SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended December 31, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission File Number 0-21662
STRATEGIA CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1064606
(State or other jurisdiction of (I.R.S. Identification No.)
Employer incorporation or organization)
10301 Linn Station Road
P.O. Box 37144
Louisville, Kentucky 40233-7144
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (502)426-3434
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 _____.
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB/A or any
amendment to this Form 10-KSB/A. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 22, 1996: Common stock -- $1,475,440.
The number of shares of the registrant's common stock outstanding as of
March 22, 1996 -- 2,514,885 shares.
REFERENCE
Portions of the Corporation's Definitive Proxy Statement is incorporated by
reference into Part III of this Form 10-KSB/A.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Preliminary Note Regarding Forward-Looking Statements
The information set forth in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" below and in "Risk Factors,"
"Use of Proceeds" and "Business" includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, and is subject to the safe harbor created by those sections.
Factors that realistically could cause results to differ materially from those
projected in the forward-looking statements are set forth in "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
below and in the "Risk Factors" section of the Company's Form SB-2
Registration Statement (Reg. No. 333-14055).
Overview
Strategia Corporation provides disaster recovery, consulting,
information processing and outsourcing services to users of medium- and
large-scale computers in North America and Europe. Its clients include
large and medium-sized organizations, including government agencies,
universities, health care providers, financial institutions, manufacturers
and telecommunications firms.
The Company has sought to expand the range of computer services it
can offer to customers in recent years, as its historic business has
contracted. Since its inception in 1984, the Company has specialized in
offering disaster recovery services to operators of large-scale data
centers, including alternate site processing for Bull computer systems
and contingency planning consulting. However, the number of large data
centers using Bull computer systems in North America has decreased from
approximately 700 in 1986 to approximately 100 in 1995, largely due to the
"migration" of data centers to other computer systems. As a result, the
Company's revenues from its historic business base have declined
significantly in recent years. The Company has offered backup services for
certain IBM computer systems since 1993, and began in February 1995 to
offer Bull backup services in France, where the number of data centers
using Bull computers is much larger than in North America. The Company
plans to open an operations center and to offer Bull backup services in
the United Kingdom within the next twelve months. In 1996, the Company
began to market data center outsourcing and millennium services. Demand
for millennium services, however, is likely to diminish significantly
after 2000.
Revenue from disaster recovery backup and contingency planning
services represented approximately 95% of the Company's revenue in 1995.
Twinsys generated approximately 65% of the Company's total service
revenues in 1995. Revenue from alternate site processing is typically
generated under multi-year contracts and is recognized ratably over the
life of the contract. The Company's contingency planning services are
rendered for a fixed fee, based on estimated hours required at each
participating consultant's hourly rate, and revenue is recognized at the
time the services are performed. Outsourcing revenue is generated under
contracts at a specified monthly fee. Millennium consulting services will
be offered on a fixed fee basis, while technical assessment and code
conversion charges will be based upon the number of lines of program code.
Millennium testing services will be charged at a per hour rate based on
the equipment needed to test the client's system.
Most of the Company's current cost structure is fixed. Cost of
services relates mainly to computer and peripheral lease and maintenance
expenses, facility lease, maintenance and utility expenses, and data
communication costs. Personnel expenses, such as salaries and wages, along
with employee benefit costs, are also largely fixed.
Gross margins for the Company's computer backup and outsourcing
businesses depend upon volume of service because the costs of these
services are largely fixed. Margins are also affected by depreciation and
estimated useful life of computer equipment. If the useful life of
equipment continues after the equipment is depreciated, margins will
typically increase. If the useful life of equipment ends before it is
depreciated, margins will typically decrease. Depreciation on equipment
currently installed at the Louisville facility has largely been completed.
Assuming no purchases of additional equipment, depreciation expenses on
equipment of Twinsys are expected to peak in 1997 and would decrease
thereafter. See "Twinsys Assets Acquisition." Increased competition has
also tended to reduce margins on Bull backup contracts negotiated in the
last two years. An affiliate of Bull began offering backup services in
1994 in the United States, representing the first significant competition
the Company has faced in the North American Bull backup market in several
years. Competition for IBM backup contracts has continued to be intense,
which tends to keep margins tight.
Gross margins for contingency planning depend and millennium services
are expected to depend primarily on the productivity of the Company's
technical and consulting staff. Most of the Company's contingency planning
projects are priced on a fixed fee basis depending on the estimated staff
hours to complete the project. Therefore, the profitability of an
individual project depends on completing the project within the budget.
In addition, productivity is based upon the number of billable personnel,
billing rates, and the number of hours billed per day.
General, administrative and selling expenses consist primarily of the
salaries and benefits paid to the Company's marketing and administrative
personnel and benefits, travel, promotions and trade show expenses,
offices expenses and other general overhead costs. As a result of its plan
to offer a wider range of computer services, the Company expects these
costs to increase in absolute terms. However, the Company anticipates that
these costs will remain stable or decrease slightly as a percentage of
total revenue. Whether these expenses actually do stabilize or decrease as
a percentage of revenue depends on the Company's ability to generate
revenue from its new computer service offerings and the productivity of
its marketing and administrative staff.
Other expenses relate primarily to finance charges associated with
capital leases for computer and peripheral equipment as well as funds
borrowed from a shareholder. The Company expects to reduce its finance
costs by reducing or eliminating certain capital lease obligations or
refinancing them at lower rates. There can be no assurance that the
Company will be able to procure less expensive sources of financing for
these obligations. In addition to interest payable in cash on the
principal balance of the shareholder loan, upon each 90-day renewal of the
term of the loan, the Company issues 1,000 shares of Common Stock to the
shareholder for each $100,000 of outstanding principal on the loan. See
"Certain Transactions." The value of the shares issued during the year
ended December 31, 1995 totaled $32,000. The shareholder loan has been
renewed through January 5, 1997.
The Company's results of operations for 1994 and 1995 include a
provision for French income taxes on the income of Twinsys. The Company's
North American operations incurred losses for these periods, thereby
reducing income for the periods on a consolidated basis. The Company has
net operating loss carry forwards available for U.S. federal and state
income tax purposes and, accordingly, paid no U.S. income taxes for 1994
and 1995. At December 31, 1995 and 1994, the Company had net operating
loss carry forwards of $3,340,000 and $2,873,000, respectively, for
federal income tax reporting purposes. The Company has recognized a
valuation allowance on a portion of its deferred tax assets due to the
uncertainty of realizing the benefits thereof. The use of these carry
forwards to offset future income is subject to limitations under Section
382 of the Internal Revenue Code.
Twinsys Assets Acquisition
In February 1995, Twinsys, the newly formed French subsidiary of the
Company, paid $200,000 to acquire certain assets of Twinsys, SA ("TSA"),
a Paris, France disaster recovery provider then in bankruptcy proceedings
under French law, and DKI, an affiliate of TSA. Twinsys acquired (i) the
lease to the office space that housed one of the two former TSA data
centers; (ii) certain tangible fixed assets of TSA and DKI valued at
approximately $260,000; and (iii) intangible assets of TSA of negligible
value. As a condition to court approval of the transaction, Twinsys agreed
to provide backup services without charge to former TSA customers who had
prepaid for these services and to assume approximately $65,000 of accrued
vacation liabilities to former employees of TSA who became Twinsys
employees. The Company financed the acquisition of the TSA assets and
provided initial working capital to Twinsys with $500,000 in funds
borrowed from a shareholder. See "Certain Transactions."
Twinsys commenced operations in February 1995 with no revenue-
producing contracts in effect and no lease arrangements in place for the
computer equipment required to operate a backup services business.
Twinsys' operating results during 1995 and 1996 are principally the
result of Twinsys' success in entering into contracts with new
subscribers, including a substantial number of the former customers of
TSA, and in negotiating new computer leases at rates substantially less
than the rates previously paid by TSA.
Twinsys did not succeed TSA as a party to TSA's contracts with its
customers. As a result, the bankruptcy decree effectively terminated the
former TSA customers' obligations under those contracts, and the former
TSA customers became free to subscribe for computer backup services with
any vendor they chose. During the first three quarters of 1995, Twinsys
was able to negotiate and enter into new backup services arrangements with
more than 30 former TSA customers as well as several new clients.
Similarly, Twinsys did not assume any rights or obligations under any
leases for the computer equipment present at the TSA data centers. Twinsys
planned to (and ultimately did) negotiate new leases for necessary
computer equipment at substantially lower rates than would have been
payable under the TSA leases. The equipment owners were also willing to
allow Twinsys to operate the equipment present at the data center while
negotiations were underway, during which time Twinsys was not obligated to
make lease payments. In negotiating new client contracts, Twinsys
committed to certain equipment upgrades to meet the backup requirements of
some of its larger clients. To meet the commitment, Twinsys leased a large
new computer system effective April 1, 1996. Many of the 1995 leases will
terminate in 1997, and the Company anticipates that Twinsys' equipment
costs will increase after new leases are negotiated and take effect.
Depreciation expenses on currently installed equipment are expected to
peak in 1997 and decrease thereafter.
Because Twinsys commenced operations effective as of February 1,
1995, the Company's consolidated financial statements and other financial
information contained in this Prospectus include only eleven months of
combined operations with Twinsys during 1995. See Note 3 of Notes to the
Consolidated Financial Statements.
Results of Operations
For the Years Ended December 31, 1995 and 1994
The Company reported revenue of $8,927,000 and $4,616,000 for 1995
and 1994, respectively. The Company reported net income of $42,000 for
1995 after reporting net income of $6,000 in 1994. The increase in revenue
and net income in 1995 is attributable entirely to the commencement of
operations by Twinsys effective on February 1, 1995. Twinsys contributed
net income of approximately $750,000 in 1995, which offset the net loss
incurred by the Company's North American operations during the year.
Consolidated service revenue increased by $4,312,000 or 93.4% during
1995. Twinsys accounted for approximately $5,800,000 or 65.0% of
consolidated service revenue for the year. Backup service revenue for the
Company's North American operations decreased 35.2% in 1995. Bull backup
service revenue decreased significantly due to the expiration of the
Company's then two largest contracts during the first six months of 1995
and increased competition. The expired contracts together generated
approximately 42% of the Company's revenue in 1994. The Company entered
into a new contract with one of these customers but for significantly
lower revenue due to the customer's reduced backup service requirements.
See "-Liquidity and Capital Resources." IBM backup service revenue grew by
23.8% in 1995, but was more than offset by the decrease in Bull backup
service revenue. Consulting service revenue for 1995 increased by 62.8% over
1994, but was offset by non-recurring outsourcing revenue in 1994 from
peak load processing.
The Company's operating expenses for 1995 increased by 85.7% to
$7,829,000 for 1995 from $4,215,000 in 1994, primarily due to the addition
of Twinsys. Twinsys' operating expenses totaled $4,403,000 in 1995 and
consisted mainly of lease and maintenance expenses for its facility and
computer equipment, as well as personnel costs. The cost of services for
North American operations decreased by approximately 23% in 1995
principally from reductions in Bull computer equipment lease and
maintenance costs. Selling, general and administrative expenses increased
131.2% to $2,435,000 for 1995 from $1,053,000 in 1994. Twinsys accounted
for $1,451,000 or 59.6% of these expenses in 1995, which relate largely to
personnel and marketing expenses. Legal and accounting fees increased in
1995 as a result of the acquisition and initial startup of operations by
Twinsys. Interest expense totaled $657,000 and $396,000 for 1995 and
1994, respectively. Interest expense for Twinsys totaled $240,000 or
36.5% and is related mainly to capital leases for computer equipment.
Interest costs in North America increased approximately 5% principally as
a result of debt incurred by the Company to acquire assets and provide
working capital for Twinsys.
The provision for income taxes totaled $444,000 for 1995, due to
French income taxes resulting from income of Twinsys. No income tax
benefits can be recognized currently for U.S. operating losses, but these
losses are available to offset any future U.S. taxable income.
Liquidity and Capital Resources
For the Years Ended December 31, 1995 and 1994
Net cash provided by operating activities was $2,707,000 in 1995 and
$772,000 in 1994. The increase was due to increases in depreciation and
amortization, as well as increases in deferred revenue, accrued expenses,
and accounts payable. These increases were partially offset by a decrease
in accounts receivable.
Net cash used in investing activities was $693,000 in 1995 and
$43,000 in 1994. The increase was principally due to the establishment and
initial capitalization of Twinsys in February 1995. The purchase of certain
assets of TSA in bankruptcy proceedings and the purchase of computer equipment
associated with the commencement of operations by Twinsys, were the primary
investment uses of cash in 1995.
Net cash used in financing activities was $1,952,000 in 1995 and $665,000
in 1994. During 1995, the Company was required to renegotiate all computer
equipment capital leases in France. These new leases, along with the existing
capital leases at Strategia, resulted in a large increase in principal
payments on these leases during 1995. These increased payments were partially
offset by proceeds from a shareholder loan.
At December 31, 1995, the Company's consolidated current liabilities
exceeded current assets by $3,295,207. The principal resources available to
reduce the Company's liquidity deficiency are monthly revenues payable under
its backup service contracts. Backup services revenue for the Company's
customers are generated in most cases under multi-year contracts that
typically provide predictable revenue streams. These contractual revenues,
though not recorded on the Company's balance sheet, will be available to help
meet the Company's liabilities as recorded at December 31, 1995.
