UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1996
Commission File Number 1-10310
SETECH, INC.
[Exact name of registrant as specified in its charter.)
Delaware 11-2809189
[State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
905 Industrial Drive, Murfreesboro, Tennessee 37129
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(615) 890-1700
Indicate by check mark whether the registrant(1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date:
Common Stock, $.01 Par Value - 5,250,206 shares as of
December 31, 1996.
Indicate Transitional Small Business Disclosure Format
YES [ ] NO [X]
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
SETECH, Inc. and Subsidiaries:
Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1996
Consolidated Statements of Income for the Three Months
Ended December 31, 1996 and 1995
Consolidated Statements of Income for the Six Months
Ended December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the
Six Months Ended December 31, 1996
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 June 30
1996 (Unaudited) (1996)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 1,104,216 $ 1,704,654
Accounts Receivable 5,838,749 6,063,128
Inventory 9,815,364 9,523,621
Prepaid expenses 124,815 40,158
Stock subscriptions receivable 661,500
Other Current Assets 12,395 37,266
Deferred Tax 657,560 306,000
Benefit $__________ $__________
Total Current Assets $17,553,099 $18,336,327
Property and Equipment, net 1,239,651 1,128,007
Cost in Excess of net 1,891,913 2,024,628
Assets Acquired, net of
Accumulated Amortization
of $1,252,789 and $1,120,073
respectively, and Allowance
for Future Realization of
$240,000
Deferred Income Tax Benefit 629,680
Other Assets 23,143 24,372
___________ ___________
Total Assets $20,707,806 $22,143,014
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current Liabilities
Current Portion of Long-term Debt $ 625,725 $ 625,132
Notes Payable-Bank 7,532,752 7,969,044
Accounts Payable 2,726,012 3,453,987
Accrued Expenses 1,632,971 2,163,707
____________ ____________
Total Current Liabilities $12,517,460 $14,211,870
Long Term Debt $ 993,165 $ 1,331,906
Stockholders Equity
Common Stock, $.01 par Value 54,139 54,139
400,000,000 Shares
Authorized, 5,413,901 Issued
Additional Paid-in Capital 11,536,481 11,512,038
Accumulated Deficit (4,185,240) (4,612,082)
Less Treasury shares of (208,199) (354,857)
163, 695 and 285,910 respectively ___________ ___________
Total Stockholders Equity $ 7,197,181 $ 6,599,238
TOTAL LIABILITIES AND $20,707,806 $22,143,014
STOCKHOLDERS EQUITY (DEFICIENCY)
</TABLE>
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the three
months ended
December 31 December 31
1996 1995
<S> <C> <C>
REVENUES $ 6,623,277 $ 4,862,252
COST OF SALES
Industrial Support Group 2,491,327 1,889,759
Government Services Group 2,681,424 1,862,637
___________ ___________
$ 5,172,751 $ 3,752,396
Gross Profit 1,450,526 1,109,856
Selling, General &
Administrative Expenses 823,932 655,614
___________ ___________
Operating Income $ 626,594 $ 454,242
OTHER INCOME (EXPENSE)
Interest Income 16,936 $ 30,118
Interest Expense (191,124) (126,295)
___________ ___________
Total Other (174,188) (96,177)
___________ ___________
Net Income Before Income Taxes $ 452,406 $ 358,065
Income Tax Prov. (Ben): Current 67,602 46,490
Deferred 126,153 9,189
Total Income Tax Prov. (Ben) 193,755 55,679
Net Income $ 258,651 $ 302,386
___________ ___________
INCOME PER COMMON SHARE:
Primary 0.050 0.056
Fully Diluted 0.043 0.052
</TABLE>
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the six
months ended
December 31 December 31
1996 1995
<S> <C> <C>
REVENUES $13,335,086 $10,142,920
COST OF SALES
Industrial Support Group 5,455,672 4,660,565
Government Services Group 5,177,762 3,413,026
___________ ___________
$10,633,434 $ 8,073,591
Gross Profit 2,701,652 2,069,329
Selling, General &
Administrative Expenses 1,576,139 1,309,665
___________ ___________
Operating Income $ 1,125,513 $ 759,664
OTHER INCOME (EXPENSE)
Interest Income 36,350 $ 65,104
Interest Expense (400,140) (269,927)
___________ ___________
Total Other (363,790) (204,823)
___________ ___________
Net Income Before Income Taxes $ 761,723 $ 554,841
Income Tax Prov. (Ben): Current 94,943 (84,390)
Deferred 239,938 (34,000)
___________ ____________
Total Income Tax Prov. (Ben) 334,881 (118,390)
Net Income $ 426,842 $ 673,231
___________ ___________
INCOME PER COMMON SHARE:
Primary 0.083 0.124
Fully Diluted 0.072 0.114
</TABLE>
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
Common Stock
Treasury $.01 Par Additional
Stock Value Paid-In Accumulated
Shares Amount Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balances
June 30,
1996 285,910 354,857 5,413,901 $54,139 $11,512,038 ($4,612,082)
Reissuance
of shares (122,215) ($146,658) 24,443
Net Income
for the
6 Months
Ended
December
31, 1996 426,842
_________ __________ _________ _______ ___________ ____________
Balances at
December
31, 1996 163,695 $208,199 5,413,901 $54,139 $11,536,481 ($4,185,240)
<FN>
The Accompanying Notes to Condensed Consolidated Financial Statements are an Integral Part
of these Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the six
months ended
December 31 December 31
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 426,842 $ 673,231
Adjustments to reconcile
net income to net cash
used in continuing
operations:
Depreciation and
amortization 276,894 290,762
Deferred Income Tax
Gain on sale of fixed assets (30,000) (4,028)
Changes in operating
assets and liabilities:
(Increase) decrease in
accounts receivable 224,380 (784,258)
(Increase) decrease in
other assets 311,200 (267,491)
(Increase) decrease in
deferred tax benefit 278,120 (34,000)
(Decrease) increase in
accounts payable (727,975) 924,314
(Decrease) increase in
accrued expense (530,736) (441,412)
_________ _________
Net cash provided
(used) in operations 228,725 357,118
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (255,824) (258,962)
Proceeds from sale of fixed assets 30,000 4,028
________ _________
Net cash used in
investing activities (225,824) (254,934)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term debt (436,292) (354,259)
Payments on long-term debt (338,148) (156,071)
Proceeds from long-term debt 200,000
Proceeds from issuance stock 171,101
________ ________
Net cash provided
by financing activities (603,339) (310,330)
Increase (Decrease) in cash
and cash equivalents (600,438) (208,146)
Cash and cash equivalents
at beginning of period 1,704,654 1,951,004
___________ __________
Cash and cash equivalents
at end of period $1,104,216 $1,742,858
</TABLE>
[FN]
The Accompanying Notes to Condensed Consolidated Financial
statements are an Integral Part of these Statements.
<PAGE>
SETECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1996
1. BASIS OF PRESENTATION:
The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
interim period. This report should be read in conjunction with the
Company's annual financial report on Form 10-KSB for the fiscal
year ended June 30, 1996. The results of operations for the six
months ended December 31, 1996 are not necessarily indicative of
the results to be expected for the full year.
2. CAPITAL TRANSACTIONS:
In July, 1996, a director acquired 75,000 shares of the treasury
stock for $105,000 and in November, 1996, certain members of
management acquired 47,215 shares of the treasury stock for
$66,101.
3. LOSS CONTINGENCIES:
On May 15, 1995, an employee of BARTON ATC, Inc. filed a
complaint alleging violation of Title VII of the Civil Rights Act
of 1964, by reason of gender based discrimination. Management
believes this charge to be entirely without merit and has so
responded to the Equal Employment Opportunity Commission.
Management therefore believes, but can give no assurance, that
these charges will have no adverse impact upon the BARTON
subsidiary.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Result of Operations
The Company realized a net income before taxes for the three
months ended December 31, 1996 of $452,406, compared to a net
income before taxes of $358,065 for the three months ended December
31, 1995. The level of net income was attributable to continued
contribution of all the subsidiaries, in particular the increase in
business activity of BARTON ATC International, Inc.
The Company realized a net income before taxes for the six
months ended December 31, 1996 of $761,723 compared to a net income
before taxes of $554,841 for the six months ended December 31,
1995. This increase in income is attributable to the same
circumstances stated above for the three month period.
SETECH, Inc., a Delaware corporation (the "Company") was formed
in 1987. The Company is engaged in the business of providing
"integrated supply"/inventory management services, job shop
machining, engineering products and services, and aviation
equipment and services to a variety of industries including
automotive, aviation, and medical through its four subsidiary
corporations:
Titan Services, Inc. ("Titan")
Southeastern Technology, Inc. ("Southeastern")
BARTON ATC International, Inc. ("BARTON Intn'l")
BARTON ATC, Inc. ("BARTON")
In August, 1996, the company changed its name from "Aviation
Education Systems, Inc,." to "SETECH, INC." to better reflect its
diversified business operations.
The Company, for certain organizational purposes, regards its
four subsidiaries as being divided into two groups: (1) an
Industrial Support Group comprised of Titan and Southeastern and
(2) a Government Services Group comprised of BARTON and BARTON
Intn'l.
Titan's Operations
Titan Services, Inc., a Tennessee corporation, is an emerging
business segment offering "integrated supply" services to the
manufacturing industry. Presently, Titan delivers its services
primarily to the automotive industry through facilities located in
Tennessee and Michigan. Titan provides procurement, engineering and
maintenance/repair services for machined spare parts, original
equipment manufacturer ("OEM") spare parts and inventory management
services. These types of services are increasingly being utilized
by major manufacturers to supplement and enhance in-house
capabilities and control costs.
Titan operates in a relatively new segment of industry known as
"integrated supply." Titan has encountered competing firms, but
none of these competitors apparently presently offers the range of
services offered by Titan.
Titan operates under two contracts as a source supplier of
purchasing and inventory control functions for a major automobile
manufacturer at two automotive plants, one in Tennessee and one in
Michigan. Titan is negotiating to provide similar services to the
same customer at a third location and has increased its current
scope of work at one of its existing locations. Titan has received
several major awards in recognition of its high level of
performance from the customer. Contracts with this single customer
account for virtually all of Titan's revenues.
Southeastern's Operations
Southeastern Technology, Inc., a Tennessee corporation, is a job
shop machining and engineering organization, serving a variety of
industries including aerospace, automotive, and medical.
Southeastern continues its expansion in the manufacturing and sale
of medical and surgical devices for major medical manufacturers, to
their specifications. Management believes, based upon recent growth
in this area, that the medical field will continue to become a more
significant source of machine work in the future.
BARTON's Operations
BARTON ATC, Inc., a Delaware corporation, is engaged in the
manufacture of both fixed and mobile airport traffic control towers
and in the operation of private and government-owned air traffic
control towers and meteorological observatories located throughout
the United States. BARTON also provides weather station
consultation, electronics maintenance, airport lighting systems.
BARTON currently operates five (5) Airport Traffic Control
Towers. While the operation of airport traffic control towers and
meteorological facilities has always been the core of BARTON's
business, significant increases have been made in the sale and
installation of control tower communications equipment.
As a subsequent event in January, 1997, the Company sold this
subsidiary. Please see Item 5 for a complete description of this
transaction.
BARTON ATC International's Operations
BARTON ATC International, Inc., a Tennessee corporation, is
engaged in the provision of Air Traffic Control and Weather
Reporting Services at numerous airports, in primarily the Western
United States, under contract to the U.S. Federal Aviation
Administration. BARTON Intn'l presently operates 32 control towers
under the FAA's FCT Program, nine of which began operations during
this fiscal year and one as a subsequent event in January.
As a subsequent event in January, 1997, the Company sold this
subsidiary. Please see Item 5 for a complete description of this
transaction.
Liquidity and Capital Resources
At June 30, 1996, the Company's current assets exceeded its
current liabilities by approximately $4,124,457. Working capital
increased to $4,938,229 at December 31, 1996.
Titan, Southeastern and BARTON Intn'l each maintains a secured
revolving line of credit with a banking institution with the
following maximum amounts:
Titan $9,400,000
Southeastern 600,000
BARTON Intn'l 300,000
This debt structure results in sufficient capital to support the
Company's existing operations. In December, 1996, the Company
replaced its Titan and Southeastern banking institution with
another financial institution with similar terms and conditions.
The Titan subsidiary, however, now has increased availability with
approved contracts.
Loss Contingencies
On May 15, 1995, an employee of BARTON ATC, Inc. filed a
complaint alleging violation of Title VII of the Civil Rights Act
of 1964, by reason of gender based discrimination. Management
believes this charge to be entirely without merit and has so
responded to the Equal Employment Opportunity Commission.
Management therefore believes, but can give no assurance, that
these charges will have no adverse impact upon the BARTON
subsidiary.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Subsequent to the end of the quarter, the company has
tentatively settled its case out of court against the former
attorneys of the Company for $45,000.00. There are, however, no
signed settlement agreements at this time.
Item 2. Changes in Securities
(a) None
(b) None
(c) On November 16, 1996, the Company sold 47,215 shares of
its Common Stock, $.01 par value to the following Company
employees: Kerry Simmons, Anthony Morriello and Travis Pierson.
The total price of $66,101 was paid in cash. The sales were made
pursuant to Rules 505 and 506 of Regulation D, based on the fact
that the aggregate offering price did not exceed $5,000,000 (Rule
505) and the fact that there were fewer than 35 investors, each of
whom the issuer reasonably believed immediately prior to sale had
such knowledge and experience in financial and business matters
that he was capable of evaluating the merits and risks of the
prospective investment.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
At its option, the Company elects to disclose the following
disposition of assets on this Form 10-QSB, in lieu of submitting a
Current Report on Form 8-K. On January 30, 1997, the Company sold
all of the stock of two of its wholly-owned subsidiaries, Barton
ATC, Inc. and Barton ATC International, Inc. (the "Government
Services Group"), to Serco Group, Inc., a wholly-owned subsidiary
of Serco Group, plc, a British publicly traded company. The Barton
companies, which operate air traffic control towers under
contractual arrangements with the Federal Aviation Administration
and various municipalities, were sold for $2,150,000. In addition,
the Company may receive an additional $1,000,000 in the event that
certain contingencies in the purchase agreement are satisfied. The
Company will use the proceeds of the sale for general corporate
purposes. (Please see Exhibit 99 for Pro Forma Financial
Information.)
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit
Number Description
EX-2.1 Stock Purchase Agreement dated November 7, 1996, by
and between SETECH, INC. and Serco, Inc. ("Stock
Purchase Agreement")
EX-2.2 Letter Agreement dated November 22, 1996, amending
Stock Purchase Agreement
EX-2.3 Letter Agreement dated January 29, 1997, amending
Stock Purchase Agreement
EX-2.4 Letter Agreement dated January 29, 1997, amending
Stock Purchase Agreement
EX-3.(i) Articles of Incorporation, SETECH, INC.
(incorporated by reference to Exhibit 3.(i) of the
Company's Form 10-KSB filed September 27, 1996)
EX-3.(ii) Amended and Restated By-Laws, SETECH, INC.
(incorporated by reference to Exhibit 3.(ii) of the
Company's Form 10-KSB filed September 27, 1996)
EX-4.1 Loan and Security Agreement between First Union
Commercial Corporation, as Lender, and Titan
Services, Inc., as Borrower
EX-4.2 Loan and Security Agreement between First Union
National Bank of Tennessee and Southeastern
Technology, Inc
EX-10.1 Employment Agreement of Cindy L. Rollins
(incorporated by reference to Exhibit 10.1 of the
Company's Form 10-KSB filed September 27, 1996)
EX-10.2 Employment Agreement of Richard R. Hulbert
(incorporated by reference to Exhibit 10.2 of the
Company's Form 10-KSB filed September 27, 1996)
EX-10.3 Employment Agreement of Anthony Morriello
(incorporated by reference to Exhibit 10.3 of the
Company's Form 10-KSB filed September 27, 1996)
EX-10.4 Employment Agreement of Travis L. Pierson
(incorporated by reference to Exhibit 10.4 of the
Company's Form 10-KSB filed September 27, 1996)
EX-10.5 Agreement between Company and Robert W. Lynch, Jr.
(incorporated by reference to Exhibit 10.5 of the
Company's Form 10-KSB filed September 27, 1996)
EX-10.6 Incentive Stock Option Plan (Incorporated by
Reference to Form S-8 Registration Statement filed
May 21,1996, effective June 9, 1996, Commission
file number 333-04143)
EX-10.7 Non-qualified Stock Option Plan (Incorporated by
Reference to Form S-8 Registration Statement filed
May 21,1996, effective June 9, 1996, Commission
file number 333-04147)
EX-10.8 Agreement between BARTON ATC International, Inc.
and the U.S. Federal Aviation Administration
(incorporated by reference to Exhibit 10.8 of the
Company's Form 10-KSB filed September 27, 1996)
EX-27 Financial Data Schedule
EX-99 SETECH, INC. and subsidiaries, Pro Forma Financial
Information, reflecting adjustments resulting from
sale of Government Services Division
(b) The Registrant filed no Current Reports on Form 8-K
during the quarter for which this report is filed. In lieu of
submitting Form 8-K, the Company elected to disclose the sale of
its Government Services Group in Item 5 of this Form 10-QSB.
<PAGE>
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.
SETECH, INC.
Date: February 14, 1997 By_/s/ Thomas N. Eisenman
Thomas N. Eisenman President
Date: February 14, 1997 By_/s/ Cindy L. Rollins
Cindy L. Rollins, Secretary-
Treasurer
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and between
SETECH, INC.
("SELLER")
and
SERCO, INC.
("BUYER")
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (including the Exhibits and the
Schedule (hereinafter defined) collectively, the "Agreement") dated
as of October ___, 1996, is by and between SETECH, INC., formerly
known as Aviation Education Systems, Inc., a Delaware corporation
("Seller") and SERCO, INC., a New Jersey corporation ("Buyer").
WHEREAS, the Seller is the owner of all of the issued and
outstanding capital stock (the "Capital Stock") of Barton ATC,
Inc., a Delaware corporation ("ATC") and Barton ATC International,
Inc., a Tennessee corporation ("International") (ATC and
International collectively, the "Companies"), and wishes to sell,
transfer and convey all of such Capital Stock to the Buyer, and the
Buyer desires to acquire all of such Capital Stock of the
Companies, upon and subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements and upon the terms and
conditions hereinafter set forth, the parties hereto, intending to
be legally bound, hereby agree as follows:
I. Sale and Purchase of Capital Stock.
A. Sale of Capital Stock.
1. Upon the terms and subject to the conditions of this
Agreement, the Seller will sell, transfer, assign and deliver to
the Buyer at the Closing all of the issued and outstanding shares
of Capital Stock of the Companies, and the Buyer will buy all such
shares at the Closing.
2. All stock and other transfer taxes including sales taxes
and document recording fees, if any, imposed in connection with the
transfer of the Capital Stock to the Buyer shall be paid by the
Seller, and all applicable stock transfer tax stamps shall be
provided by the Seller at the Closing.
B. Purchase Price. Subject to adjustment as provided in Sections
1.3 and 1.4 below, and adjustment for any "Loss" as provided in
Article 12 hereof, the aggregate purchase price (the "Purchase
Price") for all of the outstanding shares of Capital Stock shall
equal Two Million One Hundred Fifty Thousand Dollars ($2,150,000).
C. Adjustment to Purchase Price. The Purchase Price shall be
adjusted as follows:
1. The Purchase Price shall be reduced if, and to the same
extent that, the combined shareholders' equity of the Companies as
finally determined in the Closing Date Balance Sheet (hereinafter
defined) is less than One Million Five Hundred Fifty Thousand
Dollars ($1,550,000).
2. The adjustment provided in paragraph (a) above shall be
calculated and determined pursuant to a combined balance sheet for
the Companies prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied which
eliminates all intercompany transactions (the "Closing Date Balance
Sheet") and which shall be prepared by the Buyer promptly (but in
no event more than fifteen (15) Business Days) following the
Closing. (For purposes of this Agreement, "Business Day" means any
day other than (i) a Saturday or Sunday or (ii) a day when the
Federal Government offices in Washington, D.C. are not open.) The
Seller shall be furnished a Closing Date Balance Sheet promptly
upon its preparation by the Buyer. After receipt of the Closing
Date Balance Sheet, the Seller shall have a reasonable period not
to exceed fifteen (15) Business Days in which to review the Closing
Date Balance Sheet. The Seller shall have full access to the
financial records and other information used in the preparation of
the Closing Date Balance Sheet. The determination of the Closing
Date Balance Sheet and the adjustment to the Purchase Price
determined under paragraph (a) of Section 1.3, as calculated by the
Buyer, shall become final and be binding on the Seller, unless the
Seller delivers written notice of its objection to the Closing Date
Balance Sheet to the Buyer within fifteen (15) Business Days
following the date of the Buyer's delivery of the Closing Date
Balance Sheet to the Seller. The written notice shall set forth in
detail the items and calculations objected to (individually, a
"Disputed Item" and collectively, the "Disputed Items") and the
factual and the technical basis for each Disputed Item, and the
Buyer and the Seller will seek in good faith, for a period of
fifteen (15) Business Days following delivery of the written
notice, to resolve the Disputed Items. In the event such
differences are not resolved during such fifteen (15) Business Day
period, the Buyer and the Seller shall promptly deliver the Closing
Date Balance Sheet to the Nashville, Tennessee office of KPMG Peat
Marwick LLP (the "Reviewing Finn"), which firm shall be engaged for
the purpose of conducting a review of the Closing Date Balance
Sheet (the fees and expenses of the Reviewing Firm to be shared
equally between the Buyer and the Seller), and such review shall be
limited to the Disputed Items which have not been resolved by the
parties. The Reviewing Firm shall issue a written report as
promptly as possible, setting forth in reasonable detail its
determination regarding the Disputed Items. The determination of
the Reviewing Firm as to the Disputed Items concerning the Closing
Date Balance Sheet and adjustment to Purchase Price shall be final
and binding on the parties on the date said written report is
delivered to the Seller and the Buyer and the Closing Date Balance
Sheet shall become final and binding on the Buyer and the Seller on
such date. Failure by the Seller to notify the Buyer of an
objection to the Closing Date Balance Sheet during the time
provided above shall result in it being final upon the expiration
of that time period.
3. Notwithstanding the provisions of the foregoing paragraph
(b) or of GAAP, in determining the Closing Date Balance Sheet it is
hereby expressly agreed by the parties hereto that the "Fixed
Assets" in the balance sheet of the Companies as are attached
hereto as Schedule 1.3(c) are accepted as accurate and that no
adjustment shall be made based on the value of such Fixed Assets.
D. Payment of the Purchase Price.
1. On the Closing Date, the Buyer shall pay to the Seller an
amount in cash equal to One Million Nine Hundred Thousand Dollars
($1,900,000).
2. On the Closing Date, the Buyer shall deliver in escrow to
CoreStates Bank, N.A., as Escrow Agent, an amount in cash equal to
the sum of Two Hundred Fifty Thousand Dollars ($250,000) (the
"Escrow") pursuant to an Escrow Agreement of even date herewith in
the form of Exhibit 1.4 (b) hereto.
3. International presently has a contract with the Federal
Aviation Administration ("FAA") (the "FAA Contract"), which has a
termination date of September 30, 1998. If, and only if, on October
1, 1998, International, the Buyer or a company then controlled by,
controlling or under common control with International or the Buyer
(collectively, the "Contracting Entity") has an agreement in force
with the FAA authorizing the Contracting Entity to operate at least
thirty (30) air traffic control towers (the "1998 Agreement"), then
the Buyer shall pay the Seller in cash One Million Dollars
($1,000,000) on or before October 10, 1998. If on October 1, 1998,
the 1998 Agreement authorizes the Contracting Entity to operate
less than thirty (30) air traffic control towers, then on or before
October 10, 1998, the Buyer shall pay the Seller in cash Thirty-
Three Thousand Three Hundred Thirty-Three and 33/100 Dollars
($33,333.33) for each air traffic control tower (but not more than
thirty (30)) which the Contracting Entity is authorized to operate
under the 1998 Agreement.
4. The sum of the amounts paid pursuant to subparagraphs (a),
(b) and (c) is hereinafter referred to as the "Aggregate Purchase
Price."
E. Initial Purchase Price Adjustment. When the Closing Date
Balance Sheet becomes final in accordance with Section 1.3(b), if
there is an adjustment to the Purchase Price to be made (the
"Initial Purchase Price Adjustment"), the Escrow shall be reduced
by the amount of the Initial Purchase Price Adjustment (the
"Adjusted Escrow") and the Escrow Agent shall, within ten (10)
Business Days after receipt of notice of the Closing Date Balance
Sheet becoming final and the amount of any Initial Purchase Price
Adjustment, pay the Buyer out of the Escrow the amount of the
Initial Purchase Price Adjustment and pay the Seller the amount of
the Adjusted Escrow.
F. The Escrow.
1. The purpose of the Escrow provided in Section 1.4(b) shall
be to serve as a convenient vehicle (but not as a limitation) for
adjustments to the Purchase Price contemplated under this
Agreement.
2. In the event that the Escrow has been exhausted and Buyer
has a claim for an adjustment to the Purchase Price pursuant to
this Agreement (including a portion of the Initial Purchase Price
Adjustment which was not paid out of the Escrow) then the Buyer may
offset against any amounts remaining unpaid under Section 1.4(c).
Alternatively, Buyer shall have the right as set forth in Section
1.6(a) to reimbursement for any Aggregate Purchase Price
Adjustment.
G. Method of Payment. All payments from one party to another
under this Agreement shall be made by wire transfer of immediately
available federal funds to an account designated in writing not
less than two (2) days prior to the payment date by an individual,
firm, corporation, partnership, trust, government or political
subdivision or agency or instrumentality thereof, association,
unincorporated organization or any other entity ("Person")
designated to receive such payment.
II. Closing.
A. Time and Place of Closing.
1. The closing of the sale and purchase of the Capital Stock
(the "Closing") shall take place at a date and time to be agreed
upon, but no later than thirty (30) days following the satisfaction
or waiver of all conditions to Closing at the offices of Seeger
Potter Richardson Luxton Joselow & Brooks, L.L.P., 2121 K Street,
N.W., Suite 700, Washington, D.C., or at such other time and place
as the parties shall mutually agree in writing (the "Closing
Date").
2. For purposes of preparation of the Closing Date Balance
Sheet, the books of the Companies shall be closed as of the close
of business on the Closing Date at which time the Companies' assets
and liabilities shall be computed.
B. Action at Closing.
1. At the Closing and as of the Closing Date, the Seller will
deliver to the Buyer the written resignations of all the directors
and officers of the Companies effective as of the Closing, and all
minute books, stock record books and all corporate seals of the
Companies and shall cause to be made immediately available to the
Buyer all books of account, leases, contracts, agreements,
securities, customer lists, personnel records, files and other
documents, instruments and papers belonging to the Companies.
2. At the Closing, the Seller shall deliver, free and clear
of all liens, encumbrances, restrictions, claims and other charges
thereon of every kind, the certificates evidencing the shares of
Capital Stock to be sold by the Seller in negotiable form, duly
endorsed in blank, or with separate stock transfer powers attached
thereto and signed in blank, with signature guarantees by United
States commercial banks or trust companies having assets in excess
of One Billion Dollars ($1,000,000,000), upon delivery by the Buyer
to the Seller of the Initial Payment. The shares of Capital Stock
to be delivered by the Seller at the Closing shall constitute all
of the issued and outstanding shares of Capital Stock of ATC and
International.
3. At the Closing, the parties shall exchange and deliver the
certificates and other evidence as to the accuracy of the
representations and warranties contained herein as of the date
hereof and as of the Closing Date and compliance with the covenants
and agreements contained herein which are required to be delivered
by such party as herein provided.
4. At the Closing, all other documents, instruments and
writings required to be delivered by a party at or prior to the
Closing Date pursuant to this Agreement will be delivered to the
party entitled thereto.
III. Representations and Warranties of the Seller. The Seller
hereby represents and warrants to the Buyer as follows:
A. Organization, Powers and Qualification of the Companies. ATC
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and International
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee. Neither of the
Companies has any Subsidiaries (a "Subsidiary" shall mean a
corporation where fifty percent (50%) or more of the voting power
of such corporation is owned directly or indirectly by another
corporation). Each of the Companies has all requisite corporate
power and authority to own or lease its properties and assets and
carry on its business as now conducted and is qualified as a
foreign corporation authorized to do business and is in good
standing in each jurisdiction in which either of the Companies has
entered into a written contract to provide services, all of which
jurisdictions are disclosed in Section 3.1 of the Schedule to this
Agreement delivered by the Seller to the Buyer contemporaneously
with the execution of this Agreement (the "Schedule").
B. Capital Stock. ATC has authorized Capital Stock consisting of
shares of common stock, par value $_____ per share, of which shares
are issued and outstanding. International has authorized Capital
Stock consisting of shares of common stock, par value $____ per
share, of which _______ shares are issued and outstanding. Neither
Company has issued and outstanding any other classes of equity
securities. All of the issued and outstanding shares of Capital
Stock of the Companies have been duly authorized and validly
issued, are fully paid and nonassessable and were not issued in
violation of any pre-emptive rights. There are no (a) outstanding
securities convertible into or exchangeable for the Capital Stock
of either of the Companies; (b) options, warrants or other rights
to purchase or subscribe for Capital Stock or any other security of
either of the Companies or securities convertible into or
exchangeable for Capital Stock of either of the Companies; or (c)
contracts, commitments, agreements, understandings or arrangements
of any kind to which either of the Companies or the Seller is a
party relating to the issuance, sale or other disposition, or
purchase, redemption, acquisition or voting, of any Capital Stock
or other securities of either of the Companies, any such
convertible or exchangeable securities or any such options,
warrants or rights.
C. Share Ownership.
1. The Seller is the lawful owner of record of ____ shares
of Capital Stock of ATC and _____ shares of Capital Stock of
International consisting of all of the issued and outstanding
shares of Capital Stock in the Companies, all of which are, or on
the Closing Date will be, free and clear of all liens, pledges,
encumbrances, restrictions, claims, options, rights of first
refusal, equitable interests and other charges of every kind, with
no defects of title whatsoever. Upon delivery of such shares of
Capital Stock to the Buyer pursuant to this Agreement and payment
of the Initial Payment therefor as contemplated in this Agreement,
at the Closing the Buyer will receive good and marketable title to
all of the issued and outstanding shares of Capital Stock of the
Companies, free and clear of all liens, pledges, encumbrances,
restrictions, claims, options, rights of first refusal, equitable
interests and other charges of every kind, with no defects in title
whatsoever.
2. The Seller has the exclusive right, power and authority to
vote the shares of Capital Stock of the Companies owned by the
Seller.
D. Authority and Binding Effect.
1. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to conduct its
business as it is now conducted and to own and operate its assets,
properties and business.
2. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the
Seller and the Seller has full corporate power and authority to
execute and deliver this Agreement, and carry out the transactions
contemplated hereby. This Agreement constitutes the legal, valid
and binding obligation of the Seller enforceable in accordance with
its terms, and no other corporate proceedings or actions on the
part of the Seller is necessary to authorize this Agreement or the
carrying out of the transactions contemplated hereby.
E. Articles of Incorporation, Bylaws, Minute Books and Stock
Books. True and complete copies of the current articles of
incorporation and all amendments thereto and of the bylaws, as
amended, of each of the Companies are attached as Exhibit 3.5
hereto. The minutes books of the Companies contain true and
complete records of all meetings and consents in lieu of meetings
of the boards of directors (and any committee thereof) and voting
shareholders of each of the Companies and accurately reflect all
transactions referred to or required to be contained in such
minutes and consents in lieu of meeting, as well as those matters
customarily contained in records of such type; except as reflected
in such minute books, there are no minutes of meetings or consents
in lieu of meetings of the boards of directors (or any committee
thereof) or of shareholders of the Companies. The stock books of
the Companies contain complete and accurate records of all
issuances and transfers of record of the Capital Stock of the
Companies.
F. Conflict with Other Agreements, Approvals. With respect to
the following:
1. the articles of incorporation or bylaws of the Seller and
the Companies;
2. any applicable law, statute, rule or regulation;
3. any material written contract, agreement (including,
without limitation, the FAA Contract, the agreement with the
Department of Defense (the "DOD Contract") and any agreements with
other governmental agencies (collectively with the FAA Contract and
the DOD Contract, the "Government Contracts")), lease, mortgage or
commitment to which either of the Companies is a party or may be
bound, to which the Companies or the Seller is a party or may be
bound and any other contracts relating to the Capital Stock, except
as disclosed in Section 3.6 of the Schedule;
4. any judgment order, injunction, decree or ruling of any
court or governmental authority to which the Companies or the
Seller is a party or subject;
the execution and delivery by the Seller of this Agreement and the
consummation of the transactions contemplated hereby will not (i)
result in any violation, conflict, breach or default (or event
which with notice or passage of time or both would constitute a
breach or default), give to others any interest or rights,
including rights of termination, cancellation or acceleration,
require the consent of any other party, or result in the creation
or imposition of any material lien, restriction, security interest,
charge or encumbrance upon any of the properties or assets of
either of the Companies or the Seller, or (ii) except for the
requirements of any applicable state securities laws, require any
authorization, consent, approval, exemption or other action by any
court or administrative or government body which has not been
obtained or will not be obtained prior to the Closing, or any
notice to or filing with any court or administrative or
governmental body which has not been given or done. At or prior to
the Closing, the Seller will deliver to the Buyer copies of all
consents received by the Companies or the Seller with respect to
any Contract requiring consent pursuant to this Section. In the
event of a breach of this Section 3.6 by the Seller or the
Companies, Buyer specifically waives any and all right to claim
acquisition and due diligence costs incurred prior to the Closing
Date.
G. Transfer Claims. No prior offer, issue, redemption, call,
purchase, sale, transfer,
negotiation or other transaction of any nature or kind with respect
to any Capital Stock (including shares, offers, options, warrants,
or debt convertible into shares, options or warrants) of the
Companies, or any corporation which has been merged into the
Companies or any Subsidiary of the Companies, has given or will
give rise to any valid claim or action by any Person which is
enforceable against any of the Companies, or the Seller (to the
extent it affects their ability to transfer the Capital Stock to
the Buyer free of encumbrances) or Buyer.
H. Books and Records. The books and records of the Companies
completely and accurately reflect in all material respects all
transactions to which the Companies are a party or by which their
respective assets are subject or bound, and such books and records
have been properly kept and maintained.
I. Compliance with Law.
1. The Companies and their use and occupancy of their assets,
wherever located, are and have been in compliance with and have not
(by virtue of any action, omission to act, contract to which any of
them are parties, or any occurrence or state of facts whatsoever)
been and are not in material violation of any applicable federal,
state, local or other governmental laws or ordinances, foreign or
domestic, or any order, rule or regulation of any federal, state,
local or other governmental agency or body, foreign or domestic
(including, without limitation, all environmental, energy, federal
aviation, safety, health, zoning, anti-discrimination, antitrust,
wage and hour and price and wage control laws, ordinances, orders,
rules or regulations); and, neither of the Companies nor the Seller
has received any claim or notice of violation with respect thereto.
The Seller does not have any basis to expect, nor has the Seller
received any actual or threatened order, notice or other
communication from (i) any governmental body, agency or private
citizen acting in the public interest, or (ii) the current or prior
owner or operator of any of the Assets (hereinafter defined), of
any actual or potential violation or failure to comply with any
environmental law, or if any actual or threatened obligation to
undertake or bear the cost of any investigation, corrective action,
remediation, cleanup, removal, containment with respect to any of
the Assets in which Seller currently or has previously had an
interest, or with respect to any property or Assets at which
Hazardous Substances (hereinafter defined) were generated,
manufactured, refined, transferred, imported, used, or processed by
the Seller, or any other person for whose conduct they are or may
be held responsible, or from which Hazardous Substances have been
transported, treated, stored, handled, transferred, disposed,
recycled, or received.
2. Each of the Companies or the Seller has obtained or filed all
notices which are required to be obtained or filed by any of the
Companies or the Seller for the operation of the business of the
Companies under federal, state and local laws including, but not
limited to, those relating to federal aviation and to pollution or
protection of the environment.
3. Each of the Companies and the Seller is in compliance in all
material respects with all terms and conditions of any required
permits, licenses, contracts and authorizations which may have been
awarded or issued to them.
4. Each of the Companies and the Seller is in compliance in
all material respects with all other applicable limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in those laws or
contained in any law, regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered into,
promulgated, or approved thereunder.
5. No Hazardous Substances are present or stored on the
property or plants of the Companies except as set forth in Section
3.9(e) of the Schedule. The properties and plants do not contain
asbestos or polychlorinated biphenyls in any form. The properties
and plants have not and do not currently have above- or underground
storage tanks or lines of any type. There are no surnps,
impoundments or related storage devices or conveyances on the
properties or plants that hold or have held Hazardous Substances.
6. None of the buildings or improvements owned or utilized by
the Companies is constructed of, or contains as a component part
thereof, any material which, either in its present form, or as such
material may reasonably.be expected to change through aging and
nominal use and service, releases any substance, whether gaseous,
liquid or solid, which is or may be, either in a single dose or
through repeated and prolonged exposure, a pollutant, contaminant,
or hazardous or toxic material or waste or is otherwise injurious
or hazardous to the health of persons who may from time to time be
in or about such buildings or improvements ("Hazardous
Substances").
7. There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance with
environmental laws, or which may give rise to any common-law or
statutory liability, or otherwise form the basis of any claim,
action, suit, proceeding, hearing or investigation based on or
related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the
emission, discharge, release or threatened release into the
environment, of any Hazardous Substances with respect to any of the
Companies or its businesses.
8. The Companies and the Seller have fully complied with all
applicable requirements of the Federal Aviation Act of 1958, as
amended, and as revised and codified in 1994 under the name
"Revision of Title 49, Transportation, United States Code," and
regulations promulgated pursuant thereto (the "FAA Requirements"),
the requirements imposed by statute and regulation upon persons
contracting with the Department of Defense (the "DOD Requirements")
and the requirements imposed upon persons contracting with other
governmental agencies (collectively with the FAA Requirements and
the DOD Requirements, the "Governmental Requirements"). There is no
pending or to the knowledge of either of the Companies or the
Seller, threatened investigation or regulatory action by the FAA,
DOD or any government agency affecting or involving either of the
Companies or the Seller.
9. Each of the Companies is in compliance with all applicable
laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational
safety and health. There is no unfair labor practice,.charge or
complaint or any other matter against or involving either of the
Companies pending or, to the knowledge of either of the Companies
or the Seller, threatened, before the National Labor Relations
Board or any court of law.
10. Except as disclosed in Section 3.090) of the Schedule,
there are no charges, investigations, administrative proceedings or
formal complaints of discrimination (including discrimination based
upon sex, age, marital status, race, national origin, sexual
preference, handicap or veteran status) pending or, to the
knowledge of either of the Companies or the Seller, threatened,
before the Equal Employment Opportunity Commission or any federal,
state or local agency or court against the Companies and, to the
knowledge of the Seller, no basis for any claim in connection
therewith exists.
11. Except as disclosed in Section 3.09(k) of the Schedule,
there have been no governmental audits of the equal employment
opportunity practices of any of the Companies.
J. OSHA; Governmental Requirements and Other Filings. The Seller
has previously delivered or made available to the Buyer all reports
and filings made or filed by either of the Companies or the Seller
(in the case of the Governmental Requirements) pursuant to the
Occupational Safety and Health Act, Resource Conservation and
Recovery Act and Executive Order 11246 (relating to equal
employment opportunity), the Governmental Requirements or similar
state and local laws, regulations and orders.
