UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ___________ TO ______________
COMMISSION FILE NUMBER 1-8948
INTELOGIC TRACE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 74-2368260
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
TURTLE CREEK TOWER I
P.O. BOX 400044, SAN ANTONIO, TX 78229-8415
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
210-593-5700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of registrant's common stock, par value $.01
per share, as of December 8, 1994 was 12,505,631 shares.
<PAGE>
INTELOGIC TRACE, INC.
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Position as
of October 31, 1994 (Unaudited) and July 31, 1994....... 4
Unaudited Consolidated Statements of Operations for the
Three Months Ended October 31, 1994 and 1993............ 5
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended October 31, 1994 and 1993............ 6
Notes to Unaudited Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 17
Item 5. Other Information......................................... 18
Item 6. Exhibits and Reports on Form 8-K.......................... 18
SIGNATURES .......................................................... 22
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
INTELOGIC TRACE, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
OCTOBER 31, JULY 31,
1994 1994
---------- --------
(Unaudited)
ASSETS
Current Assets
Cash and temporary investments .................... $ 202 $ 605
Marketable securities, net ........................ 750 --
Accounts receivable, net .......................... 4,594 7,192
Field support spares, net ......................... 2,511 --
Net assets of discontinued operations ............. 167 200
Inventory ......................................... 675 326
Prepaid expenses .................................. 1,120 1,038
Deposits and other current assets ................. 324 260
---------- --------
Total current assets ........................... 10,343 9,621
Leasehold Improvements and Equipment, net ............ 1,009 1,213
Field Support Spares, net ............................ 100 2,625
Intangible Assets, net ............................... 1,850 1,864
Other Assets ......................................... 427 246
---------- --------
Total assets ................................... $ 13,729 $ 15,569
========== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities Not Subject To Compromise
Accounts payable .................................. 2,438 1,571
Accrued expenses .................................. 3,270 2,534
Note payable ...................................... 1,076 --
Short-term borrowings ............................. 6,689 7,919
Deferred revenue .................................. 6,455 9,690
Total current liabilities ...................... 19,928 21,714
Liabilities Subject to Compromise .................... 62,205 62,252
Deferred Income Taxes and Other Liabilities .......... 441 441
$10.00 Redeemable Preferred Stock; 65,000 shares
authorized; 0 and 46,301 shares issued and
outstanding at October 31, 1994 and July 31, 1994,
respectively; $100 mandatory redemption value ..... -- 4,691
Commitments and Contingencies (Note 6)
Shareholders' Deficit
Preferred stock ($.01 par; 20,000,000 shares
authorized) ..................................... -- --
Common stock ($.01 par; 40,000,000 shares
authorized, 19,908,398 shares issued) ........... 199 199
Additional paid-in capital ........................ 56,925 51,508
Retained deficit .................................. (70,561) (69,695)
Foreign currency translation adjustment ........... (17) 28
Less common stock in treasury - at cost (7,402,174
and 7,420,764 shares at October 31, 1994 and
July 31, 1994, respectively ) ................... (52,974) (53,152)
Retirement valuation reserve ...................... (2,417) (2,417)
---------- --------
Total shareholders' deficit .................... (68,845) (73,529)
---------- --------
Total liabilities and shareholders' deficit . $ 13,729 $ 15,569
========== ========
See accompanying notes to consolidated financial statements.
<PAGE>
INTELOGIC TRACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS
ENDED OCTOBER 31,
----------------------
1994 1993
------- -------
Revenue
Service ....................................... $12,914 $19,870
Sales ......................................... 3,708 232
------- -------
Total Revenue .............................. 16,622 20,102
------- -------
Cost of Revenue
Service ....................................... 9,430 $16,175
Sales ......................................... 2,855 86
------- -------
Total Cost of Revenue ...................... 12,285 16,261
------- -------
Gross Profit ............................... 4,337 3,841
Operating Expenses
Selling, general and administrative expenses .. 3,837 4,691
Restructuring charges ......................... 47 --
------- -------
Total Operating Expenses ................... 3,884 4,691
------- -------
Earnings (Loss) From Operations ............ 453 (850)
Other Income (Expense)
Reorganization charges - bankruptcy ........... (934) --
Interest expense .............................. (554) (1,636)
Other, net .................................... 169 (100)
------- -------
Loss From Continuing Operations Before Taxes (866) (2,586)
Income Tax Benefit ............................... -- 1,193
------- -------
Loss From Continuing Operations ............ (866) (1,393)
------- -------
Earnings from Discontinued Operations ............ -- 828
------- -------
Net Loss ................................... $ (866) $ (565)
======= =======
Net Loss, Less Preferred Stock Dividends ... $ (866) $ (744)
======= =======
Earnings (Loss) Per Common Share
Loss from continuing operations ............... $ (.07) $ (.13)
Earnings from discontinued operations ......... -- .07
------- -------
Net Loss Per Common Share ............... $ (.07) $ (.06)
======= =======
Weighted Average Common Shares Outstanding ....... 12,497 12,074
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
INTELOGIC TRACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
THREE MONTHS
ENDED OCTOBER 31,
----------------------
1994 1993
------- -------
Operating Activities
Net loss ...................................... $ (866) $ (565)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ........... 224 3,565
Adjustment to net assets of discontinued
operations ............................ -- (828)
Deferred income tax benefit ............. -- (1,191)
Provision for doubtful accounts ......... 1,971 1,963
Other ................................... (26) 272
Changes in operating assets and liabilities
Accounts receivable ........................ 627 (892)
Other assets ............................... (634) 273
Accounts payable and accrued expenses ...... 1,696 1,436
Deferred revenue ........................... (3,235) (2,779)
Other current liabilities .................. -- (116)
------- -------
Net Cash Provided By (Used In)
Operating Activities .................. (243) 1,138
Investing Activities
Purchase of spares and other fixed assets ..... (6) (2,208)
------- -------
Net Cash Used In Investing Activities ... (6) (2,208)
Financing Activities
Net change in revolving loan facility ......... (1,230) 438
Proceeds from note payable .................... 1,300 --
Payments on note payable ...................... (224) --
------- -------
Net Cash Provided By (Used In) Financing
Activities ............................ (154) 438
Net Decrease in Cash and Temporary Investments ... (403) (632)
Cash and Temporary Investments, beginning
of period ...................................... 605 1,626
------- -------
Cash and Temporary Investments, end of period .... $ 202 $ 994
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
INTELOGIC TRACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994
1. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the Interim Unaudited Consolidated Financial
Statements of Intelogic Trace, Inc. and its wholly owned subsidiaries (the
"Company") include all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the Company's financial position as of October 31,
1994, and the results of its operations for the three months ended October 31,
1994 and 1993. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
promulgated by the Securities and Exchange Commission. The Interim Unaudited
Consolidated Financial Statements should be read in conjunction with the audited
Consolidated Financial Statements and accompanying notes of Intelogic Trace,
Inc. for the year ended July 31, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Intelogic Trace,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of shares
outstanding during the period, after giving effect for preferred stock
dividends. Because operations resulted in a loss, common stock equivalents were
not considered in the computation as their effect would be anti-dilutive.
CERTAIN RECLASSIFICATIONS
Certain reclassifications have been made to the prior period statements to
conform them to the October 31, 1994, presentation.
3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURE
Cash paid for interest was $261,000 and $123,000 for the three months ended
October 31, 1994 and 1993, respectively. Cash paid for income taxes was $25,000
and $6,000 for the three months ended October 31, 1994 and 1993, respectively.
For the three months ended October 31, 1994, the Company entered into a noncash
transaction with Datapoint Corporation ("Datapoint").
See Note 5 for further discussion.
4. PETITION FOR RELIEF UNDER CHAPTER 11
During Spring 1994, the Company experienced an increased reliance on borrowed
funds to satisfy working capital requirements, principally as a result of a
continued erosion in operating performance. The Company engaged a company which
specializes in consulting with financially troubled businesses to review cash
flows, liquidity concerns, and provide recommendations to establish both
immediate and long-term improvements in cash flow, profitability, asset
management, and capital structure. Liquidity pressures continued to increase and
the Company determined that the aggregate borrowing availability under its
revolving credit agreement would not be sufficient to meet the Company's
obligations on a current basis. The Company's liquidity shortfall was compounded
by the semi-annual interest payment due July 15, 1994 of $3.0 million on the
$49.9 million in principal amount of 11.99% Subordinated Debentures due 1996
(the "Debentures"). In addition to ongoing discussions with its lender, during
late June and early July 1994, the Company held discussions with the holders of
a majority in principal amount of Debentures (the "Principal Debentureholders")
regarding a potential restructuring of that obligation. On July 15, 1994, the
Company filed a Current Report on Form 8-K disclosing that it was negotiating
with its Principal Debentureholders and that it would not make the interest
payment on the Debentures. On July 21, 1994, the Indenture Trustee for the
Debentures issued its notice of default. Pursuant to the terms of the Indenture,
a failure to make the semi-annual interest payment within the thirty-day grace
period allowed by the Indenture would cause an Event of Default to have
occurred. Due principally to increasing pressures on available capital, the
nonpayment of a promissory note to the Company and potential terminations of
certain leases, licenses, and contracts due to financial defaults, the Company
reached the conclusion that the protection of the Bankruptcy Code was necessary
in order to consummate the restructuring of the Debentures and the revolving
financing agreement.
On August 5, 1994, the Company filed a voluntary petition for reorganization
under Chapter 11. As a result of discussions with its Principal
Debentureholders, contemporaneously with filing the petition, the Company filed
a Plan of Reorganization setting forth the terms of the proposed restructuring.
Under Chapter 11, enforcement of certain claims in existence prior to the filing
of the petition are stayed, while the Company continues operations in the
ordinary course of business as debtor-in-possession. These claims are reflected
in the consolidated financial statements as of October 31, 1994, as "liabilities
subject to compromise." Additional prepetition claims may arise subsequent to
the petition date resulting from the rejection of executory contracts and/or
leases and determination of the Court of allowed claims for contingencies and
other disputed amounts.
On October 4, 1994, the Court approved the Company's Disclosure Statement. The
Disclosure Statement, as modified and amended, describes the Plan proposed by
the Company. The Plan was submitted to a vote of creditors, security holders and
parties in interest, was confirmed by the Bankruptcy Court on November 22, 1994,
and the confirmation order was entered on November 28, 1994. The Plan will,
among other things, cause the following to occur following December 8, 1994, the
Effective Date of the Plan: (1) administrative and tax claims will be paid in
full; (2) a new series of Preferred Stock will be issued to certain holders of
unsecured claims; (3) a four-for-one reverse split of the common stock will be
consummated, with existing common shareholders retaining approximately 25% of
the Company's common stock outstanding after the Effective Date, and (4) certain
holders of unsecured claims will also receive shares of new common stock that
will equal 75% of the shares of common stock outstanding after the Effective
Date.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. The
Plan, however, will materially change the amounts reported in the consolidated
financial statements as of the Effective Date. The financial statements included
herein do not give effect to any adjustments to the carrying value of assets or
amounts of liabilities that might be necessary as a consequence of the Plan. The
appropriateness of using the going concern basis is dependent upon, among other
things, the ability to comply with financing agreements, generation of
sufficient cash from operations and financing sources to meet obligations, and
achievement of satisfactory levels of future operating profit.
In November 1990, the American Institute of Certified Public Accountants issued
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"). Pursuant to the guidance provided by
SOP 90-7, the Company will adopt "fresh start" reporting as of the effective
date of the Plan. Under "fresh start" reporting, the reorganization value of the
entity will be allocated to the entity's assets. If any portion of the
reorganization value cannot be attributed to specific tangible or identifiable
intangible assets of the emerging entity, such amounts are to be reported as
"reorganization value in excess of amounts allocable to identifiable intangible
assets" and amortized over a period of years, generally substantially less than
forty years. As a result of adopting "fresh start" reporting upon emerging from
Chapter 11 status, the Company's consolidated financial statements will not be
comparable with those prepared before the Plan is confirmed, including the
historical consolidated financial statements included herein. The Company is in
the process of obtaining an independent determination of such reorganization
value.
In addition to fresh start reporting, SOP 90-7 provides guidance for financial
reporting by entities that have filed petitions with the Court and expect to
reorganize under Chapter 11. The Company followed these guidelines in the
accompanying October 31, 1994, consolidated financial statements. Pursuant to
SOP 90-7, prepetition liabilities are reported on the basis of the expected
amount of such allowed claims, as opposed to the amounts for which those allowed
claims may be settled. Under the Plan, holders of those claims will receive
Company securities based upon the amount of their claims.
As of October 31, 1994, prepetition liabilities subject to compromise consist of
the following (in thousands):
11.99% Subordinated Debentures due 1996..... $ 49,924
Accounts payable............................ 6,532
Accrued interest payable.................... 3,324
Contribution payable to pension plan........ 2,417
Other liabilities........................... 8
-------
$62,205
=======
During October 1994, the Company notified the Pension Benefit Guaranty
Corporation (the "PBGC") of its intent to terminate its pension plan effective
December 31, 1994. A Bankruptcy Court hearing was held on November 9, 1994, at
which the Judge found that a distress termination of the retirement income plan
was appropriate and so ordered. The Company has negotiated a settlement with the
PBGC consistent with the Plan under which the PBGC shall be treated as a Class 6
creditor and shall receive a prorata distribution with other Class 6 creditors
and an amount of new preferred stock equal to 20% of the new preferred stock
that the PBGC would otherwise receive as a Class 6 creditor.
The Company has requested approval from the Court to pay or otherwise honor
certain of its prepetition obligations, including certain wages, salaries and
related benefits of employees, claims for certain limited contributions to an
employee benefit plan, and claims up to $900 per creditor arising from the
deposit of money for certain services, claims of vendors to contracts under
which the Company has posted a bond. The Plan provides that unsecured claims
(other than subordinated Debentureholders) of $5,000 or less, which will be
entitled to receive the lesser of a payment of cash equal to 50% of such claim
or such creditors pro rata share of $650,000. The Company's short-term
borrowings under a revolving financing agreement is a secured claim. Under the
Plan, the Company is responsible for either renegotiating the revolving
financing agreement or finding a lender that will satisfy the creditor's claim.
Under the terms of the Plan, each holder of an unsecured claim not specifically
classified in another class will receive, after the Effective Date of the Plan,
a pro rata share of a new series of preferred stock and new common stock. The
new series of preferred stock will consist of 1,133,333 shares, subject to
increase based upon unsecured claims other than the Debentureholders in excess
of $5 million, and will have an aggregate liquidation preference of at least $17
million. The new common stock will constitute 75% of the total outstanding
common stock of the Company after the Effective Date.
5. INVESTMENT IN AFFILIATE
On September 27, 1994, the Company entered into an agreement (the "Agreement")
with Datapoint. Of the 2,743,385 shares of Datapoint common stock held by the
Company at July 31, 1994, 2.4 million shares were distributed to Datapoint
pursuant to the terms of the Agreement. The remaining 343,385 shares were
retained by the Company. In addition, the Agreement called for the cancellation
of the Company's $10 Redeemable Preferred Stock (the "Preferred Stock") issued
to Datapoint on November 9, 1990, in connection with the purchase of Datapoint
Canada, subsequently renamed Intelogic Trace Canada, Inc. Also resulting from
the purchase of Datapoint Canada and subsequently canceled on September 27,
1994, was an option issued to Datapoint to purchase all of the Company's
holdings of Datapoint common and preferred stock. The effect of the Agreement
caused the cancellation and return to the Company of the Preferred Stock and the
recording of the shares of Datapoint common stock at fair market value resulting
in an increase to additional paid-in capital of $5.7 million.
Of the 343,385 shares of Datapoint common stock held by the Company, 43,385
shares were sold as of October 31, 1994. The Company intends to sell the
remaining 300,000 shares which are classified as marketable securities and
recorded at their fair market value as of October 31, 1994.
6. CONTINGENCIES
The Company filed a Voluntary Petition on August 5, 1994 under Chapter 11 of the
United States Bankruptcy Court. A Disclosure Statement to the Plan of
Reorganization of the Company was approved by the Court. The Company's Plan was
confirmed by the Court on November 22, 1994. See Note 4 for further discussion.
Two shareholders of the Company have filed lawsuits against the Company and its
Board of Directors demanding that the Company seek damages from its Board of
Directors with respect to the Company's 1990 purchases of the stock of the
Company and Datapoint. A committee of the Board of Directors was appointed to
consider the demands raised in each case. The committee retained independent
counsel to review the matters raised in the lawsuits and determined that it was
not in the best interest of either the Company or its shareholders to accept
either demand and, accordingly, instructed counsel to seek the dismissal of both
lawsuits. In January 1992, a motion for summary judgment on behalf of the
Company and the Board of Directors was denied in the lawsuit pending in the New
York State Court and is currently on appeal. A similar motion, involving only
the Company's purchase of its own stock, was denied with leave to renew after
the appeal in the New York State Court action is decided. The second case is
pending in the United States District Court for the Southern District of New
York. This action charged a violation of the proxy laws and breach of fiduciary
duties with respect to several actions by the Board, including the purchase of
the Company's own stock. In June 1993, another shareholder commenced a
derivative action against certain members of the Company's Board of Directors
and Datapoint. Because this latest action is substantially similar to one of the
previously filed suits, the plaintiffs in the latest action have filed a motion
to dismiss their complaint without prejudice.
On May 13, 1994, the Company announced that although it and the Board of
Directors expressly disclaim and deny any liability or wrongdoing with respect
to the allegations, a settlement had been reached in order to avoid the
additional expense, burden, inconvenience and distraction of continued
litigation. Pursuant to the settlement agreement, which is subject to Bankruptcy
and District Court approval, the Company will receive $2.4 million less
attorney's fees and expenses (not to exceed $800,000) awarded by the Court. In
addition, the Company has agreed to form a committee of the Board to address and
approve certain matters relating to the Company's current and prospective
investments. The cash portion of the settlement is fully covered by the
Company's director and officer liability insurance but may be offset in whole or
in part by future director and officer liability insurance premium increases. A
United States District Judge for the Southern District of New York has held a
hearing concerning the fairness of the proposed settlement. However, no opinion
has yet been issued. The Judge has referred the case to the Bankruptcy Court for
further adjudication consistent with bankruptcy laws. Due to the current
uncertainty as to any recovery, the Company has not recorded any receivable. The
Judge held a hearing on this matter on November 28, 1994, and has requested that
the parties submit briefs on certain matters. The matter is still under
advisement.
On October 4, 1994, certain Debentureholders filed an adversary proceeding in
the Bankruptcy Court against the Company alleging securities law violations and
certain other common law causes of action. The litigation relates to the
Company's purchases of securities, including Datapoint Stock and related
actions. The plaintiffs in the adversary proceeding seek monetary damages,
attorney's fees, and costs of suit. A hearing on this matter is scheduled
for January 23, 1995.
The Internal Revenue Service ("IRS") has issued assessment letters relating to
the consolidated federal income tax returns of the Company for the years 1986
through 1992. The IRS letters propose assessments totaling $31.0 million in
additional taxes plus interest. The assessment primarily involves the
industry-wide issue of the appropriate method for cost recovery of spare parts.
A recent case on the same issue was decided in the taxpayer's favor by the
United States Tax Court, but is being appealed by the IRS. If the decision was
followed by courts with jurisdiction over the Company, the remaining proposed
assessment would be approximately $2.5 million in additional taxes plus
interest. The Company strongly disagrees with the proposed adjustments and has
filed a protest, appealing each of the adjustments in the IRS report. During
1994, the Company negotiated a settlement with the IRS and on October 3, 1994,
the IRS appeals officer provided the Company a settlement document indicating a
refund of $1.1 million net of interest costs. The IRS settlement document is
subject to approval by the Joint Committee of Congress and therefore, the
ultimate outcome cannot presently be determined. Accordingly, the Company has
not recorded a receivable for any possible refund.
The Company is a party to various legal proceedings in the ordinary course of
business. The Company believes that there is no proceeding either threatened or
pending against the Company that could result in a materially adverse effect on
the business or the financial condition of the Company.
7. SUBSEQUENT EVENTS
CONFIRMATION OF PLAN OF REORGANIZATION
On November 22, 1994, the Company's proposed Plan of Reorganization was
confirmed by the Bankruptcy Court. See Note 4 for further discussion.
EXIT FINANCING
Prior to the confirmation of the Plan, the Company obtained commitments for exit
financing from Foothill Capital Corporation ("Foothill") and Fidelity Capital &
Income Fund ("Fidelity") to make certain loan and financial accommodations to
the Company. The Company entered into an amended and restated general loan and
security agreement with Foothill. The agreement provides for revolving advances,
the proceeds of which may be used for working capital needs and limited capital
expenditures. The revolving advances may not exceed the lesser of: the maximum
amount defined as (a) $4.5 million until June 30, 1995, reducing $100,000 per
month thereafter through December 1, 1995, at which time such amount shall be
and remain at $3.9 million or (b) a defined borrowing base. The defined
borrowing base is a percentage of eligible accounts receivable plus an allowed
overadvance of up to $1.0 million of which such overadvance, if any, is to be
purchased by Fidelity from Foothill on or before January 17, 1995. The
percentage to be applied to eligible accounts for purposes of calculating the
borrowing base will decrease ratably from 80% over the period from the Effective
Date through March 22, 1995, at which time such percentage shall be and will
remain at 70% through December 31, 1995, the final maturity of Foothill's loan.
Borrowings from Foothill are secured by a first lien on the Company's accounts
receivable and a first lien on inventory until the allowed overadvance, if any,
is repaid. Foothill will retain a junior lien in all other existing assets and
shall share prorata in the after acquired assets with Fidelity based upon
outstanding balances owed. Outstanding borrowings accrue interest at 4 1/2
percentage points above the prime rate. The Company is required to pay a
commitment fee of 1/2 of 1% per annum on the average unused portion of the
maximum amount. The agreement expires on December 31, 1995, at which time all
borrowings are due.
The Company also entered into a loan agreement with Fidelity which provides for
an initial advance of $5.0 million to the Company and an amount not to exceed
$1.0 million solely for the purpose of purchasing an overadvance, if any, from
Foothill on or before January 17, 1995. The proceeds of the initial advance were
used to repay the existing overadvance on the Company's indebtedness to Foothill
and the remaining proceeds were used to pay claims of creditors and expenses
incurred by the Company in connection with the Plan of Reorganization.
Borrowings from Fidelity are secured by a first lien on inventory (after the
overadvance, if any); a potential refund from the IRS; shares of Datapoint
common stock; and amounts, if any, from the settlement of shareholder litigation
described in Note 6 to the Consolidated Financial Statements. Fidelity will
retain a junior lien on all other existing assets and shall share prorata in the
after acquired assets with Foothill. Mandatory prepayments are required only
upon the realization of proceeds from assets securing the loan. The outstanding
borrowings accrue interest at 15% per annum. In addition, the Company will pay
Fidelity a closing fee consisting of 6,667 shares of the Company's new 10%
Preferred Stock. The principal amount of the loan, together with any accrued and
unpaid interest is due and payable on December 31, 1995.
SALE OF FIELD SUPPORT SPARES
On November 22, 1994, the Company sold its field support spares for a total of
$2.6 million to PC Service Source ("PCSS"). The Company received $1.4 million of
the proceeds and will receive the remaining proceeds of $1.2 million in
installments of $100,000 per month beginning in December 1994. In connection
with the sale of the field support spares, the Company negotiated an agreement
with PCSS for the outsourcing of the Company's logistics and repair operations.
In anticipation of this sale, the Company valued its field support spares as of
July 31, 1994 at their estimated net realizable value of $2.6 million.
Accordingly, during the quarter ended October 31, 1994, the Company ceased
depreciating its field support spares and commenced recording the purchase of
all new field support spares as cost of service currently.
SUSPENSION OF TRADING BY NEW YORK STOCK EXCHANGE / TRADING ON THE OTC
BULLETIN BOARD
On December 8, 1994, the New York Stock Exchange suspended trading of the
Company's common stock and 11.99% Subordinated Debentures based on the failure
of the Company to meet the continued listing criteria of the New York Stock
Exchange. The Company commenced trading under the symbol "ITLG" on the OTC
Bulletin Board Service on December 13, 1994.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Years referred to are fiscal years)
OVERVIEW
During Spring 1994, the Company experienced an increased reliance on borrowed
funds to satisfy working capital requirements, principally as a result of
continued erosion in operating performance. The Company engaged a company to
review cash flows, financial needs, liquidity concerns, and provide
recommendations to establish both immediate and long-term improvements in cash
flow, profitability, asset management, and capital structure. Liquidity
pressures continued to increase and the Company determined that the aggregate
borrowing availability under its revolving credit agreement would not be
sufficient to meet the Company's obligations on a current basis. The Company's
liquidity shortfall was compounded by the semi-annual interest payment due July
15, 1994, of $3.0 million on the $49.9 million in principal amount of
Debentures. In addition to ongoing discussions with its lender, during late June
and early July 1994, the Company held discussions with the Principal
Debentureholders regarding a potential restructuring of that obligation. On July
15, 1994, the Company filed a Current Report on Form 8-K disclosing that it was
negotiating with its Principal Debentureholders and that it would not make the
interest payment on the Debentures. On July 21, 1994, the Indenture Trustee for
the Debentures issued its notice of default. Pursuant to the terms of the
Indenture, a failure to make the semi-annual interest payment within the
thirty-day grace period allowed by the Indenture would cause an Event of Default
to have occurred. Due to increasing pressures on available capital, the
nonpayment of a promissory note to the Company and potential terminations of
certain leases, licenses, and contracts due to financial defaults, the Board of
Directors reached the conclusion that the protection of the Bankruptcy Code was
necessary in order to consummate the restructuring of the Debentures and the
revolving financing facility.
On August 5, 1994, the Company filed a voluntary petition for reorganization
under Chapter 11. As a result of discussions with its Principal
Debentureholders, contemporaneously with filing the petition, the Company filed
a Plan of Reorganization setting forth the terms of the proposed restructuring.
Under Chapter 11, enforcement of certain claims in existence prior to the filing
of the petition are stayed, while the Company continues operations in the
ordinary course of business as debtor-in-possession. These claims are reflected
in the consolidated financial statements as of October 31, 1994, as "liabilities
subject to compromise." Additional prepetition claims may arise subsequent to
the petition date resulting from the rejection of executory contracts and/or
leases and determination of the Court of allowed claims for contingencies and
other disputed amounts.
On October 4, 1994, the Court approved the Company's Disclosure Statement. The
Disclosure Statement, as modified and amended, describes the Plan proposed by
the Company. The Plan was submitted to a vote of creditors, security holders and
parties in interest, was confirmed by the Bankruptcy Court on November 22, 1994,
and the confirmation order was entered on November 28, 1994. The Plan will,
among other things, cause the following to occur following December 8, 1994, the
Effective Date of the Plan: (1) administrative and tax claims will be paid in
full; (2) a new series of Preferred Stock will be issued to certain holders of
unsecured claims; (3) a four-for-one reverse split of the common stock will be
consummated, with existing common shareholders retaining approximately 25% of
the Company's common stock outstanding after the Effective Date, and (4) certain
holders of unsecured claims will also receive shares of new common stock that
will equal 75% of the shares of common stock outstanding after the Effective
Date.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. The
Plan, however, will materially change the amounts reported in the consolidated
financial statements as of the Effective Date. The financial statements included
herein do not give effect to any adjustments to the carrying value of assets or
amounts of liabilities that might be necessary as a consequence of the Plan. The
appropriateness of using the going concern basis is dependent upon, among other
things, the ability to comply with financing agreements, generation of
sufficient cash from operations and financing sources to meet obligations, and
achievement of satisfactory levels of future operating profit.
DEBTOR-IN-POSSESSION FINANCING
On September 16, 1994, the Court entered an order approving a
debtor-in-possession credit agreement (the "DIP Facility"). The DIP Facility
consists of an extension and modification of the previously existing credit
agreement with Foothill. Borrowings under the DIP Facility bear interest at the
prime rate plus 4.5 percent, are payable monthly in arrears, and are secured by
a lien on substantially all of the assets of the Company. Under the terms of the
DIP Facility, the Company is not authorized to use the collateral (i) upon an
event of non-compliance with the Bankruptcy Court order approving the DIP
Facility, (ii) after December 31, 1994, unless extended by mutual agreement of
the Company and Foothill, or (iii) after entry of an order by the Court
confirming a plan of reorganization of the Company.
In September, the Company determined that it would require $1.3 million
post-petition credit in addition to the DIP Facility to provide additional
working capital for continued operations. Under approval of the Court, the
Company obtained this additional credit from Fidelity Capital and Income Fund
("Fidelity"), a Principal Debentureholder, at an annual interest rate of 15%.
The balance of this note is classified as a note payable in the October 31, 1994
statement of financial position.
Although no assurance can be made, management believes the Company can generate
sufficient cash from operations and from existing financing sources to meet its
obligations on a current basis during the pendency of the Case.
EXIT FINANCING
Prior to the confirmation of the Plan, the Company obtained commitments for exit
financing from Foothill and Fidelity to make certain loan and financial
accommodations to the Company. The Company entered into an amended and restated
general loan and security agreement with Foothill. The agreement provides for
revolving advances, the proceeds of which may be used for working capital needs
and limited capital expenditures. The revolving advances may not exceed the
lesser of: the maximum amount defined as (a) $4.5 million until June 30, 1995,
reducing $100,000 per month thereafter through December 1, 1995, at which time
such amount shall be and remain at $3.9 million or (b) a defined borrowing base.
The defined borrowing base is a percentage of eligible accounts receivable plus
an allowed overadvance of up to $1.0 million of which such overadvance, if any,
is to be purchased by Fidelity from Foothill on or before January 17, 1995. The
percentage to be applied to eligible accounts for purposes of calculating the
borrowing base will decrease ratably from 80% over the period from the Effective
Date through March 22, 1995, at which time such percentage shall be and will
remain at 70% through December 31, 1995, the final maturity of Foothill's loan.
Borrowings from Foothill are secured by a first lien on the Company's accounts
receivable and a first lien on inventory until the allowed overadvance, if any,
is repaid. Foothill will retain a junior lien in all other existing assets and
shall share prorata in the after acquired assets with Fidelity based upon
outstanding balances owed. Outstanding borrowings accrue interest at 4 1/2
percentage points above the prime rate. The Company is required to pay a
commitment fee of 1/2 of 1% per annum on the average unused portion of the
maximum amount. The agreement expires on December 31, 1995, at which time all
borrowings are due.
The Company also entered into a loan agreement with Fidelity which provides for
an initial advance of $5.0 million to the Company and an amount not to exceed
$1.0 million solely for the purpose of purchasing an overadvance, if any, from
Foothill on or before January 17, 1995. The proceeds of the initial advance were
used to repay the existing overadvance on the Company's indebtedness to Foothill
and the remaining proceeds were used to pay claims of creditors and expenses
incurred by the Company in connection with the Plan of Reorganization.
Borrowings from Fidelity are secured by a first lien on inventory (after the
overadvance, if any); a potential refund from the IRS; shares of Datapoint
common stock; and amounts, if any, from the settlement of shareholder litigation
described in Note 6 to the Consolidated Financial Statements. Fidelity will
retain a junior lien on all other existing assets and shall share prorata in the
after acquired assets with Foothill. Mandatory prepayments are required only
upon the realization of proceeds from assets securing the loan. The outstanding
borrowings accrue interest at 15% per annum. In addition, the Company will pay
Fidelity a closing fee consisting of 6,667 shares of the Company's new 10%
Preferred Stock. The principal amount of the loan, together with any accrued and
unpaid interest is due and payable on December 31, 1995.
REORGANIZATION ACCOUNTING ISSUES
In November 1990, the American Institute of Certified Public Accountants issued
SOP 90-7. Pursuant to the guidance provide by SOP 90-7, the Company will adopt
"fresh start" reporting as of the Effective Date. Under "fresh start" reporting,
the reorganization value of the entity will be allocated to the entity's assets.
If any portion of the reorganization value cannot be attributed to specific
tangible or identifiable intangible assets of the emerging entity, such amounts
are to be reported as "reorganization value in excess of amounts allocable to
identifiable intangible assets" and amortized over a period of years, generally
substantially less than forty years. As a result of adopting "fresh start"
reporting upon emerging from Chapter 11 status, the Company's consolidated
financial statements will not be comparable with those prepared before the Plan
is confirmed, including the historical consolidated financial statements
included herein. The Company is in the process of obtaining an independent
determination of such reorganization value.
In addition to "fresh start" reporting, SOP 90-7 provides guidance for financial
reporting by entities that have filed petitions with the Court and expect to
reorganize under Chapter 11. The Company followed these guidelines in the
accompanying October 31, 1994 consolidated financial statements. Pursuant to SOP
90-7, prepetition liabilities are reported on the basis of the expected amount
of such allowed claims, as opposed to the amounts for which those allowed claims
may be settled. Under the Plan, holders of those claims will receive Company
securities based upon the amount of their claims.
As of October 31, 1994, prepetition liabilities subject to compromise consist of
the following (in thousands):
11.99% Subordinated Debentures due 1996.... $49,924
Accounts payable........................... 6,532
Accrued interest payable................... 3,324
Contribution payable to pension plan....... 2,417
Other liabilities.......................... 8
-------
$62,205
=======
OTHER
On December 8, 1994, the New York Stock Exchange suspended trading of the
Company's common stock and 11.99% Subordinated Debentures based on the failure
of the Company to meet the continued listing criteria of the New York Stock
Exchange. The Company's common stock commenced trading under the symbol "ITLG"
on the OTC Bulletin Board Service on December 13, 1994.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1994 AND 1993
Earnings (loss) from operations improved from a loss of $850,000 in first
quarter 1994 to earnings of $453,000 in first quarter 1995. This was due
primarily to profit of $650,000 on the sale of certain parts to a customer. In
addition, the Company has been successful in implementation of its cost
reduction program which was launched in connection with the anticipated decline
in revenue.
REVENUE
Total revenue for the first quarter 1995 declined $3.5 million (17.3%) compared
to the first quarter 1994 due largely to the cancellation and non-renewal of
various service contracts. Additionally, $675,000 was due to a decline in
revenue from servicing Datapoint-manufactured products. This was due primarily
to the continued decline of the Datapoint customer base. The decline in revenue
was partially offset by the one-time sale of certain parts to a customer for
$2.5 million. Included in the cost of sales is $1.8 million of costs associated
with these parts. This sales activity is not expected to continue in future
quarters.
During the first quarter 1995, the cancellation of various service contracts
resulted in the decline reflected in accounts receivable and deferred revenue
from July 31, 1994 to October 31, 1994. For most service contracts, the Company
bills in advance and records the billing as a receivable and as deferred
revenue. When the contracts were canceled, the related receivable and deferred
revenue were written off.
Management believes that the decline in revenue during 1994 and 1995 is
attributable to a variety of factors including the price of service offerings,
new product warranty offerings, an increased level of competition in the market
for service-related products and a negative reaction to the bankruptcy filing.
These factors are expected to continue through much of 1995 and as a result,
revenues are expected to continue to fall below fiscal year 1994 levels.
COST OF REVENUE
Excluding the effects of the sale of parts as discussed in "Revenue" above, the
decrease in the total cost of revenue approximated the decline in revenue.
OPERATING EXPENSES
Operating expenses decreased $807,000 (or 17.2%) due to the Company's cost
reduction efforts. Total personnel costs accounted for the majority of the
decline due to the reduction in staff during the spring of 1994. Also
contributing to the improvement in operating expenses were lower facility lease
costs resulting from the Company's ability to renegotiate lease costs during
bankruptcy.
On November 22, 1994, the Company sold its field support spares for a total of
$2.6 million to PCSS. The Company received $1.4 million of the proceeds and
will receive the remaining proceeds of $1.2 million in installments of $100,000
per month beginning in December 1994. In connection with the sale of the field
support spares, the Company negotiated an agreement with PCSS for the
outsourcing of the Company's logistics and repair operations. The Company
anticipates that this agreement will result in a reduction of operating costs
associated with the logistics and repair operations. In anticipation of this
sale, the Company valued its field support spares as of July 31, 1994 at their
estimated realizable value of $2.6 million. Accordingly, during the quarter
ended October 31, 1994, the Company ceased depreciating its field support spares
and commenced recording the purchase of all new field support spares as cost of
service currently.
REORGANIZATION CHARGES - BANKRUPTCY
For the first quarter 1995, reorganization charges includes fees and other
charges related to the Company's reorganization under Chapter 11. The majority
of the costs are legal and consulting fees associated with the bankruptcy.
The increase in fees and other charges related to the bankruptcy resulted in the
increase in accrued expenses from July 31, 1994 to October 31, 1994.
INTEREST EXPENSE
Interest expense decreased $1.1 million (or 66.1%) for the first quarter 1995
compared to the same period in 1994. The decline was largely due to the
suspension of the accrual of interest expense associated with the 11.99%
Subordinated Debentures following the filing of Chapter 11.
FEDERAL AND STATE INCOME TAX BENEFIT
The tax benefit of $1.2 million during the first quarter 1994 was the result of
the change in the valuation allowance associated with the tax refunds previously
received.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed a Voluntary Petition on August 5, 1994 under Chapter 11 of the
United States Bankruptcy Court. A Disclosure Statement to the Plan of
Reorganization of the Company was approved by the Court. The Company's Plan was
confirmed by the Court on November 22, 1994. See Note 4 to the Consolidated
Financial Statements for further discussion.
Two shareholders of the Company have filed lawsuits against the Company and its
Board of Directors demanding that the Company seek damages from its Board of
Directors with respect to the Company's 1990 purchases of the stock of the
Company and Datapoint. A committee of the Board of Directors was appointed to
consider the demands raised in each case. The committee retained independent
counsel to review the matters raised in the lawsuits and determined that it was
not in the best interest of either the Company or its shareholders to accept
either demand and, accordingly, instructed counsel to seek the dismissal of both
lawsuits. In January 1992, a motion for summary judgment on behalf of the
Company and the Board of Directors was denied in the lawsuit pending in the New
York State Court and is currently on appeal. A similar motion, involving only
the Company's purchase of its own stock, was denied with leave to renew after
the appeal in the New York State Court action is decided. The second case is
pending in the United States District Court for the Southern District of New
York. This action charged a violation of the proxy laws and breach of fiduciary
duties with respect to several actions by the Board, including the purchase of
the Company's own stock. In June 1993, another shareholder commenced a
derivative action against certain members of the Company's Board of Directors
and Datapoint. Because this latest action is substantially similar to one of the
previously filed suits, the plaintiffs in the latest action have filed a motion
to dismiss their complaint without prejudice.
On May 13, 1994, the Company announced that although it and the Board of
Directors expressly disclaim and deny any liability or wrongdoing with respect
to the allegations, a settlement had been reached in order to avoid the
additional expense, burden, inconvenience and distraction of continued
litigation. Pursuant to the settlement agreement, which is subject to Bankruptcy
and District Court approval, the Company will receive $2.4 million less
attorney's fees and expenses (not to exceed $800,000) awarded by the Court. In
addition, the Company has agreed to form a committee of the Board to address and
approve certain matters relating to the Company's current and prospective
investments. The cash portion of the settlement is fully covered by the
Company's director and officer liability insurance but may be offset in whole or
in part by future director and officer liability insurance premium increases. A
United States District Judge for the Southern District of New York has held a
hearing concerning the fairness of the proposed settlement. However, no opinion
has yet been issued. The Judge has referred the case to the Bankruptcy Court for
further adjudication consistent with bankruptcy laws. Due to the current
uncertainty as to any recovery, the Company has not recorded any receivable. The
Judge held a hearing on this matter on November 28, 1994 and has requested that
the parties submit briefs on certain matters. The matter is still under
advisement.
