SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED May 4, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO .
Commission file number 0-15991
Intelligent Electronics, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2208404
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
411 Eagleview Boulevard, Exton, PA 19341
(Address of principal executive offices) (Zip Code)
(610) 458-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 34,730,493 shares of Common
Stock, par value $0.01 per share were outstanding at June 3, 1996.
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
May 4, 1996 and February 3, 1996 3
Consolidated Statements of Operations
Three Months Ended May 4, 1996 and April 29, 1995 4
Consolidated Statements of Cash Flows
Three Months Ended May 4, 1996 and April 29, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION FORM 10-Q
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share-related data)
May 4, February 3,
1996 1996
--------------- ---------------
(unaudited)
Assets
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 21,862 $ 34,618
Accounts receivable, net 197,265 192,687
Inventory 332,320 346,058
Prepaid expenses and other current assets 3,431 3,411
Deferred income taxes 16,902 16,041
--------------- ---------------
Total current assets 571,780 592,815
Property and equipment 64,867 68,213
Intangible assets, primarily goodwill, net 152,990 155,390
Other assets 22,123 22,931
--------------- ---------------
Total assets $ 811,760 $ 839,349
=============== ===============
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 17,807 $ 8,744
Accounts payable 480,094 508,747
Accrued liabilities 46,321 49,718
--------------- ---------------
Total current liabilities 544,222 567,209
--------------- ---------------
Long-term debt 79,148 80,025
Other long-term liabilities 13,536 14,079
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value per share:
Authorized 100,000,000 shares,
issued and outstanding:
39,910,649 shares 399 399
Additional paid-in capital 224,298 224,298
Treasury stock (68,207) (68,207)
Retained earnings 18,390 21,584
Unrealized holding loss on securities (26) (38)
--------------- ---------------
Total shareholders' equity 174,854 178,036
--------------- ---------------
Total liabilities and shareholders' equity $ 811,760 $ 839,349
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per-share data)
(unaudited)
Three months ended
------------------
May 4, April 29,
1996 1995
------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 877,939 $ 827,439
Cost of goods sold 832,355 789,764
------------- -------------
Gross profit 45,584 37,675
------------- -------------
Operating expenses:
Selling, general and administrative expenses 42,935 26,818
Amortization of intangibles, primarily goodwill 2,400 1,293
------------- -------------
Total operating expenses 45,335 28,111
------------- -------------
Income from operations 249 9,564
Other income (expense):
Investment and other income (expense), net (105) 498
Interest expense (3,867) (988)
------------- -------------
Income (loss) before provision (benefit) for income
taxes and equity in loss of affiliate (3,723) 9,074
Provision (benefit) for income taxes (529) 3,938
------------- -------------
Income (loss) before equity in loss
of affiliate (3,194) 5,136
Equity in loss of affiliate -- (246)
------------- -------------
Net income (loss) $ (3,194) $ 4,890
============= =============
Income (loss) per common share $ (0.09) $ 0.16
============= =============
Dividends declared per share $ 0.00 $ 0.10
============= =============
Weighted average number of common shares
and share equivalents outstanding: 34,537 31,366
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three months ended
------------------
May 4, April 29,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (3,194) $ 4,890
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 6,879 3,254
Write-off of property and equipment 1,057 --
Deferred taxes (861) (428)
Provision for losses on trade receivables 803 228
Provision for write-down of inventory 2,617 486
Equity in loss of affiliate -- 246
Changes in assets and liabilities:
Accounts receivable (5,381) (16,458)
Inventory 11,121 23,363
Other current assets 770 (194)
Accounts payable (28,653) (1,935)
Accrued liabilities (2,426) 1,511
------------ ------------
Net cash provided by (used for) operating activities (17,268) 14,963
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment, net of disposals (3,704) (11,499)
Other 30 (475)
------------ ------------
Net cash used for investing activities (3,674) (11,974)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from working capital advances 222,261 --
Repayments of working capital advances (213,182) --
Cash dividends paid -- (3,119)
Proceeds from exercise of stock options -- 402
Reduction in capital lease obligations (893) --
------------ ------------
Net cash provided by (used for) financing activities 8,186 (2,717)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,756) 272
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,618 69,027
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,862 $ 69,299
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except share-related data)
(unaudited)
(1) Basis of Presentation
---------------------
The consolidated financial statement information included herein is unaudited
but, in the opinion of management, reflects all adjustments, consisting of
normal recurring adjustments, necessary for a fair statement of the results
for the interim periods presented. These financial statements should be read
in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
February 3, 1996.
(2) New Accounting Standards
------------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, in the quarter ended May 4, 1996. SFAS No. 121
provides guidance for recognition and measurement of impairment of long-lived
assets and certain identifiable intangibles and goodwill related to both
assets to be held and used, and assets to be disposed. The adoption of SFAS
No. 121 did not have a material effect on the Company's financial condition
or results of operations.
In October 1995, SFAS No. 123, Accounting for Stock-based Compensation, was
issued. SFAS No. 123 requires that companies with stock-based compensation
plans either recognize compensation expense based on new fair value
accounting methods or continue to apply existing accounting rules (APB No.
25) and disclose pro forma net income and income per share assuming the fair
value method has been applied. The Company will continue to apply APB No. 25
to its stock-based compensation plans and will disclose the required pro
forma effect on net income and income per share in the Company's financial
statements for the fiscal year ending February 1, 1997.
(3) Acquisition of Business
-----------------------
On August 17, 1995, the Company acquired The Future Now, Inc. ("FNOW") by
issuing 2,952,282 shares of its Common Stock (valued at $36,534, excluding
acquisition-related costs of approximately $1,700) in exchange for all of the
remaining shares (approximately 69%) of FNOW Common Stock not previously
owned by the Company. The acquisition was accounted for using the purchase
method and, accordingly, the operating results of FNOW have been included in
the consolidated operating results since the date of acquisition.
Unaudited pro forma results of operations of the Company for the three months
ended April 29, 1995, assuming the FNOW acquisition was consummated on
January 29, 1995, are as follows:
Three months
ended
April 29, 1995
--------------
Revenue $ 882,445
Net income 3,640
Income per share 0.11
Pro forma financial information presented above is not necessarily indicative
of the results of operations that would have occurred had the acquisition
taken place at the beginning of the period presented or of future results of
operations of the combined companies.
(4) Credit Facilities
-----------------
In April 1996, the Company's $270 million financing agreement was replaced by
a new financing agreement, which has an eighteen month term and is renewable
thereafter for successive six-month periods with the consent of the lender
and allows for total borrowings of up to $225 million, subject to a borrowing
base formula. A portion of this facility can be classified as long-term with
a due date of October 5, 1998 and an interest rate of prime plus 2.50%. The
remaining portion of the facility can be used for inventory financing,
equipment financing and working capital purposes and has an interest rate of
prime plus 1.50%. This facility also imposes certain financial covenants
relating to working capital, tangible net worth , long-term debt to tangible
net worth and fixed charge coverage. The Company was in compliance with all
such covenants as of May 4, 1996.
(5) Common Stock Dividends
----------------------
In the fourth quarter of fiscal 1995, the Board of Directors suspended the
Company's quarterly dividend. There is no assurance that the quarterly
dividend will be resumed. Any resumption will depend upon the Company's
financial performance, capital requirements, financial condition and other
relevant factors.
On April 27, 1995, the Board of Directors declared a $0.10 per share cash
dividend to shareholders of record on May 15, 1995, which was paid on June 1,
1995.
On January 27, 1995, the Company declared a $0.10 per share cash dividend to
shareholders of record on February 15, 1995, which was paid on March 1, 1995.
(6) Supplemental Cash Flow Information
----------------------------------
Cash payments during the three-month periods ended May 4, 1996 and April 29,
1995 included interest of $5,272 and $889, respectively, and income taxes of
$3 and $19, respectively.
(7) Contingencies
-------------
In December 1994, several class action lawsuits were filed in the United
States District Court for the Eastern District of Pennsylvania against the
Company and certain directors and officers. On February 13, 1996, the Court
certified the class for these lawsuits as purchasers of Common Stock from
January 29, 1991 through December 5, 1994. These lawsuits have been
consolidated with a class action lawsuit filed several years ago against the
Company, certain directors and officers, and the Company's auditors in the
United States District Court for the Eastern District of Pennsylvania. A
derivative lawsuit was also filed in December 1994 in the Court of Common
Pleas of Philadelphia County against the Company and certain of its directors
and officers. These lawsuits allege violations of certain disclosure and
related provisions of the federal securities laws and breach of fiduciary
duties, including allegations relating to the Company's practices regarding
vendor marketing funds, and seek damages in unspecified amounts as well as
other monetary and equitable relief. In addition, the Company is subject to
a Securities and Exchange Commission investigation. The Company believes
that all such allegations and lawsuits are without merit and intends to
defend against them vigorously. While management of the Company, based on
its investigation of these matters and consultations with counsel, believes
resolution of these matters will not have a material adverse effect on the
Company's financial position, the ultimate outcome of these matters cannot
presently be determined.
In addition, the Company is involved in various litigation and arbitration
matters in the ordinary course of business. The Company believes that it has
meritorious defenses in and is vigorously defending against all such matters.
During fiscal 1994, based in part of the advice of legal counsel, the Company
established a reserve of $9 million in respect of all litigation and
arbitration matters, some of which has been used to pay legal fees and settle
various claims and suits during fiscal 1995 and fiscal 1996. Although the
aggregate amount of the claims may exceed the amount of the reserve,
management believes that the resolution of these matters will not have a
material adverse effect on the Company's financial position.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Revenues increased 6% to $877.9 million for the quarter ended May 4, 1996
compared to $827.4 million for the quarter ended April 29, 1995. The
increase was due primarily to revenues generated by FNOW, which was acquired
in August 1995 and industry growth.
Gross profit as a percentage of revenues for the quarter ended May 4, 1999
was 5.2% compared to 4.6% for the quarter ended April 29, 1995. The increase
in gross margin percent was due primarily to the higher gross margin percent
realized by the FNOW locations which sell products and services directly to
end-users, partially offset by continued competitive pricing pressures.
Competitive pressures and their impact on margins are expected to continue in
the future.
Selling, general and administrative expenses increased from $26.8 million
(3.2% of revenues) for the quarter ended April 29, 1995 to $42.9 million
(4.9% of revenues) for the quarter ended May 4, 1996. Costs increased
primarily as a result of operating costs for the FNOW locations and
depreciation related to the implementation of new management information
systems. It is anticipated that the workforce reductions and other cost
cutting measures implemented by the Company will somewhat mitigate the higher
selling, general and administrative costs required to support the operations
of FNOW.
Amortization of intangibles increased for the quarter ended May 4, 1996
compared to the quarter ended April 29, 1995 due to goodwill related to the
acquisition of FNOW.
