UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number: 0-15938
FARMSTEAD TELEPHONE GROUP, INC.
(Name of small business issuer as specified in its charter)
Delaware 06-1205743
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
81 Church Street, East Hartford, CT 06108-3728
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (203) 282-0010
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
On July 28, 1995 there were 21,382,907 shares of $0.001 par value Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
TABLE OF CONTENTS TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements (Unaudited):
Balance Sheets - June 30, 1995 and December 31, 1994 3
Statements of Operations - Three Months Ended June 30, 1995 and 1994 4
Statements of Operations - Six Months Ended June 30, 1995 and 1994 5
Statements of Cash Flows - Six Months Ended June 30, 1995 and 1994 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
PART I
FARMSTEAD TELEPHONE GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands, except number of shares) 1995 1994
- --------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 410 $ 904
Short-term investments 75 75
Accounts receivable, less allowance for doubtful accounts 2,495 2,242
Inventories 2,431 1,696
Other current assets 401 136
------- -------
Total current assets 5,812 5,053
Property and equipment, net of accumulated depreciation
and amortization 297 266
Investment in ATC (Note 4) 399 -
Intangible assets, net of accumulated amortization 37 52
Other assets 74 53
------- -------
Total assets $ 6,619 $ 5,424
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings and current portion of long-term
debt (Note 2) $ 1,124 $ 597
Accounts payable 1,412 1,406
Accrued expenses 294 269
Other current liabilities 244 8
------- -------
Total current liabilities 3,074 2,280
Long-term debt (Note 2) - 9
Other non-current liabilities - 1
------- -------
Total liabilities 3,074 2,290
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $0.001 par value; 30,000,000 shares authorized;
21,382,907 shares issued and outstanding 21 20
Additional paid-in capital 8,506 8,045
Stock subscriptions receivable (Note 3) - (38)
Accumulated deficit (4,982) (4,893)
------- -------
Total stockholders' equity 3,545 3,134
------- -------
Total liabilities and stockholders' equity $ 6,619 $ 5,424
======= =======
</TABLE>
See accompanying notes to financial statements
FARMSTEAD TELEPHONE GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Sales and service revenues $ 3,545 $ 2,843
-------- -------
Costs and expenses:
Cost of goods and services sold 2,421 1,977
Selling, general and administrative expenses 1,188 789
Research and development expenses 7 50
Interest expense 23 12
Other income (3) (14)
-------- -------
Total costs and expenses 3,636 2,814
-------- -------
Income (loss) before income taxes (91) 29
Provision for income taxes 4 3
-------- -------
Net income (loss) $ (95) $ 26
======== =======
Net income (loss) per share $ * $ *
======== =======
Weighted average common and common equivalent shares
outstanding (000's) 21,222 20,812
======== =======
<FN>
____________________
<F1> * Less than one-half cent.
</FN>
</TABLE>
See accompanying notes to financial statements
FARMSTEAD TELEPHONE GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Sales and service revenues $ 7,258 $ 5,278
------- --------
Costs and expenses:
Cost of goods and services sold 4,964 3,668
Selling, general and administrative expenses 2,330 1,435
Research and development expenses 13 88
Interest expense 37 23
Other income (7) (22)
------- --------
Total costs and expenses 7,337 5,192
------- --------
Income (loss) before income taxes (79) 86
Provision for income taxes 10 6
------- --------
Net income (loss) $ (89) $ 80
======= ========
Net income (loss) per share $ * $ *
======= ========
Weighted average common and common equivalent shares
outstanding (000's) 21,097 21,277
======= ========
<FN>
___________________
<F1> * Less than one-half cent.
</FN>
</TABLE>
See accompanying notes to financial statements
FARMSTEAD TELEPHONE GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (89) $ 80
Adjustments to reconcile net income to net cash flows
used in operating activities:
Depreciation and amortization 67 42
Changes in operating assets and liabilities, net of effects
of assets purchased from CCI (in 1994):
Increase in accounts receivable (253) (1,044)
(Increase) decrease in inventories (734) 387
(Increase) decrease in other assets (79) 79
Increase (decrease) in accounts payable, accrued expenses
and other liabilities 26 (92)
------- -------
Net cash used in operating activities (1,062) (548)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (83) (11)
Increase in short-term investments - (75)
Payment on obligation to CCI for assets purchased - (150)
Investment in ATC (Note 4) (159) -
------- -------
Net cash used in investing activities (242) (236)
------- -------
Cash flows from financing activities:
Proceeds from short-term and long-term borrowings 1,105 -
Repayments of short-term and long-term borrowings and
capital lease obligation (587) (200)
Proceeds from exercise of stock options and warrants, net 288 62
Proceeds from sales of common stock, net 4 360
------- -------
Net cash provided by financing activities 810 222
------- -------
Net decrease in cash and cash equivalents (494) (562)
Cash and cash equivalents at beginning of period 904 1,473
------- -------
Cash and cash equivalents at end of period $ 410 $ 911
======= =======
Supplemental schedule of non-cash financing and investing activities:
Proceeds receivable from exercise of warrants $ 133 $ -
Capital contribution obligation to ATC 240 -
Issuance of common stock in exchange for software license 75 -
Sales of common stock for notes or other receivables - 75
Allocation of asset purchase obligation to assets acquired:
Inventories - 350
Fixed assets - 25
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 41 22
Income taxes 5 8
</TABLE>
See accompanying notes to financial statements
FARMSTEAD TELEPHONE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim financial statements presented herein are unaudited, however
in the opinion of management reflect all adjustments, consisting of
adjustments that are of a normal recurring nature, which are necessary for a
fair statement of results for the interim periods. For further information,
refer to the financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994.
Investment in an unconsolidated 50% owned affiliate is accounted for by
the equity method. Under the equity method, the original investment is
recorded at cost and subsequently adjusted by the Company's share of
undistributed earnings or losses of the affiliate. All material intercompany
transactions and accounts have been eliminated.
NOTE 2. BANK BORROWINGS AND LONG-TERM DEBT
On June 5, 1995, the Company entered into a one year renewable
Commercial Loan and Security Agreement (the "Agreement") with Affiliated
Business Credit Corporation ("ABCC") which provides for a $1,500,000 revolving
line of credit. Under the terms of the Agreement, borrowings bear interest at
the prime rate plus 1.5% on the greater of (i) the actual monthly loan balance
or (ii) a minimum assumed monthly loan balance of $600,000. The Company may
borrow against the aggregate of (i) 75% of eligible accounts receivable
(domestic receivables less than 90 days old) and (ii) 25% of eligible
inventory (up to a maximum inventory advance of $300,000), up to the maximum
amount of the facility. Borrowings under the Agreement are repayable upon
demand, and are secured by all of the Company's assets. The Agreement replaced
the $750,000 Revolving Credit and Security Agreement with Fleet Bank, N.A. As
of June 30, 1995, outstanding borrowings were $1,104,571.
NOTE 3. STOCKHOLDERS' EQUITY
On April 18, 1994, the Company entered into agreements with Universal
Solutions, Inc. ("USI") and Pyramid Holdings, Inc. ("PHI"), both of which are
unaffiliated with the Company, pursuant to which each company subscribed for
the purchase of 500,000 shares of the Company's common stock at a subscription
price of $0.65 per share. By further agreement dated as of May 20, 1994, the
subscription agreements were amended to fix the price per share at 57.8
percent of the average of the high and low bid price of the Company's common
stock as of the date the registration of the purchased stock is declared
effective by the Securities and Exchange Commission, subject to a minimum
price of $0.45 and a maximum price of $0.75 per share. As of December 31,
1994, the Company had received an aggregate of $375,000, and was holding the
restricted shares in escrow, pending a determination of the final subscription
price and full payment thereof. On February 3, 1995, the registration of these
shares was declared effective, and a $0.45 per share subscription price was
determined, leaving a balance due of $75,000. Subsequently, USI and PHI
requested a reduction of their outstanding balances in consideration of the
length of the registration process, and the further deterioration of the
Company's stock price. While the Company believed that no reduction was
contractually required, in March 1995 the Company made a business decision to
reduce the balance owed for the shares to $37,500, which was subsequently
paid. Included in stockholders' equity at December 31, 1994, is a
subscriptions receivable balance of $37,500, representing the adjusted
remaining subscription price receivable.
On June 20, 1995, the Company entered into an amendment to a prior non-
binding Letter of Intent ("LOI") with a prospective underwriter for a $6
million public offering of Units, each Unit consisting of shares of common
stock and warrants. There can be no assurance, however, that the offering will
be made or successfully completed. Under the terms of the LOI, the Company is
responsible for the payment of all expenses in connection with the proposed
offering and, in the event that an underwriting agreement is not entered into,
the Company is obligated to pay all incurred expenses up to a maximum of
$125,000.
In May 1995, the Company exercised an option under an existing OEM
distributor agreement, and obtained a software use license for the payment of
$25,000 and the issuance of 144,231 shares of restricted stock valued at
$75,000. The aggregate cost is being charged to operations on a pro rata basis
over the sixteen month term of the agreement.
On June 20, 1995, the Company's Board of Directors (i) extended the
expiration date of its publicly-traded warrants from 3:30 P.M. Eastern
Standard Time on June 30, 1995 to 3:30 P.M. Eastern Standard Time on December
31, 1995, (ii) amended the exercise price of these warrants such that from
July 1, 1995 through December 31, 1995 the exercise price will increase to
$2.00 per share and (iii) amended the warrant redemption feature such that
during this extended period the warrants will be redeemable by the Company at
a price of $0.05 per warrant if the closing sales price of the Company's
Common Stock (the "Market Price") is $3.00 or higher for ten consecutive
business days (prior to July 1, 1995 the Market Price triggering the
redemption feature was $1.125). All other terms and conditions of the public
warrants remain unchanged. The Company will file a post-effective amendment to
its Registration Statement which will permit the exercise of the Warrants when
the amendment is declared effective. As a result of these amendments, 838,729
warrants were exercised by June 30, 1995, leaving 1,835,727 public warrants
outstanding at the close of business on June 30, 1995 which will be subject to
these revisions. Included in other current assets at June 30, 1995 is a
$132,600 receivable from warrant holders, which was collected by the Company
within the 10 day grace period granted by the Company.
NOTE 4. INVESTMENT IN ATC
On December 31, 1994, the Company entered into an agreement to purchase
D.W. International, Ltd.'s ("DWI") 50% ownership interest in Beijing Antai
Communication Equipment Co., Ltd. ("ATC"), for a purchase price of $100. The
purchase transaction was completed effective May 30, 1995 upon receipt of
approvals from appropriate Chinese government agencies. ATC, located in
Beijing, Peoples Republic of China ("PRC"), was formed in October 1992 as a
Joint Venture Enterprise , and is also owned 50% by Beijing Aquatic Product
Inc., a registered company in the PRC. DWI is a Delaware Corporation owned 50%
by Mr. Da Wei Wu, who is continuing his duties as General Manager of ATC. ATC,
previously a distributor for the Company in the PRC, will manufacture, install
and service the Company's central office , PBX and signaling interface
products which have been developed for use in the PRC. ATC also distributes
and installs local telecommunications transmission systems and home and
business alarm systems, however their historical operations have been
insignificant.
Under Chinese laws governing equity joint ventures, the Company is
obligated to make a capital contribution to ATC of approximately $390,000 to
complete the $500,000 original capital contribution requirement of the foreign
party. As of June 30, 1995, the Company had contributed $150,000, and expects
to contribute the remaining $240,000 within the next several months. This
amount has been recorded in other current liabilities at June 30, 1995. The
acquisition costs exceeded the underlying equity in the net assets of ATC by
approximately $112,000, which will be amortized on a pro rata basis over the
remaining 17 year term of the joint venture.
NOTE 5. BUSINESS DEVELOPMENTS
On July 27, 1995 the Company entered into a Joint Venture Agreement ("JV
Agreement") with Asia-Pacific Services, Inc. of Atlanta, Georgia ("APSI") and
Beijing Taikang Telecommunications, Inc., owned and operated by the Planning
and Research Institute of the Ministry of Posts and Telecommunications,
Peoples Republic of China ("Taikang"). The purpose of the joint venture ("JV")
will be the assembly and marketing in the Chinese market and certain
international markets of voice processing equipment and software, including
all of the Company's current voice processing products. Pursuant to the JV
Agreement, which is contingent upon Chinese government approvals, the Company
will have a 65% ownership interest, Taikang will own 30% and APSI 5%. The
amount of registered capital required by the JV, which will be contributed to
the JV in a combination of cash, equipment and technology in proportion to
each party's respective ownership interest, will be determined only after the
preparation of a feasibility study over the next several months. The JV
Agreement replaces the previously announced Letter of Intent dated March 8,
1995 by and among the Company, CSDC and APSI.
On July 27, 1995 the Company also entered into an agreement ("Interim
Agreement") with these same parties for the provision of product marketing and
other business organization activities in advance of the startup of the JV.
Under the Interim Agreement the Company is responsible for providing
equipment, marketing, sales, technical and administrative training, and the
working capital required prior to the funding and commencement of the JV.
Taikang is responsible for the provision of the necessary personnel, technical
assistance, and the preparation of the feasibility study. APSI will be
responsible for the overall management of the project. APSI is currently a
sales representative of the Company, under a one year agreement which expires
October 1995. The Company estimates that its working capital commitment will
approximate $200,000 and, through June 30, 1995, has advanced $135,000. Any
net profit derived from product sales during the term of the Interim Agreement
will be shared in the same proportion as the JV, and will serve as a part of
each party's capital contribution to the JV. To date, there have been no
product sales under the Interim Agreement. The Interim Agreement replaces the
CSDC Agreement previously entered into on March 8, 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Sales and service revenues for the three months ended June 30, 1995 were
$3,545,000, representing an increase of $702,000 or 25% from the comparable
1994 period. Telephone equipment sales revenues increased by $688,000 or 35%
over 1994 sales revenues, as both end user and wholesale sales increased,
attributable to wider acceptance of the Company's products, a larger and
better trained sales force, and expanded telemarketing sales efforts. Voice
processing product sales revenues increased by $68,000 or 10% over 1994
attributable to increased sales to AT&T, increased domestic dealer and
international sales, and a larger and better trained sales and technical
support group. Service revenues decreased by $54,000 or 26% from 1994, due to
revenues generated in 1994 from a consulting project in the country of Romania
which did not reoccur in the current period.
Sales and service revenues for the six months ended June 30, 1995 were
$7,258,000, representing an increase of $1,980,000 or 38% from the comparable
1994 period. Telephone equipment sales revenues increased by $1,610,000 or 44%
over 1994 sales revenues, as both end user and wholesale sales increased,
attributable to wider acceptance of the Company's products, a larger and
better trained sales force, and expanded telemarketing sales efforts. Voice
processing product sales revenues increased by $402,000 or 33% over 1994
attributable to the operation of the Cobotyx Division for a full six months in
1995 as compared to five months in the 1994 period, increased sales to AT&T,
increased domestic dealer and international sales and a larger and better
trained sales and technical support group. Service revenues decreased by
$32,000 or 8% from 1994, due to revenues generated in 1994 from a consulting
project in the country of Romania which did not reoccur in the current period.
Gross profit for the three months ended June 30, 1995 increased by
$258,000 to $1,124,000 (31.7% of revenues) from $866,000 (30.5% of revenues)
for the three months ended June 30, 1994. The increase in gross profit dollars
was attributable to the increase in sales and service revenues, while the
increased gross profit margin was attributable to the favorable economies of
allocating overhead costs over a larger sales base.
Gross profit for the six months ended June 30, 1995 increased by
$684,000 to $2,294,000 (31.6% of revenues) from $1,610,000 (30.5% of revenues)
for the six months ended June 30, 1994. The increase in gross profit dollars
was attributable to the increase in sales and service revenues, while the
increased gross profit margin was attributable to the favorable economies of
allocating overhead costs over a larger sales base.
Selling, general and administrative expenses for the three months ended
June 30, 1995 increased by $399,000 to $1,188,000 (33.5% of revenues) from
$789,000 (27.8% of revenues) for the three months ended June 30, 1994.
Approximately one half of the increase was attributable to increases in
salaries and personnel, principally in sales and technical support capacities
in connection with the Company's voice processing product lines, and from
higher sales commissions as a result of higher sales levels. The Company also
incurred increased product marketing expenditures in connection with its voice
processing products, and incurred higher depreciation, bad debt and office
expenses, all related to the Company's increased sales and operating levels.
Approximately $38,000 of the increase was also attributable to increased
international business development costs, including funds expended pursuant to
the Company's obligation under the CSDC Agreement (which was replaced by the
Interim Agreement), international travel costs, and fees paid to outside
consultants on a monthly retainer basis for international project management
services.
Selling, general and administrative expenses for the six months ended
June 30, 1995 increased by $895,000 to $2,330,000 (32.1% of revenues) from
$1,435,000 (27.2% of revenues) for the six months ended June 30, 1994.
Approximately one half of the increase was attributable to increases in
salaries and personnel, principally in sales and technical support capacities
in connection with the Company's voice processing product lines, and from
higher sales commissions as a result of higher sales levels. The Company also
incurred increased product marketing expenditures in connection with its voice
processing products, and incurred higher depreciation , bad debt and office
expenses, all related to the Company's increased sales and operating levels.
Approximately $175,000 of the increase was also attributable to increased
international business development costs, including funds expended pursuant to
the Company's obligation under the CSDC Agreement (which was replaced by the
Interim Agreement), international travel costs, and fees paid to outside
consultants on a monthly retainer basis for international project management
services.
Research and development expenses ("R&D") for the three and six months
ended June 30, 1995 were $7,000, and $13,000, respectively, compared to
$50,000 and $88,000, respectively, for the comparable 1994 periods. During
1994 the Company's Cobotyx Division was engaged in R&D in connection with the
development of the KASSIE and VTS- 2000 products for both domestic and
international applications. The Company currently plans to increase R&D by the
end of 1995 to a level more comparable to 1994.
Interest expense for the three and six months ended June 30, 1995 was
$23,000 and $37,000, respectively, compared to $12,000 and $23,000,
respectively, for the comparable 1994 periods due to higher average debt
levels and weighted average interest rates on the Company's outstanding debt.