On October 4, 1994, certain Debentureholders filed an adversary proceeding in
the Bankruptcy Court against the Company alleging securities law violations and
certain other common law causes of action. The litigation relates to the
Company's purchases of securities, including Datapoint Stock and related
actions. The plaintiffs in the adversary proceeding seek monetary damages,
attorney's fees, and costs of suit. A hearing for this matter is scheduled
for January 23, 1995.
The IRS has issued assessment letters relating to the consolidated federal
income tax returns of the Company for the years 1986 through 1992. The IRS
letters propose assessments totaling $31.0 million in additional taxes plus
interest. The assessment primarily involves the industry-wide issue of the
appropriate method for cost recovery of spare parts. A recent case on the same
issue was decided in the taxpayer's favor by the United States Tax Court, but is
being appealed by the IRS. If the decision was followed by courts with
jurisdiction over the Company, the remaining proposed assessment would be
approximately $2.5 million in additional taxes plus interest. The Company
strongly disagrees with the proposed adjustments and has filed a protest,
appealing each of the adjustments in the IRS report. During 1994, the Company
negotiated a settlement with the IRS and on October 3, 1994, the IRS appeals
officer provided the Company a settlement document indicating a refund of $1.1
million net of interest costs. The IRS settlement document is subject to
approval by the Joint Committee of Congress and therefore, the ultimate outcome
cannot presently be determined. Accordingly, the Company has not recorded a
receivable for any possible refund.
The Company is a party to various legal proceedings in the ordinary course of
business. The Company believes that there is no proceeding either threatened or
pending against the Company that could result in a materially adverse effect on
the business or the financial condition of the Company.
ITEM 5. OTHER INFORMATION
On December 8, 1994, the New York Stock Exchange suspended trading of the
Company's common stock and 11.99% Subordinated Debentures based on the failure
of the Company to meet the continued listing criteria of the New York Stock
Exchange. The Company's common stock commenced trading under the symbol "ITLG"
on the OTC Bulletin Board Service on December 13, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.0 - Modified First Amended Plan of Reorganization of the Company, dated
October 12, 1994 (filed as Exhibit 99 to the 1994 Form 10-K and
incorporated herein by reference).
3.1 - Restated Certificate of Incorporation of the Company effective
December 9, 1994.
3.2 - By-laws of the Company, as amended (filed as Exhibit 3.2 to Form 10,
Amendment No. 2 and incorporated herein by reference).
4.1 - Form of 11.99% Subordinated Debenture due July 15, 1996 (filed as
Exhibit 4(a) to the Company's Registration Statement on Form S-1 filed
with the Commission on July 22, 1986 (the "Form S-1") and incorporated
herein by reference).
4.2 - Form of Indenture between the Company and Manufacturers Hanover Trust
Company, as Trustee, relating to the Debentures registered (filed as
Exhibit 4(b) to the Form S-1 and incorporated herein by reference).
4.3 - Indenture dated October 1, 1985 between the Company and the
Manufacturers Hanover Trust Company, as Trustee, relating to the 14 1/2%
Subordinated Notes Due 1995 (filed as Exhibit (c) to Amendment No. 2 on
Form 8 to the Company's Registration Statement on Form 8-A filed with
the Commission on September 19, 1985 and incorporated herein by
reference).
4.4 - Article Fourth of the Certificate of Incorporation of the Company
(included in Exhibit 3.1).
4.5 - Registration Rights Agreement, among the Company, Fidelity Capital and
Income Fund and Salvatore Curiale, Superintendent of Insurance of the
State of New York, as rehabilitator for Executive Life of New York,
dated as of December 8, 1994.
10.1 - Agreement for Transfer of Assets and Liabilities in Exchange for
Stock, dated June 29, 1985, between Datapoint and the Company (filed as
Exhibit 10.1 to the Form 10 and incorporated herein by reference).
10.2 - Master Maintenance Agreement, dated June 28, 1985, between Datapoint
and the Company (filed as Exhibit 10.2 to the Form 10 and incorporated
herein by reference).
10.3 - Assignment and License, dated as of June 29, 1985, between the Company
and Datapoint (filed as Exhibit 10.3 to the Form 10 and incorporated
herein by reference).
10.4 - Datapoint License Agreement, dated as of June 29, 1985, between the
Company and Datapoint (filed as Exhibit 10.4 to the Form 10 and
incorporated herein by reference).
10.5 - I T License Agreement, dated as of June 29, 1985, between the Company
and Datapoint (filed as Exhibit 10.5 to the Form 10 and incorporated
herein by reference).
10.6 - Employment Agreement, dated January 27, 1986, between Philip D.
Freeman and the Company (filed as Exhibit 10(j) to the Form S-1 and
incorporated herein by reference).
10.7 - 1985 Directors Stock Option Plan (filed as Exhibit 10.10 to the Form
10 and incorporated herein by reference).
10.8 - 1985 Employee Stock Option Plan (filed as Exhibit 10.11 to the Form 10
and incorporated herein by reference).
10.9 - Retirement Income Plan (filed as Exhibit 10.12 to the Form 10 and
incorporated herein by reference).
10.10 - Executive Benefit Plan (filed as Exhibit 10.14 to the Form 10 and
incorporated herein by reference).
10.11 - Directors' and Officers' Liability Insurance Policy (filed as Exhibit
10(s) to the Form S-1 and incorporated herein by reference).
10.12 - TexCom Purchase Agreement, dated November 25, 1987, between the
Company and TexCom, Inc. (filed as Exhibit C(2) to the Form 8-K filed
with the Commission on December 9, 1987 and incorporated herein by
reference).
10.13 - Amendment to the 1985 Directors Stock Option Plan (filed as Exhibit
10(o) to the 1989 Form 10-K and incorporated herein by reference).
10.14 - First Amendment to the TexCom Purchase Agreement, dated June 20, 1989,
between the Company and TexCom, Inc. (filed as Exhibit 10(v) to the 1989
Form 10-K and incorporated herein by reference).
10.15 - Acquisition Agreement, dated November 9, 1990, between Datapoint and
the Company (filed as Exhibit 10(v) to the 1990 Form 10-K and
incorporated herein by reference).
10.16 - Option Agreement, dated November 9, 1990, between Datapoint and the
Company (filed as Exhibit 10(w) to the 1990 Form 10-K and incorporated
herein by reference).
10.17 - Employment Agreement, dated July 1, 1991, between Asher B. Edelman and
the Company (filed as Exhibit 10(s) to the 1991 Form 10-K and
incorporated herein by reference).
10.18 - Intelogic Trace, Inc. 401(k) Retirement Savings Plan (filed as Exhibit
10.22 to the 1992 Form 10-K and incorporated herein by reference).
10.19 - Purchase Agreement, dated June 23, 1992, between Gemini Systems
Leasing Corp., Intelogic Trace TexCom Group, Inc. and The Lockwood
Association, Inc. (filed as Exhibit 10.23 to the 1992 Form 10-K and
incorporated herein by reference).
10.20 - First Amendment to Purchase Agreement, dated June 23, 1992, between
Gemini Systems Leasing Corp., Intelogic Trace TexCom Group, Inc. and The
Lockwood Association, Inc. (filed as Exhibit 10.24 to the 1992 Form 10-K
and incorporated herein by reference).
10.21 - First Amendment to the Employment agreement, dated July 1, 1991,
between Asher B. Edelman and the Company (filed as Exhibit 10.29 to the
1992 Form 10-K and incorporated herein by reference).
10.22 - Second Amendment to the Employment Agreement, dated July 1, 1991,
between Asher B. Edelman and the Company (filed as Exhibit 10.35 to the
1992 Form 10-K and incorporated herein by reference).
10.23 - First Amendment to the Employment Agreement, dated July 28, 1991,
between Mark S. Helwege and the Company (filed as Exhibit 10.36 to the
1992 Form 10-K and incorporated herein by reference).
10.24 - Employment Agreement, dated August 1, 1993, between Martin J. Landon
and the Company (filed as Exhibit 10.37 to the 1993 Form 10-K and
incorporated herein by reference).
10.25 - Employment Agreement, dated October 26, 1992, between John Alexander
Wilder and the Company (filed as Exhibit 10.38 to the 1993 Form 10-K and
incorporated herein by reference).
10.26 - Employment Agreement, dated November 2, 1992, between Michael E.
Schultz and the Company (filed as Exhibit 10.39 to the 1993 Form 10-K
and incorporated herein by reference).
10.27 - Second Amendment to the Employment Agreement, dated July 28, 1991,
between Mark S. Helwege and the Company (filed as Exhibit 10.27 to the
1994 Form 10-K and incorporated herein by reference).
10.28 - Second Amendment to the Employment Agreement dated January 27, 1986,
between Philip D. Freeman and the Company (filed as Exhibit 10.28 to the
1994 Form 10-K and incorporated herein by reference).
10.29 - Agreement, dated September 27, 1994, between the Company and Datapoint
Corporation (filed as Exhibit 10.29 to the 1994 Form 10-K and
incorporated herein by reference).
10.30 - Final Order Authorizing Use of Cash Collateral, Post-Petition
Financing, and Grant of Security Interest (describing
debtor-in-possession Financing Facility between the Company and Foothill
Capital Corporation) dated September 16, 1994 (filed as Exhibit 10.30 to
the 1994 Form 10-K and incorporated herein by reference).
10.31 - Final Order (1) Authorizing the Debtor to Incur Secured Priority
Administrative Indebtedness Pursuant to Section 364 (c) of the
Bankruptcy Code, (2) Granting Security Interests, (3) Approving
Agreement Related to the Foregoing and (4) Granting Other Relief
(describing the loan agreement between Fidelity Capital and Income Fund
and the Company) dated November 8, 1994 (filed as Exhibit 10.31 to the
1994 Form 10-K and incorporated herein by reference).
10.32 - Master Repair Services and Spare Parts Supply Agreement between PC
Service Source, Inc. and the Company, dated November 17, 1994.
10.33 - Employment Agreement between the Company and Mark S. Helwege, dated
December 1, 1994.
10.34 - Employment Agreement between the Company and Philip D. Freeman, dated
December 1, 1994.
10.35 - Loan and Security Agreement, between Fidelity Capital & Income Fund
and the Company, dated as of December 8, 1994.
10.36 - Settlement Agreement, between the Pension Benefit Guaranty
Corporation, the Company, Intelogic Trace Systems Group, Inc., Intelogic
Trace Canada, Inc., ITTG, Inc., TLA, Inc., and Intelogic Trace Marion
Group of Puerto Rico, Inc., dated as of November 22, 1994.
10.37 - Amended and Restated General Loan and Security Agreement between
Foothill Capital Corporation and the Company, dated December 8, 1994.
11 - Computation of Earnings Per Share.
27 - Financial Data Schedule for the three months ended October 31, 1994.
(b) REPORTS ON FORM 8-K:
During the quarter ended October 31, 1994, the Company filed the following
current reports on Form 8-K:
DATE FILED DESCRIPTION
- ---------- -----------
August 5, 1994 Form 8-K reported the Company's filing of a voluntary
petition on August 5, 1994 under Chapter 11 of the
Bankruptcy Act, Case No. 94-52172-C, in the United
States Bankruptcy Court, Western District of Texas, San
Antonio Division, Judge Leif M. Clark presiding.
September 16, 1994 Form 8-K announced the hiring of Ellen Kipfer as vice
president of the Company's marketing and field support
organization headquartered in San Antonio.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 14, 1994
INTELOGIC TRACE, INC.
(Registrant)
By /S/ MIKE R. ELLIS
Mike R. Ellis
Vice President and
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial
and Accounting Officer)
EXHIBIT 3.5
RESTATED CERTIFICATE OF INCORPORATION
OF
INTELOGIC TRACE, INC.
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
<PAGE>
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is INTELOGIC TRACE, INC. The date of filing of the original
Certificate of Incorporation of the Corporation with the Secretary of State of
the State of New York was June 24, 1985.
2. The Restated Certificate of Incorporation hereby adopted
restates, integrates and further amends the Certificate of Incorporation of the
Corporation as in effect on the date hereof by striking out Articles FIRST
through NINTH thereof and substituting in lieu thereof new Articles FIRST
through NINTH which are set forth in the Restated Certificate of Incorporation
below.
3. In connection with such amendment, effective upon the
filing of this Restated Certificate of Incorporation with the Secretary of State
of the State of New York, (i) each four (4) Common Shares, par value $.01, of
the Corporation issued and outstanding immediately prior to the filing of this
Restated Certificate of Incorporation shall thereby and thereupon be combined
into and shall constitute and represent one (1) validly issued, fully paid and
nonassessable Common Share, par value $.01, of the Corporation, (ii) there shall
be transferred from the stated capital account of the Corporation to its earned
surplus account $.01 for each share eliminated in respect of such combination,
(iii) fractional share interests created as a result of this combination shall
be rounded up to the next whole number of shares by the Corporation, and (iv)
the Board of Directors of the Corporation shall be reconstituted by the removal
from the Board of Directors, without cause, of all directors of the Corporation
in office immediately prior to the filing hereof and the appointment, effective
upon the filing hereof, of the following individuals as directors of the
Corporation, each to serve until the next annual meeting of the shareholders of
the Corporation and the election and qualification of his successor or until his
earlier death, resignation, removal or incapacity: Kevin P.
1
Collins, Mark S. Helwege, Henry F. Owsley, Lawrence C. Petrucci and Frank Terry
A. Savage. The number of Common Shares and Preferred Shares authorized prior to
and after the filing of this Restated Certificate of Incorporation does not
change. All shares of Preferred Stock issued and outstanding immediately prior
to the filing of this Restated Certificate of Incorporation shall thereby and
thereupon be cancelled. The 5,000,000 shares of Preferred Stock designated as
10% Preferred Shares constitute a new series of Preferred Stock.
4. The Restated Certificate of Incorporation of the
Corporation certified herein has been duly made, executed and acknowledged in
accordance with the provisions of Section 808 of the Business Corporation Law of
the State of New York, pursuant to a plan of reorganization under chapter 11 of
title 11 of the United States Code, which has been confirmed by Final Order
entered November 28, 1994 of the United States Bankruptcy Court for the Western
District of Texas, San Antonio Division, the court having jurisdiction over the
Corporation's chapter 11 case, which order is in effect on the date hereof.
5. The Restated Certificate of Incorporation of the
Corporation shall become effective upon the filing hereof with the Secretary of
State of the State of New York and shall read as follows:
FIRST: The name of the corporation is INTELOGIC
TRACE, INC. (hereinafter referred to as the "Corporation").
SECOND: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
Business Corporation Law of the State of New York (the "Business Corporation
Law"). The Corporation is not being formed to engage in any act or activity
requiring the consent or approval of any state official, department, board,
agency or other body without such consent or approval first being obtained.
THIRD: The county within the State of New York in
which the office of the Corporation is to be located is the
county of New York.
FOURTH: The Corporation is authorized to issue 40,000,000
common shares, par value $.01 per share ("Common
2
Shares"), and 20,000,000 preferred shares, par value $.01 per share, of which
5,000,000 shares shall be designated as "10% Preferred Shares."
No nonvoting securities of the Corporation shall be issued;
this provision is included in this Restated Certificate of Incorporation in
compliance with section 1123 of the Bankruptcy Code, 11 U.S.C. ss. 1123, and
shall have no force or effect except to the extent, and only for so long as,
such section is applicable to the Corporation.
The rights, preferences, privileges and restrictions granted
to and imposed upon the 10% Preferred Shares are set forth as follows:
1. DIVIDENDS. So long as any 10% Preferred Shares shall be
outstanding, the holders of such 10% Preferred Shares shall be entitled to
receive, when and as declared by the Board of Directors, out of any funds
legally available therefor, cumulative preferential dividends in cash, payable
quarterly on the first business day of each January, April, July and October,
commencing on April 3, 1995, or if such date is not a business day, on the
immediately succeeding business day (each a "Dividend Payment Date"), in an
amount equal to (i) $.4695 per share for the Dividend Payment Date on April 3,
1995 and (ii) for each Dividend Payment Date thereafter, the sum of (A) $.375
per share plus (B) an additional amount calculated at a rate of 10% per annum on
the amount of any dividends payable prior to such Dividend Payment Date that
remained unpaid during the quarterly period ending on such Dividend Payment
Date. Dividends on the 10% Preferred Shares shall accumulate and accrue from the
date of issuance thereof and shall accrue from day to day thereafter, whether or
not earned or declared.
2. PREFERENCE ON LIQUIDATION. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the 10% Preferred Shares then outstanding shall be entitled to be
paid an amount equal to the Liquidation Preference (as hereinafter defined) of
the 10% Preferred Shares out of the assets of the Corporation available for
distribution to its shareholders, whether such assets are capital, surplus or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the Common Shares or any preferred shares
ranking junior to the 10% Preferred Shares
3
as to dividends or upon liquidation, dissolution or winding up of the
Corporation. The "Liquidation Preference" of the 10% Preferred Shares shall be
$15.00 per share PLUS an amount equal to all accrued and unpaid dividends
thereon, whether or not earned or declared, to and including the date of payment
in connection with such liquidation, dissolution or winding up. If upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed to the holders of the 10% Preferred
Shares shall be insufficient to permit the payment to such shareholders of the
full preferential amounts aforesaid, then all of such assets of the Corporation
shall be distributed ratably to the holders of the 10% Preferred Shares in
proportion to the amounts that each would have been entitled to receive if the
Corporation's assets were sufficient to permit distribution to the full extent
provided for above.
3. REDEMPTIONS. (a) MANDATORY REDEMPTION. On December 8, 2004
(the "Mandatory Redemption Date"), the Corporation shall redeem, from funds
legally available therefor, all of the then outstanding 10% Preferred Shares at
a redemption price per 10% Preferred Share equal to the Liquidation Preference
determined in accordance with paragraph 2 of this Article Fourth. In the event
the Corporation does not have surplus legally available to redeem all of the
then outstanding 10% Preferred Shares, (i) the Corporation shall first redeem
the maximum number of 10% Preferred Shares that it may redeem with the surplus
legally available therefor pro rata to the holders of the 10% Preferred Shares,
based on the number of shares held by each such holder and (ii) the Corporation
shall redeem the remainder of the 10% Preferred Shares as soon as it has surplus
legally available to do so.
(b) COMPANY OPTIONAL REDEMPTION. To the extent the Corporation
shall have funds legally available therefor, the Corporation may, upon notice as
provided in paragraph 3(d), redeem all or any portion of the 10% Preferred
Shares then outstanding at a redemption price per 10% Preferred Share equal to
the Liquidation Preference determined in accordance with paragraph 2 of this
Article Fourth.
4
If less than all of the 10% Preferred Shares at the time outstanding are to be
redeemed, the shares so to be redeemed shall be determined pro rata to the
holders of 10% Preferred Shares, based on the number of shares held by each such
holder, or in such other manner as the Board of Directors may determine to be
fair and proper.
(c) 10% PREFERRED SHAREHOLDER OPTIONAL REDEMPTION. In the
event that (i) the Corporation agrees to sell, assign, transfer or lease all or
substantially all of its assets to any person or group (as such terms are
defined in Rule 13d under the Securities Exchange Act of 1934, as amended) or
(ii) any person or group (as such terms are defined in Rule 13d under the
Securities Exchange Act of 1934, as amended), other than any record owner of not
less than 10% of the issued and outstanding Common Shares of the Corporation on
the date of original issuance of the 10% Preferred Shares, shall become the
record owner (whether pursuant to a stock purchase, merger, consolidation, other
business combination or otherwise) of a majority of the Common Shares of the
Corporation, the Corporation shall provide each holder of the 10% Preferred
Shares with written notice, at such holder's address as the same appears on the
books of the Corporation or any transfer agent for the 10% Preferred Shares, of
the occurrence of such event and the right of such holder to cause the
Corporation to redeem the 10% Preferred Shares pursuant to this paragraph 3(c).
At the written request of any holder of the 10% Preferred Shares received by the
Corporation within 20 business days after delivery of the Corporation's notice
pursuant to the preceding sentence, the Corporation shall redeem any or all
shares of 10% Preferred Shares owned of record by such holder at the Liquidation
Preference upon the later to occur of the consummation of the transaction giving
rise to such right of redemption or the surrender of stock certificates as
provided in paragraph 3(e).
(d) NOTICE. The Corporation shall, not less than 30 days nor
more than 60 days prior to any redemption date pursuant to paragraph 3(a) or
(b), mail written notice (the "Redemption Notice"), postage prepaid, to each
holder of record of 10% Preferred Shares to be redeemed at such holder's post
office address last shown on the records of the Corporation or any transfer
agent for the 10% Preferred Shares. The Redemption Notice shall state:
5
(i) the total number of 10% Preferred Shares that the
Corporation intends to redeem;
(ii) the number of 10% Preferred Shares held of record
by the holder that the Corporation intends to redeem;
(iii) the redemption date and the redemption price of
the 10% Preferred Shares that the Corporation intends to
redeem;
(iv) the time, place and manner in which the holder is
to surrender to the Corporation the certificate or
certificates representing the 10% Preferred Shares to be
redeemed; and
(v) that dividends on the 10% Preferred Shares to be
redeemed will cease to accrue on such redemption date.
(e) Each holder of 10% Preferred Shares to be redeemed
pursuant to this paragraph 3 shall tender the certificate or certificates
representing the shares subject to redemption to the Corporation at its
principal executive office or to the transfer agent for the 10% Preferred
Shares, if any, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto) and accompanied by
written notice specifying, if all the shares represented by the certificates so
surrendered are not subject to redemption, the number of shares surrendered for
redemption, and the name or names of the person or persons to whom such holder
wishes payment for the shares to be redeemed to be made and in which the
certificate or certificates for any shares not redeemed should be registered and
the address to which payment for redeemed shares and such certificate or
certificates, if any, should be sent, and such holder shall thereupon be
entitled to payment of the redemption price, subject to the provisions of
paragraph 7 of this Article Fourth regarding payment of taxes, by check made
payable to the order of the person so designated sent by first-class mail,
postage prepaid, to the address so designated, as soon as practicable after the
redemption date. In case less than all of the shares represented by any such
surrendered certificates are to be redeemed, the Corporation shall, subject to
the provisions of paragraph 7 of this Article Fourth regarding payment of taxes,
issue and deliver in the
6
same manner a new certificate or certificates representing the shares not
redeemed in the name or names so requested.
(f) Any redemption of 10% Preferred Shares pursuant to
paragraph 3(a) or (b) of this Article Fourth shall be effective as of the close
of business on the date fixed for redemption by the Board of Directors (which
date shall be not less than thirty (30) days after the Corporation shall have
given notice of redemption). Prior to the effective date of any redemption
pursuant to this paragraph 3, holders of 10% Preferred Shares subject to
redemption shall be entitled to all powers, rights and preferences attributable
to such shares, but after such effective date, if the funds necessary for the
redemption shall be available therefor, such shares shall no longer be deemed to
be outstanding, and a holder of such shares shall be entitled to no further
dividends, powers, preferences or other rights as a shareholder of the
Corporation, other than the right to receive payment of the redemption price
upon surrender of the certificates representing such shares in accordance with
this paragraph 3.
(g) No sinking fund shall be created for the redemption or
purchase of the 10% Preferred Shares.
4. VOTING RIGHTS. (a) LIMITED VOTING RIGHTS. The holders of
10% Preferred Shares shall not be entitled to any voting rights except as
otherwise provided by law or as set forth in paragraphs (b) and (c) below.
(b) RIGHT TO ELECT DIRECTORS. (i) Whenever quarterly dividends
payable (whether or not declared) on the 10% Preferred Shares as provided in
paragraph 2 are in arrears in an aggregate amount at least equal to four full
quarterly dividends (which need not be consecutive) or if the Corporation
defaults on its redemption obligations pursuant to paragraph 3(a) or 3(c)
hereof, the number of directors constituting the Board of Directors of the
Corporation shall, without further action, be increased by two (the "Additional
Directors") and the holders of the 10% Preferred Shares shall have, in addition
to the rights set forth in paragraph 4(c), the special right, voting separately
as a single class, to elect two directors to fill such newly created
directorships at a special meeting called in accordance with paragraph 4(b)(v)
or at the next succeeding annual meeting of shareholders (and at each
7
succeeding annual meeting of shareholders thereafter until such right shall
terminate as hereinafter provided).
(ii) At each meeting of shareholders at which
the holders of the 10% Preferred Shares shall have the right to vote as a class,
as provided in this paragraph 4(b) and in paragraph 4(c), the presence in person
or by proxy of the holders of record of a majority of the total number of 10%
Preferred Shares then outstanding shall be necessary and sufficient to
constitute a quorum of such class for such election by such shareholders as a
class. At any such meeting or adjournment thereof, (x) the absence of a quorum
of holders of the 10% Preferred Shares shall not prevent the election of
directors other than those to be elected by the holders of the 10% Preferred
Shares and the absence of a quorum of the holders of any other class of shares
for the election of such other directors shall not prevent the election of the
Additional Directors by the holders of the 10% Preferred Shares, and (y) in the
absence of a quorum of the holders of the 10% Preferred Shares, a majority of
the holders present in person or by proxy shall have the power to adjourn the
meeting from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present. At any such meeting
or adjournment thereof, the affirmative vote of a majority of the quorum shall
constitute the action of the holders of the 10% Preferred Shares. Any action to
be taken by holders of the 10% Preferred Shares may be taken by written consent
of the holders of a majority of the then outstanding 10% Preferred Shares.
(iii) Subject to the termination of voting rights as set
forth in paragraph 4(vi) below, each Additional Director shall hold office for
one year and until his successor, if any, is elected by the holders of the 10%
Preferred Shares and qualified, or until his earlier death, resignation, removal
or incapacity.
(iv) An Additional Director may be removed
with or without cause only by the holders of the 10% Preferred Shares. If an
Additional Director shall resign, die or be removed, such vacancy may be filled
for the unexpired portion of the term by vote of the remaining Additional
Director theretofore elected by such shareholders, or such director's successors
in office, or by the vote of such shareholders given at a special meeting of
such shareholders called for that purpose.
8
(v) Whenever the voting rights set forth in
this paragraph 4(b) have vested, the Secretary of the Corporation may, and upon
the written request of any holder of the 10% Preferred Shares (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of the 10% Preferred Shares to elect the Additional
Directors, such call to be made by notice similar to that provided in the
By-laws of the Corporation for a special meeting of the shareholders or as then
required by applicable law. If any such special meeting required to be called as
provided above shall not be called by the Secretary within 20 days after receipt
of any such request, then any holder of the 10% Preferred Shares may call such
meeting upon the notice provided above, and for that purpose shall have access
to the 10% Preferred Share Register. Notwithstanding anything herein contained,
the Corporation shall not be required to call a special meeting for any date
less than 30 days prior to a date previously fixed for any annual or special
meeting or prior to the date fixed by the By-laws of the Corporation for the
annual meeting, provided that in case the Corporation shall not be required to
call a special meeting, the holders of the 10% Preferred Shares may elect the
Additional Directors referred to in this paragraph 4(b) at such special or
annual meeting on the date previously fixed.
(vi) Whenever all dividends accrued and unpaid
on the 10% Preferred Shares shall have been paid and dividends thereon for the
current quarterly period shall have been paid or declared and set apart for
payment and if the Corporation is not then in default of its mandatory
redemption obligation under paragraph 3(a), the special right of the holders of
the 10% Preferred Shares to elect directors as provided in this paragraph 4(b)
shall terminate, the term of office of the Additional Directors shall forthwith,
and without further action on the part of the Corporation, expire and the number
of directors constituting the Board of Directors shall, without further action,
be reduced by the number of Additional Directors, but subject always to the same
provisions for the re-vesting of such special right of the holders of the 10%
Preferred Shares to elect directors as hereinabove provided.
(c) CERTAIN ACTIONS. (i) So long as any 10% Preferred Shares
are outstanding, the Corporation shall not declare or pay any dividends on, or
any other distribution of any kind in respect of, the Corporation's Common
Shares
9
or any preferred shares ranking junior to the 10% Preferred Shares as to
dividends or upon liquidation, dissolution or winding up of the Corporation, or
make, directly or indirectly, any payment on account of the purchase, redemption
or other acquisition of the Common Shares or such preferred shares ranking
junior to the 10% Preferred Shares, unless concurrently with or prior to such
payment all 10% Preferred Shares then outstanding shall have been redeemed in
accordance with paragraph 3 of this Article Fourth; PROVIDED, HOWEVER, that this
restriction shall not apply to the repurchase of Common Shares or preferred
shares from employees of the Corporation or any of its subsidiaries pursuant to
agreements under which the Corporation has the option to repurchase such shares
upon the termination of employment by or service to the Corporation or any of
its subsidiaries.
(ii) So long as any 10% Preferred Shares are outstanding, the
Corporation shall not, without approval by vote or written consent of the
holders of the outstanding 10% Preferred Shares in accordance with paragraph
4(b)(ii), voting as a class, in person or by proxy, at a special or annual
meeting of shareholders called for that purpose, effect or validate (1) the
creation or authorization of any additional class or series of shares ranking
senior to or on parity with the 10% Preferred Shares (either as to dividends or
upon liquidation, dissolution or winding up); or any increase in the authorized
number of 10% Preferred Shares or of any other class or series of preferred
shares ranking senior to or on parity with the 10% Preferred Shares (either as
to dividends or upon liquidation, dissolution or winding up); or the creation or
authorization of any obligation or security convertible into preferred shares of
any class or series ranking senior to or on parity with the 10% Preferred Shares
(either as to dividends or upon liquidation, dissolution or winding up), whether
any such creation or authorization or increase shall be by means of amendment of
the Certificate of Incorporation of the Corporation, merger, consolidation or
otherwise; (2) the issuance of any 10% Preferred Shares other than the 10%
Preferred Shares issued in connection with the consummation of the Corporation's
Plan of Reorganization, as amended, under Chapter 11 of the U.S. Bankruptcy
Code; or (3) the amendment, alteration or repeal of any provision of this
Restated Certificate of Incorporation in any manner which would materially alter
the relative rights and preferences of the 10% Preferred Shares so as to
adversely affect the holders thereof.
10
(iii) So long as any 10% Preferred Shares remain outstanding,
the Corporation shall not, and shall not permit any subsidiary to, without
approval by vote or written consent of the holders of the outstanding 10%
Preferred Shares in accordance with paragraph 4(b)(ii), voting as a class, in
person or by proxy, at a special or annual meeting of shareholders called for
that purpose:
(w) redeem, purchase or otherwise acquire
for value, any 10% Preferred Share except by
redemption in accordance with paragraph 3 hereof;
(x) institute proceedings to be adjudicated bankrupt or
insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against it, or consent to, or file a petition seeking,
reorganization or relief under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Corporation or a substantial part of its property, or make any
assignment for the benefit of creditors, or admit in writing its
inability to pay its debts generally as they become due, or take
corporate action in furtherance of any such action; or
(y) enter into any agreement, contract or understanding or
otherwise incur any obligation which by its terms would violate, be in
conflict with, or restrict the rights of the holders of 10% Preferred
Shares hereunder or the Corporation's performance of the terms of this
Restated Certificate of Incorporation.
5. NO REISSUANCE OF 10% PREFERRED SHARES. No 10% Preferred
Shares acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued, and all such shares shall be cancelled, retired
and eliminated from the shares which the Corporation shall be authorized to
issue.
6. WAIVERS. With the written consent of the holders of 10%
Preferred Shares that would otherwise be required to amend a particular
provision of this Article Fourth, the obligations of the Corporation and the
rights of the holders of the 10% Preferred Shares under such provision of this
Article Fourth may be waived (either
11
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely). Upon the effectuation of
each such waiver, the Corporation shall promptly give written notice thereof to
the holders of 10% Preferred Shares who have not previously consented thereto in
writing.
7. MISCELLANEOUS. (a) The Corporation shall pay any and all
stock transfer and documentary stamp taxes that may be payable in respect of any
issuance or delivery of 10% Preferred Shares. The Corporation shall not,
however, be required to pay any such tax which may be payable in respect of any
transfer involved in the issuance and delivery of 10% Preferred Shares or other
securities in a name other than that in which the 10% Preferred Shares with
respect to which such shares are issued were registered, or any payment to any
person other than the registered holder thereof, and shall not be required to
make any such issuance or delivery unless and until the person otherwise
entitled to such issuance or payment has paid to the Corporation the amount of
any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid or is not payable.
(b) In the event a holder of 10% Preferred Shares shall not by
written notice designate the name in which payment upon redemption of 10%
Preferred Shares should be made or the address to which the certificate or
certificates representing such shares, or such payment, should be sent, the
Corporation shall be entitled to register such shares, and make such payment, in
the name of the holder of such 10% Preferred Shares as shown on the records of
the Corporation or any transfer agent for the 10% Preferred Shares and to send
the certificate or certificates representing such shares, or such payment, to
the address of such holder on the records of the Corporation or any transfer
agent for the 10% Preferred Shares.
(c) In respect to the payment of dividends and distributions
upon liquidation, dissolution or winding up of the affairs of the Corporation,
the 10% Preferred Shares shall rank senior to each and every other class or
series of common shares and preferred shares of the Corporation now or hereafter
existing which by its terms ranks junior to the 10% Preferred Shares (it being
understood that consent to the creation of a series or class of stock ranking
senior to
12
the 10% Preferred Shares must be obtained pursuant to Section 4 of
this Article Fourth).
(d) The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the 10% Preferred Shares. Upon any
such appointment or discharge of a transfer agent, the Corporation shall send
notice thereof by first-class mail, postage prepaid, to each holder of record of
10% Preferred Shares.
(e) The Corporation shall maintain at its principal executive
offices and at the office of the transfer agent, if any, for the 10% Preferred
Shares a copy of this Restated Certificate of Incorporation, which shall be
available for inspection during ordinary business hours by any holder of 10%
Preferred Shares, and any such holder may copy or take extracts therefrom, or
obtain, without charge, a copy thereof upon written request to the Corporation,
attention: Secretary.
(f) Except as may otherwise be required by the Business
Corporation Law, the holders of 10% Preferred Shares shall not have any powers,
preferences and relative, participating, optional or other special rights other
than those specifically set forth in this Restated Certificate of
Incorporation of the Corporation.
(g) If any provision of this Article Fourth is determined to
be invalid, unlawful or unenforceable by reason of any rule of law or public
policy, all provisions set forth herein which can be given effect without giving
effect to the invalid, unlawful or unenforceable provision shall, nevertheless,
remain in full force and effect, and no provision hereof shall be deemed
dependent upon any other provision hereof, unless so expressed herein.
FIFTH: No holder of shares of the Corporation of any class,
now or hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the Corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights to subscribe to or purchase such shares, or any securities convertible to
or exchangeable for such shares, which may at any time be issued, sold or
offered for sale by the Corporation.
13
SIXTH: The Secretary of State of the State of New York is
designated as the agent of the Corporation upon whom process against the
Corporation may be served. The post office address within or without the State
of New York to which the Secretary of State shall mail a copy of any process
against the Corporation served upon such Secretary of State is Intelogic Trace,
Inc., 8415 Datapoint Drive, San Antonio, Texas 78229-8480, attention: General
Counsel.
SEVENTH: A director shall not be personally liable to the
Corporation or its shareholders for damages for any breach of duty as a
director, except for any matter in respect of which such director shall be
liable by reason that, in addition to any and all other requirements for such
liability, there shall have been a judgment or other final adjudication adverse
to such director that establishes that such director's acts or omissions were in
bad faith or involved intentional misconduct or a knowing violation of law or
that such director personally gained in fact a financial profit or other
advantage to which such director was not legally entitled or that such
director's acts violated Section 719 of the Business Corporation Law. Neither
the amendment nor the repeal of this Article shall eliminate or reduce the
effect of this Article in respect to any matter occurring, or any cause of
action, suit or claim that, but for this Article, would accrue or arise, prior
to such amendment, repeal or adoption of an inconsistent provision. This Article
shall neither eliminate nor limit the liability of a director for any act or
omission occurring prior to the adoption of this Article.
EIGHTH: The Corporation shall indemnify, to the extent
permitted by the Business Corporation Law, as amended from time to time, all
current, former and future directors and officers of the Corporation whom it is
permitted to indemnify pursuant thereto. Directors whose services terminated on
or before the Effective Date of the Plan of Reorganization shall be indemnified
solely in accordance with the terms and provisions of such Plan.
NINTH: Subject to any limitations contained elsewhere in this
Restated Certificate of Incorporation, By-laws of the Corporation may be
adopted, amended or repealed by a majority of the Board of Directors of the
Corporation, but any By-laws adopted by the Board may be amended or repealed by
the shareholders entitled to vote thereon. Except as may otherwise be
specifically provided in this
14
Restated Certificate of Incorporation, no provision of this Restated Certificate
of Incorporation is intended by the Corporation to be construed as limiting,
prohibiting, denying or abrogating any of the general or specific powers or
rights conferred under the Business Corporation Law upon the Corporation, upon
its shareholders, bondholders and security holders, and upon its directors,
officers and other corporate personnel.
[REMAINDER OF PAGE IS INTENTIONALLY LEFT BLANK]
15
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be executed by Mike R. Ellis, its Vice President and Chief
Financial Officer, and affirmed by Philip D. Freeman, its Secretary, as of the
8th day of December, 1994 and we affirm the statements contained therein as true
under penalties of perjury.
INTELOGIC TRACE, INC.
By: MIKE R. ELLIS
Name: Mike R. Ellis
Title: Vice President
Name: PHILIP D. FREEMAN
Title: Secretary
16
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
among
INTELOGIC TRACE, INC.
FIDELITY CAPITAL & INCOME FUND
and
SALVATORE CURIALE,
Superintendent of Insurance of the
State of New York, as Rehabilitator for
Executive Life Of New York
Dated as of December 8, 1994
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Securities Subject to this Agreement .......................... 1
SECTION 2. Registration .................................................. 1
SECTION 3. Liquidated Damages ............................................ 3
SECTION 4. Registration Procedures ....................................... 4
SECTION 5. Registration Expenses ......................................... 7
SECTION 6. Indemnification; Contribution ................................. 8
(a) Indemnification by the Company ............................ 8
(b) Indemnification by Holders of Registrable Securities ...... 8
(c) Conduct of Indemnification Proceedings .................... 9
(d) Contribution .............................................. 10
SECTION 7. Rule 144A ..................................................... 11
SECTION 8. Miscellaneous ................................................. 11
(a) Remedies .................................................. 11
(b) Additional Signatories .................................... 11
(c) Amendments and Waivers .................................... 11
(d) Notices ................................................... 11
(e) Successors and Assigns .................................... 12
(f) Counterparts .............................................. 13
(g) Headings .................................................. 13
(h) Governing Law ............................................. 13
(i) Severability .............................................. 13
(j) Entire Agreement .......................................... 13
i
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of December 8, 1994 among INTELOGIC TRACE, INC., a New York
corporation (the "Company"), FIDELITY CAPITAL & INCOME FUND, a Massachusetts
business trust ("Fidelity"), and SALVATORE CURIALE, Superintendent of Insurance
of the State of New York, as rehabilitator for Executive Life of New York
("Executive Life"). Fidelity and Executive Life will own shares of the Common
Stock, $.01 par value per share, of the Company (the "Common Shares") and shares
of 10% Preferred Stock, $.01 par value, of the Company (the "Preferred Shares").