Investment and other income (expense) declined for the quarter ended May 4,
1996 compared to the quarter ended April 29, 1995. This decline can be
primarily attributable to the use of available cash during fiscal 1995 for
the payment of cash dividends, capital expenditures and the repayment of
FNOW's bank debt and finance company debt following the acquisition in August
1995. Interest expense increased for the quarter ended May 4, 1996 as a
result of the Company's more frequent use of its available financing
arrangements for inventory financing and working capital purposes and the
addition of $75 million of long-term debt in October 1995.
The Company's effective tax rate was a 14.2% benefit for the quarter ended
May 4, 1996 compared to a 43.4% provision for the quarter ended April 29,
1995. The effect of non-deductible goodwill amortization on the pre-tax loss
was the primary reason for the difference in the effective tax rate.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its growth to date from stock offerings, bank and
subordinated borrowings, inventory financing and internally generated funds.
The principal uses of its cash have been to fund its accounts receivable and
inventory, make acquisitions, repurchase common stock and pay cash dividends.
During the quarter ended May 4, 1996, the Company's operating activities used
$17.3 million in cash. At May 4, 1996, the Company had cash and cash
equivalents totaling $21.9 million ($34.6 million at February 3, 1996).
Working capital totaled $27.6 million at May 4, 1996 compared to $25.6
million at February 3, 1996. The Company may outsource some of its financing
programs which could reduce the level of accounts receivable. The Company
has a $225 million financing agreement with a finance company, of which
approximately $24.2 million was available at May 4, 1996 after considering
the borrowing base formula, working capital advances and trade payables
outstanding to a vendor related to the finance company.
In the fourth quarter of fiscal 1995, the Board of Directors suspended the
Company's quarterly dividend. There is no assurance that the quarterly
dividend will be resumed. Any resumption will depend upon the Company's
financial performance, capital requirements, financial condition and other
relevant factors.
The Board of Directors has authorized the repurchase, in open-market
transactions, of up to 13.6 million shares of the Company's Common Stock. As
of May 4, 1996, the Company had repurchased approximately 8.3 million shares
at a cost of approximately $105.7 million. Approximately 3 million of the
repurchased shares were reissued in connection with the acquisition of FNOW.
The Company is currently considering a public offering of common stock of
XLConnect Solutions, Inc., a wholly-owned subsidiary, which would only be
made pursuant to a prospectus included in a registration statement filed with
the Securities and Exchange Commission. There is no certainty as to the
occurrence, timing or amount of any such public offering.
Based on the Company's current level of operations and capital expenditures
requirements, management believes that the Company's cash, internally-
generated funds, and available financing arrangements and opportunities will
be sufficient to meet the Company's cash requirements at least through the
end of fiscal 1996.
Inflation and Seasonality
- -------------------------
The Company believes that inflation has not had a material impact on its
operations or liquidity to date. The Company's financial performance does
not exhibit significant seasonality, although certain computer product lines
and the FNOW branch locations follow a seasonal pattern with peaks occurring
near the end of the calendar year.
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10. Amended and Restated Inventory and Working Capital
Financing Agreement dated as of April 5, 1996 by and among
Intelligent Electronics, Inc. and Subsidiaries and IBM Credit
Corporation.
(b) Reports filed on Form 8-K.
The Company's Report on Form 8-K dated March 8, 1996 relating
to the adoption by the Board of Directors of a Shareholders'
Rights Plan.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Intelligent Electronics, Inc.
/s/ Thomas J. Coffey
-------------------------------
Thomas J. Coffey
Senior Vice President, Chief
Financial Officer and
Chief Accounting Officer
Date: June 18, 1996
AMENDED AND RESTATED
INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
dated as of April 5, 1996
by and among
Intelligent Electronics, Inc.,
Intelligent Advanced Systems, Inc.,
RND, Inc.,
The Future Now, Inc.,
Intelligent Express, Inc,
and the other subsidiaries who are
signatories hereto
and
IBM Credit Corporation
<PAGE>
TABLE OF CONTENTS
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . 2
1.1 Special Definitions. . . . . . . . . . . . . . . . . 2
1.2 Other Defined Terms. . . . . . . . . . . . . . . . . 10
Section 2. CREDIT LINE; FINANCE CHARGES; OTHER CHARGES. . . . 10
2.1 Credit Line. . . . . . . . . . . . . . . . . . . . . 10
2.2 Product Advances . . . . . . . . . . . . . . . . . . 10
2.3 A/R Advances . . . . . . . . . . . . . . . . . . . . 12
2.4 Finance and Other Charges. . . . . . . . . . . . . . 14
2.5 Statements Regarding Customer's Account. . . . . . . 15
2.6 Shortfall. . . . . . . . . . . . . . . . . . . . . . 15
2.7 Application of Payments. . . . . . . . . . . . . . . 15
2.8 Prepayment and Reborrowing By Customer . . . . . . . 15
Section 3. CREDIT LINE ADDITIONAL PROVISIONS. . . . . . . . . 16
3.1 Ineligible Accounts. . . . . . . . . . . . . . . . . 16
3.2 Reimbursement for Charges. . . . . . . . . . . . . . 18
3.3 Lockbox and Special Account. . . . . . . . . . . . . 18
3.4 Collections. . . . . . . . . . . . . . . . . . . . . 18
3.5 Application of Remittances and Credits . . . . . . . 18
3.6 Power of Attorney. . . . . . . . . . . . . . . . . . 19
Section 4. SECURITY -- COLLATERAL . . . . . . . . . . . . . . 20
4.1 Grant. . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Further Assurances . . . . . . . . . . . . . . . . . 21
Section 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 21
5.1 Conditions Precedent to the Effectiveness of This
Agreement. . . . . . . . . . . . . . . . . . . . . . 21
5.2 Conditions Precedent to Each Advance . . . . . . . . 22
Section 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 23
6.1 Organization and Qualifications. . . . . . . . . . . 23
6.2 Rights in Collateral; Priority of Liens. . . . . . . 23
6.3 No Conflicts . . . . . . . . . . . . . . . . . . . . 24
6.4 Enforceability . . . . . . . . . . . . . . . . . . . 24
6.5 Locations of Offices . . . . . . . . . . . . . . . . 24
6.6 Fictitious Business Names. . . . . . . . . . . . . . 24
6.7 Organization . . . . . . . . . . . . . . . . . . . . 25
6.8 No Judgments or Litigation . . . . . . . . . . . . . 25
6.9 No Defaults. . . . . . . . . . . . . . . . . . . . . 25
6.10 Labor Matters. . . . . . . . . . . . . . . . . . . . 25
6.11 Compliance with Law. . . . . . . . . . . . . . . . . 25
6.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . 25
6.13 Compliance with Environmental Laws . . . . . . . . . 25
6.14 Intellectual Property. . . . . . . . . . . . . . . . 26
6.15 Licenses and Permits . . . . . . . . . . . . . . . . 26
6.16 Investment Company . . . . . . . . . . . . . . . . . 26
6.17 Taxes and Tax Returns. . . . . . . . . . . . . . . . 27
6.18 Status of Accounts . . . . . . . . . . . . . . . . . 27
6.19 Affiliate/Subsidiary Transactions. . . . . . . . . . 27
6.20 Accuracy and Completeness of Information . . . . . . 27
6.21 Recording Taxes. . . . . . . . . . . . . . . . . . . 28
6.22 Indebtedness . . . . . . . . . . . . . . . . . . . . 28
6.23 Purchasing Agent . . . . . . . . . . . . . . . . . . 28
6.24 Customer Organization by Division. . . . . . . . . . 28
Section 7. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 28
7.1 Financial and Other Information. . . . . . . . . . . 28
7.2 Location of Collateral . . . . . . . . . . . . . . . 32
7.3 Changes in Customer. . . . . . . . . . . . . . . . . 32
7.4 Corporate Existence. . . . . . . . . . . . . . . . . 32
7.5 ERISA. . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Environmental Matters. . . . . . . . . . . . . . . . 32
7.7 Collateral Books and Records; Collateral Audit . . . 33
7.8 Insurance; Casualty Loss . . . . . . . . . . . . . . 34
7.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 35
7.10 Compliance With Laws . . . . . . . . . . . . . . . . 35
7.11 Fiscal Year. . . . . . . . . . . . . . . . . . . . . 35
7.12 Intellectual Property. . . . . . . . . . . . . . . . 35
7.13 Maintenance of Property. . . . . . . . . . . . . . . 35
7.14 Collateral . . . . . . . . . . . . . . . . . . . . . 35
7.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . 37
7.16 Financial Covenants; Additional Covenants . . . . . 37
7.17 Joint and Several Guaranty. . . . . . . . . . . . . 37
7.18 Customer's Organization by Division. . . . . . . . . 39
Section 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 39
8.1 Liens. . . . . . . . . . . . . . . . . . . . . . . . 39
8.2 Disposition of Assets. . . . . . . . . . . . . . . . 39
8.3 Corporate Changes. . . . . . . . . . . . . . . . . . 39
8.4 Guaranties . . . . . . . . . . . . . . . . . . . . . 39
8.5 Restricted Payments. . . . . . . . . . . . . . . . . 40
8.6 Investments. . . . . . . . . . . . . . . . . . . . . 40
8.7 Affiliate/Subsidiary Transactions. . . . . . . . . . 41
8.8 ERISA. . . . . . . . . . . . . . . . . . . . . . . . 41
8.9 Additional Negative Pledges. . . . . . . . . . . . . 41
8.10 Storage of Collateral with Bailees and Warehousemen. 41
8.11 Use of Proceeds. . . . . . . . . . . . . . . . . . . 42
8.12 Accounts . . . . . . . . . . . . . . . . . . . . . . 42
8.13 Indebtedness . . . . . . . . . . . . . . . . . . . . 42
8.14 Loans. . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9. DEFAULT. . . . . . . . . . . . . . . . . . . . . . 42
9.1 Event of Default . . . . . . . . . . . . . . . . . . 42
9.2 Acceleration . . . . . . . . . . . . . . . . . . . . 44
9.3 Remedies . . . . . . . . . . . . . . . . . . . . . . 44
9.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 46
10.1 Term; Termination. . . . . . . . . . . . . . . . . . 46
10.2 Indemnification. . . . . . . . . . . . . . . . . . . 47
10.3 Additional Obligations . . . . . . . . . . . . . . . 48
10.4 LIMITATION OF LIABILITY. . . . . . . . . . . . . . . 48
10.5 Alteration/Waiver. . . . . . . . . . . . . . . . . . 48
10.6 Severability . . . . . . . . . . . . . . . . . . . . 49
10.7 One Loan . . . . . . . . . . . . . . . . . . . . . . 49
10.8 Additional Collateral. . . . . . . . . . . . . . . . 49
10.9 No Merger or Novations . . . . . . . . . . . . . . . 49
10.10 Paragraph Titles. . . . . . . . . . . . . . . . . . 50
10.11 Binding Effect; Assignment. . . . . . . . . . . . . 50
10.12 Notices . . . . . . . . . . . . . . . . . . . . . . 50
10.13 Counterparts. . . . . . . . . . . . . . . . . . . . 51
10.14 ATTACHMENT A MODIFICATIONS. . . . . . . . . . . . . 51
10.15 SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF
LAW. . . . . . . . . . . . . . . . . . . . . . . . . 51
10.16 JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . 52
<PAGE>
AMENDED AND RESTATED INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
This AMENDED AND RESTATED INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
(as amended, supplemented or otherwise modified from time to time, this
"Agreement") amends and restates that certain Addendum to Agreement for
Wholesale Financing (Security Agreement) dated January 29, 1992, among IBM
CREDIT CORPORATION, a Delaware corporation ("IBM Credit"), INTELLIGENT
ELECTRONICS, INC., a Pennsylvania corporation ("IE") and various direct and
indirect subsidiaries of IE listed on the signature page thereto (as
amended, supplemented and modified from time to time, the "Financing
Agreement") and is hereby made this 5th day of April, 1996, by and among
IBM Credit, IE, INTELLIGENT ADVANCED SYSTEMS, INC., a Delaware corporation
("IAS"), RND, Inc., a Colorado corporation ("RND"), THE FUTURE NOW, INC.,
an Ohio corporation ("TFN"), INTELLIGENT EXPRESS, INC., a Pennsylvania
corporation ("Express") and IE's direct and indirect subsidiaries set
forth on the signature page hereto (IE, IAS, RND, TFN, Express and such
subsidiaries are collectively referred to herein as the "Customer").
