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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 0-22190
ELTRAX SYSTEMS, INC.
(Name of issuer as specified in its charter)
MINNESOTA 41-1484525
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
900 Circle 75 Parkway
Suite 1700
Atlanta, GA 30339
(Address of principal executive offices)
770-612-3500
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 .
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein 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-K or any amendment to this
Form 10-K. [ X ]
As of February 29, 2000, 23,940,867 shares of Common Stock of the
registrant were outstanding, and the aggregate market value of the Common Stock
of the registrant as of that date (based upon the last reported sale price of
the Common Stock reported on that date by the Nasdaq National Market), excluding
outstanding shares beneficially owned by directors and officers, was
$305,019,468.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to herein) from the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held May
30, 2000 (the "2000 Proxy Statement").
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PART I
Note Regarding Forward-Looking Statements
Certain statements contained in this Form 10-K under Item 1: "Business,"
Item 7: "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and elsewhere in this Form 10-K or incorporated herein
by reference, that are not statements of historical facts are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "intend," "will" and
similar expressions are examples of words that identify forward-looking
statements. Forward-looking statements include, without limitation, statements
regarding our future financial position, business strategy and expected cost
savings. These forward-looking statements are based on our current beliefs, as
well as assumptions we have made based upon information currently available to
us.
Each forward-looking statement reflects our current view of future events
and is subject to risks, uncertainties and other factors that could cause actual
results to differ materially from any results expressed or implied by our
forward-looking statements. Important factors that could cause actual results
to differ materially from the results expressed or implied by any forward-
looking statements include general national and worldwide economic conditions,
our ability to implement our business plan and manage our growth, the acceptance
and increased use of the Internet and Internet-based business solutions, rapid
technological and regulatory changes in the industry we serve, our uncertain
revenue growth, the ability to identify appropriate business to acquire and
efficiently integrate those acquired businesses, foreign currency fluctuations
and other uncertainties relating to our business in foreign countries,
competition and other factors disclosed in our other filings with the Securities
and Exchange Commission. All subsequent forward-looking statements relating to
the matters described in this document and attributable to us or to persons
acting on our behalf are expressly qualified in their entirety by such factors.
We have no obligation to publicly update or revise these forward-looking
statements to reflect new information, future events, or otherwise, except as
required by applicable federal securities laws, and we caution you not to place
undue reliance on these forward-looking statements.
ITEM 1. BUSINESS
General
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Eltrax Systems, Inc., a Minnesota corporation (herein referred to as we, us
or the Company), is a global provider of outsourced information technology
("IT") solutions. We operate through two separate business units: the
Technology Services Group ("TSG") and the Hospitality Services Group ("HSG").
The TSG provides technology solutions, customer care services and acts as an
application service provider ("ASP"). The HSG provides enterprise information
solutions for the global hospitality industry. We have previously announced
that we are exploring various alternatives to further our strategy of expanding
our penetration of the network, application and ASP markets. We are currently
focusing these efforts on the valuation and possible disposition of certain non-
strategic assets, although there can be no assurance that any disposition will
occur. Our headquarters are located at 900 Circle 75 Parkway, Suite 1700,
Atlanta, GA 30339 and our telephone number is (770) 612-3500. We maintain a
worldwide web address at www.eltrax.com.
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The Company was incorporated in Minnesota on March 20, 1984. Originally,
we were engaged in two businesses: (i) the distribution of high density
magnetic stripe plastic cards to store information used in patient admissions to
health care facilities (the "Health Card Business") and (ii) a digital image
archiving business, specializing in digitizing and archiving X-ray film and
other medical information images (the "Imaging Business").
In 1996 as part of a strategic business re-focus, we acquired our first two
data communication companies and sold the Imaging Business and the Health Card
Business. Also in 1996, we changed our fiscal year-end to a calendar year.
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In 1997, we made five additional acquisitions expanding our geographic
coverage and adding new service offerings in the data communications business.
Also during 1997, we began focusing our efforts on our end user network systems
business, as well as our entry into the network monitoring and management
business. As a consequence, during the first quarter of 1998, we consolidated
certain offices and closed other offices which specialized in the lower margin
distribution of products to reseller customers. This action resulted in the
write-down of certain intangible assets in 1997 and significantly reduced 1998
sales from those activities.
In 1998, we acquired Encore Systems, Inc., Global Systems and Support, Inc.
and Five Star Systems, Inc. (collectively, "Encore"). Encore provides software
and technology services to the hospitality industry, including an industry
leading help desk and installation business.
In 1999, we merged with Sulcus Hospitality Technologies Corp. ("Sulcus").
Sulcus develops, manufactures, markets and installs computerized systems
primarily intended to automate hotel industry property management systems in
addition to the SQUiRREL(TM) point-of-sale system for the restaurant industry.
Also, in 1999, we completed a merger with Windward Technology Group, Inc.
("Windward"). Windward focuses on the application development market, with
added networking and network management services. We accounted for the Sulcus
and Windward mergers as poolings-of-interests and, accordingly, all financial
information has been restated to give effect to the mergers as if they occurred
as of the beginning of the earliest period presented.
Technology Services Group
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The Eltrax Solution
The TSG has developed its product and service offerings based on our
proprietary Plan, Build, Run(SM) methodology. Through this methodology, we offer
clients rapid delivery of comprehensive solutions for the effective deployment
of e-business or other technology-related initiatives. Our Plan, Build, Run
methodology focuses on providing solutions across all of our product and service
offerings, allowing us to offer full-service solutions that maximize our
client's return on technology investment. The Plan, Build, Run methodology is
delivered in a systematic approach designed to fully leverage the technical
expertise of our experienced staff.
Plan
. Comprehensive assessment and needs analysis. We work directly with the
client to define measurable business objectives and develop a strategy to
achieve these objectives.
. Network and application design and specification. We define the scope of
the solution, design the solution based on the derived specifications and
create a prototype that incorporates the elements of the solution.
. Operations optimization and simulation. Once the prototype is completed,
we test the prototype to ensure the optimal functionality of the new
solution.
Build
. Infrastructure and project-based installation management. Once all
testing is complete, we organize and manage the necessary resources for
the implementation and integration phase of the solution.
. Development of custom network and application solutions. Using the
specifications and prototypes developed above we develop the desired
solution.
. Component fulfillment with "best-of-breed" products. If required, we
select the appropriate hardware and software products for effective
solution deployment.
. Implementation and integration of solution into existing IT
infrastructure. Our highly trained network and application specialists
implement and integrate the new solution into the existing IT
infrastructure.
Run
. Comprehensive training. We provide the management and personnel of our
clients with concept-of-operations training concentrating on
understanding newly implemented network systems and applications.
. Hosting and management solutions. As a full-service ASP, we provide
secure remote hosting of applications in order to mitigate the costs
associated with on-site hosting and maintenance.
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. Maintenance and monitoring services. We provide a comprehensive suite of
client support functions, including network and application monitoring
and maintenance, that ensure that our solutions achieve the predetermined
level of service that we are contractually obligated to deliver.
. Help desk support. We provide 24x7 technical support to address all
troubleshooting and maintenance services. Most problem resolutions can be
handled remotely. When they are not handled remotely, the help-desk
support function guarantees that our engineers will be dispatched to the
location of the problem within a prescribed time period, generally two to
eight hours.
Products and Services
Our technology services are utilized by over 3,000 clients. The TSG
consists of three operating units that provide our clients with integrated
solutions: Technology Solutions, Customer Care Solutions and Application Service
Provider. Our Technology Solutions division designs and implements networks,
develops and integrates applications, and manages and maintains daily network
operations. The Customer Care Solutions division services over 2,500 sites and
consists of help desk/applications support and training/installation services.
Our ASP division provides Web-hosted software products. We are rapidly expanding
our product offerings in the ASP segment and intend to market these products to
our existing clients and through third party channels.
Technology Solutions
Comprised of approximately 300 employees operating from 23 locations across
the U.S., the Technology Solutions division provides solutions that enable our
clients to more effectively communicate and manage information. The Technology
Solutions division includes:
. Network Services. We offer a broad range of scalable network solutions.
Through our network services professionals, we provide network and systems
management services focused on designing and implementing reliable and
continuously available management systems for large-scale, highly complex
networks. Our clients may elect to purchase full life-cycle management
services or purchase our services on a turn-key basis. Our Network Services
team offers the following products and services:
<TABLE>
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Services Highlights Features and Benefits
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<S> <C>
Assessment, consulting and design . Network assessment and needs analysis
services . Network design and specification services
. Connectivity management and security
. Network optimization and simulation
. Workflow analysis and staff assessment
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Network implementation, . Infrastructure and project-based installation management
customization and staffing . Software integration using client-specific requirements
services . Multiple vendor access for network component fulfillment
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Support and maintenance services . 24x7 help desk providing unique client tracking and multiple
operating systems servicing
. Flexible maintenance options
. Software subscription and upgrade services
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Training services . Concept-of-operations and equipment training
. Management configuration and system training for administrators
. Operational system management
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</TABLE>
. Application Services. We plan, develop and implement sophisticated software
applications for integrating a client's personnel, business processes and
technology in a distributed environment. We have built an extensive library
of tools called the Solutions Center Technology Suite(TM) that provides a
standardized template for integrating a client's current system or building a
customized solution. Our application services professionals integrate third-
party software with a client's existing computing and networking
infrastructure. Our Application Services team offers clients a broad range of
capabilities, including:
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. Development of custom, Web-based applications;
. Web-enabling and integration of legacy applications;
. Data warehousing and data mining;
. Sales force automation;
. Internet-based CRM;
. e-commerce;
. Supply chain management; and
. Workflow, messaging and collaboration.
. Managed Services. We provide the tools and processes to manage a client's
network and applications. We offer a variety of service options for
continuous network life-cycle management. Our solutions include a full set of
services that help clients design and deploy their own network operating
center systems as well as outsourcing this function by utilizing our NetWATCH
OnLINE(TM) remote service. We have developed prepackaged "toolkits" based on
the integration of custom and third-party software to rapidly deploy network
management systems. We build our services around software and hardware
products from leading vendors including Veritas and Hewlett-Packard.
Customer Care Solutions
Our Customer Care Solutions division helps to simplify support functions of
primarily small- to medium-size companies by offering the following services:
. 24x7 help desk and application support. Our help desk solutions provide 24-
hour, continuous service to over 2,500 sites. We customize our services to
fit the client's needs and requirements and to manage all aspects of the call
resolution process including escalation to third-party service providers if
necessary.
. Training and installation. We provide installation services for both software
and hardware requirements. These services range from central processing unit
replacements to fully integrated installations. We furnish full software
application installation, including custom and "off-the-shelf" software
solutions. We plan, monitor and coordinate every aspect of the installation
process. Additionally, we offer services such as project management,
installation help desk, and centralized training.
Application Service Provider
Our ASP offering is a delivery vehicle for software or other applications
that clients "rent" on a monthly basis instead of incurring a large, one-time
initial investment. Our application hosting operations team provides active
monitoring and application-level support for Internet-based applications on a
24x7 basis, reducing our clients' need for large IT staffs. Our infrastructure
is designed to provide clients with responsiveness, reliability, scalability and
security. We believe we are ideally positioned to market our ASP services to our
existing network services and CRM clients. Additionally, we will deliver our ASP
services through third party channels. Currently, we offer our clients four
hosted applications:
. Managed iCustomer Care Service(TM). Enables a customer service agent to
answer e-mail messages, take calls or join chat sessions in order to increase
communication with the client. In addition, an agent can update a client
profile, log a service request, respond with a problem resolution by e-mail,
update the client with order status and provide a multitude of other client
service functions.
. iMessaging and Collaboration Service(TM). Provides an Internet-based
messaging solution with multiple functionalities, including e-mail messaging,
work group collaboration, document and calendar sharing and meeting
scheduling.
. HRE-Source(TM). Provides workflow solutions combined with the reduced
deployment time frames and lower total cost of ownership of an ASP platform.
The solution, targeted initially at the education industry, automates the
hiring process, from initial contact with applicants to final approval of
hiring.
. InnDemand(TM). InnDemand is a Web-based hotel technology solution for
outsourced reservation and fulfillment services. InnDemand is targeted to
small hotel chains and independent hotel operators.
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Benefits of Our Solutions
Our solutions provide clients with speed of IT implementation and evolution
and experienced IT professionals normally associated with much larger
organizations. Our solutions provide clients with the following benefits:
. Ability to focus on core competencies. Our solutions allow small- and medium-
sized companies to focus on their core business competencies by outsourcing
all or a portion of their IT needs. Many of our clients do not have the
resources to maintain internal personnel with the advanced skills required in
today's IT environment.
. Access to comprehensive IT functions. We provide services across the entire
IT spectrum from consulting to implementation to maintenance. We believe the
option of a single-source for IT outsourcing is especially appealing to our
clients who often lack the time and resources to coordinate a multi-party
effort. Additionally, we provide our clients access to specific, high-level
IT expertise which would normally be handled by an IT generalist.
. Cost-effective alternative to internal IT infrastructure. Our clients often
have limited financial resources dedicated to their Internet and IT
initiatives. Our solution methodology is focused on delivering measurable
value for clients. In connection with our distribution partners, we utilize
economies of scale to offer clients solutions that incorporate products and
services purchased at a discount to retail price. In addition, our ASP
services can reduce or eliminate many of the initial costs of application
software as well as the networking equipment, databases and operating systems
required to run key applications.
. Enhanced reliability for key business applications. Many of our clients wish
to outsource their key business applications. Any service interruption
involving key applications such as e-mail, hosting, customer care and network
administration can be operationally debilitating and costly. Our solutions
offer a guaranteed level of performance, which provides clients with the
reliability they require from their key business applications.
Strategy
Our objective is to become the leading full service provider of outsourced
Internet- and Network-based solutions to small- and medium-sized businesses.
Our strategy for achieving this objective is as follows:
. Expand service offerings. As a total solution provider of outsourced IT
services for small- to medium-sized clients, we intend to continue to expand
our service offerings within all segments of the TSG to capture a larger
percentage of our clients' IT budgets.
. Offer new ASP products. We intend to continue to align ourselves with other
types of application developers and also to continue to develop proprietary
applications where applicable.
. Market our ASP products to our existing client base. We intend to continue to
target our large, existing client base for additional ASP revenue
opportunities.
. Expand strategic alliances. We intend to expand strategic relationships with
various manufacturers of networking hardware, software developers and
vertical industry specialists in order to broaden our product base and create
new distribution channels.
. Focus on vertical markets. We intend to focus on specific vertical markets,
including, but not limited to: (i) communications; (ii) retail; (iii)
education; (iv) manufacturing; and (v) healthcare. These are vertical markets
in which we have significant prior experience deploying IT solutions.
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Clients
The TSG has over 3,000 clients from a diverse group of industries. To date,
we have focused our efforts in the communications, retail, education,
manufacturing and healthcare vertical markets. The majority of our customers
operate in these targeted industry segments and include many well-known
companies. We provide our customers with broad IT solutions and thus may offer
one customer a variety of products and services.
For the fiscal year ended December 31, 1999, no single TSG client accounted
for more than 15% of TSG's annual revenues or 10% of our consolidated revenues.
A representative list of our clients includes:
. Bass Hotels & Resorts . Snapper Power Equipment
. CAIS Internet . NetRail
. St. Joseph University . NewSouth Communications
. HealthSouth . BuildNet
. KMC Telecom . SmithKline Beecham
. Federated Department Stores . Promus Hotels
. NetGen . Comcast
Sales and Marketing
We market our TSG products and services to small- and medium-sized clients
with revenue of $50 million to $1 billion, principally in the communications,
retail, education, manufacturing and healthcare markets. Our sales objective is
to achieve broad market penetration by focusing on market segments which have a
high propensity both to outsource and to deploy complex, mission-critical
software applications and network services. We sell our services directly
through a regional sales force of 69 individuals located in 17 states. In
addition, we receive referrals through an extensive network of business
partners. Our direct sales professionals employ a consultative sales approach
working with a prospective client's senior executives to identify the client's
service requirements.
Our marketing organization is responsible for building brand awareness,
identifying key target markets and developing innovative services to meet the
evolving demands of the marketplace. Another objective of the marketing effort
is to stimulate the demand for services through a broad range of marketing
communications and public relations activities. Primary communication vehicles
include advertising, tradeshows, direct response programs, event sponsorship and
Web sites.
Competition
Competition for our TSG products and services is intense. The TSG competes
primarily with internal IT organizations of actual or potential end-users of our
services. The TSG also competes with systems integrators, hardware and software
suppliers and telecommunications companies. In the market for Internet-enabled
application software and network solutions, we compete on the basis of
performance, price, software functionality, capabilities and service levels. The
market for Internet-related services is extremely competitive. We anticipate
that competition will continue to intensify as the use of the Internet grows.
The tremendous growth and potential market size of the Internet market have
attracted many start-ups, as well as extensions of existing businesses from
different industries.
. Systems Integrators. We compete with national, regional, and local commercial
systems integrators who bundle their services with software and hardware
providers and perform a facilities management outsourcing role for the
customer. These competitors generally have greater name recognition or more
extensive experience than we do. EDS, Andersen Consulting,
PricewaterhouseCoopers and MCI Systemhouse, among others, provide
professional consulting services in the use and integration of software
applications in single project client engagements. Large systems integrators
may establish strategic relationships with software vendors to offer services
similar to ours.
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. Hardware and Software Companies. We compete with hardware and software
companies in providing packaged application solutions, as well as network
infrastructure. In order to build market share, both hardware and software
providers may establish strategic relationships in order to enhance their
service offerings.
. Telecommunications Companies. All of the major telecommunications companies,
including AT&T, MCI WorldCom, and Sprint, offer Internet access services. In
order to address the Internet connectivity requirements of the current
business customers of long distance and local carriers, we believe that there
is a move toward horizontal integration through acquisitions of, joint
ventures with, and purchasing connectivity from, ISPs. Accordingly, the
Company expects that it will experience increased competition from the
traditional telecommunications carriers. Many of these telecommunications
carriers, in addition to their substantially greater network coverage, market
presence, and financial, technical and personnel resources, also have large
existing commercial customer bases. We believe that our local presence, our
strong technical and data oriented sales force, and our branded software
applications are important features distinguishing us from the
telecommunications companies.
. Other Potential Competition. It is possible that new competitors or alliances
may emerge and gain market share. Such competitors could materially affect
our ability to obtain new contracts. Further, competitive pressure could
require us to reduce the price of our products and services, thus affecting
our business, financial condition and results from operations.
Hospitality Services Group
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The HSG designs, manufactures, markets and services enterprise information
products and services for the global hospitality industry. These products and
services consist of application-specific software and hardware systems,
supplemented by training, installation, maintenance and call center support
services. The HSG concentrates on three major areas: restaurant solutions,
lodging solutions and energy management solutions. In addition to our software
enterprise products and services and hardware products, we offer a wide variety
of support services and products for our hotel and restaurant information
systems. We offer training, installation, call center support and maintenance
contracts for all hospitality products.
Products and Services
Restaurant Solutions
Our restaurant solutions consist of hardware and software for point-of-sale
("POS") and operational applications under the SQUiRREL brand name. The SQUiRREL
Restaurant Management System offers complete automation of full-service
restaurant operations--POS, credit card processing, labor cost management, time
and attendance, food and beverage management and data transfer capabilities to
and from other software applications. POS applications include "touch-screen"
ordering systems used by waitstaff and the ability to print guest checks in
combined, split, partial or separate presentation formats. SQUiRREL POS systems
are installed in over 7,000 locations worldwide, currently focusing on the table
service, casual dining, fine dining, hotel food and beverage, club food and
beverage and bar segments of the market. SQUiRREL's "touch-screen" order-entry
technology is installed in full-service restaurants throughout the world.
Lodging Solutions
Our lodging solutions consist of comprehensive software packages for
property management systems ("PMS") under the Medallion(TM), Performer(TM) and
LANmark(R) brand names. Our PMS software provides for reservations, guest
accounting, sales and catering applications, travel agent accounting,
engineering management, and interfaces to central reservations and global
distribution systems. To date, we have installed over 4,000 PMS systems
worldwide in both international hotel chains and independent hotel/resort
properties.
Our Medallion software offers an extensive suite of hotel management
features including reservations, guest services, registration, accounting,
housekeeping, groups, packages, travel agent checks and night audit features. It
also includes a training database. In addition, the Medallion product
interfaces with many of the leading hospitality systems currently in use.
Medallion is the first 100% Microsoft(R) WindowsNT(R)-compliant product in the
industry.
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Our Performer property management system has been used worldwide by over
2,000 clients with UNIX-based systems since 1982.
Our LANmark property management system automates all facets of the
hospitality business. LANmark products can operate independently and will also
operate with an extensive variety of third-party products and applications. To
date, over 1,200 installations on the LANmark system have been completed in over
20 countries.
Energy Management Solutions
Our energy management solutions consist of guestroom energy management and
communication systems under the InnPULSE(R) and SensorStat(R) brand names. Our
Senercomm(TM) group of products makes us a world leader in sales, development
and manufacturing of guestroom energy management and communications systems
using passive infrared occupancy-based technology.
InnPULSE is a total in-room information and management system that benefits
the engineering, food and beverage and housekeeping operations. With InnPULSE,
in-room guest services become an interactive, online communications network,
linking electronic locks, safes, mini-bars, smoke detectors and HVAC systems via
existing cable TV wiring. InnPULSE virtually monitors guestroom operations 24
hours a day, providing online alarms, control functions and operational reports.
SensorStat products replace the existing guestroom thermostat, providing
hotel guests with an enhanced level of digital HVAC comfort control while
automatically reducing energy waste. SensorStat uses state-of-the-art passive
infrared sensing technology to continuously monitor each guestroom for the
presence of guests or staff. When rooms are unoccupied, SensorStat takes control
of the HVAC thermostat and automatically sets the temperature to an energy-
saving level.
Clients
For the fiscal year ended December 31, 1999, no single HSG client accounted
for more than 10% of HSG's annual revenues.
SQUiRREL products are used in over 7,000 dining establishments throughout
the world. SQUiRREL customers include Houlihan's, The Palm, Chi Chi's, Chevy's,
Spago, Wolfgang Puck Cafe, and Lettuce Entertain You. Our lodging solutions are
currently used in over 4,000 hotels worldwide, including Bass Hotels and
Resorts, Hyatt Hotels, Choice Hotels International, Trusthouse Forte, Doubletree
Hotels, Wyndam Hotels and Radisson Hotels.
Our energy management solutions are used primarily by hotels, timeshare
properties, universities, the military and the federal government. Currently,
our energy management solutions are used at approximately 200 sites by leading
worldwide establishments, including Walt Disney World Resorts, Universal Studios
and Hilton Corporation.
Sales and Marketing
We market and sell our hospitality products and services through the
following distribution channels: direct offices, business partners, premier
accounts and our International Division.
. Our direct sales offices, which are located in eight cities throughout
North America, are comprised of approximately 35 salespersons. This
distribution channel focuses on independent restaurants and hotels.
. Premier accounts, which include customers such as large chains with no
geographic boundaries. Relationships with all of our large multi-unit
customers are maintained through this arrangement with nine of our
employees managing these accounts.
. Business partners, which are dealers located throughout North America
who service and sell POS products. Dealers, located in 58 cities
throughout North America, support our sales effort with eight of our
employees managing these accounts.
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. International distribution, which is coordinated through our
international division. Located in 10 cities worldwide, our direct sales
team of 25 employees attracts a broad base of international customers. In
addition, we have relationships with dealers in 16 cities throughout the
world.
We consider our direct and indirect global distribution network a major
strength. The Company, its U.S. based dealers, and international distributors
work closely together in seeking to identify new customers, products, services
and markets, as well as to serve our existing customer base with enhanced
products and services. In addition to marketing our products through our
worldwide sales force, we use the Internet, trade shows, and advertisements in
trade journals to support our efforts.
Competition
The HSG competes with POS full service providers and hardware providers who
market their products in conjunction with independent software vendors. The HSG
also faces competition from PMS vendors. There are worldwide at least 40
competitors that offer some form of sophisticated POS system similar to ours and
over 100 PMS competitors. Competitors in the POS marketplace include full
service providers such as Micros Systems (Restaurant Enterprise Series POS),
Panasonic, Positouch, Infogenesis, Ibertech (Aloha POS), Hospitality Solutions
International, GEAC, NCR (Compris POS), Radiant Systems, Tridex (Progressive
POS), Par Technology and hardware providers such as IBM, NCR, and Javelin, who
market their products in conjunction with independent software vendors. There
are also numerous smaller companies that license their POS-oriented software
with PC-based systems in regional markets.
Many of the over 100 competitors in the PMS market are small companies with
software designed to run on industry standard PCs. There are, however, various
major competitors including Micros Systems (Fidelio), MAI Systems, REZsolutions,
GEAC, Springer-Miller, and property management systems developed and marketed by
major hotel chains for their corporate-owned operations and franchisees.
Trademarks and Service Marks
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The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including
SensorStat(R), InnPulse(R), LANmark(R), Pagelogic(R) and Soft Bypass(R). In
addition, the Company has trademark applications pending for a number of
additional trademarks and service marks, including NetWATCH OnLINE(TM),
iMessaging(TM), HRE-Source(TM), and InnDemand(TM). The Company also holds a
patent on a unique HVAC Control System and Method. The Company considers its
intellectual property rights to be important to its business and actively
defends and enforces them.
Research and Development
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Our research and development expenditures have been focused in the areas of our
POS, PMS and ASP efforts. Research and development expenditures totaled $4.4
million, $4.1 million and $3.1 million during the years ended December 31, 1999,
1998 and 1997, respectively. Of these expenditures, amounts totaling $2.1
million, $1.7 million, and $1.6 million, respectively qualified for
capitalization. For our POS products, our primary research and development
efforts have been to introduce our Microsoft NT compliant POS, with a Java/Linux
workstation platform. In addition, we have added international capability to the
product. For our PMS products, our primary research and development efforts have
been for development of Medallion, our Windows NT compliant PMS, including
adding international features and functionality. For our ASP products, our
research and development efforts have been the development of the PMS for
InnDemand.com, and our HRE-Source offering. We expect to spend approximately
$2.0 million during fiscal year 2000 on research and development in the ASP
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -Liquidity and Capital Resources."
Employees
- ---------
As of December 31, 1999, we employed approximately 810 persons on a full-
time basis. None of our employees are covered by a collective bargaining
agreement and we believe our relationship with our employees is good. Our
ability to successfully offer commercially marketable products and to establish
a market position in view of continuing technological developments will depend
in part upon our ability to attract and retain qualified technical personnel.
Competition for such personnel is intense.
10
<PAGE>
Vendors
- -------
We maintain relationships with a number of suppliers and vendors of
software, hardware and equipment. We believe that alternative sources are
available if current suppliers or vendors are unable to provide adequate
quantities of these or other products at acceptable prices. In our ASP
business, we depend on a few software and telecommunications companies
to supply the key components of the computer and telecommunications equipment
and the telecommunications services we use to provide our ASP services. If any
of the software vendors stop making their products available to us, we would be
harmed. In addition, any disruption in our ability to provide hosting
services could prevent us from maintaining the required standard of service,
which could cause us to incur contractual penalties. While we believe that
alternative sources of software and telecommunications equipment and services
are available, such supply and license arrangements would take time to negotiate
and implement. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Risk Factors - We may not be able to deliver our
services if third parties do not provide us with key components of our
infrastructure."
ITEM 2. DESCRIPTION OF PROPERTY
The Company is headquartered in Atlanta, Georgia, where it currently leases
its principal executive offices. The Company is currently completing the build-
out of leased offices in Atlanta where it will locate its main corporate
offices, ASP business, TSG and Lodging division (the "Atlanta Facility"). The
Atlanta Facility is approximately 45,000 square feet, of which 22,500 square
feet will be used for offices and 22,500 square feet will be used for
operations. The build-out is expected to be complete in April 2000. The lease on
the Atlanta Facility provides for rent of approximately $104,000 per month, plus
a share of operating expenses. Beginning in February 2000, we began paying
monthly rent for the Atlanta Facility of approximately $76,000, which represents
the facility's base rent, less the rent paid by the Company for its current
Lodging division location.
We lease space in a number of other locations in North America and several
foreign countries, including a 14,000 square foot facility in Raleigh, North
Carolina and a 20,000 square foot facility in Reading, Pennsylvania, primarily
for technical operations and warehouse space. Outside of Atlanta, we believe
that our leased facilities are adequate to meet our current needs in the markets
in which we have begun to deploy our services, and that additional facilities
are available to us to meet our expansion needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation with customers,
vendors and suppliers in the ordinary course of business, and a number of such
claims may exist at any given time. All such existing proceedings, taken
together, are not expected to have a material adverse impact on the Company's
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the year ended December 31, 1999.
11
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under
the symbol "ELTX". Prior to February 17, 2000, the Company's common stock was
traded on the Nasdaq Small Cap Market under the symbol "ELTX". The following
table sets forth the quarterly high and low bid prices for the Company's common
stock for the years ended December 31, 1999 and 1998, as reported by Nasdaq.
The prices set forth below do not include adjustments for retail mark-ups,
markdowns or commissions and represent inter-dealer and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Year ended December 31, 1999:
First Quarter................................. $6.125 $3.813
Second Quarter................................ 5.000 3.375
Third Quarter................................. 4.438 3.125
Fourth Quarter................................ 9.500 3.375
Year ended December 31, 1998:
First Quarter................................. $ 7.25 $ 4.88
Second Quarter................................ 10.38 5.72
Third Quarter................................. 8.38 3.75
Fourth Quarter................................ 8.00 3.88
</TABLE>
As of December 31, 1999, there were approximately 3,400 shareholders of
record. The Company has never paid cash dividends on its common stock. The
Company currently intends to retain any earnings for use in its operations and
does not anticipate paying cash dividends in the foreseeable future. In
addition, the Company's current credit facility prohibits the payment of cash
dividends on its common stock.
During fiscal year 1999, the Company issued a total of 1,375,000 shares of
its common stock to ten shareholders of Windward Technology Group, Inc., in
connection with the merger of Windward with and into the Company. The shares of
common stock were issued without registration under the Securities Act in
reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's financial statements and related notes thereto,
in Item 14 hereof, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in Item 7 hereof. The statement of
operations data and the balance sheet data have been derived from the
consolidated financial statements of the Company. The historical results are
not necessarily indicative of future results. All amounts in thousands except
per share data.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1999(b) 1998 (c) 1997 (d) 1996 1995
----------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (a):
Revenue $129,312 $114,744 $103,756 $85,454 $61,949
Income (loss) from Continuing Operations (9,838) (6,483) (13,342) 635 (1,178)
Income (loss) from Continuing Operations per
Common Share - basic and diluted (.41) (.29) (.75) .04 (.09)
Balance Sheet Data:
Total Assets 73,021 69,981 63,697 64,019 53,703
Long-term Obligations 54 3,341 1,408 - -
</TABLE>
12
<PAGE>
(a) Includes the operations of the following companies acquired by the Company
from their respective dates of acquisition: Nordata, Inc. and Rudata, Inc.
(together, "Datatech") (May 17, 1996), Four Corners Technology, Inc. (July
1, 1997), Hi-Tech Connections, Inc. (August 1, 1997), DataComm Associates,
Inc. and Midwest Telecom Associates, Inc. (October 31, 1997) and Encore
(September 1, 1998). The results of Sulcus, Windward, Atlantic Network
Systems, Inc. ("ANS") and EJG Techline Incorporated ("Techline") have been
included for all periods presented. These four companies merged with the
Company on March 26, 1999, March 31, 1999, October 31, 1996 and May 17,
1997, respectively, in transactions accounted for as poolings-of-interests.
On January 31, 1997, the Company acquired certain assets of the MST
Distribution Business ("MST") from MRK Technologies, LTD.
(b) The 1999 loss from operations includes $6.9 million in non-recurring merger-
related transaction and reorganization costs.
(c) The 1998 loss from operations includes $2.3 million in asset impairments and
$2.1 million in income taxes resulting from the recognition of a full
valuation allowance on deferred tax assets of Sulcus.
(d) The 1997 loss from operations includes $5.7 million in asset impairments and
$1.3 million in income taxes resulting from the recognition of a full
valuation allowance on deferred tax assets of Eltrax.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
The Company operates through two separate business units: the TSG and the
HSG. The Company reports financial results on a consolidated basis and by
business unit. Beginning in 1998, the Company began to reposition operations to
areas with higher growth and margin potential. Specifically, the Company
consolidated certain offices and closed other offices that specialized in the
lower margin distribution of products to reseller customers. This decision was
implemented in the first quarter of 1998, which resulted in the write-down of
certain intangible assets in 1997 and significantly reduced 1998 sales. In
addition, in the last two years, the Company has acquired three businesses, and
in 1999 recorded non-recurring merger-related transaction and reorganization
costs totaling $6.9 million. The Company believes such events significantly
affect the comparability of the Company's results of operations from year to
year. You should read the following discussion of our results of operations and
financial condition in conjunction with our consolidated financial statements
and related notes thereto included in Item 14 of this Form 10-K.
Results of Operations
- ---------------------
Fiscal Year 1999 Compared with Fiscal Year 1998
For the year ended December 31, 1999, the Company's net loss totaled $9.8
million, or $.41 per share, compared with net loss of $6.5 million, or $.29 per
share, for 1998. The 1999 results included non-recurring merger-related
transaction and reorganization costs totaling approximately $6.9 million. These
charges consisted primarily of costs related to facilities that will not be
utilized fully in the future, severance for employees terminated, costs related
to the recruitment and relocation of management and administrative personnel to
Atlanta, and legal, accounting and other fees associated with the Windward and
Sulcus mergers. See footnote 4 to the Company's consolidated financial
statements included in Item 14 of this Form 10-K. Excluding these charges, the
net loss for the year ended December 31, 1999 totaled $2.9 million.
Total revenue was $129.3 million in the year ended December 31, 1999,
reflecting a 12.7% increase from 1998. The comparability of revenue was affected
by the inclusion of Encore's operations beginning in September 1998. This
favorable impact was offset by reduced distribution sales, including the effect
of the closure of the Company's Datatech subsidiary and discontinuation of its
distribution operations in the first quarter of 1998. Gross profit increased by
$8.9 million in the year ended December 31, 1999, and was 40.7% percent of
revenue, compared with 38.1% of revenue in 1998. The increase in the gross
profit percentage in the year ended December 31, 1999, was attributable
primarily to the reduction of lower margin products to distribution customers
and an increased higher margin services revenue mix in the TSG.
13
<PAGE>
Total operating expenses for the year ended December 31, 1999, were $54.9
million, excluding $6.9 million of non-recurring merger-related transaction and
reorganization costs, an increase of $9.2 million compared to 1998 excluding
$2.3 million of non-recurring impaired asset charges. The increase was primarily
due to the inclusion of Encore's operations for a full year, investment in our
ASP initiatives, and continued investment in personnel and related costs to fuel
growth in the TSG. Amortization of intangibles during the year ended December
31, 1999, also increased operating expenses by approximately $628,000. As a
percent of revenue, operating expenses were 42.4% during the year ended December
31, 1999 (excluding the non-recurring transaction and reorganization costs), up
from 39.8% in 1998 (excluding the non-recurring impaired asset charge).
Corporate expenses decreased approximately $1.5 million, during the year ended
December 31, 1999, due primarily to a reduction of professional fees incurred by
Sulcus in 1998.
Business Unit Performance
<TABLE>
<CAPTION>
Technology Hospitality
Services Services Consolidated
----------------------------------------------------------------
In Thousands
----------------------------------------------------------------
For the Year Ended
December 31, 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $61,685 $52,605 $67,628 $62,139 $129,312 $114,744
Gross profit 19,976 13,124 32,654 30,608 52,630 43,732
Operating expenses 19,277 12,159 27,161 24,220 46,438 36,379
----------------------------------------------------------------
Income before interest, taxes and amortization (1) 699 965 5,493 6,388 6,192 7,353
Unallocated items
Corporate and administrative expenses 6,166 7,637
Amortization expense (1) 2,278 1,650
Impaired asset charge - 2,270
Reorganization costs 4,632 -
Transaction costs 2,288 -
----------------------
Operating loss (9,172) (4,204)
Interest expense (income), net 642 (1)
----------------------
Pre tax loss (9,814) (4,203)
----------------------
Gross profit percentage 32.4% 24.9% 48.3% 49.3% 40.7% 38.1%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excluding amortization of software which is charged to gross profit
14
<PAGE>
Technology Services Group
Year Ended December 31,
----------------------------
Dollars in thousands 1999 1998 Change
-------------------------------------------------------------
Revenue $61,685 $52,605 17.3%
Cost of Revenue 41,709 39,481 5.6
-------------------
Gross profit 19,976 13,124 52.2
Gross profit percentage 32.4% 24.9%
Operating expenses 19,277 12,159 58.5
-------------------
EBITA $ 699 $ 965 (27.6)
-------------------------------------------------------------
Operating results in the TSG during the year ended December 31, 1999,
reflect the impact of actions taken in the prior year to reposition operations
to areas with higher growth and higher margin potential. Revenues increased
approximately $9.1 million in the year ended December 31, 1999, over 1998,
primarily due to increased growth in the focus on the Company's IT consulting
services, network management and customer care services, and the inclusion of
revenue from the Company's customer care operations for a full year in 1999
compared with only four months in 1998, offset by reduced sales as a result of
the closure of the Company's distribution operations in early 1998. The Company
closed its distribution operations in connection with its repositioning of
operations to areas with higher growth and higher margin potential. The gross
profit percentage increased to 32.4% during the year ended December 31, 1999,
reflecting a change in the mix of sales from lower margin products and services
to higher margin services. An increase in the TSG operating expenses of
approximately $7.1 million resulted primarily from the inclusion of Encore's
customer care operations for a full year, investment in the Company's ASP
initiatives and continued investment in personnel and related costs to fuel
growth in the TSG.
Hospitality Services Group
Year Ended December 31,
-------------------------
Dollars in thousands 1999 1998 Change
-------------------------------------------------------------
Revenue $67,628 $62,139 8.8%
Cost of Revenue 34,974 31,531 10.9
-------------------
Gross profit 32,654 30,608 6.7
Gross profit percentage 48.3% 49.3%
Operating expenses 27,161 24,220 12.1
-------------------
EBIT(1) $ 5,493 $ 6,388 (14.0)
--------------------------------------------------------------
(1) Excluding amortization of software which is charged to gross profit.
For the year ended December 31, 1999, the HSG revenue and gross profit
increased $5.5 million and $2.0 million, respectively, compared to 1998. The
comparability was affected by the inclusion of Encore's operations (excluding
customer care operations) beginning in September 1998. Additionally, an increase
in revenue from the sales of SQUiRREL point-of-sale systems totaled $3.8 million
for the year ended December 31, 1999, compared to 1998. An increase in the HSG
operating expenses of approximately $2.9 million resulted primarily from the
inclusion of Encore's operations (excluding customer care operations) for a full
year, an increase of approximately $900,000 in the reserves for doubtful
accounts primarily related to Sulcus sales prior to 1999, and a charge to
earnings of $225,000 for prior year Sulcus taxes.
15
<PAGE>
Fiscal Year 1998 Compared with Fiscal Year 1997
For the year ended December 31, 1998, the Company's net loss totaled $6.5
million, or $.29 per share, compared with a net loss of $13.3 million or $.75
per share, for 1997.
Total revenue was $114.7 million in the year ended December 31, 1998,
reflecting a 10.6% increase compared to 1997. This increase is primarily due to
the inclusion of the revenue from the acquisitions made by the Company in both
1998 and 1997. Sales from Senercomm, Inc., acquired in December, 1997 and
Encore, acquired in September 1998, totaled approximately $3.7 million and $4.7
million, respectively, in 1998, while no revenue was recorded by the Company for
these operations in 1997. This favorable impact was offset by reduced
distribution sales from the closure of the Company's Datatech subsidiary in the
first quarter of 1998. Gross profit increased by $9.3 million in the year ended
December 31, 1998, and was 38.1% percent of revenue, compared with 33.2% in
1997. The increases in gross profit percentage in the year ended December 31,
1998, were attributable primarily to the reduction in sales to distribution
customers, and higher margins at the businesses acquired during 1998 and 1997,
which include a higher proportion of service revenue.
Total operating expenses for the year ended December 31 1998, were $45.7
million, excluding $2.3 million of non-recurring impaired asset charges, an
increase of $4.5 million compared to 1997, excluding $5.7 million of non-
recurring goodwill adjustment in 1997. The increase was primarily due to
inclusion of Encore's operations beginning in September 1998. Amortization of
intangibles during the year ended December 31, 1998, also increased operating
expenses by approximately $422,000, compared to 1997. As a percent of revenue,
operating expenses were 39.8% during the year ended December 31, 1998, up from
39.7% in the same period of 1997. Corporate expenses decreased approximately
$738,000 during the year ended December 31, 1998, due primarily to a reduction
of severance costs in 1998, when compared to 1997, that occurred at Sulcus.
Business Unit Performance
<TABLE>
<CAPTION>
Technology Hospitality
Services Services Consolidated
---------------------------------------------------------------------
In Thousands
For the Year Ended ---------------------------------------------------------------------
December 31, 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $52,605 $49,934 $62,139 $53,822 $114,744 $103,756
Gross profit 13,124 8,605 30,608 25,825 43,732 34,430
Operating expenses 12,159 9,860 24,220 21,746 36,379 31,606
---------------------------------------------------------------------
Earnings before interest, taxes and amortization (1) 965 (1,255) 6,388 4,079 7,353 2,824
Unallocated items
Corporate and administrative expenses 7,637 8,375
Amortization expense (1) 1,650 1,228
Impaired asset charges 2,270 5,714
----------------------
Operating loss (4,204) (12,493)
Interest income 1 467
----------------------
Pre tax loss (4,203) (12,026)
----------------------
Gross profit percentage 24.9% 17.2% 49.3% 48.0% 38.1% 33.2%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excluding amortization of software which is charged to gross profit
16
<PAGE>
Technology Services Group
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
Dollars in thousands 1998 1997 Change
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $52,605 $49,934 5.3 %
Cost of revenue 39,481 41,329 (4.5)
----------------------
Gross profit 13,124 8,605 52.5
Gross profit percentage 24.9% 17.2%
Operating expenses 12,159 9,860 23.3
----------------------
EBITA $ 965 $(1,255) -
- ----------------------------------------------------------------------------
</TABLE>
Operating results in the TSG during the year ended December 31, 1998,
reflect the impact of actions taken to reposition operations to areas with
higher growth and margin potential. Revenues increased approximately $2.7
million in the year ended December 31, 1998, compared to 1997, primarily due to
the Company's entry into the network services and managed services markets,
offset by reduced sales from the closure of the Company's distribution
operations in early 1998. The gross profit percentage increased to 24.9% during
the year ended December 31, 1998, reflecting a change in the mix of sales from
lower margin products to higher margin services and products. An increase in TSG
operating expenses of approximately $2.3 million in the year ended December 31,
1998 compared to 1997, was due primarily to the inclusion of Encore's customer
care operations beginning in September 1998.
17
<PAGE>
Hospitality Services Group
Year Ended December 31,
-----------------------------------
Dollars in thousands 1998 1997 Change
- -----------------------------------------------------------------------------
Revenue $62,139 $53,822 15.5%
Cost of revenue 31,531 27,998 12.6
----------------------
Gross profit 30,608 25,824 18.5
Gross profit percentage 49.3% 48.0%
Operating expenses 24,220 21,745 11.4
----------------------
EBITA, after amortization of
acquired software $ 6,388 $ 4,079 56.6
- ----------------------------------------------------------------------------
For the year ended December 31, 1998, the HSG revenue and gross profit
increased $8.3 million and $4.8 million, respectively, compared to 1997. The
comparability was affected by the inclusion of revenue from Encore's operations
beginning in September 1998. Revenue increased 15.5%, to $62.1 million, in the
year ended December 31, 1998, primarily due to the inclusion of revenue from
Encore's operations (excluding customer care operations) for four months in
1998, and an increase in revenue from Lodgistix property management systems for
the year ended December 31, 1998 compared to 1997. An increase in HSG operating
expenses of approximately $2.5 million resulted primarily from the inclusion of
Encore's operations (excluding customer care operations) beginning in September
1998.
Liquidity and Capital Resources
- -------------------------------
Liquidity is the measurement of the Company's ability to have adequate cash
or access to cash at all times in order to meet financial obligations when due
as well as to fund corporate expansion and other activities. Historically, the
Company has met its liquidity requirements through a combination of working
capital provided by operating activities, debt from third party lenders and
issuances of equity securities. The Company's cash and cash equivalents totaled
$613,000 at December 31, 1999, and $7.2 million at December 31, 1998.
Cash used in operations in the year ended December 31, 1999 totaled
approximately $548,000. The Company's use of cash in operations during 1999
resulted primarily from a net loss of $9.8 million and was offset by non-cash
charges for depreciation and amortization of $5.0 million, and cash provided by
operating items of approximately $4.3 million. Cash provided by operations in
1998 totaled approximately $1.8 million.
The Company used cash in investing activities in the year ended December
31, 1999, of approximately $6.4 million, compared to $12.1 million in 1998. Of
such amounts, the Company spent $2.1 million and $1.7 million on capitalized
software costs in 1999 and 1998, respectively, and $4.3 million and $2.1 million
on capital expenditures in 1999, and 1998, respectively. Also, in September
1998 the Company used $8.3 million in cash to purchase Encore.
18
<PAGE>
Cash provided by financing activities totaled approximately $379,000 in the
year ended December 31, 1999, compared to $8.3 million provided by financing
activities in 1998. Borrowings on the Company's credit line during the year
ended December 31, 1999, totaling approximately $2.3 million and proceeds from
the issuance of common stock totaling approximately $382,000, were offset by
payments on long-term debt totaling $2.3 million. Proceeds from the issuance of
common stock and a term loan during 1998 totaled $7.5 million and $4.0 million,
respectively, and were offset by payments on the credit line and long term debt
totaling $2.8 million, and the purchase of treasury stock of approximately
$387,000.
At December 31, 1999, the Company had approximately $7.8 million
outstanding under its former credit facilities with Citizens Bank (the "Old
Facilities"). During fiscal year 1999, the Company was not in compliance with
certain financial and operating covenants contained in the Old Facilities.
Citizens Bank subsequently waived such non-compliance. The Company was never in
default of payments due under the Old Facility. On March 14, 2000, the Company
obtained a $20.0 million asset based revolving credit facility with PNC Bank
(the "New Facility"). The New Facility is secured by substantially all of the
assets of the Company. The availability under the New Facility at the closing
was approximately $14.6 million. In addition, in the first quarter of fiscal
year 2000, William P. O'Reilly, chairman of the Board, made a bridge loan to the
Company in the amount of $2.6 million, the proceeds of which were used for the
Company's short term working capital needs. The Company used $7.5 million of the
proceeds of the New Facility to repay the Old Facility in full, $2.6 million to
repay the bridge loan to Mr. O'Reilly and approximately $900,000 to repay other
third party debt.
For the remainder of 2000, the Company expects that its primary sources of
cash will be from operations, borrowings under the New Facility, and other
sources, including issuances of equity securities and possible sales of assets.
The Company believes it will have sufficient liquidity from these sources to
meet its current financial obligations through 2000. However, the New Facility
contains certain financial covenants and limitations on the Company's ability to
access funds under the New Facility. If the Company is in violation of the New
Facility, or does not have sufficient eligible accounts receivable to support
the level of borrowings it needs, the Company will be unable to draw on the New
Facility. To the extent the Company does not have borrowing availability under
the New Facility, the Company will be required to obtain additional sources of
capital, sell assets, obtain an amendment to the New Facility or otherwise
restructure its outstanding indebtedness. If the Company is unable to obtain
additional capital, sell assets, obtain an amendment to the New Facility or
otherwise restructure its outstanding indebtedness, the Company may not be able
to meet its obligations. In addition, in order to execute the Company's
business strategy, which calls for rapid growth, particularly in the TSG and ASP
business, the Company will require additional financial resources. Such
additional financing may not be available to the Company on favorable terms or
at all. If adequate funds are not available on acceptable terms, the Company
will not be able to execute its business strategy.
Risk Factors
- ------------
You should carefully consider the following risk factors as well as other
information included in this Form 10-K If any of the following risks or
uncertainties actually occur, our business, financial condition and results of
operations could be materially adversely affected. In that event, the trading
price of our common stock could decline.
Our future results of operations are uncertain because we are significantly
refocusing our business.
We believe that the technology services and ASP markets will grow
significantly over the next five years. As a result, we intend to refocus our
business efforts to devote most of our energy and resources to promote and grow
the TSG, especially its ASP division. Additionally we recently engaged a
financial advisor to review our current business strategy and assist us in
exploring various financing and restructuring alternatives to maximize
shareholder value. As part of that review and business strategy development, we
are currently exploring the possibility of disposing of certain non-strategic
assets. Although we can not assure you that we will be able to implement our
new business strategy, if we do implement this strategy, our historical results
of operations, which are the result of our old business strategy, may not give
you an accurate indication of how we will perform in the future.
We may be unable to meet our future working capital requirements.
Our business strategy calls for rapid growth, particularly in the TSG and
in our ASP business. This growth will require investment in personnel and
infrastructure, which in turn will require additional financing. Additional
financing may not be available to us on favorable terms or at all. If adequate
funds are not available on acceptable
19
<PAGE>
terms, we may not be able to continue to expand our business operations. This in
turn could harm our business, results of operations and financial condition. In
addition, if we raise additional funds through the issuance of equity or
convertible debt securities, the percentage of ownership of our existing
stockholders will be reduced and any new securities could have rights,
preferences and privileges senior to those of our common stock. Furthermore, if
we raise capital or acquire businesses by incurring indebtedness, we will become
subject to the risks associated with indebtedness including interest rate
fluctuations and any financial or other covenants that our lender may require.
We have a history of losses and may not be profitable in the future.
We have a history of net losses, including a net loss of $9.8 million for
the 1999 fiscal year and a net loss of $6.5 million for the 1998 fiscal year.
Further, developing our new business strategy and expanding our services will
require significant additional capital and other expenditures. Accordingly, we
may continue to generate net losses in the future, and we may never become
profitable.
Our success depends on the acceptance and increased use of both Internet-based
business software solutions and our new products and services, and we cannot be
sure that this will happen.
Our new business model depends in large part on the adoption of Internet-
based business software solutions by our target market of middle market
commercial users. Our business could suffer dramatically if Internet-based
software solutions are not accepted or are not perceived to be effective. The
market for Internet services, private network management solutions and widely
distributed Internet-enabled packaged application software has only recently
begun to develop, and we believe many of our potential customers are not aware
of the benefit of the outsourced solutions we provide.
The growth of Internet-based business software solutions could also be limited
by:
. Concerns over transaction security and user privacy;
. Inadequate network infrastructure for the Internet; and
. Inconsistent performance of the Internet.
We cannot be certain that commercial customers will accept and employ
Internet-based software solutions or that this market will grow at the rate we
expect. If this market does not grow or grows more slowly than our predictions
our financial condition and results of operations would be adversely affected.
Additionally, many of our products and services are based on new or
improved technologies that have not previously been available. We will have to
overcome the difficulties inherent in the introduction of new or improved
technologies to the market, including our ability to demonstrate to customers
the technical capabilities and the value of these new technologies, and there is
no assurance that we can do so successfully. Lack of market acceptance of our
products and services would adversely affect our business.