As a result of the foregoing, the Company recorded net losses of $95,000
and $89,000 for the respective three and six months ended June 30, 1995, as
compared to net income of $26,000 and $80,000 for the respective three and six
months ended June 30, 1994. The Company's international business development
activities have resulted in net expenses charged to operations of
approximately $120,000 and $356,000 respectively, during the three and six
months ended June 30, 1995. Management believes, however, that its
international business development activities will result in the generation of
significant revenues and prove to be in the best long term interests of the
Company and its stockholders.
Liquidity and Capital Resources
Net working capital at June 30, 1995 was $2,738,000, as compared to
$2,773,000 of net working capital at December 31, 1994. The working capital
ratio at June 30, 1995 was 1.9 to 1 as compared to 2.2 to 1 at December 31,
1994.
Operating activities used $1,062,000 of cash during the six months ended
June 30, 1995, principally from a 43% or $734,000 increase in inventories due
to a planned increase in the stocking level of certain high demand telephone
parts, increased stocking of the new VTS 2000 product line, and to support the
Company's increased revenues. Accounts receivable also increased by 11% or
$253,000.
Investing activities used $242,000 of cash during the six months ended
June 30, 1995, of which amount $159,000 was expended by the Company, in cash
and other direct costs, in its acquisition of a 50% interest in ATC as more
fully described in Note 4 of the Notes to Financial Statements contained
herein. The Company also purchased $83,000 of equipment, consisting
principally of equipment used for its in-house service bureau.
Financing activities provided $810,000 of cash during the six months
ended June 30, 1995 attributable to (i) higher borrowings under the Company's
larger credit facility with ABCC (see Note 2 of the Notes to Financial
Statements) and (ii) proceeds received from the completion of the prior year's
private sale of common stock and from the exercise of warrants. As of June 30,
1995 the Company also had a $132,600 receivable from warrant holders, which
was collected by the Company within the 10 day grace period granted by the
Company.
The Company has financed its growth through the use of existing cash,
proceeds from issuances of common stock pursuant to warrant exercises, and
through borrowings under its revolving credit facility. On June 5, 1995, the
Company entered into a one year renewable Commercial Loan and Security
Agreement (the "Agreement") with ABCC which provides for a $1,500,000
revolving line of credit. Under the terms of the Agreement, borrowings bear
interest at the prime rate plus 1.5% on the greater of (i) the actual monthly
loan balance or (ii) a minimum assumed monthly loan balance of $600,000. The
Company may borrow against the aggregate of (i) 75% of eligible accounts
receivable (domestic receivables less than 90 days old) and (ii) 25% of
eligible inventory (up to a maximum inventory advance of $300,000), up to the
maximum amount of the facility. Borrowings under the Agreement are repayable
upon demand, and are secured by the Company's assets. The Agreement replaced
the $750,000 Revolving Credit and Security Agreement with Fleet Bank, N.A. As
of June 30, 1995 the unused credit line with ABCC was approximately $395,000,
all of which was available to the Company pursuant to its borrowing formula.
The average and highest amounts borrowed under all credit facilities during
the three months ended June 30, 1995 was $854,000 and $1,188,000,
respectively. The average and highest amounts borrowed under all credit
facilities during the six months ended June 30, 1995 was $707,000 and
$1,188,000, respectively. The Company's borrowings are dependent upon the
continuing generation of collateral, subject to its credit limit.
On June 20, 1995, the Company entered into an amendment to a prior non-
binding Letter of Intent ("LOI") with a prospective underwriter for a $6
million public offering of Units, each Unit consisting of shares of common
stock and warrants. There can be no assurance, however, that the offering will
be made or successfully completed. Under the terms of the LOI, the Company is
responsible for the payment of all expenses in connection with the proposed
offering and, in the event that an underwriting agreement is not entered into,
the Company is obligated to pay all incurred expenses up to a maximum of
$125,000.
The Company's recent acquisition of a 50% interest in ATC requires a
minimum capital contribution from the Company of $390,000, of which amount
$150,000 was paid by June 30, 1995. In addition, the Company presently intends
to participate in the formation of another PRC joint venture company in
connection with the JV Agreement and Interim Agreement as disclosed in Note 5
of the Notes to Financial Statements, and is seeking other international joint
venture opportunities, which individually may require a significant amount of
capital resources. The Company believes that it will have sufficient resources
to fund its short-term requirements under current projects, however their
longer term capital requirements have not as yet been determined, and may
require additional external financing in order for the Company to proceed.
Inflation has not been a significant factor in the Company's operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
On June 20, 1995, the Company's Board of Directors (i) extended the
expiration date of its publicly-traded warrants from 3:30 P.M. Eastern Standard
Time on June 30, 1995 to 3:30 P.M. Eastern Standard Time on December 31, 1995,
(ii) amended the exercise price of these warrants such that from July 1, 1995
through December 31, 1995 the exercise price will increase to $2.00 per share
and (iii) amended the warrant redemption feature such that during this extended
period the warrants will be redeemable by the Company at a price of $0.05 per
warrant if the closing sales price of the Company's Common Stock (the "Market
Price") is $3.00 or higher for ten consecutive business days (prior to July 1,
1995 the Market Price triggering the redemption feature was $1.125). All other
terms and conditions of the public warrants remain unchanged.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibits are filed herewith:
10.1 Employment Agreement dated May 19, 1995, between Farmstead
Telephone Group, Inc. and Peter S. Buswell
10.2 Commercial Revolving Loan and Security Agreement dated June 5,
1995, between Farmstead Telephone Group, Inc. and Affiliated
Business Credit Corporation
10.3 Contract for Beijing Antai Communication Equipment Corporation
Ltd. dated September 23, 1992
11. Statement Re: Computation of Per Share Earnings.
(b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FARMSTEAD TELEPHONE GROUP, INC.
Dated: August 9, 1995 /s/ Robert G. LaVigne
Robert G. LaVigne
Vice President - Finance and
Administration, Chief Financial Officer
FARMSTEAD TELEPHONE GROUP, INC.
PETER S. BUSWELL
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 19th day of May, 1995, between
Farmstead Telephone Group, Inc., a Delaware corporation (the "Company"), and
Peter S. Buswell (the "Executive").
RECITALS
The Company is engaged in various businesses, including the secondary
market resale of used AT&T[trademark] telephone parts and systems, the
distribution of related AT&T[trademark] re-manufactured products, the provision
of repair, refurbishment and other services for telephone equipment, and the
sale of voice mail and other telephone-related products (collectively the
"Business").
The Company and the Executive acknowledge that the Executive's abilities
and services are important to the prospects of the Company. For this reason,
the Company desires to assure itself of the future services of the Executive,
and to provide certain security to Executive, and the Executive desires to
accept employment as provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual and dependent promises
hereinafter set forth, the parties, intending to be legally bound, do hereby
agree as follows:
ARTICLE I
Employment
Section 1.1 Employment. The Company agrees to employ the Executive as
the President of the Cobotyx Division ("Cobotyx") of the Company, and as a Vice
President of the Company. The period of employment shall commence on the date
of this Agreement and shall continue for the term as provided in Article II.
Section 1.2 Duties. The Executive shall serve as the President of
Cobotyx and as a Vice President of the Company, or in such other equal or
superior capacity as may be designated by the Chief Executive Officer ("CEO")
of the Company. As such, Executive shall be employed in an executive management
capacity, and Executive shall report to the CEO. Executive shall perform such
duties and services consistent with such position as may be assigned to him
from time to time by the CEO. Executive agrees, subject to his election as
such, to serve as a member of the Board of Directors of the Company or of any
committee thereof. During the term of this Agreement, Executive shall devote
substantially all of his working time, attention and skill during the normal
business week to the business and affairs of the Company and shall perform
diligently and faithfully his duties as President of Cobotyx and as a Vice
President of the Company.
Section 1.3 Compensation.
(a) Base Salary. The Company shall pay to Executive during each
calendar year during the Term of this Agreement an annual base salary (the
"Base Salary"). The initial rate of Base Salary for 1995 is $120,000 and
Executive shall be paid at that annual rate for the balance of 1995. Such Base
Salary may be increased by the Board in its discretion in connection with its
annual review of the Company's performance at the end of each calendar year.
The Base Salary shall be payable in accordance with customary payroll practices
of the Company, but in no event less frequently than monthly.
(b) Bonus. At the end of each calendar year during the term of this
Agreement, commencing at the end of 1995, Executive shall be eligible for a
bonus in accordance with the terms of the Company's Management Incentive Bonus
Plan (MIB) as may be in effect. Certain key provisions of the MIB provide that:
(i) The Board of Directors will establish annually a bonus pool,
and related formula, to be determined coincidental with the
Board's acceptance of the annual budget for the subject year.
(ii) An individual officer of the Company, including, but not
limited to Executive, can receive up to but not more than 50%
of then current Base Salary for the subject year as determined
by the Compensation Committee of the Board under the MIB.
(iii) The bonuses paid will be allocated to officers who are
qualified under the terms of the MIB. The CEO will make
recommendations regarding the amount of bonuses to be paid
to each qualified officer, but the final determination of bonus
amounts shall be in the discretion of the Compensation
Committee of the Board.
(c) Profit Award. If for any calendar year during the term of this
Agreement, commencing in 1995, both the revenues and earnings targets set forth
in the MIB for that year have been met for Cobotyx, the Executive shall be
entitled to an additional award equal to five percent (5%) of Cobotyx earnings
in excess of the earnings target contained in the MIB for such calendar year.
Any such profit award shall be paid in a lump sum (subject to applicable
withholding) promptly after completion of such determination, based upon the
audited year-end financial statements of the Company.
Section 1.4 Benefits.
(a) Standard Benefits. The Executive shall be entitled to participate
in standard Company benefits for officers, including, but not limited to, two
(2) weeks paid annual vacation (which will increase to three (3) weeks after
five (5) years service), health insurance and other benefits, including any
pension or retirement plans, stock options or stock purchase plans, that are
generally provided to officers. Participation shall be subject to the terms of
the applicable plan documents and the discretion of the Board or any committee
provided for in or contemplated by such plan. The Company may alter, modify,
add or delete to its employee benefit plans as they generally apply to officers
or other employees at such times and in such manner as the Company determines
to be appropriate, without recourse by Executive.
(b) Other Benefits. In addition, Executive shall also be entitled to
the following other benefits during the Term of this Agreement:
(i) The Company shall maintain, to the extent reasonably available
in the judgment of the Board, a policy of life insurance (whole
life) naming Executive's designee as beneficiary in the benefit
amount of $120,000;
(ii) The Company shall, during the term of this Agreement and for
two years after the end of the term, continue to maintain, to
the extent reasonably available in the judgment of the Board,
directors and officers liability insurance to cover any acts or
omissions by Executive as an officer or director during the
term of this Agreement; and
(iii) Promptly after execution of this Agreement, Executive shall be
granted options to purchase 100,000 shares of the Company's
common stock pursuant to the Company's 1992 Stock Option Plan
(the "Plan"). Thereafter, Executive shall be granted options
pursuant to the Plan on January 25, 1996 to purchase an
additional 100,000 shares of the Company's common stock and on
January 25, 1997 to purchase an additional 100,000 shares of
the Company's common stock. The options referred to above shall
in all respects be subject to the terms and conditions of the
Plan and shall be granted at 100% of the fair market value of
the shares of common stock on the date of each grant, shall not
be exercisable in whole or in part prior to six months from the
date of each grant and shall be intended to be Incentive Stock
Options under the Plan to the extent permitted under the Plan
and applicable law. The grants of options in 1996 and 1997 as
referred to above shall be conditioned on Executive continuing
to be an employee of the Company at the time of each grant,
shall otherwise be in accordance with the terms and conditions
of the Plan, and shall be subject to the availability of
authorized shares at such time. The parties may amend the terms
of this Agreement relating to the grants in 1996 and 1997 upon
mutual agreement, provided any such amendment shall be
effective only if in a writing executed by both parties.
(c) Upon submission of appropriate invoices or vouchers, the Company
shall pay or reimburse the Executive for all reasonable expenses that Executive
incurs in the performance of Executive's duties under this Agreement in
furthering the business, and in keeping with the policies, of the Company.
ARTICLE II
Termination
Section 2.1 Employment Period. The Company agrees to employ the
Executive as of the date hereof until the earlier of (the "Term"):
(a) January 24, 1998;
(b) the Executive's death;
(c) the Executive's permanent disability, as defined in Section
2.4(b); or
(d) the date the Executive's employment is terminated by the Company
or the Executive, in accordance with Section 2.2. or 2.3.
Section 2.2 Termination by the Company. The term of this Agreement shall
end if the Company determines to terminate Executive either "for cause" or
"without cause." Except in the case of termination "for cause," termination by
the Company will not be effective until thirty (30) days after the Company has
given written notice to the Executive of such termination.
Section 2.3 Termination by Executive. The Executive may terminate his
employment voluntarily at any time upon ninety (90) days written notice to the
Company, provided that the Company may, in such circumstances, require
Executive to vacate the Company's premises prior to the expiration of such 90
day period so long as the Company continues to provide then-current
compensation and benefits to Executive for the duration of such 90 day period.
Section 2.4 Defined Terms. The following terms shall have the meanings
prescribed:
(a) "For cause" shall mean: (i) upon a material breach of any
provision of this Agreement that is not remedied within five (5) days after the
delivery of written notice thereof to the Executive; or (ii) upon conviction of
an offense which in the opinion of the Board brings the Executive into
disrepute or causes harm to the Company's business, customer or supplier
relations, financial conditions or prospects; or (iii) intentional or gross
misconduct, which shall mean personal dishonesty, incompetence, willful
misconduct or intentional failure to perform stated duties.
(b) "Permanent disability" or "permanently disabled" shall mean the
inability of the Executive, due to physical or mental illness or disease, to
perform the essential functions then performed by such Executive, with or
without reasonable accommodation, for ninety (90) substantially consecutive
days, accompanied by the likelihood, in the opinion of a physician chosen by
the Company, that the disabled Executive will be unable to perform such
essential functions within the reasonably foreseeable future.
Section 2.5 Severance Pay.
(a) If the Company terminates this Agreement without cause, the
Executive shall be entitled to severance equal to the sum of six months pay
based on one-half of Executive's then-current Base Salary plus one month's pay
based on 1/12th of such Base Salary amount for each year of service. For
purposes of this Section 2.5(a), a year of service shall be any calendar year
in which Executive has been employed for at least one thousand (1,000) hours by
the Corporation based on a forty (40) hour work week. Such severance shall be
paid to the Executive in equal monthly installments over the six months
following the effective date of termination. The Executive shall also be
entitled to continue to receive all benefits as referred to in Section 1.4(a)
and 1.4(b)(i) until the earlier of (x) the date Executive commences receiving
benefits from another employer or (y) six (6) months following the effective
date of termination.
(b) Executive shall not be entitled to severance pay or other
compensation from the Company if the Term ends pursuant to Section 2.1(b) or
(c), if Executive leaves the Company voluntarily, or if Executive is terminated
for cause.
(c) Executive agrees that the above severance pay will constitute an
adequate and complete severance in the event of termination or expiration of
this Agreement as provided above, and Executive waives any other claims for
compensation or severance or other liability from the Company in the event of
termination or expiration of this Agreement.
Section 2.6 Obligations Upon Death. If the Executive dies during the
term of this Agreement, the Company's obligations under this Agreement shall
terminate immediately and the Executive's estate shall be entitled to all
arrearage of salary and expenses but shall not be entitled to further
compensation. In addition, Executive's estate shall be entitled to receive such
benefits under the terms of any plan and programs of the Company applicable to
Executive, including, but not limited to, the life insurance referenced in
Section 1.4(b)(i).
Section 2.7 Termination Upon Permanent Disability. If the Executive is
permanently disabled as defined in Section 2.4(b), the Executive's employment
with the Company shall terminate, and the Executive shall be entitled to
benefits under any disability insurance maintained by the Company, if any. The
Company shall have no obligation to maintain any disability insurance.
Section 2.8 Certain Insurance. Upon the termination or expiration of
this Agreement in a manner providing severance as set forth in Section 2.5(a),
Executive shall have the option, exercisable by him within 30 days after the
effective date of termination or expiration, to cause the Company to assign to
him the life insurance policy referred to in Section 1.4(b)(i) above, provided
that Executive shall thereafter be responsible for paying any premiums on such
policy to keep it in effect.
Section 2.9 Consulting Period. In the event the Executive voluntarily
terminates his employment, the Company, in order to permit the orderly
transition of work and responsibility, reserves the right to require the
Executive to continue to provide services as an independent contractor on a
consulting basis to the Company for a period of up to three (3) months
following the Termination Date (the "Consulting Period"). The initial period of
consultation, which shall not be less than four weeks, shall be set forth in
the Company's written notice to the Executive to be delivered within ten (10)
business days of receipt of the Executive's notice of his desire to resign or
voluntarily terminate his employment under this Agreement. Such consultation
period may be extended in four (4) week increments up to the maximum of three
(3) months by the delivery of written notice from the Company to the Executive
before the expiration of each period. During the Consulting Period, the terms
shall be as follows:
(a) The Executive shall render services to the Company for a minimum
of one (1) eight (8) hour day per week during the Consulting Period, as
determined by the Company, but such services shall be scheduled so as not to
unreasonably interfere with subsequent employment by the Executive;
(b) The Executive shall be compensated for each eight (8) hour
increment of the Consulting Period at a rate equal to one-fifth of the weekly
compensation (based on Base Salary) paid to the Executive by the Company for
the twelve (12) month period preceding the Termination Date. Such compensation
shall be paid to the Executive on a monthly basis in arrears, subject to any
federal, state or local withholding taxes; and
(c) No benefits shall be provided pursuant to Section 1.4.
Section 2.10 Survival of Provisions. Notwithstanding anything else in
this Agreement, the provisions of Articles III, IV and V shall survive the
termination or expiration of the Executive's employment with the Company.
