from IBMCC with a three year $10,000,000 revolving credit facility from
Fleet Financial on July 20, 1998.
On July 20, 1998, Listen Group Partners, LLC, a group headed by AmeriQuest's
senior management, Alex Kramer (CEO) and Jon Jensen (CFO), completed an
agreement to acquire the 36,349,878 shares of AmeriQuest common stock owned by
Computer 2000. As part of the transaction, Computer 2000 has agreed to
contribute to the capital of AmeriQuest $27.7 million in intercompany debt
obligations and an additional $3 million in cash. In taking over majority
control of AmeriQuest from Computer 2000, AmeriQuest's management has obtained
the release of Computer 2000 and its affiliates from all guarantees of
AmeriQuest obligations.
Management believes that the capital infusion from C-2000 on July 20, 1998 and
the availability of credit from Fleet Financial Corporation will be adequate for
the Company to meet its financial obligations on a timely basis during fiscal
1998 and 1999.
VENDOR RELATIONS
The marketing and selling efforts of AmeriQuest concentrate on a limited number
of key manufacturers including Acer, American Power, Digi-board, Hewlett
Packard, IBM, Multitech, Okidata, Unisys, and Wyse. With this strategy the
company is able to maintain a superior level of solution or application
expertise on products from these manufacturers. Additionally, the Company
sources products from other vendors to complete solutions.
AmeriQuest, during the past year, has maintained both reseller and distribution
agreements with IBM for mid-range systems. IBM requires distributors of its
mid-range computer systems to meet certain minimum purchase requirements and to
make specific levels of resource commitment. Since it is not in Ameriquest's
best interests to continue to meet these requirements, the Company will withdraw
from IBM's mid range distribution program by August 31, 1998. However, the
Company will continue to distribute IBM's networking products and resell, rather
than distribute, IBM's mid-range systems.
AmeriQuest's initial contract with Hewlett Packard has been extended past its
expiration of March 1,1998. During the past year the Company has started to sell
the HP Netserver and Vectra product lines, but sales of these products have been
slow and have not increased as rapidly as desired. HP has recently informed the
Company that it will remain a partner but will be required to purchase products
from one of HP's larger fulfillment distributors after August 1998. Accordingly,
the Company has made the necessary arrangements to acquire HP products. This
arrangement affords greater product availability as well as a broader range of
products. In the short term, this agreement may impact product pricing and
marketing funding. However, the Company believes that there is a strong
possibility that product margins can be maintained or increased as a result of
better product availability, buying power, and purchasing arrangements.
The comments above contain forward-looking statements that involve a number of
risks and uncertainties. Among other factors that could cause actual operating
results to differ materially are general economic and business conditions, the
rate of growth in the computer industry, competitive factors and pricing
pressures, changes in product mix, inventory risks due to shifts in market
demand, and changes in agreements with manufacturers and master distributors
regarding the terms of product sales to the Company.
14
<PAGE> 15
AMERIQUEST TECHNOLOGIES, INC.
JUNE 30, 1998
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
Report dated July 2, 1998
Report dated July 16, 1998
(b) The following exhibits are filed with this report.
10.1 Loan and Security Agreement with Fleet Financial
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AmeriQuest Technologies, Inc.
August 6, 1998
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
August 6, 1998
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer and Secretary
15
<PAGE> 1
EXHIBIT 10.1
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AMERIQUEST TECHNOLOGIES, INC.
--------------------------------------------------
==================================================
LOAN AND SECURITY AGREEMENT
Dated: July 16, 1998
$10,000,000
==================================================
--------------------------------------------------
FLEET CAPITAL CORPORATION
--------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. CREDIT FACILITY.............................................1
1.1 Revolving Credit Loans.........................................1
1.2 Letters of Credit; LC Guaranties...............................2
SECTION 2. INTEREST, FEES AND CHARGES...................................2
2.1 Interest.......................................................2
2.2 Computation of Interest and Fees...............................5
2.3 Commitment Fee.................................................5
2.4 Unused Line Fee................................................5
2.5 Letter of Credit and LC Guaranty Fees..........................6
2.6 Collateral Management Fee......................................6
2.7 Audit and Appraisal Fees.......................................6
2.8 Reimbursement of Expenses......................................6
2.9 Bank Charges...................................................7
2.10 Indemnity re: LIBOR............................................7
SECTION 3. LOAN ADMINISTRATION..........................................8
3.1 Manner of Borrowing Revolving Credit Loans.....................8
3.2 Payments.......................................................9
3.3 Mandatory and Permissive Prepayments..........................10
3.4 Application of Payments and Collections.......................10
3.5 All Loans to Constitute One Obligation........................11
3.6 Loan Account..................................................11
3.7 Statements of Account.........................................11
SECTION 4. TERM AND TERMINATION........................................11
4.1 Term of Agreement.............................................11
4.2 Termination...................................................12
SECTION 5. SECURITY INTERESTS..........................................13
5.1 Security Interest in Collateral...............................13
5.2 Lien Perfection; Further Assurances...........................14
SECTION 6. COLLATERAL ADMINISTRATION...................................15
6.1 General.......................................................15
</TABLE>
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<TABLE>
<S> <C>
6.2 Administration of Accounts....................................16
6.3 Administration of Inventory...................................18
6.4 Administration of Equipment...................................19
6.5 Payment of Charges............................................19
SECTION 7. REPRESENTATIONS AND WARRANTIES.............................20
7.1 General Representations and Warranties........................20
7.2 Continuous Nature of Representations and Warranties...........27
7.3 Survival of Representations and Warranties....................28
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS......................28
8.1 Affirmative Covenants.........................................28
8.2 Negative Covenants............................................30
8.3 Specific Financial Covenants..................................34
SECTION 9. CONDITIONS PRECEDENT........................................34
9.1 Documentation.................................................34
9.2 No Default....................................................36
9.3 Other Loan Documents..........................................36
9.4 Availability..................................................36
9.5 No Litigation.................................................36
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT................................................................37
10.1 Events of Default.............................................37
10.2 Acceleration of the Obligations...............................40
10.3 Other Remedies................................................40
10.4 Remedies Cumulative; No Waiver................................42
SECTION 11. MISCELLANEOUS.............................................42
11.1 Power of Attorney.............................................42
11.2 Indemnity.....................................................43
11.3 Modification of Agreement; Sale of Interest...................44
11.4 Severability..................................................44
11.5 Successors and Assigns........................................45
11.6 Cumulative Effect; Conflict of Terms..........................45
11.7 Execution in Counterparts.....................................45
11.8 Notice........................................................45
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
11.9 Lender's Consent..........................................46
11.10 Credit Inquiries..........................................46
11.11 Time of Essence...........................................46
11.12 Entire Agreement..........................................46
11.13 Interpretation............................................47
11.14 GOVERNING LAW; CONSENT TO FORUM...........................47
11.15 WAIVERS BY BORROWER.......................................48
</TABLE>
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<PAGE> 5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 16th day of July, 1998, by
and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island corporation
with an office at 200 Glastonbury Boulevard, Glastonbury, CT 06033 and
AMERIQUEST TECHNOLOGIES, INC., a Delaware corporation ("Borrower"), with its
chief executive office at 425 Privet Road, Horsham, Pennsylvania 19044
Capitalized terms used in this Agreement have the meanings assigned to them
in Appendix A, General Definitions. Accounting terms not otherwise specifically
defined herein shall be construed in accordance with GAAP, consistently applied.
SECTION 1. 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, Lender agrees to make a Total Credit Facility of up to $10,000,000.00
available upon Borrower's request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long as no
Default or Event of Default exists, to make Revolving Credit Loans to Borrower
from time to time, as requested by Borrower in the manner set forth in
subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time minus reserves, if any,
which shall be repayable in accordance with the terms of the Revolving Credit
Note. If the unpaid balance of the Revolving Credit Loans should exceed the
Borrowing Base or any other limitation set forth in this Agreement, such
Revolving Credit Loans shall nevertheless constitute Obligations that are due
and payable on demand, secured by the Collateral and entitled to all benefits
thereof. Lender has the right to establish reserves, in such amounts and with
respect to such matters, as Lender deems necessary or appropriate, in its
reasonable discretion.
1.1.2 Use of Proceeds. The Revolving Credit Loans shall be
used solely for (i) payment of costs associated with the transactions hereby
contemplated; and (ii) Borrower's general operating capital needs, in a manner
consistent with the provisions of this Agreement and all applicable laws.
1.2 Letters of Credit; LC Guaranties. Lender agrees, for so long as no
Default or Event of Default exists and if requested by Borrower, to (i) issue
its, or cause to be issued by its Affiliate, Letters of Credit for the account
of Borrower or (ii) execute LC Guaranties by which Lender or its Affiliate shall
guaranty the payment or performance by Borrower of its reimbursement obligations
with respect to Letters of Credit and letters of credit issued for Borrower's
account by other Persons in support of Borrower's obligations (other than
obligations for the repayment of Money Borrowed), provided that the LC Amount at
any time shall not exceed the LC Cap. No Letter of Credit or LC
<PAGE> 6
Guaranty may have an expiration date that is more than 365 days after the date
of issuance. In addition, no Letter of Credit or LC Guaranty may have an
expiration date that is after the Revolving Credit Maturity Date. Any amounts
paid by Lender under any LC Guaranty or in connection with any Letter of Credit
shall be treated as Revolving Credit Loans, 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 Revolving Credit Loans.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Revolving Credit Interest:
(a) Rate Options. At the time of each Revolving Credit
Loan under the Total Credit Facility, and thereafter from time to time, Borrower
shall have the right, subject to the terms and conditions of this Agreement, and
provided no Default or Event of Default has occurred and is continuing, to
designate to Lender in writing that all, or a portion of the Revolving Credit
Loans shall bear interest at either the (i) Revolving Credit LIBOR Rate or (ii)
Revolving Credit Base Rate. Interest on each portion thereof shall accrue and be
paid at the time and rate applicable to the respective option selected by
Borrower or otherwise governing under the terms of this Agreement. If for any
reason the Revolving Credit LIBOR Rate option is unavailable, the Revolving
Credit Base Rate shall apply. The rate of interest on Revolving Credit Base Rate
Loans 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.
(i) Revolving Credit LIBOR Rate Option:
(A) Requests. Provided no Default or
Event of Default has occurred and is continuing, and subject to the provisions
of this Section 2.1.1 (a)(i), if Borrower desires to have the Revolving Credit
LIBOR Rate apply to all or a portion of the Revolving Credit Loans, Borrower
shall give Lender a written irrevocable request no later than 11:00 A.M. Eastern
time on the second (2nd) Business Day prior to the requested borrowing date
specifying (i) the date the Revolving Credit LIBOR Rate shall apply (which shall
be a Business Day), (ii) the LIBOR Interest Period, and (iii) the amount to be
subject to the Revolving Credit LIBOR Rate provided that such amount shall be an
integral multiple of Five Hundred Thousand Dollars ($500,000.00). In no event
may Borrower have outstanding at any time more than five (5) tranches of
Revolving Credit Libor Rate Loans.