We may not be able to deliver our services if third parties do not provide us
with key components of our infrastructure.
We depend on other companies such as software vendors and equipment
manufacturers to supply us with key components of the computer and
telecommunications equipment and the telecommunications services that we use to
provide our application hosting services. A disruption in our ability to
provide hosting services could prevent us from maintaining the required
standards of service, which would cause us to incur contractual penalties, and
would harm our business. Additionally, if any of our significant software
vendors stop making their products available to us or choose to compete against
us, our business would be harmed. Moreover, our success depends upon the
continued popularity of the product offerings of these vendors and on our
ability to establish relationships with new vendors in the future. If we are
unable to obtain packaged applications from these or comparable vendors or, if
our vendors choose to compete with us or the popularity of their products
declines, our ability to customize, implement or host packaged software
applications may be adversely affected.
If we are unable to efficiently integrate and operate recent acquisitions, our
business would be harmed.
20
<PAGE>
During the last few years, we have merged with or acquired numerous
companies. The rapid growth associated with these acquisitions and the
difficulties we have experienced in integrating these businesses has placed, and
will continue to place, a significant strain on our systems, controls and
managerial resources. Our management has expended, and expects to continue to
expend, significant time and effort in integrating the operations of the
businesses we acquire and in expanding our systems and controls to these
acquired businesses. If we do not accomplish these tasks, our results of
operations and financial condition may be materially and adversely affected.
Our growth could be limited if we are unable to attract and retain qualified
personnel.
We believe that our success depends largely on our ability to attract and
retain highly skilled and qualified technical, managerial and marketing
personnel. Competition for this personnel in the information technology
services industry is intense. The inability to hire or retain qualified
personnel could hinder our ability to implement our business strategy and harm
our business.
The markets we serve are highly competitive and many of our competitors have
much greater resources.
Competition in the information technology services industry is intense and
is expected to increase. Many of our competitors have substantially greater
financial, technical and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established relationships
in the industry than we do. Additionally, there are relatively few barriers to
entry in our business that would prevent new competitors from entering our
industry. We may not be able to compete effectively and, if we do not, our
financial condition and results of operations may be materially and adversely
affected.
Our success depends on our ability to keep up with rapid technological
developments and evolving industry standards.
The Internet is characterized by rapidly changing technology, evolving
industry standards, and frequent new service and product announcements,
introductions and enhancements. Our future success will depend on our ability
to adapt our services to rapidly changing technologies and evolving industry
standards, to continually improve the performance, features and reliability of
our services and to insure the continued compatibility of our services with
products, services and architectures offered by various vendors or any
prevailing standard. If we do not keep up with those changes, our business may
suffer.
Intellectual property infringement claims against us, even without merit, could
require us to enter into costly licenses or deprive us of technology we require.
Our industry is technology intensive. As the number of software products
in our target markets increases and the functionality of these products further
overlap, third parties may claim that the technology we develop or license
infringes their proprietary rights. Any infringement claims, even without
merit, could require us to enter into costly royalty or licensing agreements to
avoid service implementation delays. If successful, a claim of product
infringement could deprive us of the technology we require altogether. Any of
these outcomes could harm our business.
Failure to protect our intellectual property rights could have a material
adverse effect on our business.
Our success depends in part upon the protection of our proprietary
application software and hardware products. We have taken steps that we believe
are adequate to establish, protect and enforce our intellectual property rights.
However, we cannot assure you that these efforts to safeguard and maintain our
proprietary rights will be successful.
Furthermore, the laws of many foreign countries in which we do business do
not protect intellectual property rights to the same extent or in the same
manner as do the laws of the United States. Although we have implemented and
will continue to implement protective measures in those countries, these efforts
may also not be successful. Additionally, even if our U.S. and international
efforts are successful, our competitors may independently develop non-infringing
technologies that are substantially similar or superior to our technologies.
21
<PAGE>
We derive a significant portion of our revenue from international operations.
Our international operations represented approximately 18.5% of our total
revenue for the year ended December 31, 1999. The largest portion of this
international revenue is generated in the Pacific Rim Region, which represented
approximately 7.4% of our total revenue for the year ended December 31, 1999.
Ongoing business in international markets subjects us to a wide variety of
risks, including:
. Unexpected changes in legal and regulatory requirements;
. New tariffs or other barriers to certain international markets;
. Difficulties in staffing and managing foreign operations;
. Regional economic factors including recessions, hyperinflation or other
adverse economic developments;
. Longer payment cycles and greater difficulty in collecting accounts
receivable;
. The possibility of expropriation;
. Limitations on the repatriation of investment income, capital stock and
other assets;
. Unstable political environments;
. Potentially adverse tax consequences; and
. Gains and losses on foreign currency conversion.
Legal uncertainties and government regulation could add additional costs to
doing business on the Internet and could limit our clients' use of the Internet.
The laws governing the Internet remain largely unsettled. It may take
years to determine whether and how existing laws, such as those governing
intellectual property, privacy, libel, taxation and the need to qualify to do
business in a particular state, apply to the Internet. This legal uncertainty
could slow the growth in Internet use and decrease the acceptance of the
Internet as a commercial medium, which could harm our business.
In response to this legal uncertainty and the growing use of the Internet,
laws and regulations directly applicable to communications or commerce over the
Internet are becoming more prevalent. The adoption or modification of laws or
regulations relating to the Internet and Internet-based businesses could harm
our business.
Our revenues have historically depended heavily upon the hospitality and tourism
industry and will continue to do so if we are unsuccessful in implementing our
business plan.
Our historic results of operations depended upon demand for our products
and services in the hospitality and tourism industry. Although our new
business model focuses on the TSG, so long as we operate the HSG, we will
continue to rely heavily on those industries for our revenue and any decline in
capital spending by the hospitality and tourism industry, in general, or by our
key customers in those industries, in particular, could have a material adverse
effect on our business, operating results and financial condition.
Our stock price has been volatile.
The stock market in general, and the market for technology and Internet-
related companies in particular, has recently experienced extreme volatility
that has often been unrelated to the operating performance of particular
companies. During the year ended December 31, 1999, the per share closing price
of our common stock on the Nasdaq Stock Market has fluctuated from a low of
$3.125 to a high of $9.50. We believe that the volatility of our stock price
does not necessarily relate to our performance and is broadly consistent with
volatility experienced in our industry. Prices for our common stock is
determined in the marketplace and may be influenced by many factors including
many factors that are beyond our control, such as prevailing market conditions,
changes in earnings estimates by industry research analysts, and general
economic, industry and market conditions. In addition, in order
22
<PAGE>
to respond to competitive developments, we may from time to time make pricing,
service or marketing decisions that could harm our business. Also, our operating
results in one or more future quarters may fall below the expectations of
securities analysts and investors. In either case, the trading price of our
common stock would likely decline.
We have not paid any dividends in the past and do not expect to pay any
dividends in the foreseeable future.
We have never paid dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. We intend to retain any
earnings to finance the development of our business and, consequently, may never
pay cash dividends. Our bank line of credit prohibits the payment of dividends.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the
potential loss arising from adverse changes in market rates and prices, such as
foreign currency exchange and interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company has also not entered into financial instruments to manage and reduce
the impact of changes in foreign currency exchange rates and interest rates.
The Company may enter into such transactions in the future.
Interest Rate Risks
The Company's debt at December 31, 1999, primarily carries interest rates
which vary with the prime rate. Accordingly, any increases in the banks' prime
rate will reduce the Company's earnings. A 1% increase in the prime rate on the
Company's $9.5 million of bank debt at December 31, 1999 would result in an
annual expense increase of approximately $95,000.
Foreign Currency Risks
At December 31, 1999 the Company had foreign currency denominated assets
and liabilities of approximately $10.0 million and $3.4 million, respectively.
ITEM 8. Financial Statements and supplementary data are filed herewith
under Item 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12 and 13 will be included in the
Company's proxy statement for its 2000 annual meeting of shareholders and is
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed herewith as part of this Form 10-K:
(1) A list of the financial statements required to be filed as a part
of this Form 10-K is shown in the "Index to Consolidated Financial Statements
and Financial Statement Schedule" on page F-1.
(2) The financial statement schedule required to be filed as a part
of this Form 10-K is shown in the "Index to Consolidated Financial Statements
and Financial Statement Schedule" on page F-1.
23
<PAGE>
(3) A list of the exhibits required by Item 601 of Regulation S-K to
be filed as a part of this Form 10-K is shown on the "Exhibit Index" filed
herewith.
(b) Reports on Form 8-K
None.
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
The following Consolidated Financial Statements, Financial Statement
Schedule and Independent Accountants' Reports are included herein on the pages
indicated:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998........................... F-4
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997...................................................................... F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999,
1998 and 1997...................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1999
1998 and 1997...................................................................... F-7
Notes to Consolidated Financial Statements for the years ended December 31, 1999
1998 and 1997...................................................................... F-8
Schedule II - Valuation and Qualifying Accounts........................................ F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Eltrax Systems, Inc.:
In our opinion, based on our audits and the report of other auditors as
referred to below, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Eltrax
Systems, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index, presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. The
consolidated financial statements give retroactive effect to the merger of
Sulcus Hospitality Technologies Corp. ("Sulcus") consummated on March 26, 1999
in a transaction accounted for as a pooling of interests, as described in Note 3
to the consolidated financial statements. We did not audit the financial
statements of Sulcus, which reflected total assets of $39,253,000 as of December
31, 1998, and total revenues of $60,393,000 and $53,822,000, respectively, for
each of the two years in the period ended December 31, 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Sulcus, is based solely on the report of the other auditors. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan
February 28, 2000, except
for Note 10, the date
for which is March 14,
2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Sulcus Hospitality Technologies Corp.
We have audited the consolidated balance sheet of Sulcus Hospitality
Technologies Corp. as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1998 (not presented separately
herein). 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 (not
presented separately herein) present fairly, in all material respects, the
financial position of Sulcus Hospitality Technologies, Corp. as of December 31,
1998 and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
We have not audited the consolidated financial statements of Sulcus Hospitality
Technologies Corp. for any period subsequent to December 31, 1998.
Crowe, Chizek and Company LLP
Columbus, Ohio
March 26, 1999
F-3
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 613,294 $ 7,240,130
Accounts receivable, net of allowance for doubtful
accounts of $5,009,000 and $2,914,000 31,643,231 23,216,686
Inventories 5,187,836 5,060,159
Other current assets 3,799,550 4,093,846
------------ ------------
Total current assets 41,243,911 39,610,821
Property and equipment, net of accumulated depreciation and
amortization of $8,157,000 and $6,794,000 6,642,878 3,676,231
Capitalized software, net of accumulated amortization
of $13,908,000 and $12,543,000 8,432,777 7,787,225
Intangibles, net of accumulated amortization of
$7,355,000 and $5,150,000 16,701,367 18,906,237
------------ ------------
Total assets $ 73,020,933 $ 69,980,514
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Line of credit $ 9,468,882 $ 3,998,203
Accounts payable 13,230,052 6,490,857
Accrued compensation 2,939,453 1,326,570
Accrued expenses 6,775,699 5,211,320
Unearned revenue and customer deposits 13,736,496 11,081,890
Current portion of long-term debt 569,587 2,748,836
------------ ------------
Total current liabilities 46,720,169 30,857,676
Long-term debt 54,068 3,340,888
------------ ------------
Total liabilities 46,774,237 34,198,564
Shareholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized;
23,808,415 and 23,834,436 shares issued and outstanding 238,086 238,345
Additional paid-in capital 75,678,836 75,667,193
Treasury stock, at cost, 144,273 shares - (387,221)
Accumulated deficit (49,033,804) (39,195,705)
Accumulated other comprehensive loss (636,422) (540,662)
------------ ------------
Total shareholders' equity 26,246,696 35,781,950
------------ ------------
Total liabilities and shareholders' equity $ 73,020,933 $ 69,980,514
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Technology Services Group $ 61,684,652 $ 52,604,715 $ 49,934,139
Hospitality Services Group 67,627,675 62,139,028 53,822,256
------------ ------------ ------------
Total revenue 129,312,327 114,743,743 103,756,395
Cost of revenue:
Technology Services Group 41,708,579 39,480,766 41,328,951
Hospitality Services Group 34,973,837 31,530,653 27,997,870
------------ ------------ ------------
Total cost of revenue 76,682,416 71,011,419 69,326,821
Gross profit:
Technology Services Group 19,976,073 13,123,949 8,605,188
Hospitality Services Group 32,653,838 30,608,375 25,824,386
------------ ------------ ------------
Gross profit 52,629,911 43,732,324 34,429,574
Operating expenses:
Direct expenses:
Technology Services Group 17,885,190 11,852,597 9,859,921
Hospitality Services Group 26,265,929 22,206,325 20,244,928
------------ ------------ ------------
Total direct expenses 44,151,119 34,058,922 30,104,849
Research and development:
Technology Services Group 1,391,911 306,654 -
Hospitality Services Group 895,121 2,013,615 1,500,563
------------ ------------ ------------
Total research and development 2,287,032 2,320,269 1,500,563
Corporate and administrative 6,165,962 7,637,158 8,375,095
Amortization of intangibles 2,277,242 1,650,034 1,228,020
Impaired asset charges - 2,270,000 5,713,721
Reorganization costs 4,631,900 - -
Transaction costs 2,288,379 - -
------------ ------------ ------------
Total operating expenses 61,801,634 47,936,383 46,922,248
------------ ------------ ------------
Operating loss (9,171,723) (4,204,059) (12,492,674)
Interest income 96,498 554,098 1,172,430
Interest expense (738,392) (552,719) (705,869)
------------ ------------ ------------
Loss before income taxes (9,813,617) (4,202,680) (12,026,113)
Income tax expense 24,482 2,280,770 1,315,970
------------ ------------ ------------
Net loss $ (9,838,099) $ (6,483,450) $(13,342,083)
============ ============ ============
Net loss per common share--basic and diluted $ (0.41) $ (0.29) $ (0.75)
============ ============ ============
Weighted average share outstanding--basic and diluted 23,728,262 22,730,944 17,741,884
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other
--------------------- Paid-in ------------------- Accumulated Comprehensive
Shares Amount Capital Shares Amount Deficit Loss Total
---------- -------- ----------- -------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996 17,046,027 $170,462 $54,050,056 - $ - $(19,111,445) $(109,308) $ 34,999,765
Net loss - - - - - (13,342,083) - (13,342,083)
Change in unrealized
gains on securities
held for sale - - - - - - 9,605 9,605
Foreign currency
translation
adjustment - - - - - - (387,800) (387,800)
------------
Comprehensive loss, net (13,720,278)
Distributions to
shareholders - - - - - (258,727) - (258,727)
Exercise of stock
options 164,711 1,647 487,590 - - - - 489,237
Issuance of stock to
consultants 7,649 76 26,024 - - - - 26,100
Exercise of stock
warrants 135,000 1,350 484,650 - - - - 486,000
Issuance of common
stock for
acquisitions 1,925,768 19,258 7,387,393 - - - - 7,406,651
Private Placement,
net 1,050,000 10,500 3,999,509 - - - - 4,010,009
Retirement of shares
received in
litigation
settlement (100,000) (1,000) (449,000) - - - - (450,000)
---------- -------- ----------- -------- --------- ------------ --------- ------------
BALANCE,
December 31, 1997 20,229,155 $202,293 $65,986,222 - $ - $(32,712,255) $(487,503) 32,988,757
Net loss - - - - - (6,483,450) - (6,483,450)
Change in unrealized
losses on
securities
held for sale - - - - - - (8,750) (8,750)
Foreign currency
translation
adjustment - - - - - - (44,409) (44,409)
------------
Comprehensive loss, net (6,536,609)
Exercise of stock
warrants 1,716,667 17,167 7,357,833 - - - - 7,375,000
Warrants issued in
exchange for
services - - 30,000 - - - - 30,000
Issuance of stock 1,423,614 14,235 158,788 - - - - 173,023
Treasury stock
purchases - - - (144,273) (387,221) - - (387,221)
Encore acquisition 465,000 4,650 2,134,350 - - - - 2,139,000
---------- -------- ----------- -------- --------- ------------ --------- ------------
BALANCE,
December 31, 1998 23,834,436 $238,345 $75,667,193 (144,273) $(387,221) $(39,195,705) $(540,662) 35,781,950
Net loss - - - - - (9,838,099) - (9,838,099)
Foreign currency
translation
adjustment - - - - - - (95,760) (95,760)
------------
Comprehensive loss, net (9,933,859)
Issuance of stock 119,829 1,200 380,305 - - - - 381,505
Retirement of treasury
stock (144,273) (1,443) (385,778) 144,273 387,221 - - -
Warrants issued in
exchange for
services - - 24,000 - - - - 24,000
Payment in lieu of
issuance of
fractional shares (1,577) (16) (6,884) - - - - (6,900)
---------- -------- ----------- -------- --------- ------------ --------- ------------
BALANCE,
December 31, 1999 23,808,415 $238,086 $75,678,836 - $ - $(49,033,804) $(636,422) $ 26,246,696
========== ======== =========== ======== ========= ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net loss $(9,838,099) $ (6,483,450) $(13,342,083)
Adjustments to reconcile net loss to cash (used for)
provided by operations:
Amortization of capitalized software 1,456,927 1,491,528 1,848,829
Amortization of intangibles 2,204,870 1,650,034 1,228,020
Depreciation 1,357,061 1,486,435 1,061,170
Impaired asset charge - 2,270,000 5,713,721
Adjustment to deferred income taxes - 2,100,000 1,315,970
Settlement of lawsuit - - (450,000)
Accrued severance obligations - - 1,538,000
Gain on disposal of product line - - (188,000)
Other (40,185) (16,033) (354,302)
Changes in current operating items:
Accounts receivable, net (8,426,545) (1,629,792) 1,889,005
Inventories (127,677) 2,373,148 (190,037)
Other current assets 294,296 (12,987) (887,357)
Accounts payable 6,739,195 (2,312,336) (4,793,122)
Accrued compensation 1,612,883 52,513 172,879
Accrued expenses 1,564,379 405,000 106,580
Unearned revenue and customer deposits 2,654,606 435,609 (86,816)
----------- ------------ -------------
Net cash (used for) provided by operating activities: (548,289) 1,809,669 (5,417,543)
----------- ------------ -------------
Investing Activities:
Cash paid in connection with acquisitions, net of cash
acquired of $238,000 in 1998 and $457,000 in 1997 - (8,266,021) (2,038,413)
Proceeds from sale of short-term investments - - 12,218,000
Proceeds from disposal of subsidiary, net of costs - - 191,000
Proceeds from sale of building - - 399,000
Software development costs capitalized (2,078,734) (1,741,848) (1,568,000)
Purchases of property and equipment (4,347,453) (2,140,637) (1,468,692)
----------- ------------ -------------
Net cash (used for) provided by investing activities: (6,426,187) (12,148,506) 7,732,895
----------- ------------ -------------
Financing Activities:
Proceeds from term loan - 4,000,000 -
Payments on long-term loan (2,320,115) (788,218) (314,000)
Proceeds (payments) on credit line, net 2,324,725 (2,046,326) (584,010)
Proceeds from issuances of common stock and warrants, net 381,505 7,548,023 5,011,346
Payments issued in lieu of fractional shares (6,900) - -
Purchase of treasury stock - (387,221)
Distributions to shareholders - - (258,727)
----------- ------------ -------------
Net cash provided by financing activities: 379,215 8,326,258 3,854,609
----------- ------------ -------------
Effects of exchange rate changes on cash (31,575) (7,655) (107,498)
(Decrease) increase in cash and cash equivalents (6,626,836) (2,020,234) 6,062,463
----------- ------------ -------------
Cash and Cash Equivalents:
Beginning of period 7,240,130 9,260,364 3,197,901
----------- ------------ -------------
End of period $ 613,294 $ 7,240,130 $ 9,260,364
=========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Eltrax Systems, Inc. (the "Company") is a global provider of outsourced
information technology solutions. The Company operates through two separate
business units: the Technology Services Group ("TSG") and the Hospitality
Services Group ("HSG").
The TSG consists of three operating units that provide clients with
integrated solutions: Technology Solutions, Customer Care Solutions and
Application Services Provider. The Technology Solutions division designs and
implements networks, develops and integrates custom applications and manages and
maintains daily network operations. The Customer Care Solutions division
services over 2,500 sites and consists of help desk/applications support and
training/installation services. The ASP division provides Web-hosted software
products.
The HSG designs, manufactures, markets and services enterprise information
products and services for the global hospitality industry. These products and
services consist of application-specific software and hardware systems,
supplemented by training, installation, maintenance, and call center support
services. The HSG concentrates on three major areas: restaurant solutions,
lodging solutions and energy management solutions. In addition to the HSG's
software enterprise products and services and hardware products, HSG offers a
wide variety of support services and products for its hotel and restaurant
information systems. The HSG offers training, installation, call center support
and maintenance contracts for all hospitality products.
The consolidated financial statements include the accounts of Eltrax
Systems, Inc. and its subsidiaries, including Sulcus Hospitality Technologies
Corp. ("Sulcus") and Windward Technology Group, Inc. ("Windward"), which merged
with the Company on March 26, 1999 and March 31, 1999, respectively (see
Note 3). These transactions were accounted for as poolings-of-interests. Prior
financial statements have been restated to include the results of Sulcus and
Windward for all periods presented.
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net loss or shareholders'
equity.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies - (continued)
Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist primarily
of commercial paper that is recorded at cost, which approximates market.
Inventories
Inventories consist primarily of purchased components and are stated at the
lower of cost or market. Cost is determined by using primarily the first-in,
first-out method.
Property and Equipment
Property and equipment, substantially consisting of furniture and
equipment, are stated at cost. Depreciation is computed using the straight-line
method over estimated useful lives, ranging from two to ten years. Upon
retirement or disposal of furniture and equipment, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is included in
income. Maintenance and repairs are charged to expense as incurred.
Capitalized Software
Software development costs incurred prior to establishing technological
feasibility are charged to operations and included in research and development
costs. Software development costs incurred after establishing technological
feasibility are capitalized. Purchased software has been developed by third
parties to the stage of technological feasibility at the date of acquisition.
Amortization of purchased and capitalized software is provided for when the
product is available for general release to customers. The amortization is
determined as the greater of the amount computed using the remaining estimated
economic life of the product or the ratio that current gross revenues for a
product bear to the total of current and anticipated revenues for that product.
The software products are generally being amortized over three to seven years.
The Company evaluates the carrying value of capitalized software based on
current operating results and forecasts of undiscounted net cash flows expected
from the respective software operating results.
Intangibles
Intangible assets represent the excess of cost over the fair value of net
tangible assets acquired and purchased customer lists. These assets are
generally being amortized on a straight-line basis over estimated useful lives
ranging from three to twenty years. Intangibles are evaluated for potential
impairment of value whenever events or changes in circumstances indicate that
full asset recoverability is questionable. Such evaluations consider current as
well as anticipated operating results measured on the basis of undiscounted cash
flows of the operation relative to the asset.
Intangible assets consist of the following:
Amortization
Period (Years) 1999 1998
-------------- ---------- ----------
Goodwill 10-20 22,056,561 22,056,561
Installed customer base 3 2,000,000 2,000,000
---------- ----------
24,056,561 24,056,561
Less accumulated amortization (7,355,194) (5,150,324)
---------- ----------
16,701,367 18,906,237
========== ==========
F-9
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies - (continued)
Income Taxes
The Company accounts for income taxes under the provisions of the Financial
Accounting Standards Board's Statement No. 109 ("SFAS 109"), "Accounting for
Income Taxes" which requires the use of the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided to reduce tax assets to an
amount more likely than not to be realized.
Income tax expense includes U.S. and international income taxes. Non-U.S.
subsidiaries compute taxes in effect in the various countries. Earnings of
these subsidiaries may also be subject to additional income and withholding
taxes when they are distributed as dividends. Undistributed earnings of non-
U.S. subsidiaries are not material.
Revenue Recognition
The Company recognizes revenue on sales of systems including software and
hardware upon delivery or installation. Revenue for services such as
installation and consulting is recognized as the service is performed. Revenue
from software support and hardware maintenance agreements is recorded as
deferred revenue and recognized ratably over the terms of the agreements.
Included in accounts receivable are accrued revenues for sales and services
performed and unbilled at the end of the year. These unbilled revenues, totaling
approximately $1.8 million at December 31, 1999, are generally billed shortly
after the end of the year.
Foreign Currency Translation
The financial statements of the Company's non-U.S. subsidiaries are
measured in their local currency and then translated into U.S. dollars. All
balance sheet accounts have been translated using the current rate of exchange
at the balance sheet date. Results of operations have been translated using the
average rates prevailing throughout the year. Translation gains or losses
resulting from the changes in the exchange rates are accumulated in a separate
component of shareholders' equity.
Segment Information
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 replaced the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the basis for the Company's reportable segments. SFAS
131 also requires disclosures about products and services, geographic areas, and
major customers.
F-10
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies - (continued)
Fair Value of Financial Instruments
Estimates of fair value are made at a specific point in time, based on
relevant market prices and information about the financial instrument. The
estimated fair values of financial instruments are not necessarily indicative of
the amounts the Company might realize in actual market transactions. The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
- -------------------------
for cash approximates their fair value.
Short and long-term debt: The carrying amount of the Company's borrowings under
- ------------------------
floating rate debt approximates its fair value. Long-term fixed rate debt is
not material.
At December 31, 1999 and 1998, the carrying amounts of all financial instruments
approximate their fair values.
Net Income (Loss) Per Share
The basic net income (loss) per common share is determined by dividing net
income (loss) by the weighted average number of common shares outstanding.
Diluted net income per common share is determined by dividing diluted net income
by the weighted average number of common shares and common stock equivalents
outstanding. Common stock equivalents related to options and warrants have been
excluded from the computation of diluted net income (loss) per common share
because their inclusion would have had an antidilutive effect.
3. Mergers and Acquisitions
Sulcus Hospitality Technologies Corp.
- --------------------------------------
On March 26, 1999, the Company issued 9,275,000 shares of its common stock in
exchange for all of the outstanding common stock of Sulcus. Sulcus is a provider
of proprietary software, point-of-sale systems, energy management products, and
technology services primarily to the hospitality and restaurant industries. The
merger with Sulcus was accounted for as a pooling-of-interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the accounts and operations of Sulcus for all periods prior to the merger.
Windward Technology Group
- -------------------------
On March 31, 1999, the Company issued 1,375,000 shares of its common stock
in exchange for all of the outstanding common stock of Windward. Windward
focuses on the application development service market, with added networking and
network management solutions. The merger with Windward was accounted for as a
pooling-of-interests and, accordingly, the Company's consolidated financial
statements have been restated to include the accounts and operations of Windward
for all periods prior to the merger.
F-11
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
3. Mergers and Acquisitions - (Continued)
Encore Systems, Inc.
- --------------------
Effective September 1, 1998 the Company acquired Encore Systems, Inc.
("Encore"), Global Systems and Support, Inc. ("GSSI"), and Five Star Systems,
Inc. ("Five Star") (collectively "Encore"). Encore provides software and
services primarily to the hospitality industry. The Company paid the
shareholders of Encore cash of $8.5 million as well as 465,000 unregistered
shares of the Company's common stock. The total consideration paid was
approximately $11.0 million including transaction costs. The common stock was
valued at $4.60 a share representing the market value of the shares upon
announcement of the transaction.
Additional cash payments are also due to the Encore shareholders beginning
in 2002 if a specific customer is still using existing software and paying
Encore for ongoing maintenance services on that software. The contingent payment
would be approximately 10% of the maintenance contract amount. As it is not
possible to estimate what, if any, payment would be due, no such amounts have
been recognized. However, if amounts are paid, this additional purchase price
will be recorded as an intangible asset and amortized over the estimated life of
the aforementioned service arrangement.
The transaction was accounted for as a purchase and, accordingly, the
results of Encore are included in the Company's financial statements from
September 1, 1998. Intangibles resulting from the transaction were approximately
$12.3 million, allocated as follows: $4.0 million to software products acquired,
$2.0 million to the installed customer base and workforce with the remainder of
$6.3 million to goodwill.
Senercomm, Inc.
- ---------------
In December 1997, prior to the Company's merger with Sulcus, Sulcus
acquired Senercomm, Inc. ("Senercomm") for approximately $2.2 million. Senercomm
designs, manufactures and sells in-room information systems that are used to
gather guest data and environmentally control the condition maintained within a
hotel room. The purchase price consisted of $500,000 of Sulcus common stock,
$500,000 cash paid at closing, and the balance of approximately $1.2 million
payable in three equal annual installments including interest at the rate of
eight percent. The acquisition was accounted for as a purchase and, accordingly
the results of Senercomm are included in the Company's financial statements from
January 1, 1998. The purchase price was allocated to identifiable assets of
working capital and the remaining balance of $2.0 million to purchased software.
DataComm Associates, Inc. and Midwest Telecom Associates, Inc.
- --------------------------------------------------------------
On October 31, 1997, the Company acquired the outstanding common stock of
DataComm Associates, Inc. ("DataComm") and Midwest Telecom Associates, Inc.
("Telecom") for 500,000 unregistered shares of the Company's common stock.
DataComm provides data networking products and services. These acquisitions
were accounted for as purchases and, accordingly, the results of DataComm and
Telecom are included in the Company's financial statements from November 1,
1997. The total purchase price was approximately $2.2 million (including
transaction costs). The value assigned to the Company's unregistered common
stock issued in the acquisition was 35% below the price at which the Company's
registered shares were then trading. This discount represented management's
estimate of the value of the unregistered shares. The Company recorded goodwill
of approximately $1.3 million in connection with the acquisitions.
F-12
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
3. Mergers and Acquisitions - (Continued)
Hi-Tech Connections, Inc.
- -------------------------
Effective August 1, 1997, the Company acquired the outstanding stock of Hi-
Tech Connections, Inc. ("Hi-Tech") for 169,999 shares of the Company's common
stock (which included 20,000 shares issued to a third party for certain expenses
incurred in the transaction). Hi-Tech provides data networking products and
services. Under the terms of the agreement, 750,000 additional unregistered
shares were issued in March 1998 based on the earnings generated by Hi-Tech
during the six month period ended December 31, 1997. The accompanying financial
statements have reflected the additional shares as if issued at December 31,
1997. The acquisition has been accounted for as a purchase and, accordingly,
the results of Hi-Tech operations are included in the Company's consolidated
financial statements from August 1, 1997. The total purchase price was
approximately $3.2 million (including transaction costs). The value assigned to
the Company's unregistered common stock issued in the acquisition was 35% below
the price at which the Company's registered shares were then trading. This
discount represented management's estimate of the value of the unregistered
shares. The Company recorded goodwill of approximately $3.2 million in
connection with the acquisition.
Four Corners Technology, Inc.
- -----------------------------
On July 1, 1997, the Company acquired the outstanding stock of Four Corners
Technology, Inc. ("Four Corners") for 400,000 unregistered shares of the
Company's common stock. Four Corners provides data networking products and
services. The acquisition has been accounted for as a purchase and,
accordingly, the results of Four Corners' operations are included in the
Company's consolidated financial statements from July 1, 1997. The total
purchase price was approximately $1.9 million (including transaction costs). The
value assigned to the Company's unregistered common stock issued in the
acquisition was 35% below the price at which the Company's registered shares
were then trading. This discount represented management's estimate of the
reduced value of the unregistered shares. The Company recorded goodwill of
approximately $1.6 million in connection with the acquisition.
EJG Techline, Incorporated
- --------------------------
On May 14, 1997, the Company issued 230,000 unregistered shares of its
common stock in exchange for all of the outstanding common stock of EJG
Techline, Incorporated ("Techline"). Techline provides data networking products
and services. The merger with Techline was accounted for as a pooling-of-
interests and, accordingly, the Company's consolidated financial statements have
been restated to include the accounts and operations of Techline for all periods
prior to the merger and to eliminate intercompany sales prior to the merger.
MST Distribution
- ----------------
On January 31, 1997, Atlantic Network Systems, Inc., a wholly-owned
subsidiary of the Company acquired certain assets of MST Distribution ("MST").
The purchase price, including transaction costs, was approximately $2.0 million.
The acquisition was accounted for as a purchase and the Company recorded $1.4
million of goodwill in connection with the acquisition. Goodwill of
approximately $1.3 million was written off in the fourth quarter of 1997 due to
the Company's decision to focus on end user customers and to eliminate sales to
the majority of the MST customer base.
F-13
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
3. Mergers and Acquisitions - (Continued)
Datatech
- --------
The Company purchased Datatech in 1996. As a result of events, which
occurred at Datatech in 1997, the Company determined that there was a permanent
impairment in the fair value of the goodwill recorded in connection with the
purchase and wrote-off the remaining balance of the Datatech goodwill,
approximately $4.4 million. The Company decided to change its focus from the
remaining Datatech customer base and close the Datatech facility in early 1998.
The following table summarizes the combined and separate unaudited results of
the Company, Sulcus and Windward for the period beginning on January 1, 1999,
and ending on the dates of the poolings of Sulcus and Windward.
<TABLE>
<CAPTION>
----------------------------------------------------------------
Eltrax Sulcus Windward Total
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $13,216,449 $14,855,124 $1,617,698 $29,689,271
Net loss $(5,800,557) $ (161,057) $ (149,600) $(6,111,214)
</TABLE>
The following table summarizes the combined and separate results of the Company,
Sulcus and Windward for the years ended December 31, 1998 and 1997. The 1998
and 1997 results included in the statements of operations have been restated to
include the results of Sulcus and Windward.
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Revenue:
Eltrax, as previously reported $ 50,662,787 $ 49,934,139
Sulcus 60,392,989 53,822,256
Windward 3,687,967 --
------------ ------------
Total revenue $114,743,743 $103,756,395
============ ============
</TABLE>
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------------------
1998 1997
---------------------------------------
<S> <C> <C>
Net income (loss):
Eltrax, as previously reported $(2,522,349) $(11,332,343)
Sulcus (4,190,750) (2,009,740)
Windward 229,649 --
----------- -------------
Total net loss $(6,483,450) $(13,342,083)
=========== =============
</TABLE>
F-14
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
4. Reorganization Costs
In connection with the Company's mergers with Sulcus and Windward, and the
relocation of Company headquarters to Atlanta, the Company has recorded
significant reorganization costs in 1999. These charges were based upon
Management's plans established in the first quarter of 1999, and completed by
December 31, 1999, and consist of the following items:
Reorganization Amount Accrued at
Costs December 31, 1999
-------------- -----------------
Severance and related costs $1,846,000 $ -
Facility costs 1,138,000 305,000
Recruiting and relocation 462,000 -
Program closure costs 716,000 -
Other 469,900 107,000
---------- --------
$4,631,900 $412,000
========== ========
The severance and related costs are attributable to approximately 37
employees who have been terminated by the Company. These costs include
approximately $722,000 paid by Sulcus to a former executive of Sulcus to settle
obligations under an employment agreement.
The facility costs represent the costs for leased facilities that will not
be utilized for their full terms. The leases include the former Sulcus corporate
headquarters and a portion of the Sulcus office used for research and
development activities.
The recruiting and relocation costs relate to the relocation of the
Company's headquarters to Atlanta and organizational changes resulting from the
mergers.
The Company also determined during the first quarter to discontinue
development of certain products, including the Legacy products previously being
developed at Sulcus. Program closing costs include the write-off of $167,000 in
previously capitalized software costs and a $350,000 settlement of a royalty
claim related to the discontinued Sulcus Legacy products.
Included in other costs is the write-down of assets affected by the
Company's change in product focus as a result of the reorganization.
5. Shareholders' Equity
Preferred Stock
The Company originally authorized 1,000,000 shares of Preferred Stock,
30,000 of which were designated as Series A convertible Preferred Stock (the
"Preferred" Stock). All 30,000 shares of the Preferred Stock have been
converted into 300,000 shares of the Company's common stock. There were no
outstanding shares of the Preferred Stock at December 31, 1999 and 1998.
Currently, there are 970,000 shares of undesignated Preferred Stock which are
authorized but unissued.
F-15
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
5. Shareholders' Equity - (continued)
Litigation Settlement
During the fourth quarter of 1997, the Company settled certain litigation
with the prior owners of Datatech. The settlement resulted in a payment of
$20,000 and 100,000 shares of the Company's Common Stock to the Company. These
shares have been reflected as retired in the accompanying financial statements.
The total payment, valued at $470,000, represented the reimbursement by the
prior owners of certain selling, general and administrative expenses.
Stock Warrants
In connection with various financing and acquisition transactions, and
related services provided to the Company, the Company has issued warrants to
purchase the Company's Common Stock. A summary of warrants outstanding at
December 31, 1999, is as follows:
Number Exercise
Year Issued of Warrants Price Expiration
- --------------------------------- ----------- ------------ ------------
Nine months ended
December 31, 1996 275,000 $5.25-$6.00 October 2006
Year ended December 31, 1997 265,000 $5.00-$6.00 January 2007
-------
Total warrants outstanding 540,000
=======
The warrants are vested as of December 31, 1999, except for 172,500
warrants which will vest upon the attainment of certain common stock prices and
the continuance of services provided.
During 1997 100,000 of the warrants issued during the nine-month period
ending December 31, 1996 were re-priced from $6.00 to $5.25.
In 1998, warrants for 1,716,667 shares were exercised, including 1,050,000
shares related to a Private Placement. The proceeds in 1998 from warrant
exercises were $7.4 million. Warrants for 135,000 shares were exercised in 1997
resulting in proceeds to the Company of $486,000.
F-16
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
6. Stock Based Compensation Plan
The Company grants stock options under a stock-based incentive compensation
plan (the "Plan"). The Company applies APB Opinion 25 and related
Interpretations in accounting for the Plan. In 1995, the FASB issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which,
if fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of the Plan. Adoption of the cost recognition provisions of
SFAS 123 is optional and the Company has decided not to elect these provisions
of SFAS 123. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are
presented below.
Under the Plan, the Company is authorized to issue shares of Common Stock
pursuant to "Awards" granted in various forms, including incentive stock options
(intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended), non-qualified stock options, and other similar stock-based Awards. The
Company granted stock options in 1999 under the Plan in the form of incentive
stock options.
Stock Options
The Company granted stock options in 1999 to employees. The stock options
granted in 1999 have contractual terms of 10 years. The majority of options
granted to the employees have an exercise price equal to the fair market value
of the stock at grant date. The majority of options granted in 1999 vest
one-fourth each year, beginning on the date of grant.
A summary of the status of the Company's stock options granted to employees
as of December 31, 1999, December 31, 1998, and December 31, 1997 and the
changes during the year ended on these dates is presented below:
Employee Stock Options
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Number of Weighted Number of Weighted Number of Weighted
Shares of Average Shares of Average Shares of Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year 3,356,637 $ 4.17 2,533,046 $ 4.04 1,555,066 $ 4.27
Granted 1,834,500 4.00 1,588,953 4.54 2,436,228 4.50
Exercised 116,268 3.24 14,232 3.09 139,609 3.26
Forfeited 1,010,910 4.39 751,130 4.61 1,318,639 5.94
Expired 5,752 17.39 0 - 0 -
Outstanding at end of year 4,058,207 3.07 3,356,637 4.17 2,533,046 4.04
Exercisable at end of year 2,314,801 3.43 2,148,559 4.17 1,464,747 3.93
Weighted-average fair value of all
options granted 2.47 3.14 2.76
</TABLE>
F-17
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
6. Stock Based Compensation Plan - (continued)
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
Assumption 1999 1998 1997
Expected Term 5.00 5.00 1.00 to 5.00
Expected Volatility 69.16% 30% - 60% 30% - 60%
Expected Dividend Yield 0.00% 0.00% 0.00%
Risk-Free Interest Rate 5.53% 5.3% to 6.0% 6.0%
The following table summarizes information about employee stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------- ---------------------------
Range of Number Wgtd. Avg. Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Exercise Remaining Exercisable Exercise
Prices at 12/31/99 Price Contr. Life at 12/31/99 Price
- -------------- ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$0.38 to 3.07 721,996 $1.99 6.37 561,858 $1.69
3.19 to 3.86 1,044,746 3.69 9.07 276,041 3.71
3.88 to 4.44 1,020,134 4.07 9.18 358,247 4.12
4.50 to 7.68 1,271,331 5.50 7.83 1,118,655 5.46
- -------------- --------- ----- ---- --------- -----
$0.31 to $7.68 4,058,207 $4.05 8.23 2,314,801 $4.13
</TABLE>
F-18
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
6. Stock Based Compensation Plan - (continued)
Had the Company used the fair value-based method of accounting for its
stock option and incentive plans beginning on April 1, 1996 and charged
compensation cost against income, over the vesting period, based on the fair
value of options at the date of grant, the net loss and net loss per common
share for the years ending December 31, 1999, 1998 and 1997, would have been
increased to the following pro forma amounts:
Years Ended December 31,
------------------------------------------
1999 1998 1997
------------------------------------------
Net Loss
As reported $ (9,838,000) $(6,483,000) $(13,342,000)
Pro forma (11,139,000) (9,389,000) (17,095,000)
Net Loss per Common Share
As reported $ (0.41) $ (0.29) $ (0.75)
Pro forma (0.47) (0.41) (0.96)
7. Leases
As Lessor
The Company has a sales-type lease program with a finance company whereby
it receives 100% of the discounted minimum lease payments at inception of the
lease, assigns the lease payments to the finance company, grants the finance
company a security interest in the leased equipment and accepts certain recourse
liability in event of default by the lessee. The Company retains ownership in
the residual value of the leased property and has recorded a reserve for the
estimated liability under the recourse agreement. The following table sets
forth net investment in these financed sales-type leases:
In thousands
December 31, 1999 1998
- ------------------------------ ------ ------
Estimated residual value of
Leased property $1,783 $1,820
Unearned income (216) (245)
------ ------
Net investment in financed
Sales-type leases $1,567 $1,575
====== ======
F-19
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
7. Leases - (continued)
As Lessor - (continued)
At December 31, 1999, the Company has accrued $478,000 representing
estimated amounts contingently payable related to sales-type leases financed
under this agreement. Since the inception of the program in 1995, actual losses
from recourse provisions have been $1.1 million. The amount of lease payments
assigned and the contingent liability under the recourse agreements are
approximately $8.7 million and $1.6 million, respectively, at December 31, 1998.
As Lessee
The Company leases office space and certain equipment under operating
leases which expire at various dates through 2012 with some leases containing
options for renewal. Rent expense under these leases was $2.6 million, $2.3
million and $2.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
As of December 31, 1999, approximate future commitments under operating leases
in excess of one year are as follows:
2000 $ 3,040,000
2001 2,694,000
2002 2,149,000
2003 1,910,000
2004 1,804,000
thereafter 8,020,000
-----------
Total $19,617,000
===========
8. Income Taxes
The significant components of income taxes are as follows:
Years Ended December 31,
------------------------------------
1999 1998 1997
------------------------------------
Income Taxes
Currently Payable $24,485 $ 179,770 $ -
Deferred - 2,101,000 1,315,970
------- ---------- ----------
Income Tax Expense $24,485 $2,280,770 $1,315,970
======= ========== ==========
A reconciliation of the statutory U.S. federal income tax rate to the
Company's effective tax was as follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
--------------------------------
Statutory U.S. rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal benefit (3.4) (4.0) (4.0)
Non-deductible goodwill 5.5 7.7 18.0
Non-deductible merger costs 5.4 - 0.1
Effect of valuation allowance 26.8 75.7 30.8
---- ---- -----
0.3% 45.4% 10.9%
==== ==== =====
F-20
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
8. Income Taxes - (continued)
Deferred income taxes are recognized to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets are as follows:
December 31,
1999 1998
----------- -----------
Deferred tax assets and
(liabilities):
Net operating loss
carryforwards $12,809,000 $11,644,000
Capital loss
carryforwards 269,000 206,000
Research and development
credits 1,248,000 1,232,000
Unearned revenue 1,092,000 977,000
Reserves 2,347,000 1,425,000
Compensation accruals 881,000 1,398,000
Cash to accrual adjustments - (121,000)
Capitalized software costs (1,521,000) (1,521,000)
Valuation allowance (17,125,000) (15,240,000)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
The valuation allowance for deferred tax assets as of December 31, 1999,
was approximately $17,125,000. The change in the total valuation allowance for
1999 and 1998 resulted primarily from increases in the above described temporary
differences on which a valuation allowance was provided.
At December 31, 1999, the Company had net operating loss ("NOL") carry-
forwards of approximately $33.7 million, a portion of which are subject to
certain limitations under the Internal Revenue Code Section 382, and other
business tax credits of approximately $1.2 million. If not utilized, the NOL's
will begin expiring in years 2001 through 2019.
9. Impaired Asset Charges
During 1998, the Company recorded a $2.3 million charge for impaired assets
consisting of the write-offs of $1.9 million for previously capitalized software
development costs and $342,000 for certain goodwill. During 1997, the Company
recorded a $5.7 million charge for impaired assets consisting of i) the write-
off of goodwill of approximately $1.3 million due to the Company's decision to
eliminate sales to the majority of the MST customer base, and ii) the write-off
of goodwill of approximately $4.4 million due to the Company's decision to close
the Datatech facility in early 1998.
F-21
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
10. Financing Arrangements
On March 14, 2000, the Company entered into a $20,000,000 revolving credit
agreement (the "Credit Agreement") with PNC Bank, National Association (the
"Bank"), and then took advances under the Credit Agreement to repay its existing
lines of credit and certain term notes.
The Credit Agreement is collateralized by substantially all of the
Company's assets. At the Company's option, advances under the Credit Agreement
may be made as either Domestic Rate Loans or Eurodollar Rate Loans. Interest on
Domestic Rate Loans is computed at .5% above the Bank's Base Rate, while
interest on Eurodollar Rate Loans are computed at 2.5% above the Eurodollar
Rate. At December 31, 2000, interest rates may change by .25% depending on fixed
charge coverage levels. The Credit Agreement provides for up to $3,000,000 in
letters of credit. Advances are limited by a formula based on eligible
receivables, certain cash balances, outstanding letters of credit and certain
subjective limitations. Interest payments are due monthly, and the Credit
Agreement expires March 2003. The Credit Agreement includes fees of 3% on
outstanding letters of credit and .25% on available borrowings.
The Company has reclassified its December 31, 1999, debt balances in
accordance with the terms of the Credit Agreement. Financing arrangements at
December 31, 1999 and 1998, as reclassified, are as follows:
1999 1998
---------- ----------
Outstanding indebtedness
under Revolving Credit Agreement $9,468,882 $3,998,203
========== ==========
Term loan payable $ - 3,666,667
Notes payable - 1,173,656
Other 623,655 1,249,401
---------- ----------
Total $ 623,655 $6,089,724
Less current portion 569,587 2,748,836
---------- ----------
$ 54,068 $3,340,888
========== ==========
Additional eligible borrowings under the Credit Agreement at December 31,
1999, would have been approximately $3.7 million. Under the terms of the Credit
Agreement, the Company is required to meet increasing quarterly cash flow
requirements, cannot declare dividends or incur additional indebtedness and has
annual capital expenditure limits. At December 31, 1999, the Company was not in
compliance with certain financial and operating covenants on the former line of
credit borrowings that were subsequently refinanced under the Credit Agreement.
11. Savings and Retirement Plan
The Company sponsors a 401(k) savings and retirement plan which is
available to all eligible employees. Under the plan, the Company may make a
discretionary matching contribution. Discretionary matching contributions were
approximately $99,000, $101,000 and $52,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
F-22
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
12. Segment Information
The Company is reporting information for two segments, the Technology
Services Group and the Hospitality Services Group, and includes the effect of
the mergers with Sulcus and Windward in the first quarter of 1999.
Technology Services: The Technology Services Group consists of three
operating units:
. Technology Solutions, which provides strategic assessment,
application and network design, custom application development and
integration, network management, support and maintenance.
. Customer Care, which provides 7X24 help desk support and training
and installation services for the solutions the Company has developed and
implemented.
. Application Services Provider, which provides application outsourcing
and remote delivery of applications including network and application
management.
Hospitality Services: The Hospitality Services Group designs,
manufactures, markets and services enterprise information products and
services for the global hospitality industry.
Management evaluates the business unit performance based on income before
income taxes, intangibles amortization, interest income and expense and
corporate expenses. Inter-segment sales and transfers are not significant. The
accounting policies of the segments are the same as those reported in Note 2.
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
<TABLE>
<CAPTION>
Technology Hospitality
Services Services Total
------------------------------------------
<S> <C> <C> <C>
1999
Revenues $61,684,652 $67,627,675 $129,312,327
Segment profit (loss) 698,972 5,492,788 6,191,760
Total assets 25,988,473 45,497,998 71,486,471
Capital expenditures 2,164,635 3,496,130 5,660,765
Depreciation and software amortization 502,150 2,053,919 2,556,069
1998
Revenues $52,604,715 $62,139,028 $114,743,743
Segment profit (loss) 964,698 6,388,435 7,353,133
Total assets 16,529,350 45,629,276 62,158,626
Capital expenditures 421,965 3,077,240 3,499,205
Depreciation and software amortization 354,246 2,234,501 2,588,747
1997
Revenues $49,934,139 $53,822,256 $103,756,395
Segment profit (loss) (1,254,733) 4,078,895 2,824,162
Total assets 21,113,598 32,597,708 53,711,306
Capital expenditures 453,589 2,159,525 2,613,114
Depreciation and software amortization 134,974 2,426,376 2,561,350
</TABLE>
F-23
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
12. Segment Information - (continued)
The following table reconciles total segment profit to net loss, total
assets, capital expenditures and depreciation and software amortization to the
consolidated financial statements:
<TABLE>
<CAPTION>
Depreciation
Net Total Capital and Software
Loss Assets Expenditures Amortization
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Segments $ 6,191,760 $71,486,471 $5,660,765 $2,556,069
Corporate (6,165,962) 1,534,462 765,422 257,919
Amortization (excluding software) (2,277,242) - - -
Reorganization and transaction costs (6,920,279) - - -
Interest (expense) income, net (641,894) - - -
Income tax expense (24,482) - - -
------------ ----------- ---------- ----------
Total $ (9,838,099) $73,020,933 $6,426,187 $2,813,988
============ =========== ========== ==========
1998
Segments $ 7,353,133 $62,158,626 $3,499,205 $2,588,747
Corporate (7,637,158) 7,821,888 383,280 389,216
Amortization (excluding software) (1,650,034) - - -
Impaired asset charge (2,270,000) - - -
Interest (expense) income, net 1,379 - - -
Income tax expense (2,280,770) - - -
------------ ----------- ---------- ----------
Total $ (6,483,450) $69,980,514 $3,882,485 $2,977,963
============ =========== ========== ==========
1997
Segments $ 2,824,162 $53,711,306 $2,613,114 $2,561,350
Corporate (8,375,095) 9,985,402 423,578 348,649
Amortization (excluding software) (1,228,020) - - -
Goodwill adjustment (5,713,721) - - -
Interest (expense) income, net 466,561 - - -
Income tax expense (1,315,970) - - -
------------ ----------- ---------- ----------
Total $(13,342,083) $63,696,708 $3,036,692 $2,909,999
============ =========== ========== ==========
</TABLE>
F-24
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
12. Segment Information - (continued)
The Company conducts operations world wide through separate geographic area
organizations that represent major markets. The geographic distribution of the
Company's revenues, segment income and total identifiable assets are as follows:
Segment Income
Revenues (Loss) Assets
-------------------------------------------------
1999
Domestic $105,359,534 $6,528,021 $61,469,806
Canada 6,320,407 (261,767) 3,001,020
Pacific Rim 9,621,818 (914,198) 3,778,729
Western Europe 8,010,568 839,704 3,236,916
------------ ---------- -----------
Total $129,312,327 $6,191,760 $71,486,471
============ ========== ===========
1998
Domestic $ 91,455,782 $6,632,300 $51,698,884
Canada 6,039,234 389,786 2,517,779
Pacific Rim 11,273,280 (40,314) 4,639,513
Western Europe 5,975,447 371,361 3,302,450
------------ ---------- -----------
Total $114,743,743 $7,353,133 $62,158,626
============ ========== ===========
1997
Domestic $ 81,225,640 $2,096,948 $43,335,763
Canada 5,776,673 336,907 2,570,188
Pacific Rim 11,688,840 431,248 4,491,748
Western Europe 5,065,242 (40,941) 3,313,607
------------ ---------- -----------
Total $103,756,395 $2,824,162 $53,711,306
============ ========== ===========
Sales between geographic areas and export sales are not material.