The parties hereby agree as follows:
SECTION 1. SECURITIES SUBJECT TO THIS AGREEMENT. The term
"Registrable Securities" means the Common Shares and Preferred Shares (including
any shares from time to time received from the Company in exchange therefor or
as a result of dividends, splits or similar actions with respect to Registrable
Securities) to be received by each of Fidelity and Executive Life and by any
other holder of such Common Shares and Preferred Shares who becomes a signatory
to this Agreement as contemplated by Section 8(b) of this Agreement (the
"Holders" or a "Holder," or the "Sellers" or a "Seller") as of the effectiveness
(the "Effective Date") of the restructuring of the Company's 11.99% Subordinated
Debentures that were due July 15, 1996 pursuant to a plan of reorganization
under chapter 11 of title 11 of the United States Code, which has been confirmed
by Final Order entered on November 28, 1994 of the United States Bankruptcy
Court for the Western District of Texas, San Antonio Division, the court having
jurisdiction over the Company's chapter 11 case. For convenience, unless the
context otherwise indicates, the various agreements made herein with respect to
Fidelity and Executive Life shall be deemed to be made on behalf of the
respective Holders or Sellers, and references herein to "Signatories" shall
include Fidelity, Executive Life and any other holder of Registrable Securities
as of the Effective Date that becomes a party to this Agreement.
SECTION 2. REGISTRATION.
(a) The Company shall (i) cause to be filed with the Securities
and Exchange Commission (the "Commission") on or before February 6, 1994, a
shelf Registration Statement on Form S-1 (the "Shelf Registration Statement")
covering the Registrable Securities in accordance with Rule 415 under the
Securities Act of 1933, as amended (the "Act"), relating to the offer and sale
of Registrable Securities by the Holders from time to time in accordance with
the methods of distribution elected by the Sellers and set forth in the Shelf
Registration Statement, (ii) use its best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission at the
earliest possible time, but in no event later than March 8, 1994, and (iii) in
connection with the foregoing, file (A) all pre-effective amendments to the
Shelf Registration Statement as may be necessary in order to cause such
Registration Statement to become effective, and (B) if applicable, a
post-effective amendment to the Shelf Registration Statement pursuant to Rule
430A under the Act.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
forming part thereof to be usable by the Holders for a period of three years or
such shorter period that will terminate when all the Registrable Securities
covered by the Shelf Registration Statement have been sold pursuant to such
Registration Statement (in any such case, such period being called the "Shelf
Registration Period").
(c) In the event that, following the Shelf Registration Period,
the Company shall receive from any Holder or Holders of Registrable Securities
comprising not less than 5% of the issued and outstanding Common Shares or
Preferred Shares, a written request that the Company effect the registration of
Registrable Securities, the Company will (i) promptly, and in any event within
15 days, give written notice thereof to each other Holder, (ii) cause to be
filed with the Commission as promptly as possible (and in any event within 60
days after the Company receives such request) a Registration Statement on Form
S-1 (or on an alternative form if such alternative form is then authorized for
the sale to the public of the Registrable Securities and such form would permit
registration of the Registrable Securities for sale by or on behalf of the
Holders) (each a "Registration Statement", which term shall include the Shelf
Registration Statement) covering the Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any Holder or Holders joining in such request as are specified in a written
request received by the Company within 15 days after receipt of the written
notice by the Company pursuant to clause (i), relating to the offer or sale of
Registrable Securities by the Holders in accordance with the methods of
distribution elected by the Sellers and set forth in the Registration Statement,
(iii) use
2
its best efforts to cause such Registration Statement to be declared
effective by the Commission at the earliest possible time, and (iv) in
connection with the foregoing, file (A) all pre-effective amendments to such
Registration Statement as may be necessary in order to cause such Registration
Statement to become effective, and (B) if applicable, a post-effective amendment
to such Registration Statement pursuant to Rule 430A under the Act. The Company
shall not be required to effect more than two registrations pursuant to this
Section 2(c). The Company may postpone for a reasonable period of time (not to
exceed 30 days) the filing of any registration statement otherwise required to
be prepared and filed by it pursuant to this Section 2(c) if, at the time it
receives a request for registration, the Board of Directors of the Company shall
determine in good faith that such offering will interfere materially with a
pending or contemplated financing, merger, sale of assets, recapitalization or
other similar corporate action of the Company and the Company shall have
furnished to the Holders seeking such registration a certificate signed by the
President of the Company to that effect, accompanied by a certified copy of the
relevant board resolutions.
(d) SELECTION OF COUNSEL. The Holders of the Registrable
Securities to be included in each Registration Statement shall select one
counsel reasonably acceptable to the Company to represent their interests in
connection with such offering. The reasonable expenses of such counsel to the
Holders shall be borne by the Company.
(e) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION
WITH THE SHELF REGISTRATION STATEMENT. No Holder of Registrable Securities may
include any of its Registrable Securities in any Registration Statement pursuant
to this Agreement unless and until such Holder furnishes to the Company in
writing, within 10 business days after receipt of a request therefor, such
information as the Company may reasonably request for use in connection with the
Registration Statement or prospectus or preliminary prospectus included therein.
No Holder of Registrable Securities shall be entitled to liquidated damages
pursuant to Section 3 hereof unless and until such Holder shall have provided
all such reasonably requested information.
SECTION 3. LIQUIDATED DAMAGES. If (i) the Shelf Registration
Statement is not filed with the Commission on or prior to the date specified for
such filing in this Agreement, (ii) the Shelf Registration Statement has not
been declared effective by the Commission on or prior to the date specified for
3
such effectiveness in this Agreement, or (iii) the Shelf Registration Statement
is filed and declared effective but, during the period the Company is required
to maintain its effectiveness, shall thereafter cease to be effective or fail to
be usable for its intended purpose (each such event referred to in clauses (i)
through (iii), a "Registration Default"), the Company agrees to pay liquidated
damages to the Holders of Registrable Securities in an amount equal to $5,000
per week, apportioned ratably among such Holders based on the number of Common
Shares held by each such Holder, for each week or portion thereof that the
Registration Default continues. All accrued liquidated damages shall be paid to
the Holders of Registrable Securities by the Company by wire transfer of, or
check of, immediately available funds, on the first business day of each month
following a Registration Default. Following the cure of all Registration
Defaults relating to any particular Registrable Securities, the accrual of
liquidated damages with respect to such Registrable Securities will cease.
SECTION 4. REGISTRATION PROCEDURES. In connection
with any Registration Statement to be filed pursuant to Section 2
of this Agreement, the Company will as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective (i) in the case of the Shelf
Registration Statement, for the Shelf Registration Period, and (ii) in the case
of each other Registration Statement, for at least 180 days (or such shorter
period as shall terminate when all Registrable Securities covered by such
Registration Statement have been sold), and comply with the provisions of the
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act")
applicable to it with respect to the disposition of all Registrable Securities
of the Company covered by such Registration Statement during such period;
(b) furnish to each Signatory, without charge, at least one
signed copy of the Registration Statement and any post-effective amendment
thereto, as soon as such documents become available to the Company, and such
number of conformed copies thereof and such number of copies of the prospectus
(including any preliminary prospectus) and any amendments or supplements
thereto, and any documents incorporated by reference therein, as such Signatory
may reasonably request as soon as such documents become available to the Company
in order to facilitate the disposition of the Registrable Securities being sold
by each
4
Seller (it being understood that the Company consents to the use of the
prospectus and any amendment or supplement thereto by each Seller of such
Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or supplement
thereto);
(c) on or prior to the effective date of the Registration
Statement, or thereafter if necessary, use its best efforts to register or
qualify the Registrable Securities under such other securities or blue sky laws
of such jurisdictions as each Signatory reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
each Seller to consummate the disposition in such jurisdictions of such
Registrable Securities owned by such Seller; PROVIDED, HOWEVER, that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph, or (ii) subject itself to general taxation in any such jurisdiction;
(d) use its best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Sellers to consummate the
disposition of such Registrable Securities;
(e) notify each Signatory at any time while the Registration
Statement is required to be effective under paragraph (a) above of the happening
of any event which results in the Prospectus containing an untrue statement of a
material fact or omitting to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and, as
promptly as practicable, the Company will prepare a supplement or amendment to
such Prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading;
(f) enter into customary agreements and make such representations
and warranties to the Sellers of Registrable Securities as in form, substance
and scope are customarily made by issuers to selling securityholders and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities;
5
(g) in connection with any underwritten offering, enter into an
underwriting agreement with the underwriter of such offering in the form
customary for such underwriter for similar offerings, including such
representations and warranties by the Company, provisions regarding the delivery
of opinions of counsel for the Company and accountants' letters, provisions
regarding indemnification and contribution, and such other terms and conditions
as are at the time customarily contained in such underwriter's underwriting
agreement for similar offerings (and, at the request of any Holder of
Registrable Securities that are to be distributed by such underwriter(s), any or
all (as requested by such Holder) of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriter(s) shall also be made to and for the benefit of such Holder);
(h) make available for inspection during regular business hours
by Fidelity and Executive Life and any attorney, accountant or other agent
retained by them and their attorneys and agents (collectively, the
"Inspectors"), all financial and other records, corporate documents, books and
records, questionnaires, agreements, properties of the Company and other
information (collectively, the "Records") as shall be reasonably requested to
enable them to exercise "due diligence," and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such Inspector in connection with the Registration Statement;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, earnings statements which need not
be audited, covering a period of twelve months beginning after the effective
date of the Registration Statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Act;
(j) notify each Signatory of any stop order or other
suspension of effectiveness of the Registration Statement;
(k) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(l) use its best efforts to cause the Registrable Securities to
be listed on the New York Stock Exchange or any other national securities
exchange or automated quotation system
6
on which a listing for Common Shares or Preferred Shares is maintained; and
(m) cooperate with the Sellers of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
securities to be sold under the Registration Statement (which certificates shall
be in DTC- eligible form) and enable such securities to be in such denominations
and registered in such names as such Sellers may request.
The Company may require each Seller of Registrable Securities as
to which any registration is being effected to furnish to the Company
information regarding the distribution of such securities and such other
information relating to the Seller and its ownership of Registrable Securities
as the Company may from time to time reasonably request for inclusion in the
Registration Statement
Each Holder of Registrable Securities agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 4(e) hereof, such holder will forthwith discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 4(e) hereof
and, if so directed by the Company, such Holder will deliver to the Company (at
the expense of the Company), all copies, other than permanent file copies then
in such Holder's possession of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
SECTION 5. REGISTRATION EXPENSES. All expenses incident to the
Company's performance of or compliance with Section 2 of this Agreement
including, without limitation, all registration and filing fees, and expenses of
compliance with state securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), printing costs,
fees and expenses of counsel for the Company and its independent certified
public accountants (including the expenses of any special audit required by or
incident to such performance), liability insurance for claims under the Act and
the Exchange Act (it being understood that the Company has no
7
obligation to obtain such insurance), fees and expenses of counsel for the
Sellers under Section 2(d) above and the fees and expenses of any special
experts retained by the Company in connection with such registration (all such
expenses being herein called "Registration Expenses") shall be borne by the
Company; PROVIDED, HOWEVER, that in no event shall Registration Expenses include
any discounts, commissions or underwriting fees attributable to the sale of the
Registrable Securities.
SECTION 6. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, each participating Holder of
Registrable Securities, its officers, directors, partners, employees and agents
and each person or entity that controls such Holder (within the meaning of the
Act), and any investment advisor thereof or agent therefor (collectively, the
"Indemnified Holders") against all losses, claims, damages, liabilities and
expenses (including reasonable out-of-pocket costs of investigation and
reasonable legal expenses) arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any Registration Statement or
prospectus (or any amendment or supplement thereto) or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in light
of the circumstances under which they are made) not misleading; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement or prospectus, or such
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by any of the Holders specifically for use
in the preparation thereof. This indemnity is in addition to any liability which
the Company may otherwise have. The Company will also indemnify any selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution and their officers and directors and each
person who controls such persons or entities (within the meaning of the Act) to
the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, each
8
such Holder will furnish to the Company, in writing, such information and
affidavits with respect to such Holder as the Company reasonably requests for
use in connection with such Registration Statement or any prospectus included
therein and agrees to indemnify, to the extent permitted by law, the Company,
its directors, officers, employees and agents and each person or entity that
controls the Company (within the meaning of the Act), and any investment advisor
thereof or agent therefor against any losses, claims, damages, liabilities and
expenses (including reasonable out-of-pocket costs of investigation and
reasonable legal expenses) arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in the Registration Statement or
prospectus or any omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein (in the case
of a prospectus, in the light of the circumstances under which they were made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in or should have been contained in any
information or affidavit with respect to such Holder so furnished in writing by
such Holder expressly for inclusion in such Registration Statement; PROVIDED,
HOWEVER, that the obligation of such Holder under this Section 6 shall in no
event exceed the proceeds received by such Holder upon the sale of the
Registrable Securities in the offering covered by such Registration Statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or entity
entitled to indemnification hereunder agrees to give prompt written notice to
the indemnifying party after the receipt by such person or entity of any written
notice of the commencement of any action, suit or proceeding against such person
or entity or investigation thereof for which such person or entity will claim
indemnification or contribution pursuant to this Agreement and, unless in the
reasonable judgment of such indemnified party a conflict of interest exists
between such indemnified party and the indemnifying party with respect to such
claim, permit the indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to such indemnified party. If the indemnifying
party is not entitled to, or elects not to, assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one lead counsel
with respect to such claim (plus local counsel fees, if required), unless in the
reasonable judgment of counsel to such indemnified party a conflict of interest
exists between such indemnified party and any other of such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such
9
additional counsel or counsels. The indemnifying party will not be subject to
any liability for any settlement made without its consent, which consent shall
not be unreasonably withheld.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 6 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein by reason other than that set forth in the proviso at the
end of the first sentence of Section 6(a) hereof, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and indemnified parties in
connection with the actions or inactions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 6(c), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this paragraph were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 6, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 6(a) and (b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 6.
10
SECTION 7. RULE 144A.
The Company hereby agrees with each Signatory, for so long as any
Registrable Securities remain outstanding, to make available to any Signatory or
beneficial owner of Registrable Securities in connection with any sale thereof
and any prospective purchaser of such Registrable Securities from such Signatory
or beneficial owner, the information required by Rule 144(d)(4) under the Act in
order to permit resales of such Registrable Securities pursuant to Rule 144A.
SECTION 8. MISCELLANEOUS.
(a) REMEDIES. Each party hereto, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Each party
agrees that monetary damages may not be adequate compensation for any loss
incurred by reason of a breach of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(b) ADDITIONAL SIGNATORIES. If the Company determines that any
persons, other than the original signatories hereto, who are to receive Common
Shares or Preferred Shares as of the Effective Date may be deemed to be
underwriters within the meaning of the Act with respect to such securities, upon
the written consent of Fidelity and Executive Life such persons may become
additional Signatories to the Agreement and their Shares shall be deemed to be
Registrable Securities.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers and consents to or
departures from the provisions hereof may not be given unless the Company has
obtained the written consent of Holders of a majority of the Registrable
Securities.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made by telecopy (followed by registered
first-class mail or overnight courier delivery of a hard-copy), by overnight
courier or by hand- delivery:
(i) if to the Company, at:
Turtle Creek Tower I
P.O. Box 400044
11
San Antonio, Texas 78229-8415
Attention: Philip Freeman, Esq.
Telecopy: (210) 593-2201
with a copy to:
Cox & Smith Incorporated
1120 E. Pecan Street
Suite 1800
San Antonio, Texas 78205
Attention: James B. Smith, Jr., Esq.
Telecopy: (210) 226-8395
(ii) if to Fidelity, at:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Judy K. Mencher, Esq.
Telecopy: (617) 476-7774
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Bruce R. Zirinsky, Esq.
Telecopy: (212) 310-8007; and
(iii) if to Executive Life, at:
123 William Street
New York, New York 10038
Attention: Kevin Foley
Telecopy:
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including without limitation and without the need for an express
assignment, subsequent Holders of the Registrable Securities; PROVIDED, HOWEVER,
that this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign acquired Registrable Securities from such Holder.
12
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
13
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
INTELOGIC TRACE, INC.
By: PHILIP D. FREEMAN
Name: Philip D. Freeman
Title: Secretary
FIDELITY CAPITAL & INCOME FUND
By: JOHN H. COSTELLO
Name: John H. Costello
Title: Assistant Treasurer
SALVATORE CURIALE,
Superintendent of Insurance
of the State of New York, as
Rehabilitator for Executive
Life of New York
By: RICHARD J. LINDQUIST
Name: Richard J. Lindquist
Title: Managing Director,
First Boston Investment
Management Corporation
EXHIBIT 10.32
MASTER REPAIR SERVICES AND SPARE PARTS SUPPLY AGREEMENT
This Master Repair Services and Spare Parts Supply Agreement (hereinafter the
"Agreement") is made as of the last date written below by and between INTELOGIC
TRACE, INC. ("I T"), a New York corporation, having its principal place of
business located at Turtle Creek Tower I, P. O. Box 400044, San Antonio, Texas
78229 and PC SERVICE SOURCE, INC. ("PCSS"), a Delaware corporation, having its
principal place of business located at 1221 Champion Circle, Suite 105,
Carrollton, Texas 75006.
WITNESSETH:
In consideration of the mutual promises hereinafter set forth, I T and PCSS do
hereby agree as follows:
1. DEFINITIONS. The following terms shall have the meanings
specified below:
A. ACQUIRED ASSETS. "Acquired Assets" shall mean all
Acquired Inventory and Equipment owned by I T.
B. ACQUIRED INVENTORY. "Acquired Inventory" shall mean the
inventory of spare and repair parts listed in the
attached Schedule A.
C. BANKRUPTCY COURT. "Bankruptcy Court" shall mean the
United States Bankruptcy Court for the Western District
of Texas, San Antonio Division.
D. BEST EFFORTS. "Best Efforts" shall mean that either Party
shall use all necessary resources and undertake all
required efforts in good faith to accomplish a task
specified under this Agreement in the timeframes
specified.
E. CASH. "Cash" shall mean cash and cash equivalents
(including certified or cashiers check).
F. CLOSING. The "Closing" shall mean the satisfaction or
waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated
hereby, other than conditions with respect to actions the
respective parties will take at the Closing itself.
G. CONFIRMATION DATE. "Confirmation Date" shall mean the
date designated by the Bankruptcy Court, upon which the
reorganization plan submitted by I T to the Bankruptcy
Court under bankruptcy case number 94-52172-C-11, has
been approved by the Court and such order of approval has
become final and unappealable.
1
H. ESCROW AMOUNT. "Escrow Amount" shall have the meaning
specified in paragraph 3.F.2). below.
I. EQUIPMENT. "Equipment" shall mean the items of machinery,
equipment and other items specified in Schedule B to this
Agreement.
J. FULFILLMENT RATE. "Fulfillment Rate" shall have the
meaning specified in paragraph 4.E.1).a. below.
K. I T CUSTOMERS. "I T Customers" shall mean the end-user,
reseller and manufacturer customers of I T.
L. ORDER. "Order" shall have the meaning specified in
paragraph 4.A. below.
M. ORDINARY COURSE OF BUSINESS. "Ordinary Course of
Business" shall mean the ongoing transaction of business
consistent with the customs and practices of the Parties.
N. THE PARTIES. The "Parties" to this Agreement shall
consist of "PCSS" and "I T", which respectively, shall
have the meanings specified above.
O. PARTS AND REPAIR OPERATIONS. "Parts and Repair
Operations" shall mean the I T spare parts repair and
warehouse facilities and other facilities and locations
utilized by I T at time of execution of this Agreement
as specified on the attached Schedule C, including the
Acquired Inventory, Equipment, and personnel employed by
I T in the provision of spare parts and repair services
required by I T.
P. PASS-THROUGH WARRANTY. "Pass-Through Warranty" shall mean
the warranty provided by the original manufacturer and/or
vendor of the Spare Parts and/or Repair Services provided
under this Agreement, which are directly transferable to
I T as the purchaser of any such Spare Parts and/or
Repair Services (consisting of repair and/or replacement
of any such Spare Parts, and applicable penalty credits,
if any).
Q. PERFORMANCE CREDIT. "Performance Credit" shall have the
meaning specified in paragraph 4.E. below.
R. PURCHASE CREDITS. "Purchase Credits" shall mean the sums
made available to I T to be applied against amounts
payable to PCSS under this Agreement, as provided for in
paragraph 3.F. below.
2
S. I T PURCHASE CREDIT RIGHT. "I T Purchase Credit Right"
(hereinafter "ITPCR") shall have the meaning specified
in paragraph 3.F.3). below.
T. PURCHASE PRICE. "Purchase Price" shall have the meaning
specified in paragraph 3.F. below.
U. REPAIR SERVICES. "Repair Services" shall mean the
performance of subassembly or unit repair or replacement
services by PCSS or its repair vendors for equipment
units, components or parts on items of Spare Parts
received from or on behalf of I T, required in order to
return such defective Spare Parts to good working order.
V. SPARE PARTS. "Spare Parts" shall mean fully operational:
1) personal computer microcomputer and peripheral
equipment spare parts; 2) spare parts acquired by PCSS
from I T under this Agreement designated as "Acquired
Inventory"); and 3) other spare parts requested by I T
under this Agreement for which an Order is accepted by
PCSS; regardless of where any such spare parts may
reside.
2. SCOPE OF AGREEMENT.
A. PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, PCSS agrees to purchase
from I T, and I T agrees to sell to PCSS, all of the
Acquired Assets at the Closing for the consideration
specified in Section 3.F. below.
B. OBLIGATION TO PROVIDE SPARE PARTS AND REPAIR SERVICES.
Subject to the terms and conditions of this Agreement,
PCSS agrees to assume the obligation to provide
substantially all of the Spare Parts and Repair Services
ordered by I T in the course of providing remedial and
preventive maintenance services to I T Customers. PCSS
will not assume or have any responsibility, however, with
respect to any other obligation or liability of I T not
specified in this Agreement.
C. OBLIGATION TO ORDER SPARE PARTS AND REPAIR SERVICES. On and
subject to the terms and conditions of this Agreement, I T
agrees to order, purchase and accept from PCSS, substantially
all of its Spare Parts and Repair Services required by I T in
the course of providing remedial and preventive maintenance
services to I T Customers.
3
3. PURCHASE AND SALE OF ASSETS.
A. PCSS agrees to purchase from I T and I T agrees to sell,
transfer, convey and deliver to PCSS, all right, title,
and interest in and to all the Acquired Assets, including
the Acquired Inventory, Equipment and I T's Parts and
Repair Operations, for the consideration specified in
paragraph 3.F. below. I T hereby represents that it has
good and marketable title to the Acquired Assets, free
and clear of all Security Interests, except for those
which will be released at Closing (e.g. Foothill) and/or
subject to trade liens incurred in the Ordinary Course
of Business that are not yet due and payable (such as
Spare Parts maintained in inventory at repair vendors).
The Closing of the transactions contemplated by this
Agreement shall take place at the office of I T located
in San Antonio, Texas, commencing at 9:00 AM, on November
__, 1994 (the "Closing Date").
B. Upon Closing, PCSS shall make offers of employment in good
faith, to all I T personnel employed by I T in the provision
of spare parts and repair services required by I T, at an
equivalent and substantially similar rate of pay (a listing of
all such I T personnel is attached hereto as Schedule D).
C. Upon Closing, PCSS shall assume and at all times
satisfactorily perform the function of I T's Parts and
Repair Operations. This shall consist, initially, of
funding I T's continued operation of such function, at
PCSS' sole expense. PCSS shall designate and communicate
in writing to I T which of the I T personnel, facilities
and utilities it chooses to maintain. PCSS shall be
responsible for the direct expenses of maintaining the
function of I T's Parts and Repair Operations during the
period of time PCSS initiates a readiness to provide
Spare Parts and Repair Services. PCSS shall have a
period of up to ninety (90) days (the "Service Ramp-Up")
in order to meet the full performance requirements
specified in Section 4 below, in accordance with the
provisions of this Agreement.
D. PCSS shall be responsible for all movement, shipping and
stocking costs associated with the transfer of Acquired
Inventory and Equipment from I T's facilities to locations
specified by PCSS.
E. PCSS shall meet the scheduling needs imposed by the
processing of lease rejections, for use by PCSS of
facilities leased by I T from third parties, under the
requirements of its plan of reorganization with the
Bankruptcy Court. PCSS may continue use of I T
4
facilities, subject to mutually agreed to terms, conditions
and prices negotiated by and between PCSS and the landlord(s)
of any such facilities, at PCSS' sole expense. I T will
cooperate with PCSS in good faith to secure extensions to time
limits on acceptance or rejection of leases, imposed by the
Bankruptcy Court, in the event PCSS requests any such
extensions.
F. PCSS agrees to pay at the Closing, Five Million, One
Hundred Twenty-Five Thousand Dollars ($5,125,000) (the
"Purchase Price") by delivery of:
1) the payment in cash to Fidelity Capital and Income
Fund ("Fidelity") on behalf of I T One Million, Four
Hundred Twenty-Five Thousand Dollars ($1,425,000)
immediately upon Closing, and
2) the payment in cash to Fidelity on behalf of I T One
Million, Two Hundred Thousand Dollars ($1,200,000)
upon the Confirmation Date of the reorganization plan
submitted by I T to the Bankruptcy Court under
bankruptcy case number 94-52172-C-11, provided that I
T is a publicly traded corporation listed on a
national stock exchange at time of exiting from
bankruptcy protection. In the event I T is not a
publicly traded corporation listed on a national
exchange at time of confirmation, PCSS will make
payment in cash of One Million, Two Hundred Thousand
Dollars ($1,200,000) (the "Escrow Amount") to the
Escrow Agent pursuant to the Escrow Agreement
attached hereto as Exhibit 1, under which such sum is
payable to Fidelity on behalf of I T in accordance
with the following:
the payment in cash of One Hundred Thousand
Dollars ($100,000.00) per month, until such
time as the full amount has been paid to
Fidelity on behalf of I T, provided that I T
maintains an average minimum order placement
value of One Hundred Thousand Dollars
($100,000), net of any returns but including
any fees due PCSS by I T, calculated on a
cumulative rolling quarterly basis. In the
event I T fails to maintain the minimum
cumulative average order placement value
mentioned above or has outstanding balances
due in excess of the credit terms provided
herein, PCSS may suspend payments of the
Escrow Amount until I T achieves the minimum
cumulative average order placement value or
brings its account current, in which case
PCSS shall
5
immediately pay Fidelity on behalf of I T
any payments withheld, in addition to any
additional payments due I T; and,
3) the establishment of a Two Million, Five Hundred
Thousand Dollar ($2,500,000) I T Purchase Credit
Right as a contingent liability on the financial
books of PCSS (the "ITPCR"), to be offset by Purchase
Credits generated by certain purchases of Spare Parts
and/or Repair Services from PCSS (except in the event
of breach by PCSS of the "Delivery Requirements"
specified below, or termination of this Agreement
without cause by PCSS as provided for in paragraph
5.A.3), in which case One Million Two Hundred Fifty
Thousand Dollars ($1,250,000) shall be immediately
payable and paid in cash to Fidelity on behalf of I T
in accordance with paragraph 5.A.2).c. below)
pursuant to the following:
a. Purchase Credits shall accrue on a monthly
basis for each month during the term of this
Agreement, in accordance with the following:
(1) Purchase Credits shall be calculated
based upon the aggregate gross total
value ("Gross Total Value") of all
amounts payable to PCSS by I T under
the provisions of this Agreement
(net of any returns, but including
any fees to be paid PCSS under this
Agreement), during each calendar
month during the term of this
Agreement.
(2) Purchase Credits shall accrue at the
rate of five percent (5%) of the
Gross Total Value for any calendar
month, for amounts due PCSS when the
Total Gross Value is less than Seven
Hundred and Fifty Thousand Dollars
($750,000).
(3) Purchase Credits shall accrue at the
rate of six percent (6%) of the
Gross Total Value for any calendar
month, for amounts due PCSS
hereunder, when the Total Gross
Value is equal to or greater than
Seven Hundred and Fifty Thousand
Dollars ($750,000).
(4) Purchase Credits shall not accrue
during any month in which the Gross
Total Value payable to PCSS is less
than One Hundred Thousand Dollars
($100,000).
6
b. Purchase Credits may be applied by I T
effective on or after the first day of the
following month in which such Purchase
Credits were earned, and may be applied by
I T in the form of a short payment of
amounts due and payable to PCSS by I T.
c. In the event the PCSS Note has not been
fully utilized by Purchase Credits generated
hereunder prior to expiration of the initial
term of this Agreement, Purchase Credits
shall continue to accrue, and I T may
continue to use any such Purchase Credits,
for so long as the Agreement is not
terminated as provided for in paragraph
5.A.1). below.
G. PCSS shall have a period of up to sixty (60) days
from date of Closing in which to perform a detailed
inventory and inspection of the Acquired Inventory.
I T hereby represents that the Acquired Inventory
shall be as described in the attached Schedule A.
In the event the inventory results in a
determination that a material shortage of quantities
of Acquired Inventory exists, as compared to the
listing specified in Schedule A, I T will replace
any such material shortages or adjust the purchase
price for such inventory on a proportional basis.
This replacement of material shortages and/or
adjustment of purchase price shall be the exclusive
remedy to PCSS in the event of material shortages
in the Acquired Inventory. Any reduction of the
purchase price provided herein shall reduce the
ITPCR portions of the purchase price in proportion
to the original amount.
H. In the event I T is sold or acquired by a third
party (by merger, stock sale, or sale of a majority
of its business or assets) during the term of this
Agreement and any such transaction results in the
termination of this Agreement prior to the
expiration of the term hereof because the Agreement
is not assumed by a purchaser which would do a
substantially similar type and amount of business
with PCSS as would I T, or is left as a liability
of a corporation or other entity which no longer
conducts a business similar in type and amount to
I T, I T shall agree to the following:
1) If so terminated during the initial twelve
(12) month period from the Confirmation Date
by the Bankruptcy Court, I T will pay PCSS
Seven Hundred and Fifty Thousand Dollars
($750,000).
7
If the Escrow is being paid monthly by PCSS
to I T hereunder, I T will forfeit the
unpaid balance of the Escrow Amount
specified above, subject to a minimum amount
of Seven Hundred and Fifty Thousand Dollars
($750,000), such that if there is an
insufficient amount remaining in escrow to
cover the $750,000 amount, I T would arrange
and make provision for such payment to be
made by I T or the buyer to PCSS as a
condition to the sale, if such sale were to
result in the termination of this Agreement.
2) If terminated subsequent to the initial
twelve (12) month period from the
Confirmation Date, the amount due PCSS would
decline from the $750,000 amount specified
in paragraph 3.H.1) above, at the rate of
Fifteen Thousand, Six Hundred Twenty-Five
Dollars ($15,625) for each month beyond
month twelve (12), beginning on the first
day of any such month, during the remaining
term of the Agreement, until the amount is
reduced to Zero Dollars ($0).
3) The amounts specified in 3.H.1). and 3.H.2).
above shall be considered liquidated damages
in lieu of cover or any other damages which
PCSS might allege as a result of such
termination, and shall be considered the
sole and exclusive remedy available to PCSS
with regard to the termination of this
Agreement as provided for hereinabove.
4. SUPPLY OF SPARE PARTS AND REPAIR SERVICES
A. ORDERING OF SPARE PARTS AND REPAIR SERVICES.
1) I T may from time to time request that PCSS provide
Spare Parts and/or Repair Services by notifying PCSS
in writing, electronically and/or verbally (verified
in writing by I T within one (1) business day),
specifying the Spare Part(s) and/or Repair Services
to be provided (an "Order").
2) PCSS shall provide any such Spare Parts and/or Repair
Services to I T that I T requests which are required
within the Ordinary Course of Business by I T, upon
PCSS's receipt of an Order. Each Order shall
constitute a contract exclusively consisting of the
terms of this Agreement, any applicable Schedule(s)
and the Spare Parts and/or Repair Services set forth
in the Order. The Parties agree that if there is any
inconsistency between the terms of this Agreement and
any Order or acknowledgment form submitted by I T or
PCSS, then the terms of this Agreement shall govern
and control and the inconsistent term found in the
Order or acknowledgment form shall be of no force and
effect.
8
3) "Normal Parts" shall mean those Spare Parts and/or
Repair Services normally provided by PCSS in the
Ordinary Course of Business, whether such Spare Parts
are kept in stock or are ordered on a case-by-case
basis. "Sourced Parts" shall mean those Spare Parts
and/or Repair Services that are not normally provided
by PCSS in the Ordinary Course of Business, but which
are within the scope of the types of Spare Parts
and/or Repair Services normally provided by PCSS
(e.g., a Spare Part such as a hard drive to be used
on a personal computer, of a type or brand not
regularly purchased by PCSS). "Special Order Parts"
shall mean those Spare Parts and/or Repair Services
not normally provided by PCSS in the Ordinary Course
of Business, that are not within the scope of types
of Spare Parts and/or Repair Services normally
provided by PCSS (e.g., a Spare Part or item such as
a peripheral device that attaches to a personal
computer). "Acquired Parts" shall mean those Spare
Parts derived from the Acquired Inventory.
4) With respect to Normal Parts and Acquired Parts, PCSS
shall accept any such Order(s) and fulfill them in
accordance with the Performance Requirements of this
Agreement. With respect to Sourced Parts, PCSS shall
accept any such Order(s) and use its best efforts to
respond to any such request(s) and fulfill them in
accordance with the Performance Requirements of this
Agreement.
B. SPECIAL BID REQUESTS.
1) With respect to Special Order Parts, PCSS shall
immediately use its best efforts to respond to any
such request with a bid price which will be firm for
a minimum period of ninety (90) days. The definition
of normal work day ("Normal Work Day") for purposes
of securing Special Order Parts shall be the greater
of the hours of 8:00 AM to 5:00 PM, Monday through
Friday, excluding regularly observed national
holidays, or the actual hours of operation in the
event the applicable vendor has hours of operation
beyond the Normal Work Day.
2) PCSS will have a period of up to two (2) Normal Work
Days to respond to any such request. In the event
PCSS chooses not to bid on any such request made by
I T, I T shall be free to pursue the purchase of such
Spare Part(s) and/or Repair Service(s) elsewhere,
with no further obligation or liability to PCSS for
any such item(s). Failure by PCSS to
9
respond in writing within the above mentioned two (2)
Normal Work Day response time shall be considered a
formal "No Bid" response by PCSS.
3) In the event PCSS responds with a bid price for any
such item(s) and I T provides PCSS with notification
that the bid price is noncompetitive with the given
bidding opportunity, PCSS will have the opportunity
to revise its bid accordingly.
4) PCSS shall have up to twenty-four (24) hours from
time of receipt of notification that a bid price is
nonresponsive, in which to revise its price. In the
event PCSS chooses not to revise its bid price in a
manner deemed by I T to be competitive with the given
bidding opportunity, or PCSS fails to respond in
writing to any such request within twenty-four (24)
hours of receipt of any such request, the bid
response shall be considered non- responsive, and I T
shall be free to pursue the purchase of such Spare
Part(s) and/or Repair Service(s) with no further
obligation or liability to PCSS for any such item(s).
5) In the event of a No-Bid response as provided for
above, any dollars spent by I T with third parties
for purchase of spare parts and/or repair services
No-Bid by PCSS for items that are within the scope of
equipment normally purchased by PCSS (e.g. personal
computer type equipment, including peripheral
devices), shall accrue for the purposes of
determining the Purchase Credit(s) I T is entitled to
under this Agreement, as if any such spare parts were
purchased by I T from PCSS hereunder (provided that
in the case of No-Bids by PCSS due to a determination
by I T that the PCSS bid price was not competitive,
no such credits will accrue in the event the PCSS bid
price was within a price range consistent with the
percentage uplift specified in the Pricing Schedule
specified in Section 4.I.3). below). I T will notify
PCSS of any such purchases and shall be entitled to
utilize any such credits beginning on the first day
of the week following any such purchases. Purchases
made by I T subsequent to a No-Bid by PCSS that are
not within the scope of equipment purchased by PCSS
shall not accrue for purposes of determining Purchase
Credit(s) I T is entitled to under this Agreement.
10
6) A request for bid shall not constitute placement of
an Order by I T hereunder. I T will communicate
acceptance of special order bids by placement of an
Order with PCSS. PCSS shall not be responsible for
fulfilling special bid items, and I T will be under
no obligation to purchase any such item(s) from PCSS,
unless and until I T places an Order for any such
items. I T will promptly advise PCSS of any contracts
entered into by I T based on bids submitted by PCSS.
C. AUTHORIZED SPARE PARTS AND REPAIR SERVICES PROVIDER.
Provided that PCSS is providing Spare Parts and/or performing
Repair Services in accordance with the provisions of this
Agreement and the applicable Order(s) and extending the below
mentioned payment terms to I T, I T shall not utilize any
party other than PCSS for the provision of Spare Parts and
Repair Services specified under this Agreement.
Notwithstanding the above, I T shall be free to pursue the
procurement of any Spare Parts and/or Repair Services with
third parties outside the scope of this Agreement, for items
for which PCSS has responded with a No Bid, as provided for in
paragraph 4.B. above.
D. SPECIFIED REPAIR SERVICES. PCSS shall provide labor,
parts and materials and shall perform all Repair Services in a
first class and workmanlike fashion, consistent with commonly
accepted industry standards for repair of similar component
spare parts, necessary to repair and upgrade the Spare Parts
to the current minimum revision level, so that any repaired
Spare Parts will conform to the OEM's then current published
operating specifications for form, fit, function and finish;
and consistent with the following:
1) the repair specifications specified in the attached
Exhibit 2 ("Repair Specifications"), and
2) the performance requirements specified below;
E. PERFORMANCE REQUIREMENTS.
1) PARTS DELIVERY. TIME IS OF THE ESSENCE WITH RESPECT
TO THE DELIVERY OF SPARE PARTS ORDERED BY I T. PCSS
shall use its best efforts to deliver all Spare
Parts within the timeframe(s) requested by I T.
Without limiting the foregoing, the following
provisions shall apply to the delivery of Spare
Parts:
11
a. Spare Parts ordered by I T from PCSS under
this Agreement shall arrive at the specified
site within the requested arrival time, for
ninety percent (90%) or more of all such
Spare Parts shipped to I T (the "Fulfillment
Rate"), as determined by I T. Orders shall
be designated for arrival by I T as a
Priority 1 Order or a Priority 2 Order. A
Priority 1 Order shall be set for next
business day arrival and a Priority 2 Order
shall be designated for arrival no later
than 4 business days from the order day.