K. Financial Statements. Attached as Exhibit 3.11 (a) hereto are
true and complete copies of the balance sheets of BARTON ATC, Inc.
and BARTON ATC International, Inc. as of June 30, 1996, and the
related statements of operations, stockholders equity and cash
flows for the year then ended (the "1996 Financial Statements").
The notes to the financial statements are an integral part thereof.
These financial statements have been audited by Dempsey, Wilson &
Co., P.C., Certified Public Accountants. Such financial statements
present fairly the financial position of the respective companies
as of June 30, 1996, and the results of their operations and their
cash flows for the year then ended, in accordance with GAAP,
consistently applied (except for the effects of any change in
accounting principles disclosed therein).
L. Liabilities and Obligations.
1. The Companies do not have any liabilities or obligations
(whether direct or indirect, matured or unmatured, contingent or
otherwise) of any nature, except (i) liabilities and obligations
disclosed in the 1996 Financial Statements, (ii) liabilities and
obligations not specifically reflected, reserved against or given
effect to in the 1996 Financial Statements which are disclosed
specifically in Section 3.12(a) of the Schedule, (iii) liabilities
and obligations incurred in the ordinary course of business of the
Companies between June 30, 1996 (the "Balance Sheet Date" and the
date hereof, and (Iv) liabilities and obligations fully covered by
insurance except for deductible amounts of the policies as set
forth in Section 3.20 of the Schedule.
2. The Companies do not have any liability or obligation
(whether direct or indirect) to make any charitable or political
contribution, whether in cash or other property.
M. Absence of Adverse Changes or Events. Since the Balance Sheet
Date,
1. there has been no material adverse change in the Assets
(as hereinafter defined), financial condition, results of
operations, performance, business or prospects of either of the
Companies ("Material Adverse Change"), or in the ability of the
Companies to conduct their business as now conducted;
2. the Companies have been operated only in the ordinary
course of business;
3. neither of the Companies has failed to manage their
working capital, including cash, receivables, prepaid expenses,
other current assets, trade payables and other current liabilities,
in a fashion consistent with past practice, including paying
outstanding obligations, trade accounts and other indebtedness as
and in the order in which they become due;
4. neither of the Companies has failed to maintain all of the
properties used or useful in the business of the Companies in the
Companies' customary repair, order and condition, reasonable wear
and tear excepted;
5. neither of the Companies has created any new Plans or
amended any Plan, as defined in Section 3.23, accrued or paid to
officers or directors any unaccrued bonus, profit sharing,
retirement pay, insurance, death benefit, fringe benefit or other
compensation; increased the salary or other compensation level of
any officer or director; entered into any employment contract; or
given any general compensation increase to employees, except normal
"step" pay increases;
6. neither of the Companies has issued any substitute stock
certificate to replace any stock certificate which was lost or
otherwise irretrievable;
7. neither of the Companies has sold or disposed of any of
their Assets; (h) neither of the Companies has made any loan or
advance to any Person or become committed to do so;
8. neither of the Companies has made any loan or advance to
any Person or become committed to do so;
9. neither of the Companies has subjected any Asset to a
mortgage or other lien, or committed to do so, except liens of
current income, gross receipts, gains, sales, use, employment,
franchise, license, school, payroll, profits, property, ad valorem,
excise or other taxes, estimated, import duties, fees, stamps,
taxes and assessments or charges of any kind whatsoever (whether
payable directly or by withholding), together with any additional
charges, interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority with respect thereto, or
any charges, interest or penalties imposed by any taxing authority
as the result of the failure to file any return ("Taxes") not yet
due and payable, or mechanic's or materialmen's liens; or
10. neither of the Companies has (i) without adequate
consideration released or waived any claims or rights, canceled any
debts or discharged any liens; or (ii) paid any obligations other
than those for liabilities shown on the 1996 Financial Statements
and those incurred since the Balance Sheet Date in the ordinary
course of business.
N. Certain Tax Matters.
1. All returns and reports (including without limitation,
information returns and reports) ("Tax Returns") relating to any
Taxes which are required to be filed by or with respect to either
of the Companies for any period ending on or prior to the Closing
Date, have been or will be duly and timely filed, and all Taxes
which have become due pursuant to such returns have been or will be
fully paid prior to the Closing. Except as disclosed in
Section 3.14(a) of the Schedule, no deficiency in the payment of
Taxes by the Seller or the Companies for any period has been
asserted against the Seller or the Companies, by any taxing
authority and remains unsettled at the date of this Agreement.
There is not in force any extension of time with respect to the
date on which any Tax Return with respect to either of the
Companies is due to be or has been filed, or any waivers or
agreements by or with respect to either of the Companies of or for
an extension of time for the assessment or payment of any Tax.
There are no pending, or to the knowledge of either of the
Companies or the Seller, threatened examinations of Tax Returns
previously filed or Tax claims asserted against either of the
Companies or any other company that joined in the filing of a
consolidated return with either of the Companies, or their
respective properties. There are no Tax liens on any of the
properties or assets of either of the Companies, except for liens
for current Taxes not yet due and payable and to the knowledge of
either of the Companies or the Seller, no such liens are pending or
threatened. The Tax Returns of the Companies and the Seller have
been audited or closed by applicable statutes of limitations and
satisfied for all fiscal years prior to and including the fiscal
year ended June 30, 1994. All of the Tax Returns have been
previously delivered or made available to the Buyer. Neither of the
Companies has filed any consents pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). Neither of the Companies,
nor any predecessor in interest of either of them, has filed, or
may be deemed to have filed, any election under Section 338 of the
Code. No assets of either of the Companies or of any "Related
Person," as that term is defined in Section 144(a)(3) of the Code,
whether owned or leased pursuant to a capital lease, have, since
January 1, 1984, been financed by private activity bonds within the
meaning of Section 141 of the Code (or industrial development bonds
within the meaning of Section 103(b) of the 1954 Code), and neither
of the Companies nor any Related Person is a "principal user," as
that term is used in the context of Section 144(a) of the Code of
any building which has been so financed. Neither of the Companies
has made any payment which constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code, no payment
by either of the Companies required to be made under any contract
presently in existence or entered into on or prior to Closing will,
if made, constitute an "excess parachute payment" within the
meaning of Section 280G of the Code. Any Tax Returns arising from
periods prior to and including the Closing Date shall be the
property of Seller.
2. A tax basis fixed asset list (the "List") has been
prepared and maintained by the Companies in the ordinary course of
business record keeping for purposes of preparing federal and
applicable state income Tax returns. The List, set forth in Section
3.14(b) of the Schedule, has been delivered to the Buyer. The List
completely sets forth, as of the year end of the taxable year
preceding the Closing Date, with respect to the depreciable or
amortizable assets of the Companies: (i) the assets' adjusted basis
as used by the Companies in the preparation of their federal income
Tax returns (and any difference in such basis and the basis for
state income Tax returns); (ii) the original Tax costs used by the
Companies to determine the adjusted basis of the assets; and (iii)
the Tax depreciation or amortization deduction taken by the
Companies in arriving at the assets' adjusted basis.
O. Dividends and Stock Purchases. Since the Balance Sheet Date,
neither of the Companies has repurchased or redeemed any of its
stock, and neither of the Companies has declared, set aside, or
made payment of any dividend or distribution of assets to the
holders of its stock.
P. Assets.
1. Section 3.16(a) of the Schedule sets forth a complete and
accurate list and description of all the real and personal property
that the Companies own or lease, have agreed (or have an option) to
purchase, sell or lease, or may be obligated to purchase, sell or
lease (the "Assets"), the net book value of each of which as of
June 30, 1996 (on an individual item-by-item basis, using for such
purpose the value of the fee simple, unencumbered title to such
property) exceeds One Thousand Dollars ($1,000); provided that for
purposes hereof any capitalized lease shall be valued at its net
book value and any other lease shall be included in Section 3.16(a)
of the Schedule only to the extent the aggregate payments required
to be made thereunder exceed One Thousand Dollars ($1,000). Except
as disclosed in Section 3.16(b) of the Schedule, each of the
Companies is the sole owner of and has good and marketable title to
the Assets, including without limitation those assets and
properties reflected in the 1996 Financial Statements in the
amounts and categories reflected therein, free and clear of all
mortgages, liens, pledges, charges or encumbrances or other third-
party interests of any nature whatsoever. Assets are not subject to
any rights of way, building use restrictions, exceptions,
variances, reservations or limitations of any nature whatsoever,
not of record or any governmental decree or order (or threatened or
proposed order to the knowledge of the Seller) to be sold or taken
by public authority, except (i) liens for current Taxes not yet due
and payable, (ii) Assets (other than current assets) described in
Section 3.16(b) of the Schedule which have been disposed of by the
Companies since the Balance Sheet Date whether or not in the
ordinary course of business, to the extent that the aggregate net
book value of such Assets so disposed of exceeds One Thousand
Dollars ($1,000); (iii) such secured indebtedness as is disclosed
in Section 3.16(b) of the Schedule, and (iv) such imperfections of
title, easements and other minor encumbrances, if any, as are not
substantial in character, amount or extent and do not materially
detract from the value, or interfere with the present or proposed
use, of the Assets subject thereto. All Assets of the Companies are
in the possession or control of the Companies, and no other person
is entitled to possession of any of such Assets.
2. The fixed assets comprising a part of the Assets are in
good operating condition and repair, ordinary wear and tear
excepted, are sufficient and adequate to carry on the Companies'
business as presently conducted and meet all applicable contractual
or federal, state and local governmental statutory, regulatory and
other requirements.
3. All Assets owned by either of the Companies which are
subject to title registration or recording are properly registered
or recorded in the name of their owners, and no title registration
or recording fees or taxes remain unpaid.
Q. Contracts. A list of all written and a detailed description
of all oral contracts, agreements (including the Government
Contracts), leases, mortgages and commitments to which either of
the Companies is a party or may be bound ("Contracts"), except
contracts that involve payments in the aggregate of less than One
Thousand Dollars ($1,000) per year or that can be terminated by
either of the Companies without penalty within thirty (30) days
after written notice, is set forth in Section 3.17 of the Schedule
and true copies of the Contracts listed in Section 3.17 of the
Schedule have been delivered to the Buyer. All Contracts required
to be listed in Section 3.17 of the Schedule are valid and in full
force and effect on the date hereof, and neither the Companies nor
the Seller, to the knowledge of either of the Companies or the
Seller, nor any other parties have violated any material provision
of, or committed or failed to perform any act, which with notice,
lapse of time or both, would constitute a material default under
the provisions of any such Contract. Except as disclosed on Section
3.17 of the Schedule, to the knowledge of the Companies or the
Seller, no party has any intention to terminate any Contract.
Except as disclosed on Section 3.17 of the Schedule, neither of the
Companies has any outstanding contract, written or oral, with any
officer or director, or with any employee, agent, consultant,
advisor, representative, dealer, contractor or broker that is not
cancelable on notice of not longer than thirty (30) days and
without liability, penalty or premium of any kind, or any agreement
or arrangement providing for the payment of any bonus or commission
based on earnings; neither of the Companies has (i) any outstanding
loan or loan commitment to any Person or (ii) any line of credit or
subordination agreement; there are no contracts or agreements of
either of the Companies with any director, officer or shareholders
of the Companies or the Seller or with any relative of any such
Person or with any company or other organization in which any
director, officer, or shareholder of either of the Companies or the
Seller or relative of any such Person, has, to the knowledge of
either of the Companies or the Seller, a direct or indirect
financial interest (excluding for such purposes the ownership of
less than one percent (1%) of the outstanding equity of any
publicly-traded corporation of which such Person is neither an
officer nor a director); and neither of the Companies is subject to
any contract or agreement containing covenants limiting the freedom
of any of the Companies to compete in either line of business in
any geographic area.
R. Receivables.
1. All accounts receivable whether payable by written or oral
agreement or otherwise ("Accounts Receivable") of the Companies
owing by any director, officer or shareholder of any of the
Companies or any relative of any such Person and Accounts
Receivable in excess of One Thousand Dollars ($1,000) owing by any
employee (whether or not reflected on the Financial Statements)
have been paid in full prior to the date hereof or shall have been
paid in full prior to the Closing Date.
2. All Accounts Receivable of any of the Companies which will
be reflected on the Closing Date Balance Sheet (i) will be valid,
existing and fully collectible (subject to any reserve on the
Closing Date Balance Sheet) within ninety (90) days following the
Closing Date without resorting to legal proceedings or collection
agencies, (ii) will represent monies due for amounts due under
Contracts, or for services rendered, goods sold and delivered in
the ordinary course of business, and (iii) will not be subject to
any refunds or adjustment or any defenses, rights of set-off,
assignment, restrictions, security interests or other encumbrances.
Since 1990, neither of the Companies has ever factored any of its
Accounts Receivable.
S. Limitation. Except as disclosed in Section 3.19 of the
Schedule, no claim, action, suit, arbitration, inquiry,
examination, audit, investigation (including, to the knowledge of
either of the Companies or the Seller, Grand Jury investigations),
indictment, formation or other proceeding is pending or, to the
knowledge of the Companies or the Seller, threatened against either
of the Companies, any of the Assets, or the business of either of
the Companies or the transactions contemplated hereby, or to which
either of the Companies is a party before any court, governmental
agency, authority or commission, arbitrator, or "impartial
mediator," and neither of the Companies is subject to any
unsatisfied judgment or outstanding court order. Section 3.19 of
the Schedule indicates which of such litigation matters are being
defended by an insurance carrier, which list is current as of the
date which is three (3) Business Days prior to the date hereof or
to the Closing Date, as appropriate. No present or former officer
or director of the Companies has or will have any claim for
indemnification from the Companies related to any act or omission
prior to the Closing by such present or former officer or director.
T. Insurance. Section 3.20 of the Schedule lists completely and
accurately all policies or binders of insurance held by or on
behalf of the Companies and all outstanding claims under those
policies or binders. Except as set forth in Section 3.20 of the
Schedule, all such policies or binders of insurance are in full
force and effect and none of the Companies has received any notice
of any pending or threatened cancellation or any material premium
increase (retroactive or otherwise), and the Companies are in
compliance with all material conditions contained therein. There
are no pending claims against such insurance as to which insurers
are defending under reservation of rights or have denied liability,
and there exists no claim under such insurance that has not been
properly filed by the Companies.
U. Labor Matters. There are no Collective Bargaining Agreements
to which either of the Companies is bound at the date of Closing.
Seller is aware that labor organizing activities are currently in
progress at the Rickenbacker site and may be in progress at any or
all of Seller's other sites.
V. Contracts for Personal Services. Except as disclosed in
Section 3.22 of the Schedule, neither of the Companies is a party
to or bound by any material Contract with any Person for or related
to personal services rendered or to be rendered by any Person to
the Companies.
W. Employee Benefit Plans and Arrangements.
1.a. Section 3.23(a) of the Schedule sets forth a true and
complete list of each Plan that either of the Companies currently
maintains or has in effect or as to which it is required to make
contributions. The term "Plan" shall mean any "Plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), any stock purchase, stock
option, performance, bonus, incentive, or savings plan, any
voluntary employee beneficiary association, or any other
obligation, arrangement or practice, whether or not a plan under
Section 3(3) of ERISA, to provide benefits, other than a salary, as
compensation for services rendered. All of the Plans are currently
in effect.
b. Section 3.23(a)(ii) of the Schedule identifies all Plans
which are pension plans, as defined in Section 3(2) of ERISA.
c. The assets of the Plans which are intended to be qualified
are held in trusts established under the Plans. True, complete and
accurate copies of all written Plans referred to in Section 3.23(a)
of the Schedule (including all applicable documents governing
obligations, trust agreements, summary plan descriptions, annuity
contracts, determination letters, the most recently available
annual reports, valuation or actuarial reports, and Internal
Revenue Service Form 5500s (or 5500-C or 5500-R) for any year
requested by Buyer relating to any Plan) have heretofore been
delivered to Buyer. Since the date such documents were made
available to Buyer, no plan amendments have been adopted nor will
any such amendments be adopted prior to the Closing Date, except as
Buyer reasonably may request to assist in the transition of the
Plans to Buyer's control upon the consummation of the Closing.
2. Except as disclosed in Section 3.23(b) of the Schedule, (i)
in terms of their structure and operation and in all other
respects, all Plans and related and all reports filed with respect
thereto in all material respects conform to and are being
administered in compliance with all applicable laws, including,
without limitation, the requirements of ERISA and the Code; (ii)
each of the Plans and their related trusts is (or, if terminated,
has been) "qualified" within the meaning of Section 401(a) and
Section 501 of the Code and each trust which is intended to be
exempt from taxation under Section 501 (a) of the Code is so
exempt, and each such Plan has received a favorable determination
from the Internal Revenue Service that such Plan is so qualified
and that each such trust is so exempt, and each such Plan and trust
has been operated in such manner as to preserve such qualification
and such qualification remains in effect; (iii) none of the Plans
or related trusts has incurred any accumulated funding deficiency
as defined in Section 412 of the Code or Section 302 of ERISA,
whether or not waived and regardless of the reason arising; (iv)
there are not now, nor have there been within the last five (5)
years, any transactions involving or related to any Plan or any
trust created thereunder which are prohibited under Part IV of
ERISA or Section 4975 of the Code nor is there any transaction in
connection with any Plan whereby either of the Companies could be
subject to a civil penalty assessed pursuant to Section 502 of
ERISA; (v) there are no pending or, to the knowledge of either of
the Companies or the Seller, threatened claims by or on behalf of
such Plans or related trusts or by any participant or beneficiary
thereunder with respect to any of the Plans, including, without
limitation, any claim alleging a breach or breaches of fiduciary
duties on the part of the Companies, the Companies' officers,
directors, employees or any other fiduciary (as defined in Section
3(21) of ERISA) with respect to any Plan maintained by the
Companies under ERISA or any other law, nor, to the knowledge of
either of the Companies or the Seller, is there any basis for such
a claim except for benefits to participants or beneficiaries in
accordance with the terms of the Plans; (vi) none of the Plans has
been terminated or partially terminated nor have the contributions
to any such Plans been discontinued, within the meaning of Section
411 of the Code, nor have there been any events with regard to such
Plans or their related funding instruments which might constitute
grounds for such a termination, partial termination or
discontinuance of contributions; (vii) no such Plan or related
trust owns any notes or securities issued by, or owns or leases any
property of, to or from, the Companies or the Seller or any
officer, director, controlling shareholder or affiliate of any of
them, nor is there any agreement or commitment to do so in the
future; (viii) each of the Companies has in all material respects
complied with all of their respective obligations with respect to
all Plans, including the payment of all contributions required or
due to be paid, the satisfaction of all reporting requirements to
federal, state and local governments and governmental agencies and
to all Plan participants and beneficiaries, and the payment or
accrual of all expenses for all periods, including the period
between the end of the previous Plan year and the Closing Date; and
(ix) the levels of insurance reserves and accrued liabilities with
regard to all the Plans are sufficient to provide for all incurred
but unreported claims and any retroactive premium adjustments.
3. Except as disclosed in Section 3.23(b) of the Schedule,
(i) neither of the Companies, nor any trade or business under
common control with either of the Companies (within the meaning of
Section 414(c) of the Code) has contributed to any pension plan
which is a multiemployer plan, as defined in Section 3(37) of ERISA
since the enactment of the Multiemployer Pension Act in 1980 and
the Companies have no liability under such Act as a result of any
prior acquisition by them of any entity or assets; and (ii) there
is no contract or arrangement covering any officer, director or
employee or former officer, director or employee of any of the
Companies that would result in the payment of any amount that would
not be deductible by operation of Section 280G of the Code, or,
other than the Employment Agreements referred to in Section 9.8,
provide separation, severance, termination or any other benefit or
payment as a result of the transactions contemplated by this
Agreement.
4. No statement, either written or oral, has been made by
either of the Companies to any person with regard to any Plan that
was not in accordance with the Plan and that could have an adverse
economic consequence to the Company or to Buyer. Except to the
extent required under Section 601 of ERISA, et seq., and Section
4980B of the Code, neither Company provides health or welfare
benefits for any retired or former employee or is obligated to
provide health or welfare benefits to any active employee following
such employee's retirement or other termination of service. The
Companies have materially complied with the provisions of Section
601 of ERISA, et seq., and Section 4980B of the Code. The Companies
have the right to modify and terminate each of the plans upon
giving no more than thirty (30) days' notice. The consummation of
the sale of the stock in the Companies will not result in payment,
vesting or acceleration of any benefit under the Plans.
5. Except as described in Section 3.23(e) of the Schedule,
neither of the Companies hereto has any binding agreement,
arrangement or commitment to create any additional Plan or to
increase the rate of benefit accrual or contribution requirement
under any of the Plans; to modify or change in any material
respect, or terminate any existing Plan; or, except as required by
law, to continue any Plan or any provisions thereunder for any
period of time.
6. Except as described in Section 3.23(f) of the Schedule,
none of the Plans is currently under investigation, audit or review
by the Department of Labor, the Internal Revenue Service or any
other federal or state agency.
X. Government Contracts. International has a contract with the
FAA enabling it to operate air traffic control towers on those
airports which are listed on Section 3.24 of the Schedule which
fully enables International to operate its business as presently
conducted, and ATC has contracts with other Governmental Agencies
enabling it to operate the air traffic control towers on those
airports which are listed on Section 3.24 of the Schedule which
fully enables ATC to operate its business as presently conducted.
The Companies have, in all material respects, operated in
compliance, are not in default, and neither of the Companies nor
the Seller has received any notice of any claim of default with
respect to the Governmental Agencies, or any notice of any other
claim or proceeding or threatened proceeding relating to a
Government Contract or claimed lack of any necessary authorization,
or the ability of the Companies to engage in the activities
contemplated by the Government Contracts. Neither of the Companies
nor the Seller, has received any notice from the FAA or other
Governmental Agencies to the effect that (a) the Government
Contracts will not be kept fully in force; (b) the Government
Contracts will not be transferred to the Buyer or otherwise not
continue so that the Buyer, upon acquisition of the Capital Stock,
can conduct the business of the Companies as fully as it is now
conducted, and (c) the FAA Contract will not be renewed. Where
joint application for consent relating to the Government Contracts
is required by the Government Agencies, the Seller will join in the
joint application.
Y. Catastrophic Loss. Since the Balance Sheet Date, the
Companies have not suffered any loss or damage due to or arising
out of fire, flood, explosion, hurricane or other casualty,
calamity, accident or act of God that is a Material Adverse Change
or will have a material adverse effect upon the Assets, financial
condition, results of operations, performance, business or
prospects of either of the Companies ("Material Adverse Effect").
Z. Guarantees. Except as disclosed in Section 3.26 of the
Schedule, there are no contracts or commitments by either of the
Companies as guarantor of payment or performance, surety,
consigner, endorser, co-maker or indemnitor in respect of the
contract or commitment of any other Person or whereby, except for
the endorsement of checks in the regular and ordinary course of
their respective businesses, the Companies in any way are or will
be liable with respect to obligations of any other Person. There
are no outstanding powers of attorney granted by either of the
Companies.
AA. Brokerage. No broker, finder or similar agent has been
employed by or on behalf of either of the Companies or the Seller
and no Person with which the Companies or the Seller have had
dealings or communications of any kind is entitled to a commission
or other similar compensation in connection with the transactions
contemplated by this Agreement.
AB. Officers and Directors and Certain Authorized Persons.
Section 3.28 of the Schedule sets forth a complete and accurate
list of:
1. the names of all directors of the Companies;
2. the names of all officers of each of the Companies and a
listing of the offices held by them;
3. the names of all Persons authorized to borrow money or
incur or guarantee
indebtedness on behalf of the Companies;
4. all safes, vaults and safety deposit boxes maintained by
or on behalf of the Companies or in which property of the Companies
is held, and the names of all Persons authorized to have access
thereto; and
Persons who are authorized signatories with respect to such
accounts, the capacities in which they are authorized signatories
and the terms of their authorizations.
AC. Transactions with Affiliates. Except as disclosed in
Section 3.29 of the Schedule, as of the Closing, neither the Seller
nor any director, officer or employee or representative of the
Companies, nor, to the knowledge of either of the Companies or the
Seller, any relative of the Seller or any such director, officer,
employee or representative, i) is a party to any material Contract
with the Companies, (ii) is (except as disclosed in the Financial
Statements or in the ordinary course of business, for any employee
or representative of the Companies, other than any employee or
representative who is also a director or officer, or any relative
thereof) indebted to any of the Companies, or (iii) (to the
knowledge of either of the Companies or the Seller, as to any
employee or representative of the Companies, other than any
employee or representative who is also a director or officer, or
relative thereof), has an ownership interest in any business,
corporate or otherwise, that is a party to, or in any property
which is the subject of, material. business arrangements or
relationships of any kind with the Companies.
AD. Major Suppliers. Section 3.30(a) of the Schedule sets
forth a complete, true and correct list of the Companies' ten
largest suppliers in terms of dollar volume during each of the
years ended June 30, 1996. To the knowledge of either of the
Companies or the Seller, no supplier of either of the Companies
intends to terminate or materially reduce its supplier relationship
with the Companies whether by reason of the transactions
contemplated hereby or otherwise, where such termination or
material reduction would have a Material Adverse Effect, and no
supplier is otherwise involved in a dispute with any of the
Companies, the outcome of which if adverse to the Companies. would
have a Material Adverse Effect.
AE. Disclosure. No representation, warranty, undertaking or
agreement of the Seller made under this Agreement and no statement,
certificate, list or other document furnished or to be furnished to
the Buyer pursuant to this Agreement or in connection with the
transactions contemplated hereby contains or will contain any
untrue statement of a material fact, or omits or will omit to state
a material fact necessary in order to make the statements contained
therein not misleading.
IV. Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Seller as follows:
A. Organization and Good Standing. The Buyer is a corporation
duly organized, validly existing and in good standing under the
laws of the State of New Jersey, with full corporate power and
authority to conduct its business as it is now being conducted and
to own and operate its assets, properties and business.
B. Authorization. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby has
been duly authorized by all necessary action on the part of the
Buyer and the Buyer has full corporate authority to execute and
deliver this Agreement and subject to the terms of this Agreement
to carry out the transactions contemplated hereby. No other
corporate proceedings on the part of the Buyer other than as
contemplated by this Agreement, is necessary to authorize this
Agreement or the carrying out of the transactions contemplated
hereby.
C. Agreement Binding. This Agreement constitutes the legal,
valid and binding agreement of the Buyer, enforceable in accordance
with its terms.
D. Conflict with Other Agreements, Approvals. With respect to
the following:
1. the Certificates of Incorporation or Bylaws of the Buyer;
2. any applicable law, statute, rule or regulation;
3. any material contract to which the Buyer is a party or is
bound; or
4. any judgment, order, injunction, decree or ruling of any
court or governmental authority to which the Buyer is a party or
subject;
the execution and delivery by the Buyer of this Agreement and the
consummation of the transactions contemplated hereby will not (i)
result in any violation, conflict or default (or event which with
notice or passage of time or both would constitute a breach or
default) or require the consent of any other party or (ii) except
for the requirements of applicable state securities laws, require
any authorization, consent, approval, exemption or other action by
any court or administrative or governmental body (other than the
authorizations or consents contemplated by this Agreement) which
has not been obtained, or any notice to or filing with any court or
administrative or governmental body that has not been given or
made. At or prior to the Closing, the Buyer will deliver to the
Seller copies of all consents received by the Buyer with respect to
any contract requiring consent pursuant to this Section 4.4.
E. Buyer's Intent. The Buyer is purchasing the Capital Stock
solely for its own account and not with a view to public
distribution. The Buyer agrees that it will not transfer any of the
Capital Stock, except pursuant to an effective registration
statement under the applicable state securities laws and the
Securities Act of 1933 or in a transaction which is exempt under
such applicable state securities laws and the Securities Act of
1933.
F. Brokerage. No broker, finder or similar agent has been
employed by or on behalf of the Buyer and no Person with which the
Buyer has had dealings or communications of any kind is entitled to
a commission or other similar compensation in connection with the
transactions contemplated by this Agreement.
G. Disclosure. No representation, warranty, undertaking or
agreement of the Buyer made under this Agreement and no statement,
certificate, list or other document furnished or to be furnished to
the Seller pursuant to this Agreement or in connection with the
transactions contemplated hereby contains or will contain any
untrue statement of a material fact, or omits or will omit to state
a material fact necessary in order to make the statements contained
therein not misleading.
V. Conduct of Business of the Companies Prior to Closing. From
and after the date hereof to the Closing Date or the date of
termination of the parties' obligation to close under this
Agreement, whichever first occurs, the Seller covenants to the
Buyer that, except as the Seller may specifically notify the Buyer
in writing, the Seller will cause the Companies to conduct and
operate their respective businesses only in the ordinary course of
business consistent with the Companies' past practice, not make or
institute any new methods of purchase, sale, lease, management,
accounting or operation except in the ordinary course of business
and consistent with the prior practice of the Companies, and use
their best efforts to (i) preserve intact their present business
operations, (ii) keep available the services of their present
officers and employees, and (iii) preserve their contractual
relationships with the Governmental Agencies, suppliers, and others
having business dealings with them. In the event of a violation of
a provision of this Section 5 prior to the date of Closing which
becomes known by Buyer prior to the date of Closing, the sole and
exclusive remedy of Buyer shall be to terminate this Purchase
Agreement. By way of illustration and not by way of limitation of
the foregoing:
A. Working Capital Management. The Companies shall manage their
working capital, including cash, receivables, prepaid expenses,
other current assets, trade payables and other current liabilities,
in a fashion consistent with past practice, and paying outstanding
obligations, trade accounts and other indebtedness as and in the
order in which they come due.
B. Adverse Changes. The Companies will not take or omit to take
any action which action or omission will cause any Material Adverse
Change, or waive any statute of limitations so as to expand any Tax
or other liability of the Companies.
C. Maintenance of Properties, etc. The Companies will, at their
own expense, maintain all of the properties used or useful in the
business of the Companies in customary repair, order and condition
consistent with past practice, except for reasonable wear and tear
and damage by fire and unavoidable casualty.
D. Maintain Corporate Existence. The Companies will maintain
their corporate existence in good standing in their respective
jurisdictions of incorporation and their due qualification in good
standing in all jurisdictions in which they are so qualified.
E. Capital Stock. The Companies will not make any change in
their authorized, issued or outstanding capital stock, and will not
grant any options or other rights of any kind to acquire, whether
directly or contingently, any of their capital stock or any
security convertible into or exchangeable for their capital stock.
F. Dividends, Distributions and Stock Repurchases. The Companies
will not declare, set aside, or pay any dividend or make any other
distribution in respect of their capital stock or directly or
indirectly redeem, retire, repurchase or otherwise acquire any of
their shares of capital stock.
G. Employment. Except as agreed to in writing by the Buyer, the
Companies will not enter into any employment contracts with,
otherwise hire or commit to hire, or terminate, any employee.
Except pursuant to the express written terms of any contract
entered into prior to the date hereof and disclosed in Section 5.7
of the Schedule, the Companies will not increase the rate of
compensation payable or to become payable by them to, and will not
enter into any new arrangements for severance or termination with,
any director, officer or any other employee, and will not make any
general increase in compensation or rate of compensation payable or
to become payable to hourly employees or salaried employees, except
where required by law. Excepted herefrom are normal "step" pay
increases for employees (other than directors, officers or
executive employees) made in the ordinary course of business.
H. Compensation. The Companies will not accrue or pay to any of
their officers, directors or employees any bonus, profit sharing,
retirement pay, insurance, death benefit, fringe benefit or other
compensation, except those which shall have accrued under existing
Plans and which are disclosed in Section 5.8 of the Schedule in the
ordinary course of the operation of such Plans. The Companies also
shall not establish, amend or terminate any bonus, profit sharing,
thrift, stock option, restricted stock, pension, retirement,
deferred compensation, or other Plan, policy or arrangement unless
such action is taken to conform such Plan, policy or arrangement to
the requirements of ERISA or the Code.
I. Liabilities and Obligations. The Companies will not incur,
assume, guarantee or otherwise become liable for any material
liabilities or obligations (direct or indirect, matured or
unmatured, contingent or otherwise) of any nature, or exchange,
refund or revise any outstanding indebtedness in such a manner as
to reduce the principal amount of such indebtedness and increase
the interest rate, except (a) trade payables, other current
liabilities or deferred taxes incurred between the date hereof and
the Closing Date that are incurred in the ordinary course of
business, and (b) liabilities and obligations fully covered by
insurance except for deductible amounts set forth in the policies
listed in Section 5.9 of the Schedule or policies issues in
replacement thereof.
J. Capital Expenditures. Except as agreed to by the Buyer in
writing, no contract or commitment of any kind relating to any
material single capital expenditure by the Companies shall be
entered into. Without limiting the generality of the foregoing, the
Companies shall not acquire or agree to acquire the stock or any
substantial portion of the assets of any business enterprise.
K. Sale of Assets. Except as agreed to in writing by the Buyer,
the Companies will not sell or dispose of any of their material
assets.
L. Leases, Contracts. Except as agreed to in writing by the
Buyer, the Companies will not enter into any lease as lessor or
lessee, or enter into any contract or commitment.
M. Insurance. The Companies will either maintain in full force
and effect all policies of insurance in force on the date hereof or
with prior notice to the Buyer obtain equivalent satisfactory
substitute insurance policies and will notify the Buyer in the
event of any material increase in costs insuring against the risks,
damages and losses covered by policies currently in force. If any
of the assets or properties of the Companies are damaged or
destroyed by fire or other casualty whether insured or uninsured,
then, subject to the rights, if any, of the lessors or mortgagees
thereof, the Companies will promptly proceed with the repair,
restoration or replacement thereof in such manner and location as
the Companies in good faith shall determine to be in the best
interests of the business of the Companies.
N. Contracts. The Companies and the Seller will not do any act
or omit to do any act, or permit any act or omission, which act or
omission will cause a breach of, or default in, any of the
Contracts, including the Government Contracts, disclosed in Section
5.14 of the Schedule or required to be disclosed in this Agreement,
and will not amend or terminate or consent to such amendment or
termination of any such Contract.
O. Books and Records: Accounting. The Companies will maintain
their books and records in the ordinary course of business in
accordance with GAAP, consistently applied, and will not make any
change in any accounting method or principle.
P. Loans, etc. The Companies will not make any investment
(whether by acquisition of stock, capital contribution or
otherwise) in, or loan or advance to, any Person or become
committed so to do.
Q. Encumbrances. The Companies will not mortgage, pledge or
otherwise subject to any lien, security interest, encumbrance or
charge of any nature ("Lien"), any of the Assets, or become
committed to do so, or permit or suffer any of the Assets to become
subject to any Lien or become committed so to do, other than Liens
of current Taxes not yet due and payable or mechanic's or
materialmen's Liens.
R. Tax Returns and Taxes. Between the date hereof and the
Closing Date, the Companies and the Seller will timely file all Tax
Returns required to be filed and will make timely payment of all
Taxes required to be paid (other than, if the Closing occurs after
the fifteenth day and prior to the last day of any month, the
amount of any estimated Taxes). The Companies and the Seller will
not obtain extensions to file any such Tax Returns, contest the
payment of any such Taxes, or settle any Tax claims against or
affecting the Companies or related to the business or activities of
the Companies, without the consent of the Buyer, which consent
shall not unreasonably be withheld.
S. Amendment to Articles of Incorporation and Bylaws. The
Companies will not amend their Articles of Incorporation or Bylaws.
T. Waiver or Release of Claims. The Companies will not, without
adequate consideration, (i) release or waive any claims or rights,
(ii) cancel any debts or discharge any liens, or (iii) pay any
obligations other than those for liabilities shown on the 1996
Financial Statements and those incurred since the Balance Sheet
Date in the ordinary course of business.
U. No Breach. Neither of the Companies nor the Seller shall do
any act, omit to do any act, or permit any act within the Seller's
or the Companies' control which will cause a breach of any
representation, warranty or obligation contained in this Agreement
or any obligations contained in any contract.
V. Replacement Stock Certificates. The Companies shall not issue
substitute stock certificates to replace certificates which have
been lost, misplaced, destroyed, stolen or are otherwise
irretrievable, unless an adequate bond or indemnity agreement
approved by the Buyer has been duly executed and delivered.
VI. Updating of Schedules: Duty to Notify.
1. Between the date hereof and the Closing Date, the Seller
will promptly disclose to the Buyer in writing any information set
forth in any Schedule hereto that is no longer accurate for any
reason and any information of the nature of that set forth in the
Schedule that arises after the date hereof and that would have been
required to be included in the Schedule if such information had
been obtained on the date hereof.
2. If between the date hereof and the Closing Date, either
the Seller or the Buyer determines that they or it cannot or will
not close the transactions contemplated by this Agreement, they
will immediately so notify the other in writing stating why the
transaction will not close.
VII. Third Party Consents. The Seller and the Buyer shall each
use their reasonable best efforts to file all applications, notices
and other documents, obtain all third-party consents, permits or
other approvals, including those of the Governmental Agencies
pursuant to the Government Contracts, that may be necessary or
reasonably required of them in order to effect the transactions
contemplated by this Agreement and will assist the other in every
reasonable way to secure such consents, permits or other approvals
as expeditiously as reasonably possible.
VIII. Access to Business and Records; Confidential Information.
1. Between the date hereof and the Closing Date, the Seller
agrees to grant to the Buyer and its officers, employees,
attorneys, accountants and agents, the right, during normal
business hours and upon reasonable written notice, to inspect and
copy the books, records and properties of the Companies and to
consult with officers, employees, attorneys, accountants, and
agents of the Companies and the Seller (at the Buyer's expense),
for the purpose of investigating the business of the Companies and
determining the accuracy of the representations and warranties made
by the Seller. After the Closing Date, the Buyer agrees to grant to
the Seller and their employees, attorneys, accountants and agents,
the right for the purposes of responding to any audit or other
assertion of deficiency or as otherwise required in connection with
the determination of the Purchase Price (including Accounts
Receivable), during normal business hours and upon reasonable
written notice, to inspect and copy (at Seller's expense), the
books, records, properties and inventory of the Companies and to
consult with the officers, employees, attorneys, accountants and
agents of the Companies, the Buyer and its affiliates (at the
Seller's expense). After the Closing, the Buyer agrees to grant to
the Reviewing Firm access to the books, records, properties and
inventory of the Companies and the right to consult with the
officers, employees, attorneys, accountants and agents of the
Companies (such expense to be the cost of the Buyer) for the
purpose of completing its work as the Reviewing Firm.
2. Between the date hereof and the Closing, if any, and if
there is no Closing, then thereafter, the Buyer shall keep
confidential, and shall cause all of its representatives to keep
confidential, any information obtained from the Companies or the
Seller concerning the operation and business of the Companies other
than information which is public information or which the Buyer
obtained or could have obtained from a source other than the
Companies or the Seller.
3. After the Closing Date, the Seller and its
representatives, and their respective heirs, estates, successors
and assigns, will not keep or take any proprietary information,
know-how, logos, labels, or trade secrets which constitute a part
of the business and operations of the Companies or keep or take any
documents or any other things embodying any such proprietary
information or trade secret, and shall not use for their own
purpose or advantage or publish or disclose to any third person any
proprietary information or trade secret constituting a part of the
business or operations of the Companies.
