<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A - Number 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act Of 1934
Date of Report (Date of Earliest Event Reported) May 7, 1997
-------------------------------
QUADRAX CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-16052 05-0420158
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
300 High Point Avenue, Portsmouth, RI 02871
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (401) 683-6600
- --------------------------------------------------------------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, If Changed Since Last Report.)
<PAGE>
ITEM 7. Financial Statements Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Attached as Appendix A are the audited financial statements for
Victor Electric Wire and Cable Corporation for the fiscal years
ending June 30, 1996 and June 30, 1995.
(b) Pro Forma Financial Information.
As previously reported on May 15, 1997, the Company on May 7,
1997, acquired all of the outstanding stock of Victel, Inc., a
Delaware corporation ("Victel"), whose sole asset was all of the
outstanding stock of Victor Electric Wire & Cable Corporation
("Victor") , a manufacturer of electric power cords and interconnect
cables, for $720,000 cash and the assumption of approximately
$2,840,000 of existing bank debt. The existing bank debt was
refinanced at the closing by means of Victor entering into a new
working capital and term credit agreement with Congress Financial
Corporation, "Congress". The loan arrangement with Congress provides
for a three-year revolving credit facility of up to $3,550,000
drawable against a percentage of accounts receivable and inventory, a
$950,000 fully amortizing five year term loan and an equipment
financing facility of up to $500,000, also based upon a five year
fully-amortizing repayment schedule. All of such loans bear interest
at a rate of prime plus 1.5%. The Company has guaranteed all of the
obligations of Victor to Congress.
The Company is accounting for this acquisition using the
purchase method. Accordingly, the purchase price was allocated to the
assets acquired based on their estimated fair values. This treatment
resulted in no excess of cost over assets acquired as of April 30,
1997.
Attached as Appendix B is the Company's Unaudited Pro-Forma
Combining Condensed Consolidated Balance sheet as of December 31,
1996, along with the related Unaudited Pro-Forma Combining Condensed
Consolidated Statement of Operations for the year ended December
31,1996.
Attached as Appendix C is the Company's Unaudited Pro-Forma
Combining Condensed Consolidated Balance sheet as of March 31, 1997,
along with the related Unaudited Pro-Forma Combining Condensed
Consolidated Statement of Operations for the three months ended March
31, 1997.
(c) Exhibits.
2.1 Stock Purchase Agreement between Quadrax Corporation
and Exeter Capital L.P dated May 7, 1997.
10.1 Loan and Security Agreement between Victor Corporation
and Congress Financial Corporation dated May 7, 1997.
<PAGE>
10.2 Lease between CRW Real Estate Partnership, as amended,
and Victor Corporation dated as of October 31, 1995. To
be filed by Amendment to this Form 8-K at a later date.
10.3 Employment Agreement dated as of May 7, 1997 between
Victor Corporation and John V. Palermo. To be filed by
Amendment to this Form 8-K at a later date.
10.4 Press Release dated May 8, 1997.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Quadrax Corporation
July 18, 1997 /s/ James J. Palermo
- ---------------------------- --------------------------------------
(Date) James J. Palermo, Chairman and
Chief Executive Officer
July 18, 1997 /s/ Edward A. Stoltenberg
- ---------------------------- --------------------------------------
(Date) Edward A. Stoltenberg, Chief
Financial Officer and Principal
Accounting Officer
<PAGE>
Appendix A
Audited Financial Statements for
Victor Electric Wire and Cable Corp. for the fiscal years
ending June 30, 1996 and June 30, 1995.
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
FINANCIAL STATEMENTS AND AUDIT REPORT
JUNE 30, 1996
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT 3
STATEMENTS OF CASH FLOWS 4/5
NOTES TO FINANCIAL STATEMENTS 6/13
</TABLE>
<PAGE>
AN OHIO REGISTERED PARTNERSHIP HAVING LIMITED LIABILITY
- --------------------------------------------------------------------------------
PRIVATE COMPANIES MEMBER AICPA DIVISION SEC PRACTICE SECTION
PRACTICE SECTION FOR CPA FIRMS
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Victor Electric Wire & Cable Corp.
West Warwick, Rhode Island
We have audited the accompanying balance sheets of Victor Electric Wire & Cable
Corp. (a wholly-owned subsidiary of Victel, Inc.) as of June 30, 1996 and July
2, 1995, and the related statements of operations and accumulated deficit and
cash flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Victor Electric Wire & Cable
Corp. as of June 30, 1996 and July 2, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended June 30,
1996, in conformity with generally accepted accounting principles.
Cincinnati, Ohio
August 23, 1996, except for
the notes payable and subsequent event
footnotes, as to which the date is
May 7, 1997
1
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
BALANCE SHEETS
JUNE 30, 1996 AND JULY 2, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 109,102 $ 172,895
Receivables - less allowance for
doubtful accounts of $60,000 3,008,842 2,844,066
Refundable Income Taxes 4,000 17,000
Inventories 1,038,969 1,113,876
Prepayments 23,268 73,395
Deferred Income Taxes 152,000 398,000
---------- ----------
Total Current Assets 4,336,181 4,619,232
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net 972,045 1,171,951
OTHER ASSETS 112,798 153,006
DEFERRED INCOME TAXES 875,000 936,000
--------- ---------
TOTAL ASSETS $6,296,024 $6,880,189
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Bank Overdraft $ 18,174 $ 140,468
Current Portion of Long-Term Debt -
Senior Term Note 345,264 1,110,840
Other 11,476 16,806
Accounts Payable 1,677,263 1,179,582
Accrued Expenses 792,822 884,764
----------- -----------
Total Current Liabilities 2,844,999 3,332,460
----------- -----------
LONG-TERM LIABILITIES
Revolving Line of Credit 2,785,203 2,800,000
Senior Term Note 405,644 92,488
Subordinated Debt to Related Parties 2,439,063 2,439,063
Capital Lease Obligation - 11,476
Accrued Expenses 127,375 -
----------- -----------
Total Long-Term Liabilities 5,757,285 5,343,027
----------- -----------
CONTINGENCIES
STOCKHOLDER'S DEFICIT
Preferred Stock - $100 par value - 15,000
shares authorized; 2615.9 shares issued 261,590 261,590
Common Stock - $10 par value - 10,000 shares
authorized; 60 shares issued 600 600
Accumulated Deficit (2,568,450) (2,057,488)
----------- -----------
Total Stockholder's Deficit (2,306,260) (1,795,298)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 6,296,024 $ 6,880,189
=========== ===========
</TABLE>
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED JUNE 30, 1996, JULY 2, 1995 AND JULY 3, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SALES $ 18,117,060 $ 20,552,955 $ 22,458,158
Less Returns and Allowances 98,763 137,595 166,463
------------ ------------ ------------
18,018,297 20,415,360 22,291,695
COST OF SALES 15,822,098 17,196,716 18,150,713
------------ ------------ ------------
Gross Profit 2,196,199 3,218,644 4,140,982
------------ ------------ ------------
OPERATING EXPENSES
Selling 421,882 652,676 644,075
General and Administrative 1,434,258 1,359,939 1,384,867
------------ ------------ ------------
1,856,140 2,012,615 2,028,942
------------ ------------ ------------
INCOME FROM OPERATIONS 340,059 1,206,029 2,112,040
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest Income 5,818 6,000 6,000
Interest Expense - senior debt ( 375,894) ( 485,356) ( 315,286)
Interest Expense - subordinated debt ( 249,328) ( 245,261) ( 479,476)
Amortization Expense ( 68,592) ( 68,592) ( 56,577)
Gain on Disposition of Assets - 7,500 76,544
Other, net 143,975 ( 54,514) 2,098
------------ ------------ ------------
( 544,021) ( 840,223) ( 766,697)
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES ( 203,962) 365,806 1,345,343
Provision for Income Taxes 307,000 88,000 581,000
------------ ------------ ------------
NET INCOME (LOSS) ( 510,962) 277,806 764,343
ACCUMULATED DEFICIT - beginning of year ( 2,057,488) ( 2,335,294) ( 3,099,637)
------------ ------------ ------------
ACCUMULATED DEFICIT - end of year $( 2,568,450) $( 2,057,488) $( 2,335,294)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, JULY 2, 1995 AND JULY 3, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash Received from Customers $ 17,821,098 $ 20,838,468 $ 21,953,017
Cash Paid to Suppliers and
Employees (16,668,962) (19,252,144) (20,180,133)
Interest Received 5,818 6,000 6,000
Interest Paid ( 497,057) ( 704,190) ( 1,089,877)
Income Taxes Refunded (Paid) 13,000 ( 17,000) ( 41,000)
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 673,897 871,134 648,007
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of Equipment and
Leasehold Improvements ( 131,373) ( 266,539) ( 418,649)
Proceeds from Sale of Equipment - 7,500 78,775
------------ ------------ ------------
NET CASH USED BY
INVESTING ACTIVITIES ( 131,373) ( 259,039) ( 339,874)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (Decrease) in
Bank Overdraft ( 122,294) 140,468 ( 42,923)
Net Borrowings (Payments) on
Line of Credit ( 14,797) 313,610 ( 180,349)
Issuance of Senior Term Note 225,000 - 2,880,000
Payments of Senior Term Note ( 677,420) ( 1,110,840) ( 565,832)
Payments of Subordinated Debt - - ( 2,000,000)
Payments Under Capital Lease
Obligations ( 16,806) ( 13,756) ( 12,099)
Payment of Deferred Financing Costs - - ( 156,112)
------------ ------------ ------------
NET CASH USED BY
FINANCING ACTIVITIES ( 606,317) ( 670,518) ( 77,315)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH ( 63,793) ( 58,423) 230,818
CASH - beginning of year 172,895 231,318 500
------------ ------------ ------------
CASH - end of year $ 109,102 $ 172,895 $ 231,318
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, JULY 2, 1995 AND JULY 3, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME
(LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Net Income (Loss) $(510,962) $ 277,806 $ 764,343
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided by Operating Activities -
Depreciation 331,279 347,050 372,493
Amortization Expense 68,592 68,592 56,577
Bad Debt Expense 32,423 61,418 -
Deferred Income Taxes 307,000 88,000 563,000
Gain on Disposition of Assets - ( 7,500) ( 76,544)
Changes in Operating Assets
and Liabilities -
Decrease (Increase) in -
Receivables (197,199) 423,108 ( 338,678)
Refundable Income Taxes 13,000 ( 17,000) -
Inventories 74,907 258,238 ( 9,285)
Prepayments and Deposits 21,743 16,029 ( 72,433)
Increase (Decrease) in -
Accounts Payable and
Accrued Expenses 405,739 ( 611,445) ( 88,422)
Income Taxes Payable - - ( 23,000)
Long-Term Accrued Expenses 127,375 ( 33,162) ( 500,044)
---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 673,897 $ 871,134 $ 648,007
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the company are as
follows:
YEAR END - The company's year end is the 52 or 53-week period ending on the
Sunday closest to June 30. The years ended June 30, 1996 and July 2, 1995, each
included 52 weeks and the year ended July 3, 1994, included 53 weeks.
DESCRIPTION OF BUSINESS - The company is a New York corporation and a wholly-
owned subsidiary of Victel, Inc. The company's operations consist primarily of
the manufacture and sale of power cords and specialty cable products to original
equipment manufacturers throughout the United States, Mexico, Canada and Western
Europe.
CASH AND CASH EQUIVALENTS - The company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Substantially all of the company's cash is held at one bank.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method except for copper
inventory, which is determined by the last-in, first-out (LIFO) method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Owned equipment and improvements are
stated at cost. Equipment under capital leases is stated at the lower of the
present value of minimum lease payments at the beginning of the lease term or
fair value at the inception of the lease.
Owned equipment and improvements are depreciated over their estimated useful
lives on the straight-line method. Equipment under capital leases and leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life of the related assets.
INTANGIBLE ASSETS - Deferred financing costs relating to the term note and
revolving line of credit are amortized over their thirty-six month term.
INCOME TAXES - Deferred income taxes are recognized for estimated future tax
effects attributed to temporary differences between book and tax bases of assets
and liabilities and for carryforward items.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
6
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVENTORIES
Inventories consist of the following:
1996 1995
Raw Materials $ 507,079 $ 410,733
Work in Process 81,400 122,565
Finished Goods 450,490 580,578
---------- ----------
$1,038,969 $1,113,876
========== ==========
</TABLE>
Current estimated replacement price of copper inventories is higher than the
LIFO inventory value by approximately $72,000 and $105,000 as of June 30, 1996
and July 2, 1995, respectively.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Machinery and Equipment $ 4,040,931 $ 3,922,079
Leasehold Improvements 1,544,166 1,533,412
Furniture, Fixtures and
Data Processing Equipment 721,893 720,124
Data Processing Equipment Held
Under Capitalized Lease 69,589 69,589
----------- -----------
6,376,579 6,245,204
Accumulated Depreciation (5,404,534) (5,073,253)
$ 972,045 $ 1,171,951
=========== ===========
</TABLE>
7
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES PAYABLE
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Prime Plus 2% Term Note - payable $30,500
monthly plus interest through July, 1997 $ 750,908 $1,203,328
Prime Plus 1.75% Revolving Line of Credit -
interest payable monthly - due July, 1997 2,785,203 2,800,000
10% Subordinated Notes to a Shareholder
of the Parent Company - due December 31, 1997 2,439,063 2,439,063
Obligations Under Capital Lease for Data
Processing Equipment - payable $1,756
monthly through January, 1997 11,476 28,282
---------- ----------
5,986,650 6,470,673
Less Current Portion 356,740 1,127,646
---------- ----------
$5,629,910 $5,343,027
========== ==========
</TABLE>
In March, 1994, the company increased its term note to $2,684,448, utilizing the
additional borrowing to prepay a portion of its subordinated debt. In March,
1996, the company executed the second amendment to its revolving line of credit
and term note agreement. This amendment provided for additional term note
borrowings of $225,000, modified the repayment terms and extended the due date
of the revolving line of credit and term note to July 31, 1997. This revolving
credit is secured by the company's receivables and inventory, with maximum
available borrowings limited based on receivables and inventory levels. A
portion of the term note and revolving credit facility is guaranteed by a
shareholder of the parent company.
The provisions of the company's loan and credit agreement contain various
restrictive covenants which include minimum net worth, minimum current ratio,
minimum debt coverage ratios, restrictions on property and equipment additions
and restrictions on additional indebtedness.
As of June 30, 1996, the company was in violation of its interest coverage and
minimum net worth covenants, and these violations were not waived by the bank.
As described in the subsequent event footnote, the term note and revolving line
of credit were refinanced on May 7, 1997, and the subordinated debt was
converted to additional paid-in capital.
Aggregate maturities of long-term debt, excluding capital lease obligations and
subordinated debt and giving effect to the refinancing, for the five years
subsequent to June 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
June 29, 1997 $ 345,264
June 28, 1998 $ 100,497
June 27, 1999 $ 111,019
July 2, 2000 $2,907,847
July 1, 2001 $ 135,485
</TABLE>
8
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LEASES
The company leases data processing equipment under a capital lease and certain
equipment and real estate under noncancelable operating leases expiring through
December, 2002.
Future minimum lease payments under the capital lease and noncancelable
operating leases as of June 30, 1996, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
<S> <C> <C>
YEAR ENDING
June 29, 1997 $12,261 $ 275,686
June 28, 1998 - 249,049
June 27, 1999 - 248,310
July 2, 2000 - 250,000
July 1, 2001 - 250,000
Later Years - 125,000
------- ----------
Total Minimum Lease Payments 12,261 $1,398,045
==========
Less Amounts Representing Interest 785
-------
Present Value of Net Minimum Lease Payments $11,476
=======
</TABLE>
Rent expense totaled $311,253 for 1996, $337,705 for 1995 and $363,262 for 1994.
PENSION PLAN
The company maintained a defined contribution plan through December 31, 1994,
for substantially all union employees. Any employee who was a member of Local
2014 of the International Brotherhood of Electrical Workers Union, AFL-CIO was
eligible to participate in the plan on the first day of the plan year in which
such employee completed one year of service with the company and attainment of
age twenty-one. The plan provided benefits upon retirement, disability or
death, or upon termination of employment. On January 1, 1995, the company
merged this plan with its defined contribution thrift plan.
The company maintains a defined contribution thrift plan for substantially all
employees. Under this plan, eligible employees are permitted to contribute a
portion of their compensation with the company making a matching contribution up
to certain maximum levels.