Identified assets by geographic area exclude intercompany loans, advances and
investments in affiliates. Intercompany trade receivables have been eliminated.
F-25
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
12. Segment Information - (continued)
The following table reconciles services and products revenue and costs of
revenue to the consolidated statements of operations:
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Technology Services Group:
Services $ 24,256,843 $ 10,315,258 $ --
Products 37,427,809 42,289,457 49,934,139
------------ ------------ ------------
Total Technology Services Group revenue 61,684,652 52,604,715 49,934,139
Hospitality Services Group
Services 25,960,407 23,566,639 20,549,631
Products 41,667,268 38,572,389 33,272,625
------------ ------------ ------------
Total Hospitality Services Group revenue 67,627,675 62,139,028 53,822,256
Total revenue $129,312,327 $114,743,743 $103,756,395
============ ============ ============
Cost of revenue:
Technology Services Group
Services $ 11,339,962 $ 6,409,692 $ --
Products 30,368,617 33,071,074 41,328,951
------------ ------------ ------------
Total Technology Services Group cost of revenue 41,708,579 39,480,766 41,328,951
Hospitality Services Group
Services 11,464,484 9,171,174 8,361,481
Products 23,509,353 22,359,479 19,636,389
------------ ------------ ------------
Total Hospitality Services Group cost of revenue 34,973,837 31,530,653 27,997,870
Total cost of revenue $ 76,682,416 $ 71,011,419 $ 69,326,821
============ ============ ============
</TABLE>
F-26
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
13. Cash Flow Data
Supplemental Cash Flow information is as follows:
<TABLE>
<CAPTION>
For the years Ended December 31,
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Non cash investing and financing
activities:
Common stock consideration for acquisitions:
Encore Group - issuance of 465,000 shares $ 2,139,000
Four Corners - issuance of 400,000 shares $ 1,885,000
Hi-Tech - issuance of 919,999 shares 3,091,965
DataComm - issuance of 488,000 shares 1,883,375
Telecom - issuance of 12,000 shares 46,331
Senercomm - issuance of 105,769 shares 500,000
Issuance of note payable as evidence of
severance liability 1,245,000
Issuance of warrants in exchange for services $ 24,000 30,000
Issuance of stock to consultants and others 4,965 26,000 26,100
Change in unrealized gain (loss) on securities
held for sale (8,750) 9,605
Liabilities assumed in conjunction with business
acquisitions were:
Fair value of assets acquired $14,709,090 $12,519,419
Consideration paid 11,005,013 7,731,832
----------- -----------
Liabilities assumed $ 3,704,077 $ 4,787,587
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $743,035 $ 541,137 $ 673,202
======== =========== ==========
Income taxes paid $463,685 $ 307,703 $ 92,000
======== =========== ==========
</TABLE>
F-27
<PAGE>
ELTRAX SYSTEMS, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Balance at
beginning costs and Allowances end of
Description of period expenses acquired Deductions period
- ----------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1999 $(2,914,000) $(3,568,000) $ -- $1,473,000 $(5,009,000)
1998 (2,888,000) (1,639,000) (150,000) 1,763,000 (2,914,000)
1997 (2,590,000) (1,424,000) (151,000) 1,277,000 (2,888,000)
</TABLE>
F-28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf on March 27, 1999 by the
undersigned, thereunto duly authorized.
ELTRAX SYSTEMS, INC.
By: /s/ Don G. Hallacy
----------------------------------
Don G. Hallacy
President, Chief Executive Officer
and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
- ---- ----- ----
/s/ William P. O'Reilly Chairman of the March 27, 2000
- -------------------------- Board and Director
William P. O'Reilly
/s/ Don G. Hallacy President, Chief Executive March 27, 2000
- -------------------------- Officer and Director
Don G. Hallacy (Principal Executive Officer)
/s/ William Taylor Director March 27, 2000
- --------------------------
William Taylor
/s/ Patrick J. Dirk Director March 27, 2000
- --------------------------
Patrick J. Dirk
Director
- --------------------------
Stephen E. Raville
/s/ James C. Barnard Director March 27, 2000
- --------------------------
James C. Barnard
Director
- --------------------------
Penelope A. Sellers
/s/ William A. Fielder III Chief Financial Officer, Secretary, March 27, 2000
- -------------------------- and Treasurer (Principal Accounting
William A. Fielder III and Financial Officer)
<PAGE>
ELTRAX SYSTEMS, INC.
EXHIBIT INDEX
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Item Item Method of Filing
- ---- ---- ----------------
<TABLE>
<CAPTION>
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit
of May 14, 1996 by and among Eltrax 2.1 to the Company's Current Report
Systems, Inc., Rudata Acquisition on Form 8-K dated June 3, 1996.
Corporation, Nordata Acquisition
Corporation, Rudata, Inc., Nordata, Inc.
and Howard B. and Ruby Lee Norton,
as amended pursuant to that First
Amendment to Agreement and Plan of
Merger dated as of May 17, 1996 by
and among the same parties.
2.2 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit
of October 31, 1996 by and among 2.1 to the Company's Current Report
Eltrax Systems, Inc., ANS Acquisition on Form 8-K dated November 12, 1996.
Corporation, Atlantic Network
Systems, Inc. and Walter C. Lovett,
Douglas L. Roberson and B. Taylor
Koonce.
2.3 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit
of May 14, 1997 by and among 2.1 to the Company's Current Report
Eltrax Systems, Inc., EJG Techline on Form 8-K dated May 14, 1997.
Acquiring Corporation, EJG Techline
Incorporated and Edward J. and
Kathleen M. Gorlitz and Colin E. and
Diane C. Quinn.
2.4 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit
of July 1, 1997 by and among 2.1 to the Company's Current Report
Eltrax Systems, Inc., Four Corners on Form 8-K dated July 1, 1997.
Acquiring Corporation, Four Corners
Technology, Inc. and Robert A. Hughes,
Joel J. Blickenstaff and David Noall.
2.5 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit
of August 15, 1997 by and among 2.1 to the Company's Current Report
Eltrax Systems, Inc., Hi-Tech Acquiring on Form 8-K dated August 15, 1997.
Corporation, Hi-Tech Connections, Inc.
and Edward C. Barrett, Daniel M. Christy,
David R. Hurlbrink, David R. Spatz,
Raymond H. Melcher and Timothy E. Devlin.
2.6 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit
of October 31, 1997 by and among 2.1 to the Company's Current Report
Eltrax Systems, Inc., DataComm Acquiring on Form 8-K dated October 3, 1997.
Corporation, Midwest Acquiring Corporation,
DataComm Associates, Inc., Midwest Telecom
Associates, Inc. and John M. Good, and
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
Harold Madison.
2.7 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit
of August 31, 1998, among Eltrax 2.1 to the Company's Current Report
Systems, Inc., Encore Acquiring Corporation, on Form 8-K dated September 10, 1998.
Encore Systems, Inc., Global Systems
and Support, Inc., Five Star Systems,
Inc., Penelope A. Sellers, and Joseph T. Dyer.
2.8 Agreement and Plan of Merger dated as Incorporated by reference to Exhibit 2.1
of November 11, 1998, by and among to the Company's Registration Statement
Eltrax, Sulcus Hospitality Technologies on Form S-4 dated February 16, 1999
Corp. and Sulcus Acquiring Corporation. (File No. 333-68699).
3.1 Amended and Restated Articles of Incorporated by reference to Exhibit
Incorporation of the Company, as 3.1 to the Company's Registration
amended. Statement on Form S-18 (File No. 33-51456).
3.2 Bylaws of the Company, as amended. Incorporated by reference to Exhibit
3.2 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
September 30, 1996.
4.1 Specimen Form of the Company's Incorporated by reference to Exhibit
Common Stock Certificate. 4.1 to the Company's Registration
Statement on Form S-18 (File No. 33-51456).
4.2 Warrant, dated as of October 31, 1996, Incorporated by reference to Exhibit
to purchase 106,250 shares of Common 10.4 to the Company's Current Report
Stock of the Company granted to on Form 8-K filed November 12, 1996.
Walter C. Lovett.
4.3 Warrant, dated as of October 31, 1996, Incorporated by reference to Exhibit
to purchase 106,250 shares of Common 10.5 to the Company's Current Report
Stock of the Company granted to on Form 8-K filed November 12, 1996.
Douglas L. Roberson.
4.4 Warrant dated as of September 23, 1997 Incorporated by reference to Exhibit
to purchase 240,000 shares of Common 4.5 to the Company's Annual Report
Stock of the Company granted to on Form 10-KSB for the year ended
Morgan Q. Payne. December 31, 1997.
10.1 Form of Incentive Stock Option Incorporated by reference to Exhibit
Agreement. (1) 10.6 to the Company's Registration
Statement on Form S-18 (File No. 33-51456).
10.2 Form of Non-Statutory Option Incorporated by reference to Exhibit
Agreement. (1) 10.7 to the Company's Registration
Statement on Form S-18 (File No. 33-51456).
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
10.3 Form of Non-Employees Director Stock Incorporated by reference to Exhibit
Option Agreement. 10.10 to the Company's Annual Report
on Form 10-KSB for the year ended
March 31, 1993.
10.4 1992 Stock Incentive Plan.(1) Incorporated by reference to Exhibit
10.4 to the Company's Registration
Statement on Form S-18 (File No. 33-51456).
10.5 1995 Stock Incentive Plan.(1) Incorporated by reference to Exhibit
10.12 to the Company's Annual Report
on Form 10-KSB for the year ended
March 31, 1995.
10.6 1997 Stock Incentive Plan.(1) Incorporated by reference to the Company's
Proxy Statement for its 1997
Annual Meeting of Shareholders.
10.7 1998 Stock Incentive Plan.(1) Incorporated by reference to Exhibit
10.27 to the Company's Registration
Statement on Form S-4 (File No. 333-68699).
10.8 Agreement dated as of October 31, Incorporated by reference to Exhibit
1996 by and among the Company, 10.7 to the Company's Current Report
William P. O'Reilly, Clunet R. Lewis, on Form 8-K filed November 12, 1996.
Mack V. Traynor, III and Walter C.
Lovett, Douglas L. Roberson and B.
Taylor Koonce.(1)
10.9 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of May 14, 1997 10.2 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated May 15, 1997.
and Edward J. Gorlitz.(1)
10.10 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of May 14, 1997 10.1 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated May 15, 1997.
and Colin E. Quinn.(1)
10.11 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of July 1, 1997 10.2 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated July 1, 1997.
and Joel J. Blickenstaff.(1)
10.12 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of July 1, 1997 10.1 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated July 1, 1997.
and Robert A. Hughes.(1)
10.13 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of August 15, 1997 10.1 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated August 15, 1997.
and Edward C. Barrett.(1)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.14 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of August 15, 1997 10.1 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated August 15, 1997.
and Daniel M. Christy.(1)
10.15 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of August 15, 1997 10.3 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated August 15, 1997.
and David R. Hurlbrink.(1)
10.16 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of October 31, 1997 10.1 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated October 3, 1997.
and John M. Good.(1)
10.17 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of August 31, 1998 10.1 to the Company's Current Report
by and between Eltrax Systems, Inc. on Form 8-K dated September 10, 1998.
and Penelope A. Sellers.(1)
10.18 Consulting Agreement dated as of Filed herewith electronically
April 1, 1999 by and between the
Company and Montana Corp.(1)
10.19 Consulting Agreement dated as of Filed herewith electronically
April 1, 1999 by and between the
Company and CRL Enterprises.(1)
10.20 Credit Agreement dated Incorporated by reference to Exhibit 10.2
September 11, 1998 between the to the Company's Current Report on Form
Company, it subsidiaries and State 8-K dated September 10, 1998.
Street Bank and Trust Company.
10.21 Asset Purchase Agreement dated as of Incorporated by reference to Exhibit
January 29, 1997 between Atlantic 99.1 to the Company's Current Report
Network Systems, Inc. and MRK on Form 8-K filed February 12, 1997.
Technologies, LTD.
10.22 Real Estate Lease dated June 1, 1996 Incorporated by reference to Exhibit 10.11
between Walt Lovett, Doug and Lisa to the Company's Annual Report on Form
Roberson and Atlantic Network 10-KSB for the nine month transition
Systems, Inc. period ended December 31, 1996.
10.23 Lease Agreement between Burgoe/Wyomissing Incorporated by reference to Exhibit 10.30
Partners and Hi-Tech Connections, Inc. to the Company's Annual Report on Form
dated September 15, 1996. 10-KSB for the year ended December 31, 1997.
10.24 Lease Agreement between JMG Development Incorporated by reference to Exhibit 10.31
Co. Ltd and DataComm Associates, Inc. to the Company's Annual Report on Form
dated December 1, 1996. 10-KSB for the year ended December 31, 1997.
10.25 Lease Agreement between Werner Palmquist Incorporated by reference to Exhibit 10.32
Investments and Four Corners Technology, to the Company's Annual Report on Form
Inc. dated February 21, 1996. 10-KSB for the year ended December 31, 1997.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
10.26 Lease Agreement (as amended) between Incorporated by reference to Exhibit 10.28
900 Corporation and Encore Systems, Inc. to the Company's Registration Statement on
originally dated January 21, 1996. Form S-4 (File No. 333-68699).
10.27 Amended and Restated Preferred Vendor Incorporated by reference to Exhibit 10.29
Arrangement, dated as of May 15, 1992 to the Company's Registration Statement on
between Holiday Hospitality Corporation Form S-4 (File No. 333-68699).
and Encore Systems, Inc.
10.28 Form of Consulting Agreement between Incorporated by reference to Exhibit 10.34
Eltrax and non employee Sulcus directors.(1) to the Company's Registration Statement on
Form S-4 (File No. 333-68699).
10.29 Form of Termination Agreement between Incorporated by reference to Exhibit 10.35
Leon Harris and Sulcus.(1) to the Company's Registration Statement on
Form S-4 (File No. 333-68699).
10.30 Form of Agreement between Leon Harris Incorporated by reference to Exhibit 10.36
and Eltrax.(1) to the Company's Registration Statement on
Form S-4 (File No. 333-68699).
10.31 Employment Agreement dated File herewith electronically.
March 24, 1999 between the Company
and Don G. Hallacy.(1)
10.32 Revolving Credit and Security Agreement Filed herewith electronically.
by and among PNC Bank, National Association,
as Agent and Lender, and Eltrax and certain
of its subsidiaries dated March 14, 2000.
10.33 Limited Guaranty Agreement by and between Filed herewith electronically.
PNC Bank, National Association, as Agent
and Lender, and William P. O'Reilly dated
March 14, 2000.
10.34 Pledge Agreement by and between PNC Bank, Filed herewith electronically.
National Association, as Agent and Lender,
and William P. O'Reilly dated March 14,
2000.
21.1 Subsidiaries of the Registrant. Filed herewith electronically.
23.1 Consent of PricewaterhouseCoopers LLP, Filed herewith electronically.
independent accountants.
23.2 Consent of Crowe, Chizek and Company LLP. Filed herewith electronically.
27.1 Financial Data Schedule. Filed herewith electronically.
</TABLE>
(1) Management contract or compensatory plan or arrangement required to be
identified by Form 10-K Item 14.
5
<PAGE>
EXHIBIT 10.18
O'REILLY CONSULTING AGREEMENT
THIS AGREEMENT is effective as of April 1, 1999, among Eltrax Systems, Inc.
(the "Company"), Montana Corporation (the "Consulting Firm"), and William P.
O'Reilly (the "Consultant"), with reference to the following facts:
A. The Consultant serves as a member of, and as Chairman of, the Board of
Directors of the Company (the "Board");
B. The Consultant is an employee of the Consulting Firm; and
C. The Company wishes to engage the Consultant to perform certain
consulting services in order to benefit from the Consultant's management
experience and abilities, and the Consultant wishes to accept such
engagement, all upon the terms and conditions set forth in this
Agreement.
The Company, the Consulting Firm, and the Consultant agree as follows:
1. Engagement. The Company hereby engages the Consultant to perform various
----------
management duties as may be agreed to from time to time between the Board and
the Consultant. Such duties will include participation in senior management and
assisting the Company in identifying and pursuing possible acquisitions, joint
ventures, marketing agreements and other growth opportunities. The Consultant
agrees to accept such engagement.
2. Duties.
------
a) The Consultant agrees to consult with and to provide services to the Company
that are reasonably requested by the Board, consistent with the Consultant's
expertise and experience and consistent with the Consultant's current
duties. Initially, the Consultant shall serve as the Chief Executive Officer
and Chairman of the Board of the Company.
b) This Agreement and the Consultant's engagement shall not limit the
Consultant from providing services to any other organization or from
engaging in any other activities, as long as such services or activities are
not in conflict with the interests of the Company.
3. Term. The term of this Agreement will commence on April 1, 1999, and will
----
continue for a period of three (3) years, unless earlier terminated in
accordance with Section 4 below. The term of this Agreement will automatically
renew for additional two-year terms unless written notice of election to not
renew is given by either party to the other at least one year before the end of
the term.
4. Termination.
-----------
a) The Company may terminate this Agreement for cause upon written notice to
the Consultant specifying the cause for termination. For purposes of this
Agreement, "cause" will mean (i) dishonesty, fraud, gross misrepresentation,
embezzlement or material and deliberate injury or attempted injury, in each
case related to the Company or its business, (ii) any unlawful or criminal
activity of a serious nature affecting the Company, (iii) any willful breach
of duty, habitual neglect of duty or unreasonable job performance after
written notice and a thirty (30) day period to cure, or (iv) a material
breach of any provision of this Agreement after written notice and a thirty
(30) day period to cure.
1
<PAGE>
b) The Company may terminate this Agreement 90 days following the Consultant's
Total Disability. For purposes of this Agreement, "Total Disability" will
mean such disability that prevents the Consultant from performing his duties
under Section 2 of this Agreement for a continuous period of 90 days.
c) This Agreement will automatically terminate upon the death of the
Consultant.
d) In the event of termination of this Agreement, the obligations of the
Company and the Consultant under Sections 5(b), 6, 7, 9, and 10 of this
Agreement shall survive and continue.
5. Compensation.
------------
a) Annual Consulting Fee. The Company will pay consulting fees to the
----------------------
Consulting Firm at the rate of $250,000 per year, payable monthly in
advance.
b) Expenses. The Company will reimburse the Consulting Firm for reasonable
---------
expenses that the Consulting Firm incurs while performing duties under this
Agreement, provided that such expenses are incurred and properly accounted
for in accordance with the Company's policies.
c) Office and Support. The Company will provide the Consultant with an office
-------------------
and normal support, consistent with current practice.
6. Confidential Information
------------------------
a) Confidential Information means information that is not generally known and
------------------------
that is proprietary to the Company or that the Company is obligated to treat
as proprietary. This information includes, without limitation:
i. trade secret or other proprietary information about the Company and its
products; and
ii. proprietary information concerning any of the Company's past, current, or
future products, and information concerning the Company's research,
development, engineering, purchasing, manufacturing, accounting, marketing,
selling or leasing.
The term "Confidential Information" does not include information, which
becomes available to the public other than as a result of a disclosure by
the Consultant or was within the Consultant's possession prior to its being
furnished to the Consultant by or on behalf of the Company.
b) Nondisclosure. The Consultant will not disclose Confidential Information to
--------------
any person not authorized by the Company to receive it.
c) Use. The Consultant will not make any use of Confidential Information,
----
other than for the benefit of, and on behalf of the Company.
2
<PAGE>
d) Return of Information. When the Consultant's engagement with the Company
---------------------
ends, he will promptly return to the Company all records and other items in
his possession that disclose or describe Confidential Information.
7. Competitive Activities. The Consultant agrees that during the term of this
----------------------
Agreement and for a period of two (2) years after termination of this
Agreement, regardless of the reason for such termination, he will not do any
of the following:
a) directly or indirectly compete with the Company's business, as the Company
has conducted it during the Consultant's engagement, within any state in the
United States or any country in which the Company directly or indirectly
markets its products or services;
b) solicit or encourage any Company customer or potential customer to cease to
do business with or to not do business with the Company; or
c) employ or attempt to employ any of the Company's employees on behalf of any
other entity.
8. No Adequate Remedy. The Consultant understands that if he fails to fulfill
------------------
his obligations under this Agreement, the damages to the Company would be
very difficult to determine. Therefore, in addition to any other rights or
remedies available to the Company at law, in equity or by statute, the
Consultant hereby consents to the specific enforcement by the Company of
Sections 6 and 7 of this Agreement through an injunction or restraining
order issued by an appropriate court.
9. Indemnification & Directors and Officers Liability Insurance.
------------------------------------------------------------
a) The Consultant and the Consulting Firm will at all times be entitled to
indemnification from the Company in accordance with Article V of the Amended
and Restated Bylaws of the Company as in effect on the date hereof. The
Consultant and the Consulting Firm will be deemed to be an "Indemnified
Person" as defined therein for all purposes, and the Consultant's and the
Consulting Firm's rights thereunder will not be adversely affected by any
subsequent amendment thereof.
b) The Company will maintain in full force and effect one or more policies of
directors and officers liability insurance providing for such coverage (in
amounts not less than present amounts) as may be determined from time to
time by the Board.
10. Miscellaneous.
-------------
a) Successors and Assigns. Either party without the other party's prior
-----------------------
written consent may not assign this Agreement.
b) Modification. This Agreement may be modified or amended only in writing
-------------
signed by each of the parties hereto.
c) Governing Law. The laws of the State of Michigan will govern the validity,
--------------
construction, and performance of this Agreement, without regard to the
conflicts of law provisions of any jurisdictions.
3
<PAGE>
d) Arbitration. All disputes under this Agreement shall be submitted to
------------
binding arbitration by the AAA in Southfield, Michigan, and shall be
governed by the AAA commercial arbitration rules. Judgement may be entered
in a court of competent jurisdiction in Michigan, enforcing any arbitration
award.
e) Notices. All notices to the Consultant required by this Agreement will be
--------
either hand delivered or sent by fax to a location where the Consultant is
known to reside.
ELTRAX SYSTEMS, INC.
/s/ Nicholas J. Pyett
- ------------------------------
By: Nicholas J. Pyett,
Chief Financial Officer
Montana Corporation
/s/ William P. O'Reilly
- ------------------------------
By: William P. O'Reilly
President
CONSULTANT
/s/ William P. O'Reilly
- ------------------------------
William P. O'Reilly
4
<PAGE>
EXHIBIT 10.19
LEWIS CONSULTING AGREEMENT
THIS AGREEMENT is effective as of April 1, 1999, among Eltrax Systems, Inc.
(the "Company"), CRL Enterprises, Inc. (the "Consulting Firm"), and Clunet R.
Lewis (the "Consultant"), with reference to the following facts:
A. The Consultant serves as a member of the Board of Directors of the
Company (the "Board");
B. The Consultant is an employee of the Consulting Firm; and
C. The Company wishes to engage the Consultant to perform certain
consulting services in order to benefit from the Consultant's
management experience and abilities, and the Consultant wishes to
accept such engagement, all upon the terms and conditions set forth in
this Agreement.
The Company, the Consultant Firm, and the Consultant agree as follows:
1. Engagement. The Company hereby engages the Consultant to perform various
----------
management duties as may be agreed to from time to time between the Board and
the Consultant. Such duties will include participation in senior management and
assisting the Company in identifying and pursuing possible acquisitions, joint
ventures, marketing agreements and other growth opportunities. The Consultant
agrees to accept such engagement.
2. Duties.
------
a) The Consultant agrees to consult with and to provide services to
the Company that are reasonable be requested by the Board, consistent
with the Consultant's expertise and experience and consistent with the
Consultant's current duties. Initially, the Consultant shall serve as
the Secretary, General Counsel, and a member of the Board of the
Company.
b) This Agreement and the Consultant's engagement shall not limit the
Consultant from providing services to any other organization or from
engaging in any other activities, as long as such services or
activities are not in conflict with the interests of the Company.
3. Term. The term of this Agreement will commence on April 1, 1999, and will
----
continue for a period of three (3) years, unless earlier terminated in
accordance with Section 4 below. The term of this Agreement will automatically
renew for additional two-year terms unless written notice of election to not
renew is given by either party to the other at least one year before the end of
the term.
4. Termination.
-----------
a) The Company may terminate this Agreement for cause upon written
notice to the Consultant specifying the cause for termination. For
purposes of this Agreement, "cause" will mean (i) dishonesty, fraud,
gross misrepresentation, embezzlement or material and deliberate
injury or attempted injury, in each case related to the Company or its
business, (ii) any unlawful or criminal activity of a serious nature
affecting the Company, (iii) any willful breach of duty, habitual
neglect of duty or unreasonable job performance after written notice
and a thirty (30) day period to cure, or (iv) a material breach of any
provision of this Agreement after written notice and a thirty (30) day
period to cure.
1
<PAGE>
b) The Company may terminate this Agreement 90 days following the
Consultant's Total Disability. For purposes of this Agreement, "Total
Disability" will mean such disability that prevents the Consultant
from performing his duties under Section 2 of this Agreement for a
continuous period of 90 days.
c) This Agreement will automatically terminate upon the death of the
Consultant.
d) In the event of termination of this Agreement, the obligations of
the Company and the Consultant under Sections 5(b), 6, 7, 9, and 10 of
this Agreement shall survive and continue.
5. Compensation.
------------
a) Annual Consulting Fee. The Company will pay consulting fees to
---------------------
the Consulting Firm at the rate of $240,000 per year, payable monthly
in advance.
b) Expenses. The Company will reimburse the Consulting Firm for
--------
reasonable expenses that the Consulting Firm incurs while performing
duties under this Agreement, provided that such expenses are incurred
and properly accounted for in accordance with the Company's policies.
c) Office and Support. The Company will provide the Consultant
------------------
with an office and normal support, consistent with current practice.
6. Confidential Information
------------------------
a) Confidential Information means information that is not generally
------------------------
known and that is proprietary to the Company or that the Company is
obligated to treat as proprietary. This information includes, without
limitation:
i. trade secret or other proprietary information about the Company and
its products; and
ii. proprietary information concerning any of the Company's past,
current, or future products, and information concerning the Company's
research, development, engineering, purchasing, manufacturing,
accounting, marketing, selling or leasing.
The term "Confidential Information" does not include information,
which becomes available to the public other than as a result of a
disclosure by the Consultant or was within the Consultant's possession
prior to its being furnished to the Consultant by or on behalf of the
Company.
b) Nondisclosure. The Consultant will not disclose Confidential
-------------
Information to any person not authorized by the Company to receive it.
c) Use. The Consultant will not make any use of Confidential
---
Information, other than for the benefit of, and on behalf of the
Company.
2
<PAGE>
d) Return of Information. When the Consultant's engagement with the
---------------------
Company ends, he will promptly return to the Company all records and
other items in his possession that disclose or describe Confidential
Information.
7. Competitive Activities. The Consultant agrees that during the term of this
----------------------
Agreement and for a period of two (2) years after termination of this Agreement,
regardless of the reason for such termination, he will not do any of the
following:
a) directly or indirectly compete with the Company's business, as the
Company has conducted it during the Consultant's engagement, within
any state in the United States or any country in which the Company
directly or indirectly markets its products or services;
b) solicit or encourage any Company customer or potential customer to
cease to do business with or to not do business with the Company; or
c) employ or attempt to employ any of the Company's employees on
behalf of any other entity.
8. No Adequate Remedy. The Consultant understands that if he fails to fulfill
------------------
his obligations under this Agreement, the damages to the Company would be very
difficult to determine. Therefore, in addition to any other rights or remedies
available to the Company at law, in equity or by statute, the Consultant hereby
consents to the specific enforcement by the Company of Sections 6 and 7 of this
Agreement through an injunction or restraining order issued by an appropriate
court.
9. Indemnification & Directors and Officers Liability Insurance.
------------------------------------------------------------
a) The Consultant and the Consulting Firm will at all times be
entitled to indemnification from the Company in accordance with
Article V of the Amended and Restated Bylaws of the Company as in
effect on the date hereof. The Consultant and the Consulting Firm will
be deemed to be an "Indemnified Person" as defined therein for all
purposes, and the Consultant's and the Consulting Firm's rights
thereunder will not be adversely affected by any subsequent amendment
thereof.
b) The Company will maintain in full force and effect one or more
policies of directors and officers liability insurance providing for
such coverage (in amounts not less than present amounts) as may be
determined from time to time by the Board.
10. Miscellaneous.
-------------
a) Successors and Assigns. Either party without the other party's
----------------------
prior written consent may not assign this Agreement.
b) Modification. This Agreement may be modified or amended only in
------------
writing signed by each of the parties hereto.
c) Governing Law. The laws of the State of Michigan will govern the
-------------
validity, construction, and performance of this Agreement, without
regard to the conflicts of law provisions of any jurisdictions.
3
<PAGE>
d) Arbitration. All disputes under this Agreement shall be
-----------
submitted to binding arbitration by the AAA in Southfield, Michigan,
and shall be governed by the AAA commercial arbitration rules.
Judgement may be entered in a court of competent jurisdiction in
Michigan, enforcing any arbitration award.
e) Notices. All notices to the Consultant required by this
-------
Agreement will be either hand delivered or sent by fax to a location
where the Consultant is known to reside.
ELTRAX SYSTEMS, INC.
/s/ Nicholas J. Pyett
- -------------------------------
By: Nicholas J. Pyett,
Chief Financial Officer
CRL Enterprises, Inc.
/s/ Clunet R. Lewis
- -------------------------------
By: Clunet R. Lewis,
President
CONSULTANT
/s/ Clunet R. Lewis
- -------------------------------
Clunet R. Lewis
4
<PAGE>
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") between ELTRAX SYSTEMS, INC. a
Minnesota corporation having its principal place of business in Atlanta, Georgia
("Eltrax"), together with its subsidiaries (collectively, the "Company") and DON
G. HALLACY, an individual residing in the State of Georgia ("Employee"), is
dated as of March 24, 1999.
ARTICLE 1: EMPLOYMENT, DUTIES AND TERM
1.1 Employment Position. Upon the terms and conditions set forth in this
-------------------
Agreement, the Company hereby employs Employee as President and Chief
Executive Officer of Eltrax, and Employee accepts such employment.
1.2 Duties
------
(a) Employee shall devote his full-business time and give his best efforts
to the Company and to fulfilling those duties commensurate with his
position; provided, however, that Employee may serve as a director for
a company that does not compete with Eltrax, subject to the prior
approval of the Eltrax Board of Directors, whose consent shall not be
unreasonably withheld.
(b) Employee shall perform his duties in the best interests of the
Company, its employees and its shareholders.
(c) Employee shall comply with the Company's policies and procedures to
the extent they are not inconsistent with this Agreement, in which
case the provisions of this Agreement shall prevail.
1.3 Term. The term of Employee's employment shall commence on March 24, 1999
----
(the "Employment Date"), and shall terminate on the later of March 31,
2003 or the final day of the Severance Period (as defined in Section 3.2
(b)(ii), unless earlier terminated pursuant to Article 3 of this
Agreement. Employee will assume his duties as President and CEO of the
Company during April of 1999, on a date to be determined by the Eltrax
Board of Directors.
ARTICLE 2: BASE COMPENSATION, EXPENSES, AND BENEFITS
2.1 Base Salary. For all services rendered under this Agreement during the
-----------
term of Employee's employment, the Company shall pay Employee, in
accordance with Eltrax's usual pay practices, a base salary, exclusive of
benefits and bonuses, at an annual rate of Two Hundred Fifty Thousand
Dollars ($250,000) (the "Base Salary").
1
<PAGE>
2.2 Bonus.
-----
(a) In addition to the Base Salary, Employee will be entitled to an annual
bonus (which shall not be less than zero) calculated as 2% of the
Company's net income (without taking into account amounts paid under
this Section 2.2(a)), as reported in the Company's Form 10-K (the
"Bonus"). Notwithstanding, for each of 1999 and 2000, Employee shall
receive a minimum $100,000 Bonus and for the first three (3) months of
2003, Employee shall receive an amount equal to the Bonus for such
year multiplied by 25%. Company and the Employee agree that the
formula used to determine the Bonus shall be mutually reviewed on or
within 120 days from the Employment Date.
(b) The declaration and payment of the Bonus shall be made as soon as
practicable following the audit of the Company's annual earnings, but
in no event later than April 15th of each year, and shall be paid in a
lump sum to Employee, subject to applicable withholding rules.
2.3 Options.
-------
(a) Employee shall receive options (the "Bonus Options") issued under the
Eltrax Stock Incentive Plans (the "Option Plans") to acquire 500,000
shares of Eltrax common stock (the "Bonus Stock") at an exercise
price equal to the market price of such Bonus Stock on the Employment
Date. To the extent permitted under applicable law the Bonus Options
shall be characterized as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
(i) The Bonus Options shall vest, subject to Article 3, according
to the following schedule: (A) 100,000 on the Employment
Date, and (B) 100,000 on each successive yearly anniversary
of the Employment Date.
(ii) Provided termination of this Agreement has not occurred pursuant
to Sections 3.1(a) or 3.2(a), the Company guarantees that at
March 31, 2003, or if earlier, the end of the Severance Period
(as defined in Section 3.2(b)(ii)), the difference between the
Bonus Stock Fair Market Value (defined below) and the aggregate
exercise price of Employee's vested Bonus Options will be no less
than $1,305,000. In the event such difference is less than
$1,305,000, the Company will pay to the Employee the amount of
such deficiency (but in no event more than $1,305,000) as
additional compensation, as soon as practicable following the
calculation of such deficiency. Bonus Stock Fair Market Value
shall mean the average of the closing prices of Eltrax common
stock on each of the
2
<PAGE>
five trading days preceding the day immediately prior to
March 31, 2003, or if earlier, the end of the Severance Period,
multiplied by the number of shares of Bonus Stock which may be
acquired pursuant to exercise of Employee's vested Bonus Options.
(b) During the first quarter of each year beginning in 2000, Employee
shall receive options to acquire a minimum of 50,000 shares of
Eltrax's common stock at the market price of such shares on such
issuance date (the "Performance Options"). To the extent permitted
under applicable law, the Performance Options shall be characterized
as incentive stock options under Section 422 of the Code. The vesting
of such Performance Options shall be based on standards of performance
for the Employee and the Company determined by the Company's Board of
Directors; provided, however, that vesting shall not be delayed beyond
March 31, 2003.
(c) All aspects of the Bonus Options and the Performance Options shall be
governed by the terms and conditions of the Eltrax Option Plans,
unless specific language regarding the treatment of such Options
appears in this Agreement.
2.4 Benefits. In addition to other compensation, Employee shall be entitled to
--------
participate in all benefit plans currently maintained or hereafter
established by the Company for the benefit of its executive officers
generally, in accordance with the terms and conditions of such plans (each
a "Benefit Plan"). To the extent Employee is subject to any waiting period
pending entry into a particular Benefit Plan, the Company will reimburse
Employee during such period for his actual COBRA costs, if any, under his
prior employer's group health plan.
2.5 Vacation. Employee shall be entitled to twenty-five (25) paid vacation days
--------
for each twelve (12) month period of employment, which if unused, shall
accrue ratably during each such period.
2.6 Expenses. The Company shall reimburse Employee for all expenses reasonably
--------
and necessarily incurred by Employee during the course and in furtherance
of his employment, subject to and made in accordance with such reasonable
and nondiscriminatory policies and procedures as may be established by the
Company as applicable to its employees.
ARTICLE 3: EARLY TERMINATION
3.1 Termination for Cause.
---------------------
(a) The Company may terminate Employee's employment immediately for Cause.
For the purpose hereof, "Cause" means: (i) fraud against the Company;
(ii) theft or embezzlement of the Company's assets, or misuse of
Company funds; (iii) willful violation of law resulting in a felony
3
<PAGE>
conviction against the Company; (iv) Employee's conviction of any
felony not in the Company's business; (iv) a material breach of the
terms and conditions of this Agreement not cured within thirty (30)
days after written notice describing such breach; or (v) the continued
failure by Employee to perform his duties under this Agreement not
cured within thirty (30) days after written notice describing such
failure.
(b) In the event of termination for Cause pursuant to this section, none
of Employee's unvested Bonus Options or Performance Options shall
vest following the Termination Date set forth in a Notice of
Termination (as defined in Section 3.4(a)), and Employee shall receive
through such Termination Date, in accordance with the Company's usual
pay practices, the following:
(i) pay at the usual rate of Employee's Base Salary;
(ii) any accrued but unpaid Bonus relating to the prior calendar year
of employment;
(iii) any benefits to which the Employee is entitled under any
Benefit Plan; and
(iv) compensation for all accrued but unused vacation days, for all
periods under this Agreement, to be paid within thirty (30) days
of termination, calculated by multiplying the aggregate number
of such days by a fraction, the numerator of which equals the
Base Salary and the denominator of which equals 260.
3.2 Termination Without Cause. Either Employee or the Company may terminate
-------------------------
Employee's employment without Cause by delivering to the other party
hereto, a Notice of Termination which specifies a Termination Date no
sooner than thirty (30) days following the date of such Notice. In the
event of termination of this Agreement and of Employee's employment
pursuant to this section, compensation shall be paid as described below:
(a) If the termination is by Employee, Employee shall receive through the
Termination Date, in accordance with the Company's usual pay
practices, each of the items listed in paragraphs (i)-(iv) of
Section 3.l(b) above, and none of Employee's unvested Bonus Options
or Performance Options shall vest following such Termination Date.
(b) If the termination is by the Company, or by the Employee with Good
Reason (as defined in Section 3.4(c)), Employee shall receive, in
accordance with the Company's usual pay practices:
(i) Each of the items listed in paragraphs (i) - (iv) of Section
3.1(b) above, through the Termination Date;
4
<PAGE>
(ii) For a period of twelve (12) months following such Termination
Date (the "Severance Period"):
(1) Employee's Base Salary;
(2) The Bonus applicable to the complete calendar year which
ends within the Severance Period, plus a pro-rata share of
the Bonus applicable to the subsequent calendar year,
calculated by multiplying the Bonus for such year by a
fraction, the numerator of which shall equal the number of
days between January 1st and the final day of the Severance
Period, and the denominator of which shall equal 365; and
(3) Any benefits to which Employee is entitled under any
Benefit Plan; provided, however, that Employee does not
receive comparable benefits during such Severance Period
from another source.
(iii) Until termination of the Severance Period, with respect to
Employee's Bonus Options and Performance Options. Employee shall
be treated as employed by the Company. As a consequence,
Employee's Bonus Options and Performance Options will continue
to vest, in accordance with their designated schedules, until
the end of the Severance Period, and such Options shall remain
exercisable for a period of three (3) months following the end
of the Severance Period. Following the Severance Period, no
vesting of Employee's Bonus Options or Performance Options shall
occur.
3.3 Termination in the Event of Death or Disability. Employee's employment
-----------------------------------------------
shall terminate in the event of Death or Disability of Employee.
"Disability" shall mean Employee's inability, as reasonably determined by
the Eltrax Board of Directors, to perform the essential functions of his
duties under this Agreement because of illness or incapacity for a
continuous period of six (6) months. In the event of Employee's termination
due to death or Disability, Employee shall receive each of the items listed
in paragraphs (i) and (ii) of Section 3.2(b) above, all unvested
Performance Options and Bonus Options shall immediately vest, and all such
Options will remain exercisable through and including the end of the
Severance Period, but in no event beyond such date.
3.4 Definitions:
-----------
(a) "Termination Date" shall mean the effective date of termination
specified in a Notice of Termination; provided, however, that in the
case of Employee's death, the Termination Date shall be date of such
death, and in the case
5
<PAGE>
of Employee's Disability, the Termination Date shall be the date
Eltrax provides written notice of such Disability to Employee.
(b) "Notice of Termination" shall include a written notice of termination
communicated to the other party hereto in accordance with Section 6.3
hereof; provided, however, that such Notice shall only be effective if
it:
(i) indicates the specific termination provision in this Agreement
relied upon;
(ii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination, and
(iii) states the effective date of termination.
(c) "Good Reason" means:
(i) A material breach by the Company of the terms and conditions of
this Agreement not cured within thirty (30) days after the
Company's receipt of written notice describing such breach;
(ii) The removal Of Employee as President or CEO of the Company, or
Employee failing to be named as President and CEO of any
company (or its parent) which acquires more than 50% of the
outstanding stock of the Company; or
(iii) Assuming no prior termination of this Agreement, for any
reason, the failure of the Company on or prior to March 1,
2003, to offer Employee the opportunity to renew his employment
for a period of twenty-four (24) months following March 31,
2003, on the same terms as set forth in Sections 1.1, 2.1-2.6
(other than Section 2.3(a)), and Articles 3, 4 and 5 herein.
ARTICLE 4: CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
4.1 Confidentiality. Employee will not, during the term or after the
---------------
termination or expiration of the term of employment, publish, disclose, or
utilize in any manner any Confidential Information (as hereinafter defined)
obtained while employed by the Company. If Employee leaves the employ of
the Company, Employee will not, without its prior written consent, retain
or take away any drawing, writing or other record in any form containing
any Confidential Information. "Confidential Information" means information
or material which is not generally available to or used by others, or the
utility or value of which is not generally known or recognized as standard
practice, whether or not the underlying details are in the public domain,
including: (a) information or material relating to the Company, and
6
<PAGE>
its businesses as conducted or anticipated to be conducted, business plans,
operations, past, current or anticipated software, products or services,
customers or prospective customers, or research, engineering, development,
manufacturing, purchasing, accounting, or marketing activities; (b)
information or material relating to the Company's inventions, improvements,
discoveries, "know-how," technological developments, or unpublished works,
or to the materials, apparatus, processes, formulae, plans or methods used
in the development, manufacture or marketing of the Company's software,
products or services; (c) any information marked "proprietary," "private,"
or "confidential"; (d) trade secrets; (e) software in any stage of
development, including source code and binary code, software designs,
specifications, programming aids (including subroutines and productivity
tools), programming languages, interfaces, visual displays, technical
documentation, user manuals, data files and databases; and (f) any similar
information of the type described above which the Company obtained from
another party and which the Company treats as or designates as being
proprietary, private or confidential, whether or not owned or developed by
the Company.
4.2 Business Conduct and Ethics. During the term of employment with the
----------------------------
Company, Employee will engage in no activity or employment which materially
conflicts with the interest of the Company, and will comply with all
reasonable, nondiscriminatory Company policies and guidelines.
4.3 Survival. The obligations of this Article 4 shall survive the expiration
--------
or termination of Employee's employment.
ARTICLE 5: NON-COMPETITION
5.1 Non-Competition. Employee agrees that on and prior to the time he ceases to
---------------
provide services to the Company, or until the end of the Severance Period,
if later:
(a) Employee will not, directly or indirectly, alone or as a partner,
member, officer, director, shareholder or employee of any other firm
or entity, engage in any commercial activity in competition with any
part of the Company's business which was under Employee's management
or supervision at any time during the term of this Agreement or any
part of the Company's business with respect to which Employee has
Confidential Information. For purposes of this section, "shareholder"
shall not include beneficial ownership of less than five percent (5%)
of the combined voting power of all issued and outstanding voting
securities of a publicly held corporation whose voting stock is traded
in a public market;
(b) Employee will not divert, or by aid to others, do anything which would
tend to divert, or may divert from the Company, any trade or business
with any customer, supplier or vendor with whom the Company has had
any contact or association; or
7
<PAGE>
(c) Outside the normal course of Employee's duties as President and Chief
Executive Officer, take any affirmative action to induce or attempt to
induce any person employed by the Company to leave the employment of
the Company.
5.2 Enforcement. In addition to any other rights and remedies available to the
-----------
Company for breach of this Article 5, the Company shall be entitled to
enforcement by court injunction.
5.3 Effect of Termination. Upon the termination of Employee's employment, no
---------------------
additional compensation shall be paid for the non-competition obligation.
ARTICLE 6: GENERAL PROVISIONS
6.1 No Adequate Remedy. The parties acknowledge it is impossible to measure in
------------------
money the damages which will accrue to either party by reason of a failure
to perform any of the obligations under this Agreement. Therefore, in the
event of a claim for equitable relief, each party hereby waives the claim
or defense that the other has an adequate remedy at law.
6.2 Successors and Assigns. Except as otherwise provided herein, this Agreement
----------------------
shall be binding upon and inure to benefit of the successors and assigns of
the Company. This Agreement shall not be assignable by the Employee, but
its economic terms shall inure to the benefit of the Employee's heirs and
beneficiaries.
6.3 Notice. All notices, requests and demands given to or made pursuant hereto
------
shall, except as otherwise specified herein, be in writing and be delivered
or mailed to any such party at its address which:
(a) In the case of the Company shall be:
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, Michigan 48075
Attn: Clunet R. Lewis
With a copy to:
William E. Sider, Esq.
Jaffe, Raitt, Heuer & Weiss, P.C.
One Woodward Avenue, Suite 2400
Detroit, Michigan 48226
(b) In the case of Employee shall be:
Don G. Hallacy
4348 Granby Way
Marietta, Georgia 30062
8
<PAGE>
Any notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed sent on the registered date or that stamped
on the certified mail receipt, and shall be deemed received on the second
business day thereafter.
6.4 Captions. The various headings or captions in this Agreement are for
--------
convenience only and shall not affect the meaning or interpretation of this
Agreement.
6.5 Governing Law. The validity, construction and performance of this
-------------
Agreement shall be governed by the laws of the State of Georgia without
giving effect to the conflict of laws principles thereof.
6.6 Construction. Wherever possible, each provision of this Agreement shall be
------------
interpreted in such manner as to be effective and valid under applicable
law. If any provision of this Agreement shall be prohibited or invalid, all
remaining clauses shall remain fully enforceable.
6.7 Waivers. No failure on the part of either party to exercise, and no delay
-------
in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any partial exercise of any right or remedy hereunder
preclude any exercise of that or any other right or remedy granted hereby
by law.
6.8 Modification. This Agreement may not be and shall not be modified or
------------
amended except by written instrument signed by all parties.
6.9 Entire Agreement. This Agreement constitutes the entire agreement and
----------------
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous agreements,
understandings and negotiations with respect to the subject matter hereof.
6.10 Arbitration. With the sole exception of the injunctive relief contemplated
-----------
by Section 5.2 of this Agreement, any controversy or claim arising out of
any aspect of the relationship of the parties hereto, will be settled by
binding arbitration in Atlanta, Georgia by a panel of three arbitrators in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Judgment upon any arbitration award may be entered
in any court having jurisdiction thereof and the parties consent to the
jurisdiction of the courts of the State of Georgia for this purpose.
6.11 Attorneys' Fees. In the event there is litigation or other proceedings
---------------
between the parties hereto with respect to their rights and obligations
under this Agreement, the prevailing party in any such litigation shall be
entitled to recover from the opposing party all reasonable attorneys' fees
and expenses (including fees of accountants) incurred by the prevailing
party in connection with such proceeding.
6.12 Venue: Jurisdiction. The parties agree that all actions or proceedings
-------------------
arising in connection with this Agreement and the instruments, agreements
and documents executed pursuant to the terms of this Agreement shall be
tried, litigated and
9
<PAGE>
arbitrated only in the courts of the United States located in the Northern
District of Georgia, the Georgia state courts or the offices of the
American Arbitration Association located nearest Atlanta, Georgia. The
Employee irrevocably accepts for himself and in respect of his property,
generally and unconditionally, the jurisdiction of such courts. The
Employee irrevocably consents to the service of process out of any such
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to him, at his address as
set forth in the records of the Company, such service to become effective
ten (10) days after such mailing. Nothing in this Section 6.12 shall affect
the right of any party to serve process in any other manner permitted by
law. Employee irrevocably waives any right he may have to assert the
doctrine of forum non conveniens or to object to venue to the extent any
proceeding is brought in accordance with this Section 6.12.
6.13 Headings. The headings contained in this Agreement are for reference
--------
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
6.14 Indemnification. The Company acknowledges that it has reviewed that certain
---------------
Agreement Regarding Special Compensation and Post-Employment Restrictive
Covenants by and between Employee and Sprint Corporation ("Sprint"), dated
December 12, 1995 (the "Sprint Agreement"). The Company agrees that:
(a) The Company will, at its own cost and expense, defend Employee in all
suits, claims or other actions brought by Sprint against Employee
which arise either directly, or indirectly, under or pursuant to
enforcement of the restrictive employment covenants contained in
Section 12 of the Sprint Agreement; and
(b) To the extent that after adjudication of the Sprint Agreement Employee
is restricted from complying with the terms and conditions of this
Agreement (the "Injunctive Period"), Employee will continue to receive
all compensation and associated benefits set forth herein as if such
restrictions were not present; provided, however, that during the
Injunctive Period Employee does not receive comparable compensation
for services provided to persons other than the Company; and provided
further, that to the extent permitted by law, Employee otherwise
complies with the terms and conditions of this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EMPLOYEE ELTRAX SYSTEMS, INC., together with
its subsidiaries
/s/ Don G. Hallacy By: /s/ Clunet R. Lewis
- ---------------------------- --------------------------------
Don G. Hallacy Clunet R. Lewis
Its: Secretary
11
<PAGE>
Exhibit 10.32
REVOLVING CREDIT AND SECURITY AGREEMENT
---------------------------------------
This REVOLVING CREDIT AND SECURITY AGREEMENT dated March __, 2000, among
ELTRAX SYSTEMS, INC., a Minnesota corporation ("Eltrax"); ELTRAX TECHNOLOGY
SERVICES GROUP, INC., a Georgia corporation ("Technology"); ELTRAX ASP GROUP,
LLC, a Georgia limited liability company ("ASP"); SQUIRREL SYSTEMS, INC., a
Georgia corporation ("Squirrel"); SENERCOMM, INC., a Florida corporation
("Senercomm"); ELTRAX CUSTOMER CARE GROUP, INC., a Georgia corporation
("Customer Care"); ELTRAX INTERNATIONAL, INC., a Pennsylvania corporation
("International"); and ELTRAX HOSPITALITY GROUP, INC., a Georgia corporation
("Hospitality"; Eltrax, Technology, ASP, Squirrel, Senercomm, Customer Care,
International and Hospitality, each a "Borrower" and collectively the
"Borrowers"); the financial institutions which are now or which hereafter become
a party hereto (collectively, the "Lenders" and individually a "Lender"); and
PNC BANK, NATIONAL ASSOCIATION, a national banking association ("PNC"), as
collateral and administrative agent for Lenders (PNC, together with its
successors and assigns in such capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein contained,
Borrowers, Lenders and Agent hereby agree as follows:
SECTION 1. DEFINITIONS.