IX. Conditions to Obligation of the Buyer to Consummate the
Acquisition. The obligation of the Buyer to consummate the Capital
Stock purchase provided for in this Agreement shall be subject to
the following conditions:
A. Representations, Warranties and Covenants of the Seller. The
representations and
warranties of the Seller herein contained and the information
contained in the Schedules delivered on the date hereof by the
Seller and any Closing documents delivered by the Seller in
connection with this Agreement shall be true and correct in all
material respects when made and at the Closing Date with the same
effect as though made at such time except to the extent that any
such representation and warranty speaks as of a specified date in
which case at the Closing Date such representation and warranty
shall be true and correct in all material respects as of such
specified date and except to the extent waived hereunder in
writing; the Seller shall have performed all obligations and
complied with all agreements, undertakings, covenants and
conditions required by this Agreement to be performed or complied
with by it at or prior to the Closing Date; and the Seller shall
have delivered to the Buyer a certificate in form and substance
reasonably satisfactory to the Buyer dated the Closing Date and
signed by authorized officers of the Seller to all such effects.
B. Pending Litigation. There shall not be any material
litigation or proceeding pending or threatened against or affecting
the Companies, the Government Contracts or the business of the
Companies or to restrain or invalidate the transactions
contemplated by this Agreement.
C. Third Party Consents. The consent to or authorization or
approval of, the transactions contemplated by this Agreement from
each Person relating to the Contracts, including authorizations
required by this Agreement shall have been obtained.
D. Opinion of Counsel for the Seller. The Buyer shall have
received an opinion dated the Closing Date of Farris, Warfield &
Kanaday, counsel for the Seller, satisfactory to the Buyer in the
form of Exhibit 9.4. In providing such opinion, Farris, Warfield &
Kanaday may rely on the opinion(s) of other counsel reasonably
satisfactory to the Buyer.
E. Closing Documents. The Buyer shall have received such
certificates and other
Closing documentation as it shall reasonably request.
F. Environmental Matters. The Buyer shall have received Phase I
Environmental Audits at its own expense and such other
environmental assurances that it may require showing that the
Assets are in compliance with all environmental laws and do not
contain any Hazardous Substances.
G. Cooperation and Non-Compete Agreement. The Seller shall have
executed the Continuing Cooperation, Assistance and Non-Compete
Agreement in the form attached hereto as Exhibit 9.7.
H. Employment Agreements. The employees listed on Exhibit 9.8,
as it may be supplemented following the execution of this Agreement
by a written document signed by the Seller and the Buyer, shall
have executed an Employment Agreement substantially in the form
attached hereto as Exhibit 9.8.
I. Record Searches. The record searches made by or on behalf of
the Buyer on or before the Closing Date shall not have indicated
the existence of any material litigation, claim, lien, mortgage,
encumbrance or judgment against any of the Companies or any of
their material Assets, except as permitted by this Agreement; or,
if any such litigation, claim, lien, mortgage, encumbrance or
judgment has been indicated, the Seller shall have provided
evidence satisfactory to the Buyer of the removal, prior to the
Closing, of any such litigation, claim, lien, mortgage, encumbrance
or judgment.
J. Government Contracts. The Buyer shall have received evidence
satisfactory to it that the Government Agencies will consent to the
acquisition of the Companies by the Buyer pursuant to this
Agreement and that the Companies' ability to bid for new, extended
or expanded agreements with the Government Agencies will not be
adversely affected by the acquisition of the Companies by the
Buyer.
K. Serco Board Approval. The purchase of all of the issued and
outstanding shares of Capital Stock of the Companies shall have
been approved by the Board of Directors of the Buyer.
L. Absence of Material Adverse Change. There shall have been no
Material Adverse Change with respect to the Seller or either of the
Companies since the date of this Agreement or compared to the
undated twelve (12) month financial projection attached hereto as
Exhibit 9.12.
X. Conditions to Obligations of the Seller to Consummate the
Acquisition. The obligation of the Seller to consummate the Capital
Stock sale provided for in this Agreement shall be subject to the
following conditions:
A. Representations, Warranties and Covenants of the Buyer. The
representations and warranties of the Buyer contained herein and
the information contained in any Closing documents delivered by the
Buyer in connection with this Agreement shall be true and correct
in all material respects when made and at the Closing Date with the
same effect as though made at such time except to the extent that
any such representation and warranty speaks as of a specified date
in which case at the Closing Date such representation and warranty
shall be true and correct in all material respects as of such
specified date and except to the extent waived hereunder in
writing, and the Buyer shall have performed all obligations and
complied with all agreements, undertakings, covenants and
conditions required hereunder to be performed and complied with by
it prior to or at the Closing Date, and the Buyer shall have
delivered to the Seller a certificate of the Buyer in form and
substance satisfactory to the Seller dated the Closing Date and
signed by its authorized officers to all such effects.
B. Pending Litigation. There shall not be any litigation or
proceeding pending or
threatened to restrain or invalidate the transactions contemplated
by this Agreement.
C. Third Party Consents. All filings, if any, required under all
applicable securities laws shall have been made, the applicable
waiting periods, if any, thereunder shall have expired or been
terminated and the consent to or authorization of or approval of,
the transactions contemplated by this Agreement from each Person
relating to the Contracts, including authorizations required by
this Agreement and shall have been obtained.
D. Opinion of Counsel for the Buyer. The Seller shall have
received an opinion dated the Closing Date of Seeger Potter
Richardson Luxton Joselow & Brooks, L.P.P., counsel for the Buyer,
satisfactory to the Seller, in the form of Exhibit 10.4. In
providing such opinion, Seeger Potter Richardson Luxton Joselow &
Brooks, L.L.P. may rely on the opinion(s) of other counsel
reasonably satisfactory to the Sellers.
E. Closing Documents. The Shareholders shall have received such
certificates and other documentation as the Seller may reasonably
request.
XI. Tax Matters.
A. Short Period Income Tax Returns. The Seller will prepare and
file any required Tax Returns for the Companies for the period
beginning July 1, 1996 and ending on or before the Closing Date
("Short Period Return").
B. Post-Closing Responsibility for Taxes Arising Out of the
Short Period and any Prior Periods. It is the intent of the parties
that the Seller be economically responsible for all income Taxes
for the Short Period and all prior periods of or attributable to
the Companies (whether shown on the returns therefor or resulting
from subsequent audit or adjustment) by such income Taxes having
been paid prior to Closing. Accordingly, if the amount of the total
Tax shown on the Short Period Return, as filed or upon audit, plus
any deficiency of income Tax for any period ending on or before the
Closing Date resulting from audit or amended return from any such
prior period, exceeds the sum of the income Taxes actually paid and
the amount accrued for income Tax liabilities on the Closing Date
Balance Sheet, then the Seller shall indemnify the Buyer and pay to
the appropriate taxing authorities, within the time prescribed by
any taxing authorities, an amount equal to the additional taxes as
may be due. Seller reserves the right to contest and dispute any
such taxes as are asserted to be due, so long as it fully
indemnities, and holds Buyer harmless from such Taxes and no liens
are asserted by any such taxing authorities.
C. Post-Closing Tax Procedures.
1. No amended or substituted return for or affecting the
Companies for the Short Period or any earlier period shall be filed
after Closing without the written consent of the Buyer; provided,
however, that in determining whether to give such consent, the
Buyer shall not act unreasonably.
2. Before execution of any extensions of the statutes of
limitation for or affecting the Companies for the Short Period or
any earlier period, the Seller shall obtain the consent of Buyer;
provided, however, that in determining whether to give such
consent, the Buyer shall not act unreasonably.
3. Buyer agrees to cooperate with Seller by providing access
to any records of the Companies (as existed at Closing and are then
in its possession) and which are necessary to contest any
subsequent assertion of additional tax liability.
D. Tax Sharing Matters. On or before the Closing Date, all
income Tax amounts then owed by the Companies to the Seller or by
the Seller to the Companies pursuant to any Tax sharing agreement
or method, formal or informal, shall be paid in full.
E. Section 338 Election. If the Buyer determines in its sole
discretion that it should make an election under Section 338 of the
Code that requires Seller to join in such election, Seller agrees
that it will so join in such election upon request of Buyer, but
expressly subject to the condition that the Buyer hereby agrees. In
accordance with the procedures set forth in Section 13 hereof, to
fully indemnify and hold Seller free and harmless from any adverse
tax consequences resulting from such election and from any and all
costs, expenses, legal fees, and accounting fees that result from
such election being implemented. Should Buyer make such a 338
election, it shall notify Seller in writing of its determination to
do so, and acknowledge its obligations hereunder. Any amounts due
to Seller as a result of the indemnification herein given shall be
paid to Seller within five (5) days of Seller's request to Buyer.
XII. Purchase Price Adjustments for Losses.
A. Losses. Subject to the provisions of this Article 12, the
Aggregate Purchase Price shall be reduced (such reduction to be
borne by the Seller) by any and all damage (including fines,
penalties, and criminal or civil judgments and settlements), loss,
expenses (including reasonable attorneys' fees), liability or
deficiency that results in monetary or economic loss, damage or
liability to the Buyer or the Companies (other than consequential
damages) and any payments required to be made to officers,
directors, employees or agents under duly and lawfully enacted
charter provisions or bylaws, board resolutions or undertakings,
commitments or other understandings (in each case as in effect on
the Closing Date) or under applicable corporate law, that results
in monetary or economic loss, damage or liability to the Buyer or
the Companies, including interest pursuant to Section 12.3(e)
(referred to individually in this Agreement as a "Loss" or in the
aggregate as "Losses") from or with respect to:
1. any misrepresentation, breach of warranty or non-fulfillment
of any covenant or agreement on the part of the Seller under this
Agreement or from any misrepresentation in or omission from any
Schedule or any closing certificate, with respect to matters
existing on or prior to the Closing Date (other than Losses
relating to income Taxes (which Losses are dealt with in 12.1 (b)
below));
2.(i) any breach of warranty regarding income Taxes as set
forth in Section ___). 14, (ii) any non-fulfillment of the covenant
regarding income Taxes as set forth in Section 5.18, or (iii)
without regard to any representation or warranty as set forth in
Section 3.14 or the covenant as set forth in Section 5.18, any
failure of Seller to perform its obligations regarding income Taxes
as set forth in Section 11 hereof; and
3. any actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, penalties, judgments, costs
(including court costs) and other expenses (including, without
limitation, reasonable audit and legal fees) incident to any of the
foregoing.
B. Survival of Representations, etc. All representations,
warranties and covenants of the Seller set forth herein shall
survive the Closing. No investigation or other examination by the
Buyer or its designee or representatives shall affect the survival
of the representations, warranties and covenants set forth above.
C. Method of Asserting Claims, etc. All claims for adjustment of
the Aggregate Purchase Price under this Section shall be asserted
and resolved as follows:
1. In the event that any claim or demand potentially
constituting a Loss hereunder is asserted against or sought to be
collected from the Buyer or any of the Companies by a &&d party
(hereinafter a "Third Party Claim"), the Buyer shall in writing
promptly notify the Seller of such claim or demand, specifying the
nature of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall
not be conclusive of the final amount of such claim and demand)
(the "Claim Notice"). The Seller shall have thirty (")O) days from
the receipt of the Claim Notice (the "Notice Period") to notify the
Buyer (i) whether or not it disputes that any or all of the Third
Party Claim or demand would result in an adjustment to the
Aggregate Purchase Price and (ii) whether or not it desires, at the
sole cost and expense of the Seller, to defend the Buyer against
such claim or demand. In the event that the Seller notifies the
Buyer within the Notice Period that it desires to defend the Buyer
against such claim or demand and except as hereinafter provided,
Seller shall have the absolute right to defend by appropriate
proceedings, which proceedings shall be promptly settled or
prosecuted by it to a final conclusion. If the Buyer desires to
participate in, but not control, any such defense or settlement, it
may do so at its sole cost and expense. If the Seller has not
notified the Buyer that it disputes that all or any part of the
Third Party Claim or demand would result in an adjustment to the
Aggregate Purchase Price, then (a) if the Seller elects not to
defend the Buyer against such claim or demand, the amount of any
such claim or demand, or, (b) if such claim or demand be contested
by the Seller or by the Buyer (but the Buyer shall have no
obligation to contest any such claim or demand), that portion
thereof as to which a court of competent jurisdiction has finally
determined, from which no appeal has been taken, that such defense
is unsuccessful, shall be a Loss hereunder and the Aggregate
Purchase Price shall be adjusted accordingly; provided, however,
that nothing hereunder shall be deemed to impair or restrict any
right or remedy available to Buyer to claim for a Purchase Price
adjustment with respect to such disputed Third Party Claim or
demand or any portion thereof, including the right to assert that
the same is a Loss hereunder.
2. In the event the Buyer should have a claim for Loss requiring
adjustment of the Aggregate Purchase Price hereunder that does not
involve a claim or demand being asserted against or sought to be
collected from the Buyer or any of the Companies by a third party,
the Buyer shall promptly send a Claim Notice with respect to such
claim to the Seller. If the Seller does not notify the Buyer within
the Notice Period that it disputes such claim, the amount of such
claim shall be conclusively deemed a Loss requiring adjustment of
the Aggregate Purchase Price hereunder.
3. Nothing herein shall be deemed to prevent the Buyer from
making a claim for adjustment of the Aggregate Purchase Price
hereunder for potential or contingent claims or demands provided
the Claim Notice sets forth the specific basis for any such
potential or contingent claim or demand to the extent then feasible
and the Buyer has reasonable grounds to believe that such a claim
or demand may be made.
4. All Losses, as such term is defined in Section 12.1, shall
be treated as an adjustment to the Aggregate Purchase Price
exclusively as follows: (i) To the extent that the Closing Date
Balance Sheet as finally determined in accordance with Section
1.3(b) exceeds One Million Five Hundred Fifty Thousand Dollars
($1,550,000) (a "Positive Balance Sheet Difference"), there shall
be no adjustment to the Aggregate Purchase Price until the sum of
the Losses exceeds the Positive Balance Sheet Difference; (ii)
thereafter, if there are any remaining Losses in excess of the
Positive Balance Sheet Difference chargeable as adjustments to the
Aggregate Purchase Price, then such excess Losses shall be
satisfied first against the Escrow in accordance with the
provisions of Article 1, resulting in a reduction of the Escrow (as
of the date of such offset) equal to the amount of the reduction of
the Aggregate Purchase Price to which Buyer is entitled. When the
Escrow is reduced to zero, Buyer shall next claim against amounts
remaining unpaid under the Renewal Payment and thereafter the
Seller shall reimburse Buyer for any remaining Losses.
5. All adjustments to the Aggregate Purchase Price resulting
from Losses whether offset against the Escrow, the Renewal Payment
or otherwise payable to the Buyer, shall bear interest at ten
percent (10%) per annum accruable with respect to the amount of the
Loss or Losses from the date such Loss was paid by Buyer to the
date of offset or payment to the Buyer.
D. Minor Differences To Be Ignored. In determining whether an
adjustment to the Aggregate Purchase Price is to be made under this
Section 12, individual differences or changes of less than One
Thousand Dollars ($1,000) for each misrepresentation, breach of
warranty or nonfulfillment of any covenant to be performed by the
Seller (each an "Event") shall be ignored. Adjustments of greater
One Thousand Dollars ($ 1,000) per Event shall be ignored until the
total of such differences or changes in the cumulative, when added
to those differences or changes described in Section 1.3 equal
Twenty-Five Thousand Dollars ($25,000). If the total of such
differences or changes for Section 1.3 and this Section 12
cumulatively exceed Twenty-Five Thousand Dollars ($25,000), then
the Aggregate Purchase Price shall be adjusted to the extent the
total of such differences or changes exceed Twenty-Five Thousand
Dollars ($25,000).
XIII. Indemnification by the Buyer.
A. Indemnification. The Buyer shall reimburse and indemnity and
hold the Seller
harmless against any and all damage (including fines, penalties,
and c or civil judgments and settlements), loss, expenses
(including reasonable attorneys' fees), liability or deficiency,
that results in a monetary or economic loss, damage or liability to
the Seller (other than consequential damages), and any payments
required to be made to officers, directors, employees or agents
under duly and lawfully enacted charter provisions or bylaws, board
resolutions or other undertakings, commitments or other
understandings (in each case as in effect on the Closing Date),
together with interest thereon from the date such loss was incurred
to the date of payment at ten percent (10%) per annum, resulting
from or with respect to:
1. any misrepresentation, breach of warranty or non-fulfillment
of any covenant or agreement on the part of the Buyer under this
Agreement or any Closing certificate, with respect to matters
existing on or prior to the Closing Date; and
2. any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines, penalties,
judgments, costs (including court costs) and other expenses
(including, without limitation, reasonable audit and legal fees)
incident to any of the foregoing.
B. Survival of Representations, etc. All representations,
warranties and covenants of the Buyer set forth herein shall
survive the Closing.
C. Method of Asserting Claims, etc. All claims for
indemnification by the Seller against the Buyer under this Article
shall be asserted and resolved as follows:
1. In the event that any claim or demand for which the Buyer
would be liable to the Seller hereunder is asserted against or
sought to be collected from the Seller by a third party, the Seller
shall promptly notify the Buyer of such claim or demand, specifying
the nature of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall
not be conclusive of the final amount of such claim and demand)
(the "Claim Notice"). The Buyer shall have thirty (30) days from
the receipt of the Claim Notice (the "Notice Period") to notify the
Seller (i) whether or not it disputes the liability of the Buyer to
the Seller hereunder in whole or in part with respect to such claim
or demand and (ii) whether or not it desires, at the sole cost and
expense of the Buyer, to defend Seller against such claim or
demand. In the event that the Buyer notifies the Seller within the
Notice Period that it desires to defend the Seller against such
claim or demand and except as hereinafter provided, the Buyer shall
have the absolute right to defend by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted by it to a
final conclusion. If the Seller desires to participate in, but not
control, any such defense or settlement, it may do so at its sole
cost and expense. If the Buyer elects not to defend the Seller
against such claim or demand, then the amount of any such claim or
demand, or, if such claim or demand is contested by the Buyer or by
the Seller (but the Seller shall have no obligation to contest any
such claim or demand), then that portion thereof as to which a
court of competent jurisdiction has finally determined that such
defense is unsuccessful, shall be a liability of the Buyer
hereunder.
2. In the event the Seller should have a claim against the Buyer
hereunder that does not involve a claim or demand being asserted
against or sought to be collected from the Seller by a third party,
the Seller shall promptly send a Claim Notice with respect to such
claim to the Buyer. If the Buyer does not notify the Seller within
the Notice Period that it disputes such claim, the amount of such
claim shall be conclusively deemed a liability of the Buyer
hereunder.
3. Nothing herein shall be deemed to prevent the Seller from
making a claim hereunder for potential or contingent claims or
demands provided the Claim Notice sets forth the specific basis for
any such potential or consequent claim or demand to the extent then
feasible and the Seller has reasonable grounds to believe that such
a claim or demand may be made.
XIV. Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated by written notice
of termination at any time before the Closing Date only as follows:
1. by mutual consent of the Buyer and the Seller, without
liability;
2. by the Buyer, without liability to the Buyer, upon written
notice to the Seller,
given on or before November 30, 1996 if the Buyer's due diligence
determines that the Companies' Assets, properties, liabilities,
financial performance and financial prospects are materially
unsatisfactory;
3. by the Buyer, without liability to the Buyer, upon written
notice to the Seller given at any time before the Closing Date if
the representations and warranties contained in Article 3 hereof
were materially incorrect when made, if the Seller has materially
violated any covenants contained in this Agreement, if any of the
conditions precedent set forth in Article 9 hereof have not been
met due to failure of the Seller and such breach or failure is not
cured within ten (I 0) Business Days of such notification of intent
to terminate or if any other obligation of the Companies or the
Seller contained herein and required to be performed by the
Companies or the Seller on or prior to the Closing has not been
performed;
4. by the Seller, without liability to the Seller, upon written
notice to the Buyer by the Seller given at any time before the
Closing Date if the representations and warranties of the Buyer
contained in Article 4 hereof were materially incorrect when made,
if the Buyer has materially violated any covenants contained in
this Agreement, or if any of the conditions precedent set forth in
Article 11 hereof have not been met due to failure of the Buyer and
such breach or failure is not cured within ten (10) Business Days
of such notification of intent to terminate or if any other
obligation of the Buyer contained herein and required to be
performed by the Buyer on or prior to Closing has not been
performed;
5. By either the Seller or the Buyer in writing, without
liability, if there shall be any order, writ, injunction, or decree
of any court or governmental or regulatory agency binding on the
Buyer or the Seller, which prohibits or restrains the Buyer or the
Seller from consummating the transactions contemplated hereby,
provided that the Buyer and the Seller shall have used their best
efforts to have any such order, writ, injunction or decree lifted
and the same shall not have been lifted within thirty (30) days
after entry, by any such court or governmental or regulatory
authority; or
6. By either the Seller or the Buyer, in writing, without
liability, if for any reason the Closing has not occurred by
November 30, 1996, and automatically on March 31, 1997.
XV. Waiver of Terms. Any of the terms or conditions of this
Agreement may be waived at any time by the party which is entitled
to the benefit thereof but only by a written notice signed by its
president or a vice president. No waiver of any of the provisions
of this Agreement shall be deemed to or shall constitute a waiver
of any other provision hereof (whether or not similar).
XVI. Amendment of Agreement. This Agreement may be amended,
supplemented or modified at any time only by written instrument
duly executed by the Buyer and the Seller.
XVII. Payment of Expenses. The Seller and the Buyer shall each
pay their or its own expenses, including, without limitation, the
expenses of its own counsel and accountants, financial advisors and
brokers, incurred in connection with this Agreement and the
t=actions contemplated hereby.
XVIII. Cooperation. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its reasonable best
efforts to take, or cause to be taken, such action, to execute and
deliver, or cause to be executed and delivered, such governmental
and other notifications and additional documents and instruments
and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under
applicable law to consummate and make effective the transactions
contemplated by this Agreement.
XIX. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
such counterparts together shall be deemed to be one and the same
instrument. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any
of the other counterparts.
XX. Contents of Agreement, Binding Effect, Parties in Interest,
Assignment.
1. This Agreement (including the Schedule and Exhibits) sets
forth the entire understanding of the parties with respect to the
subject matter hereof and terminates the Letter of Intent dated
July 17, 1996 between the Seller and the Buyer. Any previous
agreements or understandings between the parties regarding the
subject matter hereof are merged into and superseded by this
Agreement. There are no representations, warranties, covenants,
terms or conditions, direct or indirect, relied upon by either the
Buyer or the Seller other than those specifically set forth in this
Agreement and the Schedule.
2. The terms, conditions and obligations of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by
the successors and assigns of the parties hereto.
3. Nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any Person, other than the
Buyer and the Seller and their respective successors and assigns,
any rights or remedies under or by reason of this Agreement.
4. The Buyer may assign this Agreement to a new or existing
corporation owned
or controlled by or under common control with it. Otherwise,
without the prior written consent of the other party hereto,
neither the Seller nor the Buyer may assign their rights, duties or
obligations hereunder or any part thereof to any other Person.
XXI. Headings and Gender. The article and section headings
herein have been inserted for convenience of reference only and
shall in no way modify or restrict any of the terms or provisions
hereof. The use of the masculine or any other pronoun herein when
referring to any party has been for convenience only and shall be
deemed to refer to the particular party intended regardless of the
actual gender of such party.
XXII. Notices. AH notices, consents, waivers or other
communications which are required or permitted hereunder shall be
sufficient if given in writing and delivered personally, by
confirmed telefax or by prepaid overnight U.S. Mail or delivery
service, signature of recipient required, as follows (or to such
other address or addresses as shall be set forth in a notice given
in the same manner):
If to the Seller: SETECH, INC.
905 Industrial Drive
Murfreesboro, Tennessee 37130-4381
Attn: Mr. Thomas N. Eisemnan
Facsimile No.: (615) 782-2333
With a required copy to:
Farris, Warfield & Kanaday
424 Church Street, Suite 1800
Nashville, Tennessee 37204
Attn: Joseph N. Barker, Esq.
Facsimile No.: (615) 726-3185
If to the Buyer: SERCO, INC.
20 East Clementon Road, Suite 102S
Gibbsboro, New Jersey 08026
Attn: Iestyn Williams, President
Facsimile No.: (609) 346-8463
With a required copy to:
Edward H. Montgomery, President
Serco Aviation Services, Inc.
255 Albert Street, Suite 601
Ottawa, Ontario, CANADA KIP 6A9
Facsimile No.: (613) 563-4272
With a required copy to:
John L. Richardson, Esq.
Seeger Potter Richardson Luxton
Joselow & Brooks, L.L.P.
2121 K Street, N.W., Suite 700
Washington, D.C. 20037
Facsimile No.: (202) 496-1212
All such notices shall be deemed to have been given on the date
delivered or faxed or the day after having been given to the
overnight mail or delivery service in the manner provided above.
XXIII. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such 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 under any
applicable law or rule in any jurisdiction, such provision will be
ineffective only to the extent of such invalidity, illegality or
unenforceability in such jurisdiction, such provision will be
ineffective only to the extent of such invalidity, illegality or
unenforceability in such jurisdiction, without invalidating the
remainder of this Agreement in such jurisdiction or any provision
hereof in any other jurisdiction.
XXIV. Governing Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Delaware.
XXV. Public Announcements. No public announcement shall be made
with regard to the transactions contemplated by this Agreement
without the prior written consent of the other parties hereto;
provided that either party may make such disclosure if advised in
writing by counsel that it is legally required to do so.
XXVI. Acquisition Proposals. Prior to Closing or termination of
this Agreement, the Seller and the Companies shall not, nor shall
they permit any officer, director, employee or agent of the
Companies (a) to solicit, initiate or encourage submission of
proposals or offers, or accept any offers, from any Person relating
to any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, or any merger, consolidation,
or business combination with the Companies (collectively, an
"Acquisition Proposal"), or (b) to participate in any discussions
or negotiations regarding, or furnish to any other Person any
information with respect to, or otherwise cooperate in any way with
or assist, facilitate or encourage any Acquisition Proposal by any
other Person. The Seller shall promptly notify the Buyer of any
Acquisition Proposal of which the Seller becomes aware and shall
disclose to Buyer afl material information regarding such
Acquisition Proposal.
XXVII. Included Matters. Words of inclusion shall not be
construed as terms of limitation herein, so that references to
included matters shall be regarded as non-exclusive, non-
characterizing illustrations.
XXVIII. References. Whenever reference is made in this Agreement
to any Article, Section, Schedule or Exhibit, such reference shall
be deemed to apply to the specified Article or Section of this
Agreement or the specified Schedule or Exhibit to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement, effective on the date herein provided.
SELLER:
SETECH, INC.
a Delaware corporation
By:__________________________________
Thomas N. Eisenman, President
BUYER:
SERCO, INC.
a New Jersey corporation
By:________________________________
Edward H. Montgomery, Director
<PAGE>
Exhibit 2.2
November 22, 1996
Mr. Thomas Eisenman
President
SeTech, Inc.
905 Industrial Drive
Murfreesboro, Tennessee 31370-4381
USA
Dear Mr. Eisenman:
You have called our attention to several agreed upon changes that
were omitted from the final version of the Stock Purchase Agreement
that we signed on November 7, 1996. It is our understanding that
the language described below should be added to the Agreement to
remedy these omissions.
Section 1.3 should be amended by adding a new Section 1.3(d) which
shall read:
In determining whether an adjustment to the Purchase Price is to
be made under this Section 1.3, individual differences or
changes of less than One Thousand Dollars ($1,000) for each
category of asset or liability shall be ignored until the total
of such differences or changes to be ignored equal Twenty-Five
Thousand Dollars ($25,000), then the Purchase Price shall be
adjusted to the extent the total of such differences or changes
exceeds Twenty-Five Thousand Dollars ($25,000).
Section 3.9 should be amended by adding a new section 3.9(l) which
shall read:
In the event of a breach of this Section 3.9 by the Seller or
the Companies, Buyer specifically waives any and all right to
claim or seek (i) damages or expenses related to activities or
events occurring after the Closing Date, and (ii) consequential
damages. Buyer shall be eligible to claim and seek reimbursement
of all damages (exclusive of consequential damages) related to
activities or events occurring prior to the Closing Date.
Section 3.10 should be amended by adding a new paragraph at the end
of section 3.10 which shall read:
In the event of a breach of this Section 3.10 by the Seller or
the Companies, Buyer specifically waives any and all right to
claim or seek (i) damages or expenses related to activities or
events occurring after the Closing Date, and (ii) consequential
damages. Buyer shall be eligible to claim and seek reimbursement
of all damages (exclusive of consequential damages) related to
activities or events occurring prior to the Closing Date.
Section 3.16(b) should be amended by adding a new paragraph at the
end of section 3.16(b) which shall read:
In the event of a breach of this Section 3.16(b) by the Seller
or the Companies, Buyer specifically waives any and all right to
claim or seek (i) damages or expenses related to activities or
events occurring after the Closing Date, and (ii) consequential
damages. Buyer shall be eligible to claim and seek reimbursement
of all damages (exclusive of consequential damages) related to
activities or event occurring prior to the Closing Date.
By this letter and pursuant to Section 16 of the Stock Purchase
Agreement dated November 7, 1996, SeTech, Inc. and Serco Inc. agree
to amend Sections 1.3, 3.9, 3.10, and 3.16 of the Agreement, as
described above. All capitalized terms not otherwise defined in
this letter shall have the meanings ascribed to them in the Stock
Purchase Agreement.
Please acknowledge your agreement to the foregoing by signing a
facsimile copy of this letter and returning it to me by facsimile.
I am also sending two signed originals by Federal Express for your
signature. After signing both originals, please return one to me
and retain the second for your records.
Yours truly,
Serco Inc.
__________________________
By: Edward H. Montgomery
Director
Agreed and Accepted this ______
day of November, 1996.
SeTech, Inc.
______________________________________
By: Thomas N. Eisenman
President
<PAGE>
Exhibit 2.3
SeTech, Inc.
905 Industrial Drive
Murfreesboro, Tennessee 31370-4381
615-890-1700
January 29, 1997
Mr. Edward H. Montgomery
Serco Group, Inc.
20 E. Clementon Road
Gibbsboro, NJ 08026
Re: Setech, Inc./Serco, Inc.
This letter agreement shall confirm that in connection with its
sale of the stock of Barton ATC, Inc. and Barton ATC International,
Inc. to Serco Group, Inc., Setech, Inc. agrees to pay one-half
(1/2) of the monthly lease payment in connection with the Lease
Agreement dated December 15, 1986, by and between RMA Enterprises
and Barton ATC, Inc. for the premises commonly known as 633 East
Vine Street, Murfreesboro, Tennessee, 37130. A true and correct
copy of said Lease Agreement is included in Section 3.16(a) to the
Schedule of the Stock Purchase Agreement between Setech, Inc. and
Serco Group, Inc. executed November 7, 1996. Setech, Inc. shall
continue to pay one-half of the monthly lease payment until such
time as the Lease Agreement has expired or is terminated.
Serco Group, Inc. shall assume responsibility for any and all
communication and/or dealings with the Landlord in connection with
said Lease.
By this letter and pursuant to Section 16 of the Stock Purchase
Agreement dated November 7, 1996, SeTech and Serco Group, Inc.
agree to amend the Agreement, as described above.
Please acknowledge your agreement to the foregoing by signing
this letter in the space provided below.
Sincerely yours,
SETECH, INC.
Thomas N. Eisenman
Accepted: SERCO GROUP, INC.
By: _________________________
<PAGE>
Exhibit 2.4
Serco Group, Inc. I Telephone: 609-346-8800 I Fax: 609-346-8463
20 E. Clementon Road I Gibbsboro I N.J. 08026
January 29, 1997
Mr. Thomas Eisenman
President
SeTech, Inc.
905 Industrial Drive
Murfreesboro, Tennessee 31370-4381
USA
Dear Mr. Eisenman:
This letter agreement shall confirm that in connection with its
purchase of the stock of Barton ATC, Inc. and Barton ATC
International, Inc. ("the companies"), Serco Group, Inc. assumes
all responsibility for providing group health benefits to the
following employees of the companies as of May 1, 1997. Until such
date it is agreed that you shall maintain such benefits under the
present policy, for which we shall reimburse you upon presentation
of premium statements. These employees are currently provided
group medical, dental and vision insurance through SeTech, Inc.'s
group policy number 356230 with Great-West Life & Annuity Insurance
Company.
Barton ATC International, Inc. Employees
Robert R. Adam
Frank E. Albert
Carl L. Allen
Rollie G. Allen
Dan L. Ansbaugh
Jocelyn D. Antonio
David R. Arcado
Salvadore R. Arcado
Terry J. Asp
Marlin J. Axtman
Clifford M. Bailey
Marc D. Balzac
Rickey D. Baptiste
Edward J. Bass
Dennis H. Beard
Wilbur S. Benner
John S. Bernhardt
Robert S. Bernstein
Craig S. Bisson
Russell R. Boom
Darla D. Borsack
Donald E. Braman
William F. Braun
Kevin J. Brenda
Thomas E. Briceland
Donley R. Brickett
Richard W. Brown
Robert L. Brown
Robert L. Burke
Daniel G. Burnett
Myron E. Burtness
Robert J. Butterworth
Valerie N. Butterworth
Donald L. Caldwell
Harry L. Champley
Robert E. Cherry
Armando Chong
Stephen T. Christmas
Loren Christopher
Tonya J. Clark
William E. Clark
Jose (Jay) A. Clue
John E. Collet
John W. Cook, Jr.
Dana L. Craig
Jeanne K. Crane
Cristobal Cruz, Jr.
Richard A. Darnell
William R. Davis, Jr.
Gregory W. Deagon
Chadwick P. Dellatan
Ernest F. Dillon
John T. Dobyns
John R. Dolan
Dana J. Dore
Robert D. Earl
Pete A. Echevarria
Dean L. Elliott
Delwyn A. Engelhardt
Sherie L. Ewart
Scott R. Fiddes
Patrick R. Fitzsimmons
Mary P. Fleming
Wendy E. Fredrickson
David E. Freeman
Scott R. French
David P. Galuszka
Gilbert J. Garcia
Kent C. Garrett
Gilbert R. Geagan
Francis D. Gibb
Casey B. Giddens
Marc R. Gosik
Mark C. Greenman
Ryan N. Griffin
Charles D. Halterman
Bruce H. Hamaker
Bryan D. Hammonds
Donald L. Hardy
John F. Hartter
John "Jack" D. Heille
Kenneth L. Heinlein
Guy Heney, III
James A. Henry
Alex A. Heskett
Robert M. Hifler, II
James E. High
Jeffrey E. Holland
Charles L. Horner
Steven A. Hover
Duane L. Howard
Carl D. Ingram
Julie A. Irwin
James L. Jensen
Brenda K. Johns
Bryan J. Johnston
James S. Jones, Jr.
John D. Kelly
Lawrence T. King
Harlan K. Klemm
Eugene Kulczyk
Timothy J. Lael
Henry M. Lagergren
Kenneth L. Larson
William T. Lawthers
Gregory E. Leathley
Lee J. Letourneau
John T. Lichnovsky
James R. Lindeman
Donald W. Lyle
Daniel M. MacCluer
Michael D. Macheel
Robert S. Manning
Michael L. Matta
Michael M. McNabb
David L. Michalko
Brian D. Miller
Jody M. Moeller
John M. Mollinet
John C. Moody
John R. Mueller
Donald B. Mullin
James P. Murray
David R. Nance
Michelle M. Nash
Michael T. Owsley
Ronald L. Parker
John J. Pastore
Lawrence E. Patrick
Michael P. Pauley
Jacy B. Payne
Douglas G. Peden
Thomas W. Perkins
Rodger W. Petre
Frank M. Phillips
Robert G. Phillips
Ronald J. Pierce
Donald R. Poore
Steven N. Preece
John G. Putman
Michael F. Rager
Billy R. Robinson
Richard J. Rosa
Steven D. Ross
Heather N. Rowland
Casey W. Schreiner
Gary C. Shimon
John O. Shinew
Jon P. Siverly
Richard J. Smith
Semantha A. Smith
Walter L. Stetter
Timothy D. Stewart
Wayne A. Stratton
Ronald M. Swope
Steven R. Tatro
Clark D. Taylor
Richard A. Teixeira
Marty I. Theobald
Patricia M. Thomas
Bruce B. Troyer
Michael F. Tucker
James C. Tudor
Richard A. Velasquez
Donnie Verge
Ronald L. Werner
Lee A. Westfall
Robert J. Whitely
George R. Wideman
Scott N. Wilson
Anthony S. Wolfe
James K. Wright
Larry E. Wright
Bruce O. Wyres
Richard L. Young
Barton ATC, Inc. Employees
Travis Carter, Jr.
Floyd L. Claypool
Christopher P. Culbertson
David M. Dworek
David L. Garred
Carlton L . Geiger
Talmage M. Harrill
David J. Kittle
Brian T. McCormack
James T. McPartland
Daun K. Medaris
Steven W. Nelson
Laura L. Parker
<PAGE>
Lewis Perry
Gregory J. Retallick
Ronald J. Robison
David L. Roesch
Kenneth D. Schmid
James T. Stout
Robert K. Stovall
Ernest A. Thomas
Richard L. Ussery
Ronald J. Washington
Jeffery S. White
Kelly L. Woods
Michael S. Yartin<PAGE>
Also to be included in the list of insured employees is Barbara
Spence.
By this letter and pursuant to Section 16 of the Stock Purchase
Agreement dated November 7, 1996, SeTech and Serco Group, Inc.
agree to amend the Agreement, as described above.
Please acknowledge your agreement to the foregoing by signing this
letter.
Yours truly,
Serco Group, Inc.
_________________________
By: Edward H. Montgomery
Director
Agreed and Accepted this
_____ day of January, 1997.
SeTech, Inc.
_________________________
By: Thomas N. Eisenman
President
<PAGE>
Exhibit 4.1
LOAN AND SECURITY AGREEMENT
BETWEEN
FIRST UNION COMMERCIAL CORPORATION,
AS LENDER
AND
TITAN SERVICES, INC.