Pension expense is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Money Purchase Plan and Trust for
Members of IBEW Local 2014 $ - $ 45,137 $56,125
Thrift Plan 103,049 92,730 43,059
-------- -------- -------
$103,049 $137,867 $99,184
======== ======== =======
</TABLE>
9
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
Statement of Financial Accounting Standards Number 109, "Accounting for Income
Taxes," (SFAS 109), requires that deferred income taxes reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts. SFAS 109 generally allows
the recognition of deferred tax assets related to the anticipated benefit of net
operating loss carryforwards and future temporary differences, subject to
certain valuation allowance adjustments.
A valuation allowance is required by SFAS 109 if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management concluded that valuation
allowances of $342,000 and $31,000 were appropriate at June 30, 1996 and July 2,
1995, based on forecasted operating results during the loss carryforward period.
The need for the valuation allowance is evaluated periodically by management and
it is reasonably possible that the allowance could change materially in the near
term.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CURRENT PROVISION
Federal Income Tax $ - $ - $ 18,000
-------- ------- --------
DEFERRED PROVISION
Federal Income Tax ( 3,000) 22,000 468,000
State Income Tax ( 1,000) 35,000 95,000
-------- ------- --------
( 4,000) 57,000 563,000
-------- ------- --------
Change in Valuation Allowance 311,000 31,000 -
-------- ------- --------
$307,000 $88,000 $581,000
======== ======= ========
</TABLE>
The provision for income taxes is different from the amount computed by applying
statutory rates to income before taxes. The reasons for the difference are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal Income Tax at Statutory Rate $( 69,000) $ 124,000 $457,000
State Income Taxes, net of federal benefit ( 13,000) 24,000 106,000
Change in Valuation Allowance 311,000 31,000 -
Other 78,000 ( 91,000) -
Increases in Taxes Resulting From -
Effect of Alternative Minimum Tax - - 18,000
--------- --------- --------
$ 307,000 $ 88,000 $581,000
========= ========= ========
</TABLE>
10
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES - continued
As of June 30, 1996 and July 2, 1995, the tax effect of components of net
deferred tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Net Operating Loss Carryforward $ 577,000 $ 667,000
Alternative Minimum Tax Credit 60,000 60,000
State Investment Tax Credit 29,000 -
Accrued Interest on Subordinated Notes 611,000 569,000
Accrued Expenses 26,000 25,000
Expenses Payable to Related Parties 50,000 51,000
Allowances for Slow Moving Inventory 44,000 39,000
Allowances for Uncollectible Receivables 24,000 24,000
Other 4,000 15,000
DEFERRED TAX LIABILITIES
Depreciation ( 47,000) ( 78,000)
Other ( 9,000) ( 7,000)
---------- ----------
1,369,000 1,365,000
VALUATION ALLOWANCE 342,000 31,000
---------- ----------
NET DEFERRED TAX ASSETS AND LIABILITIES $1,027,000 $1,334,000
========== ==========
</TABLE>
In 1989 the company underwent a change in ownership pursuant to Internal Revenue
Code Section 382. Under this provision, the company's ability to utilize its
net operating loss carryovers and credit carryovers up to and prior to the date
of change in ownership is restricted. It is estimated that the company will be
able to use only approximately $21,000 of such losses per year over the fifteen
year carryover period.
In addition, the company has net operating losses generated subsequent to the
change in ownership which are available to reduce future taxable income and
income taxes which will expire in the following years:
YEAR ENDING
June 27, 2004 $ 126,000
July 2, 2006 1,378,000
---------
$ 1,504,000
=========
The company has an alternative minimum tax net operating loss carryforward of
approximately $1,150,000.
11
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
The company has a 10% subordinated note in the amount of $2,439,063 due to a
stockholder of its parent company. Interest expense totaled $249,328 for 1996,
$245,261 for 1995, and $479,476 for 1994 of which $127,375 was accrued at June
30, 1996. The company has unpaid management fees of $125,000 as of June 30,
1996 and July 2, 1995.
During 1995, the company transacted product sales of $2,300 with a company which
has common ownership with the company's parent.
MAJOR CUSTOMERS AND LABOR CONCENTRATION
Sales to two major customers accounted for 39%, 39% and 41% of the company's net
sales for 1996, 1995 and 1994, respectively. Receivables from these customers
accounted for 46% and 41% of total receivables as of June 30, 1996 and July 2,
1995.
The company's production and certain indirect employees are covered under a
collective bargaining agreement with Local 2014, International Brotherhood of
Electrical Workers, AFL-CIO. At June 30, 1996, approximately 77% of the
company's employees are covered by a collective bargaining agreement that
expires on April 7, 1997.
CONTINGENCIES
The company has been notified by the Rhode Island Department of Employment and
Training that it has been considered a "successor employer" for its employees
whose services were provided through an employee leasing arrangement from
January through June, 1993. The company is in the process of appealing the
state court decision in this matter and intends to vigorously pursue its legal
alternatives to successfully resolve this matter. The Department of Employment
and Training has assessed the company an additional $169,695 and $150,068 in
unemployment taxes as of June 30, 1996 and July 2, 1995, respectively, which has
been accrued by the company and is included in Accrued Expenses.
In 1989, the company was notified by the United States Environmental Protection
Agency (EPA) that they had been identified by the EPA as a potentially
responsible party (PRP) for clean-up costs of a hazardous waste site.
Approximately 59 other companies were also identified as PRP's of the site. On
January 30, 1992, the company entered into a de minimis settlement with the
Environmental Protection Agency in the amount of $157,648, of which $33,162 was
paid in each of the three years ended July 2, 1995. The remaining balance of
$33,162 is payable during fiscal year 1997.
The company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a materially adverse effect on the
company.
12
<PAGE>
VICTOR ELECTRIC WIRE & CABLE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SUBSEQUENT EVENT
On May 7, 1997, a buyer purchased all of the outstanding stock of the company's
parent, Victel, Inc. As a result of this transaction, the existing bank debt
was refinanced at the closing by means of the company entering into a new
working capital and term credit agreement with a financial institution. The
loan arrangement provides for a three-year revolving credit facility of up to
$3,550,000 drawable against a percentage of accounts receivable and inventory, a
$950,000 fully amortizing five year term loan and an equipment financing
facility of up to $500,000, also based upon a five year fully-amortizing
repayment schedule. All of such loans bear interest at a rate of prime plus
1.5%. The company's parent has guaranteed all of the refinanced debt.
Additionally, in conjunction with the sale of stock, the subordinated debt of
$3,439,063 was converted to additional paid-in capital.
13
<PAGE>
Appendix B
The Company's Unaudited Pro-Forma Combining Condensed
Consolidated Balance Sheet as off December 31, 1996,
along with the related Unaudited Pro-Forma Combining
Condensed Consolidated Statement of Operations
for the year ended December 31, 1996.
<PAGE>
Quadrax Corporation
-------------------
Pro-Forma Combining Condensed Consolidated Balance Sheet As of December 31, 1996
- --------------------------------------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
As Pro-Forma December 31, 1996
Victor Quadrax Combined Adjustments As Adjusted
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash $ 2,050 $ 1,200,063 $ 1,202,113 $ - $ 1,202,113
Accounts receivable 1,919,151 883,005 2,802,156 2,802,156
Inventories 1,274,019 1,266,074 2,540,093 2,540,093
Other current assets 19,172 184,848 204,020 - 204,020
------------- ------------- ------------- ------------- -------------
Total current assets 3,214,392 3,533,990 6,748,382 - 6,748,382
------------- ------------- ------------- ------------- -------------
Property and equipment, net 849,935 3,150,666 4,000,601 (720,000) (7)
- - (253,750) (5)
- - - 2,750,000 (3) 5,776,851
------------- ------------- ------------- ------------- -------------
Deferred income taxes 1,027,000 - 1,027,000 308,000
(1,335,000) -
Other non-current assets 56,593 615,068 671,661 - 671,661
------------- ------------- ------------- ------------- -------------
Total assets $ 5,147,920 $ 7,299,724 $ 12,447,644 $ 749,250 $ 13,196,894
============= ============= ============= ============= =============
Notes payable, bank
working capital lines $ 1,856,916 $ 654,464 $ 2,511,380 $ - $ 2,511,380
Other current liabilities 2,738,305 2,193,705 4,932,010 (243,906) (4)
- - - (125,000) (1) 4,563,104
------------- ------------- ------------- ------------- -------------
Total current liabilities 4,595,221 2,848,169 7,443,390 (368,906) 7,074,484
Long-term debt 384,908 360,739 745,647 - 745,647
Subordinated debt 2,439,063 1,400,000 3,839,063 (2,439,063) (1) 1,400,000
------------- ------------- ------------- ------------- -------------
Total liabilities 7,419,192 4,608,908 12,028,100 (2,807,969) 9,220,131
------------- ------------- ------------- ------------- -------------
Stockholders' Equity
Common & preferred stock 262,190 298 262,488 (262,190) (7) 298
Additional paid-in capital - 68,701,531 68,701,531 2,750,000 (3)
(457,810) (7)
2,439,063 (1)
(1,335,000) (2) 72,097,784
-------------
Retained earnings (deficit) (2,533,462) (63,757,759) (66,291,221) (253,750) (7)
308,000 (6)
125,000 (1)
243,906 (4) (65,868,065)
-------------
Treasury stock and deferred charges - (2,253,254) (2,253,254) - (2,253,254)
------------- ------------- ------------- ------------- -------------
Total stockholders' equity (2,271,272) 2,690,816 419,544 3,557,219 3,976,763
------------- ------------- ------------- ------------- -------------
Total liabilities & equity $ 5,147,920 $ 7,299,724 $ 12,447,644 $ 749,250 $ 13,196,894
============= ============= ============= ============= =============
</TABLE>
The accompanying note is an integral part of this pro-forma combining
consolidated balance sheet.
2
<PAGE>
Quadrax Corporation
Pro-Forma Combining Condensed Consolidated Statement of Operations
------------------------------------------------------------------
For the Year Ended December 31, 1996
------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
As Pro-Forma December 31, 1996
Victor Quadrax Combined Adjustments As Adjusted
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 16,608,946 $ 3,567,567 $ 20,176,513 $ - $ 20,176,513
Cost of Sales 14,225,153 3,674,034 17,899,187 - 17,899,187
------------- ------------- ------------- ------------- -------------
Gross profit 2,383,793 (106,467) 2,277,326 - 2,277,326
------------- ------------- ------------- ------------- -------------
Selling, general, administrative
and research & development (1,674,634) (5,473,966) (7,148,600) 125,000 /(1)/ (7,023,600)
Restructuring costs - (1,325,000) (1,325,000) - (1,325,000)
Depreciation (394,286) (773,361) (1,167,647) (253,750) /(5)/ (1,421,397)
------------- ------------- ------------- ------------- -------------
Income (loss) from operations 314,873 (7,678,794) (7,363,921) (128,750) (7,492,671)
Interest expense (583,333) (1,880,774) (2,464,107) 243,906 /(4)/ (2,220,201)
------------- ------------- ------------- ------------- -------------
Income (loss) before
income taxes (268,460) (9,559,568) (9,828,028) 115,156 (9,712,872)
Income taxes (308,000) - (308,000) 308,000 /(6)/ -
------------- ------------- ------------- ------------- -------------
Net (loss) $ (576,460) $ (9,559,568) $(10,136,028) $ 423,156 $ (9,712,872)
============= ============= ============= ============= =============
</TABLE>
The accompanying note is an integral part of this pro-forma combining condensed
consolidated statement of operations.
3
<PAGE>
Quadrax Corporation
-------------------
Note to the Combined Condensed Consolidated Pro-Forma Balance Sheet as of
-------------------------------------------------------------------------
December 31, 1996 and Combined Condensed Consolidated Pro-Forma Statement of
----------------------------------------------------------------------------
Operations for the Year Ended December 31, 1996
-----------------------------------------------
The pro-forma combining condensed consolidated balance sheet at December
31, 1996 and the pro-forma statement of operations for the year ending December
31, 1996 present the pro-forma effects on the historical combined operating
results as if the combination of the combined entity were consummated as of
January 1, 1996.
The pro-forma adjustments include:
(1) The contribution to capital by Victor's new parent company,
Quadrax Corporation, of the subordinated debt and other
liabilities payable by Victor to its former parent company,
Exeter L.P.
(2) The write-off of Victor's deferred income taxes in that no
benefit will accrue to the combined entity.
(3) The write-up of Victor's property and equipment by the amount of
$2,750,000 to reflect appraised value.
(4) The elimination of interest expense payable to Victor's former
parent company due to the contributions to capital of
subordinated debt by Victor's new parent as of January 1, 1996.
(5) Additional depreciation expense incurred in 1996 by Victor
reflecting the write-up of fixed assets by Victor to appraised
value, net of the Victor acquisition cost.
(6) The elimination of income tax expense in that no income taxes
would be due and payable after giving effect to the combined
entity.
(7) The elimination of Quadrax's purchase price of Victor of $720,000
against the fixed assets acquired in the acquisition.
4
<PAGE>
Appendix C
The Company's Unaudited Pro-Forma Combining Condensed
Consolidated Balance sheet as of March 31, 1997,
along with the related Unaudited Pro-Forma Combining Condensed
Consolidated Statement of Operations for the three months
ended March 31, 1997.
<PAGE>
Quadrax Corporation
-------------------
Pro-Forma Combining Condensed Consolidated Balance Sheet As of March 31, 1997
-----------------------------------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
As Pro-Forma March 31, 1997
Victor Quadrax Combined Adjustments As Adjusted
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash $ 7,831 $ 2,523,697 $ 2,531,528 $ - $ 2,531,528
Accounts receivable 2,163,396 913,797 3,077,193 3,077,193
Inventories 1,393,521 1,372,491 2,766,012 2,766,012
Other current assets 11,540 127,091 138,631 - 138,631
------------ ------------ ------------ ------------ --------------
Total current assets 3,576,288 4,937,076 8,513,364 - 8,513,364
------------ ------------ ------------ ------------ --------------
Property and equipment, net 819,603 2,978,638 3,798,241 (720,000)/(6)/
- - (317,188)/(5)/
- - - 2,750,000 /(3)/ 5,511,053
------------ ------------ ------------ ------------ --------------
Deferred income taxes 1,027,000 - 1,027,000 (1,027,000) -
- -
Other non-current assets 85,876 622,647 708,523 - 708,523
------------ ------------ ------------ ------------ --------------
Total assets $ 5,508,767 $ 8,538,361 $ 14,047,128 $ 685,812 $ 14,732,940
============ ============ ============ ============ ==============
Notes payable, bank
working capital lines $ 2,280,794 $ 499,296 $ 2,780,090 $ - $ 2,780,090
Other current liabilities 2,918,131 2,143,684 5,061,815 (306,236)/(4)/
- - - (125,000)/(1)/ 4,630,579
------------ ------------ ------------ ------------ --------------
Total current liabilities 5,198,925 2,642,980 7,841,905 (431,236) 7,410,669
Long-term debt 384,908 318,330 703,238 - 703,238
Subordinated debt 2,439,063 3,960,000 6,399,063 (2,439,063)/(1)/ 3,960,000
------------ ------------ ------------ ------------ --------------
Total liabilities 8,022,896 6,921,310 14,944,206 (2,870,299) 12,073,907
------------ ------------ ------------ ------------ --------------
Stockholders' Equity
Common & preferred stock 262,190 313 262,503 (262,190)/(6)/ 313
Additional paid-in capital - 69,181,603 69,181,603 2,750,000 /(3)/
(457,810)/(6)/
2,439,063 /(1)/
(1,027,000)/(2)/ 72,885,856
------------
Retained earnings (deficit) (2,776,319) (65,288,745) (68,065,064) (317,188)/(5)/
125,000 /(1)/
306,236 /(4)/ (67,951,016)
------------
Treasury stock and deferred charges - (2,276,120) (2,276,120) - (2,276,120)
------------ ------------ ------------ ------------ --------------
Total stockholders' equity (2,514,129) 1,617,051 (897,078) 3,556,111 2,659,033
------------ ------------ ------------ ------------ --------------
Total liabilities & equity $ 5,508,767 $ 8,538,361 $ 14,047,128 $ 685,812 $ 14,732,940
============ ============ ============ ============ ==============
</TABLE>
The accompanying note is an integral part of this pro-forma combining
condensed consolidated balance sheet.