(B) LIBOR Interest Periods. Revolving
Credit LIBOR Rate Loans shall be selected by Borrower for a LIBOR Interest
Period during which the Revolving Credit LIBOR Rate is applicable; provided,
however, that if the LIBOR Interest Period would otherwise end on a day which
shall not be a London Business Day, such LIBOR Interest Period shall be extended
to the next preceding or succeeding London Business Day as is the Bank's custom
in the
2
<PAGE> 7
market to which such Revolving Credit LIBOR Rate Loan relates. All accrued and
unpaid interest on a Revolving Credit LIBOR Rate Loan shall be paid monthly in
accordance with Section 3.2.2. No LIBOR Interest Period with respect to the
Revolving Credit may end after the Revolving Credit Maturity Date. Subject to
all of the terms and conditions applicable to a request to convert all or a
portion of the Revolving Credit Loans to a Revolving Credit LIBOR Rate Loan,
Borrower may extend a Revolving Credit LIBOR Rate Loan as of the last day of the
LIBOR Interest Period to either a new Revolving Credit LIBOR Rate Loan or a
Revolving Credit Base Rate Loan. If Borrower fails to notify Lender of the LIBOR
Interest Period for a subsequent Revolving Credit LIBOR Rate Loan at least two
(2) Business Days prior to the last day of the then current LIBOR Interest
Period of an outstanding Revolving Credit LIBOR Rate Loan, then such outstanding
Revolving Credit LIBOR Rate Loan shall, at the end of the applicable LIBOR
Interest Period, become a Revolving Credit Base Rate Loan and accrue interest at
the Revolving Credit Base Rate.
(C) Adjustments. The Adjusted LIBOR Rate
may be automatically adjusted by Lender on a prospective basis to take into
account the additional or increased cost of maintaining any necessary reserves
for Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable LIBOR Interest Period, including but not
limited to changes in tax laws (except changes of general applicability in
corporate income tax laws) and changes in the reserve requirements imposed by
the Board of Governors of the Federal Reserve System (or any successor or other
applicable governing body), excluding the Reserve Percentage and any Reserve
which has resulted in a payment pursuant to Section 2.10 below, that increase
the cost to Lender of funding the Revolving Credit LIBOR Rate Loan. Lender shall
promptly give Borrower notice of such a determination and adjustment, which
determination shall be prima facie evidence of the correctness of the fact and
the amount of such adjustment.
(D) Unavailability. If Borrower shall
have requested the rate based on the Adjusted LIBOR Rate in accordance with this
Section 2.1.1(a)(i) and Lender shall have determined that Eurodollar deposits
equal to the amount of the principal of the requested Revolving Credit LIBOR
Rate Loan and for the LIBOR Interest Period specified are unavailable, or that
the rate based on the Adjusted LIBOR Rate will not adequately and fairly reflect
the cost of the Adjusted LIBOR Rate applicable to the specified LIBOR Interest
Period, of making or maintaining the principal amount of the requested Revolving
Credit LIBOR Rate Loan during the LIBOR Interest Period specified, or that by
reason of circumstances affecting Eurodollar markets, adequate means do not
exist for ascertaining the rate based on the Adjusted LIBOR Rate applicable to
the specified LIBOR Interest Period, Lender shall promptly give notice of such
determination to Borrower that the rate based on the Adjusted LIBOR Rate is not
available. A determination by Lender hereunder shall be prima facie evidence of
the correctness of the fact and amount of such additional costs or
unavailability. Upon such a determination, (i) the obligation to convert to, or
maintain a Revolving Credit LIBOR Rate Loan at the rate based on the Adjusted
LIBOR Rate shall be suspended until Lender shall have notified Borrower that
such conditions shall have ceased to exist, and (ii) the portion of the
Revolving Credit Loans subject to the request or requested conversion shall
accrue interest at the Revolving Credit Base Rate.
3
<PAGE> 8
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 Revolving Credit Loans shall bear interest at a rate per annum equal to
200 basis points 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 the Note and charged or
collected pursuant to the terms of this Agreement or pursuant to the 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 the Note are in contravention of any such law,
the rate hereunder shall automatically be reduced to the maximum rate permitted
by applicable law, and Lender shall, in its discretion, to the extent permitted
by applicable law, apply such excess to the principal balance of the Revolving
Credit Loans or refund such excess to Borrower, and such provisions shall be
deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest and collection charges
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 Lender shall be deemed applied by
Lender on account of the Obligations (subject to final payment of such items) on
the second Business Day after receipt by Lender of fully collected funds from
the Dominion Account.
2.3 Commitment Fee. Borrowers shall pay to Lender on or prior to the
Closing Date, a commitment fee of $100,000. Fifty Thousand Dollars of such fee
has been paid and is deemed fully earned and non-refundable, the balance of such
fee is payable, and is deemed fully earned and nonrefundable, on the Closing
Date.
2.4 Unused Line Fee. Borrower shall pay to Lender a fee equal to one half
of one percent (0.5%) per annum of the average monthly amount by which
$10,000,000 exceeds the sum of the (i) outstanding principal balance of the
Revolving Credit Loans and (ii) LC Amount. The unused line fee shall be payable
monthly in arrears on the first day of each calendar month hereafter commencing
August 1, 1998.
2.5 Letter of Credit and LC Guaranty Fees. Borrower shall pay to Lender for
Letters of Credit and LC Guaranties of letters of credit, a fee equal to 2.0%
per annum of the aggregate face amount of such Letters of Credit and LC
Guaranties outstanding from time to time during the term of this Agreement,
which fee shall be due and payable on the first day of each month. Borrower
shall also pay all normal and customary fees and charges associated with the
issuance, amendment, modification, renewal, transfer or termination thereof,
which fees and charges shall be deemed fully earned and shall be payable upon
issuance, amendment, modification, renewal, transfer or termination of each such
Letter of Credit or LC Guaranty, and shall not be subject to rebate or proration
upon the termination of this Agreement for any reason.
4
<PAGE> 9
2.6 Collateral Management Fee. Borrower shall pay to Lender a $10,000
annual collateral management fee ("Collateral Management Fee") which fee shall
be fully earned, non-refundable, and payable quarterly in advance, commencing on
the Closing Date (on a prorated basis from the Closing Date through September
30, 1998) and on the first day of each October, January, April and July
thereafter.
2.7 Audit and Appraisal Fees. Borrower shall pay to Lender audit and
appraisal fees in accordance with Lender's current schedule of fees in effect
from time to time in connection with Lender's audits and appraisals of
Borrower's books and records and such other matters as Lender shall deem
appropriate, plus all out-of-pocket expenses incurred by Lender in connection
with such audits and appraisals; provided that, so long as no Event of Default
has occurred, all such audit and appraisal fees incurred during any 12 month
period after the Closing Date shall be limited to, and included within, the
Collateral Management Fee; provided further that after an Event of Default and
during the continuation thereof, such audit and appraisal fees for any 12 month
period after the Closing Date shall be unlimited. Audit and appraisal fees shall
be payable on the first day of the month following the date of issuance by
Lender of a request for payment thereof to Borrower; provided, however, that
such fees shall not be due upon less than 15 days notice.
2.8 Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender or any Participating
Lender incurs legal or accounting expenses or any other costs or out-of-pocket
expenses in connection with (i) the analysis, negotiation and preparation of
this Agreement or any of the other Loan Documents, any amendment of or
modification of this Agreement or any of the other Loan Documents (whether or
not consummated); (ii) the administration of this Agreement or any of the other
Loan Documents and the transactions contemplated hereby and thereby; (iii) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the other Loan Documents or Borrower's affairs; (iv)
any attempt to enforce any rights of Lender against Borrower or any other Person
which may be obligated to Lender by virtue of this Agreement or any of the other
Loan Documents, including, without limitation, the Account Debtors; or (v) 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 and other reasonable costs and out of pocket
expenses of Lender shall be charged to Borrower. All amounts chargeable to
Borrower under this Section 2.8 shall be Obligations secured by all of the
Collateral, shall be payable on demand to Lender and shall bear interest from
the date such demand is made until paid in full at the highest rate then
applicable to Revolving Credit Loans from time to time. Borrower shall also
reimburse Lender for expenses incurred by Lender in its administration of the
Collateral to the extent and in the manner provided in Section 6 hereof.
2.9 Bank Charges. Borrower shall pay to Lender, on demand, any and all
fees, costs or expenses which Lender pays to a bank or other similar institution
(including, without limitation, any fees paid by Lender to any Participating
Lender) arising out of or in connection with (i) the forwarding to Borrower or
any other Person on behalf of Borrower, by Lender of proceeds of
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Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement and
(ii) the depositing for collection, by Lender of any check or item of payment
received or delivered to Lender on account of the Obligations.
2.10 Indemnity re: LIBOR. Borrower hereby indemnifies Lender and holds
Lender harmless from and against any and all losses or expenses that Lender may
sustain or incur as a consequence of any prepayment or any Default by Borrower
in the payment of the principal of or interest on any LIBOR Rate Loan or failure
by Borrower to complete a borrowing of, a prepayment of or conversion of or to a
LIBOR Rate Loan after notice thereof has been given by Borrower, including (but
not limited to) any interest payable by Lender to lenders of funds obtained by
it in order to make or maintain its LIBOR Rate Loans hereunder, and any other
loss or expense incurred by Lender by reason of the liquidation or reemployment
of deposits or other funds acquired by Lender to make, continue, convert into or
maintain, a LIBOR Rate Loan.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the Credit
Facility established pursuant to Section 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: (i) Borrower
may give Lender notice of the intention to borrow, in which notice Borrower
shall specify the amount of the proposed borrowing and the proposed borrowing
date (which shall be a Business Day), no later than 1:00 P.M. Eastern time on
the proposed borrowing date or, with respect to a Revolving Credit LIBOR Rate
Loan, no later than 11:00 A.M. Eastern time two Business Days prior to the
proposed borrowing date, provided, however, that no such request may be made at
a time when there exists a Default or an Event of Default; and (ii) the becoming
due of any amount required to be paid under this Agreement, whether as interest
or for any other Obligation, shall be deemed irrevocably to be a request for a
Revolving Credit Base Rate Loan on the due date in the amount required to pay
such interest or other Obligation. As an accommodation to Borrower, Lender may
permit telephonic requests for Revolving Credit Loans and electronic transmittal
of instructions, authorizations, agreements or reports to Lender by Borrower.
Lender shall have no liability to Borrower for any loss or damage suffered by
Borrower as a result of Lender's honoring, in good faith, 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 Lender by Borrower and Lender shall have no duty to verify the
origin of any such communication or the authority of the person sending it.
3.1.2 Disbursement. Borrower hereby irrevocably authorizes Lender
to disburse the proceeds of each Revolving Credit Loan requested, or deemed to
be requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of
each Revolving Credit Loan requested under subsection 3.1.1(i) shall be
disbursed by Lender 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
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the written disbursement letter from Borrower, and in the case of each
subsequent borrowing, by wire transfer to such bank account as may be agreed
upon by Borrower and Lender from time to time or elsewhere if pursuant to a
written direction from Borrower; and (ii) the proceeds of each Revolving Credit
Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by way of
direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably authorizes
Lender, in Lender's sole discretion, to advance to Borrower, and to charge to
Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum sufficient
to pay 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
Lender hereunder.
3.1.4 Borrowing Base Certificates. Borrower shall give Lender a
Borrowing Base Certificate and supporting documentation as requested by Lender
but no less frequently than on a weekly basis.