Failure to meet the Fulfillment Rate
will entitle I T to the Performance Credits
and other remedies specified in this
Agreement, which shall be the exclusive
remedies available to I T for any such
failure. The Fulfillment Rate shall be
measured on a weekly basis (a "Week" being
measured as seven (7) consecutive days
commencing on each Monday), for all Spare
Parts Ordered by I T, shipped by PCSS, in
accordance with the following:
i) "Order Cut-Off Time" shall mean the
point in time during a normal
business day by which I T shall have
placed an Order with PCSS,
subsequent to which time the Order
shall be considered to have been
placed during the following business
day, for purposes of determining
when the Order shall be shipped. The
normal Order Cut- Off Time for
Normal Parts shall be 7:00 PM,
Central Standard Time.
ii) "Orders Received" shall mean the
number of Orders placed with PCSS
during a normal business day by I T
prior to the Order Cut-Off time, for
purposes of determining how many
Orders were placed by I T with PCSS
on a given day.
iii) "Order Shipment Cut-Off Time" shall
mean the point in time during a
normal business day by which PCSS
shall have to physically deliver the
Order to a shipper, in order for the
shipper to accept the Order for
delivery on that day.
iv) "Order Shipment Requirement" shall
mean the amount of time allowed for
PCSS to delivery a received Order to
a shipper, in order to meet the
Fulfillment Rate.
v) "Fulfillment Rate" shall mean the
number of Orders shipped within the
Order Shipment Requirement, divided
by the number of Orders Received
during any such
12
Week, even if delivery for some of
those Orders is scheduled to occur
during the following Week.
b. In the event the Fulfillment Rate for any
week is less than eighty-eight percent
(88%), but not less than eighty-six percent
(86%) of all such Spare Parts shipped to
I T, I T will earn a performance credit (the
"Performance Credit") equal to one and one
half percent (1 1/2%) of the Gross Total
Value of all amounts payable to PCSS by I T
under this Agreement, accrued during any
such one (1) week period, net of returns,
usable by I T beginning on the first day of
the following week.
c. In the event the Fulfillment Rate for any
week is less than eighty-six percent (86%),
but not less than eighty-four percent (84%)
of all such Spare Parts shipped to I T, I T
will earn a Performance Credit equal to
three and one half percent (3 1/2%) of the
Gross Total Value of all amounts payable to
PCSS by I T under this Agreement, accrued
during any such one (1) week period, net of
returns, usable by I T beginning on the
first day of the following week.
d. In the event the Fulfillment Rate for any
week is less than eighty-four percent (84%),
but not less than eighty-one percent (81%)
of all such Spare Parts shipped to I T, I T
will earn a Performance Credit equal to
seven and one-half percent (7.5%) of the
Gross Total Value of all amounts payable to
PCSS by I T under this Agreement, accrued
during any such one (1) week period, net of
returns, usable by I T beginning on the
first day of the following week.
e. In the event the Fulfillment Rate for any
week is less than eighty-one percent (81%)
of all such Spare Parts shipped to I T, I T
will earn a Performance Credit equal to
fifteen percent (15%) of the Gross Total
Value of all amounts payable to PCSS by I T
under this Agreement, accrued during any
such one (1) week period, net of returns,
usable by I T beginning on the first day of
the following week.
f. In the event the Fulfillment Rate for any
week exceeds ninety-two percent (92%) of all
such Spare Parts shipped to I T, PCSS will
earn a Performance Credit equal to one half
of one
13
percent (1/2%) of the aggregate Gross Total
Value of all amounts payable to PCSS by I T
under this Agreement, accrued during any
such one (1) week period, net of returns,
usable by PCSS beginning on the first day of
the following week. This credit will accrue
solely for the purposes of offsetting the
Performance Credits earned by I T, as
specified above, and shall be usable by PCSS
during the term of this Agreement.
g. During the Service Ramp-Up period, the 84%
to 86% Performance Credit category and the
86% to 88% Performance Credit category shall
go into effect in a phased manner in
accordance with the following:
(1) During the initial thirty (30) days
of the Service Ramp-Up period, the
total Performance Credits earned by
I T for the categories specified in
paragraph 4.E.g. above, the 81% to
84% Performance Credit category and
the Less Than 81% Performance Credit
category shall be limited to
twenty-five percent (25%) of any
such amounts.
(2) During the thirty-first (31st)
through sixtieth (60th) day
following the start of the Service
Ramp-Up period, the total
Performance Credits earned by I T
for the categories specified in
paragraph 4.E.g. above shall be
limited to fifty percent (50%) of
any such amounts.
(3) During the sixty-first (61st)
through ninetieth (90th) day
following the start of the Service
Ramp-Up period, the total
Performance Credits earned by I T
for the categories specified in
paragraph 4.E.g. above shall be
limited to seventy-five percent
(75%) of any such amounts.
(4) All other Performance Credit
categories shall remain unchanged
during the Service Ramp-Up period.
h. At the end of the Service Ramp-Up period,
and on any anniversary of the Closing Date
during the term of this Agreement, I T and
PCSS will review the Fulfillment Rates
specified hereunder, and will, subject to
written mutual
14
agreement of the parties, adjust such
Fulfillment Rate(s) accordingly; provided,
however, that I T shall have no obligation
to decrease the Fulfillment Rate
requirements set forth herein.
i. Since Time is of the Essence, in addition to
the foregoing provisions, and notwith-
standing any implication to the contrary
contained in any such provisions, I T, at
its sole discretion, may terminate this
Agreement (in which case the provisions of
paragraph 5.A.2). below shall apply) if and
only if the failure described in (1) and (2)
below occur and are followed promptly
thereafter by written notice of such failure
by I T to PCSS and following that notice
such failure by PCSS reoccurs within 6
months of the failure described in the
notice:
(1) in the event the Fulfillment Rate of
PCSS during any three (3) out of
four (4) consecutive weeks, measured
on a weekly basis, fails to exceed
eighty-four percent (84%), or
(2) in the event the Fulfillment Rate of
PCSS during any week fails to exceed
eighty-one percent (81%).
(3) Notwithstanding the above, during
the initial thirty (30) days of the
Service Ramp-Up period, I T shall
not terminate this Agreement for
failure by PCSS to meet the
Performance Requirements specified
in this Agreement. I T may, however,
elect to terminate this Agreement
subsequent to the initial thirty
(30) day period in accordance with
the provisions specified above.
2) PARTS AGEING. In the event any Spare Parts ordered by
I T are not shipped within three (3) days from the
date specified by I T on the applicable Order, PCSS
shall issue an additional Performance Credit in the
amount of One Hundred Dollars ($100) for each such
Spare Part, for each day beyond three (3) days of any
such required shipment date that PCSS fails to ship
any such Spare Part.
a. During the initial ninety (90) day Service
Ramp-Up period, the above Performance Credit
shall be waived for up to five percent (5%)
of the aggregate number of Spare Parts
falling outside the Parts Ageing three (3)
day Performance Credit window.
15
b. Since Time is of the Essence, in addition to
the foregoing provisions, and notwith-
standing any implication to the contrary
contained in any such provisions, I T, at
its sole discretion, may terminate this
Agreement (in which case the provisions of
paragraph 5.A.2). below shall apply) in the
event more than five percent (5%) of Orders
Received for any Week age more than ten (10)
days beyond the Order Shipment Requirement
if and only if such failure is followed
promptly thereafter by written notice of
such failure by I T to PCSS and following
that notice such failure by PCSS reoccurs
within 6 months of the failure described in
the notice:
3) OUT-OF-BOX-FAILURES. Spare Parts shall be shipped by
PCSS to the I T designated arrival site so as to
arrive in good working order ninety-seven percent
(97%) or more of the time for all such Spare Parts
shipped to I T during any calendar month during the
term of this Agreement. Spare Parts that are not in
good working order at time of arrival shall be
considered an "Out-Of-Box-Failure" ("OOBF"), and
shall entitle I T to a Performance Credit of Fifty
Dollars ($50.00) for every verified OOBF above three
percent (3%) of all such shipped Spare Parts (except
that with respect to Acquired Parts obtained from
I T, the Performance Credit shall be waived for any
such Acquired Parts that have no pass-through
warranty from the applicable Spare Parts vendor, and
the affected Spare parts shall not be counted in
determining the OOBF calculation, until such time as
the affected Spare Part shall have undergone Repair
Services by PCSS, at which time the above Fifty
Dollar ($50.00) Performance Credit shall apply and
any such Spare Part(s) will be counted in determining
the OOBF calculation), in addition to replacement of
the affected Spare Part at no additional charge to
I T for each such OOBF occurrence.
a. Should the OOBF rate for any week exceed
five percent (5%) then I T may elect to
terminate this Agreement (in which case the
provisions of paragraph 5.A.2). shall
apply). In any such event I T shall provide
PCSS with a written notice of its intent to
terminate this Agreement due to excessive
OOBFs.
b. Spare Parts shipped by PCSS to I T from the
Acquired Inventory, which have a warranty
pass-through from the I T Spare Parts vendor
shall be counted in calculating the above
OOBF rate, and will incur a Performance
Credit equal
16
to the greater of the OOBF credit payable by
the repair vendor or the above Fifty Dollar
($50.00) amount.
4) EXCLUDED PARTS. Spare Parts excluded from the
Performance Credit calculations specified in this
Section 4 include Spare Parts which PCSS is unable
to obtain, using its best efforts, as follows:
a. Spare Parts for equipment that is no longer
in production, which are no longer
commercially available.
b. Spare Parts for equipment that is newly
introduced in the marketplace , which are
not commercially available.
c. Spare Parts for which I T and PCSS mutually
agree that the above Performance Credits
shall not apply.
d. Any Spare Parts which for various reasons,
become commercially unavailable on the terms
of delivery and/or at the prices requested
by I T, provided that any such Spare Parts
are ordered by PCSS within one (1) business
day of the request by I T.
e. In each case above, commercially available
shall mean obtainable by PCSS using its best
efforts, within the context of the above
provisions.
F. ON-LINE ACCESS TO PCSS MIS, REPORTING AND INVENTORY CONTROL.
PCSS shall provide I T with the following:
1) PCSS shall provide I T with communication software at
no charge (including dedicated Data Circuit telephone
line), pursuant to which I T and PCSS can communicate
via on-line computer link, including the placement of
Orders, providing shipment status information,
account information, Spare Parts inventory
availability, and access to prices and PCSS Cost
information for Spare Parts and Repair Services
Ordered hereunder.
2) PCSS shall track I T's Spare Parts purchases and
Repair Services usage by computer system, and will
provide regular reports, in the frequency, form,
content and format mutually agreed to by the parties
in writing, at no charge to I T, detailing such
purchases and usage.
17
3) In addition, PCSS shall maintain a database which
identifies and tracks all items of Spare Parts owned
by I T or other parties, maintained in PCSS'
inventory system, which such database shall be at all
times accessible by I T remotely.
G. SHIPMENT AND PACKAGING. Spare Parts shall be shipped in a
manner so as to meet the Performance Requirements specified in
this Agreement. PCSS shall pay the shipping costs for all
Spare Parts purchased and/or receiving Repair Services under
this Agreement, and shall pass on the direct costs of freight
for Orders placed by I T under this Agreement. All Spare Parts
shall be suitably packaged or otherwise prepared for shipment
in accordance with industry standard packing materials. PCSS
shall be responsible for the loss of and/or damage to all
Spare Parts in PCSS's possession, or for items damaged and/or
lost in shipment, and shall coordinate with freight vendors in
any such event. PCSS shall provide adequate insurance coverage
for any Spare Parts owned by I T or other parties, while any
such Spare Parts are in PCSS's possession.
H. DISCREPANCIES.
1) PCSS shall promptly notify I T as to any Spare Part
which I T advises has been shipped to PCSS by I T
which PCSS does not subsequently receive. I T shall
provide PCSS with adequate substantiation of shipment
(i.e., waybill number, etc.) upon request.
2) In the event Spare Part(s) received by PCSS from I T
are not identical to the Spare Part(s) identified on
the Order, PCSS shall immediately notify I T of the
discrepancy which shall be no later than five (5)
days from PCSS's receipt of any such Spare Part(s)
and request a revised Order or instructions regarding
the return shipment of the Spare Part(s). In the
event PCSS fails to acknowledge any discrepancy in
the Spare Part(s) delivered to PCSS within such five
(5) day period, the Spare Part(s) shipped to PCSS
shall be deemed to be in conformance with the Spare
Part(s) identified on the Order.
I. PAYMENT TERMS AND PRICE.
1) PAYMENT TERMS. All purchases under this Agreement
shall be paid for in cash, COD, against a letter of
credit, or on approved credit in accordance with
the following:
18
a. During the term of this Agreement, purchases
hereunder shall be payable on a net sixty
(60) days basis from date of shipment of the
ordered Spare Part . Invoices shall not be
submitted to I T prior to delivery of any
ordered Spare Part(s).
b. PCSS shall extend an initial line of credit
to I T in the amount of Eight Hundred
Seventy-Five Thousand Dollars ($875,000)
provided, however, that PCSS may upon ten
(10) days written notice and failure to cure
by I T, decrease such line of credit and
payment terms if I T has undisputed payables
to PCSS aged more than sixty (60) days. This
line of credit shall be used exclusively for
placing purchases under this Agreement.
c. In the event I T exceeds the line of credit
or extends beyond the net 60 day payment
terms, PCSS shall be entitled to obtain
payment of the amount over credit line from
the Escrow Amount specified in paragraph
3.F.2), in accordance with the provisions of
the Escrow Agreement. In the event the
remaining balance of the Escrow Amount is
insufficient to cover the amount due PCSS,
or the Escrow Amount has been fully paid to
I T, the following shall apply:
i) Past due amounts shall be subject to
an interest charge of the lesser of
one and one-half percent (1-1/2%)
per month or the highest rate
permitted by law.
ii) PCSS may suspend performance under
any Order for which payment is not
made provided that PCSS gives I T
fifteen (15) days advance written
notice of such suspension, and
payment is not made within such
period. In the event I T fails to
remit payment in full of a duly
invoiced amount within such fifteen
(15) day period, PCSS may suspend
any or all Orders under this
Agreement. I T shall be entitled to
this additional fifteen (15) day
notification period no more than
once per any six (6) month period
during the term of this Agreement.
19
iii) Notwithstanding the above, in the
event I T has a bona fide dispute
with a PCSS invoice for Spare Parts,
the parties shall in good faith work
to promptly resolve any such dispute
and PCSS agrees to continue to
provide Spare Parts hereunder,
provided that I T remits payment for
any non- disputed line items set
forth on any such invoice(s).
iv) In the event the Parties are unable
to resolve the dispute within thirty
(30) days of the date I T notifies
PCSS of any such dispute, PCSS may
exercise any of its remedies as
specified herein.
d. In addition, Spare Parts and/or Repair
Services may be paid for through the
redemption of Performance Credits as
specified in paragraph 4.E. above.
2) CALCULATION OF PCSS COST(S).
a. The prices charged for Spare Parts and/or
Repair Services under this Agreement shall
be determined by utilizing an amount
designated as the "PCSS Cost", and applying
a percentage uplift, as provided for in
paragraph 4.I.3).d. below.
b. The PCSS Cost shall be calculated by
determining PCSS average acquisition cost
(rather than FIFO or LIFO) determined in
accordance with Generally Accepted
Accounting Principles ("GAAP") applied on a
consistent basis. In all cases, the term
"cost" shall refer to the actual direct
amounts incurred by PCSS with regard to
fulfilling I T Orders under the Agreement,
less all discounts (excluding payment
discounts), rebates (excluding existing
rebates as of the effective date of this
Agreement), or other adjustments.
c. For Spare Parts repaired by PCSS, PCSS Cost
shall be determined based on PCSS' actual
direct costs of manufacturing materials,
direct manufacturing overhead, general
inbound freight directly associated with
purchased Spare Parts, license fees paid to
third-parties on affected Orders, and direct
labor.
20
d. For the purposes of establishing the price
to be paid by I T for purchases made
hereunder by I T of items of Acquired
Inventory, the factor utilized by PCSS as a
base cost factor shall be Four Million
Dollars ($4,000,000), which shall be
allocated proportionately over the items of
Acquired Inventory specified in the attached
Schedule A.
e. Direct manufacturing overhead shall be
computed in a manner consistent with the
accounting practices used in the Ordinary
Course of Business by PCSS to calculate its
cost of goods sold (in accordance with GAAP)
as reported in PCSS' audited annual
financial statements as of PCSS' most recent
business year end.
f. Direct manufacturing overhead includes only
those overhead costs directly attributable
to the manufacturing process of Spare Parts
and/or Repair Services ordered hereunder.
3) PRICE.
a. The price of Spare Parts and/or Repair
Services under this Agreement shall be equal
to the PCSS Cost plus the percentage
indicated in the Confidential Pricing
Schedule (hereinafter referred to as the
"Pricing Schedule"), or the applicable flat
rate charge specified in the Pricing
Schedule.
b. Special Order Spare Parts not regularly
stocked by PCSS which are sought to be
exchanged by I T, shall be amortized ratably
over four (4) usable cycles. I T shall pay
PCSS an amortization factor in accordance
with the above cycle, if any such Special
Order Spare Parts are not exchanged or sold
at least twice per calendar year.
c. PRICE CHART. The price for Spare Parts shall
be the PC Cost(s) and percentage uplifts
specified in the Pricing Schedule.
For the purposes of the Price Chart
specified in the Pricing Schedule, the
following terms have the following meanings:
21
(1) "Normal Parts" refers to Spare Parts
of a type and brand generally
maintained by PCSS in its inventory
or acquired in the Ordinary Course
of Business.
(2) "Sourced Parts" refers to Spare
Parts of a type and brand not
generally held in inventory by PCSS
and ordered by PCSS for I T through
another supplier.
(3) "Repairs and Exchanges" refers to
repaired or replaced Spare Parts,
including circumstances where the
Spare Part being replaced is
exchanged for a new Spare Part, and
in such circumstances the Spare Part
being exchanged is not part of
Normal Parts for the purposes of the
Price Chart specified in the Pricing
Schedule.
(4) "I T Items" refers to Spare Parts in
I T's Acquired Inventory acquired by
PCSS pursuant to this Agreement.
(5) "Internal Repairs" refers to repairs
performed by PCSS.
(6) "External Repairs" refers to repairs
performed by a party other than
PCSS.
4) HANDLING SERVICE FEE FOR NON-PCSS PARTS. In the event
PCSS is requested to handle and ship spare parts
which are purchased by I T and/or its customers
outside the scope of this Agreement (such as spare
parts No-Bid by PCSS, or parts consigned by I T
Customers for labor-only Service arrangements), PCSS
will agree to manage and process any such parts for a
flat Service fee to be mutually agreed to by the
parties in writing.
5) AVERAGE REPAIR PRICE. During each month of the
initial twelve (12) month period of the Agreement,
the average repair price for all Spare Parts
undergoing Repair Services shall not exceed the
actual average repair cost for Spare Parts repaired
internally by I T during the 6 months ended March 31,
1994.
6) MOST FAVORED PROVISIONS. All of the prices, terms,
warranties and benefits provided by PCSS herein
and/or in any Order are, in the aggregate,
comparable to or better than the prices, terms,
warranties and benefits being offered by PCSS to
any of its other customers for similar sale of Spare
22
Parts and/or Repair Services as of the date of this
Agreement. In the event PCSS shall, during the term
of this Agreement, enter into a transaction with any
other customer for the sale of Spare Parts and/or
Repair Services of like quantities of similar items,
on terms and conditions which collectively, are
substantially more favorable than those offered to
I T, then PCSS shall, upon I T's request, negotiate
with the view towards granting comparably more
favorable terms and conditions to I T with respect to
the sale of Spare Parts and/or Repair Services
ordered by I T from PCSS thereafter.
J. RETURN PRIVILEGES. I T shall have the right to return Spare
Parts sold under this Agreement in accordance with this
paragraph. Returns must be delivered to PCSS within 30 days of
delivery to I T, must be unused and in the same condition as
when delivered to I T, less reasonable wear due to shipment.
Returns in any month may not exceed a value equal to 35% of
the prior months gross purchases (prior to the application of
any credits). The first 15% of such 35% of returned Spare
Parts shall be subject to a $10 per unit restocking fee, and
the remaining 20% of such 35% shall be subject to a restocking
fee equal to 20% of the sales price of any such Spare Part,
but in no event less than $10 per unit.
K. RECORDS REVIEW. At any time, I T shall be allowed to review
the books and records of PCSS to the extent such books and
records relate to the determination of PCSS' cost(s) as set
forth in this Agreement. If any dispute arises between the
Parties with respect to the determination of PCSS' cost(s),
then, at the request of either I T or of PCSS, the matter
shall be referred to a mutually agreed-upon nationally-
recognized accounting firm (the "Independent Accountant") for
determination of PCSS's cost(s) in accordance with the terms
of this Agreement. The method for selecting the Independent
Accountant shall be as follows:
1) Both Parties shall designate a representative from
the accounting firm that represents each Party. The
designated representatives shall then be required to
agree on the selection of a third individual, who
shall be selected from an accounting firm
unaffiliated with either party and be designated as
the Independent Accountant.
2) The Independent Accountant shall not have performed
services for I T or PCSS during the eighteen (18)
months prior to the dispute. The determination of
the Independent Accountant shall be final and
23
binding upon the parties, with appropriate
adjustments immediately implemented. The fees and
expenses of the Independent Accountant shall be paid
one-half (1/2) by I T and one-half (1/2) by PCSS.
L. ADDITIONAL REPRESENTATIONS AND COVENANTS OF I T AND PCSS.
1) I T and PCSS agree to cooperate in good faith through
regular communications concerning expected Spare
Parts and Repair Services purchase requirements,
delivery requirements, and other issues relating to
PCSS's sale and delivery of Spare Parts and/or Repair
Services under this Agreement.
2) PCSS shall maintain an ongoing inventory and/or
sources of inventory of Spare Parts sufficient to
meet the expected Ordering requirements of I T under
this Agreement, provided that such maintenance is
consistent with PCSS's expectations as communicated
to PCSS and consistent with I T's prior purchases
from PCSS, during the Ordinary Course of Business.
M. ADDITIONAL CHARGES. PCSS shall obtain written consent from I T
prior to performing Repair Services which are beyond the scope
of this Agreement and specified on the face of an Order.
PCSS's failure to obtain such written consent shall relieve
I T from paying any additional charges not specified in this
Agreement or the Order.
N. PARTS. All Spare Parts that are provided by I T to PCSS on an
exchange basis, to be replaced by Spare Parts provided by PCSS
shall become the property of PCSS. Spare Parts provided by
PCSS in performance of Repair Services may be new or
refurbished Spare Parts which are functionally equivalent to
new Spare Parts and meet and/or exceed the OEM's then current
specifications for form, fit, function and finish and may be
from sources other than the OEM, unless otherwise specifically
requested to be a "like-for-like" replacement at time of Order
placement by I T. I T may inspect PCSS's repair facilities at
any time upon giving PCSS reasonable notice of prior to any
such inspection. I T shall have a period of up to thirty (30)
days from date of receipt of the Spare Part provided on an
exchange basis by I T, in which to return the Spare Part
"core" being exchanged by PCSS. In the event I T fails to
return any such exchanged Spare Part core within such period,
PCSS may invoice I T for the cost of such Spare Part core.
O. PARTS WARRANTY. PCSS warrants to I T and I T's Customers that
the Spare Part(s) will be shipped as specified from time to
time by I T and will be in good operating
24
condition, is at current minimum revision level and will be
free of defects in design, material, workmanship for a minimum
period of the greater of: (1) the warranty period provided by
any vendor of PCSS on a pass-through basis, or (2) One Hundred
twenty (120) days, whichever is greater, from first date of
delivery to I T. Acquired Parts which do not contain a
pass-through warranty from I T's Spare parts Vendors are
excluded from the above warranty.
5. GENERAL.
A. TERM AND TERMINATION.
1) The initial term of this Agreement shall begin on the
Closing Date and shall continue for a period of five
(5) years from such date. Thereafter, the term shall
continue unless terminated by either party upon the
provision of at least one hundred eighty (180) days
prior written notice, effective no sooner than the
expiration of the initial term of this Agreement.
2) In the event PCSS fails to fulfill the provisions of
the section of this Agreement entitled "Performance
Requirements" and I T elects to terminate this
Agreement as a result of such failure, I T shall be
entitled to all of the following remedies if and only
if the failure is a material failure followed
promptly thereafter by written notice of such failure
by I T to PCSS and following that notice such failure
by PCSS reoccurs within 6 months of the failure
described in the notice:
a. by delivering instructions to the Escrow
Agent as provided for in the Escrow
Agreement, the balance of the Escrow Amount
shall be delivered to Fidelity on behalf of
I T, without opposition by PCSS, and
b. all outstanding Purchase Credits earned by
I T as of the effective date of termination
shall be immediately due and payable in Cash
to Fidelity on behalf of I T, net of any
payables due PCSS by I T for Spare Parts
and/or Repair Services ordered hereunder,
and
c. One Million, One Hundred Thousand Dollars
($1,100,000) shall be immediately due,
payable, and paid in Cash to Fidelity on
behalf of I T, and
25
d. PCSS shall return any remaining Acquired
Inventory as of the effective date of
termination of this Agreement. In addition,
PCSS shall be responsible for all costs
associated with movement, packaging and
shipment of any such Acquired Inventory to a
location or locations specified by I T.
e. The remedies specified in 5.A.2).a through
5.A.2). d. above shall be considered
liquidated damages in lieu of cover or any
other damages which I T might allege as a
result of such termination, and shall be
considered the sole and exclusive remedy
available to I T with regard to the
termination of this Agreement as provided
for hereinabove.
3) PCSS may terminate this Agreement without cause,
provided that PCSS shall provide I T with a minimum
notice period of one (1) year, and I T shall be
entitled to all of the remedies specified in
paragraph 5.A.2). above. In any such event, I T may
choose to accept the termination prior to the one (1)
year termination notice period provided by PCSS, at
I T's sole discretion.
4) PCSS may terminate this Agreement for cause in the
event of a material breach or if I T fails to order a
minimum of One Hundred Thousand Dollars ($100,000) in
Spare Parts and/or Repair Services (net of returns
but including any fees paid by I T) per month, during
any three (3) consecutive month period during the
term of this Agreement, and PCSS shall be entitled to
the remedies specified in paragraph 3.H.1). and
3.H.2). above. In any such event, I T will forego the
remedies specified in Section 5.A.2) above.
5) In the event of any such termination as provided for
in paragraphs 5.A.1) through 5.A.4). above, both
parties agree to cooperate with each other in good
faith during the period of time required for the
successful transition of I T to a new spare parts
provider, and I T shall be entitled to any
Performance Credits or other remedies specified in
this Agreement for failure by PCSS to perform during
the transition period.
B. ACCOUNT MANAGER. I T and PCSS will assign specific
managerial employees to be designated as Account Managers
between the parties, who shall serve as a central focal
point to address issues and implement solutions to
ongoing account problems as they occur.
26
C. MISCELLANEOUS.
1) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of
the representations and warranties of the Parties
contained in this Agreement shall survive the
Closing.
2) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party
shall issue any press release or make any public
announcement relating to the subject matter of this
Agreement, prior to the Closing, without the prior
written approval of the other Party; provided,
however, that any Party may make any public
disclosure it believes in good faith is required by
applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable
best efforts to advise the other Party prior to
making the disclosure).
3) NO THIRD-PARTY BENEFICIARIES. This Agreement shall
not confer any rights or remedies upon any Person
other than the Parties and their respective
successors and permitted assigns.
4) ENTIRE AGREEMENT. This Agreement (including the
documents referred to herein) constitutes the entire
agreement between the Parties and supersedes any
prior understandings, agreements, or representations
by or between the Parties, written or oral, to the
extent they related in any way to the subject matter
hereof.
5) SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties
named herein and their respective successors and
permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or
obligations hereunder without the prior written
approval of the other Party, which consent shall not
be unreasonably withheld.
6) COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed
an original but all of which together will
constitute one and the same instrument.
7) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and
shall not affect in any way the meaning or
interpretation of this Agreement.
27
8) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing or
by electronic communication (e.g. communication of
information by computer, not to include telephonic
verbal notices). Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly
given if (and then two business days after) it is
sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to I T: INTELOGIC TRACE, INC.
Turtle Creek Tower I
P.O Box 400044
San Antonio, Texas 78229
ATTN: Account Manager
PCSS Relationship
Copy to: INTELOGIC TRACE, INC.
Turtle Creek Tower I
P.O Box 400044
San Antonio, Texas 78229
ATTN: General Counsel
Mail Stop 8480
If to PCSS: PC SERVICE SOURCE, INC.
2019 McKenzie
Suite 150
Carrollton, Texas 75006
ATTN: Account Manager
I T Relationship
Copy to: PC SERVICE SOURCE, INC.
2019 McKenzie
Suite 150
Carrollton, Texas 75006
ATTN: Chief Financial
Officer
Any Party may send any notice, request, demand,
claim, or other communication hereunder to the
intended recipient at the address set forth above
using any other means (including personal delivery,
expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other
communication shall be deemed to have been duly given
unless and until it actually is received by the
intended recipient. Any Party may change the
28
address to which notices, requests, demands, claims,
and other communications hereunder are to be
delivered by giving the other Party notice in the
manner herein set forth.
9) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the domestic laws of
the State of Texas without giving effect to any
choice or conflict of law provision or rule (whether
of the State of Texas or any other jurisdiction) that
would cause the application of the laws of any
jurisdiction other than the State of Texas.
10) CONFIDENTIALITY. Except as otherwise provided for in
this Agreement, PCSS and I T agree that all
information communicated to each other by the other,
whether before or after the Closing Date of this
Agreement, including without limitation the terms of
this Agreement, will be received in strict
confidence, will be used only for purposes of this
Agreement, and will not be disclosed by the receiving
party, its agents, subcontractors or employees
without the prior written consent of the other Party.
Each Party agrees to use the same means it uses to
protect its own confidential information, but in any
event not less than reasonable means, to prevent the
disclosure of such information to outside parties.
However, neither party shall be prevented from
disclosing information which belongs to such Party or
is:
a. already known by the receiving Party without
an obligation of confidentiality other than
pursuant to this Agreement;
b. publicly known or becomes publicly known
through no unauthorized act of the recipient
Party;
c. rightfully received from a third party;
d. independently developed without use of the
other Party's confidential information;
e. disclosed without similar restrictions to a
third party by the Party owning the
confidential information;
f. approved by the other Party for disclosure;
29
g. required to be disclosed pursuant to a
requirement of a governmental agency or law
if the disclosing Party provides the other
Party with notice of this requirement prior
to disclosure.
The provisions of this Section will survive the
expiration or termination of this Agreement for any
reason.
11) INDEPENDENT CONTRACTOR. PCSS is and shall remain
an independent contractor and at no time shall PCSS
represent itself to be an employee, agent, affiliate
or representative of I T.
12) NON-SOLICITATION.
A. PCSS shall not solicit any I T Customer
whose identity is disclosed by I T to PCSS
for the purpose of diverting business from
I T.
B. The Parties recognize that the education,
training and retention of their respective
personnel is essential. So as to preserve
and protect such capabilities, each party
agrees that during the period of this
Agreement and for a period of one (1) year
after termination of this Agreement, neither
party shall, directly or indirectly, recruit
or solicit any personnel of the other
(except that PCSS may solicit and hire the
I T employees specified in Schedule D)
without first obtaining the express written
consent of an officer of the employer. In
the event of breach of this provision, the
hiring party shall pay the other party
liquidated damages equal to three (3) times
the annual compensation of such employee at
the time hired.
13) FORCE MAJEURE. Each Party shall be excused from
performance hereunder (other than performance of
obligations to make payment) for any period and to
the extent that it is prevented from performing
pursuant hereto, in whole or in part, as a result of
delays caused by the other, or an act of God, war,
civil disturbance, court order, labor dispute, or
other cause beyond its reasonable control; however,
I T may acquire Spare Parts and/or Repair Services
from other sources during such event affecting PCSS.
30
14) COMPLIANCE WITH LAWS. PCSS and I T shall comply
with all applicable federal, state, municipal and
local laws, codes, orders and regulations.
15) AMENDMENTS AND WAIVERS. No amendment of any provision
of this Agreement shall be valid unless the same
shall be in writing and signed by PCSS and I T. No
waiver by any Party of any default, misrepre-
sentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
Neither I T nor PCSS shall be bound by any oral
agreement or representation irrespective of by whom
or when made.
16) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in
any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the
offending term or provision in any other situation or
in any other jurisdiction.
17) WARRANTY DISCLAIMER. PCSS DISCLAIMS THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
18) LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER
PARTY BE LIABLE IN CONTRACT, TORT OR OTHERWISE FOR
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT
DAMAGES, INCLUDING WITHOUT LIMITATION, LOST BUSINESS
PROFITS NOR DAMAGE OR DESTRUCTION OF DATA EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SAME.
19) DISPUTE RESOLUTION.
a. QUALITY REVIEW. On a regular basis, at least once
annually, both parties agree to meet to review the
performance of their respective obligations under
this Agreement.
b. PERFORMANCE REVIEW. During the course of the
relationship provided for in this Agreement,
disputes, controversies or claims may arise between
the parties. To minimize the expense to and impact on
each party of formally resolving such disputes,
controversies and claims, the parties will meet
regularly to
31
review the performance of each party of its
obligations under this Agreement. If the parties are
unable to resolve a dispute, controversy or claim
through this performance review process, upon the
written request of either party signed by an Officer
with the rank of Vice President or higher, each party
will appoint a representative whose task it will be
to meet for the purpose of resolving the dispute,
controversy or claim and to negotiate a resolution in
good faith, without the necessity of any formal
proceeding relating thereto. No formal proceedings
for the resolution of such dispute, controversy or
claim may be commenced until either or both of the
appointed representatives conclude in good faith that
amicable resolution through continued negotiation of
the matter is not likely. Except where clearly
prevented by the area in dispute, both parties agree
to continue performing their respective obligations
under this Agreement while the dispute is being
resolved unless and until such obligations are
terminated or expire in accordance with the
provisions hereof.
c. ARBITRATION. The parties agree that in the event they
are unable to resolve a dispute, controversy or claim
as provided for above, the dispute, controversy or
claim shall be settled by arbitration in the city
where the initiating party is headquartered by a
single arbitrator pursuant to the American
Arbitration Association's Commercial Arbitration
Rules then obtaining and judgment upon the award
rendered by the arbitrator may be entered in any
Court having jurisdiction thereof. The arbitrator
shall be chosen from a panel of persons knowledgeable
in the provision of services for similar types of
equipment and shall be appointed within thirty (30)
days of the date the demand for arbitration was sent
to the other party.
20) APPROVALS AND SIMILAR ACTIONS. Where agreement,
approval, acceptance, consent or similar action by
either party is required by any provision of this
Agreement, such Action shall not be unreasonably
delayed or withheld.
32
21) CONTRACTUAL STATUTE OF LIMITATIONS. No claim and/or
demand for arbitration or cause of action which arose
out of an event or events which occurred more than
two (2) years prior to the filing of a demand for
arbitration or suit alleging a claim or cause of
action may be asserted by either party against the
other party.
22) ACKNOWLEDGMENT OF RISK. PCSS and I T each acknowledge
that the limitations and exclusions contained in this
Agreement have been the subject of active and
complete negotiation between the Parties and
represent the Parties' agreement based upon the level
of risk to PCSS and I T associated with their
respective obligations under this Agreement and the
payments to be made to PCSS and I T under this
Agreement.
23) EXPENSES. Each of PCSS and I T will bear its own
costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
24) INCORPORATION OF EXHIBITS AND SCHEDULES. The
Exhibits and Schedules identified in this Agreement
are incorporated herein by reference and made a part
hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date last written below.
INTELOGIC TRACE, INC. PC SERVICE SOURCE, INC.
By: MARK S. HELWEGE By: MARK T. HILZ
Name: Mark S. Helwege Name: Mark T. Hilz
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
Date: 11/11/94 Date: 11/17/94
33
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
This Agreement is made as of as of the date last indicated below by
and between MARK S. HELWEGE whose residence is located at 1627 Wood
Quail, San Antonio, Texas 78248 (hereafter "Executive") and
INTELOGIC TRACE, INC. located at 8415 Datapoint Drive, San Antonio,
Texas 78229 (hereafter "I T").
1. The Employment Clause
I T hereby agrees to and does hereby employ the Executive, and the
Executive hereby agrees to and does hereby continue in the employ of I
T, for the period set forth in paragraph 2 below (the Period of
Employment), in the position and with the duties and responsibilities
set forth in paragraph 3 below, and upon the other terms and conditions
set forth in this Agreement.
2. Period of Employment
The Period of Employment shall commence on the date of this Agreement
and, subject only to the provisions of Paragraphs 8 and 9 below,
relating, respectively, to death and disability, shall continue until
the close of business one (1) year from the date last written below or
such later date as shall result from a written agreement executed by
both parties to this Agreement. In the event that the Executive shall
continue in the full-time employment of I T after such one (1) year
period or such later date without a written extension of this
Agreement, such continued employment shall be for successive annual
periods and shall be subject to the terms and conditions of this
Agreement and the period of Employment shall include the period during
which the Executive in fact so continues in such employment.
3. The Position
a. It is contemplated that during the Period of Employment
the Executive shall continue to serve as President and
Chief Executive Officer.
b. At all times during the Period of Employment, the Executive
shall hold a position of responsibility and importance, with
the functions, duties and the responsibilities of an officer
of I T. I T reserves the right to make such organizational and
reporting changes as the Office of the President may, in good
faith, deem desirable and for the good of I T.
1
4. The Performance Clause
Throughout the Period of Employment, the Executive agrees to devote
Executive's full time and undivided attention during normal business
hours to the business and affairs of I T and its subsidiaries and
divisions, except for earned vacations and except for illness or
incapacity; but nothing in this Agreement shall preclude the Executive
from devoting reasonable periods required for
a) serving as a director, trustee or member of a committee of
any organization involving no conflict of interest with
the interests of I T;
b) delivering lectures, fulfilling speaking engagements,
teaching at educational institutions or business
organizations;
c) engaging in charitable and community activities; and
d) managing Executive's personal investments, provided that
such activities do not, individually or together,
interfere with the regular performance of duties and
responsibilities under this Agreement.
5. The Compensation Clause
a. For all services to be rendered by the Executive in any
capacity during the Period of Employment, including, without
limitation, services as an executive, officer, director or
member of any committee of I T and its subsidiaries, divisions
and affiliates, the Executive shall be paid as compensation:
i) a base or fixed salary, payable not less often than
at the end of each bi-weekly period, at the rate of
$6,346.15 and shall thereafter be increased to
$7,692.30 per bi-weekly period upon the earlier of
(i) I T generating a net profit before taxes in any
quarter, or (ii) as of the closing date if I T is
sold; and
ii) An annual incentive award or bonus earned under I T's
Management Incentive Compensation Plan or such
equivalent successor plan as may be adopted by I T.
iii) for the 1995 fiscal year, the Management Incentive
Compensation Plan shall provide that Executive shall
be entitled to a bonus of .75% of I T's net operating
income from operations up to $5 million and 1% of all
net operating income above $5 million, subject to a
maximum annual payment of $75,000, which will be paid
quarterly based upon year-to-date
2
performance within twenty (20) days of the
publication of I T's 1995 quarterly results provided
that Executive is actively employed on such date.
b. Any increase in salary pursuant to (a) above or in annual
incentive awards or other compensation shall in no way
diminish any other obligations of I T under this Agreement.
c. The compensation provided for in paragraph (a) above, together
with the perquisites and benefits set forth in paragraph 6
below, are in addition to the benefits provided for in
paragraph 7 of this Agreement.
d. I T shall promptly establish a new qualified employee stock
option plan substantially similar to the 1985 Employee Stock
Option Plan of I T. Executive shall be provided with a grant
of stock options under the new stock option plan. The quantity
and vesting schedule shall be mutually agreed upon with the
quantity to be commensurate with the office of the Executive.