2
<PAGE>
Quadrax Corporation
Pro-Forma Combining Condensed Consolidated Statement of Operations
------------------------------------------------------------------
For the Three Months Ended March 31, 1997
-----------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
As Pro-Forma March 31, 1997
Victor Quadrax Combined Adjustments As Adjusted
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 3,333,688 $ 649,501 $ 3,983,189 $ - $ 3,983,189
Cost of Sales 2,985,492 663,185 3,648,677 - 3,648,677
----------- ----------- ----------- ----------- --------------
Gross profit 348,196 (13,684) 334,512 - 334,512
----------- ----------- ----------- ----------- --------------
Selling, general, administrative
and research & development (385,164) (1,297,118) (1,682,282) - (1,682,282)
Depreciation (82,958) (198,254) (281,212) (63,438) /(5)/ (344,650)
----------- ----------- ----------- ----------- --------------
Income (loss) from operations (119,926) (1,509,056) (1,628,982) (63,438) (1,692,420)
Interest expense (122,933) (21,930) (144,863) 62,330 /(4)/ (82,533)
----------- ----------- ----------- ----------- --------------
Income (loss) before
income taxes (242,859) (1,530,986) (1,773,845) (1,108) (1,774,953)
Income taxes - - - - -
----------- ----------- ----------- ----------- --------------
Net (loss) $ (242,859) $(1,530,986) $(1,773,845) $ (1,108) $(1,774,953)
=========== =========== =========== =========== ==============
</TABLE>
The accompanying note is an integral part of this pro-forma combining
condensed consolidated statement of operations.
<PAGE>
Quadrax Corporation
-------------------
Note to the Combined Condensed Consolidated Pro-Forma Balance Sheet as of
-------------------------------------------------------------------------
March 31, 1997 and Combined Condensed Consolidated Pro-Forma Statement of
-------------------------------------------------------------------------
Operations for the Three Months Ended March 31, 1997
----------------------------------------------------
The pro-forma combining condensed consolidated balance sheet at March 31,
1997 and the pro-forma statement of operations for the three months ended March
31, 1997 present the pro-forma effects on the historical combined operating
results as if the combination of the combined entity were consummated as of
January 1, 1996.
The pro-forma adjustments include:
(1) The contribution to capital by Victor's new parent company,
Quadrax Corporation, of the subordinated debt and other
liabilities payable by Victor to its former parent company, Exeter
L.P.
(2) The write-off of Victor's deferred income taxes in that no benefit
will accrue to the combined entity.
(3) The write-up of Victor's property and equipment by the amount of
$2,750,000 to reflect appraised value.
(4) The elimination of interest expense payable to Victor's former
parent company due to the contributions to capital of subordinated
debt by Victor's new parent as of January 1, 1996.
(5) Additional depreciation expense incurred in 1997 by Victor
reflecting the write-up of fixed assets by Victor to appraised
value, net of the Victor acquisition cost.
(6) The elimination of Quadrax's purchase price of Victor of $720,000
against the fixed assets acquired in the acquisition.
4
<PAGE>
Exhibit 2.1
Stock Purchase Agreement between Quadrax Corporation
and Exeter Capital L.P. dated May 7, 1997.
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT dated as of May 7, 1997 between EXETER
CAPITAL, L.P., a Delaware limited partnership (the "Seller"), as the holder of
------
all the shares of capital stock of VICTEL, INC., a Delaware corporation
("Victel"), and QUADRAX CORPORATION, a Delaware corporation (the "Buyer").
------ -----
WHEREAS, Victel owns all of the shares of capital stock of
Victor Electric Wire & Cable Corp., a New York corporation (the "Company"); and
-------
WHEREAS, the Seller desires to sell all of the shares of capital
stock of Victel to the Buyer, and the Buyer desires to purchase such shares from
the Seller on the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
set forth, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the meanings set forth below:
"Action": any claim, action, suit, arbitration or proceeding
------
(including, without limitation, any appellate proceeding or proceeding
ancillary thereto, or any regulatory proceeding).
"Affiliate": with respect to any Person, (i) any other Person
---------
which directly or indirectly controls, is controlled by or is under
common control with such Person and (ii) the stockholders, subsidiaries,
officers, directors, members and/or partners of such Person or of any
other Person described in (i).
"Agreement": this Stock Purchase Agreement and all Schedules and
---------
Exhibits hereto, as the same may be amended, supplemented or otherwise
modified from time to time.
"Business": the business now carried on by the Company at its
--------
location in West Warwick, Rhode Island.
<PAGE>
"Closing": the closing of the transactions contemplated by this
-------
Agreement.
"Closing Date": the date of the Closing.
------------
"Code": the Internal Revenue Code of 1986, as amended.
----
"Consent": any consent, waiver, approval or authorization of,
-------
notice to, or designation, registration, declaration or filing with, any
Person.
"Contract": any contract, lease, agreement, license, deed, note,
--------
mortgage, other instrument, arrangement, commitment or understanding,
oral or written.
"ERISA": the Employee Retirement Income Security Act of 1974
-----
(and any sections of the Code amended by it) and all regulations
promulgated thereunder, as amended.
"Exeter": Exeter Capital, L.P., a Delaware limited partnership.
------
"Financial Statements": the audited financial statements of the
--------------------
Company for the fiscal year ended June 30, 1996, and the unaudited
financial statements of the Company for the nine-month period ended
March 31, 1997.
"GAAP": generally accepted accounting principles.
----
"Interim Balance Sheet": the balance sheet of the Company as of
---------------------
March 31, 1997 included in the Financial Statements.
"Laws": (i) all Federal, state, local or foreign laws, rules and
----
regulations; (ii) all Orders; (iii) all Permits; and (iv) all agreements
with Federal, state, local or foreign regulatory authorities.
"Lien": any mortgage, pledge, option, escrow, hypothecation,
----
lien, security interest, financing statement, lease, charge,
encumbrance, easement, conditional sale or other title retention or
security agreement or any other similar restriction, claim or right of
others whether arising by Contract, operation of Law or otherwise.
-2-
<PAGE>
"Litigation Expense": any reasonable expense incurred in
------------------
connection with investigating, defending or asserting any Action
incident to any matter indemnified against hereunder, including, without
limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, accountants and other professionals.
"Loss": any loss, obligation, claim, liability, settlement
----
payment, award, judgment, fine, penalty, interest charge, expense,
damage or deficiency or other charge, other than Litigation Expense.
"Order": any judgment, award, order, writ, injunction or decree
-----
issued by any Federal, state, local or foreign authority, court,
tribunal, agency, or other governmental authority, or by any arbitrator.
"Permits": all Federal, state, local or foreign permits,
-------
licenses, approvals, franchises, notices, authorizations and similar
filings.
"Permitted Liens": (a) carriers', warehousemen's, workers',
---------------
materialmen's, brokers' or customs' or other like Liens arising in the
ordinary course of business with respect to obligations which are not
due or which are being contested in good faith; and (b) liens and other
title exceptions set forth on Schedule 3.11.
--------
"Person": any individual, partnership, joint venture,
------
corporation, trust, unincorporated organization, government (and any
department or agency thereof) or other entity.
"Purchase Price": as defined in Section .
--------------
"Shares": shares of Victel's Common Stock, par value $0.01 per
------
share ("Common Stock").
------ -----
"Subordinated Note": the 10% Subordinated Note originally due
-----------------
December 31, 1996, in the principal amount of $2,439,055.81, issued by
the Company to Exeter.
"Taxes": all taxes, charges, duties, fees, levies, penalties or
-----
other assessments imposed by any taxing authority, including, but not
limited to, income, excise,
-3-
<PAGE>
property, sales, transfer, taxes, including any interest, penalties or
additions attributable thereto.
"to the Seller's knowledge": to the actual knowledge, without
-------------------------
having made any inquiry or investigation, of Keith R. Fox.
2. Sale and Purchase of Stock.
--------------------------
2.1 Sale and Purchase. At the Closing, which shall occur at
-----------------
the offices of Epstein, Becker & Green, 250 Park Avenue, New York, New York on
May 7, 1997, or such other place or date as the parties shall mutually agree in
writing, (i) the Seller shall sell, transfer, assign, convey and deliver the
Shares owned by it to the Buyer or its designee(s), (ii) the Seller shall sell,
transfer, assign, convey and deliver the Subordinated Note to the Buyer or its
designee(s), without recourse, and (iii) the Buyer or its designee(s) will
purchase, accept and acquire the Shares and the Subordinated Note from the
Seller.
2.2 Deliveries at Closing. At the Closing:
---------------------
(a) The Seller shall cause the Shares held by it to be
transferred to the Buyer or its designee(s) by delivering to the Buyer or its
designee(s) certificates representing such Shares, duly endorsed for transfer or
accompanied by duly executed forms of assignment.
(b) The Seller shall cause the Subordinated Note to be endorsed,
without recourse, and transferred to the Buyer or its designee(s) by delivering
to the Buyer or its designee(s) the original Subordinated Note, duly endorsed
for transfer or accompanied duly executed forms of assignment.
(c) The Buyer shall pay to the Seller the Purchase Price for the
Shares and the Subordinated Note in accordance with Section 2.3 hereof.
(d) The Buyer shall cause the Company to reimburse Exeter
Capital Management Corp. for all accrued unreimbursed expenses owing to it, in
an aggregate amount not to exceed $100,000.
(e) The Buyer will make a contribution to the capital of the
Company, directly, or indirectly through Victel, in cash,
-4-
<PAGE>
in an amount not less than the amount, if any, by which the Borrower's
Availability is less than $500,000. For purposes of this Agreement, "Borrower's
Availability" means the remaining amount that the Company is eligible to borrow,
after the completion of all transactions taking place under or in connection
with this Agreement on the Closing Date, under its credit facilities with
Congress Financial Corp.
2.3 Purchase Price and Payment.
--------------------------
(a) Purchase Price. The purchase price payable by the Buyer
--------------
for the Shares and the Note (the "Purchase Price") shall be the amount equal to
--------------
(i) $720,000, minus
(ii) the sum of (A) the expenses reimbursed by the
Company or the Buyer to Exeter Capital Management Corp. pursuant
to Section 2.2(d), (B) the brokers fees payable by the Company
or Victel pursuant to Section 6.1, and (C) the other expenses of
the Seller paid by the Company or Victel pursuant to Section
11.2.
The Purchase Price shall be allocated among the Shares and the Subordinated
Notes as set forth in Exhibit B attached hereto.
-------
(b) Payment. At the Closing, the Buyer shall pay the Purchase
-------
Price to the Seller, by wire transfer of immediately available funds to the
account designated in writing by the Seller.
(c) Certain Indebtedness of the Company. On the Closing Date,
-----------------------------------
the Buyer and Price to the Company shall either pay and discharge all
indebtedness of the Company to IBJ Schroder Bank & Trust Company (the "Bank"),
----
or obtain the Bank's consent to the transactions contemplated by this
Agreement, and in either case, obtain the release of any guaranties or other
obligations of the Seller to the Bank.
3. Representations and Warranties of the Seller. The Seller
--------------------------------------------
represents and warrants to the Buyer as follows:
3.1 Organization; Good Standing; Corporate Name. The Company
-------------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the State of New York. Victel is a corporation duly organized, validly
existing and in good
-5-
<PAGE>
standing under the laws of the State of Delaware. Each of the Company and
Victel has all requisite corporate power and authority to own, operate and lease
its properties, and to carry on its business as now being conducted. Each of
the Company and Victel is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction where the failure to be so
qualified would have a material adverse effect upon its business, property or
assets.
3.2 Authorization; Validity; Title. The Seller has all
------------------------------
requisite power and authority to enter into this Agreement and the transactions
contemplated hereby. The Seller has duly and properly executed and delivered
this Agreement, and this Agreement constitutes the legal, valid and binding
obligation of the Seller enforceable against the Seller in accordance with its
terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws of general application affecting
the enforceability of creditors' rights generally or by general principles of
equity. The Seller is the record and beneficial owner of the Shares set forth
opposite its name on Schedule 3.4 attached hereto, free and clear of all Liens
--------
(other than pursuant to this Agreement or as set forth on Schedule 3.4). The
--------
Seller is the owner and holder of the Subordinated Note, free and clear of all
Liens (other than pursuant to this Agreement or as set forth on Schedule 3.4).
--------
Except for agreements disclosed on Schedule 3.4 which shall be effectively
--------
terminated at or before Closing, the Seller is not a party to, or bound by, any
other agreement, instrument or understanding (i) restricting the transfer of the
Shares or the Subordinated Note, or (ii) giving rise to any claim for damages
therefor.
3.3 Consents; No Conflict. No Consent or Permit of any Person
---------------------
is required to be obtained by the Company, Victel or the Seller in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, other than those specified in Schedule 3.3.
--------
Subject to obtaining the Consents and Permits listed on Schedule 3.3, neither
--------
the execution nor the delivery of this Agreement by the Seller nor the Seller's
consummation of the transactions contemplated hereby will (a) conflict with or
result in any violation of or constitute a breach of or default under any terms,
conditions or provisions of (i) the organizational documents or by-laws of the
Company or Victel, (ii) any applicable Law by which Victel or the Company is
bound or to which Victel's or the Company's assets are subject, or (iii) to
-6-
<PAGE>
the Seller's knowledge, any material Contract by which Victel or the Company is
bound, or (b) result in the creation of any Lien on any of the assets of Victel
or the Company.
3.4 Capitalization. The authorized, issued and outstanding
--------------
shares of capital stock of Victel and the Company, and the record and beneficial
holders thereof, are as set forth in Schedule 3.4 attached hereto. All of the
--------
Shares are duly authorized, validly issued, fully paid and non-assessable.
Except for agreements terminated at or before the Closing, there are no
outstanding rights of subscription, warrants, calls, options, conversion or
exchange rights or other Contracts with respect to any securities of the Company
or Victel, or pursuant to which any Person has or may obtain an interest in the
Company's or Victel's capital or profits, and there are no Contracts as to the
voting of the Company's or Victel's securities.
3.5 Status of Victel. Victel is a holding company that was
----------------
formed solely for the purpose of holding the common stock of the Company. Victel
is the owner and holder of all of the issued and outstanding shares of capital
stock of the Company, free and clear of all Liens (other than pursuant to this
Agreement or as set forth on Schedule 3.4). Victel has no assets other than the
--------
outstanding capital stock of the Company, and has conducted no business other
than holding such stock and activities incidental thereto. To the Seller's
knowledge, Victel has no liabilities or obligations other than under Contracts
to which it is a party disclosed in Schedule 3.5, and as set forth in
--------
Schedule 3.5.
- --------
3.6 Subsidiaries. The Company does not own, beneficially or
------------
of record any capital stock or other equity securities of any corporation or
other entity or have any direct or indirect equity or ownership interest in any
business of any other Person.
3.7 Financial Statements. All of the Financial
--------------------
Statements were prepared from the books and records of the Company. Except as
disclosed on Schedule 3.7, the audited Financial Statements have been prepared
--------
in accordance with GAAP consistently applied and fairly present, in all material
respects, the financial position and results of operations of the Company as of
the dates thereof and for the periods then ended. The unaudited Financial
Statements were prepared in a manner not materially inconsistent with the basis
of presentation used in
-7-
<PAGE>
the audited Financial Statements, and fairly present, in all material respects,
the financial position and results of operation of the Company as of the dates
thereof and for the periods then ended, subject to normal year-end adjustments.
3.8 Absence of Undisclosed Liabilities. To the Seller's
----------------------------------
knowledge, the Company has no liabilities or obligations, of a kind that would
be required to be included on the balance sheet of the Company, except (a)
liabilities reflected or reserved against on the Interim Balance Sheet included
in the Financial Statements, (b) liabilities arising in the ordinary course of
business since the date of such balance sheet, and (c) liabilities and
obligations disclosed on Schedule 3.8.
--------
3.9 No Material Adverse Change. To the Seller's knowledge,
--------------------------
since March 31, 1997 there has not been (a) any material adverse change in the
financial condition, operations, business, properties, assets or liabilities of
the Company, or (b) any material damage, destruction or loss to any of the
properties or assets of the Company, whether or not covered by insurance, which
has materially and adversely affected or impaired the ability of the Company to
conduct the Business, or (c) any event or condition of any character (except
those affecting the economy or businesses generally) which can reasonably be
expected to materially and adversely affect or impair the Business, or (d) any
redemption, repurchase, declaration, setting aside or payment of any dividend or
any distribution in respect of the Company's or Victel's capital stock, (e) any
redemption, purchase or other acquisition by the Company or Victel of any of its
capital stock, or (f) any sale of assets of the Company outside the ordinary
course of business.
3.10 Taxes. Each of the Company and Victel has timely filed
-----
or caused to be filed all Federal, state, local and foreign income and other tax
returns and reports (including any relating to import duties) required to be
filed by it. To the Seller's knowledge, all such returns and reports are
complete and correct in all material respects, and all taxes shown thereon and
all deficiencies or other assessments of tax, interest or penalties and all
estimated taxes due by the Company or Victel or with respect to its business
have been paid. The charges, accruals and reserves, if any, in respect of taxes
(including import duties) set forth in the Financial Statements are adequate.