W I T N E S S E T H
WHEREAS, IBM Credit and Customer are parties to that certain Financing
Agreement pursuant to which IBM Credit finances Customer's acquisition of
inventory and equipment and provides working capital loans;
WHEREAS, in the course of Customer's operations, Customer intends to
purchase from Persons approved in writing by IBM Credit for the purposes of
this Agreement (the "Authorized Suppliers") computer hardware and software
products manufactured or distributed by or bearing any trademark or trade
name of such Authorized Suppliers for distribution throughout the United
States (the "Products") (as of the date hereof the Authorized Suppliers are
as set forth on Attachment E hereto);
WHEREAS, Customer has requested that IBM Credit finance its purchase
of Products from such Authorized Suppliers and its working capital
requirements, and IBM Credit is willing to provide such financing to
Customer subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the Financing Agreement is
hereby amended and restated in its entirety as follows:
Section 1. DEFINITIONS; ATTACHMENTS
1.1 Special Definitions. The following terms shall have the following
respective meaning in this Agreement:
"A/R Advance": any loan or advance of funds made by IBM Credit to Customer
pursuant to Section 2.3 of this Agreement, including, as the context may
require, a WCO Advance and a PRO Advance.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R
Advance under this Agreement.
"A/R Advance Term": shall be the collective or individual reference, as
the context may require, to a PRO Advance Term and a WCO Advance Term.
"A/R Finance Charges": as defined on Attachment A.
"Accounts": as defined in the U.C.C.
"Advance": any loan or other extension of credit by IBM Credit to or on
behalf of Customer pursuant to this Agreement including, without
limitation, (i) Product Advances and (ii) A/R Advances.
"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be
Affiliates of Customer for purposes of this Agreement.
"Agreement": as defined in the caption.
"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customer and satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2)
the Outstanding Advances at such time.
"Average Daily Balance": the sum of the Outstanding Product Advances or
Outstanding A/R Advances, as the case may be, as of the end of each day
during a calendar month, divided by the number of days in the calendar
month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York are generally closed or on
which IBM Credit is closed.
"Closing Date": the date on which the conditions precedent to the
effectiveness of this Agreement set forth in Section 5.1 hereof are
satisfied or waived in writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor
statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by Customer to
IBM Credit from time to time, as provided herein, signed by the chief
executive officer or chief financial officer of Customer, or the Director,
Cash Management of IAS, in the form of Attachment F hereto, detailing and
certifying, among other items: a summary of Customer's inventory on hand
financed by IBM Credit and Customer's Eligible Accounts, the amounts and
aging of all of Customer's Accounts, Customer's inventory on hand financed
by IBM Credit by quantity, type, model, Authorized Supplier's invoice price
to Customer and the total of the line item values for all inventory listed
on the report, the amounts and aging of Customer's accounts payable as of a
specified date, all of Customer's IBM Credit borrowing activity during a
specified period and the total amount of Customer's Borrowing Base as well
as Customer's Outstanding A/R Advances, Outstanding Product Advances,
Available Credit and any Shortfall Amount as of a specified date.
"Common Due Date": (1) the fifth day of a calendar month if the Product
Financing Period or A/R Advance Term, whichever is applicable, expires on
the first through tenth of such calendar month; (2) the fifteenth day of a
calendar month if the Product Financing Period or A/R Advance Term,
whichever is applicable, expires on the eleventh through twentieth of such
calendar month; and (3) the twenty-fifth day of a calendar month if the
Product Financing Period or A/R Advance Term, whichever is applicable,
expires on the twenty-first through the last day of such calendar month.
"Compliance Certificate": a certificate substantially in the form of
Attachment C.
"Credit Line": as defined in Section 2.1.
"Customer": as defined in the caption, Customer shall mean one or more
Customers, jointly and severally, as the context may require.
"Default": either (1) an Event of Default or (2) any event or condition
which, but for the requirement that notice be given or time lapse or both,
would be an Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Account": as defined in Section 3.1.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to
emissions, discharges or release of pollutants, contaminants, hazardous
substances or wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any
Environmental Laws or the imposition of any Lien pursuant to any
Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended,
or any successor statutes.
"Event of Default": as defined in Section 9.1.
"Financial Statements": (i) the consolidating balance sheets and
statements of operations from Customer by division in form and detail
satisfactory to IBM Credit, and (ii) the consolidated balance sheets,
statements of operations, statements of cash flows and statements of
changes in shareholder's equity of Customer and its Subsidiaries for the
period specified, all prepared in accordance with GAAP and consistent with
prior practices.
"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in
which IBM Credit does not charge Customer a financing charge. IBM Credit
shall calculate the Customer's Free Financing Period utilizing a
methodology that is consistent with the methodologies used for similarly
situated customers of IBM Credit. The Customer understands that IBM Credit
may not offer or may cease to offer a Free Financing Period for the
Customer's purchases of Products.
"GAAP": generally accepted accounting principles in the United States as
in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled (through stock or capital ownership or otherwise) by any of the
foregoing.
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under
any Environmental Laws.
"IBM Credit": as defined in the caption.
"Indebtedness": with respect to any Person, (1) all obligations of such
Person for borrowed money or for the deferred purchase price of property or
services (other than trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices) or which is
evidenced by a note, bond, debenture or similar instrument, (2) all
obligations of such Person under capital leases, (3) all obligations of
such Person in respect of letters of credit, banker's acceptances or
similar obligations issued or created for the account of such Person, (4)
liabilities arising under any interest rate protection, future, option
swap, cap or hedge agreement or arrangement under which such Person is a
party or beneficiary, (5) all obligations under guaranties of such Person
and (6) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable
for the payment thereof.
"Investment": with respect to any Person (the "Investor"), (1) any
investment by the Investor in any other Person, whether by means of share
purchase, capital contribution, purchase or other acquisition of a
partnership or joint venture interest, loan, time deposit, demand deposit
or otherwise, and (2) any guaranty by the Investor of any Indebtedness or
other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of
trust, mortgage, other encumbrance or other arrangement having the
practical effect of the foregoing, including the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement.
"Material Adverse Effect": an event or condition which has a material
adverse effect (1) on the business, operations, results of operations,
assets, or financial condition of the Customer, (2) on the aggregate value
of the Collateral or the aggregate amount which IBM Credit would be likely
to receive (after giving consideration to reasonably likely delays in
payment and reasonable costs of enforcement) in the liquidation of such
Collateral to recover the Obligations in full, or (3) on the rights and
remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line
and (2) the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties,
representations, loans, advances, interest (including interest accruing on
or after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to Customer,
whether or not a claim for post-filing or post-petition interest is allowed
in such proceeding), fees, reasonable expenses, indemnities, liabilities
and Indebtedness of any kind and nature whatsoever, including the TLMA, now
or hereafter arising, owing, due or payable from Customer to IBM Credit.
"Other Documents": the TLMA and all security agreements, mortgages, leases,
instruments, documents, guarantees, schedules of assignment, contracts and
similar agreements executed by Customer and delivered to IBM Credit,
pursuant to this Agreement or any other agreements between IBM Credit and
Customer or any of Customer's Affiliates (excluding Montage & Caldwell),
and all amendments, supplements and other modifications to the foregoing
from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related
to Advances charged to Customer's account with IBM Credit.
"Outstanding A/R Advances": at any time of determination, the sum of (1)
the unpaid principal amount of all A/R Advances made by IBM Credit under
this Agreement; and (2) any finance charge, fee, expense or other amount
related to A/R Advances charged to Customer's account with IBM Credit.
"Outstanding Product Advances": at any time of determination, the sum of
(1) the unpaid principal amount of all Product Advances made by IBM Credit
under this Agreement; and (2) any finance charge, fee, expense or other
amount related to Product Advances charged to Customer's account with IBM
Credit.
"Payment Dates": the fifth, fifteenth and twenty-fifth day of each
calendar month.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Indebtedness to any Floor Plan Lender;
(4) Purchase Money Indebtedness;
(5) Guaranties in favor of IBM Credit;
(6) Indebtedness, other than Indebtedness referred to in 1 above, incurred
by Customer in the ordinary course of business for capital leases of
equipment which in the aggregate does not exceed $3.5 million in any period
of 12 consecutive calendar months; and
(7) other Indebtedness consented to by IBM Credit in writing prior to
incurring such Indebtedness.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect
from time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen,
common carriers, landlords and other similar Liens arising by operation of
law or otherwise, not waived in connection herewith, for amounts that are
not yet due and payable or being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted if an adequate
reserve or other appropriate provisions shall have been made therefor as
required to be in conformity with GAAP and an adverse determination in such
proceedings could not reasonably be expected to have a Material Adverse
Effect;
(5) attachment or judgment Liens individually or in the aggregate not in
excess of $1 million (exclusive of (A) any amounts that are duly bonded to
the satisfaction of IBM Credit or (B) any amount fully covered by insurance
as to which the insurance company has acknowledged its obligation to pay
such judgment in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are
not substantial in amount and which do not materially detract from the
value of the property subject thereto or materially interfere with the
ordinary conduct of the business of Customer;
(7) extensions and renewals of the foregoing permitted Liens; provided
that (A) the aggregate amount of such extended or renewed Liens do not
exceed the original principal amount of the Indebtedness for which it
secures, (B) such Liens do not extend to any property other than property
already previously subject to the Lien and (C) such extended or renewed
Liens are on terms and conditions no more restrictive than the terms and
conditions of the Liens being extended or renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders,
contracts, leases, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of the Customer's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or
being contested, in good faith, by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other
appropriate provisions shall have been made therefor as required in order
to be in conformity with GAAP and an adverse determination in such
proceedings could not reasonably be expected to have a Material Adverse
Effect;
(10) Liens arising out of deposits in connection with workers'
compensation, unemployment insurance or other social security or similar
legislation;
(11) Liens arising pursuant to this Agreement;
(12) Liens on (i) that certain 1992 BAe 125 Series 1000A airplane, Serial
number 259035, FAA Registration number N160BA (N535QS) and (ii) that
certain 1993 BAe 126 Series 1000A airplane, Serial number 259040, FAA
Registration number N22UP (N540QS); and
(13) other Liens consented to by IBM Credit in writing prior to incurring
such Liens.