3.2 Payments. Except where evidenced by notes or other instruments issued
or made by Borrower to 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 payable by Borrower to Lender immediately upon the earliest of
(i) the receipt by Lender or Borrower of any proceeds of any of the Collateral,
to the extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of the
Obligations, or (iii) termination of this Agreement pursuant to Section 4
hereof; provided, however, that if an Overadvance shall exist at any time,
Borrower shall, on demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on the Loans 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 Lender elects
to accelerate the maturity and payment of the Obligations or (iii) 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 shall be payable by Borrower as and when provided in
Section 2 hereof, to Lender or to any other Person designated by Lender in
writing.
3.2.4 Other Obligations. The balance of the Obligations, (other
than those set forth in this Section 3.2) requiring the payment of money shall
be payable by Borrower to Lender as and when provided in this Agreement, the
Note, the Other Agreements or the Security Documents, or on demand, whichever is
later.
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3.3 Mandatory and Permissive Prepayments.
3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of
Collateral. Except as provided in subsection 6.4.2 hereof, if Borrower sells any
Equipment, or if any of the Collateral is lost or destroyed or taken by
condemnation, Borrower shall pay to Lender, unless otherwise agreed by Lender,
as and when received by Borrower, a sum equal to the proceeds (including
insurance payments) received by Borrower from such sale, loss, destruction or
condemnation. Any such prepayment shall be applied to the Revolving Credit
Loans.
3.3.2 LIBOR Rate Loans. No portion of the Revolving Credit LIBOR
Rate Loans may be prepaid during a LIBOR Interest Period unless Borrower first
satisfies in full its obligations under Section 2.10 arising from such
prepayment.
3.4 Application of Payments and Collections. Subject to subsection 2.2 of
this Agreement, all items of payment received by Lender by 12:00 Noon Eastern
time, on any Business Day shall be deemed received on that Business Day. All
items of payment received after 12:00 Noon Eastern time, on any Business Day
shall be deemed received on the following Business Day. Until payment in full of
all Obligations and termination of this Agreement, Borrower irrevocably waives
(except as otherwise expressly provided for by Lender) the right to direct the
application of any and all payments and collections at any time or times
hereafter received by Lender from or on behalf of Borrower, and Borrower does
hereby irrevocably agree that Lender 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 Lender or its agent against the Obligations, in such
manner as Lender may deem advisable, notwithstanding any entry by Lender upon
any of its books and records; provided that if no Event of Default has occurred
and is continuing and, after payment of all outstanding interest, Borrower shall
direct Lender as to whether payments should be applied to a LIBOR Rate Loan or
Base Rate Loan and, in the absence of directions, payment shall be applied to
Base Rate Loans. If, as a result of collections of Accounts as authorized by
subsection 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
remitted to Borrower within one Business Day for so long as no Default or Event
of Default exists. Lender may, at its option, offset such credit balance against
any of the Obligations upon and after the occurrence of an Event of Default.
3.5 All Loans to Constitute One Obligation. The Revolving Credit Loans,
Letters of Credit and LC Guaranties shall constitute one general Obligation of
Borrower, and shall be secured by Lender's Lien upon all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
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3.7 Statements of Account. Lender will account to Borrower monthly with a
statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to the contrary
within 10 Business Days of the date each accounting is mailed to Borrower. Such
notice shall only be deemed an objection to those items specifically objected to
therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making Revolving
Credit Loans to Borrower or issuing or procuring Letters of Credit or LC
Guaranties, upon or after the occurrence, and during the continuance, of any
Default or Event of Default, this Agreement shall be in effect for a period of
three (3) years from the date hereof, through and including July 15, 2001 (the
"Original Term") and this Agreement shall automatically renew itself for
one-year periods thereafter (the "Renewal Terms") unless terminated as provided
in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 days prior written
notice to Borrower, Lender may terminate this Agreement as of the last day of
the Original Term or the then current Renewal Term and Lender may terminate this
Agreement without notice upon or after the occurrence, and during the
continuance, of an Event of Default.
4.2.2 Termination by Borrower. Upon at least 90 days prior written
notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower has
paid all of the Obligations in immediately available funds and all Letters of
Credit and LC Guaranties have expired or have been cash collateralized to
Lender's satisfaction. Any notice of termination given by Borrower shall be
irrevocable unless Lender otherwise agrees in writing, and Lender shall have no
obligation to make any Revolving Credit Loans or issue or procure any Letter of
Credit or LC Guaranty 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 Termination Charges. At the effective date of termination of
this Agreement for any reason (other than a termination under Section 4.2.1),
Borrower shall pay to Lender (in addition to the then outstanding principal,
accrued interest and other charges owing under the terms of this Agreement and
any of the other Loan Documents) as liquidated damages for the loss of the
bargain and not as a penalty, an amount equal to the product of (a) the sum of
the prior 12 months average aggregate outstanding principal balance of the
Revolving Credit Loans plus the LC Amount (or, if terminated in the first 12
months, the sum of the average aggregate outstanding principal balance of the
Revolving Credit Loans plus the LC Amount during the period for which the
Revolving Credit Loans and LC Amounts were outstanding) times (b) 3% if
termination occurs
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during the first twelve-month period of the Original Term; 2% if termination
occurs during the second 12-month period of the Original Term; and 0% if
termination occurs any time thereafter.
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 and, upon such date, all Letters of Credit and LC
Guaranties shall have expired or been cash collateralized to Lender's
satisfaction. All indemnities, undertakings, agreements, covenants, warranties
and representations of Borrower contained in the Loan Documents shall survive
any such termination and Lender shall retain its Liens in the Collateral and all
of its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable liquidated damages
charge under Section 4.2.3, if any. Notwithstanding the payment in full of the
Obligations, Lender shall not be required to terminate its security interests in
the Collateral unless, with respect to any loss or damage Lender may incur as a
result of dishonored checks or other items of payment received by Lender from
Borrower or any Account Debtor and applied to the Obligations, one of the
following options shall have been taken (the choice of option to be determined
by Lender in its sole discretion): (i) Lender shall 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 Lender from any such loss or damage; or (ii) Lender shall have
retained such monetary reserves for such period of time as Lender, in its
reasonable discretion, may deem necessary to protect Lender from any such loss
or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing first Lien upon all of Borrower's assets, including all of the
following Property and interests in Property of Borrower, whether now owned or
existing or hereafter created, acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) Fixtures;
(vi) Deposit Accounts;
(vii) Investment Property;
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(viii) Chattel Paper;
(ix) Instruments;
(x) Documents;
(xi) All monies and other Property of any kind now or at any time
or times hereafter in the possession or under the control of Lender or a
bailee or Affiliate of Lender;
(xii) 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 (i)
through (xi) above; and
(xiii) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (i) through (xii) above,
including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral.
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 Lender's Lien upon any of
the Collateral and shall take such other action as may be required by applicable
law to perfect or to continue the perfection of Lender's Lien upon the
Collateral. Unless prohibited by applicable law, Borrower hereby authorizes
Lender 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 Lender's request, Borrower shall also
promptly execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents (including, without
limitation, original vehicle titles and Chattel Paper).
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 at one or
more of the business locations set forth in Exhibit 6.1.1 hereto and shall not,
without the prior written approval of Lender, be moved therefrom except, prior
to an Event of Default for (i) sales of Inventory in the ordinary course of
business; and (ii) removals in connection with dispositions of Equipment that
are authorized by subsection 6.4.2 hereof. Borrower shall cause the owner of
each business location set forth in Exhibit 6.1.1 to execute and deliver to
Lender a landlord waiver, in form and substance satisfactory to Lender.
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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, flood and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Lender. Borrower shall deliver the originals of such policies to
Lender with satisfactory lender's loss payable endorsements, naming Lender as
lender 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 Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender 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, Lender may, at its option,
but shall not be required to, procure the same and charge Borrower therefor.
Borrower agrees to deliver to Lender, 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, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower therefor. Lender 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 Lender's actual possession) or for any
diminution in the value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, 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 and all payments and
collections thereon and shall submit to Lender on such periodic basis as Lender
shall request a sales and collections report for the preceding period, in form
satisfactory to Lender. On or before the fifteenth day of each month from and
after the date hereof, Borrower shall deliver to Lender, in form acceptable to
Lender, a detailed aged trial balance of all Accounts existing as of the last
day of the preceding month, 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 Lender'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 Lender shall reasonably request. In
addition, if Accounts in an aggregate face amount in excess of $250,000 become
newly ineligible because they fall within one of the specified categories of
ineligibility set forth in the definition of Eligible Accounts or otherwise
established by Lender, Borrower shall notify Lender of such occurrence no later
than the sixth Business Day following such occurrence and the Borrowing Base
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shall thereupon be adjusted to reflect such occurrence. Borrower shall, if
requested by Lender, execute and deliver to Lender formal written assignments of
all of its Accounts from time to time, 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 Lender 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 Lender with
written notice thereof no later than the sixth Business Day following Borrower's
knowledge thereof, explaining in detail the reason for the dispute, all claims
related thereto and the amount in controversy. Upon the occurrence of an Event
of Default (and during the continuation thereof), Lender shall have the right to
settle or adjust all disputes and claims directly with the Account Debtor and to
compromise the amount or extend the time for payment of the Accounts upon such
terms and conditions as Lender may deem advisable, and to 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, Lender is authorized (without any
obligation or duty on Lender's part), 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 Lender 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 Lender's officers, employees or agents shall
have the right, at any time or times hereafter, in the name of Lender, any
designee of Lender 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 Lender in an effort to facilitate and
promptly conclude any such verification process.
6.2.5 Maintenance of Lockbox and Dominion Account. Borrower has
established a lockbox account with First Union National Bank into which Account
Debtors have been directed to send proceeds of Accounts. Borrower shall not
amend, revise or terminate its existing lockbox arrangements without Lender's
prior written consent. In addition, Borrower shall maintain a Dominion Account,
acceptable to Lender with such banks as may be selected by Borrower and be
acceptable to Lender. Borrower shall issue to any such banks (including, without
limitation, First Union National Bank) an irrevocable letter of instruction
directing such banks to transfer all funds received in the Dominion Account to
Lender for application on account of the Obligations. All funds deposited in the
lockbox and/or Dominion Account shall immediately become the property of Lender
and Borrower shall obtain the agreement by such banks in favor of Lender to
waive any offset rights against the funds so deposited. Lender assumes no
responsibility for such arrangement,
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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, through commercially reasonable efforts, in
the first instance to make collection of its Accounts. All remittances received
by Borrower on account of Accounts, together with the proceeds of any other
Collateral, shall be held as Lender's property by Borrower as trustee of an
express trust for Lender's benefit and Borrower shall immediately deposit same
in kind in the Dominion Account. Lender retains the right at all times after an
Event of Default (and during the continuation thereof) to notify Account Debtors
that Accounts have been assigned to Lender and to collect Accounts directly in
its own name and to charge the collection costs and expenses, including
attorneys' fees to Borrower. Lender has no duty to protect, insure, collect or
realize upon the Accounts or preserve rights therein. To the extent within
Lender's control, Borrower shall have direct electronic access to account
information to verify at all times transactions in the Dominion Account.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall keep
accurate and complete records of its Inventory. Borrower shall furnish to Lender
Inventory reports in form and detail satisfactory to Lender at such times as
Lender may request, but at least once each month, not later than the 15th day of
each month as of the last day of the prior month. Borrower shall conduct a
physical inventory no less frequently than annually and shall provide to Lender,
a report based on each such physical inventory promptly thereafter, together
with such supporting information as Lender 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 $100,000.00,
Borrower shall immediately notify Lender of the same, specifying the reason for
such return and the location, condition and intended disposition of the returned
Inventory.