Income generated by Twinsys has provided a significant, positive impact
upon the consolidated cash flow of the Company. However, the timing and amount
of cash transfers between Twinsys and the Company are subject to rules
governing dividend payments by French subsidiaries of multi-national
corporations, as well as practical considerations. The Company assesses the
working capital needs of its North American and European operations
periodically and determines appropriate allocations of cash throughout the
year. The Company expects to meet its other cash flow needs in 1996 through
payments of consulting revenues by existing customers, the addition of new
customers for backup, consulting and outsourcing services, as well as the
extension of payment terms on certain monthly expenses and other debt. The
Company will continue to seek more favorable terms for its remaining lease and
maintenance agreements as the Company's present agreements expire.
Twinsys financed the acquisition of computer equipment needed for the
backup requirements of some of its largest customers through a capital lease
obligation totaling approximately $2,000,000 on April 1, 1996. The Company
expects that after the installation of this equipment at Twinsys its computer
equipment should meet the technological requirements of current and
prospective backup services customers in North America and Europe without the
need for any additional material capital expenditure during 1996. Twinsys is
expected to incur increased equipment expense in 1997 as leases negotiated in
1995 begin to expire and new leases take effect.
The Company has not generated new revenue in North America to offset the
loss of revenue upon the expiration of its two largest contracts in 1995 and
cannot currently predict when or if sufficient new revenues will be generated
to offset the loss. The Company's equipment costs associated with the new
backup services agreement for one of its North American customers
significantly decreased during the last quarter of 1995, partially offsetting
the decrease in revenues. However, as noted above, its overall equipment
costs will increase in 1996 as a result of the computer equipment acquisition
at Twinsys.
During 1994, an affiliate of Bull HN began offering backup services to
Bull computer users. The increased competition to procure backup service
contracts adversely affected the Company's revenues in 1995, and is expected
to adversely affect the Company's revenues in the future, pending the outcome
of litigation between the Company and Bull relating to competitive practices.
The litigation was subsequently settled during the third quarter of 1996. See
Part II, Item 1 - "Legal Proceedings on Form 10QSB for the period ended
September 30, 1996.
Item 7. Financial Statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
FINANCIAL INFORMATION
Consolidated Balance Sheet
<CAPTION>
December 31
Assets 1995
<S> <C>
Current assets:
Cash and cash equivalents $ 170,636
Accounts receivable 1,128,407
Other current assets 490,124
Total current assets 1,789,167
Property and equipment 16,138,011
Less accumulated depreciation and amortization 7,376,653
8,761,358
Other Assets 237,222
$10,787,747
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 304,139
Current installments of obligations under capital leases 1,858,755
Notes payable to stockholders 991,176
Accounts payable 941,812
Accrued income taxes 133,630
Accrued expenses and other current liabilities 854,862
Total current liabilities 5,084,374
Long-term debt, excluding current installments 1,024,356
Obligations under capital leases, excluding current installments 2,179,412
Customers' deposits 58,253
Deferred revenue 852,146
Deferred income taxes 309,938
Total liabilities 9,508,479
Stockholders' equity:
Preferred stock without par value. Authorized 2,000,000 shares:
Series A Convertible Preferred Stock ($10 stated value);
authorized 100,000 shares; issued and outstanding 34,167 shares;
liquidating value $467,144 341,670
Common stock without par value. Authorized 6,000,000 shares;
issued and outstanding 2,506,885 shares 3,029,833
Accumulated deficit (2,119,092)
Foreign currency translation 26,857
Total stockholders' equity 1,279,268
Commitments and contingencies
$10,787,747
</TABLE>
See accompanying notes to consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Operations
<CAPTION> Years ended December 31
1995 1994
<S> <C> <C>
Service revenue $ 8,927,183 $ 4,615,535
Operating expenses:
Cost of services 5,394,518 3,161,718
Selling, general and administrative expenses 2,434,906 1,053,324
7,829,424 4,215,042
Operating income 1,097,759 400,493
Other income (expense):
Interest expense (657,410) (395,776)
Other income, net 45,186 1,596
(612,224) (394,180)
Income before income taxes 485,535 6,313
Income taxes 443,568
Net income $ 41,967 $ 6,313
Income (loss) per common and common equivalent
share $ - $ (.01)
Weighted average number of common and common
equivalent shares outstanding 2,493,603 2,418,792
</TABLE>
See accompanying notes to consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Statements of Stockholders' Equity
<CAPTION>
Series A Foreign
Preferred Stock Common Stock Accumulated currency
Shares Amount Shares Amount deficit translation Total
<S> <C> <C> <C> <C> <C> <C> <C>
January 1,
1994 34,167 $341,670 2,362,885 $2,885,833 $(2,128,844) $ $1,098,659
Issuance
of common
stock 112,000 112,000 112,000
Net income 6,313 6,313
December 31,
1994 34,167 $341,670 2,474,885 $2,997,833 $(2,122,531) $1,216,972
Issuance
of common
stock 32,000 32,000 32,000
Payments of
dividends (38,528) (38,528)
Net income 41,967 41,967
Foreign
currency
translation 26,857 26,857
December 31,
1995 34,167 $341,670 2,506,885 $3,029,833 $(2,119,092) $26,857 $1,279,268
</TABLE>
See accompanying notes to financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Statements of Cash Flows
<CAPTION>
Years ended December 31
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,967 $ 6,313
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,113,081 1,068,131
Deferred income taxes 309,938
Other 36,899 1,390
Changes in operating assets and liabilities:
Accounts receivable (1,005,638) 88,961
Other current assets (390,975) (20,821)
Accounts payable 403,386 (159,429)
Accrued income taxes 133,630
Accrued expenses and other current liabilities 513,477 106,552
(Increase) decrease in other assets (124,202) 37,910
Increase (decrease) in deferred revenue 652,691 (339,465)
Increase (decrease) in customers' deposits 22,258 (17,226)
Net cash provided by operating activities 2,706,512 772,316
Cash flows from investing activities:
Acquisition of property and equipment (488,735) (46,331)
Purchase of Twinsys (203,856)
Net cash used in investing activities (692,591) (46,331)
Cash flows from financing activities:
Proceeds from note payable to stockholder 500,000
Net proceeds from issuance of common stock 100,000
Proceeds from long-term debt 28,150
Principal payments of long-term debt and
obligations under capital leases (2,413,360) (793,366)
Payments preferred dividend (38,528)
Net cash used in financing activities (1,951,888) (665,216)
Net increase in cash and cash equivalents 62,033 60,769
Cash and cash equivalents at beginning of year 108,603 47,834
Cash and cash equivalents at end of year $ 170,636 $ 108,603
</TABLE>
See accompanying notes to financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
Notes to Financial Statements
(1) Basis of Presentation
Strategia Corporation (Strategia) and its wholly-owned French subsidiary,
Twinsys Dataguard, S.A. (Twinsys), together referred to herein as "the
Company," is a major provider of hot site services for users of large-scale
Bull and IBM computers in North America and Bull and UNIX computers in Europe.
The Company markets its services to corporate users of large-scale computers
in the United States, Canada and Europe.
The financial statements have been prepared on the basis of principles
applicable to a going concern. This basis presumes the realization of assets
and a settlement of liabilities in the ordinary course of business. As shown
in the accompanying financial statements, the Company has an accumulated
deficit of $2,119,092 at December 31, 1995. In addition, the Company has
financed a large portion of its computer equipment that is used for backup
services under capital leases. The current installments of obligations under
these capital leases were the most significant cause of current liabilities
exceeding current assets by $3,295,207 at December 31, 1995.
The Company's ability to operate as a continuing business is dependent
upon, among other things, the Company's maintaining profitable operations and
being able to meet its current obligations.
The Company believes access to the European disaster recovery market
through Twinsys, as well as its continued intensified marketing effort, will
provide new opportunities for additional backup, outsourcing, and consulting
service revenues. The Company plans to increase its utilization of its
facilities and computer equipment to support other computer services
opportunities.
Management has obtained and will continue to seek more favorable terms
for its lease and maintenance agreements in an effort to reduce the Company's
operating costs and liquidity deficiency. The Company expects to meet its
cash flow needs through payments of service revenues by existing customers,
the addition of new customers for its backup, outsourcing, and consulting
services, as well as the extension of payment terms on certain monthly
expenses and other debt.
(2) Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Strategia Corporation and Twinsys. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of the Company's consolidated financial statements
in conformity with generally accepted accounting principles requires Company
management to make estimates and assumptions that affect the amounts reported
in these financial statements and accompanying notes. Actual results could
differ from those estimates.
(c) Recognition of Revenue
The Company provides backup recovery services through contracts
whose terms are generally for more than one year and require the payment of
monthly subscription fees. Service revenue from contracts is recognized on a
straight-line method over the life of the contract. Deferred revenue
represents cash received in excess of the revenue recorded for multi-year
agreements to provide backup services to customers. The Company also provides
consulting services. Service revenue for consulting is recognized when
services are rendered.
(d) Property and Equipment
Property and equipment are recorded at cost and consist of the
following at December 31, 1995:
<TABLE>
<S> <C>
Land $ 260,800
Building and improvements 3,154,789
Equipment 12,551,702
Other 170,720
$16,138,011
</TABLE>
Depreciation of equipment is computed on the straight-line method
over the estimated useful life of the asset. Leasehold improvements and
equipment under capital leases are amortized on the straight-line method over
the terms of the related leases or over the estimated useful life of the
asset.
(e) Foreign Currency Translation
The financial statements of Twinsys have been translated into U.S.
dollars in accordance with FASB Statement 52, Foreign Currency Translation.
All balance sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Amounts in the statements of operations
have been translated using the average exchange rate for the year. The gains
and losses resulting from the changes in exchange rates during the year have
been reported separately as a component of stockholders' equity.
(f) Income Per Share
Income per share is based on net income less preferred dividends
divided by the weighted average number of common and equivalent shares
outstanding during the period. Common stock equivalents outstanding are
calculated for stock options and warrants using the treasury stock method.
Fully diluted per share amounts are not materially different from primary per
share amounts.
(g) Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of
less than three months when purchased.
(h) Stock Incentive Plans
The Financial Accounting Standards Board has recently issued FASB
Statement 123, Accounting for Stock-Based Compensation. FASB 123 encourages,
but does not require, companies to recognize compensation expense related to
the grants of stock or stock options to employees under plans such as the
Company's 1988 and 1990 Plans. Companies choosing not to adopt FASB 123 will
continue to account for such grants using the accounting described by APB
Statement 25, Accounting for Stock Issued to Employees, but will be required
to make certain disclosures about their plans, including proforma net income
and earnings per share under the new method. The Company is first required
to follow the rules of FASB 123 in 1996. The Company expects to continue to
follow APB 25 for expense recognition and to make disclosures required by
FASB 123. Accordingly, the Company expects that FASB 123 will have no effect
on the Company's earnings or financial position.
(i) Financial Instruments
The carrying amounts of the Company's financial instruments
approximate their fair values as of December 31, 1995.
(3) Acquisition
On February 3, 1995, Dataguard purchased for approximately $200,000
certain operating assets and assumed certain liabilities of Twinsys, S.A., a
Paris, France-based provider of disaster recovery services in Europe.
Dataguard financed the purchase with funds borrowed from EPI Corporation, the
Company's largest stockholder, under an amendment to an existing loan
agreement. John P. Snyder, EPI's President and Chairman, is a director of
the Company. The acquisition was accounted for by the purchase method of
accounting.
(4) Long-term Debt and Credit Agreements
Long-term debt consists of the following at December 31, 1995:
<TABLE>
December 31
1995
<S> <C>
Mortgage note $ 1,055,871
Revolving credit agreements 120,000
Promissory note 133,526
Equipment notes 19,098
1,328,495
Less current installments 304,139
Long-term debt, excluding current installments $ 1,024,356
</TABLE>
The mortgage note is payable in equal monthly installments through May 1,
2009; however, the lender has the option to accelerate payment on the entire
outstanding balance of the note at five year intervals throughout the note
term. The next potential note acceleration date is May 1, 1999 and the
current interest rate of 11% is fixed until that date.
The Company has committed revolving credit facilities with two banks. A
$100,000 credit agreement is committed through October 31, 1996, and provides
that borrowings will bear interest at the bank's prime rate plus 2%
(effectively 10.5% at December 31, 1995). Borrowings under this credit
agreement are secured by substantially all domestic company assets, other
than its real property and leased assets. Credit agreements amounting to
$250,000 and $20,000 are committed by another bank. The $250,000 agreement
is committed through May 15, 1996 and is secured by a letter of credit issued
by the Company's bank in France. Other current assets at December 31, 1995
include approximately $288,000 of restricted cash related to the letter of
credit. This agreement bears interest on borrowings at prime plus 1%
(effectively 9.5% at December 31, 1995). No amounts were borrowed under this
agreement at December 31, 1995. The $20,000 agreement is committed through
February 28, 1996, and bears interest at prime plus 1%, and was fully
outstanding at December 31, 1995.
A promissory note was established on May 1, 1994 with a supplier. The
note provides that interest, fixed at an annual rate of 11%, will accrue and
compound monthly on the total unpaid balance. Monthly installments of $26,836
began in December 1995 and will continue through June 1996 until the entire
principal and interest amounts are paid.
Equipment notes are payable to one bank in monthly installments through
November 1997. Interest rates on these notes range from 10.0% to 10.5% and
the notes are secured by equipment with a net book value of $16,596 as of
December 31, 1995.
Aggregate maturities of long-term debt are $304,139 in 1996, $45,610 in
1997, $45,390 in 1998 and $933,356 in 1999.