Provisions for Perquisites
During the Period of Employment the Executive shall be entitled to
perquisites, including, without limitation, an appropriate office,
secretarial and clerical staff, and fringe benefits provided Executive
at the time of this Agreement, including tax preparation assistance, an
automobile allowance of $650 per month, as well as the reimbursement,
upon proper accounting, of reasonable expenses and disbursements
incurred by Executive in the course of Executive's duties. Executive
should be entitled to four (4) weeks of vacation per year.
7. Employee Benefit Plans
a. The Executive, Executive's dependents and beneficiaries,
including, without limitation, any beneficiary of a joint
and survivor or other optional method of payment
applicable to the payment of benefits under the Retirement
Income Plan of I T, as defined in paragraph (c) below,
shall be entitled to all payments and benefits and service
credit under the terms of employee benefit plans and
practices of I T, including, without limitation, the
401(k) Plan of I T, as defined in paragraph (c) below, its
death benefit plans (consisting of its Executive Benefit
Plan for Management Employees providing term life
insurance, accidental death and dismemberment insurance,
and travel accident insurance), its disability benefit
plans providing salary continuation, sickness and accident
and long-term disability benefits, its standard medical,
dental and health, and welfare plans and other present or
equivalent successor plans and practices of I T.
3
Executive shall participate in I T's Executive Medical Plan
subject to a maximum of $15,000 per annum.
b. Nothing in this Agreement shall preclude I T from amending
or terminating any employee benefit plan or practice,
including, but not limited to, the 401(k) Plan but, it
being the intent of the parties that the Executive shall
continue to be entitled during the Period of Employment to
perquisites as set forth in paragraph 6 above at least
equal to those attached to Executive's position on the
date of this Agreement, nothing in this Agreement shall
operate or be construed to reduce, or authorize a
reduction, without the Executive's written consent, in the
level of such perquisites and benefits taken as a whole;
provided, however, that I T reserves the unilateral right
to revise or terminate any such perquisites or benefits if
such revision or termination applies to all employees
eligible to receive same. If and to the extent that such
perquisites, benefits, and service credits are not payable
or provided under any such plans or practices by reason of
such amendment or termination thereof, I T itself shall
pay or provide therefor.
8. Effect of Death
In the event of the death of the Executive during the Period of
Employment, the legal representative of the Executive shall be entitled
to the base or fixed salary provided for in paragraph 5(a)(i) above for
the month in which death shall have occurred, at the rate being paid at
the time of death, and the Period of Employment shall be deemed to have
ended as of the close of business on the last day of the month in which
death shall have occurred but without prejudice to any payments
otherwise due in respect of the Executive's death.
9. Effect of Disability
a. In the event of the Disability of the Executive during the
Period of Employment, the Executive shall be entitled to
an amount equal to the base or fixed salary provided for
in paragraph 5(a)(i) above, at the rate being paid at the
time of the commencement of Disability, for the period of
such Disability but not in excess of twelve (12) months
from the end of the period that establishes such
Disability, as described in paragraph 9(c) below.
b. The amount of any payments due under paragraph 9(a) shall be
reduced by any payments to which the Executive may be entitled
for the same period because of disability under any disability
or pension plan of I T or of any division, subsidiary, or
affiliate thereof, or as the result of workers' compensation
or non-occupational disability payments received from any
governmental entity.
4
c. The term "Disability", as used in this Agreement, shall
mean an illness or accident occurring during the Period of
Employment which prevents the Executive from performing
Executive's duties under this Agreement for a period of
six (6) consecutive months. The Period of Employment shall
be deemed to have ended as of the close of business on the
last day of such six (6) month period but without
prejudice to any payments due the Executive in respect of
disability under paragraph 9(a) or otherwise due to
Executive or Executive's legal representative or
beneficiary.
10. Provision of Severance Allowance
a. In the event of termination of the employment of the
Executive by I T during the Period of Employment for any
reason other than for Cause, as defined in paragraph 10(d)
below, I T shall pay the Executive a severance allowance
by continuing Executive's base or fixed salary for
thirty-nine (39) consecutive bi-weekly pay periods
commencing as of the date of termination plus $20,000 as
a lump sum on such date of termination plus a bonus of a
pro rata amount based upon Executive's last preceding
Management Incentive Compensation award.
b. During the period that the payments provided for in
paragraph 10(a) are required to be made, the Executive,
Executive's dependents, and beneficiaries shall continue
to be entitled to receive an automobile allowance and
continuation all life and health insurance to the same
extent as if the Executive were still employed during such
period. If and to the extent that such benefits shall not
be payable under any such plan by reason of the
Executive's no longer being an employee of I T, I T shall
itself pay or provide for payment of such benefits to the
Executive, Executive's dependents and beneficiaries.
c. For the purpose of this Agreement, termination of the
Executive's employment shall be deemed to have been for Cause
(and in which case I T shall have no obligation to Executive
whatsoever) only:
i) if termination of Executive's employment shall have
been the result of an act or acts of fraud, theft or
embezzlement on the part of the Executive which, if
convicted, would constitute a felony and which
results or which is intended to result directly or
indirectly in gain or personal enrichment of
Executive at the expense of I T, or
ii) if the Executive shall breach the provisions set
forth in the Memorandum of Employment between
Executive and I T, or
5
iii) if termination of Executive's employment results
from Executive's unreasonable neglect or refusal of
Executive to perform the duties appropriate to
Executive's position and Executive has been given
written notice by the Office of the President with
respect to such neglect or refusal and Executive
continues to unreasonably refuse or neglect the
performance of the duties specified, or
iv) if there has been a breach by the Executive during
the Period of Employment of the provisions of
paragraph 4 above, relating to the time to be
devoted to the affairs of I T, and with respect to
any alleged breach of paragraph 4 hereof, the
Executive shall have substantially failed to remedy
such alleged breach within thirty (30) days from
Executive's receipt of written notice from the
Office of the President.
e. During the period that Executive accepts the severance
allowance provided herein, Executive agrees not to directly
recruit or solicit any employee or customer of I T or actively
participate in the solicitation of any employee or customer of
I T.
f. In order to obtain the severance allowance provided for in
this Article, Executive shall submit a Request for Severance
identical to Exhibit A hereof. I T shall have no obligation to
pay any severance allowance unless and until Executive shall
have submitted the Request for Severance.
11. No Trust Created
Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a
trust fund of any kind. Any funds which may be set aside or provided
for in this Agreement shall continue for all purposes to be a part of
the general funds of I T and no person other than I T shall by virtue
of the provisions of this Agreement have any interest in such funds. To
the extent that any person acquires a right to receive payments from I
T under this Agreement, such right shall be no greater than the right
of any unsecured general creditor of I T.
6
12. Successor In Interest
This Agreement and the rights and obligations hereunder shall be
binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, and shall also bind and inure to the
benefit of any successor of I T by merger or consolidation or any
purchaser or assignee of all or substantially all of its assets, but,
except to any such successor, purchaser or assignee of I T, neither
this Agreement nor any rights or benefits hereunder may be assigned by
either party hereto.
13. Invalid Provision
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.
14. Arbitration of Disputes
The parties agree that any controversy or claim arising out of or
relating to this Agreement, or any dispute arising out of the
interpretation or application of this Agreement, which the parties
hereto are unable to resolve, shall be finally resolved and settled
exclusively by arbitration in San Antonio, Texas by a single arbitrator
under the American Arbitration Association's Commercial Arbitration
Rules then obtaining and in accordance with the substantive laws of the
State of Texas. If the parties cannot agree upon an arbitrator out of
the panel for the sole purpose of selecting an arbitrator, then each
party shall choose its own independent representative and those
independent representatives shall in turn choose the single arbitrator
within thirty (30) days of the date of the selection of the first
independent representative. The parties severally recognize and consent
to the jurisdiction over each of them by the Courts of the State of
Texas. The legal expenses of Executive shall be reimbursed to Executive
if an award is rendered in favor of Executive or if the arbitrator
finds that Executive exercised good faith in demanding arbitration of
any such dispute.
15. Governing Laws
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas applicable to agreements
made and to be performed entirely in Texas.
7
16. Entire Agreement
This Agreement shall constitute the entire agreement between the
parties superseding all prior agreements, and may not be modified or
amended and no waiver shall be effective unless by written document
signed by both parties hereto after first being authorized by the
Compensation Committee of the Board of Directors of I T and recorded in
the approved minutes of such meeting. This Agreement shall become
effective as of the date of confirmation of the reorganization plan of
I T and shall at such time supersede the Agreement of July 28, 1991, as
amended, on July 31, 1992 and June 1, 1994.
Executed as of the 1st day of December, 1994.
INTELOGIC TRACE, INC.
MARK S. HELWEGE By: PHILIP D. FREEMAN
Mark S. Helwege
"Executive"
8
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This Agreement is made as of the last date indicated below by and
between PHILIP D. FREEMAN whose residence is located at 3403
Hunters Stand, San Antonio, Texas 78230 (hereafter "Executive") and
INTELOGIC TRACE, INC. located at 8415 Datapoint Drive, San Antonio,
Texas 78229 (hereafter "I T").
1. The Employment Clause
I T hereby agrees to and does hereby employ the Executive, and the
Executive hereby agrees to and does hereby continue in the employ of I
T, for the period set forth in paragraph 2 below (the Period of
Employment), in the position and with the duties and responsibilities
set forth in paragraph 3 below, and upon the other terms and conditions
set forth in this Agreement.
2. Period of Employment
The Period of Employment shall commence on the date of this Agreement
and, subject only to the provisions of Paragraphs 9 and 10 below,
relating, respectively, to death and disability, shall continue until
the close of business two (2) years from the date last written below or
such later date as shall result from a written agreement executed by
both parties to this Agreement. In the event that the Executive shall
continue in the full-time employment of I T after such two (2) year
period or such later date without a written extension of this
Agreement, such continued employment shall be for successive annual
periods and shall be subject to the terms and conditions of this
Agreement and the period of Employment shall include the period during
which the Executive in fact so continues in such employment.
3. The Position
a. It is contemplated that during the Period of Employment
the Executive shall continue to serve as Senior Vice
President, General Counsel and Secretary.
b. At all times during the Period of Employment, the
Executive shall hold a position of responsibility and
importance, with the functions, duties and the
responsibilities of an officer of I T. It is expressly
understood that nothing in the foregoing shall preclude
the President and Chief Executive Officer from making
such organizational and reporting changes as the
President and Chief Executive Officer may, in good faith,
deem desirable and for the good of I T.
1
4. The Performance Clause
Throughout the Period of Employment, the Executive agrees to devote
Executive's full time and undivided attention during normal business
hours to the business and affairs of I T and, in particular, to
performance of all the duties and responsibilities as Vice President,
General Counsel and Secretary of I T and its subsidiaries and
divisions, except for reasonable vacations and except for illness or
incapacity; but nothing in this Agreement shall preclude the Executive
from devoting reasonable periods required for
a) serving as a director, trustee or member of a
committee of any organization involving no conflict
of interest with the interests of I T;
b) delivering lectures, fulfilling speaking
engagements, teaching at educational institutions
or business organizations;
c) engaging in charitable and community activities;
and
d) managing Executive's personal investments,
provided that such activities do not, individually or together,
interfere with the regular performance of duties and responsibilities
under this Agreement.
5. The Compensation Clause
a. For all services to be rendered by the Executive in any
capacity during the Period of Employment, including, without
limitation, services as an executive, officer, director or
member of any committee of I T and its subsidiaries, divisions
and affiliates, the Executive shall be paid as compensation:
i) a base or fixed salary, payable not less often than
at the end of each bi-weekly period, at the rate of
$5,446.40 per bi-weekly period; and
ii) An annual incentive award or bonus earned under I T's
Management Incentive Compensation Plan or such
equivalent successor plan as may be adopted by
I T.
iii) for the 1995 fiscal year, the Management Incentive
Compensation Plan shall provide that Executive
shall be entitled to a bonus of .75% of I T's net
operating income from operations up to $5 million
and 1% of all net operating income above $5
million, subject to a maximum annual payment of
$75,000, which will be paid quarterly based upon
year-to-date performance within twenty (20) days of
2
the publication of I T's 1995 quarterly results
provided that Executive is actively employed on such
date.
b. Any increase in salary pursuant to (a) above or in annual
incentive awards or other compensation shall in no way
diminish any other obligations of I T under this Agreement.
c. The compensation provided for in paragraph (a) above, together
with the perquisites and benefits set forth in paragraphs 6
and 7 below, are in addition to the benefits provided for in
paragraph 8 of this Agreement.
d. I T shall promptly establish a new qualified employee stock
option plan substantially similar to the 1985 Employee Stock
Option Plan of I T. Executive shall be provided with a grant
of stock options under the new stock option plan. The quantity
and vesting schedule shall be mutually agreed upon with the
quantity to be commensurate with the office of the Executive.
6. Provisions for Perquisites
During the Period of Employment the Executive shall be entitled to
perquisites, including, without limitation, an appropriate office,
secretarial and clerical staff, and fringe benefits accorded executives
of equal rank including, without limitation, the Executive Benefit
Plan, including tax preparation assistance, $650 per month automobile
allowance, and payment or reimbursement of club initiation fees, dues
and charges, in each case at least equal to those attached to
Executive's office on the date of this Agreement, as well as to
reimbursement, upon proper accounting, of reasonable expenses and
disbursements incurred by Executive in the course of Executive's
duties.
7. Participation in Management Incentive Compensation Plan
During the Period of Employment, the Executive shall be and continue to
be a full participant in the Incentive Stock Option Plan of I T and in
any and all other executive incentive and compensation plans in which
executives of I T participate, both those that are in effect on the
date of this Agreement and any equivalent successor plans that may be
adopted by I T. Nothing in this Agreement shall preclude improvement of
reward opportunities in such plans or other plans in accordance with
the practice of I T.
8. Employment Benefit Plans
a. The Executive, Executive's dependents and beneficiaries,
including, without limitation, any beneficiary of a joint
and survivor or other optional method of payment
applicable to the payment of benefits under the 401(k)
3
Plan of I T, as defined in paragraph (c) below, shall be
entitled to all payments and benefits and service credit for
benefits during the Period of Employment to which officers of
I T, their dependents and beneficiaries are entitled as the
result of the employment under the terms of employee benefit
plans and practices of I T, including, without limitation, the
401(k) Plan of I T, as defined in paragraph (c) below, its
death benefit plans (consisting of its Executive Benefit Plan
for Management Employees providing term life insurance,
accidental death and dismemberment insurance, and travel
accident insurance), its disability benefit plans providing
salary continuation, sickness and accident and long-term
disability benefits, its standard medical, dental and health
(subject to a maximum of $10,000 per year under the Executive
Medical Plan), and welfare plans and other present or
equivalent successor plans and practices of I T, its
subsidiaries and divisions, for which officers, their
dependents, and beneficiaries, are eligible and to all
payments or other benefits under any such plan or practice
subsequent to the Period of Employment as a result of
participation in such plan or practice during the Period of
Employment.
b. Nothing in this Agreement shall preclude I T from
amending or terminating any employee benefit plan or
practice, but it being the intent of the parties that the
Executive shall continue to be entitled during the Period
of Employment to perquisites as set forth in paragraph 6
above at least equal to those attached to Executive's
position on the date of this Agreement, nothing in this
Agreement shall operate or be construed to reduce, or
authorize a reduction, without the Executive's written
consent, in the level of such perquisites and benefits
taken as a whole. If and to the extent that such
perquisites, benefits, and service credits are not
payable or provided under any such plans or practices by
reason of such amendment or termination thereof, I T
itself shall pay or provide therefor.
9. Effect of Death
In the event of the death of the Executive during the Period of
Employment, the legal representative of the Executive shall be entitled
to the base or fixed salary provided for in paragraph 5(a)(i) above for
the month in which death shall have occurred, at the rate being paid at
the time of death, and the Period of Employment shall be deemed to have
ended as of the close of business on the last day of the month in which
death shall have occurred but without prejudice to any payments
otherwise due in respect of the Executive's death.
4
10. Effect of Disability
a. In the event of the Disability of the Executive during
the Period of Employment, the Executive shall be entitled
to an amount equal to the base or fixed salary provided
for in paragraph 5(a)(i) above, at the rate being paid at
the time of the commencement of Disability, for the
period of such Disability but not in excess of twelve
(12) months from the end of the period that establishes
such Disability, as described in paragraph 10(c) below.
b. The amount of any payments due under paragraph 10(a) shall be
reduced by any payments to which the Executive may be entitled
for the same period because of disability under any disability
or pension plan of I T or of any division, subsidiary, or
affiliate thereof, or as the result of workers' compensation
or non-occupational disability payments.
c. The term "Disability", as used in this Agreement, shall
mean an illness or accident occurring during the Period
of Employment which prevents the Executive from
performing Executive's duties under this Agreement for a
period of six (6) consecutive months. The Period of
Employment shall be deemed to have ended as of the close
of business on the last day of such six (6) month period
but without prejudice to any payments due the Executive
in respect of disability under paragraph 10(a) or
otherwise due to Executive or Executive's legal
representative or beneficiary.
11. Provision of Severance Allowance
a. In the event of termination of the employment of the
Executive by I T during the Period of Employment for any
reason other than for Cause, as defined in paragraph
11(c) below, I T shall pay the Executive a severance
allowance commencing on the last day of each month
following termination of Executive's employment and
continuing on the last day of each month thereafter for
a period of twelve (12) consecutive months. Such
severance allowance shall be an amount equal to the fixed
or base salary of the Executive at the time of the
termination of Executive's employment plus a pro rata
amount based upon Executive's last preceding Management
Incentive Compensation award. The Board of Directors,
upon the recommendation of the Compensation Committee,
may extend the period of severance. In addition to the
foregoing, Executive shall be entitled to a lump-sum
payment of $10,000 upon the termination of Executive's
employment.
b. During the period that the payments provided for in
paragraph 11(a) are required to be made, the Executive,
Executive's dependents, and beneficiaries shall continue
5
to be entitled to benefits and perquisites (excepting any
incentive compensation or future grants of stock options or
service credit for benefits under the pension program of I T)
to the same extent as if the Executive were still employed
during such period. If and to the extent that such benefits
shall not be payable under any such plan by reason of the
Executive's no longer being an employee of I T, I T shall
itself pay or provide for payment of such benefits to the
Executive, Executive's dependents and beneficiaries.
c. For the purpose of paragraph 11(a) above and any other
provision of this Agreement, termination of the
Executive's employment shall be deemed to have been for
Cause only
i) if termination of Executive's employment shall have
been the result of an act or acts of fraud, theft or
embezzlement on the part of the Executive which, if
convicted, would constitute a felony and which
results or which is intended to result directly or
indirectly in gain or personal enrichment of
Executive at the expense of I T, or
ii) if the Executive shall breach the provisions set
forth in the Memorandum of Employment between
Executive and I T, or
iii) if termination of Executive's employment results
from Executive's unreasonable neglect or refusal of
Executive to perform the duties appropriate to
Executive's position and Executive has been given
written notice by the Board of Directors of I T or
an authorized committee thereof with respect to
such neglect or refusal and Executive continues to
unreasonably refuse or neglect the performance of
the duties specified, or
iv) if there has been a breach by the Executive during
the Period of Employment of the provisions of
paragraph 4 above, relating to the time to be
devoted to the affairs of I T, and with respect to
any alleged breach of paragraph 4 hereof, the
Executive shall have substantially failed to remedy
such alleged breach within thirty (30) days from
Executive's receipt of written notice from the
Secretary of I T pursuant to resolution duly
adopted by the Board of Directors of I T or an
authorized committee thereof after notice to the
Executive and an opportunity to be heard demanding
that Executive remedy such alleged breach, or shall
have failed to take all reasonable steps to that
end during such thirty-day period and thereafter.
6
d. During the period that Executive accepts the severance
allowance provided herein, Executive agrees not to directly
recruit or solicit any employee of I T or actively participate
in the solicitation of any employee of I T.
e. In order to obtain the severance allowance provided for in
this Article, Executive shall submit a Request for Severance
identical to Exhibit A hereof. I T shall have no obligation to
pay any severance allowance unless and until Executive shall
have submitted the Request for Severance.
f. The acceptance of the aforementioned payments by Executive
shall constitute the exclusive remedy of Executive with
respect to any claim Executive may have against I T for
termination of the employment of Executive or I T's breach of
this Agreement.
12. No Trust Created
Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a
trust fund of any kind. Any funds which may be set aside or provided
for in this Agreement shall continue for all purposes to be a part of
the general funds of I T and no person other than I T shall by virtue
of the provisions of this Agreement have any interest in such funds. To
the extent that any person acquires a right to receive payments from I
T under this Agreement, such right shall be no greater than the right
of any unsecured general creditor of I T.
13. Successor In Interest
This Agreement and the rights and obligations hereunder shall be
binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, and shall also bind and inure to the
benefit of any successor of I T by merger or consolidation or any
purchaser or assignee of all or substantially all of its assets, but,
except to any such successor, purchaser or assignee of I T, neither
this Agreement nor any rights or benefits hereunder may be assigned by
either party hereto.
14. Invalid Provision
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.
7
15. Arbitration of Disputes
The parties agree that any controversy or claim arising out of or
relating to this Agreement, or any dispute arising out of the
interpretation or application of this Agreement, which the parties
hereto are unable to resolve, shall be finally resolved and settled
exclusively by arbitration in San Antonio, Texas by a single arbitrator
under the American Arbitration Association's Commercial Arbitration
Rules then obtaining and in accordance with the substantive laws of the
State of Texas. If the parties cannot agree upon an arbitrator out of
the panel for the sole purpose of selecting an arbitrator, then each
party shall choose its own independent representative and those
independent representatives shall in turn choose the single arbitrator
within thirty (30) days of the date of the selection of the first
independent representative. The parties severally recognize and consent
to the jurisdiction over each of them by the Courts of the State of
Texas. The legal expenses of Executive shall be reimbursed to Executive
if an award is rendered in favor of Executive or if the arbitrator
finds that Executive exercised good faith in demanding arbitration of
any such dispute.
16. Governing Laws
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas applicable to agreements
made and to be performed entirely in Texas.
17. Entire Agreement
This Agreement shall constitute the entire agreement between the
parties superseding all prior agreements, and may not be modified or
amended and no waiver shall be effective unless by written document
signed by both parties hereto; provided, however,that any increase in
base salary, as provided in paragraph 5 hereof shall become an
amendment to this Agreement when approved by the Compensation Committee
of the Board of Directors of I T and recorded in the approved minutes
of such meeting. This Agreement shall become effective as of the date
of Confirmation of the reorganization plan of I T and at such time
shall supersede the Agreement of January 27, 1986, as amended on July
31, 1992 and June 1, 1994.
Executed as of the 1st day of December, 1994.
INTELOGIC TRACE, INC.
PHILIP D. FREEMAN By: MARK S. HELWEGE
Philip D. Freeman
"Executive"
8
EXHIBIT 10.35
LOAN AND SECURITY AGREEMENT
between
FIDELITY CAPITAL & INCOME FUND
as Lender
and
INTELOGIC TRACE, INC.
as Borrower
As of December 8, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND CONSTRUCTION......................................... 1
1.1 Definitions. .............................................. 1
1.2 Accounting Terms. .......................................... 11
1.3 Construction. .............................................. 11
1.4 Exhibits.................................................... 11
2. LOAN AND TERMS OF PAYMENT............................................ 11
2.1 Loan........................................................ 11
2.2 Overadvance................................................. 12
2.3 Mandatory Prepayment........................................ 12
2.4 Optional Prepayment......................................... 13
2.5 Interest Rates, Payments and Calculations................... 13
2.6 Crediting Payments.......................................... 15
2.7 Fees........................................................ 15
2.8 Use of Proceeds............................................. 16
3. TERM; CONDITIONS PRECEDENT........................................... 16
3.1 Conditions Precedent........................................ 16
4. CREATION OF SECURITY INTEREST........................................ 18
4.1 Grant of Security Interest.................................. 18
4.2 Negotiable Collateral....................................... 18
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral..................................... 18
4.4 Delivery of Additional Documentation Required............... 19
4.5 Power of Attorney........................................... 19
4.6 Right to Inspect............................................ 20
4.7 No Assumption............................................... 20
5. REPRESENTATIONS AND WARRANTIES....................................... 20
5.1 Corporate Existence; Compliance with Law.................... 21
5.2 Due Authorization; No Conflict.............................. 21
5.3 No Prior Encumbrances....................................... 21
5.4 Bona Fide Accounts.......................................... 21
5.5 Condition of Inventory...................................... 22
5.6 Location of Inventory and Equipment......................... 22
5.7 Inventory Records........................................... 22
5.8 Location of Borrower's Executive Offices.................... 22
5.9 Litigation.................................................. 22
5.10 No Material Adverse Change in Financial
Statements................................................ 23
i
5.11 Solvency.................................................... 23
5.12 ERISA....................................................... 23
5.13 Environmental Condition..................................... 23
5.14 Margin Regulations.......................................... 24
5.15 Reliance by Lender; Cumulative.............................. 24
5.16 Bankruptcy Matters.......................................... 25
6. AFFIRMATIVE COVENANTS................................................ 25
6.1 Accounting System........................................... 25
6.2 Cash Flow, Balance Sheet and Income Statement
Reports................................................... 25
6.3 Assignments of Accounts..................................... 25
6.4 SEC Filings; Reports; Certificates.......................... 25
6.5 Title to Equipment.......................................... 26
6.6 Maintenance of Equipment.................................... 27
6.7 Taxes....................................................... 27
6.8 Insurance................................................... 27
6.9 Lender Expenses............................................. 28
6.10 Foothill Documents.......................................... 28
6.11 No Setoffs or Counterclaims................................. 28
7. NEGATIVE COVENANTS................................................... 28
7.1 Extraordinary Transactions and Disposal of
Assets.................................................... 28
7.2 Liens....................................................... 29
7.3 Change Name................................................. 29
7.4 Merge, Acquire.............................................. 29
7.5 Guarantee................................................... 29
7.6 Restructure................................................. 30
7.7 Prepayments................................................. 30
7.8 Amend Foothill Loan..........................................30
7.9 Change of Ownership......................................... 30
7.10 Consignments................................................ 30
7.11 Distributions............................................... 30
7.12 Accounting Methods.......................................... 30
7.13 Investments................................................. 30
7.14 Transactions with Affiliates................................ 31
7.15 Suspension.................................................. 31
7.16 Indebtedness.................................................31
8. EVENTS OF DEFAULT.................................................... 31
9. LENDER'S RIGHTS AND REMEDIES......................................... 35
9.1 Rights and Remedies......................................... 35
9.2 Remedies Cumulative......................................... 37
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.......................... 37
ii
11. GOVERNING LAW; WAIVERS; AMENDMENTS; INDEMNIFICATION.................. 38
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver......................................... 38
11.2 Waiver of Notices........................................... 40
11.3 Amendments and Waivers...................................... 40
11.4 Waiver of Counterclaims..................................... 40
11.5 Indemnification............................................. 41
12. NOTICES.............................................................. 41
13. DESTRUCTION OF BORROWER'S DOCUMENTS.................................. 42
14. GENERAL PROVISIONS................................................... 43
14.1 Effectiveness............................................... 43
14.2 Successors and Assigns...................................... 43
14.3 Section Headings............................................ 43
14.4 Interpretation.............................................. 43
14.5 Final Agreement of the Parties.............................. 43
14.6 Severability of Provisions.................................. 44
14.7 Counterparts................................................ 44
14.8 Revival and Reinstatement of Obligations.....................44
15. TERMINATION.......................................................... 44
iii
SCHEDULES
Schedule 5.6 -- Inventory and Equipment Locations
Schedule 5.9 -- Litigation
Schedule 5.12 -- ERISA
Schedule 7.5 -- Guarantees
Schedule 7.13 -- Investments
Schedule 7.16 -- Indebtedness
EXHIBITS
Exhibit A -- Form of Note
Exhibit B -- Form of Intercreditor Agreement
Exhibit C -- Form of Foothill Loan
iv
LOAN AND SECURITY AGREEMENT dated as of December 8, 1994
between FIDELITY CAPITAL & INCOME FUND, a Massachusetts business trust
("Lender"), with a place of business located at 82 Devonshire Street - F7D,
Boston, Massachusetts 02109, and INTELOGIC TRACE, INC., a New York corporation
("Borrower"), with its chief executive office located at Turtle Creek Tower I,
P.O. Box 400044, San Antonio, Texas 78229-8415.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the
following terms shall have the following definitions:
"ACCOUNTS" means any "account," as such term is defined in
section 9-106 of the UCC and, in any event, shall include, without limitation,
all accounts receivable, book debts and other forms of obligations (other than
forms of obligations evidenced by Chattel Paper, Documents or Instruments)
including, without limitation, under any trade names, styles or divisions
thereof, whether arising out of goods sold or services rendered by Borrower or
from any other transaction, whether or not the same involves the sale of goods
or services by Borrower (including, without limitation, any such obligation that
might be characterized as an account or contract right under the UCC) and all of
Borrower's rights in, to and under all purchase orders or receipts for goods or
services, and all of Borrower's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all moneys due or to become due to Borrower under all
contracts for the sale of goods or the performance of services or both by
Borrower (whether or not yet earned by performance on the part of Borrower or in
connection with any other transaction) including, without limitation, the
right to receive the proceeds of said purchase orders and contracts, and all
collateral security and guarantees of any kind given by any person with respect
to any of the foregoing.
"AGREEMENT" shall mean this Loan and Security Agreement and
any extensions, riders, supplements, notes, amendments or modifications to or in
connection with this Loan and Security Agreement.
"BORROWER" shall have the meaning set forth in the
preamble to this Agreement.
"BORROWER'S BOOKS" shall mean all of Borrower's books and
records including ledgers, records indicating, summarizing or evidencing
Borrower's assets or liabilities, or the Collateral, all information relating to
Borrower's business operations or financial condition, and all computer
programs, disc or tape files, printouts, runs or other computer prepared
information relating to Borrower's business operations or financial condition,
and the equipment containing such information.
"BUSINESS DAY" shall mean any day which is not a Saturday,
Sunday or other day on which banks in the State of Texas or the Commonwealth of
Massachusetts are authorized or required to close.
"CASH" shall mean cash or cash equivalents.
"CHANGE OF CONTROL" shall be deemed to have occurred at such
times as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than a stockholder as of the date hereof or
pursuant to the Plan of Reorganization, becomes the "beneficial owner" (as
defined under Rule 13d-3 under the Exchange Act), directly or indirectly, of
more than fifty percent (50%) of the total voting power of all classes of stock
then outstanding of Borrower normally entitled to vote in elections of
directors.
"CHATTEL PAPER" shall mean any "chattel paper," as such term
is defined in section 9-105(1)(b) of the UCC.
"COLLATERAL" shall mean the following property and interests
in property of Borrower, whether now owned or hereafter acquired: all Accounts,
Chattel Paper, Contracts, Documents, Equipment, General Intangibles,
Instruments, Intellectual Property Collateral, Inventory, Cash, Securities,
Fixtures and all other goods and personal property of Borrower whether tangible
or intangible or whether now owned or hereafter acquired by Borrower and
wherever located, and to the extent not otherwise included, all Proceeds of each
of the foregoing and all accessions to,
2
substitutions and replacements for, and rents, profits and
products of each of the foregoing.
"CONTRACTS" shall mean all contracts, undertakings or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now own or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
"COPYRIGHTS" shall mean (i) all copyrights, registrations and
applications therefor, (ii) all renewals and extensions thereof, (iii) all
income, royalties, damages and payments now and hereafter due or payable or both
with respect thereto, including, without limitation, damages and payments for
past or future infringements or misappropriations thereof, (iv) all rights to
sue for past, present and future infringements or misappropriations thereof, and
(v) all other rights corresponding thereto throughout the world.
"DEFAULT RATE" shall have the meaning set forth in
Section 2.5(b) hereof.
"DERIVATIVE SETTLEMENT" shall mean any amounts (less
attorneys' fees and expenses in an aggregate amount not to exceed $800,000)
received by Borrower pursuant to the settlement agreement reached on May 13,
1994 with respect to shareholder litigation against Borrower and its board of
directors relating to Borrower's purchases of shares of capital stock of the
Borrower and Datapoint Corporation in 1990.
"DOCUMENTS" shall mean any "documents," as such term is
defined in section 9-105(1)(f) of the UCC.
"DOLLARS" and the sign "$" each means the lawful money of the
United States.
"EFFECTIVE DATE" shall mean the "Effective Date" as defined in
the Plan of Reorganization.
"EQUIPMENT" shall mean any "equipment," as such term is
defined in section 9-109(2) of the UCC and, in any event, shall include, without
limitation, all machinery, equipment, furnishings, fixtures, vehicles and
computers and
3
other electronic data-processing and other office equipment and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
"ERISA" shall mean the Employment Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.
"ERISA AFFILIATE" shall mean each trade or business (whether
or not incorporated and whether or not foreign) which is or may hereafter become
a member of a group of which Borrower is a member and which is treated as a
single employer under ERISA Section 4001(b)(1), or IRC Section 414.
"EXCHANGE ACT" shall mean the Securities and Exchange Act of
1934, as amended, and the rules and regulations thereunder.
"FIELD SUPPORT SPARES" shall mean any and all spare parts,
components, top assemblies, subassemblies and similar items used by Borrower to
maintain or repair customer equipment.
"FIXTURES" shall mean any "fixtures" as such term is defined
in section 9-313(1)(a) of the UCC.
"FOOTHILL" shall mean Foothill Capital Corporation, a
California corporation.
"FOOTHILL LOAN" shall mean the Amended and Restated General
Loan and Security Agreement dated as of December 8, 1994, between Foothill and
Borrower, as amended from time to time in the form of Exhibit C hereto.
"FOOTHILL OVERADVANCE" shall mean an overadvance of up to One
Million Dollars ($1,000,000) by Foothill to Borrower in accordance with the
terms and provisions set forth in the Foothill Loan.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time.
"GENERAL INTANGIBLES" shall mean any "general intangibles," as
such term is defined in section 9-106 of the
4
UCC and, in any event, shall include, without limitation, all right, title and
interest that Borrower may now or hereafter have in or under the IRS Refund, any
other state or local refunds of taxes, excises or similar charges, any Contract,
all customer lists, Copyrights, Trademarks, Patents, rights in intellectual
property, Licenses, permits, trade secrets, proprietary or confidential
information, inventions (whether patented or patentable or not), and technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill and rights of indemnification.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"INSOLVENCY PROCEEDING" shall mean any proceeding commenced by
or against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including general assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"INSTRUMENTS" shall mean any "instrument," as such term is
defined in section 9-105(1)(i) of the UCC, other than instruments that
constitute, or are a part of a group of writings that constitute, Chattel Paper.
"INTELLECTUAL PROPERTY COLLATERAL" shall mean all Copyrights,
Licenses, Patents, Trademarks and Trade Secrets as to which Lender has been
granted a security interest hereunder.
"INVENTORY" shall mean any "inventory," as such term is
defined in section 9-109(4) of the UCC and, in any event, shall include, without
limitation, all inventory, merchandise, goods and other personal property that
are held for sale or lease or are furnished or are to be furnished under a
contract of service or that constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Borrower's business, or
the
5
processing, packaging, delivery or shipping of the same, and all finished goods.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"IRS REFUND" shall mean any refund of federal income taxes
claimed or received by Borrower from the Internal Revenue Service.
"INTERCREDITOR AGREEMENT" shall mean the intercreditor
agreement dated as of the date hereof, between Lender and Foothill,
substantially in the form of Exhibit B hereto.
"LENDER EXPENSES" shall mean all costs and expenses (including
taxes, photocopying, notarization, telecommunication and insurance premiums)
which are paid or advanced by Lender relating to, under or in connection with
the Loan Documents; filing, recording, publication, appraisal (including
periodic Collateral appraisals) real estate survey, environmental audit and
search fees paid or incurred by Lender in connection with Lender's transactions
with Borrower; costs and expenses incurred by Lender in the disbursement of
funds to Borrower (by wire transfer or otherwise); charges resulting from the
dishonor of checks; costs and expenses incurred by Lender to correct any default
or enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale or advertising to sell the Collateral, or any portion thereof, whether or
not a sale is consummated; reasonable costs and expenses of examining Borrower's
Books; reasonable costs and expenses of third party claims or any suit incurred
by Lender in enforcing or defending the Loan Documents; and Lender's reasonable
attorneys' fees and expenses incurred in advising, structuring, drafting,
reviewing, amending, terminating, enforcing, defending or otherwise concerning
the Loan Documents, whether or not suit is brought.
"LICENSE" shall mean any Patent License, Trademark License or
other license as to which Lender has been granted a security interest hereunder.
"LOAN" shall have the meaning set forth in Section 2.1 hereof.
6
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the
Intercreditor Agreement and all other agreements, instruments and documents,
including, without limitation, security agreements, notes, warrants, guaranties,
mortgages, deeds of trust, subordination agreements, pledges, powers of
attorney, consents, assignments, collateral assignments, letter agreements,
contracts, notices, leases, amendments, financing statements, letter of credit
applications and reimbursement agreements, and all other writings heretofore,
now or hereafter executed by or on behalf of Borrower and delivered to Lender in
connection with or relating to this Agreement, together with all agreements,
instruments and documents referred to therein or contemplated thereby.
"MATERIAL ADVERSE EFFECT" shall mean, relative to any
occurrence of whatever nature (including any adverse determination in any
litigation, arbitration or governmental investigation or proceeding) and after
taking into account actual insurance coverage and effective indemnification with
respect to such occurrence (a) a material adverse effect on the financial
condition, business, operations, prospects, or properties of Borrower, (b) the
impairment of (i) the ability of Borrower to perform any of its payment or other
material obligations under this Agreement or any other Loan Document or (ii) the
ability of Lender to enforce any of such obligations or any of its remedies
under this Agreement or under any other Loan Document, (c) the occurrence of any
Event of Default or (d) the subjection of Lender to any civil or criminal
liability.
"MAXIMUM LAWFUL RATE" shall mean the maximum lawful
nonusurious rate of interest which, under laws in effect and applicable to
Lender, is permitted to be charged by Lender to Borrower on the transactions
evidenced by this Agreement and the Note, as from time to time in effect,
including changes in such maximum lawful rate as of the effective date of such
changes.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as
defined in ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers
employees of Borrower or any ERISA Affiliate.
"NEGOTIABLE COLLATERAL" shall have the meaning set forth in
Section 4.2 hereof.
7
"NOTE" shall mean the note of Borrower dated the date hereof
in the aggregate principal amount of Five Million Dollars ($5,000,000),
substantially in the form of Exhibit A hereto.
"OBLIGATIONS" shall mean the unpaid principal balance of the
Loan and any Overadvances, all interest accrued hereunder and all other loans,
advances, overadvances, debts, principal, interest, premiums, liabilities,
obligations, fees (including early termination fees), lease payments,
guaranties, covenants and duties owing by Borrower to Lender, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and further including all interest not paid when due and all
Lender Expenses which Borrower is required to pay or reimburse under the Loan
Documents, by law or otherwise.