ARTICLE III
Covenants, Representations and Warranties
Section 3.1 Covenant Not To Disclose. The Executive agrees that, in
performing his normal duties with the Company and by virtue of the relationship
of trust and confidence between the Executive and the Company, he possesses and
will possess certain knowledge of operations and other confidential information
of the Company which are of a special and unique nature and value to the
Company. The Executive covenants and agrees that he will not, at any time,
whether during the term of this Agreement or otherwise, reveal, divulge or make
known to any person or entity (other than the Company) or use for his own
account, any Company confidential record, data, plan, trade secret, policy,
strategy, method or practice of obtaining or doing business, computer program,
know-how or knowledge relating to customers, sales, suppliers, market
developments, equipment, processes, products or any other confidential
information whatever (the "Confidential Information"), whether or not obtained
with the knowledge and permission of the Company and whether or not developed,
devised or otherwise created in whole or in part through the efforts of the
Executive. The Executive further covenants and agrees that he shall retain all
Confidential Information which he acquires or develops in trust for the sole
benefit of the Company and its successors and assigns. Confidential Information
shall not include any information which has entered the public domain otherwise
than by reason of a disclosure by the Executive or which is made available by a
third-party to Executive with right to disclose. The Executive agrees to
deliver to the Company at the termination of his employment or at any other
time the Company may request, all Company property, including, but not limited
to, Confidential Information which he then may possess or have under his
control.
Section 3.2 Representation and Warranty. Prior to the execution and
delivery of this Agreement, the Executive represents and warrants that he has
terminated all of his obligations under any other employment or consulting
agreement or other similar agreement, whether written or oral, with any other
party. The Executive has delivered copies of all such employment or other
agreements and evidence satisfactory to the Company of the termination of such
agreements. The Executive represents and warrants that the execution of this
Agreement will not result in a breach of any written agreement to which the
Executive is a party or by which the Executive is bound.
Section 3.3 Inventions and Patents. The Executive agrees that all
inventions, innovations or improvements in the Company's methods of conducting
its business (including new contributions, improvements, ideas and discoveries,
whether patentable or not) conceived or made by him during the employment
period belong to the Company. The Executive agrees to promptly disclose such
inventions, innovations or improvements to the Company and take all actions
reasonably requested by the Company to establish and confirm such ownership.
ARTICLE IV
Covenant Not To Compete
Section 4.1 Restrictive Covenant. The Executive covenants and agrees
with the Company that so long as he is employed by the Company, and for any
period following the termination date during which the Executive receives a
severance benefit pursuant to Section 2.5(a), Executive shall not, anywhere in
the Restricted Area, either directly or indirectly, compete with, own (in
excess of 2% of the equity securities of any enterprise), manage, engage in or
be employed by, connected with or work for, any person, corporation,
partnership or other entity that competes with the Business of the Company or
its successors or assigns, or which is owned by, affiliated with, or the owner
of any such competitor of the Company, without the written consent of the
Company.
Section 4.2 Definitions. The following terms shall have the meanings
prescribed:
(a) "Business" shall refer to the Business as described in the
Recitals to this Agreement. The Business shall include any of the foregoing
activities as conducted by the Company (i) as of the date of the execution of
this Agreement, (ii) during the term of this Agreement, (iii) as of the
termination or expiration date, or (iv) as reasonably proposed by the Company
as of the termination or expiration date.
(b) "Compete" shall mean engaging, participating, or being involved in
any respect or in any capacity in the business of, or furnishing any aid,
assistance or service of any kind to any person or entity in connection with,
the trading, leasing, buying, selling, exchanging, lending to, borrowing from,
marketing, merchandising, importing, exporting, distributing, or producing, of
any product or service similar in either design or function, or both, to any
product or service of the Business.
(c) "Restricted Area" shall mean any geographic area in which the
Company is doing business at any time during the term of this Agreement.
Section 4.3 Non-Compete Election. In the event that the Executive leaves
the employment of the Company in circumstances that would not otherwise require
the Company to make a severance payment, the Company may, at its election,
decide to make a severance payment to Executive for up to six (6) months and
the non-compete provisions of this Article IV shall apply during such
designated period. Such severance pay shall be equal to 1/12 of the Base Salary
at such time multiplied by the number of months designated by the Company (up
to six months) as the severance period. Such severance shall be paid in a lump
sum within fifteen days after the effective date of termination and Executive
shall also be entitled to continue to receive all benefits as provided in
Section 2.5(a) until the earlier of (x) the date Executive commences receiving
benefits from another employer or (y) the completion of such designated
severance period.
Section 4.4 "Blue Pencil" Rule. The Executive and the Company desire
that the provisions of Article IV be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. If a court of competent jurisdiction, however,
determines that any restrictions imposed on the Executive in this Article IV
are unreasonable or unenforceable because of duration, area of restriction, or
otherwise, the Executive and the Company agree and intend that the court shall
enforce this Article IV to whatever extent the court deems reasonable. The
parties intend that the court shall have the right to strike or change any
provision of Article IV and substitute therefor different provisions to effect
the intent of this Section 4.4.
Section 4.5 Legitimate Purpose. The Executive has read carefully all of
the terms and conditions of this Article IV and agrees that the restraints set
forth herein: (a) are reasonable and necessary to support the legitimate
business interests and goodwill of the Company; and (b) will not preclude the
Executive from earning a livelihood during the life of this Article IV.
ARTICLE V
Miscellaneous
Section 5.1 Notices. All notices required by this Agreement shall be in
writing and shall be sufficiently given if hand delivered, delivered by
overnight delivery service, or mailed by registered or certified mail, return
receipt requested, to the following addresses:
If to the Company: Farmstead Telephone Group, Inc.
81 Church Street
East Hartford, CT 06108
Attention: Chief Executive Officer
If To Executive: At the most recent address available in
the Company's employment records.
Any party may change its address by written notice to the other party. All
notices shall be deemed to have been given as of the date so delivered or
mailed.
Section 5.2 Waiver. The waiver by any party of any breach or default of
any provision of this Agreement shall not operate as a waiver of any subsequent
breach.
Section 5.3 Insurance. The Company may, at its election and for its
benefit, insure the Executive against accidental loss or death, and the
Executive shall submit to a physical examination and supply such information as
may be required in connection therewith.
Section 5.4 Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties and supersedes and preempts any
prior understandings, agreements or representations by or between the parties,
whether written or oral, which relate to the subject matter hereof in any way.
Section 5.5 Construction and Interpretation. Whenever possible, each
provision of this Agreement will be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
but this Agreement will be reformed and reconstrued, and enforced to the
maximum extent possible, in such jurisdiction as if such invalid, illegal or
unenforceable provision never had been contained herein.
Section 5.6 Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
Section 5.7 Amendments. Any provisions of this Agreement may be amended
only with the prior written consent of the Company and the Executive.
Section 5.8 Governing Law. This Agreement shall be interpreted under the
laws of the State of Connecticut.
Section 5.9 Assignment. This Agreement may not be assigned by any party
hereto, provided that the Company may assign this Agreement in connection with
a merger or consolidation involving the Company or a sale of substantially all
its assets or of the assets of Cobotyx, to the surviving corporation or
purchaser as the case may be, so long as such assignee assumes the Company's
obligations hereunder.
Section 5.10 Certain Definitions. Without limiting other provisions of
this Agreement, references to the Company in Article III include, but are not
limited to, Cobotyx and references to the Company or the Business in Article IV
include, but are not limited to, Cobotyx.
FARMSTEAD TELEPHONE GROUP, INC.
By: /s/George J. Taylor JR. CEO
[EXECUTIVE]
/s/Peter S. Buswell
Address: Box 47
Waccabuc NY 10557
AFFILIATED BUSINESS CREDIT CORPORATION
________________________________________________
COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
WITH
FARMSTEAD TELEPHONE GROUP, INC.
JUNE 5, 1995
COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated June 5, 1995 by and between
FARMSTEAD TELEPHONE GROUP, INC., a Delaware corporation with its chief
executive office and principal place of business at 81 Church Street, East
Hartford, Connecticut 06108 ("Borrower"), and AFFILIATED BUSINESS CREDIT
CORPORATION, a Delaware corporation with an office at 72 Queen Street,
Southington, Connecticut 06489 ("Lender").
________________
PREAMBLE
WHEREAS, Borrower has requested Lender to extend to Borrower a
revolving loan in the maximum aggregate principal amount of up to $1,500,000
(the "Loan"); and
WHEREAS, Lender has agreed to extend the Loan to Borrower on the
conditions set forth below.
NOW, THEREFORE, for the mutual considerations contained in this
Agreement, Borrower and Lender agree as follows:
ARTICLE I
Definitions
Section 1.1 Accounting Terms; Etc. Unless otherwise defined, all
accounting terms shall be construed, and all computations or classifications
of assets and liabilities and of income and expenses shall be made or
determined in accordance with generally accepted accounting principles
consistently applied. As used herein, or in the Financing Agreements or in
any certificate, document or report delivered pursuant to this Agreement or
any other Financing Agreement, the following terms shall have the following
meanings:
(a) "Account" and "Accounts" shall have the meanings assigned in
Section 7.1(a) hereof.
(b) "Account Debtor" and "Account Debtors" shall mean the person or
entity or persons or entities obligated to Borrower upon the Accounts.
(c) "Agreement" shall mean this Loan and Security Agreement as the
same may from time to time be amended, supplemented or otherwise modified.
(d) "Arrangement" and "Arrangements" shall have the meaning assigned
in Section 4.1(n) hereof.
(e) "Borrowing Base" shall mean an amount equal to the lesser of: (i)
ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000), or (ii) an amount
equal to the aggregate of (1) seventy-five percent (75%) of Eligible
Accounts and (2) lesser of (A) twenty-five percent (25%) of Eligible
Inventory, or (B) THREE HUNDRED THOUSAND DOLLARS ($300,000).
(f) "Business Day" shall mean any day other than a day on which
commercial banks in Hartford, Connecticut are required or permitted by law
to close.
(g) "Collateral" shall mean the property of Borrower described in
Section 7.1 hereof.
(h) "Commitment Letter" shall mean that certain commitment letter
issued by Lender and dated May 19, 1995.
(i) "Company" and "Companies" shall mean Borrower and any entities
affiliated with Borrower in connection with any Plan.
(j) "Defaulting Event" shall mean the occurrence of an Event of
Default or the occurrence of any condition or event which but for the giving
of notice or passage of time or both would constitute an Event of Default.
(k) "Dollar" and the sign "$" shall mean lawful money of the United
States of America.
(l) "Eligible Accounts" shall mean those Accounts of Borrower which
arise from the sale or lease of inventory or rendition of services in the
ordinary course of Borrower's business, are subject to Lender's perfected,
first lien security interest and no other lien or security interest, and are
evidenced by an invoice or other documentary evidence satisfactory to
Lender. Further, no Account shall be an Eligible Account if:
(i) it arises out of a sale or lease made by Borrower to any
affiliate, division, subsidiary or parent of Borrower or
to any person or entity controlled by or under common
control with an affiliate, division, subsidiary or parent
of Borrower;
(ii) it is due or unpaid more than ninety (90) days after its
original invoice date;
(iii) the account debtor is also Borrower's creditor or supplier,
has disputed liability or made any claim with respect to
any other account due from such account debtor to
Borrower, or the account is otherwise subject to any
defense, counterclaim or offset of or by the account
debtor (provided, however, that the amount by which
accounts due from a particular account debtor exceeds the
then amount due by Borrower to such account debtor shall
not be excluded pursuant to this subsection (iii);
(iv) the account debtor is located outside the United States
(unless such account is supported by a letter of credit or
credit insurance acceptable in form, scope and substance
to Lender in Lender's sole discretion or is otherwise
acceptable to Lender in Lender's sole discretion);
(v) the sale giving rise to the account is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval,
consignment or other repurchase or return basis, or is
evidenced by a note or chattel paper;
(vi) that is the Government, unless Borrower has complied in all
respects with the Federal Assignment of Claims Act of
1940, or has otherwise satisfied Lender as to the
assignability and collectibility of said accounts;
(vii) Borrower has made an agreement with the account debtor for
any deduction from the invoice representing said account,
except for discounts, trade-ins or allowances made in the
ordinary course of Borrower's business for prompt payment;
or
(viii) fifty percent (50%) or more of the aggregate invoices for an
account debtor are due or unpaid for more than ninety (90)
days after their original invoice date.
If any dispute as to whether any Account is an Eligible Account, the
determination of Lender shall at all times control.
(m) "Eligible Inventory" shall mean Borrower's inventory of used and
remanufactured phone systems being held for resale (including the inventory
of the Cobotyx division being held for resale) to the extent Lender, in its
sole discretion, determines that such inventory is eligible for advance. In
addition and without limiting Lender's discretion, Eligible Inventory shall
be net of reserves, valued at the lower of cost or market, and subject to
Lender's perfected first security interest and to no other lien or security
interest. Further and without limiting Lender's discretion, no inventory
shall be eligible if it is:
(i) deemed by Lender as slow moving or obsolete;
(ii) not otherwise in good condition and salable or rentable
through normal trade channels; or
(iii) not salable in the ordinary course of Borrower's business.
(n) "Environmental Laws" shall mean any and all applicable foreign,
federal, state and local statutes, laws, regulations, rules, ordinances,
orders, guidances, policies or common law (whether now existing or hereafter
enacted or promulgated) pertaining to the environment, of any and all
federal, state or local governments and governmental and quasi-governmental
agencies, bureaus, subdivisions, commissions or departments which may now or
hereafter have jurisdiction over Borrower and all applicable judicial and
administrative and regulatory decrees, judgments and orders, including
common law rulings and determinations, relating to injury to, or the
protection of, real or personal property or human health or the environment,
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, investigation, remediation and removal of emissions,
discharges, releases or threatened releases of Hazardous Materials, chemical
substances, pollutants or contaminants whether solid, liquid or gaseous in
nature, into the environment or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
such Hazardous Materials, chemical substances, pollutants or contaminants.
Without limiting the generality of the foregoing, the term
"Environmental Laws" shall encompass each of the following statutes, and
regulations promulgated thereunder, and amendments and successors to such
statutes and regulations, as may be enacted and promulgated from time to
time: Federal Occupational Safety and Health Act ("OSHA"); the Clean Air Act
("CAA"); the Toxic Substances Control Act ("TSCA"); the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), as
amended by the Superfund Amendments and Reauthorization Act of 1986
("SARA"); the Clean Water Act ("CWA"); the Resource Conservation and
Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984
("RCRA"); the Hazardous Materials Transportation Act; and all applicable
Environmental Laws of each state and municipality in which Borrower conducts
business or locates assets and all rules and regulations thereunder and
amendments thereto, and all similar state and local laws, rules and
regulations.
(o) "ERISA" shall mean the Employee Retirement Income Security Act of
1974 and all rules and regulations promulgated pursuant thereto, as the same
may from time to time be supplemented or amended.
(p) "Event of Default" and "Events of Default" shall have the
meanings assigned in Section 8.1 hereof.
(q) "Fidelity Guarantor" shall have the meaning assigned in Section
5.1(d) hereof.
(r) "Fidelity Guaranty" shall have the meaning assigned in Section
5.1(d) hereof.
(s) "Financing Agreement" or "Financing Agreements" shall mean this
Agreement, the Note, the Fidelity Guaranty, and any and all other
instruments, agreements and documents executed in connection herewith or
therewith or related hereto or thereto, together with any amendments,
supplements or modifications hereto or thereto.
(t) "Fixed Assets" shall mean equipment and other assets of Borrower
which, by generally accepted accounting principles, must be treated as fixed
assets in financial statements of Borrower.
(u) "Government" shall mean the United States Government or any
agency or subdivision thereof.
(v) "Hazardous Materials" shall mean any chemical, compound,
material, mixture or substance: (i) the presence of which requires or may
hereafter require notification, investigation, monitoring or remediation
under any Environmental Law; (ii) which is or becomes defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or "toxic
substance" or "pollutant" or "contaminant" under any present or future
applicable federal, state or local law or under the rules and regulations
adopted or promulgated pursuant thereto, including, without limitation, the
Environmental Laws; (iii) which is toxic, explosive, corrosive, reactive,
ignitable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is or becomes regulated by any governmental authority, agency,
department, commission, board, agency or instrumentality of any foreign
country, the United States, any state of the United States, or any political
subdivision thereof to the extent any of the foregoing has or had
jurisdiction over Borrower; (iv) without limitation, which contains
gasoline, diesel fuel or other petroleum products, asbestos or
polychlorinated biphenyls ("PCBs"); or (v) any other chemical, material or
substance, exposure to, or disposal of, which is now or hereafter
prohibited, limited or regulated by any federal, state or local governmental
body, instrumentality or agency.
(w) "Indemnifiable Liability" shall have the meaning assigned in
Section 13.1(a) hereof.
(x) "Indemnities" shall have the meaning assigned in Section 13.1(a)
hereof.
(y) "Inventory" shall have the meaning assigned in Section 7.1(d)
hereof.
(z) "Lessor's Agreement" shall have the meaning assigned in Section
5.1(e) hereof.
(aa) "Loan" means a Revolving Loan and "Loans" means the Revolving
Loans.
(ab) "Minimum Balance" shall have the meaning assigned in Section
3.1(a) hereof.
(ac) "Minimum Interest Amount" shall have the meaning assigned in
Section 12.1(b) hereof.
(ad) "Note" means the Revolving Loan Note.
(ae) "Notice of Borrowing" shall have the meaning assigned in Section
2.3 hereof.
(af) "Obligation" and "Obligations" mean and include all loans,
advances, interest, indebtedness, liabilities, obligations, fees, charges,
expenses, guaranties, covenants and duties at any time owing by Borrower to
Lender of every kind and description, whether or not evidenced by any note
or other instrument, whether or not for the payment of money, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, including, but not limited to, the Loan, the Minimum
Interest Amount, the Termination Fee and all other indebtedness, liabilities
and obligations of Borrower arising under this Agreement and the other
Financing Agreements or otherwise, and all costs, expenses, fees, charges
incurred by Lender hereunder or otherwise with respect to Borrower,
including without limitation fees and expenses of attorneys, paralegals and
other professionals incurred in connection with any of the foregoing, or in
any way connected with, involving or relating to the preservation,
enforcement, protection or defense of, or realization under this Agreement,
any of the other Financing Agreements, any related agreement, document or
instrument, the Collateral and the rights and remedies hereunder or
thereunder, including without limitation, all costs, expenses and fees
incurred in inspecting or surveying mortgaged real estate, if any, or
conducting Environmental studies or tests, and all costs, expenses and fees
incurred in connection with any "workout" or default resolution negotiations
involving legal counsel or other professionals and further in connection
with any modification, re-negotiation or restructuring of the indebtedness
evidenced by this Agreement and/or any of the other Financing Agreements
and/or Obligations.
(ag) "Plan" means any employee benefit plan or other plan maintained
by Borrower or any entity affiliated with Borrower for employees covered by
Title I of ERISA.
(ah) "Premises" shall mean the real property located at 81 Church
Street, East Hartford, Connecticut.