(5) Notes Payable to Stockholders
During 1992, the Company entered into a $300,000 second mortgage
agreement with a stockholder. The original term of the agreement was ninety
days. The agreement had been renewed for additional 90-day terms subsequent
to the original term through December 31, 1994. In January 1995, an $800,000
second mortgage agreement was entered into with this stockholder ($300,000 of
which represents an extension of the original loan as noted above). The term
of the loan extends through April 10, 1996. Interest on this amount is
payable at an annual rate equal to the prime rate plus 1.5% (effectively 10%
at December 31, 1995). Interest expense of $80,242 and $25,750 was charged
to 1995 and 1994 operations, respectively. At December 31, 1995, accrued
interest recorded in the consolidated balance sheet related to these notes
was $110,581. The promissory note is secured by a second mortgage on the
Company's real property. In consideration of this opportunity to borrow
funds, the Company issued 15,000 shares of common stock to the stockholder in
connection with the initial agreement. Additional share increments of common
stock (currently 8,000 shares) have been issued with each renewal (a total of
59,000 and 27,000 additional shares had been issued through December 31,
1995 and 1994, respectively). During January 1996, the Company renewed this
note at the same terms and conditions as the original note. An additional
8,000 shares of common stock were issued to the stockholder in connection
with this renewal.
The Company has notes payable of $191,176 to certain stockholders.
Interest is payable quarterly at an annual rate of 10%. Interest expense of
$19,118 was charged to operations for the years ended December 31, 1995 and
1994 for these notes. The notes were originally due in November 1992 but have
been renewed and are now due in December 1996 at the same terms and conditions
as the original notes.
(6) Leases
The Company is obligated under various equipment capital leases that
expire over the next four years. Property and equipment include the following
amounts under capital leases at December 31, 1995:
<TABLE>
<CAPTION>
December 31
1995
<S> <C>
Equipment $ 7,297,047
Less accumulated amortization 2,083,064
$ 5,213,983
</TABLE>
The Company acquired $4,831,746 and $186,174 of equipment in exchange
for capital lease obligations during 1995 and 1994, respectively.
The Company also has certain noncancellable operating leases, primarily
for computer hardware and software, that expire over the next five years and
provide for purchase or renewal options.
Future minimum lease payments under capital leases and noncancellable
operating leases, and the present value of future minimum capital lease
payments as of December 31, 1995 are:
<TABLE>
<CAPTION>
Capital Operating
leases leases
<S> <C> <C>
Years ending December 31:
1996 $ 2,118,554 $ 845,897
1997 1,611,728 779,982
1998 680,910 745,846
1999 25,080 745,846
2000 - 279,692
Total minimum lease payments 4,436,272 $ 3,397,264
Less amount representing interest
(at rates ranging from 7.0%
to 11.35%) 398,206
Present value of net minimum
capital lease payments 4,038,167
Less current installments 1,858,755
Obligations under capital
leases, excluding current
installments $ 2,179,412
</TABLE>
Total rental expense, including maintenance charges, for operating
leases in 1995 and 1994 was $1,947,904 and $1,534,976, respectively.
(7) Income Taxes
For financial reporting purposes, income before income taxes includes
the following components:
<TABLE>
<CAPTION>
1995 1994
Pretax income (loss):
<S> <C> <C>
United States $ (713,298) $ 6,313
Foreign 1,198,833 -
$ 485,535 $ 6,313
</TABLE>
The provision for income tax expense in 1995 is attributable to earnings
from foreign operations, the components of which follows:
<TABLE>
<S> <C>
Foreign - current $ 133,630
- deferred 309,938
$ 443,568
</TABLE>
A reconciliation of the income tax expense for the years ended December
31, 1995 and 1994 with the federal statutory rate is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Tax expense at U.S. statutory rates $ 165,082 $ 2,146
Operating losses in the U.S. generating
no current tax benefit 240,027 -
Utilization of net operating loss
carryforwards - (3,777)
Higher effective income tax rate of
foreign operations 35,965 -
Other 2,494 1,631
$ 443,568 $ -
</TABLE>
Undistributed earnings of the Company's foreign subsidiary amounted to
$755,265 at December 31, 1995. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal income
taxes has been provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to France. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation.
At December 31, 1995, the Company had U.S. net tax operating loss
carryforwards of approximately $3,340,000 for federal income tax reporting
purposes. These carryforwards expire as follows: $467,000 in 2000; $658,000
in 2001; $508,000 in 2002; $115,000 in 2004; $26,000 in 2005; $51,000 in 2006;
$435,000 in 2007; $649,000 in 2008; and $431,000 in 2010.
Significant components of the Company's deferred tax assets (liabilities)
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1995
Deferred tax assets:
<S> <C>
Net operating loss carryforwards $ 1,269,000
Valuation allowance (1,029,000)
Net deferred tax assets 240,000
Deferred tax liabilities:
Tax over book depreciation (462,000)
Other (87,938)
Total deferred tax liabilities $ (549,938)
Net deferred tax liability $ (309,938)
</TABLE>
(8) Stock Option and Grant Plans
The Dataguard 1988 Stock Option Plan (as amended by stockholders in 1989)
allows for options to be granted to key employees of the Company to purchase
no more than an aggregate of 150,000 shares of common stock at a price not
less than 75% of the fair market value at the time the grant is approved.
Options totaling 42,500 shares of common stock were granted to employees in
1995. No options were granted to employees in 1994. It also provides
automatic grants of stock options to the Company's directors who are not
employees. Options to purchase 500 shares of common stock are granted
annually to each nonemployee director. In addition, each nonemployee director
who was not a director on May 15, 1989 will automatically be granted an option
for 2,500 shares of common stock on May 15 following his subsequent election.
Options for nonemployee directors are granted at the fair market value of the
common stock on the grant date as determined by the Stock Option Committee of
the Board of Directors.
Information pertaining to options for 1995 follows:
<TABLE>
<CAPTION>
Price Range
Common Share per Share
<S> <C> <C>
Options outstanding at
January 1, 1995 32,839 $1.00 - $3.50
Options granted 43,500 $1.26 - $1.38
Options outstanding at
December 31, 1995 76,339 $1.22
Options exercisable -
December 31, 1995 31,839 $1.22
</TABLE>
All options granted under the plan are exercisable over a 10-year period.
No options have been exercised as of December 31, 1995.
The Dataguard 1990 Stock Grant Plan authorizes the Company's Stock Option
Committee to grant up to 125,000 shares of common stock to key employees as
restricted or performance stock awards. In 1990, grants of 4,075 shares of
common stock were issued under this plan. No shares have been granted
subsequent to 1990.
(9) Preferred Stock
In 1991, 100,000 shares of Series A Preferred Stock were authorized. The
Company issued 16,667 shares of Series A Preferred Stock in 1992 and 17,500
shares in 1991. This stock provides a cumulative preferred annual dividend of
11.5%, payable on a quarterly basis and before any payment of dividends on
common stock. At December 31, 1995, dividends in arrears totaled $40,056.
Each share of Series A Preferred Stock is convertible into four shares of
common stock, at an effective price of $2.50 per share of common stock, for a
period of five years following the date of issuance.
The Series A Preferred Stock is also redeemable at the Company's option
at a price of $11.15, if the average bid and asked price of the common stock
exceeds 150% of the then-effective conversion price of the Series A Preferred
Stock for twenty of thirty consecutive trading days. No such restriction
applies to redemption after July 1, 1997. This redemption price declines
gradually each year to $10 a share after December 31, 2001.
The Series A Preferred Stock has a liquidation value of $12.50 per share,
plus any accrued but unpaid dividends upon the liquidation, dissolution, or
winding up of the affairs of the Company. Holders of Series A Preferred Stock
have no voting rights except upon the occurrence of an event of default.
The holders of Series A Preferred Stock also received a five-year warrant
to purchase two shares of common stock for each share of Series A Preferred
Stock purchased. At December 31, 1995, warrants to purchase 34,167 shares of
common stock were outstanding at an exercise price of $4.50.
Shares of common stock reserved with respect to all of the above options,
convertible preferred stock and warrants were 246,174 at December 31, 1995.
(10) Segment Information
The Company and its subsidiary are engaged in one industry segment
consisting of providing disaster recovery and other computer related services
to users of large-scale computer systems.
Service revenue, operating income and identifiable assets for the years
ended December 31, 1995 and 1994 pertaining to the two geographic areas in
which the Company operates are presented below.
<TABLE>
<CAPTION>
1995 1994
Service revenue
<S> <C> <C>
United States $ 3,116,662 $ 4,615,535
Europe 5,810,152 -
$ 8,927,183 $ 4,615,535
Operating income (loss)
United States $ (309,781) 400,493
Europe 1,407,540 -
$ 1,097,759 $ 400,493
Identifiable total assets
United States $ 4,717,216 $ 5,703,693
Europe 6,070,531 -
$ 10,787,747 $ 5,703,693
</TABLE>
The net assets of Twinsys at December 31, 1995 amounted to approximately
$782,123.
In 1994, the Company had two customers, accounting for approximately 26%
and 15%, respectively, of consolidated service revenue, who individually
accounted for more than 10% of the Company's consolidated service revenue for
the year. Neither customer accounted for 10% of the Company's consolidated
revenue in 1995. The only customer who accounted for 10% of the Company's
consolidated service revenue in 1995 was a group of affiliated companies,
which together accounted for approximately 13% of consolidated service
revenue.
(11) Supplemental Cash Flow Information
Total amount of interest paid was approximately $650,000 and $393,000 for
the years ended December 31, 1995 and 1994, respectively. No cash payments
were made for income taxes during 1995 or 1994.
(12) Commitments and Contingencies
The Company has an agreement with Copex Limited (a United Kingdom
company) which was established to recognize the assistance provided by Copex
in the acquisition of Twinsys. The Company is to pay Copex 2% of the gross
revenues of Twinsys for the calendar years 1995 through 1999. Other assets
include approximately $74,000 (net of amortization) as of December 31, 1995
related to the fee earned to date under this agreement.
A former employee of Twinsys has filed a lawsuit against the Company
claiming certain severance benefits as a result of his dismissal. The total
amount of the claim approximates 800,000 French francs (approximately
$160,000). While the ultimate outcome of this lawsuit is unknown, the Company
believes it has meritorious defenses against the Claim and intends to
vigorously contest the lawsuit.
(13) Subsequent Event
On March 7, 1996, Twinsys entered into a capital lease agreement for
computer equipment with the lease having a discounted present value of
approximately 10,000,000 French francs (approximately $2,000,000). The lease
is for a three year term and requires monthly rental payments of
approximately 430,000 French francs (approximately $86,000) in 1996 and
monthly rental payments of 250,000 French francs (approximately $50,000) for
the remainder of the lease term. This lease commitment is not included in
Note 6.
(14) Reverse Stock Split and Change of Name
On July 29, 1996 the 1-for-2 reverse stock split of its Common Stock and
its change of name from Dataguard Recovery Services, Inc. to Strategia
Corporation became effective. As a result of the 1-for-2 reverse stock split,
every two of the Company's common shares outstanding at the effective time
were automatically converted into one new common share of Strategia
Corporation. The Company's name change and reverse stock split had been
approved by the shareholders at the Company's 1996 annual meeting on July 12,
1996. All share and per share amounts have been restated for the reverse
stock split.
STRATEGIA CORPORATION AND SUBSIDIARY
Report of Independent Auditors
The Board of Directors and Stockholders
Strategia Corporation
We have audited the accompanying consolidated balance sheet of Strategia
Corporation and subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Strategia Corporation and subsidiary at December 31, 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Strategia Corporation and subsidiary will continue as a going concern.
As more fully described in Note 1, the Company has had a significant working
capital deficiency since inception, has incurred significant cumulative
losses from its inception through December 31, 1995, and has had recent
adverse developments with respect to contracts with certain customers. In
view of these conditions, substantial doubt remains as to the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the possible inability of Strategia
Corporation and subsidiary to continue as a going concern.
Louisville, Kentucky
March 8, 1996
(except for Note 14, as to which the date is
July 29, 1996)
Item 13. Exhibits, List, and Reports on Form 8-K.
(a) List of Exhibits Filed.
(3.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the Company's 10-QSB for the quarters ended June 30,
1996.
(3.2) *Bylaws.
(4.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the Company's 10-QSB for the quarter ended June 30,
1996.
(4.2) Form of Stock Purchase Warrant issued to holders of
Series A Preferred is incorporated by reference to
Exhibit 4.2 to the 1991 10-K.
(10.1) *Promissory Note due December 31, 1996 from the
Company to Richard W. Smith.
(10.2) *Promissory Note due December 31, 1996 from the
Company to James P. Buren.
(10.3) *Promissory Note due December 31, 1996 from the
Company to EPI Corporation.
(10.4) *Promissory Note due December 31, 1996 from the
Company to John A. Brenzel.
(10.5) 1988 Stock Option Plan is incorporated by reference
to Exhibit 10.7 to the 1994 10-KSB.
(10.6) 1990 Stock Grant Plan is incorporated by reference
to Exhibit 10.8 to the 1994 10-KSB.
(10.7) *Agreement of Assignment of Mortgage Note dated
August 1, 1991, between Future Federal Savings
Bank, Brown, Noltemeyer Co., Charles A. Brown, Jr.,
Norman V. Noltemeyer, and Dataguard Recovery
Services, Inc.
(10.8) *Mortgage Note dated April 3, 1984, from Brown,
Noltemeyer Co. to Future Federal Savings Bank, as
amended.