AS BORROWER
CLOSING DATE: DECEMBER ___, 1996
<PAGE>
TABLE OF CONTENTS
SECTION 1. . . . . . . . . . . . . . . . . . .GENERAL DEFINITIONS
1
1.1. Defined Terms. . . . . . . . . . . . . . . . . . . . .1
1.2. Accounting Terms.. . . . . . . . . . . . . . . . . . 20
1.3. Other Terms. . . . . . . . . . . . . . . . . . . . . 20
1.4. Construction and Interpretation. . . . . . . . . . . 20
SECTION 2. . . . . . . . . . . . . . . . . . . . .CREDIT FACILITY
21
2.1. Revolver Facility. . . . . . . . . . . . . . . . . . 21
2.2. All Revolver Loans to Constitute One Obligation. . . 23
SECTION 3. . . . . . . . . . . . . . INTEREST, FEES AND REPAYMENT
23
3.1. Interest, Fees and Charges.. . . . . . . . . . . . . 23
3.2. Payments and Collections.. . . . . . . . . . . . . . 27
SECTION 4. . . . . . . . . . . . . REPRESENTATIONS AND WARRANTIES
29
4.1. General Representations and Warranties.. . . . . . . 29
4.2. Reaffirmation. . . . . . . . . . . . . . . . . . . . 34
4.3. Survival of Representations and Warranties.. . . . . 34
SECTION 5. . . . . . . . . . .COVENANTS AND CONTINUING AGREEMENTS
34
5.1. Affirmative Covenants. . . . . . . . . . . . . . . . 34
5.2. Negative Covenants.. . . . . . . . . . . . . . . . . 39
5.3. Financial Covenants. . . . . . . . . . . . . . . . . 42
SECTION 6. . . . . . . . . . . . . . . . . . . . . . . COLLATERAL
43
6.1. Grant of Security Interest.. . . . . . . . . . . . . 43
6.2. Representations, Warranties and Covenants -- Collateral
Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.3. Lien Perfection. . . . . . . . . . . . . . . . . . . 43
6.4. Location of Collateral.. . . . . . . . . . . . . . . 44
6.5. Insurance of Collateral. . . . . . . . . . . . . . . 44
6.6. Protection of Collateral.. . . . . . . . . . . . . . 44
6.7. Special Provisions Relating to Accounts. . . . . . . 45
6.8. Special Provisions Relating to Inventory.. . . . . . 47
6.9. Special Provisions Relating to Supply Contracts. . . 47
SECTION 7. . . . . . . .EVENTS OF DEFAULT AND REMEDIES ON DEFAULT
48
7.1. Events of Default. . . . . . . . . . . . . . . . . . 48
7.2. Acceleration of the Obligations. . . . . . . . . . . 50
7.3. Other Remedies.. . . . . . . . . . . . . . . . . . . 50
7.4. License to Use.. . . . . . . . . . . . . . . . . . . 51
7.5. Remedies Cumulative; No Waiver.. . . . . . . . . . . 52
SECTION 8. . . . . . . . . . . . . . . . . . . . . .MISCELLANEOUS
52
8.1. Power of Attorney. . . . . . . . . . . . . . . . . . 52
8.2. Indemnity. . . . . . . . . . . . . . . . . . . . . . 53
8.3. Modification of Agreement; Sale of Interest. . . . . 53
8.4. Reimbursement of Expenses. . . . . . . . . . . . . . 54
8.5. Indulgences Not Waivers. . . . . . . . . . . . . . . 55
8.6. Severability.. . . . . . . . . . . . . . . . . . . . 55
8.7. Successors and Assigns.. . . . . . . . . . . . . . . 56
8.8. Cumulative Effect. . . . . . . . . . . . . . . . . . 56
8.9. Execution in Counterparts. . . . . . . . . . . . . . 56
8.10. . . . . . . . . . . . . . . . . . . . . . . . Notices.
56
8.11. . . . . . . . . . . . . . . . . . . .Lender's Consent.
56
8.12. . . . . . . . . . . . . . . . . . . . Time of Essence.
56
8.13. . . . . . . . . . . . . . . . . . . .Entire Agreement.
57
8.14. . . . . . . . . . . . . . . . . . . . .Interpretation.
57
8.15. . . . . . . . . . . . Marshalling; Payments Set Aside.
57
8.16. . . . . . . . . . . . . . . . . . . . . .Construction.
57
8.17. . . . . . . . . . . . . . . . . . . . . GOVERNING LAW.
57
8.18. . . . . . . . . . . . . . . . . .WAIVER OF JURY TRIAL.
57
8.19. . . . . . . .ARBITRATION AND PRESERVATION OF REMEDIES.
58
8.20. . . . . . . . . . . . . . . . . . . . . . . Publicity.
59
8.21. . . . . . . . . . . . . . . . . . . . . Effectiveness.
59
8.22. . . . . . . . . . . . . . . . . . . . . Sole Benefit.
60
8.23. . . . . . . . . . . . . . Certain Waivers by Borrower.
60
8.24. . . . . . . . . . . . . . . Independence of Covenants.
60
8.25. . . . . . . . . . . . . . . . . . . . . Severability.
60
8.26. . . . . . . . . . . . . . . . . . . . . . . .Headings.
60
8.27. . . . . . . . . . . . . . . No Fiduciary Relationship.
60
8.28. . . . . . . . . . . .Limitation of Lender's Liability.
61
8.29. . . . . . . . . . . . . . . . . . . . . . . . No Duty.
61
8.30. . . . . . . . . . . . . . . . . . . .Maximum Interest.
61
SECTION 9. . . . . . . . . . . . . . . . . . CONDITIONS PRECEDENT
62
9.1. Conditions to Initial Loans. . . . . . . . . . . . . 62
9.2. Conditions to All Loans. . . . . . . . . . . . . . . 63
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, made as of the ____ day of
December, 1996 (the "Closing Date"), by and between FIRST UNION
COMMERCIAL CORPORATION ("Lender"), a North Carolina corporation
with an office at the address specified on the signature page to
this Agreement; and TITAN SERVICES, INC. ("Borrower"), a Tennessee
corporation with its chief executive office and principal place of
business at the address specified on the signature page to this
Agreement;
W I T N E S S E T H T H A T:
WHEREAS, Borrower is engaged primarily in the business of
warehousing proprietary spare parts for automobile manufacturers
under long-term supply contracts; and
WHEREAS, Lender has committed to extend financing to Borrower
in the form of a revolving credit facility to provide for
Borrower's ongoing working capital needs under its existing supply
contracts and to support its entry into new supply contracts; and
WHEREAS, the initial such credit extension will be used by
Borrower to refinance and pay in full its existing revolving credit
facilities with NationsBank of Tennessee, N.A.
NOW, THEREFORE, in consideration of the agreements, provisions
and covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree as follows:
SECTION 1. GENERAL DEFINITIONS
1.1. Defined Terms. When used in this Agreement, the
following terms shall have the following meanings:
"Account Debtor" - any Person who is or may become obligated
on or under an Account.
"Accounts" - shall mean (i) all "accounts," as that term is
defined under Article 9 of the Code and (ii) all that other
Property described under the term "Accounts" in the Collateral
Schedule.
"Affiliate" - a Person: (i) that directly or indirectly,
through one or more intermediaries, controls, or is controlled by,
or is under common control with, Borrower; (ii) that beneficially
owns or holds five percent (5%) or more of any class of Voting
Stock or other equity interest of Borrower; or (iii) five percent
(5%) or more of whose Voting Stock (or in the case of a Person
which is not a corporation, five percent (5%) or more of whose
equity interest) is beneficially owned or held by Borrower or a
Subsidiary of Borrower. For purposes hereof, "control" means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of Voting Stock or other equity interests, by
contract, or otherwise.
"Agreement" - this Loan and Security Agreement, as it may be
modified or amended from time to time. The term "Agreement," as
used herein, shall include all Schedules, Exhibits, Annexes and
Appendices hereto, and all amendments or modifications hereof, and
shall refer to this Agreement as the same shall be in effect at the
time such reference becomes operative.
"Applicable Law" - all laws, rules and regulations applicable
to the Person, conduct, transaction, covenant or Loan Documents in
question, including, but not limited to, all applicable common law
and equitable principles; all provisions of all applicable federal,
state, and local constitutions, statutes, rules, regulations and
orders of governmental bodies; and all orders, judgments and
decrees of all courts and arbitrators. The term "Applicable Law"
shall include all Environmental Laws.
"Authorized Officer" means the chief executive officer, chief
operating officer or chief financial officer of Borrower or Owner,
as the case may be, and such other officers or representatives of
Borrower or Owner as Borrower or Owner may nominate, and Lender may
approve, from time to time for purposes hereof.
"Bank Agency Agreement" means an agreement, satisfactory in
form and substance to Lender, among Lender, Borrower and each bank
at which Borrower maintains depository accounts respecting the
manner of receipt, collection and disposition of funds of Borrower
constituting proceeds from the sale of Inventory, the collection of
Accounts and the disposition of other Collateral. Without
limitation, the foregoing shall include "blocked account"
agreements, "agency" agreements and "lockbox" agreements.
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy," as amended from time to time and all rules
and regulations promulgated thereunder.
"Base Margined Rate" - with respect to each day during each
Interest Period pertaining to a Base Rate Loan, a rate per annum
determined for such day by Lender to be equal to the Base Rate plus
the applicable Interest Margin. The Base Margined Rate as of the
Closing Date is eight and one-fourth of one percent (8 1/4%) per
annum.
"Base Rate" - the rate of interest quoted by North Carolina
Bank from time to time at its office in Charlotte, North Carolina
as its prime rate, whether or not such bank actually charges such
rate and whether or not such rate is the lowest rate charged by
such bank; and if the prime rate is discontinued by such bank as a
standard, a comparable reference rate designated by Lender as a
substitute therefor shall be the Base Rate.
"Base Rate Loans" - Loans bearing interest at rates determined
by reference to the Base Rate. The Base Rate as of the Closing
Date is eight and one-fourth of one percent (8 1/4%) per annum.
"Borrowing Base" - at any date of determination thereof, an
amount, determined for each Eligible Supply Contract, equal to the
lesser of:
(a) a sum, not to exceed Eighteen Million Four
Hundred Thousand Dollars ($18,400,000), in aggregate
amount, determined by Lender from time to time for each
Eligible Supply Contract (which, initially, for the
"Saturn Contract" and the "GM Romulus Contract"
identified on the Supply Contracts Schedule, being the
only Eligible Supply Contracts existing on the Closing
Date, shall be Four Million Six Hundred Thousand Dollars
($4,600,000) and Four Million Eight Hundred Thousand
Dollars ($4,800,000), respectively), less, in each case,
any Reserves applicable or allocable thereto; or
(b) an amount equal to the sum of (i) the
"Inventory Component" (as defined hereinbelow), plus (ii)
the "Receivables Component" (as defined hereinbelow) less
(iii) any Reserves applicable or allocable thereto, in
each instance; wherein (a) the "Inventory Component" of
the Borrowing Base shall be ninety percent (90%), or such
lesser percentage as Lender may determine to be
appropriate from time to time, of the cost of Eligible
Inventory identified to such Eligible Supply Contract at
such date, with cost calculated on a first-in, first-out
(FIFO) basis; and (b) the "Receivables Component" of the
Borrowing Base shall be eighty percent (80%), or such
lesser percentage as Lender may determine to be
appropriate from time to time, of the net amount of
Eligible Accounts arising from such Eligible Supply
Contract outstanding at such date (the "net amount"
thereof being equal to the face amount of such
outstanding Accounts, less any and all returns, rebates,
discounts calculated on shortest terms, credits,
allowances, sales or excise taxes of any nature at any
time issued, owing, claimed, granted, outstanding or
payable in connection with such Accounts at such time).
"Borrowing Base Certificate" means a certificate, ap-
propriately completed and in substantially the form of Exhibit "A",
issued by an Authorized Officer in respect of the Borrowing Base
pursuant to Section 5.1(I).
"Business Day" - any day that is not a Saturday, Sunday or a
legal holiday on which banks are authorized or required to be
closed in Atlanta, Georgia, and, with respect to all notices,
determinations, fundings and payments in connection with LIBOR Rate
Loans, any day that is a Business Day described above and that is
also a day for trading by and between banks in Dollar deposits in
the applicable interbank LIBOR market.
"Capital Expenditures" - expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a
useful life of more than one (1) year, including the direct or
indirect acquisition of such assets by way of increased product or
service charges, offset items or otherwise and the principal
portion of payments with respect to Capitalized Lease Obligations.
"Capital Lease" - any lease of Property which would be
capitalized on the lessee's balance sheet or for which the amount
of the asset or liability thereunder, if so capitalized, should be
disclosed in a note to such balance sheet.
"Capitalized Lease Obligation" - any Indebtedness represented
by obligations under a Capital Lease, and the amount of such
Indebtedness shall be the capitalized amount of such obligations.
"Charges" - all taxes, assessments, levies, claims or charges
upon Borrower, its income or sales, or any of its Properties
imposed by any Governmental Authority.
"Chattel Paper" - shall mean (i) all "chattel paper," as that
term is defined under Article 9 of the Code and (ii) all that other
Property described under the term "Chattel Paper" in the Collateral
Schedule.
"Code" - the Uniform Commercial Code as adopted and in force
in the State of Georgia.
"Collateral" - all of the following described types of
Property and interests in Property of Borrower, whether now owned
or existing or hereafter created, acquired or arising and wherever
located: (A) all Accounts; (B) all Chattel Paper; (C) all
Documents; (D) all Instruments; (E) all Inventory; (F) all
Equipment; (G) all General Intangibles; (H) all monies and other
Property of any kind, now or at any time or times hereafter, in the
possession or under the control of Lender, a bailee of Lender or
Tennessee Bank; (I) all Products and Proceeds of the Property
described in (A) through (H) above, including, without limitation,
Proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral and claims against any
Person for loss of, damage to, or destruction of any or all of the
foregoing; all as more particularly set forth and described in the
Collateral Schedule; and (J) all funds at any time on deposit in
the Controlled Disbursement Accounts, the Dominion Accounts and the
Investment Accounts. The term "Collateral" shall also include any
other Property of Borrower in which at any time a Lien is granted
to or for the benefit of Lender.
"Collateral Location" shall mean each store, distribution
center, warehouse or other location, whether owned or leased by
Borrower or otherwise, at which any Collateral is situated at any
time or from time to time.
"Compliance Certificate" means a certificate, appropriately
completed and substantially in the form of Exhibit "B", issued by
an Authorized Officer in respect of Borrower's continuing
compliance with this Agreement pursuant to Section 5.1(H)(iii).
"Consolidated" - the consolidation of the accounts or other
items as to which such term applies.
"Contingent Obligation", as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of that
Person: (a) with respect to any Indebtedness or other liability or
obligation of another Person; (b) with respect to any letter of
credit or banker's acceptance issued for the account of that Person
or as to which that Person is otherwise liable for reimbursement of
drawings; (c) under Interest Rate Agreements; (d) under any for-
eign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect that Person against
fluctuations in currency values; (e) under any "take or pay,"
"guaranteed purchase," "sale or return" or similar arrangement, or
(f) with respect to any employee welfare benefit plan covering
retired or terminated employees and their beneficiaries.
"Controlled Disbursement Account" - a deposit account of
Borrower maintained with Tennessee Bank into which the proceeds of
any Loans shall be disbursed.
"Debt Service Coverage" - for each period of twelve (12)
consecutive Fiscal Months of Borrower, the quotient of (A)
Borrower's EBITDA for such period, minus the sum of (i) all
Unfinanced Capital Expenditures made in such period, (ii) all Non-
Reimbursed Expenses paid in cash or accrued in such period, (iii)
all Distributions paid in cash or accrued in such period and (iv)
all income and franchise taxes paid in cash or accrued in such
period (net of any amounts of paid-in capital returned by Owner in
respect thereof in such period); divided by (B) the sum of (i)
Interest Expense for such period, plus (ii) scheduled principal
payments with respect to all direct Indebtedness of Borrower in
such period.
"Default" - an event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both,
become an Event of Default.
"Default Rate" - a fluctuating interest rate which is two
percent (2%) per annum above the Base Margined Rate.
"Distribution" - (a) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter
outstanding, except a dividend payable solely in shares of that
class of stock to the holders of that class; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any
shares of any class of stock of Borrower or any of its Subsidiaries
now or hereafter outstanding; (c) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other
rights to acquire shares of any class of stock of Borrower or any
of its Subsidiaries now or hereafter outstanding; (d) any payment
by Borrower or any of its Subsidiaries to any Affiliate of any
management fees or similar fees, whether pursuant to a management
agreement or otherwise; and (e) any payment or prepayment of
principal of, premium (if any) or interest on, or any redemption,
conversion, exchange, purchase, retirement, defeasance, sinking
fund or similar payment with respect to, any Subordinated Debt.
"Documents" - shall mean (i) all "documents," as that term is
defined under Article 9 of the Code and (ii) all that other
Property described under the term "Documents" in the Collateral
Schedule.
"Dollars" - and the sign "$" refer to currency of the United
States of America.
"Dominion Account" - a special deposit account established by
Borrower pursuant to a Bank Agency Agreement over which Lender
shall have sole and exclusive access and control for withdrawal
purposes.
"EBITDA" - for any fiscal period, Borrower's net income, plus
(a) Interest Expense paid or accrued in such period,
(b) amortization and depreciation deducted in determining net
income in such period, (c) any Distributions paid in cash or
accrued in such period, (d) Non-Reimbursed Expenses paid in cash or
accrued in such period and (e) income and franchise taxes paid or
accrued in such period; provided, however, that in calculating net
income for the purpose of determining EBITDA there shall be
excluded therefrom: (i) any gain or loss arising from the sale of
capital assets; (ii) any gain arising from any write-up of assets;
(iii) all earnings of any Subsidiary accrued prior to the date it
became a Subsidiary; (iv) all earnings of any entity substantially
all the assets of which have been acquired in any manner by
Borrower, realized by such entity prior to the date of such
acquisition; (v) all net earnings of any entity (other than a
Subsidiary) in which Borrower has an ownership interest unless such
net earnings have actually been received by Borrower in the form of
cash distributions; (vi) any portion of the net earnings of any
Subsidiary which for any reason is unavailable for payment of
dividends to Borrower; (vii) all earnings of any Person to which
any assets of Borrower have been sold, transferred or disposed of,
or into which Borrower has merged, or with which Borrower has been
a party to any consolidation or other form of reorganization, prior
to the date of such transaction; (viii) any gain arising from the
acquisition of any Securities of Borrower; and (ix) any gain
arising from extraordinary or nonrecurring items.
"Eligible Account" - an Account arising in the ordinary course
of Borrower's business from the sale of Inventory or rendition of
services which Lender deems to be an Eligible Account. Without
limiting the generality of the foregoing, no Account is to be an
Eligible Account if: (i) it arises out of a sale made by Borrower
to a Subsidiary or an Affiliate of Borrower or to a Person
controlled by an Affiliate of Borrower; (ii) it is unpaid for more
than sixty (60) days after the original due date shown on the
invoice or is due or unpaid more than ninety (90) days after the
original invoice date; (iii) fifty percent (50%) or more of the
Accounts from the Account Debtor are not deemed Eligible Accounts
hereunder by operation of clause (ii) above; (iv) any covenant,
representation or warranty contained in this Agreement with respect
to such Account has been breached; (v) the Account Debtor is also
Borrower's creditor or supplier, or has disputed liability with
respect to such Account, or the Account otherwise is or may become
subject to any right of setoff by the Account Debtor, to the extent
of the amount of any offset, dispute or claim; (vi) the Account
Debtor has commenced a voluntary case under the Bankruptcy Code, or
made an assignment for the benefit of creditors, or a decree or
order for relief has been entered by a court having jurisdiction in
the premises in respect of the Account Debtor in an involuntary
case under the Bankruptcy Code or any other petition or other
application for relief under the Bankruptcy Code has been filed
against the Account Debtor, or if the Account Debtor has ceased to
do business, suspended business, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it
or for all or a significant portion of its assets or affairs;
(vii) it arises from a sale outside the United States, unless the
sale is on letter of credit, guaranty or acceptance terms, in each
case acceptable to Lender; (viii) it arises from a sale to the
Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or return
basis or the Account otherwise does not represent a final sale;
(ix) Lender believes that collection of such Account is insecure or
that payment thereof is doubtful or will be delayed by reason of
the Account Debtor's financial condition; (x) the Account Debtor is
the United States of America or any department, agency or
instrumentality thereof, unless Borrower assigns its right to
payment of such Account to Lender, in form and substance
satisfactory to Lender, so as to comply with the Assignment of
Claims Act of 1940, as amended; (xi) the address of the Account
Debtor to which invoices are delivered by Borrower is located in
the States of New Jersey, Minnesota or Indiana, unless Borrower has
filed a Notice of Business Activities Report with the appropriate
officials in those states for the then current year; (xii) the
Account Debtor is located in a state in which Borrower is deemed to
be doing business under the laws of such state and which denies
creditors access to its courts in the absence of qualification to
transact business in such state or of the filing of any reports
with such state, unless Borrower has qualified as a foreign
corporation authorized to transact business in such state or has
filed all required reports; (xiii) Lender does not have a duly
perfected first priority security interest therein or the Account
is otherwise subject to any Lien, other than a Permitted Lien;
(xiv) the total unpaid Accounts of the Account Debtor exceed a
credit limit determined by Lender, to the extent such Account
exceeds such limit; (xv) the Account is evidenced by Chattel Paper
or an Instrument, or has been reduced to judgment; (xvi) Borrower
has made any agreement with the Account Debtor for any deduction
therefrom, except for discounts or allowances which are made in the
ordinary course of business for prompt payment and which discounts
or allowances are reflected in the calculation of the face value of
each invoice related to such Account; (xvii) Borrower has made an
agreement with the Account Debtor to extend the time of payment
thereof beyond the initial payment terms; (xviii) the Account
arises from a retail sale of goods to a Person who is purchasing
same primarily for personal, family or household purposes; (xix)
any covenant, representation or warranty contained herein or in any
Loan Document has been breached with respect to such Account
(unless then cured); or (xx) the Account arises from a contract or
purchase order which, by its terms, makes void or unenforceable the
assignment of such Account.
"Eligible Inventory" - such Inventory of Borrower which Lender
deems to be Eligible Inventory. Without limiting the generality of
the foregoing, no Inventory is to be Eligible Inventory unless it
(i) is finished goods in Borrower's possession and control, which
have been identified to and purchased in respect of, and which
conform in all respects with all requirements of, an existing
Eligible Supply Contract, (ii) is readily marketable and saleable
in its current form, in the normal course of Borrower's business at
prices at least equal to the cost thereof, (iii) is not obsolete or
unmerchantable, (iv) is not goods returned to Borrower by or
repossessed from an Account Debtor or goods taken in trade,
(v) meets all standards imposed by any Governmental Authority,
(vi) conforms in all respects to the covenants, warranties and
representations set forth in this Agreement, (vii) is at all times
subject to Lender's duly perfected, first priority security
interest and no other Lien, except a Permitted Lien, (viii) is
situated at a Collateral Location listed and described in the
Location and Real Property Schedule, as it may be changed from time
to time pursuant to Sections 5.1(I) and (N), (ix) is not located at
any Collateral Location which is leased or which belongs to any
processor, landlord, warehouseman or other third party, unless a
Lien Waiver has been executed by such Person or a Reserve has been
imposed in respect thereof, (x) is not in-transit, (xi) is not
subject to a negotiable warehouse receipt or other negotiable
instrument, unless Lender is the holder thereof, (xii) is owned by
Borrower and not held by it on consignment or other sale or return
terms, or (xiii) with respect to which the manufacture, sale or use
thereof is subject to any licensing, patent, royalty, trademark,
copyright or similar agreement limits or restricts Borrower's or
Lender's right to sell or otherwise dispose of such Inventory.
"Eligible Supply Contract" - any Supply Contract: (i) which
is entered into by Borrower, individually (and not as joint
venturer), with a manufacturer domiciled in the United States and
otherwise acceptable to Lender; (ii) which requires delivery of
Inventory solely to a plant or production facility of such
manufacturer located within the continental United States; (iii)
which is valid and subsisting in all respects; (iv) which is not in
default, nor has any notice of termination, revocation, rescission
or cancellation been given or received by Borrower in respect
thereof; (v) which contains a mandatory purchase, "take or pay,"
liquidated damages or similar provisions, acceptable to Lender, on
the part of the manufacturer in respect of Inventory identified to
such Supply Contract; (vi) which includes an express acknowledgment
of Lender's Lien on the subject Inventory and its right to receive
and enforce, as collateral assignee of Borrower, all payment
obligations owing in respect thereof; and (vii) as to which
Borrower has complied in all respects with the terms of Sections
3.2(B), 6.1 and 6.9 relevant thereto. As of the Closing Date,
those Supply Contracts identified on the Supply Contracts Schedule
as the "Saturn Contract" and the "GM Romulus Contract" are the only
Eligible Supply Contracts.
"Environmental Laws" - all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidances,
orders and consent decrees relating to environmental clean up,
pollution, toxic waste or other environmental matters.
"Environmental Liens" - Liens in favor of any Governmental
Authority arising under or in connection with any Environmental
Law.
"Equipment" - shall mean (i) all "equipment" and "fixtures,"
as each such term is defined under Article 9 of the Code and (ii)
all that other Property described under the term "Equipment" in the
Collateral Schedule.
"Event of Default" - as defined in Section 7 of this
Agreement.
"Financial Statements" - collectively (i) as of the Closing
Date, the financial statements described in and attached to the
Financial and Contingency Schedule; (ii) thereafter, the most
recent financial statements delivered from time to time pursuant to
Section 5.1(H).
"Fiscal Year" means the annual accounting period of Owner and
its Consolidated Subsidiaries (including Borrower) as in effect on
the Closing Date. As used herein, "Fiscal Quarter" and "Fiscal
Month" shall have correlative meanings.
"GAAP" - generally accepted accounting principles in the
United States of America in effect from time to time.
"General Intangibles" - shall mean (i) all "general
intangibles," as that term is defined under Article 9 of the Code
and (ii) all that other Property described under the term "General
Intangibles" in the Collateral Schedule. The term "General
Intangibles" shall include, in any event, all right, title and
interest of Borrower in respect of all Supply Contracts, whether
now or hereafter existing.
"Governmental Authority" means any nation or government or
federal, state, county, province, canton, city, town, municipality,
local or other political subdivision thereof, and any department,
commission, agency or instrumentality exercising executive,
legislative, judicial, regulatory or administrative function of or
pertaining to government.
"Guarantor" - each Person who now or hereafter guarantees
payment or performance of the whole or any part of the Obligations.
As of the Closing Date, the Owner is the only Guarantor.
"Guaranty Agreement" - each Guaranty Agreement which is
executed by a Guarantor in favor of Lender.
"Indebtedness" - as applied to a Person means, without
duplication (i) all items which would be included in determining
total liabilities as shown on the liability side of a balance sheet
of such Person as at the date as of which Indebtedness is to be
determined, including, without limitation, Capitalized Lease
Obligations, (ii) all Contingent Obligations of such Person and
(iii) in the case of Borrower (without duplication), the
Obligations.
"Instruments" - shall mean (i) all "instruments," as that term
is defined under Article 9 of the Code and (ii) all that other
Property described under the term "Instruments" in the Collateral
Schedule.
"Interest Margin" means the interest rate per annum, to be
added to the Base Rate or the LIBOR Rate, as the case may be, in
order to determine, respectively, the Base Margined Rate and the
LIBOR Margined Rate, which (i) for Base Rate Loans, shall be zero
percent (0%) per annum, and (ii) for LIBOR Rate Loans, shall be two
and one-half percent (2 1/2%) per annum.
"Interest Period" - any interest period applicable to a
Revolver Loan, as provided in Section 3.1.
"Interest Rate Agreement" - any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or
other similar agreement or arrangement designed to protect Borrower
or any of its Subsidiaries against fluctuations in interest rates.
"Inventory" - shall mean (i) all "inventory," as that term is
defined under Article 9 of the Code and (ii) all that other
Property described under the Term "Inventory" in the Collateral
Schedule.
"Investment Account" - an investment account maintained by
Borrower with Tennessee Bank.
"Lender's Account" - an account of Lender with Tennessee Bank
designated by Lender from time to time as the account to which all
remittances in respect of any given Eligible Supply Contract are to
be made.
"Liabilities" - all liabilities of a Person includable on a
balance sheet of such Person.
"LIBOR Rate" - for each Interest Period, a rate of interest
(such rate to be rounded upward to the next whole multiple of one-
sixteenth of one percent (1/16th of 1%)) determined by Lender to be
equal to: (a) the rate of interest determined by Lender at which
deposits in Dollars for the relevant Interest Period are offered
based on information presented on the Telerate Screen LIBOR Page
3750 at approximately 11:00 a.m., London time, two (2) Business
Days prior to the first day of such Interest Period; provided,
however, that if, for any reason, such rate is not available, then
"LIBOR Rate" shall mean the rate per annum at which, in the opinion
of Lender, Dollars in the amount of the requested LIBOR Loan are
being offered to leading reference banks for settlement in the
London interbank market at approximately such time and for such
maturity, divided by (b) a number equal to 1.0 minus the percentage
expressed as decimal and rounded upwards, if necessary, to the next
whole multiple of one-sixteenth of one percent (1/16th of 1%),
determined by Lender to be in effect for such day as prescribed by
the Federal Reserve Board (or any successor) for determining the
maximum reserve requirement (including any basic, supplemental or
emergency reserves) for member banks of the Federal Reserve System
in respect of Eurocurrency liabilities (or any similar category of
liabilities).
"LIBOR Margined Rate" - with respect to each day during each
Interest Period pertaining to a LIBOR Rate Loan, a rate per annum
determined for such day by Lender to be equal to the LIBOR Rate
plus the applicable Interest Margin.
"LIBOR Rate Loans" - Loans bearing interest at rates
determined by reference to the LIBOR Rate.
"Lien" - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on the common law, statute or
contract, and including, but not limited to, the security interest,
security title or lien arising from a security agreement, mortgage,
deed of trust, deed to secure debt, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or
bailment for security purposes.
"Lien Waiver" shall mean a written agreement, in substantially
the form of Exhibit "C" or which Lender otherwise determines to be
acceptable from time to time, pursuant to which a landlord, ware-
houseman, processor or other Person in possession or control of any
Inventory or other Property of Borrower shall agree to waive or
subordinate its rights and claims in such Property, grant access to
Lender for the repossession of such Property and make such other
agreements with Lender relative thereto as Lender shall determine
to be relevant in the circumstances.
"Loan Account" - a loan account established on the books of
Lender for the purpose of recording the disbursement and collection
of Loans.
"Loan Documents" - this Agreement, the Other Agreements and
the Security Documents.
"Loans" - all loans and advances made by Lender pursuant to
this Agreement, including, without limitation, all Revolver Loans.
"Material Adverse Effect" - the effect of any event or
condition which, alone or when taken together with other events or
conditions occurring or existing concurrently therewith, (a) has or
may be reasonably expected to have a material adverse effect upon
the business, operations, Properties, condition (financial or
otherwise) or business prospects of Borrower, any Guarantor, or any
Subsidiary, or the industry in which Borrower, any Guarantor or any
Subsidiary operates; (b) has or may be reasonably expected to have
any material adverse effect whatsoever upon the validity or
enforceability of this Agreement or any of the other Loan
Documents; (c) has or may be reasonably expected to have any
material adverse effect upon any of the Collateral, the Liens of
Lender with respect to any of the Collateral or the priority of any
such Liens; or (d) has impaired, or may be reasonably expected to
impair, materially the ability of Borrower or any Guarantor to
perform its respective obligations under this Agreement, any
Guaranty Agreement or any of the other Loan Documents or of Lender
to enforce or collect the obligations or realize upon any of the
Collateral in accordance with the Loan Documents and Applicable
Law.
"Maximum Rate" - the maximum non-usurious rate of interest
permitted by Applicable Law that at any time, or from time to time,
may be contracted for, taken, reserved, charged or received on the
Indebtedness in question or, to the extent that at any time
Applicable Law may thereafter permit a higher maximum non-usurious
interest rate, then such higher rate. Notwithstanding any other
provision hereof, the Maximum Rate is to be calculated on a daily
basis (computed on the actual number of days elapsed over a year of
365 or 366 days, as the case may be).
"Money Borrowed" - as applied to Indebtedness, means
(i) Indebtedness for borrowed money; (ii) Indebtedness, whether or
not in any such case the same was for borrowed money, (A) which is
represented by notes payable or drafts accepted that evidence
extension of credit, (B) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (C) upon which
interest charges are customarily paid (other than accounts payable)
or that was issued or assumed as full or partial payment for
Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) Indebtedness under any agreement or obligation to
reimburse the issuer of any letter of credit for amounts paid by
the issuer on account of such letter of credit; and
(v) Indebtedness under any guaranty of obligations that would
constitute Indebtedness for Money Borrowed under clauses
(i) through (iv) hereof.
"Net Proceeds" - proceeds (including cash receivable (when
received) by way of deferred payment) received by Borrower from the
sale, lease, transfer or other disposition of any Property,
including, without limitation, insurance proceeds and awards of
compensation received with respect to the destruction or
condemnation of all or part of such Property, net of: (i) the
direct costs of such sale, lease, transfer or other disposition;
and (ii) any amounts applied, with Lender's consent, to repayment
of Indebtedness (other than the Obligations) secured by a Permitted
Lien on the Property disposed.
"Net Worth" - of any Person, means the total shareholders'
equity (including capital stock, additional paid-in capital and
retained earnings, after deducting treasury stock) which would
appear as such on a balance sheet of such Person.
"Non-Reimbursed Expenses" - any expenses of Borrower which are
not identified to, and reimbursable to Borrower under, any existing
Supply Contract; including, for this purpose, (i) any expenses of
Borrower which have been submitted for reimbursement under any
Supply Contract but as to which Borrower's request for
reimbursement has been refused under such Supply Contract, to the
extent of such rejection, (ii) any expenses otherwise reimbursable
under any Supply Contract which have exceeded any limitation
imposed on the amount thereof under such Supply Contract, to the
extent of such excess; and (iii) marketing expenses.
"North Carolina Bank" - First Union National Bank of North
Carolina, a national bank.
"Notes" - collectively, (i) the Revolver Notes and (ii) any
other Instruments at any time evidencing any of the Obligations.
"Notice of Borrowing" - a notice in substantially the form of
Exhibit "D" issued by an Authorized Officer of Borrower, requesting
a Revolver Loan.
"Obligations" - all indebtedness, liabilities and obligations
owing, arising, due to or payable from Borrower to Lender of every
kind or nature, whether absolute or contingent, due or to become
due, joint or several, liquidated or unliquidated, matured or
unmatured, primary or secondary, now existing or hereafter
incurred, purchase money or nonpurchase money, or arising under any
of the Loan Documents or otherwise, and regardless of the form or
purpose of such indebtedness, liabilities or obligations,
including, without limitation, all of the Loans, all liabilities of
Borrower to Lender under any indemnity, reimbursement, guaranty,
deposit or other agreement heretofore or hereafter executed by
Borrower with or in favor of Lender (whether or not Borrower is the
account party or drawer). The term "Obligations" includes all
interest, charges, expenses, attorneys' fees and other sums
chargeable to Borrower under any of the Loan Documents and all
obligations which Borrower may have (under contract or Applicable
Law) to reimburse Lender in connection with any Interest Rate
Agreement, foreign exchange contract, letter of credit, banker's
acceptance or guaranty issued by Lender to Borrower or for
Borrower's benefit.
"Other Agreements" - any and all agreements, instruments and
documents (other than this Agreement and the Security Documents),
heretofore, now or hereafter executed by Borrower and delivered to
Lender with respect to the transactions contemplated by this
Agreement.
"Overadvance" - on any date, (i) in respect of any Eligible
Supply Contract, the amount by which the total amount of Revolver
Loans outstanding in respect of such Eligible Supply Contract on
such date exceeds the Borrowing Base in respect of such Eligible
Supply Contract on such date or (ii) generally, the amount by which
the total amount of all Revolver Loans outstanding on such date
exceeds the Borrowing Base on such date.
"Owner" - SETECH, Inc., a Delaware corporation, formerly known
as Aviation Education Systems, Inc.
"Participating Lender" - any Person which is either: (i) an
assignee of Lender hereunder; or (ii) the purchaser from Lender of
a participation interest in any Loans or other Obligations.
"Permitted Indebtedness" - any of the following:
(i) obligations owing to Lender; (ii) Indebtedness of any
Subsidiary to Borrower; (iii) accounts payable to trade creditors
(including Affiliates, to the extent then permitted under Section
5.2(D)) which are not aged more than one hundred twenty (120) days
from billing date and current operating expenses (other than Money
Borrowed) which are not more than sixty (60) days past due, in each
case incurred in the ordinary course of business and paid within
such time period, unless the same are actively being Properly
Contested; (iv) obligations to pay rents on operating leases
permitted herein; (v) Permitted Purchase Money Indebtedness;
(vi) Contingent Obligations arising out of endorsements of checks
and other negotiable instruments for deposit or collection in the
ordinary course of business; (vii) Charges not yet past due or
payable; (viii) Subordinated Debt in existence on the Closing Date;
(ix) additional Subordinated Debt incurred subsequent to the
Closing Date, provided that (A) the terms thereof are no less
favorable to Borrower than those pertaining to its Subordinated
Debt existing on the Closing Date and (B) the total amount of all
Subordinated Debt outstanding at any one time (inclusive of
Subordinated Debt under clause (viii) above and this clause (ix))
shall not exceed Five Hundred Thousand Dollars ($500,000); and
(x) Indebtedness not included in clauses (i) through (ix) above
which is disclosed in the Financial and Contingency Schedule.
"Permitted Investments" - the following: (i) investments in
one or more Subsidiaries of Borrower, to the extent existing on the
Closing Date; (ii) Property to be used in the ordinary course of
business; (iii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower and its
Subsidiaries; and (iv) any of the following investments, if and to
the extent made within an Investment Account, to-wit: (a) deposit
accounts and certificates of deposit maintained with, or issued by,
Tennessee Bank maturing in thirty (30) days or less; (b) direct
obligations of the United States of America maturing in thirty (30)
days; and (c) "overnight" repurchase contracts in respect of
commercial paper offered by Tennessee Bank.
"Permitted Liens" - any of the following: (i) Liens at any
time granted in favor of Lender; (ii) statutory Liens of carriers,
mechanics, materialmen, landlords, warehousemen, and other similar
liens imposed by law, which are incurred in the ordinary course of
business for sums not yet due or which, if due and payable, are
being Properly Contested; provided that a Lien Waiver shall have
been executed in respect thereof or a deduction from the Borrowing
Base in an amount satisfactory to Lender shall have been made
therefor; (iii) Liens resulting from deposits made in the ordinary
course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws;
(iv) attachment, judgment and other similar non-tax Liens
(excluding Environmental Liens) arising in connection with court
proceedings, but only if and for so long as the execution or other
enforcement of such Liens is and continues to be effectively stayed
and bonded on appeal in a manner satisfactory to Lender for the
full amount thereof, the validity and amount of the claims secured
thereby are being Properly Contested, such Liens do not, in the
aggregate, materially detract from the value of the Property of
Borrower or materially impair the use thereof in the operation of
Borrower's business and such Liens are and at all times remain
junior in priority to the Liens in favor of Lender; (v) Liens of a
bank (including Tennessee Bank) or other financial institution with
respect to funds on deposit with such institution; (vi) such other
Liens as appear on the Lien Schedule; (vii) Liens in existence
immediately prior to the Closing Date that are paid and satisfied
in full and released on the Closing Date as a result of the
application of Borrower's cash on hand at the Closing Date and/or,
the proceeds of the Loans being made on the Closing Date; and
(viii) Purchase Money Liens securing Permitted Purchase Money
Indebtedness which is not incurred in violation of this Agreement.
"Permitted Proceeds Uses" - any of the following: (i) the
satisfaction of certain existing Indebtedness of Borrower for money
borrowed; (ii) closing costs associated with this transaction; and
(iii) Borrower's general operating needs, to the extent not
inconsistent with the provisions of this Agreement and Applicable
Law.
"Permitted Purchase Money Indebtedness" - Purchase Money
Indebtedness of Borrower which (i) is incurred under a Supply
Contract to the extent that the costs associated therewith are
passed through to, and reimbursed by, the buyer under such
contract; or (ii) when aggregated with the principal amount of all
other Purchase Money Indebtedness (not included within clause (i)
above) and Capitalized Lease Obligations of Borrower at the time
outstanding, does not exceed Fifty Thousand Dollars ($50,000).
"Person" - an individual, partnership, corporation, joint
venture, joint stock company, limited liability company, land
trust, business trust, unincorporated organization, a government or
agency or political subdivision thereof, or any other form of
entity.
"Plan" - an employee benefit plan now or hereafter maintained
for employees of Borrower that is covered by Title IV of ERISA.
"Proceeds" - shall mean all "proceeds," as that term is
defined in Article 9 of the Code, of the Collateral.
"Products" - shall mean all "products," as that term is
defined in Article 9 of the Code, of the Collateral.