"ORDER" shall mean the Final Order entered on November 28,
1994 of the United States Bankruptcy Court for the Western District of Texas,
San Antonio Division, confirming the Plan of Reorganization.
"OVERADVANCE" shall have the meaning set forth in Section 2.2
hereof.
"PATENT LICENSE" shall mean any written agreement granting any
right to practice any invention on which a Patent is in existence.
"PATENTS" shall mean (i) all patents and patent applications,
(ii) all inventions and improvements described and claimed therein, (iii) all
reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, (iv) all income, royalties, damages and payments
now and hereafter due and/or payable to such Company with respect thereto,
including, without limitation, damages and payments for past or future
infringements or misappropriations thereof, (v) all rights to sue for past,
present and future infringements or misappropriation thereof, and (vi) all other
rights corresponding thereto throughout the world.
"PBGC" shall mean the Pension Benefit Guarantee Corporation.
8
"PCS ESCROW AGREEMENT" shall mean the escrow agreement between
Borrower and PC Service Source, Inc., referred to in the Master Repair Services
and Spare Parts Supply Agreement, dated as of November 17, 1994, between
Borrower and PC Service Source, Inc.
"PERMITTED LIENS" shall mean: (a) liens and security interests
held by Lender: (b) liens for unpaid taxes that are not yet due and payable and
(c) liens and security interests of Foothill as permitted in the Intercreditor
Agreement.
"PLAN" shall mean any plan described in ERISA Section 3(2)
maintained for employees of Borrower or any ERISA Affiliate, other than a
Multiemployer Plan.
"PLAN OF REORGANIZATION" shall mean that certain Modified
First Amended Chapter 11 Plan of Intelogic Trace, Inc. dated October 12, 1994,
as filed with the United States Bankruptcy Court for the Western District of
Texas, San Antonio Division, in Chapter 11 Case No. 94-52172C, as the same may
be amended, supplemented or otherwise modified from time to time.
"PROCEEDS" shall mean "proceeds," as such term is defined in
section 9-306(1) of the UCC and, in any event, shall include, without
limitation, (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Borrower from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (c) any claim of Borrower against
third parties (i) for past, present or future infringement of any Patent or
Patent License or (ii) for past, present or future infringement or dilution of
any Trademark or Trademark License or for injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License, and (d) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"PROHIBITED TRANSACTION" shall mean any transaction described
in Section 406 of ERISA which is not
9
exempt by reason of Section 408 of ERISA, and any transaction described in
Section 4975(c) of the IRC which is not exempt by reason of section 4975(c)(2)
of the IRC.
"RELATED ENTITY" shall mean Lender and any other corporation
which is at least fifty percent (50%) owned by Lender or any of the foregoing
entities.
"REPORTABLE EVENT" shall mean a reportable event described in
Section 4043 of ERISA or the regulations thereunder, a withdrawal from a Plan
described in Section 4063 of ERISA, or a cessation of operations described in
Section 4068(f) of ERISA.
"SECURITIES" shall mean any "securities" as that term is
defined in section 8-102(1)(c) of the UCC or under federal securities law,
whether or not such securities are marketable, including Borrower's stock in
Datapoint Corporation and Canal Capital Corporation (whether Borrower has legal
title or equitable title).
"TRADE SECRETS" shall mean trade secrets, along with any and
all (i) income, royalties, damages and payments now and hereafter due and/or
payable to Borrower with respect thereto, including, without limitation, damages
and payments for past or future infringements or misappropriations thereof, (ii)
rights to sue for past, present and future infringements or misappropriation
thereof, and (iii) all other rights corresponding thereto throughout the world.
"TRADEMARK LICENSE" shall mean any written agreement granting
any right to use any Trademark or Trademark registration.
"TRADEMARKS" shall mean (i) all trademarks (including service
marks and trade names, whether registered or at common law), registrations and
applications therefor, and the entire product lines and goodwill of Borrower's
business connected therewith and symbolized thereby, (ii) all renewals thereof,
(iii) all income, royalties, damages and payments now and hereafter due or
payable or both with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriation thereof, (iv) all
rights to sue for past, present and future infringements or misappropriation
10
thereof, and (v) all other rights corresponding thereto throughout the world.
"UCC" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of Texas; PROVIDED, HOWEVER, that
if, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Texas, the term "UCC" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
1.2 ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes thereto.
1.3 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular, to
the singular include the plural. The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause and exhibit references are to this Agreement unless otherwise
specified.
1.4 EXHIBITS. All of the exhibits attached to this
Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT
2.1 LOAN. (a) Upon and subject to the terms and
conditions hereof, Lender agrees to make a loan to Borrower on the Effective
Date in an aggregate principal amount equal to Five Million Dollars ($5,000,000)
(the "Loan"). The Loan shall be evidenced by a promissory note to be executed
and delivered by Borrower at the time of such Loan, the form of which is
attached hereto and made a part hereof as Exhibit A (the "Note").
11
(b) The Loan shall be made on notice, given not later
than 1:00 P.M. (New York City time) on the second Business Day prior to the
Effective Date, by Borrower to Lender. On the Effective Date, upon fulfillment
of the applicable conditions set forth in Section 3, Lender shall wire to a bank
designated by Borrower and reasonably acceptable to Lender, the amount of the
Loan.
2.2 OVERADVANCE. Following the Effective Date, Lender
(i) may, but shall not be obligated to, make one or more additional advances to
Borrower from the funds applied to repay the Loan in accordance with Section
2.3, in an aggregate principal amount not to exceed One Million Dollars
($1,000,000), subject to such terms and conditions as shall be agreed upon by
Lender and Borrower and (ii) to the extent obligated pursuant to the
Intercreditor Agreement shall make one or more additional advances to Borrower
to make funds available to repay the Foothill Overadvance in accordance with
Lender's obligations under the Intercreditor Agreement (each, an "Overadvance").
In the event Lender makes any such Overadvance to Borrower, the amount of such
Overadvance shall be added to the principal amount of, and shall be deemed to be
a part of, the Loan and shall be subject to the terms and conditions of this
Agreement, including the interest rate and repayment terms, applicable to the
Loan.
2.3 MANDATORY PREPAYMENT. (a) All proceeds realized
from any sale, transfer or other disposition of the Borrower's Inventory
(including any amounts received by Borrower in respect of the PCS Escrow
Agreement, but subject to the prior repayment of the Foothill Overadvance, in
accordance with the terms and conditions set forth in the Foothill Loan and the
Intercreditor Agreement) and Securities, and all amounts received by Borrower in
respect of the IRS Refund or the Derivative Settlement shall immediately upon
receipt thereof, be applied by Borrower first, to pay all accrued and unpaid
interest and all fees and expenses payable hereunder, and second to prepay the
principal balance of the Loan.
(b) No prepayment fee shall be payable in
respect of any mandatory prepayment under this Section 2.3.
(c) Amounts paid pursuant to this Section
2.3 may not be re-borrowed.
12
2.4 OPTIONAL PREPAYMENT. (a) Borrower shall have the
right at any time, upon at least two (2) Business Days' prior notice to Lender,
stating the proposed date and aggregate principal amount of the prepayment, to
prepay the outstanding principal amount of the Loan in whole or in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid; provided, however, that each partial prepayment shall be in an
aggregate principal amount not less than Five Hundred Thousand Dollars
($500,000) or integral multiples of One Hundred Thousand Dollars ($100,000) in
excess thereof. Upon the giving of such notice of prepayment, the principal
amount of the Loan specified to be prepaid shall become due and payable on the
date specified for each such prepayment.
(b) No prepayment fee shall be payable in
respect of any optional prepayment under this Section 2.4.
(c) Amounts paid pursuant to this Section
2.4 may not be re-borrowed.
2.5 INTEREST RATES, PAYMENTS AND CALCULATIONS.
(a) INTEREST RATE. Subject to Section
2.5(b), the outstanding principal amount of the Loan shall bear interest at a
rate equal to the lesser of (i) the Maximum Lawful Rate and (ii) fifteen percent
(15%) per annum.
(b) DEFAULT RATE. From and after the
occurrence of an Event of Default the outstanding principal amount of the Loan
shall bear interest at a rate equal to the lesser of (i) the Maximum Lawful Rate
and (ii) seventeen percent (17%) per annum.
(c) PAYMENTS. Interest hereunder shall be
due and payable on the first Business Day of each calendar month during the term
hereof. Any interest not paid when due, together with all or any portion of the
other Obligations, shall, to the fullest extent permitted by law, accrue
interest at the Default Rate payable on demand. All interest shall be computed
on the basis of a three hundred sixty (360) day year for the actual number of
days elapsed.
(d) ALTERNATIVE INTEREST RATE. Notwithstanding
the provisions of Sections 2.5(a) and (b), if at any time the applicable
interest rate shall exceed the
13
Maximum Lawful Rate and thereafter the applicable interest rate shall become
less than the Maximum Lawful Rate, the rate of Interest payable hereunder shall,
at the option of Lender, be the Maximum Lawful Rate until the total interest
paid by Borrower equals the amount which would have been paid but for the
applicable interest rate having been in excess of the Maximum Lawful Rate. If at
maturity or final payment of the Obligations the total amount of interest paid
or accrued on the Obligations under the provisions of Sections 2.5 (a) and (b)
is less than the total amount of interest which would have accrued if the
applicable interest rate had at all times been in effect, then Borrower to the
fullest extent permitted by law, shall pay to Lender an amount equal to the
difference between (a) the amount of interest which would have accrued on the
Obligations if the Maximum Lawful Rate had at all times been in effect, and (b)
the amount of interest accrued in accordance with the provisions of Sections
2.5(a) and (b).
(e) INTEREST SAVINGS. It is the intention
of the parties hereto to conform strictly to all usury laws applicable to this
transaction. Accordingly, if the transactions contemplated hereby would be
usurious under applicable law (including the laws of the United States of
America or any jurisdiction whose laws may be mandatorily applicable
notwithstanding the other provisions of this Agreement), then, notwithstanding
anything to the contrary in this Agreement or in any other instrument or
agreement entered into in connection herewith, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is contracted for, taken, reserved, charged, or received under this
Agreement or under any other instruments or agreements or otherwise in
connection herewith shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be credited on the
principal amount of the Obligations (or, if the principal amount of the
Obligations shall have been paid in full, refunded to Borrower); and (ii) in the
event that the maturity of the Obligations is accelerated for any reason under
this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under applicable
law may never include more than the maximum amount allowed by such applicable
law, and excess interest, if any, provided for in this Agreement or otherwise
shall be cancelled automatically as of the date of such acceleration or
prepayment and, if
14
theretofore paid, shall be credited on the principal amount of the Obligations
(or, if the principal amount of the Obligations shall have been repaid in full,
refunded to Borrower). In determining whether or not the interest paid or
payable with respect to any indebtedness of Borrower to Lender, under any
specific contingency, exceeds the Maximum Lawful Rate, Borrower and Lender
shall, to the maximum extent permitted by applicable law, (i) characterize any
non-principal payment as an expense, fee, or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, (iii) amortize,
prorate, allocate and spread the total amount of interest throughout the full
term of such indebtedness so that the actual rate of interest on account of such
indebtedness does not exceed the maximum amount permitted by applicable law
and/or (iv) allocate interest between portions of such indebtedness, so that no
such portion shall bear interest at a rate greater than that permitted by
applicable law.
2.6 CREDITING PAYMENTS. Borrower shall make all
payments hereunder by wire transfer to Lender at The Bank of New York, ABA#
021-000-018, Account # 114669, with the notation "Transaction Description:
Intelogic Trace Exit Loan, or by such other method as may be substituted by
notice given as herein provided. The receipt by Lender of any funds in payment
of the Obligations shall be immediately applied to conditionally reduce the
Obligations, but shall not be considered a payment on account unless such wire
transfer is of immediately available federal funds and is made to the
appropriate deposit account of Lender. For interest calculation purposes, the
receipt of wire transfer or other item of payment by Lender shall be deemed to
have been paid to Lender two (2) Business Days after the date Lender actually
receives such wire transfer of immediately available federal funds.
Notwithstanding anything to the contrary contained herein, any wire transfer or
other payment received by Lender after 11:00 a.m. New York time shall be deemed
to have been received by Lender as of the opening of business on the immediately
following Business Day.
2.7 FEES. In consideration of Lender's agreement to
make available to Borrower the advances and loans provided for herein, Borrower
shall pay to Lender a fee (the "Closing Fee") consisting of 6,667 shares of the
Borrower's 10% Preferred Stock to be issued on or promptly following
15
the Effective Date. The Closing Fee shall be fully earned at the time of payment
and non-refundable.
2.8 USE OF PROCEEDS. The proceeds of the Loan made on
the Effective Date shall be used as follows:
(a) up to Four Million Dollars ($4,000,000)
shall be applied to repay the overadvance on Borrower's indebtedness to Foothill
outstanding immediately prior to the Effective Date; and
(b) the remaining proceeds shall be used for
general corporate purposes or to pay claims of creditors and expenses incurred
by Borrower in connection with the Plan of Reorganization.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT. Each of the following is a
condition precedent to Lender making the Loan hereunder:
(a) NOTE. Lender shall have received the Note
to the order of Lender duly executed by Borrower.
(b) INTERCREDITOR AGREEMENT. Lender shall have
received the Intercreditor Agreement duly executed by Foothill and Borrower.
(c) FOOTHILL LOAN. Foothill and Borrower shall
have duly executed the Foothill Loan.
(d) NO MODIFICATION TO THE PLAN OF
REORGANIZATION. The terms of the Plan of Reorganization shall not have been
modified in any manner adverse to Lender without the prior written consent of
Lender. All conditions to the consummation of the Plan of Reorganization set
forth in Article VIII thereof shall have been satisfied and shall have been
completed prior to, or simultaneously with, the Effective Date.
(e) BORROWER CERTIFICATE. Lender shall have
received a certificate of Borrower dated the Effective Date, in form and
substance satisfactory to Lender, executed by the President or any Vice
President and the Secretary or any Assistant Secretary of Borrower, certifying
that the
16
representations and warranties made by Borrower in each of the Loan Documents
are true and correct on and as of the date hereof and after giving effect to the
Loan required to be made pursuant hereto.
(f) CORPORATE PROCEEDINGS OF BORROWER.
Lender shall have received a copy of the resolutions, in form and substance
satisfactory to Lender, of the Board of Directors of Borrower authorizing (i)
the execution, delivery and performance of this Agreement and the other Loan
Documents, (ii) the borrowings contemplated hereunder and (iii) the granting by
it of the liens created pursuant to this Agreement and the other Loan Documents,
certified by the Secretary or an Assistant Secretary of Borrower as of the
Effective Date, which certificate shall state that the resolutions thereby
certified have not been amended, modified or revoked.
(g) BORROWER INCUMBENCY CERTIFICATE. Lender
shall have received a certificate of Borrower dated the Effective Date, in form
and substance satisfactory to Lender, as to the incumbency and signature of the
officers of Borrower executing any Loan Document, executed by the President or
any Vice President and the Secretary or any Assistant Secretary of Borrower.
(h) CORPORATE DOCUMENTS. Lender shall have
received true and complete copies of the Certificate of Incorporation and
By-Laws of Borrower, certified as of the Effective Date as complete and correct
copies thereof by the Secretary or an Assistant Secretary of Borrower.
(i) FEDERAL RESERVE FORM G-3. A true and
accurate Federal Reserve Form G-3 dated as of the date hereof shall have been
executed and delivered by Borrower to Lender.
(j) ASSIGNMENT OF PCS ESCROW AGREEMENT.
Lender shall have received, in form and substance satisfactory to Lender, an
assignment of the PCS Escrow Agreement, duly executed by Borrower and by PCS.
(k) INSURANCE ENDORSEMENT. Lender shall
have received evidence satisfactory to Lender that the insurance policies
provided for in Section 6.8 hereof are in full force and effect, certified by
the insurer thereof,
17
together with appropriate evidence showing a loss payable clause in favor of
Lender.
(l) LIEN SEARCHES. Lender shall be satisfied
that the results of the lien searches (which shall be performed at Borrower's
expense) shall not indicate any liens on the Collateral other than as created
pursuant to this Agreement, the other Loan Documents or as permitted by the
Intercreditor Agreement.
(m) ACTIONS TO PERFECT LIENS. The Borrower
shall execute all filings, recordings, registrations and perform all other
actions, including, without limitation, executing financing statements on form
UCC-1, necessary or, in the reasonable opinion of Lender, desirable to perfect
the liens created by this Agreement.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. As security for the
prompt and complete payment and performance when due of all the Obligations and
to induce Lender to enter into the Loan Documents and to make the Loan in
accordance with the terms hereof, Borrower hereby assigns, conveys, mortgages,
pledges, hypothecates and transfers to Lender, and hereby grants to Lender a
security interest in, all presently existing and hereafter arising Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds thereof, is evidenced by or consists of letters
of credit, notes, drafts, instruments, documents, leases or chattel paper
("Negotiable Collateral"), Borrower shall, immediately upon the request of
Lender, endorse and assign such Negotiable Collateral to Lender and deliver
physical possession of such Negotiable Collateral to Lender.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES,
NEGOTIABLE COLLATERAL. Lender or Lender's designee may, at such time as either
an Event of Default has occurred or Lender reasonably determines that a material
impairment of the prospect of repayment of any portion of the Obligations or of
the value or priority of Lender's security interest in the Collateral has
occurred or is imminently likely to occur, (a) notify customers or account
debtors of Borrower that the Accounts, General Intangibles and Negotiable
18
Collateral have been assigned to Lender or that Lender has a security interest
therein; (b) require Borrower to establish a lockbox or other restricted account
satisfactory to Lender for the collection of Accounts, General Intangibles or
Negotiable Collateral; and (c) collect the Accounts, General Intangibles and
Negotiable Collateral directly, but, unless and until Lender does so or gives
Borrower other written instructions, Borrower shall collect all Accounts,
General Intangibles and Negotiable Collateral for Lender, receive in trust all
payments thereon as Lender's trustee, and immediately deliver said payments to
Lender in their original form as received from the account debtor.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.
Borrower shall execute and deliver to Lender, prior to or concurrently with
Borrower's execution and delivery of this Agreement and at any time thereafter
at the request of Lender, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
assignments, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents that Lender may reasonably request, in form satisfactory to
Lender, to perfect and continue perfected Lender's security interests in the
Collateral and in order to fully consummate all of the transactions contemplated
under the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably
makes, constitutes and appoints Lender (and any authorized signatory of Lender)
as Borrower's true and lawful attorney in fact, with power to: (a) sign the name
of Borrower on any of the documents described in Section 4.4 or on any other
similar documents to be executed, recorded or filed in order to perfect or
continue perfected Lender's security interest in the Collateral; (b) send
requests for verification of Accounts; (c) at such time as an Event of Default
has occurred and is continuing, sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) at such time as an Event of Default has occurred and is continuing,
endorse Borrower's name on any checks, notices, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (e) at such time as an Event of Default has occurred and is
continuing, notify the post office
19
authorities to change the address for delivery of Borrower's mail to an address
designated by Lender, to receive and open all mail addressed to Borrower, and to
retain all mail relating to the Collateral and promptly forward all other mail
as well as copies of any mail retained to Borrower; (f) at such time as an Event
of Default has occurred and is continuing, make, settle, and adjust all claims
under Borrower's policies of insurance and make all determinations and decisions
with respect to such policies of insurance; and (g) at such time as an Event of
Default has occurred and is continuing, settle and adjust disputes and claims
respecting the Accounts directly with account debtors, for amounts and upon
terms which Lender determines to be reasonable, and Lender may cause to be
executed and delivered any documents and releases which Lender determines to be
necessary. The appointment of Lender as Borrower's attorney in fact, and each
and every one of Lender's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Lender's obligation to provide advances hereunder is terminated.
4.6 RIGHT TO INSPECT. Lender (through any of its
officers, employees or agents) shall have the right, from time to time hereafter
upon reasonable prior notice during Borrower's usual business hours, or during
the usual business hours of any third party having control over the records of
Borrower, to inspect Borrower's Books and to check, test and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
4.7 NO ASSUMPTION. Nothing contained herein or in any
of the Loan Documents nor any grant of a security interest in the Collateral to
Lender or otherwise shall constitute or be deemed an assumption by Lender of any
liability or obligation under any agreement, contract or obligation of Borrower.
5. REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan as herein provided for,
Borrower makes the following representations and warranties to Lender, each and
all of which shall be true and correct as of the date of (i) execution and
20
delivery of this Agreement or (ii) the making by Lender of any Overadvance, and
shall survive the execution and delivery of this Agreement:
5.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Borrower
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation; (ii) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification (except for jurisdictions in which such failure to so qualify or
to be in good standing would not have a Material Adverse Effect); (iii) has the
requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore and
proposed to be conducted; (iv) has all material licenses, permits, consents or
approvals from or by, and has made all material filings with, and has given all
material notices to, all Governmental Authorities having jurisdiction, to the
extent required for such ownership, operation and conduct; (v) is in compliance
with its Certificate of Incorporation and ByLaws; and (vi) is in compliance with
all applicable provisions of law where the failure to comply would have a
Material Adverse Effect.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution,
delivery and performance of the Loan Documents are within Borrower's corporate
powers, have been duly authorized, and are not in conflict with nor constitute a
breach of any provision contained in Borrower's Certificate of Incorporation or
By-laws, nor will they constitute an Event of Default under any material
agreement to which Borrower is now or may hereafter become a party.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and
indefeasible title to the Collateral, free and clear of liens, claims, security
interests or encumbrances (except for liens in favor of Foothill, subject to the
Intercreditor Agreement).
5.4 BONA FIDE ACCOUNTS. The Accounts are, and at all
times, hereafter shall be, bona fide existing obligations created by the sale
and delivery of Inventory or the rendition of services to account debtors in the
ordinary
21
course of Borrower's business, and to the best of Borrower's knowledge are
unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims or rights of return or cancellation. The property or services
giving rise to such Accounts has been delivered to or performed for the account
debtor, or to the account debtor's agent for immediate shipment to and
unconditional acceptance by the account debtor. Except as disclosed to Lender in
writing, Borrower has not, and at all times hereafter, shall not have, received
notice of actual or imminent bankruptcy, insolvency or material adverse change
in the financial condition of any account debtor at the time an Account due from
such account debtor is assigned to Foothill.
5.5 CONDITION OF INVENTORY. Except Field Support Spares
under repair in the normal course of Borrower's business, all Inventory is now
and at all times hereafter shall be of good and marketable title and quality.
5.6 LOCATION OF INVENTORY AND EQUIPMENT. Except for the
items being repaired in the ordinary course of business, the Inventory and
Equipment is not now and shall not at any time hereafter be stored with a
bailee, warehouseman or similar party without Lender's prior written consent
which such consent shall not be unreasonably delayed or withheld. Borrower
shall keep the Inventory and Equipment only at the locations set forth on
Schedule 5.6 hereto.
5.7 INVENTORY RECORDS. Borrower now keeps, and hereafter
at all times shall keep, correct and accurate records itemizing and describing
the kind, type, quality and quantity of the Inventory, and Borrower's cost
therefor.
5.8 LOCATION OF BORROWER'S EXECUTIVE OFFICES. The
current location of Borrower's executive offices and Borrower's Books is at the
address indicated in the first paragraph of this Agreement and Borrower
covenants and agrees that it will not, without thirty (30) days prior written
notification to Lender, relocate its executive offices.
5.9 LITIGATION. Except as disclosed on Schedule 5.9
hereto, there are no actions or proceedings pending by or against Borrower
before any court or administrative agency and Borrower does not have knowledge
of any pending or threatened litigation, formal governmental investiga-
22
tions, or filed claims, complaints, actions or prosecutions involving Borrower
or any guarantor of the Obligations, except for ongoing collection matters in
which Borrower is the plaintiff. If any of the foregoing arises during the term
of this Agreement, Borrower shall promptly notify Lender in writing.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All financial statements relating to Borrower which have been or may hereafter
be delivered by Borrower to Lender have been prepared in accordance with GAAP
and fairly present Borrower's financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been a
material adverse change in the financial condition of Borrower since the date of
the most recent of such financial statements submitted to Lender.
5.11 SOLVENCY. Borrower is now and shall be at all times
hereafter able to pay its debts (including trade debts) as they mature.
5.12 ERISA. The Intelogic Trace, Inc. Retirement Income
Plan (the "Intelogic Plan") was terminated by the Pension Benefit Guaranty
Corporation effective as of November 21, 1994, as disclosed on Schedule 5.12.
Except for the Intelogic Plan, neither the Borrower nor any ERISA Affiliate
maintains or contributes to any pension plan subject to Title IV of ERISA. The
Borrower and its ERISA Affiliates are in material compliance with the provisions
of ERISA and the qualification requirements of Section 401(a) of the IRC and any
regulations thereunder with respect to any Plan intended to constitute a
qualified plan under Section 401(a) of the IRC. No Prohibited Transaction has
occurred with respect to a Plan. Except with respect to the Intelogic Plan,
Borrower and its ERISA Affiliates have made all contributions required to be
made by them to any Plan when due.
5.13 ENVIRONMENTAL CONDITION. Except as to cleaning
material and solutions, packing materials and video display tubes used or
repaired in Borrower's ordinary course of business, none of Borrower's
properties or assets has ever been used by Borrower or, to the best of
Borrower's knowledge, by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release or
23
transport, any hazardous waste or hazardous substance. None of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower. Borrower has not received a summons, citation,
notice or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.14 MARGIN REGULATIONS. None of the proceeds of the Loan
shall be used, directly or indirectly, (i) for the purpose of purchasing or
carrying any "margin security," as that term is defined in Regulations G and U
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), (ii) for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security, or (iii) for any
other purpose which might cause the Loan to be considered a "purpose credit"
within the meaning of Regulation G, T, U or X of the Federal Reserve Board, or
otherwise to violate any of those regulations. A true and accurate Federal
Reserve Form G-3 dated as of the date of this Agreement has been executed and
delivered by Borrower to Lender. Borrower shall not take or permit any agent
acting on its behalf to take any action which might cause this Agreement or the
Loan to violate any regulation of the Federal Reserve Board.
5.15 RELIANCE BY LENDER; CUMULATIVE. Each warranty,
representation and agreement contained in this Agreement shall be automatically
deemed repeated if any Overadvance is made pursuant to Section 2.2 hereof, and
shall be conclusively presumed to have been relied on by Lender regardless of
any investigation made or information possessed by Lender. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall now or hereinafter give, or cause to be given, to Lender.
24
5.16 BANKRUPTCY MATTERS. The Plan of Reorganization and
the Order confirming the Plan of Reorganization are final and non-appealable.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
the Obligations, and unless Lender shall otherwise consent in writing, Borrower
shall do all of the following:
6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter
shall maintain a system of accounting in accordance with GAAP with ledger and
account cards or computer tapes, discs, printouts and records pertaining to the
Collateral which contain information as from time to time may reasonably be
requested by Lender. Borrower shall also keep proper books of Accounts showing
all sales, claims and allowances on its Inventory.
6.2 CASH FLOW, BALANCE SHEET AND INCOME STATEMENT
REPORTS. Upon request of Lender, Borrower shall deliver to Lender (i) detailed
cash flow reports reflecting all sources and uses of cash for the prior six (6)
months and all projected sources and uses of cash for the next twelve (12) month
period, (ii) monthly cash flow reports, (iii) monthly balance sheet reports and
(iv) monthly income statement reports.
6.3 ASSIGNMENTS OF ACCOUNTS. Upon request of Lender,
Borrower shall provide Lender with schedules describing all Accounts and shall
execute and deliver to Lender assignments of all Accounts. Borrower's failure to
execute and deliver such schedules or assignments shall not affect or limit
Lender's security interest or other rights in and to the Accounts.
6.4 SEC FILINGS; REPORTS; CERTIFICATES. Borrower shall
deliver to Lender, concurrently with the filing thereof with the Securities and
Exchange Commission, Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports and Form 8-K Current Reports, and any other filings made by Borrower
with the Securities and Exchange Commission. Borrower shall also deliver to
Lender any other report reasonably requested by Lender relating to the
Collateral and the financial condition of Borrower.
25
Upon request of Lender, Borrower shall deliver to Lender a
certificate signed by its chief financial officer or treasurer to the effect
that: (a) all reports, statements or computer prepared information of any kind
or nature delivered or caused to be delivered to Lender hereunder (i) to the
extent applicable have been prepared in accordance with GAAP consistently
applied and (ii) fully and fairly present the financial condition of Borrower;
(b) Borrower is in timely compliance with all representations, warranties and
covenants hereunder; and (c) on the date of delivery of such certificate to
Lender the officer signing such certificate does not know of any condition or
event which constitutes an Event of Default. To the extent that Borrower is
unable to so certify as to any of the foregoing matters, Borrower shall provide
such certificate with a detailed explanation of any matters to which it can not
so certify.
As soon as practicable, but in any event within two (2)
Business Days after Borrower becomes aware of the existence of any Event of
Default, or any development or other information which would have a Material
Adverse Effect, Borrower shall give telephonic or telecopied notice specifying
the nature of such Event of Default or development or information, including the
anticipated effect thereof, which notice shall be promptly confirmed in writing
within five (5) days.
At such time as either an Event of Default has occurred or
Lender determines that a material impairment of the prospect of repayment of any
portion of the Obligations or the value or priority of Lender's security
interest in the Collateral has occurred or is imminently likely to occur,
Borrower hereby irrevocably authorizes and directs all auditors, accountants or
other third parties to deliver to Lender, at Borrower's expense, copies of
Borrower's financial statements, papers related thereto, and other accounting
records of any nature in their possession, and to disclose to Lender, upon its
request, any information they may have regarding Borrower's business affairs and
financial condition.
6.5 TITLE TO EQUIPMENT. Upon Lender's request, Borrower
shall immediately deliver to Lender, properly endorsed as collateral, any and
all evidences of ownership of, certificates of title, or applications for title
to any items of Equipment.
26
6.6 MAINTENANCE OF EQUIPMENT. Borrower shall keep and
maintain the Equipment in good operating condition and repair, and make all
necessary replacements thereto so that the condition and operating efficiency
thereof shall at all times be maintained and preserved. Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and the Equipment is now and shall at all times remain
personal property.
6.7 TAXES. All assessments and taxes, whether real,
personal or otherwise, imposed, levied or assessed against Borrower or any of
its property which have become due and payable, have been paid, or will be paid
prior to delinquency, and shall hereafter be paid in full prior to delinquency,
except to the extent controverted in good faith by Borrower by proceedings which
stay the imposition of any penalty or fine resulting from the imposition
thereof, before delinquency or before the expiration of any extension period.
Borrower shall make due payment or deposit, prior to delinquency, of all
federal, state and local taxes, assessments or contributions required of it by
law, except to the extent controverted in good faith by Borrower by proceedings
which stay the imposition of any penalty or fine resulting from the imposition
thereof, and will execute and deliver to Lender, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will make
payment or deposit, prior to delinquency, of all tax payments and withholding
taxes required of it by applicable laws, including, without limitation, those
laws concerning F.I.C.A., F.U.T.A., state disability, and local, state and
federal income taxes, and will, upon request, furnish Lender with proof
satisfactory to Lender indicating that Borrower has made such payments or
deposits.
6.8 INSURANCE.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses. Borrower shall also maintain
business interruption, public liability, product liability, and property damage
insurance relating to Borrower's ownership and use of the Collateral, as well
as insurance against larceny, embezzlement, and criminal misappropriation.
27
(b) All such policies of insurance shall be
in such form, and with such companies, and in such amounts as ordinarily insured
against by other owners in similar businesses and reasonably satisfactory to
Lender. All such policies of insurance (except those of public liability and
property damage) shall contain a lender's loss payable endorsement, or an
equivalent endorsement in a form reasonably satisfactory to Lender, showing
Lender and Foothill as co-loss payees thereof, and shall contain a waiver of
warranties, and shall specify that the insurer must give at least ten (10) days
notice to Lender before cancelling its policy for any reason. Borrower shall
deliver to Lender certified copies of such policies of insurance or certificates
evidencing the existence of such policies and evidence of the payments of all
premiums therefor. After the occurrence and continuation of an Event of Default,
all proceeds payable under any such policy shall be paid to and retained by
Lender.
6.9 LENDER EXPENSES. Borrower shall immediately and
without demand reimburse Lender for all sums expended by Lender which constitute
Lender Expenses and Borrower hereby authorizes and approves all advances and
payments by Lender in accordance with provisions of this Agreement for items
constituting Lender Expenses.
6.10 FOOTHILL DOCUMENTS. Upon request of Lender, Borrower
shall deliver to Lender copies of all documents, correspondence, notices and
certificates delivered in connection with or relating to the Foothill Loan.
6.11 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder
and under the other Loan Documents made by or on behalf of Borrower shall be
made without setoff or counterclaim and shall be free and clear of, and without
deduction or withholding for or on account of, any federal, State or local
taxes.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
the Obligations, Borrower will not do any of the following without Lender's
prior written consent:
7.1 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS.
Enter into any transaction not in the ordinary and usual course of Borrower's
business, including, without
28
limitation, the sale, lease or other disposition of, moving, relocation or
transfer, whether by sale or otherwise, of any of Borrower's assets having an
aggregate value in excess of $50,000 (other than sales of Inventory in the
ordinary and usual course of Borrower's business as presently conducted and
sales of the Securities for cash in arms-length transactions and for fair market
value, provided in each case the proceeds thereof are applied by Borrower in
accordance with Section 2.3 hereof), the incurrence of any debts outside the
ordinary and usual course of Borrower's business except for renewals or
extensions of existing debts, or the making of any advance or loan except in the
ordinary course of business as presently conducted.
7.2 LIENS. Create, incur, assume or permit to exist,
directly or indirectly, any lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens.
7.3 CHANGE NAME. Change Borrower's name, business
structure or identity, or add any new fictitious name without giving Lender
ninety (90) days prior written notice of such change.
7.4 MERGE, ACQUIRE. Acquire, merge or consolidate with
or into any other business organization; provided, however, that any subsidiary
may be merged into or consolidated with Borrower so long as (i) no provision of
this Agreement would be violated thereby, (ii) Borrower gives Lender at least
ninety (90) days prior written notice of such merger or consolidation, and (iii)
Lender's rights in any Collateral will not be materially and adversely affected
by such merger or consolidation.
7.5 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third party except by endorsement
or instruments or items of payment for deposit to the account of Borrower or
which are transmitted or turned over to Lender, except for (i) guarantees
existing on the date hereof as listed on Schedule 7.5 attached hereto, (ii)
guarantees by endorsement of negotiable Instruments for deposit or collection
in the ordinary course of business, and (iii) guarantees and contingent
liabilities not exceeding in the aggregate at any one time Five Hundred Thousand
Dollars ($500,000).
29
7.6 RESTRUCTURE. Make any change in Borrower's financial
structure or in any of its business operations, or change the date of its fiscal
year if such change would have a Material Adverse Effect on the Borrower's
business condition or on its ability to pay the Obligations, as determined by
Lender in its reasonable discretion.
7.7 PREPAYMENTS. Prepay any indebtedness owing to any
third party.
7.8 AMEND FOOTHILL LOAN. Authorize or execute any
amendment or waiver with respect to the Foothill Loan without the prior written
consent of Lender.
7.9 CHANGE OF OWNERSHIP. Cause, any direct or indirect
change in Borrower's ownership which would result in a Change of Control.
7.10 CONSIGNMENTS. Except in the ordinary course of
Borrower's business, consign any Inventory, sell any goods on bill and hold or
other unusual terms of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or
pay any dividends (in cash) on, or purchase, acquire, redeem or retire any of
Borrower's capital stock, of any class, whether now or hereafter outstanding.
7.12 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify or terminate any agreement presently existing
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Lender
information regarding the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Lender pursuant to or in accordance with this Agreement, and agrees
that Lender may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.13 INVESTMENTS. Directly or indirectly make or own any
beneficial interest in (including stock, partnership interest or other
securities of), or make any loan, advance or capital contribution to, any
corporation, association, person or entity other than (i) investments of the
type and
30
quantity existing on the date hereof and listed on Schedule 7.13 hereto; (ii)
"Permitted Investments" (customarily defined as obligations guaranteed by the
United States, commercial paper maturing not more than 270 days after the
Issuance date and rated P-1 or A-1 or better, certificates of deposit maturing
not more than one (1) year after acquisition, and repurchase agreements having
maturities not more than ninety (90) days from the date of acquisition; and
(iii) other investments not in excess of One Hundred Thousand Dollars
($100,000).
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any person or entity
controlling, controlled by, or under common control (whether by contract,
ownership of voting securities, or otherwise) with Borrower except for
transactions which are in the ordinary course of Borrower's business, upon fair
and reasonable terms and no less favorable to Borrower than would be obtained in
an arm's length transaction with non-affiliated person or entity.