"Person": any individual, association, firm, corporation, partnership,
trust, unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by
Customer under this Agreement or any of the Other Documents.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and
Bank of America National Trust & Savings Association as their prime or base
rate, as of the last Business Day of the calendar month immediately
preceding the date of determination, whether or not such announced rates
are the actual rates charged by such banking institutions to their most
creditworthy borrowers.
"PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit
to itself on behalf of Customer to repay all or a portion of a Product
Advance that is due and payable.
"PRO Advance Term": for each PRO Advance, a period, in increments of ten
days as specified by Customer in the Request for A/R Advance with respect
to such PRO Advance, but in no event in excess of thirty days, commencing
on the A/R Advance Date for such PRO Advance.
"Product Advance": any advance of funds made or committed to be made by
IBM Credit for the account of Customer to an Authorized Supplier in respect
of an invoice delivered by such Authorized Supplier to IBM Credit
describing Products purchased by Customer, including any such advance made
or committed to be made as of the date hereof pursuant to the Financing
Agreement.
"Product Financing Charge": as defined on Attachment A.
"Product Financing Period": for each Product Advance, a period of days
equal to that set forth in Attachment A from time to time, commencing on
the invoice date of such Product Advance.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets
manufactured or distributed by or bearing any trademark or trade name of
any Authorized Supplier) to be used in the Customer's business not to
exceed the lesser of (1) the purchase price or acquisition cost of such
asset and (2) the fair market value of such asset.
"Purchase Money Security Interest": any security interest securing
Purchase Money Indebtedness, which security interest applies solely to the
particular asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.3.
"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other governmental authority,
in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.6.
"Subsidiary": with respect to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned
by such Person.
"Termination Date": shall mean eighteen (18) months following the date of
this Agreement or such other date as IBM Credit and Customer may agree to
in writing from time to time.
"TLMA": that certain Term Lease Master Agreement dated April 30, 1994,
between IAS and IBM Credit as amended, supplemented, or otherwise modified
from time to time.
"Voting Stock": securities, the holders of which are ordinarily, in the
absence of contingencies, entitled to elect the corporate directors (or
persons performing similar functions).
"WCO Advance": an A/R Advance, with a WCO Advance Term.
"WCO Advance Term": for each WCO Advance, a period of one hundred eighty
(180) days commencing on the A/R Advance Date for such WCO Advance.
1.2 Other Defined Terms. Terms not otherwise defined in this Agreement
which are defined in the Uniform Commercial Code as in effect in the State
of New York (the "U.C.C.") shall have the meanings assigned to them
therein.
1.3 Attachments. All attachments, exhibits, schedules and other addenda
hereto, including, but not limited to, Attachment A and Attachment B, are
specifically incorporated herein by reference and made a part of this
Agreement.
Section 2. CREDIT LINE; FINANCE CHARGES; OTHER CHARGES
2.1 Credit Line. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that
is the earlier of (i) the date on which this Agreement is terminated
pursuant to Section 10.1 and (ii) the date on which IBM Credit terminates
the Credit Line pursuant to Section 9.2, IBM Credit agrees to extend to the
Customer a credit line ("Credit Line") in the amount set forth in
Attachment A pursuant to which IBM Credit will make to the Customer, from
time to time, Advances in an aggregate amount at any one time outstanding
not to exceed the Maximum Advance Amount. Notwithstanding any other term
or provision of this Agreement, IBM Credit may, at any time and from time
to time, in its sole and absolute discretion (x) temporarily increase the
amount of the Credit Line set forth in Attachment A and decrease the amount
of the Credit Line to the amount of the Credit Line set forth in Attachment
A, in each case upon notice to the Customer, and (y) make Advances pursuant
to this Agreement in an aggregate amount at any one time outstanding in
excess of the Credit Line.
2.2 Product Advances. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with
Customer's purchase of Products from Authorized Suppliers. Customer hereby
authorizes and directs IBM Credit to pay the proceeds of Product Advances
directly to the applicable Authorized Supplier in respect of invoices
delivered to IBM Credit for such Products by such Authorized Supplier and
acknowledges that each such Product Advance constitutes a loan by IBM
Credit to Customer pursuant to this Agreement as if the Customer received
the proceeds of the Product Advance directly from IBM Credit. Customer may
at any time notify IBM Credit in writing that a specific Authorized
Supplier has been terminated by Customer as an Authorized Supplier. Upon
such notification, IBM Credit shall use its best efforts to refuse all
further Product Advance requests from such Authorized Supplier.
Notwithstanding the above, any Product Advance request approved by IBM
Credit prior to receiving such notification from Customer shall not be
affected.
(B) No finance charge shall accrue on any Product Advance during the
Free Financing Period, if any, applicable to such Product Advance.
Customer shall repay each Product Advance no later than the Common Due Date
for such Product Advance. Customer may, at its option, repay each Product
Advance by requesting IBM Credit to apply all or any part of the principal
amount of an A/R Advance to the Outstanding Product Advances. Customer's
request for such application shall be made in accordance with Section
2.3. When so requested and subject to the terms and conditions of this
Agreement, IBM Credit shall apply the amount so requested to the amounts
due in respect of the Outstanding Product Advances. Nothing contained
herein shall relieve Customer of its obligation to repay Product Advances
when due. Each Product Advance shall accrue a finance charge on the
Average Daily Balance thereof from the end of the Free Financing Period, if
any, for such Product Advance, or if no such Free Financing Period shall be
in effect, from the date of invoice for such Product Advance, in each case,
until such Product Advance shall become due and payable in accordance with
the terms of this Agreement, at a per annum rate equal to the lesser of (a)
the finance charge set forth in Attachment A to this Agreement as the
"Product Financing Charge" and (b) the highest rate from time to time
permitted by applicable law. In addition, for any Product Advance with
respect to which a Free Financing Period shall not be in effect, Customer
shall pay a fee equal to 50 basis points of such Product Advance. Such fee
shall be due and payable on the Common Due Date for such Product Advance.
If it is determined that amounts received from Customer were in excess of
the highest rate permitted by law, then the amount representing such excess
shall be considered reductions to principal of Advances.
(C) Customer acknowledges that IBM Credit does not warrant the
Collateral. Customer shall be obligated to pay IBM Credit in full even if
the Collateral is defective or fails to conform to the warranties extended
by the Authorized Supplier. The Obligations of Customer shall not be
affected by any dispute Customer may have with any manufacturer,
distributor or Authorized Supplier. Customer will not assert any claim or
defense which it may have against any manufacturer, distributor or
Authorized Supplier against IBM Credit.
(D) Customer hereby authorizes IBM Credit to collect directly from
any Authorized Supplier any credits, rebates, bonuses or discounts owed by
such Authorized Supplier to Customer ("Supplier Credits"). Customer
acknowledges and agrees that any Supplier Credits received by IBM Credit
may be applied by IBM Credit to the Outstanding Advances. Customer
acknowledges and agrees that any Supplier Credits collected by IBM Credit
will in no way reduce Customer's debt to IBM Credit in respect of the
Outstanding Advances until such Supplier Credits are applied by IBM Credit.
IBM Credit agrees that any Supplier Credits it receives shall be applied to
Customer's account as of the date such Supplier Credits are received.
(E) Customer hereby authorizes IBM Credit to apply any payments and
Supplier Credits received by IBM Credit to reduce finance charges first and
then to principal amounts of Advances owed by Customer. Provided Customer
is not in default hereunder and has not instructed IBM Credit otherwise,
Customer hereby authorizes IBM Credit to apply principal payments to the
oldest (earliest) invoices (and related Product Advances) first, but, in
any case, all principal payments will be applied in respect of the
Outstanding Product Advances made for Products which have been sold, lost,
stolen, destroyed, damaged or otherwise disposed of prior to any other
application thereof.
(F) Customer will indemnify and hold IBM Credit harmless from and
against any claims or demands asserted by any Person relating to or arising
from the Collateral for any reason whatsoever, including, without
limitation, the condition of the Collateral, any misrepresentation made
about the Collateral by any representative of Customer, or any act or
failure to act by Customer except to the extent such claims or demands are
directly attributable to IBM Credit's gross negligence or willful
misconduct. Nothing contained in the foregoing shall impair any rights or
claims which the Customer may have against any manufacturer, distributor or
Authorized Supplier.
2.3 A/R Advances. (A) Whenever Customer shall desire IBM Credit to
provide an A/R Advance, Customer shall deliver to IBM Credit written notice
of Customer's request for such an Advance ("Request for A/R Advance"). For
any requested A/R Advance pursuant to which monies will be disbursed to
Customer or any Person other than IBM Credit, a Request for A/R Advance
shall be delivered to IBM Credit on or prior to 10:30 a.m. (Stamford, CT
time) on the day such A/R Advance is to be made. The Request for A/R
Advance shall specify (i) the requested A/R Advance Date; (ii) the amount
of the requested A/R Advance; (iii) whether such A/R Advance is a WCO
Advance or a PRO Advance; (iv) if applicable, the PRO Advance Term for such
A/R Advance; (v) for each PRO Advance, the month, day and year of the
Common Due Date, as set forth in Customer's applicable billing statement
from IBM Credit, for the Product Advance to which the PRO Advance is to be
applied; and (vi) if applicable, the amount of the requested A/R Advance
that should be applied to the Outstanding Product Advances (provided that
all PRO Advances shall be applied to Outstanding Product Advances).
Customer may deliver a Request for A/R Advance via facsimile. Any Request
for A/R Advance delivered to IBM Credit shall be irrevocable.
Notwithstanding any other provision of this Agreement, Customer shall not
(i) request more than one PRO Advance in respect of any Product Advance;
and (ii) request a PRO Advance for any Common Due Date on which Customer
will take a discount offered by IBM Credit for invoice amounts paid in full
within fifteen (15) days of the invoice date under IBM Credit's High
Turnover Option ("HTO") Program.