(10.9) Security Agreement dated July 13, 1992 as amended
January 17, 1995 between the Company and EPI
Corporation is incorporated by reference to Exhibit
10.11 to the 1994 10-KSB.
(10.10) Second Mortgage dated July 13, 1992 as amended
January 17, 1995 between the Company and EPI
Corporation is incorporated by reference to Exhibit
10.12 to the 1994 10-KSB.
(10.11) *Promissory note due April 10, 1996 between the
Company and EPI Corporation.
(10.12) Revolving Credit Agreement dated July 1, 1992 with
Star Bank, N.A.
(10.13) Extension of Revolving Credit Agreement dated
October 31, 1995 with Star Bank, N.A.
(10.14) Term Lease Master Agreement with IBM Credit
Corporation dated October 15, 1995.
(10.15) Computer Lease Agreement dated July 12, 1995 between
Twinsys Dataguard SA and CEPME.
(11) For a statement regarding the computations of per
share earnings (loss), see Note 2 of the Notes to
the Consolidated Financial Statements.
(21) *Subsidiaries.
(27) Financial Data Schedule.
___________________________
*Previously filed with the Company's 1995 10-KSB.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
STRATEGIA CORPORATION
Date: November 14, 1996
By /s/ Richard W. Smith
Richard W. Smith, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Richard W. Smith
Richard W. Smith President and Director November 14,
1996
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)
/s/ James P. Buren
James P. Buren Executive Vice President- November 14,
1996
Technology, Treasurer, and
Director
/s/ John P. Snyder
John P. Snyder Secretary and Director November 14,
1996
/s/ John A. Brenzel
John A. Brenzel Director November 14,
1996
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Sequential Page
Number Description Number
<S> <C> <C>
(3.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the Company's 10-QSB for the quarters ended June 30,
1996.
(3.2) *Bylaws.
(4.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the Company's 10-QSB for the quarter ended June 30,
1996.
(4.2) Form of Stock Purchase Warrant issued to holders of
Series A Preferred is incorporated by reference to
Exhibit 4.2 to the 1991 10-K.
(10.1) *Promissory Note due December 31, 1996 from the
Company to Richard W. Smith.
(10.2) *Promissory Note due December 31, 1996 from the
Company to James P. Buren.
(10.3) *Promissory Note due December 31, 1996 from the
Company to EPI Corporation.
(10.4) *Promissory Note due December 31, 1996 from the
Company to John A. Brenzel.
(10.5) 1988 Stock Option Plan is incorporated by reference
to Exhibit 10.7 to the 1994 10-KSB.
(10.6) 1990 Stock Grant Plan is incorporated by reference
to Exhibit 10.8 to the 1994 10-KSB.
(10.7) *Agreement of Assignment of Mortgage Note dated
August 1, 1991, between Future Federal Savings
Bank, Brown, Noltemeyer Co., Charles A. Brown, Jr.,
Norman V. Noltemeyer, and Dataguard Recovery
Services, Inc.
(10.8) *Mortgage Note dated April 3, 1984, from Brown,
Noltemeyer Co. to Future Federal Savings Bank, as
amended.
(10.9) Security Agreement dated July 13, 1992 as amended
January 17, 1995 between the Company and EPI
Corporation is incorporated by reference to Exhibit
10.11 to the 1994 10-KSB.
(10.10) Second Mortgage dated July 13, 1992 as amended
January 17, 1995 between the Company and EPI
Corporation is incorporated by reference to Exhibit
10.12 to the 1994 10-KSB.
(10.11) *Promissory note due April 10, 1996 between the
Company and EPI Corporation.
(10.12) Revolving Credit Agreement dated July 1, 1992 with
Star Bank, N.A.
(10.13) Extension of Revolving Credit Agreement dated
October 31, 1995 with Star Bank, N.A.
(10.14) Term Lease Master Agreement with IBM Credit Corporation
dated October 15, 1995.
(10.15) Computer Lease Agreement dated July 12, 1995 between Twinsys
Dataguard SA and CEPME.
(11) For a statement regarding the computations of per
share earnings (loss), see Note 2 of the Notes to
the Consolidated Financial Statements.
(21) *Subsidiaries.
(27) Financial Data Schedule.
___________________________
*Previously filed with the Company's 1995 10-KSB.
</TABLE>
EXHIBIT 10.12
STAR BANK, N.A.
425 Walnut Street
P. O. Box 1038
Cincinnati, Ohio 45201-1038
July 1, 1992
Mr. Richard D. Smith
President
Dataguard Recovery Services, Inc.
P.O. Box 37144
Louisville, KY 40233-7144
Dear Mr. Smith:
This letter shall set out the terms and conditions under which Star
Bank, N.A. (Hereafter referred to as the "Bank") agrees to
loan Dataguard Recovery Services, Inc. (Hereafter called the "Company")
One Hundred Thousand Dollars ($100,000) under this Revolving Credit
Agreement (the "Agreement"). The purpose of this loan is working
capital.
THE REVOLVING CREDIT
Subject to there being no event of default (or circumstance which
would, with the passage of time become an event of default) the
Bank agrees to make revolving credit loans to the Company (as
described below) from the date of this Agreement through the
earlier of: a) a demand for payment in accordance with the terms of
a revolving promissory note (the "Revolving Note") which will
evidence the Company's obligation, substantially in the form of
Exhibit "A" attached hereto; or b) July 1, 1993 (the "Maturity
Date").
The Revolving Note shall bear interest at 1.0% over the Bank's
prime rate (the "Prime Rate"). The Prime Rate is the rate
announced as such from time to time by the Bank. The Prime Rate is
determined solely by the Bank pursuant to market factors and its
own operating needs, and is not necessarily the Bank's best or most
favorable rate for commercial or other loans. The Prime Rate is
currently 6.5%. The interest rate on the Revolving Note shall be
adjusted on the effective date of any change in the Bank's Prime
Rate. Interest shall accrue in arrears and be payable beginning
October 1, 1992 and quarterly thereafter and on the Maturity Date.
REPRESENTATIONS & WARRANTIES
To induce the Bank to enter into this Agreement and to agree to
make the loans described herein, the Company represents and
warrants that:
(A) Corporate Existence. It is a corporate duly existing under
the laws of the Commonwealth of Kentucky, is qualified to do
business in all states where failure to be so qualified would
have a material adverse effect on the Company, and has all
requisite power and authority to own its property and carry on
its business as now being conducted.
(B) Borrowing Authorization. The execution by the Company and the
delivery and performance of this Agreement, the Note(s), and
other documents connected to the loans described herein have
been authorized by necessary corporate action and will not
violate: 1) any provision of law; 2) the Articles of
Incorporation or By-laws of the Company; or 3) any agreement
binding on the Company.
(C) Financial Statements. Its audited financial statements dated
December 31, 1991 (a copy of which have been previously
furnished to the Bank) have been prepared in conformity with
generally accepted accounting principles consistently applied,
and fairly present the financial condition of the Company and
its operation as of the date of the statements, and since such
date there has been no material adverse change in its
financial condition.
(D) Actions Pending. There is no litigation pending or threatened
against or affecting the Company before any court or agency,
or any contingent liabilities that are not provided for in the
financial statements referred to in subsection (C) Financial
Statements above.
(E) Liens. None of the assets of the Company are subject to any
mortgage, pledge, security interest, line, or other
encumbrance except for those noted in the financial statements
referred to in subsection (C) Financial Statements.
(F) Environmental Matters. All operations and property of the
Company are in full compliance with all federal, state, and
local statutes, rules, and regulations relating to air and
water pollutants and hazardous waste disposal. There is no
judicial or administrative proceeding pending or threatened
against or affecting the Company with respect to such
environmental matters.
(G) Compliance. The Company is in compliance in all material
respects with all statutes, rules, and regulations applicable
to it. No default (or event which with notice or lapse of
time, or both, would constitute a default) exists under any
agreement or instrument for borrowed money to which Company is
a party or pursuant to which any property of Company is
encumbered.
(H) Liabilities. All taxes, assessments, and other liabilities
which are due have been paid in full and in a timely manner,
except for those taxes and assessments which the Company is
contesting in good faith and with respect to which the Company
has taken proper steps to perfect its appeal and which have
not resulted in liens on the company's property which
materially diminishes the value of the property.
COLLATERAL
All obligations of the Company to the Bank under this Agreement and
the Note(s) shall be secured by the following (collectively called
the "Collateral"):
(A) A security interest in the Company's accounts receivable,
inventory, machinery, equipment, furniture, fixtures,
furnishings, and general intangibles, now owned or hereafter
acquired, their proceeds (cash or non-cash) and any insurance
proceeds related thereto, located at either 6600 Grade Lane,
Louisville, KY 40213 or 10301 Linn Station Road, Louisville,
KY 40223, all to be evidenced by the Bank's standard Security
Agreement in the form of Exhibit "B" Attached hereto dated
October 10, 1989 and July 1, 1992.
The Collateral and all documentation with respect thereto shall be
in a form satisfactory to the Bank, and the Company agrees to
execute any an all documents necessary to assure the protection,
perfection, and/or enforcement of the Bank's security interest in
the Collateral.
COVENANTS
In consideration of the Bank's promise to make the loan described
herein, the Company agrees that, from the date of this Agreement
until the Note(s) are paid in full, it shall:
(A) Financial Statement. Furnish the Bank: 1) a copy of the
Company's audited financial statements, prepared in conformity
with generally accepted accounting principles applied on a
basis consistent with the preceding years by independent
certified public accountants acceptable to the Bank within 90
days of the Company's fiscal year end; and 2) a copy of its
unaudited financial statements, similarly prepared, in a form
satisfactory to the Bank within 30 days of the end of each of
its fiscal quarter.
(B) Insurance. Maintain insurance on all real and personal
property with carriers acceptable to the Bank in an amount and
against hazards and liabilities as is common with other
companies in similar situations. The policies shall show the
Bank as "name insured" and "loss payee." The Company shall
provide the Bank with certificates of insurance or other
satisfactory evidence upon request.
(C) Taxes. Pay all taxes, assessments, and other liabilities when
due, except for those which are contested in good faith.
(D) Notice. Give the Bank prompt notice of any: (i) default of
this or any other Agreement or contract under which the
Company is liable; (ii) environmental or labor dispute; (iii)
lawsuit filed naming the Company as a defendant; (iv)
reportable event under ERISA; or (v) material change in the
Company's business prospects or financial condition.
(E) Corporate Existence and Status. Maintain its corporate
existence and remain in good standing under the laws of each
jurisdiction where the Company is duly qualified to conduct
its business.
(F) Bank as Primary Depository. Maintain all corporate accounts,
including all time and demand deposit accounts, certificate of
deposit accounts, and safekeeping accounts, at the Bank.
(G) Maintenance of Property. Maintain Company property in good
condition and repair, and not commit or permit any action that
may impair the value of the property or the Bank's Collateral.
(H) Tangible Capital Base. Not permit its tangible capital base
to be less than $675,000 beginning with the fiscal year ending
December 31, 1992 and for each fiscal year thereafter.
"Tangible Capital Base" shall mean, as of any date, the sum of
the Company's total equity plus debts subordinated to the Bank
minus any intangible assets. All financial terms in this
Agreement shall have the meanings given them under generally
accepted accounting principles.
(I) Indebtedness. Not incur or permit to exist any indebtedness,
except: (i) the borrowings evidenced by this Agreement; (ii)
favorable short-term unsecured trade credit granted in the
ordinary course of business.
(J) Liens. Not create or permit to exist any mortgage, pledge,
security interest, or other encumbrance with respect to any
assets now owned or hereafter acquired, except for (i) liens
created in favor of the Bank hereunder; or (ii) purchase money
interests created in connection with the acquisition of
property acquired after the date of this Agreement which
attaches specifically to the property acquired.
(K) Guaranties. Not guaranty any obligation or indemnify any
other person or enterprise except for the personal liability
from the Company's own officers', directors', or employees'
own actions on behalf of the Company.
(L) Merger and Sale of Assets. Not to be a party to any merger,
consolidation, or reorganization (including the purchase of
all or substantially all of the equity or assets of any other
enterprise). Not, except in the ordinary course of its
business, sell, transfer, or lease any part of its property in
excess of $50,000 in any one-year period.
(M) Waiver. Any variance from these covenants shall be permitted
only with the prior written consent and/or waiver of the bank.
Any such waiver shall not preclude the exercise of any power
or right under this Agreement by the Bank.
CLOSING CONDITIONS
The obligation of the Bank to make the loans described by this
Agreement is subject to the satisfaction of each of the following
conditions:
(A) Resolutions. The Company shall have delivered to the Bank a
copy of the resolutions of the Company's Board of Directors
authorizing the loans described herein and the execution and
delivery of this Agreement, the Note(s), and other documents
the Bank deems necessary for these loans, certified by an
appropriate officer of the company.
(B) Other Documents; Inspection. The Company shall have delivered
to the Bank such other documents as the Bank may request prior
to the date of the initial loan. The Bank or its designated
representative shall have the continuing right to inspect and
review all the Company's records, documents, and assets,
whether or not directly related to the Company's obligations
hereunder.
(C) Default. Before and after giving effect to the loan(s)
described herein, no event of default (as defined below) or
event which would with the passage of time mature into an
event of default shall have occurred and/or be continuing.
(D) Warranties. Before and after giving effect to the loan(s)
described herein, the representations and warranties noted
above shall be true and correct on the date of this Agreement.