------------
1.1 Accounting Terms. As used in this Agreement, any Note, or any
----------------
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
--------
however, whenever such accounting terms are used for the purposes of determining
- -------
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as applied in preparation of the
audited financial statements of Borrowers for the Fiscal Year ended December 31,
1999.
1.2 General Terms. For purposes of this Agreement the following terms
-------------
shall have the following meanings (terms defined in the singular to have the
same meaning when used in the plural, and vice versa):
"Accountants" shall have the meaning set forth in Section 9.7 hereof.
"Advances" shall mean and include the Revolving Advances, Letters of Credit
and each other advance made by Agent or Lenders pursuant to the terms of this
Agreement or any of the Other Documents to or for the benefit of any Borrower.
"Advance Rates" shall have the meaning set forth in Section 2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (x) to vote 10% or
more of the Equity Interests having ordinary voting power for the election of
<PAGE>
directors of such Person or the individuals performing similar functions for any
such Person, or (y) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agent" shall have the meaning set forth in the preamble to this Agreement
and shall include its successors and assigns.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal to
the higher of (i) the Base Rate in effect on such day and (ii) the Federal Funds
Rate in effect on such day plus 1/2 of 1%.
"Applicable Law" shall mean all laws, rules and regulations applicable to
the Person, conduct, transaction, covenant, Loan Document or Material Contract
in question, including all applicable common law and equitable principles; all
provisions of all applicable state, federal and foreign constitutions, statutes,
rules, regulations and orders of governmental bodies; and all orders, judgments
and decrees of all courts and arbitrators.
"Applicable Margin" shall mean a percentage equal to 2.50% with respect to
Revolving Advances that are Eurodollar Rate Loans and 0.50% with respect to
Revolving Advances that are Domestic Rate Loans; provided that, commencing
December 31, 2000, the Applicable Margin shall be increased or (if no Default or
Event of Default exists) decreased, based on the Fixed Charge Coverage Ratio, as
follows:
<TABLE>
<CAPTION>
Applicable Margin For
- -----------------------------------------------------------------------------------------------
Fixed Charge Coverage Ratio Revolving Advances that are Revolving Advances that are made
made or outstanding as or outstanding as Eurodollar Rate
Domestic Rate Loans Loans
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than 1.00:1.00 and 0.75% 2.75%
less than 1.35:100
- ----------------------------------------------------------------------------------------------
Greater than or equal to 0.50% 2.50%
1.35:1.00 and less than
1.70:1.00
- ----------------------------------------------------------------------------------------------
Greater than or equal to 0.25% 2.25%
1.70:1.00
- ----------------------------------------------------------------------------------------------
</TABLE>
The Applicable Margin shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a quarterly basis according to the
performance of Borrowers as measured by the Fixed Charge Coverage Ratio for the
immediately preceding four (4) Fiscal Quarters of Borrowers. Except as set
forth in the last sentence hereof, any such increase or reduction in the
Applicable Margin provided for herein shall be effective three (3) Business Days
after receipt by Agent of the applicable financial statements and corresponding
Compliance Certificate. If the financial statements and the Compliance
Certificate of Borrowers setting forth the Fixed Charge Coverage Ratio are not
received by Agent by the date required pursuant to Section 9.8 hereof, the
Applicable Margin shall be determined as if the Fixed Charge Coverage Ratio was
greater than 1.00:1.00 and less than 1.35:1.00 until such time as such financial
statements and Compliance Certificate are received and any Event of Default
resulting from a failure timely to deliver such financial
-2-
<PAGE>
statements or Compliance Certificate is waived in writing by Agent and Lenders;
provided, however, that nothing herein shall be deemed to prevent Agent and
- -------- -------
Lenders from charging interest at the Default Rate for so long as an Event of
Default exists. For the final Fiscal Quarter of any Fiscal Year of Borrowers,
Borrowers may provide the unaudited financial statements of Borrowers, subject
only to year-end adjustments, for the purpose of determining the Applicable
Margin; provided, however, that if, upon delivery of the annual audited
-------- -------
financial statements required to be submitted by Borrowers to Agent pursuant to
Section 9.7 hereof, Borrowers have not met the criteria for reduction of the
Applicable Margin pursuant to the terms hereinabove for the final Fiscal Quarter
of the Fiscal Year of Borrowers then ended, then (a) such Applicable Margin
reduction shall be terminated and, effective on the first day of the month
following receipt by Agent of such audited financial statements, the Applicable
Margin shall be the Applicable Margin that would have been in effect if such
reduction had not been implemented based upon the unaudited financial statements
of Borrowers for the final Fiscal Quarter of the Fiscal Year of Borrowers then
ended, and (b) Borrowers shall pay to Agent, for the benefit of the Lenders, on
the first day of the month following receipt by Agent of such audited financial
statements, an amount equal to the difference between the amount of interest
that would have been paid on the principal amount of the Obligations using the
Applicable Margin determined based upon such audited financial statements and
the amount of interest actually paid during the period in which the reduction of
the Applicable Margin was in effect based upon the unaudited financial
statements for the final Fiscal Quarter of the Fiscal Year of Borrowers then
ended.
"Authority" shall have the meaning set forth in Section 4.19(d).
"Base Rate" shall mean the base commercial lending rate of PNC as publicly
announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by PNC as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by PNC to any particular class or category of customers of PNC.
"Blocked Account" shall have the meaning ascribed to it in Section 4.15(h)
hereof.
"Borrower" or "Borrowers" shall have the meaning set forth in the preamble
to this Agreement and shall extend to all permitted successors and assigns of
such Persons.
"Borrowers on a consolidated basis" shall mean the Borrowers' accounts or
other items as to which such term applies, consolidated in accordance with GAAP.
"Borrowers' Account" shall have the meaning set forth in Section 2.7.
"Borrowing Agent" shall mean Eltrax.
"Borrowing Base Certificate" shall mean a certificate from the President or
Chief Financial Officer of the Borrowing Agent to Agent by which such officer
shall certify to Agent the Formula Amount and calculation thereof as of the date
of the certificate, such certificate to be in form and substance satisfactory to
Agent.
"Business Day" shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required by law to be
closed for business in East Brunswick, New Jersey
-3-
<PAGE>
and, if the applicable Business Day relates to any Eurodollar Rate Loans, such
day must also be a day on which dealings are carried on in the London Interbank
market.
"Business Interruption Insurance Assignment" shall mean the Collateral
Assignment of Rights Under Business Interruption Insurance Policy to be executed
by each Borrower on or about the Closing Date in favor of Agent, for its benefit
and for the ratable benefit of Lenders, as security for the payment of the
Obligations.
"Capital Expenditures" shall mean expenditures made or liabilities
incurred, including Capitalized Software Expenditures, for the acquisition of
any fixed assets or improvements, replacements, substitutions or additions
thereto which have a useful life of more than one year, including the total
principal portion of Capitalized Lease Obligations.
"Capitalized Lease Obligation" shall mean any Indebtedness of a Borrower
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Software Expenditures" shall mean all costs of developing or
modifying computer software, or the acquisition costs of purchasing such
software; provided, however, it shall not include costs associated with computer
-------- -------
software held by any Borrower as Inventory.
"Cash Collateral" shall mean the amount of cash maintained in the Cash
Collateral Account.
"Cash Collateral Account" shall mean a deposit account maintained at PNC
into which O'Reilly shall deposit Cash Collateral that is subject to the
O'Reilly Pledge Agreement.
"Cash Taxes" shall mean, for any period, the actual federal, state and
local taxes of a Person based on income or business activity payable in cash
during such period.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C.(S) 9601 et seq.
"Change of Control" shall mean (a) either William A. Fielder, III, Don G.
Hallacy or O'Reilly shall cease to have their current position with any Borrower
as of the Closing Date and a replacement officer satisfactory to Agent has not
been elected within sixty (60) days; (b) other than pursuant to a Permitted
Sale, Eltrax ceases to own all of the Equity Interests of Technology or
Squirrel; (c) other than pursuant to a Permitted Sale, Eltrax ceases to own all
of the Equity Interests of Senercomm, Customer Care, International or
Hospitality, (d) Technology ceases to own all of the Equity Interests of ASP;
(e) other than pursuant to a Permitted Sale, Squirrel ceases to own all of the
Equity Interests of Squirrel Canada; (f) other than pursuant to a Permitted
Sale, International ceases to own all of the Equity Interests of Group and the
Foreign Subsidiaries; or (g) any merger (other than of a Borrower with another
Borrower), consolidation or sale of substantially all of the property or assets
of any Borrower occurs, other than pursuant to a Permitted Sale or a Permitted
Spinoff.
"Charges" shall mean all taxes, charges, fees, imposts, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, value added, transfer, franchise, profits, inventory, capital stock,
license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation and property taxes, custom duties, fees,
assessments, Liens, claims and charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts, imposed by
-4-
<PAGE>
any taxing or other authority, domestic or foreign (including the Pension
Benefit Guaranty Corporation or any environmental agency or superfund), upon the
Collateral, any Borrower or any of its Affiliates.
"Closing Date" shall mean March 14, 2000, or such other date as may be
agreed to in writing by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986.
"Collateral" shall mean and include all of the following types or items of
property or interests in property of each Borrower:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Investment Property;
(f) all Subsidiary Stock;
(g) all of each Borrower's right, title and interest in and to (i) its
respective goods and other property including all merchandise returned or
rejected by Customers, relating to or securing any of the Receivables; (ii) all
of each Borrower's rights as a consignor, a consignee, an unpaid vendor,
mechanic, artisan, or other lienholders, including stoppage in transit, setoff,
detinue, replevin, reclamation and repurchase; (iii) all additional amounts due
to any Borrower from any Customer relating to the Receivables; (iv) other
property, including warranty claims, relating to any goods securing this
Agreement; (v) all of each Borrower's contract rights, rights of payment which
have been earned under a contract right, instruments, documents, chattel paper,
warehouse receipts, deposit accounts; (vi) if and when obtained by any Borrower,
all real and personal property of third parties in which such Borrower has been
granted a Lien or security interest as security for the payment or enforcement
of Receivables; and (vii) any other goods, personal property or real property
now owned or hereafter acquired in which any Borrower has expressly granted a
security interest or may in the future grant a security interest to Agent
hereunder, or in any amendment or supplement hereto or thereto, or under any
other agreement between Agent and any Borrower;
(h) all of each Borrower's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software (owned by any Borrower or in which it has an interest), computer
programs, tapes, disks and documents relating to (a), (b), (c), (d), (e), (f) or
(g) of this Paragraph; and
(i) all proceeds and products of (a), (b), (c), (d), (e), (f), (g) and (h)
in whatever form, including: cash, deposit accounts (whether or not comprised
solely of proceeds), certificates of deposit, insurance proceeds (including
hazard, flood and credit insurance), negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements,
documents, eminent domain proceeds, condemnation proceeds and tort claim
proceeds.
-5-
<PAGE>
"Commitment Percentage" shall mean, on any date for any Lender, the
percentage set forth opposite such Lender's name on the signature pages hereof
or on the signature page of any Commitment Transfer Supplement by which it
became a Lender, as modified from time to time pursuant to the terms of this
Agreement or to give effect to any applicable Commitment Transfer Supplement
executed by such Lender and by which it shall transfer a portion of its
commitments hereunder to a Purchasing Lender.
"Commitment Transfer Supplement" shall mean a document in the form of
Exhibit B hereto, properly completed and otherwise in form and substance
- ---------
satisfactory to Agent by which the Purchasing Lender purchases and assumes a
portion of the obligation of Lenders to make Advances under this Agreement.
"Compliance Certificate" shall mean a compliance certificate to be signed
by the chief financial officer of Borrowing Agent, which shall state that, based
on an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrowers with respect to such default
and, such certificate shall have appended thereto calculations which set forth
Borrowers' compliance with the requirements or restrictions imposed by Section
6.5, 7.5, 7.6, 7.8 and 7.11 hereof.
"Consents" shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Bodies and
other third parties, domestic or foreign, necessary to carry on any Borrower's
business, including all consents required by Applicable Law.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with any Borrower, are treated as a single
employer under Section 414 of the Code.
"Customer" shall mean and include the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with any Borrower,
pursuant to which such Borrower is to deliver any personal property or perform
any services.
"Debt Payments" shall mean and include, for any period of determination all
cash actually expended by Borrowers to make (a) interest payments on any
Advances hereunder, plus (b) payments for all fees, commissions and charges set
----
forth herein and with respect to any Advances, plus (c) all payments with
----
respect to Capitalized Lease Obligations, plus (d) scheduled principal and
----
interest payments with respect to any other Indebtedness for Money Borrowed.
"Default" shall mean an event which, with the giving of notice or passage
of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1 hereof.
"Defaulting Lender" shall have the meaning set forth in Section 2.15(a)
hereof.
"Depository Accounts" shall have the meaning set forth in Section 4.15(h)
hereof.
"Documents" shall have the meaning set forth in Section 8.1(c) hereof.
-6-
<PAGE>
"Dollar" and the sign "$" shall mean lawful money of the United States of
America.
"Domestic Rate Loan" shall mean any Advance that bears interest based upon
the Alternate Base Rate.
"Early Termination Date" shall have the meaning set forth in Section 13.1
hereof.
"Earnings Before Interest and Taxes" shall mean for any period the sum of
(i) net income (or loss) of Borrowers on a consolidated basis for such period
(excluding extraordinary gains, plus (ii) all interest expense of Borrowers on a
consolidated basis for such period, plus (iii) all charges against income of
Borrowers on a consolidated basis for such period for federal, state and local
taxes actually paid.
"EBITDA" shall mean for any period, the sum, for Borrowers on a
consolidated basis, of (i) Earnings Before Interest and Taxes for such period,
plus (ii) depreciation expenses for such period, plus (iii) amortization
- ---- ----
expenses for such period.
"Eligible Receivables" shall mean and include with respect to each
Borrower, each Receivable of such Borrower arising in the ordinary course of
such Borrower's business and which Agent, in its sole credit judgment, shall
deem to be an Eligible Receivable, based on such considerations as Agent may
from time to time deem appropriate. A Receivable shall not be deemed eligible
unless such Receivable is subject to Agent's first priority perfected security
interest and no other Lien (other than Permitted Encumbrances), and is evidenced
by an invoice or other documentary evidence satisfactory to Agent. In addition,
no Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by any Borrower to an Affiliate of any
Borrower or to a Person controlled by an Affiliate of any Borrower;
(b) it is due or unpaid more than ninety (90) days after the original
invoice date;
(c) fifty percent (50%) or more of the Receivables from such Customer are
not deemed Eligible Receivables hereunder. Such percentage may, in Agent's sole
discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty contained in this Agreement
with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property or call a meeting of
its creditors, (ii) admit in writing its inability, or be generally unable, to
pay its debts as they become due or cease operations of its present business,
(iii) make a general assignment for the benefit of creditors, (iv) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;
(f) the sale is to a Customer outside the continental United States of
America, unless the sale is on letter of credit, guaranty or acceptance terms,
in each case acceptable to Agent in its sole discretion;
-7-
<PAGE>
(g) the sale to the Customer is on a bill-and-hold, guaranteed sale, sale-
and-return, sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper;
(h) Agent believes, in its sole judgment, that collection of such
Receivable is insecure or that such Receivable may not be paid by reason of the
Customer's financial inability to pay;
(i) the Customer is the United States of America, any state or any
department, agency or instrumentality of any of them, unless the applicable
Borrower assigns its right to payment of such Receivable to Agent pursuant to
the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have not been shipped and
delivered to and accepted by the Customer or the services giving rise to such
Receivable have not been performed by the applicable Borrower and accepted by
the Customer or the Receivable otherwise does not represent a final sale;
(k) the Receivables of the Customer exceed a credit limit determined by
Agent, in its sole discretion, to the extent such Receivable exceeds such limit;
(l) the Receivable is subject to any offset, deduction, defense, dispute,
or counterclaim, the Customer is also a creditor or supplier of a Borrower or
the Receivable is contingent in any respect or for any reason;
(m) the applicable Borrower has made any agreement with any Customer for
any deduction therefrom, except for discounts or allowances made in the ordinary
course of business for prompt payment, all of which discounts or allowances are
reflected in the calculation of the face value of each respective invoice
related thereto;
(n) any return, rejection or repossession of the merchandise has occurred;
(o) such Receivable is not payable to a Borrower; or
(p) such Receivable is not otherwise satisfactory to Agent as determined in
good faith by Agent in the exercise of its discretion in a reasonable manner.
"Environmental Complaint" shall have the meaning set forth in Section
4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the environment and/or
governing the use, storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of any Governmental Body with respect thereto.
"Equipment" shall mean and include, as to each Borrower, all of such
Borrower's goods (other than Inventory) whether now owned or hereafter acquired
and wherever located, including all equipment, machinery, apparatus, motor
vehicles, fittings, furniture, furnishings, fixtures, parts and accessories and
all replacements and substitutions therefor or accessions thereto.
-8-
<PAGE>
"Equity Interest" shall mean the interest of (i) a shareholder in a
corporation, (ii) a partner (whether general or limited) in a partnership
(whether general, limited or limited liability), (iii) a member in a limited
liability company, or (iv) any other Person having any other form of equity
security or ownership interest.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for the then
current Interest Period relating thereto the interest rate per annum determined
by PNC by dividing (the resulting quotient rounded upwards, if necessary, to the
nearest 1/100th of 1% per annum) (i) the rate of interest determined by PNC in
accordance with its usual procedures (which determination shall be conclusive
absent manifest error) to be the average of the London interbank offered rates
for Dollars quoted by the British Bankers' Association as set forth on Dow Jones
Market Service (formerly known as Telerate) (or appropriate successor or, if
British Bankers' Association or its successors ceases to provide such quotes, a
comparable replacement determined by PNC) display page 3750 (or such other
display page on the Dow Jones Service System as may replace display page 3750)
two (2) Business Days prior to the first day of such Interest Period for an
amount comparable to such Eurodollar Rate Loan and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the Reserve Percentage. The Eurodollar Rate may also be expressed by the
following formula:
Eurodollar Rate = The Average of London Interbank offered rates quoted
--------------- by B.B.A. as shown on Dow Jones Market Service
display page 3750 or appropriate successor
-----------------------------------------------------
1.00 minus the Reserve Percentage
"Eurodollar Rate Loan" shall mean an Advance at any time that bears
interest based on the Eurodollar Rate.
"Event of Default" shall mean the occurrence of any of the events set forth
in Section 10 hereof.
"Federal Funds Rate" shall mean, for any day, the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day which is a Business Day, the average of quotations for such day on such
transactions received by PNC from three (3) Federal funds brokers of recognized
standing selected by PNC.
"Fiscal Quarter" shall mean one (1) of the four (4) fiscal quarters of
Borrowers and their Subsidiaries for accounting and tax purposes, which end on
March 31, June 30, September 30 and December 31 of each Fiscal Year.
"Fiscal Year" shall mean the fiscal year of Borrowers and their
Subsidiaries for accounting and tax purposes, which ends on December 31 of each
year and, when preceded by the designation of a calendar year (e.g., 1999 Fiscal
Year), means the Fiscal Year of Borrowers and their Subsidiaries ended on
December 31 of such designated calendar year.
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<PAGE>
"Fixed Charge Coverage Ratio" shall mean for Borrowers on a consolidated
basis, with respect to any fiscal period, the ratio of (a) EBITDA minus the sum
-----
of (i) Unfunded Capital Expenditures, and (ii) Cash Taxes to (b) Debt Payments.
"Foreign Subsidiaries" shall mean each of the following corporations, all
of which are wholly-owned by International: (i) Eltrax Hospitality Technologies
PTE Ltd., a corporation organized under the laws of Singapore; (ii) Eltrax
Hospitality Scandinavia AS, a corporation organized under the laws of Norway;
(iii) Eltrax (Australia) Pty. Ltd., a corporation organized under the laws of
Australia; (iv) Eltrax Hospitality Ltd., a corporation organized under the laws
of Hong Kong; and (v) Eltrax Holdings, AG, a corporation organized under the
laws of Switzerland.
"Formula Amount" shall have the meaning set forth in Section 2.1(a).
"Funded Debt" shall mean all Capitalized Lease Obligations and all other
Indebtedness that would, in accordance with GAAP, constitute long-term debt,
including any Indebtedness with a maturity of more than one (1) year after the
creation thereof and any Indebtedness that is renewable or extendable at the
option of a Borrower for a period of more than one (1) year from the date of
creation of such Indebtedness.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"General Intangibles" shall mean and include, as to each Borrower, all of
such Borrower's general intangibles, whether now owned or hereafter acquired,
including all choses in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
service marks, trade secrets, goodwill, copyrights, design rights,
registrations, licenses, franchises, customer lists, tax refunds, tax refund
claims, computer programs, all claims under guaranties, security interests or
other security held by or granted to such Borrower to secure payment of any of
the Receivables by a Customer, all rights of indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Governmental Body" shall mean any nation or government, any state or other
political subdivision thereof or any entity exercising the legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.
"Group" shall mean Eltrax Group, Inc., a Pennsylvania corporation and
wholly-owned Subsidiary of International.
"Guarantor" shall mean each of O'Reilly and each other Person who may at
any time guarantee payment or performance of the whole or any part of the
Obligations and "Guarantors" means collectively all such Persons.
"Guaranty" shall mean any guaranty of the obligations of Borrowers executed
by a Guarantor in favor of Agent for its benefit and for the ratable benefit of
Lenders.
"Guaranty Security Documents" shall mean and include (i) a Security
Agreement duly executed by a Guarantor in favor of Agent, in form and content
acceptable to Agent, and by which such Guarantor shall grant a security interest
in favor of Agent, for its benefit and for the ratable benefit of Lenders, in
all of such
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<PAGE>
Guarantor's properties as security for the Obligations and such Guarantor's
Guaranty, and (ii) all Lien Perfection Documents requested by Agent.
"Hazardous Discharge" shall have the meaning set forth in Section 4.19(d)
hereof.
"Hazardous Substance" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act (49 U.S.C. Sections 1801, et seq.), RCRA, or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to regulation
under CERCLA, RCRA or applicable state law, and any other applicable Federal and
state laws now in force or hereafter enacted relating to hazardous waste
disposal.
"Hospitality Division" shall mean the business operations of Hospitality,
International, Senercomm and Squirrel.
"Indebtedness" of a Person at a particular date shall mean all obligations
of such Person which in accordance with GAAP would be classified upon a balance
sheet as liabilities (except capital stock and surplus earned or otherwise) and
in any event, without limitation by reason of enumeration, shall include all
indebtedness, debt and other similar monetary obligations of such Person whether
direct or guaranteed, and all premiums, if any, due at the required prepayment
dates of such indebtedness, and all indebtedness secured by a Lien on assets
owned by such Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person. Any indebtedness of such Person
resulting from the acquisition by such Person of any assets subject to any Lien
shall be deemed, for the purposes hereof, to be the equivalent of the creation,
assumption and incurring of the indebtedness secured thereby, whether or not
actually so created, assumed or incurred.
"Individual Formula Amount" shall mean at the date of determination
thereof, with respect to each Borrower an amount equal to: (a) the Receivables
Advance Rate of Eligible Receivables of such Borrower, minus (b) the aggregate
-----
amount of Letters of Credit outstanding of such Borrower, minus (c) such
-----
reserves as Agent may reasonably deem proper and necessary from time to time.
"Ineligible Security" shall mean any security which may not be underwritten
or dealt in by members of the Federal Reserve System under Section 16 of the
Banking Act of 1933 (12 U.S.C. (S) 24, Seventh).
"Intellectual Property" shall mean property constituting under any
Applicable Law a patent, patent application, copyright, trademark, service mark,
tradename, mask work, trade secret or license or other right to use any of the
foregoing.
"Intellectual Property Claim" shall mean the assertion by any Person of a
claim (whether asserted in writing, by action, suit or proceeding or otherwise)
that a Borrower's ownership, use, marketing, sale or distribution of any
Inventory, Equipment, Intellectual Property or other property or asset is
violative of any ownership of or right to use any Intellectual Property of such
Person.
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<PAGE>
"Interest Period" shall mean the period provided for any Eurodollar Rate
Loan pursuant to Section 2.15(a).
"Interest Rate Agreement" shall mean any forward contracts, future
contracts, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate change agreement or other similar agreement
or arrangement designed to protect Borrower against fluctuations in interest
rates.
"Inventory" shall mean and include, as to each Borrower, all of such
Borrower's now owned or hereafter acquired goods, merchandise and other personal
property, wherever located, to be furnished under any contract of service or
held for sale or lease, all raw materials, work in process, finished goods and
materials and supplies of any kind, nature or description which are or might be
used or consumed in such Borrower's business or used in selling or furnishing
such goods, merchandise and other personal property, and all documents of title
or other documents representing them.
"Investment Property" shall mean and include as to each Borrower, all of
such Borrower's now owned or hereafter acquired securities (whether certificated
of uncertificated), securities entitlements, securities accounts, commodities
contracts and commodities accounts.
"Issuer" shall mean any Person who issues a Letter of Credit and/or accepts
a draft pursuant to the terms hereof.
"Joinder Agreement" shall mean an agreement in the form of Exhibit C
---------
annexed hereto by which a Person that is a wholly-owned Subsidiary of a Borrower
shall become a "Borrower" under, and shall be bound by all the terms of, this
Agreement, but only if and to the extent requested or permitted to do so by
Agent in the exercise of its sole and absolute discretion.
"Lender" and "Lenders" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall include each Person which becomes a
transferee, successor or assign of any Lender.
"Letter of Credit Fees" shall have the meaning set forth in Section 3.2.
"Letters of Credit" shall have the meaning set forth in Section 2.8.
"License Agreement" shall mean any agreement between one or more Borrowers
and a Licensor pursuant to which a Borrower is authorized to use any
Intellectual Property in connection with the manufacturing, marketing, sale or
other distribution of any Inventory of a Borrower.
"Licensor" shall mean any Person from whom any Borrower obtains the right
to use (whether on an exclusive or non-exclusive basis) any Intellectual
Property in connection with one or more Borrower's manufacture, marketing, sale
or other distribution of any Inventory.
"Licensor/Agent Agreement" shall mean an agreement between Agent and a
Licensor, in form and content satisfactory to Agent, by which Agent is given the
unqualified right, vis-a-vis such Licensor, to enforce Agent's Liens with
respect to and to dispose of Borrowers' Inventory with the benefit of any
Intellectual Property applicable thereto, irrespective of Borrowers' default
under any License Agreement with such Licensor.
-12-
<PAGE>
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), Charge,
claim or preference, priority or other security agreement or preferential
arrangement held or asserted in respect of any asset of any kind or nature
whatsoever, including any conditional sale or other title retention agreement,
any lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement under the UCC
or comparable law of any jurisdiction.
"Lien Perfection Documents" shall mean all instruments, agreements, filings
and recordings necessary or, in Agent's reasonable determination, desirable to
perfect, maintain or continue the perfection of, or achieve or maintain the
first priority status of any Lien granted to Agent pursuant to any of the Loan
Documents by any Borrower or any Guarantor, including all UCC-1 financing
statements, pledges, assignments, hypothecations, registrations of pledge,
control agreements, notifications, bailment agreements, landlord or mortgagee
waivers, processor waivers, intercreditor agreements, subordination agreements,
chattel mortgage filings or similar instruments, agreements or documents.
"Lien Waiver Agreement" shall mean an agreement which is executed in favor
of Agent by a Person who owns or occupies premises at which any Collateral may
be located from time to time and by which such Person shall waive any Lien that
such Person may ever have with respect to any of the Collateral and shall
authorize Agent from time to time to enter upon the premises to inspect or
remove the Collateral from such premises.
"Loan Documents" shall mean this Agreement and all of the Other Documents.
"Material Adverse Effect" shall mean a material adverse effect upon (a) the
condition, operations, assets, business or prospects of the applicable
Borrowers', taken as a whole, (b) the Borrowers' and Guarantors', taken as a
whole, ability to pay the Obligations in accordance with the terms thereof, (c)
the value of the Collateral, or Agent's Liens on the Collateral or the priority
of any such Lien or (d) the practical realization of the benefits of Agent's and
each Lender's rights and remedies under this Agreement and the Other Documents.
"Material Contract" shall mean an agreement to which a Borrower or a
Guarantor is a party (other than the Loan Documents) (i) which is deemed a
material contract as provided in Regulation S-K promulgated by the Securities
and Exchange Commission under the Securities Act of 1933, or (ii) for which
breach, termination, cancellation, nonperformance or failure to renew could
reasonably be expected to have a Material Adverse Effect.
"Maximum Facility Amount" shall have the meaning set forth in Section 13.1
hereof.
"Maximum Revolving Advance Amount" shall mean $20,000,000.
"Minor Location" shall mean any physical location of a Borrower (in the
United States of America or Canada) with respect to which Agent's Lien on any
Collateral at such location is not perfected or such Borrower has not delivered
all Lien Perfection Documents requested by Agent in writing.
"Monthly Advances" shall have the meaning set forth in Section 3.1 hereof.
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<PAGE>
"Money Borrowed" shall mean, as applied to any Person, (i) Indebtedness
arising from the lending of money by any other Person to such Person; (ii)
Indebtedness, whether or not in any such case arising from the lending of money
by another Person to such Person, (A) which is represented by notes payable or
drafts accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments, or (C)
upon which interest charges are customarily paid (other than accounts payable)
or that was issued or assumed as full or partial payment for property; (iii)
Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement
obligations with respect to letters of credit or guaranties of letters of
credit; and (v) Indebtedness of such Person under any guaranty of obligations
that would constitute Indebtedness for Money Borrowed under clauses (i) through
(iii) hereof, if owed directly by such Person.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
"Net Amount" shall mean, with reference to Eligible Receivables, the face
amount of such Eligible Receivables on any date, less any and all returns,
----
rebates, discounts (which may, at Agent's option, be calculated on shortest
terms), credits, allowances or Charges (including sales, excise or other taxes)
at any time issued, owing, claimed by Customers, granted, outstanding or payable
in connection with, or any interest accrued on the amount of, such Eligible
Receivables at such date.
"Net Cash Flow" shall mean for any Person, with respect to any fiscal
period, the remainder of such Person's (a) EBITDA minus (b) Unfunded Capital
-----
Expenditures minus (c) all interest expense of such Person minus (d) scheduled
----- -----
principal payments made in respect of Indebtedness for Money Borrowed other than
the Advances hereunder.
"Notes" shall mean the Revolving Credit Notes.
"O'Reilly" shall mean William P. O'Reilly, an individual resident of the
State of Michigan.
"O'Reilly Guaranty" shall mean that certain Limited Guaranty dated the
Closing Date pursuant to which O'Reilly has guaranteed the payment and
performance by Borrowers of the Obligations.
"O'Reilly Pledge Agreement" shall mean that certain Pledge Agreement dated
the Closing Date pursuant to which O'Reilly shall have granted to Agent a Lien
upon the Cash Collateral Account as security for the payment and performance by
Borrowers of the Obligations and O'Reilly's obligations under the O'Reilly
Guaranty.
"Obligations" shall mean and include the following, in each case, whether
now in existence or hereafter arising and howsoever the same may be evidenced,
(i) the principal of, and interest and premium, if any, on the Advances; (ii)
all Indebtedness and other obligations of any Borrower to any Lender under any
Interest Rate Agreement, currency or equity swap, future, option, or other
similar agreement or arrangement; (iii) all other Indebtedness, covenants and
duties now or at any time or times hereafter owing by any or all of Borrowers to
Agent or any Lender arising under or pursuant to this Agreement or any of the
other Loan Documents, whether evidenced by any note or other writing, whether
arising from any extension of credit, opening of a letter of credit, acceptance,
loan, guaranty, indemnification or otherwise, whether direct or indirect,
absolute or contingent, due or to become due, primary or secondary, or joint or
several, including all interest, charges, expenses, fees or other sums
chargeable to any or all Borrowers or Guarantors hereunder or under any of the
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other Loan Documents; and (iv) in the case of PNC and its Affiliates, any
indebtedness, liabilities, obligations, covenants and duties arising in
connection with any banking or related transactions, services or functions
provided to any Borrower or Guarantor in connection with any conduct of such
Borrower's or Guarantor's business (excluding extensions of credit giving rise
to any Indebtedness for Money Borrowed not related to this Agreement or any
other Loan Documents).
"Ordinary Course of Business" shall mean the ordinary course of a
Borrower's business as conducted on the Closing Date.
"Organization Documents" shall mean, with respect to any Person, its
charter, certificate or articles of incorporation, bylaws, articles of
organization, operating agreement, members' agreement, partnership agreement,
voting trust or similar agreement or instrument governing the formation or
operation of such Person.
"Other Documents" shall mean the Notes, the Lien Perfection Documents, each
Interest Rate Agreement, each Joinder Agreement, the Guaranties, the Trademark
Security Agreements, the Patent Security Agreement, the Pledge Agreements, each
Lien Waiver Agreement, the O'Reilly Pledge Agreement, each Licensor/Agent
Agreement and any and all other agreements, instruments and documents, including
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by any Borrower or any Guarantor and/or
delivered to Agent or any Lender in respect of the transactions contemplated by
this Agreement.
"Out-of-Formula Condition" shall have the meaning set forth in Section
2.1(c) hereof.
"Out-of-Formula Loan" shall mean a Revolving Advance made when an Out-of-
Formula Condition exists or the amount of any Revolving Advance which, when
funded, results in an Out-of-Formula Condition.
"Parent" of any Person shall mean a corporation or other entity owning,
directly or indirectly at least 50% of the shares of stock or other Equity
Interests having ordinary voting power to elect a majority of the directors of
the Person, or other individuals performing similar functions for any such
Person.
"Participant" shall have the meaning set forth in Section 16.3(b).
"Patent Security Agreement" shall mean the Patent Security Agreement to be
executed by Senercomm in favor of Agent on or before the Closing Date and by
which Senercomm shall collaterally assign and grant a Lien to Agent, for its
benefit and for the ratable benefit of Lenders, as security for the Obligations,
in all of Senercomm's right, title and interest in and to all of its patents.
"Payment Office" shall mean initially Two Tower Center Boulevard, East
Brunswick, New Jersey 08816; thereafter, such other office of Agent, if any,
which it may designate by notice to Borrowing Agent and to each Lender to be the
Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" shall mean (a) Liens in favor of Agent for the
benefit of Agent and Lenders; (b) Liens for Charges not delinquent or being
Properly Contested, but only if the Lien shall have no effect on the priority of
the Liens in favor of Agent or the value of the assets in which Agent has such a
Lien and a stay
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<PAGE>
of enforcement of any such Lien shall be in effect; (c) Liens disclosed in the
financial statements referred to in Section 5.5, the existence of which Agent
has consented to in writing; (d) deposits or pledges to secure obligations under
worker's compensation, social security or similar laws, or under unemployment
insurance; (e) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the Ordinary
Course of Business; (f) judgment Liens that have been stayed or bonded and
mechanics', workers', materialmen's or other like Liens arising in the Ordinary
Course of Business with respect to obligations which are not due or which are
being Properly Contested; (g) Liens securing Permitted Purchase Money
Indebtedness; and (h) Liens disclosed on Schedule 1.2.
------------
"Permitted Purchase Money Indebtedness" shall mean Purchase Money
Indebtedness of Borrowers which is incurred after the date of this Agreement and
which is secured by no Lien or only by a Purchase Money Lien, provided the
aggregate amount of Purchase Money Indebtedness outstanding at any time may not
exceed $5,000,000. For the purposes of this definition, the principal amount of
any Purchase Money Indebtedness consisting of capitalized leases shall be
computed as a Capitalized Lease Obligation.
"Permitted Sale" shall mean and include a sale or other disposition by the
Borrowers of all or part of the Hospitality Division in which the Borrowers
receive at least $20,000,000 in cash proceeds and all of the cash from such sale
is concurrently remitted to Agent for application to the Obligations in
accordance with this Agreement, so long as (i) at least fifteen (15) Business
Days prior written notice of the sale is given to Agent; and (ii) no Default or
Event of Default exists at the time, or would result from the consummation, of
such sale.
"Permitted Spinoff" shall mean a transaction in which a Borrower creates a
Subsidiary that is, and all times remains, a wholly-owned Subsidiary of such
Borrower and to which such Borrower transfers all or a part of its assets,
provided that no Default or Event of Default exists at the time of, or after
giving effect to, such transaction; such Borrower provides Agent with not less
than fifteen (15) Business Days prior written notice of its intent to effect
such a transaction (in which written notice such Borrower shall summarize all of
the pertinent terms of the proposed transaction); and concurrently with the
consummation of such transaction such Subsidiary shall, at Agent's option,
either (x) execute and deliver to Agent a Joinder Agreement by which such
Subsidiary shall become a Borrower hereunder and bound by all of the terms
hereof and each of the Other Documents or (y) execute and deliver to Agent, for
its benefit and for the ratable benefit of Lenders, a Guaranty and Guaranty
Security Documents.
"Person" shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, institution, public
benefit corporation, joint venture, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA, maintained for employees of Borrowers or any member of the
Controlled Group or any such Plan to which any Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"Pledge Agreements" shall mean the Stock Pledge Agreements dated the
Closing Date executed by each of Eltrax, Technology and International in favor
of Agent pursuant to which such companies have pledged to Agent, for the benefit
of itself and Lenders, all of the issued and outstanding Subsidiary Stock.
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"Properly Contested" shall mean in the case of any Indebtedness of a
Borrower or any Guarantor (including any Charges) that is not paid as and when
due or payable by reason of a Borrower's or any Guarantor's bona fide dispute
concerning its liability to pay same or concerning the amount thereof, (i) such
Indebtedness is being properly contested in good faith by appropriate
proceedings promptly instituted and diligently conducted; (ii) Borrowers or
Guarantor has established appropriate reserves as shall be required in
conformity with GAAP; (iii) the non-payment of such Indebtedness will not have a
Material Adverse Effect and will not result in a forfeiture of any assets of a
Borrower or Guarantor; (iv) no Lien is imposed upon any of a Borrower's or any
Guarantor's assets with respect to such Indebtedness unless such Lien is at all
times junior and subordinate in priority to the Liens in favor of Agent (except
only with respect to property taxes that have priority as a matter of applicable
state law) and enforcement of such Lien is stayed during the period prior to the
final resolution or disposition of such dispute; (v) if the Indebtedness results
from, or is determined by the entry, rendition or issuance against a Borrower or
any Guarantor or any of its assets, of a judgment, writ, order or decree,
execution on such judgment, writ, order or decree is stayed pending a timely
appeal or other judicial review; and (vi) if such contest is abandoned, settled
or determined adversely (in whole or in part) to a Borrower or Guarantor, such
Borrower or Guarantor forthwith pays such Indebtedness and all penalties,
interest and other amounts due in connection therewith.
"Purchase Money Indebtedness" shall mean and include (i) Indebtedness
(other than the Obligations) of Borrowers for the payment of all or any part of
the purchase price of any Equipment, (ii) any Indebtedness (other than the
Obligations) of Borrowers incurred at the time of or within ten (10) days prior
to or after the acquisition of any Equipment for the purpose of financing all or
any part of the purchase price thereof (whether by means of a loan agreement,
capitalized lease or otherwise), and (iii) any renewals, extensions or
refinancings (but not any increases in the principal amounts) thereof
outstanding at the time.
"Purchase Money Lien" shall mean a Lien upon Equipment which secures
Purchase Money Indebtedness, but only if such Lien shall at all times be
confined solely to the fixed assets acquired through the incurrence of the
Purchase Money Indebtedness secured by such Lien and such Lien constitutes a
purchase money security interest under the UCC.
"Purchasing Lender" shall have the meaning set forth in Section 16.3
hereof.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C. (S)
6901 et seq.
"Real Property" shall mean all of each Borrower's right, title and interest
in and to any real property, whether owned or leased by such Borrower.
"Receivables" shall mean and include, as to each Borrower, all of such
Borrower's accounts, contract rights, instruments (including those evidencing
Indebtedness owed to a Borrower by any of its Affiliates), documents, chattel
paper, general intangibles relating to accounts, drafts and acceptances, and all
other forms of obligations owing to such Borrower arising out of or in
connection with the sale or lease of Inventory or the rendition of services, all
guarantees and other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically sold or assigned
to Agent hereunder.
"Receivables Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(i) hereof.
"Release" shall have the meaning set forth in Section 5.7(c)(i) hereof.
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"Reportable Event" shall mean a reportable event described in Section
4043(b) of ERISA or the regulations promulgated thereunder.
"Required Lenders" shall mean Lenders holding at least sixty-six and two-
thirds percent (66 2/3%) of the Advances and, if no Advances are outstanding,
shall mean Lenders holding sixty-six and two-thirds percent (66 2/3%) of the
Commitment Percentages; provided, however, that if any Lender shall be a
-------- -------
Defaulting Lender, then, for so long as such breach continues, the term
"Required Lenders" shall mean Lenders (excluding each Defaulting Lender) holding
at least sixty-six and two-thirds percent (66 2/3%) of the Advances (excluding
Advances held by each Defaulting Lender), and, if no Advances are outstanding,
at least sixty-six and two-thirds percent (66 2/3%) of the Commitment
Percentages (excluding the Commitment Percentages held by a Defaulting Lender).
"Reserve Percentage" shall mean the maximum effective percentage in effect
on any day as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) for determining the reserve requirements (including
supplemental, marginal and emergency reserve requirements) with respect to
eurocurrency funding.
"Revolving Advances" shall mean Advances made other than Letters of Credit
under this Agreement to or for the benefit of any Borrower.
"Revolving Credit Notes" shall mean, collectively, promissory notes
referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate per annum equal to
(a) the sum of the Alternate Base Rate plus the Applicable Margin percent with
----
respect to Domestic Rate Loans, and (b) the sum of the Eurodollar Rate plus the
----
Applicable Margin with respect to Eurodollar Rate Loans.
"Section 20 Subsidiary" shall mean the Subsidiary of the bank holding
company controlling PNC, which Subsidiary has been granted authority by the
Federal Reserve Board to underwrite and deal in certain Ineligible Securities.
"Settlement Date" shall mean the Closing Date and thereafter Wednesday of
each week unless such day is not a Business Day in which case it shall be the
next succeeding Business Day.
"Solvent" shall mean, with respect to any Person, such Person (i) owns
Property whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent), (ii) is able to pay
all of its Indebtedness as such Indebtedness matures, (iii) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage, and (iv) is not "insolvent" within
the meaning of Section 101(32) of the Bankruptcy Code.
"Squirrel Canada" shall mean Squirrel Systems of Canada, Ltd., a federal
Canadian corporation and wholly-owned Subsidiary of Squirrel.
"Subsidiary" shall mean a corporation or other entity of whose shares of
stock or other Equity Interests having ordinary voting power (other than stock
or other Equity Interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
Persons performing similar functions for such entity, are owned, directly or
indirectly, by such Person.
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"Subsidiary Stock" shall mean (i) all of the Equity Interests owned by
Eltrax of Technology, Squirrel, Senercomm, Customer Care, International and
Hospitality, (ii) all of the Equity Interests owned by Technology of ASP and
(iii) all of the Equity Interests owned by International of Group.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Termination Event" shall mean (i) a Reportable Event with respect to any
Plan or Multiemployer Plan; (ii) the withdrawal of any Borrower or any member of
the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA; (iii) the providing of notice of intent to terminate a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any
event or condition (a) which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
any Borrower or any member of the Controlled Group from a Multiemployer Plan.
"Toxic Substance" shall mean and include any material present on the Real
Property or the Leasehold Interests which has been shown to have significant
adverse effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. (S) 2601 et seq., applicable state law,
or any other applicable Federal or state laws now in force or hereafter enacted
relating to toxic substances. "Toxic Substance" includes asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.
"Trademark Security Agreements" shall mean the Trademark Security
Agreements to be executed by each of Senercomm, Eltrax, Technology and ASP in
favor of Agent on or before the Closing Date and by which such companies shall
collaterally assign and grant a Lien to Agent, for its benefit and for the
ratable benefit of Lenders, as security for the Obligations, upon all of their
respective right, title and interest in and to all of their trademarks.
"UCC" shall mean the Uniform Commercial Code (or any successor statute) as
adopted and in force in the State of Georgia or, when the laws of any other
state govern the method or manner of the perfection or enforcement of any
security interest in any of the Collateral, the Uniform Commercial Code (or any
successor statute) of such state.
"Undrawn Availability" shall mean, at any date, an amount equal to (a) the
lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance Amount,
minus (b) the sum of (i) the outstanding amount of Advances plus (ii) all
- ----- ----
amounts due and owing to Borrowers' trade creditors which are outstanding beyond
normal trade terms , plus (iii) fees and expenses for which Borrowers are liable
----
but which have not been paid or charged to Borrowers' Account.
"Unfunded Capital Expenditures" shall mean, for any period, the Capital
Expenditures, including Capitalized Software Expenditures, of a Person not
financed by a means other than an Advance hereunder.
"Upstream Payment" shall mean a payment or distribution of cash or other
property by a Subsidiary of a Borrower to such Borrower, whether in repayment of
Indebtedness owed by such Subsidiary to such Borrower, to pay dividends on
account of such Borrower's ownership of Equity Interests or otherwise.
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"Value" shall mean, with reference to the value of Inventory, value
determined on the basis of the lower of cost or market of such Inventory, with
the cost thereof calculated on a first-in, first-out basis, determined in
accordance with GAAP.
"Week" shall mean the time period commencing with the opening of business
on a Wednesday and ending on the end of business the following Tuesday.
1.3 UCC Terms. All terms used herein and defined in the UCC as adopted in
---------
the State of Georgia shall have the meaning given therein unless otherwise
defined herein.
1.4 Certain Matters of Construction. The terms "herein," "hereof," and
-------------------------------
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context,
terms used herein in the singular also include the plural and vice versa. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references herein to the
time of day shall mean the time in New York, New York. Unless otherwise
provided, all references to any instruments or agreements to which Agent is a
party, including references to any of the Other Documents, shall include any and
all modifications or amendments thereto and any and all extensions or renewals
thereof. Whenever the words "including" or "include" shall be used, such words
shall be understood to mean "including, without limitation" or "include, without
limitation." A Default or Event of Default shall be deemed to exist at all
times during the period commencing on the date that such Default or Event of
Default occurs to the date on which such Default or Event of Default is waived
in writing pursuant to this Agreement or, in the case of a Default, is cured
with any period of cure expressly provided for in this Agreement; and an Event
of Default shall "continue" or be "continuing" until such Event of Default has
been waived in writing by Agent. Any Lien referred to in this Agreement or any
of the Other Documents as having been created in favor of Agent, any agreement
entered into by Agent pursuant to this Agreement or any of the Other Documents,
any payment made by or to or funds received by Agent pursuant to or as
contemplated by this Agreement or any of the Other Documents, or any act taken
or admitted to be taken by Agent, shall, unless otherwise expressly provided, be
created, entered into, made or received, or taken or omitted, for the benefit or
account of Agent and Lenders.
SECTION 2. ADVANCES, PAYMENTS
------------------
2.1 Revolving Advances.
------------------
(a) Subject to the terms and conditions set forth in this Agreement,
each Lender, severally and not jointly, will make Revolving Advances to
Borrowers from time to time during the Term in aggregate amounts outstanding at
any time no to exceed such Lender's Commitment Percentage of the lesser of (x)
the Maximum Revolving Advance Amount less the aggregate amount of outstanding
Letters of Credit or (y) an amount equal to the sum of:
(i) up to 85%, subject to the provisions of Section 2.1(b) hereof
("Advance Rate"), of the Net Amount of Eligible Receivables, plus
----
(ii) the lesser of (a) 95% of the amount of Cash Collateral in the
Cash Collateral Account or (b) $2,660,000, minus
-----
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(iii) the aggregate amount of Letters of Credit outstanding, minus
-----
(iv) such reserves as Agent may reasonably deem proper and necessary
from time to time after giving Borrowing Agent five (5) Business Days prior
written notice of the imposition of such reserves.
The amount derived from the sum of Sections 2.1(a)(y)(i) and (ii) minus
-----
Sections 2.1 (a)(y)(iii) and (iv) at any time and from time to time shall be
referred to as the "Formula Amount." The Revolving Advances shall be evidenced
by secured promissory notes ("Revolving Credit Notes") in favor of each Lender
in substantially in the form attached hereto as Exhibit A. Borrowers and
---------
Lenders agree that, if any event occurs or any condition exists that Agent
determines is likely to have a Material Adverse Effect, or if a Default or Event
of Default exists, Agent shall have the right (exercisable at such time or times
as Agent deems appropriate) to require that separate calculations of the
Individual Formula Amount be made for each Borrower, as well as the right to
limit the use of proceeds of Advances by each Borrower to an amount that does
not exceed such Borrower's Individual Formula Amount.
(b) Discretionary Rights. The Advance Rate may be increased or
--------------------
decreased by Agent at any time and from time to time in the exercise of its
reasonable discretion. Each Borrower consents to any such increases or
decreases and acknowledges that decreasing the Advance Rate or increasing the
reserves may limit or restrict Advances requested by Borrowing Agent. Agent
shall give Borrowing Agent five (5) Business Days prior written notice of its
intention to decrease the Advance Rates.
(c) Out-of-Formula Loans. If the unpaid balance of Revolving Advances
--------------------
outstanding at any time should exceed the Formula Amount at such time (an "Out-
of-Formula Condition"), such Revolving Advances shall nevertheless constitute
Obligations that are secured by the Collateral and entitled to all of the
benefits of the Loan Documents. If Agent or Lenders are willing in their sole
and absolute discretion to make Out-of-Formula Loans, such Out-of-Formula Loans
shall be payable on demand and shall bear interest at the Default Rate; provided
--------
that, if Lenders do make Out-of-Formula Loans, neither Agent nor Lenders shall
be deemed thereby to have changed the limits of Section 2.1(a) or be obligated
to honor requests for Revolving Advances when an Out-of-Formula Condition exists
or would result therefrom.
(d) Procedure for Revolving Advances Borrowing. Except as otherwise
------------------------------------------
provided in Section 2.15 below, Borrowing Agent on behalf of any Borrower may
notify Agent prior to 11:00 a.m. on a Business Day of a Borrower's request to
incur, on that day, a Revolving Advance hereunder. Should any amount required
to be paid as principal or interest hereunder, or under any of the other Loan
Documents, or as fees or other charges under this Agreement or any other
agreement with Agent or Lenders, or with respect to any other Obligation, become
due, same shall be deemed a request for a Revolving Advance as of the date such
payment is due, in the amount required to pay in full such interest, fee, charge
or Obligation under this Agreement or any other agreement with Agent or Lenders,
and such request shall be irrevocable.