(B) Subject to the terms and conditions of this Agreement, on the A/R
Advance Date specified in a Request for A/R Advance, IBM Credit shall make
the principal amount of each A/R Advance available to the Customer in
immediately available funds to an account maintained by Customer. If IBM
Credit is making an A/R Advance hereunder on a day on which Customer is to
repay all or any part of an Outstanding Advance (or any other amount owing
hereunder), IBM Credit shall apply the proceeds of the A/R Advance to such
repayment and only an amount equal to the difference, if any, between the
amount of the A/R Advance and the amount being repaid shall be made
available to Customer as provided in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid
principal amount thereof, at a per annum rate equal to the lesser of (a)
the finance charge set forth in Attachment A to this Agreement under the
caption "A/R Finance Charge" for such type of A/R Advance, and (b) the
highest rate from time to time permitted by applicable law. If it is
determined that amounts received from the Customer were in excess of such
highest rate, then the amount representing such excess shall be considered
reductions to principal of Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance shall be due and payable on the
applicable Common Due Date. Unless otherwise notified by Customer in
writing prior to the day the principal amount of any WCO Advance becomes
due and payable, the Customer shall be deemed to have provided IBM Credit
with a Request for A/R Advance requesting a WCO Advance on the day such
principal amount is due and payable in an amount equal to the unpaid
principal amount of the WCO Advance so due. Subject to the terms and
conditions of this Agreement, the principal amount of such WCO Advance
shall automatically renew for an additional WCO Advance Term.
2.4 Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Product Financing Charge
or A/R Finance Charge provided for in this Agreement by Customer's
applicable Average Daily Balance. The Delinquency Fee Rate, the Product
Financing Charge and the various A/R Finance Charges provided for in this
Agreement are each computed on the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set
forth as "Other Charges" in Attachment A. The Customer also agrees to pay
IBM Credit additional charges for any returned items of payment received
(i) by Customer from any Account obligor, or (ii) by IBM Credit from
Customer. The Customer hereby acknowledges that any such charges are not
interest but that such charges, if unpaid, will constitute part of the
Outstanding Advances.
(C) The Customer hereby agrees to pay throughout the term of this
Agreement any and all recording taxes, recording fees, filing fees or other
charges incurred by IBM Credit in connection with the filing and recording
of this Agreement or any other documents necessary to perfect or maintain
IBM Credit's first priority, perfected security interest in the Collateral.
(D) The finance charges and Other Charges owed under this Agreement,
and any charges hereafter agreed to in writing by the parties, are payable
monthly on the twenty-fifth (25th) day of each month following receipt of
IBM Credit's bill or statement therefor or IBM Credit may, in its sole
discretion, add unpaid finance charges and Other Charges to the Customer's
Outstanding Advances.
(E) If any amount owed under this Agreement, including, without
limitation, any Advance, is not paid when due (whether at maturity, by
acceleration or otherwise), the unpaid amount thereof will bear a late
charge from and including its due date to but not including the date IBM
Credit receives payment thereof, at a per annum rate equal to the lesser of
(a) the amount set forth in Attachment A to this Agreement as the
"Delinquency Fee Rate" and (b) the highest rate from time to time permitted
by applicable law. Provided, however, if Customer notifies IBM Credit
within the applicable time period set forth in 2.5 below that a dispute
exists with regard to any amounts owed under this Agreement and such
dispute is deemed by such Authorized Supplier to be a valid dispute, IBM
Credit will credit Customer's account in an amount equal to such disputed
amount and any finance charges or Other Charges incurred as a result
thereof. In addition, if any Shortfall Amount shall not be paid when due
pursuant to Section 2.6 hereof, Customer shall pay IBM Credit an additional
late charge equal to the product of the Shortfall Amount multiplied by
thirty (30) basis points. If it is determined that amounts received from
Customer were in excess of such highest rate, then the amount representing
such excess shall be considered reductions to principal of Advances.
2.5 Statements Regarding Customer's Account. IBM Credit will send
statements of each transaction hereunder as well as monthly billing
statements to Customer with respect to Advances and other charges due on
Customer's account with IBM Credit. Each statement of transaction and
monthly billing statement shall be deemed, absent manifest error, to be
correct and shall constitute an account stated with respect to each
transaction or amount described therein unless within twenty (20) calendar
days after such statement of transaction or billing statement is received
by Customer, Customer provides IBM Credit written notice objecting that
such amount or transaction is incorrectly described therein and specifying
the error(s), if any, contained therein. IBM Credit may at any time adjust
such statements of transaction or billing statements to comply with
applicable law and this Agreement. IBM Credit shall send such monthly
billing statements to Customer no later than the tenth (10th) Business Day
of each month.
2.6 Shortfall. If, on any date, the Outstanding Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then the
Customer shall on such date prepay the Outstanding Advances in an amount
equal to such Shortfall Amount.
2.7 Application of Payments. The Customer hereby agrees that all checks
and other instruments delivered to IBM Credit on account of Customer's
Obligations shall constitute conditional payment until such items are
actually collected by IBM Credit. Subject to the following sentence, the
Customer waives the right to direct the application of any and all payments
at any time or times hereafter received by IBM Credit on account of the
Customer's Obligations. Provided Customer is not in default hereunder and
has not instructed IBM Credit otherwise, Customer agrees that IBM Credit
shall have the continuing exclusive right to apply and reapply any and all
such payments to Customer's Obligations in such manner as IBM Credit may
deem advisable notwithstanding any entry by IBM Credit upon any of its
books and records.
2.8 Prepayment and Reborrowing By Customer. (A) Customer may at any time
prepay, without notice or penalty, in whole or in part amounts owed under
this Agreement. Notwithstanding anything to the contrary in 2.7 above, IBM
Credit may apply payments made to it (whether by the Customer or otherwise)
to pay finance charges and other amounts owing under this Agreement first
and then to the principal amount owed by the Customer.
(B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may
be reborrowed by Customer in accordance with the provisions of this
Agreement.
Section 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1 Ineligible Accounts. IBM Credit and Customer agree that IBM Credit
shall have the sole right to determine eligibility of Accounts from an
Account obligor for purposes of determining the Borrowing Base; however,
without limiting such right, the following Accounts will be deemed to be
ineligible for purposes of determining the Borrowing Base:
(A) Accounts created from the sale of goods and/or performance of
services on non-standard terms or that allow for payment to be made more
than thirty (30) days from the date of such sale or performance of
services;
(B) Accounts unpaid more than ninety (90) days from date of invoice;
(C) Accounts payable by an account debtor if fifty percent (50%) or
more of the aggregate outstanding balance of all such Accounts remain
unpaid for more than ninety (90) days from the date of invoice;
(D) Accounts payable by an account debtor that is an Affiliate of
Customer or an officer, employee, agent, guarantor, stockholder or
Affiliate of Customer or is related to or has common shareholders, officers
or directors with Customer, provided, however, that Accounts payable by FCP
Technologies, Inc. and Pacific On Line Computers, Inc. to Customer shall be
deemed Eligible Accounts;
(E) Accounts arising from consignment sales;
(F) Accounts with respect to which the payment by the account debtor
is or may be conditional;
(G) Except for state, local and United States government institutions
and public educational institutions, accounts with respect to which:
(i) the account debtor is not a commercial entity, or
(ii) the account debtor is not a resident of the United
States;
(H) Accounts payable by any account debtor to which Customer is or
may become liable for goods sold or services rendered by such account
debtor to Customer;
(I) Accounts arising from the sale or lease of goods purchased for a
personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods that
has been used for demonstration purposes or loaned or leased by the
Customer to another party;
(K) Accounts which are progress payment accounts or contra accounts;
(L) Accounts upon which IBM Credit does not have a valid, perfected,
first priority security interest;
(M) Accounts payable by an account debtor that is or Customer knows
will become, subject to proceedings under United States Bankruptcy Law or
other law for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any account debtor that is a remarketer of
computer hardware and software products and whose purchases of such
products from Customer have been financed by another person who pays the
proceeds of such financing directly to Customer on behalf of such obligor;
(P) Accounts arising from the sale or lease of goods which are billed
to any account debtor but have not yet been shipped by Customer;
(Q) Accounts with respect to which Customer has permitted or agreed
to any extension, compromise or settlement, or made any change or
modification of any kind or nature, including, but not limited to, any
change or modification to the terms relating thereto;
(R) Accounts that do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the
invoices, purchase orders and contracts relating thereto;
(S) Accounts that are discounted for the full payment term specified
in Customer's terms and conditions with its account debtors, or for any
longer period of time;
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts that are
billed in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts,
credits, and refunds from a supplier; and
(X) Any and all other Accounts that IBM Credit deems, in its sole and
absolute discretion, to be ineligible.
The aggregate of all Accounts that are not ineligible Accounts shall
hereinafter be referred to as "Eligible Accounts".
3.2 Reimbursement for Charges. Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other
items of payment, all fees relating to the use and maintenance of the
Lockbox and the Special Account (each as defined in Section 3.3) and with
respect to remittances of proceeds of the Advances hereunder.
3.3 Lockbox and Special Account. Customer shall establish and maintain
lockboxes (each, a "Lockbox") at the addresses set forth in Attachment A
with the financial institutions listed in Attachment A (each, a "Bank")
pursuant to an agreement between the Customer and each Bank in form and
substance satisfactory to IBM Credit. Customer shall also establish and
maintain a deposit account which shall contain only proceeds of Customer's
Accounts ("Special Account") with each Bank. Customer shall enter into and
maintain a contingent blocked account agreement with each Bank for the
benefit of IBM Credit in form and substance satisfactory to IBM Credit
pursuant to which, among other things, such Bank shall agree that, upon
notice from IBM Credit, disbursements from the Special Account shall be
made only as IBM Credit shall direct.
3.4 Collections. Customer shall instruct all Account obligors to remit
payments directly to a Lockbox. In addition, Customer shall have such
instruction printed in conspicuous type on all invoices. Customer shall
instruct such Bank to deposit all remittances to such Bank's Lockbox into
its Special Account. Customer further agrees that it shall not deposit or
permit any deposits of funds other than remittances paid in respect of the
Accounts into the Special Account(s) or permit any commingling of funds
with such remittances in any Lockbox or Special Account. Without limiting
the Customer's foregoing obligations, if, at any time, Customer receives a
remittance directly from an Account obligor, then Customer shall make
entries on its books and records in a manner that shall reasonably identify
such remittances and shall keep a separate account on its record books of
all remittances so received and deposit the same into a Special Account.
Until so deposited into the Special Account, Customer shall keep all
remittances received in respect of Accounts separate and apart from
Customer's other property so that they are capable of identification as the
proceeds of Accounts in which IBM Credit has a security interest.
3.5 Application of Remittances and Credits. Customer shall apply all
remittances against the aggregate of Customer's outstanding Accounts no
later than the end of the next Business Day on which such remittances are
deposited into the Special Account. Customer also agrees to apply each
remittance against its respective Account no later than three (3) Business
Days from the date such remittance is deposited into the Special Account.
In addition, Customer shall promptly apply any credits owing in respect to
any Account when due.