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 and all dispositions made in accordance with subsection
6.4.2 hereof, and shall furnish Lender with a current schedule containing the
foregoing information on at least an annual basis and more often if requested by
Lender. Immediately on request therefor by Lender, Borrower shall deliver to
Lender any and all evidence of ownership of the Equipment.
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 Lender;
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provided, however, that the foregoing restriction shall not apply, for so long
as no Default or Event of Default exists, to dispositions in any of the
following categories: (i) dispositions of Equipment which, in the aggregate
during any consecutive twelve-month period, have a fair market value or book
value, whichever is less, of $100,000 or less; (ii) dispositions of Equipment,
which in the aggregate during any twelve-month period, have a fair market value
or book value, whichever is less, of more than $100,000; provided that all such
proceeds (cash and non-cash) are remitted to Lender for application to the
Revolving Credit Loans; or (iii) replacements of Equipment with Equipment of
equal or greater value (as determined by Lender), provided that the replacement
Equipment shall be acquired prior to or within thirty (30) days after 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, unless the Equipment being replaced was previously subject
to a Purchase Money Lien) and Borrower shall have given Lender 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 highest rate applicable to Revolving Credit Loans from time to
time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter into
this Agreement and to make advances hereunder, Borrower warrants, represents and
covenants to Lender that:
7.1.1 Organization and Qualification. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is duly qualified and is authorized
to do business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Exhibit 7.1.1 hereto and in all other states and
jurisdictions where the character of its Properties or the nature of its
activities make such qualification necessary or in which the failure of Borrower
to be so qualified could have a material adverse effect on the financial
condition, business or Properties of Borrower.
7.1.2 Corporate Power and Authority. Borrower has full corporate
power and authority to enter into, 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 (i) require any consent or approval of the shareholders of Borrower; (ii)
contravene Borrower's charter, articles or certificate of incorporation or
by-laws; (iii) violate, or cause Borrower 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 Borrower; (iv) result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which Borrower is a
party or by which it or its Properties may
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be bound or affected; or (v) result in, or require, the creation or imposition
of any Lien upon or with respect to any of the Properties now owned or hereafter
acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each
of the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of Borrower enforceable against it in
accordance with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i) the
correct name of each of the Subsidiaries, if any, of Borrower, its jurisdiction
of incorporation and the percentage of its Voting Stock owned by Borrower, (ii)
the name of Borrower's corporate or joint venture Affiliates and the nature of
the affiliation, (iii) the number, nature and holder of all outstanding
Securities of Borrower and each Subsidiary of Borrower and (iv) 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 disclosed on Exhibit 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. Except as shown on Exhibit 7.1.4,
there are no outstanding agreements or instruments known to Borrower binding
upon any shareholder of Borrower's relating to the ownership of its shares of
capital stock.
7.1.5 Corporate Names. Neither Borrower nor any of its
Subsidiaries have been known as or used any corporate, fictitious or trade names
except those listed on Exhibit 7.1.5 hereto. Except as set forth on Exhibit
7.1.5, neither Borrower nor any of its Subsidiaries have 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 of Borrower's
and its Subsidiaries' chief executive office and other places of business are as
listed on Exhibit 6.1.1 hereto. During the preceding five-year period, neither
Borrower nor any of its Subsidiaries had an office, place of business or agent
for service of process other than as listed on Exhibit 6.1.1. Except as shown on
Exhibit 6.1.1, 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 of Borrower and
each of its Subsidiaries' has good, indefeasible and marketable title to and fee
simple ownership of, or valid and subsisting leasehold interests in, all of its
real Property, 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.
Borrower has paid or discharged, or reserved for, all lawful claims known to
Borrower which, if unpaid, might become a Lien against any Properties of
Borrower that is not a Permitted Lien. The Liens granted to Lender under Section
5 hereof are first priority Liens, subject only to Permitted Liens.
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<PAGE> 21
7.1.8 Accounts. Lender 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
Lender, with respect to each Account:
(i) It is genuine and in all respects what
it purports to be, and it is not evidenced by a judgment;
(ii) 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 substantial compliance 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;
(iii) 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 Lender;
(iv) Such Account, and Lender'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 the amount in
controversy is deemed by Lender to be immaterial, and each such Account
is absolutely owing to Borrower and is not contingent in any respect or
for any reason;
(v) Borrower has not 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 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 are reflected in the Schedules of Accounts submitted to
Lender pursuant to subsection 6.2.1 hereof;
(vi) There are no facts, events or occurrences
which in any way impair the validity or enforceability of any Accounts
or tend to reduce the amount payable thereunder from the face amount of
the invoice and statements delivered to Lender with respect thereto;
(vii) To the best of Borrower's knowledge, the
Account Debtor thereunder (1) had the capacity to contract at the time
any contract or other document giving rise to the Account was executed
and (2) is Solvent; and
(viii) To the best of Borrower's knowledge,
there are no proceedings or actions which are threatened or pending
against any Account Debtor thereunder which
17
<PAGE> 22
could result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account.
7.1.9 Equipment. The Equipment is in satisfactory operating
condition and repair, all necessary replacements of and repairs thereto shall be
made so that such condition shall be maintained and preserved, reasonable wear
and tear excepted. Borrower will not permit any material item of the Equipment
to become affixed to any real Property leased to such 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 and substance acceptable to
Lender, 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 Lender.
7.1.10 Financial Statements; Fiscal Year. The Consolidated balance
sheets of Borrower and such other Persons described therein (including the
accounts of all Subsidiaries, if any, of Borrower for the respective periods
during which a Subsidiary relationship existed) as of September 30, 1997 and the
related statements of income, changes in stockholder's equity, and changes in
financial position for the periods ended on such dates, have been prepared in
accordance with GAAP and present fairly the financial position of Borrower at
such date and the results of Borrower's operations for such period. Since
September 30, 1997, there has been no material change in the condition,
financial or otherwise, of Borrower and no change in the aggregate value of
Equipment and real Property owned by Borrower, except changes in the ordinary
course of business and the transactions contemplated hereby, none of which
individually or in the aggregate has been materially adverse. The fiscal year of
Borrower and each of its Subsidiaries ends on the Saturday closest to September
30 of each year ("Last Day of Fiscal Year").
7.1.11 Full Disclosure. The financial statements referred to in
subsection 7.1.10 hereof do not, nor does this Agreement or any other written
statement of Borrower to Lender, contain any untrue statement of a material fact
or omit a material fact necessary to make the statements contained therein or
herein not misleading. There is no fact known to Borrower which Borrower has
failed to disclose to Lender in writing which materially affects adversely or,
so far as Borrower can now foresee, will materially affect adversely the
Properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or the ability of Borrower to perform this Agreement or the other
Loan Documents.
7.1.12 Solvent Financial Condition. Borrower is now and, after
giving effect to the Loans to be made hereunder, at all times will be, Solvent.
7.1.13 Surety Obligations. Except as shown on Exhibit 7.1.13
hereto, neither Borrower nor any Subsidiary of Borrower is obligated as surety
or indemnitor under any surety or similar bond or other contract issued or
entered into or any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any Person.
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<PAGE> 23
7.1.14 Taxes. Borrower's and each Subsidiary of Borrower's federal
tax identification number is shown on Exhibit 7.1.14 hereto. Borrower and each
Subsidiary of Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and 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
thereof 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 Borrower and each Subsidiary of Borrower
are adequate for all years not closed by applicable statutes, and for its
current fiscal year.
7.1.15 Brokers. There are no claims against Borrower 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. Borrower and
each Subsidiary of Borrower 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, tradenames,
copyrights, licenses and other similar rights are shown on Exhibit 7.1.16
hereto. Exhibit 7.1.16 also identifies all such intellectual property rights
which are currently licensed to Borrower and the licensor thereof.
7.1.17 Governmental Consents. Borrower and each Subsidiary of
Borrower has, and is in good standing with respect to, all governmental
consents, approvals, licenses, authorizations, permits, certificates,
inspections and franchises necessary to continue to conduct its business as
heretofore or proposed to be conducted by it and to own or lease and operate its
Properties as now owned or leased by it.
7.1.18 Compliance with Laws. Borrower and each Subsidiary 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 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 Borrower or any
Subsidiary under any such law, rule or regulation except where such
noncompliance would not have a material and adverse effect on Borrower's
business, Property, financial condition or prospects. Borrower and each
Subsidiary of Borrower has established and maintains an adequate monitoring
system to ensure that it remains in compliance with all federal, state and local
laws, regulations and rules applicable to it. No Inventory has been produced in
violation of the Fair Labor Standards Act (29 U.S.C. Section 201 et seq.), as
amended.
7.1.19 Restrictions. Neither Borrower nor any Subsidiary of
Borrower 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 Borrower nor
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<PAGE> 24
any Subsidiary of Borrower is a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as shown
on Exhibit 7.1.19 hereto, none of which prohibit the execution of or compliance
with this Agreement or the other Loan Documents by Borrower or any Subsidiary of
Borrower, as applicable.
7.1.20 Litigation. Except as shown on Exhibit 7.1.20 hereto, there
are no actions, suits, proceedings or investigations pending, or to the
knowledge of Borrower or any Subsidiary of Borrower, threatened, against or
affecting Borrower or the business, operations, Properties, prospects, profits
or condition of Borrower or any Subsidiary of Borrower. Neither Borrower nor any
Subsidiary of Borrower 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
Borrower's performance hereunder, constitute a Default or an Event of Default.
Neither Borrower nor any Subsidiary of Borrower is in default, and 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. Exhibit 7.1.22(a) hereto shows all capitalized
leases of Borrower and each Subsidiary of Borrower and Exhibit 7.1.22(b) hereto
shows each operating lease of Borrower. Borrower and each Subsidiary of Borrower
is in full compliance with all of the terms of each of its respective
capitalized and operating leases except where such noncompliance would not have
a material and adverse effect on Borrower's business, Property, financial
condition or prospects.
7.1.23 Pension Plans. Except as shown on Exhibit 7.1.23 hereto,
neither Borrower nor any Subsidiary of Borrower has any Plan. Borrower and each
Subsidiary of Borrower is in full compliance in all material respects with the
requirements of ERISA and the regulations promulgated thereunder with respect to
each Plan. No fact or situation that could result in a material adverse change
in the financial condition of Borrower or any Subsidiary of Borrower exists in
connection with any Plan. Neither Borrower nor any Subsidiary of Borrower has
withdrawal liability in connection with a Multiemployer Plan.
7.1.24 Trade Relations. Except as shown on Exhibit 7.1.24 hereto,
there exists no actual or threatened termination, cancellation or limitation of,
or any modification or change in, the business relationship between Borrower or
any Subsidiary of Borrower and any customer or any group of customers whose
purchases individually or in the aggregate are material to the business of
Borrower or with any material supplier, and there exists no present condition or
state of facts or circumstances which would materially affect adversely Borrower
or any Subsidiary of Borrower or prevent Borrower or any Subsidiary of Borrower
from conducting such business after the consummation of the transactions
contemplated by this Agreement in substantially the same manner in which it has
heretofore been conducted.
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<PAGE> 25
7.1.25 Labor Relations. Except as shown on Exhibit 7.1.25 hereto,
neither Borrower nor any Subsidiary of Borrower 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
Subsidiary of Borrower's employees, or threats of strikes, work stoppages or any
asserted pending demands for collective bargaining by any union or organization.