2.2 Disbursement of Advance Proceeds. All Advances shall be disbursed
--------------------------------
from whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrowers to Agent or Lenders,
shall be charged to Borrowers' Account on Agent's books. During the Term,
Borrowers may use the Revolving Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Revolving Advance requested by Borrowers or deemed to have been
requested by Borrowers under Section 2.1(d) hereof shall, with respect to
requested Revolving Advances to the extent Lenders make such Revolving Advances,
be made available to the Borrowers on the
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day so requested by way of credit to such operating account at PNC, or such
other bank as Borrowing Agent may designate following notification to Agent, in
immediately available federal funds or other immediately available funds or,
with respect to Revolving Advances deemed to have been requested by any
Borrower, be disbursed to Agent to be applied to the outstanding Obligations
giving rise to such deemed request.
2.3 Maximum Advances. The aggregate balance of Revolving Advances
----------------
outstanding at any time shall not exceed the lesser of (a) Maximum Revolving
Advance Amount or (b) the Formula Amount.
2.4 Repayment of Obligations.
------------------------
(a) The Advances and other Obligations shall be due and payable in
full on the last day of the Term subject to earlier prepayment as herein
provided.
(b) Each Borrower recognizes that the amounts evidenced by checks,
notes, drafts or any other items of payment relating to and/or proceeds of
Collateral may not be collectible by Agent on the date received. In
consideration of Agent's agreement to conditionally credit Borrowers' Account as
of the Business Day on which Agent receives those items of payment, each
Borrower agrees that, in computing the charges under this Agreement, all items
of payment shall be deemed applied by Agent on account of the Obligations one
(1) Business Day after the Business Day that Agent receives such payments via
wire transfer or electronic depository check. Agent is not, however, required
to credit Borrowers' Account for the amount of any item of payment that is
unsatisfactory to Agent and Agent may charge Borrowers' Account for the amount
of any item of payment which is returned to Agent unpaid.
(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the Other Documents shall be made to Agent at the
Payment Office not later than 1:00 p.m. on the due date therefor in Dollars in
federal funds or other funds immediately available to Agent. Agent and Lenders
shall have the right to effectuate payment on any and all Obligations due and
owing hereunder by charging Borrowers' Account or by making Advances as provided
in Section 2.1 and Section 2.15 hereof.
(d) Borrowers shall pay principal, interest, and all other amounts
payable hereunder, or under any related agreement, without any deduction
whatsoever, including any deduction for any setoff or counterclaim.
2.5 Repayment of Excess Advances. The aggregate balance of Advances
----------------------------
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder shall be immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of Default has
occurred.
2.6 Statement of Account. Agent shall maintain, in accordance with its
--------------------
customary procedures, a loan account ("Borrowers' Account") in the name of
Borrowers in which shall be recorded the date and amount of each Advance made by
Agent and the date and amount of each payment in respect thereof; provided,
--------
however, the failure by Agent to record the date and amount of any Advance shall
- -------
not adversely affect Agent or any Lender. Each month, Agent shall send to
Borrowing Agent a statement showing the accounting for the Advances made,
payments made or credited in respect thereof, and other transactions between
Agent and Borrowers during such month. The monthly statements shall be deemed
correct and binding upon Borrowers in the absence of manifest error and shall
constitute an account stated between Lenders and Borrowers unless Agent receives
a written statement of Borrowers' specific exceptions thereto within thirty (30)
days after such
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statement is received by Borrowing Agent. The records of Agent with respect to
the Borrowers' Account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable
thereto.
2.7 Letters of Credit. Subject to the terms and conditions hereof, Agent
-----------------
shall issue or cause the issuance of standby and documentary letters of credit
("Letters of Credit") on behalf of any Borrower; provided, however, that Agent
-------- -------
will not be required to issue or cause to be issued any Letters of Credit to the
extent that the face amount of such Letters of Credit then cause the sum of (i)
the outstanding Revolving Advances plus (ii) outstanding Letters of Credit to
----
exceed the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula
Amount. The maximum amount of Letters of Credit outstanding shall not exceed
$3,000,000 in the aggregate. All disbursements or payments related to Letters
of Credit shall be deemed to be Revolving Advances and shall bear interest at
the Revolving Interest Rate for Domestic Rate Loans. Letters of Credit that have
not been drawn upon shall not bear interest.
2.8 Issuance of Letters of Credit.
-----------------------------
(a) Borrowing Agent, on behalf of Borrowers, may request Agent to
issue or cause the issuance of a Letter of Credit by delivering to Agent at the
Payment Office, Agent's form of Letter of Credit Application (the "Letter of
Credit Application") completed to the satisfaction of Agent; and, such other
certificates, documents and other papers and information as Agent may reasonably
request. Borrowing Agent, on behalf of Borrowers, also has the right to give
instructions and make agreements with respect to any application, any applicable
letter of credit and security agreement, any applicable letter of credit
reimbursement agreement and/or any other applicable agreement, any letter of
credit and the disposition of documents, disposition of any unutilized funds,
and to agree with Agent upon any amendment, extension or renewal of any Letter
of Credit.
(b) Each Letter of Credit shall, among other things, (i) provide for
the payment of sight drafts or acceptances of usance drafts when presented for
honor thereunder in accordance with the terms thereof and when accompanied by
the documents described therein and (ii) have an expiry date not later than one
(1) year after such Letter of Credit's date of issuance and in no event later
than sixty (60) days prior to the last day of the Term. Each Letter of Credit
shall be subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, and any
amendments or revision thereof adhered to by the Issuer and, to the extent not
inconsistent therewith, the laws of the State of New Jersey.
(c) Agent shall use its reasonable efforts to notify Lenders of the
request by Borrowing Agent for a Letter of Credit hereunder.
(d) Agent shall have absolute discretion whether to accept any draft.
Without in any way limiting Agent's absolute discretion whether to accept any
draft, Borrowing Agent will not present for acceptance any draft, and Agent will
generally not accept any drafts (i) that arise out of transactions involving the
sale of goods by any Borrower not in the ordinary course of its business, (ii)
that involve a sale to an Affiliate of any Borrower, (iii) that involve any
purchase for which Agent has not received all related documents, instruments and
forms requested by Agent, (iv) for which Agent is unable to locate a purchaser
in the ordinary course of business on standard terms, or (v) that is not
eligible for discounting with Federal Reserve Banks pursuant to paragraph 7 of
Section 13 of the Federal Reserve Act.
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2.9 Requirements For Issuance of Letters of Credit.
----------------------------------------------
(a) In connection with the issuance of any Letter of Credit, Borrowers
shall indemnify, save and hold Agent, each Lender and each Issuer harmless from
any loss, cost, expense or liability, including payments made by Agent, any
Lender or any Issuer and expenses and reasonable attorneys' fees incurred by
Agent, any Lender or Issuer arising out of, or in connection with, any Letter of
Credit to be issued or created for any Borrower. Borrowers shall be bound by
Agent's or any Issuer's regulations and good faith interpretations of any Letter
of Credit issued or created for Borrowers' Account, although this interpretation
may be different from its own; and, neither Agent, nor any Lender, nor any
Issuer nor any of their correspondents shall be liable for any error,
negligence, or mistakes, whether of omission or commission, in following
Borrowing Agent's or any Borrower's instructions or those contained in any
Letter of Credit or of any modifications, amendments or supplements thereto or
in issuing or paying any Letter of Credit, except for Agent's, any Lender's, any
Issuer's or such correspondents' willful misconduct or gross negligence.
(b) Borrowing Agent shall authorize and direct any Issuer to name the
applicable Borrower as the "Applicant" or "Account Party" of each Letter of
Credit. If Agent is not the Issuer of any Letter of Credit, Borrower shall
authorize and direct the Issuer to deliver to Agent all instruments, documents,
and other writings and property received by the Issuer pursuant to the Letter of
Credit and to accept and rely upon Agent's instructions and agreements with
respect to all matters arising in connection with the Letter of Credit, the
application therefor or any acceptance therefor.
(c) In connection with all Letters of Credit issued or caused to be
issued by Agent under this Agreement, each Borrower hereby appoints Agent, or
its designee, as its attorney, with full power and authority (i) to sign and/or
endorse such Borrower's name upon any warehouse or other receipts, letter of
credit applications and acceptances; (ii) to sign such Borrower's name on bills
of lading; (iii) to clear Inventory through the United States of America Customs
Department ("Customs") in the name of such Borrower or Agent or Agent's
designee, and to sign and deliver to Customs officials powers of attorney in the
name of such Borrower for such purpose; and (iv) to complete in such Borrower's
name or Agent's, or in the name of Agent's designee, any order, sale or
transaction, obtain the necessary documents in connection therewith, and collect
the proceeds thereof. Neither Agent nor its attorneys will be liable for any
acts or omissions nor for any error of judgment or mistakes of fact or law,
except for Agent's or its attorney's willful misconduct. This power, being
coupled with an interest, is irrevocable as long as any Letters of Credit remain
outstanding.
(d) Each Lender shall to the extent of the percentage amount equal to
the product of such Lender's Commitment Percentage times the aggregate amount of
all unreimbursed reimbursement obligations arising from disbursements made or
obligations incurred with respect to the Letters of Credit be deemed to have
irrevocably purchased an undivided participation in each such unreimbursed
reimbursement obligation. In the event that at the time a disbursement is made
the unpaid balance of Revolving Advances exceeds or would exceed, with the
making of such disbursement, the lesser of (i) the Maximum Revolving Advance
Amount or (ii) the Formula Amount, and such disbursement is not reimbursed by
Borrowers within two (2) Business Days, Agent shall promptly notify each Lender
and upon Agent's demand each Lender shall pay to Agent such Lender's
proportionate share of such unreimbursed disbursement together with such
Lender's proportionate share of Agent's unreimbursed costs and expenses relating
to such unreimbursed disbursement. Upon receipt by Agent of a repayment from
any Borrower of any amount disbursed by Agent for which Agent had already been
reimbursed by Lenders, Agent shall deliver to each Lender that Lender's pro rata
share of such repayment. Each Lender's participation commitment shall continue
until the last to occur of any of the following events: (A) Agent ceases to be
obligated to issue or cause to be issued Letters of Credit hereunder; (B) no
Letter of
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Credit issued hereunder remains outstanding and uncanceled; or (C) all Persons
(other than the applicable Borrower) have been fully reimbursed for all payments
made under or relating to Letters of Credit.
(e) Upon or after the occurrence of a Default or an Event of Default,
Borrowers will cause cash to be deposited and maintained in an account with
Agent, as cash collateral, in an amount equal to one hundred and five percent
(105%) of the outstanding Letters of Credit, and each Borrower hereby
irrevocably authorizes Agent, in its discretion, on such Borrower's behalf and
in such Borrower's name, to open such an account and to make and maintain
deposits therein, or in an account opened by such Borrower, in the amounts
required to be made by such Borrower, out of the proceeds of Receivables or
other Collateral or out of any other funds of such Borrower coming into any
Lender's possession at any time. Agent will invest such cash collateral (less
applicable reserves) in such short-term money-market items as to which Agent and
such Borrower mutually agree and the net return on such investments shall be
credited to such account and constitute additional cash collateral. No Borrower
may withdraw amounts credited to any such account except upon payment and
performance in full of all Obligations and termination of this Agreement.
2.10 Additional Payments. Any sums expended by Agent or any Lender due to
-------------------
any Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document, including any Borrower's obligations under
Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrowers'
Account as a Revolving Advance of a Domestic Rate Loan and added to the
Obligations.
2.11 Manner of Borrowing and Payment.
-------------------------------
(a) Each borrowing of Revolving Advances shall be advanced according
to the Commitment Percentages of Lenders.
(b) Each payment (including each prepayment) by Borrowers on account
of the principal of and interest on the Revolving Advances, shall be applied to
the Revolving Advances pro rata according to the applicable Commitment
Percentages of Lenders. Except as expressly provided herein, all payments
(including prepayments) to be made by any Borrower on account of principal,
interest and fees shall be made without set off or counterclaim and shall be
made to Agent on behalf of the Lenders to the Payment Office, in each case on or
prior to 1:00 p.m., in Dollars and in immediately available funds.
(c) (i) Notwithstanding anything to the contrary contained in
Sections 2.11(a) and (b) hereof, commencing with the first Business Day
following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by any Borrower on account of Revolving
Advances shall be applied first to those Revolving Advances advanced by Agent.
On or before 1:00 p.m. on each Settlement Date commencing with the first
Settlement Date following the Closing Date, Agent and Lenders shall make certain
payments as follows: (i) if the aggregate amount of new Revolving Advances made
by Agent during the preceding Week (if any) exceeds the aggregate amount of
repayments applied to outstanding Revolving Advances during such preceding Week,
then each Lender shall provide Agent with funds in an amount equal to its
applicable Commitment Percentage of the difference between (w) such Revolving
Advances and (x) such repayments and (ii) if the aggregate amount of repayments
applied to outstanding Revolving Advances during such Week exceeds the aggregate
amount of new Revolving Advances made during such Week, then Agent shall provide
each Lender with funds in an amount equal to such Lender's applicable Commitment
Percentage of the difference between (y) such repayments and (z) such Revolving
Advances.
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(ii) Each Lender shall be entitled to earn interest at the
applicable Revolving Interest Rate on outstanding Advances which it has funded.
(iii) Promptly following each Settlement Date, Agent shall submit
to each Lender a certificate with respect to payments received and Advances made
during the Week immediately preceding such Settlement Date. Such certificate of
Agent shall be conclusive in the absence of manifest error.
(d) If any Lender or Participant (a "benefitted Lender") shall at any
time receive any payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or involuntarily
or by set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender's
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such benefitted Lender shall
purchase for cash from the other Lenders a participation in such portion of each
such other Lender's Advances, or shall provide such other Lender with the
benefits of any such Collateral, or the proceeds thereof, as shall be necessary
to cause such benefitted Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of the other Lenders; provided,
--------
however, that if all or any portion of such excess payment or benefits is
- -------
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. Each Lender so purchasing a portion of another
Lender's Advances may exercise all rights of payment (including rights of set-
off) with respect to such portion as fully as if such Lender were the direct
holder of such portion.
(e) Unless Agent shall have been notified by telephone, confirmed in
writing, by any Lender that such Lender will not make the amount which would
constitute its applicable Commitment Percentage of the Advances available to
Agent, Agent may (but shall not be obligated to) assume that such Lender shall
make such amount available to Agent on the next Settlement Date and, in reliance
upon such assumption, make available to Borrowers a corresponding amount. Agent
will promptly notify Borrowers of its receipt of any such notice from a Lender.
If such amount is made available to Agent on a date after such next Settlement
Date, such Lender shall pay to Agent on demand an amount equal to the product of
(i) the daily average Federal Funds Rate (computed on the basis of a year of 360
days) during such period as quoted by Agent, times (ii) such amount, times (iii)
the number of days from and including such Settlement Date to the date on which
such amount becomes immediately available to Agent. A certificate of Agent
submitted to any Lender with respect to any amounts owing under this paragraph
(e) shall be conclusive, in the absence of manifest error. If such amount is
not in fact made available to Agent by such Lender within three (3) Business
Days after such Settlement Date, Agent shall be entitled to recover such an
amount, with interest thereon at the rate per annum then applicable to such
Revolving Advances hereunder, on demand from Borrowers; provided, however, that
-------- -------
Agent's right to such recovery shall not prejudice or otherwise adversely affect
Borrowers' rights (if any) against such Lender.
2.12 Mandatory Prepayments. Subject to Section 4.3 hereof, when any
---------------------
Borrower sells or otherwise disposes of any Collateral other than Inventory in
the Ordinary Course of Business, Borrowers shall repay the Advances in an amount
equal to the net proceeds of such sale (i.e., gross proceeds less the reasonable
costs of such sales or other dispositions), such repayments to be made promptly
but in no event more than one (1) Business Day following receipt of such net
proceeds, and until the date of payment, such proceeds shall be held in trust
for Agent. The foregoing shall not be deemed to be implied consent to any such
sale otherwise prohibited by the terms and conditions hereof. Such repayments
shall be applied first, to the Obligations in such
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order as Agent may determine, subject to Borrowers' ability to reborrow
Revolving Advances in accordance with the terms hereof.
2.13 Use of Proceeds. Borrowers shall apply the proceeds of Advances to
---------------
(i) repay existing indebtedness owed to Citizens Bank, (ii) pay fees and
expenses relating to this transaction, (iii) provide for Borrowers' working
capital needs, and (iv) to reimburse Issuer for Letters of Credit.
2.14 Defaulting Lender.
-----------------
(a) Notwithstanding anything to the contrary contained herein, in the
event any Lender (x) has refused (which refusal constitutes a breach by such
Lender of its obligations under this Agreement) to make available its portion of
any Advance or (y) notifies either Agent or Borrowing Agent that it does not
intend to make available its portion of any Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this Agreement)
(each, a "Lender Default"), all rights and obligations hereunder of such Lender
(a "Defaulting Lender") as to which a Lender Default is in effect and of the
other parties hereto shall be modified to the extent of the express provisions
of this Section 2.15 while such Lender Default remains in effect.
(b) Advances shall be incurred pro rata from Lenders (the "Non-
Defaulting Lenders") which are not Defaulting Lenders based on their respective
Commitment Percentages, and no Commitment Percentage of any Lender or any pro
rata share of any Advances required to be advanced by any Lender shall be
increased as a result of such Lender Default. Amounts received in respect of
principal of any type of Advances shall be applied to reduce the applicable
Advances of each Lender pro rata based on the aggregate of the outstanding
Advances of that type of all Lenders at the time of such application; provided,
that, such amount shall not be applied to any Advances of a Defaulting Lender at
any time when, and to the extent that, the aggregate amount of Advances of any
Non-Defaulting Lender exceeds such Non-Defaulting Lender's Commitment Percentage
of all Advances then outstanding.
(c) A Defaulting Lender shall not be entitled to give instructions to
Agent or to approve, disapprove, consent to or vote on any matters relating to
this Agreement and the Other Documents. All amendments, waivers and other
modifications of this Agreement and the Other Documents may be made without
regard to a Defaulting Lender and, for purposes of the definition of "Required
Lenders," a Defaulting Lender shall be deemed not to be a Lender and not to have
Advances outstanding.
(d) Other than as expressly set forth in this Section 2.15, the rights
and obligations of a Defaulting Lender (including the obligation to indemnify
Agent) and the other parties hereto shall remain unchanged. Nothing in this
Section 2.15 shall be deemed to release any Defaulting Lender from its
obligations under this Agreement and the Other Documents, shall alter such
obligations, shall operate as a waiver of any default by such Defaulting Lender
hereunder, or shall prejudice any rights which any Borrower, Agent or any Lender
may have against any Defaulting Lender as a result of any default by such
Defaulting Lender hereunder.
(e) In the event a Defaulting Lender retroactively cures to the
satisfaction of Agent the breach which caused a Lender to become a Defaulting
Lender, such Defaulting Lender shall no longer be a Defaulting Lender and shall
be treated as a Lender under this Agreement.
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2.15 Provisions Applicable to Eurodollar Rate Loans.
----------------------------------------------
(a) Notwithstanding the provisions of Section 2.1 above, in the event
any Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent shall
give Agent at least three (3) Business Days prior written notice, specifying (i)
the date of the proposed borrowing (which shall be a Business Day), (ii) the
type of borrowing and the amount on the date of such Advance to be borrowed,
which amount shall be in a minimum amount of $1,000,000 and integral multiples
of $100,000 in excess thereof, and (iii) the duration of the first Interest
Period therefor. Interest Periods for Eurodollar Rate Loans shall be for one,
two or three months; provided, if an Interest Period would end on a day that is
not a Business Day, it shall end on the next succeeding Business Day unless such
day falls in the next succeeding calendar month in which case the Interest
Period shall end on the next preceding Business Day. No Eurodollar Rate Loan
shall be made available to Borrower during the continuance of a Default or an
Event of Default.
(b) Each Interest Period of a Eurodollar Rate Loan shall commence on
the date such Eurodollar Rate Loan is made and shall end on such date as
Borrowing Agent may elect as set forth in (a)(iii) above provided that the exact
length of each Interest Period shall be determined in accordance with the
practice of the interbank market for offshore Dollar deposits and no Interest
Period shall end after the last day of the Term.
Borrowing Agent shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.15(a) or by its notice of conversion given to Agent pursuant to
Section 2.15(c), as the case may be. Borrowing Agent shall elect the duration
of each succeeding Interest Period by giving irrevocable written notice to Agent
of such duration not less than three (3) Business Days prior to the last day of
the then current Interest Period applicable to such Eurodollar Rate Loan. If
Agent does not receive timely notice of the Interest Period elected by Borrowing
Agent, Borrowers shall be deemed to have elected to convert to a Domestic Rate
Loan subject to Section 2.15(c) herein below.
(c) Provided that no Event of Default shall have occurred and be
continuing, Borrowing Agent may, on the last Business Day of the then current
Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any
Business Day with respect to Domestic Rate Loans, convert any such loan into a
loan of another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business Day
of the then current Interest Period applicable to such Eurodollar Rate Loan. If
Borrowing Agent desires to convert a loan, Borrowing Agent shall give Agent not
less than three (3) Business Days' prior written notice to convert from a
Domestic Rate Loan to a Eurodollar Rate Loan or one (1) Business Day's prior
written notice to convert from a Eurodollar Rate Loan to a Domestic Rate Loan,
specifying the date of such conversion, the loans to be converted and if the
conversion is from a Domestic Rate Loan to any other type of loan, the duration
of the first Interest Period therefor. After giving effect to each such
conversion, there shall not be outstanding more than three (3) Eurodollar Rate
Loans, in the aggregate.
(d) Borrowers shall jointly and severally indemnify Agent and Lenders
and hold Agent and Lenders harmless from and against any and all losses or
expenses that Agent and Lenders may sustain or incur as a consequence of any
prepayment, conversion of or any default by Borrowers in the payment of the
principal of or interest on any Eurodollar Rate Loan or failure by Borrowers to
complete a borrowing of, a prepayment of or conversion of or to a Eurodollar
Rate Loan after notice thereof has been given, including any interest payable by
Agent or Lenders to lenders of funds obtained by it in order to make or maintain
its Eurodollar Rate Loans hereunder. A certificate prepared in good faith as to
any additional amounts payable
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<PAGE>
pursuant to the foregoing sentence submitted by Agent or any Lender to Borrowing
Agent shall be conclusive absent manifest error.
(e) Notwithstanding any other provision hereof, if any applicable law,
treaty, regulation or directive, or any change therein or in the interpretation
or application thereof, shall make it unlawful for any Lender (for purposes of
this subsection (g), the term "Lender" shall include any Lender and the office
or branch where any Lender or any corporation or bank controlling such Lender
makes or maintains any Eurodollar Rate Loans) to make or maintain its Eurodollar
Rate Loans, the obligation of Lenders to make Eurodollar Rate Loans hereunder
shall forthwith be canceled and Borrowers shall, if any affected Eurodollar Rate
Loans are then outstanding, promptly upon request from Agent, either pay all
such affected Eurodollar Rate Loans or convert such affected Eurodollar Rate
Loans into loans of another type. If any such payment or conversion of any
Eurodollar Rate Loan is made on a day that is not the last day of the Interest
Period applicable to such Eurodollar Rate Loan, Borrowers shall pay Agent, upon
Agent's request, such amount or amounts as may be necessary to compensate
Lenders for any loss or expense sustained or incurred by Lenders in respect of
such Eurodollar Rate Loan as a result of such payment or conversion, including
any interest or other amounts payable by Lenders to lenders of funds obtained by
Lenders in order to make or maintain such Eurodollar Rate Loan. A certificate
prepared in good faith as to any additional amounts payable pursuant to the
foregoing sentence submitted by Lenders to Borrowing Agent shall be conclusive
absent manifest error.
SECTION 3. INTEREST AND FEES.
------------------
3.1 Interest. Interest on Advances shall accrue and be payable monthly, in
--------
arrears on the last day of each month with respect to Domestic Rate Loans and,
with respect to Eurodollar Rate Loans, at the end of each Interest Period or,
for Eurodollar Rate Loans with an Interest Period in excess of three (3) months,
at the earlier of (a) each three (3) months on the anniversary date of the
commencement of such Eurodollar Rate Loan or (b) the end of the Interest Period.
Interest charges shall be computed on the actual principal amount of Advances
outstanding during the month (the "Monthly Advances") at a rate per annum equal
to, with respect to Revolving Advances, the applicable Revolving Interest Rate.
Whenever, subsequent to the date of this Agreement, the Alternate Base Rate is
increased or decreased, the Revolving Interest Rate for Domestic Rate Loans
shall be similarly changed without notice or demand of any kind by an amount
equal to the amount of such change in the Alternate Base Rate during the time
such change or changes remain in effect. The Eurodollar Rate shall be adjusted
with respect to Eurodollar Rate Loans without notice or demand of any kind on
the effective date of any change in the Reserve Percentage as of such effective
date. Upon and after the occurrence of an Event of Default, and during the
continuation thereof, (i) the Obligations other than Eurodollar Rate Loans shall
bear interest at the Revolving Interest Rate for Domestic Loans plus two percent
----
(2%) per annum and (ii) Eurodollar Rate Loans shall bear interest at the
Revolving Interest Rate for Eurodollar Rate Loans plus two percent (2.0%) per
----
annum (as applicable, the "Default Rate").
3.2 Letter of Credit Fees. Borrowers shall pay (x) to Agent, for the
---------------------
benefit of Lenders, fees for each Letter of Credit for the period from and
excluding the date of issuance of same to and including the date of expiration
or termination, equal to the average daily face amount of each outstanding
Letter of Credit multiplied by two percent (2.0%) per annum, such fees to be
calculated on the basis of a 360-day year for the actual number of days elapsed
and to be payable monthly in arrears on the first day of each month and on the
last day of the Term and (y) to the Issuer, any and all fees and expenses as
agreed upon by the Issuer and the Borrowing Agent in connection with any Letter
of Credit, including in connection with the opening, amendment or renewal of any
such Letter of Credit and any acceptances created thereunder and shall reimburse
Agent for any and all fees and expenses, if any, paid by Agent to the Issuer
(all of the foregoing fees, the "Letter of Credit
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<PAGE>
Fees"). All such charges shall be deemed earned in full on the date when the
same are due and payable hereunder and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason. Any such charge
in effect at the time of a particular transaction shall be the charge for that
transaction, notwithstanding any subsequent change in the Issuer's prevailing
charges for that type of transaction. All Letter of Credit Fees payable
hereunder shall be deemed earned in full on the date when the same are due and
payable hereunder and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason.
3.3 Closing and Facility Fees.
-------------------------
(a) Upon the execution of this Agreement, Borrowers shall pay to
Agent, for the ratable benefit of those Lenders who are parties to this
Agreement on the Closing Date, a closing fee of $50,000.
(b) If, for any month during the Term, the average daily unpaid
balance of the Advances for each day of such month does not equal the Maximum
Revolving Advance Amount, then Borrowers shall pay to Agent for the ratable
benefit of Lenders a fee at a rate equal to one-quarter of one percent (0.25%)
per annum on the amount by which the Maximum Revolving Advance Amount exceeds
such average daily unpaid balance. Such fee shall be payable to Agent on the
last day of each month.
3.4 Collateral Evaluation and Monitoring Fee.
----------------------------------------
(a) Borrowers shall pay Agent a collateral evaluation fee equal to
$1,000 per month, commencing on the first day of the month following the Closing
Date and on the first day of each month thereafter during the Term. The
collateral evaluation fee shall be deemed earned in full on the date when same
is due and payable hereunder and shall not be subject to rebate or proration
upon termination of this Agreement for any reason.
(b) Borrowers shall pay to Agent on the first day of each month
following any month in which Agent performs any collateral monitoring - namely
any field examination, collateral analysis or other business analysis, the need
for which is to be determined by Agent and which monitoring is undertaken by
Agent or for Agent's benefit - a collateral monitoring fee in an amount equal to
$750 per day for each person (other than Agent's management personnel) employed
to perform such monitoring and in an amount equal to $750 per day for each
manager of Agent performing such monitoring, plus all costs and disbursements
----
incurred by Agent in the performance of such examination or analysis.
3.5 Computation of Interest and Fees. Interest and fees hereunder shall
--------------------------------
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the Revolving
Interest Rate for Domestic Rate Loans during such extension.
3.6 Maximum Charges. In no event whatsoever shall interest and other
---------------
charges charged hereunder exceed the highest rate permissible under Applicable
Law. In the event interest and other charges as computed hereunder would
otherwise exceed the highest rate permitted under Applicable Law, such excess
amount shall be first applied to any unpaid principal balance owed by Borrowers,
and if the then remaining excess amount is greater than the previously unpaid
principal balance, Lenders shall promptly refund such excess amount to Borrowers
and the provisions hereof shall be deemed amended to provide for such
permissible rate.
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<PAGE>
3.7 Increased Costs. In the event that any Applicable Law, treaty or
---------------
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this Section
3.7, the term "Lender" shall include Agent or any Lender and any corporation or
bank controlling Agent or any Lender) and the office or branch where Agent or
any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:
(a) subject Agent or any Lender to any tax of any kind whatsoever with
respect to this Agreement or any Other Document or change the basis of taxation
of payments to Agent or any Lender of principal, fees, interest or any other
amount payable hereunder or under any Other Documents (except for changes in the
rate of tax on the overall net income of Agent or any Lender by the jurisdiction
in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
Agent or any Lender, including pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or
(c) impose on Agent or any Lender or the London interbank Eurodollar
market any other condition with respect to this Agreement or any Other Document;
and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrowers shall promptly pay Agent or such Lender, upon its demand,
such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be, provided that the
foregoing shall not apply to increased costs which are reflected in the
Eurodollar Rate. Agent or such Lender shall certify in good faith the amount of
such additional cost or reduced amount to Borrowers, and such certification
shall be conclusive absent manifest error.
3.8 Basis For Determining Interest Rate Inadequate or Unfair. In the
--------------------------------------------------------
event that Agent or any Lender shall have determined that:
(a) reasonable means do not exist for ascertaining the Eurodollar Rate
applicable pursuant to Section 2.15 hereof for any Interest Period; or
(b) Dollar deposits in the relevant amount and for the relevant
maturity are not available in the London interbank Eurodollar market, with
respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan,
or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate Loan,
then Agent shall give Borrowing Agent prompt written, telephonic or telegraphic
notice of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing
Agent shall notify Agent no later than 10:00 a.m. two (2) Business Days prior to
the date of such proposed borrowing, that its request for such borrowing shall
be cancelled or made as an unaffected type of Eurodollar Rate Loan, (ii) any
Domestic Rate Loan or Eurodollar Rate Loan that was to have been
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converted to an affected type of Eurodollar Rate Loan shall be continued as or
converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent,
no later than 10:00 a.m. two (2) Business Days prior to the proposed conversion,
shall be maintained as an unaffected type of Eurodollar Rate Loan, and (iii) any
outstanding affected Eurodollar Rate Loans shall be converted into a Domestic
Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 10:00 a.m.
two (2) Business Days prior to the last Business Day of the then current
Interest Period applicable to such affected Eurodollar Rate Loan, shall be
converted into an unaffected type of Eurodollar Rate Loan, on the last Business
Day of the then current Interest Period for such affected Eurodollar Rate Loans.
Until such notice has been withdrawn, Lenders shall have no obligation to make
an affected type of Eurodollar Rate Loan or maintain outstanding affected
Eurodollar Rate Loans and no Borrower shall have the right to convert a Domestic
Rate Loan or an unaffected type of Eurodollar Rate Loan into an affected type of
Eurodollar Rate Loan.
3.9 Capital Adequacy.
----------------
(a) In the event that Agent or any Lender shall have determined that
any Applicable Law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by Agent or any
Lender (for purposes of this Section 3.9, the term "Lender" shall include Agent
or any Lender and any corporation or bank controlling Agent or any Lender) and
the office or branch where Agent or any Lender (as so defined) makes or
maintains any Eurodollar Rate Loans with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on Agent's or any Lender's capital as a consequence of its
obligations hereunder to a level below that which Agent or such Lender could
have achieved but for such adoption, change or compliance (taking into
consideration Agent's and each Lender's policies with respect to capital
adequacy) by an amount deemed by Agent or any Lender to be material, then, from
time to time, Borrowers shall pay upon demand to Agent or such Lender such
additional amount or amounts as will compensate Agent or such Lender for such
reduction. In determining such amount or amounts, Agent or such Lender may use
any reasonable averaging or attribution methods. The protection of this Section
3.9 shall be available to Agent and each Lender regardless of any possible
contention of invalidity or inapplicability with respect to any Applicable Law
or condition.
(b) A certificate prepared in good faith of Agent or such Lender
setting forth such amount or amounts as shall be necessary to compensate Agent
or such Lender with respect to Section 3.9(a) hereof when delivered to Borrowing
Agent shall be conclusive absent manifest error.
SECTION 4. COLLATERAL: GENERAL TERMS
--------------------------
4.1 Security Interest in the Collateral. To secure the prompt payment and
-----------------------------------
performance to Agent and each Lender of the Obligations, each Borrower hereby
assigns, pledges and grants to Agent, for its benefit and the ratable benefit of
Lenders, a continuing security interest in and to all of the Collateral, whether
now owned or existing or hereafter acquired or arising and wheresoever located.
Each Borrower shall mark its books and records as may be necessary or
appropriate to evidence, protect and perfect Agent's security interest and shall
cause its financial statements to reflect such security interest.
4.2 Perfection of Security Interest. Each Borrower shall take all action
-------------------------------
that may be necessary or desirable, or that Agent may reasonably request, so as
at all times to maintain the validity, perfection,
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enforceability and priority of Agent's security interest in the Collateral and
to enable Agent to protect, exercise or enforce its rights hereunder and in the
Collateral, including (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' Lien Waivers, (iii)
delivering to Agent, endorsed or accompanied by such instruments of assignment
as Agent may specify, and stamping or marking, in such manner as Agent may
specify, any and all chattel paper, instruments, letters of credits and advices
thereof and documents evidencing or forming a part of the Collateral, (iv)
entering into warehousing, lockbox and other custodial arrangements satisfactory
to Agent, and (v) executing and delivering, or causing to be executed or
delivered, Lien Perfection Documents requested by Agent, in each case in form
and substance satisfactory to Agent, relating to the creation, validity,
perfection, maintenance or continuation of Agent's security interest under the
UCC or other Applicable Law. Agent is hereby authorized to file financing
statements signed by Agent instead of Borrower in accordance with Section 9-
402(2) of the UCC. All charges, expenses and fees Agent may incur in doing any
of the foregoing, and any local taxes relating thereto, shall be charged to
Borrowers' Account as a Revolving Advance of a Domestic Rate Loan and added to
the Obligations, or, at Agent's option, shall be paid to Agent for the ratable
benefit of Lenders immediately upon demand.
4.3 Disposition of Collateral. Each Borrower will safeguard and protect
-------------------------
all Collateral for Agent's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
Ordinary Course of Business, (b) Permitted Spinoffs and Permitted Sales, and (c)
the disposition or transfer of obsolete and worn-out Equipment in the Ordinary
Course of Business during any Fiscal Year having an aggregate fair market value
of not more than $200,000 and only to the extent that (i) the proceeds of any
such disposition are used to acquire replacement Equipment which is subject to
Agent's first priority security interest or (ii) the proceeds of which are
remitted to Agent for application to the Obligations in accordance with this
Agreement.
4.4 Preservation of Collateral. Following the occurrence of a Default or
--------------------------
an Event of Default, in addition to the rights and remedies set forth in Section
11.1 hereof, Agent: (a) may at any time take such steps as Agent deems necessary
to protect Agent's interest in and to preserve the Collateral, including the
hiring of such security guards or the placing of other security protection
measures as Agent may deem appropriate; (b) may employ and maintain at any of
any Borrower's premises a custodian who shall have full authority to do all acts
necessary to protect Agent's interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move all or part of the Collateral; (d)
may use any Borrower's owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral; and (e) shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may proceed over and through any Borrower's owned
or leased property. Each Borrower shall cooperate fully with all of Agent's
efforts to preserve the Collateral and will take such actions to preserve the
Collateral as Agent may direct. All of Agent's expenses of preserving the
Collateral, including any expenses relating to the bonding of a custodian, shall
be charged to Borrowers' Account as a Revolving Advance of a Domestic Rate Loan
and added to the Obligations.
4.5 Ownership of Collateral. With respect to the Collateral, at the time
-----------------------
the Collateral becomes subject to Agent's security interest: (a) each Borrower
shall be the sole owner of and fully authorized and able to sell, transfer,
pledge and/or grant a first priority security interest in each and every item of
its respective Collateral to Agent; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens and encumbrances whatsoever; (b)
each document and agreement executed by each Borrower or delivered to Agent or
any Lender in connection with this Agreement shall be true and correct in all
respects; (c) all signatures and endorsements of each Borrower that appear on
such documents and agreements shall be genuine and each Borrower shall have full
capacity to execute same; and (d) each Borrower's Equipment and Inventory
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shall be located as set forth on Schedule 4.5 or at any Minor Location and
------------
shall not be removed from such locations without the prior written consent of
Agent except with respect to the sale of Inventory in the Ordinary Course of
Business and Equipment to the extent permitted in Section 4.3 hereof. In no
event shall (i) the aggregate Value of Collateral at any single Minor Location
exceed $50,000 on any date and (ii) the aggregate Value of all Collateral at all
Minor Locations exceed $500,000 on any date.
4.6 Defense of Agent's and Lenders' Interests. Until (a) payment and
-----------------------------------------
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's interests in the Collateral shall continue in full force and
effect. During such period no Borrower shall, without Agent's prior written
consent, pledge, sell (except to the extent permitted in Section 4.3 hereof),
assign, transfer, create or suffer to exist a Lien upon or encumber or allow or
suffer to be encumbered in any way except for Permitted Encumbrances, any part
of the Collateral. Each Borrower shall defend Agent's interests in the
Collateral against any and all Persons whatsoever. At any time following demand
by Agent for payment of all Obligations, Agent shall have the right to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including labels, stationery, documents, instruments
and advertising materials. If Agent exercises this right to take possession of
the Collateral, Borrowers shall, upon demand, assemble it in the best manner
possible and make it available to Agent at a place reasonably convenient to
Agent. In addition, with respect to all Collateral, Agent and Lenders shall be
entitled to all of the rights and remedies set forth herein and further provided
by the UCC or other Applicable Law. Each Borrower shall, and Agent may, at its
option, instruct all suppliers, carriers, forwarders, warehouses or others
receiving or holding cash, checks, Inventory, documents or instruments in which
Agent holds a security interest to deliver same to Agent and/or subject to
Agent's order and if they shall come into any Borrower's possession, they, and
each of them, shall be held by such Borrower in trust as Agent's trustee, and
such Borrower will immediately deliver them to Agent in their original form
together with any necessary endorsement.
4.7 Books and Records. Each Borrower shall (a) keep proper books of
-----------------
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all Charges and claims; and (c) on a
reasonably current basis set up on its books, from its earnings, allowances
against doubtful Receivables, advances and investments and all other proper
accruals (including by reason of enumeration, accruals for premiums, if any, due
on required payments and accruals for depreciation, obsolescence, or
amortization of properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to this subsection
shall be made in accordance with, or as required by, GAAP consistently applied
in the opinion of such independent public accountant as shall then be regularly
engaged by Borrowers.
4.8 Financial Disclosure. Each Borrower hereby irrevocably authorizes and
--------------------
directs all accountants and auditors employed by such Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any of
any Borrower's financial statements, trial balances or other accounting records
of any sort in the accountant's or auditor's possession, and to disclose to
Agent and each Lender any information such accountants may have concerning such
Borrower's financial status and business operations. Each Borrower hereby
authorizes all federal, state and municipal authorities to furnish to Agent and
each Lender copies of reports or examinations relating to such Borrower, whether
made by such Borrower or otherwise; however, Agent and each Lender will attempt
to obtain such information or materials directly from such Borrower prior to
obtaining such information or materials from such accountants or such
authorities.
4.9 Compliance with Laws. Each Borrower shall comply with all Applicable
--------------------
Law with respect to its respective Collateral or any part thereof or to the
operation of such Borrower's business the
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non-compliance with which could reasonably be expected to have a Material
Adverse Effect on such Borrower. Each Borrower may, however, contest or dispute
any acts, rules, regulations, orders and directions of those bodies or officials
in any reasonable manner, provided that such contest or dispute is pursued
diligently, in good faith and by appropriate proceedings, any related Lien has
not attached to any Collateral or been stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect Agent's Lien on
or security interest in the Collateral. The Collateral and other assets of
Borrowers at all times shall be maintained in accordance with the requirements
of all insurance carriers which provide insurance with respect to the Collateral
and such other assets of Borrowers so that such insurance shall remain in full
force and effect.
4.10 Inspection of Premises. At all reasonable times Agent and each
----------------------
Lender shall have full access to and the right to audit, check, inspect and make
abstracts and copies from each Borrower's books, records, audits, correspondence
and all other papers relating to the Collateral and the operation of each
Borrower's business. Agent, any Lender and their agents may enter upon any of
Borrower's premises at any time during business hours and at any other
reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of such
Borrower's business.
4.11 Insurance. Each Borrower shall bear the full risk of any loss of any
---------
nature whatsoever with respect to the Collateral. At each Borrower's own cost
and expense in amounts and with carriers acceptable to Agent, each Borrower
shall (a) keep all its properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to such Borrower's
including business interruption insurance; (b) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to such
Borrower insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of such
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which such Borrower is engaged in business; (e) furnish Agent with (i) copies of
all policies and evidence of the maintenance of such policies by the renewal
thereof at least thirty (30) days before any expiration date, and (ii)
appropriate loss payable endorsements in form and substance satisfactory to
Agent, naming Agent as a co-insured and loss payee as its interests may appear
with respect to all insurance coverage referred to in clauses (a) and (c) above,
and providing (A) that all proceeds thereunder shall be payable to Agent, (B) no
such insurance shall be affected by any act or neglect of the insured or owner
of the property described in such policy, and (C) that such policy and loss
payable clauses may not be cancelled, amended or terminated unless at least
thirty (30) days prior written notice is given to Agent. In the event of any
loss thereunder, the carriers named therein are hereby directed by Agent and the
applicable Borrower to make payment for such loss to Agent and not to such
Borrower and Agent jointly. If any insurance losses are paid by check, draft or
other instrument payable to any Borrower and Agent jointly, Agent may endorse
such Borrower's name thereon and do such other things as Agent may deem
advisable to reduce the same to cash. When any Event of Default exists, Agent
is hereby authorized to adjust and compromise claims under insurance coverage
referred to in clauses (a) and (b) above. All loss recoveries received by Agent
upon any such insurance may be applied to the Obligations, in such order as
Agent in its sole discretion shall determine. Any surplus shall be paid by
Agent to Borrowers or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by Borrowers to Agent, on demand.
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4.12 Failure to Pay Insurance. If any Borrower fails to obtain insurance
------------------------
as hereinabove provided, or to keep the same in force, Agent, if Agent so
elects, may obtain such insurance and pay the premium therefor on behalf of
Borrower, and charge Borrowers' Account therefor as a Revolving Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.
4.13 Payment of Taxes. Each Borrower will pay, when due, all Charges
----------------
lawfully levied or assessed upon such Borrower or any of the Collateral
including real and personal property taxes, assessments and charges and all
franchise, income, employment, social security benefits, withholding, and sales
taxes. If any tax by any governmental authority is or may be imposed on or as a
result of any transaction between any Borrower and Agent or any Lender which
Agent or any Lender may be required to withhold or pay or if any Charges remain
unpaid after the date fixed for their payment, or if any claim shall be made
which, in Agent's or any Lender's opinion, may possibly create a valid Lien on
the Collateral, Agent may without notice to Borrowers pay the Charges and each
Borrower hereby indemnifies and holds Agent and each Lender harmless in respect
thereof. The amount of any payment by Agent under this Section 4.13 shall be
charged to Borrowers' Account as a Revolving Advance and added to the
Obligations and, until Borrowers shall furnish Agent with an indemnity therefor
(or supply Agent with evidence satisfactory to Agent that due provision for the
payment thereof has been made), Agent may hold without interest any balance
standing to Borrowers' credit and Agent shall retain its security interest in
any and all Collateral held by Agent.
4.14 Payment of Leasehold Obligations. Each Borrower shall at all times
--------------------------------
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request will provide evidence of having done so.
4.15 Receivables.
-----------
(a) Nature of Receivables. Each of the Receivables shall be a bona
---------------------
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of a Borrower, or work, labor or services theretofore
rendered by a Borrower as of the date each Receivable is created. Same shall be
due and owing in accordance with the applicable Borrower's standard terms of
sale without dispute, setoff or counterclaim except as may be stated on the
accounts receivable schedules delivered by Borrowers to Agent.
(b) Solvency of Customers. Each Customer, to the best of each
---------------------
Borrower's knowledge, as of the date each Receivable is created, is and will be
Solvent and able to pay all Receivables on which the Customer is obligated in
full when due or with respect to such Customers of any Borrower who are not
Solvent such Borrower has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.
(c) Locations of Borrowers. Each Borrower's chief executive office is
----------------------
located at the addresses set forth on Schedule 4.15(c) hereto. Until written
----------------
notice is given to Agent by Borrowing Agent of any other office at which any
Borrower keeps its records pertaining to Receivables, all such records shall be
kept at such executive office; provided, however, Squirrel may maintain such
-------- -------
records at the offices of Squirrel Canada in Vancouver, British Columbia,
Canada.
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<PAGE>
(d) Collection of Receivables. Until any Borrower's authority to do
-------------------------
so is terminated by Agent (which notice Agent may give at any time following the
occurrence of a Default or an Event of Default), each Borrower will, at such
Borrower's sole cost and expense, but on Agent's and Lenders' behalf and for
Agent's and Lenders' account, collect as Agent's property and in trust for Agent
all amounts received on Receivables, and shall not commingle such collections
with any Borrower's funds in which Agent does not have a lien or use the same
except to pay Obligations. Each Borrower shall, upon request, deliver to Agent,
or deposit in the Blocked Account, in original form and on the date of receipt
thereof, all checks, drafts, notes, money orders, acceptances, cash and other
evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At any time that a
-----------------------------------------
Default or an Event of Default exists, Agent shall have the right to send notice
of the assignment of, and Agent's security interest in, the Receivables to any
and all Customers or any third party holding or otherwise concerned with any of
the Collateral and the sole right to collect the Receivables, take possession of
the Collateral, or both. Agent's actual collection expenses, including
stationery and postage, telephone and telegraph, secretarial and clerical
expenses and the salaries of any collection personnel used for collection, may
be charged to Borrowers' Account and added to the Obligations. Agent may, at
any time or times, send verification of Receivables to any Customer.
(f) Power of Agent to Act on Borrowers' Behalf. Agent shall have the
------------------------------------------
right to receive, endorse, assign and/or deliver in the name of Agent or any
Borrower any and all checks, drafts and other instruments for the payment of
money relating to the Receivables, and each Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed. Each
Borrower hereby constitutes Agent or Agent's designee as such Borrower's
attorney with power (i) to endorse such Borrower's name upon any notes,
acceptances, checks, drafts, money orders or other evidences of payment or
Collateral; (ii) to sign such Borrower's name on any invoice or bill of lading
relating to any of the Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii) to send verifications of Receivables to any
Customer; (iv) to sign such Borrower's name on all financing statements or any
other documents or instruments deemed necessary or appropriate by Agent to
preserve, protect, or perfect Agent's interest in the Collateral and to file
same; (v) to demand payment of the Receivables at any time following the
occurrence of an Event of Default; (vi) to enforce payment of the Receivables by
legal proceedings or otherwise at any time following the occurrence of an Event
of Default; (vii) to exercise all of Borrowers' rights and remedies with respect
to the collection of the Receivables and any other Collateral at any time
following the occurrence of an Event of Default; (viii) to settle, adjust,
compromise, extend or renew the Receivables; (ix) to settle, adjust or
compromise any legal proceedings brought to collect Receivables at any time
following the occurrence of an Event of Default; (x) to prepare, file and sign
such Borrower's name on a proof of claim in bankruptcy or similar document
against any Customer; (xi) to prepare, file and sign such Borrower's name on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables; and (xii) to do all other acts and things
necessary to carry out this Agreement. All acts of said attorney or designee
are hereby ratified and approved, and said attorney or designee shall not be
liable for any acts of omission or commission nor for any error of judgment or
mistake of fact or of law, unless done maliciously or with gross (not mere)
negligence; this power being coupled with an interest is irrevocable while any
of the Obligations remain unpaid. Agent shall have the right, at any time
following the occurrence of an Event of Default or Default, to change the
address for delivery of mail addressed to any Borrower to such address as Agent
may designate and to receive, open and dispose of all mail addressed to any
Borrower.
(g) No Liability. Neither Agent nor any Lender shall, under any
------------
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement,
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<PAGE>
collection or payment of any of the Receivables or any instrument received in
payment thereof, or for any damage resulting therefrom other than on account of
Agent's or such Lender's gross negligence or willful misconduct. Following the
occurrence of a Default or an Event of Default Agent may, without notice or
consent from any Borrower, sue upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof. Agent is authorized and empowered to accept
following the occurrence of an Event of Default or Default] the return of the
goods represented by any of the Receivables, without notice to or consent by any
Borrower, all without discharging or in any way affecting any Borrower's
liability hereunder.
(h) Establishment of Cash Management System. All proceeds of
---------------------------------------
Collateral shall, at the direction of Agent, be deposited by Borrowers into a
lockbox account, dominion account or other "blocked account" ("Blocked Account")
as Agent may require pursuant to an arrangement with such bank or banks as may
be selected by Borrowers and be acceptable to Agent. Borrowers shall issue to
any such bank, an irrevocable letter of instruction directing said bank to
transfer such funds so deposited to Agent, either to any account maintained by
Agent at said bank or by wire transfer to appropriate account(s) of Agent. All
funds deposited in such Blocked Account shall immediately become the property of
Agent and Borrowers shall obtain the agreement by such bank to waive any offset
rights against the funds so deposited. Neither Agent nor any Lender assumes any
responsibility for such Blocked Account, including any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, Agent may establish depository accounts ("Depository
Accounts") in the name of Agent at a bank or banks for the deposit of such funds
and Borrowers shall deposit all proceeds of Collateral or cause same to be
deposited, in kind, in such Depository Accounts of Agent.
(i) Adjustments. No Borrower will, without Agent's consent,
-----------
compromise or adjust any Receivables (or extend the time for payment thereof) or
accept any returns of merchandise or grant any additional discounts, allowances
or credits thereon except for those compromises, adjustments, returns,
discounts, credits and allowances as have been heretofore customary in the
Ordinary Course of Business.
4.16 Inventory. To the extent Inventory held for sale or lease has been
---------
produced by any Borrower, it has been and will be produced by such Borrower in
accordance with the Federal Fair Labor Standards Act of 1938 and all rules,
regulations and orders thereunder. Borrowers shall promptly notify Agent in
writing if any Borrower enters into any License Agreement other than as set
forth on Schedule 4.16.
-------------
4.17 Maintenance of Equipment. The Equipment shall be maintained in good
------------------------
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved. No
Borrower shall use or operate the Equipment in violation of any Applicable Law.
Each Borrower shall have the right to sell Equipment to the extent set forth in
Section 4.3 hereof.
4.18 Exculpation of Liability. Nothing herein contained shall be
------------------------
construed to constitute Agent or any Lender as any Borrower's agent for any
purpose whatsoever, nor shall Agent or any Lender be responsible or liable for
any shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause thereof.