"Projections" - Borrower's forecasted: (a) balance sheets and
cash flow statements, on an aggregate basis, including all Supply
Contracts, and (b) income statements, on a per Supply Contract and
aggregate basis, all prepared on a consistent with Borrower's
historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Properly Contested" - in the case of any Liability of
Borrower that is not paid as and when due or payable by reason of
Borrower's bona fide dispute concerning its liability to pay same
or concerning the amount thereof, that (i) such Liability and any
Liens securing same are being properly contested in good faith by
appropriate proceedings promptly institute and diligently
conducted; (ii) Borrower has established appropriate reserves as
shall be required in conformity with GAAP, (iii) the non-payment of
such Liability will not have a Material Adverse Effect and will not
result in a forfeiture of any assets of Borrower; (iv) no Lien is
imposed upon any of Borrower's assets with respect to such
Liability unless such Lien is at all times junior and subordinate
in priority to the Liens in favor of Lender (except only with
respect to property taxes that have priority as a matter of
applicable state law) and enforcement of such Lien is stayed during
the period prior to the final resolution or disposition of such
dispute; (v) if Liability results from the entry, rendition or
issuance against Borrower or any of its assets of a judgment, writ,
order or decree, such judgment, writ, order or decree is stayed or
bonded pending a timely appeal or other judicial review; and (vi)
if such contest is abandoned, settled or determined adversely to
Borrower, Borrower forthwith pays such Liabilities and all
penalties and interest in connection therewith.
"Property" - any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchase Money Indebtedness" - means and includes (i) any
Indebtedness (other than the Obligations) for the payment of all or
any part of the purchase price of any fixed assets, including
Capitalized Lease Obligations, (ii) any Indebtedness (other than
the Obligations) incurred at the time of or within ten (10) days
prior to or after the acquisition of any fixed assets for the
purpose of financing all or any part of the purchase price thereof,
and (iii) any renewals, extensions or refinancings thereof, but not
any increases in the principal amounts thereof outstanding at the
time.
"Purchase Money Lien" - a Lien upon fixed assets which secures
Purchase Money Indebtedness incurred by Borrower in connection with
its acquisition of such fixed assets, but only if such Lien is at
all times to be confined solely to those fixed assets (and proceeds
thereof) the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien
and such Lien constitutes a purchase money security interest under
the Code.
"Restricted Investment" - any investment in cash or by
delivery of Property to any Person, whether by acquisition of
stock, Indebtedness or other obligation or Security, or by loan,
advance, capital contribution, subscription or otherwise, in any
Property, except Permitted Investments.
"Reserves" - shall mean an amount calculated from time to time
by Lender equal to the sum of: (i) any amounts which Borrower is
obligated to pay to any third party, whether for rent, royalties,
insurance or taxes or otherwise, which Borrower does not pay when
due, until paid by Borrower or by Lender on its behalf by charging
same as a Loan pursuant hereto; and (ii) any other amounts which
Lender elects to reserve from borrowing availability from time to
time.
"Revolver Facility" - the credit facility established by
Lender in favor of Borrower pursuant to Section 2 hereof, inclusive
of each sub-facility created thereunder in respect of an Eligible
Supply Contract.
"Revolver Loan" - a Loan made by Lender under the Revolver
Facility in respect of an Eligible Supply Contract.
"Revolver Note" - each promissory note executed by Borrower on
the Closing Date in favor of Lender to evidence any and all
Revolver Loans made under the Revolving Facility in respect of an
Eligible Supply Contract; together with any and all renewals and
extensions thereof, and any amendments or modifications thereto.
Each Revolver Note shall be substantially in the form of Exhibit
"E". There shall be only one (1) Revolver Note per each Eligible
Supply Contract.
"Schedule of Accounts" - the detailed aged trial balance of
all Accounts of Borrower existing as of the last day of the
preceding month, specifying the names, addresses, face value, dates
of invoices and due dates for each Account Debtor obligated on an
Account so listed and any other information Lender reasonably
requests.
"Schedules" - all Schedules, together with all attachments
thereto, provided by the Borrower and attached to this Agreement
and made a part hereof. The Schedules are listed on the first page
following the signature page to this Agreement.
"Security" - is to have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
"Security Documents" - the Guaranty Agreement and any and all
other instruments and agreements now or at any time hereafter
securing the whole or any part of the Obligations.
"Solvent" - as to any Person, means that such Person (i) owns
Property the fair value of which is greater than the amount
required to pay all of such Person's Indebtedness (including
contingent debts), (ii) owns Property the present fair salable
value of which is greater than the amount that will be required to
pay the probable liability of such Person on its existing
Indebtedness as such becomes absolute and matured, (iii) is able to
pay all of its Indebtedness as such Indebtedness matures, and
(iv) has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about
to engage.
"Subordinated Debt" - Indebtedness of Borrower that is
expressly subordinated to the Obligations in right of payment and
claim pursuant to an agreement or provisions approved in writing by
Lender. As of the Closing Date, the only Subordinated Debt is that
owing by Borrower to Owner, and is described more particularly on
the Financial and Contingency Schedule.
"Subsidiary" - any corporation, association or other business
entity of which more than fifty percent (50%) of the total voting
power of shares of stock (or equivalent ownership or controlling
interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by a Person or one or more of the other Subsidiaries of
the Person or a combination thereof.
"Supply Contract" - each supply contract, long term purchase
order or similar arrangement between Borrower, as seller, and an
automobile manufacturer or other customer, as buyer, with respect
to the acquisition, warehousing and ultimate sale and delivery of
any Inventory to a specific production facility of such
manufacturer; as it may be supplemented, extended, modified or
amended from time to time.
"Tennessee Bank" - First Union National Bank of Tennessee, a
national bank.
"Termination Date" - that date which is three (3) years from
the Closing Date.
"Unfinanced Capital Expenditures" - Capital Expenditures not
financed through Permitted Purchase Money Indebtedness.
"Voting Stock" - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the board of
directors of such corporation (or Persons performing similar
functions).
1.2. Accounting Terms. Unless otherwise specified herein, all
terms of an accounting character used in this Agreement shall be
interpreted, all accounting determinations under this Agreement
shall be made, and all financial statements required to be
delivered under this Agreement shall be prepared in accordance with
GAAP, applied on a basis consistent with the most recent audited
Consolidated financial statements of Borrower and its Subsidiaries
heretofore delivered to Lender and using the same method for
inventory valuation as used in such audited financial statements,
except for any change in which Borrower's independent public
accountants concur or as required by GAAP; provided, however, that
unless and until either (i) Lender shall have determined, and given
written notice to Borrower to such effect, that such changes will
not affect (in a manner adverse to Lender's interests) the
calculation of the financial covenants set forth in Section 5.3 or
Borrower's compliance therewith, or (ii) Lender and Borrower shall
have amended the financial covenants set forth in Section 5.3 to
reflect such changes, all calculations of the financial covenants
set forth in said Section 5.3 shall be made on a basis consistent
with those used in the preparation of the latest financial
statements as to which no such change was made.
1.3. Other Terms. All terms contained in this Agreement and
not otherwise specifically defined herein are to have the meanings
provided for by the Code to the extent the same are used or defined
therein.
1.4. Construction and Interpretation. References herein to
"Sections", "subsections", "Exhibits" and "Schedules" shall be to
Sections, subsections, Exhibits and Schedules, respectively, of
this Agreement unless otherwise specifically provided. Any of the
terms defined in Section 1.1 may, unless the context otherwise
requires, be used in the singular or the plural depending on the
reference. In this Agreement, "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a
whole and not merely to the specific section, paragraph or clause
in which the respective word appears. Words importing any gender
include the other genders. References to "writing" include
printing, typing, lithography and other means of reproducing words
in a tangible visible form. The words "including," "includes" and
"include" shall be deemed to be followed by the words "without
limitation." References to agreements and other contractual
instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the
extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan
Document. References to Persons include their respective permitted
successors and assigns or, in the case of Governmental Authorities,
Persons succeeding to the relevant functions of such Persons. All
references to statutes and related regulations shall include, as to
any statute, its related regulations, any amendments of same and
any successor statutes and regulations. Any consent, waiver,
approval or determination which, pursuant hereto or to any Loan
Document, is required or permitted to be given or made by Lender
shall be made in its sole discretion, exercised in good faith and,
if and where required by Applicable Law, in a commercially rea-
sonable manner. Any reference herein or in any Loan Document "to
the knowledge" of any Person (or words of substantially the same
import) shall mean to its knowledge after, and assuming, reasonable
investigation and diligence.
SECTION 2. CREDIT FACILITY
Subject to all of the terms and conditions of this Agreement,
in reliance upon the representations and warranties made herein and
in the other Loan Documents and so long as no Default or Event of
Default then exists, Lender will provide credit to the Borrower as
follows:
2.1. Revolver Facility.
(1) During the period from the date hereof to, but not
including, the Termination Date, Borrower may borrow, repay and
reborrow Revolver Loans in respect of each Eligible Supply Contract
in up to a maximum principal amount at any time outstanding under
the Revolver Facility equal to the Borrowing Base determined by
Lender for such Eligible Supply Contract at such time; provided,
however, that in the event that any Overadvance shall ever exist,
Borrower shall repay such Overadvance, in full, immediately; and,
provided, further, that if any Eligible Supply Contract shall cease
to be an Eligible Supply Contract, then, Lender may, at its option,
(i) refuse to make any further Revolver Loans in respect thereof
and (ii) demand full payment of all Revolver Loans then outstanding
in respect thereof. Each Revolver Loan shall be made (or deemed
made), in the following manner: (a) Borrower shall give Lender
written or oral notice of its intention to borrow (which notice
shall be irrevocable) before 11:30 a.m. (Atlanta, Georgia time), on
any Business Day specifying the Eligible Supply Contract in respect
of which such Loan is being requested, the amount of the proposed
borrowing, the proposed borrowing date and whether such Loan is to
be a Base Rate Loan or a LIBOR Rate Loan; (b) unless payment is
otherwise timely made by Borrower, the becoming due of any
Obligation required to be paid under this Agreement or any Loan
Document shall be deemed irrevocably to be a request by Borrower
for a Revolver Loan on the due date of, and in the amount required
to pay, such Obligations; and (c) the presentation by Borrower for
payment by Tennessee Bank of any check or other item of payment
drawn on the Controlled Disbursement Account shall be deemed
irrevocably to be a request for a Revolver Loan in the amount of
such check or other item of payment; it being understood that, in
the case of clauses (b) and (c) above, Lender shall have the right
to allocate the Revolver Loans arising therefrom to any one or more
or all of the Eligible Supply Contracts, at Lender's discretion
(even if, in doing so, an Overadvance is created). The proceeds of
each Revolver Loan requested by oral or written notice of intention
to borrow given as described above are to be disbursed by Lender in
lawful money of the United States of America in immediately
available funds, in the case of the initial borrowing, in
accordance with the terms of the written disbursement letter or
other instructions from Borrower, and in the case of each
subsequent borrowing, by wire transfer to the Controlled
Disbursement Account; and the proceeds of each Revolver Loan
requested to satisfy an Obligation as described above are to be
disbursed by Lender by way of direct payment of the relevant
Obligation. Each oral request for a Revolver Loan is to be
conclusively presumed to be made by a Person authorized by Borrower
to do so; and the making of the requested Revolver Loan shall
conclusively establish Borrower's obligation to repay such Revolver
Loan in accordance with this Agreement. Any written notice of
intention to borrow shall be in the form of a Notice of Borrowing.
Any oral notice of intention to borrow may, at Lender's option, be
required to be confirmed not later than one (1) Business Day later
than the giving of oral notice by the giving of a written Notice of
Borrowing. Notwithstanding the foregoing, and in any event, all
notices of intention to borrow LIBOR Rate Loans shall be delivered
by a Notice of Borrowing received by Lender at least three (3)
Business Days in advance of a proposed borrowing date and be in the
minimum amount of Five Hundred Thousand Dollars ($500,000) and
integral multiples of Fifty Thousand Dollars ($50,000) in excess
thereof. The proceeds of each Revolver Loan shall be used by
Borrower solely for Permitted Proceeds Uses. Notwithstanding
Lender's receipt (or deemed receipt) of any request for a Revolver
Loan, Lender shall not be bound to honor any such request except to
the extent, in the manner and subject to all terms and conditions
relevant thereto contained herein. The Indebtedness of Borrower to
Lender arising from the making of each Revolver Loan in respect of
an Eligible Supply Contract shall be evidenced by a Revolver Note
in a principal amount equal to the maximum amount of borrowings
which may be obtained hereunder in respect of such Eligible Supply
Contract. Each Revolver Note shall be executed and delivered in
conjunction with a Supply Contract being accepted by Lender as an
Eligible Supply Contract.
(2) The Revolver Facility will be in effect for a period
commencing on the date hereof and ending on the Termination Date,
unless sooner terminated as hereinafter provided.
(3) Lender may immediately terminate the Revolver
Facility, without notice, upon or after the occurrence of an Event
of Default and during its continuation; and the Revolver Facility
shall automatically terminate, without notice, upon the occurrence
of any Event of Default of the type specified in Section 7.1(G).
(4) Upon the effective date of any termination of the
Revolver Facility, all Revolver Loans then outstanding, shall
become due and payable, in full, and Lender may discontinue making
further Loans to Borrower. No termination (regardless of cause or
procedure) of the Revolver Facility shall in any way affect or
impair the rights, powers or privileges of Lender or the
obligations, duties or liabilities of Borrower relating to (i) any
transaction or event occurring prior to the effective date of such
termination or (ii) any of the undertakings, agreements, covenants,
warranties or representations of Borrower contained in this
Agreement or in any of the other Loan Documents.
2.2. All Revolver Loans to Constitute One Obligation. All
Revolver Loans, regardless whether or how allocated to any given
Eligible Supply Contract, are to constitute one general Obligation
of Borrower, and are to be secured by Lender's security interest in
and Lien upon all of the Collateral, and by all other security
interests and Liens heretofore, now or at any time or times
hereafter granted by Borrower to Lender to the extent provided in
the Security Documents under which any such Lien arises.
SECTION 3. INTEREST, FEES AND REPAYMENT
3.1. Interest, Fees and Charges.
(1) Interest.
(1) Rate of Interest. The Revolver Loans shall
bear interest from the date such Loans are made to the date
paid at the Base Margined Rate or at the LIBOR Margined Rate,
at Borrower's option, and the applicable basis for determining
the rate of interest shall be selected by Borrower at the time
a Notice of Borrowing is given. The basis for determining the
interest rate with respect to any Revolver Loan may be changed
by Borrower from time to time pursuant to subparagraph
(iii) below. If on any day a Loan is outstanding with respect
to which notice has not been delivered to Lender in accordance
with the terms of this Agreement specifying the basis for
determining the rate of interest, then for that day that Loan
shall bear interest at the Base Margined Rate.
(2) Interest Periods. In connection with each
LIBOR Rate Loan, in its Notice of Borrowing therefor, Borrower
shall select an interest period (each an "Interest Period") to
be applicable to such Loan, which Interest Period shall be
either a one (1), two (2) or three (3) month period, provided
that: (1) the initial Interest Period for any such Loan shall
commence on the funding date of such Loan; (2) in the case of
immediately successive Interest Periods, each successive
Interest Period shall commence on the day on which the next
preceding Interest Period expires; (3) if an Interest Period
would otherwise expire on a day that is not a Business Day,
such Interest Period shall expire on the next succeeding
Business Day, but if any Interest Period would otherwise
expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding
Business Day; (4) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall, subject to part (5)
below, end on the last Business Day of a calendar month;
(5) no Interest Period shall extend beyond the Termination
Date; (6) no Interest Period with respect to any of the Loans
may extend beyond a date on which Borrower is required to make
a scheduled payment of principal with respect to such Loan;
(7) the Interest Period for a Loan that is converted pursuant
to subparagraph (iii) below shall commence on the date of such
conversion and shall expire on the date on which the Interest
Period for the Loans so converted expires; and (8) there shall
be no more than two (2) Interest Periods relating to LIBOR
Rate Loans allocated to any one Eligible Supply Contract
outstanding at any time.
(3) Conversion or Continuation. Subject to the
provisions of this subparagraph (iii) and the limitation on
the number of Interest Periods prescribed in subparagraph (ii)
above, Borrower shall have the option to (1) convert at any
time all or any part of outstanding Loans equal to Five
Hundred Thousand Dollars ($500,000) and integral multiples of
Fifty Thousand Dollars ($50,000) in excess of that amount from
Loans bearing interest at a rate determined by reference to
one basis to Loans bearing interest at a rate determined by
reference to an alternative basis, or (2) upon the expiration
of any Interest Period applicable to a LIBOR Rate Loan, to
continue all or any portion of such Loan equal to Five Hundred
Thousand Dollars ($500,000) and integral multiples of Fifty
Thousand Dollars ($50,000) in excess of that amount as a LIBOR
Rate Loan and the succeeding Interest Period(s) of such
continued Loan shall commence on the last day of the Interest
Period of the Loan to be continued; provided that LIBOR Rate
Loans may only be converted into Loans bearing interest
determined by reference to an alternative basis on the
expiration date of an Interest Period applicable thereto; and
provided, further, that no outstanding Loan may be continued
as, or be converted into, a LIBOR Rate Loan when an Event of
Default or Default has occurred and is continuing; and
provided, finally, that no Loan may be converted into a LIBOR
Rate Loan until ten (10) days after the Closing Date; i.e.,
any Loans made on the Closing Date or within ten (10) days
thereafter shall be made as Base Rate Loans. Borrower shall
deliver a fully and properly completed Notice of Borrowing to
Lender no later than 11:00 a.m. (Atlanta time) at least three
(3) Business Days in advance of any proposed
conversion/continuation date in respect of any LIBOR Rate
Loan.
(4) Inability to Determine Interest Rate. In the
event that Lender determines that, by reason of circumstances
affecting the London interbank market, either (i) adequate and
reasonable means do not exist for ascertaining the LIBOR Rate
for any requested Interest Period or (ii) the interest rate
determined for such Interest Period does not accurately
reflect the cost to Lender of making or maintaining LIBOR Rate
Loans during such Interest Period; then, Lender shall
forthwith give notice of such determination to Borrower. From
and after Borrower's receipt of such notice, any then
requested LIBOR Rate Loans shall be made as Base Rate Loans,
any Base Rate Loans that were to have been converted to LIBOR
Rate Loans shall be continued as Base Rate Loans and any
outstanding LIBOR Rate Loans shall be converted, on the last
day of the then current Interest Period with respect thereto,
to Base Rate Loans; and no further LIBOR Rate Loans shall be
made or continued as such, nor shall Borrower has the right to
convert Base Rate Loans to LIBOR Rate Loans unless and until
the circumstances causing such suspension of LIBOR Rate Loans
no longer exists.
(5) Illegality. Notwithstanding any other
provisions herein, if any Applicable Law or any change therein
or in the interpretation or application thereof shall make it
unlawful for Lender to make or maintain LIBOR Rate Loans as
contemplated by this Agreement, (a) the commitment of Lender
hereunder to make LIBOR Rate Loans, continue LIBOR Rate Loans
as such or convert Base Rate Loans to LIBOR Rate Loans shall
forthwith be canceled and (b) Lender's Loans then outstanding
as LIBOR Rate Loans, if any, shall be converted automatically
to Base Rate Loans on the respective last day's of the then
current Interest Periods with respect to such Loans or within
such earlier period as required by law.
(6) Computation and Payment of Interest. In
computing interest on any Loan, the date of funding of the
Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from
a LIBOR Rate Loan, the date of conversion of such LIBOR Rate
Loan to such Base Rate Loan shall be included and the date of
payment of such Loan or the expiration date of an Interest
Period applicable to such Loan, or with respect to a Base Rate
Loan being converted to a LIBOR Rate Loan, the date of
conversion of such Base Rate Loan to such LIBOR Rate Loan,
shall be excluded; provided that if a Loan is repaid on the
same day on which it is made, one day's interest shall be paid
on that Loan. All interest (together with any fees or other
charges determined on a "per annum" basis) shall be calculated
on a daily basis (computed on the actual number of days
elapsed over a year of 360 days, unless reference to a 365 or
366-day year is necessary in order not to exceed the Maximum
Rate), commencing on the Closing Date, and shall be payable
(i) monthly, in arrears, on the first day of each month, in
the case of Base Rate Loans, (ii) at the end of the Interest
Period selected therefor, in the case of LIBOR Rate Loans, and
(iii) on demand, at maturity (whether by stated payment terms,
by acceleration or otherwise).
(7) Default Rate of Interest. Upon the occurrence
of an Event of Default, and during its continuance, at
Lender's election, the principal amount of all Obligations
then and thereafter shall bear interest at the Default Rate.
Interest at the Default Rate shall be paid without prejudice
to the rights of Lender to collect any other amounts provided
to be paid hereunder or under any of the other Loan Documents
or to declare a default under this Agreement or any of the
other Loan Documents.
(2) LIBOR Indemnity. Borrower agrees to indemnify
Lender and to hold Lender harmless from any loss or expense which
Lender may sustain or incur as a consequence of (a) default by
Borrower in payment when due of the principal amount of or interest
on any LIBOR Rate Loans, (b) default by Borrower in making,
continuing or converting a borrowing after Borrower has given a
Notice of Borrowing in respect thereto, (c) default by Borrower in
making any prepayment after Borrower has given a voluntary
prepayment notice, or (d) the making of a prepayment of a LIBOR
Rate Loan on a day which is not the last day of the Interest Period
with respect thereto, including, without limitation, in each case,
any such loss or expense arising from the reemployment of funds
obtained by Lender to maintain its LIBOR Rate Loans hereunder or
from fees payable to terminate the deposits from which such funds
were obtained. The amount of such loss or expense shall be
determined by Lender using any reasonable attribution or averaging
method which it selects and, as appropriate, based on the
assumption that a requested LIBOR Rate Loan was funded in the
London interbank market by Lender on the requested disbursement
date; and shall be due and payable on demand. A certificate of the
Lender claiming entitlement to such indemnity, addressed to
Borrower, setting forth the nature of the occurrence giving rise to
such amount of such loss or expense, the claim for indemnity
hereunder, and the method by which the amount of such claim was
determined, shall accompany each demand for indemnity hereunder.
(3) Capital Adequacy. If after the Closing Date, Lender
determines, in good faith, that (a) the adoption of any Applicable
Law regarding capital requirements for banks or bank holding
companies or the subsidiaries thereof, (b) any change in the
interpretation or administration of any such law, rule or
regulation by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration
thereof, or (c) compliance by Lender or its holding company with
any request or directive of any such governmental authority,
central bank or comparable agency regarding capital adequacy
(whether or not having the force of law), has the effect of
reducing the return on Lender's capital to a level below that which
Lender could have achieved (taking into consideration Lender's and
its holding company's policies with respect to capital adequacy
immediately before such adoption, change or compliance and assuming
that Lender's capital was fully utilized prior to such adoption,
change or compliance) but for such adoption, change or compliance
as a consequence of Lender' s commitment to make the Loans pursuant
hereto by any amount deemed by Lender to be material: (i) Lender
is promptly, after Lender's determination of such occurrence, to
give notice thereof to Borrower, and (ii) Borrower is to pay to
Lender as an additional fee from time to time, on demand, such
amount as Lender certifies to be the amount that will compensate
Lender for such reduction. A certificate of Lender claiming
entitlement to such compensation, setting forth the nature of the
occurrence giving rise to such compensation, the additional amount
or amounts to be paid to Lender, and the method by which such
amounts were determined will be conclusive in the absence of
manifest error. In determining such amount, Lender may use any
reasonable averaging and attribution method.
3.2. Payments and Collections.
(1) Manner and Time of Payment. All payments of the
Obligations made by Borrower pursuant hereto, whether voluntary or
mandatory, shall be made without deduction, defense, set-off or
counterclaim and in same day funds delivered to Lender by wire
transfer to Lender, referencing, where applicable, the Eligible
Supply Contract in respect of which the Loans being repaid arose
and the corresponding Lender's Account to which such payments are
to be deposited. In order to cause timely payment to be made to
Lender of all Obligations as and when due, Borrower hereby autho-
rizes and directs Lender, at Lender's option, to debit the Loan
Account (by increasing the principal balance of the Revolving Loans
then outstanding) for any amounts of principal, accrued interest,
fees, charges or expenses at any time owing hereunder or under any
Loan Documents as and when such Obligations become due; it being
understood that, in such connection, in the absence of contrary
direction from Borrower, Lender shall have the right to allocate
the Revolver Loans arising therefrom to any one or more or all of
the Eligible Supply Contracts, at Lender's discretion (even if, in
doing so, an Overadvance is created).
(2) Dominion Accounts. In addition to payments of the
Obligations made (or deemed made) by Borrower pursuant to
subsection (A) hereinabove, Borrower shall also be obliged to
establish a Dominion Account for each Eligible Supply Contract into
which all Proceeds of Accounts and Inventory in respect of each
Eligible Supply Contract shall be deposited as and when received by
Borrower. Each such Dominion Account shall be opened with
Tennessee Bank or, subject to Lender's approval, a bank selected by
Borrower, but satisfactory to Lender, which bank shall agree to a
Bank Agency Agreement. Collected funds deposited to each Dominion
Account opened in respect of an Eligible Supply Contract shall be
disbursed therefrom on a daily basis, first, to the corresponding
Lender's Account, thereupon to be applied in payment of that
portion (if any) of the corresponding Revolver Loan then
outstanding which exceeds the then reported Inventory Component of
the Borrowing Base derived from such Eligible Supply Contract, and,
next, as to any balance remaining, to the Controlled Disbursement
Account (unless Borrower otherwise directs Lender to apply such
proceeds, instead, to the Obligations in accordance with subsection
(A) above); provided, however, that, notwithstanding the foregoing,
if (i) an Overadvance has occurred or would occur, but for the
direct application of a greater amount (or all) of such proceeds to
the Obligations, Lender may apply such proceeds accordingly to
reduce or avoid such Overadvance; or (ii) a Default or Event of
Default has occurred and is continuing, Lender may cause any
portion or all of such proceeds to be remitted directly to one or
more Lender's Accounts for application to the Obligations in the
manner specified in subsection (C) below. Borrower shall provide
Lender with copies of all bank statements which it receives
relative to each Dominion Account from any bank (other than from
Tennessee Bank) as soon as practicable but in any event within ten
(10) days from the date each such statement is received by
Borrower, and shall provide Lender with a reconciliation report
with respect to each such bank statement for each such account as
soon as practicable after Borrower's receipt of each such bank
statement but in any event within twenty (20) days from the date of
such receipt.
(3) Credit for Collections. All payments and other
collections received by Lender for application to outstanding
Obligations, whether pursuant to subsections (A) or (B) above, or
otherwise, shall be applied to outstanding Obligations on the
Business Day of receipt or deposit by Lender of same in immediately
available funds in a Lender's Account during regular banking hours
of Tennessee Bank, in accordance with subsection (F) below, with
such application to be made, first, to any expenses of Lender
incurred in effecting such collections; next, to any accrued inter-
est or fees which are then due and payable to Lender pursuant
hereto; next, to any other Obligations of Borrower which are then
due and payable; next, to any Revolving Loans then outstanding
(with any Revolving Loans then constituting Base Rate Loans deemed
paid first); it being understood that, in the absence of contrary
direction from Borrower, Lender shall have the right to allocate
such collections between or among Revolver Loans then outstanding,
at Lender's discretion (even if, in doing so, an Overadvance is
created); and, lastly, provided that no Event of Default has
occurred and is continuing, any remainder shall be remitted to Bor-
rower. If an Event of Default has occurred and is continuing,
without limiting any other rights and remedies of Lender hereunder,
Lender may apply any remainder to any other Obligations then out-
standing, regardless of whether then past due, or hold the same as
additional cash Collateral pending the due dates for payment of
such Obligations.
(4) Loan Account; Statements of Account. Lender shall
enter all Revolver Loans as debits to the Loan Account and shall
also record in the Loan Account all payment made by Borrower on
Revolver Loans and all proceeds of Collateral which are finally
paid to Lender, and may record therein, in accordance with
customary accounting practice, all charges and expenses properly
chargeable to Borrower hereunder. Lender will account to Borrower
monthly with a statement of Loans, charges and payments made
pursuant to this Agreement, and such account rendered by Lender is
to be deemed final, binding and conclusive upon Borrower unless
Lender is notified by Borrower in writing to the contrary within
thirty (30) days after the date each account is mailed to Borrower.
Such notice is only to be deemed an objection to those items
specifically objected to therein.
(5) Payments on Business Days. Whenever any payment to
be made hereunder, whether of principal, interest, fees or
otherwise, shall be stated to be due on a day that is not a Busi-
ness Day, the payment may be made on the next succeeding Business
Day and such extension of time shall be included in the computation
of the amount of interest or fees due hereunder.
(6) Timing of Receipt of Funds. All funds received for
application to the Obligations pursuant hereto shall be deemed re-
ceived pursuant hereto on the Business Day received if such funds
are received by Tennessee Bank for deposit in a Lender's Account by
2:00 p.m. CDT on such day; otherwise, such funds shall be deemed
received on the succeeding Business Day.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1. General Representations and Warranties. To induce Lender
to enter into this Agreement, and make Loans hereunder, Borrower
warrants and represents to Lender that:
(1) Organization. Each of Borrower and any Subsidiary
is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, as
provided in the Corporate Information Schedule and has duly
qualified and is authorized to do business and is in good standing
as a foreign corporation in each other state or jurisdiction where
the character of its Properties or the nature of its activities
make such qualification necessary.
(2) Corporate Name. During the preceding seven (7)
years, neither Borrower nor any Subsidiary has been known as or
used any corporate, fictitious or trade names, and has had no
office, place of business or agent for service of process located
in any state or county, except as disclosed in the Corporate
Information Schedule.
(3) Corporate Authority. Borrower has the right and
power and is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and each of the other Loan
Documents to which it is a party. The execution, delivery and
performance of this Agreement and each such Loan Document have been
duly authorized by all necessary corporate action on the part of
Borrower and do not and will not (i) require any consent or
approval of the shareholders of Borrower; (ii) contravene
Borrower's articles of incorporation or bylaws; (iii) violate, or
cause Borrower to be in default under, any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award in effect having applicability to Borrower;
(iv) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease
or instrument to which Borrower is a party or by which it or its
Properties may be bound or affected; or (v) result in, or require,
the creation or imposition of any Lien (other than Permitted Liens)
upon or with respect to any of the Properties now owned or
hereafter acquired by Borrower.
(4) Governmental Consents. The execution, delivery and
performance by Borrower of this Agreement and each Loan Document to
which it is a party, and the consummation of the transactions
contemplated therein do not and will not require any registration
with, consent or approval of, or notice to, or other action to,
with or by, any Governmental Authority except for any filings
required by federal or state securities laws (which filings, if
required, have been made) and filings required in connection with
the perfection of security interests granted pursuant to the Loan
Documents.
(5) Enforceability. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be,
a legal, valid and binding obligation of Borrower enforceable
against it in accordance with its terms, except to the extent that
such enforcement may be limited by applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights
generally or by principles of equity pertaining to the availability
of equitable remedies.
(6) Good Standing. Each of Borrower and any Subsidiary
has, and is in good standing with respect to, all governmental
consents, approvals, authorizations, permits, certificates,
inspections, and franchises necessary to continue to conduct its
business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it.
(7) Permits. Each of Borrower and any Subsidiary owns
or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary for the present and
planned future conduct of its business, all of which are listed in
the Intellectual Property Schedule attached hereto and made a part
hereof, without any known conflict with the rights of others.
(8) Capital Stock. Owner owns and controls, and has
good title to, all of the shares of the Voting Stock of Borrower,
free and clear of any Liens other than Permitted Liens. Borrower
owns and controls, and has good title to, all of the shares of the
Voting Stock of each Subsidiary, if any, free and clear in each
case of any Lien other than Permitted Liens. All such shares of
Voting Stock owned by Borrower have been duly issued and are fully
paid and non-assessable. Other than as set forth in the Corporate
Information Schedule, there are not outstanding any options to
purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or
obligations convertible into, or any powers of attorney relating
to, shares of the capital stock of Borrower or any Subsidiary, or
any agreements or instruments binding upon Borrower or Owner
relating to the ownership of its shares of any such capital stock.
(9) Solvency. Borrower is now and, after giving effect
to all Loans to be made hereunder, at all times will be, Solvent.
(10) No Restrictions. Borrower is not a party or subject
to any contract or agreement or charter or other corporate
restriction, that restricts its right or ability to incur
Indebtedness. Borrower has not agreed or consented to cause or
permit in the future (upon the happening of a contingency or
otherwise) any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien that is not a Permitted Lien.
(11) No Lawsuits. Except as set forth in the Financial
and Contingency Schedule, there are no actions, suits, proceedings
or investigations pending, or to the knowledge of Borrower,
threatened, against or affecting Owner, Borrower or any of their
respective Subsidiaries, or the business, operations, Properties,
prospects, profits or condition of Borrower or any of such
Subsidiaries, in any court or before any Governmental Authority,
and no action, suit, proceeding or investigation shown in the
Financial and Contingency Schedule will have a Material Adverse
Effect. Neither Borrower nor any of its Subsidiaries is in default
with respect to any order, writ, injunction, judgement, decree or
rule of any Governmental Authority.
(12) Title. Each of Borrower and any Subsidiary has
good, indefeasible and marketable title to and fee simple ownership
of, or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of its other Property, in each
case, free and clear of all Liens, charges or claims (including
infringement claims with respect to patents, trademarks, copyrights
and the like), except Permitted Liens.
(13) Financial Statements. The Financial Statements have
been prepared in accordance with GAAP and present fairly the
financial position and the results of operations reflected in the
Financial Statements. Since the date of the Financial Statements,
there has been no material change in the condition, financial or
otherwise, of Borrower or any of its Subsidiaries except changes in
the ordinary course of business, none of which individually or in
the aggregate has been materially adverse. The Financial
Statements, this Agreement or any other written statement of
Borrower to Lender (including, without limitation, those statements
contained in filings, if any, with the Securities and Exchange
Commission) do not contain any untrue statement of a material fact
or omit a material fact necessary to make the statements contained
therein or herein not misleading. There is no fact which Borrower
has failed to disclose to Lender in writing which has had, or
foreseeably will have, a Material Adverse Effect, other than facts
which are generally available to the public and not particular to
Borrower, such as general economic and industry trends. The Fiscal
Year of Borrower ends as provided in the Financial and Contingency
Schedule.
(14) Tax Returns. Each of Borrower and any Subsidiary
has filed all federal, state and local tax returns and other
reports it is required by Applicable Law to file and has paid, or
made provision for the payment of, all Charges that are due and
payable, excepting any which are being Properly Contested. The
provision for taxes on the books of Borrower and its Subsidiaries
are adequate for all years not closed by applicable statutes, and
for its current fiscal year.
(15) Material Agreements. Except as may be disclosed in
the Material Agreement Schedule, neither Borrower nor any of its
Subsidiaries is a party to any collective bargaining agreement.
There are no material grievances, disputes or controversies with
any union or any other organization of Borrower's employees, or
threats of strikes, work stoppages or any asserted pending demands
for collective bargaining by any union or organization.
(16) Applicable Law. Each of Borrower and any Subsidiary
has duly complied with, and its Properties, business operations and
leaseholds are in compliance in all material respects with, the
provisions of all Applicable Law, and there have been no citations,
notices or orders of noncompliance issued to Borrower or any of its
Subsidiaries under any such Applicable Law.
(17) Not a Surety. Except as provided in the Financial
and Contingency Schedule, neither Borrower nor any Subsidiary is
obligated as surety or indemnitor under any surety or similar Bond
or other contract issued or entered into any agreement to assure
payment, performance or completion of performance of any
undertaking or obligation of any Person.
(18) No Default. No event has occurred and no condition
exists which would, upon the execution and delivery of this
Agreement or Borrower's performance hereunder, constitute a Default
or an Event of Default. Neither Borrower nor any of its
Subsidiaries is in default, and no event has occurred and no
condition exists which constitutes, or which with the passage of
time or the giving of notice or both would constitute, a default in
the payment of any Indebtedness to any Person.
(19) Brokers. Except as provided in the Financial and
Contingency Schedule, there are no claims for brokerage
commissions, finder's fees or investment banking fees in connection
with the transactions contemplated by this Agreement.
(20) No Threatened Termination. There exists no actual
or threatened termination, cancellation or limitation of, or any
material modification or change in, the business relationship
between Borrower and any material supplier or any customer or group
of customers whose purchases individually or in the aggregate are
material to the business of Borrower, and no present condition or
state of facts or circumstances will, after the consummation of the
transaction contemplated herein, have a Material Adverse Effect or
prevent Borrower from conducting such business in substantially the
same manner in which it has heretofore been conducted.
(21) Locations. The Location and Real Property Schedule
includes a complete listing of all Collateral Locations, Capital
Leases and all operating leases of Borrower.
(22) Insurance. The Insurance Schedule sets forth a
complete and accurate description of all policies of insurance in
effect as of the Closing Date for Borrower. Borrower is adequately
insured under such policies, no notice of cancellation has been
received with respect to any of such policies. Borrower and its
Subsidiaries are in compliance with all conditions contained in
such policies.
(23) Bank Accounts. The Financial and Contingency
Schedule sets forth the account numbers and location of all bank
accounts of Borrower as of the Closing Date.
(24) Employee Benefit Plans. The Employee Benefits
Schedule sets forth all retirement, pension, profit-sharing,
401(K), deferred compensation, health, disability and other
employee benefit programs in existence on the Closing Date.
4.2. Reaffirmation. Each request for a Loan made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall
constitute (i) an automatic representation and warranty by Borrower
to Lender that there does not then exist any Default or Event of
Default and (ii) a reaffirmation as of the date of said request
that all of the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true
in all material respects, except for any changes disclosed pursuant
to Section 5.1(N).
4.3. Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Lender that all
representations and warranties of Borrower contained in this
Agreement, or in any of the other Loan Documents shall be true at
the time of Borrower's execution thereof, and shall survive the
execution, delivery and acceptance hereof and thereof, and the
closing of the transactions described herein or related hereto.
SECTION 5. COVENANTS AND CONTINUING AGREEMENTS
5.1. Affirmative Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations
to Lender, Borrower shall (and shall cause each of its
Subsidiaries, as appropriate, to):
(1) Charges. Pay and discharge all Charges prior to the
date on which such Charges become delinquent or penalties attach
thereto, except and to the extent only that such Charges are being
Properly Contested and that, if such contest is abandoned or
determined adversely to Borrower, Borrower promptly pays all such
Charges and any penalties and interest payable in connection
therewith. Borrower shall pay and discharge any lawful claims
which, if unpaid, would become a Lien against any of Borrower's
Properties, except for Permitted Liens.
(2) Taxes. Timely file all federal, state and local tax
returns and other reports which Borrower or such Subsidiary is
required by Applicable Law to file and maintain adequate reserves
for the payment of all taxes, assessments, governmental charges,
and levies imposed upon it, its income, or its profits, or upon any
Property belonging to it.
(C) Transaction Costs. Pay to Lender, on demand, any
and all fees, costs or expenses which Lender or any Participating
Lender pays to a bank or other similar institution (including,
without limitation, any fees paid by the Lender to any
Participating Lender) arising out of or in connection with (i) the
forwarding to Borrower or any other Person on behalf of Borrower,
by Lender or any Participating Lender, proceeds of loans made by
Lender to Borrower pursuant to this Agreement and (ii) the
depositing for collection, by Lender or any Participating Lender,
of any check or item of payment received or delivered to Lender or
any Participating Lender on account of the Obligations.
(3) Corporate Existence. Preserve and maintain its
separate corporate existence and all rights, privileges, and
franchises in connection therewith, and maintain its qualification
and good standing in all states in which such qualification is
necessary.