Tax returns for the Company and Victel have been audited for the years indicated
on Schedule 3.10. No audit of
--------
-8-
<PAGE>
any tax return of the Company or Victel is in progress, no extensions of time
with respect to any date on which any tax return was or is to be filed by the
Company or Victel are in force and no waiver or agreement by the Company or
Victel is in force for the extension of time for the assessment or payment of
any tax.
3.11 Good Title; No Liens. Except as set forth on
--------------------
Schedule 3.11, the Company has good and marketable title to all the properties
- --------
and assets, real and personal, tangible and intangible, purported to be owned by
the Company (including all property and assets reflected in the Financial
Statements, except inventory used or disposed of after the date thereof in the
ordinary course of business), subject to no Liens other than Permitted Liens.
3.12 Patents, Trademarks, Licenses, etc. Attached hereto as
----------------------------------
Schedule 3.12 is a list of all patents, trademarks, service marks, trade names,
- --------
brands and copyrights owned, licensed or used by the Company during the past
five years and any applications or registrations therefor. Except as set forth
on Schedule 3.12, the Company owns the entire unencumbered right, title and
--------
interest in and to all such properties free of all Liens other than Permitted
Liens, no rights or licenses to or from others have been granted with respect to
such properties, and the Company owns or has the right to use all the patents,
patent applications, trademarks, service marks, trade names, brands, copyrights
and licenses, both domestic and foreign, and rights with respect to the
foregoing, necessary for the conduct of its business as now conducted, without
any conflict, to the Seller's knowledge, with the rights of others. No Affiliate
of the Company owns or possesses any rights in any patents, patent applications,
registered or unregistered trademarks, service marks, trade names, brands,
copyrights, or domestic or foreign licenses which are used by the Company in its
business.
3.13 Litigation, etc. Except as set forth on Schedule 3.13,
--------------- --------
there is no pending or, to the Seller's knowledge, threatened Action or
governmental investigation or inquiry against or involving the Company or Victel
or their respective assets or operations.
3.14 Permits; Compliance with Laws. Except as set forth on
-----------------------------
Schedule 3.14, (a) the Company has all Permits that are necessary to the conduct
- --------
of its business as presently conducted, and (b) the Company has not received any
notice that it or the
-9-
<PAGE>
plant or property where the Business is conducted is in any material respect in
violation of any Laws, Orders or Permits.
3.15 Contracts, etc. Set forth on Schedule 3.15 are complete
-------------- --------
and accurate lists of the following:
(a) all bonus, incentive compensation, profit-sharing, employee
retirement, group insurance, death benefit or other fringe benefit
plans, deferred compensation and post-termination obligations or trust
agreements of the Company or Victel, subject to ERISA and otherwise,
which are in effect on the date hereof, which are to become effective
after the date hereof, or for which the Company may have any future
obligation;
(b) each Contract defining the terms on which indebtedness for
borrowed money, or other indebtedness evidenced by bonds, notes or
similar instruments, of the Company or Victel or guarantees thereof by
the Company or Victel have been or may be issued;
(c) all Contracts, oral or written, to which the Company or
Victel is a party and in which any Affiliate of the Company or Victel
has any interest, direct or indirect;
(d) all bank accounts, safe deposit boxes, money market funds,
certificates of deposit, stocks, bonds, notes and other securities in
the name of or owned or controlled by the Company or Victel, and the
names of the persons having access thereto;
(e) all insurance policies maintained by the Company or Victel;
(f) all employment, consulting, sales representative or other
personal service Contracts to which the Company or Victel is a party;
and
(g) to the Seller's knowledge, all other Contracts to which the
Company or Victel is a party, except ones that are terminable on notice
of 45 days or less or do not involve aggregate remaining payments or
unpaid obligations of $50,000 or more, and except purchase orders for
inventory and sales orders for products and services of the Company
entered into in the ordinary course of business.
-10-
<PAGE>
Except as set forth on Schedule 3.15, neither the Company nor Victel has given
--------
or received notice of, or has any knowledge of, any default or claimed or
purported or alleged default on the part of the Company, Victel or any other
party, in any material respect, in the performance or payment of any obligation
to be performed or paid under any Contract listed on Schedule 3.15.
--------
3.16 Corporate Records. To the Seller's knowledge, (a) the
-----------------
books of account and other financial records of Victel and the Company are true,
correct and complete, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis, in accordance with
applicable contractual requirements and government regulations regarding
accounting methods and practices, and accurately reflect the operations of
Victel and the Company and the value of their properties, and (b) all other
significant corporate records of Victel and the Company, including without
limitation the corporate minute book and those relating to employees of the
Company, are true, correct and complete in all material respects.
3.17 Powers of Attorney. To the Seller's knowledge, no
------------------
person holds any tax or other power of attorney from Seller with respect to any
matter.
3.18 Environmental Matters. To the Seller's knowledge:
---------------------
(a) Except as set forth on Schedule 3.18, the Company has not
--------
caused or allowed the generation, treatment, storage, handling or disposal of
Hazardous Substances (as hereinafter defined) at its owned or leased real
properties ("Facilities") other than in full compliance with all applicable
----------
federal, state and local laws, regulations and ordinances. No Hazardous
Substances existed at any of such Facilities prior to the date on which the
Company acquired and/or commenced occupation of the same. Except as set forth on
Schedule 3.18, the has not caused or allowed the release, discharge or
- --------
spill of any Hazardous Substances onto, at, or near the Facilities, and none of
the Facilities is, or has ever been, subject to the release of any Hazardous
Substances. Except as set forth on Schedule 3.18, the Facilities do not nor did
--------
the Facilities ever contain, any underground tanks for the collection, storage,
use or disposal of any Hazardous Substances. Except as set forth in
Schedule 3.18, the Company is, and, throughout the period of time the
- --------
Facilities have been owned or used by the Company, has been, in full compliance
with all applicable federal, state and
-11-
<PAGE>
local, laws, regulations, rules, ordinances and orders regarding the generation,
recycling, use, sale, storage, handling, transfer and disposal of Hazardous
Substances. The Company has secured and continuously maintained in force all
permits, licenses and approvals necessary for the lawful operation of the
Facilities and is in full compliance with all such permits, licenses and
approvals. Except as set forth in Schedule 3.18, the Company has not received
--------
notice, formal or informal, of any inquiries, proceedings, claims, lawsuits or
actions, potential or extant, regarding any of the Facilities. As used herein,
"Hazardous Substances" shall mean any material or substance that may pose a
--------------------
present or potential hazard to human health or the environment when improperly
disposed of, treated, stored, transported, or otherwise managed, including,
without limitation, any material or substance that is (i) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), (ii) defined as a "hazardous
-- ---
waste" pursuant to Section 1004 of the Federal Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), (iii) defined as a "hazardous
-- ---
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), (iv) oil, waste
-- ---
oil or petroleum products, (v) asbestos, or (vi) defined as a "hazardous
substance" or "hazardous waste" under any law or regulation of the State where
such Facility is located.
(b) Except as set forth on Schedule 3.18, there has been no
--------
emission, spill, release or discharge into or upon (i) the air, (ii) soils or
any improvements located thereon, (iii) surface water or ground water, or (iv)
the sewer, septic system or waste treatment, storage or disposal system
servicing the Facilities (any of which is hereafter referred to as a "Hazardous
---------
Discharge"), and accordingly, the Facilities are free of all such Hazardous
- ---------
Substances or wastes.
(c) Except as set forth on Schedule 3.18, there has been no,
--------
nor is there threatened any, complaint, order, directive, claim, citation or
notice by any federal, state or local governmental authority or any other person
or entity regarding the Facilities or the business conducted thereon with
respect to (i) air emissions, (ii) spills, releases or discharges to soils or
any improvements located thereon, surface water, ground water or the sewer,
septic system or waste treatment, storage or disposal systems servicing the
Facilities, (iii) noise emissions, (iv) solid or liquid waste, handling or
disposal, (v) the generation, collection, storage, use, transportation or
-12-
<PAGE>
disposal of Hazardous Substances or wastes or (vi) other environmental health or
safety matters affecting the Company.
4. Representations and Warranties of the Buyer. The Buyer
-------------------------------------------
represents and warrants to the Seller as follows:
4.1 Organization. It is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power to own, operate and lease its properties
and assets, to carry on its business as now being conducted and to enter into
this Agreement and perform its obligations hereunder.
4.2 Authorization. The execution, delivery and performance
-------------
of this Agreement by the Buyer have been duly authorized by all requisite
corporate action and no other corporate proceedings on the part of the Buyer are
necessary to approve the consummation of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Buyer, and this
Agreement constitutes the valid and binding obligation of the Buyer enforceable
in accordance with the terms hereof, except as enforceability thereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws of general
application affecting the enforceability of creditors' rights generally or by
general principles of equity.
4.3 No Conflict. Neither the execution nor the delivery of
-----------
this Agreement by the Buyer nor the consummation of the transactions
contemplated hereby will conflict with or result in any violation of or
constitute a breach of or default under any terms, conditions or provisions of
its organizational documents or by-laws or any Law or Contract by which it is
bound or to which it or its assets are subject.
4.4 Buyer's Investigation. The Buyer has conducted
---------------------
inspections of the properties and financial and other records of Victel and the
Company and other due diligence with respect to Victel and the Company and the
Business. The Buyer has had an opportunity to ask questions of the Seller and
the officers of Victel and the Company relating to their business, management
and financial affairs, which questions were answered to Buyer's satisfaction,
and to examine the books and records of Victel and the Company made available to
it. Based on such inspections and inquiries, the Buyer is not aware of any
inaccuracies or breaches
-13-
<PAGE>
in the Seller's representations and warranties set forth in this Agreement.
4.5 Investment Intent. Buyer is aware that the Shares it is
-----------------
purchasing hereunder are not registered under the Securities Act of 1933, as
amended, or any state securities law. Buyer is acquiring the Shares for
investment purposes only, for its own account not with a view to, or in
connection with, the further sale or transfer of all or any portion thereof.
4.6 Governmental and other Consents, etc. No Consent or
------------------------------------
Permit of any Person is required to be obtained by the Buyer in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, other than those which have been or by the
Closing Date will be obtained.
4.7 Litigation, etc. There is no pending or, to the Buyer's
---------------
knowledge, threatened Action or governmental investigation or inquiry against or
involving the Buyer or its assets or operations that would, if adversely
determined, materially and adversely affect the financial condition, business,
operations, property or assets of the Buyer or the transactions contemplated
hereby.
4.8 Financing. The Buyer has the funds available to complete
---------
the transactions contemplated by this Agreement and all related fees and
expenses that will be the Buyer's responsibility.
4.9 NO IMPLIED WARRANTIES. IT IS UNDERSTOOD AND AGREED THAT
---------------------
NONE OF THE COMPANY, VICTEL OR THE SELLER ARE MAKING OR HAVE MADE ANY
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, TO THE BUYER EXCEPT
FOR THOSE SPECIFICALLY PROVIDED IN SECTIONS 3 AND 6.1 OF THIS AGREEMENT. EXCEPT
FOR THE MATTERS WHICH ARE EXPRESSLY COVERED BY SUCH REPRESENTATIONS AND
WARRANTIES, THE BUYER IS RELYING SOLELY ON ITS OWN INVESTIGATION AND ANALYSIS IN
ENTERING INTO THIS AGREEMENT AND CONSUMMATING THE TRANSACTIONS CONTEMPLATED
HEREBY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AND NOTWITHSTANDING
ANY OTHERWISE EXPRESS REPRESENTATIONS AND WARRANTIES MADE BY THE SELLER IN
SECTIONS 3 AND 6.1 HEREOF, THE SELLER MAKES NO REPRESENTATION OR WARRANTY TO THE
BUYER REGARDING (A) ANY PROJECTIONS, ESTIMATES OR BUDGETS HERETOFORE DELIVERED
OR MADE AVAILABLE TO THE BUYER OF FUTURE REVENUES, EXPENSES OR EXPENDITURES,
FUTURE RESULTS OF OPERATIONS (OR ANY COMPONENT THEREOF), BACKLOGS, FUTURE CASH
-14-
<PAGE>
FLOWS OR FUTURE FINANCIAL CONDITION (OR ANY COMPONENT THEREOF) OF THE COMPANY OR
ANY SUBSIDIARY OR THE FUTURE BUSINESS OPERATIONS OF THE COMPANY OR ANY
SUBSIDIARY; OR (B) ANY OTHER INFORMATION OR DOCUMENTS MADE AVAILABLE TO THE
BUYER OR ITS COUNSEL, ACCOUNTANTS OR ADVISORS WITH RESPECT TO THE COMPANY OR ANY
SUBSIDIARY OR THE BUSINESS OR OPERATIONS OF THE COMPANY OR ANY SUBSIDIARY,
EXCEPT AS EXPRESSLY SET FORTH IN OR FURNISHED PURSUANT TO SECTIONS 3 AND 6.1
HEREOF.
5. Indemnification.
---------------
5.1 Obligation of the Seller. Subject to the limitations
------------------------
set forth in Section , the Seller shall indemnify and save harmless the Buyer
and its successors and assigns from, against, for and in respect of:
(a) any Loss incurred or required to be paid which arises out of
or relates to (i) a state of facts as a result of which any
representation or warranty made by the Seller in this Agreement is
untrue, inaccurate or misleading in any respect, or (ii) the breach of
any covenant or agreement made by the Seller in this Agreement; and
(b) any Litigation Expense incurred or required to be paid in
connection with any Action incident to any matter indemnified against in
paragraph (a).
5.2 Obligation of the Buyer. Subject to the limitations set
-----------------------
forth in Section 5.3, the Buyer shall indemnify and save harmless the Seller
from, against, for and in respect of:
(a) any Loss incurred or required to be paid which arises out of
or relates to (i) a state of facts as a result of which any
representation or warranty made by the Buyer in this Agreement is
untrue, inaccurate or misleading in any respect, or (ii) the breach of
any covenant or agreement made by the Buyer in this Agreement; and
(b) any Litigation Expense incurred or required to be paid in
connection with any Action incident to any matter indemnified against in
paragraph (a) above.
-15-
<PAGE>
5.3 Limitations on Indemnity. The indemnification obligations of the
------------------------
parties under Sections 5.1 and 5.2 shall be subject to the following:
(a) Time Bar. (i) The Buyer shall not be entitled to make any claim
--------
against the Seller for any Loss or Litigation Expense under Section 5.1 unless a
notice of such claim shall have been given to the Seller in accordance with
Section 11.1 hereof on or before October 31, 1997.
(ii) The Seller shall not be entitled to make a claim against the Buyer for
any Loss arising under Section 5.2 hereof or Litigation Expense relating thereto
unless a notice of such claim shall have been given to the Buyer in accordance
with Section hereof on or before October 31, 1997.
(b) Deductible. The parties shall be entitled to indemnity for Losses or
----------
Litigation Expenses with respect to any claim arising under Section 5.1 or 5.2
only to the extent that the amount of Losses and Litigation Expenses with
respect to all claims arising under such Section exceeds $100,000.
(c) Limitations on Damages. Any indemnifiable claim with respect to any
----------------------
breach or nonperformance by any party of a representation, warranty, covenant or
agreement shall be limited to the amount of actual damages sustained by the
indemnified party by reason of such breach or nonperformance. Notwithstanding
anything to the contrary elsewhere in this Agreement, no party or its Affiliates
shall in any event be liable to any other party or its Affiliates for any
consequential damages, including, but not limited to, loss of future revenue or
income, cost of capital, or loss of business reputation or opportunity. Each
party further agrees that it shall not seek punitive damages as to any matter
relating to this Agreement or the transactions contemplated by it.
(d) [Intentionally omitted]
(e) Maximum Liability. Notwithstanding any other provision to the
-----------------
contrary in this Agreement, the aggregate liability of the Seller in connection
with all claims for Loss or Litigation Expense hereunder, in excess of the
deductible provided for in Section 5.3(b), shall not exceed $381,700, the excess
of (i) the Purchase Price (net of the deductions provided for in Section
2.3(a)), over (ii) $100,000.
-16-
<PAGE>
(f) Exclusivity. The sole and exclusive remedy of the parties hereto for
-----------
any claim resulting in a breach by any of the parties hereto of their respective
representations, warranties, covenants or agreements made hereby or the failure
by any party to perform its respective obligations under this Agreement shall be
a claim under this Section 5, subject to the limitations set forth in this
Section 5.3. The parties hereby waive any provision of law to the extent that
it would limit or restrict the agreement contained in this Section 5.3(f), other
than the right to apply for and obtain appropriate injunctive relief.