(ai) "Prime Rate" shall mean the Prime Rate as published from time to
time in the "Money Rates" section of The Wall Street Journal or any
successor publication, or in the event that such rate is no longer published
in The Wall Street Journal, a comparable index or reference selected by
Lender. The Prime Rate may not be the lowest or most favorable rate.
(aj) "Receivables" shall have the meaning assigned in Section 7.1(a)
hereof.
(ak) "Release" shall mean any release, emission, disposal, leaching
or migration into the environment (including, without limitation, the
abandonment or disposal of any barrels, containers, or other closed
receptacles containing any Hazardous Materials) or into or out of any
property owned, occupied or used by Borrower.
(al) "Renewal Term" shall have the meaning assigned in Section 12.1
(a) hereof.
(am) "Revolving Loan" and "Revolving Loans" shall have the meanings
assigned in Section 2.1 hereof.
(an) "Revolving Loan Account" shall have the meaning assigned in
Section 2.3 hereof.
(ao) "Revolving Loan Note" shall have the meaning assigned in Section
2.3 hereof.
(ap) "Subsidiary" and "Subsidiaries" shall mean any corporation or
corporations of which the outstanding shares of any stock having ordinary
voting power is at the time owned by Borrower and/or by one or more
Subsidiaries.
(aq) "Term" shall have the meaning assigned in Section 12.1(a)
hereof.
ARTICLE II
Revolving Loans
Section 2.1 Amounts. Subject to the terms and conditions contained in
this Agreement, and so long as no Defaulting Event has occurred, Lender
agrees, in its sole discretion, to make loans (the "Revolving Loans" and,
individually, a "Revolving Loan") to Borrower from time to time until
terminated as provided below in principal amounts not exceeding in the
aggregate at any one time outstanding the Borrowing Base, it being agreed
and understood that at no time shall the maximum aggregate principal amount
of the Revolving Loans made by Lender exceed the Borrowing Base.
Section 2.2 Payment on Demand. ALL OBLIGATIONS OF BORROWER ARISING
UNDER THE REVOLVING LOANS SHALL BE PAID BY BORROWER IN FULL UPON DEMAND BY
LENDER, NOTWITHSTANDING LENDER'S RIGHTS UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT AND WHETHER OR NOT SUCH EVENT OF DEFAULT HAS OCCURRED.
Section 2.3 Procedure For Advances, Notice of Borrowing, Revolving
Loan Note, Etc. Within the limits of the Borrowing Base and the Term, so
long as Borrower is in compliance with all of the terms and conditions of
this Agreement and no Defaulting Event has occurred, Borrower may request
borrowings, repay and request reborrowings of Revolving Loans. Whenever
Borrower desires an advance, Borrower shall notify Lender (which notice
shall be irrevocable) by telex, telecopy or telephone of the proposed
borrowing. Such notice (each, a "Notice of Borrowing") shall specify the
date of the proposed borrowing and the amount to be borrowed. Each Notice of
Borrowing must be received by Lender no later than 1:00 p.m., Hartford,
Connecticut time on the day such borrowing is requested. In addition to this
Agreement, the Revolving Loans shall be evidenced by a revolving loan
promissory note payable to Lender in the form of Exhibit A attached hereto
(the "Revolving Loan Note"). Insofar as Borrower may request and Lender
shall make Revolving Loans hereunder, Lender shall enter such advances as
debits on a revolving loan account maintained by Borrower with Lender (the
"Revolving Loan Account"). Lender may also record to the Revolving Loan
Account, in accordance with customary accounting practices and procedures,
all fees, accrued and unpaid interest, late fees, usual and customary
charges for the maintenance and administration of checking and any other
accounts maintained by Borrower with Lender and other fees and charges which
are properly chargeable to Borrower under this Agreement, if any; all
payments, subject to collection, made by Borrower on account of indebtedness
evidenced by the Revolving Loan Account; all proceeds of Collateral which
are finally paid to Lender in its own office in cash or collected items; and
other appropriate debits and credits, including without limitation, payments
of interest due hereunder.
Section 2.4 Monthly Statements. On a monthly basis, Lender shall
render a statement for the Revolving Loan Account, which statement shall be
considered correct and accepted by Borrower and conclusively binding upon
Borrower unless Borrower notifies Lender to the contrary within twenty (20)
days of the receipt of said statement by Borrower. Lender shall have the
right to debit the Revolving Loan Account for all interest charges on the
Loan as and when the same shall be due and payable, if not otherwise paid by
Borrower.
Section 2.5 Lender Discretion. Nothing herein shall be construed to
(a) require Lender to make Revolving Loans, and/or (b) prohibit Lender from
lending in excess of the Borrowing Base, it being agreed that all such loans
and advances shall be at Lender's sole discretion and shall not establish a
pattern or custom binding upon Lender.
ARTICLE III
Interest, Fees and other Charges
Section 3.1 Interest.
(a) Interest Rates. So long as no Defaulting Event has occurred, the
Revolving Loan shall bear interest (from the date made through and including
the date of payment in full), at a floating rate per annum equal to one and
one-half percentage points (1.5%) above the Prime Rate, on the greater of
(i) the actual monthly balance; or (ii) a minimum assumed monthly loan
balance of $600,000 (the "Minimum Balance"). Lender agrees to, on a
quarterly basis, consider adjusting downward the amount of the Minimum
Balance; provided, however, that any downward adjustment to the Minimum
Balance shall be in the Lender's sole discretion.
(b) Payment of Interest. So long as any of the Obligations remain
outstanding, interest on the Loans shall be due and payable without notice
or demand monthly in arrears beginning on July 1, 1995 and continuing on the
first business day of each and every month thereafter.
(c) Default Interest Rate. Notwithstanding the foregoing, interest on
the Loans, at all times after the occurrence and during the continuance of
an Event of Default, and interest on all payments of interest that are not
paid when due, shall accrue at a rate per annum equal to two percentage
points (2.0%) above the applicable interest rates otherwise in effect under
this Agreement.
(d) Calculation Of Interest. Interest on the Loans shall be
calculated on the basis of a 360 day year and the actual number of days
elapsed.
(e) Late Payment. If any amount due hereunder or under the Notes is
not paid within ten (10) days after the date it is due and payable, without
in any way affecting Lender's right to make demand hereunder or to declare
an Event of Default to have occurred, Lender may in its sole discretion
assess a late charge equal to five percent (5%) of such late payment against
Borrower, which late charge shall be immediately due and payable and may be
paid by a charge to Borrower's loan account as contemplated in Section 2.3
above.
(f) Lawful Interest. It being the intent of the parties that the rate
of interest and all other charges to Borrower be lawful, if for any reason
the payment of a portion of interest, fees or charges as required by this
Agreement would exceed the limit established by applicable law which a
commercial lender such as Lender may charge to a commercial borrower such as
Borrower, then the obligation to pay interest or charges shall automatically
be reduced to such limit and, if any amounts in excess of such limits shall
have been paid, then such amounts shall be applied to the unpaid principal
amount of the Obligations or refunded so that under no circumstances shall
interest or charges required hereunder exceed the maximum rate allowed by
law, as aforesaid.
Section 3.2 Closing Fees. On or before the date hereof, Borrower
shall pay or have paid to Lender all fees, expenses and other costs incurred
by Lender in connection with the closing of the extension of the Loans
(including without limitation, all attorney's and other professionals' fees
and expenses).
ARTICLE IV
Representations and Warranties
Section 4.1 Representations and Warranties. Borrower represents and
warrants to Lender that:
(a) Good Standing and Qualification. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware. It
has all requisite corporate power and authority to own and operate its
properties and to carry on its business as presently conducted and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction wherein the character of the properties owned or leased by
it therein or in which the transaction of its business therein makes such
qualification necessary.
(b) Corporate Authority. It has full power and authority to enter
into this Agreement and the other Financing Agreements to which it is a
party, to make the borrowings contemplated herein, to execute and deliver
the Note and the other Financing Agreements to which it is a party, and to
incur the obligations provided for herein and therein, all of which have
been duly authorized by all necessary and proper corporate action. No other
consent or approval or the taking of any other action in respect of
shareholders or of any public authority is required as a condition to the
validity or enforceability of this Agreement, the Note, the other Financing
Agreements or any other instrument, document or agreement delivered in
connection herewith or therewith.
(c) Binding Agreements. This Agreement constitutes, and the Note and
the other Financing Agreements executed and/or delivered in connection
herewith or therewith, when issued and delivered pursuant hereto for value
received shall constitute, valid and legally binding obligations of
Borrower, enforceable in accordance with their respective terms, except as
enforcement may be limited by principles of equity, bankruptcy, insolvency,
or other laws affecting the enforcement of creditors' rights generally.
(d) Litigation. There are no actions, suits or proceedings pending
against Borrower before any court or administrative agency, nor are there
any actions, suits or proceedings threatened, which, either in any case or
in the aggregate, would materially and adversely affect the financial
condition, assets or operations of Borrower, nor are there any such actions,
suits or proceedings which question the validity of this Agreement, the
Note, any of the other Financing Agreements, or any action to be taken in
connection with the transactions contemplated hereby or thereby.
(e) No Conflicting Law or Agreements. The execution, delivery and
performance by Borrower of this Agreement, the Note and the other Financing
Agreements, as the case may be, do not (i) violate any provision of its
Certificate of Incorporation or By-laws or any order, decree or judgment, or
any provision of any statute, rule or regulation; (ii) violate or conflict
with, result in a breach of or constitute (with notice or lapse of time, or
both) a default under any shareholder agreement, stock preference agreement,
mortgage, indenture or other contract or undertaking to which it is a party,
or by which its properties are bound; and (iii) result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon
any property or assets of Borrower except for the liens granted hereunder to
Lender.
(f) Taxes. With respect to all of its taxable periods it has filed
all tax returns which are required to be filed and all federal, state,
municipal, franchise and other taxes shown on such filed returns have been
paid or are being diligently contested by appropriate proceedings and have
been reserved against, as required by generally accepted accounting
principles, consistently applied.
(g) Financial Statements. It has heretofore delivered to Lender: (i)
its audited annual balance sheet as of December 31, 1994, and the related
statements of income, retained earnings and cash flows for the fiscal year
or period then ended. Each of such statements is complete and correct in all
material respects and fairly presents its consolidated financial condition
as of the dates and for the periods referred to and has been prepared in
accordance with generally accepted accounting principles consistently
applied by it throughout the periods involved. There are no liabilities,
direct or indirect, fixed or contingent, of Borrower as of the dates of said
balance sheets which are not reflected in such statements or in the notes
thereto.
(h) Adverse Developments. Since December 31, 1994 there has been no
material adverse change in its financial condition, business, operations,
affairs or prospects of Borrower or in any of its properties or assets.
(i) Existence of Assets and Title Thereto. It has good title to its
properties and assets, including the properties and assets reflected in the
financial statements referred to herein. Such properties and assets are not
subject to any mortgage, pledge, lien, lease, encumbrance or charge except
those permitted under the terms of this Agreement or as set forth in
Schedule 4.1(i) attached hereto.
(j) Regulations G, T, U and X. The proceeds of the borrowings
hereunder are not being used and will not be used, directly or indirectly,
for the purposes of purchasing or carrying any margin stock in
contravention, or which would cause any Lender to be in violation, of
Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System.
(k) Compliance. It is not in default with respect to any order, writ,
injunction or decree of any court or of any federal, state, municipal or
other governmental department, commission, board, bureau, agency, authority
or official, including without limitation, the Securities and Exchange
Commission (the "SEC"), nor is it in violation of any law, statute, rule or
regulation to which it is or its properties are subject and it has not
received notice of any such default from any party and is not in default in
the payment or performance of any of its obligations to any third parties or
in the performance of any mortgage, indenture, lease, contract or other
agreement to which it is a party or by which any of its assets or properties
are bound.
(l) Leases. It enjoys quiet and undisturbed possession under all
leases under which it is operating, and all of such leases are valid and
subsisting and not in default.
(m) Pension Plans.
(i) No fact, including but not limited to any "reportable event",
as that term is defined in Section 4043 of ERISA, exists in connection with
any Plan of any of the Companies under Sections 414(b), (c), (m), (n) and
(o) of the Internal Revenue Code of 1986, as amended (the "Code") which
might constitute grounds for termination of any such Plan by the Pension
Benefit Guaranty Corporation (the "PBGC"), or for the appointment by the
appropriate United States District Court of a trustee to administer any such
Plan. A list of all of the Companies' respective Plans are attached hereto
on Schedule 4.1(m) attached hereto;
(ii) No "prohibited transaction" within the meaning of Section 406
of ERISA or Section 4975 of the Code exists or will exist upon the execution
and delivery of this Agreement and the other Financing Agreements, or the
performance by the parties hereto or thereto of their respective duties and
obligations hereunder and thereunder;
(iii) Each of the Companies agrees to do all acts, including, but
not limited to, making all contributions necessary to maintain compliance
with ERISA or the Code, and agrees not to terminate any such Plan in a
manner or do so or fail to do any act which could result in the imposition
of a lien on any of its properties pursuant to Section 4068 of ERISA;
(iv) None of the Companies sponsors or maintains, and has never
contributed to, and has not incurred any withdrawal liability under a
"multi-employer plan" as defined in Section 3 of ERISA and none of the
Companies has any written or verbal commitment of any kind to establish,
maintain or contribute to any "multi-employer plan" under the Multi-employer
Pension Plan Amendment Act of 1980;
(v) None of the Companies has any unfunded liability in
contravention of ERISA and the Code;
(vi) Any Plan complies currently, and has complied in the past,
both as to form and operation, with its terms and with provisions of the
Code and ERISA, and all applicable regulations thereunder and all rules
issued by the Internal Revenue Service, U.S. Department of Labor and the
PBGC and as such, is and remains a "qualified" plan under the Code;
(vii) No actions, suits or claims are pending (other than routine
claims for benefits) against any Plan, or the assets of any such Plan;
(viii) The Companies have performed all obligations required to be
performed by it under any Plan and the Companies are not in default, or in
violation of any Plan, and have no knowledge of any such default or
violation by any other party to any and all Plans;
(ix) No liability has been incurred by any of the Companies to the
PBGC or to participants or beneficiaries on account of any termination of a
Plan subject to Title IV of ERISA, no notice of intent to terminate a Plan
has been filed by (or on behalf of) any of the Companies pursuant to Section
4041 of ERISA and no proceeding has been commenced by the PBGC pursuant to
Section 4042 of ERISA;
(x) The reporting and disclosure provisions of the Securities Act
of 1933 and Securities Exchange Act of 1934 have been complied with for all
such Plans.
(n) Deferred Compensation Arrangements. Except as set forth in
Schedule 4.1(n) attached hereto, none of the Companies has entered into
employment contracts or deferred compensation plans, incentive compensation
plans, executive compensation plans, arrangements or commitments (an
"Arrangement"). With respect to any such Arrangement:
(i) Each Arrangement complies currently, and has complied in the
past, both as to form and operation with its terms and the provisions of the
Code and ERISA and all applicable laws, rules and regulations;
(ii) The disclosure and reporting provisions of the Securities Act
of 1933 and the Securities Exchange Act of 1934 have been satisfied;
(iii) Arrangement is legally valid and binding and is in full force
and effect;
(iv) The Companies have made all contributions required to be made
under any Arrangement and no contributions are currently due and owing;
(v) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the best of the Companies' knowledge
which could be reasonably expected to be asserted against any Arrangement;
and
(vi) The Companies have performed all obligations required to be
performed by it under any Arrangement and the Companies are not in default
or in violation of, and the Companies have no knowledge of any such default
or violation by any other party to any Arrangements.
(o) Office. Its chief executive office and principal place of
business, and the office where its books and records concerning Collateral
are kept, is as set forth in the first paragraph of this Agreement and as
set forth on Schedule 4.1(p) attached hereto.
(p) Places of Business. It has no other places of business and
locates no Collateral, specifically including books and records, at any
location other than as set forth in the attached Schedule 4.1 (p) attached
hereto. It shall locate a full and complete set of its books and records in
its offices at the chief executive office described in the immediately
preceding paragraph.
(q) Contingent Liabilities. Except as set forth in the Borrower's
Form 10KSB filed with the SEC for the period ending December 31, 1994, it is
not a party to any suretyship, guarantyship, or other similar type
agreement, nor has it offered its endorsement to any individual, concern,
corporation or other entity or acted or failed to act in any manner which
would in any way create a contingent liability that does not appear in the
financial statements referred to hereinbefore. It is not a party to any
joint venture except as set forth on Schedule 6.16 attached hereto.
(r) Contracts. No contract, governmental or otherwise, to which it is
a party, is subject to renegotiation, nor is it in default of any contract.
(s) Unions and Pensions. It is not a party to any collective
bargaining or union agreement. Such union contracts are in full force and
effect and are not currently subject to renegotiation. It is in full
compliance with the terms and conditions of all such union contracts and
knows of no threatened work stoppage by any union members.
(t) Licenses. It has all licenses, permits and other permissions
required by any government, agency or subdivision thereof, or from any
licensing entity necessary for the conduct of its business, all of which it
represents to be in good standing and in full force and effect.
(u) Collateral. It is and shall continue to be the sole owner of the
Collateral free and clear of all liens, encumbrances, security interests and
claims except the liens granted to Lender hereunder and the security
interests and liens listed on Schedule 4.1(u) attached hereto; Borrower is
fully authorized to sell, transfer, pledge and/or grant a security interest
in each and every item of the Collateral to Lender; all documents and
agreements related to the Collateral shall be true and correct and in all
respects what they purport to be; all signatures and endorsements that
appear thereon shall be genuine and all signatories and endorsers shall have
full capacity to contract; none of the transactions underlying or giving
rise to the Collateral shall violate any applicable state or federal laws or
regulations; all documents relating to the Collateral shall be legally
sufficient under such laws or regulations and shall be legally enforceable
in accordance with their terms; and Borrower agrees to defend the Collateral
against the claims of all persons other than Lender.
(v) Tradenames. It does not have any tradenames other than those
listed on Schedule 4.1(v) attached hereto.
(w) Financial Information. All financial information including, but
not limited to, information relating to the Receivables and Inventory,
submitted by it to Lender, whether previously or in the future, is and will
be true and correct in all material respects, and is and will be complete
insofar as may be necessary to give it true and accurate knowledge of the
subject matter.