(E) Fees and Expenses. The Company agrees to pay the Bank a one-time
fee of ($500.00) plus any out-of-pocket expenses incurred
by the Bank (including reasonable attorneys' fees, legal
expenses, filing fees, etc.) in entering into and closing this
Agreement.
EVENTS OF DEFAULT
Upon the occurrence of any of the following events, the Bank may
declare the Note(s) due and immediately payable, without further
notice or demand and the Bank shall have all rights to realize on
the collateral. To the extent the maximum Amount Available is not
being utilized by the Company, the Bank may upon such declaration
of default terminate any unused balance:
(A) Non-payment of principal or interest prescribed herein when
due or when notice of such non-payment is sent to the Company
by the Bank, or any default, demand, or acceleration under any
Note or related instrument concerning the Collateral; or
(B) Non-payment of principal or interest on any other borrowed
money obligation when due or the holder of such obligation
declares the obligation due prior to its stated maturity
unless the obligation is disputed in good faith; or
(C) Any representation or warranty of the Company in this or any
other loan document is false; or
(D) The Company violates any covenant or condition of this or any
other loan documentation; or
(E) The Company is unable to pay its business debts as they become
due or the Company's consolidated financial statement
indicates an insolvency or deficit net worth; or
(F) The Company applies for the appointment of a trustee or
receiver of any part of the assets of the Company or commences
and proceedings relating to Borrower under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution, or other liquidation law of any jurisdiction; or
(G) Any such application, if filed, or any such proceedings are
commenced against the Company, and the Company indicates its
approval, consent, or acquiescence; or an order is entered
appointing such trustee or receiver, or adjudicating the
Company bankrupt or insolvent, or approving the petition in
any such proceedings, and such order remains in effect for
thirty (30) days; or
(H) A material part of the Company's operations shall cease for a
period of thirty (30) days, other than temporary or seasonal
cessations which are simultaneously experienced by other
companies in the Company's line of business (which, if
continued, would not have a material adverse effect on the
Company's operations or financial conditions); or,
(I) If, in the reasonable opinion of the Bank, there has been a
material adverse change in the financial affairs or operating
condition of the Company or in the value of the Collateral
which, in the reasonable judgment of Bank, materially imperils
the Company's ability to repay or secure its obligations to
the Bank under this Agreement.
LAW/JURISDICTION
This Agreement, the loans, and the Note(s) shall be deemed made in
Ohio, and all the rights and obligations of the parties hereunder
shall in all respects be governed by and construed in accordance
with the laws of the State of Ohio, including all matters of
construction, validity, and performance. Without limitation on the
ability of the Bank to exercise all its rights as to the Collateral
security for any loan or note, or to initiate and prosecute actions
for repayment in any applicable jurisdiction, Bank and Company
agree that any action or proceeding commenced by or on behalf of
the parties relating to this Agreement, the loans, or the Note(s)
shall be commenced and maintained exclusively in courts of
applicable jurisdiction located in Hamilton County, Ohio.
STAR BANK, N.A.
/s/ Edward L. Dwyer
Edward L. Dwyer
Assistant Vice President
Accepted this 1st day of July, 1992
Dataguard Recovery Services, Inc.
By /s/Richard W. Smith
Richard W. Smith
President
Exhibit 10.13
STAR BANK
425 Walnut Street
P. O. Box 1038
Cincinnati, OH 45201-1038
October 31, 1995
Mr. Richard W. Smith
President
Dataguard Recovery Services, Inc.
P. O. Box 37144
Louisville, KY 40233-7144
Re: The Revolving Credit and Term Loan Agreement dated
July 1, 1992 and subsequently amended by and between
Star Bank, N.A. (the "Bank") and Dataguard Recovery
Services, Inc. (the "Company") (said agreement shall
hereinafter be referred to as the "Agreement").
Dear Mr. Smith:
This letter, when duly and validly accepted by the Company, shall
evidence the intention of the Bank to amend the above referenced
Agreement and Promissory Note such that:
1) The Maturity Date of the Revolving Credit facility shall be
extended to October 31, 1996.
2) The Revolving Note shall bear interest at 2.0% over the Bank's
prime rate (the "Prime Rate"). The Prime Rate is currently
8.75%.
As a condition to the effectiveness of this amendment, the Company
shall pay the Bank a $100 renewal fee.
All representations and warranties of the Company set forth in the
Agreement are true and correct as of the date hereof. Except as
amended herein, all other terms, conditions and covenants of the
Agreement shall remain in full force and effect.
If the above terms represent our understanding, please indicate
your agreement by signing one copy of this letter and returning it
to me.
Sincerely,
/s/ Edward L. Dwyer
Edward L. Dwyer
Vice President
Accepted this 29th day of December, 1995.
Dataguard Recovery Services, Inc.
By: /s/Dewey D. Minton, Jr.
EXHIBIT 10.14
IBM Credit Corporation Stamford, CT 06904
TERM LEASE MASTER AGREEMENT
Name and Address of Lessee: Agreement No.: ND30923
Dataguard Recovery Services
10301 Linn Station Road IBM Branch Office No.: ND3
Louisville, KY 40223-3816
IBM Customer No.: 2632835
IBM Branch Office Address: Entire and Future Enterprise
400 W. Market Street Coverage
Suite 1400
Louisville, KY 40202
The Lessor pursuant to this Term Lease Master Agreement (Agreement)
will be (a) IBM Credit Corporation, or a subsidiary or affiliate
thereof, (b) a partnership in which IBM Credit Corporation is a
partner, or (c) a related business enterprise for whom IBM Credit
Corporation is the agent (lessor). The subject matter of the lease
shall be machines, field installable upgrades, feature additions or
accessories marketed by International Business Machines Corporation
(IBM) and shall be referred to as Equipment. Any lease transaction
requested by Lessee and accepted by Lessor shall be specified in a
term Lease Supplement (Supplement). A Supplement shall refer to
and incorporate by reference this Agreement and, when signed by the
parties, shall constitute the lease (Lease) for the Equipment
specified therein. Additional details pertaining to a Lease shall
be specified in a Supplement. A Supplement may also specify
additional terms and conditions as well as other amounts to be
financed (Financing). Financing may include licensed program
material charges (LPM Charges) for licensed programs marketed by
IBM under the referenced IBM license agreement (License Agreement).
1. OPTIONS. The Supplement shall designate various lease and
financing options. Option A is a Lease available only for
Modifications (Paragraph 23) to Equipment under Option A prior to
enactment of the Tax Reform Act of 1986. Option B is a Lease with
a fair market purchase option at the end of the Lease. For
Equipment under Option B Prime (B'), Lessor assumes for tax
purposes that Lessee is the owner. For financing LPM Charges,
Option S will apply.
2. CREDIT REVIEW. For each Lease, Lessee consents to any
reasonable credit investigation and review by Lessor.
3. AGREEMENT TERM. This Agreement shall be effective when signed
by both parties and any be terminated by either party upon one
month's written notice. However, each Lease then in effect shall
survive any termination of this Agreement.
4. CHANGES. Lessor may, upon prior written notice, change the
terms and conditions of this Agreement. Any change will apply on
the effective date specified in the notice to Leases which have an
Estimated Shipment Date, or Effective Date for Additional License,
one month or more after the date of notice. By notice to Lessor in
writing prior to delivery, or Effective Date for Additional
License, and within 15 days after receipt of such notice, Lessee
may terminate the Lease for an affected item. Otherwise, the
change shall apply.
5. ADVANCE RENT. Lessee shall pay to Lessor, prior to Lessor's
acceptance of a Lease, Advance Rent, if specified. Advance Rent
shall be refunded if Lessor for any reason does not accept the
Lease or Lessee terminates the Lease in accordance with Paragraph
4, 12 or 15.
6. SELECTION AND USE OF EQUIPMENT, PROGRAMMING AND LICENSED
PROGRAM MATERIALS. Lessee agrees that it shall be responsible for
the selection, use of, and results obtained from, the Equipment,
any programming supplied by IBM without additional charge for use
on the Equipment (Programming), licensed program materials, and any
other associated equipment, programs or services.
7. ASSIGNMENT TO LESSOR. Lessor hereby assigns, exclusively to
Lessor, Lessee's right to purchase the Equipment from IBM. This
assignment is effective when Lessor accepts the applicable
Supplement and Lessor shall then be obligated to purchase and pay
for the Equipment. Other than the obligation to pay the purchase
price, all responsibilities and limitations applicable to Customer
as defined in the referenced IBM purchase agreement in effect at
the time Lease is accepted by Lessor (Purchase Agreement) shall
apply to Lessee.
If the Equipment is subject to a volume procurement amendment
to the Purchase Agreement or to another discount offering (a)
Lessor will pay the same amount for the Equipment that would have
been payable by Lessee, and (b) Lessee will remain responsible to
IBM for any late order change charges, settlement charges,
adjustment charges or any other charges incurred under the volume
procurement amendment or other discount offering.
8. LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE. Lessee's
obligation to pay shall be absolute and unconditional and shall not
be subject to any delay, reduction, set-off, defense, counterclaim
or recoupment for any reason whatsoever, including any failure of
the Equipment, Programming or licensed program materials or any
representations by IBM. If the Equipment, Programming or licensed
program materials are unsatisfactory for any reason, Lessee shall
make any claim solely against IBM and shall, nevertheless, pay
Lessor all amounts payable under the Lease.
9. WARRANTIES. Lessor grants to Lessee the benefit of any and
all warranties made available by IBM in the Purchase Agreement.
Lessor warrants that neither Lessor nor anyone acting or claiming
through Lessor, by assignment or otherwise, will interfere with
Lessee's quite enjoyment of the use of the Equipment so long as no
event of default shall have occurred and be continuing. EXCEPT FOR
LESSOR'S WARRANTY OF QUIET ENJOYMENT, LESSOR MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. AS TO LESSOR, LESSEE, LEASES THE
EQUIPMENT AND TAKES ANY PROGRAMMING "AS IS" IN NO EVENT SHALL
LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY
AGAINST LESSOR FOR, CONSEQUENTIAL DAMAGES, ANY LOSS OF PROFITS OR
SAVINGS, LOSS OF USE, OR ANY OTHER COMMERCIAL LOSS.
10. LESSEE AUTHORIZATION. So long as Lessee is not in default
under the Lease (a) Lessee is authorized to act on Lessor's behalf
concerning delivery and installation of the Equipment, and any
programming services for the Programming, and (b) lessee shall
have, solely for these purposes, all rights Lessor may have against
IBM under the Purchase Agreement. The foregoing authorization
shall not constitute any surrender of Lessor's interest in the
Equipment.
11. DELIVERY AND INSTALLATION. Lessee shall arrange with IBM for
the delivery of the Equipment and Programming and for installation
of the Equipment at the Equipment Location. Lessee shall pay any
delivery and installation charges. Lessor shall not be liable to
Lessee for any delay in, or failure of, delivery of the Equipment
and Programming. Lessee shall examine the Equipment and
Programming immediately upon delivery. If the Equipment is not in
good condition or the Equipment or Programming does not correspond
to IBM's specifications, Lessee shall promptly give IBM written
notice and shall provide IBM reasonable assistance to cure the
defect or discrepancy.
12. LATE DELIVERY. If the Equipment or licensed program materials
are not delivered to the Equipment Location on or before the 5th
day after the Estimated Shipment Date, Lessor may, upon written
notice to Lessee, increase the Lease Rate. Lessee may terminate
the Lease for the affected item by giving Lessor written notice
prior to delivery. Otherwise, the Rent shall be adjusted to
reflect such increase.
13. RENT COMMENCEMENT DATE. The Rent Commencement Date, unless
otherwise specified in the Supplement, shall be the date payment is
due IBM under the applicable referenced agreement. Lessee shall be
notified of the Rent Commencement Date and the serial numbers of
the Equipment.
14. LEASE TERM. The Lease shall be effective when signed by both
parties. The initial Term of the Lease shall expire at the end of
the number of Payment Periods, specified as "Term" in the
Supplement, after the Rent Commencement Date. However, obligations
under the Lease shall continue until they have been performed in
full.
15. Rate Protection. Unless modified pursuant to Paragraph 12,
the Rent shall be based on the Lease Rate specified in the
Supplement or such greater Lease Rate as may be specified by
written notice to Lessee more than one month before the Estimated
Shipment Date or Effective Date for Additional License. By notice
to Lessor in writing prior to delivery, or Effective Date for
Additional License, and within 15 days after receipt of such
notice, Lessee may terminate the Lease for the affected item.
Otherwise, the Rent shall be adjusted to reflect the increase. The
Unit Purchase Price and LPM Charges are subject to change in
accordance the referenced agreements.
16. RENT. During the initial Term, Lessee shall pay Lessor, for
each Payment Period, Rent as determined in Paragraph 15. Lessee's
obligation to pay shall begin on the Rent Commencement Date. Rent
will be invoiced in advance as of the first day of each Payment
Period and will be due on the day following the last day of the
Payment Period. When the Rent Commencement Date is not on the
first day of a calendar month and/or when the initial Term Rent
will be prorated on the basis of 30-day months. Advance Rent, if
any, will be applied to the initial invoice(s).
17. RENEWAL. If Lessee is not then in default under the Lease,
Lessee may renew the Lease one or more times but not beyond six
years from the expiration of the initial Term. Lessor shall offer
renewal Terms of one year and may offer longer Terms if then
generally available. For a renewal Term, upon request by Lessee,
at least five months prior to lease expiration, Lessor shall notify
Lessee, at least four months prior to expiration, of the Rent, any
changes to the Payment Period and due dates, and of any required
Purchase Option or Renewal Option Percents not specified in the
Supplement. The Rent shall be objectively determined by Lessor by
using the projected fair market rental value of the Equipment as of
the commencement of such renewal Term. However, for Option B', the
Rent shall be as specified in the Supplement. Lessee may renew for
any renewal Term only by so notifying Lessor in writing at least
three months before expiration.