Neither Agent nor any Lender, whether by anything herein or in any assignment or
otherwise, assume any of any Borrower's obligations under any contract or
agreement assigned to Agent or such Lender, and neither Agent nor any Lender
shall be responsible in any way for the performance by any Borrower of any of
the terms and conditions thereof.
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<PAGE>
4.19 Environmental Matters.
---------------------
(a) Borrowers shall ensure that the Real Property remains in
compliance with all Environmental Laws and they shall not place or permit to be
placed any Hazardous Substances on any Real Property except to the extent
permitted by Applicable Law.
(b) Borrowers shall establish and maintain a system to assure and
monitor continued compliance with all applicable Environmental Laws which system
shall include periodic reviews of such compliance.
(c) Borrowers shall (i) employ in connection with the use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrowers shall use their best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrowers in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event any Borrower obtains, gives or receives notice of any
Release or threat of Release of a reportable quantity of any Hazardous
Substances at the Real Property (any such event being hereinafter referred to as
a "Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Real Property, demand letter or
complaint, order, citation, or other written notice with regard to any Hazardous
Discharge or violation of Environmental Laws affecting the Real Property or any
Borrower's interest therein (any of the foregoing is referred to herein as an
"Environmental Complaint") from any Person, including any state agency
responsible in whole or in part for environmental matters in the state in which
the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "Authority"), then Borrowing
Agent shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which any Borrower is aware giving rise to
the Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in the Real Property
and the Collateral and is not intended to create nor shall it create any
obligation upon Agent or any Lender with respect thereto.
(e) Borrowers shall promptly forward to Agent copies of any request
for information, notification of potential liability, demand letter relating to
potential responsibility with respect to the investigation or cleanup of
Hazardous Substances at any other site owned, operated or used by any Borrower
to dispose of Hazardous Substances and shall continue to forward copies of
correspondence between any Borrower and the Authority regarding such claims to
Agent until the claim is settled. Borrowers shall promptly forward to Agent
copies of all documents and reports concerning a Hazardous Discharge at the Real
Property that any Borrower is required to file under any Environmental Laws.
Such information is to be provided solely to allow Agent to protect Agent's
security interest in the Real Property and the Collateral.
(f) Borrowers shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or Real Property to
any Lien. If any Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or any Borrower shall fail to comply with
any of the requirements
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<PAGE>
of any Environmental Laws, Agent on behalf of Lenders may, but without the
obligation to do so, for the sole purpose of protecting Agent's interest in
Collateral: (A) give such notices or (B) enter onto the Real Property (or
authorize third parties to enter onto the Real Property) and take such actions
as Agent (or such third parties as directed by Agent) deems reasonably necessary
or advisable, to clean up, remove, mitigate or otherwise deal with any such
Hazardous Discharge or Environmental Complaint. All reasonable costs and
expenses incurred by Agent and Lenders (or such third parties) in the exercise
of any such rights, including any sums paid in connection with any judicial or
administrative investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Default Rate for Domestic Rate
Loans constituting Revolving Advances shall be paid upon demand by Borrowers,
and until paid shall be added to and become a part of the Obligations secured by
the Liens created by the terms of this Agreement or any other agreement between
Agent, any Lender and any Borrower.
(g) Promptly after any Borrower's discovery of a Hazardous Discharge
or upon the written request of Agent from time to time, Borrowers shall provide
Agent, at Borrowers' expense, with an environmental site assessment or
environmental audit report prepared by an environmental engineering firm
acceptable in the reasonable opinion of Agent, to assess with a reasonable
degree of certainty the existence of a Hazardous Discharge and the potential
costs in connection with abatement, cleanup and removal of any Hazardous
Substances found on, under, at or within the Real Property. Any report or
investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Authority that is charged to oversee the clean-up of such Hazardous
Discharge shall be acceptable to Agent. If such estimates, individually or in
the aggregate, exceed $100,000, Agent shall have the right to require Borrowers
to post a bond, letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.
(h) Borrowers shall defend and indemnify Agent and Lenders and hold
Agent, Lenders and their respective employees, agents, directors and officers
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including attorney's fees, suffered or incurred by
Agent or Lenders under or on account of any Environmental Laws, including the
assertion of any Lien thereunder, with respect to any Hazardous Discharge, the
presence of any Hazardous Substances affecting the Real Property, whether or not
the same originates or emerges from the Real Property or any contiguous real
estate, including any loss of value of the Real Property as a result of the
foregoing except to the extent such loss, liability, damage and expense is
attributable to any Hazardous Discharge resulting from actions on the part of
Agent or any Lender. Borrowers' obligations under this Section 4.19 shall arise
upon the discovery of the presence of any Hazardous Substances at the Real
Property, whether or not any federal, state, or local environmental agency has
taken or threatened any action in connection with the presence of any Hazardous
Substances. Borrowers' obligation and the indemnifications hereunder shall
survive the termination of this Agreement.
(i) For purposes of Section 4.19 and 5.7, all references to Real
Property shall be deemed to include all of each Borrower's right, title and
interest in and to its owned and leased premises.
4.20 Financing Statements. Except as respects the financing statements
--------------------
filed by Agent and the financing statements described on Schedule 1.2, no
------------
financing statement covering any of the Collateral or any proceeds thereof is on
file in any public office.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
-------------------------------
Each Borrower represents and warrants as follows:
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5.1 Authority. Each Borrower has full power, authority and legal right to
---------
enter into this Agreement and the Other Documents and to perform all its
respective Obligations hereunder and thereunder. This Agreement and the Other
Documents constitute the legal, valid and binding obligation of each Borrower
enforceable in accordance with their terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, moratorium or similar laws
affecting creditors' rights in general. The execution, delivery and performance
of this Agreement and of the Other Documents (a) are within such Borrower's
corporate powers, have been duly authorized, are not in contravention of any
Applicable Law or the terms of such Borrower's Organization Documents relating
to such Borrower's formation or to the conduct of such Borrower's business or of
any material agreement or undertaking to which such Borrower is a party or by
which such Borrower is bound, and (b) will not conflict with nor result in any
breach in any of the provisions of or constitute a default under or result in
the creation of any Lien except Permitted Encumbrances upon any asset of such
Borrower under the provisions of any agreement, Organization Documents or other
instrument to which such Borrower is a party or by which it or its property may
be bound.
5.2 Formation and Qualification.
---------------------------
(a) Each Borrower is duly organized and in good standing under the
laws of the state listed on Schedule 5.2(a) and is qualified to do business and
---------------
is in good standing in the states listed on Schedule 5.2(a) which constitute all
---------------
states in which qualification and good standing are necessary for such Borrower
to conduct its business and own its property and where the failure to so qualify
could reasonably be expected to have a Material Adverse Effect. Each Borrower
has delivered to Agent true and complete copies of its Organization Documents
and will promptly notify Agent of any amendment or changes thereto.
(b) The only Subsidiaries of each Borrower are listed on Schedule
--------
5.2(b).
- ------
5.3 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of such Borrower contained in this Agreement and the Other Documents
shall be true at the time of such Borrower's execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by the parties thereto and the closing of the transactions described
therein or related thereto.
5.4 Tax Returns. Each Borrower's federal tax identification number is set
-----------
forth on Schedule 5.4. Each Borrower has filed all federal, state and local tax
------------
returns and other reports each is required by law to file and has paid all
taxes, assessments, fees and other governmental charges that are due and
payable, except as set forth on Schedule 5.4. Federal, state and local income
------------
tax returns of each Borrower have been examined and reported upon by the
appropriate taxing authority or closed by applicable statute and satisfied for
all Fiscal Years prior to and including the Fiscal Year ending March 31, 1996.
The provision for taxes on the books of each Borrower are adequate for all years
not closed by applicable statutes, and for its current Fiscal Year, and no
Borrower has any knowledge of any deficiency or additional assessment in
connection therewith not provided for on its books.
5.5 Financial Statements. The consolidated and consolidating balance
--------------------
sheets of the Borrowers, their Subsidiaries and such other Persons described
therein as of December 31, 1999, and the related statements of income, changes
in stockholder's equity, and changes in cash flow for the period ended on such
date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants, copies of which have
been delivered to Agent, have been prepared in accordance with GAAP,
consistently applied (except for changes in application in which such
accountants concur and present fairly the financial position of the Borrowers
and their Subsidiaries at such date and the results of their operations for
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<PAGE>
such period. Since December 31, 1999 there has been no change in the condition,
financial or otherwise, of Borrowers or their Subsidiaries as shown on the
consolidated balance sheet as of such date and no change in the aggregate value
of machinery, equipment and Real Property owned by Borrowers and their
Subsidiaries, except changes in the Ordinary Course of Business, none of which
individually or in the aggregate has been materially adverse.
5.6 Corporate Name. Except as set forth on Schedule 5.6, no Borrower has
-------------- ------------
been known by any other corporate name in the past five (5) years or sells
Inventory under any other name, nor has any Borrower been the surviving
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person during the preceding five (5) years.
5.7 O.S.H.A. and Environmental Compliance.
-------------------------------------
(a) Each Borrower has duly complied with, and its facilities,
business, assets, property, leaseholds and Equipment are in compliance in all
material respects with, the provisions of the Federal Occupational Safety and
Health Act, the Environmental Protection Act, RCRA and all other Environmental
Laws; there have been no outstanding citations, notices or orders of non-
compliance issued to any Borrower or relating to its business, assets, property,
leaseholds or Equipment under any such laws, rules or regulations.
(b) Each Borrower has been issued all required federal, state and
local licenses, certificates or permits relating to all applicable Environmental
Laws.
(c) (i) There are no visible signs of releases, spills, discharges,
leaks or disposal (collectively referred to as "Releases") of Hazardous
Substances at, upon, under or within any real property owned or leased by any
Borrower; (ii) there are no underground storage tanks or polychlorinated
biphenyls on any real property owned or leased by any Borrower; (iii) no real
property owned or leased by any Borrower has ever been used as a treatment,
storage or disposal facility of Hazardous Waste; and (iv) no Hazardous
Substances are present on the Real Property or any premises leased by Borrower,
excepting such quantities as are handled in accordance with all applicable
manufacturer's instructions and governmental regulations and in proper storage
containers and as are necessary for the operation of the commercial business of
any Borrower or of its tenants.
5.8 Solvency; No Litigation, Violation, Indebtedness or Default.
-----------------------------------------------------------
(a) Each Borrower is and will at all time remain Solvent.
(b) Except as disclosed in Schedule 5.8(b), no Borrower has (i) any
---------------
pending or threatened litigation, arbitration, actions or proceedings which
involve the possibility of having a Material Adverse Effect on such Borrower,
and (ii) any liabilities or Indebtedness for Money Borrowed other than the
Obligations.
(c) No Borrower nor any member of the Controlled Group maintains or
contributes to any Plan other than those listed on Schedule 5.8(c) hereto.
---------------
Except as set forth in Schedule 5.8(c), (i) no Plan has incurred any
---------------
"accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the Code, whether or not waived, and each Borrower and each
member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan, (ii) each Plan
which is intended to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code
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<PAGE>
and the trust related thereto is exempt from federal income tax under Section
501(a) of the Code, (iii) no Borrower nor any member of the Controlled Group has
incurred any liability to the PBGC other than for the payment of premiums, and
there are no premium payments which have become due which are unpaid, (iv) no
Plan has been terminated by the plan administrator thereof nor by the PBGC, and
there is no occurrence which would cause the PBGC to institute proceedings under
Title IV of ERISA to terminate any Plan, (v) at this time, the current value of
the assets of each Plan exceeds the present value of the accrued benefits and
other liabilities of such Plan and no Borrower nor any member of the Controlled
Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities, (vi) no
Borrower nor any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan, (vii) no Borrower nor any member of a Controlled Group has incurred
any liability for any excise tax arising under Section 4972 or 4980B of the
Code, and no fact exists which could give rise to any such liability, (viii) no
Borrower nor any member of the Controlled Group nor any fiduciary of, nor any
trustee to, any Plan, has engaged in a "prohibited transaction" described in
Section 406 of the ERISA or Section 4975 of the Code nor taken any action which
would constitute or result in a Termination Event with respect to any such Plan
which is subject to ERISA, (ix) each Borrower and each member of the Controlled
Group has made all contributions due and payable with respect to each Plan, (x)
there exists no event described in Section 4043(b) of ERISA, for which the
thirty (30) day notice period contained in 29 CFR 2615.3 has not been waived,
(xi) no Borrower nor any member of the Controlled Group has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than employees or former employees of any Borrower and any
member of the Controlled Group, and (xii) no Borrower nor any member of the
Controlled Group has withdrawn, completely or partially, from any Multiemployer
Plan so as to incur liability under the Multiemployer Pension Plan Amendments
Act of 1980.
5.9 Patents, Trademarks, Copyrights and Licenses. All registered patents,
--------------------------------------------
patent applications, trademarks, trademark applications, service marks, service
mark applications, copyrights, copyright applications, design rights,
tradenames, assumed names, trade secrets and licenses owned or utilized by any
Borrower are set forth on Schedule 5.9, are valid and have been duly registered
------------
or filed with all appropriate governmental authorities and constitute all of the
intellectual property rights which are necessary for the operation of its
business; there is no objection to or pending challenge to the validity of any
such patent, trademark, copyright, design right, tradename, trade secret or
license and no Borrower is aware of any grounds for any challenge, except as set
forth in Schedule 5.9 hereto. Each Borrower possesses all intellectual property
------------
rights necessary for the operation of its business. Each patent, patent
application, patent license, trademark, trademark application, trademark
license, service mark, service mark application, service mark license,
copyright, design right, copyright application and copyright license owned or
held by any Borrower and all trade secrets used by any Borrower consist of
original material or property developed by such Borrower or was lawfully
acquired by such Borrower from the proper and lawful owner thereof. Each of
such items that is used in the Ordinary Course of Business of a Borrower has
been maintained so as to preserve the value thereof from the date of creation or
acquisition thereof. With respect to all software used by any Borrower, such
Borrower owns such software and is not the licensee of any such software that is
material to such Borrower's business operations pursuant to any license
agreement except as set forth on Schedule 5.9 hereto. With respect to all
------------
computer hardware used by any Borrower, such Borrower is the owner of all such
computer equipment free and clear of any Lien (other than a Lien in favor of
Agent) that is material to such Borrower's business operations except as
provided on Schedule 5.9 hereto.
------------
5.10 Licenses and Permits. Except as set forth in Schedule 5.10, each
-------------------- -------------
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any Applicable Law or
regulation for the operation of its business in each jurisdiction wherein it is
now
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<PAGE>
conducting or proposes to conduct business and where the failure to procure such
licenses or permits could have a Material Adverse Effect on such Borrower.
5.11 Default of Indebtedness. No Borrower is in default in the payment of
-----------------------
the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
5.12 No Default. No Borrower is in default in the payment or performance
----------
of any of its contractual obligations and no Default has occurred.
5.13 No Burdensome Restrictions. No Borrower is party to any contract or
--------------------------
agreement the performance of which could have a Material Adverse Effect on such
Borrower. No Borrower has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
5.14 No Labor Disputes. No Borrower is involved in any labor dispute;
-----------------
there are no strikes or walkouts or union organization of any Borrower's
employees threatened or in existence and no labor contract is scheduled to
expire during the Term other than as set forth on Schedule 5.14 hereto.
-------------
5.15 Margin Regulations. No Borrower is engaged, nor will it engage,
------------------
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any Advance will be used for
"purchasing" or "carrying" "margin stock" as defined in Regulation U of such
Board of Governors.
5.16 Investment Company Act. No Borrower is an "investment company"
----------------------
registered or required to be registered under the Investment Company Act of
1940, nor is it controlled by such a company.
5.17 Disclosure. No representation or warranty made by any Borrower in
----------
this Agreement, in any other Loan Document or in any financial statement,
report, certificate or any other document furnished in connection herewith
contains any untrue statement of fact or omits to state any fact necessary to
make the statements herein or therein not misleading. There is no fact known to
Borrowers or which reasonably should be known to Borrowers which Borrowers have
not disclosed to Agent in writing with respect to the transactions contemplated
by this Agreement which could reasonably be expected to have a Material Adverse
Effect on the Borrowers.
5.18 Swaps. No Borrower is a party to, nor will it be a party to, any
-----
swap agreement whereby such Borrower has agreed or will agree to swap interest
rates or currencies unless same provides that damages upon termination following
an event of default thereunder are payable on an unlimited "two-way basis"
without regard to fault on the part of either party.
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<PAGE>
5.19 Conflicting Agreements. No provision of any mortgage, indenture,
----------------------
contract, agreement, judgment, decree or order binding on any Borrower or
affecting the Collateral conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
5.20 Application of Certain Laws and Regulations. No Borrower nor any
-------------------------------------------
Affiliate of any Borrower is subject to any statute, rule or regulation which
regulates the incurrence of any Indebtedness, including statutes or regulations
relative to common or interstate carriers or to the sale of electricity, gas,
steam, water, telephone, telegraph or other public utility services.
5.21 Business and Property of Borrowers. Upon and after the Closing Date,
----------------------------------
Borrowers do not propose to engage in any business other than the offering of
technology services and related activities to multiple industries and activities
necessary to conduct the foregoing. On the Closing Date, each Borrower will own
all the property and possess all of the rights and Consents necessary for the
conduct of the business of such Borrower.
5.22 Year 2000. Borrowers and their respective Subsidiaries have reviewed
---------
the areas within their business and operations which could be adversely affected
by, and have developed or are developing a program to address on a timely basis,
the risk that certain computer applications used by Borrowers or their
respective Subsidiaries (or any of their respective material suppliers,
customers or vendors) may be unable to recognize and perform properly date-
sensitive functions involving dates prior to and after December 31, 1999 (the
"Year 2000 Problem"). The Year 2000 Problem will not have a Material Adverse
Effect on Borrowers.
5.23 Section 20 Subsidiaries. Borrowers do not intend to use and shall
-----------------------
not use any portions of the proceeds of the Advances, directly or indirectly, to
purchase during the underwriting period, or for thirty (30) days thereafter,
Ineligible Securities being underwritten by a Section 20 Subsidiary.
5.24 Compliance with Laws. No Borrower is in violation of any Applicable
--------------------
Law in any respect which could reasonably be expected to have a Material Adverse
Effect on Borrower, nor is Borrower in violation of any order of any
Governmental Body or arbitration board or other tribunal.
SECTION 6. AFFIRMATIVE COVENANTS.
----------------------
Each Borrower shall, until payment in full of the Obligations and
termination of this Agreement:
6.1 Payment of Fees. Pay to Agent on demand all usual and customary fees
---------------
and expenses which Agent incurs in connection with (a) the forwarding of Advance
proceeds and (b) the establishment and maintenance of any Blocked Account or
Depository Accounts as provided for in Section 4.15(h). Agent may, without
making demand, charge Borrowers' Account for all such fees and expenses.
6.2 Conduct of Business and Maintenance of Existence and Assets. (a)
-----------------------------------------------------------
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including all licenses, patents, copyrights, design rights,
tradenames, trade secrets and trademarks and take all actions necessary to
enforce and protect the validity of any Intellectual Property right or other
right included in the Collateral; (b) keep in
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<PAGE>
full force and effect its existence and comply in all material respects with all
Applicable Laws governing the conduct of its business where the failure to do so
could reasonably be expected to have a Material Adverse Effect; and (c) make all
such reports and pay all such franchise and other taxes and license fees and do
all such other acts and things as may be lawfully required to maintain its
rights, licenses, leases, powers and franchises under the laws of the United
States or any political subdivision thereof.
6.3 Violations. Promptly notify Agent in writing of any violation of any
----------
law, statute, regulation or ordinance of any Governmental Body, or of any agency
thereof, applicable to any Borrower which could reasonably be expected to have a
Material Adverse Effect.
6.4 Government Receivables. Take all steps necessary to protect Agent's
----------------------
interest in the Collateral under the Federal Assignment of Claims Act or other
Applicable Law and deliver to Agent appropriately endorsed, any instrument or
chattel paper connected with any Receivable arising out of contracts between any
Borrower and the United States, any state or any department, agency or
instrumentality of any of them.
6.5 Net Cash Flow. Cause to maintained at the end of each period shown
-------------
below, at least the corresponding amount of Net Cash Flow for the Borrowers on a
consolidated basis:
Period Minimum Net Cash Flow
------ ---------------------
Fiscal Quarter ending -$3,260,000
March 31, 2000
Two Fiscal Quarters ending -$4,841,000
June 30, 2000
Three Fiscal Quarters ending -$5,711,000
September 30, 2000
Four Fiscal Quarters ending -$5,600,000
December 31, 2000
Four Fiscal Quarters ending -$2,800,000
March 31, 2001
Four Fiscal Quarters ending -$1,000,000
June 30, 2001
Four Fiscal Quarters ending $ 0
September 30, 2001
Four Fiscal Quarters ending $ 250,000
December 31, 2001
Four Fiscal Quarters ending $ 500,000
March 31, 2002
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<PAGE>
Four Fiscal Quarters ending $ 750,000
June 30, 2002 and on the last
day of each Fiscal Quarter
thereafter
6.6 Execution of Supplemental Instruments. Execute and deliver to Agent
-------------------------------------
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may reasonably request, in order
that the full intent of this Agreement may be carried into effect.
6.7 Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
-----------------------
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and Indebtedness of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof is currently being contested and diligently in good faith by
appropriate proceedings and each Borrower shall have provided for such reserves
as Agent may reasonably deem proper and necessary, subject at all times to any
applicable subordination arrangement in favor of Lenders.
6.8 Standards of Financial Statements. Cause all financial statements
---------------------------------
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14 as to
which GAAP is applicable to be complete and correct in all material respects
(subject, in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).
6.9 License Agreements. Keep each License Agreement to which it is a
------------------
party in full force and effect for so long as any Borrower has any Inventory,
the manufacture, sale or distribution of which is in any manner governed by or
subject to such License Agreement.
6.10 Undrawn Availability. After the Closing Date, Borrowers shall have
--------------------
Undrawn Availability at all times of at least $1,000,000.
6.11 Covenant Adjustments. Upon the consummation of either a Permitted
--------------------
Sale or the sale of additional Equity Interests of Eltrax that result in at
least $10,000,000 of net cash proceeds to the Borrowers, Borrowers shall deliver
new financial projections to Agent within 14 days of such sale and the parties
hereto shall agree upon revisions to the definition of "Applicable Margin" and
to Section 6.5 to become effective 21 days after the delivery of the projections
to Agent.
SECTION 7. NEGATIVE COVENANTS.
-------------------
No Borrower shall, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1 Merger, Consolidation, Acquisition and Sale of Assets.
-----------------------------------------------------
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<PAGE>
(a) Enter into any merger, consolidation or other reorganization with
or into any other Person (other than another Borrower), or acquire all or a
substantial portion of the assets or Equity Interests of any Person, or permit
any other Person to consolidate with or merge with it.
(b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets to any Person other than another Borrower, except (i) sales
by a Borrower of its Inventory in the Ordinary Course of Business, (ii) sales
and other dispositions of Equipment of a Borrower to the extent expressly
permitted by this Agreement, (iii) Permitted Sales, (iv) Permitted Spinoffs, and
(v) any other dispositions of assets expressly authorized by this Agreement.
7.2 Creation of Liens. Create or suffer to exist any Lien or transfer
-----------------
upon or against any of its property or assets now owned or hereafter acquired,
except Permitted Encumbrances.
7.3 Guarantees. Become liable upon the obligations of any Person by
----------
assumption, endorsement or guaranty thereof or otherwise (other than to
Lenders), except the endorsement of checks in the Ordinary Course of Business.
7.4 Investments. Purchase or acquire obligations or Equity Interests of,
-----------
or any other interest in, any Person, except (a) obligations issued or
guaranteed by the United States of America or any agency thereof, (b) commercial
paper with maturities of not more than 180 days and a published rating of not
less than A-1 or P-1 (or the equivalent rating), (c) certificates of time
deposit and bankers' acceptances having maturities of not more than 180 days and
repurchase agreements backed by United States government securities of a
commercial bank if (i) such bank has a combined capital and surplus of at least
$500,000,000, or (ii) its debt obligations, or those of a holding company of
which it is a Subsidiary, are rated not less than A (or the equivalent rating)
by a nationally recognized investment rating agency, and (d) U.S. money market
funds that invest solely in obligations issued or guaranteed by the United
States of America or an agency thereof.
7.5 Loans. Make advances, loans or extensions of credit to any Person,
-----
including any Parent, Subsidiary or Affiliate except (i) the extension of
commercial trade credit in connection with the sale of Inventory in the Ordinary
Course of its Business; (ii) loans or advances of money made by one Borrower to
another Borrower or to a Guarantor, provided that any instrument given to
evidence any such loan or advance is promptly pledged to Agent as security for
the Obligations; and (iii) loans to its employees in the Ordinary Course of
Business not to exceed $250,000 in the aggregate at any time outstanding for all
such advances.
7.6 Capital Expenditures. Contract for, purchase or make (i) any
--------------------
Capitalized Software Expenditures or commitment for Capitalized Software
Expenditures in any Fiscal Year in an amount in excess of $4,000,000 or (ii) any
Capital Expenditures (other than Capitalized Software Expenditures) or
commitment for Capital Expenditures (other than Capitalized Software
Expenditures) in any Fiscal Year in an amount in excess of $5,500,000.
7.7 Dividends. Declare, pay or make any dividend or distribution on any
---------
shares of the Equity Interests of any Borrower (other than Upstream Payments or
dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any common or preferred stock,
or of any options to purchase or acquire any such shares of common or preferred
stock of any Borrower.
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<PAGE>
7.8 Indebtedness. Create, incur, assume or suffer to exist any
------------
Indebtedness (exclusive of trade debt) except in respect of (i) Indebtedness to
Lenders; (ii) Permitted Purchase Money Debt and Indebtedness incurred for
Capital Expenditures permitted under Section 7.6 hereof; and (iii) Indebtedness
in existence on the Closing Date and due to Persons other than Lenders that is
described on Schedule 5.8(b).
---------------
7.9 Nature of Business. Substantially change the nature of the business
------------------
in which it is presently engaged, or, except as specifically permitted hereby,
purchase or invest, directly or indirectly, in any assets or property other than
in the Ordinary Course of Business for assets or property which are useful in,
necessary for and are to be used in its business as presently conducted.
7.10 Transactions with Affiliates. Directly or indirectly, purchase,
----------------------------
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, any Affiliate, except transactions disclosed in the
Ordinary Course of Business, on an arm's-length basis on terms no less favorable
than terms which would have been obtainable from a Person other than an
Affiliate.
7.11 Leases. Enter as lessee into any lease arrangement for real or
------
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $2,750,000 in any one Fiscal Year in the aggregate for all
Borrowers.
7.12 Subsidiaries.
------------
(a) Form any Subsidiary other than pursuant to a Permitted Spinoff.
(b) Enter into any partnership, joint venture or similar arrangement
with any Person; or own less than all of the Equity Interests of any Subsidiary
that is a Borrower or Guarantor.
7.13 Fiscal Year and Accounting Changes. Change its Fiscal Year from
----------------------------------
ending on December 31, permit any Subsidiary to have a fiscal year that is
different from the Fiscal Year or make any change (i) in accounting treatment
and reporting practices except as required by GAAP or (ii) in tax reporting
treatment except as required by Applicable Law.
7.14 Pledge of Credit. Now or hereafter pledge Agent's or any Lender's
----------------
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than such Borrower's business as conducted
on the date of this Agreement.
7.15 Amendment of Organization Documents. Amend, modify or waive any
-----------------------------------
material term or provision of its Organization Documents except as required by
Applicable Law.
7.16 Compliance with ERISA. (i) (x) Maintain, or permit any member of the
---------------------
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.8(c), (ii) engage, or
---------------
permit any member of the Controlled Group to engage, in any non-exempt
"prohibited transaction," as that term is defined in Section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency," as that term is defined in
Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any
member of the Controlled Group to terminate,
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<PAGE>
any Plan where such event could result in any liability of any Borrower or any
member of the Controlled Group or the imposition of a Lien on the property of
any Borrower or any member of the Controlled Group pursuant to Section 4068 of
ERISA, (v) assume, or permit any member of the Controlled Group to assume, any
obligation to contribute to any Multiemployer Plan not disclosed on Schedule
--------
5.8(c), (vi) incur, or permit any member of the Controlled Group to incur, any
- ------
withdrawal liability to any Multiemployer Plan; (vii) fail promptly to notify
Agent of the occurrence of any Termination Event, (viii) fail to comply, or
permit a member of the Controlled Group to fail to comply, with the requirements
of ERISA or the Code or other Applicable Laws in respect of any Plan, (ix) fail
to meet, or permit any member of the Controlled Group to fail to meet, all
minimum funding requirements under ERISA or the Code or postpone or delay or
allow any member of the Controlled Group to postpone or delay any funding
requirement with respect of any Plan.
7.17 Prepayment of Indebtedness. At any time, directly or indirectly,
--------------------------
prepay any Indebtedness (other than the Obligations), or repurchase, redeem,
retire or otherwise acquire any Indebtedness of any Borrower.
7.18 Upstream Payments. Create or suffer to exist any encumbrance or
-----------------
restriction on the ability of any Borrower or a Subsidiary of any Borrower to
make any Upstream Payment, except for encumbrances or restrictions (i) pursuant
to any of the Other Documents and (ii) existing under Applicable Law.
7.19 Tax Consolidation. File or consent to the filing of any consolidated
-----------------
income tax return with any Person other than a Subsidiary.
7.20 Conduct of Business. Engage in any business other than the business
-------------------
engaged by it on the Closing Date and any business or activities that are
substantially similar, related or incidental thereto.
SECTION 8. CONDITIONS PRECEDENT.
---------------------
8.1 Conditions to Initial Advances. The agreement of Lenders to make the
------------------------------
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lenders, immediately prior to or concurrently with
the making of such Advances, of the following conditions precedent:
(a) Other Documents. Agent shall have received each of the Other
---------------
Documents duly executed and delivered by an authorized officer of each of the
parties thereto, including each Borrower;
(b) Filings, Registrations and Recordings. Each document (including
-------------------------------------
any UCC financing statement) required by this Agreement, or any Other Document
or under Applicable Law or reasonably requested by the Agent to be filed,
registered or recorded in order to create, in favor of Agent, a perfected
security interest in or Lien upon the Collateral shall have been properly filed,
registered or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and Agent shall have received
an acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;
(c) Corporate Proceedings of Borrowers. Agent shall have received a
----------------------------------
copy of the resolutions in form and substance reasonably satisfactory to Agent,
of the Board of Directors of each Borrower authorizing (i) the execution,
delivery and performance of this Agreement, the Notes, any related agreements
and each of the other Loan Documents and (ii) the granting by each Borrower of
the security interests in and Liens upon the Collateral in each case certified
by the Secretary or an Assistant Secretary of each Borrower
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<PAGE>
as of the Closing Date; and, such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate;
(d) Incumbency Certificates of Borrowers. Agent shall have received a
------------------------------------
certificate of the Secretary or an Assistant Secretary of each Borrower, dated
the Closing Date, as to the incumbency and signature of the officers of each
Borrower executing this Agreement, any certificate or other documents to be
delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary;
(e) Organization Documents. Agent shall have received a copy of the
----------------------
Organization Documents of each Borrower, and all amendments thereto, certified
by the Secretary of State or other appropriate official of its jurisdiction of
organization together with copies of the By-Laws of each Borrower and all
agreements of each Borrower's shareholders certified as accurate and complete by
the Secretary of each Borrower;
(f) Good Standing Certificates. Agent shall have received good
--------------------------
standing certificates for each Borrower dated not more than thirty (30) days
prior to the Closing Date, issued by the Secretary of State or other appropriate
official of each Borrower's jurisdiction of incorporation and each jurisdiction
where the conduct of each Borrower's business activities or the ownership of its
properties necessitates qualification;
(g) Legal Opinion. Agent shall have received favorable legal opinions
-------------
of Borrowers' counsel (qualified to practice in the State of Georgia) in form
and substance satisfactory to Agent, which shall cover such matters incident to
the transactions contemplated by this Agreement and the other Loan Documents as
Agent may require, and each Borrower hereby authorizes and directs each such
counsel to deliver such opinions to Agent;
(h) No Litigation. No litigation, investigation or proceeding before
-------------
or by any arbitrator or Governmental Body shall be continuing or threatened
against any Borrower or against the officers or directors of any Borrower (A) in
connection with any of the Loan Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of Agent, is deemed
material or (B) which could, in the reasonable opinion of Agent, have a Material
Adverse Effect; and no injunction, writ, restraining order or other order of any
nature materially adverse to any Borrower or the conduct of its business or
inconsistent with the due consummation of the transactions contemplated hereby
shall have been issued by any Governmental Body;
(i) Collateral Examination. Agent shall have completed Collateral
----------------------
examinations and received appraisals, the results of which shall be satisfactory
in form and substance to Lenders, of the Receivables, Inventory, General
Intangibles and Equipment of each Borrower and all books and records in
connection therewith;
(j) Fees. Agent shall have received all fees payable to Agent and
----
Lenders on or prior to the Closing Date pursuant to Section 3 hereof;
(k) Pledge Agreements, Trademark Security Agreements, Patent Security
-----------------------------------------------------------------
Agreement and Other Documents. Agent shall have received the executed O'Reilly
- -----------------------------
Guaranty, O'Reilly Pledge Agreement, Pledge Agreements, Trademark Security
Agreements, Patent Security Agreement and all Other Documents, each in form and
substance satisfactory to Agent and Lenders;
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(l) Insurance. Agent shall have received in form and substance
---------
satisfactory to Agent, (i) certified copies of Borrowers' casualty insurance
policies, together with loss payable endorsements on Agent's standard form of
loss payee endorsement naming Agent as loss payee, and (ii) certified copies of
Borrowers' liability insurance policies, together with endorsements naming Agent
as a co-insured;
(m) Payment Instructions. Agent shall have received written
--------------------
instructions from Borrowers directing the application of proceeds of the initial
Advances made pursuant to this Agreement;
(n) Blocked Accounts. Agent shall have received duly executed
----------------
agreements establishing the Blocked Accounts or Depository Accounts with
financial institutions acceptable in all respects to Agent for the collection
and servicing of the Receivables and other proceeds of Collateral;
(o) Consents. Agent shall have received any and all Consents
--------
necessary to permit the effectuation of the transactions contemplated by any of
the Loan Documents; and, Agent shall have received such Consents and waivers of
such third parties as might assert claims with respect to the Collateral, as
Agent and its counsel shall deem necessary;
(p) No Adverse Material Change. Since December 31, 1999, there shall
--------------------------
not have occurred any event, condition or state of facts which could reasonably
be expected to have a Material Adverse Effect and no representations made or
information supplied to Agent shall have been proven to be inaccurate or
misleading in any material respect;
(q) Leasehold Agreements. Agent shall have received Lien Waivers
--------------------
satisfactory to Agent with respect to all premises leased by any Borrower at
which any Inventory or Equipment is located;
(r) Contract Review. Agent shall have reviewed all Material Contracts
---------------
of Borrowers and all other leases, union contracts, labor contracts, vendor
supply contracts, license agreements and distributorship agreements which Agent
or its counsel deems necessary and such contracts and agreements shall be
satisfactory in all respects to Agent and its counsel;
(s) Closing Certificate. Agent shall have received a closing
-------------------
certificate signed by the Chief Financial Officer or Treasurer of each Borrower
dated as of the date hereof, stating that (i) all representations and warranties
set forth in this Agreement and the other Loan Documents are true and correct on
and as of such date, (ii) Borrowers are on such date in compliance with all the
terms and provisions set forth in this Agreement and the Other Documents and
(iii) on such date no Default or Event of Default has occurred or is continuing;
(t) Borrowing Base. Agent shall have received evidence from Borrowers
--------------
that the aggregate amount of Eligible Receivables and Eligible Inventory is
sufficient in value and amount to support Advances in the amount requested by
Borrowers on the Closing Date;
(u) Undrawn Availability. After giving effect to the initial Advances
--------------------
hereunder, Borrowers shall have Undrawn Availability on the Closing Date of at
least $2,500,000;
(v) No Labor Disputes. Agent shall have received assurances
-----------------
satisfactory to it that there are no threats of strikes or work stoppages by any
employees, or organization of employees, of any Borrower or any Guarantor, which
Agent reasonably determines may have a Material Adverse Effect;
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(w) Cash Collateral. O'Reilly shall cause at least $2,800,000 of Cash
---------------
Collateral to be deposited in the Cash Collateral Account; and
(x) Other. All corporate and other proceedings, and all documents,
-----
instruments and other legal matters in connection with this Agreement shall be
satisfactory in form and substance to Agent and its counsel.
8.2 Conditions to Each Advance. The agreement of Lenders to make any
--------------------------
Advance requested to be made on any date (including the initial Advance) is
subject to the satisfaction of the following conditions precedent as of the date
such Advance is made:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Borrower in or pursuant to this Agreement and any of the
Other Documents to which it is a party, and each of the representations and
warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
any of the Other Documents all be true and correct in all material respects on
and as of such date as if made on and as of such date;
(b) No Default. No Event of Default or Default shall have occurred
----------
and be continuing on such date, or would exist after giving effect to the
Advances requested to be made, on such date; provided, however that Lenders, in
-------- -------
their sole discretion, may continue to make Advances notwithstanding the
existence of an Event of Default or Default and that any Advances so made shall
not be deemed a waiver of any such Event of Default or Default;
(c) Borrowing Base Certificates; Maximum Advances. Agent shall have
---------------------------------------------
received each Borrowing Base Certificate required by the terms of this Agreement
or otherwise requested by Agent, and, in the case of any Advances requested to
be made, after giving effect thereto, the aggregate Advances shall not exceed
the maximum amount of Advances permitted under Section 2.1 hereof;
(d) No Litigation. No action, proceeding, investigation, regulation
-------------
or legislation shall have been instituted, threatened or proposed before any
court or Governmental Body to enjoin, restrain or prohibit, or to obtain damages
in respect of, or which is related to or arises out of, this Agreement or any of
the Other Documents or the consummation of the transactions contemplated hereby
or thereby; and
(e) No Material Adverse Effect. No event shall have occurred and no
--------------------------
condition shall exist which has or could be reasonably expected to have a
Material Adverse Effect.
Each request for an Advance by any Borrower hereunder shall constitute a
representation and warranty by each Borrower as of the date of such Advance that
the conditions contained in this subsection shall have been satisfied.
SECTION 9. INFORMATION AS TO BORROWERS.
----------------------------
Each Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
9.1 Disclosure of Material Matters. Immediately upon learning thereof,
------------------------------
report to Agent all matters materially affecting the value, enforceability or
collectibility of any portion of the Collateral including
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any Borrower's reclamation or repossession of, or the return to any Borrower of,
a material amount of goods or claims or disputes asserted by any Customer or
other obligor.
9.2 Schedules. Deliver to Agent on or before the fifteenth (15th) day of
---------
each month as and for the prior month (a) accounts receivable agings, (b)
accounts payable schedules, (c) Inventory reports, and (d) a Borrowing Base
Certificate (which shall be calculated as of the last day of the prior month and
which shall not be binding upon Agent or restrictive of Agent's rights under
this Agreement). In addition, each Borrower will deliver to Agent at such
intervals as Agent may reasonably require: (i) confirmatory assignment
schedules, (ii) copies of Customer's invoices, (iii) evidence of shipment or
delivery, and (iv) such further schedules, documents and/or information
regarding the Collateral as Agent may reasonably require including trial
balances and test verifications. Agent shall have the right to confirm and
verify all Receivables by any manner and through any medium it considers
advisable and do whatever it may deem reasonably necessary to protect its
interests hereunder. The items to be provided under this Section are to be in
form satisfactory to Agent and executed by each Borrower and delivered to Agent
from time to time solely for Agent's convenience in maintaining records of the
Collateral, and any Borrower's failure to deliver any of such items to Agent
shall not affect, terminate, modify or otherwise limit Agent's Lien with respect
to the Collateral.
9.3 Environmental Reports. At Agent's request, furnish Agent,
---------------------
concurrently with the delivery of the financial statements referred to in
Sections 9.7 and 9.8, with a certificate signed by the Chief Financial Officer
of Borrowing Agent, on behalf of each Borrower stating, to the best of his
knowledge, that each Borrower is in compliance in all material respects with all
Environmental Laws and laws relating to occupational safety and health. To the
extent any Borrower is not in compliance with the foregoing laws, the
certificate shall set forth with specificity all areas of non-compliance and the
proposed action such Borrower will implement in order to achieve full
compliance.
9.4 Litigation. Promptly notify Agent in writing of any litigation, suit
----------
or administrative proceeding affecting any Borrower, whether or not the claim is
covered by insurance, and of any suit or administrative proceeding, which in any
such case could reasonably be expected to have a Material Adverse Effect on any
Borrower.
9.5 Material Occurrences. Promptly notify Agent in writing upon the
--------------------
occurrence of (a) any Default or Event of Default; (b) any event, development or
circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating results of any
Borrower as of the date of such statements; (c) any accumulated retirement plan
funding deficiency which, if such deficiency continued for two plan years and
was not corrected as provided in Section 4971 of the Code, could subject any
Borrower to a tax imposed by Section 4971 of the Code; (d) each and every
default by any Borrower which might result in the acceleration of the maturity
of any Indebtedness, including the names and addresses of the holders of such
Indebtedness with respect to which there is a default existing or with respect
to which the maturity has been or could be accelerated, and the amount of such
Indebtedness; and (e) any other development in the business or affairs of any
Borrower which could reasonably be expected to have a Material Adverse Effect;
in each case describing the nature thereof and the action Borrowers propose to
take with respect thereto.
9.6 Government Receivables. Notify Agent immediately if any of its
----------------------
Receivables arise out of contracts between any Borrower and any Governmental
Body.
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9.7 Annual Financial Statements. Furnish Agent within ninety (90) days
---------------------------
after the end of each Fiscal Year of Borrowers, financial statements of
Borrowers on a consolidating and consolidated basis including statements of
income and stockholders' equity and cash flow from the beginning of the current
Fiscal Year to the end of such Fiscal Year and the balance sheet as at the end
of such Fiscal Year, all prepared in accordance with GAAP applied on a basis
consistent with prior practices, and in reasonable detail and reported upon
without qualification by an independent certified public accounting firm
selected by Borrowers and satisfactory to Agent (the "Accountants"). The report
of the Accountants shall be accompanied by a statement of the Accountants
certifying that (i) they have caused the Loan Agreement to be reviewed, (ii) in
making the examination upon which such report was based either no information
came to their attention which to their knowledge constituted an Event of Default
or a Default under this Agreement or any related agreement or, if such
information came to their attention, specifying any such Default or Event of
Default, its nature, when it occurred and whether it is continuing, and such
report shall contain or have appended thereto calculations which set forth
Borrowers' compliance with the requirements or restrictions imposed by Sections
6.5, 7.5, 7.6 and 7.11 hereof. In addition, the reports shall be accompanied by
a Compliance Certificate.
9.8 Quarterly Financial Statements. Furnish Agent within forty-five (45)
------------------------------
days after the end of each Fiscal Quarter, an unaudited balance sheet of
Borrowers on a consolidated and consolidating basis and unaudited statements of
income and stockholders' equity and cash flow of Borrowers on a consolidated and
consolidating basis reflecting results of operations from the beginning of the
Fiscal Year to the end of such quarter and for such quarter, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments. The reports shall be
accompanied by a Compliance Certificate.
9.9 Monthly Financial Statements. Furnish Agent within thirty (30) days
----------------------------
after the end of each month, an unaudited balance sheet of Borrowers on a
consolidated and consolidating basis and unaudited statements of income and
stockholders' equity and cash flow of Borrowers on a consolidated and
consolidating basis reflecting results of operations from the beginning of the
Fiscal Year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments. The reports shall be
accompanied by a Compliance Certificate.
9.10 Other Reports. Furnish Agent as soon as available, but in any event
-------------
within ten (10) days after the issuance thereof, with copies of such financial
statements, reports and returns as each Borrower shall send to its stockholders.
9.11 Additional Information. Furnish Agent with such additional
----------------------
information as Agent shall reasonably request in order to enable Agent to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Notes have been complied with by Borrowers including, and
without the necessity of any request by Agent, (a) copies of all environmental
audits and reviews, (b) at least thirty (30) days prior thereto, notice of any
Borrower's opening of any new office or place of business or any Borrower's
closing of any existing office or place of business other than a Minor Location
permitted under Section 4.5, and (c) promptly upon any Borrower's learning
thereof, notice of any labor dispute to which any Borrower may become a party,
any strikes or walkouts relating to any of its plants or other facilities, and
the expiration of any labor contract to which any Borrower is a party or by
which any Borrower is bound.
9.12 Projected Operating Budget. Furnish Agent, no later than thirty (30)
--------------------------
days prior to the beginning of each Borrower's Fiscal Years commencing with
Fiscal Year 2001, a month by month projected
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operating budget and cash flow of Borrowers on a consolidated and consolidating
basis for such Fiscal Year (including an income statement for each month and a
balance sheet as at the end of the last month in each fiscal quarter), such
projections to be accompanied by a certificate signed by the President or Chief
Financial Officer of each Borrower to the effect that such projections have been
prepared on the basis of sound financial planning practice consistent with past
budgets and financial statements and that such officer has no reason to question
the reasonableness of any material assumptions on which such projections were
prepared.
9.13 Variances From Operating Budget. Furnish Agent, concurrently with
-------------------------------
the delivery of the financial statements referred to in Section 9.7 and each
quarterly report, a written report summarizing all material variances from
budgets submitted by Borrowers pursuant to Section 9.12 and a discussion and
analysis by management with respect to such variances.
9.14 Notice of Suits, Adverse Events. Furnish Agent with prompt notice of
-------------------------------
(i) any lapse or other termination of any Consent issued to any Borrower by any
Governmental Body or any other Person that is material to the operation of any
Borrower's business, (ii) any refusal by any Governmental Body or any other
Person to renew or extend any such Consent; and (iii) copies of any periodic or
special reports filed by any Borrower with any Governmental Body or Person, if
such reports indicate any material change in the business, operations, affairs
or condition of any Borrower, or if copies thereof are requested by Lender, and
(iv) copies of any material notices and other communications from any
Governmental Body or Person which specifically relate to any Borrower.
9.15 ERISA Notices and Requests. Furnish Agent with immediate written
--------------------------
notice in the event that (i) any Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which such Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) any Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which such Borrower or any member of
the Controlled Group has taken, is taking or proposes to take with respect
thereto, (iii) a funding waiver request has been filed with respect to any Plan
together with all communications received by any Borrower or any member of the
Controlled Group with respect to such request, (iv) any increase in the benefits
of any existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) any Borrower or any
member of the Controlled Group shall receive from the PBGC a notice of intention
to terminate a Plan or to have a trustee appointed to administer a Plan,
together with copies of each such notice, (vi) any Borrower or any member of the
Controlled Group shall receive any favorable or unfavorable determination letter
from the Internal Revenue Service regarding the qualification of a Plan under
Section 401(a) of the Code, together with copies of each such letter; (vii) any
Borrower or any member of the Controlled Group shall receive a notice regarding
the imposition of withdrawal liability, together with copies of each such
notice; (viii) any Borrower or any member of the Controlled Group shall fail to
make a required installment or any other required payment under Section 412 of
the Code on or before the due date for such installment or payment; (ix) any
Borrower or any member of the Controlled Group knows that (a) a Multiemployer
Plan has been terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
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9.16 Additional Documents. Execute and deliver to Agent, upon request,
--------------------
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
SECTION 10. EVENTS OF DEFAULT.
------------------
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
10.1 failure by any Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein or in any Other Document when due;
10.2 any representation or warranty made or deemed made by any Borrower in
this Agreement or any Other Document or in any certificate, document or
financial or other statement furnished at any time in connection herewith or
therewith shall prove to have been misleading in any material respect on the
date when made or deemed to have been made;
10.3 failure by any Borrower to (i) furnish financial information when due
or when requested, or (ii) permit the inspection of its books or records;
10.4 issuance of a notice of Lien, levy, assessment, injunction or
attachment against a material portion of any Borrower's property;
10.5 except as otherwise provided for in Sections 10.1 and 10.3, failure
or neglect of any Borrower to perform, keep or observe any term, provision,
condition, covenant herein contained, or contained in any other agreement or
arrangement, now or hereafter entered into between any Borrower and Agent or any
Lender except for a failure or neglect of Borrower to perform, keep or observe
any term, provision, condition or covenant, contained in Sections 4.6, 4.7, 4.9,
4.11, 4.14, 6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is cured within twenty (20)
days from the occurrence of such failure or neglect;
10.6 any judgment or judgments are rendered against any Borrower or any
Guarantor for an aggregate amount in excess of $250,000 if such judgment results
in the imposition of any Lien upon any of the Collateral, there shall be any
period of twenty (20) consecutive days during which such judgment is not
satisfied, stayed pending appeal or otherwise discharged, or the holder of such
judgment shall commence enforcement proceedings with respect thereto;
10.7 any Borrower shall (i) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated or declared a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing;
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10.8 any Borrower or Guarantor shall admit in writing its inability, or be
generally unable, to pay its debts as they become due, cease operations of its
present business or cease to be Solvent;
10.9 any Subsidiary of any Borrower, or any Guarantor, shall (i) apply
for, consent to or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property, (ii) admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
10.10 any change in any Borrower's condition or affairs (financial or
otherwise) which, in Agent's reasonable opinion, has a Material Adverse Effect;
10.11 any Lien created hereunder or provided for hereby or under any Other
Document for any reason ceases to be or is not a valid and perfected Lien having
a first priority interest;
10.12 a default of the obligations of any Borrower under any other
agreement to which it is a party shall occur that has or could reasonably be
expected to have a Material Adverse Effect and which is not cured within any
applicable grace period;
10.13 termination or breach of any Guaranty executed and delivered to
Agent in connection with the Obligations or, if any Guarantor attempts to
terminate or challenges the validity of or its liability under, any such
Guaranty or similar agreement;
10.14 any Change of Control shall occur;
10.15 any material provision of this Agreement or any of the Other
Documents shall, for any reason, cease to be valid and binding on any Borrower,
or any Borrower shall so claim in writing to Agent;
10.16 (i) any Governmental Body shall (A) revoke, terminate, suspend or
adversely modify any license, permit, patent trademark or tradename of any
Borrower, the failure to continue of which results in a Material Adverse
Effect,, or (B) commence proceedings to suspend, revoke, terminate or adversely
modify any such license, permit, trademark, tradename or patent and such
proceedings shall not be dismissed or discharged within sixty (60) days, or (C)
schedule or conduct a hearing on the renewal of any such license, permit,
trademark, tradename or patent necessary for the continuation of Borrowers'
business and the staff of such Governmental Body issues a report recommending
the termination, revocation, suspension or material, adverse modification of
such license, permit, trademark, tradename or patent; (ii) any agreement which
is necessary or material to the operation of any Borrower's business shall be
revoked or terminated and not replaced by a substitute acceptable to Agent
within thirty (30) days after the date of such revocation or termination, and
such revocation or termination and non-replacement would reasonably be expected
to have a Material Adverse Effect on any Borrower;
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10.17 any material portion of the Collateral shall be seized or taken by a
Governmental Body, or any Borrower or the title and rights of any Borrower which
is the owner of any material portion of the Collateral shall have become the
subject matter of litigation which might, in the reasonable opinion of Agent,
upon final determination, result in impairment or loss of the security provided
by this Agreement or the Other Documents;
10.18 the operations of any Borrower's computer facilities are interrupted
at any time for more than forty-eight (48) hours during any period of five (5)
consecutive days, unless such Borrower shall (i) be entitled to receive for such
period of interruption, proceeds of business interruption insurance sufficient
to assure that its per diem cash needs during such period is at least equal to
its average per diem cash needs for the consecutive three (3) month period
immediately preceding the initial date of interruption and (ii) receive such
proceeds in the amount described in clause (i) preceding not later than thirty
(30) days following the initial date of any such interruption; provided,
however, that notwithstanding the provisions of clauses (i) and (ii) of this
section, an Event of Default shall be deemed to have occurred if such Borrower
shall be receiving the proceeds of business interruption insurance for a period
of thirty (30) consecutive days; or
10.19 an event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist with respect to any Plan and, as a result of such event or
condition, together with all other such events or conditions, any Borrower or
any member of the Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Plan or the PBGC (or both) which,
in the reasonable judgment of Agent, could reasonably be expected to have a
Material Adverse Effect on any Borrower.