(x) Parent, Affiliate or Subsidiary Corporations. Borrower has no
parent corporation or subsidiary corporations. Borrower is currently in the
process of obtaining a 50% interest in Bejing Antai Communication Equipment
Co., Ltd.
(y) Environmental Matters.
(i) Except as set forth on Schedule 4.1(y)(i) attached hereto, to
the best of its knowledge, it has obtained all permits, licenses and other
authorizations which are required under all Environmental Laws. To the best
of its knowledge, it is in compliance with the terms and conditions of all
such permits, licenses and authorizations, and is also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any
applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(ii) Except as set forth on Schedule 4.1(y)(ii) attached hereto, to
the best of its knowledge, no notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending or threatened by any governmental or other entity with respect to
any alleged failure by it to have any permit, license or authorization
required in connection with the conduct of its business or with respect to
any Environmental Laws, including without limitation, Environmental Laws
relating to the generation, treatment, storage, recycling, transportation,
disposal or release of any Hazardous Materials.
(iii) To the best of its knowledge, no oral or written notification
of a release of a Hazardous Material has been filed by or against Borrower
and no property now or previously owned, leased or used by it including
without limitation, any of the Properties, is listed or proposed for listing
on the Comprehensive Environmental Response, Compensation and Liability
Inventory of Sites or National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
or on any similar state or federal list of sites requiring investigation or
clean-up.
(iv) To the best of its knowledge, there are no liens or
encumbrances arising under or pursuant to any Environmental Laws on any of
the property or properties owned, leased or used by it, including without
limitation, any of the properties owned or leased by it, and no governmental
actions have been taken or are in process which could subject any of such
properties to such liens or encumbrances or, as a result of which Borrower
would be required to place any notice or restriction relating to the
presence of Hazardous Materials at any property owned by it in any deed to
such property.
(v) To the best of its knowledge, it has not (i) engaged in or
permitted any operations or activities upon or any use or occupancy of such
property, or any portion thereof, for the purpose of or in any way involving
the release, discharge, refining, dumping or disposal (whether legal or
illegal, accidental or intentional) of any Hazardous Materials on, under, or
in or about such property, or (ii) transported or had transported any
Hazardous Materials to such property except to the extent such Hazardous
Materials are raw products commonly used in day-to-day manufacturing
operations of such property and, in such case, in compliance with, all
Environmental Laws; (iii) engaged in or permitted any operations or
activities which would allow the facility to be considered a treatment,
storage or disposal facility as that term is defined in 40 CFR 264 and 265,
(iv) engaged in or permitted any operations or activities which would cause
any of the Properties to become subject to The Connecticut Transfer Act,
Section 22a-134 et seq. C.G.S., or (v) constructed, stored or otherwise
located Hazardous Materials on, under, in or about any such property except
to the extent commonly used in day-to-day operations of any such property
and, in such case, in compliance with all Environmental Laws. Further, to
the best knowledge of Borrower, no Hazardous Materials have migrated from
other properties upon, about or beneath any such property.
(z) Use of Proceeds. It will use the proceeds of the Loans solely (i)
to satisfy in full loans outstanding to Fleet Bank, N.A. on the date hereof
and (ii) for working capital purposes.
ARTICLE V
Conditions of Lending
Section 5.1 Conditions of the Initial Loan. Subject to the terms
hereof, the obligation of Lender to make the first Revolving Loan under this
Agreement is subject to the fulfillment of the following conditions
precedent at the time of the execution of this Agreement:
(a) Note. Lender shall have received a duly executed Revolving Loan
Note drawn to its order.
(b) Evidence of Corporate Action. Lender shall have received
certified copies of all corporate action (in form and substance satisfactory
to Lender) taken by Borrower to authorize the execution, delivery and
performance of this Agreement, the Note, and the other Financing Agreements
to which it is a party, and the borrowings to be made hereunder and
thereunder, together with true copies of Borrower's Certificate of
Incorporation and By-laws and such other papers as Lender or its counsel may
require.
(c) Opinion of Counsel. Lender shall have received a favorable
written opinion of counsel for Borrower and the Fidelity Guarantor, and
accompanied by such supporting documents as Lender or its counsel may
require.
(d) Fidelity Guaranty. Lender shall have received a duly executed
fidelity guaranty (the "Fidelity Guaranty") from George J. Taylor, Jr. (the
"Fidelity Guarantor"). The Fidelity Guaranty shall be in form, scope and
substance satisfactory to Lender.
(e) Lessor's Agreement. Borrower shall cause to be delivered to
Lender a lessor's agreement with respect to the Premises (the "Lessor's
Agreement") in form, scope and substance satisfactory to Lender.
(f) UCC-1 Financing Statements. Lender shall have received from
Borrower duly executed UCC-1 financing statements and such other documents
as Lender deems necessary or proper to perfect the security interest in the
Collateral, all of which shall be in form, scope and substance satisfactory
to Lender and its counsel.
(g) Notice of Assignment and Post Office Box Change of Address Cards.
Lender shall have received notices of assignment and post office change of
address cards from Borrower, which shall be in form, scope and substance
satisfactory to Lender and its counsel.
(h) Further Documents. Lender shall have received such further
documents, instruments and agreements as Lender may request, including
without limitation, landlord's agreements, warehouse agreements, and
evidence that the insurance policies and certificates evidencing adequate
insurance and coverage on each of Borrower's assets are currently in full
force and effect, continue to name Lender as loss payee or additional
insured, as the case may be, and that the premiums are current.
Section 5.2 Conditions of Additional Revolving Loans. In addition to
the conditions in Section 5.1 above, Lender shall make no further Revolving
Loans (collectively, the "Further Loans") unless the following conditions
shall exist or have been satisfied by Borrower at the time any Further Loan
is requested:
(a) Absence of Termination or Default. Lender shall not have
terminated the Revolving Loan facility hereunder, nor shall a Defaulting
Event exist or have occurred.
(b) Compliance Certificates. On the date of each Revolving Loan
hereunder and after giving effect thereto, Borrower shall have delivered to
Lender, upon Lender's request, a certificate executed by its chief financial
officer or, in his absence, the chief executive officer or corporate
controller, which shall state, among other things, that: (i) Borrower has
complied, and is then in compliance, with all the terms, covenants and
conditions of this Agreement and the other Financing Agreements which are
binding upon it; (ii) there exists no Event of Default or Defaulting Event;
and (iii) the representations and warranties contained herein and in the
other Financing Agreements are true and correct with the same effect as
though such representations and warranties had been made at the time of each
Further Loan, except to the extent that they relate solely to a prior date
or specific prior event.
(c) Borrowing Base. The indebtedness of Borrower by virtue of the
making of any Revolving Loan shall not exceed the Borrowing Base. Borrower
shall not request any Revolving Loan if the effect of such Revolving Loan
shall be to cause the balance of all Revolving Loans to exceed the Borrowing
Base.
(d) Further Documents. Lender shall have received such further
documents, instruments and agreements as Lender may reasonably request.
ARTICLE VI
Covenants
A. Affirmative Covenants.
Borrower covenants and agrees that from the date hereof until payment
and performance in full of all Obligations, and until the termination of
this Agreement, unless Lender otherwise consents in writing, Borrower shall:
Section 6.1 Financial Statements. Deliver or caused to be delivered
to Lender: (a) within twenty (20) days after the close of each fiscal month
of Borrower, and within forty-five (45) days of each fiscal quarter of
Borrower, internally prepared financial statements of Borrower including
balance sheets as of the close of each month or quarter, as applicable, and
statements of income and retained earnings for such month or quarter, as
applicable, and for that portion of the fiscal year-to-date then ended,
which shall be prepared on a basis consistent with that of the preceding
period or containing disclosure of the effect on financial condition or
results of operations, and which shall be certified by the chief financial
officer of Borrower as being accurate and fairly presenting the financial
condition of Borrower; (b) within ninety (90) days after the close of each
fiscal year of Borrower, audited financial statements including a balance
sheet as of the close of such fiscal year and statements of income,
stockholders' capital and cash flow for the year then ended, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on financial condition or results of operations of any change in the
application of accounting principles during the year, and accompanied by a
report thereon containing an unqualified opinion of a recognized certified
public accounting firm selected by Borrower and reasonably satisfactory to
Lender, which opinion shall state that such financial statements fairly
present the financial condition and results of operations of Borrower in
accordance with generally accepted accounting principles; (c) at least
thirty (30) days prior to the close of each fiscal year of Borrower,
internally prepared drafts of annual projections of Borrower, in form, scope
and substance satisfactory to Lender; (d) within fifteen (15) days of the
close of each month, monthly agings of accounts receivable and accounts
payable and inventory status reports and monthly reconciliation reports,
including ineligible collateral calculations in form, scope and substance
satisfactory to Lender; (e) daily bulk sales and collection reports
accompanied by a copy of the Borrower's sales and cash receipts journal; (f)
contemporaneously with the delivery to shareholders or governmental
agencies, copies of all reports and information delivered to shareholders or
filed with governmental agencies; (g) promptly upon Lender's written
request, such other information about the financial condition and operations
of Borrower or the Fidelity Guarantor, as Lender may, from time to time,
reasonably request; and (h) promptly upon becoming aware of any Event of
Default, or the occurrence or existence of a Defaulting Event, notice
thereof in writing.
Section 6.2 Insurance and Endorsements. (a) Keep its properties and
cause the Premises to be insured against fire and other hazards (so-called
"All Risk" coverage) in amounts and with companies satisfactory to Lender to
the same extent and covering such risks as is customary in the same or a
similar business; maintain public liability coverage, including without
limitation, products liability coverage, against claims for personal
injuries or death; and maintain all worker's compensation, employment or
similar insurance as may be required by applicable law; and (b) all
insurance shall contain such terms, be in such form, and be for such periods
reasonably satisfactory to Lender, and be written by such carriers duly
licensed by the appropriate states where any Collateral is located and
reasonably satisfactory to Lender. Without limiting the generality of the
foregoing, such insurance must provide that it may not be cancelled without
thirty (30) days' prior written notice to Lender. Borrower shall cause
Lender to be endorsed as a loss payee with a long form Lender's Loss Payable
Clause, in form and substance acceptable to Lender on all such insurance. In
the event of failure to provide and maintain insurance as herein provided,
Lender may, at its option, provide such insurance and charge the amount
thereof to the Revolving Loan Account. Borrower shall furnish to Lender
certificates or other satisfactory evidence of compliance with the foregoing
insurance provisions. Borrower hereby irrevocably appoints Lender as its
attorney-in-fact, coupled with an interest, to upon demand for payment of
the Revolving Loan or upon the occurrence of any Event of Default, make
proofs of loss and claims for insurance, and to receive payments of the
insurance and execute and endorse all documents, checks and drafts in
connection with payment of the insurance. Any insurance proceeds received by
Lender shall be applied to the Obligations in such order and manner as
Lender shall determine in its sole discretion.
Section 6.3 Tax and Other Liens. Comply with all statutes and
government regulations and pay all taxes, assessments, governmental charges
or levies, or claims for labor, supplies, rent and other obligations made
against it or its property which, if unpaid, might become a lien or charge
against Borrower or its properties, except liabilities being contested in
good faith and against which, if requested by Lender, Borrower shall set up
reserves in amounts and in form satisfactory to Lender.
Section 6.4 Place of Business. Maintain its chief place of business
and chief executive offices at the address set forth in the opening hereof
unless Borrower shall have given Lender thirty (30) days' prior written
notice of any change in such place of business.
Section 6.5 Inspections. Allow Lender by or through any of its
officers, attorneys, and/or accountants designated by it, for the purpose of
ascertaining whether or not each and every provision hereof and of any
related agreement, instrument and document is being performed, to enter the
offices and plants of Borrower to examine or inspect any of the properties,
books and records or extracts therefrom, to make copies of such books and
records or extracts therefrom and to make complete environmental studies
and/or investigations, and to discuss the affairs, finances and accounts
thereof with Borrower all at such reasonable times, upon reasonable notice
and as often as Lender or any representative of Lender may reasonably
request.
Section 6.6 Litigation. Promptly advise Lender of the commencement or
threat of litigation, including arbitration proceedings and any proceedings
before any governmental agency (but excluding product liability claims which
are either fully covered by insurance or adequately covered by insurance and
which is not likely to have a material adverse effect on the business,
assets or condition (financial or otherwise) of Borrower), which is
instituted against Borrower or, upon receipt of any information pertaining
thereto, the Fidelity Guarantor and is reasonably likely to have a
materially adverse effect upon the condition, financial, operating or
otherwise, of Borrower or the Fidelity Guarantor.
Section 6.7 Maintenance of Existence. Maintain its corporate
existence and comply with all valid and applicable statutes, rules and
regulations, and maintain its properties in good repair, working order and
operating condition. Borrower shall immediately notify Lender of any event
causing material loss in the value of its assets.
Section 6.8 Inventory. Allow Lender to examine and inspect the
Inventory at reasonable times and intervals and with reasonable notice.
Borrower shall immediately notify Lender of any event causing material
uninsured loss or depreciation in value of Inventory and the amount of such
loss or depreciation.
Section 6.9 ERISA. Immediately notify Lender of any event which
causes it not to be in compliance in all material respects with ERISA.
Section 6.10 Notice of Certain Events. Give prompt written notice to
Lender of:
(a) any material dispute that may arise between Borrower and any
governmental regulatory body or law enforcement agency;
(b) any labor controversy resulting or likely to result in a strike
or work stoppage against Borrower;
(c) any proposal by any public authority to acquire the assets or
business of Borrower;
(d) the location of any Collateral other than at Borrower's places of
business disclosed in this Agreement and other than as set forth on Schedule
4.1(p) attached hereto, other than Collateral in transit in the ordinary
course of Borrower's business;
(e) any proposed or actual change of the name, identity or corporate
structure of Borrower;
(f) any circumstance or event by virtue of which or in connection
with which Borrower may have incurred or may incur any liability, expense or
responsibility under any Environmental Law including, without limitation:
(i) any Release of any Hazardous Material required to be reported to any
federal, state or local governmental authority, instrumentality or agency
under any applicable Environmental Laws; (ii) any and all written
communications with respect to claims or suits under any applicable
Environmental Laws or any Release of Hazardous Materials required to be
reported to any federal, state or local governmental authority,
instrumentality or agency; (iii) any remedial action taken by Borrower or
any other person in response to (A) any Hazardous Materials on, under or
about the properties or assets of Borrower, the existence of which may give
rise to a claim or suit resulting in a material change of Borrower's
business operations or financial condition, or (B) any claim or suit
resulting in a material change of Borrower's business operations or
financial condition; (iv) Borrower's discovery of any occurrence or
condition on any real property adjoining or in the vicinity of Borrower's
business premises which may cause such premises to be in violation of the
Environmental Laws or to be subject to any restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws; and
(v) any request for information from any federal, state or local
governmental authority, instrumentality or agency that indicates such entity
is investigating Borrower's potential responsibility for a Release of
Hazardous Materials
(g) any other matter which has resulted or is reasonably likely to
result in a material adverse change in the financial condition or operations
of Borrower;
(h) any information received by Borrower with respect to any
Receivable that may materially affect the value thereof or the rights and
remedies of Lender with respect thereto; and
(i) any action, suit or claim pending or which could be reasonably
expected to be asserted against Borrower.
Section 6.11 Defaults. Upon the occurrence of an Event of Default or
of a Defaulting Event, give prompt written notice of such occurrence to
Lender signed by the president or chief financial officer of Borrower
describing such occurrence and the steps, if any, being taken to cure the
Event of Default or Defaulting Event.
Section 6.12 Duties. Borrower has complied and will continue to
comply with any and all federal, state and local laws affecting its
business, including, but not limited to, payment of all federal and state
taxes with respect to the sales to Account Debtors by Borrower and
disclosures in connection therewith. Borrower agrees to indemnify Lender
against and hold Lender harmless from, all claims, actions and losses,
including reasonable attorney's fees and costs incurred by Lender arising
from any contention, whether well founded or otherwise, that there has been
a failure to comply with such laws.
Section 6.13 Collateral Duties. Do whatever Lender may reasonably
request from time to time by way of obtaining, executing, delivering and
filing financing statements, assignments, landlord's or mortgagee's waivers,
warehouse agreements and other notices and amendments and renewals thereof,
and Borrower will take any and all steps and observe such formalities as
Lender may request, in order to create and maintain a valid and enforceable
first lien upon, pledge of, and first (except as set forth in Schedule
4.1(i) attached hereto) priority security interest in, any and all of the
Collateral. Lender is authorized to file financing statements without the
signature of Borrower and to execute and file such financing statements on
behalf of Borrower as specified by the Uniform Commercial Code to perfect or
maintain its security interest in all of the Collateral. All reasonable
charges, expenses and fees Lender may incur in filing any of the foregoing,
together with reasonable costs and expenses of any lien search required by
Lender, and any taxes relating thereto, shall be charged to the Revolving
Loan Account and added to the Obligations.
Section 6.14 Audit and Appraisals by Lender; Fees. Permit Lender to
audit the books and records of Borrower and to conduct or cause to be
conducted appraisals of Borrower's assets at such times, upon reasonable
notice, and in such manner and detail as Lender deems reasonable. Without
limiting the generality of the foregoing, Lender shall be allowed to verify
the Receivables and Inventory of Borrower and to confirm with Account
Debtors the validity and amount of Receivables. Borrower shall promptly pay
to Lender reasonable audit fees of $500.00 per man per day and any out-of-
pocket expenses incurred in connection with any audit performed. So long as
Lender has not made demand of the Revolving Loan and no Event of Default has
occurred, Borrower shall not be responsible for paying for more than four
(4) audits per calendar year or more than $2,500 per audit. In addition,
Borrower shall promptly pay or reimburse Lender for the costs of any such
appraisals conducted by or for Lender. Lender may charge any such audit fees
and out-of-pocket expenses to the Revolving Loan Account.
B. Negative Covenants.
Borrower covenants and agrees that from the date hereof until payment
and performance in full of all Obligations, and until the termination of
this Agreement, unless Lender otherwise consents in writing, Borrower shall
not:
Section 6.15 Encumbrances. Incur or permit to exist any lien,
mortgage, charge or other encumbrance against any of its properties or
assets, whether now owned or hereafter acquired, except: (a) liens required
or expressly permitted by this Agreement; (b) pledges or deposits in
connection with or to secure worker's compensation, unemployment or
liability insurance; and (c) those listed on Schedule 6.15 attached hereto.