7.1.26 Year 2000. Borrower has reviewed the areas within its
business and operations which could be adversely affected by, and has developed
or is developing a program to address on a timely basis the risk that certain
computer applications used by Borrower and its Subsidiaries (or any of their
material suppliers, customers or vendors) may be unable to effectively
interpret, process and manipulate data and recognize and perform properly
date-sensitive functions involving dates prior to, on and after December 31,
1999 (the "Year 2000 Problem"). The Year 2000 Problem will not result in any
material adverse effect on Borrower's business, property, financial condition or
prospects.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall, in all material respects,
remain accurate, complete and not misleading at all times during the term of
this Agreement, except for changes in the nature of Borrower's or any Subsidiary
of Borrower's business or operations that would render the information in any
exhibit attached hereto either materially inaccurate, incomplete or misleading,
so long as Lender has consented to such changes or such changes are expressly
permitted by this Agreement.
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 Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
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 Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of Lender,
from time to time, as often as may be reasonably requested, but only during
normal business hours, to visit and inspect the Properties of Borrower and any
Subsidiary of Borrower, 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 notify Lender in writing of the occurrence
of any Default or Event of Default or the occurrence of any event or the
existence of any fact which renders any
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<PAGE> 26
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete or misleading in any material respect. Such notice, in
each case, shall specify the nature of the occurrence or existence, and what
action Borrower is taking (or proposes to take), with respect thereto.
8.1.3 Financial Statements. Keep, and cause each Subsidiary of
Borrower to keep, adequate records and books of account with respect to its
business activities in which proper entries are made reflecting all its
financial transactions; and cause to be prepared and furnished to Lender the
following (all to be prepared on a consistent basis):
(i) not later than 120 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
and Consolidating (if applicable) basis, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower
but acceptable to Lender to have been prepared in accordance with GAAP
(except for a qualification for a change in accounting principles with
which the accountant concurs);
(ii) not later than 30 days after the end of each month
hereafter (except for fiscal quarter-end statements which will be delivered
no later than 45 days after the fiscal quarter-end), 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 and
Consolidating (if applicable) basis, certified by the principal financial
officer of Borrower as prepared on a basis consistent with Borrower's past
practices for preparing financial statements and fairly presenting the
Consolidated and Consolidating (if applicable) 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;
(iii) promptly after the sending or filing thereof, as
the case may be, copies of any proxy statements, financial statements or
reports which Borrower has sent to all of 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;
(iv) promptly after the filing thereof, copies of any
annual report to be filed under ERISA in connection with each Plan; and
(v) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing
upon or related to the Collateral or Borrower's financial condition or
results of operations.
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Concurrently with the delivery of the financial statements
described in clause (i) of this subsection 8.1.3, Borrower shall forward to
Lender a copy of the accountants' letter to Borrower's management that is
prepared in connection with such financial statements and also shall cause to be
prepared and shall furnish to Lender a certificate of the aforesaid certified
public accountants certifying to Lender 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 Lender, that they are aware that Lender is relying on
such financial statements in making its decision with respect to the Loans.
Concurrently with the delivery of the financial statements described in clauses
(i) and (ii) of this subsection 8.1.3, or more frequently if requested by
Lender, Borrower shall cause to be prepared and furnished to Lender a Compliance
Certificate in the form of Exhibit 8.1.3 hereto executed by the chief financial
officer of Borrower together with a work sheet reflecting all calculations made
in completing the Compliance Certificate.
8.1.4 Landlord and Storage Agreements. Provide Lender with copies
of all leases and other material written agreements between any Borrower and any
landlord or warehouseman which owns any premises at which any Inventory may,
from time to time, be kept.
8.1.5 Projections. No later than 30 days prior to the end of each
of Borrower's fiscal years, deliver to Lender Projections of Borrower for the
forthcoming fiscal year, month by month.
8.1.6 Year 2000. Take all action necessary to assure that at all
times the computer-based systems utilized by Borrower and its Subsidiaries are
able to effectively interpret, process and manipulate dates, including dates
before, on and after December 31, 1999. At Lender's request, Borrower shall
provide to Lender assurance reasonably satisfactory to Lender that the
computer-based systems utilized by Borrower and its Subsidiaries are able to
recognize and perform without error functions involving dates before, on and
after December 31, 1999.
8.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that,
unless Lender has first consented thereto in writing, it will not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate,
or permit any Subsidiary of Borrower to merge or consolidate, with any Person;
acquire, or permit any Subsidiary of Borrower to acquire, all or any substantial
part of the Properties of any Person; or create, or permit any Subsidiary of
Borrower to create, any other Subsidiary.
8.2.2 Loans. Make, or permit any Subsidiary of Borrower to make,
any loans or other advances of money to any Person other than loans to employees
not in excess of $100,000 in the aggregate outstanding at any one time.
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8.2.3 Total Indebtedness. Create, incur, assume, or suffer to
exist, or permit any Subsidiary of Borrower to create, incur, assume, or suffer
to exist, any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Indebtedness of any Subsidiary of
Borrower to Borrower;
(iii) accounts payable to trade creditors
and current operating expenses (other than for Money Borrowed) which
are not aged 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 shall have set aside
such reserves, if any, with respect thereto as are required by GAAP and
deemed adequate by such Borrower and its independent accountants;
(iv) Obligations to pay Rentals permitted by
subsection 8.2.13 and Capitalized Lease Obligations permitted under
subsection 8.2.8;
(v) taxes not yet due or being contested
in the manner described in subsection 7.1.14 hereto; and
(vi) Permitted Purchase Money
Indebtedness; and
(vii) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business.
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 in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Lender
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
any Subsidiary of Borrower.
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:
(i) Liens at any time granted in favor
of Lender;
(ii) 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 subsection 7.1.14 hereto,
but only if in Lender's judgment such Lien does not adversely affect
Lender's rights or the priority of Lender's Lien in the Collateral;
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(iii) 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 past due 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;
(iv) such other Liens as are shown on
Exhibit 8.2.5 hereto;
(v) Purchase Money Liens securing
Permitted Purchase Money Indebtedness;
(vi) setoff rights relating to customary
fees and charges for maintaining bank accounts of those depository
institutions that maintain Borrower's Deposit Accounts; and
(vii) such other Liens as Lender may
hereafter approve in writing.
8.2.6 Subordinated Debt. Intentionally Omitted.
8.2.7 Distributions. Declare or make, or permit any Subsidiary
of Borrower to declare or make, any Distributions.
8.2.8 Capital Expenditures. Make Capital Expenditures (other
than payments on Capitalized Lease Obligations),which, in the aggregate, as to
Borrower and its Subsidiaries exceed $250,000 during any fiscal year of
Borrower.
8.2.9 Disposition of Assets. Sell, lease or otherwise dispose
of, or permit any Subsidiary of Borrower to sell, lease or otherwise dispose of,
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 (i) sales of
Inventory in the ordinary course of business for so long as no Event of Default
has occurred and is continuing; or (ii) dispositions expressly authorized by
this Agreement.
8.2.10 Stock of Subsidiaries. Issue, or permit any Subsidiary
of Borrower to issue any additional shares of its capital stock except
director's qualifying shares.
8.2.11 Bill-and-Hold Sales, Etc. 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.
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<PAGE> 30
8.2.13 Leases. Become, or permit any Subsidiary of Borrower to
become, a lessee under any operating lease (other than a lease under which
Borrower or any Subsidiary of Borrower 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 (other than leases that are
represented by Capitalized Lease Obligations) under which Borrower or any
Subsidiary of Borrower is then lessee would exceed $700,000. 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 a Subsidiary of
Borrower.
8.3 Specific Financial Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.3.1 Minimum Tangible Net Worth. Maintain at all times, for
the period from the Closing Date through the day immediately preceding the Last
Day of Fiscal Year for fiscal year 1998, a Tangible Net Worth of not less than
80% of the Tangible Net Worth of Borrower as shown on a Consolidated Balance
Sheet of Borrower prepared in accordance with GAAP, as of the Closing Date
(after giving effect to the transactions contemplated hereunder and under the
Disposition Agreement), which Consolidated Balance Sheet shall be in form and
substance satisfactory to Lender. The minimum Tangible Net Worth requirement
during each fiscal quarter thereafter, commencing with fiscal quarter ending on
the Last Day of Fiscal Year for the fiscal year 1998, shall be the sum of (a)
the minimum Tangible Net Worth requirement for the immediately preceding fiscal
quarter plus (b) 75% of Borrower's Net Income (but in no event less than zero)
for the just completed fiscal quarter.
8.3.2 Cash Flow. Achieve Cash Flow of not less than the amount
shown below for the period corresponding thereto (measured quarterly on a
rolling four quarter basis, except as expressly set forth below):
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Three month period ending September 30, 1998 $150,000
Six month period ending December 31, 1998 $250,000
Nine month period ending March 31, 1999 $350,000
Twelve month period ending June 30, 1999 $450,000
Each twelve month period thereafter $500,000
</TABLE>
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other sections of this Agreement,
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Lender shall not be required to make any Loan under this Agreement unless and
until each of the following conditions has been and continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments and certificates as Lender and its counsel shall require in
connection therewith from time to time, all in form and substance satisfactory
to Lender and its counsel, including, without limitation, the following:
(A) Certified copies of Borrower's casualty insurance
policies, together with loss payable endorsements on Lender's standard form of
Lender Loss Payee and Mortgagee Endorsement naming Lender as lender loss payee
or mortgagee, as applicable, and certified copies of Borrower's liability
insurance policies, together with endorsements naming Lender as additional
insured;
(B) All landlord waivers, mortgagee waivers and/or
warehouseman waivers on all leased locations or warehouses at which Inventory or
Equipment of Borrower is located and which are listed on Exhibit 6.1.1;
(C) Certified copies of (i) resolutions of Borrower's board of
directors authorizing the execution and delivery of this Agreement and the Loan
Documents and the performance of all transactions contemplated hereby and
thereby, (ii) Borrower's articles or certificate of incorporation and by-laws,
and (iii) an incumbency certificate of Borrower;
(D) Intentionally Omitted.
(E) Good standing certificate for Borrower, issued by the
Secretary of State or other appropriate official of Borrower's jurisdiction of
incorporation and Pennsylvania;
(F) A closing certificate signed by the chief executive
officer of Borrower dated as of the date hereof, stating that (i) the
representations and warranties set forth in Section 7 hereof are true and
correct on and as of such date, (ii) Borrower is on such date in compliance with
all the terms and provisions set forth in this Agreement and (iii) on such date
no Default or Event of Default has occurred or is continuing;
(G) The Security Documents duly executed, accepted and
acknowledged by or on behalf of each of the signatories thereto;
(H) The Other Agreements duly executed and delivered by
Borrower;
(I) The favorable, written opinion of counsel to Borrower, as
to the transactions contemplated by this Agreement and any of the other Loan
Documents;
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(J) Written instruction from Borrower directing the
application of proceeds of the initial Loans made pursuant to this Agreement,
and an initial Borrowing Base Certificate from Borrower;
(K) Duly executed agreement establishing the Dominion Account
with a financial institution acceptable to Lender for the collection or
servicing of the Accounts;
(L) Payoff agreement and lien terminations from IBMCC;
(M) Consummation of the transactions contemplated under the
Disposition Agreement, strictly in accordance with the terms thereof and with
all applicable laws;
(N) Evidence satisfactory to Lender that (i) Computer 2000
shall have made a cash contribution of no less than $3,000,000 to Borrower; and
(ii) Computer 2000 (and each of its Affiliates) have forgiven all Indebtedness
and any accrued and unpaid dividends owing from Borrower to Computer 2000 (and
any of its Affiliates);
(O) A written confirmation addressed to Lender from Borrower's
independent certified public accountant that the forgiveness of Indebtedness and
dividends by Computer 2000 (and each of its Affiliates) shall not result in any
cash tax liability to Borrower or any of its Subsidiaries;
(P) A written status report with respect to Borrower's
Inventory from IBM Corporation and a written reconciliation of the status of
Borrower's account payable to IBMCC;
(Q) UCC, state and federal tax lien and judgment searches;
(R) Payment of all fees and expenses owing hereunder; and
(S) Such other documents, instruments and agreements as Lender
shall reasonably request in connection with the foregoing matters.