(4) Properties. Maintain its Properties in good
condition and repair, and make all necessary renewals, repairs,
replacements, additions and improvements thereto.
(5) Applicable Law. Comply with all Applicable Laws,
including, without limitation, all Environmental Laws, and obtain
and keep in force any and all licenses, permits, franchises, or
other governmental authorizations necessary to the ownership of its
Properties or to the conduct of its business which, if not complied
with, obtained or kept in force, individually or in the aggregate,
could be reasonably expected to have a Material Adverse Effect.
(6) Books and Records. Keep, and cause each Subsidiary
to keep, adequate records and books of account with respect to its
business activities in which proper entries are made in accordance
with GAAP reflecting all its financial transactions.
(7) Inspections. Permit representatives of Lender, from
time to time, as often as may be reasonably requested, during
normal business hours, to visit and inspect the Properties of
Borrower, inspect and make extracts from its books and records, and
discuss with its officers, its employees and its independent
accountants, Borrower's business, assets, liabilities, financial
condition, business prospects and results of operations; provided
that any confidential information which Lender obtains in the
course of such visits, inspections, extractions and discussions
shall be maintained by Lender in the same manner, and to the same
extent, as Lender's own confidential information.
(8) Financial Statements. Cause to be prepared and
furnished to Lender the following (all to be kept and prepared in
accordance with GAAP applied on a consistent basis, unless
Borrower's certified public accountants concur in any change
therein and such change is disclosed to Lender and is consistent
with GAAP):
(1) as soon as possible, but not later than one
hundred twenty (120) days after the close of each Fiscal Year
of Borrower, unqualified audited Financial Statements of (A)
Borrower, separately, and (B) Owner and its Subsidiaries
(including Borrower) as of the end of such Fiscal Year, in
each case, on a consolidated and consolidating basis
(including Borrower), certified by a firm of independent
certified public accountants of recognized national standing
or otherwise acceptable to Lender (except for a qualification
for a change in accounting principles with which the
independent public accountant concurs); and, for purposes
hereof, Dempsey, Wilson & Co., which are Borrower's certified
public accountants on the Closing Date, are acceptable to
Lender;
(2) as soon as possible, but not later than thirty
(30) days after the end of each Fiscal Month hereafter,
unaudited interim Financial Statements of Borrower and its
Subsidiaries (if any) as of the end of such Fiscal Month and
as of that portion of Borrower's Fiscal Year then elapsed, on
a consolidated and consolidating basis, as appropriate
(including income statements on a per Supply Contract basis,
on which Non-Reimbursed Expenses shall be separately
classified), certified by an Authorized Officer of Borrower as
prepared in accordance with GAAP and fairly presenting the
consolidated financial position and results of operations of
Borrower and its Subsidiaries (if any) for such Fiscal Month
and Fiscal Year to date, subject only to changes from year-end
audit adjustments and except that such Financial Statements
need not contain footnotes;
(3) within thirty (30) days after then end of each
Fiscal Month, a Compliance Certificate, with appropriate
insertions, signed by Borrower's Authorized Officer;
(4) as soon as available and in any event no later
than thirty (30) days prior to the end of each Fiscal Year of
Borrower, month-by-month Projections of Borrower and its
Subsidiaries (if any) for the forthcoming Fiscal Year,
including income statements on a per Supply Contract basis;
(5) as soon as possible, but not later than forty-
five (45) days after the end of each Fiscal Quarter of Owner,
unaudited interim Financial Statements of Owner and its
Subsidiaries (including Borrower) as of the end of such Fiscal
Quarter and as of that portion of Owner's Fiscal Year then
elapsed, certified by an Authorized Officer of Owner as
prepared in accordance with GAAP and fairly presenting the
consolidated and consolidating financial position and results
of operations of Owner and its Subsidiaries for such Fiscal
Quarter and Fiscal Year to date, subject only to changes from
year-end audit adjustments, and except that such Financial
Statements need not contain footnotes.
(6) promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial
statements or reports which Borrower or Owner makes available
to its shareholders and copies of any 10-Q, 10-K or other,
similar reports and any registration statements which Borrower
or Owner files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefor,
or any national securities exchange; and
(7) such other related data and information
(financial and otherwise) as Lender, from time to time, may
reasonably request.
Concurrently with the delivery of the financial statements
described in clause (i) of this Section, Borrower shall forward to
Lender a copy of the accountants' report to Borrower's and Owner's
management that is prepared in connection with such financial
statements and also shall cause to be prepared and furnished to
Lender a certificate of the aforesaid certified public accountants
certifying to Lender that, based upon their examination of the
financial statements of Borrower and any Subsidiaries, either
(i) they are not aware of any Default or Event of Default, or
(ii) specifying the nature of any Default or Event of Default.
Lender further shall be permitted to communicate from time to time
directly with such accountants in respect of any such Financial
Statements, report or certificate (whether issued or to be issued),
and the contents thereof.
(9) Collateral Reports. On the fifth (5th) Business Day
after each Fiscal Month end, or more frequently if requested or
accepted by Lender, deliver to Lender a Borrowing Base Certificate,
in form satisfactory to Lender, setting forth the full calculation
of Borrower's Borrowing Base on a per Eligible Supply Contract
basis, accompanied by a detailed schedule of all Inventory,
segregated by Collateral Location, and a Schedule of Accounts of
Borrower, as of the last Business Day of the preceding Fiscal
Month-end; in each case, also compiled on a per Eligible Supply
Contract basis. In addition, within five (5) Business Days after
the end of each Fiscal Month, Borrower will deliver to Lender an
open accounts payable listing and a report listing all new
Collateral Locations (including relocations) and all closed
Collateral Locations since the last such report.
(10) Physical Counts of Inventory. Conduct (or cause to
be conducted) daily cycle counts and an annual physical inventory
and test count of its Inventory (or more frequently, in each case,
from and after the occurrence of any Event of Default, and during
its continuance, at the direction of Lender). Borrower shall give
Lender reasonable advance notice (but not less than one calendar
week, however) of its intention to conduct each annual physical
inventory and test count, and permit Lender to attend and observe
such activity. In any event, Borrower shall provide Lender with
copies of each daily cycle count on a daily basis and annual physi-
cal count of Inventory. Each annual physical count shall be
accompanied by Borrower's report as to the book value of such In-
ventory and an analysis of the book value of such Inventory in
relation to the physical count thereof.
(11) Other Notices. Notify Lender in writing:
(i) promptly after Borrower's learning thereof, of the commencement
of any litigation affecting Borrower or any of its Properties, and
of the institution of any administrative proceeding which may have
a Material Adverse Effect; (ii) promptly after Borrower's learning
thereof, of any labor dispute to which Borrower may become a party,
any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which it is
a party or by which it is bound; (iii) promptly after the
occurrence thereof, of any Default or Event of Default;
(iv) promptly after Borrower's learning thereof, of any material
default by Borrower under any note, indenture, loan agreement,
mortgage, lease, deed, guaranty or other similar agreement relating
to any Indebtedness of Borrower; (vii) promptly after the
occurrence thereof, of any default by any obligor under a note or
other evidence of Indebtedness payable to Borrower; and
(vii) promptly after the rendition thereof, of any judgment
rendered against Borrower or any of its Subsidiaries. Borrower
shall provide written notice to Lender of (1) all jurisdictions in
which Borrower or any Subsidiary becomes qualified after the
Closing Date to transact business, (2) any material change after
the Closing Date in the authorized and issued Capital Stock or
other equity interests of Borrower or any Subsidiary or any other
material amendment to their charter, by-laws or other organization
documents and (3) any Subsidiary created or acquired by Borrower or
any Subsidiary after the Closing Date, (presuming a consent is
obtained in respect thereof pursuant hereto), such notice, in each
case, to identify the applicable jurisdictions, capital structures
or Subsidiaries, as applicable.
(12) Debt Subordination Agreements. Provide Lender with
a debt subordination agreement, in form and substance satisfactory
to Lender, executed by Borrower and any Person who is an officer,
director or Affiliate of Borrower to whom Borrower is or hereafter
becomes indebted for Money Borrowed, subordinating in right of
payment and claim for all of such Indebtedness and any future
advance thereon to the full and final payment and performance of
the Obligations.
(13) Further Assurances. At Lender's request, promptly
execute or cause to be executed and deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to
give effect to or carry out the terms or intent of this Agreement
or any of the other Loan Documents.
(14) Supplemented Schedules. As soon as practicable
after Borrower becomes aware thereof, but in any event concurrently
with delivery by Borrower of the monthly financial statements
required to be delivered by Section 5.1(H)(ii), supplement in writ-
ing and deliver to Lender revisions of the Schedules, to the extent
necessary to disclose new or changed facts or circumstances oc-
curring within any Fiscal Month after the Closing Date in respect
of any material data set forth in, or which are the subject of, any
such Schedules; provided that subsequent disclosures shall not
constitute a cure or waiver of any Default or Event of Default
resulting from the matters disclosed therein.
(15) Insurance. In addition to the insurance required
herein with respect to the Collateral, maintain, with financially
sound and reputable insurers, insurance with respect to its
Properties and business against such casualties and contingencies
of such type (including product liability insurance) and in such
amounts as is customary in the business or as otherwise reasonably
required by Lender.
5.2. Negative Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations owing to
Lender, Borrower shall not (and shall not permit any Subsidiary
to):
(1) Merger. Merge or consolidate with any Person; or
acquire all or any substantial part of the Properties of any
Person.
(2) Loans. Make any loans or other advances of money
(other than for salary, travel advances, advances against
commissions and other similar advances in the ordinary course of
business) to any Person, including, any Affiliates, officers or
employees.
(3) Indebtedness. Create, incur, assume, or suffer to
exist, any Indebtedness, except Permitted Indebtedness, or any
Contingent Obligation, except by endorsement of instruments or
items of payment for deposit or collection in the ordinary course
of its business.
(4) Affiliates. Enter into, or be a party to any
transaction with any Affiliate or stockholder, officer or employee,
except in the ordinary course of and pursuant to the reasonable
requirements of its business and upon fair and reasonable terms
which are fully disclosed to Lender and are no less favorable than
would obtain in a comparable arm's length transaction with a Person
not an Affiliate or stockholder, officer or employee of Borrower or
such Subsidiary.
(5) Partnerships. Become or agree to become a general
or limited partner in any general or limited partnership or a joint
venturer in any joint venture.
(6) Material Contracts. Enter into any transaction
which materially and adversely affects or may materially and
adversely affect the Collateral or Borrower's ability to repay the
Obligations or permit or agree to any material extension,
compromise or settlement or make any change or modification of any
kind or nature with respect to any Account, including any of the
terms relating thereto, other than discounts and allowances in the
ordinary course of business, all of which is to be reflected in the
Schedules of Accounts submitted to Lender as required herein.
(7) Liens. Create or suffer to exist any Lien upon any
of its Property, income or profits, whether now owned or hereafter
acquired, except Permitted Liens.
(8) Subordinated Debt. Make any payment (whether of
principal, interest, premium or otherwise) on any Subordinated Debt
unless and except to the extent, if any, expressly permitted by the
terms of subordination governing such Subordinated Debt; or, in any
event, make any prepayment of any part or all of any Subordinated
Debt, or otherwise repurchase, redeem or retire any instrument
evidencing any such Subordinated Debt prior to maturity; or enter
into any agreement which could in any way be construed to amend,
modify, alter or terminate any one or more instruments or
agreements evidencing or relating to any Subordinated Debt.
(9) Distributions. Declare or make any Distributions;
provided, however, that so long as no Default or Event of Default
has occurred or otherwise would be caused thereby, Borrower may
make cash Distributions to Owner of (i) up to Two Hundred Seventy-
Five Thousand Dollars ($275,000), in the aggregate, in each Fiscal
Year, in respect of management fees, and (ii) payments on
Subordinated Debt, if and to the extent then expressly permitted to
be made by the terms of subordination governing such Subordinated
Debt.
(10) Subsidiaries. Create any Subsidiary or divest
itself of any assets by transferring them to any Subsidiary.
(11) Place of Business. Transfer its principal place of
business or chief executive office, or open new manufacturing
plants, or transfer existing manufacturing plants, to any locations
other than those at which the same are presently kept or
maintained, as set forth on the Location and Real Property
Schedule, except upon at least sixty (60) days prior written notice
to Lender and after the delivery to Lender of financing statements,
if required by Lender, in form satisfactory to Lender to perfect or
continue the perfection of Lender's Lien and security interest
hereunder.
(12) Business Purposes. Enter into any new business or
make any material change in any of Borrower's or any Subsidiary's
business objectives, purposes and operations.
(13) Sale of Assets. Sell, lease or otherwise dispose of
any of its Properties, including any disposition of Property as
part of a sale and leaseback transaction, to or in favor of any
Person, except (i) sales of Inventory in the ordinary course of
business for so long as no Event of Default exists hereunder,
(ii) a transfer of Property to Borrower by a Subsidiary or
(iii) any other dispositions expressly authorized by this
Agreement; provided, however, that the foregoing restriction is not
to apply, for so long as no Default or Event of Default exists, to
(i) dispositions of Equipment which, in the aggregate during any
consecutive twelve-month period, has a fair market value or book
value, whichever is more, of Ten Thousand Dollars ($10,000) or
less, provided that all Net Proceeds thereof are remitted to Lender
for application to the Obligations, (ii) dispositions of obsolete
Equipment, provided that all Net Proceeds are remitted to Lender
for application to the Obligations, or (iii) replacements of
Equipment that is substantially worn or damaged with Equipment of
like kind, function and value, provided that the replacement
Equipment shall be acquired prior to or concurrently with any
disposition of the Equipment that is to be replaced and the
replacement Equipment is to be free and clear of Liens (except for
Permitted Liens that are not Purchase Money Liens), Borrower shall
give Lender at least five (5) Business Days prior written notice of
such disposition and Borrower shall turn over to Lender all Net
Proceeds realized from any such disposition.
(14) Corporate Name. Use any corporate name (other than
its own) or any fictitious name, trade style or "d/b/a" except for
any names disclosed on the Corporate Information Schedule.
(15) Margin Security. Own, purchase or acquire (or enter
into any contract to purchase or acquire) any "margin security" as
defined by any regulation of the Board of Governors as now in
effect or as the same may hereafter be in effect unless, prior to
any such purchase or acquisition or entering into any such
contract, Lender is to have received an opinion of counsel
satisfactory to Lender to the effect that such purchase or
acquisition will not cause the Agreement to violate Regulations G
or U or any other regulation of the Board of Governors then in
effect.
(16) Restricted Investment. Make or have any Restricted
Investment.
(17) Bank Accounts; Commingling. Establish any deposit
accounts for the deposit of any Proceeds of Collateral not
expressly contemplated herein or commingle any funds not
constituting Proceeds of Collateral in any deposit account
established pursuant hereto for the depositing of Proceeds of
Collateral.
(18) Fiscal Year. Change its Fiscal Year, or permit any
Subsidiary to have a Fiscal Year different from that of Borrower.
(19) Capital Stock. Sell or otherwise dispose of any
shares of capital stock of any Subsidiary, or permit any Subsidiary
to issue any additional shares of its capital stock except
director's qualifying shares.
(20) Consolidated Tax Return. File or consent to the
filing of any consolidated income tax return with any Person other
than Owner or a Subsidiary.
5.3. Financial Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations owing to
Lender, Borrower shall:
(1) Net Worth. Maintain a Net Worth of not less than
the amount shown below at all times during the period corresponding
thereto (measured monthly at the end of each Fiscal Month):
Period Amount
Closing Date through June 30, 1997 $1,150,000
July 1, 1997 through June 30, 1998 $1,400,000
From and after July 1, 1998 $1,700,000
(2) Debt Service Coverage. Maintain a Debt Service
Coverage of not less than the ratio shown below at all times during
the period corresponding thereto (measured monthly at the end of
each Fiscal Month):
Period Ratio
Closing Date through June 30, 1997 1.15:1
From and after July 1, 1997 1.20:1
(3) Capital Expenditures. Limit the aggregate amount of
all Capital Expenditures (including without limitation, Capital
Leases) of Borrower to not more than Twenty-Five Thousand Dollars
($25,000) during any Fiscal Year of Borrower.
SECTION 6. COLLATERAL
6.1. Grant of Security Interest. To secure the prompt payment
and performance of the Obligations, Borrower hereby grants to
Lender a continuing security interest in, security title to and
Lien upon all the Collateral.
6.2. Representations, Warranties and Covenants -- Collateral
Generally. To induce Lender to enter into this Agreement, Borrower
represents and warrants to, and covenants with, Lender as follows:
(1) The Collateral is now and will continue to be owned
solely by Borrower. No other Person has or will have any right,
title, interest, claim, or Lien therein, thereon or thereto other
than a Permitted Lien.
(2) The Liens granted to Lender are to be first and
prior Liens on the Collateral. No further action need be taken to
perfect the Liens granted to Lender, other than the filing of
financing statements and continuation statements under the Code or
other Applicable Law, continued possession by Lender of that
portion of the Collateral constituting Instruments or Documents and
the processing of Lien notations on motor vehicle title
certificates.
(3) All goods evidenced by the Collateral constituting
Chattel Paper, Documents or Instruments, the possession of which
has been given to Lender, are owned by Borrower and the same are
free and clear of any prior Lien.
6.3. Lien Perfection. Borrower agrees to execute financing
statements provided for by the Code or other Applicable Law
together with any and all other instruments, assignments or
documents and is to take such other action as may be required to
perfect or to continue the perfection of Lender's security interest
in the Collateral, including, without limitation, the execution at
Lender's request of all documents deemed necessary by Lender to
cause Lender's Lien to be noted on any motor vehicle title
certificates for motor vehicles forming a part of the Collateral.
Unless prohibited by Applicable Law, Borrower hereby authorizes
Lender to execute and file any such financing statement on
Borrower's behalf. The parties agree that a carbon, photographic
or other reproduction of this Agreement is to be sufficient as a
financing statement and may be filed in any appropriate office in
lieu thereof.
6.4. Location of Collateral. All tangible Collateral, other
than Inventory in transit and motor vehicles and any Collateral in
possession of Lender, will at all times be kept by Borrower at one
or more of the Collateral Locations set forth in the Location and
Real Property Schedule and, unless otherwise approved by Lender,
shall not be moved therefrom except, prior to an Event of Default,
for (A) sales of Inventory in the ordinary course of business;
(B) the storage of Inventory at locations within the continental
United States other than those shown on the Location and Real
Property Schedule if (i) Borrower gives Lender written notice of
the new storage location at least sixty (60) days prior to storing
Inventory at such location, (ii) Lender's security interest in such
Inventory is and continues to be a duly perfected, first priority
Lien thereon, (iii) Borrower's right of entry upon the premises
where such Inventory is stored, or its right to remove the
Inventory therefrom, is not in any way restricted, (iv) the owner
of such premises executes a Lien Waiver and (v) all negotiable
documents and receipts in respect of any Collateral maintained at
such premises are promptly delivered to Lender; and (C) removals in
connection with dispositions of Equipment that are authorized
herein.
6.5. Insurance of Collateral. Borrower shall maintain and pay
for insurance upon all Collateral wherever located, in storage or
in transit in vehicles, including goods evidenced by documents,
covering casualty, hazard, public liability and such other risks
and in such amounts and with such insurance companies as is to be
reasonably satisfactory to Lender to insure Lender's interest in
the Collateral. Borrower is to deliver the originals of such
policies to Lender with satisfactory lender's loss payable
endorsements naming Lender loss payee. Each policy of insurance or
endorsement shall contain a clause requiring the insurer to give
not less than thirty (30) days prior written notice to Lender in
the event of cancellation of the policy for any reason whatsoever
and a clause that the interest of Lender is not to be impaired or
invalidated by any act or neglect of Borrower or owner of the
Property nor by the occupation of the premises for purposes more
hazardous than are permitted by said policy. If Borrower fails to
provide and pay for such insurance, Lender may, at Borrower's
expense, procure the same, but is not to be required to do so. In
addition to the insurance required herein with respect to the
Collateral, Borrower shall maintain, with financially sound and
reputable insurers, insurance with respect to its Properties and
business against such casualties and contingencies of such type
(including product liability, larceny, embezzlement, or other
criminal misappropriation insurance) and in such amounts as is
customary in the business or as otherwise shall be reasonably
required by Lender.
6.6. Protection of Collateral. All expenses of protecting,
storing, warehousing, insuring, handling, maintaining and shipping
Collateral (including, without limitation, all rent payable by
Borrower to any landlord of any premises where any of the
Collateral may be located), and any and all Charges are to be borne
and paid by Borrower. All sums paid or incurred by Lender in
enforcing or protecting its Lien on or rights and interest in the
Collateral or any of its rights or remedies under this or any other
agreement between the parties hereto or in respect of any of the
transactions to be had hereunder until paid by Borrower to Lender
with interest at the Default Rate, are to be considered
Obligations, secured by all Collateral and by any and all other
collateral, security, assets, reserves, or funds of Borrower in or
coming into the hands or inuring to the benefit of Lender. Lender
shall not be liable or responsible in any way for the safekeeping
of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is
in Lender's actual possession) or for any diminution in the value
thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other Person whomsoever, but the same shall
be at Borrower's sole risk.
6.7. Special Provisions Relating to Accounts.
(1) Representations, Warranties and Covenants. With
respect to all Accounts, Lender may rely, in determining which
Accounts are Eligible Accounts, on all statements and
representations made by Borrower or any Authorized Officer on its
behalf, whether hereunder or under any other Loan Document, with
respect to any Account or Accounts. With respect to each Account,
Borrower represents and warrants: (i) it is genuine and in all
respects what it purports to be, and it is not evidenced by a
judgment; (ii) it arose out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the
ordinary course of its business and in accordance with the terms
and conditions of all purchase orders, contracts or other documents
relating thereto and forming a part of the contract between
Borrower and the Account Debtor; (iii) to Borrower's knowledge, the
Account Debtor thereunder had the capacity to contract at the time
any contract or other document giving rise to the Account was
executed, (iv) to Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any Account Debtor
thereunder which could reasonably be expected to result in any
material adverse change in such Account Debtor's financial
condition or the collectibility of such Account; (v) the Account is
for a liquidated amount maturing as stated in the duplicate invoice
covering such sale or rendition of services, a copy of which has
been furnished or is available to Lender; (vi) to Borrower's
knowledge, at the time of sale, such Account, and Lender's security
interest therein, was not subject to any offset, Lien, deduction,
defense, dispute, counterclaim or any other adverse condition
except for disputes resulting in returned goods where the amount in
controversy is deemed by Lender to be immaterial, and each such
Account is absolutely owing to Borrower and was not contingent in
any respect or for any reason, and there are no facts, events or
occurrences which in any way impair the validity or enforceability
thereof or tend to reduce the amount payable thereunder from the
face amount of the invoice and statements delivered to Lender with
respect thereto; and (vii) Borrower has made no agreement with any
Account Debtor for any deduction therefrom, except discounts or
allowances which are granted by Borrower in the ordinary course of
its business for prompt payment and which are reflected in the
calculation of the net amount of each respective invoice related
thereto.
(2) Administration of Accounts. Borrower shall keep
accurate and complete records of its Accounts and all payments and
collections thereon. Borrower shall promptly report any discounts,
allowances or credits, as the case may be, to Lender and in no
event later than the time of its submission to Lender of the next
Schedule of Accounts. Borrower shall provide Lender with written
notice of any amounts in excess of Fifty Thousand Dollars ($50,000)
in dispute between Borrower and an Account Debtor, explaining in
detail the reason for such dispute, all claims related thereto and
the specific amount in controversy. If an Account includes a
charge for any tax payable to any governmental taxing authority,
Lender may pay the amount thereof to the proper taxing authority
for the account of Borrower and charge the Loan Account therefor.
Borrower is to notify Lender if any Account includes any tax due to
any governmental taxing authority and, in the absence of such
notice, Lender is to have the right to retain the full proceeds of
the Account and is not to be liable for any taxes to any
governmental taxing authority that may be due by Borrower by reason
of the sale and delivery creating the Account. Any of Lender's
officers, employees or agents are to have the right, at any time,
in the name of Lender or any designee of Lender or Borrower, to
verify the validity, amount or any other matter relating to any
Accounts by mail, telephone or otherwise. Borrower is to cooperate
fully with Lender to facilitate any such verification process.
(3) Collection of Accounts. Borrower shall deposit all
proceeds of the Collateral, including, without limitation, all
remittances received by Borrower on account of Accounts, or cause
the same to be deposited in kind in a Dominion Account pursuant to
a Bank Agency Agreement. Borrower shall issue to any such bank, an
irrevocable letter of instruction directing such banks to deposit
all payments or other remittances received in the lockbox to the
Dominion Account for application on account of the Obligations.
All funds deposited in the Dominion Account are immediately to
become the property of Lender and Borrower shall obtain the
agreement by such banks to waive any offset rights against the
funds so deposited. Lender assumes no responsibility for such
lockbox arrangement, including, without limitation, any claim of
accord and satisfaction or release with respect to deposits
accepted by any bank thereunder.
(4) Governmental Accounts. If any of the Accounts, the
face value of which exceeds One Thousand Dollars ($1,000), arises
out of a contract with the United States of America, or any
department, agency, subdivision or instrumentality thereof,
Borrower shall promptly notify Lender thereof in writing and is to
execute any instruments and take any other action required or
requested by Lender to comply with the provisions of the Federal
Assignment of Claims Act or any other Applicable Law.
6.8. Special Provisions Relating to Inventory.
(1) Representations, Warranties and Covenants. With
respect to Inventory, Borrower represents and warrants to Lender
that Lender may rely on all statements and representations made by
Borrower or any Authorized Officer on its behalf, whether hereunder
or under any other Loan Document, with respect to any Inventory and
that: (i) all Inventory is presently and will continue to be
located at Borrower's places of business listed in the Location and
Real Property Schedule and will not be removed therefrom except as
authorized by this Agreement; and (ii) no Inventory is or will be
produced in violation of the Fair Labor Standards Act or any other
Applicable Law.
(2) Returns of Inventory. If at any time or times
hereafter any Account Debtor returns any Inventory to Borrower the
shipment of which generated a then Eligible Account obligating such
Account Debtor in excess of Fifty Thousand Dollars ($50,000),
Borrower shall notify Lender of the same immediately, specifying
the reason for such return and the location and condition of the
returned Inventory.
6.9. Special Provisions Relating to Supply Contracts. With
respect to the Supply Contracts, Borrower represents, warrants and
covenants to and with Lender that: (i) the Supply Contracts listed
on the Supply Contracts Schedule are the only Supply Contracts
existing on the Closing Date; (ii) true, correct and complete
copies of such existing Supply Contracts (including any
supplements, additions, modifications and amendments thereto) are
attached to the Supply Contracts Schedule; (iii) any Supply
Contracts which Borrower proposes to enter into subsequent to the
Closing Date and be considered as Eligible Supply Contracts
hereunder shall be submitted to Lender for its review and prior
approval of all terms thereof, including particularly all terms
relating to Lender's rights therein and compliance with all terms
of this Agreement relevant thereto; (iv) promptly upon their
receipt or delivery by Borrower, Borrower shall deliver to Lender
copies of any notices concerning any Eligible Supply Contract
issued by either party thereto in respect of any actual or proposed
supplement, addition, modification, amendment, termination,
revocation, rescission or cancellation thereof, or of any portion
thereof; (v) Borrower shall not enter into, consent to or acquiesce
in, any supplement, addition, modification or amendment to any
Eligible Supply Contract (whether existing at or subsequent to the
Closing Date), or any waiver of any terms thereof, nor shall
Borrower institute, consent to, or acquiesce in, any termination,
revocation, rescission or cancellation of any such Eligible Supply
Contract, or portion thereof, except, in each case after its review
and prior approval by Lender.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES ON DEFAULT
7.1. Events of Default. The occurrence of any one or more of
the following conditions or events is to constitute an "Event of
Default," whatever the reason for such event or condition and
whether it be voluntary or involuntary, or within or without the
control of Borrower, any Guarantor or any Subsidiary, or be
effected by operation of law or pursuant to any order or judgment
of a court or otherwise:
(1) Non-Payment. Borrower fails to pay any of the
following Obligations, including, without limitation, any
installment of principal or interest owing on any Revolver Note on
the due date thereof (whether due at stated maturity, on demand,
upon acceleration or otherwise).
(2) Misrepresentation. Any warranty, representation, or
other statement made or furnished to Lender by or on behalf of
Borrower or any Guarantor or in any instrument, certificate or
financial statement furnished in compliance with or in reference to
this Agreement or any of the other Loan Documents proves to have
been false or misleading in any material respect when made or
furnished.
(3) Covenants. Borrower fails or neglect to perform,
keep or observe (i) any covenants to comply with Applicable Law or
furnish financial information as provided herein, or any of the
covenants set forth in Sections 5.2, 5.3 or Article 6 or (ii) any
other covenant contained in this Agreement (not dealt with
specifically elsewhere in this Section) and the breach of such
other covenant covered by this clause (ii) is not cured to Lender's
satisfaction within ten (10) days after the sooner to occur of
Borrower's receipt of notice of such breach from Lender or the date
on which such failure or neglect first becomes known to any officer
of Borrower.
(4) Loan Documents. Any event of default occurs under,
or default by Borrower in the performance or observance of any
term, condition or agreement contained in, any of the other Loan
Documents and such default continues beyond any applicable period
of grace.
(5) Cross-Default. Any default or event of default
occurs on the part of Borrower (including specifically, but without
limitation, due to non-payment) under any agreement, document or
instrument to which Borrower is a party or by which Borrower or any
of its Property is bound, creating or relating to any Indebtedness
(other than the Obligations) if the payment or maturity of such
Indebtedness is accelerated in consequence of such event of default
or demand for payment of such Indebtedness is made.
(6) Material Loss. There occurs any material loss,
theft, damage or destruction not fully covered by insurance, or any
sale, lease or encumbrance or any of the Collateral or the making
of any levy, seizure, or attachment thereof or thereon, except in
all cases as may be specifically permitted by other provisions of
this Agreement.
(7) Solvency. Borrower or any Guarantor ceases to be
Solvent or suffers the appointment of a receiver, trustee,
custodian or similar fiduciary, or makes an assignment for the
benefit of creditors, or any petition for an order for relief is
filed by or against Borrower or any Guarantor under the Bankruptcy
Code (if against Borrower or any Guarantor, the continuation of
such proceeding for more than sixty (60) days), or Borrower or any
Guarantor makes any offer of settlement, extension or composition
to their respective unsecured creditors generally, or any motion,
complaint or other pleading is filed in any bankruptcy case of any
Person other than Borrower and such motion, complaint or pleading
seeks the consolidation of Borrower's assets and liabilities with
the assets and liabilities of such Persons.
(8) Cessation of Business. Any Eligible Supply Contract
is terminated, cancelled, revoked or rescinded, in whole or in any
material part; a cessation of a substantial part of the business of
Borrower for a period which significantly affects Borrower's
capacity to continue its business on a profitable basis occurs; or
Borrower suffers the loss or revocation of any license or permit
now held or hereafter acquired by Borrower which is necessary to
the continued or lawful operation of its business; or Borrower is
enjoined, restrained or in any way prevented by court, governmental
or administrative order from conducting all or any material part of
its business affairs; or any material lease or agreement pursuant
to which Borrower leases, uses or occupies any Property necessary
to its continued compliance with the requirements of any Eligible
Supply Contract is canceled or terminated prior to the expiration
of its stated term; or all, any material part, of the Collateral is
taken through confiscation, condemnation or other, similar action
of Governmental Authority or the value of such Property is
materially impaired thereby.
(9) Change of Control. Either (i) the Owner shall cease
to own and control, beneficially and of record, all of the issued
and outstanding Voting Stock of Borrower; or (ii) fifty percent
(50%) or more of the Voting Stock of Owner is owned or controlled
by any Person (or group of Persons acting in concert) which is not
a shareholder of Owner on the Closing Date.
(10) Contest of Loan Documents. Borrower or any
Guarantor, or any Affiliate of either, challenges or contests in
any action, suit or proceeding the validity or enforceability of
this Agreement or any of the other Loan Documents, the legality or
enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.
(11) Guaranty. Any Guarantor revokes or attempts to
revoke the Guaranty Agreement signed by such Guarantor, or
repudiates such Guarantor's liability thereunder or becomes in
default under the terms thereof.
(12) Money Judgment. Any money judgment, writ of
attachment or similar process is entered or filed against Borrower
in the amount of One Hundred Thousand Dollars ($100,000) or more or
any of its Property which results in the creation or imposition of
any Lien that is not a Permitted Lien.
7.2. Acceleration of the Obligations. Upon the occurrence of
any Event of Default described in Section 7.1(G), all Obligations
shall automatically become immediately due and payable, without
presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other requirements of any kind, all of
which are hereby expressly waived by Borrower. Upon the occurrence
and during the continuance of any other Event of Default, Lender
may, by written notice to Borrower declare all or any portion of
the Loans and all or some of the other Obligations to be, and the
same shall forthwith become, immediately due and payable together
with accrued interest thereon.
7.3. Other Remedies. Upon or at any time after the occurrence
of an Event of Default, Lender may exercise from time to time the
following rights and remedies:
(1) Terminate. The right to terminate the Revolver
Facility without further notice to Borrower.
(2) Notify Account Debtors. The right to notify all
Persons in any way liable on any Accounts, Instruments or Chattel
Paper to make remittances to Lender of all sums due or to become
due thereon and to collect and enforce payment of all Accounts,
Instruments and Chattel Paper directly from the Persons liable
thereon, by legal proceedings or otherwise, and generally exercise
all of Borrower's rights and remedies with respect to the
collection of the Accounts.
(3) Repossession. The right (i) to take immediate
possession of the Inventory and Equipment, or alternatively to
require Borrower to assemble the Inventory and Equipment, at
Borrower's expense, and make it available to Lender at a place
designated by Lender that is reasonably convenient to both parties,
and (ii) to enter any of the premises of Borrower or wherever any
of the Inventory or Equipment is located, and to keep and store the
same on said premises until sold (and if said premises be the
Property of Borrower, Borrower agrees not to charge Lender for
storage thereof).
(4) Eligible Supply Contract. The right to exercise any
right or remedy accorded to Lender under any Eligible Supply
Contract, including the right to require that such contract be
terminated and that the customer of Borrower thereunder purchase
Inventory identified to said contract in connection therewith.
(5) Dispose of Collateral. With respect to any or all
of the Collateral, the right to sell or otherwise dispose of all or
any of such Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or
sales, with such notice as may be required by applicable law, in
lots or in bulk, for cash or on credit, all as Lender, in its sole
discretion, may deem advisable. Ten (10) days written notice to
Borrower of any public or private sale or other disposition of any
such Collateral shall be reasonable notice thereof; provided,
however, that no notice of Lender's intended disposition of such
Collateral shall be required with respect to any portion of such
Collateral that is perishable, threatens to decline speedily in
value or is of a type customarily sold on a recognized market, nor
is any such notice to be required hereunder if not otherwise
required under Applicable Law. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor,
and such sales may be adjourned from time to time in accordance
with Applicable Law. Lender shall have the right to sell, lease or
otherwise dispose of any such Collateral, or any part thereof, for
cash, credit or any combination thereof, and Lender may purchase
all or any part of any such Collateral at public or, if permitted
by applicable law, private sale and, in lieu of actual payment of
such purchase price, may set off the amount of such price against
the Obligations.
(6) Setoff. The right at any time or times, to the
fullest extent permitted by Applicable Law and without notice to
Borrower, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by Lender to or for the credit
or the account of Borrower or any Guarantor against any and all of
the Obligations, if and to the extent then due.
(7) Other Rights. All of the rights and remedies of a
secured party under the Code or under other Applicable Law and all
other legal and equitable rights to which Lender may be entitled.
7.4. License to Use. Lender is hereby further granted a
license or other right to use, without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any Property or
a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral, and Borrower's rights and
under all licenses and all franchise agreements are to inure to
Lender's benefit. The proceeds realized from the sale or other
disposition of any Collateral may be applied, after allowing two
(2) Business Days for collection, first to the costs, expenses and
attorneys' fees incurred by Lender in collecting the Obligations,
in enforcing the rights of Lender under the Loan Documents and in
collecting, retaking, completing, protecting, removing, storing,
advertising for sale, selling and delivering any of the Collateral;
secondly, to interest due upon any of the Obligations; and thirdly,
to the principal amount of the Obligations. If any deficiency
arises, Borrower and each Guarantor will remain jointly and
severally liable to Lender therefor.
7.5. Remedies Cumulative; No Waiver. All covenants,
conditions, provisions, warranties, guaranties, indemnities, and
other undertakings of Borrower contained in this Agreement and the
other Loan Documents, or in any other agreement between Lender and
Borrower, heretofore, concurrently, or hereafter entered into, are
to be deemed cumulative to and not in derogation or substitution of
any of the terms, covenants, conditions, or agreements of Borrower
herein contained.
SECTION 8. MISCELLANEOUS
8.1. Power of Attorney. Borrower hereby irrevocably
designates, makes, constitutes and appoints Lender (and all Persons
designated by Lender) as Borrower's true and lawful attorney (and
agent-in-fact) and Lender, or Lender's agent, may, without notice
to Borrower and in either Borrower's or Lender's name, but at the
cost and expense of Borrower:
(1) At any time, endorse Borrower's name on any checks,
Revolving Notes, acceptances, drafts, money orders or any other
evidence of payment or proceeds of Collateral which come into the
possession of Lender or under Lender's control; and
(2) At such time or times upon or after the occurrence
of, and during the continuation of, any Event of Default:
(i) settle, adjust, compromise, discharge or release any of the
Accounts or other Collateral or any legal proceedings brought to
collect any of the Accounts or other Collateral; (ii) sell or
assign any of the Accounts and other Collateral upon such terms,
for such amounts and at such time or times as Lender deems
advisable; (iii) take control, in any manner, of any item of
payment or proceeds relating to any Collateral; (iv) prepare, file
and sign Borrower's name to a proof of claim in bankruptcy or
similar document against any Account Debtor or to any notice of
Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral; (v) receive, open and
dispose of all mail addressed to borrower and notify postal
authorities to change the address for delivery thereof to such
address as Lender may designate; (vi) endorse the name of Borrower
upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Lender for
application to the obligations; (vii) endorse the name of Borrower
upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to
the Accounts, Inventory and any other Collateral; (viii) use
Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account
Debtors; (ix) use the information recorded on or contained in any
data processing equipment and computer hardware and software
relating to the Accounts, Inventory, Equipment and any other
Collateral and to which Borrower has access; (x) make and adjust
claims under policies of insurance; and (xi) do all other acts and
things necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement or any of the other Loan
Documents.
8.2. Indemnity. Borrower hereby indemnifies Lender and agrees
to hold Lender harmless from and against any liability, loss,
damage, suit, action or proceeding ever suffered or incurred by
Lender as the result of Borrower's failure to observe, perform or
discharge Borrower's duties hereunder. Without limiting the
generality of the foregoing, this indemnity is to extend to any
claims asserted against Lender by any Person under any
Environmental Laws. Additionally, if any taxes (excluding taxes
imposed upon or measured by the net income of Lender, but
including, without limitation, any intangibles tax, stamp tax,
recording tax or franchise tax) are payable by Lender, Borrower or
any Guarantor on account of the execution or delivery of this
Agreement, or the execution, delivery, issuance or recording of any
of the other Loan Documents, or the creation of any of the
Obligations hereunder, by reason of any existing or hereafter
enacted federal, state, foreign or local statute, rule or
regulation, Borrower will pay (or will promptly reimburse Lender
for the payment of) all such taxes, including, but not limited to,
any interest and penalties thereon, and will indemnify and hold
Lender harmless from and against liability in connection therewith.