Section 6.16 Limitation on Indebtedness. Except as set forth in
numbers 1 and 2 on Schedule 6.16 attached hereto, create, incur or guarantee
any indebtedness or obligation for borrowed money (including without
limitation, any reimbursement obligations for any letter of credit issued by
any financial institution) from, or issue or sell any of its obligations to
any lender.
Section 6.17 Contingent Liabilities. Except as set forth in numbers 1
and 2 on Schedule 6.16 attached hereto, assume, guarantee, endorse or
otherwise become liable upon the obligations of any person, firm or
corporation, or enter into any purchase or option agreement or other
arrangement having substantially the same effect as such a guarantee, except
by the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business.
Section 6.18 Consolidation or Merger. Merge into or consolidate with
or into any corporation.
Section 6.19 Loans, Advances, Investments. Except as set forth in
numbers 1 and 2 on Schedule 6.16 attached hereto, make or permit to exist
any loans or advances to, or purchase any stock, other securities or
evidences of indebtedness of, or make or permit to exist any investment
(including without limitation the acquisition of stock of a corporation), or
acquire any assets or any other interest whatsoever, in any other person.
Section 6.20 Acquisition of Stock of Borrower; Dividends. Purchase,
acquire, redeem or retire, or make any commitment to purchase, acquire,
redeem or retire any of the capital stock of Borrower, whether now or
hereafter outstanding, or declare or pay any dividend, or make any
distribution to any of its stockholders.
Section 6.21 Sale and Lease of Assets. Sell or lease, except for
sales or leases or rentals of inventory in the ordinary course of business
consistent with past practices and on an arms-length basis; provided,
however, that Borrower may become obligated as lessee under leases covering
equipment having an aggregate cost not to exceed $125,000.
Section 6.22 Name Changes. Change its corporate name or conduct its
business under any trade name or style other than as set forth in this
Agreement.
Section 6.23 Prohibited Transfers. Except as set forth in numbers 1
and 2 on Schedule 6.16 attached hereto transfer, in any manner, either
directly or indirectly, any cash, property, or other assets to any parent or
any of its affiliates or Subsidiaries, other than sales made in the ordinary
course of business and for fair consideration on terms no less favorable
than if such sale had been an arms-length transaction between Borrower or
such Subsidiary and an unaffiliated entity.
Section 6.24 No Management Change. Suffer any change in the senior
management of Borrower from that set forth in the Borrower's Form 10KSB
filed with the SEC for the period ending December 31, 1994.
Section 6.25 Leasebacks. Lease any real estate or other capital asset
from any lessor who shall have acquired such property from Borrower.
Section 6.26 Loans to Officers, Directors and/or Shareholders. Make
any loans or advances or make any transfers, in any manner, of any cash,
property or other assets to or on behalf of any of its officers, directors
or shareholders, except for salaries, commissions, bonuses and expense
reimbursements in the ordinary course of Borrower's business and as set
forth on Schedule 6.26 attached hereto.
ARTICLE VII
Collateral
Section 7.1 Grant. To secure the prompt payment and performance of
each and all of the Obligations, Borrower pledges, assigns, transfers and
grants to Lender a continuing, first (except as set forth in
Schedule 4.1(i) attached hereto) lien security interest in the following
property of Borrower (herein called the "Collateral"):
(a) All accounts and accounts receivable related to or arising from
the sale or lease of inventory or rendition of services by Borrower (the
"Accounts") and all other accounts, bank accounts, contracts, contract
rights, notes, documents, chattel paper, instruments, acceptances, drafts or
other forms of obligations and receivables (collectively with Accounts, the
"Receivables"), whether or not the same are listed on any schedules,
assignments or reports furnished to Lender from time to time, and whether
such Receivables are now existing or are created or arise at any time
hereafter, together with all goods, inventory and merchandise returned by or
reclaimed by or repossessed from customers wherever such goods, inventory
and merchandise are located, and all proceeds thereto including without
limitation, proceeds of insurance thereon and all guaranties, securities,
and liens which Borrower may hold for the payment of any such Receivables,
including without limitation, all rights of stoppage in transit, replevin
and reclamation and all other rights and remedies of an unpaid vendor or
lienor, and any liens held by Borrower as a mechanic, contractor,
subcontractor, processor, materialman, machinist, manufacturer, artisan, or
otherwise;
(b) All documents, instruments, documents of title, general
intangibles, policies and certificates of insurance, guaranties, securities,
chattel paper, deposits, tax returns, proceeds of insurance, proceeds of an
eminent domain or condemnation award, cash, liens or other property, which
are now or may hereinafter be in the possession of Borrower or as to which
Borrower may now or hereafter control possession by documents of title or
otherwise, including, but not limited to, all property allocable to
unshipped orders relating to Receivables and Inventory;
(c) All books, records, customer lists, supplier lists, ledgers,
evidences of shipping, invoices, purchase orders, sales orders and all other
evidences of Borrower's business records, including all cabinets, drawers,
etc. that may hold the same; computer records, lists, software, programs,
wherever located, all whether now existing or hereafter arising or acquired;
(d) All of Borrower's inventory, whether now owned or hereafter
acquired, including without limitation (collectively herein called the
"Inventory"): (i) all goods manufactured or acquired for sale or lease, and
any piece goods, raw materials, work in process and finished merchandise,
findings or component materials, and all supplies, goods, incidentals,
office supplies, packaging materials, and any and all items including
machinery and equipment used or consumed in the operation of the business of
Borrower or which contribute to the finished product or to the sale,
promotion and shipment thereof, in which Borrower now or at any time
hereafter may have an interest, whether or not such inventory is listed in
this Agreement on any reports furnished to Lender from time to time; (ii)
all inventory whether or not the same is in transit or in the constructive,
actual or exclusive occupancy or possession of Borrower or is held by
Borrower or by others for the Accounts, including without limitation, all
goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers; (iii) all inventory which may be located on
premises of Borrower or of any carrier, forwarding agents, truckers,
warehousemen, vendors, selling agents or third parties; (iv) all general
intangibles relating to or arising out of inventory; (v) all proceeds and
products of the foregoing resulting from the sale, lease or other
disposition of inventory, including cash, accounts receivable, other non-
cash proceeds and trade-ins; and (vi) with respect to after-acquired
inventory, the security interest shall be deemed to be a purchase money
security interest;
(e) All general intangibles, including without limitation, tax
refunds, proceeds of insurance, eminent domain awards, condemnation
proceeds, and patents, copyrights, tradenames, trademarks, applications
therefor, and licenses to any patent, copyright, trademark, or tradename
that Borrower now owns, has the right to use or may hereafter own or acquire
the right to use;
(f) All equipment, machinery, appliances, and furniture and fixtures,
now existing or hereafter arising, wherever located, and all contracts,
contract rights and chattel paper arising out of any lease of any of the
foregoing;
(g) All other collateral in which Borrower may hereafter grant to
Lender a security interest; and
(h) All renewals, substitutions, replacements, additions, accessions,
proceeds, and products of any and all of the foregoing.
ARTICLE VIII
Events of Default
Section 8.1 Events of Default. Without affecting the demand nature of
the Revolving Loan which shall at all times be due and payable on demand,
any and all Obligations, including without limitation, the Obligations
arising pursuant to or in connection with the Loans shall, at the option of
Lender and notwithstanding any time or credit allowed by any note or
agreement, become immediately due and payable without notice if any one or
more of the following events (herein called "Events of Default" and
individually, an "Event of Default") shall occur:
(a) Borrower's failure to pay principal, interest or any other sum
due hereunder or under the Note;
(b) Borrower's failure to pay or perform when due any other covenant,
duty, indebtedness, liability or obligation arising under this Agreement,
the Note or any of the other Financing Agreements, or any other Obligation,
or such failure by any Fidelity Guarantor (provided, however, that the
Borrower's failure to perform any of the obligations set forth in Sections
6.3, 6.6, 6.7 or 6.12 hereof shall not constitute an Event of Default
hereunder unless and until such failure continues for thirty (30) days or
more);
(c) the making by Borrower or any Fidelity Guarantor of any
misrepresentation of a material fact to Lender;
(d) loss, theft, or destruction of any Collateral in excess of One
Hundred Fifty Thousand ($100,000.00) Dollars in value which is not covered
by insurance with Lender's loss payee endorsement as required herein;
(e) the filing, making or issuance of any lien, levy, seizure,
attachment, garnishment, injunction, execution, tax lien or judgment upon or
against Borrower or any of the Collateral, or any other property or assets
of Borrower if the amount in dispute is in excess of $100,000 and is not
stayed or bonded within thirty (30) days of filing, making or issuance
thereof;
(f) any of the following of, by, or involving Borrower or any
Fidelity Guarantor: insolvency (failure to pay debts as they mature or where
the fair value of assets is not in excess of liabilities); business failure;
appointment of a receiver or custodian; assignment for the benefit of
creditors; calling of a meeting of creditors; appointment of a committee of
creditors, or liquidating banks, or offering of a composition extension to
creditors; or the commencement of any proceedings under any bankruptcy or
insolvency law;
(g) Borrower's failure to keep the Collateral insured against loss by
fire or otherwise for the full insurable value thereof with companies and
for coverages (including Lender's Long Form Loss Payable Endorsement)
acceptable to Lender making the loss, if any, payable to Lender;
(h) the loss, revocation or failure to renew any license and/or
permit now held or hereafter acquired by Borrower which materially affects
the ability of Borrower to continue its operations as presently conducted;
(i) the occurrence of a default or event of default (howsoever
defined) under any other agreements between Lender and the Fidelity
Guarantor; or
(j) the declaration of a default under any obligation of Borrower to
any other creditor.
Upon the occurrence of any Event of Default, at the option of Lender:
(x) any and all Obligations, including without limitation the Obligations
arising from or in connection with the Loans, shall become immediately due
and payable, and (y) Borrower's eligibility to request any Further Revolving
Loans shall automatically and immediately terminate, without presentment,
demand, protest, notice of protest or other notice or requirements of any
kind, all of which Borrower expressly waives. Notwithstanding the foregoing
sentence, if any Event of Default under clause (f) occurs, the acceleration
of Obligations and termination of Borrower's eligibility to request Further
Revolving Loans shall be automatic.
Thereafter, Lender may proceed to enforce the rights of Lender whether
by suit in equity or by action at law, whether for specific performance of
any covenant or agreement contained in this Agreement, the Note or the other
Financing Agreements, or in aid of the exercise of any power granted in
either this Agreement or the Note or any other Financing Agreement, or it
may proceed to obtain judgment or any other relief whatsoever appropriate to
the enforcement of such rights, or proceed to enforce any legal or equitable
right which Lender may have by reason of the occurrence of any Event of
Default hereunder.
ARTICLE IX
Collection of Receivables
Section 9.1 Deposits. Until Lender exercises its rights to collect
the Receivables as provided for in this Agreement, Borrower shall continue
direct collection of all Receivables. All collections and other proceeds of
Receivables Borrower receives shall be received in trust for Lender and
Borrower shall: keep all such collections separate and apart from all of its
other funds and property; identify such collections and proceeds as the
property of Lender; and turn over the same to the Lender immediately upon
receipt in the identical form received.
Section 9.2 Schedule. All collections of Receivables shall be set
forth on a schedule in form and substance satisfactory to Lender.
Collections of Receivables shall be credited to the Obligations of Borrower
on the day of actual receipt by Lender; provided, however, that all credits
shall be conditional credits subject to collection and that returned items,
at Lender's option, may be charged to Borrower; and further provided that
for purposes of the computation of interest, items shall not be deemed to be
collected until two (2) days after their actual receipt by Lender.
ARTICLE X
Returned Merchandise
Section 10.1 Procedures. Until Lender exercises its rights to collect
the Receivables as provided for in this Agreement, Borrower may continue its
present policies for returned merchandise and adjustments, but shall
promptly notify Lender of any credits, adjustments or disputes arising about
the goods or services represented by Receivables. In any event, Borrower
will immediately pay Lender from its own funds (and not from the proceeds of
Receivables), for application to the Revolving Loans, an amount equal to any
credit or adjustment made to any Eligible Accounts; provided, however, that
so long as Borrower is not in default hereunder, such payment need not be
made if Borrower shall have, after making such credit or adjustment,
sufficient Receivables to maintain the aggregate outstanding balance of the
Revolving Loans under the Borrowing Base.
ARTICLE XI
Rights and Remedies of Lender
Section 11.1 Remedies of Lender. Upon Lender's demand for payment of
the Revolving Loan or upon the occurrence of any Event of Default, Lender
shall have in any jurisdiction where enforcement hereof is sought, in
addition to all other rights and remedies which Lender may have under law
and equity, the following rights and remedies, all of which may be exercised
with or without further notice to Borrower and without a prior judicial or
administrative hearing, which notice and hearing are expressly waived: to
occupy any of Borrower's premises for up to six (6) months rent free for the
purposes of liquidating Collateral, including without limitation, conducting
an auction thereon; to enforce or foreclose the liens and security interests
created under this Agreement or under any other agreement relating to
Collateral by any available judicial procedure or without judicial process;
to enter any premises where any Collateral may be located for the purpose of
taking possession or removing the same; to sell, assign, lease, or otherwise
dispose of Collateral or any part thereof, either at public or private sale,
in lots or in bulk, for cash, on credit or otherwise, with or without
representations or warranties, and upon such terms as shall be acceptable to
Lender, all at Lender's sole option and as Lender in its sole discretion may
deem advisable; to bid or become purchaser at any such sale if public; and,
at the option of Lender, to apply or be credited with the amount of all or
any part of the Obligations owing to Lender against the purchase price bid
by Lender at any such sale.
Section 11.2 Specific Powers. Lender may at any time after the
occurrence of a demand for payment of the Revolving Loan or an Event of
Default, at Lender's sole discretion: (i) give notice of assignment to any
Account Debtor; (ii) collect Receivables directly and charge, or cause to be
charged, the collection costs and expenses to the Revolving Loan Account;
(iii) collect receivables submitted by Borrower to Lender for collection and
charge, or cause to be charged, the collection costs and expenses to the
Revolving Loan Account; (iv) settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Lender considers
advisable, and credit, or cause to be credited, the Revolving Loan Account
with the net amounts received in payment of Receivables; (v) exercise all
other rights granted in this Agreement and the other Financing Agreements;
(vi) receive, open and dispose of all mail addressed to Borrower and notify
the Post Office authorities to change the address for delivery of Borrower's
mail to an address designated by Lender; (vii) endorse the name of Borrower
on any checks or other evidence of payment that may come into possession of
Lender and on any invoice, freight or express bill, bill of lading or other
document; (viii) in the name of Borrower or otherwise, demand, sue for,
collect and give acquittance for any and all monies due or to become due on
Receivables; (ix) compromise, prosecute or defend any action, claim or
proceeding concerning Receivables; and (x) do any and all things necessary
and proper to carry out the purposes contemplated in this Agreement, the
other Financing Agreements and any other agreement between the parties.
Neither Lender nor any person acting as its attorney hereunder shall be
liable for any acts or omissions or for any error of judgment or mistake of
fact or law, except for bad faith, willful misconduct or gross negligence.
Borrower agrees that the powers granted hereunder, being coupled with an
interest, shall be irrevocable so long as any Obligation remains
unsatisfied. Notwithstanding the foregoing, it is understood that Lender is
under no duty to take any of the foregoing actions and that after having
made demand upon the Account Debtors for payment, Lender shall have no
further duty as to the collection or protection of Receivables or any income
therefrom and no further duty to preserve any rights pertaining thereto,
other than the safe custody thereof.
Section 11.3 Duties After Demand or Default. Borrower will, at
Lender's request, assemble all Collateral and make it available to Lender at
places which Lender may reasonably select, whether at the premises of
Borrower or elsewhere and will make available to Lender all premises and
facilities of Borrower for the purpose of Lender taking possession of
Collateral or of removing or putting the Collateral in salable form. In the
event any goods called for in any sales order, contract, invoice or other
instrument or agreement evidencing or purporting to give rise to any
Receivable shall not have been delivered or shall be claimed to be defective
by any customer, Lender shall have the right in its discretion to use and
deliver to such customer any goods of Borrower to fulfill such order,
contract or the like so as to make good any such Receivable. If any
Collateral shall require repairing, maintenance, preparation, or the like,
or is in process or other unfinished state, Lender shall have the right, but
shall not be obligated, to do such repairing, maintenance, preparation,
processing or completion of manufacturing for the purpose of putting the
same in such salable form as Lender shall deem appropriate, but Lender shall
have the right to sell or dispose of such Collateral without such
processing. The net cash proceeds resulting from the collection,
liquidation, sale, lease or other disposition of Collateral shall be applied
first to the expenses (including all reasonable attorneys' and
professionals' fees) of retaking, holding, storing, processing and preparing
for sale, selling, collecting, liquidating and the like and then to the
satisfaction of all Obligations, application as to particular Obligations or
against principal or interest to be at Lender's sole discretion, and then,
upon full and final payment of the Obligations, and unless otherwise
prohibited by court order or law, to Borrower, it being agreed that if any
such payment made to Lender is recovered from or repaid by Lender in whole
or in part in any bankruptcy, insolvency or similar proceeding instituted by
or against Borrower, this Agreement automatically shall be reinstated
without any further action by Borrower and Lender. Borrower shall be liable
to Lender and shall pay to Lender on demand any deficiency which may remain
after such sale, disposition, collection or liquidation of Collateral.
Section 11.4 Cumulative Remedies. The enumeration of Lender's rights
and remedies set forth in this Article is not intended to be exhaustive and
the exercise by Lender of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative
and shall be in addition to any other right or remedy given hereunder or
under any other agreement between the parties or which may now or hereafter
exist in law or at equity or by suit or otherwise. No delay or failure to
take action on the part of Lender in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or
shall be construed to be a waiver of any Event of Default. No course of
dealing between Borrower and Lender or its employees shall be effective to
change, modify or discharge any provision of this Agreement or to constitute
a waiver of any Event of Default.
ARTICLE XII
Term
Section 12.1 Term and Termination.