7.15 SUSPENSION. Suspend or go out of business.
7.16 INDEBTEDNESS. Create or suffer to exist any monetary
obligation or indebtedness except, (i) the Obligations, (ii) the Foothill Loan,
(iii) monetary obligation or indebtedness of Borrower in an aggregate principal
amount not exceeding One Hundred Thousand Dollars ($100,000), (iv) current
liabilities in respect of taxes, assessments and governmental charges or levies
incurred, or claims for labor, materials, inventory, services, supplies and
rentals incurred, or for goods or services purchased, in the ordinary course of
business consistent with the past practice of Borrower, (v) guarantees permitted
under Section 7.5 hereof, and (vi) indebtedness of Borrower outstanding on the
Effective Date and reflected on Schedule 7.16 hereto.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest, fees and
31
charges due Lender, taxes, reimbursement of Lender Expenses, or otherwise);
8.2 If Borrower fails to prepay the portion of the
Obligations that are mandatorily prepayable in accordance with Section 2.3
hereof within two (2) Business Days after receipt by the Borrower of any amounts
to be applied to the Obligations in accordance with such Section;
8.3 If Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant or agreement contained in this
Agreement, in any of the Loan Documents, under the Plan of Reorganization and
the Order confirming the Plan of Reorganization or in any other present or
future agreement between Borrower and Lender;
8.4 If there is a material impairment of the prospect
of repayment of any portion of the Obligations owing to Lender or a material
impairment of the value or priority of Lender's security interests in the
Collateral;
8.5 If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any judicial officer or assignee unless Borrower
corrects any such action within three (3) Business Days after the occurrence
thereof;
8.6 If an Insolvency Proceeding is commenced by Borrower;
8.7 If an Insolvency Proceeding is commenced against
Borrower which is not stayed or dismissed within forty-five (45) days;
8.8 If Borrower is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs and the failure by Borrower to continue to conduct such
affairs could reasonably be expected to have a Material Adverse Effect, unless
Borrower appeals and obtains a stay of such order within three (3) Business Days
after the entry thereof;
8.9 Unless adequately bonded to Lender's reasonable
satisfaction within a reasonable time after filing of such lien but in any event
prior to the commencement of foreclosure proceedings with respect
32
thereto, the occurrence of a notice of lien, levy or assessment is filed of
record with respect to any of Borrower's assets by the United States Government
or any department, agency or instrumentality thereof, or by any state, county,
municipal or governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether choate or
otherwise, upon any of Borrower's assets and the same is not paid on the payment
date thereof;
8.10 If a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's assets;
8.11 If Borrower fails to pay any principal of, or premium
or interest on, any monetary obligation or indebtedness for borrowed money owing
to any person other than Lender, or any capitalized lease obligations,
contingent indebtedness in connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any person other than
Lender, in any case in an amount in excess of Five Hundred Thousand Dollars
($500,000), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise); or any other
event shall occur or condition shall exist under any agreement or instrument
relating to any such indebtedness, that would accelerate, or would (following
notice or any cure period) permit the acceleration of, the maturity of such
indebtedness; or any such indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;
8.12 If Borrower makes any payment on account of monetary
obligations or indebtedness which have been subordinated to the Obligations
except to the extent such payment is allowed under this Agreement or under any
subordination agreement entered into with Lender (it being expressly agreed that
no such subordinated monetary obligation or indebtedness exists as of the date
of the execution of this Agreement);
8.13 If any misstatement or misrepresentation exists now
or hereafter in any warranty, representation, statement or report made to Lender
by Borrower or any officer, employee, agent or director of Borrower, or if any
33
such warranty or representation is withdrawn by any officer or director; which
misstatement, misrepresentation or withdrawal could reasonably be expected to
have a Material Adverse Effect;
8.14 If any guaranty of the Obligations is limited or
terminated by operation of law or by the guarantor thereunder, or any guarantor
becomes the subject of an Insolvency Proceeding;
8.15 If there occurs any event or circumstance that has a
Material Adverse Effect;
8.16 If a Prohibited Transaction or Reportable Event shall
occur with respect to a Plan which would be reasonably likely to have a Material
Adverse Effect; if any lien upon the assets of Borrower in connection with any
Plan shall arise; if Borrower or any ERISA Affiliate shall completely or
partially withdraw from a Multiemployer Plan or Multiple Employer Plan of which
Borrower or such ERISA Affiliate was a substantial employer, and such withdrawal
could, in the opinion of Lender, have a Material Adverse Effect on the financial
condition of Borrower; if Borrower or any of its ERISA Affiliates shall fail to
make full payment when due of all amounts which Borrower or any of its ERISA
Affiliates may be required to pay to any Plan or any Multiemployer Plan as one
or more contributions thereto; if Borrower or any of its ERISA Affiliates
creates or permits the creation of any accumulated funding deficiency, whether
or not waived; or upon the voluntary or involuntary termination of any Plan
which termination could, in the opinion of Lender, have a Material Adverse
Effect, or Borrower shall fail to notify Lender promptly and in any event within
ten (10) days of the occurrence of any event which constitutes an Event of
Default under this clause; and
8.17 If any writing, document, aging, certificate or other
evidence of the Accounts or Inventory shall be materially incomplete, incorrect
or misleading at the time the same is furnished to Lender; if Borrower shall
fail to comply with the terms of Section 6.6 of this Agreement; or if Borrower
shall fail to immediately remit each payment on any Account pursuant to the
terms of Section 2.3 of this Agreement.
34
9. LENDER'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an
Event of Default, Lender may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, immediately due
and payable;
(b) Terminate this Agreement and any of the
other Loan Documents as to any future liability or obligation of Lender, but
without affecting Lender's rights and security interest in the Collateral and
without affecting the Obligations;
(c) Settle or adjust disputes and claims
directly with account debtors for amounts and upon terms which Lender considers
commercially reasonable, and in such cases, Lender will credit Borrower's loan
account with only the net amounts received by Lender in payment of such disputed
Accounts after deducting all Lender Expenses incurred or expended in connection
therewith;
(d) Cause Borrower to hold all returned
Inventory in trust for Lender, segregate all returned Inventory from all other
property of Borrower or in Borrower's possession and conspicuously label said
returned Inventory as the property of Lender;
(e) Without notice to or demand upon
Borrower or any guarantor, make such payments and do such acts as Lender
considers necessary or reasonable to protect its security interests in the
Collateral. Borrower agrees to assemble the Collateral if Lender so requires,
and to make the Collateral available to Lender as Lender may designate. Borrower
authorizes Lender to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral or any part of it, and to pay,
purchase, contest or compromise any encumbrance, charge or lien which in
Lender's determination appears to be prior or superior to its security interest
(except as set forth in the Intercreditor Agreement) and to pay all reasonable
expenses incurred in connection therewith. With respect to any of Borrower's
owned premises, Borrower hereby grants
35
Lender a license to enter into possession of such premises and to occupy the
same, without charge, for up to one hundred twenty (120) days in order to
exercise any of Lender's rights or remedies provided herein, at law, in equity,
or otherwise;
(g) Without notice to Borrower (such notice
being expressly waived) set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by Lender or any Related Entity, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Lender or any Related Entity;
(h) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. 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, trade names, Trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and Borrower's rights under all licenses and all franchise agreements
shall inure to Lender's benefit;
(i) Sell the Collateral at either a public
or private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Lender determines is commercially reasonable. It is not necessary
that the Collateral be present at any such sale;
(j) Lender shall give notice of the disposition
of the Collateral as follows:
(1) Lender shall give Borrower and each holder of a
security interest in the Collateral who has
filed with Lender a written request for notice,
a notice in writing of the time and place of
public sale, or, if the sale is a private sale
or some other disposition other than a public
sale is to be made of the Collateral, then the
time on or after which the private sale or other
disposition is to be made;
36
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided
in Section 12 of this Agreement, at least ten
(10) calendar days before the date fixed for the
sale, or at least ten (10) calendar days before
the date on or after which the private sale or
other disposition is to be made, unless the
Collateral is perishable or threatens to decline
speedily in value. Notice to persons other than
Borrower claiming an interest in the Collateral
shall be sent to such addresses as they have
furnished to Lender;
(3) If the sale is to be a public sale, Lender shall
also give notice of the time and place by
publishing a notice one time at least ten (10)
calendar days before the date of the sale in a
newspaper of general circulation in the county
in which the sale is to be held;
(k) Lender may credit bid and purchase at any
public sale; and
(l) Any deficiency which exists after
disposition of the Collateral as provided above will be paid immediately by
Borrower. Lender will return any excess to Borrower, without interest and
subject to the rights of third parties.
9.2 REMEDIES CUMULATIVE. Lender's rights and remedies
under this Agreement, the Loan Documents and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not inconsistent
herewith as provided under the UCC, by law or in equity. No exercise by Lender
of one right or remedy shall be deemed an election, and no waiver by Lender of
any Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Lender shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL
37
If Borrower fails to pay, prior to delinquency, any monies
(whether taxes, rents, assessments, insurance premiums, or otherwise) due to
third persons or entities, or fails to make, prior to delinquency, any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Lender reasonably determines
that such failure by Borrower could have a Material Adverse Effect on Lender's
interests in the Collateral, in its reasonable discretion and without prior
notice to Borrower, Lender may do any or all of the following: (a) make payment
of the same or any part thereof, (b) set up such reserves in Borrower's loan
account as Lender deems necessary to protect Lender from the exposure created by
such failure, or (c) obtain and maintain insurance policies of the type
discussed in Section 6.8 of this Agreement, and take any action with respect to
such policies as Lender deems prudent. Any amounts paid or deposited by Lender
shall constitute Lender Expenses, shall be immediately charged to Borrower's
loan account and become additional Obligations, shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral.
Any payments made by Lender shall not constitute an agreement by Lender to make
similar payments in the future or a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance, or lien and the receipt
of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.
11. GOVERNING LAW; WAIVERS; AMENDMENTS; INDEMNIFICATION
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS;
JURY TRIAL WAIVER. (a) Except as otherwise expressly provided in any of the Loan
Documents, in all respects, including all matters of construction, validity and
performance, this Agreement and the Obligations arising hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
Commonwealth of Massachusetts applicable to contracts made and performed in such
state, without regard to principles thereof regarding conflict of laws, and any
applicable laws of the United States of America.
(b) Borrower and Lender irrevocably consent
and submit to the non-exclusive jurisdiction of the courts
of the Commonwealth of Massachusetts and waive any objection
38
based on venue or FORUM NON CONVENIENS with respect to any action instituted
therein, and agree that any dispute arising out of the relationship between any
such persons or the conduct of any such persons in connection with this
Agreement or otherwise shall be heard only in the courts described above (except
that Lender shall have the right to bring any action or proceeding against
Borrower or its property in the courts of any other jurisdiction which Lender
deems necessary or appropriate in order to realize on the Collateral).
(c) Borrower hereby waives personal service
of any and all process upon it and consents that all such service of process may
be made by registered mail (return receipt requested) directed to its address
set forth in Section 12 hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been deposited in the U.S.
mail. In addition, Lender agrees promptly to forward by registered mail any
process so served upon such agent to Borrower at its address set forth in
Section 12 hereof. Borrower hereby consents to service of process as aforesaid.
(d) BORROWER AND LENDER EACH HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR THE LOAN DOCUMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR EITHER OF
THEM IN RESPECT TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR THE TRANSACTIONS
RELATED HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF THEM MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Nothing in this Section 11.1 shall
affect the rights of Lender to serve legal process in any other manner permitted
by law or affect the rights of Lender to bring any action or proceeding against
Borrower or its property in the courts of any other jurisdiction.
(f) Lender shall not have any liability to
Borrower (whether in tort, contract, equity or otherwise)
39
for losses suffered by Borrower in connection with, arising out of, or in any
way related to the transactions or relationships contemplated by this Agreement,
or any act, omission or event occurring in connection herewith, unless it is
determined by a final and non-appealable judgment or court order binding on
Lender, that the losses were the result of acts or omission constituting gross
negligence or willful misconduct. In any such litigation, Lender shall be
entitled to the benefit of the rebuttable presumption that it acted in good
faith and with the exercise of ordinary care in the performance by it of the
terms of this Agreement.
11.2 WAIVER OF NOTICES. Borrower hereby expressly
waives demand, presentment, protest and notice of protest
and notice of dishonor with respect to any and all instruments and commercial
paper, included in or evidencing any of the Obligations or the Collateral, and
any and all other demands and notices of any kind or nature whatsoever with
respect to the Obligations, the Collateral and this Agreement, except such as
are expressly provided for herein. No notice to or demand on Borrower which
Lender may elect to give shall entitle Borrower to any other or further notice
or demand in the same, similar or other circumstances.
11.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor
any provision hereof shall be amended modified, waived or discharged orally or
by course of conduct, but only by a written agreement signed by an authorized
officer of Lender and no Event of Default shall be deemed cured unless such cure
is acknowledged in writing by Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of its
rights, powers and/or remedies unless such waiver shall be in writing and signed
by an authorized officer of Lender. Any such waiver shall be enforceable only to
the extent specifically set forth therein. A waiver by Lender of any right,
power and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
11.4 WAIVER OF COUNTERCLAIMS. Borrower waives all rights
to interpose any claims, deductions, setoffs or counterclaims of any nature
(other then compulsory counterclaims) in any action or proceeding with respect
to
40
this Agreement, the Obligations, the Collateral or any matter arising therefrom
or relating hereto or thereto.
11.5 INDEMNIFICATION. Borrower shall indemnify, defend and
hold Lender, and its directors, agents employees and counsel, harmless from and
against any and all losses, claims, damages, liabilities, deficiencies,
judgments, penalties or expenses imposed on, incurred by or asserted against any
of them in connection with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation, preparation, execution,
delivery, enforcement, performance or administration of this Agreement, any Loan
Document, or any undertaking or proceeding related to any of the transactions
contemplated hereby or any act, omission to act, event or transaction related or
attendant thereto, including, without limitation, amounts paid in settlement,
court costs, and the reasonable fees and expenses of counsel, PROVIDED, THAT,
Borrower shall have no obligation under this Section 11.5 to Lender with respect
to any indemnified matter resulting solely from Lender's gross negligence or
willful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrower shall pay the maximum
portion which it is permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section. The foregoing indemnity
shall survive the payment of the Obligations and the termination of this
Agreement. All of the foregoing costs and expenses shall be part of the
Obligations and secured by the Collateral
12. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection therewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be delivered in person with receipt acknowledged or
by registered or certified mail, return receipt requested, postage prepaid, or
telecopied and confirmed by telecopy answerback addressed as follows:
41
If to Borrower: Intelogic Trace, Inc.
8415 Datapoint Drive
San Antonio, Texas 78229-8480
Attention: Philip D. Freeman
Telecopy No. (210) 593-2201
With a copy to: Cox & Smith, Inc.
112 E. Pecan St.
Suite 1800
San Antonio, Texas 78205
Attention: Deborah D. Williamson
Telecopy No. (210) 226-8395
If to Lender: Fidelity Capital & Income Fund
82 Devonshire Street - F7D
Boston, Massachusetts 02109
Attention: Judy K. Mencher
Telecopy No. (617) 476-7774
With a copy to: Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Bruce R. Zirinsky
Telecopy No. (212) 310-8007
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12 shall
be deemed received on the earlier of the date of actual receipt or three (3)
calendar days after the deposit thereof in the mail.
13. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings, or other papers
delivered to Lender may be destroyed or otherwise disposed of by Lender four (4)
months after they are delivered to or received by Lender, unless Borrower
requests, in writing, the return of said documents, schedules or other papers
and makes arrangements, at Borrower's expense, for their return.
42
14. GENERAL PROVISIONS
14.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by Borrower and accepted and executed by Lender.
14.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or any
rights hereunder without Lender's prior written consent which such consent shall
not be unreasonably withheld or delayed, and any prohibited assignment shall be
absolutely void. No consent to an assignment by Lender shall release Borrower
from its Obligations. Lender may assign this Agreement and its rights and duties
hereunder. Lender reserves the right to sell, assign, transfer, negotiate, or
grant participations in all or any part of, or any interest in Lender's rights
and benefits hereunder. In connection therewith, Lender may disclose all
documents and information which Lender now or hereafter may have relating to
Borrower or Borrower's business.
14.3 SECTION HEADINGS. Headings and numbers have
been set forth herein for convenience only. Unless the
contrary is compelled by the context, everything contained
in each paragraph applies equally to this entire Agreement.
14.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Lender or
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
14.5 FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT
(INCLUDING THE SCHEDULES AND EXHIBITS HERETO, IF ANY), THE NOTE AND THE OTHER
LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF
THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
43
14.6 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
14.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
14.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Lender of any
property of either or both of such parties should for any reason subsequently be
declared to be improper under any state or federal law relating to creditors'
rights, including, without limitation, provisions of the United States
Bankruptcy Code relating to fraudulent conveyances, preferences and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Fidelity is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Fidelity is required to repay or restore,
and as to all reasonable costs, expenses and attorneys' fees of Fidelity related
thereto, the liability of Borrower or such guarantor shall automatically be
revived, reinstated and restored and shall exists as though such Voidable
Transfer had never been made.
15. TERMINATION. Upon termination of this Agreement and
upon complete repayment of all Obligations owing hereunder, Lender shall
promptly take all actions as are reasonably requested by Borrower to release all
rights Lender may have (except as to those which expressly survive termination)
and Lender shall give such notices and complete such documents reasonably
necessary to effect such termination.
44
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
INTELOGIC TRACE, INC.,
By: MIKE R. ELLIS
Name: Mike R. Ellis
Title: Vice President
FIDELITY CAPITAL & INCOME FUND,
By: JOHN H. COSTELLO
Name: John H. Costello
Title: Assistant Treasurer
45
EXHIBIT 10.36
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is made this 22nd day of November,
1994, by and among the PENSION BENEFIT GUARANTY CORPORATION ("PBGC"), INTELOGIC
TRACE, INC. ("Debtor"), and INTELOGIC TRACE SYSTEMS GROUP, INC., INTELOGIC TRACE
CANADA, INC., ITTG, INC., TLA, INC., and INTELOGIC TRACE MARION GROUP OF PUERTO
RICO, INC. (collectively, the "Subsidiaries").
WITNESSETH:
WHEREAS, the PBGC is a wholly-owned United States government corporation
established to administer and enforce the pension plan termination insurance
program created under Title IV of the Employee Retirement Income Security Act of
1974 ("ERISA"), AS AMENDED, 29 U.S.C. ss.ss. 1301-1461 (1988 and Supp. V 1993);
and
WHEREAS, the Debtor is a corporation organized under the laws of the state
of New York with its principal place of business in San Antonio, Texas; and
WHEREAS, the Debtor is the contributing sponsor of the Intelogic Trace,
Inc. Retirement Income Plan ("Pension Plan"), within the meaning of 29 U.S.C.
ss. 1301 (a) (13) (B); and
WHEREAS, the Debtor and the Subsidiaries are members of a controlled group
within the meaning of 29 U.S.C. ss. 1301 (a) (14); and
WHEREAS, the Pension Plan is a tax-qualified, defined
1
benefit pension plan which is covered by Title IV of ERISA, 29 U.S.C. ss. 1321;
and
WHEREAS, generally, the contributing sponsor of a pension plan that
terminates under Title IV of ERISA and all members of its controlled group are
jointly and severally liable for: (1) any unfunded benefit liabilities under the
terminated plan, pursuant to 29 U.S.C. ss. 1362 (b); (2) and unpaid minimum
funding contributions due to the plan, pursuant to 29 U.S.C. ss. 1362(c); and
(3) and unpaid premiums due to the PBGC, pursuant to 29 U.S.C. ss.ss. 1306-07;
and
WHEREAS, on August 5, 1994, the Debtor filed a petition under Chapter 11 of
the Bankruptcy Code and is currently operating its business as a
debtor-in-possession; and
WHEREAS, nonE of the Subsidiaries has filed a petition under Chapter 11 of
the Bankruptcy Code; and
WHEREAS, on September 30, 1994, the PBGC filed with the Bankruptcy Court
the following three contingent claims against the Debtor in connection with the
Pension Plan:
(a) a claim for unfunded benefit liabilities of the Pension Plan, pursuant
to 29 U.S.C. ss. 1362(b) ("Unfunded Benefit Liabilities Claim");
(b) a claim for unpaid minimum funding contributions due to the Pension
Plan, pursuant to 29 U.S.C. ss. 1362(c) ("Minimum Funding Contribution Claim");
and
2
(c) a claim for any unpaid premiums due to the PBGC, pursuant to 29 U.S.C.
ss. 1307 ("Premium Claim") (the Unfunded Benefit Liabilities Claim, the Minimum
Funding Contribution Claim, and the Premium Claim are hereinafter collectively
referred to as the "Claims"); and
WHEREAS, the PBGC assets that the Debtor and the Subsidiaries are jointly
and severally liable for all amounts included in the Claims; and
WHEREAS, the PBGC asserts that portions of the Minimum Funding Contribution
Claim, the Unfunded Benefit Liabilities Claim, and the Premium Claim are
entitled to various priorities under 11 U.S.C. ss. 507(a); and
WHEREAS, the Debtor and the Subsidiaries dispute the PBGC's assertions; and
WHEREAS, on November 21, 1994, the PBGC determined that the Pension Plan
must be terminated; and
WHEREAS, the parties have agreed to settle their differences in order to
avoid the risk, expense and delay of litigation,
NOW THEREFORE, in consideration of these premises, the parties agree to the
terms and condition set forth below.
3
AGREEMENT
1. PBGC shall be allowed a general unsecured claim in the amount of
approximately $3,391,150, which has been calculated in accordance with ERISA and
regulations promulgated thereunder ("PBGC" Claim"). It is hereby agreed that the
PBGC Claim shall be treated as a "Class 6 - Other Unsecured Claim" under the
Modified First Amended Plan of Reorganization of Intelogic Trace, Inc. ("POR")
and shall receive a pro rata distribution with other Class 6 creditors, and in
addition, the PBGC shall receive an amount of New Preferred Stock equal to 20%
of the New Preferred Stock that the PBGC would otherwise receive as a Class 6
creditor. The PBGC agrees that any payments to be made pursuant to the POR shall
first be applied against any outstanding unpaid contributions due to the Pension
Plan for the plan year ending July 31, 1994 and for the short plan year
commencing on August 1, 1994 and ending on the effective date of the termination
of the Pension Plan.
2. At the discretion of the PBGC, the Subsidiaries shall assign and convey
all of their assets, if any, to the PBGC on or before the effective date of the
Modified First Amended Plan of Reorganization of Intelogic Trace, Inc. The
Debtor and the Subsidiaries shall take all reasonable and necessary documents to
carry out the intent of this paragraph, including, without limitation all
actions reasonably necessary to permit the liquidation,
4
collection, sale or other disposition of any assets of the Subsidiaries.
3. The Debtor and the Subsidiaries shall provide PBGC with information
concerning any assets of the Subsidiaries as PBGC may reasonably request. The
Debtors and the Subsidiaries also shall permit PBGC and its designees, upon
reasonable prior notice, to inspect, audit and make copies of and extracts from
all books and records and other papers in the possession of the Debtor or the
Subsidiaries pertaining to any assets of the Subsidiaries.
4. This Agreement is conditioned on: (1) the Debtor's consent to
termination of the Pension Plan under 29 U.S.C. ss. 1342, effective November 21,
1994, and (2) approval by the United States Bankruptcy Court for the Western
District of Texas.
5. This Agreement may be signed in any number of counterparts, each of
which shall be original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized agents on the dates indicated below.
INTELOGIC TRACE, INC.
Dated: 11/22/94 /s/ MARK S. HELWEGE
By: Mark S. Helwege
Title: President
5
INTELOGIC TRACE SYSTEMS GROUP, INC.
Dated: 11/22/94 /s/ MARK S. HELWEGE
By: Mark S. Helwege
Title: President
INTELOGIC TRACE CANADA, INC.
Dated: 11/22/94 /s/ MARK S. HELWEGE
By: Mark S. Helwege
Title: President
ITTG, INC.
Dated: 11/22/94 /s/ MARK S. HELWEGE
By: Mark S. Helwege
Title: President
TLA, INC.
Dated: 11/22/94 /s/ MARK S. HELWEGE
By: Mark S. Helwege
Title: President
INTELOGIC TRACE MARION GROUP OF
PUERTO RICO, INC.
Dated: 11/22/94 /s/ MARK S. HELWEGE
By: Mark S. Helwege
Title: President
PENSION BENEFIT GUARANTY CORPORATION
Dated: 11/24/94 /s/ JEFFREY B. COHEN
By: Jeffrey B. Cohen
Title: Deputy General Counsel
6
EXHIBIT 10.37
AMENDED AND RESTATED GENERAL
LOAN AND SECURITY AGREEMENT
BETWEEN
FOOTHILL CAPITAL CORPORATION
AND
INTELOGIC TRACE, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND CONSTRUCTION................................. 2
1.1 Definitions............................................. 2
1.2 Accounting Terms........................................ 8
1.3 Code.................................................... 8
1.4 Construction............................................ 8
1.5 Schedules and Exhibits.................................. 9
2. LOAN AND TERMS OF PAYMENT.................................... 9
2.1 Revolving Advances...................................... 9
2.2 Overadvances............................................ 10
2.3 Interest: Rates, Payments, and Calculations............. 10
(a) Interest Rate....................................... 10
(b) Default Rate........................................ 10
(c) Alternative Interest Rate........................... 10
(d) Interest Savings.................................... 11
(e) Payments............................................ 11
(f) Computation......................................... 12
2.4 Crediting Payments...................................... 12
2.5 Statements of Obligations............................... 12
2.6 Fees.................................................... 12
(a) Closing Fee......................................... 12
(b) Unused Line Fee..................................... 13
(c) Financial Examination, Documentation and
Appraisal Fees.................................... 13
3. CONDITIONS TO EFFECTIVENESS; TERM OF AGREEMENT............... 13
3.1 Conditions Precedent to Initial Advance................. 13
3.2 Term.................................................... 14
3.3 Effect of Termination................................... 14
3.4 Early Termination by Borrower........................... 14
4. CREATION OF SECURITY INTEREST................................ 14
4.1 Grant of Security Interest.............................. 14
4.2 Negotiable Collateral................................... 14
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral................................. 14
4.4 Delivery of Additional Documentation Required........... 14
4.5 Power of Attorney....................................... 15
4.6 Right to Inspect........................................ 15
5. REPRESENTATIONS AND WARRANTIES............................... 15
5.1 No Prior Encumbrances................................... 16
5.2 Eligible Accounts....................................... 16
5.3 Location of Inventory and Equipment..................... 16
5.4 Location of Chief Executive Office...................... 16
i
5.5 Due Organization and Qualification...................... 16
5.6 Due Authorization; No Conflict.......................... 16
5.7 Litigation.............................................. 16
5.8 No Material Adverse Change in Financial Condition....... 17
5.9 Solvency................................................ 17
5.10 ERISA................................................... 17
5.11 Environmental Condition................................. 17
5.12 Patents, Copyrights and Trademarks...................... 18
5.13 Reliance by Foothill; Cumulative........................ 18
5.14 Prior Agreements........................................ 18
5.15 Bankruptcy Matters...................................... 18
6. AFFIRMATIVE COVENANTS........................................ 18
6.1 Accounting System....................................... 18
6.2 Collateral Reports...................................... 18
6.3 Schedules of Accounts................................... 19
6.4 Financial Statements, Reports, Certificates............. 19
6.5 Tax Returns............................................. 20
6.6 Returns and Allowances.................................. 20
6.7 Maintenance of Equipment................................ 20
6.8 Taxes................................................... 20
6.9 Insurance............................................... 20
6.10 Foothill Expenses....................................... 21
6.11 Financial Covenants..................................... 21
(a) Current Ratio....................................... 21
(b) Tangible Net Worth.................................. 21
(c) EBITDA.............................................. 21
6.12 No Setoffs or Counterclaims............................. 21
7. NEGATIVE COVENANTS........................................... 21
7.1 Indebtedness............................................ 21
7.2 Liens................................................... 22
7.3 Restrictions on Fundamental Changes..................... 22
7.4 Extraordinary Transactions and Disposal of Assets....... 22
7.5 Change Name............................................. 22
7.6 Merge, Acquire.......................................... 22
7.7 Guarantee............................................... 23
7.8 Restructure............................................. 23
7.9 Prepayments............................................. 23
7.11 Capital Expenditures.................................... 23
7.12 Distributions........................................... 23
ii
7.13 Accounting Methods...................................... 23
7.14 Investments............................................. 23
7.15 Transactions with Affiliates............................ 23
7.16 Suspension.............................................. 24
7.17 Compensation............................................ 24
8. EVENTS OF DEFAULT............................................ 24
9. FOOTHILL'S RIGHTS AND REMEDIES............................... 26
9.1 Rights and Remedies..................................... 26
9.2 Remedies Cumulative..................................... 27
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.................. 28
11. WAIVERS; INDEMNIFICATION..................................... 28
11.1 Demand; Protest; etc.................................... 28
11.2 Foothill's Liability for Inventory or Equipment......... 28
11.3 Indemnification......................................... 28
12. NOTICES...................................................... 28
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................... 29
14. DESTRUCTION OF BORROWER'S DOCUMENTS.......................... 30
15. GENERAL PROVISIONS........................................... 30
15.1 Effectiveness........................................... 30
15.2 Successors and Assigns.................................. 30
15.3 Section Headings........................................ 30
15.4 Interpretation.......................................... 31
15.5 Severability of Provisions.............................. 31
15.6 Amendments in Writing................................... 31
15.7 Counterparts............................................ 31
15.8 Revival and Reinstatement of Obligations................ 31
15.9 Integration............................................. 31
iii
TABLE OF SCHEDULES
Schedule 5.4 Location of Inventory and Equipment
Schedule 5.7 Pending Litigation
Schedule 5.10 ERISA Violations
Schedule 5.12 Borrower's Patents, Trademarks and Copyrights
Schedule 6.2 Form of Certificate Re: Adjusted Service Value
iv
AMENDED AND RESTATED GENERAL LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED GENERAL LOAN AND SECURITY AGREEMENT, is
entered into as of December 8, 1994 between FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), with a place of business located at 11111
Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and
Intelogic Trace, Inc., a New York corporation ("Borrower"), with its chief
executive office located at Turtle Creek Towers I, 8415 Datapoint Drive, San
Antonio, Texas 78229-8480, with reference to the following facts:
A. Foothill and Borrower have previously entered into a General
Loan and Security Agreement dated as of June 20, 1991, together with other
written agreements and amendments thereto (collectively, the "GLSA"), the terms
and obligations of which are reaffirmed.
B. On August 5, 1994, Borrower filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court, Western District of Texas, San Antonio Division commencing
Case No. 94-52172C (the "Case").
C. During the Case, Foothill continued to provide certain
financing to Borrower pursuant to the GLSA as modified by and pursuant to
various pleadings filed and orders entered in connection with the Case
(collectively, the "DIP Loan").
D. On December 8, 1994, Borrower reorganized pursuant to that
certain Modified First Amended Chapter 11 Plan of Intelogic Trace, Inc. dated
October 12, 1994 and filed in the Case (the "Reorganization Plan"), and the
Final Order entered on November 28, 1994 (the "Order") confirming the Plan filed
and entered in connection with Case. Pursuant to the Reorganization Plan and
Order, all assets and property of Borrower which were subject to the Case will
vest in and transfer to Borrower upon entry of the Order.
E. Foothill and Borrower wish to restate their respective
agreements and obligations under the GLSA and the orders entered in connection
with the DIP Loan as provided in this Agreement.
F. As of November 30, 1994, Borrower was indebted to Foothill in
the amount of Six Million Nine Hundred Ninety-One Thousand One Hundred
Forty-Three and 64/100 Dollars ($6,991,143.64) (the "Existing Obligations").
The parties agree that the following shall constitute the entire
agreement between them which shall restate the existing agreements between them:
1
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any person who is or who may become
obligated under, with respect to, or on account of an Account.
"ACCOUNTS" means any "account," as such term is defined in
section 9-106 of the Code and, in any event, shall include, without limitation,
all accounts receivable, book debts, service contracts and other forms of
obligations (other than forms of obligations evidenced by "chattel paper",
"documents" or "instruments", as those terms are defined under the Code)
including, without limitation, under any trade names, styles or divisions
thereof, whether arising out of goods sold or services performed by Borrower or
from any other transaction, whether or not the same involves the sale of goods
or the performance of services by Borrower (including, without limitation, any
such obligation that might be characterized as an account or contract right
under the Code) and all of Borrower's rights in, to and under all purchase
orders or receipts for goods or services, and all of Borrower's rights to any
goods represented by any of the foregoing (including, without limitation, unpaid
seller's rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), and all moneys due or to
become due to Borrower under all contracts for the sale of goods or the
performance of services or both by Borrower (whether or not yet earned by
performance on the part of Borrower or in connection with any other transaction)
including, without limitation, the right to receive the proceeds of said
purchase orders and contracts, and all collateral security and guarantees of any
kind given by any person with respect to any of the foregoing.
"ADJUSTED SERVICE VALUE" means fifteen percent (15%) of
Borrower's annualized field contract and time and materials service maintenance
revenues, net of deferred revenues, measured on a monthly basis, consistently
applied. The calculation of annualized field service maintenance revenues shall
be determined by multiplying the field service maintenance revenues for the
immediately preceding three (3) months by four (4).
"AGREEMENT" means this Amended and Restated General Loan and
Security Agreement and any extensions, riders, supplements, notes, amendments,
or modifications to or in connection with this Amended and Restated General Loan
and Security Agreement.
"AUTHORIZED OFFICER" means any officer of Borrower.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
assets or liabilities, or the Collateral; all information relating to Borrower's
business operations or financial condition; and all computer programs, disc or
tape files, printouts, runs, or other computer prepared information relating to
Borrower's business operations or financial condition, and the equipment
containing such information.
2
"BORROWING BASE" has the meaning set forth in Section 2.1, but in
no event shall the Borrowing Base exceed the Maximum Amount.
"BUSINESS DAY" means any day which is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"CHANGE OF CONTROL" shall be deemed to have occurred at such
times as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities and Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d- 3 under the Securities and Exchange
Act of 1934, as amended), directly or indirectly, of more than twenty percent
(20%) (or such other percentage as Foothill may consent to in writing) of the
total voting power of all classes of stock then outstanding of Borrower normally
entitled to vote in elections of directors, except as the same shall occur
pursuant to the terms of Borrower's Reorganization Plan and Order.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following: the Accounts;
Borrower's Books; the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; any money, or other assets of Borrower which hereafter
come into the possession, custody, or control of Foothill; and the proceeds and
products, whether tangible or intangible, of any of the foregoing including
proceeds of insurance covering any or all of the Collateral, and any and all
Accounts, Equipment, General Intangibles, Inventory, Negotiable Collateral,
money, Deposit Accounts, or other tangible or intangible property resulting from
the sale, exchange, collection, or other disposition of the Collateral, or any
portion thereof or interest therein, and the proceeds thereof.
"CURRENT RATIO" means Borrower's current assets divided by
Borrower's current liabilities (each determined in accordance with GAAP.
"DAILY BALANCE" means the amount of an Obligation owed at the end
of a given day.
"EBITDA" means for any period, Borrower's net income before the
deduction of interest expense, provision for taxes with respect to such period,
depreciation and amortization expense (each determined in accordance with GAAP).
"ELIGIBLE ACCOUNTS" means those Accounts created by Borrower in
the ordinary course of business that arise out of Borrower's sale of goods or
rendition of services, that strictly comply with all of Borrower's
representations and warranties to Foothill as set forth in the Loan Documents,
and that are and at all times shall continue to be reasonably acceptable to
Foothill in all respects; provided, however, that standards of eligibility may
be fixed and revised from time to time by Foothill in Foothill's commercially
reasonable judgment. Eligible Accounts shall not include the following:
3
(a) Accounts which the Account Debtor has failed to pay within
sixty (60) days of due date;
(b) Accounts with selling terms of more than sixty (60) days;
(c) Accounts with respect to which the Account Debtor is an
officer, employee, affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts with respect to which the Account Debtor is not a
resident of the United States, and which are not either (1) covered by credit
insurance in form and amount, and by an insurer satisfactory to Foothill, or (2)
supported by one or more letters of credit that are assignable and have been
delivered to Foothill in an amount and of a tenor, and issued by a financial
institution, acceptable to Foothill;
(f) With the exception of Accounts owing to Borrower by Datapoint
Corporation, Accounts with respect to which the Account Debtor is a subsidiary
of, related to, affiliated with or has common shareholders, officers or
directors with Borrower;
(g) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower;
(h) Accounts with respect to an Account Debtor whose total
obligations to Borrower exceed ten percent (10%) of all Eligible Accounts, to
the extent of the obligations of such Account Debtor in excess of such
percentage;
(i) Accounts with respect to which the Account Debtor disputes
liability or makes any claim with respect thereto, or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts the collection of which Foothill believes to be
doubtful by reason of the Account Debtor's financial condition; and
(k) Accounts owed by an Account Debtor that has failed to pay
fifty percent (50%) or more of its accounts owed to Borrower within sixty (60)
days of the date of the applicable invoices (within the applicable time period
set forth in subparagraph (a) above).
"EQUIPMENT" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer goods or farm products), and any interest in
any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located.
4
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.
"FIDELITY" means Fidelity Capital & Income Fund, a Massachusetts
business trust.
"FIELD SUPPORT SPARES" means any and all spare parts, components,
top assemblies, subassemblies and similar items used by Borrower to maintain or
repair customer equipment.
"FOOTHILL EXPENSES" means all: costs or expenses (including
taxes, photocopying, notarization, telecommunication and insurance premiums)
required to be paid by Borrower under any of the Loan Documents that are paid or
advanced by Foothill; documentation, filing, recording, publication, appraisal
(including periodic Collateral appraisals), real estate survey, environmental
audit, and search fees assessed, paid, or incurred by Foothill in connection
with Foothill's transactions with Borrower; costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the dishonor of
checks; costs and expenses paid or incurred by Foothill to correct any default
or enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof, whether or
not a sale is consummated; reasonable costs and expenses paid or incurred by
Foothill in examining Borrower's Books; costs and expenses of third party claims
or any other suit paid or incurred by Foothill in enforcing or defending the
Loan Documents; and Foothill's reasonable attorneys' fees and expenses incurred
in advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys' fees and expenses incurred in
connection with a "workout", a "restructuring", or an Insolvency Proceeding
concerning Borrower or any guarantor of the Obligations), defending, or
concerning the Loan Documents, whether or not suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and future
general intangibles and other personal property (including choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, monies due under any royalty or licensing
agreements, infringements, claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, deposit accounts, insurance premium rates,
tax refunds, and tax refund claims) other than goods and Accounts, and
Borrower's Books relating to any of the foregoing.
5
"INDEBTEDNESS" shall mean: (a) all obligations of Borrower for
borrowed money; (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, letter of credit guaranties,
bankers acceptances, interest rate swaps, controlled disbursement accounts, or
other financial products; (c) all obligations under capitalized leases; (d) all
obligations or liabilities of others secured by a lien or security interest on
any asset owned by Borrower, irrespective of whether such obligation or
liability is assumed; and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
general assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"INTERCREDITOR AGREEMENT" means that certain Intercreditor
Agreement among Foothill, Fidelity and Borrower of even date herewith.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including Field Support Spares, goods held for sale
or lease or to be furnished under a contract of service and all of Borrower's
present and future raw materials, work in process, finished goods, and packing
and shipping materials, wherever located, and any documents of title
representing any of the above and Borrower's Books relating to any of the
foregoing.
"INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor
Agreement dated as of the date hereof, between Foothill, Fidelity and Borrower.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"JUDICIAL OFFICER OR ASSIGNEE" means any trustee, receiver,
controller, custodian, assignee for the benefit of creditors, or any other
person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian, or assignee for the
benefit of creditors.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or
notes executed by Borrower to the order of Foothill, the Intercreditor
Agreement, and any other agreement entered into in connection with this
Agreement, together with all alterations, amendments, changes, extensions,
modifications, refinancing, refundings, renewals, replacements, restatements, or
supplements, of or to any of the foregoing.
"MAXIMUM AMOUNT" means the amount of Four Million Five Hundred
Thousand Dollars ($4,500,000) until June 30, 1995, which shall be reduced by One
Hundred Thousand Dollars ($100,000) on the first day of each month thereafter
commencing with July 1, 1995
6
through December 1, 1995, at which time such amount shall be and remain at Three
Million Nine Hundred Thousand Dollars ($3,900,000).
"MAXIMUM RATE" means the maximum rate of interest permitted by
applicable law as the same exists from day to day during the term of this
Agreement, including, to the extent that Texas law may apply to the rights of
the parties hereunder notwithstanding the choice of California law contained in
Section 13 hereof (and without any intent of the parties to diminish or negate
the intent or effect of the provisions of Section 13 hereof), the greatest of
either (i) the "indicated rate ceiling" as defined in Article 1.04, Title 79,
Revised Civil Statutes of Texas (the "Act") with said indicated rate ceiling
being adjusted weekly as when permitted under the Act, (ii) the "annual ceiling"
or the "quarterly ceiling" from time to time in effect as referred to and
defined in the Act, upon the giving of notice by Foothill of its election to
utilize the "annual ceiling" or the "quarterly ceiling" to the extent permitted
by the Act and with the effect provided in Section (h)(1) of the Act, (iii) the
rate permitted by any federal law if such federal law applies or may be applied
to this transaction and when and for so long as the rate permitted thereunder is
greater than that permitted under clause (i) or clause (ii) hereof, or (iv) the
maximum rate permitted by applicable law when and as such law changes to permit
a greater maximum rate than that stated in clauses (i), (ii) or (iii) above.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of Borrower or any ERISA Affiliate.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, documents, leases, chattel
paper, and Borrower's Books relating to any of the foregoing.