Notwithstanding any contrary provision of this Agreement, any
obligation of Borrower under this Agreement to indemnify Lender for
any expense or liability incurred by Lender (i) shall survive the
payment in full of the Obligations and the termination of this
Agreement; and (ii) shall not extend to or include any such expense
or liability incurred by Lender as a direct result of its gross
negligence or wilful misconduct.
8.3. Modification of Agreement; Sale of Interest. This
Agreement may not be modified, altered or amended, except by an
agreement in writing signed by Borrower and Lender. Borrower may
not sell, assign or transfer any interest in this Agreement or any
of the other Loan Documents, or any portion thereof, including
Borrower's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. Lender shall have the right to sell,
assign, transfer or otherwise dispose of its right, title,
interests. remedies, powers and duties hereunder and under any
other Loan Documents, or to sell participation interests therein,
at any time or from time to time, without first giving notice to,
or obtaining the prior written consent of, Borrower, so long as (i)
Lender retains at least a majority in interest in the rights,
titles, interests, remedies, power and duties so conveyed, (ii) the
Participating Lender is a Permitted Assignee (as hereinafter
defined) and (iii) upon receiving such sale, assignment or
participation, the Participating Lender becomes subject to the same
terms, covenants and conditions as to which Lender is then subject
hereunder, to the extent of sale, assignment or participation. As
used herein, the term "Eligible Assignee" shall mean: (i) North
Carolina Bank, Tennessee Bank or any other affiliate of Lender;
(ii) any national bank or state-chartered bank domiciled in the
United States of America, or any affiliate thereof, having total
assets of at least $1,000,000,000; or (iii) any other Person(s) to
which Borrower shall have consented in writing at any time. In the
event of any such participation, sale, assignment, transfer or
other disposition, Lender is authorized to provide to each
Participating Lender, assignee or transferee all information in
Lender's possession regarding Borrower and the Collateral. In the
case of any such assignment, the Person receiving such assignment,
shall have, to the extent of such assignment, the same rights,
benefits and obligations as it would if it were an original Lender
hereunder, and Lender shall be relieved of its obligations
hereunder with respect to its assigned portion thereof. Borrower
hereby acknowledges and agrees that any such assignment will give
rise to a direct obligation of Borrower to the Person receiving
such assignment and that such Person, upon such assignment becoming
effective, shall be considered to be a "Lender" or the "Lender" for
all purposes of this Agreement and the Loan Documents.
8.4. Reimbursement of Expenses. If, at any time or times
prior or subsequent to the date hereof, regardless of whether or
not an Event of Default then exists or any of the transactions
contemplated hereunder are concluded, Lender employs counsel for
advice or other representation, or incurs legal expenses or other
costs or out-of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the other
Loan Documents or any amendment of or modification of this
Agreement or any of the other Loan Documents; (B) the
administration of this Agreement or any of the other Loan Documents
and the transactions contemplated hereby and thereby; (C) periodic
audits and appraisals performed by Lender; (D) any litigation,
contest, dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the
Collateral, this Agreement or any of the other Loan Documents or
Borrower's affairs; (E) any attempt to enforce any rights or
remedies of Lender or any Participating Lender against Borrower or
any other Person which may be obligated to Lender by virtue of this
Agreement or any of the other Loan Documents, including, without
limitation, the Account Debtors; or (F) any attempt to inspect,
verify, protect, preserve, restore, collect, sell, liquidate or
otherwise dispose of or realize upon the Collateral; then, in any
such event, the attorneys' fees arising from such services and all
expenses, costs, charges and other fees of such counsel or of
Lender or relating to any of the events or actions described in
this Section are to be payable, on demand, by Borrower to Lender or
to such Participating Lender, as the case may be and are to be
additional obligations hereunder secured by the Collateral.
Without limiting the generality of the foregoing, such expenses,
costs, charges and fees may include accountants' fees, costs and
expenses; costs and expenses incurred by Lender's loan
administration staff, audit staff and appraisal staff; court
reporter fees, costs and expenses; photocopying and duplicating
expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges;
secretarial over-time charges; and expenses for travel, lodging and
food paid or incurred in connection with the performance of such
legal services. Borrower acknowledges and agrees that legal
counsel to Lender does not represent Borrower as Borrower's
attorney, that Borrower has retained counsel of its own choice and
has not and will not rely upon any advice from Lender's counsel and
that Borrower's reimbursement of expenses pursuant to this
Agreement (even if effected by payment directly by Borrower to
Lender's counsel) shall not be deemed to establish an
attorney-client relationship between Borrower and Lender's counsel.
8.5. Indulgences Not Waivers. Lender's failure, at any time
or times hereafter, to require strict performance by Borrower of
any provision of this Agreement is not to waive, affect or diminish
any right of Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver by Lender of an
Event of Default by Borrower under this Agreement or any of the
other Loan Documents is not to suspend, waive or affect any other
Event of Default by Borrower under this Agreement or any of the
other Loan Documents, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of
the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of
the other Loan Documents and no Event of Default by Borrower under
this Agreement or any of the other Loan Documents are to be deemed
to have been suspended or waived by Lender, unless such suspension
or waiver is by an instrument in writing specifying such suspension
or waiver and is signed by a duly authorized representative of
Lender and directed to Borrower. Lender may, by written notice to
Borrower, at any time and from time to time, waive any Default or
any Event of Default and its consequences, but any such waivers are
to be for such period and subject to such conditions as are to be
specified in any such notice. In the case of any such waiver,
Borrower and Lender are to be restored to their former positions
and rights hereunder and under the other Loan Documents and any
Default or Event of Default so waived is to be deemed to be cured
and not continuing during the period specified in such written
notice. No such waiver is to extend to any subsequent or other
Default or Event of Default or impair any right or remedy
consequent thereon.
8.6. Severability. Wherever possible, each provision of this
Agreement is to be interpreted in such manner as to be effective
and valid under Applicable Law, but if any provision of this
Agreement is to be prohibited by or invalid under Applicable Law,
such provision is to be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
8.7. Successors and Assigns. This Agreement, the Other
Agreements and the Security Documents are to be binding upon and
inure to the benefit of the successors and assigns of Borrower and
Lender. This provision, however, is not to be deemed to permit
Borrower to sell, assign or transfer this Agreement or any of the
other Loan Documents.
8.8. Cumulative Effect. The provisions of the Other
Agreements and the Security Documents are cumulative with the
provisions of this Agreement.
8.9. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and
delivered are to be deemed to be an original and all of which
counterparts taken together are to constitute but one and the same
instrument. In proving this Agreement in any judicial proceeding,
it is not to be necessary to produce or account for more than one
such counterpart signed by the party against whom such enforcement
is sought.
8.10. Notices. Unless otherwise specifically provided
herein, any notice or other communication required or permitted to
be given shall be in writing addressed to the respective party as
set forth below and may be personally served, telecopied, telexed
or sent by overnight courier service or United States mail and
shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy or telex, on the date
of transmission if transmitted before 4:00 p.m. EDT on a Business
Day or, if not, on the next succeeding Business Day; (c) if de-
livered by overnight courier, two (2) Business Days after delivery
to such courier properly addressed; or (d) if by U.S. Mail, five
(5) Business Days after depositing in the United States mail, by
certified mail, return receipt requested, with postage prepaid and
properly addressed. Notices shall be addressed care of the
addresses of Borrower and Lender set forth below or to such other
address as the party addressed shall have previously designated by
written notice to the serving party, given in accordance with this
Section. A notice not given as provided above shall, if it is in
writing, be deemed given if and when actually received by the party
to whom given.
8.11. Lender's Consent. Whenever Lender's consent is
required to be obtained under this Agreement, any of the Other
Agreements or any of the Security Documents as a condition to any
action, inaction, condition or event, Lender is authorized to give
or withhold such consent in its sole and absolute discretion and to
condition its consent upon the giving of additional collateral
security for the Obligations, the payment of money or any other
manner.
8.12. Time of Essence. Time is of the essence in this
Agreement, the Other Agreements and the Security Documents.
8.13. Entire Agreement. This Agreement and the other Loan
Documents, together with all other instruments, agreements and
certificates executed by the parties in connection therewith or
with reference thereto, embody the entire understanding and
agreement between the parties hereto and thereto with respect to
the subject matter hereof and thereof and supersede all prior
agreements, understandings and inducements, whether express or
implied, oral or written.
8.14. Interpretation. No provision of this Agreement or
any of the other Loan Documents is to be construed against or
interpreted to the disadvantage of any party hereto by any court or
other governmental or judicial authority by reason of such party
having or being deemed to have structured or dictated such
provision.
8.15. Marshalling; Payments Set Aside. Lender shall be
under no obligation to marshall any assets or securities in favor
of Borrower or any Guarantor or any other Person or against or in
payment of any or all of the obligations. To the extent that
Borrower makes a payment or payments to Lender, or Lender enforces
its security interest or exercises its rights or setoff, and such
payment or payments for the proceeds of such enforcement or setoff
or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally
intended to be satisfied, and all Liens, rights and remedies
therefor, are to 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.
8.16. Construction. Lender and Borrower acknowledge that
each of them has had the benefit of legal counsel of its own choice
and has been afforded an opportunity to review this Agreement and
the other Loan Documents with its legal counsel and that this
Agreement and the other Loan Documents shall be construed as if
jointly drafted by Lender and Borrower.
8.17. GOVERNING LAW. THIS AGREEMENT AND, UNLESS OTHERWISE
EXPRESSLY PROVIDED THEREIN, ALL OTHER LOAN DOCUMENTS, SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
8.18. WAIVER OF JURY TRIAL. IF AND TO THE EXTENT THEN
PERMITTED BY APPLICABLE LAW AT THE TIME OF THE COMMENCEMENT
THEREOF, BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN
TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED HEREUN-
DER. BORROWER ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH
BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF LENDER. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. BORROWER AND LENDER ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTER-
ING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE
WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE LOANS OR ANY LETTERS OF CREDIT. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
8.19. ARBITRATION AND PRESERVATION OF REMEDIES. WITHOUT
IN ANY WAY LIMITING ANY PROVISIONS OF THE FOREGOING SECTION 8.17,
UPON DEMAND OF ANY PARTY HERETO, WHETHER MADE BEFORE OR AFTER
INSTITUTION OF ANY JUDICIAL ACTION, ANY DISPUTE, CLAIM OR
CONTROVERSY ("DISPUTES") ARISING OUT OF OR CONNECTED WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENTS SHALL BE RESOLVED BY BINDING
ARBITRATION AS PROVIDED HEREIN. DISPUTES MAY INCLUDE, WITHOUT
LIMITATION, TORT CLAIMS, COUNTERCLAIMS, CLAIMS BROUGHT AS CLASS
ACTIONS, AND CLAIMS ARISING FROM LOAN DOCUMENTS EXECUTED IN THE
FUTURE. ARBITRATION SHALL BE CONDUCTED UNDER THE COMMERCIAL
FINANCIAL DISPUTES ARBITRATION RULES (THE "ARBITRATION RULES") OF
THE AMERICAN ARBITRATION ASSOCIATION AND TITLE 9 OF THE U.S. CODE.
ALL ARBITRATION HEARINGS SHALL BE CONDUCTED IN ATLANTA, GEORGIA OR
ANY PLACE AGREED TO IN WRITING BY THE PARTIES. THE EXPEDITED
PROCEDURES SET FORTH IN RULE 51 ET SEQ. OF THE ARBITRATION RULES
SHALL BE APPLICABLE TO CLAIMS OF LESS THAN ONE MILLION DOLLARS
($1,000,000). ALL APPLICABLE STATUTES OF LIMITATION SHALL APPLY TO
ANY DISPUTE. A JUDGMENT UPON THE AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. THE PANEL FROM WHICH ALL ARBITRATORS ARE
SELECTED SHALL BE COMPRISED OF LICENSED ATTORNEYS. THE SINGLE
ARBITRATOR SELECTED FOR EXPEDITED PROCEDURE SHALL BE A RETIRED
JUDGE FROM THE HIGHEST COURT OF GENERAL JURISDICTION, STATE OR
FEDERAL, OF THE STATE WHERE THE HEARING WILL BE CONDUCTED. THE
ARBITRATORS SHALL BE APPOINTED AS PROVIDED IN THE ARBITRATION
RULES. NOTWITHSTANDING THE PRECEDING BINDING ARBITRATION PRO-
VISION, EACH PARTY HERETO HEREBY PRESERVES CERTAIN REMEDIES THAT
ANY PARTY HERETO MAY EXERCISE FREELY, EITHER ALONE OR DURING A
DISPUTE. ANY PARTY HERETO SHALL HAVE THE RIGHT TO PROCEED IN ANY
COURT OF PROPER JURISDICTION OR BY SELF HELP TO EXERCISE OR PROS-
ECUTE THE FOLLOWING REMEDIES, AS APPLICABLE: (I) ALL RIGHTS TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY OR OTHER SECURITY
BY EXERCISING A POWER OF SALE GRANTED IN THE LOAN DOCUMENTS OR
UNDER APPLICABLE LAW, (II) ALL RIGHTS OF SELF HELP INCLUDING
PEACEFUL OCCUPATION OF REAL PROPERTY AND COLLECTION OF RENTS, SET-
OFF, AND PEACEFUL POSSESSION OF PERSONAL PROPERTY, AND (III)
OBTAINING PROVISIONAL OR ANCILLARY REMEDIES INCLUDING INJUNCTIVE
RELIEF, SEQUESTRATION, GARNISHMENT, ATTACHMENT AND APPOINTMENT OF
RECEIVER. PRESERVATION OF THESE REMEDIES DOES NOT LIMIT THE POWER
OF AN ARBITRATOR TO GRANT SIMILAR REMEDIES THAT MAY BE REQUESTED BY
A PARTY IN A DISPUTE. EACH PARTY HERETO AGREES THAT IT SHALL NOT
HAVE A REMEDY OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER IN
ANY DISPUTE AND HEREBY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR
EXEMPLARY DAMAGES THEY MAY HAVE NOW OR WHICH MAY ARISE IN THE
FUTURE IN CONNECTION WITH ANY DISPUTE, WHETHER THE DISPUTE IS
RESOLVED BY ARBITRATION OR JUDICIALLY. NOTWITHSTANDING THE
FOREGOING, THIS ARBITRATION PROVISION DOES NOT APPLY TO DISPUTES
UNDER OR RELATED TO INTEREST RATE AGREEMENTS.
8.20. Publicity. Borrower authorizes Lender to publicize
and place "tombstone" advertisements with respect to the financing
arrangements set forth in this Agreement and the transactions
contemplated hereby, provided that, to the extent that Borrower's
identity or that of any customer of Borrower is being disclosed
therein, Lender first shall have reviewed such advertisements with
Borrower and obtained its prior written consent thereto.
8.21. Effectiveness. This Agreement and each Loan
Document shall become effective upon the execution of a counterpart
hereof and thereof by each of the parties hereto, and the delivery
thereof to Lender in Atlanta, Georgia.
8.22. Sole Benefit. The rights and benefits set forth
in this Agreement and in all the other Loan Documents are for the
sole and exclusive benefit of the parties hereto and thereto, and
may be relied upon only by such parties.
8.23. Certain Waivers by Borrower. To the fullest extent
permitted by Applicable Law, Borrower waives (i) presentment,
demand and protest and notice of presentment, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time
held by Lender on which Borrower may in any way be liable and
hereby ratifies and confirms whatever Lender may do in this regard
(ii) notice prior to Lender's taking possession or control of any
of the Collateral or any bond or security which might be required
by any court prior to allowing Lender to exercise any of Lender's
remedies, including the issuance of an immediate writ of
possession; (iii) the benefit of all valuation, appraisement and
exemption laws; (iv) any right Borrower may have upon payment in
full of the obligations to require Lender to terminate its security
interest in the Collateral or in any other property of Borrower
until the execution by Borrower, and by any Person whose loans to
Borrower are used in whole or in part to satisfy the Obligations,
of an agreement indemnifying Lender from any loss or damage which
Lender may incur as the result of dishonored checks or other items
of payment received by Lender from Borrower or any Account Debtor
and applied to the Obligations; and (v) notice of Lender's
acceptance hereof.
8.24. Independence of Covenants. All covenants hereunder
shall be given in any jurisdiction independent effect so that if a
particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if
such action is taken or condition exists.
8.25. Severability. The invalidity, illegality or
unenforceability in any jurisdiction of any provision in or
obligation under this Agreement, the Revolving Notes or other Loan
Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under
this Agreement, the Revolving Notes or other Loan Documents or of
such provision or obligation in any other jurisdiction.
8.26. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose
or be given any substantive effect.
8.27. No Fiduciary Relationship. No provision in this
Agreement or in any of the other Loan Documents and no course of
dealing between the parties shall be deemed to create any fiduciary
duty on the part of Lender to Borrower.
8.28. Limitation of Lender's Liability. Neither Lender
nor any Affiliate, officer, director, employee, attorney, or agent
of Lender shall have any liability with respect to, and Borrower
hereby waives, releases, and agrees not to sue any of them upon,
any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by Borrower in connection with, aris-
ing out of, or in any way related to, this Agreement or any of the
other Loan Documents, or any of the transactions contemplated by
this Agreement or any of the other Loan Documents.
8.29. No Duty. All attorneys, accountants, appraisers,
and other professional Persons and consultants retained by Lender
shall have the right to act exclusively in the interest of Lender
and shall have no duty of disclosure, duty of loyalty, duty of
care, or other duty or obligation of any type or nature whatsoever
to Borrower or any of Borrower's shareholders or to any other
Person.
8.30. Maximum Interest. Regardless of any provision
contained in this Agreement or any of the other Loan Documents, the
aggregate of all amounts that are contracted for, charged or
collected pursuant to the terms of this Agreement or any of the
other Loan Documents and that are deemed interest are not to exceed
the Maximum Rate under Applicable Law. No agreement, condition,
provision or stipulation contained in this Agreement or any of the
other Loan Documents or the exercise by Lender of any right or
option whatsoever contained therein, or the prepayment by Borrower
of any of the Obligations, or the occurrence of any contingency
whatsoever, is to entitle Lender to charge or receive or to
obligate Borrower to pay, interest or any charges, amounts,
premiums or fees deemed interest by Applicable Law (referred to
herein collectively as "Interest") in excess of the Maximum Rate.
Borrower acknowledges and stipulates that any Interest charged or
received in excess of the Maximum Rate ("Excess") is to be the
result of an accident and bona fide error and that, with
fluctuations in the rates of interest set forth in this Agreement
and the Maximum Rate, such an unintentional result could
inadvertently occur. To the extent received, any Excess shall be
applied first to reduce the principal Obligations and the balance,
if any, returned to Borrower, it being the intent of the parties
hereto not to enter into a usurious or otherwise illegal
relationship. The right to accelerate the maturity of any of the
Obligations does not include the right to accelerate any interest
that has not otherwise accrued on the date of such acceleration,
and Lender does not intend to collect any unearned interest in the
event of any such acceleration. The credit or return of any Excess
shall constitute the acceptance by Borrower of such Excess, and
Borrower is not to seek or pursue any other remedy, legal or
equitable, against Lender, based in whole or in part upon
contracting for, charging or receiving any Interest in excess of
the Maximum Rate. For purposes of determining whether or not any
Excess has been contracted for, charged or received by Lender, all
interest at any time contracted for, charged or received from
Borrower in connection with any of the Loan Documents, to the
extent permitted by Applicable Law, is to be amortized, prorated,
allocated and spread in equal parts throughout the full term of the
Obligations. Borrower and Lender, to the maximum extent permitted
under Applicable Law, will (i) characterize any non -principal
payment as an expense, fee or premium rather than as Interest and
(ii) exclude voluntary prepayments and the effects thereof. The
provisions of this Section are to be deemed to be incorporated into
every Loan Document, whether or not any provision of this Section
is specifically referred to therein.
SECTION 9. CONDITIONS PRECEDENT
The obligations of Lender to make Loans are subject to
satisfaction of all of the applicable conditions precedent set
forth below.
9.1. Conditions to Initial Loans. The obligations of Lender
to make the initial Loan is in addition to the conditions precedent
specified in Section 9.2, subject to the prior or concurrent sat-
isfaction of the conditions set forth below.
(1) Financial Statements. Borrower shall have delivered
to Lender (i) its (and the Owner's) audited Financial Statements
for the Fiscal Year ended June 30, 1996, (ii) the Owner's 10-K
report for the Fiscal Year ended June 30, 1996 and (iii) Borrower's
Projections, on a month-to-month basis, for its current Fiscal
Year, and Lender shall be satisfied in all respects therewith.
(2) Evidence of Perfection and Priority of Liens.
Lender shall have received copies of all filing receipts or
acknowledgments issued by any Governmental Authority to evidence
any filing or recordation necessary to perfect the Liens of Lender
in the Collateral and evidence in form satisfactory to Lender that
such Liens constitute valid and perfected first priority security
interests and Liens, and that there are no other Liens upon any
Collateral, except for Permitted Liens.
(3) No Labor Disputes. Lender shall have received
assurances satisfactory to it that there are no threats of strikes
or work stoppages by any employees, or organization of employees,
of Borrower.
(4) Compliance with Laws and Other Agreements. Lender
shall have determined or received assurances satisfactory to it
that none of the Loan Documents or any of the transactions
contemplated thereby violate any Applicable Law or agreement
binding upon any Obligor.
(5) No Material Adverse Change. No material adverse
change in the financial condition of Borrower or the quality or
value of any Collateral shall have occurred since the date of the
last audited financial statement of Borrower described in the
Financial and Contingency Schedule.
(6) Loan Documents. On or before the Closing Date,
Borrower shall have delivered, or caused to have been delivered, to
Lender the documents listed on the Closing Documents Schedule,
each, unless otherwise noted, dated the Closing Date, duly
executed, in form and substance satisfactory to Lender and in
quantities designated by Lender.
9.2. Conditions to All Loans. The obligations of Lender to
make any Loan on each Funding Date are subject to the further
conditions precedent set forth below.
(1) Notice of Borrowing. Lender shall have received, in
accordance with the provisions of subsection 2.1, a Notice of Bor-
rowing.
(2) Representations Still True. The representations and
warranties contained herein and in the Loan Documents shall be
true, correct and complete in all material respects on and as of
the funding date to the same extent as though made on and as of the
Closing Date, except for any representation or warranty limited by
its terms to a specific date and taking into account any updates to
the Schedules or Exhibits and any events which would cause any such
representations and warranties no longer to be true, correct or
complete, in each case as disclosed in writing by Borrower to
Lender after the Closing Date, and, if not consistent with the cov-
enants corresponding thereto, approved by Lender.
(3) No Suspension or Termination of Commitments. The
commitment(s) of Lender shall not have been suspended or terminated
pursuant to the operation of Section 7.2.
(4) No Restraining Order. Lender shall not have re-
ceived notice or knowledge of any pending or threatened order,
judgment or decree of any court, arbitrator or Governmental Au-
thority which purports to enjoin or restrain Lender from making any
Loans.
(5) Taxes. Borrower shall have paid, or reimbursed
Lender for the payment of, any intangible, recording or similar tax
imposed by any Governmental Authority in respect of the incurrence
of such indebtedness or the securing of the payment thereof, and
joined with Lender in filing any tax return, UCC financing
statement amendment or like document in respect of such tax.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the Closing Date.
"BORROWER"
TITAN SERVICES, INC.
By:________________________________
Richard R. Hulbert,
President
Address: 815 USA Today Way
Murfreesboro, TN 37129
Telecopier: 615/890-2914
"LENDER"
FIRST UNION COMMERCIAL
CORPORATION
By:________________________________
Title:____________________________
Address: 999 Peachtree Street
11th Floor
Atlanta, GA 30309
Telecopier: (404) 827-7430
<PAGE>
Exhibit 4.2
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day
of December, 1996, between First Union National Bank of Tennessee,
a national banking association, with its principal place of
business at 150 Fourth Avenue North, Nashville, Tennessee, 37219,
hereinafter referred to as "Bank", Southeastern Technology, Inc.,
a Tennessee corporation, hereinafter referred to as the "Borrower",
and SETECH, Inc., a Delaware corporation, hereinafter referred to
as the "Guarantor"),
W I T N E S S E T H:
WHEREAS, Bank has agreed to loan to Borrower, on a revolving
line of credit basis, amounts not to exceed $600,000; and
WHEREAS, Bank, Borrower and Guarantor desire to enter into
this Agreement to set forth the terms and conditions for disbursing
funds under the $600,000 facility (the "Credit Facility"),
NOW, THEREFORE, in consideration of the foregoing premises,
and other good and valuable consideration, the receipt and legal
sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined herein
shall have the following meanings:
1.1 "Accounts", "accounts" and "accounts receivable" shall
include all rights to payment for goods sold or leased or for
services rendered, all sums of money or other proceeds due or
becoming due thereon, all instruments pertaining thereto, all
guaranties and security therefor, and all goods giving rise thereto
and the rights pertaining to such goods, including the right of
stoppage in transit, and all related insurance.
1.2 "Borrowing Base" means the lesser of $600,000.00, or the
sum of 80% of the Qualified Accounts Receivable as the same may be
amended or supplemented from time to time.
1.3 "Business Day" means any day other than a Saturday,
Sunday or other day in which financial institutions located in
Nashville, Tennessee, are required or permitted to close.
1.4 "Default" means the occurrence or existence of any event
which, but for the giving of notice or expiration of time or both,
would constitute an Event of Default.
1.5 "Default Rate" means the Default Rate, as defined in the
Note.
1.6 "Eurodollar Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
1.7 "Eurodollar Rate Reserve Percentage" means the reserve
percentage applicable during any LIBOR Interest Period under
regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the
maximum reserve requirements, including, without limitation, any
emergencies, supplemental or other marginal reserve requirements,
for the Lenders with respect to liabilities or assets consisting of
or including Eurodollar Liabilities having a term equal to such
LIBOR Interest Period.
1.8 "Guaranty Agreement" means the Guaranty and Suretyship
Agreement of even date herewith executed by Guarantor in favor of
Bank.
1.9 "Hazardous Materials" means petroleum and petroleum
products and compounds containing them, including gasoline, diesel
fuel and oil; explosives; flammable materials; radioactive
materials; polychlorinated biphenyls ("PCBs") and compounds
containing them; lead and lead-based paint; asbestos or asbestos-
containing materials in any form that is or-could become friable;
underground storage tanks, whether empty or containing any
substance; any substance the presence of which is prohibited by any
federal, state or local authority; any substance that requires
special handling; and any other material or substance now or in the
future defined as a "hazardous substance," "hazardous material,"
"hazardous waste," "toxic substance," "toxic pollutant,"
"contaminant," or "pollutant" within the meaning of any Hazardous
Materials Law.
1.10 "Hazardous Materials Laws" means all federal, state
and local laws, ordinances and regulations and standards, rules,
policies and other governmental requirements, administrative
rulings and court judgments and decrees in effect now or in the
future and including all amendments, that relate to Hazardous
Materials and apply to the Borrower. Hazardous Materials Laws
include, but are not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., the Toxic substance Control Act, 15 U.S.C.
Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251,
et seq., and the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, and their state analogs.
1.11 "Inventory" and "inventory" mean goods, merchandise,
replacement parts and other personal property, now owned or
hereafter acquired, which are held for sale or lease or are to be
furnished under a contract of service or are raw materials, work in
process, packaging, labels or materials to be used or consumed in
the Borrower's business and any returned goods or credits for
returned goods.
1.12 "LIBOR Interest Period" means the one month interest
period, applicable with respect to a LIBOR Loan.
1.13 "LIBOR Loan" means any advance under the Line of
Credit bearing interest at the LIBOR Rate.
1.14 "LIBOR Rate" means the floating interest rate per
annum (rounded upward, if necessary, to the next 1/100th of one
percent) at which dollar deposits approximately equal in the
principal amount of the applicable LIBOR Loan with a maturity
comparable to the applicable LIBOR Interest Period are offered to
money center banks in immediately available funds in the London
Interbank Market for eurodollars at approximately 12:00 noon,
Nashville time, on the date of commencement of the LIBOR Interest
Period, as determined by Bank.
1.15 "Loan Documents" means this Agreement, the Note, the
Guaranty Agreement, and any and all other documents and instruments
evidencing or securing the Credit Facility, or any portion thereof.
1.16 "Maturity Date" means October 31, 1997.
"Note" means the Line of Credit Note of even date
herewith, in the original amount of $600,000, executed by the
Borrower and payable to Bank, together with all renewals and
extensions thereof.
1.18 "Prime Rate" means the rate announced by Bank from
time to time as the Prime Rate, and is not necessarily the best or
lowest rate offered by Bank.
1.19 "Prime Rate Loan" means any disbursement under the
Line of Credit, which bears interest at the Prime Rate.
1.20 "Qualified Accounts Receivable" means
a. the account arises from a bona fide, outright sale of
goods by Borrower or for services performed by Borrower, and such
goods have been shipped or the sale has otherwise been consummated,
or the services have been performed;
b. the title of Borrower to the account, and, except as
to the account debtor, to any goods, is absolute and is not subject
to any prior assignment, claim, lien or security interest;
c. the amount shown on the books of Borrower and on any
invoice or statement delivered to Bank is owing to Borrower, and no
partial payment has been made thereon by anyone;
d. the account is not subject to any claim of reduction,
counterclaim, offset, recoupment, or any claim for credits,
allowances or adjustments by the account debtor because of
returned, inferior or damaged goods or unsatisfactory services, or
for any other reason, except for customary discounts allowed for
prompt payment;
e. the account is not an account that the Bank, in its
reasonable discretion, has determined to be ineligible in whole or
in part and has notified Borrower thereof;
retain any of the goods from the sale of which the account arose;
g. the account is due and payable not more than thirty
(30) days from the date of the invoice therefor;
h. the account is not more than ninety (90) days old,
dating from the original invoice date (not due date) as set forth
in the terms of the respective invoices; provided, however, in the
event that more than twenty-five percent (25%) by value of the
accounts of a particular account debtor are more than ninety (90)
days old, dating from the original invoice date, then all of the
accounts of such account debtor, including current receivables,
shall be excluded from Qualified Accounts Receivable;
i. the account does not arise out of a contract with, or
order from, an account debtor that, by its terms, forbids or makes
the assignment of that account to the Bank void or unenforceable;
j. Borrower has not received any note, trade acceptance,
draft or other instrument with respect to or in payment of the
account, or any chattel paper with respect to the goods giving rise
to the account, and if any such instrument or chattel paper is
received, Borrower will immediately notify Bank and, at the
latter's request, endorse or assign and deliver the same to Bank;
k. neither Borrower nor Bank has received any notice of
the dissolution, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the property of,
assignment for the benefit of creditors by, or the filing of a
petition in bankruptcy or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against the account debtor.
l. Titan Services, Inc. shall be excluded from Qualified Accounts
Receivable.
1.21 "Tangible Net Worth" means total assets less total
liabilities (including debt fully subordinated to the Credit
Facility), less intangible assets (including, without limitation,
goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks and brand names).
2. CREDIT FACILITY
2.1 Subject to the terms and conditions of this Agreement,
provided no Default exists until the Maturity Date, the Borrower
may borrow, repay and reborrow up to the Borrowing Base. The
proceeds of the Credit Facility (the "Line of Credit") shall be
used to provide working capital for the Borrower and for no other
purpose.
2.2 The Credit Facility shall be evidenced by a Line of
Credit Note (the "Note") in form satisfactory to Bank. The Note
shall contain the following terms:
a. Interest Rate. Interest on so much of the principal
balance of the Line of Credit as may be outstanding from time to
time shall accrue at a floating rate per annum equal to either (at
Borrower's option), (i) the LIBOR Rate plus 250 basis points
(2.50%), or (ii) the Prime Rate. The interest rate payable on the
Line of Credit shall adjust automatically to reflect changes in the
Prime Rate and/or LIBOR Rate, as the case may be.
b. Repayment. Interest accrued on so much of the
outstanding principal balance as may be outstanding from time to
time under the Line of Credit shall be due and payable (i) monthly,
on the first day of each consecutive month, in the case of Prime
Rate Loans, and (ii) at the conclusion of each applicable LIBOR
Interest Period, in the case of LIBOR Loans. The first interest
payment shall be due and payable on the first applicable interest
payment date following the first advance under the Line of Credit.
The outstanding principal balance of the Line of Credit, together
with accrued but unpaid interest, shall mature and be due and
payable on October 31, 1997.
c. Maximum Rate. The interest rate payable on the Line
of Credit is to be computed on a 360-day year base and shall be
adjusted whenever there is a change in the applicable interest rate
chosen by the Borrower. In no event shall the interest rate
charged with respect to the Line of Credit exceed the Maximum Rate.
d. Default Rate. Upon the occurrence of an Event of
Default under the Loan Documents, at the option of Bank, the
outstanding balance of the Credit Facility, including accrued
interest, shall bear interest from the date of the Event of Default
until paid, at the lesser of (i) the Default Rate, or (ii) the
Maximum Rate.
The Credit Facility shall be secured by a first priority security
interest in the accounts, inventory, equipment, machinery, general
intangibles, trademarks, and other personal property assets of the
Borrower, and by the Guaranty Agreement.
2.3 In the case of a Prime Rate Loan, the Borrower shall give
Bank irrevocable notice (a "Borrowing Notice") not later than 1:00
p.m. Nashville time on the day of disbursement. In the case of a
LIBOR Loan, the Borrower shall provide the Borrowing Notice not
later than 1:00 p.m. Nashville time three (3) Business Days prior
to any requested disbursement. Each Borrowing Notice shall be
written and shall specify the date of such requested disbursement,
the aggregate amount of such disbursement, and whether the
disbursement shall be a Prime Rate Loan or a LIBOR Loan. Each
Borrowing Notice shall obligate the Borrower to accept the
disbursement requested thereby.
a. The Borrower shall have the right at any time, on
prior irrevocable written or telefaxed notice to Bank to convert
any Prime Rate Loan into a LIBOR Loan, to convert a LIBOR Loan into
a Prime Rate Loan, or to continue a LIBOR Loan for a subsequent
LIBOR Interest Period, subject in each case to the following:
(1) Each conversion notice shall be irrevocable;
(2) Each notice to convert to a LIBOR Loan or to
continue a LIBOR Loan shall be received by Bank not later than 1:00
p.m. Nashville time, three (3) days prior to the requested
conversion date;
(3) No LIBOR Loan shall be converted or prepaid at
any time other than at the end of the Interest Period applicable
thereto;
(4) Each conversion shall be effected by applying
the proceeds of the new LIBOR Loan or Prime Rate Loan, as the case
may be, to the disbursement (or portion thereof) being converted;
(5) In no event shall the number of LIBOR Loans
outstanding at any one time exceed three (3).
Each notice pursuant to this subparagraph shall be
irrevocable and shall refer to this Agreement and specify (i) the
identity and principal amount of the particular disbursement that
the Borrower requests to be converted or continued, and (ii) if
such notice requests conversion, the date of conversion (which
shall be a Business Day). In the event that the Borrower shall not
give notice to continue any LIBOR Loan for a subsequent LIBOR
Interest Period, such Loan (unless repaid) shall automatically be
converted into a Prime Rate Loan. If the Borrower shall fail to
specify in a Borrowing Notice the interest rate option selected,
the Borrower will be deemed to have requested a Prime Rate Loan.
Notwithstanding anything to the contrary contained above, if an
Event of Default shall have occurred and be continuing, no LIBOR
Loan may be continued, and no Prime Rate Loan may be converted into
a LIBOR Loan.
2.4 The Credit Facility may be prepaid at any time, in whole
or in part, without prepayment penalty or premium, subject to the
limitation that advances bearing interest at the LIBOR Rate may
only be prepaid at the conclusion of the applicable LIBOR Interest
Period.
2.5 In the event that reasonable means do not exist for
ascertaining the LIBOR Rate generally, Bank shall, as soon as
practicable thereafter, give written or telephonic notice of such
determination to the Borrower, in which case, borrowings at the
LIBOR Rate shall be suspended, and the interest rate applicable to
LIBOR Loans shall be calculated based upon an alternative rate
selected by Bank, which, in the Bank's judgment, reasonably
approximates the LIBOR Rate and which can be verified through
published reports or readily accessible sources. Each
determination by Bank hereunder shall be conclusive absent manifest
error.
2.6 a. Notwithstanding any other provision herein, if after
the date of this Agreement any change in applicable laws or
regulations or in the interpretation or administration thereof by
any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law)
shall change the basis of taxation of payments to Bank under any
LIBOR Loan or any other fees or amounts payable hereunder (other
than taxes imposed on the overall net income of the Bank by the
country in which the Bank is located, or by the jurisdiction in
which Bank has its principal office, or by any political
subdivision or taxing authority therein), or shall impose, modify,
or deem applicable any reserve requirement, special deposit,
insurance charge (including FDIC insurance on eurodollar deposits)
or similar requirements against assets of, deposits with or for the
account of, or credit extended by, the Bank or shall impose on the
Bank or the London Interbank Market any other condition affecting
this Agreement or LIBOR Loans, and the result of any of the
foregoing shall be to increase the cost to Bank of making or
maintaining its LIBOR Loans or to reduce the amount of any sum
received or receivable by the Bank for any of its LIBOR Loans
hereunder (whether of principal, interest or otherwise) by an
amount reasonably deemed by the Bank to be material, then the
Borrower will pay to the Bank such additional amount or amounts as
will reasonably compensate the Bank for such additional costs.
b. If either:
(1) The introduction of, or any change in, or in the
interpretation of, any United States or foreign law, rule or
regulation; or
(2) Compliance with any directive, guidelines or
request from any central bank or other United States or foreign
governmental authority (whether or not having the force of law)
promulgated or made after the date hereof (but excluding, however,
any law, rule, regulation, interpretation, directive, guideline or
request contemplated by or resulting from the report dated July,
1988, entitled "International Convergence of Capital Measurement
and Capital Standards" issued by the Basic Committee on Banking
Regulations and Supervisory Practices), affects or would affect the
amount of capital required or expected to be maintained by the Bank
(or any lending office of the Bank) or any corporation directly or
indirectly owning or controlling the Bank (or any lending office of
the Bank) based upon the existence of this Agreement, and Bank
shall have determined that such introduction, change or compliance
has or would have the effect of reducing the rate of return on the
Bank's capital or on the capital of such owning or controlling
corporation as a consequence of its obligations hereunder
(including its commitment) to a level below that which the Bank or
such owning or controlling corporation could have achieved but for
such introduction, change or compliance (after taking into account
that Bank's policies or the policies of such owning or controlling
corporation, as the case may be, regarding capital adequacy) by an
amount deemed by Bank (in its sole discretion) to be material, then
the Borrower will pay to Bank such additional amount or amounts as
will compensate Bank for such reduction attributable to making,
funding and maintaining the Credit Facility.
2.7 All parties to the Loan Documents intend to comply with
applicable usury law. All existing and future agreements
evidencing or securing the Credit Facility are hereby limited and
controlled by the provisions of this Section 2.7. In no event
(including but not limited to prepayment, default, demand for
payment, or acceleration of maturity) shall the interest taken,
reserved, contracted for, charged or received in connection with
the Credit Facility under the Loan Documents or otherwise, exceed
the maximum nonusurious amount permitted by applicable law (the
"Maximum Amount"). If, from any possible construction of any
document, interest would otherwise be payable in excess of the
Maximum Amount, then ipso facto, such document shall be reformed
and the interest payable reduced to the Maximum Amount, without
necessity of execution of any amendment or new document. If Bank
ever receives interest in an amount which apart from this provision
would exceed the Maximum Amount, the excess shall, without penalty,
be applied to the unpaid principal balance of the Indebtedness in
inverse order of maturity of installments and not to the payment of
interest, or be refunded to the Borrower, at the election of the
Bank in its sole discretion or as required by applicable law. The
Bank do not intend to charge or receive unearned interest on
acceleration. All interest paid or agreed to be paid to the Bank
in connection with the Credit Facility, or any portion thereof,
shall be spread throughout the full term (including any renewal or
extension) of the Line of Credit so that the amount of interest
paid does not exceed the Maximum Amount.