5.4 Notice and Defense of Claims. The obligations and liabilities of
----------------------------
each indemnifying party hereunder with respect to claims resulting from the
assertion of liability by another party or third parties shall be subject to the
following terms and conditions:
(a) Notice. The indemnified party shall give prompt written notice to the
------
indemnifying party of any claim or event known to it which does or may give rise
to a claim by the indemnified party against the indemnifying party based on this
Agreement, stating the nature and basis of said claims or events and the amounts
thereof, to the extent known, and in the case of any Action brought by any third
party, a copy of any documentation with respect thereto promptly after any such
documentation is received by the indemnified party.
(b) Third Party Claims or Actions. (i) In the event any Action is brought
-----------------------------
by any third party against an indemnified party, with respect to which an
indemnifying party may have liability under this Agreement, the indemnifying
party shall be entitled to participate in, and, to the extent that it shall
wish, to assume the defense thereof, with independent counsel reasonably
satisfactory to such indemnified party.
(ii) If the indemnifying parties elect to assume the defense of any such
third-party Action, the indemnifying parties shall have the sole right to
contest, pay, settle or compromise any such Action on such terms and conditions
as the indemnifying parties may determine. After notice from the indemnifying
parties to such indemnified party of the indemnifying parties' election so to
assume the defense thereof, the indemnifying parties shall not be liable to such
indemnified party for any legal or other expenses incurred after the date of
receipt of such notice by the indemnified party. The indemnified party shall
have the right to employ its own counsel and such counsel
-17-
<PAGE>
may participate in such Action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party, when and as incurred.
(iii) If the indemnifying parties do not elect to assume the defense of
any such Action, the indemnified party may engage independent counsel selected
by the indemnified party to assume the defense and may contest and pay, and,
with the consent of the indemnifying parties, may settle or compromise any such
claim. The fees and disbursements of such counsel shall constitute Litigation
Expense hereunder.
(iv) The indemnified party and the indemnifying parties, as the case may
be, shall be kept fully informed of such Action at all stages thereof whether or
not such party is represented by its own counsel.
5.5 Cooperation. The parties hereto agree to render to each other such
-----------
assistance as they may reasonably require of each other and to cooperate in good
faith with each other in order to ensure the proper and adequate defense of any
Action brought by any third party.
5.6 Confidentiality. The parties agree to make reasonable efforts to
---------------
preserve in full the confidentiality of all proprietary or confidential business
records and the attorney-client and work product privileges. In connection
therewith, each party agrees that: (a) it will make reasonable efforts, in any
Action in which it has assumed or participated in the defense, to avoid
production of confidential business records; and (b) all communications between
any party hereto and counsel responsible for or participating in the defense of
any Action shall, to the extent possible, be made so as to preserve any
applicable attorney-client or work-product privilege.
5.7 Survival of Representations and Warranties. All covenants,
------------------------------------------
representations and warranties and agreements made in this Agreement or in any
Exhibit, Schedule, certificate or document delivered herewith or at the Closing
shall survive the execution and delivery thereof and the Closing hereunder;
provided, however, that any claim for the breach of any such covenant,
- --------
representation, warranty or agreement may not be asserted after the expiration
of the periods set forth in this Section 5.
-18-
<PAGE>
6. Other Agreements of the Parties.
-------------------------------
6.1 Brokers. Each party represents and warrants that all actions by it
-------
relative to this Agreement and the transactions contemplated hereby were carried
out in such manner as not to give rise to any valid claim for finders fees,
brokerage commissions or similar payments, except for the fees and expenses of
DWQ Associates, payment of which shall be the responsibility of the Company and
Victel.
6.2 Elections. Neither the Buyer nor any Affiliate of the Buyer shall
---------
make any election pursuant to the Code that is inconsistent with any election
made by the Company, Victel or any affiliate for any prior year which would
materially adversely affect the Seller, the Company or Victel, or file any
amended tax return of the Company or Victel so as to materially adversely affect
the Company, Victel or the Seller as to any taxable year ending on or before the
Closing Date, without the prior written consent of the Seller.
6.3 No Modifications. After the Closing the Buyer shall not amend the
----------------
Certificate of Incorporation or By-Laws of Victel or the Company in any way that
would, relative to the provisions thereof in effect prior to the Closing, tend
to increase the liabilities of directors and officers prior to the closing, or
impair, lessen or reduce the provisions thereof relating to indemnification of
directors and officers.
6.4 Post-Closing Cooperation. After the Closing Date, the Seller and the
------------------------
Buyer shall provide each other timely access to information and reasonable
assistance and cooperation, during normal business hours, necessary for the
preparation of any tax returns or other filings or conducting or responding to
tax audit or other proceedings. All pertinent books of account, papers, and
records shall be retained by the parties until either the statute of limitations
to which they relate has expired, by lapse of time or by the terms of any
agreement for extension of the period of limitations. If at any time any
records of Victel or the Company relating to the period prior to the Closing
Date are to be destroyed, the Buyer shall notify the Seller at least sixty (60)
days prior to such destruction and, at the Seller's request, shall deliver such
records to the Seller.
7. Further Assurances. Following the Closing, at the request of any
------------------
party, the other parties shall execute and deliver such further documents, and
take such other action, as
-19-
<PAGE>
may be necessary or appropriate to give full effect to the transactions
contemplated by this Agreement, including without limitation to confirm the
sale, transfer, assignment and conveyance of the Shares hereunder and to vest in
the Buyer all the Seller's right, title and interest in and to the Shares or as
may otherwise be required to carry out the provisions of this Agreement.
8. Covenants.
---------
8.1 Covenants of Buyer. The Buyer hereby covenants and agrees with the
------------------
Seller that prior to the Closing, (a) it shall take every action reasonably
required of it in order to satisfy the conditions to closing and otherwise to
ensure prompt and expedient consummation of the transactions contemplated by
this Agreement, and, without limiting the generality of the foregoing, to obtain
all Consents and Permits which may be necessary or reasonably required in order
for the Buyer to effect the transactions contemplated hereby, and (b) give the
Seller prompt written notice of any event or circumstance which can reasonably
be expected to affect adversely its ability to complete the acquisition of the
Shares or other transactions contemplated by this Agreement.
8.2 Covenants of the Seller. The Seller hereby covenants and agrees with
-----------------------
the Buyer that:
(a) Cooperation. The Seller will use its reasonable best efforts to cause
-----------
the Company to preserve its business organization intact, to keep available
the services of its employees and sales representatives and to preserve the
good will of employees, customers, suppliers and others having business
relations with the Company.
(b) Transactions Out of Ordinary Course of Business. Except with the prior
-----------------------------------------------
written consent of the Buyer, the Seller will not cause the Company to enter
into any transaction out of the ordinary course of business.
(c) Access to Properties, etc. The Seller will cause the Company and
-------------------------
Victel to provide the Buyer and its counsel, accountants, investment advisors
and other representatives full access during normal business hours (upon
reasonable prior notice) to all of their properties, books, tax returns,
Contracts, and records, and will furnish to the
-20-
<PAGE>
Buyer all such documents and information with respect to the affairs of the
Company and Victel as the Buyer may from time to time reasonably request,
provided that such access shall not unreasonably interfere with the conduct of
the Business, and that all information so obtained shall be subject to the
terms of the confidentiality agreement dated March __, 1997 executed and
delivered by the Buyer.
(d) Certain Prohibited Transactions. Except with the prior written consent
-------------------------------
of the Buyer, the Seller will not cause the Company or Victel to (i) sell,
transfer or otherwise dispose of any material assets other than in the
ordinary course of business, (ii) create or permit to exist any new Lien other
than Permitted Liens, (iii) declare or pay any dividends, repurchase any of
its capital stock, or make any distributions to its stockholders as such, or
(iv) amend its Certificate of Incorporation or by-laws.
9. Conditions Precedent.
--------------------
9.1 Conditions to Obligations of the Seller. All obligations of the
---------------------------------------
Seller under this Agreement are subject to the fulfillment, unless waived in
writing at the sole option of the Seller, at or prior to the Closing Date, of
each of the following conditions precedent:
(a) Buyer's Representations and Warranties. The representations and
--------------------------------------
warranties of the Buyer herein contained shall be true on and as of the
Closing Date with the same force and effect as though made on and as of said
date, except as affected by the transactions contemplated or permitted by this
Agreement.
(b) Buyer's Covenants. The Buyer shall have performed all its obligations
-----------------
and agreements and complied with all its covenants contained in this Agreement
to be performed and complied with by the Buyer prior to the Closing Date.
(c) Buyer's Closing Certificate. The Seller shall have received a
---------------------------
certificate of the Buyer, executed on behalf of the Buyer by any duly
authorized representative of the Buyer, dated the Closing Date, in form and
substance satisfactory to the Seller, certifying as to the fulfillment
-21-
<PAGE>
of the matters mentioned in paragraphs (a) and (b) of this Section 9.1.
(d) Consents and Approvals. This Agreement and the transactions
----------------------
contemplated hereby shall have received all approvals, consents,
authorizations and waivers from governmental and other regulatory agencies and
other third parties required to consummate the transactions contemplated
hereby.
(e) Other Documents. The Seller shall have received all certificates,
----------------
corporate documents, evidence of authorization, and other agreements,
instruments and documents in respect of any aspect or consequence of the
transactions contemplated by this Agreement as the Seller may reasonably
request, all of which shall be in form and substance satisfactory to the
Seller.
(f) No Litigation. No Action before any court or any governmental or
-------------
regulatory authority shall have been commenced and still be pending, no
investigation by any governmental or regulatory authority shall have been
commenced and still be pending, and no Action by any governmental or
regulatory authority shall have been threatened against the Seller or the
Buyer (i) seeking to restrain, prevent or change the transactions contemplated
hereby or questioning the validity or legality of any of such transactions, or
(ii) which if resolved adversely to such party, would materially and adversely
affect the financial condition, business, property, assets or prospects of any
such Person.
9.2 Conditions to the Obligations of the Buyer. All obligations of the
------------------------------------------
Buyer under this Agreement are subject to the fulfillment, unless waived in
writing at the sole option of the Buyer, at or prior to the Closing Date, of
each of the following conditions precedent:
(a) Seller's Representations and Warranties. The representations and
---------------------------------------
warranties of the Seller herein contained shall be true on and as of the
Closing Date with the same force and effect as though made on and as of said
date, except as affected by transactions contemplated or permitted by this
Agreement.
-22-
<PAGE>
(b) Seller's Covenants. The Seller shall have performed all of the
------------------
obligations and agreements and complied with all of its covenants contained in
this Agreement to be performed and complied with by the Seller prior to the
Closing Date.
(c) Seller's Closing Certificate. The Buyer shall have received a
----------------------------
certificate of the Seller, dated the Closing Date, in form and substance
satisfactory to the Buyer, certifying as to the fulfillment of the matters
mentioned in paragraphs (a) and (b) of this Section 9.2.
(d) Consents. The Buyer shall have received evidence, satisfactory to the
--------
Buyer and its counsel, that all of the Consents disclosed in Schedule 3.3 have
--------
been duly obtained.
(e) Other Documents. The Buyer shall have received all, certificates,
---------------
corporate documents, evidence of authorization, and other agreements,
instruments and documents in respect of any aspect or consequence of the
transactions contemplated by this Agreement as the Buyer may reasonably
request, all of which shall be in form and substance satisfactory to the
Buyer.
(f) No Litigation. No Action before any court or any governmental or
-------------
regulatory authority shall have been commenced and still be pending, no
investigation by any governmental or regulatory authority shall have been
commenced and still be pending, and no Action by any governmental or
regulatory authority shall have been threatened against the Seller or the
Buyer (i) seeking to restrain, prevent or change the transactions contemplated
hereby or questioning the validity or legality of any of such transactions, or
(ii) which if resolved adversely to such party, would materially and adversely
affect the financial condition, business, property, assets or prospects of any
such Person.
10. Termination; Disputes.
---------------------
-23-
<PAGE>
10.1 Termination. This Agreement may be terminated prior to the Closing
-----------
and the transactions contemplated hereby may be abandoned:
(a) by the Seller, upon written notice to the Buyer, if the Closing has not
taken place on or before May 15, 1997, other than by reason of the default of
the Seller; or
(b) by the Buyer, upon written notice to the Seller, if the Closing has not
taken place within thirty (30) days after the execution and delivery of this
Agreement, other than by reason of a default hereunder of the Buyer.
10.2 Status of Agreement after Termination. Upon any termination of this
-------------------------------------
Agreement pursuant to Section , this Agreement shall become void and shall have
no effect, except that such termination shall not affect any liability either
party may have for breach of this Agreement.
10.3 Arbitration.
-----------
(a) Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, or any claim under Section 5 hereof, shall be settled by
arbitration in accordance with the Rules of Commercial Arbitration of the
American Arbitration Association (the "Rules"), and judgment upon the award
-----
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
(b) The arbitration tribunal shall consist of three arbitrators, of whom
one shall be nominated by Buyer, one shall be nominated by the Seller, and the
third, who shall serve as Chairman, shall be chosen by the two party-nominated
arbitrators or, in the event the party-nominated arbitrators are unable to
designate the third arbitrator, by the American Arbitration Association.
(c) Any party to this Agreement is authorized to initiate arbitration by
providing written notice of arbitration, in accordance with the Rules, to the
Administrator of the American Arbitration Association and to the party or
parties against whom a claim is being made.
(d) The place of the arbitration shall be New York, New York.
-24-
<PAGE>
(e) The award of the arbitrators shall be final and binding. The parties
waive any right to appeal the award, to the extent a right to appeal may be
lawfully waived. Each party retains the right to seek judicial assistance: (i)
to compel arbitration; (ii) to obtain interim measures of protection pending
arbitration; and (iii) to enforce any decision of the arbitrators, including the
final award.
11. General Provisions.
------------------
11.1 Notices. All waivers, notices, consents, demands, requests,
-------
approvals and other communications which are required or may be given hereunder
shall be in writing and shall be deemed to have been duly given when hand-
delivered, sent by telecopier, delivered by national overnight courier service,
or 72 hours after mailed by certified first class mail, return receipt
requested, postage prepaid, as follows:
(a) If to the Seller, to it at:
Exeter Capital, L.P.
10 East 53rd Street
New York, New York 10022
Attention: Keith R. Fox
with a copy to:
Winston & Strawn
200 Park Avenue
New York, New York 10166
Attention: John W. Kaufmann, Esq.
(b) If to the Buyer, to it at:
Quadrax Corporation
300 High Point Avenue
Portsmouth, RI 02871
Attention: James J. Palermo
-25-
<PAGE>
with a copy to:
Epstein, Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
Attention: Joseph A. Smith, Esq.
or to such other address or addresses as may be designated by a party by written
notice to the other parties hereto.
11.2 Costs; Expenses. The Buyer will bear its own costs and expenses
---------------
incurred in negotiating this Agreement and consummating the transactions
contemplated hereby, whether or not the transactions are consummated. The costs
and expenses incurred by the Seller in negotiating this Agreement and
consummating the transactions contemplated hereby, including without limitation
fees and disbursements of the Seller's counsel and the Company's accountants,
shall be born by the Company and Victel, whether or not the transactions are
consummated.
11.3 Binding Effect, Benefits. This Agreement shall inure to the benefit
------------------------
of and be binding upon the parties hereto and their respective successors and
assigns; provided, however, that nothing in this Agreement shall be construed to
--------
confer any rights, remedies, obligations or liabilities on any person other than
the parties hereto or their respective successors and assigns.
11.4 Public Announcements. The parties hereto shall advise and consult
--------------------
with each other prior to the making of any public announcement with respect to
the transactions contemplated hereby and, in any event, shall not issue any
press releases, make any public announcement or statement without the consent of
the other parties, except for filings, registrations and other public
announcements which may be required by Law.
11.5 No Solicitation. From and after the date hereof and until the
---------------
Closing or the termination of this Agreement, the Seller agree not to accept or
approve any offer from anyone other than the Buyer relating to the acquisition
of the assets or Business of the Company, or any business combination relating
to them.
11.6 Entire Agreement; Amendment. This Agreement, together with the
---------------------------
other instruments delivered in connection herewith, embodies the entire
agreement and understanding of the
-26-
<PAGE>
parties hereto and supersedes any prior agreement or understanding between the
parties with respect to the subject matter of this Agreement. This Agreement
cannot be amended or terminated orally, but only by a writing duly executed by
the parties.
11.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
11.8 Headings. Headings of the Sections and paragraphs in this Agreement
--------
are for reference purposes only and shall not be deemed to have any substantive
effect.
11.9 Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other, except that the Buyer may assign
its rights hereunder to any lender providing financing to acquire the Shares.