18. PURCHASE OF EQUIPMENT. If Lessee is not then in default under
the Lease, Lessee may, upon three months prior written notice to
Lessor, purchase Equipment upon expiration of the Lease. Under
Option A or B, the purchase price shall be objectively determined
by Lessor by using the projected fair market sales value of the
Equipment as of such expiration date plus, for Equipment under
Option A, any recapture of investment tax credit and any tax due
thereon. Under Option B Prime (B') the purchase price shall be an
amount determined by multiplying the Unit Purchase Price by the
Purchase Option Percent for such Equipment.
If Lessee purchases any Equipment, Lessee shall, on or before
the date of purchase, pay to Lessor the purchase price, any
applicable taxes, all Rent due through the day preceding the date
of purchase, any other amounts due, and the prepayment of Financing
(Paragraph 35). Lessor shall, on the date of purchase, transfer to
Lessee by bill of sale, without recourse or warranty of any kind,
express or implied, all of Lessor's right, title and interest in
and to such Equipment on an "As Is, Where Is" basis except that
Lessor shall warrant title free and clear of all encumbrances.
19. OPTIONAL EXTENSION. If Lessee has not elected to renew or
purchase, and as long as Lessee is not in default under the Lease,
the Lease will be extended unless Lessee notifies Lessor in
writing, not less than three months prior to Lease expiration, that
Lessee does not want the extension. The extension will be under
the same terms and conditions then in effect, including Rent (but,
for Options A or B, not less than fair market rental value) and
will continue until the earlier of termination by either party upon
three months' prior written notice or six years after expiration of
the initial Term.
20. INSPECTION; MARKING; FINANCING STATEMENT. Upon request,
Lessee shall make the Equipment and its maintenance records
available for inspection by Lessor during Lessee's normal business
hours. Lessee shall affix to the Equipment any labels indicating
ownership supplied by Lessor. Lessee shall execute and deliver to
Lessor for filing any Uniform Commercial Code financing statements
or similar documents Lessor may reasonably request.
21. EQUIPMENT USE. Lessee agrees that Equipment will be operated
by competent, qualified personnel, in accordance with applicable
operating instructions, laws and government regulations and that
Equipment under Option A will be used only for business purposes.
22. MAINTENANCE. Lessee, at its expense, shall keep the Equipment
in a suitable environment as specified by IBM and in good condition
and working order, ordinary wear and tear excepted.
23. ALTERATIONS; MODIFICATIONS; PARTS. Lessee may alter or modify
the Equipment only upon written notice to Lessor. Any non-IBM
alteration is to be removed and the Equipment restored to its
normal, unaltered condition at Lessee's expense prior to its return
to Lessor. At Lessee's option, any IBM field installable upgrade,
feature addition or accessory added to any item of Equipment
(Modification) may be removed. If removed, the Equipment is to be
restored at Lessee's expense to its normal, unmodified condition.
If not removed, such Modification shall, upon return of the
Equipment, become, without charge, the property of Lessor free of
all encumbrances. Restoration will include replacement of any
parts removed in connection with the installation of an alteration
or Modification. Any part installed in connection with warranty or
maintenance service shall be the property of Lessor.
24. LEASES FOR MODIFICATIONS AND ADDITIONS. Lessor will arrange
for leasing of Modifications and Additions under terms and
conditions then generally in effect, subject to satisfactory credit
review. Additions shall be machines, or LPM Charges for licensed
program materials, which are associated with the Equipment. These
Modifications and Additions must be ordered by Lessee from IBM.
Any lease for Modifications shall, and any lease for Additions may,
expire at the same time as the Lease for the Equipment. The rent
shall be determined by Lessor and specified in a Supplement. If
Lessee purchases Equipment prior to Lease expiration, Lessee shall
simultaneously purchase any Modifications under the Lease.
25. RETURN OF EQUIPMENT. Upon expiration or termination of the
Lease for any item of Equipment, or upon demand by Lessor pursuant
to Paragraph 38, Lessee shall promptly return the Equipment,
freight prepaid, to a location in the continental United States
specified by Lessor. Except for Casualty Loss, Lessee shall pay
any costs and expenses incurred by Lessor to inspect and qualify
the Equipment for IBM's maintenance agreement service. Any parts
removed in connection therewith shall become Lessor's Property.
26. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessor will maintain , at
its own expense, insurance covering loss of or damage to Equipment
(but excluding any Modifications not subject to a Lease and any
non-IBM alterations) with a $5,000 deductible per incident. If any
item of Equipment shall be lost, stolen, destroyed or irreparably
damaged for any cause whatsoever (Casualty Loss) before the Date of
Installation as defined in the Purchase Agreement, the Lease for
that item shall terminate. If any item of Equipment suffers
Casualty Loss, or shall be otherwise damaged, on or after the Date
of Installation, Lessee shall promptly inform Lessor. If Lessor
determines that the item can be economically repaired, Lessee shall
place the item in good condition and working order and Lessor will
reimburse Lessee the reasonable cost of such repair, less
deductible. If not so repairable, Lessee shall pay Lessor the
lesser of $5,000 or the fair market value of the Equipment
immediately prior to the Casualty Loss. Upon Lessor's receipt of
payment the Lease for that item shall terminate.
27. TAXES. Lessee shall promptly reimburse Lessor for, or shall
pay directly if so requested by Lessor, as additional Rent, all
taxes, charges, and fees imposed or levied by any governmental body
or agency upon or in condition with the purchase, ownership,
leasing, possession, use or relocation of the Equipment or
Programming or in connection with the financing of LPM Charges or
otherwise in connection with the transactions contemplated by the
Lease, excluding, however, all taxes on or measured by the net
income of Lessor. Upon request, Lessee will provide proof of
payment. Any other taxes, charges and fees relating to the
licensing, possession or use of licensed program materials will be
governed by the License Agreement.
28. LESSOR'S PAYMENT. If Lessee fails to perform its obligations
under Paragraph 27 or 31 to discharge any encumbrances created by
Lessee, Lessor shall have the right to substitute performance, in
which case, Lessee shall pay Lessor the cost thereof.
29. TAX INDEMNIFICATION (APPLIES ONLY FOR EQUIPMENT UNDER OPTIONS
A OR B). The Lease is entered into on the basis that under the
Internal Revenue Code of 1986, as amended (Code). Lessor shall be
entitled to (1) maximum Accelerated Cost Recovery System (ACRS)
deductions for 5-year property, and (2) deductions for interest
expense incurred to finance purchase of the Equipment. The
Bulletin "Lessor's Tax Assumptions" will be given to Lessee on
request. Lessee represents, warrants and covenants that at all
times during the Lease:
(a) No item of equipment will constitute "public utility
property" as defined in the Code;
(b) Lessee will not make any election under the Code or take
any action, or fail to take any action, if such election, action or
failure to act would cause any item of Equipment to cease to be
eligible for any ACRS deductions or interest deductions;
(c) Lessee will keep and make available to Lessor the records
required to establish the matters referred to in this Paragraph 29;
and
(d) For Equipment located in a United States possession,
Lessee represents that Lessee is a tax exempt entity as defined in
the Code.
Furthermore, if Lessee is a tax exempt entity, Lessee covenants
that it will not renew or extend the Lease if such action shall
cause Lessor a Tax Loss as described below.
If, as a result of any act, failure to act, misrepresentation,
inaccuracy, or breach of any warranty or covenant, or default under
the Lease, by Lessee, an affiliate of Lessee, or any person who
shall obtain the use of possession of any item of Equipment through
Lessee, Lessor shall lose the right to claim or shall suffer any
disallowance or recapture of all or any portion of any ACRS
deductions or interest deductions (Tax Loss) with respect to any
item of Equipment, then, promptly upon written notice to Lessee
that a Tax Loss has occurred, Lessee shall reimburse Lessor the
amount determined below.
The reimbursement shall be an amount that, in the reasonable
opinion of Lessor, shall make Lessor's after-tax rate of return and
cash flows (Financial Returns), over the term of the Lease for such
item of Equipment, equal to the expected Financial Returns that
would have been otherwise available. The reimbursement shall take
into account the effects of any interest, penalties and additions
to tax required to be paid by Lessor as a result of such Tax Loss
and all taxes required to be paid by Lessor as a result of any
payments pursuant to this paragraph. Financial Returns shall be
based on economic and tax assumptions used by Lessor in entering
into the Lease.
All the rights and privileges of Lessor arising from this Paragraph
29 shall survive the expiration or termination of the Lease.
For the purposes of determining tax effects under Paragraph 18, 27,
29 and 30, the term "Lessor" shall include, to the extent of
interests, any partner in Lessor and any affiliated group of
corporations, and each member thereof, of which Lessor or any such
partner is or shall become a member and with which Lessor or any
such partner joins in the filing of consolidated or combined
returns.
30. GENERAL INDEMNITY. This Lease is a net lease. Therefore,
Lessee shall indemnify Lessor against, and hold Lessor harmless
from, any and all claims, actions, damages, obligations liabilities
and liens; and all costs and expenses, including legal fees
incurred by Lessor in connection therewith; arising out of the
Lease including, without limitation, the purchase, ownership,
lease, licensing, possession, maintenance, condition, use or return
of the Equipment, Programming or licensed program materials; or
arising by operation of law; excluding, however, any of the
foregoing which result from the sole negligence or willful
misconduct of Lessor. Lessee agrees that upon written notice by
Lessor of the assertion of any claim, action, damage, obligation,
liability or lien, Lessee shall assume full responsibility for the
defense thereof. Any payment pursuant to this paragraph shall be
of such amount as shall be necessary so that, after payment of any
taxes required to be paid therein by Lessor, including taxes on or
measured by the net income of Lessor, the balance will equal the
amount due hereunder. Lessee's obligations under this paragraph
shall not constitute a guarantee of the residual value or useful
life of any item of Equipment or a guarantee of any debt of Lessor.
The provisions of this paragraph with regard to matters arising
during the Lease shall survive the expiration or termination of the
Lease.
31. LIABILITY INSURANCE. Lessee shall obtain and maintain
comprehensive general liability insurance, in an amount of
$1,000,000 or more for each occurrence, with an insurer having a
"Best Policyholders" rating of B+ or better. The policy shall name
Lessor as an additional insured as Lessor's interests may appear
and shall contain a clause requiring the insurer to give Lessor at
least one month's prior written notice of cancellation, or any
alteration in the terms, of the policy. Lessee shall furnish to
Lessor, upon request, evidence that such insurance coverage is in
effect.
32. SUBLEASE AND RELOCATION OF EQUIPMENT; ASSIGNMENT BY LESSEE.
Upon Lessor's prior written consent, which will not be unreasonably
withheld, Lessee may sublet the Equipment or relocate it from the
Equipment Location. No sublease or relocation shall relieve Lessee
of its obligations under the Lease. In no event shall Lessee
remove the Equipment from the United States. Lessee shall not
assign, transfer or otherwise dispose of the Lease or Equipment, or
any interest therein, or create or suffer any levy, lien or
encumbrance thereof except those created by Lessor.
33. ASSIGNMENT BY LESSOR. Lessee acknowledges and understands
that the terms and conditions of the Lease have been fixed to
enable to sell and assign its interest or grant a security interest
or interests in the Lease and the Equipment individually or
together, in whole or in part, for the purpose of securing loans to
Lessor or otherwise. If Lessee is given written notice of any
assignment, it shall promptly acknowledge receipt thereof in
writing. Each such assignee shall have all of the rights of Lessor
under the Lease. Lessee shall not assert against any such assignee
any set off, defense or counterclaim that Lessee may have against
Lessor any other person. Lessor shall not be relieved of its
obligations hereunder as a result of any such assignment unless
Lessee expressly consents thereof.
34. FINANCING. If the Lease provides for financing of LPM
Charges, Lessor will pay such Charges directly to IBM. Any other
charges due IBM under the License Agreement shall be paid directly
to IBM by Lessee's obligation to pay Rent shall not be affected by
any discontinuance, return or destruction of any license or
licensed program materials under the License Agreement on or after
the date LPM Charges are due. If Lessee discontinues any of the
licensed program materials in accordance with the terms of the
License Agreement prior to the date LPM Charges are due, the
financing of affected LPM Charges shall be canceled.
35. FINANCING PREPAYMENT (DOES NOT APPLY FOR ITEMS OF EQUIPMENT).
Lessee may terminate an item of Financing (but not an item of
Equipment) by preparing its remaining Rent. Lessee shall provide
Lessor with notice of the intended prepayment date which shall be
least one month after the date of the notice. Lessor may,
depending on market conditions at the time, make an adjustment in
the remaining Rent to reflect such prepayment and shall advise
Lessee of the balance to be paid. If, prior to Lease expiration,
Lessee purchases the Equipment or if the Lease is terminated,
Lessee shall at the same time prepay any related Financing
including that for programs licensed to the Equipment.
36. DELINQUENT PAYMENTS. If any amount to be paid to Lessor is
not paid on or before its due date, Lessee shall pay Lessor on
demand 2% of such late payment for each month or part thereof from
the due date until the date paid or, if less, the maximum allowed
by law.