(a) Revolving Loan. Unless sooner terminated by Lender as a result of
the occurrence of a demand, an Event of Default, or a Defaulting Event,
Borrower's eligibility to request Revolving Loans shall commence on the date
hereof and shall continue for a period through and including May 31, 1996
(the "Term"), and shall thereafter be automatically extended for successive
periods of one (1) year (each being a "Renewal Term"). Either Borrower or
Lender may, however, terminate this Agreement at the expiration of the Term
or during any Renewal Term, provided it gives the other not less than sixty
(60) days' prior written notice of its intention to so terminate. At the end
of the Term (or at the end of a Renewal Term, if applicable), Borrower shall
pay the entire balance of the Revolving Loans and all other outstanding
Obligations, including without limitation, the Minimum Interest Amount.
Further, upon termination of the Revolving Loan facility, all of the rights,
interests and remedies of Lender and Obligations of Borrower shall survive
and Borrower shall have no right to receive, and Lender shall have no
obligation to make, any further Revolving Loans. Upon full, final and
indefeasible payment of the Obligations to Lender, all rights and remedies
of Borrower and Lender hereunder shall cease, so long as any payment so made
to Lender and applied to the Obligations is not thereafter recovered from or
repaid by Lender in whole or in part in any bankruptcy, insolvency or
similar proceeding instituted by or against Borrower, whereupon this
Agreement shall be automatically reinstated without any further action by
Borrower and Lender and shall continue to be fully applicable to such
Obligations to the same extent as though the payment so recovered or repaid
had never been originally made on such Obligations.
(b) Termination Fee. In the event that: (a) Borrower attempts to
breach this Agreement by terminating this Agreement prior to the expiration
of the Term (or upon less than 60 days notice during a Renewal Term), or (b)
the Agreement is terminated as a result of the occurrence of an Event of
Default or a Defaulting Event, immediately upon such termination and any
other payments Borrower is required to make hereunder, pay to Lender an
amount equal to interest upon the Minimum Balance at the interest rate in
effect on the date that express written notice of such termination is given
to Secured Party, for the period commencing on the date of written notice of
termination and ending at the end of the Term (or at the end of 60 days, if
such termination notice is given during a Renewal Term) (the "Minimum
Interest Amount"), and any other amounts due from Borrower to Lender prior
to or in connection with any termination of this Agreement, which are not
previously paid, shall be paid by Borrower on or before the effective date
of the termination.
ARTICLE XIII
Miscellaneous
Section 13.1 Indemnification.
(a) In consideration of Lender's execution and delivery of this
Agreement and Lender's making of the Loans hereunder and in addition to all
other obligations of Borrower under this Agreement, Borrower hereby agrees
to defend, protect, indemnify and hold harmless Lender, its successors,
assigns, officers, directors, employees and agents (including without
limitation, those retained in connection with the transactions contemplated
by this Agreement) (collectively, the "Indemnities") from and against any
and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages and expenses in connection therewith
(irrespective of whether any such Indemnities is a party to any action for
which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements as and when incurred (the "Indemnifiable
Liabilities") incurred by the Indemnities or any of them as a result of, or
arising out of, or relating to (i) the execution, delivery, performance or
enforcement of this Agreement and the other Financing Agreements and any
instrument, document or agreement executed pursuant hereto to any of the
Indemnities; (ii) Lender's status as lender to, or creditor of, Borrower; or
(iii) the operation of Borrower's business from and after the date hereof,
including without limitation those arising under any Environmental Laws;
provided, however, that Borrower shall have no obligation to indemnify the
Indemnities under this Subsection 13.1(a) for claims or losses resulting
from the Indemnities bad faith, willful misconduct or gross negligence. To
the extent that the foregoing undertaking by Borrower may be unenforceable
for any reason, Borrower shall make the maximum contribution to the payment
and satisfaction of each of the Indemnifiable Liabilities which is
permissible under applicable law.
(b) Borrower hereby covenants and agrees at all times to indemnify,
hold harmless and defend the Indemnities, whether as secured party in
possession or as successor in interest to Borrower as owner of any personal
property assets located on the real property of Borrower (the "Premises"),
by virtue of any action taken by Lender pursuant to the Loan Documents, the
UCC or otherwise from and against any and all liabilities, losses, damages,
costs, expenses, penalties, fines, causes of action, suits, claims, demands
or judgments, including without limitation, attorneys' fees and expenses,
suffered or incurred in connection with: (i) the Environmental Laws
including without limitation, liens or claims of any federal, state or
municipal government or quasi-governmental agency or any third person,
whether arising under the Environmental Laws or any other federal, state or
municipal law or regulation; (ii) any spill or contamination affecting the
Premises, including without limitation, any Hazardous Substances or other
waste-like or toxic substances located on, under, emanating from or relating
to the Premises from and on and after the date hereof or any portion thereof
or any property contiguous to the Premises from and after the date hereof,
and including without limitation, any loss of value of the Premises as a
result of any such spill or contamination; and (iii) the direct or indirect
installation, use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of any Hazardous
Substances, on, under or about the Premises or any portion thereof, from and
including all consequential damages, the costs of any required or necessary
repair, cleanup or detoxification, and the costs of the preparation and
implementation of any closure, remedial or other required plans; provided,
however, that Borrower shall have no obligation to indemnify the Indemnities
under this Subsection 13.1(b) for claims or losses resulting from the
Indemnified Parties' own negligent action while on the Premises. Further,
the mere fact that such Indemnified Party has been declared an "owner" or
"operator" (as such term is defined in any Environmental Law) resulting from
the Indemnified Party having taking possession of any of the Collateral
(without any negligence on the part of the Indemnified Party) shall not
exonerate Borrower from any claim by the Indemnified Parties seeking such
indemnification.
Section 13.2 Payment Set-Aside. To the extent that Borrower makes a
payment or payments to Lender (whether hereunder, under the Note, or under
the other Financing Agreements) or Lender enforces its security interests or
rights or exercises its right of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise
restored to Borrower, a trustee, receiver or any other person under any law
(including without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action) in each case in connection with any
bankruptcy or similar proceeding involving Borrower, then to the extent of
any such restoration the obligation or part thereof originally intended to
be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or setoff had not
occurred.
Section 13.3 Set-off. Borrower hereby gives Lender a lien and right
of setoff for all its liabilities to Lender upon and against all its
deposits, credits, collateral and property now or hereafter in the
possession or control of Lender or in transit to it. Lender may, upon the
occurrence of any Event of Default or Defaulting Event or both, apply or set
off the same, or any part thereof, to any liability of Borrower to Lender,
even though unmatured.
Section 13.4 Covenants to Survive; Binding Agreement. All covenants,
agreements, warranties and representations made herein, in the Note, in the
other Financing Agreements, and in all certificates or other documents of
Borrower shall survive the advances of money made by Lender to Borrower
hereunder and the delivery of the Note and the other Financing Agreements,
and all such covenants, agreements, warranties and representations shall be
binding upon and inure to the benefit of Lender and its successors and
assigns, whether or not so expressed.
Section 13.5 Cross-Collateralization. All Collateral which Lender may
at any time acquire from Borrower or from any other source in connection
with Obligations arising under this Agreement and the other Financing
Agreements shall constitute collateral for each and every Obligation,
without apportionment or designation as to particular Obligations and that
all Obligations, however and whenever incurred, shall be secured by all
Collateral however and whenever acquired, and Lender shall have the right,
in its sole discretion, to determine the order in which Lender's rights in
or remedies against any Collateral are to be exercised and which type of
Collateral or which portions of Collateral are to be proceeded against and
the order of application of proceeds of Collateral as against particular
Obligations.
Section 13.6 Cross-Default. Borrower acknowledges and agrees that an
Event of Default and/or Defaulting Event under any one of the Financing
Agreements shall constitute an Event of Default or Defaulting Event under
any of the other Financing Agreements.
Section 13.7 Amendments and Waivers. Neither this Agreement, the
Note, the other Financing Agreements, nor any term, covenant or condition
hereof or thereof may be changed, waived, discharged, modified or terminated
except by a writing executed by the parties hereto or thereto. No failure on
the part of Lender to exercise, and no delay in exercising, any right,
remedy or power hereunder or under the Note or the other Financing
Agreements shall preclude any other or future exercise thereof, or the
exercise of any other right, remedy or power.
Section 13.8 Notices. All notices, requests, consents, demands and
other communications hereunder shall be in writing and shall be mailed by
first class mail to the respective parties to this Agreement to the address
set forth in the opening hereof.
Section 13.9 Transfer of Lender's Interest. Borrower hereby agrees
that Lender, in its sole discretion, may freely sell, assign or otherwise
transfer participations, portions, co-lender interests or other interests in
all or any portion of the indebtedness, liabilities or obligations arising
in connection with or in any way related to the financing transactions of
which this Agreement is a part provided that such transferee is a recognized
financial institution. In the event of any such transfer, the transferee
may, in Lender's sole discretion, have and enforce all the rights, remedies
and privileges of Lender. Borrower consents to the release by Lender to any
potential transferee of any and all information (including without
limitation, financial information and Confidential Information, provided
that prior to Lender's release of any Confidential Information, Lender shall
have obtained an agreement in writing from such potential transferee not to
disclose such Confidential Information to any other person or entity except
as otherwise permitted under Section 13.13 hereof) pertaining to Borrower as
Lender, in its sole discretion, may deem appropriate. If such transferee so
participates with Lender in making loans or advances hereunder or under any
other agreement between such Lender and Borrower, Borrower hereby grants to
such transferee and such transferee shall have and is hereby given a
continuing lien and security interest in any money, securities or other
property of Borrower in the custody or possession of such transferee,
including the right of setoff under circumstances consistent with this
Agreement, to the extent of such transferee's participation in the
Obligations of Borrower to Lender.
Section 13.10 Waivers.
(a) BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED HEREBY ARE
COMMERCIAL TRANSACTIONS AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER
MAY DESIRE TO USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THAT LENDER POST
A BOND, WITH OR WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY
BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER. BORROWER
FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF
NONPAYMENT, PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS.
(b) BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART
AND/OR THE ENFORCEMENT OF ANY OF LENDER'S RIGHTS, INCLUDING WITHOUT
LIMITATION, TORT CLAIMS. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER
KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. BORROWER FURTHER
ACKNOWLEDGES THAT LENDER HAS NOT REPRESENTED TO BORROWER THAT THE PROVISIONS
OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
(c) BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS IN (a)
AND (b) ABOVE, KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS.
Section 13.11 Section Headings; Severability; Entire Agreement.
Section and subsection headings have been inserted herein for convenience
only and shall not be construed as part of this Agreement. Every provision
of this Agreement, the Note and the other Financing Agreements is intended
to be severable; if any term or provision of this Agreement, the Note, the
other Financing Agreements, or any other document delivered in connection
herewith shall be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions hereof or thereof shall not in any way be affected or impaired
thereby. All Exhibits and Schedules to this Agreement shall be annexed
hereto and shall be deemed to be part of this Agreement. This Agreement, the
other Financing Agreements, and the Exhibits and Schedules attached hereto
and thereto embody the entire agreement and understanding between Borrower
and Lender and supersede all prior agreements and understandings relating to
the subject matter hereof unless otherwise specifically reaffirmed or
restated herein.
Section 13.12 Governing Law. This Agreement and the other Financing
Agreements, and all transactions, assignments and transfers hereunder and
thereunder, and all the rights of the parties, shall be governed as to
validity, construction, enforcement and in all other respects by the laws of
the State of Connecticut (but not its conflicts of law provisions). Borrower
hereby designates and appoints, without power of revocation, the Secretary
of the State of Connecticut as Borrower's agent upon whom may be served all
process, pleadings, notices or other papers which may be served upon it as a
result of any of its Obligations under this Agreement. Borrower agrees that
the Superior Court for the Judicial District of Hartford or the United
States District Court for the District of Connecticut at Hartford shall have
jurisdiction to hear and determine any claims or disputes pertaining to the
financing transactions of which this Agreement is a part and/or to any
matter arising or in any way related to this Agreement or any other
agreement between Lender and Borrower, and Borrower expressly submits and
consents in advance to such jurisdiction in any action or proceeding.
Section 13.13 Confidentiality. Lender agrees not to disclose to any
third party any information or knowledge it possesses concerning the
Borrower, all of which shall be deemed confidential (the "Confidential
Information") except (a) as otherwise permitted pursuant to Section 13.9
hereof, (b) if compelled by legal process or by an order, judgment or decree
of a court or other governmental authority or competent jurisdiction, (c) in
connection with regulatory compliance, or (d) with employees of Lender and
its parent and affiliates for internal purposes of Lender or with Lender's
accountants.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above
written.
Witnessed:
/s/___________________________ FARMSTEAD TELEPHONE GROUP, INC.
/s/___________________________ By /s/Robert G. LaVigne
Its Vice President
Finance & Admin.
AFFILIATED BUSINESS CREDIT
/s/___________________________ CORPORATION
/s/___________________________ By /s/Charles C. Thomas
Its Vice President
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 5th day of June, 1995, personally
appeared Robert G. LaVigne, known to me to be the VP-Finance & Admin. of
Farmstead Telephone Group, Inc. and that he as such officer, signer and
sealer of the foregoing instrument, acknowledged the execution of the same
to be his free act and deed individually and as such officer, and the free
act and deed of said corporation.
In Witness Whereof, I hereunto set my hand.
/s/___________________________
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 6th day of June, 1995, personally
appeared Charles C. Thomas, known to me to be the Vice President of
Affiliated Business Credit Corporation, and that he as such officer, signer
and sealer of the foregoing instrument, acknowledged the execution of the
same to be his free act and deed individually and as such officer, and the
free act and deed of said corporation.
In Witness Whereof, I hereunto set my hand.
/s/___________________________
Commissioner of the Superior Court
EXHIBIT A
REVOLVING PROMISSORY NOTE
$1,500,000 June 5, 1995
ON DEMAND, for value received, the undersigned, FARMSTEAD TELEPHONE
GROUP, INC., a Delaware corporation ("Maker"), promises to pay to AFFILIATED
BUSINESS CREDIT CORPORATION, or order, ("Lender") at its office at 72 Queen
Street, Southington, Connecticut 06489, or at such other place as the holder
hereof, (including Lender, hereinafter referred to as "Holder") may
designate, the sum of up to ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000), together with interest on the unpaid balance of this Note,
beginning as of the date hereof, before or after maturity or judgment, at
the rate of one and one half of one percentage point (1.5%) per annum above
the Prime Rate on a floating basis, which rate shall be computed and payable
monthly in arrears on the basis of a Three Hundred Sixty (360) day year and
actual days elapsed, together with all taxes levied or assessed on this Note
or the debt evidenced hereby against the Holder, and together with all
costs, expenses and attorneys' and other professional fees incurred in any
action to collect this Note or to enforce or foreclose any mortgage,
security agreement or other agreement securing this Note or to protect or
sustain the lien of said mortgage, security agreement or other agreement or
in any litigation or controversy arising from or connected with said
mortgage, security agreement or other agreement or this Note. The term
"Prime Rate" as used herein shall mean the Prime Rate as published from time
to time in the "Money Rates" section of The Wall Street Journal or any
successor publication, or in the event that such rate is no longer published
in The Wall Street Journal, a comparable index or reference selected by the
Lender. The Prime Rate may not necessarily be the lowest or most favorable
rate. Any change in the interest rate because of a change in the Prime Rate
shall become effective, without notice or demand, on the first day of each
month immediately following the month in which any change in the Prime Rate
occurs so that the Prime Rate in effect on the last day of any month shall
be the Prime Rate for interest computation purposes for the next succeeding
month.
The principal amount of this Note shall be advanced, at the sole
discretion of Holder, pursuant to a Loan and Security Agreement between
Maker and Lender dated of even date hereof (the "LSA") and, notwithstanding
the demand nature of this Note, is subject in all respects to the terms and
conditions of said LSA, including, but not limited to, the repayment terms
and the termination date set forth in the LSA. Advances and payments on this
Note may be evidenced by borrowing certificates, a grid (if any) attached to
this Note or similar certificates or documents, or by an internal ledger
account of Lender which shall set forth, among other things, the principal
amount of any advances and payments therefor. Maker shall pay interest,
principal and all other sums due hereunder ON DEMAND. If demand is not
sooner made, interest shall be paid on the first day of each and every month
commencing on July 1, 1995. Holder may, in its sole discretion, charge any
amounts due hereunder to Maker's revolving loan account maintained with the
Holder pursuant to the LSA.
Without in any way limiting the demand nature of the indebtedness due
hereunder, which shall at all times be payable ON DEMAND, Maker agrees that
(i) if any interest, principal or other amount is not paid on demand or when
otherwise due under this Note, the LSA or any other obligation of Maker to
Holder; or (ii) if Maker or Holder shall terminate the LSA; or (iii) if
Maker or any guarantor of any obligation of Maker hereunder shall make an
assignment for the benefit of creditors or suffer or permit the appointment
of a receiver for any part of its property or suffer or permit the filing by
or against it of any petition for adjudication, arrangement, reorganization
or the like under any bankruptcy or insolvency law; or (iv) if an Event of
Default shall occur under the LSA or any mortgage, security agreement or any
other agreement securing this Note, any other note by the Maker to the
Holder, or in the performance of any other obligation to Holder or any other
entity or person; or (v) if there shall be any material adverse change from
the present condition or affairs (financial or otherwise) of the Maker or
any of the guarantors of the obligations of Maker, that in the Holder's
reasonable opinion impairs its security or increases its risk; then an Event
of Default shall have occurred hereunder and, upon the happening of any such
event, the entire indebtedness with accrued interest thereon due under this
Note shall, at the option of the Holder, be immediately due and payable
without notice. Failure to exercise such option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent
default. Upon the occurrence and during the continuance of such an event of
default or demand for payment of any demand indebtedness owing by Maker to
Holder, the interest rate on this Note shall automatically increase without
notice to a floating per annum rate equal to two percentage points (2.0%)
above the rate otherwise in effect hereunder.
In the event of Maker's failure to pay any installment of interest,
and/or to pay any other sum due hereunder or under the LSA for more than ten
(10) days after the date it is due and payable, without in any way affecting
Holder's right to make demand hereunder or to declare an event of default to
have occurred, a late charge equal to five percent (5%) of such late payment
shall be assessed against Maker and shall be due and payable immediately.
Notwithstanding any provisions of this Note, it is the understanding
and agreement of the Maker and Holder (and any guarantors of Maker's
liabilities) that the maximum rate of interest to be paid by Maker (or
guarantors of Maker's liabilities) to the Holder shall not exceed the
highest or the maximum rate of interest permissible to be charged by a
commercial lender such as Lender to a commercial borrower such as Maker
under the laws of the State of Connecticut. Any amount paid in excess of
such rate shall be considered to have been payments in reduction of
principal.