3.6 Power of Attorney. Customer hereby irrevocably appoints IBM Credit,
with full power of substitution, as its true and lawful attorney-in-fact
with full power, in good faith and in compliance with commercially
reasonable standards, in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to perfect and maintain
perfected the security interest in the Collateral contemplated under this
Agreement and the Other Documents;
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application
to the Obligations; and
upon the occurrence and during the continuance of an Event of Default as
defined in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all
Customer's rights and remedies with respect to the collection of any
Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to
collect any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and
at such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account obligor;
(I) prepare, file and sign Customer's name on any notice of lien,
claim of mechanic's lien, assignment or satisfaction of lien or mechanic's
lien, or similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;
(K) sign the name of Customer to requests for verification of
Accounts and notices thereof to Account obligors;
(L) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to enforce any and all remedies
it may have under this Agreement, at law or otherwise;
(M) make, settle and adjust claims under the Policies with respect to
the Collateral and endorse Customer's name on any check, draft, instrument
or other item of payment of the proceeds of the Policies with respect to
the Collateral; and
(N) take control in any manner of any term of payment or proceeds and
for such purpose to notify the postal authorities to change the address for
delivery of mail addressed to Customer to such address as IBM Credit may
designate. If IBM Credit takes control of Customer's mail pursuant to this
subsection, IBM Credit agrees to segregate Customer's mail from payments
and agrees to promptly return Customer's mail to Customer.
The power of attorney granted by this Section is for value and coupled with
an interest and is irrevocable so long as this Agreement is in effect or
any Obligations remain outstanding. Nothing done by IBM Credit pursuant to
such power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received
monies.
Section 4. SECURITY -- COLLATERAL
4.1 Grant. To secure Customer's full and punctual payment and performance
of the Obligations when due (whether at the stated maturity, by
acceleration or otherwise), Customer hereby grants IBM Credit a security
interest in all of Customer's right, title and interest in and to the
following property, whether now owned or hereafter acquired or existing and
wherever located:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents
therefor;
(B) all accounts, contract rights, chattel paper, instruments,
deposit accounts, obligations of any kind owing to Customer, whether or not
arising out of or in connection with the sale or lease of goods or the
rendering of services and all books, invoices, documents and other records
in any form evidencing or relating to any of the foregoing;
(C) general intangibles;
(D) all rights now or hereafter existing in and to all mortgages,
security agreements, leases or other contracts securing or otherwise
relating to any of the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included,
all payments under insurance or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral".
Customer covenants and agrees with IBM Credit that: (a) the security
constituted to by this Agreement is in addition to any other security from
time to time held by IBM Credit and (b) the security hereby created is a
continuing security interest and will cover and secure the payment of all
Obligations both present and future of Customer to IBM Credit pursuant to
this Agreement and the Other Documents.
4.2 Further Assurances. Customer shall, from time to time upon the
request of IBM Credit, execute and deliver to IBM Credit, or cause to be
executed and delivered, at such time or times as IBM Credit may request
such other and further documents, certificates and instruments that IBM
Credit may deem necessary to perfect and maintain perfected IBM Credit's
security interests in the Collateral and in order to fully consummate all
of the transactions contemplated under this Agreement and the Other
Documents.
Section 5. CONDITIONS PRECEDENT
5.1 Conditions Precedent to the Effectiveness of This Agreement. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of,
or waiver in writing by IBM Credit of compliance with, the following
conditions precedent:
(A) this Agreement executed and delivered by Customer and IBM Credit;
(B) (i) copies of the resolutions of the Board of Directors of
Customer certified by the secretary or assistant secretary of Customer
authorizing the execution, delivery and performance of this Agreement and
each of the Other Documents executed and delivered in connection herewith,
(ii) a certificate of the secretary or an assistant secretary of Customer,
in form and substance satisfactory to IBM Credit, certifying the names and
true signatures of the officers of Customer authorized to sign this
Agreement and the Other Documents and (iii) copies of the articles of
incorporation and by-laws of Customer certified by the secretary or
assistant secretary of Customer;
(C) certificates dated as of a recent date from the Secretary of
State or other appropriate authority evidencing the good standing of
Customer in the jurisdiction of its organization and in each other
jurisdiction where the ownership or lease of its property or the conduct of
its business requires it to qualify to do business;
(D) copies of all approvals and consents from any Person, in each
case in form and substance satisfactory to IBM Credit, which are required
to enable Customer to authorize, or required in connection with, (a) the
execution, delivery or performance of this Agreement and each of the Other
Documents, and (b) the legality, validity, binding effect or enforceability
of this Agreement and each of the Other Documents;
(E) a lockbox agreement executed by Customer and each Bank, in form
and substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by Customer and
each Bank in form and substance satisfactory to IBM Credit;
(G) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured
creditor of Customer as set forth in Attachment A;
(H) a favorable opinion of counsel for Customer in substantially the
form of Attachment I;
(I) UCC-1 financing statements for each jurisdiction reasonably
requested by IBM Credit executed by Customer and each guarantor whose
guaranty to IBM Credit is intended to be secured by a pledge of its assets;
(J) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and
Attachment B; and
(K) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2 Conditions Precedent to Each Advance. No Advance will be required to
be made or renewed by IBM Credit under this Agreement unless, on and as of
the date of such Advance, the following statements shall be true to the
satisfaction of IBM Credit:
(A) The representations and warranties contained in this Agreement or
in any document, instrument or agreement executed in connection herewith,
are true and correct in all material respects on and as of the date of such
Advance as though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to
such Advance or the application of the proceeds thereof would result which
would constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance,
no Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in writing prior
to each request, each request (or deemed request pursuant to Section 2.3
(D)) for an Advance hereunder and the receipt (or deemed receipt) by the
Customer of the proceeds of any Advance hereunder shall be deemed to be a
representation and warranty by Customer that, as of and on the date of such
Advance, the statements set forth in (A) through (D) above are true
statements. No such disclosures by Customer to IBM Credit shall in any
manner be deemed to satisfy the conditions precedent to each Advance that
are set forth in this Section 5.2 unless such condition precedent is waived
in writing by IBM Credit.
Section 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:
6.1 Organization and Qualifications. Customer and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, (ii)
has the power and authority to own its properties and assets and to
transact the businesses in which it presently is engaged and (iii) is duly
qualified and is authorized to do business and is in good standing in each
jurisdiction where it presently is engaged in business and is required to
be so qualified.
6.2 Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to
IBM Credit, free and clear of any and all Liens in favor of third parties
except for the Liens otherwise permitted pursuant to Section 8.1. The
Liens granted by the Customer and each of its Subsidiaries pursuant to this
Agreement, the Guaranties and the Other Documents in the Collateral
constitute the valid and enforceable first, prior and perfected Liens on
the Collateral, except to the extent any Liens that are prior to IBM
Credit's Liens are (i) the subject of an Intercreditor Agreement or (ii)
Purchase Money Security Interests in product of a brand that is not
financed by IBM Credit.
6.3 No Conflicts. The execution, delivery and performance by Customer of
this Agreement and each of the Other Documents (i) are within its corporate
power; (ii) are duly authorized by all necessary corporate action; (iii)
are not in contravention in any respect of any Requirement of Law or any
indenture, contract, lease, agreement, instrument or other commitment to
which it is a party or by which it or any of its properties are bound; (iv)
do not require the consent, registration or approval of any Governmental
Authority or any other Person (except such as have been duly obtained, made
or given, and are in full force and effect); and (v) will not, except as
contemplated herein, result in the imposition of any Liens upon any of its
properties.
6.4 Enforceability. This Agreement and all of the other documents
executed and delivered by the Customer in connection herewith are the
legal, valid and binding obligations of Customer, and are enforceable in
accordance with their terms, except as such enforceability may be limited
by the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws affecting creditors'
rights generally or the general equitable principles relating thereto.
6.5 Locations of Offices, Records and Inventory. The address of the
principal place of business and chief executive office of Customer is as
set forth on Attachment B or on any notice provided by Customer to IBM
Credit pursuant to Section 7.7(C) of this Agreement. The books and records
of Customer, and all of its chattel paper (other than the chattel paper
delivered to IBM Credit pursuant to Section 7.14(E)) and records of
Accounts, are maintained exclusively at such location. There is no
jurisdiction in which Customer has any assets, equipment or inventory
(except for vehicles and inventory in transit for processing) other than
those jurisdictions identified on Attachment B or on any notice provided by
Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement.
Attachment B, as amended from time to time by any notice provided by
Customer to IBM Credit in accordance with Section 7.7(C) of this Agreement,
also contains a complete list of the legal names and addresses of each
warehouse at which the Customer's inventory is stored. None of the
receipts received by Customer from any warehouseman states that the goods
covered thereby are to be delivered to bearer or to the order of a named
person or to a named person and such named person's assigns.
6.6 Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years preceding the date of this
Agreement, other than those listed on Attachment B.
6.7 Organization. All of the outstanding capital stock of Customer has
been validly issued, is fully paid and nonassessable.
6.8 No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due
inquiry, threatened, any litigation, contested claim, investigation,
arbitration, or governmental proceeding by or against Customer which could
reasonably be expected to have a Material Adverse Effect.
6.9 No Defaults. The Customer is not in default under any term of any
indenture, contract, lease, agreement, instrument or other commitment to
which it is a party or by which it, or any of its properties are bound.
Customer has no knowledge of any dispute regarding any such indenture,
contract, lease, agreement, instrument or other commitment. No Default or
Event of Default has occurred and is continuing.
6.10 Labor Matters. Except as set forth on any notice provided by Customer
to IBM Credit pursuant to Section 7.1(G) of this Agreement, the Customer is
not a party to any labor dispute. There are no strikes or walkouts or labor
controversies pending or threatened against the Customer which could
reasonably be expected to have a Material Adverse Effect.
6.11 Compliance with Law. Customer has not violated or failed to comply
with any Requirement of Law or any requirement of any self regulatory
organization.
6.12 ERISA. Each "employee benefit plan," "employee pension benefit plan,"
or "defined benefit plan," which Customer has established, maintained, or
to which it is required to contribute (collectively, the "Plans") is in
compliance with all applicable provisions of ERISA and the Code and the
rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no
"reportable event" has occurred within the last 60 months with respect to
any Plan. Customer has no "multi- employer benefit plan". As used in this
Agreement the terms "employee benefit plan", "employee pension benefit
plan", "defined benefit plan", and "multi-employer benefit plan" have the
respective meanings assigned to them in Section 3 of ERISA and any
applicable rules and regulations thereunder. The Customer has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or
incurred any liability to the Pension Benefit Guaranty Corporation (the
"PBGC") in connection with a Plan (other than for premiums due in the
ordinary course).
6.13 Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:
(A) The Customer has obtained all government approvals required with
respect to the operation of their businesses under any Environmental Law.