"OBLIGATIONS" means all Obligations under the GLSA, all
obligations and indebtedness under the DIP Loan, the Existing Obligations, all
claims and administrative claims by Foothill in connection with the Case, all
loans, advances, debts, principal, interest (including any interest that, but
for the provisions of the United States Bankruptcy Code, would have accrued),
premiums, liabilities (including all amounts charged to Borrower's loan account
pursuant to any agreement authorizing Foothill to charge Borrower's loan
account), obligations, fees, lease payments, guaranties, covenants, and duties
owing by Borrower to Foothill of any kind and description (whether pursuant to
or evidenced by the Loan Documents, by any note or other instrument, or by any
other agreement between Foothill and Borrower, and whether or not for the
payment of money), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not paid
when due and all Foothill Expenses that Borrower is required to pay or reimburse
by the Loan Documents, by law, or otherwise.
"OVERADVANCE" has the meaning set forth in Section 2.1(a).
"PBGC" means the Pension Benefit Guarantee Corporation.
7
"PCS ESCROW AGREEMENT" shall mean that certain escrow agreement
by and between Borrower and PC Service Source, Inc. concerning the sale of
Borrower's Inventory and referred to in the Master Repair Services and Spare
Parts Supply Agreement between Borrower and PC Service Source, Inc.
"PERMITTED LIENS" means: (a) liens and security interests held by
Foothill; (b) liens for unpaid taxes that are not yet due and payable; (c) liens
and security interests of Fidelity as permitted in the Intercreditor Agreement;
and (d) purchase money security interests and liens of lessors under capitalized
leases to the extent that the acquisition or lease of the underlying asset was
permitted under Section 7.11, and so long as the security interest or lien only
secures the purchase price of the asset.
"PLAN" means any plan described in ERISA Section 3(2) maintained
for employees of Borrower or any ERISA Affiliate, other than a Multiemployer
Plan.
"PROHIBITED TRANSACTION" means any transaction described in
Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and
any transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c)(2) of the IRC.
"REFERENCE RATE" means the highest of the variable rates of
interest, per annum, most recently announced by (i) Bank of America, N.T.& S.A.,
San Francisco, California, (ii) Mellon Bank, N.A., Pittsburgh, Pennsylvania, and
(iii) Citibank, N.A., New York, New York, or any successor to any of the
foregoing institutions, as its "prime rate" or "reference rate", as the case may
be, whether or not such announced rate is the best rate available from such
financial institution.
"REPORTABLE EVENT" means a reportable event described in Section
4043 of ERISA or the regulations thereunder, a withdrawal from a Plan described
in Section 4063 of ERISA, or a cessation of operations described in Section
4068(f) of ERISA.
"TANGIBLE NET WORTH" means, as of the date the determination
thereof is to be made, Borrower's total stockholder's equity (deficit), MINUS
the intangible assets of Borrower.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
1.3 CODE. Any terms used in this Agreement which are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, and to the
singular include the plural. The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement.
8
Section, subsection, clause, and exhibit references are to this Agreement unless
otherwise specified.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement, and so
long as no Event of Default has occurred and is continuing, Foothill agrees to
make revolving advances to Borrower in an amount not to exceed the lesser of:
(i) the sum of (A) the Borrowing Base and (B)
until January 15, 1995, an overadvance of
up to One Million Dollars ($1,000,000)
which shall be reduced by the amount of all
proceeds received by Foothill from the sale
of Borrower's Inventory (including proceeds
from sales received with respect to the PCS
Escrow Agreement) (the "Overadvance"); and
(ii) the Maximum Amount.
For purposes of this Agreement "Borrowing Base" shall mean an amount equal to
the following amounts for the following periods:
PERCENTAGE OF
DATE ELIGIBLE ACCOUNTS
(i) The date of this Agreement 80%
through December 31, 1994
(ii) January 1, 1995 through 79%
January 10, 1995
(iii) January 11, 1995 through 78%
January 17, 1995
(iv) January 18, 1995 through 77%
January 24, 1995
(v) January 25, 1995 through 76%
February 7, 1995
(vi) February 8, 1995 through 75%
February 14, 1995
9
(vii) February 15, 1995 through 74%
February 21, 1995
(viii) February 22, 1995 through 73%
March 7, 1995
(ix) March 8, 1995 through 72%
March 14, 1995
(x) March 15, 1995 through 71%
March 21, 1995
(xi) March 22, 1995 through 70%
December 31, 1995
(b) Notwithstanding anything to the contrary in subparagraphs (a)
and (b) above, Foothill may reduce its advance rates upon an Event of Default.
(c) Foothill shall have no obligation to make advances hereunder
to the extent they would cause the outstanding Obligations to exceed the Maximum
Amount.
(d) Foothill is authorized to make advances under this Agreement
based upon telephonic or other instructions received from anyone purporting to
be an Authorized Officer of Borrower or, without instructions, if in Foothill's
discretion such advances are necessary to meet Obligations. Borrower agrees to
establish and maintain a single designated deposit account for the purpose of
receiving the proceeds of the advances requested by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
advance requested by Borrower and made by Foothill hereunder shall be made to
such designated deposit account. The proceeds of the advances made under this
Section 2.1 shall be used by Borrower, consistent with this Agreement, for its
general working capital purposes, and capital expenditures permitted by Section
7.11 hereof. Amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time during the term of this Agreement so long as no Event of
Default has occurred and is continuing.
2.2 OVERADVANCES. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Foothill pursuant to Section 2.1 is greater
than either the dollar or percentage limitations set forth in Section 2.1
Borrower shall pay to Foothill, in cash, the amount of such excess.
2.3 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. All Obligations shall bear interest,
on the average Daily Balance, at a rate of four and one-half (4.5) percentage
points above the Reference Rate.
10
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, at a
rate equal to six and one- half (6.5) percentage points above the Reference
Rate.
(c) ALTERNATIVE INTEREST RATE. Notwithstanding the provisions of
Section 2.3, if at any time the applicable interest rate shall exceed the
Maximum Rate and thereafter the applicable interest rate shall become less than
the Maximum Rate, the rate of interest payable hereunder shall, at the option of
Foothill, be the Maximum Rate until the total interest paid by Borrower equals
the amount which would have been paid but for the applicable interest rate
having been in excess of the Maximum Rate. If at maturity of final payment of
the Obligations the total amount of interest paid or accrued on the Obligations
under the provisions of Section 2.3 is less than the total amount of interest
which would have accrued if the applicable interest rate had at all times been
in effect, then Borrower to the fullest extent permitted by law, shall pay to
Lender an amount equal to the difference between (a) the amount of interest
which would have accrued on the Obligations if the Maximum Rate had at all times
been in effect, and (b) the amount of interest accrued in accordance with the
provisions of Section 2.3.
(d) INTEREST SAVINGS. It is the intention of the parties hereto
to conform strictly to all usury laws applicable to this transaction.
Accordingly, if the transactions contemplated hereby would be usurious under
applicable law (including the laws of the United States of America or any
jurisdiction whose laws may be mandatorily applicable notwithstanding the other
provisions of this Agreement), then, notwithstanding anything to the contrary in
this Agreement or in any other instrument or agreement entered into in
connection herewith, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is contracted
for, taken, reserved, charged, or received under this Agreement or under any
other instruments or agreements or otherwise in connection herewith shall under
no circumstances exceed the maximum amount allowed by such applicable law, and
any excess shall be credited on the principal amount of the Obligations (or, if
the principal amount of the Obligations shall have been paid in full, refunded
to Borrower); and (ii) in the event that the maturity of the Obligations is
accelerated for any reason under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under applicable law may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be cancelled automatically as of the date of
such acceleration or prepayment and, if theretofore paid, shall be credited on
the principal amount of the Obligations (or, if the principal amount of the
Obligations shall have been repaid in full, refunded to Borrower). In
determining whether or not the interest paid or payable with respect to any
indebtedness of Borrower to Foothill, under any specific contingency, exceeds
the highest lawful rate, Borrower and Foothill shall, to the maximum extent
permitted by applicable law, (i) characterize any non-principal payment as an
expense, fee, or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, (iii) amortize, prorate, allocate, and
spread the total amount of interest throughout the full term of such
indebtedness so that the actual rate of interest on account of such indebtedness
does not exceed the maximum amount permitted by applicable law and/or (iv)
allocate interest between portions of such indebtedness, so that no such portion
shall bear interest at a rate greater than that permitted by applicable law.
11
(e) PAYMENTS. Interest hereunder shall be due and payable on the
first Business Day of each calendar month during the term hereof. Foothill
shall, at its option, charge such interest, all Foothill Expenses, and all
installments due under any note to Borrower's loan account, which amounts shall
thereafter accrue interest at the rate then applicable hereunder. Any interest
not paid when due shall be compounded by becoming a part of the Obligations, and
such interest shall thereafter accrue interest at the rate then applicable
hereunder. Borrower shall pay Foothill all proceeds of Inventory which shall
reduce the Overadvance referenced in Section 2.1(a) until such time as the
outstanding balance of such Overadvance has been fully paid, but in any event,
all amounts owing under Section 2.1(a) shall be paid on or before January 17,
1995.
(f) COMPUTATION. The Reference Rate as of this date is eight and
one-half percent (8.5%) per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount equal
to the Reference Rate change. The rates of interest charged hereunder shall be
based upon the average Reference Rate in effect during the month. All interest
and fees chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. The receipt of any wire transfer of
funds, check, or other item of payment by Foothill shall be immediately applied
to conditionally reduce the Obligations, but shall not be considered a payment
on account unless such wire transfer is of immediately available federal funds
and is made to the appropriate deposit account of Foothill or unless and until
such check or other item of payment is honored when presented for payment. For
interest calculation purposes, all checks, wire transfers, or other items of
payment to Foothill shall be deemed to have been paid to Foothill two (2)
Business Day(s) after the date Foothill actually receives such wire transfer of
immediately available federal funds, or two (2) Business Day(s) after Foothill
actually receives possession of such check or other item of payment. This
calculation shall apply irrespective of Borrower's Obligations to Foothill.
Should such check or item of payment not be honored when presented for payment,
then, Borrower shall be deemed not to have made such payment, and interest shall
be recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment received by
Foothill after 11:00 a.m. Los Angeles time shall be deemed to have been received
by Foothill as of the opening of business on the immediately following Business
Day.
2.5 STATEMENTS OF OBLIGATIONS. Foothill shall render statements
to Borrower of the Obligations, including principal, interest, fees, and
Foothill Expenses owing, and such statements shall be conclusively presumed to
be correct and accurate and constitute an account stated between Borrower and
Foothill unless, within sixty (60) days after receipt thereof by Borrower,
Borrower shall deliver to Foothill by registered or certified mail at its
address specified in Section 12, written objection thereto describing the error
or errors contained in any such statements.
2.6 FEES. Borrower shall pay to Foothill the following fees:
12
(a) CLOSING FEE. The following amounts, each of which shall be
fully earned when paid:
(i) Twenty-Five Thousand Dollars ($25,000) payable on
the Closing Date;
(ii) Twenty-Five Thousand Dollars ($25,000) on April 1,
1995; and
(iii) Twenty-Five Thousand Dollars ($25,000) on July 1,
1995;
PROVIDED, HOWEVER, that in the event all Obligations of Borrower are paid in
full and this Agreement is terminated prior to any of the dates set forth in
clauses (ii) or (iii) above for the payment of any installment of the fees
pursuant to this Section 2.6(a), no payment of such installment of fees shall be
due and owing.
(b) UNUSED LINE FEE. On the first Business Day of each calendar
month during the term of this Agreement, a fee in an amount equal to one-half of
one percent (0.5%) per annum times the Average Unused Portion of the Maximum
Amount;
(c) FINANCIAL EXAMINATION, DOCUMENTATION AND APPRAISAL FEES.
Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of One Thousand Dollars ($1,000) per day per appraiser,
plus out-of-pocket expenses for each appraisal of the Collateral performed by
Foothill or its agents; and Foothill's customary fee of One Thousand Dollars
($1,000) per year for its loan documentation review.
3. CONDITIONS TO EFFECTIVENESS; TERM OF AGREEMENT
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
Foothill to be obligated hereunder is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date.
(a) the Closing Date shall occur on or before December
10, 1994;
(b) receipt from Borrower or Fidelity on account of
Borrower of the difference between the Obligations
owing to Foothill on the Closing Date and the amount
which Borrower has available to borrow under Section
2.1(a) of this Agreement;
(c) confirmation that Borrower has completed its
obligations under the Reorganization Plan and Order
which are required to be completed on or before the
effective date of the Reorganization Plan pursuant
to Article VIII of the Reorganization Plan;
13
(d) the execution of a loan and security agreement, and
any other documents required to be executed in
connection therewith, by and between Borrower and
Fidelity pursuant to which financing will be
provided by Fidelity to Foothill in an amount not to
exceed Six Million Dollars ($6,000,000);
(e) the execution of an Intercreditor Agreement among
Foothill, Borrower and Fidelity; and
(f) all other documents and legal matters in connection
with the transactions contemplated by this Agreement
shall have been delivered or executed or recorded
and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on December 31, 1995. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence of an
Event of Default.
3.3 EFFECT OF TERMINATION. On the date of termination, all
Obligations shall become immediately due and payable without notice or demand.
No termination of this Agreement, however, shall relieve or discharge Borrower
of Borrower's duties, Obligations, or covenants hereunder, and Foothill's
continuing security interest in the Collateral shall remain in effect until all
Obligations have been fully discharged and Foothill's obligation to provide
advances hereunder is terminated.
3.4 EARLY TERMINATION BY BORROWER. Borrower has the option to
terminate this Agreement by paying to Foothill, in cash, the Obligations.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby reaffirms its
prior grants and grants to Foothill a continuing security interest in all
currently existing and hereafter acquired or arising Collateral in order to
secure prompt repayment of any and all Obligations and in order to secure prompt
performance by Borrower of each of its covenants and duties under the Loan
Documents. Foothill's security interest in the Collateral shall attach to all
Collateral without further act on the part of Foothill or Borrower.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. Foothill, Borrower, and a bank that is acceptable to Foothill have
heretofore entered into a
14
lockbox agreement, in form and substance satisfactory to Foothill in its sole
discretion pursuant to which all of Borrower's cash receipts, checks, and other
items of payment will be forwarded to Foothill on a daily basis. At any time,
Foothill or Foothill's designee may: (a) notify customers or Account Debtors of
Borrower that the Accounts, General Intangibles, or Negotiable Collateral have
been assigned to Foothill or that Foothill has a security interest therein; (b)
collect the Accounts, General Intangibles, and Negotiable Collateral directly
and charge the collection costs and expenses to Borrower's loan account.
Borrower agrees that it will hold in trust for Foothill, as Foothill's trustee,
any cash receipts, checks, and other items of payment that it receives on
account of the Accounts, General Intangibles, or Negotiable Collateral and
immediately will deliver said cash receipts, checks, and other items of payment
to Foothill in their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower has
executed and delivered to Foothill (and hereby reaffirms), prior to or
concurrently with Borrower's execution and delivery of this Agreement and at any
time thereafter at the request of Foothill, all financing statements,
continuation financing statements, fixture filings, security agreements, chattel
mortgages, pledges, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Foothill may reasonably
request, in form satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral and in order to fully consummate
all of the transactions contemplated under the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to: (a) sign the name of Borrower on any of the documents described in
Section 4.4 or on any other similar documents to be executed, recorded, or filed
in order to perfect or continue perfected Foothill's security interest in the
Collateral; (b) sign Borrower's name on any invoice or bill of lading relating
to any Account, drafts against Account Debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to Account Debtors; (c) send
requests for verification of Accounts; (d) endorse Borrower's name on any
checks, notices, acceptances, money orders, drafts, or other item of payment or
security that may come into Foothill's possession; (e) at any time that an Event
of Default has occurred or Foothill deems itself insecure, notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and promptly forward
all other mail and copies of all mail retained to Borrower; (f) at any time that
an Event of Default has occurred or Foothill deems itself insecure, make,
settle, and adjust all claims under Borrower's policies of insurance and make
all determinations and decisions with respect to such policies of insurance; and
(g) at any time that an Event of Default has occurred or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms which Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases which Foothill determines to be necessary. The appointment of
Foothill as Borrower's attorney, and each and every one of Foothill's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Foothill's obligation to
provide advances hereunder is terminated.
15
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter during
Borrower's usual business hours, or during the usual business hours of any third
party having control over the records of Borrower to inspect Borrower's Books
and to check, test, and appraise the Collateral in order to verify Borrower's
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of liens, claims, security interests, or
encumbrances except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, and at all
times, hereafter shall be, bona fide existing obligations created by the sale
and delivery of Inventory or the rendition of services to Account Debtors in the
ordinary course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or cancellation.
The property or services giving rise to such Eligible Accounts has been
delivered to or performed for the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance by the Account
Debtor. Borrower has not, and at all times hereafter, shall not have, received
notice of actual or imminent bankruptcy, insolvency, or financial embarrassment
of any Account Debtor at the time an Account due from such Account Debtor is
created.
5.3 LOCATION OF INVENTORY AND EQUIPMENT. Except for items being
repaired in the ordinary course of Borrower's business, the Inventory and
Equipment are not now and shall not at any time hereafter be stored with a
bailee, warehouseman, or similar party without Foothill's prior written consent.
Until Foothill shall have given its written consent, Borrower shall keep the
Inventory and Equipment only at the locations set forth on Schedule 5.4 attached
hereto.
5.4 LOCATION OF CHIEF EXECUTIVE OFFICE. The chief executive
office of Borrower is located at the address indicated in the first paragraph of
this Agreement and Borrower covenants and agrees that it will not, without
thirty (30) days prior written notification to Foothill, relocate such chief
executive office.
5.5 DUE ORGANIZATION AND QUALIFICATION. Borrower is and shall at
all times hereafter be duly organized and existing and in good standing under
the laws of the state of its incorporation and qualified and licensed to do
business in, and in good standing in, any state in which the conduct of its
business or its ownership of property requires that it be so qualified.
5.6 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly
16
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles or Certificate of Incorporation, or
By-laws, nor will they constitute an event of default under any material
agreement to which Borrower is now or may hereafter become a party.
5.7 LITIGATION. Except as set forth on Schedule 5.7 attached
hereto, there are no actions or proceedings pending by or against Borrower
before any court or administrative agency and Borrower does not have knowledge
or belief of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower or any guarantor of the Obligations, except for ongoing collection
matters in which the Borrower is the plaintiff. If any of the foregoing arises
during the term of this Agreement, Borrower shall promptly notify Foothill in
writing.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower or any guarantor of the Obligations
that have been or may hereafter be delivered by Borrower to Foothill have been
prepared in accordance with GAAP and fairly present Borrower's financial
condition as of the date thereof and Borrower's results of operations for the
period then ended. There has not been a material adverse change in the financial
condition of Borrower or any guarantor since the date of the latest financial
statements submitted to Foothill on or before the Closing Date.
5.9 SOLVENCY. Borrower is able to pay all of its debts (including
trade debts and contingent liabilities) as they become due.
5.10 ERISA. The Intelogic Trace, Inc. Retirement Income Plan (the
"Intelogic Plan") was terminated by the Pension Benefit Guaranty Corporation
effective as of November 21, 1994, as disclosed on Schedule 5.10 attached
hereto. Except for the Intelogic Plan, neither the Borrower nor any ERISA
Affiliate maintains or contributes to any pension plan subject to Title IV of
ERISA. The Borrower and its ERISA Affiliates are in material compliance with the
provisions of ERISA and the qualification requirements of Section 401(a) of the
IRC and any regulations thereunder with respect to any Plan intended to
constitute a qualified plan under Section 401(a) of the IRC. No Prohibited
Transaction has occurred with respect to a Plan. Except with respect to the
Intelogic Plan, Borrower and its ERISA Affiliates have made all contributions
required to be made by them to any Plan when due.
5.11 ENVIRONMENTAL CONDITION. Except as to cleaning material and
solutions and packing materials used or repaired in Borrower's ordinary course
of business, none of Borrower's properties or assets has ever been used by
Borrower or, to the best of Borrower's knowledge, by previous owners or
operators in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance. None of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower. Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
17
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or otherwise disposing of hazardous waste or
hazardous substances into the environment.
5.12 PATENTS, COPYRIGHTS AND TRADEMARKS. Except as set forth on
Schedule 5.12 attached hereto, Borrower has no registered trademarks or
copyrights and has not applied for or been issued any patents by any
governmental authority or instrumentality hereof.
5.13 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement shall be automatically deemed
repeated with each advance and shall be conclusively presumed to have been
relied on by Foothill regardless of any investigation made or information
possessed by Foothill. The warranties and representations set forth herein shall
be cumulative and in addition to any and all other warranties and
representations that Borrower shall now or hereinafter give, or cause to be
given, to Foothill.
5.14 PRIOR AGREEMENTS. Except as modified by this Agreement, the
GLSA and DIP Loan are valid, binding and enforceable agreements in accordance
with their respective terms and are reaffirmed in full.
5.15 BANKRUPTCY MATTERS. The Reorganization Plan and Order are
final and non-appealable.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP with
ledger and account cards or computer tapes, discs, printouts, and records
pertaining to the Collateral which contain information as from time to time may
be requested by Foothill. Borrower shall also keep proper books of account
showing all sales and claims.
6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill, no
later than the tenth (10th) day of each month during the term of this Agreement,
a detailed aging, by total, of the Accounts, a reconciliation statement, and a
summary aging, by vendor, of all accounts payable and any book overdraft and no
later than the thirtieth (30th) day of each month during the term of this
Agreement, a certificate signed by Borrower's chief financial officer or
corporate treasurer calculating the Adjusted Service Value (see Schedule 6.2
attached hereto). Original sales invoices evidencing daily sales shall be mailed
by Borrower to each Account Debtor with a copy to Foothill upon Foothill's
request and, at such time as either an event of default has occurred or Foothill
determines that a material impairment of the prospect of repayment of any
portion of the Obligations or of the value of priority of
18
Foothill's security interest in the Collateral has occurred or is imminently
likely to occur at Foothill's direction, the invoices shall indicate on their
face that the Account has been assigned to Foothill and that all payments are to
be made directly to Foothill. Borrower shall deliver to Foothill, as Foothill
may from time to time reasonably require, collection reports, sales journals,
invoices, original delivery receipts, customer's purchase orders, shipping
instructions, bills of lading, and other documentation respecting shipment
arrangements. Absent such a request by Foothill, copies of all such
documentation shall be held by Borrower as custodian for Foothill.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill shall
require, Borrower shall provide Foothill with schedules describing all Accounts.
Foothill's failure to request such schedules or Borrower's failure to execute
and deliver such schedules shall not affect or limit Foothill's security
interest or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees
to deliver to Foothill: (a) as soon as available, but in any event within thirty
(30) days after the end of each fiscal month, except the third month of each
fiscal quarter within forty-five (45) days after the end of each fiscal month
during each of Borrower's fiscal years, a company prepared balance sheet, income
statement, and cash flow statement covering Borrower's operations during such
period; and (b) as soon as available, but in any event within ninety (90) days
after the end of each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Foothill
stating that such accountants do not have knowledge of the existence of any
event or condition constituting an Event of Default, or that would, with the
passage of time or the giving of notice, constitute an Event of Default. Such
audited financial statements shall include a balance sheet, profit and loss
statement, and cash flow statement, and such accountants' opinion letter to
management. Borrower shall have issued written instructions to its independent
certified public accountants, authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill may request. If Borrower is a parent company of one or more
subsidiaries, or affiliates, or is a subsidiary or affiliate of another company,
then, in addition to the financial statements referred to above, Borrower agrees
to deliver financial statements prepared on a consolidating basis so as to
present Borrower and each such related entity separately, and on a consolidated
basis.
Together with the above, Borrower shall also deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the Collateral and financial
condition of Borrower.
Each month, Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (a) all reports,
statements, or computer prepared information of any kind or nature delivered or
caused to be delivered to Foothill hereunder
19
have been prepared in accordance with GAAP and fully and fairly present the
financial condition of Borrower; (b) Borrower is in timely compliance with all
representations, warranties, and covenants hereunder; and (c) on the date of
delivery of such certificate to Foothill there does not exist any condition or
event which constitutes an Event of Default.
Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Foothill, at Borrower's
expense, copies of Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding Borrower's business affairs and
financial conditions.
6.5 TAX RETURNS. Borrower agrees to deliver to Foothill copies of
each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal Revenue
Service.
6.6 RETURNS AND ALLOWANCES. Returns and allowances, if any, as
between Borrower and its Account Debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement.
6.7 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain
the Equipment in good operating condition and repair, and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and the Equipment is now and shall at all times remain personal property.
6.8 TAXES. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property have been paid, and shall hereafter be paid in full,
before delinquency or before the expiration of any extension period. Borrower
shall make due and timely payment or deposit of all federal, State, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Foothill, on demand, appropriate certificates attesting to the
payment or deposit thereof. Borrower will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., State disability, and local, State,
and federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that Borrower has made such payments or
deposits.
6.9 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
20
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be satisfactory to Foothill. All such
policies of insurance (except those of public liability and property damage)
shall contain a 438BFU lender's loss payable endorsement, or an equivalent
endorsement in a form satisfactory to Foothill, showing Foothill and Fidelity as
co-loss payees thereof, and shall contain a waiver of warranties, and shall
specify that the insurer must give at least ten (10) days prior written notice
to Foothill before canceling its policy for any reason. Borrower shall deliver
to Foothill certified copies of such policies of insurance and evidence of the
payment of all premiums therefor or certificates evidencing the same. All
proceeds payable under any such policy shall be payable to Foothill and Fidelity
to be applied on account of the Obligations.
6.10 FOOTHILL EXPENSES. Borrower shall immediately and without
demand reimburse Foothill for all sums expended by Foothill which constitute
Foothill Expenses and Borrower hereby authorizes and approves all advances and
payments by Foothill for items constituting Foothill Expenses.
6.11 FINANCIAL COVENANTS. Borrower shall maintain:
(a) CURRENT RATIO. An amount equal to seventy-five percent (75%)
of the ratio of Borrower's current assets divided by Borrower's current
liabilities based on the amount of Borrower's current assets and current
liabilities indicated on the balance sheet which shall be prepared in connection
with the Case to indicate Borrower's financial condition on the effective date
of the Reorganization Plan, measured on a monthly basis.
(b) TANGIBLE NET WORTH. A Tangible Net Worth at all times which
shall not decrease by an amount in excess of Five Hundred Thousand Dollars
($500,000) from the Tangible Net Worth calculated using the amounts indicated on
the balance sheet which shall be prepared in connection with the Case to
indicate Borrower's financial condition as of the effective date of the
Reorganization Plan, measured on a monthly basis.
(c) EBITDA. Borrower shall achieve and EBITDA of not less than
One Hundred Fifty Thousand Dollars ($150,000) per fiscal quarter.
6.12 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, State or local taxes.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the Obligations,
Borrower will not do any of the following without Foothill's prior written
consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
21
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or
prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancing, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section
7.1 (and continuance or renewal of any Permitted
Liens associated therewith) so long as: (i) the
terms and conditions of such refinancing, renewals,
or extensions do not materially impair the prospects
of repayment of the Obligations by Borrower, (ii)
the net cash proceeds of such refinancing, renewals,
or extensions do not result in an increase in the
aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, and (iii) such
refinancing, renewals, refundings, or extensions do
not result in a shortening of the average weighted
maturity of the Indebtedness so refinanced, renewed,
or extended.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Permitted Liens that are
continued or renewed as permitted under Section 7.1(d)).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except as contemplated
by the Reorganization Plan, enter into any merger, consolidation,
reorganization, or recapitalization, or reclassify its capital stock, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its business, property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all the assets, stock, or
other evidence of beneficial ownership of any person or entity.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into
any transaction not in the ordinary and usual course of Borrower's business,
including, but not limited to, the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
assets (other than sales of Inventory in the ordinary and usual course of
Borrower's business as currently conducted or as approved by Foothill prior to
such sale), or the making of any advance or loan except in the ordinary course
of business as currently conducted.
7.5 CHANGE NAME. Change Borrower's name, business structure, or
identity, or add any new fictitious name.
7.6 MERGE, ACQUIRE. Acquire, merge, or consolidate with or into
any other business organization.
22
7.7 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third party except by endorsement or
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.8 RESTRUCTURE. Make any change in Borrower's financial
structure, the principal nature of Borrower's business operations, or the date
of its fiscal year.
7.9 PREPAYMENTS. Except as permitted by the Intercreditor
Agreement, prepay any Indebtedness owing to any third party.
7.10 CHANGE OF CONTROL. Except such Change of Control as is
contemplated by Borrower's Reorganization Plan and Order, cause, permit, or
suffer any Change of Control.
7.11 CAPITAL EXPENDITURES. Make any plant or fixed capital
expenditure, or any commitment therefor, or purchase or lease any real or
personal property or replacement Equipment subject to a purchase money security
interest, trust deed or lease, in excess of One Hundred Thousand Dollars
($100,000) for any individual transaction or where the aggregate amount of such
transactions, in any fiscal year, is in excess of Five Hundred Thousand Dollars
($500,000).
7.12 DISTRIBUTIONS. Except as contemplated by the Reorganization
Plan, make any distribution or declare or pay any dividends (in cash or in
stock) on, or purchase, acquire, redeem, or retire any of Borrower's capital
stock, of any class, whether now or hereafter outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently existing,
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Foothill
information regarding the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Foothill pursuant to or in accordance with this Agreement, and
agrees that Foothill may contact directly any such accounting firm or service
bureau in order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make or own any
beneficial interest in (including stock, partnership interest, or other
securities of), or make any loan, advance, or capital contribution to, any
corporation, association, person, or entity; PROVIDED, HOWEVER, that after the
Closing Date, Borrower may continue to own any beneficial interest in (including
stock, partnership interest, or other securities of) any corporation,
association, person, or entity which was owned by Borrower as of the Closing
Date.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any person or entity
controlling, controlled by, or
23
under common control (whether by contract, ownership of voting securities, or
otherwise) with Borrower except for transactions that are in the ordinary course
of Borrower's business, upon fair and reasonable terms, and that are fully
disclosed to Foothill and no less favorable to Borrower than would be obtained
in arm's length transaction with a non-affiliated person or entity.
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.17 COMPENSATION. Increase total maximum compensation to
officers, directors, employees, and other relevant individuals by more than
fifteen percent (15%) per annum.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the United
States Bankruptcy Code, would have accrued on such amounts), fees and charges
due Foothill, taxes, reimbursement of Foothill Expenses, or otherwise);
8.2 If Borrower fails or neglects to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, under the Reorganization Plan and Order
or in any other present or future agreement between Borrower and Foothill;
8.3 If there is material impairment of the prospect of repayment
of any portion of the Obligations owing to Foothill or a material impairment of
the value or priority of Foothill's security interests in the Collateral;
8.4 If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any Judicial Officer or Assignee;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and
remains undismissed for twenty (20) days (during which time Foothill shall have
no obligations to make advances to Borrower hereunder);
8.7 If Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
24
8.8 If a notice of lien, levy, or assessment is filed of record
with respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether choate or
otherwise, upon any of Borrower's assets and the same is not paid on the payment
date thereof;
8.9 If a judgment or other claim becomes a lien or encumbrance;
8.10 If there is a default in any material agreement to which
Borrower is a party with third parties resulting in a right by such third
parties, whether or not exercised, to accelerate the maturity of Borrower's
Indebtedness thereunder;
8.11 If Borrower makes any payment on account of Indebtedness
that has been subordinated to the Obligations except to the extent such payment
is allowed under any subordination agreement entered into with Foothill;
8.12 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn by any officer or director;
8.13 If the obligation of any guarantor or other third party
under any loan document is limited or terminated by operation of law or by the
guarantor or other third party thereunder, or any guarantor or other third party
becomes the subject of an Insolvency Proceeding;
8.14 If a Prohibited Transaction or Reportable Event shall occur
with respect to a Plan which could have a material adverse effect on the
financial condition of Borrower; if any lien upon the assets of Borrower in
connection with any Plan shall arise; if Borrower or any ERISA Affiliate shall
completely or partially withdraw from a Multiemployer Plan or Multiple Employer
Plan of which Borrower or such ERISA Affiliate was a substantial employer, and
such withdrawal could, in the opinion of Foothill, have a material adverse
effect on the financial condition of Borrower; if Borrower or any of its ERISA
Affiliates shall fail to make full payment when due of all amounts which
Borrower or any of its ERISA Affiliates may be required to pay to any Plan or
any Multiemployer Plan as one or more contributions thereto; if Borrower or any
of its ERISA Affiliates creates or permits the creation of any accumulated
funding deficiency, whether or not waived; or upon the voluntary or involuntary
termination of any Plan which termination could, in the opinion of Foothill,
have a material adverse effect on the financial condition of Borrower; or
Borrower shall fail to notify Foothill promptly and in any event within ten (10)
days of the occurrence of any event that constitutes an Event of Default under
this clause or would constitute such an Event of Default upon the exercise of
Foothill's judgment; and
8.15 If any writing, document, aging, certificate or other
evidence of the Accounts or Inventory shall be materially incomplete, incorrect,
or misleading at the time the same is furnished to Foothill.
25
9. FOOTHILL'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interest in the Collateral and without affecting
the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's loan account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Foothill considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if Foothill so requires, and to make the Collateral
available to Foothill as Foothill may designate. Borrower authorizes Foothill to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien that in Foothill's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Foothill a license to enter into possession of
such premises and to occupy the same, without charge, for up to one hundred
twenty (120) days in order to exercise any of Foothill's rights or remedies
provided herein, at law, in equity, or otherwise;
(f) Without notice to Borrower (such notice being expressly
waived) set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Foothill, or (ii) indebtedness at any time owing to
or for the credit or the account of Borrower held by Foothill;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in
26
completing production of, advertising for sale, and selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
Foothill's benefit;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(i) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a
written request for notice, a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some
other disposition other than a public sale is to be made of the
Collateral, then the time on or after which the private sale or
other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12,
at least five (5) calendar days before the date fixed for the
sale, or at least five (5) calendar days before the date on or
after which the private sale or other disposition is to be made,
unless the Collateral is perishable or threatens to decline
speedily in value. Notice to persons other than Borrower claiming
an interest in the Collateral shall be sent to such addresses as
they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice
one time at least five (5) calendar days before the date of the
sale in a newspaper of general circulation in the county in which
the sale is to be held;
(j) Foothill may credit bid and purchase at any public sale; and
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third parties,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
27
10. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Borrower fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Foothill determines that such failure by Borrower could have a material
adverse effect on Foothill's interests in the Collateral, in its discretion and
without prior notice to Borrower, Foothill may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves in
Borrower's loan account as Foothill deems necessary to protect Foothill from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type described in Section 6.12, and take any action with respect to such
policies as Foothill deems prudent. Any amounts paid or deposited by Foothill
shall constitute Foothill Expenses, shall be immediately charged to Borrower's
loan account and become additional Obligations, shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral.
Any payments made by Foothill shall not constitute an agreement by Foothill to
make similar payments in the future or a waiver by Foothill of any Event of
Default under this Agreement. Foothill need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance, or lien and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Foothill on which Borrower may in any
way be liable.
11.2 FOOTHILL'S LIABILITY FOR INVENTORY OR EQUIPMENT. So long as
Foothill complies with its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever. All risk of loss, damage, or
destruction of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to indemnify Foothill and
its officers, employees, and agents and hold Foothill harmless against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party, and (b) all losses in any way suffered, incurred, or paid by Foothill as
a result of or in any way arising out of, following, or consequential to
transactions with Borrower whether under this Agreement, or otherwise. This
provision shall survive the termination of this Agreement.
12. NOTICES
28
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection therewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by registered or
certified mail, postage prepaid, return receipt requested, or by prepaid telex,
TWX, telefacsimile, or telegram (with messenger delivery specified) to Borrower
or to Foothill, as the case may be, at its addresses set forth below:
If to Borrower: INTELOGIC TRACE, INC.
Turtle Creek Tower I
8415 Datapoint Drive
San Antonio, Texas 78229-8480
Attention: Chief Executive Officer
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) calendar days after the deposit thereof in the mail. Borrower acknowledges
and agrees that notices sent by Foothill in connection with Sections 9504 or
9505 of the Code shall be deemed sent when deposited in the mail or transmitted
by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES AGREE
THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL
BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL,
IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE
29
TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER
AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill four
(4) months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In connection
therewith, Foothill may disclose all documents and information which Foothill
now or hereafter may have relating to Borrower or Borrower's business. To the
extent that Foothill assigns its rights and obligations hereunder to a third
party, Foothill shall thereafter be released from such assigned obligations to
Borrower and such assignment shall effect a novation between Borrower and such
third party.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
30
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
15.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence
or payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be improper under any state or federal law relating to creditors' rights,
including, without limitation, provisions of the United States Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required to repay or restore, in whole
or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Foothill is required to repay or restore, and as to all reasonable
costs, expenses and attorneys' fees of Foothill related thereto, the liability
of Borrower or such guarantor shall automatically be revived, reinstated and
restored and shall exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted, modified, or
qualified by any other agreement, oral or written, whether before or after the
date hereof.
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed at San Antonio, Texas.
INTELOGIC TRACE, INC.,
a New York corporation
("Borrower")
By: MIKE R. ELLIS
Its: Vice President
Accepted and effective this _____ day of December, 1994.
FOOTHILL CAPITAL CORPORATION,
a California corporation
("Foothill")
By: Mike Fishman
Its: Vice President
32
EXHIBIT 11
INTELOGIC TRACE INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except share data)
QUARTER ENDED OCTOBER 31,
-----------------------------
1994 1993
------------ ------------
Common stock and common stock equivalents:
Weighted average shares outstanding ....... 12,496,719 12,074,450
Net effect of dilutive stock options
based on the treasury stock method
using average market price(1) ........... -- --
------------ ------------
Total shares ................................. 12,496,719 12,074,450
============ ============
Net loss, less preferred stock dividends ..... $ (866) $ (744)
============ ============
Per share amount ............................. $ (.07) $ (.06)
============ ============
- -------------
(1) The net dilutive effect of stock options is not considered because the
effect would be to increase shares outstanding, which, in loss years,
reduces the loss per share and is therefore antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
statement of financial position as of October 31, 1994, and the statement of
operations for the three months ended October 31, 1994, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> OCT-31-1994
<CASH> 202
<SECURITIES> 750
<RECEIVABLES> 6,038
<ALLOWANCES> 1,444
<INVENTORY> 675
<CURRENT-ASSETS> 10,343
<PP&E> 69,398
<DEPRECIATION> 65,778
<TOTAL-ASSETS> 13,729
<CURRENT-LIABILITIES> 19,928
<BONDS> 0
<COMMON> 199
0
0
<OTHER-SE> (69,044)
<TOTAL-LIABILITY-AND-EQUITY> 13,729
<SALES> 3,708
<TOTAL-REVENUES> 16,622
<CGS> 2,855
<TOTAL-COSTS> 16,169
<OTHER-EXPENSES> 765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 554
<INCOME-PRETAX> (866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (866)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