11.10 Applicable Law. This Agreement shall be governed and construed and
--------------
interpreted in accordance with the laws of the State of New York and the federal
laws of the United States of America.
11.11 Waivers. Except as otherwise provided herein, no delay on the part
-------
of the Seller or the Buyer in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of the
Seller or the Buyer of any right, power or privilege hereunder operate as a
waiver of any other right, power or privilege hereunder, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
11.12 Miscellaneous. The rights and remedies of the Buyer and the Seller
-------------
hereunder are cumulative and not exclusive of any rights or remedies they would
otherwise have.
* * * * * *
-27-
<PAGE>
Schedule 3.7
EXCEPTIONS TO GAAP ON FINANCIAL STATEMENTS
------------------------------------------
None
FINANCIAL STATEMENTS
--------------------
Attached are the following statements:
1. Victor Electric Wire & Cable Corp. audited statements f/y/e
June 30, 1996; and
2. Victor Electric Wire & Cable Corp. unaudited statements for
nine-month period ended March 31, 1997.
<PAGE>
Exhibit 10.1
Loan and Security Agreement between Victor Corporation
and Congress Financial Corporation dated May 7, 1997.
<PAGE>
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND)
as Lender
and
VICTOR ELECTRIC WIRE & CABLE CORP.
as Borrower
Dated: May 7, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
SECTION 1. DEFINITIONS.....................................................1
SECTION 2. CREDIT FACILITIES...............................................9
2.1 REVOLVING LOANS.........................................................9
2.2 TERM LOAN..............................................................10
2.3 AVAILABILITY RESERVES..................................................10
2.4 EQUIPMENT LOANS........................................................10
SECTION 3. INTEREST AND FEES..............................................11
3.1.INTEREST...............................................................11
3.2 CLOSING FEE............................................................12
3.3 SERVICING FEE..........................................................12
3.4 UNUSED LINE FEE........................................................12
SECTION 4. CONDITIONS PRECEDENT...........................................12
4.1 CONDITIONS PRECEDENT TO INITIAL LOANS..................................12
4.2 CONDITIONS PRECEDENT TO ALL LOANS......................................14
SECTION 5. GRANT OF SECURITY INTEREST.....................................15
SECTION 6. COLLECTION AND ADMINISTRATION..................................16
6.1 BORROWER'S LOAN ACCOUNT................................................16
6.2 STATEMENTS.............................................................16
6.3 COLLECTION OF ACCOUNTS.................................................16
6.4 PAYMENTS...............................................................17
6.5 AUTHORIZATION TO MAKE LOANS............................................18
6.6 USE OF PROCEEDS........................................................18
SECTION 7. COLLATERAL REPORTING AND COVENANTS.............................18
7.1 COLLATERAL REPORTING...................................................18
7.2 ACCOUNTS COVENANTS.....................................................19
7.3 INVENTORY COVENANTS....................................................20
7.4 EQUIPMENT COVENANTS....................................................21
7.5 POWER OF ATTORNEY......................................................21
7.6 RIGHT TO CURE..........................................................22
7.7 ACCESS TO PREMISES.....................................................22
SECTION 8. REPRESENTATIONS AND WARRANTIES.................................22
8.1 CORPORATE EXISTENCE, POWER AND AUTHORITY; SUBSIDIARIES.................23
8.2 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE.......................23
8.3 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS...........................23
8.4 PRIORITY OF LIENS; TITLE TO PROPERTIES.................................23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
8.5 TAX RETURNS............................................................23
8.6 LITIGATION.............................................................24
8.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS...................24
8.8 ACQUISITION OF PURCHASED STOCK.........................................24
8.9 CAPITALIZATION.........................................................25
8.10 EMPLOYEE BENEFITS.....................................................25
8.11 ENVIRONMENTAL COMPLIANCE..............................................26
8.12 ACCURACY AND COMPLETENESS OF INFORMATION..............................27
8.13 SURVIVAL OF WARRANTIES; CUMULATIVE....................................27
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.............................27
9.1 MAINTENANCE OF EXISTENCE...............................................27
9.2 NEW COLLATERAL LOCATIONS...............................................27
9.3 COMPLIANCE WITH LAWS, REGULATIONS, ETC.................................27
9.4 PAYMENT OF TAXES AND CLAIMS............................................29
9.5 INSURANCE..............................................................29
9.6 FINANCIAL STATEMENTS AND OTHER INFORMATION.............................30
9.7 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC................31
9.8 ENCUMBRANCES...........................................................31
9.9 INDEBTEDNESS...........................................................32
9.10 LOANS, INVESTMENTS, GUARANTEES, ETC...................................32
9.11 DIVIDENDS AND REDEMPTIONS.............................................32
9.12 TRANSACTIONS WITH AFFILIATES..........................................33
9.13 WORKING CAPITAL.......................................................33
9.14 ADJUSTED NET WORTH....................................................33
9.15 COMPLIANCE WITH ERISA.................................................33
9.16 COSTS AND EXPENSES....................................................33
9.17 FURTHER ASSURANCES....................................................34
SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................34
10.1 EVENTS OF DEFAULT.....................................................34
10.2 REMEDIES..............................................................36
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW..38
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL WAIVER.38
11.2 WAIVER OF NOTICES.....................................................39
11.3 AMENDMENTS AND WAIVERS................................................39
11.4 WAIVER OF COUNTERCLAIMS...............................................39
11.5 INDEMNIFICATION.......................................................40
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS..............................40
12.1 TERM..................................................................40
12.2 NOTICES...............................................................42
12.3 PARTIAL INVALIDITY....................................................42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
12.4 SUCCESSORS............................................................42
12.5 ENTIRE AGREEMENT......................................................42
SCHEDULE 1.7...............................................................44
</TABLE>
iii
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Information Certificate
Exhibit B Form of Equipment Loan Note
Schedule 1.7 Account Debtors with Approved Concentrations
Schedule 8.4 Existing Liens
Schedule 8.11 Environmental Disclosure
</TABLE>
1
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated May 7, 1997 is entered into by
and between Congress Financial Corporation (New England), a Massachusetts
corporation ("Lender") and Victor Electric Wire & Cable Corp., a New York
corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Quadrax Corporation, a Delaware corporation ("Quadrax") has
entered into a Stock Purchase Agreement dated May 7, 1997 with Exeter Capital
L. P. and John Libera to acquire all the capital stock of Victel, Inc., a New
York corporation ("Victel") of which Borrower is a wholly-owned subsidiary;
WHEREAS, in connection with the purchase of the Victel's capital stock,
Quadrax and Victel and the Borrower have requested that Lender enter into
certain financing arrangements with Borrower pursuant to which Lender may make
loans and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural. All
references to Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of Default shall
exist or continue or be continuing until such Event of Default is waived in
accordance with Section 11.3. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1
<PAGE>
1.2 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book values all appropriate reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence, depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other liabilities of such
Person and its subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries which is subordinated in right
of payment to the full and final payment of all of the Obligations on terms and
conditions acceptable to Lender.
1.3 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans which would otherwise be available to
Borrower under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined by Lender in
good faith, do or may affect either (i) the Collateral or any other property
which is security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Obligor or (iii) the security interests and other
rights of Lender in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect Lender's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.6 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.7 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after
the date of the original invoice for them;
2
<PAGE>
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender, sufficient to cover such Account, in form and substance satisfactory to
Lender and, if required by Lender, the original of such letter of credit has
been delivered to Lender or Lender's agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine) or (iv) such Account is owed by a
subsidiary of Black & Decker located in Mexico, the United Kingdom or Malaysia
and the aggregate amount of all such Accounts which may be deemed to be eligible
hereunder does not exceed $250,000;
(f) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts;
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectibility of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any
3
<PAGE>
State, political subdivision, department, agency or instrumentality thereof,
upon Lender's request, the Federal Assignment of Claims Act of 1940, as amended
or any similar State or local law, if applicable, has been complied with in a
manner satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates do
not constitute more than twenty (20%) percent of all otherwise Eligible Accounts
or for those account debtors listed on Schedule 1.7, such greater percentage as
Lender may approve from time to time (but the portion of the Accounts not in
excess of such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than ninety (90) days after the date of the original
invoice for them which constitute more than fifty (50%) percent of the total
Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time and provided in
writing from time to time by Lender to Borrower (but the portion of the Accounts
not in excess of such credit limit may still be deemed Eligible Accounts);
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as determined by Lender, and
(q) such Accounts do not arise from the sale of tooling.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.8 "Eligible Equipment" shall mean Equipment acquired by Borrower
after the date hereof, which is in new and unused condition, located at
Borrower's premises and acceptable to Lender in all respects. General criteria
for Eligible Equipment may be established and revised from time to time by
Lender in Lender's good faith judgment. In determining such acceptability Lender
may, but need not, rely on reports furnished to Lender by Borrower, but reliance
thereon by Lender from time to time shall not be deemed to limit Lender's right
to revise standards of eligibility at any time. In general, except in Lender's
discretion, Eligible Equipment shall not include (a) Equipment at the premises
of third parties or subject to a security interest or lien in favor of any third
parties, (b) Equipment which is not subject to Lender's perfected security
interest, (c) fixtures, (d) defective Equipment or (e) Equipment not used or
usable in the ordinary course of Borrower's business as presently conducted;
provided, however, any Equipment which would otherwise be deemed Eligible
Equipment at locations which are not owned and operated by Borrower may
nevertheless be considered Eligible Equipment if Lender shall have received an
agreement in writing, in form and substance satisfactory to Lender, from
4
<PAGE>
the owner and/or operator of such location, as the case may be, pursuant to
which such owner and/or operator, if required by Lender: (i) acknowledges the
first priority lien of Lender on such Equipment, (ii) agrees to waive any and
all claims such owner and/or operator may, at any time, have against such
Equipment and (iii) grants to Lender the right to enter and remain on the
premises in order to exercise Lender's rights and remedies on terms acceptable
to Lender. Any Equipment which Lender determines to be ineligible or
unacceptable for purposes of the lending formula shall nevertheless be and
remain at all times part of the Collateral.
1.9 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and raw
materials for such finished goods which are acceptable to Lender based on the
criteria set forth below. In general, Eligible Inventory shall not include (a)
work-in-process; (b) components which are not part of finished goods; (c) spare
parts for equipment; (d) packaging and shipping materials; (e) supplies used or
consumed in Borrower's business; (f) Inventory at premises other than those
owned and controlled by Borrower, except if Lender shall have received an
agreement in writing from the person in possession of such Inventory and/or the
owner or operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) bill and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) returned, damaged and/or defective Inventory; and (l) Inventory
purchased or sold on consignment. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.
1.10 "Environmental Laws" shall mean all federal, state, district, local
and foreign laws, rules, regulations, ordinances, and consent decrees relating
to health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to Borrower's business and
facilities (whether or not owned by it), including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals, or
hazardous, toxic or dangerous substances, materials or wastes.
1.11 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
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1.12 "Equipment Loans" shall mean the loans made by Lender to Borrower as
provided in Section 2.4 hereof.
1.13 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.14 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.15 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and the Value of Eligible Inventory, as determined by Lender, and subject to the
sublimits and Availability Reserves from time to time established by Lender
hereunder, and (ii) the Revolving Credit Limit, minus (b) the sum of: (i) the
amount of all then outstanding and unpaid Obligations (but not including for
this purpose the then outstanding principal amount of the Term Loan and
Equipment Loans), plus (ii) the aggregate amount of all then outstanding and
unpaid trade payables of Borrower which are more than sixty (60) days past due
as of such time.
1.16 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.17 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.18 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.13 and 9.14 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.19 "Hard Cost of Eligible Equipment" shall mean the price paid by
Borrower for Eligible Equipment excluding any and all "soft costs", as
determined by Lender, including, without limitation, shipping, engineering,
labor, installation, setup, testing and software costs and expenses and further
excluding all commissions, fees and sales, excise and other taxes.
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1.20 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man- made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
1.21 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.22 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.23 "Investment Property" shall mean all of Borrower's now owned and
hereafter existing or acquired securities, financial assets, securities
entitlements, securities accounts and all other investment property of
whatsoever kind or nature, wherever located.
1.24 "Loans" shall mean the Revolving Loans, Equipment Loans and the
Term Loan.
1.25 "Maximum Credit" shall mean the amount of $5,000,000.
1.26 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.27 "Obligations" shall mean any and all Revolving Loans, the Term
Loan, Equipment Loans, and all other obligations, liabilities and indebtedness
of every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
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1.28 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations including, without
limitation, Quadrax and Victel, or who is the owner of any property which is
security for the Obligations, other than Borrower.
1.29 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.30 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.31 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.32 "Purchase Agreements" shall mean, individually and collectively,
the Stock Purchase Agreement, dated as of May 8, 1997, between Quadrax and
Seller and all other agreements of transfer as are referred to therein and all
side letters with respect thereto, and all agreements, documents and instruments
executed and/or delivered in connection therewith, as all of the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.33 "Purchased Stock" shall mean all of the issued and outstanding
shares of common stock of Victel.
1.34 "Quadrax" shall mean Quadrax Corporation, a Delaware corporation,
and its successors and assigns.
1.35 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.36 "Revolving Credit Limit" shall mean the amount of $3,550,000.
1.37 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.38 "Seller" shall mean Exeter Capital, L.P. a Delaware limited
partnership, and its successors, heirs and assigns.
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1.39 "Term Loan" shall mean the term loan made by Lender to Borrower as
provided for in Section 2.2 hereof.
1.40 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.41 "Victel" shall mean Victel, Inc., a New York corporation, and its
successors and assigns.
1.42 "Working Capital" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to the difference between: (a) the
aggregate net book value of all current assets of such Person and its
subsidiaries (as determined in accordance with GAAP), calculating the book value
of inventory for this purpose on a first-in-first-out basis, and (b) all current
liabilities of such Person and its subsidiaries (as determined in accordance
with GAAP), provided, that, as to Borrower, for purposes of Section 9.13, the
liabilities of Borrower and its subsidiaries to Lender under this Agreement
shall not be considered current liabilities (whether or not classified as
current liabilities in accordance with GAAP).
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
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(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts, plus
(ii) the lesser of: (A) the sum of sixty (60%) percent
of the Value of Eligible Inventory consisting of finished goods and raw
materials for such finished goods, or (B) $1,200,000, less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon
not less than ten (10) days prior notice to Borrower, (i) reduce the lending
formula with respect to Eligible Accounts to the extent that Lender determines
in good faith that: (A) the dilution with respect to the Accounts for any period
(based on the ratio of (1) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (2) the aggregate amount of total sales)
has increased in any material respect or may be reasonably anticipated to
increase in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has materially declined or (ii) reduce the
lending formula(s) with respect to Eligible Inventory to the
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extent that Lender determines that: (A) the number of days of the turnover of
the Inventory for any period has changed in any material respect or (B) the
liquidation value of the Eligible Inventory, or any category thereof, has
materially decreased, or (C) the nature and quality of the Inventory has
materially deteriorated. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of
the Loans outstanding at any time shall not exceed the Maximum Credit and the
aggregate amount of Revolving Loans outstanding at any time shall not exceed the
Revolving Credit Limit. In the event that the outstanding amount of any
component of the Loans, or the aggregate amount of the outstanding Loans, exceed
the amounts available under the lending formulas, the Revolving Credit Limit or
the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
2.2 Term Loan. Lender is making a Term Loan to Borrower in the original
---------
principal amount of $950,000. The Term Loan is (a) evidenced by a Term
Promissory Note in such original principal amount duly executed and delivered by
Borrower to Lender concurrently herewith; (b) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the Term
Promissory Note, and the other Financing Agreements and (c) secured by all of
the Collateral.
2.3 Availability Reserves. All Revolving Loans otherwise available to
---------------------
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
2.4 Equipment Loans.
---------------
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Equipment Loans to Borrower from time to time, up
to the amount equal seventy (70%) percent of the Hard Cost of Eligible Equipment
acquired with such Equipment Loan, provided that the outstanding principal
amount of all Equipment Loans shall not exceed $500,000.00.