(B) (i) the Customer has not generated, transported or disposed of
any Hazardous Substances; (ii) the Customer is not currently generating,
transporting or disposing of any Hazardous Substances; (iii) the Customer
has no knowledge that (a) any of its real property (whether owned, leased,
or otherwise directly or indirectly controlled) has been used for the
disposal of or has been contaminated by any Hazardous Substances, or (b)
any of its business operations have contaminated lands or waters of others
with any Hazardous Substances; (iv) the Customer and its respective assets
are not subject to any Environmental Liability and, to the best of the
Customer's knowledge, any threatened Environmental Liability; (v) the
Customer has not received any notice of or otherwise learned of any
governmental investigation evaluating whether any remedial action is
necessary to respond to a release or threatened release of any Hazardous
Substance for which the Customer may be liable; (vi) the Customer is not in
violation of any Environmental Law; (vii) there are no proceedings or
investigations pending against Customer with respect to any violation or
alleged violation of any Environmental Law; provided however, that the
parties acknowledge that any generation, transportation, use, storage and
disposal of certain such Hazardous Substances in Customer's or its
Subsidiaries' business shall be excluded from representations (i) and (ii)
above, provided, further, that Customer is at all times generating,
transporting, utilizing, storing and disposing such Hazardous Substances in
accordance with all applicable Environmental Laws and in a manner designed
to minimize the risk of any spill, contamination, release or discharge of
Hazardous Substances other than as authorized by Environmental Laws.
6.14 Intellectual Property. Customer possesses such assets, licenses,
patents, patent applications, copyrights, service marks, trademarks, trade
names and trade secrets and all rights and other property relating thereto
or arising therefrom ("Intellectual Property") as are necessary or
advisable to continue to conduct its present and proposed business
activities.
6.15 Licenses and Permits. Customer has obtained and holds in full force
and effect all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights
and approvals which are necessary for the operation of its businesses as
presently conducted. Customer is not in violation of the terms of any such
franchise, license, lease, permit, certificate, authorization,
qualification, easement, right of way, right or approval.
6.16 Investment Company. The Customer is not (i) an investment company or
a company controlled by an investment company within the meaning of the
Investment Company Act of 1940, as amended, (ii) a holding company or a
subsidiary of a holding company, or an Affiliate of a holding company or of
a subsidiary of a holding company, within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or (iii) subject to any other law
which purports to regulate or restrict its ability to borrow money or to
consummate the transactions contemplated by this Agreement or the Other
Documents or to perform its obligations hereunder or thereunder.
6.17 Taxes and Tax Returns. Customer has timely filed all federal, state,
and local tax returns and other reports which it is required by law to
file, and has either duly paid all taxes, fees and other governmental
charges indicated to be due on the basis of such reports and returns or
pursuant to any assessment received by the Customer, or made provision for
the payment thereof in accordance with GAAP. The charges and reserves on
the books of the Customer in respect of taxes or other governmental charges
are in accordance with GAAP. No tax liens have been filed against Customer
or any of its property.
6.18 Status of Accounts. Each Account is based on an actual and bona fide
sale and delivery of goods or rendition of services to customers, made by
Customer, in the ordinary course of its business; the goods and inventory
being sold and the Accounts created are its exclusive property and are not
and shall not be subject to any Lien, consignment arrangement, encumbrance,
security interest or financing statement whatsoever (other than Permitted
Liens). The Customer's customers have accepted goods or services and owe
and are obligated to pay the full amounts stated in the invoices according
to their terms. There are no proceedings or actions known to Customer
which are pending or threatened against any Material Account Obligor (as
defined in Section 7.14(B) of this Agreement) of any of the Accounts which
could reasonably be expected to result in a material adverse effect on the
obligor's ability to pay the full amounts due to Customer.
6.19 Affiliate/Subsidiary Transactions. Customer is not a party to or
bound by any agreement or arrangement (whether oral or written) to which
any Affiliate or Subsidiary of the Customer is a party except (i) in the
ordinary course of and pursuant to the reasonable requirements of
Customer's business and (ii) upon fair and reasonable terms no less
favorable to Customer than it could obtain in a comparable arm's-length
transaction with an unaffiliated Person.
6.20 Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any of the Other
Documents, or any transaction contemplated hereby or thereby is or will be
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state
any material fact necessary to make such information not misleading at such
time. Customer represents and warrants that the Director, Cash Management
of IAS has the power and authority to certify as to the validity and
deliver to IBM Credit the Collateral Management Report required to be
provided to IBM Credit hereunder.
6.21 Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement or any of the Other Documents have either been paid in full by
Customer or arrangements for the payment of such amounts by Customer have
been made to the satisfaction of IBM Credit.
6.22 Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other
Person (except as permitted by Section 8.4).
6.23 Purchasing Agent. Each Customer hereto represents that IAS places
orders for Inventory and equipment to be purchased hereunder both for
itself and as agent for each Customer hereunder. Each Customer agrees to
and does hereby appoint IAS, acting through any of its officers or
employees, as the agent for such Customer for the purpose of acquiring
Inventory and obtaining financing for the mutual and respective benefit of
such Customer, and does hereby agree that, as between IBM Credit and each
Customer, each Customer will be bound by the acts of IAS as the agent for
each Customer in purchasing Inventory and obtaining financing from IBM
Credit as if each Customer actually purchased such Inventory and obtained
financing from IBM Credit on its own behalf.
6.24 Customer Organization by Division. Each Customer represents that, for
financial reporting purposes, Exhibit D sets forth a true and accurate
description of the Customer's divisions by legal entity.
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1 Financial and Other Information. Customer shall cause to be furnished
to IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of Customer (i) audited Financial
Statements (provided that, to the extent not otherwise audited by the
Auditors, the consolidating Financial Statements may be unaudited) as of
the close of the fiscal year and for the fiscal year, together with a
comparison to the Financial Statements for the prior year, in each case
accompanied by (a) either an opinion of the Auditors without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit or, if so qualified, an opinion which shall be in
scope and substance reasonably satisfactory to IBM Credit, (b) such
Auditors' "Management Letter" to Customer, if any, provided, however, that
Customer shall cause such "Management Letter" to be furnished to IBM Credit
within one hundred twenty (120) days after the end of each fiscal year of
Customer, and (c) a written statement signed by the Auditors stating that
in the course of the regular audit of the business of Customer and its
consolidated Subsidiaries, which audit was conducted by the Auditors in
accordance with generally accepted auditing standards, the Auditors have
not obtained any knowledge of the existence of any Default under any
provision of this Agreement, or, if such Auditors shall have obtained from
such examination any such knowledge, they shall disclose in such written
statement the existence of the Default and the nature thereof, it being
understood that such Auditors shall have no liability, directly or
indirectly, to anyone for failure to obtain knowledge of any such Default;
(ii) if composed, a narrative discussion of the consolidated financial
condition and results of operations and the consolidated liquidity and
capital resources of Customer and its Subsidiaries for such fiscal year
prepared by the chief executive officer or chief financial officer of
Customer; and (iii) a Compliance Certificate along with a schedule, in
substantially the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal year, whether Customer is in
compliance with the financial covenants set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days
after the end of each fiscal quarter of Customer (i) Financial Statements
as of the end of such period and for the fiscal year to date, together with
a comparison to the Financial Statements for the same periods in the prior
year, all in reasonable detail and duly certified (subject to normal
year-end audit adjustments and except for the absence of footnotes) by the
chief executive officer or chief financial officer of Customer as having
been prepared in accordance with GAAP; (ii) if composed, a narrative
discussion of the consolidated financial condition and results of
operations and the consolidated liquidity and capital resources of Customer
and its Subsidiaries for such period and for the fiscal year to date
prepared by the chief executive officer or chief financial officer of
Customer; and (iii) a Compliance Certificate along with a schedule, in
substantially the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal quarter, whether Customer is in
compliance with the financial covenants set forth in Attachment A;
(C) as soon as available and in any event within forty five (45) days
after the end of each fiscal month of Customer (i) balance sheets and
profit and loss statements as of the end of such period and for the fiscal
year to date, together with a comparison to the balance sheets and profit
and loss statements for the same periods in the prior year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of Customer as having been prepared in
accordance with GAAP; (ii) if composed, a narrative discussion of the
consolidated financial condition and results of operations and the
consolidated liquidity and capital resources of Customer and its
Subsidiaries for such period and for the fiscal year to date prepared by
the chief executive officer or chief financial officer of Customer; and
(iii) a Compliance Certificate along with a schedule, in substantially the
form of Attachment C hereto, of the calculations used in determining, as of
the end of such fiscal month, whether Customer is in compliance with the
financial covenants set forth in Attachment A;
(D) as soon as available and in any event within sixty (60) days
after the end of each fiscal year of Customer (i) projected Financial
Statements, broken down by quarter, for the current and following fiscal
year; and (ii) if composed, a narrative discussion relating to such
projected Financial Statements;
(E) as soon as available and in any event within sixty (60) days
after the end of each fiscal quarter of Customer, revised projected
Financial Statements, broken down by quarter, for (i) the current fiscal
year from the beginning of such fiscal quarter to the fiscal year end; and
(ii) the following fiscal year;
(F) promptly after Customer obtains knowledge of (i) the occurrence
of a Default or Event of Default, or (ii) the existence of any condition or
event which would result in the Customer's failure to satisfy the
conditions precedent to Advances set forth in Section 5, a certificate of
the chief executive officer or chief financial officer of Customer
specifying the nature thereof and the Customer's proposed response thereto,
each in reasonable detail;
(G) promptly after Customer obtains knowledge of (i) any
proceeding(s) being instituted or threatened to be instituted by or against
Customer in any federal, state, local or foreign court or before any
commission or other regulatory body (federal, state, local or foreign), or
(ii) any actual or prospective change, development or event which, in any
such case, has had or could reasonably be expected to have a Material
Adverse Effect, a certificate of the chief executive officer or chief
financial officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
(H) promptly after Customer obtains knowledge that (i) any order,
judgment or decree in excess of $500,000 shall have been entered against
Customer or any of its properties or assets, or (ii) it has received any
notification of a material violation of any Requirement of Law from any
Governmental Authority, a certificate of the chief executive officer or
chief financial officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
(I) promptly after Customer learns of any material labor dispute to
which Customer may become a party, any strikes or walkouts relating to any
of its plants or other facilities, and the expiration of any labor contract
to which Customer is a party or by which it is bound, a certificate of the
chief executive officer or chief financial officer of Customer specifying
the nature thereof and the Customer's proposed response thereto, each in
reasonable detail;
(J) within five (5) Business Days after request by IBM Credit, any
written certificates, schedules and reports together with all supporting
documents as IBM Credit may reasonably request relating to the Collateral
or the Customer's or any guarantor's business affairs and financial
condition;
(K) by the fifteenth (15th) day of each month, or as otherwise agreed
in writing, a Collateral Management Report as of a date no earlier than the
fifth (5th) day of such month;
(L) along with the Financial Statements set forth in Section 7.1(A)
and (B), the name, address and phone number of each of its account debtors'
primary contacts for each Account on the Accounts aging report contained in
its most recent Collateral Management Report; and
(M) within five (5) days after the same are sent, copies of all
financial statements and reports which Customer sends to its stockholders,
and within five (5) days after the same are filed, copies of all financial
statements and reports which Customer may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
governmental authority.