Maker, and each and all guarantors of this Note hereby give the Holder
a lien and right of setoff for all Maker's liabilities upon and against all
the deposits, credits, collateral and property of Maker and guarantors, now
or hereafter in the possession or control of the Holder or in transit to it.
Holder may, upon the occurrence of an event of default hereunder or upon
demand for payment of any demand indebtedness owing from Maker to Holder,
apply or set off the same, or any part thereof, to any liability of the
Maker even though unmatured.
Failure by the Holder to insist upon the strict performance by Maker
of any terms and provisions herein shall not be deemed to be a waiver of any
terms and provisions herein, and the Holder shall retain the right
thereafter to insist upon strict performance by the Maker of any and all
terms and provisions of this Note or any document securing the repayment of
this Note.
THE MAKER HEREBY: (A) WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY
SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN
ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART
AND/OR THE ENFORCEMENT OF ANY OF HOLDER'S RIGHTS AND REMEDIES, INCLUDING
WITHOUT LIMITATION, TORT CLAIMS; (B) ACKNOWLEDGES THAT THE LOAN EVIDENCED BY
THIS NOTE IS A COMMERCIAL TRANSACTION AND WAIVES ITS RIGHTS UNDER ANY
APPLICABLE STATE OR FEDERAL LAW TO (I) NOTICE AND PRIOR COURT HEARING OR
COURT ORDER IN CONNECTION WITH ANY AND ALL PREJUDGMENT REMEDIES TO WHICH THE
HOLDER MAY BECOME ENTITLED BY VIRTUE OF ANY DEFAULT OR PROVISION OF THIS
NOTE OR ANY SECURITY AGREEMENT OR MORTGAGE SECURING THIS NOTE, AND (II)
REQUEST THAT THE HOLDER POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT SAID
MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR
OBTAINED BY THE HOLDER BY VIRTUE OF ANY DEFAULT OR PROVISION OF THIS NOTE OR
ANY SECURITY AGREEMENT OR MORTGAGE SECURING THIS NOTE, AND (C) WAIVES
DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST
AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS OF THIS NOTE
AND OF ANY LOANS MADE OR EXTENSIONS OR OTHER FINANCIAL ACCOMMODATIONS
GRANTED TO THE MAKER OR OTHER ACTION TAKEN IN RELIANCE HEREON AND ALL OTHER
DEMANDS AND NOTICES OR ANY DESCRIPTION IN CONNECTION WITH THIS NOTE, ANY OF
THE LIABILITIES OR OTHERWISE, AND ALL RIGHTS UNDER ANY STATUTE OF
LIMITATIONS. THE MAKER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS
KNOWINGLY, VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF
THE FOREGOING WAIVERS WITH ITS ATTORNEYS. THE MAKER FURTHER ACKNOWLEDGES
THAT NO PARTY TO THIS NOTE HAS AGREED WITH OR REPRESENTED TO MAKER OR ANY
OTHER PARTY HERETO THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut (but not its conflicts of law provisions).
FARMSTEAD TELEPHONE GROUP, INC.
By __________________________
Its
Contract for
Beijing Antai Communication Equipment
Corporation Ltd.
Contents
Article 1 General principal
Article 2 Two parties of the joint venture
Article 3 Founding of a joint venture company
Article 4 Objectives and Business scope of the joint venture
Article 5 Registered capital and total investment
Article 6 Obligations of both parties
Article 7 Marketing
Article 8 Board of Directors
Article 9 Management and administration
Article 10 Purchase of equipments and material
Article 11 Labour management
Article 12 Financing, taxing, auditing and foreign curruncy
Article 13 Term of the joint venture
Article 14 Termination of the contract
Article 15 Insurance
Article 16 Amendment, updating and release of the contract
Article 17 Obligation of the party breaching the contract
Article 18 Force Majeure
Article 19 Laws applicable
Article 20 Dispute resolution
Article 21 Language
Article 22 Validity of the contract
The Contract for Beijing Antai
Communication Equipment Corporation Ltd.
Article 1 General Principal
In accordance with the stipuiations of "The Law of the Peoples
Republic of China on Joint Ventures Using Chinese and Foreign Investment:
and other related laws and rules, and on the basis of equality and mutual
benefit, Beijing Aquatic Product Inc. of the Peoples Republic of China and
Raedes Company limited of Hong Kong, both agree to establish a Joint Venture
Enterprise with joint investment and hereby sigh this contract.
Article 2 Two parties of the joint ventures
Item 1: Both parties in this contrat are:
Beijing Aquatic Product Inc. of China (hereafter referred to as party
A) is a registered company in the PRC, its statutory address being: 42 Yong
Wai Cuo Yuan, Feng Tai District, Beijing, China and statutory
representative: Name: Wang Jingran, Position: Manager, Nationality: China
Raedes Company limited of Hong Kong (hereafter referred to as Party B) is a
registerred company in Hong Kong with its statutory address being: Flat 5E,
37 Bacemar Hill Road, Hong Kong, and statulory representative: Name: Wang
Duenyin, Position: General Manager, Nationality: USA.
Article 3 Founding of a joint venture company
Item 2: In accordance with "The Law of the Peoples Republic of China
on Joint Venture Enlerprises Using Chinese and Foreign Investment" and other
related laws both Party A and Party B agree to establish a joint venture
enterprise in the PRC, Beijing, a limited liability company (hereafter
referred to as the Joint Venture.
Item 3: China name for the Joint Venture
English name for the Joint Venture
Beijing Antai Communication Equipment
Corporation Ltd. (ATC)
Statutory address of the Joint Venture
#42, Yong Wai Guo Yuan, Feng Tai district, Beijing,
China.
Item 4: All the activities of the Joint Venture should abide by the
stipulation of the laws, ordinances and related regulations of the PRC.
Item 5: The Joint Venture takes the form of limited liability company.
party A and party B shall share profits, risks and losses at the ratio of
each contribution to the registered capital.
Artical 4 Objectives and Business scope of the Joint Venture
Item 6: The Joint Venture is operated on the basis of commercial
principles of justice, legality, and mutual benefits. It should strengthen
economic co operation and technical exchange, apply advance and applicable
scientific management techniques to develop and produce all kinds of
interfaces and related equipments for wire and wireless communication
switching systems , signalling equipments, new products; to develope
international market, so that economic results satisfactory to both parties
can be achieved.
Item 7: Business scope are to design, produce and sale electronic
communication equipments and related computer software and hardware, Digital
instruments, interfaces and signalling equipments for switching equipments,
electro-mechanic products, to provide after sale services.
Item 8: Production capacity and plan as follows
First phase: T1 interface 2000 channels per year,
6 million RMB incomming, 0.8 milling
profits RMB
Second phase: MFC interface 10000 channels per year switching
system 5000 sets per year, 20 millin RMB incoming,
3 milling profits.
With expansion of production 6 to 8 new products will be developed
every year and annual output value will increase 15% every year.
Article 5 Registered capital and total investment
Item 9: The registered capital of the Joint Venture shall be US$ 1.4
million.
Item 10: With paid up capital of US$ 1 million the contribution made
by Party A shall be US$ 0.5% million accounting for 50% of the total, the
contribution made by Party B shall be US$ 0.5 million accounting for 50% of
the total.
Item 11: Party A and Party B shall invest by cash and goods according
to the agreed amount
Party A: Equipment US$ 0.3 million, Cash US $.2 million using RMB to
instead of USD the exchange rate is the rate at the day the contract signed.
Party B: Equipment US$ 0.2 million , office equipments US$ 10000.00,
Cash US$ 0.29 million.
Joint Venture will use loan to get US$ 0.4 million.
The equipments list is attached.
Item 12: The total amount of investment should be completed by three
times. First time each party contributes 15% of the total, it completed
within 90 days after getting operation license. Second time each party
contributes 35% of the total, it is completed within 180 days after getting
operation license, Third time each party contributes 50% of the total, it is
completed within one year after getting operation license.
Item 13: It is agreed that it shall be necessary to obtain the
relevent higher authorities, if either party A or party B transfers part or
all of this capital investment to a third party. The other party shall have
the first right of refusal to purchase when one party transfers its
investment, either partially or totally.
Article 6 Obligations of both parties
Item 14: Both parties have the following responsibilities:
Resposibilities for party A
1. Application to the authorities of China for Approval, registration
and operation and operation licence of setting up joint venture.
2. Application to the authorities of estate and land for the right to
use the land.
3. To put investments on time according to Item 11, 12.
4. Assistance in purchasing equipments, material, raw material, office
equipments, transportation and communication facilities in China.
5. Assistance in hiring chinese managers, technicians, workers and
other staff for joint venture.
6. Other related things. Responsibilities for party B
1. To put investment on time according to Item 11, 12.
2. Assistance in providing material processing for communication
systems in international market.
3. Responsible for providing material processing for communication
systems in international market.
4. Assistance in organising international business.
5. Other related things.
Article 7 Marketing
Item 15: The products from joint venture will be sold 60% in China and
40% abroad.
Item 16: The ways to sale abroad are the following: Joint venture
sale 80% abroad directly, 20% are sold by agents.
Item 17: Joint venture sale products in China directly.
Item 18: In order to make sales and provide aftersale services in
China and abroad, joint venture will set up sales and services branch
centers in China and abroad.
Item 19: The trade mark used for products of the joint venture is
ATC.
Article 8 Board of directors
Item 20: The official registration date of the Joint Venture is the
date of its establishment.
Item 21: The Board of Directors shall consists of 4 Directors, 2 of
which are assigned by party A. 2 of which are assigned by party B. Chairman
is assigned by Party A, vice chairman is assigned by party A and party B,
their tenures of office shall be 4 year.
Item 22: The Board of Directors is the highest authority of the Joint
Venture. It shall decide all the matters of importance of the Joint Venture.
The following must be decided by Board of Directors.
1. Updating the regulations of Joint Venture
2. Ending the Joint Venture
3. Increasing and transfering the registered capital.
4. Merging other economic organizations into the Joint Venture
5. Profit distribution plan
6. Auditing and approving annual budget and final accounts.
7. Auditing production and operation report submitted by General Manager.
8. Appointments and removals of General manager and high level
management staff.
Item 23: Chairman is the legal person of the Joint Venture when the
Chairman can not carry out his obligations for whatever reason, he can
authorize the vice Chairman or other directors to act on his behalf.
Item 24: The Board meeting shall be convened at least once a year and
shall be sponsored by the chairman. Initiated by three quarters of the
directors, the chairman can convene extempore Board meeting while memorandum
of the meeting shall be kept on file.
Article 9 Management and administration
Item 25: The Joint Venture will set up administration organization
there is a general manager who is employed by Board of Directors.
Item 26: The general manager shall be directly responsible to the
Board of Directors, carry out all the decisions of the Board, organize and
be responsible for daily work.
Administration organization consists of many departments responsible
to generate manager dealing with different work.
Item 27: The general manager can be dismissed by Board of Directors,
if he is found to be seriously derelict in his work.
Article 10 purchase of equipments and material
Item 28: If the conditions in China are the same as in other
countries, the raw material of equipments, parts transportation and office
facilities needed in the Joint Venture shall be purchased in China.
Item 29: If Joint Venture entrusts party B with purchasing material,
equipments in foreign market, the quality and price must be agreed by party A.
Article 11 Labour management
Item 30: Issue of the employment, dismissal, resignation, salaries
and welfare, labour insurance, labour protection, labour discipline, etc.,
shall be handled according to the "Regulations of the PRC on the Labour
Administration of the Joint Venture Enterprises Using Chinese and Foreign
Investment."
Article 12 Financing, taxing, auditing and foreign curruncy
Item 31: The Joint Venture should pay all the taxes required
according to the related laws and stipulations of the PRC.
Item 32: The Joint Venture should pay expenses of using land and
building rent.
Item 33: The staff members of the Joint Venture should pay individual
income tax according to "Indiuidual Income Tax Law of the PRC"
Item 34: The Joint Venture should draw reserue funds, enterprise
development funds and welfare and reward funds according to the stipulations
of "The Law of the PRC on Joint Venture Enterprises Using Chinese and
Foreign Investment", the ratio of which funds to be drawn each year should
be decided by the Board of Directors according to the status of business of
the Joint Venture.
Item 35: The fiscal year of the Joint Venture starts from the 1st day
of January and ends on the 31st day of December of each year. All the
accounting certificates, documents, reports and account books should be
written both in English and Chinese.
Item 36: For accounting and auditing, the Joint Venture should hire
accountants and auditors registered in the PRC, and report these results to
the Board of Directors and the General Manager. If Party B is willing to
hire auditors of another country for auditing of the annual finance, Party A
should agree, but all changes be paid by Party B.
Item 37: In the first three months of the business year, the
Debit/Credit accounts of the last business 1year, documents of profit/loss
accocunts and profit sharing plan should be initiated by the General Manager
and submitted to the Board of Directors for review and approual.
Article 13 Term of the Joint Venture
Item 38: The term of the Joint Venture shall be 20 years. The date of
the acquisition of the business licence for the Joint Venture shall be the
date of its establishment. It is necessary to submit an application to the
department in charge for the extension of the term of the Joint Venture six
month prior to the expiration of the term of the Joint Venture provided a
motion is initialled by one of the Parties and approved unanimously by the
Board of Directors.
Article 14 Termination of the contract
Item 39: Upon announcment of the termination of the contract, the
Joint Venture will make liquidation according to "Liquidation procedure of
Beijing foreign investment enterprises". After liquidation, the liabilities
should be first used to return debts, then to be shared according to the
actual ownership of the parties.
Article 15 Insurance
Item 40: All the insurances of the Joint Venture should be made in
the insurance company registered in China or Beijing insurance company. The
insurance level, value and time depends on regulations of insurance company
and are decided by Board of Directors.
Article 16 Amendment, updating and release of the contract
Item 41: When amendment is made to this contract and its appendixes,
it shall not be valid unless a written agreement is signed by both Parties
and submitted to and approved by the original inspection authorities.
Item 42: With the unanimous agreement of the Board of Directors and
approual of the original inspection department, the Joint Venture can be
terminated prior to the original term of the contract be terminated in
aduance if the Joint Venture suffers losses in consecutiue years and is
incapable of going on with the business for certain reasons.
Artical 17 Obligation of the party breaching the contract
Item 43: Obligation should go to the Party if it is that Party's
fault that effects the implementation or complete implementation of the
contract and its appendixes.
Item 44: If either Party fails to contribute the amount of the
investment committed by the time stipulated in Article 5 of the contract,
the Party breaching the contract shall pay the Party observing the contract
15% of the total amount of inuestment overdue each day counting from the
30th bank date overdue. Should the Party breaching the contract fail to
contribute the amount of capital it committed for 90 days, apart from the
total sum of the 15% of the above mentioned fines, the Party observing the
contract has the right terminate the contract according to Article 14 of the
contract and demand the party breaching the contract to compensate for its
losses.
Item 45: Both Parties shall be liable for the breach of the contract,
if the fault is due to both Parties.
Article 18 Forces majeure
Item 46: As the consequence of Force Majeure, such as earthquakes,
typhoons, floods, fires, wars or other natural calamities, which cannot be
predicated, or the happening or consequence of which cannot be prevented or
avoided, and directly affects the execution of the contract, of execution of
the contract according to the terms stipulated in the contract the Party
that encounters Force Majeure should notify the other Party by telegram of
the actual situation of the accident. Valid documents to certify the
detailed happenings of the accident, and valid documents to certify the
reasons of it inability to fulfill or completely fulfill, or the necessity
to postpone the fulfillment of the contract, should by submitted to the
other Party within fifteen (15) days of the accident, and should be
certified by the notarization department of the region where the accident
took place. Disputes arising from cases of Force Majeure shall be resolued
through negotiations between the two Parties as to whether to terminated the
contract or partially release the obligations of the affected Party, or
postpone the fulfillment of the contract according to the effect of the
accident on the fulfillment of the contract.
Article 19 Laws applicable
Item 47: The signing, validity, explanation and implementation of
this contract should abide by the laws of the People's Republic of China.
Article 20 Dispute resolution
Item 48: Should any dispute arise from the implementation of or
relating to the contract, both Parties shall resolve them through friendly
negotiations. If the discrepancies cannot be solved by negotiations, they
should be submitted to the Arbitration Committee of the China Council for
promotion of International Trade for solution, whose decision shall be final
and legally binding on both Parties.
Item 49: During the process of arbitration, the contract should be
executed with no interruption, except for those parts relating to
discrepancies under arbitration.
Artical 21 Language
Item 50: This Contract is written by Chinese
Artical 22 Validity of the contract
Item 51: The contract including its appendixes shall be valid only
when it has been approved by Beijing Aquatic Product Inc. or its trusted
organizations, The valid date is the date of signature.
Item 52: Any communication relating to the rights and obligations of
the two Parties should be made in written form, except notices, telegrams
and telexes. The addresses for correspondence between the two Parties.
Item 53: This contract is signed by both parties authorized
representalives at sept. 23, 1992 in Beijing China
Beijing Aqualic Product Inc. The Raedes Company
China Limited, Hong Kong
EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Three and Six Months Ended June 30, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
----------------- ------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding 20,589 20,278 20,494 20,278
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price 633 534 603 1,608
------ ------ ------ ------
Total weighted average shares 21,222 20,812 21,097 21,277
====== ====== ====== ======
Net income (loss) $ (95) $ 26 $ (89) $ 80
====== ====== ====== ======
Per share amount $ * $ * $ * $ *
====== ====== ====== ======
<FN>
____________________
<F1> * Less than one-half cent.
</FN>
</TABLE>
Fully diluted earnings per share is not presented because it is
immaterial and/or anti-dilutive in all periods.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 410
<SECURITIES> 75
<RECEIVABLES> 2,495
<ALLOWANCES> 0
<INVENTORY> 2,431
<CURRENT-ASSETS> 5,812
<PP&E> 297
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,619
<CURRENT-LIABILITIES> 3,074
<BONDS> 0
<COMMON> 21
0
0
<OTHER-SE> 3,524
<TOTAL-LIABILITY-AND-EQUITY> 6,619
<SALES> 7,258
<TOTAL-REVENUES> 7,258
<CGS> 4,964
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> (79)
<INCOME-TAX> 10
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