2.8 The Borrower shall pay Bank a fee equal to one-half of
one percent (.50%) of the average daily unused portion of the Line
of Credit, such fee to be due and payable quarterly, in arrears, on
the first day of each April, July and October, 1997, beginning
April 1, 1997.
2.9 Advances under the Line of Credit shall be used to
finance working capital needs of Borrower, and shall be based upon
Borrowing Base Certificates submitted by Borrower, in form and
substance acceptable to Bank.
3. SECURITY INTEREST
3.1 As security for the payment of all advances under the
Credit Facility now or in the future made hereunder and all other
indebtedness and obligations of the Borrower to Bank, created under
this Agreement or otherwise, now existing or hereafter incurred,
matured or unmatured, direct or contingent, including all
modifications, extensions and renewals thereof, hereinafter
sometimes collectively referred to as the "Indebtedness", the
Borrower hereby collaterally assigns to Bank and grants to Bank a
security interest in the following:
a. All of the Borrower's accounts, whether now existing
or hereafter arising;
b. All of the Borrower's chattel paper and instruments,
whether now existing or hereafter acquired, evidencing any
obligation to the Borrower for payment for goods sold or leased or
services rendered;
c. All of the Borrower's existing inventory and all
inventory acquired by the Borrower during the term of this
Agreement;
d. All of the Borrower's existing equipment and machinery
(excluding leased equipment) and all equipment and machinery
acquired by the Borrower during the term of this Agreement;
e. All of Borrower's trademarks and general intangibles,
whether now existing or hereafter arising or acquired, and all of
Borrower's files, records (including without limitation computer
programs, tapes and related electronic data processing software)
and writings of the Borrower or in which Borrower has an interest
in any way relating to Borrower's general intangibles, accounts,
inventory and equipment;
f. All proceeds of policies of insurance on any of the
foregoing;
g. All of the proceeds therefrom.
All of which hereinafter sometimes is referred to collectively as
the "Collateral".
4. CONDUCT OF BUSINESS AND LOCKBOX OF RECEIVABLES
4.1 So long as no Event of Default occurs hereunder, the
Borrower shall have the right, in the regular course of business,
to process and sell Borrower's inventory. Bank's security interest
hereunder shall attach to all proceeds of all sales or other
dispositions of Borrower's inventory.
4.2 Following an Event of Default, upon request by the Bank,
Borrower shall cause all payments on accounts to be deposited
directly with Bank, together with all payments of inventory sold or
in payment of or on account of Borrower's accounts, such funds to
be deposited with Bank in a special account maintained by Bank on
behalf of Borrower. To the extent an account debtor pays Borrower
directly for inventory sold, Borrower shall immediately deposit
such funds with Bank. Pending such deposit, Borrower agrees that
it will not commingle any such checks, drafts, cash and other
remittances with any of Borrower's funds or property, but will hold
them separate and apart therefrom, and upon an express trust for
Bank until deposit thereof is made in the special account. The
funds in the special account shall be security for all loans and
obligations of Borrower to Bank and all other Indebtedness secured
by the terms of this Agreement. Bank may apply the whole or any
part, as Bank deems appropriate, of the collected funds on deposit
in the special account against the principal and/or interest due
under the Indebtedness secured by this Agreement, the order and
method of such application to be in the discretion of Bank. Any
portion of the funds on deposit in the special account that are not
applied by Bank to the Indebtedness shall be paid to Borrower.
4.3 Following an Event of Default, Bank shall have the
absolute and unconditional right to notify and direct the account
debtors obligated on any or all of Borrower's accounts to make
payments thereof directly to Bank and to take control of all
proceeds of any such accounts which rights Bank may exercise at any
time, whether or not Borrower is then in default hereunder or
theretofore were making collections thereon. The costs of such
collection and enforcement, including attorneys' fees and expenses,
shall be borne solely by Borrower, whether incurred by Bank or
Borrower.
4.4 Whether or not an Event of Default shall have occurred,
through independent auditors designated by the Borrower, Bank shall
have the right from time to time to contact the account debtors
obligated on any or all of Borrower's accounts for the purposes of
confirming the validity and amount of the accounts, such contact to
be made by such independent auditors, as approved by Bank. Copies
of all responses from account debtors shall be provided to Bank.
4.5 The Bank shall not, under any circumstances, be liable
for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any accounts or any instrument
received in payment thereof or for any damage resulting therefrom,
except for fraud or gross negligence on the part of the Bank.
5. COVENANTS AND WARRANTIES OF THE Borrower
5.1 Borrower hereby covenants and warrants to Bank:
a. The principal place of business and chief executive
office of Borrower is set forth in Exhibit 5.1(a). The Borrower
will notify Bank promptly in writing of any change in the location
of the principal place of business or any other place of business
or the establishment of any new place of business.
b. All equipment and machinery that is a part of the
Collateral under this Agreement is used primarily for business use
and is located at the locations set forth in Exhibit 5.1(b). The
Borrower will not sell or offer to sell or otherwise transfer or
dispose of any portion of the said equipment or machinery, or any
interest therein, without the prior written consent of Bank. All
inventory of the Borrower will be stored at the locations set forth
in Exhibit 5.1(b). Borrower will not store inventory in any other
location without the prior written consent of Bank.
c. The Borrower is the owner of the Collateral free from
any adverse lien, security interest, or encumbrance, except as
reflected in Exhibit 5.1(c) attached hereto. The Borrower will
defend the Collateral against all claims and demands of all persons
at any time claiming the same or any interest therein.
d. The Borrower at all times will keep accurate and com-
plete records of the Borrower's accounts. Bank, or any of its
agents, shall have the right to call at Borrower's place or places
of business, at intervals to be determined by Bank and, without
hindrance or delay, to inspect at Borrower's cost all of Borrower's
inventory and to inspect, audit, check, and make extracts from the
books, records, journals, orders, receipts, correspondence, and
other data relating to Borrower's accounts or to any other
transactions between the parties hereto. Without limiting the
foregoing, Borrower acknowledges and agrees that Bank or its agents
shall inspect Borrower's books, records and inventory by field
audits (to be conducted not less often than annually), with the
costs of said field audits to be paid by Borrower.
e. If any of Borrower's accounts should be evidenced by
promissory notes, trade acceptances, or other instruments for the
payment of money, Borrower immediately will deliver same to Bank,
appropriately endorsed to Bank's order. Regardless of the form of
such endorsement, Borrower hereby waives presentment, demand,
notice of dishonor, protest and notice of protest, and all other
notices with respect thereto.
f. No financing statement covering any of the Collateral
or any proceeds therefrom is on file in any public office, except
for filings in favor of the Bank and the matters described in
Exhibit 5.1(c). At the request of Bank, Borrower will join with
Bank in executing one or more financing statements pursuant to the
Uniform Commercial Code, in form satisfactory to Bank, and will pay
the cost of filing or recording the same or this Agreement in all
public offices wherever filing or recording is deemed by Bank to be
necessary or desirable. A copy of this Security Agreement or
copies of any financing statements executed herewith may be filed
in lieu of originals in any public office.
g. Borrower is and shall remain a corporation duly
organized, existing and in good standing under the laws of the
State of Tennessee, authorized to transact in Tennessee all
business that such entity is now transacting therein and is and
shall remain duly qualified to do business in each state which
qualification is necessary. Neither the execution, the delivery
nor the performance of this Agreement and all related documents by
Borrower will constitute a default under or conflict with its
respective charter or bylaws or any agreement, contract, document,
or instrument to which Borrower now is a party. The execution of
all necessary resolutions and other prerequisites of corporate
actions have been duly performed so that the individuals executing
this Agreement and related documents on behalf of Borrower is duly
authorized to bind such entity by his signature.
h. There is no litigation or proceeding pending against
the Borrower or, to the knowledge of Borrower, threatened that, if
decided adversely to Borrower, would have a material effect upon
its financial condition. Borrower is not subject to any
outstanding court or administrative order. Borrower covenants to
give Bank prompt written notice of any litigation, arbitration,
administrative proceeding or investigation that may hereafter be
instituted or threatened against Borrower, whether or not liability
under such proceeding would be covered by insurance.
i. The statements of condition of Borrower dated June 30,
1996, fairly and accurately reflects the financial condition and
capital structure of each entity as of said date. Since said date,
no material adverse change in either has occurred or, to the
knowledge of Borrower, is threatened. All financial statements
delivered to Bank have been prepared in accordance with generally
accepted accounting principles, consistently applied, and are true,
accurate and complete in every respect. Without limiting the
foregoing, Borrower warrants that such financial statements
disclose all known contingent liabilities as well as direct
liabilities. Borrower acknowledges that Bank has advanced (or
committed to advance) the Indebtedness in reliance upon such
financial statements, and Borrower warrants that no material
adverse change has occurred in the financial condition of any
person or entity as set forth in such financial statements.
Borrower warrants that each has good and absolute title to the
assets disclosed on Borrower's balance sheet disclosed to Bank,
subject only to liens, security interests and other encumbrances
noted thereon.
j. Borrower is not presently delinquent in the payment
of any taxes imposed by any governmental authority or in the filing
of any tax return and Borrower is not involved in a dispute with
any taxing authority over tax amounts due. Borrower covenants that
all future taxes assessed against Borrower shall be timely paid and
that all tax returns required of Borrower shall be timely filed.
k. Borrower will keep the Collateral free from any lien,
security interest, or encumbrance other than that granted to Bank
herein and in good order and repair and will not waste or destroy
the Collateral or any part thereof. Borrower will not use the
Collateral in violation of any statute or ordinance. Borrower's
business activities are conducted in accordance with all applicable
laws and regulations, and Borrower covenant that such activities
shall continue to be so conducted. Bank may examine and inspect
the Collateral at any time, wherever located.
l. Borrower will maintain insurance, in form, amounts,
and with companies in all respects satisfactory to Bank, insuring
Borrower's inventory, fixtures, equipment, and machinery against
loss from fire, theft, and other risks determined by Bank. Bank
shall be designated as an additional insured under the terms of the
policies evidencing such insurance. Upon request by Bank, Borrower
will execute such additional instruments as Bank deems necessary to
perfect in Bank a lien on Borrower's rights under such policies.
m. Borrower shall provide Bank with the following (all
of which shall be in form and substance acceptable to Bank):
(i) within one hundred twenty (120) days of fiscal
year end, complete audited financial statements
prepared in accordance with generally accepted
accounting principles, consistently applied,
including balance sheet, profit and loss
statement and statement of cash flows, with
supporting schedules, prepared by a certified
public accountant reasonably acceptable to Bank
with such accountant giving an unqualified
opinion as to all statements, including a copy
of the management letter delivered by the
certified public accountant completing the
audit;
(ii) within forty-five (45) days after the end of
each quarter, quarterly interim financial and
operating statements for the preceding quarter,
including balance sheet, profit and loss
statement of cash flows, with supporting
schedules, in form satisfactory to Bank, which
shall be certified by a responsible officer and
shall reflect accurately the financial condition
of the Borrower;
(iii) within five (5) days after the
end of each month, a monthly
summary aging report of all
accounts receivable;
(iv) with each draw request, and with the quarterly
financial statements, a completed borrowing base
certificate, which shall be in form and
substance acceptable to Bank;
(v) a compliance certificate in form and substance
acceptable to Bank, which shall include a
calculation of the financial covenants set forth
in this Agreement, which certificate shall be
delivered to Bank simultaneously with the
delivery of the quarterly interim financial
statements required in (ii) above;
(vi) Borrower shall cause Guarantor to provide to
Bank within one hundred twenty (120) days of
Guarantor's fiscal year end, complete audited
consolidating financial statements prepared in
accordance with generally accepted accounting
principles, consistently applied, including bal-
ance sheet, profit and loss statement and
statement of cash flows, with supporting
schedules, prepared by a certified public
accountant reasonably acceptable to Bank with
such accountant giving an unqualified opinion as
to all statements, including a copy of the
management letter delivered by the certified
public accountant completing the audit.
Guarantor shall also supply Bank with copies of
the quarterly Form 10-Q filed with the
Securities and Exchange Commission ("SEC"), as
well as the annual Form 10-K (or 10-KSB) filed
with the SEC;
All financial statements, certificates and other information
required to be submitted to Bank shall be in form satisfactory to
Bank and shall be executed by an officer of the entity submitting
such information, satisfactory to Bank.
n. Borrower will give Bank prompt written notice within
five (5) days of (i) the creation or discovery of any material
additional contingent liability or the occurrence of any other
material adverse change in the financial condition of Borrower or
Guarantor or other person or entity presently or hereafter liable
for payment of all or part of the Indebtedness, and (ii) the
occurrence of any event, or presence of any condition, which
constitutes a default hereunder or which within the giving of
notice, the passage of time, or both, would constitute a default.
o. Borrower will comply with all statutes and government
regulations applicable to Borrower's operations and pay promptly
all taxes, assessments, claims for labor, supplies, rent, and other
obligations that, if unpaid, might become a lien against Borrower's
property. In the event any such liability or obligation is
contested by Borrower in good faith, Borrower, at the request of
Bank, shall establish reserves in amounts satisfactory to Bank to
meet such obligation.
p. Upon demand, Borrower will advance to Bank, or, at
Bank's option, reimburse Bank, for the following expenses:
(1) All taxes that Bank may be required to pay
because of the Indebtedness or because of Bank's interest in any
Collateral securing the payment of the Indebtedness;
(2) All expenses that Bank may incur in connection
with the preparation, execution, audit and administration, or
enforcement of this Agreement or of any other document pertaining
to the Indebtedness;
(3) All costs of preserving, insuring, preparing for
sale (whether by improvement, repair or otherwise) or selling any
Collateral securing the Indebtedness;
(4) All court costs and other costs of collecting
any debt, overdraft or other obligation included in the
Indebtedness, including compensation for time spent by employees of
Bank;
(5) All reasonable costs arising from any litigation
proceeding (whether or not Bank is a party thereto) that Bank may
incur as a result of the Indebtedness or as a result of Bank's
association with Borrower, including, but not limited to, expenses
incurred by Bank in connection with a case or proceeding involving
Borrower under any chapter of the Bankruptcy Code or any successor
statute thereto;
(6) Reasonable attorney's fees incurred in con-
nection with any of the foregoing.
If Bank pays any of the foregoing expenses, they shall become a
part of the Indebtedness and shall bear interest at the highest
lawful rate.
q. Following an Event of Default, Bank shall have the
right to obtain and use the services of a collateral control firm
at its option. All expenses for such services shall be borne by
Borrower.
r. Except as set forth in Exhibit 5.1(r), Borrower
presently has no subsidiaries or interests in any partnership or
other business entity, and Borrower covenant that the Borrower will
not hereafter acquire stock of any other corporation or acquire an
equity interest in any other business entity without the prior
written approval of Bank.
s. Borrower will maintain current corporate minute books
and stock ledgers and agrees to allow Bank to inspect the same at
any time.
t. The Borrower does not maintain any plan qualified
under the Employee Retirement Income Security Act of 1974 and
covenant that they will not establish such a plan without Bank's
prior written consent. Bank acknowledges that Guarantor currently
maintains a plan which may benefit employees of the Borrower.
u. Borrower has not been known under or done business
under any name other than the name used by Borrower in executing
this Agreement. Borrower agrees to give Bank at least fifteen (15)
days prior written notice before Borrower begins using any name
other than that used in executing this Agreement.
v. In order to further secure the payment of the
Indebtedness, Borrower hereby grants a security interest and right
to setoff against all presently owned or hereafter acquired monies,
items, credits, deposits and instruments (including certificates of
deposit) presently or hereafter in the possession of Bank. By
maintaining any such accounts or other property with Bank, Borrower
voluntarily subjects the property to Bank's rights hereunder. Bank
may exercise its rights under this Paragraph without prior notice
following an Event of Default. Borrower agrees that Bank shall not
be liable for the dishonor of any instrument resulting from the
exercise of rights under this Paragraph.
w. Borrower will execute such other assignments, security
agreements, financing statements, and other documents that Bank may
deem necessary to further evidence the obligations provided for
herein or to perfect, extend, or clarify Bank's rights in any
property securing or intended to secure the Indebtedness. Any Vice
President of Bank is hereby appointed as Borrower's attorney-in-
fact with full power of substitution for the signing of financing
statements and other similar filings with government offices for
perfecting security interests granted hereby to the extent the
Borrower fail to execute or deliver such documents following a
written request by Bank. Borrower acknowledges that this power of
attorney is coupled with an interest and is irrevocable.
x. Borrower is not a party to any contract or agreement
and is not subject to any contingent liability that does or may
impair Borrower's ability to perform under the terms of this Agree-
ment. The execution and performance of this Agreement will not
cause a default under any other contract or agreement to which
Borrower or any property of Borrower is subject, and will not
result in the imposition of any charge, penalty, lien or other
encumbrance against any of Borrower's property except in favor of
Bank.
does not require the consent of or the giving of notice to any
third party including, but not limited to, any account debtor,
other lender, governmental body or regulatory authority.
z. Borrower is in compliance with, and will continue to
comply with, all Hazardous Materials Laws in connection with
Borrower's business operations, and will indemnify and hold Bank
harmless from any loss or damage incurred by Bank in connection
with violations of applicable Hazardous Materials Laws by Borrower
or Borrower's business operations.
5.2 So long as any Indebtedness secured hereby is out-
standing, Borrower covenants and warrants that, without the prior
written consent of Bank, the Borrower will not:
a. Change its name, enter into any merger, consolidation,
reorganization, or recapitalization, or reclassify its capital
stock.
b. Sell, lease, convey, or otherwise dispose of any of
its property or assets, except in the ordinary course of business.
c. Become liable, directly or indirectly, for any
obligation of any other person, by guaranty, endorsement, or other-
wise, except by endorsement of negotiable instruments payable at
sight for deposit or collection.
d. Become liable, directly or indirectly, with respect
to any obligation for money borrowed, or the equivalent, except the
Indebtedness, except for purchase money obligations incurred in the
ordinary course of business in an aggregate amount not exceeding
$100,000.
e. Suffer or permit, in whole or in part, dissolution,
liquidation, or the retirement or redemption of any shares of its
own stock or the stock of any subsidiary.
f. Declare, set aside, or pay any dividend or make any
other distribution, whether in cash, in kind, or otherwise, on
account of or with respect to its stock, or take any action
whatsoever that would reduce Borrower's capital surplus or earned
surplus.
g. Make any loans other than employee loans not exceeding
an aggregate amount of Ten Thousand Dollars ($10,000.00) and
deposits required by government agencies or public utilities.
h. Make any investments except for investments in direct
obligations of the United States Government maturing within one (1)
year and certificates of deposit issued by Bank.
i. Suffer or permit the Collateral to become subject to
any security interest, lien, or other encumbrance, except for the
following:
(1) Any lien created by virtue of this Agreement, or
any other lien in favor of Bank;
(2) A pledge or deposit in connection with or to
secure workman's compensation, unemployment insurance, pensions, or
other employee benefits accruing under the provisions of law or
under agreements now in force and disclosed to Bank;
(3) Tax liens which result from obligations being
contested by Borrower in good faith and for which Borrower has
established adequate reserves in the event of an adverse ruling;
(4) The matters described in Exhibit 5.1(c) attached
hereto.
j. Take any action, or suffer or permit any action to be
taken, that would violate any of the warranties and covenants con-
tained in Section 4.1 hereof or cause any of said warranties and
covenants to be or become untrue.
k. Submit to Bank any certificate or other document that
contains any untrue statement of material fact or omits to state a
material fact necessary to make it not misleading.
l. Make capital expenditures (including capitalized
leases and leasehold improvements) in any fiscal year in excess of
$250,000 in the aggregate.
m. Fail to comply with the following financial covenants:
(i) Fixed Charge Coverage Ratio. The ratio of the
sum of net income after tax plus depreciation
and amortization plus interest expense plus rent
expense divided by the sum of interest expense
plus rent expense plus current maturities of
long-term debt and capitalized leases shall not
be less than 1.50 to 1, measured quarterly on a
rolling four (4) quarter basis.
(ii) Tangible Net Worth. Borrower's Tangible Net
Worth shall not be less than $1,900,000 at all
times.
n. Suffer or permit the amount outstanding under the Line
of Credit to exceed the Borrowing Base.
6. CONDITIONS PRECEDENT
6.1 As conditions precedent to Bank's making or continuing
any loans hereunder, Borrower and Guarantor shall furnish to Bank,
in form satisfactory to Bank:
a. Appropriate corporate resolutions authorizing Borrower
and Guarantor to enter into this Amendment, together with
authorizations for officers of Borrower and Guarantor to execute
any and all documents necessary to effectuate the transactions
contemplated by this Agreement. In addition, Borrower and
Guarantor shall provide to Bank copies of all corporate
organizational documents, together with current Certificates of
Good Standing/Existence.
b. Delivery to Bank of current updated certificates of
insurance evidencing comprehensive liability, hazard loss, and such
other insurance insuring Borrower's inventory and facilities, which
shall be in an amount, and issued by companies acceptable to Bank.
Bank shall be named as an additional insured on all liability
insurance, and as a mortgagee/loss payee on all hazard insurance.
c. A Guaranty and Suretyship Agreement executed by
Guarantor guaranteeing repayment of the Credit Facility, in form
and substance acceptable to Bank.
7. PROTECTIVE ACTION
7.1 At its option, Bank may discharge taxes, liens, security
interests, or other encumbrances at any time levied or placed on
the Collateral and may pay for insurance on the Collateral.
Borrower agree to reimburse Bank on demand for any payment made, or
any expense incurred, by Bank pursuant to the foregoing
authorization, together with interest thereon from date of payment
at the highest rate permitted by applicable law. Until the
occurrence of an Event of Default, Borrower may have possession of
the Collateral and use it in any lawful manner not inconsistent
with any policy of insurance thereon and not inconsistent with this
Agreement.
8. DEFAULT
8.1 Regardless of the terms of any promissory note or notes
issued in connection herewith, the occurrence of any of the events
specified hereinbelow (sometimes hereinafter referred to as an
"Event of Default") shall immediately terminate any obligations on
the part of Bank to make or continue to fund, advance or readvance
any sums to Borrower and, at the option of Bank, shall make all
sums of interest and principal remaining on the Indebtedness
immediately due and payable, without notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character, except as
hereinafter specified:
a. Default in the punctual payment when due of any of the
Indebtedness or default in performance of any of the covenants,
warranties, terms, or provisions contained or referred to in this
Agreement or in any note evidencing any of the Indebtedness;
b. Any covenant, warranty, representation, or statement
made or furnished to Bank by or on behalf of Borrower or in
connection with this Agreement proving to have been false in any
material respect when made or furnished;
c. Loss, theft, substantial damage, destruction, sale,
or encumbrance to or of the Collateral, except for the sale of
inventory specifically provided for in this Agreement, or the mak-
ing of any levy, seizure, or attachment thereof or thereon;
d. Dissolution, liquidation, cessation of business,
termination of existence, insolvency, failure to pay debts as they
mature, business failure, or appointment of a receiver of any part
of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding under any bankruptcy or
insolvency law by or against Borrower or Guarantor;
e. The filing of any tax lien whatsoever with respect to
any of the Collateral pledged hereby, except for a tax lien that is
being contested in good faith and for which Borrower provides addi-
tional security satisfactory in all respects to Bank;
f. The issuance of an attachment against property of
Borrower unless removed, by bond or otherwise, within thirty (30)
days;
g. The entry of a final judgment against Borrower that
remains unsatisfied for five (5) days after execution may first
issue;
h. The occurrence of an event of default under any other
agreement between Borrower and Bank or under any agreement between
Borrower and any lessor of real or personal property or any bank,
savings and loan, insurance company, commercial credit company or
other lender, including without limitation any lenders who are sub-
ordinated to the Indebtedness secured hereunder;
i. The occurrence of an Event of Default (and expiration
of applicable notice and cure periods) under the Loan and Security
Agreement by and between First Union Commercial Corporation and
Titan Services, Inc., executed in December, 1996, or any other
document or instrument executed in connection therewith.
9. REMEDIES
9.1 Upon the occurrence of an Event of Default and at any
time thereafter, Bank shall have all the rights and remedies of a
secured party under the Uniform Commercial Code and any other right
Bank may have at law or equity. Bank may require Borrower to
assemble the Collateral and make it available to Bank at a place or
places, to be designated by Bank, reasonably convenient to both
parties. Unless the Collateral is perishable, threatens to decline
speedily in value, or is of a type customarily sold on a recognized
market, Bank will give Borrower reasonable notice of the time and
place of any public sale thereof or of the time after which any
private sale or any other intended disposition thereof is to be
made. The requirements of reasonable notice shall be met if such
notice is mailed, postage prepaid, to the address of Borrower shown
at the end of this Agreement at least ten (10) days before the time
of the sale or disposition. Borrower agree to pay all expenses of
retaking, holding, preparing for sale, and selling the Collateral,
together with any court costs and Bank's reasonable attorney's
fees; all such expenses, costs and fees shall be deemed part of the
Indebtedness. Bank may exercise its lien upon and right of setoff
against any monies, credits, deposits or instruments that Bank may
have in its possession and which belong to Borrower or to any other
person or entity liable for the payment of any or all of the
Indebtedness. The remedies provided Bank in this Agreement are not
exclusive of any other remedies that may be available to Bank under
any other document or at law or equity.
9.2 No delay or omission on the part of Bank in exercising
any right hereunder or in demanding strict compliance with the
terms of this Agreement shall operate as a waiver of such right or
of any other right under this Agreement or of demanding strict
compliance with the terms of this Agreement. No waiver by Bank of
any default shall operate as a waiver of any other default or of
the same default on a future occasion.
10. MISCELLANEOUS AND DEFINITIONS
10.1 Unless otherwise set forth herein, all financial
ratios and reports shall be calculated and prepared in accordance
with generally acceptable accounting principles consistently
applied.
10.2 The captions contained in this Agreement are inserted
only as a matter of convenience and shall not be construed as
defining, limiting, extending, or describing the scope of this
Agreement, any section hereof, or the intent of any provision
hereof.
10.3 All rights of Bank hereunder shall inure to the
benefit of its successors and assigns, and all obligations of
Borrower shall bind Borrower's successors and assigns.
10.4 Time is of the essence with regard to each and every
provision of this Agreement.
10.5 Nothing in this Agreement shall be deemed a waiver or
prohibition of Bank's right of banker's lien or setoff.
10.6 This Agreement, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between
the parties, and may be amended only by a writing signed by all
parties.
10.7 If any provision of this Agreement shall be held
invalid under any applicable law, such invalidity shall not affect
any other provision of this Agreement that can be given effect
without the invalid provision, and, to this end, the provisions
hereof are severable.
10.8 Upon demand of any party hereto, whether made before
or after institution of any judicial proceeding, any dispute, claim
or controversy arising out of, connected with or relating to this
Loan Agreement and other Loan Documents ("Disputes") between or
among parties to this Loan Agreement shall be resolved by binding
arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to
demand arbitration hereunder. Disputes may include, without
limitation, tort claims, counterclaims, disputes as to whether a
matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or
claims arising out of or connected with the transaction reflected
by this Loan Agreement.
Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration
Rules") of the American Arbitration Association (the "AAA") and
Title 9 of the U.S. Code. All arbitration hearings shall be
conducted in the city in which the office of Bank first stated
above is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000. All applicable statutes of limitation shall apply
to any Dispute. A judgment upon the award may be entered in any
court having jurisdiction. The panel from which all arbitrators
are selected shall be a retired judge from the highest court of
general jurisdiction, state or federal, of the state where the
hearing will be conducted, or if such person is not available to
serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to swap agreements.
10.9 Nothing contained herein or in any related document
shall be deemed to render Bank a partner of Borrower for any
purpose. This Agreement has been executed for the sole benefit of
Bank, and no third party is authorized to rely upon Bank's rights
hereunder or to rely upon an assumption that Bank has or will
exercise its rights under this Agreement or under any document
referred to herein.
10.10 Bank may proceed against collateral securing the
Indebtedness and against parties liable therefor in such order as
it may elect, and neither Borrower nor any surety or guarantor for
Borrower shall be entitled to require Bank to marshall assets. The
benefit of any rule of law or equity to the contrary is hereby
expressly waived.
10.11 Bank may, in its sole discretion, release any collat-
eral securing the Indebtedness or release any party liable
therefor. The defenses of impairment of recourse and any
requirement of diligence on Bank's part in collecting the
Indebtedness are hereby waived
10.12 If any payment date under the Indebtedness falls on
a day that is not a business day of Bank, or if the last day of any
notice period falls on such a day, the payment shall be due and the
notice period shall end on Bank's next following business day.
10.13 The validity, construction and enforcement of this
Agreement and all other documents executed with respect to the
Indebtedness shall be determined to the maximum extent permissible
according to the laws of Tennessee, in which state this Agreement
has been executed and delivered.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on their behalf by their
duly authorized officers, on the date first set out above.
FIRST UNION NATIONAL BANK SOUTHEASTERN TECHNOLOGY, INC.
OF TENNESSEE
BY:____________________________ BY:________________________
TITLE:_________________________ TITLE:_____________________
150 Fourth Avenue North Chief Executive Office:
Nashville, TN 37219 905 Industrial Blvd.
Murfreesboro, TN
"BANK" "BORROWER"
<PAGE>
Exhibit 5.1(b)
Addresses
<PAGE>
Exhibit 5.1(c)
Permitted Encumbrances
<PAGE>
Exhibit 5.1(r)
Subsidiaries of Borrower
NONE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,104,216
<SECURITIES> 0
<RECEIVABLES> 5,838,749
<ALLOWANCES> 0
<INVENTORY> 9,815,364
<CURRENT-ASSETS> 17,553,099
<PP&E> 4,034,246
<DEPRECIATION> 2,794,595
<TOTAL-ASSETS> 20,707,806
<CURRENT-LIABILITIES> 12,517,460
<BONDS> 0
<COMMON> 54,139
0
0
<OTHER-SE> 7,143,042
<TOTAL-LIABILITY-AND-EQUITY> 20,707,806
<SALES> 13,355,086
<TOTAL-REVENUES> 13,355,086
<CGS> 10,633,434
<TOTAL-COSTS> 10,633,434
<OTHER-EXPENSES> 1,576,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 400,140
<INCOME-PRETAX> 761,723
<INCOME-TAX> 334,881
<INCOME-CONTINUING> 426,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 426,842
<EPS-PRIMARY> .083
<EPS-DILUTED> .072
</TABLE>
<PAGE>
<TABLE>
Exhibit 99
SETECH, INC. AND SUBSIDIARIES
(formerly Aviation Education Systems, Inc. and subsidiaries)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1996
<CAPTION>
SETECH, INC.
and Subsidiaries Government
Consolidated Services Pro forma Pro forma
ASSETS (Historical) Division Adjustments Results
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 1,704,654 $ 375,800 $ 2,074,237 (1) $ 3,403,091
Accounts receivable,
less allowance
for doubtful
accounts 6,063,128 1,513,964 $0 4,549,164
Inventory 9,523,621 220,825 $0 9,302,796
Prepaid expenses 40,158 22,124 $0 18,034
Other currrent assets 37,266 0 $0 37,266
Stock subscriptions
receivable 661,500 0 $0 661,500
Deferred tax
benefit 306,000 0 430,575 (1) 736,575
Advances to
affiliates 0 32,636 163,039 (2) 130,403
Total current
assets 18,336,327 2,165,349 2,667,851 18,838,829
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation 1,128,007 540,660 $0 $ 587,347
DEFERRED INCOME
TAX BENEFIT 629,680 0 ($629,680)(1) $0
COST IN EXCESS OF NET
ASSETS, net of accumulated
amortization 2,024,628 247,356 $0 $ 1,777,272
Other Assets 24,372 300 0 24,072
$22,143,014 $2,953,665 $2,038,171 $21,227,520
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank notes payable $ 7,969,044 $ 175,000 $0 $ 7,794,044
Current portion of
long-term debt 566,943 27,927 27,927 (2) 566,943
Current portion of
capital lease obligations 58,189 0 0 58,189
Trade accounts payable 3,453,987 100,296 0 3,353,691
Affiliates accounts
payable 0 33,428 33,428 (2) 0
Accrued expenses 2,163,707 764,183 75,500 (1)
48,485 (1) 1,523,509
Total current
liabilities 14,211,870 1,100,834 185,340 13,296,376
NONCURRENT LIABILITIES, less current portion
Long-term debt 1,177,181 101,684 101,684 (2) 1,177,181
Capital lease
obligations 154,725 0 0 154,725
1,331,906 101,684 101,684 1,331,906
STOCKHOLDERS' EQUITY
Common stock, $.01 par
value, 400,000,000
shares 54,139 25,067 25,067 (1) 54,139
authorized,
5,413,901 issued
Additional paid-in
capital 11,512,038 1,799,179 1,799,179 (1) 11,512,038
Accumulated deficit (4,612,082) (72,099) (72,099)(1) (4,612,082)
6,954,095 1,752,147 1,752,147 6,954,095
Less treasury shares (354,857) (1,000) (1,000)(1) (354,857)
6,599,238 1,751,147 1,751,147 6,599,238
$22,143,014 $2,953,665 $2,038,171 $21,227,520
</TABLE>
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
(formerly Aviation Education Systems, Inc. and subsidiaries)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30, 1996
(Unaudited)
<CAPTION>
SETECH, INC.
and Subsidiaries Goverment
Consolidated Services Pro forma
(Historical) Division Results
<S> <C> <C> <C>
Revenues $20,987,442 $8,332,524 $12,654,918
Costs and expenses
Cost of revenues 17,014,879 7,318,262 9,696,617
Selling, general,
and administrative 2,683,202 792,270 1,890,932
Interest, net of
interest income 469,766 (10,777) 480,543
20,167,847 8,099,755 12,068,092
Earnings before
income taxes 819,595 232,769 586,826
Benefit (provision)
for income taxes 579,644 (113,238) 692,882
NET EARNINGS $ 1,399,239 $119,531 $1,279,708
INCOME (LOSS) PER COMMON SHARE:
Primary $ 0.27 $0.02 $0.25
Fully Diluted $ 0.24 $0.02 $0.22
/TABLE
<PAGE>
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
(formerly Aviation Education Systems, Inc. and subsidiaries)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
<CAPTION>
SETECH, INC.
and Subsidiaries Government
Consolidated Services Pro forma Pro forma
ASSETS (Historical) Division Adjustments Results
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 1,104,216 ($138,016) $2,150,000 (1) $ 3,392,233
Accounts receivable 5,838,749 2,312,620 3,526,129
Inventory 9,815,364 332,141 9,483,223
Prepaid expenses 124,815 20,950 (48,485) (1) 55,380
Other currrent assets 12,395 0 12,395
Deferred tax benefit 657,560 0 (199,105) (1) 458,455
Advances to affiliates 0 23,644 254,274 (2) 230,630
Total current assets 17,553,099 2,551,339 2,156,684 17,158,445
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation 1,239,651 451,888 787,763
DEFERRED INCOME
TAX BENEFIT 0 0 0 0
<PAGE>
COST IN EXCESS OF NET ASSETS,
net of accumulated
amortization 1,891,913 187,679 1,704,234
Due from affiliates 0 105,066 (2) 105,066
Other Assets 23,143 300 22,843
$ 20,707,806 $3,191,206 $2,261,750 $19,778,351
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank notes payable $ 7,532,752 $0 $0 $7,532,752
Current portion of
long-term debt 625,725 0 0 625,725
Trade accounts payable 2,726,012 189,062 2,536,950
Accrued expenses 1,632,971 611,524 75,500 (1) 1,096,947
Affiliates accounts
payable 0 151,703 182,332 (2) 30,629
Total current liabilities 12,517,460 952,289 257,832 11,823,003
NONCURRENT LIABILITIES,
less current portion
Long-term debt 993,165 235,001 0 758,164
Notes payable to
affiliates 0 177,006 177,006 (2) 0
993,165 412,007 177,006 758,164
<PAGE>
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
400,000,000 shares
authorized, 5,413,901
issued 54,139 26,750 26,750 (1) 54,139
Additional paid
in capital 11,536,481 1,737,819 1,737,819 (1) 11,536,481
Accumulated deficit (4,185,240) 63,341 63,341 (1) (4,185,240)
7,405,380 1,827,910 1,827,910 7,405,380
Less treasury
shares (208,199) (1,000) (1,000) (1) (208,199)
7,197,181 1,826,910 1,826,910 7,197,181
$20,707,806 $3,191,206 $2,261,748 $19,778,348
</TABLE>
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
(formerly Aviation Education Systems, Inc. and subsidiaries)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended December 31, 1996
(Unaudited)
<CAPTION
SETECH, INC.
and Subsidiaries Goverment
Consolidated Services Pro forma
(Historical) Division Results
<S> <C> <C> <C>
Revenues $13,335,086 $5,837,620 $7,497,466
Cost of sales
Industrial support
group 5,455,672 5,455,672
Government services
group 5,177,762 5,177,762 0
10,633,434 5,177,762 5,455,672
Gross Profit 2,701,652 659,858 2,041,794
Selling, general,
and administrative 1,576,139 441,973 1,134,166
Operating income 1,125,513 217,885 907,628
Interest income 36,350 36,350
Interest expense (400,140) (19,328) (380,812)
(363,790) (19,328) (344,462)
Earnings before
income taxes 761,723 198,557 563,166
Benefit (provision)
for income taxes (334,881) (101,774) (233,107)
NET EARNINGS $426,842 $96,783 $330,059
INCOME PER COMMON SHARE:
Primary $0.083 $0.019 $0.064
Fully Diluted $0.072 $0.016 $0.056
</TABLE>
<PAGE>
SETECH, INC. AND SUBSIDIARIES
SELECTED NOTES TO PROFORMA CONDENSED FINANCIAL INFORMATION
June 30, 1996 and December 31, 1996
1. DISPOSITION OF DIVISION
Effective January 30, 1997, SETECH, INC. (the Company) sold
its government services division consisting of two
subsidiaries, BARTON ATC, Inc. and BARTON ATC
International, Inc. for $2,150,000 in immediate cash and
$1,000,000 in proceeds contingent upon the renewal, within
eighteen months, of certain contracts with Federal Agencies.
Management anticipates, but can give no assurance, that
these contracts will be renewed with the eighteen month
period. Such contingent proceeds will be recognized when
realized. The gain to be recognized currently from this
transaction approximates the related provision for income
taxes.
The accompanying pro forma financial statements present the
consolidated financial condition of the Company as of June 30,
1996 and December 31, 1996, and the proforma results of
operations for the respective year and six months then ended,
assuming the transaction had occurred on June 30, 1995.
This pro forma information should be read in conjunction with
the Company's audited financial statements for the year ended
June 30, 1996 and subsequent unaudited financial statements
for the six months ended December 31, 1996. Such proforma
information is not necessarily indicative of the results that
would have been attained had the transaction actually occurred
on June 30, 1995.
2 PRO FORMA ADJUSTMENTS
Pro forma adjustments are summarized as follows:
(1) Sale of the Division for immediate cash proceeds of
$2,150,000..
(2) Reversal of consolidating elimination entries
attributable to the Division sold.