37. DEFAULT; NO WAIVER. Lessee shall be in default under the
Lease upon the occurrence of any of the following events: (a)
Lessee fails to pay when due any amount required to be paid by
Lessee under the Lease and such failure shall continue for a period
of seven days after the due date; (b) Lessee fails to perform any
other provisions under the Lease or violates any of the covenants
or representations made by Lessee in the Lease, or Lessee fails to
perform any of its obligations under any other Lease entered into
pursuant to this Agreement, and such failure or breach shall
continue unremedied for a period of 15 days after written notice is
received by the Lessee from Lessor; (c) Lessee violates any of the
covenants or representations made by Lessee in any application for
credits or in any agreement with IBM with respect to the Equipment
or licensed program materials or fails to perform any provision in
any such agreement (except the obligation to pay the purchase price
or LPM Charges); (d) Lessee make an assignment for the benefit of
creditors, whether voluntary or involuntary, or consents to the
appointment of a trustee or receiver, of if either shall be
appointed for Lessee or for a substantial part of its property
without its consent; (e) any petition or proceeding if filed by or
against Lessee under any Federal or State bankruptcy or insolvency
code or similar law; or (f) if applicable, Lessee makes a bulk
transfer subject to the provisions of the Uniform Commercial Code.
Any failure of Lessor to require strict performance by Lessee or
any waiver by Lessor of any provision in the Lease shall not be
construed as a consent or waiver of any other breach of the same or
of any other provision.
38. REMEDIES. If Lessee is in default under the Lease, Lessor
shall have the right, in its sole discretion, to exercise any one
or more of the following remedies in order to protect its
interests, reasonably expected profits and economic benefits.
Lessor may (a) declare any Lease entered into pursuant to this
Agreement to be in default; (b) terminate in whole or in part any
Lease; (c) recover from Lessee any and all amounts then due and to
become due; (d) take possession of any or all items of Equipment,
wherever located, without demand or notice, without any court order
or other process of law; and (e) demand that Lessee return any or
all such items of Equipment to Lessor in accordance with Paragraph
25 and, for each day that Lessee shall fail to return any item of
Equipment, Lessor may demand an amount equal to the Rent, prorated
on the basis of a 30-day month, in effect immediately prior to such
default. Upon repossession or return of such item or items of
Equipment, Lessor shall sell, lease or otherwise dispose of such
item or items in a commercially reasonable matter, with or without
notice and on public or private bid, and apply the net proceeds
thereof towards the amounts due under the Lease but only after
deducting (i) in the case of sale, the estimated fair market value
of such item or items as of the scheduled expiration of the Lease;
or (ii) in the case of any replacement lease, the rent due for any
period beyond the scheduled expiration of the Lease for such item
or items (iii) in either case, all expenses, including legal fees,
incurred in connection therewith; and (iv) where appropriate, any
amount in accordance with Paragraph 29. Any excess net proceeds
are to be retained by Lessor. Lessor may pursue any other remedy
available at law or in equity, including, but not limited to,
seeking damages, specific performance and an injunction.
No right or remedy is exclusive of any other provided herein or
permitted by law or equity. All such rights and remedies shall be
cumulative and may be enforced concurrently or individually from
time to time.
39. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all costs
and expense, including legal and collection fees, incurred by
Lessor in enforcing the terms, conditions or provisions of the
Lease or in protecting Lessor's right and interests in the Lease
and the Equipment.
40. OWNERSHIP; PERSONAL PROPERTY; LICENSED PROGRAM MATERIALS. The
Equipment under Lease is and shall be the property of Lessor.
Lessee shall have no right, title or interest therein except as set
forth in the Lease. The Equipment is, and shall at all times be
and remain, personal property and shall not become a fixture or
reality. Licensed program materials are licensed and provided by
IBM directly to Lessee under the terms and conditions of the
License Agreement.
41. NOTICES; ADMINISTRATION. Service of all notices under the
Lease shall be sufficient if delivered personally or mailed to
lessee at its address specified in the Supplement or to IBM Credit
Corporation as Lessor in care of the IBM Branch Office specified in
the Supplement. Notice by mail shall be effective when deposited
in the United States mail, duly addressed and with postage prepaid.
Notices, consents and approvals from or by Lessor shall be given by
lessor or on its behalf by IBM and all payments shall be made to
IBM until Lessor shall notify Lessee otherwise.
42. LESSEE REPRESENTATION. If the Lease includes Financing,
Lessee represents that it is (a) a corporation if any item of
Equipment is located in Ohio, Mississippi, Virginia or West
Virginia, and/or (b) a business corporation if any item of
Equipment is located in Pennsylvania.
43. REVISIONS FOR PREVIOUSLY INSTALLED EQUIPMENT. Equipment
installed with Lessee under an IBM lease or rental agreement may be
purchased by Lessor, on the Effective Date of Purchase (as defined
in the Purchase Agreement), for lease to Lessee under Option B or
B. For such Equipment, the lease shall be revised as follows:
Paragraphs 4 and 26 - replace "Estimated Shipment Date" by
"Intended Effective Date of Purchase"; replace "delivery" and "Date
of Installation" by "Effective Date of Purchase";
Paragraph 7 - add at the end of the first paragraph, "Assignment of
the option to purchase installed Equipment at the net purchase
option price under an IBM lease or rental agreement will be
permitted only when Lessee submits the Supplement in sufficient
time to achieve the Intended Effective Date of Purchase. The
Effective Date of Purchase under this assignment shall be the later
of the first day of the Quotation Month or the day on which the
applicable Supplement is accepted by lessor. If the Quotation
Month expires and the purchase of Equipment is not concluded, this
assignment and Lease will be null and void regarding any such
Equipment and all rights, duties and obligations of Lessee and IBM
will remain in accordance with the provisions of the IBM agreement
under which the Equipment is currently installed.";
Paragraphs 11 and 12 - delete both paragraphs; and
Paragraph 15 - replace the entire paragraph with the following:
"The Rent shall be based on the Lease Rate specified in the
Supplement or such greater Lease Rate as may be specified by
written notice to Lessee more than one month before the Effective
Date of Purchase. The Unit Purchase Price is subject to change in
accordance with the referenced Purchased Agreement. Lessee may
terminate the Lease for any item subject to an increase by giving
Lessor written notice on or before the Effective Date of Purchase."
44. APPLICABLE LAW; SEVERABILITY. The Lease shall be governed by
the laws of the State of Connecticut. If any provision shall be
held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions shall not in any way be
affected or impaired.
THE ADDITIONAL TERMS AND CONDITIONS ON PAGES 2 THROUGH 4
[PARAGRAPHS 10 THROUGH 44 HEREIN] ARE PART OF THIS AGREEMENT.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND ITS
SUPPLEMENT, UNDERSTAND THEM, AND AGREES TO BE BOUND BY THEIR TERMS
AND CONDITIONS, FURTHER, LESSEE AGREES THAT THIS AGREEMENT AND ITS
SUPPLEMENT ARE THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR
AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN
THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.
Accepted by:
IBM Credit Corporation Dataguard Recovery Services
By:/s/ Jack C. Danehy By: /s/ James P. Buren
Authorized Signature Authorized Signature
Jack Danehy James P. Buren 10/15/93
Name (Type or Print) Name (Type or Print) Date
EXHIBIT 10.15
Lease Contract
Between:
The Auxiliary Society of Public Information (FIP)
Societe Anonyme au Capitol de 2.240.000 Frs
Social seat & Bureau:
12, Rue Chauchat
75009 Paris
Tel: 48.00.86.00
Represented by: M. M. Bichot, Adjunct Director General
hereafter referred to as the Lessor
First part,
and:
Twinsys Dataguard SA
SA au Capitol de 250.000 F
Tour Mirabeau- 39 Quai Andre Citroen
75015 Paris
Represented by: _________
Hereafter referred to as the Lessee
Other part,
General Terms of the Lease
Section 1 Date of effect of the lease, rentals, methods of payment:
1.1 The lease takes into account the putting into service of equipment
belonging to the Lessee certified by a written agreement that is put into
working order.
For the equipment already in use and on location close to the Supplier, the
date the lease takes effect is specified in the Special Conditions of the
contract (date of conversion). The rentals are payable according to the
methods indicated in the Special Conditions of the contract.
1.2 The rentals are transferrable and uncontestable. They will stay fixed
throughout the duration of the lease under the sole condition that any
variation in tax or T.V.A. will be imposed according to general fiscal rules
of operation. To that effect, the Lessor is authorized in full right,
without formal preamble, to make any practical and correlating adjustments.
All taxes due on the present title are the sole responsibility of the Lessee.
1.3 In case of delay in payment of sums by the Lessee, late interest/fees
will be due to the lessor; they will be calculated on a temporary, pro-
rated basis by taking the highest of these obligations taking affect by the
date of eligibility, the rate is increased three points. The late interests
are carried by the number of days running since the date of eligibility
increased by 15 days. The Lessor gains, over and above, by right the value
of maturity, and makes reimbursement, in all cases the various costs engaged
for all recalling of maturities.
1.4 The rentals figured under the Special Conditions are established on
partly a scale of the Supplier's and partly on a scale of the Lessor's
taking effect on the date of establishment by the Lessor of the present
contract. They will be actualized following the scales put in effect after
the Lessor's receipt of a written agreement placing in working order, where
that of the Lessee in lieu of, issues a delay of eight days seen in article
2.1. The Lessor has also the ability, in full right, to modify, and without
prior establishment, the raising of rents proportionally according to the
scales retained. At all times the Lessor renounces the actualization
following his own scale if he receives a written agreement to place in
working order during a delay of one month counting from the date of signature
by the Lessor on the present contract.
1.5 The rents and equipment previously on location and on site are closed and
non-revisable counting from the date of signature, by the Lessor, on the
present contract and throughout the duration of the contract.
1.6 The duration of the contract is irrevocable and the obligations defined
are indivisible.
Article 2 Equipment in Working Order-On Site Conversions
2.1 Equipment left behind
2.1.1 The Lessor chooses the equipment marked and of the type which he
determines, and the function of the required qualities and methods. For the
proper needs and uses the Lessee will procure under general conditions of
supply, equipment indicated. The Lessee estimates the technical
specifications. The places and delays of installments of delivery are
indicated by the Lessor and previously accepted by the Lessee.
2.1.2 The Lessee recognizes having foreknowledge of the general conditions of
the of the Lessor having subscribed to the present contract. The Lessor
transfers to the Lessee all rights and obligations relating to the Lessee.
As a result, the Lessee renounces all action against the Lessor- notably
the title of guarantee. The risks, industrial ownership and guarantee of the
Lessor against all action of the supplier concerning the protection and
misuse or exploitation of programs and the private affairs of the employees.
2.1.3 The Lessee must notify the Lessor of effective delivery of
equipment as soon as possible.
2.1.4 The Lessee effects that, for his own account, under the present contract,
he will verify that the equipment is entirely in conformity with the
specifications of the rental agreement's tests of usage.
2.1.5 That verification being made, the Lessee must furnish the Lessor:
1. A written agreement that places in working order (signed by himself
and the Lessor) that all equipment furnished conforms with
specifications and was subject to tests of usage.
2. By a written agreement stating the difficulties in each condition
below, so for each clause whatever, the equipment will have been in
conformity. The written agreement must mention explicitly all the
motives assigned justifying the composition.
In the event that the Lessee abstains from drafting one or the other written
agreement, and eight days after placing the working order the equipment
provided by the supplier, the Lessor will address to the Lessee a letter
recommending acknowledgment of receipt, reminding him that with the
intervention of another eight day delay in the placement of the working
order, he has consented to make all the reserves he deems necessary. After
the delay has passed, the Lessor may then in right consider that the Lessee
has accepted the equipment at the date placed on the working orders. The
signature on the written agreement under the conditions defined below implies
that the Lessee accepted the equipment complete.
2.1.6 In case of extension of the delay of implementation of the working
orders is not created by the Lessor, an equal indemnity of rents is due to
the Lessor prorated by the Lessee on a temporary basis. The Lessee accounts
for the initial date already appearing in paragraph II of the Special
Conditions, and for the entire duration of that delay.
2.2 Equipment Already on Site The equipment covered in the contract is
already opened and placed in working order by the Lessor. The signature on
the current contract allows for intervention no later than the date of
conversion listed in Special Conditions, through which, by default, the
Lessor ceases to engage in equipment.
2.3 Grouping of Equipment In each case figured held by precedent, the
Lessor is not able to be held responsible for the following: notably in
case of deterioration, the defective functioning of the material or the bad
placement of damages caused by the said equipment or his obligation to
deliver.
Article 3 Guarantees
3.1 The material is covered by the guarantee given by the supplier. At the
beginning the Lessor confers to him orders to be in accordance with the law
in case of contests relative to the construction, functioning, and rendering
open or abandonment of the equipment. The equipment will be provided with a
sign indicating that it is the property of Credit d'Equipement des Petites et
Moyennes Enterises/Small and Medium Sized Business Equipment Credit. In the
case that the sign has not been posted by the supplier, the Lessee then
informs the Lessor within three days following the date of effect at the
location defined in Article III of the Special Conditions. The Lessor then
sends the Lessee a sign which will be immediately posted behind the
equipment, a place visible and legible throughout the duration of the
contract.