SECTION 11. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
-------------------------------------------
11.1 Rights and Remedies. Upon or after (i) the occurrence of an Event of
-------------------
Default pursuant to Section 10.7 all Obligations shall be immediately due and
payable and this Agreement and the obligation of Lenders to make Advances shall
be deemed terminated; (ii) an occurrence of any of the other Events of Default
and at any time thereafter (such default not having previously been cured), at
the option of Required Lenders all Obligations shall be immediately due and
payable and Lenders shall have the right to terminate this Agreement and to
terminate the obligation of Lenders to make Advances; and (iii) a filing of a
petition against any Borrower in any involuntary case under any state or federal
bankruptcy laws, the obligation of Lenders to make Advances hereunder shall be
terminated other than as may be required by an appropriate order of the
bankruptcy court having jurisdiction over any Borrower. Upon or after the
occurrence of any Event of Default, Agent shall have the right to exercise any
and all other rights and remedies provided for herein, under the UCC and at law
or equity generally, including the right to foreclose the security interests
granted herein and to realize upon any Collateral by any available judicial
procedure and/or to take possession of and sell any or all of the Collateral
with or without judicial process. Agent may enter any of Borrower's premises or
other premises without legal process and without incurring liability to any
Borrower therefor, and Agent may thereupon, or at any time thereafter, in its
discretion without notice or demand, take the Collateral and remove the same to
such place as Agent may deem advisable and Agent may require Borrowers to make
the Collateral available to Agent at a convenient place. With or without having
the Collateral at the time or place of sale, Agent may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Agent shall give Borrowers
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrowers at least five (5) days prior to such
sale or sales is reasonable notification. At any public sale Agent or any
Lender may bid for and become the purchaser, and Agent, any Lender or any other
purchaser at any such sale thereafter shall hold the Collateral
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sold absolutely free from any claim or right of whatsoever kind, including any
equity of redemption and such right and equity are hereby expressly waived and
released by each Borrower. In connection with the exercise of the foregoing
remedies, Agent is granted permission to use all of each Borrower's trademarks,
trade styles, trade names, patents, patent applications, licenses, franchises
and other proprietary rights which are used in connection with (a) Inventory for
the purpose of marketing, advertising for sale and disposing of such Inventory
and (b) Equipment for the purpose of completing the manufacture of unfinished
goods. The proceeds realized from the sale of any Collateral shall be applied as
follows: first, to the reasonable costs, expenses and attorneys' fees and
expenses incurred by Agent for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; second, to
interest due upon any of the Obligations and any fees payable under this
Agreement; and, third, to the principal of the Obligations. If any deficiency
shall arise, Borrowers shall remain liable to Agent and Lenders therefor.
11.2 Agent's Discretion. Agent shall have the right in its sole
------------------
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3 Setoff. In addition to any other rights which Agent or any Lender
------
may have under Applicable Law, upon the occurrence of an Event of Default
hereunder, Agent and such Lender shall have a right to apply any Borrower's
property held by Agent and such Lender to reduce the Obligations.
11.4 Rights and Remedies not Exclusive. The enumeration of the foregoing
---------------------------------
rights and remedies is not intended to be exhaustive and the exercise of any
right or remedy shall not preclude the exercise of any other right or remedies
provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
SECTION 12. WAIVERS AND JUDICIAL PROCEEDINGS.
---------------------------------
12.1 Waiver of Notice. Each Borrower hereby waives notice of non-payment
----------------
of any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral received or delivered, or any
other action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
12.2 Delay. No delay or omission on Agent's or any Lender's part in
-----
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.
12.3 Jury Waiver. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH
-----------
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
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OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 13. EFFECTIVE DATE AND TERMINATION.
-------------------------------
13.1 Term. This Agreement, which shall inure to the benefit of and shall
----
be binding upon respective successors and permitted assigns of each Borrower,
Agent and each Lender, shall become effective on the date hereof and shall
continue in full force and effect until March 14, 2003 (the "Term") unless
sooner terminated as herein provided. Borrowers may terminate this Agreement at
any time upon ninety (90) days prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid in full prior to the last
day of the Term (the date of such prepayment hereinafter referred to as the
"Early Termination Date") and the Loan Documents are terminated, Borrowers shall
pay to Agent for the benefit of Lenders an early termination fee in an amount
equal to (x) two percent (2.0%) of the Maximum Revolving Amount if the Early
Termination Date occurs on or after the Closing Date to and including the date
immediately preceding the first anniversary of the Closing Date, and (y) one
percent (1.0%) of the Maximum Revolving Amount if the Early Termination Date
occurs on or after the first anniversary of the Closing Date to and including
the date immediately preceding the second anniversary of the Closing Date, and
(z) one-half percent (0.5%) of the Maximum Revolving Amount if the Early
Termination Date occurs on or after the second anniversary of the Closing Date
to and including the date immediately preceding the third anniversary of the
Closing Date.
13.2 Termination. The termination of the Agreement shall not affect any
-----------
Borrower's, Agent's or any Lender's rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully
disposed of, concluded or liquidated. The security interests, Liens and rights
granted to Agent and Lenders hereunder and the financing statements filed
hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrowers' Account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of each Borrower have been paid or performed in full after the
termination of this Agreement or each Borrower has furnished Agent and Lenders
with an indemnification satisfactory to Agent and Lenders with respect thereto.
Accordingly, each Borrower waives any rights which it may have under Section 9-
404(1) of the UCC to demand the filing of termination statements with respect to
the Collateral, and Agent shall not be required to send such termination
statements to each Borrower, or to file them with any filing office, unless and
until this Agreement shall have been terminated in accordance with its terms and
all Obligations paid in full in immediately available funds. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until all Obligations are paid or performed in
full.
SECTION 14. REGARDING AGENT.
----------------
14.1 Appointment. Each Lender hereby designates PNC to act as Agent for
-----------
such Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of each of the Loan Documents and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto and Agent shall hold all Collateral, payments of
principal and interest, fees (except the fees set forth in Sections 3.3(a) and
3.4), charges
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and collections (without giving effect to any collection days) received pursuant
to this Agreement, for its benefit and the ratable benefit of Lenders. Agent may
perform any of its duties hereunder by or through its agents or employees. As to
any matters not expressly provided for by this Agreement (including collection
of the Notes) Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding; provided, however,
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that Agent shall not be required to take any action which exposes Agent to
liability or which is contrary to this Agreement or the Other Documents or
Applicable Law unless Agent is furnished with an indemnification reasonably
satisfactory to Agent with respect thereto.
14.2 Nature of Duties. Agent shall have no duties or responsibilities
----------------
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross (not mere) negligence or
willful misconduct, or (ii) responsible in any manner for any recitals,
statements, representations or warranties made by any Borrower or any officer
thereof contained in this Agreement, or in any of the Other Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection with, any of the Loan Documents or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of any of the Loan Documents or for any failure of any Borrower to
perform its obligations hereunder. Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, any of the Loan Documents, or
to inspect the properties, books or records of any Borrower. The duties of
Agent as respects the Advances to Borrowers shall be mechanical and
administrative in nature; Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender; and nothing in this Agreement,
expressed or implied, is intended to or shall be so construed as to impose upon
Agent any obligations in respect of this Agreement except as expressly set forth
herein.
14.3 Lack of Reliance on Agent and Resignation.
-----------------------------------------
(a) Independently and without reliance upon Agent or any other Lender,
each Lender has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of each Borrower in
connection with the making and the continuance of the Advances hereunder and the
taking or not taking of any action in connection herewith, and (ii) its own
appraisal of the creditworthiness of each Borrower. Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information with respect thereto, whether coming into
its possession before making of the Advances or at any time or times thereafter
except as shall be provided by any Borrower pursuant to the terms hereof. Agent
shall not be responsible to any Lender for any recitals, statements,
information, representations or warranties herein or in any agreement, document,
certificate or a statement delivered in connection with or for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of any of the Loan Documents, or of the financial condition of any
Borrower, or be required to make any inquiry concerning either the performance
or observance of any of the terms, provisions or conditions of this Agreement,
the Notes, the Other Documents or the financial condition of any Borrower, or
the existence of any Event of Default or any Default.
(b) Agent may resign on sixty (60) days written notice to each of
Lenders and Borrowing Agent and upon such resignation, the Required Lenders will
promptly designate a successor Agent reasonably satisfactory to Borrowers. Any
such successor Agent shall succeed to the rights, powers and duties of Agent,
and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's
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rights, powers and duties as Agent shall be terminated, without any other or
further act or deed on the part of such former Agent. After any Agent's
resignation as Agent, the provisions of this Section 14 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
14.4 Certain Rights of Agent. If Agent shall request instructions from
-----------------------
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5 Reliance. Agent shall be entitled to rely, and shall be fully
--------
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and the Other Documents and
its duties hereunder, upon advice of counsel selected by it. Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.
14.6 Notice of Default. Agent shall not be deemed to have knowledge or
-----------------
notice of the occurrence of any Default or Event of Default hereunder or under
the Other Documents, unless Agent has received notice from a Lender or a
Borrower referring to this Agreement or the Other Documents, describing such
Default or Event of Default and stating that such notice is a "notice of
default." In the event that Agent receives such a notice, Agent shall give
notice thereof to Lenders. Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, however, that, unless and until Agent shall have received
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such directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.
14.7 Indemnification. To the extent Agent is not reimbursed and
---------------
indemnified by Borrowers, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Document; provided, however, that, Lenders shall not be liable for any
-------- -------
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
(not mere) negligence or willful misconduct.
14.8 Agent in its Individual Capacity. With respect to the obligation of
--------------------------------
Agent to lend under this Agreement, the Advances made by it shall have the same
rights and powers hereunder as any other Lender and as if it were not performing
the duties as Agent specified herein; and the term "Lender" or any similar term
shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity as a Lender. Agent may engage in business with any Borrower
as if it were not performing the duties specified herein, and may accept fees
and other consideration from any Borrower for services in connection with this
Agreement or otherwise without having to account for the same to Lenders.
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14.9 Delivery of Documents. To the extent Agent receives financial
---------------------
statements required under Sections 9.7, 9.8, and 9.9 from any Borrower pursuant
to the terms of this Agreement, Agent will promptly furnish such documents and
information to Lenders.
14.10 Borrowers' Undertaking to Agent. Without prejudice to their
-------------------------------
respective obligations to Lenders under the other provisions of this Agreement,
each Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or Lenders or any of them pursuant to this Agreement to the extent not
already paid. Any payment made pursuant to any such demand shall pro tanto
satisfy the relevant Borrower's obligations to make payments for the account of
Lenders or the relevant one or more of them pursuant to this Agreement.
SECTION 15. CO-BORROWER PROVISIONS.
-----------------------
15.1 Borrowing Agency Provisions.
---------------------------
(a) Each Borrower hereby irrevocably designates Borrowing Agent to be
its attorney and agent and in such capacity to borrow, sign and endorse notes,
and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of such Borrower or
Borrowers, and hereby authorizes Agent to pay over or credit all loan proceeds
hereunder in accordance with the request of Borrowing Agent.
(b) The handling of this credit facility as a co-borrowing facility
with a borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to Borrowers and at their request, and neither Agent nor any
Lender shall incur any liability to any Borrower as a result thereof. In order
to utilize the financial powers of each Borrower in the most efficient and
economical manner, and in order to facilitate the financing of each Borrower's
needs, Lenders will, at the request of the Borrowing Agent, make Advances and
other financial accommodations to all Borrowers on a combined basis and in
accordance with the provisions set forth in this Agreement. Borrowers
acknowledge that their business is a mutual and collective enterprise and
Borrowers believe that the consolidation of all Advances and other financial
accommodations under this Agreement will enhance the aggregate borrowing powers
of each Borrower and ease the administration of their loan relationship with
Lenders, all to the mutual advantage of Borrowers. Agent's and Lenders'
willingness to extend credit to Borrowers pursuant to the terms hereof and to
administer each Borrower's portion of the Collateral therefor, on a combined
basis as more fully set forth in this Agreement, is done solely as an
accommodation to Borrowers, at their request and in furtherance of their mutual
and collective enterprise. To induce Agent and Lenders to do so and in
consideration thereof, each Borrower hereby indemnifies Agent and each Lender
and holds Agent and each Lender harmless from and against any and all
liabilities, expenses, losses, damages and claims of damage or injury asserted
against Agent or any Lender by any Person arising from or incurred by reason of
the handling of the financing arrangements of Borrowers as provided herein,
reliance by Agent or any Lender on any request or instruction from Borrowing
Agent or any other action taken by Agent or any Lender with respect to this
Section 15.1 except due to willful misconduct or gross (not mere) negligence by
the indemnified party.
(c) All Obligations shall be joint and several, and each Borrower
shall make payment upon the maturity of the Obligations by acceleration or
otherwise, and such obligation and liability on the part of each Borrower shall
in no way be affected by any extensions, renewals and forbearance granted to
Agent or any Lender to any Borrower, failure of Agent or any Lender to give any
Borrower notice of borrowing or
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any other notice, any failure of Agent or any Lender to pursue or preserve its
rights against any Borrower, the release by Agent or any Lender of any
Collateral now or thereafter acquired from any Borrower, and such agreement by
each Borrower to pay upon any notice issued pursuant thereto is unconditional
and unaffected by prior recourse by Agent or any Lender to the other Borrowers
or any Collateral for such Borrower's Obligations or the lack thereof.
(d) Each Borrower's joint and several liability hereunder with respect
to the Advances and other Obligations shall, to the fullest extent permitted by
Applicable Law, be unconditional irrespective of (i) the validity,
enforceability, avoidance or subordination of any of the Obligations or of any
promissory note or other document evidencing all or any part of the Obligations,
(ii) the absence of any attempt to collect any of the Obligations from any other
Borrower or Guarantor or any Collateral or other security therefor, or the
absence of any other action to enforce the same, (iii) the waiver, consent,
extension, forbearance or granting of any indulgence by Agent or any Lender with
respect to any of the Obligations or any instrument or agreement evidencing or
securing the payment of any of the Obligations, or any other agreement now or
hereafter executed by any other Borrower and delivered to Agent or any Lender,
(iv) the failure by Lender to take any steps to perfect or maintain the
perfected status of its security interest in or Lien upon, or to preserve its
rights to, any of the Collateral or other security for the payment or
performance of any of the Obligations, or Agent's or any Lender's release of any
Collateral or of its Liens upon any Collateral, (v) Agent's or any Lenders'
election, in any proceeding instituted under the Bankruptcy Code, for the
application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or
grant of a security interest by any other Borrower, as debtor-in-possession
under Section 364 of the Bankruptcy Code, (vii) the release or compromise, in
whole or in part, of the liability of any Borrower or Guarantor for the payment
of any of the Obligations, (viii) any amendment or modification of any of the
Loan Documents or waiver of any Default or Event of Default thereunder, (ix) any
increase in the amount of the Obligations beyond any limits imposed herein or in
the amount of any interest, fees or other charges payable in connection
therewith, or any decrease in the same, (x) the disallowance of all or any
portion of Lender's claims for the repayment of any of the Obligations under
Section 502 of the Bankruptcy Code, or (xi) any other circumstance that might
constitute a legal or equitable discharge or defense of any Borrower and
Guarantor. At any time an Event of Default exists, Lender may proceed directly
and at once, without notice to any Borrower or Guarantor, against any or all of
Borrowers or Guarantors to collect and recover all or any part of the
Obligations, without first proceeding against any other Borrower or Guarantor or
against any Collateral or other security for the payment or performance of any
of the Obligations, and each Borrower waives any provision that might otherwise
require Agent or any Lender under Applicable Law to pursue or exhaust its
remedies against any Collateral or any other Borrower or Guarantor before
pursuing such Borrower. Each Borrower consents and agrees that Agent and any
Lender shall be under no obligation to marshall any assets in favor of any
Borrower or Guarantor or against or in payment of any or all of the Obligations.
(e) Each Borrower is unconditionally obligated to repay the
Obligations as a joint and several obligor under this Agreement. If, as of any
date, the aggregate amount of payments made by a Borrower on account of the
Obligations and proceeds of such Borrower's Collateral that are applied to the
Obligations exceeds the aggregate amount of Advances actually used by such
Borrower in its business (such excess amount being referred to as an
"Accommodation Payment"), then each of the other Borrowers shall be obligated to
make contribution to such Borrower (the "Paying Borrower") in an amount equal to
(A) the product derived by multiplying the sum of each Accommodation Payment of
each Borrower by the Allocable Percentage of the Borrower from whom contribution
is sought minus (B) the amount, if any, of the then outstanding Accommodation
-----
Payment of such Contributing Borrower (such last mentioned amount which is to be
subtracted from the aforesaid product to be increased by any amounts theretofore
paid by such
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Contributing Borrower by way of contribution hereunder, and to be decreased by
any amounts theretofore received by such Contributing Borrower by way of
contribution hereunder); provided, however, that a Paying Borrower's recovery
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of contribution hereunder from the other Borrowers shall be limited to that
amount paid by the Paying Borrower in excess of its Allocable Percentage of
all Accommodation Payments then outstanding of all Borrowers. As used herein,
the term "Allocable Percentage" shall mean, on any date of determinations
thereof, a fraction the denominator of which shall be equal to the number of
Borrowers who are parties to this Agreement on such date and the numerator of
which shall be 1; provided, however, that such percentages shall be modified in
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the event that contribution from a Borrower is not possible by reason of
insolvency, bankruptcy or otherwise by reducing such Borrower's Allocable
Percentage equitably and by adjusting the Allocable Percentage of the other
Borrowers proportionately so that the Allocable Percentages of all Borrowers at
all times equals 100%.
15.2 Subordination. Each Borrower expressly subordinates and postpones
-------------
the exercise of any and all rights of subrogation, reimbursement, indemnity,
exoneration, contribution of any other claim that such Borrower may now or
hereafter have against the other Borrowers or other Person directly or
contingently liable for the Obligations hereunder, or against or with respect to
the other Borrowers' property (including any property which is Collateral for
the Obligations), arising from the existence or performance of this Agreement,
until termination of this Agreement and repayment in full of the Obligations.
SECTION 16. MISCELLANEOUS.
--------------
16.1 Governing Law; Process. This Agreement shall be governed by and
----------------------
construed in accordance with the laws of the State of Georgia applied to
contracts to be performed wholly within the State of Georgia. Any judicial
proceeding brought by or against any Borrower with respect to any of the
Obligations, this Agreement or any related agreement may be brought in any court
of competent jurisdiction in the State of Georgia, United States of America,
and, by execution and delivery of this Agreement, each Borrower accepts for
itself and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. Each
Borrower hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by registered mail (return
receipt requested) directed to Borrowing Agent at its address set forth in
Section 16.6 and service so made shall be deemed completed five (5) days after
the same shall have been so deposited in the mails of the United States of
America, or, at the Agent's and/or any Lender's option, by service upon
Borrowing Agent which each Borrower irrevocably appoints as such Borrower's
agent for the purpose of accepting service within the State of Georgia. Nothing
herein shall affect the right to serve process in any manner permitted by
Applicable Law or shall limit the right of Agent or any Lender to bring
proceedings against any Borrower in the courts of any other jurisdiction. Each
Borrower waives any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or
venue or based upon forum non conveniens. Any judicial proceeding by any
Borrower against Agent or any Lender involving, directly or indirectly, any
matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the County of Cobb, State of Georgia.
16.2 Entire Understanding.
--------------------
(a) This Agreement and the documents executed concurrently herewith
contain the entire understanding between each Borrower, Agent and each Lender
and supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof. Any promises, representations, warranties or
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guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by each Borrower's, Agent's and each Lender's
respective officers. Neither this Agreement nor any portion or provisions hereof
may be changed, modified, amended, waived, supplemented, discharged, cancelled
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged. Each Borrower
acknowledges that it has been advised by counsel in connection with the
execution of this Agreement and Other Documents and is not relying upon oral
representations or statements inconsistent with the terms and provisions of this
Agreement.
(b) The Required Lenders, Agent with the consent in writing of the
Required Lenders, and Borrowers may, subject to the provisions of this Section
16.2(b), from time to time enter into written supplemental agreements to this
Agreement or any of the Other Documents executed by Borrowers, for the purpose
of adding or deleting any provisions or otherwise changing, varying or waiving
in any manner the rights of Lenders, Agent or Borrowers thereunder or the
conditions, provisions or terms thereof of waiving any covenant, obligation or
Event of Default thereunder, but only to the extent specified in such written
agreements; provided, however, that no such supplemental agreement shall,
without the consent of all Lenders:
(i) increase the Commitment Percentage or maximum dollar
commitment of any Lender;
(ii) extend the maturity of any Note or the due date for any
amount payable hereunder, or decrease the rate of interest or reduce any
fee payable by Borrowers to Lenders pursuant to this Agreement;
(iii) alter the definition of the term Required Lenders or
alter, amend or modify this Section 16.2(b);
(iv) release any Collateral during any calendar year (other than
in accordance with the provisions of this Agreement) having an aggregate
value in excess of $500,000;
(v) change the rights and duties of Agent;
(vi) permit any Out-of-Formula Loan to be made if after giving
effect thereto the total of Revolving Advances outstanding hereunder would
exceed the Formula Amount for more than sixty (60) consecutive Business
Days or exceed $1,000,000; or
(vii) increase the Advance Rate above the Advance Rate in effect
on the Closing Date.
Any such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrowers, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrowers, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
In the event that Agent requests the consent of a Lender pursuant to this
Section 16.2 and such Lender shall not respond or reply to Agent in writing
within five (5) Business Days of delivery of such request, such
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Lender shall be deemed to have consented to matter that was the subject of the
request. In the event that Agent requests the consent of a Lender pursuant to
this Section 16.2 and such consent is denied, then PNC may, at its option,
require such Lender to assign its interest in the Advances to PNC or to another
Lender or to any other Person designated by the Agent (the "Designated Lender"),
for a price equal to the then outstanding principal amount thereof plus accrued
and unpaid interest and fees due such Lender, which interest and fees shall be
paid when collected from Borrower. In the event PNC elects to require any Lender
to assign its interest to PNC or to the Designated Lender, PNC will so notify
such Lender in writing within forty-five (45) days following such Lender's
denial, and such Lender will assign its interest to PNC or the Designated Lender
no later than five (5) days following receipt of such notice pursuant to a
Commitment Transfer Supplement executed by such Lender, PNC or the Designated
Lender, as appropriate, and Agent.
16.3 Successors and Assigns; Participations; New Lenders.
---------------------------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
Borrowers, Agent, each Lender, all future holders of the Obligations and their
respective successors and assigns, except that no Borrower may assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Agent and each Lender.
(b) Each Borrower acknowledges that in the regular course of
commercial banking business one or more Lenders may at any time and from time to
time sell participating interests in the Advances to other financial
institutions (each such transferee or purchaser of a participating interest, a
"Participant"). Each Participant may exercise all rights of payment (including
rights of set-off) with respect to the portion of such Advances held by it or
other Obligations payable hereunder as fully as if such Participant were the
direct holder thereof provided that Borrowers shall not be required to pay to
any Participant more than the amount which it would have been required to pay to
Lender which granted an interest in its Advances or other Obligations payable
hereunder to such Participant had such Lender retained such interest in the
Advances hereunder or other Obligations payable hereunder and in no event shall
Borrowers be required to pay any such amount arising from the same circumstances
and with respect to the same Advances or other Obligations payable hereunder to
both such Lender and such Participant. Each Borrower hereby grants to any
Participant a continuing security interest in any deposits, moneys or other
property actually or constructively held by such Participant as security for the
Participant's interest in the Advances.
(c) Any Lender may with the consent of Agent (which shall not be
unreasonably withheld or delayed) sell, assign or transfer all or any part of
its rights under the Loan Documents to one or more additional banks or financial
institutions (each a "Purchasing Lender"), and one or more Purchasing Lenders
may commit to make Advances hereunder, in minimum amounts of not less than
$5,000,000, pursuant to a Commitment Transfer Supplement, executed by an
Purchasing Lender, the transferor Lender, and Agent and delivered to Agent for
recording. Upon such execution, delivery, acceptance and recording, from and
after the transfer effective date determined pursuant to such Commitment
Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Lender thereunder with a Commitment Percentage as
set forth therein, and (ii) the transferor Lender thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment of
the Commitment Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor Lender
under this Agreement and the Other Documents.
-68-
<PAGE>
Borrowers hereby consent to the addition of such Purchasing Lender and the
resulting adjustment of the Commitment Percentages arising from the purchase by
such Purchasing Lender of all or a portion of the rights and obligations of such
transferor Lender under this Agreement and the Other Documents. Borrowers shall
execute and deliver such further documents and do such further reasonable acts
and things in order to effectuate the foregoing.
(d) Agent shall maintain at its address a copy of each Commitment
Transfer Supplement delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Advances owing to each Lender from
time to time. The entries in the Register shall be conclusive, in the absence
of manifest error, and Borrowers, Agent and Lenders may treat each Person whose
name is recorded in the Register as the owner of the Advance recorded therein
for the purposes of this Agreement. The Register shall be available for
inspection by Borrowers or any Lender at any reasonable time and from time to
time upon reasonable prior notice. Agent shall receive a fee in the amount of
$3,500 payable by the applicable Purchasing Lender upon the effective date of
each transfer or assignment to such Purchasing Lender.
(e) Borrowers authorize each Lender to disclose to any Participant or
Purchasing Lender and any prospective Participant or Purchasing Lender any and
all financial information in such Lender's possession concerning Borrowers which
has been delivered to such Lender by or on behalf of Borrowers pursuant to this
Agreement or in connection with such Lender's credit evaluation of Borrowers.
16.4 Application of Payments. Agent shall have the continuing and
-----------------------
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that any
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for any Borrower's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver, custodian or any other
party under any bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Agent or such Lender.
16.5 Indemnity. Each Borrower shall indemnify Agent, each Lender and each
---------
of their respective officers, directors, Affiliates, employees and agents from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against Agent or any Lender in any
litigation, proceeding or investigation instituted or conducted by any
Governmental Body or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, any of
the Loan Documents, whether or not Agent or any Lender is a party thereto,
except to the extent that any of the foregoing arises out of the willful
misconduct or gross negligence of the party being indemnified.
16.6 Notice. Any notice or request hereunder may be given to any Borrower
------
or to Agent or any Lender at their respective addresses set forth below or at
such other address as may hereafter be specified in a notice designated as a
notice of change of address under this Section. Any notice or request hereunder
shall be given by (a) hand delivery, (b) overnight courier, (c) registered or
certified mail, return receipt requested, (d) telex or telegram, subsequently
confirmed by registered or certified mail, or (e) telecopy to the number set out
below (or such other number as may hereafter be specified in a notice designated
as a notice of change of address) with electronic confirmation of its receipt.
Any notice or other communication required or permitted pursuant to this
Agreement shall be deemed given (a) when personally delivered to any officer of
the party to
-69-
<PAGE>
whom it is addressed, (b) on the earlier of actual receipt thereof or three (3)
days following posting thereof in the U.S. Mail by certified or registered mail,
postage prepaid, or (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with electronic confirmation of its
receipt, in each case addressed to each party at its address set forth below or
at such other address as has been furnished in writing by a party to the other
by like notice:
(A) If to Agent or PNC Bank, National Association
PNC at: Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: John Speiser
Telephone: (732) 220-4314
Telecopier: (732) 220-4393
with a copy to: Parker, Hudson, Rainer & Dobbs LLP
1500 Marquis Two Tower
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Attention: C. Edward Dobbs, Esq.
Telephone: (404) 523-5300
Telecopier: (404) 522-8409
(B) If to a Lender other than Agent, as specified on the signature pages
hereof
-70-
<PAGE>
(C) If to Borrowing Agent
or any Borrower, at: Eltrax Systems, Inc.
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
Attention: William A. Fielder, III
Chief Financial Officer
Telephone: (770) 951-6833
Telecopier: (770) 284-2613
with a copy to: Jaffe, Raitt, Heuer & Weiss, P.C.
One Woodward Avenue, Suite 2400
Detroit, Michigan 48226
Attention: William E. Sider, Esq.
Telephone: (313) 961-8380
Telecopier: (313) 961-8358
16.7 Survival. The obligations of Borrowers under Sections 2.14(e), 3.7,
--------
3.8, 3.9, 4.19(h), 14.7 and 16.5 shall survive termination of this Agreement and
the Other Documents and payment in full of the Obligations. The obligations of
Lenders under Section 14.7 shall survive termination of this Agreement and the
Other Documents and payment in full of the Obligations.
16.8 Severability. If any part of this Agreement is contrary to,
------------
prohibited by, or deemed invalid under Applicable Laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
16.9 Expenses. All costs and expenses including reasonable attorneys'
--------
fees (including the allocated costs of in house counsel) and disbursements
incurred by Agent, Agent on behalf of Lenders, and Lenders (a) in all efforts
made to enforce payment of any Obligation or effect collection of any
Collateral, (b) in connection with the entering into, modification, amendment,
administration and enforcement of this Agreement or any consents or waivers
hereunder and all related agreements, documents and instruments, (c) in
instituting, maintaining, preserving, enforcing and foreclosing on Agent's
security interest in or Lien on any of the Collateral, whether through judicial
proceedings or otherwise, (d) in defending or prosecuting any actions or
proceedings arising out of or relating to Agent's or any Lender's transactions
with any Borrower, or (e) in connection with any advice given to Agent or any
Lender with respect to its rights and obligations under this Agreement and all
related agreements, may be charged to Borrowers' Account and shall be part of
the Obligations.
16.10 Injunctive Relief. Each Borrower recognizes that, in the event any
-----------------
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lenders; therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving that actual damages are not an adequate remedy.
16.11 Consequential Damages. Neither Agent nor any Lender, nor any agent
---------------------
or attorney for any of them, shall be liable to any Borrower for consequential
damages arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.
-71-
<PAGE>
16.12 Captions. The captions at various places in this Agreement are
--------
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
16.13 Counterparts; Telecopied Signatures. This Agreement may be executed
-----------------------------------
in any number of and by different parties hereto on separate counterparts, all
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
16.14 Construction. The parties acknowledge that each party and its
------------
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
16.15 Confidentiality; Sharing Information.
------------------------------------
(a) Agent, each Lender and each Participant shall hold all non-public
information obtained by Agent, such Lender or such Participant pursuant to the
requirements of this Agreement in accordance with Agent's, such Lender's and
such Participant's customary procedures for handling confidential information of
this nature; provided, however, Agent, each Lender and each Participant may
-------- -------
disclose such confidential information (a) to its examiners, affiliates, outside
auditors, counsel and other professional advisors, (b) to Agent, any Lender or
to any prospective Participants and Purchasing Lenders, and (c) as required or
requested by any Governmental Body or representative thereof or pursuant to
legal process; provided, further that (i) unless specifically prohibited by
Applicable Law or court order, Agent, each Lender and each Participant shall use
its best efforts prior to disclosure thereof, to notify the applicable Borrower
of the applicable request for disclosure of such non-public information (A) by a
Governmental Body or representative thereof (other than any such request in
connection with an examination of the financial condition of a Lender or a
Participant by such Governmental Body) or (B) pursuant to legal process and (ii)
in no event shall Agent, any Lender or any Participant be obligated to return
any materials furnished by any Borrower other than those documents and
instruments in possession of Agent or any Lender in order to perfect its Lien on
the Collateral once the Obligations have been paid in full and this Agreement
has been terminated.
(b) Borrower acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to such
Borrower or one or more of its Affiliates (in connection with this Agreement or
otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such
Lender and each Borrower hereby authorizes each Lender to share any information
delivered to such Lender by such Borrower and its Subsidiaries pursuant to this
Agreement, or in connection with the decision of such Lender to enter into this
Agreement, to any such Subsidiary or Affiliate of such Lender, it being
understood that any such Subsidiary or Affiliate of any Lender receiving such
information shall be bound by the provision of Section 16.15 as if it were a
Lender hereunder. Such authorization shall survive the repayment of the other
Obligations and the termination of the Loan Agreement.
16.16 Publicity. Each Borrower and each Lender hereby authorizes Agent to
---------
make appropriate announcements of the financial arrangement entered into among
Borrowers, Agent and Lenders, including
-72-
<PAGE>
announcements which are commonly known as tombstones, in such publications and
to such selected parties as Agent shall in its sole and absolute discretion deem
appropriate.
Each of the parties has executed and delivered this Agreement in Atlanta,
Georgia as of the day and year first above written.
ATTEST: ELTRAX SYSTEMS, INC.
/s/ William A. Fielder, III By: /s/ William P. O'Reilly
- ---------------------------------- ------------------------------
William A. Fielder, III, Secretary William P. O'Reilly, Chairman
of the Board
[CORPORATE SEAL]
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
ATTEST: ELTRAX TECHNOLOGY SERVICES
GROUP, INC.
/s/ Clunet R. Lewis By: /s/ William A. Fielder, III
- ---------------------------------- ------------------------------
Clunet R. Lewis, Secretary William A. Fielder, III,
Treasurer
[CORPORATE SEAL]
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
ATTEST: ELTRAX ASP GROUP, LLC
/s/ Clunet R. Lewis By: /s/ William A. Fielder, III
- ---------------------------------- ------------------------------
Clunet R. Lewis, Secretary William A. Fielder, III,
Treasurer
[CORPORATE SEAL]
3930 RCA Boulevard
Suite 3004
Palm Beach Gardens, Florida 33410
[Signatures continued on following page]
-73-
<PAGE>
ATTEST: SQUIRREL SYSTEMS, INC.
/s/ Clunet R. Lewis By: /s/ William A Fielder, III
- ---------------------------------- ------------------------------
Clunet R. Lewis, Secretary William A. Fielder, III,
Treasurer
[CORPORATE SEAL]
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
ATTEST: SENERCOMM, INC.
/s/ Clunet R. Lewis By: /s/ William A. Fielder, III
- ---------------------------------- ------------------------------
Clunet R. Lewis, Secretary William A. Fielder, III,
Treasurer
[CORPORATE SEAL]
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
ATTEST: ELTRAX CUSTOMER CARE GROUP, INC.
/s/ Clunet R. Lewis By: /s/ William A. Fielder, III
- ---------------------------------- ------------------------------
Clunet R. Lewis, Secretary William A. Fielder, III,
Treasurer
[CORPORATE SEAL]
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
[Signatures continued on following page]
-74-
<PAGE>
ATTEST: ELTRAX INTERNATIONAL, INC.
/s/ Clunet R. Lewis By: /s/ William A. Fielder, III
- ---------------------------------- ------------------------------
Clunet R. Lewis, Secretary William A. Fielder, III,
Treasurer
[CORPORATE SEAL]
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
ATTEST: ELTRAX HOSPITALITY GROUP, INC.
/s/ Clunet R. Lewis By: /s/ William A. Fielder, III
- ---------------------------------- ------------------------------
Clunet R. Lewis, Secretary William A. Fielder, III,
Treasurer
[CORPORATE SEAL]
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
PNC BANK, NATIONAL ASSOCIATION,
as Lender and as Agent
By: /s/ Kurt V. Putkonen
-------------------------------
Name: Kurt V. Putkonen
-----------------------------
Title: Vice President
----------------------------
Commitment Percentage: 100%
-75-
<PAGE>
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William P.
O'Reilly, to me known, who, being by me duly sworn, did depose and say that he
is the Chairman of the Board of ELTRAX SYSTEMS, INC., the corporation described
in and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William A.
Fielder, III, to me known, who, being by me duly sworn, did depose and say that
he is the Treasurer of ELTRAX TECHNOLOGY SERVICES GROUP, INC., the corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the board of directors of said
corporation, and that he signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
-76-
<PAGE>
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William A.
Fielder, III, to me known, who, being by me duly sworn, did depose and say that
he is the Treasurer of ELTRAX ASP GROUP, LLC, the corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William A.
Fielder, III, to me known, who, being by me duly sworn, did depose and say that
he is the Treasurer of SQUIRREL SYSTEMS, INC., the corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William A.
Fielder, III, to me known, who, being by me duly sworn, did depose and say that
he is the Treasurer of SENERCOMM, INC., the corporation described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the board of directors of said corporation, and that he
signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
-77-
<PAGE>
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William A.
Fielder, III, to me known, who, being by me duly sworn, did depose and say that
he is the Treasurer of ELTRAX CUSTOMER CARE GROUP, INC., the corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the board of directors of said
corporation, and that he signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William A.
Fielder, III, to me known, who, being by me duly sworn, did depose and say that
he is the Treasurer of ELTRAX INTERNATIONAL, INC., the corporation described in
and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came William A.
Fielder, III, to me known, who, being by me duly sworn, did depose and say that
he is the Treasurer of ELTRAX HOSPITALITY GROUP, INC., the corporation described
in and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
-------------------------------
NOTARY PUBLIC
-78-
<PAGE>
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of March, 2000, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of PNC BANK, NATIONAL
ASSOCIATION, the national banking association described in and which executed
the foregoing instrument and that he signed his name thereto by on behalf of
said association.
-------------------------------
NOTARY PUBLIC
-79-
<PAGE>
Exhibit A
Form of Revolving Credit Notes
------------------------------
REVOLVING CREDIT NOTE
$
---------- ------------------------
[Atlanta, Georgia]
This Revolving Credit Note is executed and delivered under and pursuant to
the terms of that certain Revolving Credit and Security Agreement dated
__________, 2000 (as amended, restated, supplemented or modified from time to
time, the "Loan Agreement") by and among ELTRAX SYSTEMS, INC., a Minnesota
corporation ("Eltrax"); ELTRAX TECHNOLOGY SERVICES GROUP, INC., a Georgia
corporation ("Technology"); ELTRAX ASP GROUP, LLC, a Georgia limited liability
company ("ASP"); SQUIRREL SYSTEMS, INC., a Georgia corporation ("Squirrel");
SENERCOMM, INC., a Florida corporation ("Senercomm"); ELTRAX CUSTOMER CARE
GROUP, INC., a Georgia corporation ("Customer Care"); ELTRAX INTERNATIONAL,
INC., a Pennsylvania corporation ("International"); and ELTRAX HOSPITALITY
GROUP, INC., a Georgia corporation ("Hospitality"; Eltrax, Technology, ASP,
Squirrel, Senercomm, Customer Care, International and Hospitality, each a
"Borrower" and collectively "Borrowers"); PNC BANK, NATIONAL ASSOCIATION
("PNC"), the various financial institutions named therein or which hereafter
become a party thereto, (together with PNC collectively, "Lenders") and PNC as
agent for Lenders (together with its successors in such capacity, "Agent").
Capitalized terms not otherwise defined herein shall have the meanings provided
in the Loan Agreement.
FOR VALUE RECEIVED, Borrowers hereby jointly and severally promise to pay
to the order of ____________________ ("________"), at the office of Agent
located at _____________, __________, __________, ____________ _____ or at such
other place as Agent may from time to time designate to Borrowers in writing:
(i) the principal sum of ______________ AND __/100 DOLLARS ($__________)
or, if different, from such amount, the unpaid principal balance of _______'s
Commitment Percentage of the Revolving Advances as may be due and owing under
the Loan Agreement, payable in accordance with the provisions of the Loan
Agreement, subject to acceleration upon the occurrence of an Event of Default
under the Loan Agreement or earlier termination of the Loan Agreement pursuant
to the terms thereof; and
(ii) interest on the principal amount of this Note from time to time
outstanding until such principal amount is paid in full at the applicable
Revolving Interest Rate in accordance with the provisions of the Loan Agreement.
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, interest shall be payable at the Default Rate. In no
event, however, shall interest exceed the maximum interest rate permitted by
law.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement and is secured by the liens granted pursuant to the Loan Agreement and
the Other Documents, is entitled to the benefits of
Exhibit A - Page 1
<PAGE>
the Loan Agreement and the Other Documents and is subject to all of the
agreements, terms and conditions therein contained.
This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
If an Event of Default under Section 10.7 of the Loan Agreement shall
occur, then this Note shall immediately become due and payable, without notice,
together with reasonable attorneys' fees if the collection hereof is collected
by or through an attorney at law. If any other Event of Default shall occur
under the Loan Agreement or any of the Loan Documents, which is not cured within
any applicable grace period, then this Note may, as provided in the Loan
Agreement, be declared to be immediately due and payable, without notice,
together with reasonable attorneys' fees, if the collection hereof is placed in
the hands of an attorney to obtain or enforce payment hereof.
This Note shall be construed and enforced in accordance with the internal
laws of the State of Georgia and is intended to take effect as a sealed
instrument under Georgia law.
Each Borrower expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind except as expressly provided in the Loan
Agreement.
SIGNED, SEALED AND DELIVERED in Atlanta, Georgia.
ATTEST: ELTRAX SYSTEMS, INC.
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
ATTEST: ELTRAX TECHNOLOGY SERVICES
GROUP, INC.
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
Exhibit A - Page 2
<PAGE>
ATTEST: ELTRAX ASP GROUP, LLC
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
ATTEST: SQUIRREL SYSTEMS, INC.
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
ATTEST: SENERCOMM, INC.
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
ATTEST: ELTRAX CUSTOMER CARE GROUP, INC.
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
Exhibit A - Page 3
<PAGE>
ATTEST: ELTRAX INTERNATIONAL, INC.
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
ATTEST: ELTRAX HOSPITALITY GROUP, INC.
- ------------------------ By:
, Secretary ----------------------------
- ----------------- Name:
--------------------------
[CORPORATE SEAL] Title:
-------------------------
Exhibit A - Page 4
<PAGE>
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of ELTRAX SYSTEMS, INC., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of ELTRAX TECHNOLOGY SERVICES
GROUP, INC., the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
board of directors of said corporation, and that he signed his name thereto by
like order.
------------------------------
NOTARY PUBLIC
Exhibit A - Page 5
<PAGE>
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of ELTRAX ASP GROUP, LLC, the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
------------------------------
NOTARY PUBLIC STATE OF GEORGIA
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of SQUIRREL SYSTEMS, INC., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of SENERCOMM, INC., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
------------------------------
NOTARY PUBLIC
Exhibit A - Page 6
<PAGE>
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of ELTRAX CUSTOMER CARE GROUP,
INC., the corporation described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the board
of directors of said corporation, and that he signed his name thereto by like
order.
------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of ELTRAX INTERNATIONAL, INC.,
the corporation described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the board of
directors of said corporation, and that he signed his name thereto by like
order.
------------------------------
NOTARY PUBLIC
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this _____ day of __________, 20___, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of ELTRAX HOSPITALITY GROUP,
INC., the corporation described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the board
of directors of said corporation, and that he signed his name thereto by like
order.
------------------------------
NOTARY PUBLIC
Exhibit A - Page 7
<PAGE>
Exhibit B
Form of Commitment Transfer Supplement
--------------------------------------
COMMITMENT TRANSFER SUPPLEMENT
This COMMITMENT TRANSFER SUPPLEMENT, dated as of __________, _______, among
___________________________ (the "Transferor Lender"), the Purchasing Lender
executing this Commitment Transfer Supplement (the "Purchasing Lender"), and PNC
BANK, NATIONAL ASSOCIATION ("PNC"), as agent for the Lenders (as defined below)
under the Loan Agreement (as defined below).
W I T N E S S E T H:
--------------------
WHEREAS, this Commitment Transfer Supplement is being executed and
delivered in accordance with Section 16.3 of the Revolving Credit and Security
Agreement dated March __, 2000 (as from time to time amended, supplemented or
otherwise modified in accordance with the terms thereof, the "Loan Agreement")
among ELTRAX SYSTEMS, INC., a Minnesota corporation ("Eltrax"); ELTRAX
TECHNOLOGY SERVICES GROUP, INC., a Georgia corporation ("Technology"); ELTRAX
ASP GROUP, LLC, a Georgia limited liability company ("ASP"); SQUIRREL SYSTEMS,
INC., a Georgia corporation ("Squirrel"); SENERCOMM, INC., a Florida corporation
("Senercomm"); ELTRAX CUSTOMER CARE GROUP, INC., a Georgia corporation
("Customer Care"); ELTRAX INTERNATIONAL, INC., a Pennsylvania corporation
("International"); and ELTRAX HOSPITALITY GROUP, INC., a Georgia corporation
("Hospitality"; Eltrax, Technology, ASP, Squirrel, Senercomm, Customer Care,
International and Hospitality, each a "Borrower" and collectively "Borrowers");
PNC and the various other financial institutions (collectively, the "Lenders")
and PNC as agent for Lenders (in such capacity, "Agent") named in or which
hereafter become a party to the Loan Agreement;
WHEREAS, each Purchasing Lender wishes to become a Lender party to the Loan
Agreement; and
WHEREAS, the Transferor Lender is selling and assigning to each Purchasing
Lender, rights, obligations and commitments under the Loan Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. All capitalized terms used herein which are not defined shall have the
meanings given to them in the Loan Agreement.
2. Upon receipt by the Agent of four counterparts of this Commitment
Transfer Supplement, to each of which is attached a fully completed Schedule I,
----------
and each of which has been executed by the Transferor Lender and Agent, Agent
will transmit to Transferor Lender and each Purchasing Lender a Transfer
Effective Notice, substantially in the form of Schedule II to this Commitment
-----------
Transfer Supplement (a "Transfer Effective Notice"). Such Transfer Effective
Notice shall set forth, inter alia, the date on which the transfer effected by
this Commitment Transfer Supplement shall become effective (the "Transfer
Effective Date"), which date shall not be earlier than the first Business Day
following the date such Transfer Effective Notice is received. From
Exhibit B - Page 1
<PAGE>
and after the Transfer Effective Date, each Purchasing Lender shall be a Lender
party to the Loan Agreement for all purposes thereof.
3. At or before 12:00 Noon (East Brunswick, New Jersey time) on the
Transfer Effective Date, each Purchasing Lender shall pay to Transferor Lender,
in immediately available funds, an amount equal to the purchase price, as agreed
between Transferor Lender and such Purchasing Lender (the "Purchase Price"), of
the portion of the Advances being purchased by such Purchasing Lender (such
Purchasing Lender's "Purchased Percentage") of the outstanding Advances and
other amounts owing to the Transferor Lender under the Loan Agreement and the
Revolving Credit Note. Effective upon receipt by Transferor Lender of the
Purchase Price from a Purchasing Lender, Transferor Lender hereby irrevocably
sells, assigns and transfers to such Purchasing Lender, without recourse,
representation or warranty, and each Purchasing Lender hereby irrevocably
purchases, takes and assumes from Transferor Lender, such Purchasing Lender's
Purchased Percentage of the Advances and other amounts owing to the Transferor
Lender under the Loan Agreement and the Revolving Credit Note together with all
instruments, documents and collateral security pertaining thereto.
4. Transferor Lender has made arrangements with each Purchasing Lender
with respect to (i) the portion, if any, to be paid, and the date or dates for
payment, by Transferor Lender to such Purchasing Lender of any fees heretofore
received by Transferor Lender pursuant to the Loan Agreement prior to the
Transfer Effective Date and (ii) the portion, if any, to be paid, and the date
or dates for payment, by such Purchasing Lender to Transferor Lender of fees or
interest received by such Purchasing Lender pursuant to the Loan Agreement from
and after the Transfer Effective Date.
5. (a) All principal payments that would otherwise by payable from and
after the Transfer Effective Date to or for the account of Transferor Lender
pursuant to the Loan Agreement and the Revolving Credit Note shall, instead, be
payable to or for the account of Transferor Lender and Purchasing Lender, as the
case may be, in accordance with their respective interests as reflected in this
Commitment Transfer Supplement.
(b) All interest, fees and other amounts that would otherwise accrue
for the account of Transferor Lender from and after the Transfer Effective Date
pursuant to the Loan Agreement and the Revolving Credit Note shall, instead,
accrue for the account of, and be payable to, Transferor Lender and Purchasing
Lender, as the case may be, in accordance with their respective interests as
reflected in this Commitment Transfer Supplement. In the event that any amount
of interest, fees or other amounts accruing prior to the Transfer Effective Date
was included in the Purchase Price paid by any Purchasing Lender, Transferor
Lender and each Purchasing Lender will make appropriate arrangements for payment
by Transferor Lender to such Purchasing Lender of such amount upon receipt
thereof from Borrowers.
6. Concurrently with the execution and delivery hereof, Transferor Lender
will provide to each Purchasing Lender conformed copies of the Loan Agreement
and all related documents delivered to Transferor Lender.
7. Each of the parties to this Commitment Transfer Supplement agrees that
at any time and from time to time upon the written request of any other party,
it will execute and deliver such further documents and do such further acts and
things as such other party may reasonably request in order to effect the
purposes of this Commitment Transfer Supplement.
Exhibit B - Page 2
<PAGE>
8. By executing and delivering this Commitment Transfer Supplement,
Transferor Lender and each Purchasing Lender confirm to and agree with each
other and Agent and Lenders as follows: (i) other than the representation and
warranty that it is the legal and beneficial owner of the interest being
assigned hereby free and clear of any adverse claim, Transferor Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, the Revolving Credit Note or any
other instrument or document furnished pursuant thereto; (ii) Transferor Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of Borrowers or the performance or observance by
Borrowers of any of the Obligations under the Loan Agreement, the Revolving
Credit Note or any other instrument or document furnished pursuant hereto; (iii)
each Purchasing Lender confirms that is has received a copy of the Loan
Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Commitment Transfer Supplement; (iv)
each Purchasing Lender will, independently and without reliance upon Agent,
Transferor Lender or any other Lenders and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Agreement; (v)
each Purchasing Lender appoints and authorizes Agent to take such action as
agent on its behalf and to exercise such powers under the Loan Agreement as are
delegated to the Agent by the terms thereof; (vi) each Purchasing Lender agrees
that is will perform all of its respective obligations as set forth in the Loan
Agreement to be performed by each as a Lender; and (vii) each Purchasing Lender
represents and warrants to Transferor Lender, Lenders, Agent and Borrowers that
it is either (x) entitled to the benefits of an income tax treaty with the
United States of America that provides for an exemption from the United State
withholding tax on interest and other payments made by Borrowers under the Loan
Agreement and the Other Documents or (y) is engaged in trade or business within
the United States of America.
9. Schedule I hereto sets forth the revised Commitment Percentages of
----------
Transferor Lender and the Commitment Percentage of each Purchasing Lender as
well as administrative information with respect to each Purchasing Lender.