9.2 No Default. No Default or Event of Default shall exist.
9.3 Other Loan Documents. Each of the conditions precedent set forth in
the other Loan Documents shall have been satisfied.
9.4 Availability. Lender shall have determined that immediately after
Lender has made the initial Loans contemplated hereby, and paid all closing
costs incurred in connection with the transactions contemplated hereby,
Aggregate Adjusted Availability on the Closing Date shall not be less than
$3,000,000.
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9.5 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.
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 Payment of Obligations. Borrower shall fail to pay any
Obligations on the due date thereof (whether due at stated installment due date,
or maturity, on demand, upon acceleration, or otherwise).
10.1.2 Misrepresentations. Any representation, warranty or
other statement made or furnished to Lender by or on behalf of Borrower or any
Subsidiary 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.
10.1.3 Breach of Specific Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in Sections 5.2,
6.1.1, 6.1.2, 6.2, 8.1.1, 8.1.2 (provided that with respect to unintentional
violations of 8.1.2, the notice and cure rights under Section 10.1.4 shall
apply), 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
10.1.4 Breach of Other Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
10.1 hereof) and the breach of such other covenant is not cured to Lender's
satisfaction within 15 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such failure or neglect
first becomes known to the president or chief financial officer of Borrower.
10.1.5 Default Under Security Documents/Other Agreements. 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 Security Documents; or the Other Agreements and such default shall continue
beyond any applicable grace period.
10.1.6 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)which singly or in the aggregate is in excess of $250,000, if the
holder of such
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Indebtedness would be entitled to accelerate such Indebtedness as a consequence
of such event of default or demand for payment of such Indebtedness is made.
10.1.7 Uninsured Losses. Any loss, theft, damage or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance, if the uninsured loss
would have a material adverse affect on Borrower's operations.
10.1.8 Adverse Changes. There shall occur any material adverse
change in the financial condition, as compared to Borrower's historical
performance, or business prospects of Borrower, after giving effect to the
transactions contemplated hereby.
10.1.9 Insolvency and Related Proceedings. 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
Borrower under the Bankruptcy Code (if against Borrower, the continuation of
such proceeding for more than 60 days), or Borrower shall make any offer of
settlement, extension or composition to its unsecured creditors generally.
10.1.10 Business Disruption; Condemnation. There shall occur a
cessation of a substantial part of the business of Borrower for a period which
significantly affects Borrower's capacity to continue its business, on a
profitable basis (or, if not yet profitable, is inconsistent with Borrower's
Projections); or Borrower shall suffer the loss or revocation of any license or
permit now held or hereafter acquired by Borrower which is necessary to the
continued or lawful operation of all or any material part of its business; or
Borrower 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
Borrower leases, uses or occupies any Property shall be canceled or terminated
prior to the expiration of its stated term and, such cancellation or termination
will have a material adverse effect on Borrower's business, financial condition,
Collateral or prospects; or any part of the Collateral shall be taken through
condemnation or the value of such Property shall be impaired through
condemnation (provided that such condemnation causes a material adverse affect
on Borrower's business, financial condition or prospects).
10.1.11 Change of Ownership. Listen Group shall cease to own
and control, beneficially and of record, less than 35%, in the aggregate, of the
issued and outstanding capital stock of Borrower or Borrower shall have less
than two Independent Directors.
10.1.12 ERISA. A Reportable Event shall occur which Lender, in
its sole discretion, shall determine in good faith constitutes 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 is in "default" (as defined in
Section 4219(c)(5) of
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ERISA) with respect to payments to a Multiemployer Plan resulting from
Borrower's or such Subsidiary of Borrower's complete or partial withdrawal from
such Plan.
10.1.13 Challenge to Agreement. Borrower or any Subsidiary of
Borrower 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 Lender.
10.1.14 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 material Property of Borrower or any Subsidiary of
Borrower.
10.1.15 Criminal Indictment. Borrower or any Subsidiary of
Borrower shall be criminally indicted or convicted.
10.1.16 Judgments. Any money judgments in excess of $250,000,
writ of attachment or similar process is filed against Borrower, any Subsidiary
of Borrower or any of their respective Property (other than a judgment arising
out of the litigation described in Schedule 7.20 hereto, as of the Closing Date,
provided such judgment does not exceed $1,000,000).
10.1.17 Settlements. Any settlement arising out of the litigation
described on Schedule 7.20 hereto, as of the Closing Date, that exceeds
$1,000,000.
10.2 Acceleration of the Obligations. Without in any way limiting the
right of Lender 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 Lender and without presentment, demand, protest or further
notice by Lender, become at once due and payable and Borrower shall forthwith
pay to Lender, the full amount of such Obligations, provided, that upon the
occurrence of an Event of Default specified in subsection 10.1.9 hereof, all of
the Obligations shall become automatically due and payable without declaration,
notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence and during the
continuance of an Event of Default, Lender shall have and may exercise from time
to time the following rights and remedies (to the full extent permitted by
applicable law):
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 Lender 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.
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10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) 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 Lender 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 Lender, 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 Lender may designate in said notice. Lender 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.
Lender 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 Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
2 Business Days for collection, first to the costs, expenses and attorneys' fees
incurred by Lender in collecting the Obligations, in enforcing the rights of
Lender under the Loan Documents and in collecting, retaking, completing,
protecting, removing, storing, advertising for sale, selling and delivering any
Collateral; second to the interest due upon any of the Obligations; and third,
to the principal of the Obligations. If any deficiency shall arise, Borrower
shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Lender's benefit.
10.3.5 Lender may, at its option, reduce or modify the
Borrowing Base, or any portion thereof or the advance rates or to take
additional reserves in the Borrowing Base.
10.3.6 Lender may, at its option, require Borrower to deposit
with Lender funds equal to the LC Amount and, if Borrower fails to promptly make
such deposit, Lender 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 Lender as cash collateral 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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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 given to Lender or contained in any other agreement between
Lender 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 herein contained. The
failure or delay of Lender 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 Lender 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 Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
11.1.1 At any time or from time to time as Lender or said
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 Lender
or under Lender's control.
11.1.2 At such time or times after the occurrence of an Event
of Default and during the continuation thereof, as Lender or its agent in its
sole discretion may determine: (i) 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; (ii) 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; (iii)
sell or assign any of the Accounts and other Collateral upon such terms, for
such amounts and at such time or times as Lender deems advisable; (iv) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (v) 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; (vi) receive, open and dispose of all mail addressed to
Borrower and to notify postal
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authorities to change the address for delivery thereof to such address as Lender
may designate; (vii) 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 Lender on account of the Obligations; (viii) 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; (ix) use Borrower's stationery and sign the
name of Borrower to verifications of the Accounts and notices thereof to Account
Debtors; (x) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts,
Inventory, Equipment and any other Collateral; (xi) make and adjust claims under
policies of insurance; and (xii) do all other acts and things necessary, in
Lender's determination, to fulfill Borrower's obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including attorneys' fees and
legal expenses) as the result of Borrower's failure to observe, perform or
discharge Borrower's duties hereunder or of any claim of any creditor of
Borrower against Lender. In addition, Borrower shall defend Lender against and
save it harmless from all claims of any Person with respect to the Collateral
(other than claims arising pursuant to Lender's duties under Section 6.1.3
hereof). Without limiting the generality of the foregoing, these indemnities
shall extend to any claims asserted against 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. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 11.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.
11.3 Modification of Agreement; Sale of Interest. This Agreement may
not be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were "Lender" hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignments. Borrower agrees that it will
use its best efforts to assist and cooperate with Lender in any manner
reasonably requested by Lender to effect the sale of participations in or
assignments of any of the Loan Documents or any portion thereof or interest
therein, including, without limitation, assisting in the preparation of
appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower to any potential participant or
assignee.
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11.4 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.
11.5 Successors and Assigns. This Agreement, the Other Agreements and
the Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.6 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security 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.
11.7 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.
11.8 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, three
Business Days after deposit in the mail, postage prepaid, or one Business Day
after deposit with an overnight courier or, in the case of facsimile notice,
when sent, addressed as follows:
If to Lender: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, CT 06033
Attention: Northeast Loan Administration
Fax No. 860-657-7759
With a copy to: Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Steven M. Miller, Esquire
Fax No. 215-569-5522
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If to Borrower: AmeriQuest Technologies, Inc.
425 Privet Road
Horsham, PA 19044
Attention: President
Fax No. 215-956-0669
With a copy to: Morgan Lewis & Bockius, LLP
2000 One Logan Square
Philadelphia, PA 19103
Attention: Francis C. Pray, Jr., Esquire
Fax No. 215-963-5299
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 Lender pursuant to subsections 2.1.1, 3.1.1 or
4.2.2 hereof shall not be effective until received by Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits Lender
to respond to usual and customary credit inquiries from third parties concerning
Borrower.
11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
11.12 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.
11.13 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.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
PHILADELPHIA, PENNSYLVANIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS
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OF THE COMMONWEALTH OF PENNSYLVANIA; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN PENNSYLVANIA, THE
LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF
LENDER'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
PENNSYLVANIA. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND
REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF
ANY BORROWER OR LENDER, EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE COMMON
PLEAS COURT OF PENNSYLVANIA OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT
COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
LENDER 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 WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS 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. MAILS, PROPER POSTAGE
PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE
RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR
TO PRECLUDE THE ENFORCEMENT BY LENDER 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.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER 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: (ii) 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,
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ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED BY THIS AGREEMENT, 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 LENDER TO EXERCISE ANY OF LENDER'S
REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS;
AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND
THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS 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.
IN WITNESS WHEREOF, this Agreement has been duly executed in
Philadelphia, Pennsylvania on the day and year specified at the beginning of
this Agreement.
AMERIQUEST TECHNOLOGIES, INC.
By /s/ Jon D. Jensen
Title: CFO & COO
Accepted in Philadelphia, PA
FLEET CAPITAL CORPORATION
By: /s/ John Stanescki
Title:
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of July 16,
1998, by and between Fleet Capital Corporation and AmeriQuest Technologies, Inc.
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 - collectively, 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.