Section 4 Use/Installation/Maintenance and Verification of the Equipment
4.1 Use, in the case where, for a reason not understood by the Lessor, the
equipment is not able to be placed at the disposal of the Lessee in the delay
already seen in the contract or if the supplier or another intermediary
doesn't respect the technical specifications or the conditions of initial
use, that, for some reason, the contract is not able to take effect on the
date indicated, the Lessee is not able to take recourse against the Lessor,
or make demands of damages and interests or reductions of rent in case of
indemnity. After the signing date of the written agreement has been placed in
effect, after tacit acceptance of the already seen article 2.1 indentation 5
where, after the date of conversion already seen in the Special Conditions,
the Lessee is not able to delay the application of the contract- neither
report nor interrupt the regular payment of rents. In particular, the Lessee
does not have the right to a reduction in rents or indemnities, neither the
cancellation of the contract if the equipment is not able to be used for each
cause listed: in case of deterioration, theft, avarice or strike. By
derogation of the dispositions Article 1721 of the Civil Code, all expenses
required for use by employees, and the good condition/repair of the equipment
are the responsibility of the Lessee. In particular, the Lessee must
subscribe, close to the Builder, a maintenance contract conforming with
standard rules of construction. The Lessee remains responsible for the
aforesaid maintenance contract for the entire duration of the contract. In
the case where, for some reason or another, the Lessee terminates the
maintenance contract or cease to respect obligations, the Lessor may cancel
the present contract in conformity with the terms of Article 7 hereafter. The
Lessor is to be notified by the Lessee of all deterioration, avarice or
destruction of equipment. Thus the Lessor is notified by the Lessee of each
accident caused. The Lessor, where mandatory, may visit the equipment at
his convenience. The breaking off of the equipment by onerous title or
gratuitous title and it's provision are forbidden. The taking, subleasing of
equipment and all cessation of rights resulting for the Lessee in the lease
are subordinate to previous authorization in writing by the Lessor. In case
of possible seizure of equipment the Lessee must immediately notify the
Lessor, raising protestation against the seizure and taking steps to make
known CEPME's property. If the seizure is levied, it will become necessary to
raise costs to obtain a levy. As a matter of course the Lessee must respect,
on each occasion, by all means and costs the right of the property of CEPME.
The Lessor has the liberty to effect a security which he will be able to
demand from the Lessee. The Lessee will eventually be considered a third
shareholder.
Article 6 Civil Responsibility, Responsibility for Loss and Damage,
Guarantee
6.1 Civil Responsibility Starting from the effective date of the lease
defined under Special Conditions and just before the end of the lease, the
Lessee watches over the equipment to guard against loss, guaranteeing the
Lessor against all reasonable damages caused to the equipment by its' use
by employees or damages resulting from bad manufacturing or defacement; the
Lessee agrees to underwrite a security officer responsible to the CEO to
guard against equipment taken from the location. He will be engaged to obtain
the guarantee of benefits under CEPME.
6.2 Responsibility for Loss and Damage of Equipment Guarantee During the
entire duration of the lease the Lessee is responsible for all risks of
deterioration and partial or total destruction of equipment taken on
location- which will be seen as the cause of damage unless otherwise
determined to be an Act of God. In order to guarantee the interests of both
parties, the Lessor benefits from police assurances that the terms and
conditions accepted by the Lessee are precisely those in the Conditions of
Assurance made following presentations. The rules regarding the collection of
relative costs of police are included in the raising of rents.
Partial Damage- In the case of partial damage incurred to the rental equipment,
the Lessee must then pay damages on the equipment and continue with rental
payments.
Total Damage- In the case of total damage the Lessee must replace the
material identified as the cause of the damage. The damages received by the
Lessor or the insurance companies are imputed as reimbursement for sums paid
by the Lessee.
Article 7 Cancellation of the Contract
7.1 The lease is able to be canceled by full right of the Lessor without
need of judicial format 15 days after occupation by a simple letter that says
in effect, that in the case of non-payment at the maturity of terms of rent
or in case of non-execution by the Lessee of one of the terms of the general
conditions , and without offers of payment or later executions, the payment
of or the execution after the imparted delay, able to raise against the
Lessor the right to demand cancellation. In that eventuality, the Lessee
must make immediate restitution of the equipment to the Lessor and to issue
a title of indemnity of cancellation. Forfeiture will make equal the
difference between the first part, the price of the rent outside taxes, the
equipment consigned to the client by the supplier capitalized from the date
of cancellation, and the means and release of the obligations guaranteed
increased by three points, and finally, the raising of the rental not
including taxes prior to equipping, agreed to by client and by the supplier,
capitalized from the date of cancellation.
7.2 In the case where the Lessee refuses to replace equipment, he allows for
the constraint of an ordinance rendered by the President of the Tribunal of
Commerce by simple request of referral. At the outset, all costs incurred by
the Lessor for the resolution are thus all costs related to the
disassembling and transporting of the equipment on return and will be the
exclusive charge of the Lessee.
7.3 In the case of diminishment of the guarantees and sureties conferred
under the present contract it may be canceled in full right without indemnity
if it seems good to the Lessor under the conditions stipulated in the two
paragraphs below.
Article 8 Renewal of Contract
8.1 Issuing from the closing period of the lease under Article III of the
Special Conditions, the Lessor may extend the lease or extend restitution
of the supplies to the Lessor.
8.2 Notification- The Lessee must as a result of the correct initiative,
notify the Lessor of the option chosen no later than 4 months before the
expiration of the contract. A default option before delay- the lease follows
by tacit renewal and in full right under the initial conditions precisely
laid out in Article 8.3. It is able to be interrupted in respect to the
previous quarter month by notification made by the Lessor and by
restitution of the material.
8.3 Extension of the Lease- The rents of the extension are identified as
those of the period closing and under the conditions of article 5/Special
Conditions. It will be therefore established on a monthly basis- it falls to
the Lessee to define with the supplier the following conditions regarding
material; at issue is the period of extension and under reserve of
notification made in the conditions of Article 8.2. The Lessee has the
faculty to restore the equipment according to the modalities of Article 9.
8.4 By default of friendly restitution of equipment by the Lessee, it
suffices to constrain the Lessee by an ordinance rendered by the President of
the Commerce Tribunal or the Grande Instance de Paris under simple request or
by verbal referral.
Article 9 Return of the Equipment
The Lessee must, at the end of the lease, return the equipment to the
Lessor in good condition and complete functioning, with the pieces it
composes in consecutive and normal condition. The costs to be returned at the
end of the lease will be the responsibility of the Lessee, the costs at all
times may not exceed those which resulted from a return of the merchandise to
Paris.
Article 10 Taxes and Costs
All taxes and costs which are able to be justified in line with the rental of
the equipment, will be the sole responsibility of the Lessee. This includes
all costs occasioned by the execution of the lease.
Article 11 Selection of Legal Residence-Jurisdiction
To execute the present contract, the parties may make their current seat/
headquarters their legal residence. As other litigation will be given in lieu
of execution or interpretation of what the obligations resulting from the
present will be, made known at the Lessor's discretion to the Paris
Tribunals otherwise known as the Competance of the Tribunals Registered
Office of the Lessee.
Special Conditions
I Value of the Equipment
The value of the equipment under the present contract is 13.500.000 F HT,
price reached by a common agreement between the Lessor and Lessee in July
of 1995.
II Introduction
Date of Effect of Lease Location Rented
July 1, 1995 Twinsys Dataguard
Tour Mirabeau
39 Quai Andre Citroen
75015 Paris
III Duration of the Lease 36 months
By a common agreement between the parties, the date of effect of the lease is
fixed at July 1995. The equipment is included and already delivered, placed
in service and accepted in the state in which they were found, used regularly
by the Lessee who prohibits all returns at which time the title will be
transferred back to the Lessor.
IV Rentals
The rentals of the lease are payable monthly on standing terms by automatic
withdrawal defined under Article 1 of the General Terms figuring under
section 1:
- - The grand total (rentals) is 14.679.386 F HT and is broken down as follows:
- - 1 monthly rental limited to falling due 01.07.95 with one increase to
423.106 F HT
- - 1 monthly rental end payable on 01.08.95 with one increase to 3.923.106 F
HT
- - Seven monthly rents maturing, the first of which is due 01.09.95 and the
following dates; 01.10.95, 01.11.95,.01.12.95,.01.03.95
- - 27 monthly payments ending with each falling due with an increase to
273.016 the first of which is payable 01.04.96 and the last .01.06.98
The raises mentioned are closed and final for one price in effect at the
location from July of 95. They will be increased by TVA at a rate in force so
that all rights, costs, fixed taxes existing come directly or indirectly
under the title of present contract and the materials leased in the outline.
V Payment of Rents
The payment of rents fall below on the figure of Annex #1
VI Validity of the Proposal of Offer of Lease
The present contract must be returned signed by the Lessee before July 3 1995.
VII Other Proposals
1. The present contract is settled under the reserve of security of the
profit of F.I.P. The contracts in effect between the Lessee and its'
clientele, notably France Telecom. The act of delegation is established
according to a model with three copies of each of the contracts, signed by
the Lessee and accompanying the original correspondence contract delivered by
title pledged.
2. In case of loss by the Lessee of the payment obligations of title of the
present contract, whereby the Lessee has not remedied the situation, after a
period of eight days the Lessor sends a certified letter to the Lessee.
This will include the right of beneficiary of sureties and guarantees already
seen in the act of delegation in the joint annex of the present contract.
3. The present contract annuls and replaces the contract established on July
7, 1995.
Made with 2 copies in Paris, July 12, 1995.
Attachment 2
The monthly rentals of the lease extension are fixed following the conditions
below
<TABLE>
<CAPTION>
Lot Designation Ext of lease Terms
in Francs HT
<S> <C> <C> <C>
1 All Equipment 273.016 By choice
</TABLE>
Section #1
<TABLE>
<CAPTION>
Reference Series# Quantity Designation Rent in Francs
<S> <C> <C> <C> <C>
CPS 8511 LWR 18420286 1 Central Unit 1 X 423.106 plus
CLU 8501 LWR 18490249 1 Water Cooling System 1 X 3.923.106
CSU 8502 LWR 18630166 1 Console System 7 X 423.106
27 X 273.016
</TABLE>
The rents are payable monthly in the terms chosen:
The address created is:
The rules will be effective under the presentation by the Lessor
appropriation domiciles at the bank designated by the Lessee. Authorization
of appropriation corresponds with the judgement of appropriation that will be
signed by the latter at the same time as the rental agreement.
Attached Conditions of Assurance
Important Note-
Under penalty the expiration of the Guarantee of Assurance, the Lessee must,
in less than 48 hours inform the Lessor of sudden loss.
1. Object of Assurance
The assurers grant against all loss or material damage that the losses or
damages will not make object one of the exclusions already seen in Chapter
11, here below, all of the general materials standard or office, so that
their accessories and supports all say that they are owned by CEPME.
2. Exclusions
It is agreed that the following are uniquely excluded of the guarantee:
a. Damages created by foreign or civil war so that the following decisions by
civil or military authorities (destruction,requisition,confiscation)
b. The damages or aggravation of damages of nuclear cause or causes by all
sources of ionic radiation
c.The damages resulting from an intentional fault where the administrators
and/or the legal representatives act individually or collectively with third
parties, so that they, by default execute their actions with the assurances of
the above mandates
d.The damages normally guaranteed by the suppliers, constructors and builders
by virtue of the maintenance contract signed by the Lessee In all cases, if
they decline their responsibility or are insolvent, and if the cause of
breaking is guaranteed under the present contract, the guarantor takes the
loss and exercises himself recourse instead
e. The Damages
- -Due to use whether it be mechanical, heat related, chemical, deterioration
or depreciation normal or progressive, dryness, the presence of coal dust
- -Attachment of cables other than electrical conductors
- -Interchangeable parts mounted on the machines, or, in general, damages to all
parts of the machine necessary for its' function or frequent replacement. In
all cases where damages will be entered under the same breach of destruction
or loss of neighboring parts or other parts in good condition, the guarantee
of acquirement is raised and the worn out piece is excluded
f.The theft or misappropriation of materials
g. The damages of video or electronic tubes save those resulting from a loss
guaranteeing damage to other parts of material
III The Connection of Guarantees & Franchise
The guarantees in the present contract exercise a maximum sum of 60,000,000
per loss with the application of one exemption
- -10% of the mounting of damages in the case where the damages are equal to or
less than 100,000F with a minimum of 4000 F
- -10,000 F of the mounting of damages in the case of damages greater than
100 000F.
If the total cost of the assured value (cf chapter IV) is lowered directly or
indirectly by CEPME exceeding that on site, then the sum of 60 000 000 F is
guaranteed by the Lessee, CEPME must be informed before the last subscription
of an specific insurance for exceptional risk.
IV Assured Value
For each material guaranteed, the value assured is the difference between one
part, the prix of the initial taxes of equipment consented to by the client to
the supplier and the other part is raised by taxes paid on the title and
location after all has been capitalized. That value is then capitalized and
may eventually be increased by a total of monthly rents paid in advance to
AUXIFIP by the clients, who must be reimbursed for loss before the final pay
period.
V Rules of Losses
It is understood that one understands by:
- -Reparation Costs: Cost of Reparation for pieces and their replacement, costs
of mounting and dismounting an costs of transport
- -Partial Damages- A damage where the cost of reparation is less than the
current assured value of the material
- -Total Damages- A damage where the total cost of reparation is equal or
greater than the current assured value of the part
In the case of damages these indemnities will follow:
a. Partial damage- Cost of repair defined below, less than the current
declared value of the item
b. Total damage- Higher than the last assured value of the material
VI Agreements
It is agreed that these assurances renounce all recourse that must be
exercised in the case of material damage caused by third party sub-leases or
users with whom AUXIFIP may sub-let or give in assurance guaranteed materials.
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