10. This Commitment Transfer Supplement shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer
Supplement to be executed by their respective duly authorized officers on the
date set forth above.
,
-------------------------------------
as Transferor Lender
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Exhibit B - Page 3
<PAGE>
,
------------------------------------
as a Purchasing Lender
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Exhibit B - Page 4
<PAGE>
SCHEDULE I TO COMMITMENT TRANSFER SUPPLEMENT
LIST OF OFFICES, ADDRESSES FOR NOTICES AND COMMITMENT AMOUNTS
-------------------------------------------------------------
[Transferor Lender] Revised Commitment Amount $_________________
Revised Commitment Percentage: _____%
[Purchasing Lender] Commitment Amount $_________________
Commitment Percentage: _____%
Addresses for Notices
- ---------------------
- -----------------------------
- -----------------------------
- -----------------------------
Attention:
Telephone:
Telecopier:
Exhibit B - Page 5
<PAGE>
SCHEDULE II TO COMMITMENT TRANSFER SUPPLEMENT
[Form of Transfer Effective Notice]
To: _______________________, as Transferor Lender and __________________,
as Purchasing Lender:
The undersigned, as Agent under the Revolving Credit and Security Agreement
dated _______ __, 2000 (as from time to time amended, supplemented or otherwise
modified in accordance with the terms thereof, the "Loan Agreement") among
_________________________, a corporation organized under the laws of the State
of _______, _________________________, a corporation organized under the laws of
the State of _______, _________________________, a corporation organized under
the laws of the State of _______ (collectively, the "Borrowers"), the various
other financial institutions (collectively, the "Lenders") and PNC BANK,
NATIONAL ASSOCIATION, as a Lender and as agent for Lenders, acknowledges receipt
of four (4) executed counterparts of a completed Commitment Transfer Supplement
in the form attached hereto. [Note: Attach copy of Commitment Transfer
Supplement.] Terms defined in such Commitment Transfer Supplement are used
herein as therein defined.
Pursuant to such Commitment Transfer Supplement, you are advised that the
Transfer Effective Date will be [Insert date of Transfer Effective Notice.]
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:
---------------------------------
Title:
--------------------------
ACCEPTED FOR RECORDATION
IN REGISTER:
Exhibit B - Page 6
<PAGE>
Exhibit C
JOINDER AGREEMENT AND SUPPLEMENT
TO REVOLVING CREDIT AND SECURITY AGREEMENT
------------------------------------------
THIS JOINDER AGREEMENT AND SUPPLEMENT TO REVOLVING CREDIT AND SECURITY
AGREEMENT ("Joinder Agreement"), being Supplement No. _____, dated as of
__________________, _____, to that certain Revolving Credit and Security
Agreement dated March __, 2000 (as at any time amended, the "Loan Agreement")
among ELTRAX SYSTEMS, INC., a Minnesota corporation ("Eltrax"); ELTRAX
TECHNOLOGY SERVICES GROUP, INC., a Georgia corporation ("Technology"); ELTRAX
ASP GROUP, LLC, a Georgia limited liability company ("ASP"); SQUIRREL SYSTEMS,
INC., a Georgia corporation ("Squirrel"); SENERCOMM, INC., a Florida corporation
("Senercomm"); ELTRAX CUSTOMER CARE GROUP, INC., a Georgia corporation
("Customer Care"); ELTRAX INTERNATIONAL, INC., a Pennsylvania corporation
("International"); and ELTRAX HOSPITALITY GROUP, INC., a Georgia corporation [;
and ________________________] (collectively, the "Existing Borrowers"); the
various financial institutions listed on the signature pages thereof and their
respective successors and permitted assigns which become "Lenders" as provided
therein; and PNC BANK, NATIONAL ASSOCIATION, a national banking association, in
its capacity as collateral and administrative agent for the Lenders (together
with its successors in such capacity, "Agent"). Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings ascribed to them in the
Loan Agreement. The terms "herein," "hereof" and "hereunder" and other words of
similar import refer to this Joinder Agreement as a whole and not to any
particular section, paragraph or subdivision; all references to any Person shall
mean and include the successors and permitted assigns of such Person; all
references to any of the Loan Documents shall include any and all amendments or
modifications thereto and any and all restatements, extensions or renewals
thereof; and wherever the word "including" shall appear in this Joinder
Agreement, such word shall be understood to mean "including, without
limitation."
Lenders have been making Revolving Advances and other extensions of credit
to Existing Borrowers pursuant to the terms of the Loan Agreement and the Other
Loan Documents. Pursuant to the Loan Agreement, each wholly-owned Subsidiary of
Borrower that was not in existence on the Closing Date is required, if so
requested by Agent, to become a party to and be bound by all of the terms of the
Loan Agreement and the other Loan Documents as if such Subsidiary had been an
original signatory and party to the Loan Agreement and Other Documents to which
the Existing Borrowers are parties. The undersigned, _______________________, a
_____________________ corporation ("New Borrower") is a wholly-owned Subsidiary
of _________________________ and is executing this Joinder Agreement, at Agent's
request and with Agent's consent, in accordance with the requirements of the
Loan Agreement, in order to induce Agent and Lenders to continue extending
credit to or for the benefit of the Existing Borrowers as well as New Borrower
based upon not only the Eligible Receivables and Eligible Inventory of the
Existing Borrowers but also the Eligible Receivables and Eligible Inventory of
New Borrower.
NOW, THEREFORE, for Ten Dollars ($10.00) in hand paid and other good and
valuable consideration, receipt whereof is severally acknowledged, the parties
hereto, intending to be legally bound hereby, agree as follows:
Exhibit C - Page 1
<PAGE>
1. By its signature below, New Borrower hereby agrees that it is a
"Borrower" under and bound by and subject to all of the provisions of the Loan
Agreement and Other Documents to which the Existing Borrowers are parties, with
the same force and effect as if New Borrower were an original signatory thereto,
and New Borrower hereby agrees to abide by and perform all of its obligations as
a "Borrower" under the Loan Agreement and the Other Documents. Each reference
to "Borrowers" in the Loan Agreement and other Loan Documents shall be
understood to mean and include New Borrower as well as the Existing Borrowers.
The terms of the Loan Agreement are hereby incorporated into this Joinder
Agreement by reference.
2. New Borrower acknowledges and agrees that it is and shall be jointly
and severally liable with the Existing Borrowers for all Revolving Advances and
other Obligations outstanding on the date hereof and shall be jointly and
severally liable with all Existing Borrowers (together with each other Person
who becomes a Borrower on or after the date hereof) for all Revolving Advances
and other Obligations at any time or times outstanding hereafter. New Borrower
hereby appoints and designates Borrowing Agent as its representative for all
purposes under the Loan Agreement, including the making of requests for
Revolving Advances and other extensions of credit pursuant to the terms of the
Loan Agreement and receiving notices and other communications to Borrowers from
Agent or any Lenders.
3. To secure the prompt payment and performance to Agent and Lenders of
all of the Obligations, New Borrower hereby grants to Agent, for the benefit of
Agent and for the ratable benefit of Lenders, a continuing security interest in
and Lien upon all of New Borrower's assets that are included within the
definition of "Collateral" under the Loan Agreement and any of the Other
Documents. Concurrently with its execution of this Joinder Agreement, New
Borrower shall execute and deliver to Agent all Lien Perfection Documents
requested by Agent.
4. New Borrower represents and warrants to Agent and Lenders that New
Borrower is a wholly-owned Subsidiary of _____________________________ and is
engaged in substantially the same business as the Existing Borrowers and
operates with the Existing Borrowers in a joint and common enterprise; this
Joinder Agreement has been duly authorized, executed and delivered by New
Borrower and constitutes a legal, valid and binding obligation of New Borrower
enforceable against it in accordance with its terms, except as enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity); and the Schedules annexed hereto contain
true, accurate and complete information with respect to New Borrower and the
matters covered by the provisions of Section 5 of the Loan Agreement and such
Schedules shall be deemed to supplement and become a part of the Schedules
annexed to the Loan Agreement.
5. Except as otherwise expressly provided in this Joinder Agreement,
nothing herein shall be deemed to amend or modify any provision of any of the
Loan Documents, each of which shall remain in full force and effect. This
Joinder Agreement is not intended to be, nor shall it be construed to create, a
novation or accord and satisfaction. If any provision in or obligation under
this Joinder Agreement shall be invalid, illegal or otherwise unenforceable in
any jurisdiction, then the validity, legality and enforceability of the
remaining provisions or obligations shall not in any way be affected or impaired
thereby.
6. New Borrower, jointly and severally with the Existing Borrowers,
agrees to reimburse Agent and Lenders for their respective out-of-pocket
expenses in connection with the preparation, execution and delivery of this
Joinder Agreement, including the fees, disbursements and other charges of
counsel for Agent and Lenders.
Exhibit C - Page 2
<PAGE>
7. This Joinder Agreement, together with the Loan Documents and all other
instruments, agreements and certificates executed by the parties in connection
therewith or with reference thereto, embody the entire understanding and
agreement among the parties with respect to the subject matter thereof. Each of
the Schedules as attached hereto is incorporated into this Joinder Agreement and
by this reference made a part hereof and a part of the Loan Agreement.
8. This Joinder Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of such counterparts
shall constitute but one and the same instrument.
9. This Joinder Agreement shall be effective when accepted by Agent (New
Borrower hereby waiving notice of such acceptance) and thereupon shall be deemed
to be a contract governed by and construed and enforced in accordance with the
internal laws of the State of Georgia.
IN WITNESS WHEREOF, New Borrower and Agent have duly executed this Joinder
Agreement, under seal as of the day and year first written above.
NEW BORROWER:
------------
ATTEST: ------------------------------------
- ----------------------------- By:
Title: ----------------------------
Title:
[Corporate Seal] -------------------------
AGENT:
-----
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------------
Title:
------------------------
Exhibit C - Page 3
<PAGE>
Exhibit 10.33
LIMITED GUARANTY AGREEMENT
--------------------------
This LIMITED GUARANTY AGREEMENT (this "Guaranty") is made this 14th day of
March, 2000, by WILLIAM P. O'REILLY, an individual resident of the State of
Michigan ("Guarantor"), in favor of PNC BANK, NATIONAL ASSOCIATION, a national
association, in its capacity as collateral and administrative agent (together
with its successors in such capacity, "Agent"), for each of the lenders (the
"Lenders;" collectively with Agent, the "Guaranteed Parties") now or hereafter
parties to the Credit Agreement (as defined below).
Recitals
--------
Agent and Lenders are parties with ELTRAX SYSTEMS, INC., a Minnesota
corporation, ELTRAX TECHNOLOGY SERVICES GROUP, INC., a Georgia corporation,
ELTRAX ASP GROUP, LLC, a Georgia limited liability company, SQUIRREL SYSTEMS,
INC., a Georgia corporation, SENERCOMM, INC., a Florida corporation, ELTRAX
CUSTOMER CARE GROUP, INC., a Georgia corporation, ELTRAX INTERNATIONAL, INC., a
Pennsylvania corporation, and ELTRAX HOSPITALITY GROUP, INC., a Georgia
corporation (each a "Debtor" and collectively "Debtors"), to a Revolving Credit
and Security Agreement dated the date hereof (as at any time amended, the
"Credit Agreement"), pursuant to which Lenders have agreed to make loans and
other extensions of credit to or for the benefit of Debtors on the terms and
subject to all of the conditions set forth in the Credit Agreement. Capitalized
terms used in this Guaranty, unless otherwise defined herein, shall have the
meanings ascribed to them in the Credit Agreement.
A condition to Lenders' extension of any credit to Debtors under the Credit
Agreement is the execution and delivery of this Guaranty by Guarantor. To
induce Lenders to extend credit to Debtors under the Credit Agreement, Guarantor
has agreed to execute and deliver and be bound by the terms of this Guaranty.
Statement of Agreement
----------------------
FOR TEN DOLLARS ($10.00) in hand paid and in order to induce the Guaranteed
Parties to make loans or extend credit from time to time, to Debtors in
accordance with the terms of the Credit Agreement (as hereinafter defined), and
for other good and valuable consideration, Guarantor hereby unconditionally and
absolutely guarantees to each of the Guaranteed Parties and their respective
successors and assigns the due and punctual payment, performance and discharge
(whether upon stated maturity, demand, acceleration or otherwise in accordance
with the terms thereof) of all such loans and extensions of credit from any
Guaranteed Party to Debtors under the Credit Agreement and all other debts,
liabilities and obligations of Debtors to or held by any Guaranteed Party
(including any portion thereof nominally held by a Guaranteed Party on behalf of
others who have participations or interests therein granted or created by a
Guaranteed Party), whether direct or indirect, absolute or contingent, secured
or unsecured, due or to become due, liquidated or unliquidated, primary or
secondary, joint or several, now existing or hereafter arising, whether created
directly to or acquired by assignment or otherwise by any Guaranteed Party, and
whether any Debtor may be liable individually or jointly with others, and
regardless of whether recovery upon any of such loans or extensions of credit or
other debts, liabilities and obligations becomes barred by any statute of
limitations, is void or voidable under any law relating to fraudulent
obligations or otherwise, or is or becomes invalid or unenforceable for any
other reason (all such debts, liabilities and obligations being hereinafter
referred to collectively as the "Indebtedness"). Without limiting the generality
of the foregoing, the term "Indebtedness" as used herein shall include all
debts, liabilities and obligations incurred by any Debtor to any Guaranteed
Party, including reasonable attorneys' fees, in any bankruptcy case of any
Debtor and any interest, fees or
<PAGE>
other charges accrued in any such bankruptcy whether or not recoverable from
such Debtor or such Debtor's estate under 11 U.S.C. (S) 506. IN NO EVENT,
HOWEVER, SHALL GUARANTOR'S LIABILITY UNDER THIS GUARANTY EXCEED THE SUM OF (A)
$2,800,000, PLUS (B) INTEREST ON THE PRINCIPAL AMOUNT DUE HEREUNDER FROM AND
AFTER THE DATE ON WHICH PAYMENT OF SUCH AMOUNT IS DUE AT THE RATE OF INTEREST
APPLICABLE FROM TIME TO TIME UNDER THE CREDIT AGREEMENT, PLUS (C) THE COSTS AND
ATTORNEYS' FEES INCURRED BY ANY GUARANTEED PARTY IN ENFORCING THE TERMS HEREOF
AND IN COLLECTING THE INDEBTEDNESS OF GUARANTOR HEREUNDER.
GUARANTOR HEREBY WAIVES: notice of acceptance hereof; notice of the
extension of credit from time to time given by any Guaranteed Party to any
Debtor and the creation, existence or acquisition of any Indebtedness; notice of
the amount of Indebtedness of Debtors to the Guaranteed Parties from time to
time, subject, however, to Guarantor's right to make inquiry of Agent to
ascertain the amount of Indebtedness at any reasonable time; notice of any
adverse change in any Debtor's financial condition or of any other fact which
might increase Guarantor's risk; notice of presentment for payment, demand,
protest and notice thereof as to any instrument; notice of default or
acceleration and all other notices and demands to which Guarantor might
otherwise be entitled; any right Guarantor may have, by statute or otherwise, to
require any Guaranteed Party to institute suit against any Debtor after notice
or demand from Guarantor or to seek recourse first against any Debtor or others,
or to realize upon any security for the Indebtedness, as a condition to
enforcing Guarantor's liability and obligations hereunder; any defense that any
Debtor may at any time assert based upon the statute of limitations, the statute
of frauds, failure of consideration, fraud, bankruptcy, lack of legal capacity,
usury, or accord and satisfaction; any defense that other indemnity, guaranty or
security was to be obtained; any defense or claim that any Person purporting to
bind any Debtor to the payment of Indebtedness did not have actual or apparent
authority to do so; and any right to contest the commercial reasonableness of
the disposition of any or all collateral (to the extent available under
applicable law). Guarantor further waives any right Guarantor may have, by
statute or otherwise, to any right to appraisement, valuation, stay of
execution, or notice of election to declare due the amount of any indebtedness
of Debtors with regard to any Guaranteed Party's enforcement of any security
interest, lien, mortgage or other interest the Guaranteed Parties may hold in
any real or personal property of any Debtor. Guarantor further waives and
renounces all homestead and exemption rights provided for by the Constitution
and the laws of the United States and of any state thereof.
If an Event of Default under (and as defined in) the Credit Agreement shall
occur or if any Debtor should dissolve or become insolvent (within the meaning
of the Georgia Uniform Commercial Code), or if a petition for an order for
relief with respect to any Debtor should be filed by or against any Debtor under
any chapter of the Bankruptcy Code, or if Guarantor shall die, or if a receiver,
trustee or conservator should be appointed for any Debtor or Guarantor or any of
such Debtor's or Guarantor's property, or if any Debtor should default in the
observance or performance of any covenant or agreement with any Guaranteed Party
and such default shall not be cured within any cure period mutually agreed upon
in writing by such Debtor and such Guaranteed Party, or if Debtors shall fail to
pay any of the Indebtedness on the due date thereof (whether due on demand, at
stated maturity, upon acceleration or otherwise), or if Guarantor should revoke
or attempt to revoke this Guaranty or should dispute Guarantor's liability
hereunder, then, in any such event and whether or not any of the Indebtedness is
then due and payable or the maturity thereof has been accelerated or demand for
payment thereof from Debtors has been made, Agent may without notice to
Guarantor (and shall at the direction of the Required Lenders) make the
Indebtedness immediately due and payable hereunder as to Guarantor and Agent
shall be entitled to enforce the obligations of Guarantor hereunder. Guarantor
agrees to pay all expenses incurred by any Guaranteed Party in connection with
enforcement of any Guaranteed Party's rights under the Guaranty, including court
costs, collection charges and reasonable attorneys' fees.
Each Guaranteed Party shall have a lien upon or right of set-off to any and
all credits and any and all other property of Guarantor, now or at any time
whatsoever with or in the possession of such Guaranteed
-2-
<PAGE>
Party or anyone holding for such Guaranteed Party as security for any and all
obligations of Guarantor to such Guaranteed Party, no matter how or when arising
and whether under this or any other instrument or agreement or otherwise.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing the liability or obligations of Guarantor
hereunder, the Guaranteed Parties may: compromise or settle, extend the period
of duration or the time for the payment, discharge or performance of any of the
Indebtedness or increase the amount of the Indebtedness; refuse to enforce, or
release any Persons liable for the payment of any of the Indebtedness; increase,
decrease or otherwise alter the rate of interest payable with respect to the
principal amount of any of the Indebtedness or grant other indulgences to any
Debtor in respect thereof; amend or modify in any manner, or terminate or
release, any documents or agreements evidencing, securing or otherwise relating
to the Indebtedness (other than this Guaranty); release, surrender, exchange,
modify or impair any and all collateral, deposits or other property at any time
securing (directly or indirectly) any of the Indebtedness or on which the
Guaranteed Parties at any time may have a lien; extend the time of payment of
any collateral consisting of accounts, notes, chattel paper or other rights to
the payment of money; refuse to enforce its rights or make any compromise or
settlement or agreement therefor, in respect of any and all of such collateral,
deposits and property, or with any party liable for the Indebtedness, or with
any other Person, whatsoever; or release or substitute any one or more of the
endorsers or guarantors of the Indebtedness, whether parties to this instrument
or not.
Guarantor consents and agrees that the Guaranteed Parties shall be under no
obligation to marshal any assets in favor of Guarantor or against or in payment
of any or all of the Indebtedness. Guarantor agrees to pay all expenses
incurred by the Guaranteed Parties in connection with enforcement of the
Guaranteed Parties' rights under this Guaranty, including court costs,
collection charges and reasonable attorneys' fees. Guarantor further agrees
that, if and to the extent any the Guaranteed Party receives any payment on
account of any of the Indebtedness (whether from any Debtor, Guarantor or a
third party obligor or from the sale or other disposition of any collateral) and
such payment or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy act, state or federal law,
common law or equitable cause, then the part of the Indebtedness intended to be
satisfied shall be revived and continued in full force and effect as if said
payment had not been made. The foregoing provisions of this paragraph shall
survive the termination or revocation of this Guaranty.
Guarantor represents, warrants and covenants to the Guaranteed Parties, as
an inducement to the Guaranteed Parties to grant credit to Debtors, that, as of
the date of this Guaranty, the fair saleable value of Guarantor's assets exceeds
Guarantor's liabilities; Guarantor is meeting current liabilities as they
mature; there are not now pending any material court or administrative
proceedings or undischarged judgments against Guarantor and no federal or state
tax liens have been filed or threatened against Guarantor nor is Guarantor in
default or claimed default under any agreement for borrowed money. Guarantor
shall immediately give Agent written notice of any material adverse change in
Guarantor's financial condition, including litigation commenced, tax liens
filed, defaults claimed under Guarantor's indebtedness for borrowed money or
bankruptcy proceedings commenced against Guarantor or commenced by Guarantor or
by any third party. Guarantor shall at such reasonable times as Agent requests
furnish Guarantor's current financial statements to Agent and permit Agent or
its representatives to inspect Guarantor's financial records and properties and
make extracts therefrom in order to evaluate the financial condition of
Guarantor.
This Guaranty is a primary, immediate and original obligation of Guarantor
and is an absolute, unconditional and continuing guaranty of payment of the
Indebtedness and not of its collectibility only, is not contingent upon the
exercise or enforcement by the Guaranteed Parties of any remedies the Guaranteed
Parties may have against any Debtor or others, or the enforcement of any lien or
realization upon any security the Guaranteed Parties may at any time possess,
and shall remain in full force and effect without regard to future changes in
conditions, including change of law or any invalidity or irregularity with
respect
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<PAGE>
to the issuance of any obligations of any Debtor to any Guaranteed Party or with
respect to the execution and delivery of any agreement between Debtors and any
Guaranteed Party. This Guaranty shall be in addition to any other present or
future guaranty or other security for any of the Indebtedness, shall not be
prejudiced or unenforceable by the invalidity of any such other guaranty or
security and is not conditioned upon or subject to the execution by any other
Person of this Guaranty or any other guaranty or suretyship agreement.
The Guaranteed Parties shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other document or
instrument evidencing obligations of Guarantor to the Guaranteed Parties, and
against Debtors to the full extent provided for in any loan agreement among the
Guaranteed Parties and any Debtor. No election to proceed in one form of action
or proceeding, or against any party, or on any obligation, shall constitute a
waiver of any Guaranteed Party's right to proceed in any other form of action or
proceeding or against other parties unless such Guaranteed Party has expressly
waived such right in writing.
Guarantor is fully aware of the financial condition of each Debtor.
Guarantor delivers this Guaranty based solely upon Guarantor's own independent
investigation and in no part upon any representation or statement of any
Guaranteed Party with respect thereto. Guarantor is in a position to and hereby
assumes full responsibility for obtaining any additional information concerning,
each Debtor's financial condition as Guarantor may deem material to Guarantor's
obligations hereunder and Guarantor is not relying upon, nor expecting any
Guaranteed Party to furnish it, any information in such Guaranteed Party's
possession concerning such Debtor's financial condition. Guarantor hereby
knowingly accepts the full range of risks encompassed within a contract of
"Guaranty," which risks include, without limitation, the possibility that a
Debtor will contract additional indebtedness for which Guarantor may be liable
hereunder after a Debtor's financial condition or ability to pay its lawful
debts when they fall due has deteriorated.
The books and records of Agent showing the account among the Guaranteed
Parties and Debtors shall be admissible in evidence in any action or proceeding
against or involving Guarantor as prima facie proof of the items therein set
forth, and the monthly statements of Agent rendered to Debtors, to the extent to
which no written objection is made within 30 days from the date of sending
thereof to Debtors, shall be deemed conclusively correct and shall constitute an
account stated between the Guaranteed Parties and Debtors and shall be binding
on Guarantor.
Guarantor agrees that this Guaranty shall continue in full force and effect
until the date on which all of the Indebtedness has been fully paid and
discharged and all commitments of the Guaranteed Parties under the Credit
Agreement have been terminated. Notwithstanding the foregoing, each Guaranteed
Party agrees that Agent shall release Guarantor from this Guaranty and terminate
this Guaranty by delivering the original of this Guaranty to Guarantor marked
satisfied or terminated on any date on which the Guaranty Release Conditions
have been satisfied. For purposes hereof the term "Guaranty Release Conditions"
shall mean the following conditions: (i) Agent shall have received a written
request from Guarantor requesting that this Guaranty be released and terminated
by Agent, (ii) Debtors' Undrawn Availability (as defined and calculated in the
Credit Agreement) on the date of Agent's receipt of such written release and
termination request from Guarantor and for the period of fifteen (15)
consecutive days immediately preceding Agent's receipt of such written release
and termination request from Guarantor shall be and shall have been equal to or
greater than $8,660,000, and (iii) immediately after giving effect to Agent's
release and termination of this Guaranty Debtors' Undrawn Availability (as
defined and calculated in the Credit Agreement) would not be less than
$6,000,000.
If for any reason any Debtor has no legal existence or is under no legal
obligation to discharge any of the Indebtedness, or if any of the Indebtedness
have become unrecoverable from Debtors by reason of any Debtor's insolvency,
bankruptcy or reorganization or by other operation of law or for any other
reason, this Guaranty shall nevertheless be binding on Guarantor to the same
extent as if Guarantor had at all times been the principal obligor on all such
Indebtedness. In the event that acceleration of the time for payment of any
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<PAGE>
of the Indebtedness is stayed upon the insolvency, bankruptcy or reorganization
of debt or for any other reason, all such amounts otherwise subject to
acceleration under the terms of any instrument or agreement evidencing or
securing the payment of the Indebtedness or otherwise executed in connection
therewith shall be immediately due and payable by Guarantor.
If Guarantor shall have any right under applicable law to terminate or
revoke this Guaranty, which right cannot be waived by Guarantor, Guarantor
agrees that such termination or revocation shall not be effective until a
written notice of such termination or revocation, specifically referring to this
Guaranty and signed by Guarantor, is actually received by an officer of Agent
who is familiar with Debtors' account with the Guaranteed Parties and this
Guaranty; but any such termination or revocation shall not affect the right and
power of any Guaranteed Party to enforce rights arising, incurred or contracted
for prior to Agent's receipt of such written notice of termination or
revocation. If any Guaranteed Party grants loans or other extensions of credit
to or for the benefit of any Debtor or takes other action after the termination
or revocation by Guarantor but prior to Agent's receipt of such written notice
of termination or revocation, then the rights of such Guaranteed Party with
respect thereto shall be the same as if such termination or revocation had not
occurred.
Guarantor agrees that all the rights, benefits and privileges herein and
hereby conferred upon the Guaranteed Parties shall vest in and be enforceable by
each such Guaranteed Party and its successors and assigns. Guarantor further
agrees that all obligations and duties herein shall be binding upon Guarantor
and upon Guarantor's heirs, personal representatives, executors, administrators
and assigns.
To the extent any performance of this Guaranty would violate any applicable
usury statute or other applicable law, the obligation to be fulfilled shall be
reduced to the limit legally permitted, so that this Guaranty shall not require
any performance in excess of the limit legally permitted, but such obligations
shall be fulfilled to the limit of the legal validity. The provisions of the
paragraph shall control every other provision of this Guaranty.
This Guaranty is intended to take effect as a sealed instrument under the
laws of the State of Georgia. This Guaranty, all acts and transactions hereunder
and the rights and obligations of the parties hereto shall be governed,
construed and interpreted according to the internal laws of the State of
Georgia. As part of the consideration for the Guaranteed Party's granting credit
to Debtors, Guarantor hereby agrees that all actions, suits or proceedings
arising directly or indirectly hereunder may, at the option of the Guaranteed
Parties, be litigated in any court having situs within the State of Georgia, and
Guarantor hereby expressly consents to the jurisdiction of any state or federal
court located within said state, and consents that any service of process in
such action or proceedings may be made by personal service upon Guarantor
wherever Guarantor may be then located, or by certified or registered mail
directed to Guarantor at Guarantor's last known address.
This Guaranty expresses the entire understanding of the parties hereto with
respect to the subject matter hereof and may not be changed orally, and no
obligation of Guarantor can be released or waived by the Guaranteed Parties or
any of their respective officers or agents, except by a writing signed by a duly
authorized officer of Agent.
Until all of the Indebtedness has been paid in full and the Credit
Agreement has been terminated, Guarantor shall have no claim, right or remedy
(whether or not arising in equity, by contract or applicable law) against any
Debtor or any other Person by reason of Guarantor's payment or other performance
hereunder. Without limiting the generality of the foregoing, Guarantor hereby
subordinates to the full and final payment of the Indebtedness any and all legal
or equitable rights or claims that Guarantor may have to reimbursement,
subrogation, indemnity and exoneration and agrees that until all of the
Indebtedness has been paid in full and the Credit Agreement has been terminated,
Guarantor shall have no recourse to any assets or property of any Debtor
(including any assets securing any of the Indebtedness) and no right of recourse
against or contribution from any other Person in any way directly or
contingently liable for any of the
-5-
<PAGE>
Indebtedness, whether any of such rights arise under contract, in equity or
under applicable law. The provisions of this Guaranty shall be supplemental to
and not in derogation of any rights and remedies of any Guaranteed Party or any
affiliate of any Guaranteed Party under any separate subordination agreement
that any Guaranteed Party or such affiliate may at any time or from time to time
enter into with Guarantor.
As used herein, all references to the term "Guarantor" shall mean Guarantor
and Guarantor's personal representatives and assigns (including any receiver,
trustee or custodian for Guarantor or any of his assets or Guarantor in his
capacity as debtor or debtor-in-possession under the United States Bankruptcy
Code); all references to the term "Guaranteed Parties" shall mean the Guaranteed
Parties and their respective its successors and assigns; and all references to
the term "Debtor" shall mean any Debtor and its successors and assigns
(including any receiver, trustee or custodian for such Debtor or any of his
assets or such Debtor in his capacity as debtor or debtor-in-possession under
the United States Bankruptcy Code); all references to the term "Person" wherever
used herein shall mean any individual, sole proprietorship, partnership,
corporation, business trust, limited liability company, unincorporated
association, joint stock corporation, trust, joint venture or other form of
business entity or any government or any agency or instrumentality or political
subdivision thereof; all references to the plural shall also mean the singular,
and all references to the singular shall also mean the plural; and all
references to "include" or "including" shall mean "including, without
limitation."
To the fullest extent permitted by applicable law, Guarantor and each
Guaranteed Party each hereby waives the right to a jury trial in any action,
suit, proceeding, or counterclaim arising out of or related to this guaranty,
and Guarantor further waives any rights arising under applicable statutes or
otherwise to require the Guaranteed Parties to institute suit against any Debtor
or any other Person liable for any of the Indebtedness or to exhaust the
Guaranteed Parties' rights and remedies against debtor or any other Person
liable for any of the Indebtedness, Guarantor being bound to the payment of any
and all Indebtedness to the extent provided herein.
-6-
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty, this 14th day of
March, 2000.
/s/ William P. O'Reilly (SEAL)
- --------------------------- ------------------------------
Witness William P. O'Reilly ("Guarantor")
Name:
---------------------- Social Security No.
Guarantor's Address:
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<PAGE>
EXHIBIT 10.34
PLEDGE AGREEMENT
(Bank Deposits)
This PLEDGE AGREEMENT, dated this 14th day of March, 2000, is made by
WILLIAM P. O'REILLY, an individual resident of the State of Michigan (the
"Pledgor"), with an address at 9 Pine Gate Court, Bloomfield Hills, Michigan
48304, in favor of PNC BANK, NATIONAL ASSOCIATION, a national banking
association, as collateral and administrative agent for Lenders (as identified
below) (together with its successors in such capacity, the "Agent").
Recitals:
ELTRAX SYSTEMS, INC., a Minnesota corporation ("Eltrax"), various of its
subsidiaries (jointly and severally with Eltrax, the "Borrowers"), the various
financial institutions that are parties thereto from time to time as lenders
("Lenders"), and Agent have entered into a certain Revolving Credit and Security
Agreement dated of even date herewith (together with all amendments thereto, the
"Credit Agreement"), pursuant to which Lenders may from time to time make loans
or extend other financial accommodations to or for the benefit of Borrowers.
Pursuant to that certain Limited Guaranty Agreement dated the date hereof
of in favor of Agent and Lenders (as at any time amended, the "Guaranty"),
Pledgor has guaranteed the payment and performance to Agent and Lenders of the
Obligations (as hereinafter defined).
A condition to Lenders' willingness to fund any Loans is Pledgor's
execution and delivery of this Agreement. To induce Lenders to make loans and
otherwise extend credit pursuant to the Credit Agreement, Pledgor has agreed to
grant a continuing security interest in and to the Collateral (as hereinafter
defined) as security for the timely payment and performance of the Obligations
(as hereinafter defined).
NOW, THEREFORE, for Ten Dollars ($10.00) in hand paid to Pledgor and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to secure the timely payment and performance of the Secured
Obligations (as defined below), Pledgor agrees as follows:
1. Pledge. In order to induce the Lenders to extend the Obligations (as
------
defined below), the Pledgor hereby grants a security interest in and pledges to
Agent, for its benefit and the ratable benefit of Lenders, and to all other
direct or indirect subsidiaries of PNC Bank Corp., all of the Pledgor's right,
title and interest in and to the accounts, deposits, deposit accounts, and
certificates of deposit, whether negotiable or nonnegotiable, and all security
entitlements of the Pledgor with respect thereto, whether now owned or hereafter
acquired, including those entries on the records of the issuing institution, and
any and all renewals, substitutions, replacements and proceeds and all income,
interest and other distributions thereon maintained in the name of the Pledgor
by the issuing institution, as more fully described on Exhibit A attached hereto
---------
and made a part hereof (the "Collateral").
The Pledgor agrees that (i) Agent shall have the sole and exclusive right
of withdrawal of the Collateral, (ii) until the release of the Guaranty and the
satisfaction of Guaranty Release Conditions (as defined in the Guaranty), the
Pledgor shall have no right of withdrawal of the Collateral, and (iii) Agent may
make appropriate notations in its books and records (electronic or otherwise) to
effectuate the foregoing.
2. Obligations Secured. The Collateral secures payment of all loans,
-------------------
advances, debts, liabilities, obligations, covenants and duties owing to the
Agent or any Lender or to any other direct or
<PAGE>
indirect subsidiary of PNC Bank Corp. from the Pledgor and from any Borrower, of
any kind or nature, present or future (including any interest accruing thereon
after maturity, or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding relating to
the Pledgor or any Borrower, whether or not a claim for post-filing or post-
petition interest is allowed in such proceeding), whether or not evidenced by
any note, guaranty or other instrument, whether arising under any agreement,
instrument or document, whether or not for the payment of money, whether arising
by reason of an extension of credit, opening of a letter of credit, loan,
equipment lease or guarantee, under any interest or currency swap, future,
option or other interest rate protection or similar agreement, or in any other
manner, whether arising out of overdrafts on deposit or other accounts or
electronic funds transfers (whether through automated clearing houses or
otherwise) or out of Agent's non-receipt of or inability to collect funds or
otherwise not being made whole in connection with depository transfer check or
other similar arrangements, whether direct or indirect (including those acquired
by assignment or participation), absolute or contingent, joint or several, due
or to become due, now existing or hereafter arising, and any amendments,
extensions, renewals or increases and all costs and expenses of Agent incurred
in the documentation, negotiation, modification, enforcement, collection or
otherwise in connection with any of the foregoing, including reasonable
attorneys' fees and expenses (collectively, the "Obligations").
3. Representations and Warranties. The Pledgor represents and warrants
------------------------------
to Agent that (a) no prior lien or encumbrance exists on the Collateral, and the
Pledgor will not grant or suffer to exist any such lien or encumbrance in the
future, and (b) the Pledgor is the legal owner of the Collateral and has the
right to pledge and grant a security interest in the Collateral without the
consent of any other party other than the issuing institution, which the Pledgor
has caused or will cause to execute the Acknowledgment in substantially the form
attached hereto.
4. Default.
-------
4.1. If any of the following occur (each an "Event of Default"): (i)
any Event of Default occurs under the Credit Agreement, (ii) any default under
any of the Obligations that does not have a defined set of "Events of Default"
and the lapse of any notice or cure period provided in such Obligations with
respect to such default, (iii) demand by the Agent or Lenders under any of the
Obligations that have a demand feature, (iv) the failure by the Pledgor to
perform any of its obligations hereunder, (v) the falsity, inaccuracy or
material breach by the Pledgor of any written warranty, representation or
statement made or furnished to Agent by or on behalf of the Pledgor, (vi) the
failure of Agent to have a perfected first priority security interest in the
Collateral, (vii) any restriction is imposed on the pledge or transfer of any of
the Collateral after the date of this Agreement without the prior written
consent of Agent, or (viii) the breach of the Control Agreement (referred to in
Section 6 below), or receipt of notice of termination of the Control Agreement
if no successor custodian acceptable to Agent has executed a Control Agreement
in form and substance acceptable to Agent on or before 10 days prior to the
effective date of the termination, then Agent is authorized in its discretion to
declare any or all of the Obligations to be immediately due and payable without
demand or notice, which are expressly waived, and may exercise any one or more
of the rights and remedies granted pursuant to this Pledge Agreement or given to
a secured party under the Uniform Commercial Code of the applicable state, as it
may be amended from time to time, or otherwise at law or in equity, including
without limitation the right to sell or otherwise dispose of any or all of the
Collateral at public or private sale, with or without advertisement thereof,
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best.
4.2. Agent is authorized to draw the funds represented by the
Collateral, in whole or in part, and to do all acts necessary to draw such
funds, to apply to all Obligations secured hereby, whether declared immediately
due and payable or otherwise, and the officers of the issuing institution are
authorized and directed to pay the same to Agent on demand.
2
<PAGE>
4.3. The net proceeds arising from the disposition of the Collateral
after deducting expenses incurred by the Agent will be applied to the
Obligations in accordance with the Credit Agreement. If any excess remains after
the discharge of all of the Obligations, the same will be paid to the Pledgor.
If after exhausting all of the Collateral there is a deficiency, the Pledgor or,
if the Pledgor is not borrowing from Agent or Lenders or providing a guaranty of
the Borrowers' Obligations, the Borrowers will be liable therefor to Agent and
the Lenders; provided, however, that nothing contained herein will obligate
-------- -------
Agent to proceed against any Borrower or any other party obligated under the
Obligations or against any other collateral for the Obligations prior to
proceeding against the Collateral.
4.4. If any demand is made at any time upon Agent or any Lender for
the repayment or recovery of any amount received by it in payment or on account
of any of the Obligations and if Agent or such Lender repays all or any part of
such amount by reason of any judgment, decree or order of any court or
administrative body or by reason of any settlement or compromise of any such
demand, the Pledgor will be and remain liable for the amounts so repaid or
recovered to the same extent as if such amount had never been originally
received by Agent. The provisions of this section will be and remain effective
notwithstanding the release of any of the Collateral by Agent in reliance upon
such payment (in which case the Pledgor's liability will be limited to an amount
equal to the fair market value of the Collateral determined as of the date such
Collateral was released) and any such release will be without prejudice to
Agent's rights hereunder and will be deemed to have been conditioned upon such
payment having become final and irrevocable. This Section shall survive the
termination of this Pledge Agreement.
5. Interest and Premiums. All interest and premiums declared or paid on
---------------------
the Collateral shall be the property of the Pledgor but shall remain as
Collateral, subject to the restrictions contained in this Agreement, unless
released by Agent, in its discretion, following a request from Pledgor. At any
time after the occurrence of an Event of Default, Agent shall be entitled to
apply all interest and premiums declared or paid on the Collateral in accordance
with the provisions of Section 4 above.
6. Securities Account. If the Collateral includes certificate(s) of
------------------
deposit maintained in a securities account, then the Pledgor agrees to cause the
securities intermediary on whose books and records the ownership interest of the
Pledgor in the Collateral appears (the "Custodian") to execute and deliver,
contemporaneously herewith, a notification and control agreement or other
agreement satisfactory to Agent (the "Control Agreement") in order to perfect
and protect Agent's security interest in the Collateral.
7. Further Assurances. At any time and from time to time, upon demand of
------------------
Agent, the Pledgor will give, execute, file and record any notice, financing
statement, continuation statement, instrument, document or agreement that Agent
may consider necessary or desirable to create, preserve, continue, perfect or
validate any security interest granted hereunder or to enable Agent to exercise
or enforce its rights hereunder with respect to such security interest. Without
limiting the generality of the foregoing, the Pledgor hereby irrevocably
appoints Agent as the Pledgor's attorney-in-fact to do all acts and things in
the Pledgor's name that Agent may deem necessary or desirable. This power of
attorney is coupled with an interest with full power of substitution and is
irrevocable. Agent is authorized to file financing statements, continuation
statements and other documents under the Uniform Commercial Code relating to the
Collateral without the Pledgor's signature, naming the Pledgor as debtor and
Agent as secured party.
8. Notices. All notices, demands, requests, consents, approvals and
-------
other communications required or permitted hereunder must be in writing and will
be effective upon receipt to the Pledgor or Agent. Such notices may be hand-
delivered, sent by facsimile transmission with confirmation of delivery and a
copy sent by first-class mail, or sent by nationally recognized overnight
courier service, to a party's address
3
<PAGE>
set forth above or to such other address as either the Pledgor or Agent may give
to the other in writing for such purpose.
9. Preservation of Rights. (a) No delay or omission on Agent's part to
----------------------
exercise any right or power arising hereunder will impair any such right or
power or be considered a waiver of any such right or power, nor will Agent's
action or inaction impair any such right or power. Agent's rights and remedies
hereunder are cumulative and not exclusive of any other rights or remedies which
Agent may have under other agreements, at law or in equity.
(b) Agent and Lenders may, at any time and from time to time, without
notice to or the consent of the Pledgor or any Borrower unless otherwise
expressly required pursuant to the terms of the Credit Agreement, and without
impairing or releasing, discharging or modifying the Pledgor's liabilities
hereunder, (i) change the manner, place, time or terms of payment or performance
of or interest rates on, or other terms relating to, any of the Obligations;
(ii) renew, substitute, modify, amend or alter, or grant consents or waivers
relating to any of the Obligations, any other pledge or security agreements, or
any security for any Obligations; (iii) apply any and all payments by whomever
paid or however realized including any proceeds of any collateral, to any
Obligations of the Pledgor or the Borrowers in such order, manner and amount as
Agent may determine in its sole discretion; (iv) deal with any other person with
respect to any Obligations in such manner as Agent deems appropriate in its sole
discretion; (v) substitute, exchange or release any security or guaranty; or
(vi) take such actions and exercise such remedies hereunder as provided herein.
The Pledgor and the Borrowers hereby waive (a) presentment, protest, notice of
dishonor and notice of non-payment, and (b) all defenses based on suretyship or
impairment of collateral.
10. Illegality. In case any one or more of the provisions contained in
----------
this Pledge Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
11. Changes in Writing. No modification, amendment or waiver of any
------------------
provision of this Pledge Agreement nor consent to any departure by the Pledgor
therefrom will be effective unless made in a writing signed by Agent, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice to or demand on the Pledgor in any case
will entitle the Pledgor to any other or further notice or demand in the same,
similar or other circumstance.
12. Entire Agreement. This Pledge Agreement (including the documents and
----------------
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the Pledgor and Agent with respect to the subject matter hereof.
13. Successors and Assigns. This Pledge Agreement will be binding upon
----------------------
and inure to the benefit of the Pledgor and Agent and their respective heirs,
executors, administrators, successors and assigns; provided, however, that the
-------- -------
Pledgor may not assign this Pledge Agreement in whole or in part without Agent's
prior written consent and Agent at any time may assign this Pledge Agreement in
whole or in part.
14. Interpretation. In this Pledge Agreement, unless Agent and the
--------------
Pledgor otherwise agree in writing, the singular includes the plural and the
plural the singular; references to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute referred
to; the word "or" shall be deemed to include "and/or", the words "including",
"includes" and "include" shall be deemed to be followed by the words "without
limitation." Section headings in this Pledge Agreement are included for
convenience of reference only and shall not constitute a part of this Pledge
Agreement for any other purpose.
4
<PAGE>
If this Pledge Agreement is executed by more than one party as Pledgor, the
obligations of such persons or entities will be joint and several.
15. Indemnity. The Pledgor agrees to indemnify each of Agent, Lenders,
---------
their respective directors, officers and employees and each legal entity, if
any, who controls Agent or any Lender (the "Indemnified Parties") and to hold
each Indemnified Party harmless from and against any and all claims, damages,
losses, liabilities and expenses (including all fees of counsel with whom any
Indemnified Party may consult and all expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party as a result of the execution of or performance under this
Pledge Agreement and under any Control Agreement; provided, however, that the
-------- -------
foregoing indemnity agreement shall not apply to claims, damages, losses,
liabilities and expenses solely attributable to an Indemnified Party's gross
negligence or willful misconduct. The indemnity agreement contained in this
Section shall survive the termination of this Pledge Agreement. The Pledgor may
participate at its expense in the defense of any such claim.
16. Governing Law and Jurisdiction. This Pledge Agreement has been
------------------------------
delivered to and accepted by Agent and will be deemed to be made in the State of
Georgia. This Pledge Agreement will be interpreted and the rights and
liabilities of the Pledgor and Agent determined in accordance with the laws of
the State of Georgia. The Pledgor hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court in the in the County of Cobb, State
of Georgia; provided that nothing contained in this Pledge Agreement will
prevent Agent from bringing any action, enforcing any award or judgment or
exercising any rights against the Pledgor individually, against any security or
against any property of the Pledgor within any other county, state or other
foreign or domestic jurisdiction. The Pledgor acknowledges and agrees that the
venue provided above is the most convenient forum for both Agent and the
Pledgor. The Pledgor waives any objection to venue and any objection based on a
more convenient forum in any action instituted under this Pledge Agreement.
17. WAIVER OF JURY TRIAL. THE PLEDGOR IRREVOCABLY WAIVES ANY AND ALL
--------------------
RIGHT THE PLEDGOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM
OF ANY NATURE RELATING TO THIS PLEDGE AGREEMENT, ANY DOCUMENTS EXECUTED IN
CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF
SUCH DOCUMENTS. THE PLEDGOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING
AND VOLUNTARY.
The Pledgor acknowledges that it has read and understood all the provisions of
this Pledge Agreement, including the waiver of jury trial, and has been advised
by counsel as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date first
written above.
Witness:
/s/ William P. O'Reilly
- --------------------------------- ----------------------------------------
William P. O'Reilly (SEAL)
Print Name:______________________
5
<PAGE>
ACKNOWLEDGMENT
The issuing institution acknowledges notification of the foregoing Pledge
Agreement and represents that said assignment and security interest will be
recognized; that it has received no notice of, and has no knowledge of, any
other assignment of, or security interest in any or all of the Collateral that
are on the books and records of the undersigned and subject to the foregoing
Pledge Agreement; that it will not release the Collateral to the Pledgor until
notice of termination of the Pledge Agreement is received from Agent; and that
the Collateral is not subject to any claim for credits, allowance or adjustment
or any set off, defense or counterclaim. The issuing institution hereby waives,
as against Agent, all such claims for credit, allowance or adjustment, set offs,
defenses and counterclaims, whether now existing or hereafter arising, hereby
subordinates in favor of Agent any other liens or security interests the issuing
institution may have in the Collateral, whether now existing or hereafter
arising, and hereby waives any right to require a court order or indemnity bond
as a condition to the recognition of the Pledge Agreement and payment to Agent.
WITNESS the due execution and sealing hereof this 14th day of March, 2000 with
the intent to be legally bound hereby.
WITNESS/ATTEST: ISSUING INSTITUTION:
PNC BANK, NATIONAL ASSOCIATION
- ------------------------------------- By: /s/ Kurt V. Putkonen
---------------------------------
Print Name: Print Name: Kurt V. Putkonen
-------------------------- --------------------------
Title: Vice President
------------------------------
6
<PAGE>
EXHIBIT A
TO PLEDGE AGREEMENT
Issuer Dollar Amount Account Title/Account No.
------ ------------- -------------------------
PNC Bank, National $2,800,000 Certificate of Deposit
Association No. 31900181454
7
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant: Eltrax Systems, Inc.
- ----------------------------------------------------
Eltrax Technology Services Group, Inc.
- --------------------------------------
(Georgia)
President: Edward Barrett
EIN: 58-5457009
Eltrax ASP Group, LLC
(Georgia)
President: Denise Grey
EIN: 58-2513557
Squirrel Systems, Inc.
- ----------------------
(Georgia)
President: Barry Logan
EIN: 62-1395695
Squirrel Systems of Canada, Ltd.
(Canada)
President: Barry Logan
Senercomm, Inc.
- ---------------
(Florida)
President: Larry Gomez
EIN: 65-0162025
Eltrax Customer Care Group, Inc.
- --------------------------------
(Georgia)
President: John Butler
EIN: 58-2157408
<PAGE>
Eltrax International, Inc.
- --------------------------
President: Don Hallacy
Vice President: John Picardi
EIN: 25-1369276
Eltrax Hospitality Technologies PTE Ltd. (Singapore)
Eltrax SBD.BHD (Malaysia)
Eltrax Hospitality Scandinavia AS (Norway)
Eltrax Pty. Ltd. (Australia)
Eltrax Hospitality Ltd. (Hong Kong)
Eltrax Holdings AG (Swiss)
Eltrax AG (Swiss)
Eltrax Hospitality U.K. Ltd. (UK)
Eltrax Group, Inc. (Pennsylvania, Belgian Branch Office)
Eltrax Hospitality Group, Inc.
- ------------------------------
President: Barry Logan
EIN: 58-1386264
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (No. 333-53965, 333-51003 and 333-37013) and Forms S-8
(No. 333-92337, 333-85107, 333-80501 and 333-26015) of Eltrax Systems, Inc. of
our report dated February 28, 2000, except for Note 10, the date for which is
March 14, 2000, relating to the financial statements and financial statement
schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 27, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Eltrax Systems, Inc. on Forms S-3 (No. 333-53965, 333-51003 and
333-37013) and Forms S-8 (No. 333-92337, 333-85107, 333-80501 and 333-26015) of
our report dated March 26, 1999, on our audits of the consolidated financial
statements of Sulcus Hospitality Technologies, Corp. as of December 31, 1998,
and for each year in the two year period ended December 31, 1998, which report
is included in this Form 10-K.
Crowe, Chizek and Company LLP
Columbus, Ohio
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ELTRAX
SYSTEMS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 613,294
<SECURITIES> 0
<RECEIVABLES> 36,652,190
<ALLOWANCES> 5,008,959
<INVENTORY> 5,187,836
<CURRENT-ASSETS> 41,243,911
<PP&E> 13,985,554
<DEPRECIATION> 7,342,676
<TOTAL-ASSETS> 73,020,933
<CURRENT-LIABILITIES> 46,720,169
<BONDS> 0
0
0
<COMMON> 238,086
<OTHER-SE> 26,008,610
<TOTAL-LIABILITY-AND-EQUITY> 73,020,933
<SALES> 129,312,327
<TOTAL-REVENUES> 129,312,327
<CGS> 76,682,416
<TOTAL-COSTS> 123,120,567
<OTHER-EXPENSES> 15,363,483
<LOSS-PROVISION> 3,567,868
<INTEREST-EXPENSE> 738,392
<INCOME-PRETAX> (9,813,617)
<INCOME-TAX> 24,482
<INCOME-CONTINUING> (9,838,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,838,099)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