Adjusted LIBOR Rate - For any LIBOR Interest
Period, as applied to a Revolving Credit LIBOR Rate Loan, the
rate per annum (rounded upwards, if necessary to the next 1/16 of
1%) determined pursuant to the following formula:
Adjusted Libor Rate = Libor Rate
---------------------------
(1.00 - Reserve Percentage)
For purposes hereof, "Libor Rate" shall mean the arithmetic
average of the rates of interest per annum (rounded upwards, if
necessary to the next 1/16 of 1%) at which Bank is offered
deposits of United States Dollars in the interbank eurodollar
loan market on or about 2:00 P.M. New York time two (2) Business
Days prior to the commencement of such LIBOR Interest Period on
amounts substantially equal to the Revolving Credit LIBOR Rate
Loan as to which Borrower may elect the Adjusted LIBOR Rate to be
applicable with a maturity of comparable duration to the LIBOR
Interest Period selected by Borrower for such Revolving Credit
LIBOR Rate Loan.
Adjusted Net Earnings From Operations - with
respect to any fiscal period, means the net earnings (or loss)
after provision for income taxes for such fiscal period of
Borrower, as reflected on the financial statement of Borrower
supplied to Lender pursuant to subsection 8.1.3 of the Agreement,
but excluding:
(i) any gain or loss arising from the sale
of capital assets;
(ii) any gain arising from any write-up of
assets;
(iii) earnings of any Subsidiary of Borrower
accrued prior to the date it became a Subsidiary;
<PAGE> 44
(iv) earnings of any corporation,
substantially all the assets of which have been
acquired in any manner by Borrower, realized by such
corporation prior to the date of such acquisition;
(v) net earnings of any business entity
(other than a Subsidiary of Borrower) in which
Borrower has an ownership interest unless such net
earnings shall have actually been received by
Borrower in the form of cash distributions;
(vi) any portion of the net earnings of any
Subsidiary of Borrower which for any reason is
unavailable for payment of dividends to Borrower;
(vii) the earnings of any Person to which
any assets of Borrower shall have been sold,
transferred of disposed of, or into which Borrower
shall have merged, or been a party to any
consolidation or other form of reorganization, prior
to the date of such transaction;
(viii) any gain arising from the acquisition
of any Securities of Borrower; and
(ix) any gain arising from extraordinary or
non-recurring items, including any gains for
forgiveness of Indebtedness.
Affiliate - a Person (other than a Subsidiary): (i)
which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under
common control with, a Person; (ii) which beneficially owns or
holds 5% or more of any class of the Voting Stock of a Person;
or (iii) 10% or more of the Voting Stock (or in the case of a
Person which is not a corporation, 10% or more of the equity
interest) of which is beneficially owned or held by a Person
or a Subsidiary of a Person. Notwithstanding anything to the
contrary, Computer 2000 is and for the purposes of this
Agreement shall be deemed to be an Affiliate of Borrower.
Agreement - the Loan and Security Agreement referred
to in the first sentence of this Appendix A, all Exhibits
thereto and this Appendix A as each of the same may be
amended, modified, renewed, extended, replaced, restated or
substituted from time to time.
Aggregate Adjusted Availability - an amount equal to
the Borrowing Base less the sum of (i) the amount of Revolving
Credit Loans and the LC Amount outstanding as of the Closing
Date plus (ii) all sums due and owing to trade creditors which
remain outstanding beyond normal trade terms (as set forth in
this Agreement) or special terms granted by trade creditors,
plus (iii) any reserves against the Borrowing Base, plus (iv)
closing payments and expenses.
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Availability - the amount of money which Borrower is
entitled to borrow from time to time as Revolving Credit
Loans, such amount being the difference derived when the sum
of the principal amount of Revolving Credit Loans then
outstanding (including any amounts which Lender may have paid
for the account of Borrower pursuant to any of the Loan
Documents and which have not been reimbursed by Borrower), any
established reserves and the LC Amount is subtracted from the
Borrowing Base. If the amount outstanding is equal to or
greater than the Borrowing Base, Availability is 0.
Bank - Fleet National Bank, or such other bank as
Lender may hereafter designate.
Base Rate - the rate of interest announced or quoted
by Bank from time to time as its base rate for commercial
loans, whether or not such rate is the lowest rate charged by
Bank to its most preferred borrowers; and, if such base rate
for commercial loans is discontinued by Bank as a standard, a
comparable reference rate designated by Bank as a substitute
therefor shall be the Base Rate.
Base Rate Loans - collectively, all Revolving Credit
Base Rate Loans.
Borrowing Base - as at any date of determination
thereof, an amount equal to the lesser of:
(i) an amount equal to (a) $10,000,000 minus
(b) the LC Amount; or
(ii) an amount equal to:
(a) 80% of the net amount of
Eligible Accounts outstanding at such date;
PLUS
(b) the lesser of (1) $3,500,000 or
(2) 50% of the value of Eligible Inventory
at such date calculated on the basis of the
lower of cost or market on an average actual
cost basis (which reasonably approximates a
first-in, first-out basis);
MINUS
(c) such reserves as Lender may
establish under Section 1.1.1 of the
Agreement; and
MINUS
(d) the LC Amount.
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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, 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 - the certificate signed
by the chief executive officer or chief financial officer of
Borrower showing the status of Borrower's Accounts and Inventory,
outstanding Revolving Credit Loans, LC Amount and other
information in the form of Exhibit A-1 to the Agreement.
Business Day - any day excluding Saturday, Sunday
and any day which is a legal holiday under the laws of the
Commonwealth of Pennsylvania or is a day on which banking
institutions located in such state are closed.
Capital Expenditures - cash expenditures made for
the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a
useful life of more than one year, including the total principal
portion of Capitalized Lease Obligations excluding expenditures
for the replacement of any assets leased under a Capitalized
Lease Obligation in connection with a casualty or loss thereof.
Cash Flow - for any period means Borrower's (i)
Adjusted Net Earnings from Operations for such period plus (ii)
depreciation and amortization expenses for such period plus (iii)
deferred taxes for such period, less (iv) non-financed Capital
Expenditures, less (v) principal payments on account of current
maturities of long-term Indebtedness and less (vi) principal
payments on Capitalized Lease Obligations, all as determined in
accordance with GAAP.
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.
Closing Date - the date on which all of the
conditions precedent in Section 9 of the Agreement are satisfied
and the initial Loan is made or issued under the Agreement.
Code - the Uniform Commercial Code as adopted and
in force in the Commonwealth of Pennsylvania and as from time to
time in effect.
Collateral - all of the Property and interests in
Property described in Section 5 of the Agreement, and all other
Property and interests in Property that now or hereafter secure
the payment and performance of any of the Obligations.
Computer 2000 - Computer 2000 AG, a German
corporation.
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Consolidated and Consolidating - the consolidation
and consolidating in accordance with GAAP of the accounts or
other items as to which such term applies.
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 subsection 2.1.2 of the
Agreement.
Disposition Agreement - the Disposition and
Reorganization Agreement dated July 2, 1998 among Borrower,
Listen Group, Computer 2000 and Computer 2000, Inc.
Distribution - in respect of any corporation means
and includes: (i) the payment of any dividends or other
distributions on capital stock of the corporation (except
distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from
the net proceeds of the sale of Securities.
Dominion Account - a special account of Lender
established by Borrower pursuant to the Agreement at a bank
selected by Borrower, but acceptable to Lender in its
reasonable discretion, and over which Lender shall have sole
and exclusive access and control for withdrawal purposes.
Eligible Account - an Account arising in the ordinary
course of Borrower's business from the sale of goods or
rendition of services. Without limiting the generality of the
foregoing, no Account shall be an Eligible Account if:
(i) 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
(ii) it is due or unpaid more than 90 days
after the original invoice date or more than 60 days
after the original due date; or
(iii) 50% or more of the Accounts from the
Account Debtor are not deemed Eligible Accounts
hereunder; or
(iv) the total unpaid Accounts of the
Account Debtor exceed 20% of the net amount of all
Eligible Accounts, to the extent of such excess; or
(v) any covenant, representation or warranty
contained in the Agreement with respect to such
Account has been breached; or
(vi) (a) the Account Debtor is also
Borrower's creditor or supplier; provided that, with
respect to Accounts where Unisys Corporation is the
Account
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<PAGE> 48
Debtor, the amount of such Accounts in excess of any
sums owed by Borrower to Unisys Corporation shall,
subject to the other requirements herein, be
considered Eligible Accounts, or (b) the Account
Debtor has disputed liability with respect to such
Account, or (c) the Account Debtor has made any claim
with respect to any other Account due from such
Account Debtor to Borrower, or (d) the Account
otherwise is or may become subject to any right of
setoff by the Account Debtor; or
(vii) the Account Debtor has commenced a
voluntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or a decree
or order for relief has been entered by a court
having jurisdiction in the premises in respect of the
Account Debtor in an involuntary case under the
federal bankruptcy laws, as now constituted or
hereafter amended, or any other petition or other
application for relief under the federal bankruptcy
laws has been filed against the Account Debtor, or if
the Account Debtor has failed, suspended business,
ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be
appointed for it or for all or a significant portion
of its assets or affairs; or
(viii) 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 Lender in its sole
discretion; or
(ix) it arises from a sale to the Account
Debtor on a bill-and-hold, guaranteed sale,
sale-or-return, sale-on-approval, consignment or any
other repurchase or return basis; or
(x) the Account Debtor is the United States
of America or any department, agency or
instrumentality thereof, unless Borrower assigns its
right to payment of such Account to Lender, in a
manner satisfactory to Lender, so as to comply with
the Assignment of Claims Act of 1940 (31 U.S.C.
Section 203 et seq., as amended); or
(xi) the Account is not at all times subject
to Lender's duly perfected, first priority security
interest and no other Lien other than a Permitted
Lien; or
(xii) the goods giving rise to such Account
have not been delivered to and accepted by the
Account Debtor or the services giving rise to such
Account have not been performed by Borrower and
accepted by the Account Debtor or the Account
otherwise does not represent a final sale; or
(xiii) the Account is evidenced by Chattel
Paper or an Instrument of any kind, or has been
reduced to judgment; or
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<PAGE> 49
(xiv) the Borrower has made any agreement
with the Account Debtor for any deduction therefrom,
except for discounts or allowances which are made in
the ordinary course of business for prompt payment
and which discounts or allowances are reflected in
the calculation of the face value of each invoice
related to such Account; or
(xv) the Borrower has made an agreement with
the Account Debtor to extend the time of payment
thereof; or
(xvi) the Account is otherwise deemed
unacceptable (due to the credit condition of the
Account Debtor or the legal enforceability of the
Account) by Lender in its reasonable discretion.
Eligible Inventory - All of the finished goods
Inventory of Borrower except for Inventory regarding which one
or more of the following is true:
(i) it is not finished goods that is, in
Lender's reasonable opinion, readily marketable in
its current form; or
(ii) it is not in good, new and saleable
condition; or
(iii) it is slow-moving, obsolete or
unmerchantable; or
(iv) it does not meet all standards imposed
by any governmental agency or authority for Inventory
of its type; or
(v) it does not conform in all respects to
the warranties and representations set forth in the
Agreement; or
(vi) it is not at all times subject to
Lender's duly perfected, first priority security
interest and no other Lien except a Permitted Lien;
or
(vii) it is not situated at a location
listed on Exhibit 6.1.1; or
(viii) it is not situated at a location for
which Lender has received a landlord's waiver unless
Lender has created a reserve with respect thereto
under the Borrowing Base; or
(ix) it is based upon a mark-up arising with
respect to an intra-company sale, to the extent of
such mark-up.
Environmental Laws - all federal, state and local
laws, rules, regulations, ordinances, programs, permits,
guidances, orders and consent decrees relating to
environmental matters.