(b) Each Equipment Loan requested by Borrower hereunder shall
be in a minimum amount of $50,000. Each request by Borrower for an Equipment
Loan shall be accompanied by copies of all purchase orders, invoices and other
documentation relating to the Eligible Equipment to be purchased with the
proceeds of such Equipment Loan, including a list and description of the
Eligible Equipment (by model, make, manufacturer, serial no. (if available)
and/or such other identifying information as may be required by Lender) and such
other information and documents as may be requested by Lender. Each Equipment
Loan shall be (a) evidenced by an Equipment Loan Promissory Note substantially
in the form attached as
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Exhibit B hereto, completed, executed and delivered by Borrower to Lender (in a
manner satisfactory to Lender) prior to the making of any Equipment Loan or by
the records and loan accounts maintained by Lender; (b) repaid, together with
interest and other amounts, in accordance with this Agreement, the Equipment
Loan Promissory Note, and the other Financing Agreements and (c) secured by a
first and only security interest on the acquired Equipment and by all the other
Collateral. Borrower shall deliver to Lender upon request evidence of full
payment for all Eligible Equipment acquired with the proceeds of an Equipment
Loan and the absence of liens thereon. The principal amount of each Equipment
Loan shall be repaid in equal consecutive monthly payments, payable on the first
day of each calendar month, commencing on the first such day to occur after the
date each such Loan is made. The principal amount shall be amortized over a
sixty (60) month period and the outstanding principal balance thereof and all
accrued and unpaid interest, fees and charges shall be due and payable on the
first to occur of (a) the election of Lender upon and following an Event of
Default and (b) the date of termination or nonrenewal of this Agreement.
Interest on the Equipment Loans shall be computed and paid in accordance with
Section 3.1 hereof.
SECTION 3. INTEREST AND FEES
3.1 Interest.
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(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the rate of one and one
half (1 1/2%) percent per annum in excess of the Prime Rate, except that
Borrower shall pay to Lender interest, at Lender's option, without notice, at
the rate of four and one half (4 1/2%) percent per annum in excess of the Prime
Rate: (i) on the non-contingent Obligations for the period from and after the
date of termination or non-renewal hereof, or the date of the occurrence of an
Event of Default, and for so long as such Event of Default is continuing as
determined by Lender and until such time as Lender has received full and final
payment of all such Obligations (notwithstanding entry of any judgment against
Borrower) and (ii) on the Revolving Loans at any time outstanding in excess of
the amounts available to Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default). All interest accruing
hereunder on and after the occurrence of any of the events referred to in
Sections 3.1(a)(i) or 3.1(a)(ii) above shall be payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly
in arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in
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contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
-----------
amount of $50,000, which shall be fully earned as of and payable on the date
hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
-------------
in an amount equal to $1,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each month
hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
---------------
fee equal to one half of one (1/2%) percent per annum calculated upon the amount
by which the Revolving Credit Limit exceeds the average daily principal balance
of the outstanding Revolving Loans during the immediately preceding month (or
part thereof) while this Agreement is in effect and for so long thereafter as
any of the Obligations are outstanding, which fee shall be payable on the first
day of each month in arrears.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans. Each of the following is a
-------------------------------------
condition precedent to Lender making the initial Loans hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, a pro-forma balance sheet of Borrower reflecting the
initial transactions contemplated hereunder, including, but not limited to, (i)
the consummation of the acquisition of the Purchased Stock by Quadrax from
Seller and the other transactions contemplated by the Purchase Agreements and
(ii) the Loans provided by Lender to Borrower on the date hereof and the use of
the proceeds of the initial Loans as provided herein, and forecasted financial
statements for the Borrower for the term of this Agreement (together with all
assumptions therefore) accompanied by a certificate, dated of even date
herewith, of the chief financial officer of Borrower, stating, among other
things, that such pro-forma balance sheet, financial projections and assumptions
represent the reasonable, good faith opinion of such officer as to the subject
matter thereof as of the date of such certificate and that the Borrower is in
the opinion of such officer, solvent (as defined in Section 8.9(d));
(b) Lender shall have received, in form and substance
satisfactory to Lender, evidence that Quadrax has paid not less than $700,000 to
the Seller as part of the cash portion of the purchase price of the Purchased
Stock payable pursuant to the Purchase Agreements;
(c) Lender shall have received, in form and substance
satisfactory to Lender, the agreement of Seller consenting to the collateral
assignment by Quadrax to Lender of all of Quadrax's rights and remedies and
claims for damages and other relief under the Purchase
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Agreements and granting Lender such other rights as Lender may require, duly
authorized, executed and delivered by Seller;
(d) Lender shall have received, in form and substance
satisfactory to Lender, evidence that the Purchase Agreements have been duly
executed and delivered by and to the appropriate parties thereto and the
transactions contemplated under the terms of the Purchase Agreements have been
consummated prior to or contemporaneously with the execution of this Agreement;
(e) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected and first
priority security interests in and liens upon the Collateral and any other
property which is intended to be security for the Obligations or the liability
of any Obligor in respect thereof, subject only to the security interests and
liens permitted herein or in the other Financing Agreements;
(f) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including, without limitation, records
of requisite corporate action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or its counsel to
be certified by appropriate corporate officers or governmental authorities;
(g) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(h) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(i) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower of their respective financing arrangements with
Borrower and the termination and release by it or them, as the case may be, of
any interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by it or each of them, including, but
not limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such existing lender or lenders, in form acceptable for recording in
the appropriate government office;
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(j) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, acknowledgments
by lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(k) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(l) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower, Quadrax and
Victel with respect to the Financing Agreements and such other matters as Lender
may request;
(m) the Excess Availability as determined by Lender, as of
the date hereof, shall be not less than $450,000 after giving effect to the
initial Loans made or to be made with the initial transactions hereunder;
(n) Each of Quadrax and Victel shall have delivered to Lender
its Guarantee of the Obligations in form and substance satisfactory to Lender;
(o) Lender shall have received a copy of the duly executed
Employment Agreement between the Borrower and John Palermo as chief executive
officer of the Borrower, which Employment Agreement shall be reasonably
satisfactory to the Lender; and
(p) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, shall be for a term coterminous with this Agreement and shall
otherwise be in form and substance satisfactory to Lender;
4.2 Conditions Precedent to All Loans. Each of the following is an
---------------------------------
additional condition precedent to Lender making Loans, including the initial
Loans and any future Loans:
(a) all representations and warranties contained herein and
in the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan and after giving
effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be
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continuing on and as of the date of the making of such Loan or providing each
such Letter of Credit Accommodation and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Investment Property;
5.7 Records; and
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5.8 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans, and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
----------
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
----------------------
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
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(b) For purposes of calculating interest on the Obligations,
such payments or other funds received will be applied (conditional upon final
collection) to the Obligations two (2) business days following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Revolving Loans available to Borrower
such payments will be applied (conditional upon final collection) to the
Obligations on the business day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person in connection
with Borrower's Blocked Accounts. The obligation of Borrower to reimburse Lender
for such amounts pursuant to this Section 6.3 shall survive the termination or
non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
--------
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines provided
that prior to the occurrence of an Event of Default, the Lender will not apply
such proceeds to the prepayment of the Term Loan unless the source of such
proceeds is the sale or other disposition of Equipment or fixed assets of the
Borrower or the Borrower otherwise agrees to such application. At Lender's
option, all principal, interest, fees, costs, expenses and other charges
provided for in this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrower. Borrower shall make all payments to
Lender on the Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in
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reliance upon such payment or proceeds. This Section 6.4 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
---------------------------
based upon telephonic or other instructions received from anyone purporting to
be an officer of Borrower or other authorized person or, at the discretion of
Lender, if such Loans are necessary to satisfy any Obligations. All requests for
Loans hereunder shall specify the date on which the requested advance is to be
made (which day shall be a business day) and the amount of the requested Loan.
Requests received after 11:00 a.m. Boston, Massachusetts time on any day shall
be deemed to have been made as of the opening of business on the immediately
following business day. All Loans under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
---------------
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the Purchase Agreement and the other Financing Agreements. All other
Loans made by Lender to Borrower pursuant to the provisions hereof shall be used
by Borrower only for payments to be made under the Purchase Agreements and for
general operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof. None of the proceeds will
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts; (b) on a monthly basis or more
frequently as Lender may request, (i) inventory roll-forward reports, (ii)
inventory reports by category and (iii) agings of accounts payable, (c) upon
Lender's request, (i) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower; (d) agings of accounts receivable on a monthly basis or more
frequently as Lender may request; and (e) such other reports as to the
Collateral as Lender shall request from time to time. If any of Borrower's
records or reports of the Collateral are prepared or maintained by an accounting
service, contractor, shipper or other agent, Borrower hereby irrevocably
authorizes such service, contractor, shipper or agent to deliver such records,
reports, and related documents to Lender and to follow Lender's
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instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
------------------
(a) Borrower shall notify Lender promptly of: (i) any
material delay in Borrower's performance of any of its obligations to any
account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof, (ii) all material adverse
information relating to the financial condition of any account debtor and (iii)
any event or circumstance which, to Borrower's knowledge would cause Lender to
consider any then existing Accounts as no longer constituting Eligible Accounts.
No credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor without Lender's consent,
except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred and
is continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any return of
Inventory by an account debtor having a sales price in excess of $10,000 At any
time that Inventory is returned, reclaimed or repossessed, the related Account
shall not be deemed an Eligible Account. In the event any account debtor returns
Inventory when an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Lender's request, (i) hold the returned Inventory in trust
for Lender, (ii) segregate all returned Inventory from all of its other
property, (iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on
any invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
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(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors that
the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall
-------------------
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once every three months until such time
as Borrower has established a perpetual inventory system satisfactory to Lender
and thereafter at least once each year, but at any time or times as Lender may
request on or after an Event of Default, and promptly following each such
physical inventory shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender concerning such physical
count; (c) Borrower shall not remove any Inventory from the locations set forth
or permitted herein, without the prior written consent of Lender, except for
sales of Inventory in the ordinary course of Borrower's business and except to
move Inventory directly from one location set forth or permitted herein to
another such location; (d) upon Lender's request, Borrower shall, at its
expense, no more than once in any twelve (12) month period, but at any time or
times as Lender may request on or after an Event of Default, deliver or cause to
be delivered to Lender written reports or appraisals as to the Inventory in
form, scope and methodology acceptable to Lender and by an appraiser acceptable
to Lender, addressed to Lender or upon which Lender is expressly permitted to
rely; (e) Borrower shall produce, use, store and maintain the Inventory, with
all
20
<PAGE>
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including, but not limited to,
the requirements of the Federal Fair Labor Standards Act of 1938, as amended and
all rules, regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory; (h)
Borrower shall keep the Inventory in good and marketable condition; and (i)
Borrower shall not, without prior written notice to Lender, acquire or accept
any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) Upon Lender's
-------------------
request, Borrower shall, at its expense at any time or times as Lender may
request with respect to Equipment financed with Equipment Loans and with respect
to other Equipment, on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Equipment in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, (b) upon Lender's request, Borrower shall, at its expense, at any time
or times as Lender may request on or after an Event of Default, deliver or cause
to be delivered to Lender written reports or appraisals as to the Equipment in
form, scope and methodology acceptable to Lender and by an appraiser acceptable
to Lender; (c) Borrower shall keep the Equipment in good order, repair, running
and marketable condition (ordinary wear and tear excepted); (d) Borrower shall
use the Equipment with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with all applicable
laws; (e) the Equipment is and shall be used in Borrower's business and not for
personal, family, household or farming use; (f) Borrower shall not remove any
Equipment from the locations set forth or permitted herein, except to the extent
necessary to have any Equipment repaired or maintained in the ordinary course of
the business of Borrower or to move Equipment directly from one location set
forth or permitted herein to another such location and except for the movement
of motor vehicles used by or for the benefit of Borrower in the ordinary course
of business; (g) the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (h) Borrower assumes all responsibility and
liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints
-----------------
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a)
at any time an Event of Default or event which with notice or passage of time or
both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things
21
<PAGE>
which are necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement and the other Financing Agreements and (b) at
any time to (i) take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which Borrower's
mail is deposited, (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Lender's account for application to
the Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or willful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
-------------
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
------------------
cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower shall
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and (c) use during normal business hours such
of Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans by Lender to
Borrower:
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8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is a
------------------------------------------------------
corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
--------------------------------------------
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
--------------------------------------
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
-----------
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for
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extension except as previously disclosed in writing to Lender). All information
in such tax returns, reports and declarations is complete and accurate in all
material respects. Borrower has paid or caused to be paid all taxes due and
payable or claimed due and payable in any assessment received by it, except
taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books. Adequate provision has
been made for the payment of all accrued and unpaid Federal, State, county,
local, foreign and other taxes whether or not yet due and payable and whether or
not disputed.
8.6 Litigation. Except as set forth on the Information Certificate, there
----------
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge threatened, against or affecting Borrower, its assets or
business and there is no action, suit, proceeding or claim by any Person
pending, or to the best of Borrower's knowledge threatened, against Borrower or
its assets or goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against Borrower would result in
any material adverse change in the assets, business or prospects of Borrower or
would impair the ability of Borrower to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is not
----------------------------------------------------
in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Acquisition of Purchased Stock.
------------------------------
(a) The Purchase Agreements and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance with
their terms by the respective parties thereto in all respects, including the
fulfillment (not merely the waiver, except as may be disclosed to Lender and
consented to in writing by Lender) of all conditions precedent set forth therein
and giving effect to the terms of the Purchase Agreements and the assignments to
be executed and delivered by Seller thereunder, Quadrax acquired and has good
and marketable title to the Purchased Stock, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed in writing to
Lender.
(b) All actions and proceedings required by the Purchase Agreements,
applicable law or regulation (including, but not limited to, compliance with the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) have been
taken and the transactions required thereunder have been duly and validly taken
and consummated.
(c) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Purchase Agreements and no governmental or other
action or proceeding has been threatened or
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commenced, seeking any injunction, restraining order or other order which seeks
to void or otherwise modify the transactions described in the Purchase
Agreements.
(d) Borrower has delivered, or caused to be delivered, to Lender
true, correct and complete copies of the Purchase Agreements.
8.9 Capitalization.
--------------
(a) All of the issued and outstanding shares of capital stock of
Victel Borrower are directly and beneficially owned and held by Quadrax and all
of such shares have been duly authorized and are fully paid and non-assessable,
free and clear of all claims, liens, pledges and encumbrances of any kind,
except as disclosed in writing to Lender.
(b) All of the issued and outstanding shares of capital stock of
Borrower are directly and beneficially owned and held by Victel and all of such
shares have been duly authorized and are fully paid and non-assessable, free and
clear of all claims, liens, pledges and encumbrances of any kind, except as
disclosed in writing to Lender.
(c) Borrower is solvent and will continue to be solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business and all businesses in
which it is about to engage. The assets and properties of Borrower at a fair
valuation and at their present fair salable value are, and will be, greater than
the indebtedness of Borrower, and including subordinated and contingent
liabilities computed at the amount which, to the best of Borrower's knowledge,
represents an amount which can reasonably be expected to become an actual or
matured liability.
(d) Quadrax has, on or before the date hereof, made a cash payment to
Seller in an amount not less than $700,000 in payment of shares of capital stock
of Victel consisting of common stock.
8.10 Employee Benefits.
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(a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.10(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by Borrower to be incurred with respect to any employee pension
benefit plan of Borrower or any of its ERISA Affiliates. There has been no
reportable event (within the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension benefit plan of Borrower
or any of its ERISA Affiliates which presents a risk of termination of any such
plan by the Pension Benefit Guaranty Corporation.
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(c) Full payment has been made of all amounts which Borrower or any
of its ERISA Affiliates is required under Section 302 of ERISA and Section 412
of the Code to have paid under the terms of each employee pension benefit plan
as contributions to such plan as of the last day of the most recent fiscal year
of such plan ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, exists with respect to any employee pension benefit plan,
including any penalty or tax described in Section 8.10(a) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.10(a) hereof and any accumulated funding deficiency
described in Section 8.10(c) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.11 Environmental Compliance.
------------------------
(a) Except as set forth on Schedule 8.11 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of Borrower complies in all material
respects with all Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.11 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower has no material liability (contingent or otherwise) in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
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(d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
8.12 Accuracy and Completeness of Information. All information furnished by
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or on behalf of Borrower in writing to Lender in connection with this Agreement
or any of the other Financing Agreements or any transaction contemplated hereby
or thereby, including, without limitation, all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.13 Survival of Warranties; Cumulative. All representations and warranties
----------------------------------
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed to have been
relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve, renew
------------------------
and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
------------------------
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
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(a) Borrower shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Borrower shall establish and maintain, at its expense, a system
to assure and monitor its continued compliance with all Environmental Laws in
all of its operations, which system shall include annual reviews of such
compliance by employees or agents of Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
shall be promptly furnished, or caused to be furnished, by Borrower to Lender.
Borrower shall take prompt and appropriate action to respond to any non-
compliance with any of the Environmental Laws and shall regularly report to
Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non- compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety matter,
which affects Borrower or its business, operations or assets or any properties
at which Borrower transported, stored or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any material
non-compliance, with any Environmental Law, Borrower shall, at Lender's request
and Borrower's expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where Borrower's non-
compliance or alleged non-compliance with such Environmental Laws has occurred
as to such non-compliance and prepare and deliver to Lender a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's response
thereto or the estimated costs thereof, shall change in any material respect.
(e) Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including attorneys' fees and legal expenses) directly or indirectly
arising out of or attributable to the use, generation, manufacture,
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reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial work with respect to
any property of Borrower and the preparation and implementation of any closure,
remedial or other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all
---------------------------
taxes, assessments, contributions and governmental charges upon or against it or
its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
---------
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations; provided, that, so long as no Event of Default exists (other than
an Event of Default that may be deemed to have occurred if a casualty
constitutes a material adverse change) and the value of the destroyed or damaged
Collateral equals or is less than $150,000, the Lender agrees that the Borrower
may apply the insurance proceeds to repair and replace the
29
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destroyed or damaged Collateral with Collateral of equal or greater utility and
value so long as the insurance proceeds are sufficient in amount to do so.
9.6 Financial Statements and Other Information.
------------------------------------------
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrower and its subsidiaries as
of the end of and through such fiscal month and (ii) within ninety (90) days
after the end of each fiscal year, audited consolidated financial statements
and, if Borrower has any subsidiaries, audited consolidating financial
statements of Borrower and its subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and for such fiscal
year, together with the opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by Borrower
and reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details
of (i) any loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Lender may, from time to time, reasonably
request. Lender is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of Borrower to any
court or other government agency or to any participant or assignee or
prospective participant or assignee. Borrower hereby irrevocably authorizes and
directs all accountants or auditors to deliver to Lender, at Borrower's expense,
copies of the financial
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statements of Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower and to disclose to Lender such
information as they may have regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to Lender in writing.
(e) Borrower shall deliver, or cause to be delivered, to Lender,
within ninety (90) days after the date hereof, opening balance sheets prepared
by independent certified public accountants which accountants shall be a
nationally recognized independent certified public accounting firm selected by
Borrower and reasonably acceptable to Lender and certified by such accountants
to the effect that such opening balance sheets have been prepared in accordance
with GAAP and present fairly the financial condition of Borrower as of such
date.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
-------------------------------------------------------
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business and
(ii) the disposition of worn-out or obsolete Equipment or Equipment no longer
used in the business of Borrower so long as (A) if an Event of Default exists or
has occurred and is continuing, any proceeds are paid to Lender and (B) such
sales do not involve Equipment having an aggregate fair market value in excess
of $25,000 for all such Equipment disposed of in any fiscal year of Borrower),
or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve
or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
------------
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Borrower's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of Borrower as presently conducted thereon or materially impair the value of the
real property which may be subject thereto; (e) purchase money security
interests in Equipment (including capital leases) and purchase money mortgages
on real estate not to exceed $250,000 in the aggregate at any time outstanding
so long as such security interests and mortgages do not apply to any property of
Borrower other than the Equipment or real estate so
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acquired, and the indebtedness secured thereby does not exceed the cost of the
Equipment or real estate so acquired, as the case may be; and (f) the security
interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or be
------------
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower,
and with respect to which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the extent not
incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement; and (d) obligations or indebtedness set forth
on the Information Certificate; provided, that, (i) Borrower may only make
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date hereof,
(ii) Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of such indebtedness or any agreement, document or instrument
related thereto as in effect on the date hereof, or (B) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (iii) Borrower shall furnish to
Lender all notices or demands in connection with such indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly or
-----------------------------------
indirectly, make any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a) the
endorsement of instruments for collection or deposit in the ordinary course of
business; (b) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or to bearer and
delivered to Lender, and (iii) commercial paper rated A1 or P1; provided, that,
as to any of the foregoing, unless waived in writing by Lender, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments; and (c) the guarantees set forth in the
Information Certificate.
9.11 Dividends and Redemptions. Borrower shall not, directly or indirectly,
-------------------------
declare or pay any dividends on account of any shares of class of capital stock
of Borrower now or hereafter outstanding, or set aside or otherwise deposit or
invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any consideration
other than common stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
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9.12 Transactions with Affiliates. Borrower shall not enter into any
----------------------------
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person.
9.13 Working Capital. Borrower shall, at all times, maintain Working
---------------
Capital of not less than $450,000.00. This covenant has been established by
Lender based upon the pro forma balance sheet furnished by Borrower as of the
date hereof and is subject to modification by Lender in good faith if the base
balance sheet to be provided in accordance with Section 9.6(e) differs in any
material respect from such pro forma balance sheet.
9.14 Adjusted Net Worth. Borrower shall, at all times, maintain Adjusted
------------------
Net Worth of not less than $1,350,000.00. This covenant has been established by
Lender based upon the pro forma balance sheet furnished by Borrower as of the
date hereof and is subject to modification by Lender in good faith if the base
balance sheet to be provided in accordance with Section 9.6(e) differs in any
material respect from such pro forma balance sheet.
9.15 Compliance with ERISA. Borrower shall not with respect to any
---------------------
"employee pension benefit plans" maintained by Borrower or any of its ERISA
Affiliates:
(a) terminate any of such employee pension benefit plans so as to
incur any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction
involving any of such employee pension benefit plans or any trust created
thereunder which would subject Borrower or such ERISA Affiliate to a tax or
penalty or other liability on prohibited transactions imposed under Section 4975
of the Code or ERISA, (iii) fail to pay to any such employee pension benefit
plan any contribution which it is obligated to pay under Section 302 of ERISA,
Section 412 of the Code or the terms of such plan, (iv) allow or suffer to exist
any accumulated funding deficiency, whether or not waived, with respect to any
such employee pension benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee pension benefit plan that is a single employer plan, which termination
could result in any liability to the Pension Benefit Guaranty Corporation or
(vi) incur any withdrawal liability with respect to any multiemployer pension
plan.
As used in this Section 9.14, the term "employee pension benefit
plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand all costs,
------------------
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements
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and all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
title insurance and other insurance premiums, appraisal fees and search fees;
(c) costs and expenses of remitting loan proceeds, collecting checks and other
items of payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect thereto; (d)
costs and expenses of preserving and protecting the Collateral; (e) costs and
expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Lender, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this Agreement and the other Financing Agreements or defending any claims
made or threatened against Lender arising out of the transactions contemplated
hereby and thereby (including, without limitation, preparations for and
consultations concerning any such matters); (f) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $600 per person per day for
Lender's examiners in the field and office; and (g) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.17 Further Assurances. At the request of Lender at any time and from time
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to time, Borrower shall, at its expense, duly execute and deliver, or cause to
be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans
contained herein are satisfied. In the event of such request by Lender, Lender
may, at its option, cease to make any further Loans until Lender has received
such certificate and, in addition, Lender has determined that such conditions
are satisfied. Where permitted by law, Borrower hereby authorizes Lender to
execute and file one or more UCC financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
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the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay when due any of the Obligations or
(ii) fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements other than
as described in Section 10.1(a) and such failure shall continue for ten (10)
days; provided that such ten (10) day period shall not apply in the case
34
<PAGE>
of: (A) any failure to observe any such term, covenant, condition or provision
which is not capable of being cured at all within such ten (10) day period or
which has been the subject of a prior failure within a six (6) month period or
(B) an intentional breach by Borrower or any Obligor of any such term, covenant,
condition or provision, or (C) the failure to observe or perform any of the
covenants and provisions contained in Sections 6.3, 6.4, 7, 9.1, 9.2, 9.5, 9.6,
9.13 or 9.14;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $50,000 in any one case or in excess of
$100,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
35
<PAGE>
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $25,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by Borrower
or any Obligor under any material contract, lease, license or other obligation
to any person other than Lender, which default continues for more than the
applicable cure period, if any, with respect thereto;
(j) any change in the ownership of Borrower or Victel or any change
in the controlling ownership of Quadrax. For purposes hereof, a change in
controlling ownership of Quadrax shall be deemed to have occurred at such time
as any Person, together with the affiliates and associates of such Person within
the meaning of Rule 12b-2 of the Securities Exchange Act of 1934 (as amended the
"Exchange Act"), shall acquire beneficial ownership within the meaning of Rule
13d-3 of the Exchange Act of 20% or more of the voting stock or total equity
capital of Quadrax;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof;
(m) there shall be a breach or default under any of the Purchase
Agreements; or
(n) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
--------
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly
36
<PAGE>
against Borrower or any Obligor to collect the Obligations without prior
recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event
of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or reduce the lending formulas or amounts of Revolving Loans
available to Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans to be made by Lender to Borrower.
37
<PAGE>
(e) Borrower acknowledges and agrees that each and every Event of
Default described above shall be of equal weight and significance, and equally
and fully shall allow Lender to exercise its rights and remedies hereunder.
Borrower acknowledges and agrees that each such Event of Default has been a
material inducement for Lender to enter into this Agreement and that Lender
would be irreparably harmed if Lender, in any way, were unable to exercise its
rights and remedies on the basis that certain Events of Default (for example,
Events of Default not relating to payment) were of less weight or significance
than certain other Events of Default (for example, Events of Default relating to
payment).
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
---------------------------------------------------------------------
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the Commonwealth of
Massachusetts (without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the non-
exclusive jurisdiction of the Superior Court of Suffolk County of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts and waive any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against Borrower or its
property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, Borrower
shall appear in answer to such process, failing which Borrower shall be deemed
in default and judgment may be entered by Lender against Borrower for the amount
of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
38
<PAGE>
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER
AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
-----------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
----------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any
-----------------------
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
39
<PAGE>
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
---------------
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel unless it is determined by a final and
nonappealable judgment or court order binding on Lender that the losses, claims,
damages, liabilities, costs or expenses were the result of acts or omissions of
the Lender constituting gross negligence or wilful misconduct. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law or public policy,
Borrower shall pay the maximum portion which it is permitted to pay under
applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
----
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof; provided, that, Lender may, at
its option, extend the Renewal Date to the date four (4) years from the date
hereof by giving Borrower notice at least sixty (60) days prior to the third
anniversary of this Agreement. Lender or Borrower (subject to Lender's right to
extend the Renewal Date as provided above) may terminate this Agreement and the
other Financing Agreements effective on the Renewal Date or on the anniversary
of the Renewal Date in any year by giving to the other party at least sixty (60)
days prior written notice; provided, that, this Agreement and all other
Financing Agreements must be terminated simultaneously. Upon the effective date
of termination or non-renewal of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
Obligations, including checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such cash collateral shall be remitted by wire transfer in
Federal funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrower for such purpose. Interest shall be due until
and including the next business day, if the amounts so paid by Borrower to the
bank account designated by Lender are received in such bank account later than
12:00 noon, Boston, Massachusetts time.
40
<PAGE>
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof based upon Lender's agreement to defer the payment
of certain financing fees that would otherwise be charged at the inception of
this financing transaction, Borrower agrees to pay to Lender, upon the effective
date of such termination, an early termination fee in the amount set forth below
if such termination is effective in the period indicated:
<TABLE>
<CAPTION>
Amount Period
<S> <C>
(i) 5% of Maximum Credit Date hereof to and including
First Anniversary hereof
(ii) 3% of Maximum Credit Day after First Anniversary to
and including Second
Anniversary hereof
(iii) 2% of Maximum Credit Day after Second Anniversary to
and including Third Anniversary
hereof unless Lender exercises
its option to extend for a fourth
year, in which case, the Fourth
Anniversary hereof
(iv) 0% Day after Third Anniversary or
Fourth Anniversary hereof, as the
case may be (depending upon whether
Lender exercises its extension
option) and thereafter
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be deemed included in
the Obligations.
41
<PAGE>
12.2 Notices. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to be
------------------
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
----------
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, or any other interest
herein to another financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements, any
----------------
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
42
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as an instrument under seal as of the day and year first above
written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION VICTOR ELECTRIC WIRE & CABLE CORP.
(NEW ENGLAND)
By: /s/ Edward I. Shifman, Jr. By: /s/ John V. Palermo
---------------------------- ------------------------------
Name: EDWARD I. SHIFMAN, JR. Name: JOHN V. PALERMO
----------------------- ------------------------
Title: SR. VICE PRES. Title: PRESIDENT & CEO
---------------------- ------------------------
Address: Chief Executive Office:
One Post Office Square 615 Main Street, P.O. Box 10001
Boston, MA 02109 West Warwick, RI 02893
43
<PAGE>
Exhibit 10.2
Lease between CRW Real Estate Partnership, as amended,
and Victor Corporation dated as of October 31, 1995.
To be filed by Amendment to this Form 8-K at a later date.
<PAGE>
Exhibit 10.3
Employment Agreement dated as of May 7, 1997
between Victor Corporation and John V. Palermo
To by filed by Amendment to this Form 8-K at a later date.
<PAGE>
Exhibit 10.4
Press Release dated May 8, 1997.
<PAGE>
[LETTERHEAD OF QUADRAX APPEARS HERE]
FOR IMMEDIATE RELEASE: May 8, 1997
CONTACT: Edward A. Stoltenberg, C.F.O., Quadrax Corporation, tel. (401) 683-6600
Hal Levine/Marty Cohen, The Levine Group, tel. (212) 682-8875
QUADRAX ACQUIRES VICTOR ELECTRIC WIRE AND CABLE
Portsmouth, RI-Quadrax Corporation (Nasdaq-Small Cap Issues: QDRX) announced it
has acquired the Victor Electric Wire & Cable Corporation for $720,000, plus the
assumption of approximately $2.5 million in debt. Victor, which is headquartered
in West Warwick, Rhode Island, manufactures power cordsets and interconnect
cables, primarily for original equipment manufacturers (OEM) of small
appliances. Net sales for fiscal 1996 totaled approximately $18 million.
Congress Financial Corporation provided the debt financing and has increased the
credit facility to $5 million for expansion purposes.
In discussing the transaction, James J. Palermo, Chairman and Chief Executive of
Quadrax, said, "We are very excited about the combination of Victor and Quadrax.
Victor, which was founded in 1945, has a fifty-plus year history of
competitiveness and reliability in its markets. It is well-recognized as a
leading supplier to the small appliance industry, with a blue chip customer base
that includes many household names. In addition, Victor is vertically
integrated, drawing copper rods into strands; insulating, cabling and jacketing
the wire to specification lengths, and molding the ends to produce completed
cordsets or interconnect cable assemblies. Victor produces over 300 different
types of molds for finished cordsets. This has enabled Victor to introduce
innovative refinements and operating efficiencies to the manufacturing process."
Mr. Palermo continued, "I am particularly pleased to announce that John Palermo,
54, will be joining Victor as president and chief executive officer. John spent
eleven years at Westinghouse Electric, starting in its renowned management
training program, moving up to divisional controller. In 1976, he joined Riley
Consolidated, Inc., a subsidiary of Ashland Oil, Inc. where he served,
ultimately, as senior vice president for financial operations, overseeing
financial and information systems, purchasing, production planning and contract
administration. In 1989, he joined a privately-held manufacturing company as
chief financial officer and was named president in 1994. At this home
furnishings company, whose sales are approximately $100 million, he reduced debt
and inventory levels, overhead and product costs, and increased profitability.
He made acquisitions, re-structured the organization and reinvigorated its
product development program. John will be a critical addition to our combined
operations and I am personally delighted to be working with my brother."
<PAGE>
[LOGO OF QUADRAX APPEARS HERE]
Mr. Palermo said, "We believe we can continue the recently-begun expansion of
Victor's product line into higher-margin niche products. Victor has already
begun to ship Hospital Grade, 'green dot' cordsets to medical equipment
manufacturers. Moreover, Victor will have access to Quadrax's materials
research and development capabilities to explore the use of high performance
composites in new applications. Other areas under consideration include power
cords for cellular phones and barcode readers, as well as the sale of bulk
wire."
Mr. Palermo continued, "Victor will serve as a solid foundation to augment our
continued growth efforts in consumer markets."
Quadrax Corporation produces thermoplastic composite materials using its
proprietary fabrication and manufacturing processes for a wide range of
high-performance commercial and consumer products.
Statements made herein that are forward-looking in nature within the meaning of
the Private Securities Litigation Reform Act of 1995 are subject to risks and
uncertainties that could cause actual results to differ materially. Such risks
and uncertainties include, but are not limited to, those related to business
conditions and the financial strength of the sporting goods and small appliance
industries, the level of consumer spending for such products, the ability of the
Company to successfully manufacture its products, finance such production and
the success of advertising, marketing and promotional campaigns.
NOTE: Quadrax's latest news releases are available at no charge by dialing
1-800-758-5804, ext. 728452, or at http://www.prnewswire.com on the Internet.
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