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Equipment - collectively, 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.
GAAP - generally accepted accounting principles in
the United States of America in effect from time to time.
General Intangibles - collectively, 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.
IBMCC - IBM Credit Corporation.
Indebtedness - as applied to a Person means, without
duplication.
(i) 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,
(ii) all obligations of other Persons which such
Person has guaranteed,
(iii) all reimbursement obligations in connection
with letters of credit or letter of credit guaranties issued
for the account of such Person, and
(iv) in the case of Borrower (without duplication),
the Obligations.
Independent Director - a Person who is not an Affiliate of
Borrower or Listen Group or any of their respective Affiliates or an
officer or employee of any of them.
Inventory - collectively, all Inventory of Borrower, whether
now owned or hereafter acquired including, without limitation, all
goods intended for sale or lease by Borrower (but excluding any
demonstration Equipment owned by third parties), 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
8
<PAGE> 51
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 - all investment property as such term is
now or hereafter defined in the Code.
Last Day of Fiscal Year - Section 7.1.10.
LC Amount - at any time, the aggregate undrawn face amount of
all Letters of Credit and LC Guaranties then outstanding plus the
aggregate amount of all unreimbursed draws on all Letters of Credit and
LC Guaranties.
LC Cap - $5,000,000.
LC Guaranty - any guaranty pursuant to which Lender or any
Affiliate of Lender shall guaranty the payment or performance by
Borrower of its reimbursement obligation to anyone other than Lender
under any letter of credit.
Letter of Credit - any stand-by letter of credit, issued by
Lender or any of Lender's Affiliates for the account of Borrower to
support non-borrowed obligations of Borrower incurred in the ordinary
course of business.
LIBOR Interest Period - a period of one, two, three or six
months duration during which the Revolving Credit LIBOR Rate is
applicable.
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 and
including, without limitation, the security interest, security title or
lien arising from a security agreement, mortgage, deed of trust, deed
to secure debt, encumbrance, pledge, conditional sale or trust receipt,
or a lease, consignment or bailment for security purposes. The term
"Lien" shall also 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, Borrower shall be deemed to be the owner of
any Property which 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.
Listen Group - The Listen Group Partners LLC, a Delaware
limited liability company.
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Loan Account - the loan account established on the books of
Lender pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the
Security Documents as each of the same may be amended, modified,
renewed, extended, replaced, restated or substituted from time to time.
Loans - all loans and advances of any kind made by Lender
pursuant to the Agreement.
London Business Day - any Business Day on which banks in
London, England are open for business.
Money Borrowed - means (i) Indebtedness arising from the
lending of money by any Person to Borrower; (ii) Indebtedness, whether
or not in any such case arising from the lending by any Person of money
to Borrower, (A) which is represented by notes payable or drafts
accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar
instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or
partial payment for Property; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations with
respect to letters of credit or guaranties of letters of credit and (v)
Indebtedness of Borrower under any guaranty of obligations that would
constitute Indebtedness for Money Borrowed under clauses (i) through
(iii) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
Net Income - for any period, the net income of Borrower
determined on a consolidated basis in accordance with GAAP.
Note - the Revolving Credit Note.
Obligations - all Loans and all other advances, debts,
liabilities, obligations, covenants and duties, together with all
interest, fees and other charges thereon, owing, arising, due or
payable from Borrower to 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 (including, without limitation, reimbursement obligations in
respect of Letters of Credit and LC Guaranties). The term includes
without limitation, all interest, charges, fees, expenses, attorneys'
fees, and any other sums chargeable to Borrower, under any of the Loan
Documents.
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Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements and instruments
(other than the Agreement and the Security Documents), including,
without limitation, and any instruments, documents or agreements
entered into in connection with Letters of Credit and LC Guaranties
heretofore, now or hereafter executed by Borrower, any guarantor, or
any other third party and delivered to Lender in respect of the
transactions contemplated by the Agreement, as each of the same may be
amended, modified, renewed, extended, replaced, restated or substituted
from time to time.
Overadvance - the amount, if any, by which the outstanding
principal amount of Revolving Credit Loans exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the
right by Lender to participate in any of the Loans described in the
Agreement and who shall have entered into a participation agreement in
form and substance satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subsection
8.2.5 of the Agreement.
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 the
principal amount of all other such Indebtedness and Capitalized Lease
Obligations of Borrower at the time outstanding, does not exceed
$500,000. For the purposes of this definition, the principal amount of
any Purchase Money Indebtedness consisting of capitalized leases shall
be computed as a Capitalized Lease Obligation.
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.
Projections - Borrower's forecasted Consolidated and
Consolidating (if applicable) (a) balance sheets, (b) profit and loss
statements, and (c) cash flow 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.
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Purchase Money Indebtedness - (i) Indebtedness (other than the
Obligations) for the payment of all or any part of the purchase price
of any fixed assets, (ii) 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 solely for the purpose of financing all
or any part of the purchase price thereof, and (iii) 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 which 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.
Regulation D - Regulation D of the Board of Governors of the
Federal Reserve System, comprising Part 204 of Title 12, Code of
Federal Regulations, as amended, and any successor thereto.
Rentals - as defined in subsection 8.2.13 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section
4043(b) of ERISA.
Reserve - for any day, that reserve (expressed as a decimal)
which is in effect (whether or not actually incurred) with respect to
Bank on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor or any other banking authority
to which Bank is subject including any board or governmental or
administrative agency of the United States or any other jurisdiction to
which Bank is subject), for determining the maximum reserve requirement
(including without limitation any basic, supplemental, marginal or
emergency reserves) for Eurocurrency liabilities as defined in
Regulation D.
Reserve Percentage - for Bank on any day, that percentage
(expressed as a decimal) which is in effect on such day, prescribed by
the Board of Governors of the Federal Reserve System (or any successor
or any other banking authority to which Lender is subject, including
any board or governmental or administrative agency of the United States
or any other jurisdiction to which Bank is subject) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental, marginal or emergency reserves) for (i) deposits of
United States Dollars or (ii) Eurocurrency liabilities as defined in
Regulation D, in each case used to fund a Revolving Credit LIBOR Rate
Loan subject to an Adjusted LIBOR Rate. The Adjusted LIBOR Rate shall
be adjusted automatically on and as of the effective day of any change
in the Reserve Percentage.
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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:
(i) investments in one or more Subsidiaries of a
Borrower to the extent existing on the Closing Date;
(ii) Property to be used in the ordinary course of
business;
(iii) 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 one year from the date of
acquisition thereof;
(iv) investments in certificates of deposit maturing
within one 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;
(v) 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
(vi) mutual funds that invest in any of the
foregoing.
Revolving Credit Base Rate - a per annum rate equal to the sum
of the Base Rate plus 150 basis points.
Revolving Credit Base Rate Loan - that portion of the
Revolving Credit Loans that bears interest at the Revolving Credit Base
Rate.
Revolving Credit LIBOR Rate - a per annum rate equal to the
sum of the Adjusted LIBOR Rate plus 400 basis points.
Revolving Credit LIBOR Rate Loan - that portion of the
Revolving Credit Loans on which interest accrues at the Revolving
Credit LIBOR Rate.
Revolving Credit Loan - a Loan made by Lender as provided in
Section 1.1 of the Agreement.
Revolving Credit Maturity Date - the last day of the Original
Term or, if any Renewal Term is in effect, then the last day of such
Renewal Term.
13
<PAGE> 56
Revolving Credit Note - the secured promissory note to be
executed by Borrower on the Closing Date in favor of Lender to evidence
Borrower's obligation to repay the Revolving Credit Loans, which shall
be in the form of Exhibit A-2 to the Agreement.
Schedule of Accounts - as defined in subsection 6.2.1 of the
Agreement.
Security - shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
Security Documents - all instruments and agreements now or at
any time hereafter securing the whole or any part of the Obligations,
as each of the same may be amended, modified, renewed, extended,
replaced, restated or substituted from time to time.
Solvent - as to any Person, such Person (i) owns Property
whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent debts), (ii) is
able to pay all of its Indebtedness as such Indebtedness matures and
(iii) has capital sufficient to carry on its business and transactions
and all business and transactions in which it is about to engage.
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.
Tangible Assets - all assets except: (i) any surplus resulting
from any write-up of assets subsequent to September 30, 1997; (ii)
deferred assets, other than prepaid insurance and prepaid taxes; (iii)
patents, copyrights, trademarks, trade names, non-compete agreements,
franchises and other similar intangibles; (iv) goodwill, including any
amounts, however designated on a Consolidated balance sheet of a Person
or its Subsidiaries, representing the excess of the purchase price paid
for assets or stock over the value assigned thereto on the books of
such Person; (v) Restricted Investments (other than sums presently
owing by Trigem and Robert Beckett as evidenced by promissory notes
payable to Borrower and delivered to Lender); (vi) unamortized debt
discount and expense; (vii) assets located and notes and receivables
due from obligors outside of the United States of America; and (viii)
Accounts, notes and other receivables due from Affiliates or employees.
Tangible Net Worth - at any date means a sum equal to:
(i) the net book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other
proper reserves) at which the Tangible Assets of a Person
would be shown on a balance sheet at such date in accordance
with GAAP, minus
14
<PAGE> 57
(ii) the amount at which such Person's liabilities
(other than capital stock and surplus), including as
liabilities all reserves for contingencies and other potential
liabilities, would be shown on such balance sheet in
accordance with GAAP.
Total Credit Facility - $10,000,000.
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).
Year 2000 Problem - Section 7.1.26
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.
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to the
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used 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
the 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 thereto and any and all extensions or
renewals thereof.
15
<PAGE> 58
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1 Borrowing Base Certificate
Exhibit A-2 Revolving Credit Note
Exhibit 6.11 Borrower's and each Subsidiary's Business Locations
EXHIBIT 7.1.1 Jurisdictions in which Borrower and each Subsidiary
is Authorized to do Business
EXHIBIT 7.1.4 Capital Structure of Borrower
EXHIBIT 7.1.5 Corporate Names
EXHIBIT 7.1.13 Existing Sureties
EXHIBIT 7.1.14 Tax Identification Numbers of Subsidiaries
EXHIBIT 7.1.16 Patents, Trademarks, Copyrights and Licenses
EXHIBIT 7.1.19 Contracts Restricting Borrower's Right to
Incur Debts
EXHIBIT 7.1.20 Litigation
EXHIBIT 7.1.22(a) Capitalized Leases
EXHIBIT 7.1.22(b) Operating Leases
EXHIBIT 7.1.23 Pension Plans
EXHIBIT 7.1.24 Trade Relations
EXHIBIT 7.1.25 Labor Contracts
EXHIBIT 8.1.3 Compliance Certificate
EXHIBIT 8.2.5 Permitted Liens
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,710
<SECURITIES> 0
<RECEIVABLES> 5,588
<ALLOWANCES> 0
<INVENTORY> 6,976
<CURRENT-ASSETS> 15,901
<PP&E> 620
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,641
<CURRENT-LIABILITIES> 41,362
<BONDS> 0
0
30,000
<COMMON> 669
<OTHER-SE> 111,145
<TOTAL-LIABILITY-AND-EQUITY> 16,641
<SALES> 18,260
<TOTAL-REVENUES> 18,260
<CGS> 16,300
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,595
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303
<INCOME-PRETAX> 62
<INCOME-TAX> 0
<INCOME-CONTINUING> 62
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