Each certificate, schedule and report provided by Customer to IBM Credit
shall be signed by an authorized officer of Customer, and which signature
shall be deemed a representation and warranty that the information
contained in such certificate, schedule or report is true and accurate in
all material respects on the date as of which such certificate, schedule or
report is made and does not omit to state a material fact necessary in
order to make the statements contained therein not misleading at such time.
Each financial statement delivered pursuant to this Section 7.1 shall be
prepared in accordance with GAAP applied consistently throughout the
periods reflected therein and with prior periods.
7.2 Location of Collateral. The inventory, equipment and other tangible
Collateral, including any Collateral sold on consignment, shall be kept or
sold at the addresses as set forth on Attachment B or on any notice
provided by Customer to IBM Credit in accordance with Section 7.7(C). Such
locations shall be certified quarterly to IBM Credit substantially in the
form of Attachment G.
7.3 Changes in Customer. Customer shall provide thirty (30) days prior
written notice to IBM Credit of any change in Customer's name, chief
executive office and principal place of business, organization, form of
ownership or corporate structure; provided, however, that Customer's
compliance with this covenant shall not relieve it of any of its other
obligations or any other provisions under this Agreement or any of the
Other Documents limiting actions of the type described in this Section.
7.4 Corporate Existence. Customer shall (A) maintain its corporate
existence, maintain in full force and effect all licenses, bonds,
franchises, leases and qualifications to do business, and all contracts and
other rights necessary to the profitable conduct of its business, (B)
continue in, and limit its operations to, the same general lines of
business as presently conducted by it unless otherwise permitted in writing
by IBM Credit and (C) comply with all Requirements of Law.
7.5 ERISA. Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan,
or that the PBGC has instituted or will institute proceedings to terminate
any Plan. Notwithstanding the foregoing, the Customer shall have no
obligation to notify IBM Credit as to any "reportable event" as to which
the 30-day notice requirement of Section 4043(b) has been waived by the
PBGC, until such time as such Customer is required to notify the PBGC of
such reportable event. Such notification shall include a certificate of
the chief financial officer of Customer setting forth details as to such
"reportable event" and the action which Customer proposes to take with
respect thereto, together with a copy of any notice of such "reportable
event" which may be required to be filed with the PBGC, or any notice
delivered by the PBGC evidencing its intent to institute such proceedings.
Upon request of IBM Credit, Customer shall furnish, or cause the plan
administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6 Environmental Matters. (A) Customer and any other Person under
Customer's control (including, without limitation, agents and Affiliates
under such control) shall (i) comply with all Environmental Laws in all
material respects, and (ii) undertake to use commercially reasonable
efforts to prevent any unlawful release of any Hazardous Substances by
Customer or such Person into, upon, over or under any property now or
hereinafter owned, leased or otherwise controlled (directly or indirectly)
by Customer.
(B) Customer shall notify IBM Credit, promptly upon its obtaining
knowledge of (i) any non-routine proceeding or investigation by any
Governmental Authority with respect to the presence of any Hazardous
Substances on or in any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customer, (ii) all claims
made or threatened by any Person or Governmental Authority against Customer
or any of Customer's assets relating to any loss or injury resulting from
any Hazardous Substances (iii) Customer's discovery of evidence of
unlawful disposal of or environmental contamination by any Hazardous
Substance on any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by Customer, and (iv) any occurrence or
condition which could constitute a violation of any Environmental Law.
7.7 Collateral Books and Records; Collateral Audit. (A) Customer agrees
to maintain books and records pertaining to the Collateral in such detail,
form and scope as is consistent with good business practice.
(B) Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal
business hours and upon reasonable notice under the circumstances, and at
any time at all on and after the occurrence and during the continuance of
an Event of Default for the purposes of (i) inspecting the Collateral, (ii)
inspecting and/or copying (at Customer's expense) any and all records
pertaining thereto, (iii) discussing the affairs, finances and business of
Customer with any officers, employees and directors of Customer or with the
Auditors and (iv) verifying Eligible Accounts and other Collateral.
Customer also agrees to provide IBM Credit with such reasonable information
and documentation that IBM Credit deems necessary to conduct the foregoing
activities, including, without limitation, reasonably requested samplings
of purchase orders, invoices and evidences of delivery or other
performance. Upon the occurrence and during the continuance of an Event of
Default which has not been waived by IBM Credit in writing, IBM Credit may
conduct any of the foregoing activities in any manner that IBM Credit deems
reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written
notice of any change in the location of any Collateral, the location of its
books and records or in the location of its chief executive office or place
of business from the locations specified in Attachment B, and will execute
in advance of such change and cause to be filed and/or delivered to IBM
Credit any financing statements, landlord or other lien waivers, or other
documents reasonably required by IBM Credit, all in form and substance
reasonably satisfactory to IBM Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity
or quality of the Collateral, or any event which could reasonably be
expected to have a Material Adverse Effect on the value of the Collateral
or on the security interests granted to IBM Credit therein.
7.8 Insurance; Casualty Loss. (A) Customer agrees to maintain with
financially sound and reputable insurance companies: (i) insurance on its
properties, (ii) public liability insurance against claims for personal
injury or death as a result of the use of any products sold by it and (iii)
insurance coverage against other business risks, in each case, in at least
such amounts and against at least such risks as are usually and prudently
insured against in the same general geographical area by companies of
established repute engaged in the same or a similar business. Customer
will furnish to IBM Credit, upon its written request, the insurance
certificates with respect to such insurance. In addition, all Policies so
maintained are to name IBM Credit as an additional insured as its interest
may appear.
(B) Without limiting the generality of the foregoing, Customer shall
keep and maintain, at its sole expense, the Collateral insured for an
amount not less than the amount set forth on Attachment A from time to time
opposite the caption "Collateral Insurance Amount" against all loss or
damage under an "all risk" Policy with companies mutually acceptable to IBM
Credit and Customer, with a lender's loss payable endorsement or mortgagee
clause in form and substance reasonably satisfactory to IBM Credit
designating that any loss payable thereunder with respect to such
Collateral shall be payable to IBM Credit. Upon receipt of proceeds by IBM
Credit the same shall be applied on account of the Customer's Outstanding
Product Advances first, then to the Outstanding A/R Advances. Customer
agrees to instruct each insurer to give IBM Credit, by endorsement upon the
Policy issued by it or by independent instruments furnished to IBM Credit,
at least ten (10) days written notice before any Policy shall be altered or
cancelled and that no act or default of Customer or any other person shall
affect the right of IBM Credit to recover under the Policies. Customer
hereby agrees to direct all insurers under the Policies to pay all proceeds
with respect to the Collateral directly to IBM Credit. If Customer fails
to pay any cost, charges or premiums, or if Customer fails to insure the
Collateral, IBM Credit may pay such costs, charges or premiums. Any
amounts paid by IBM Credit hereunder shall be considered an additional debt
owed by Customer to IBM Credit and are due and payable immediately upon
receipt of an invoice by IBM Credit.
7.9 Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good
faith, by appropriate proceedings promptly instituted and diligently
conducted and an adequate reserve or other appropriate provisions have been
made therefor as required in order to be in conformity with GAAP and an
adverse determination in such proceedings could not reasonably be expected
to have a Material Adverse Effect.
7.10 Compliance With Laws. Customer agrees to comply with all Requirements
of Law applicable to the Collateral or any part thereof, or to the
operation of its business.
7.11 Fiscal Year. Customer agrees to maintain its fiscal year as a 52 to
53 week period ending on the Saturday closest to January 31st unless
Customer provides IBM Credit at least thirty (30) days prior written notice
of any change thereof.
7.12 Intellectual Property. Customer shall do and cause to be done all
things necessary to preserve and keep in full force and effect all
registrations of Intellectual Property which the failure to do or cause to
be done could reasonably be expected to have a Material Adverse Effect.
7.13 Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary
wear and tear excepted) and pay and discharge all costs of repair and
maintenance thereof and all rental and mortgage payments and related
charges pertaining thereto and not commit or permit any material waste with
respect to any of its material properties.
7.14 Collateral. Customer shall:
(A) if from time to time reasonably required by IBM Credit, provide
IBM Credit with access to copies of all invoices, delivery evidences and
other such documents relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to
and inform IBM Credit of all material adverse information relating to the
financial condition of any Account obligor whose outstanding obligations to
Customer constitute two percent (2%) or more of the Accounts at such time
(a "Material Account Obligor");
(C) promptly upon Customer's learning thereof, notify IBM Credit in
writing of any event which would cause any obligation of a Material Account
Obligor to become an Ineligible Account;
(D) keep all goods rejected or returned by any account debtor and all
goods repossessed or stopped in transit by Customer from any account debtor
segregated from other property of Customer, holding the same in trust for
IBM Credit until Customer applies a credit against such account debtor's
outstanding obligations to Customer or sells such goods in the ordinary
course of business, whichever occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned
or hereafter acquired by it in conspicuous type to show that the same are
subject to IBM Credit's security interest and immediately thereafter
deliver or cause such chattel paper and instruments to be delivered to IBM
Credit or any agent designated by IBM Credit with appropriate endorsements
and assignments to vest title and possession in IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of
or damage to any of the Collateral whereby the value of such Collateral
lost, stolen, destroyed or damaged exceeds $1 million. Customer shall
diligently file and prosecute its claim for any award or payment in
connection with any such loss, theft, destruction of or damage to
Collateral. Customer shall, upon demand of IBM Credit, make, execute and
deliver any assignments and other instruments sufficient for the purpose of
assigning any such award or payment to IBM Credit, free of any encumbrances
of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and
perform all matters and things necessary or expedient to be observed or
performed under or by virtue of any lease, license, concession or franchise
forming part of the Collateral in order to preserve, protect and maintain
all the rights of IBM Credit thereunder;
(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper
and efficient manner so as to preserve and protect the Collateral and the
earnings, incomes, rents, issues and profits thereof; and
(J) within five (5) Business Days after the end of each fiscal
quarter, provide to IBM Credit a report of all Collateral held by any
Person for sale on a consignment basis. Such report shall list the
Collateral by quantity, type, model, Authorized Supplier's invoice price to
Customer and the total of the line item values for all inventory listed on
the report.
(K) at any time and from time to time, upon the request of IBM
Credit, and at the sole expense of Customer, Customer will promptly and
duly execute and deliver such further instruments and documents and take
such further action as IBM Credit may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the
rights and powers herein granted, including, without limitation, the filing
of any financing or continuation statements under the Uniform Commercial
Code in effect in any jurisdiction with respect to the security interests
granted herein and the payment of any and all recording taxes and filing
fees in connection therewith.
7.15 Subsidiaries. IBM Credit may require that any Subsidiaries of
Customer become parties to this Agreement or any other agreement executed
in connection with this Agreement as guarantors or sureties. Customer will
comply, and cause all Subsidiaries of Customer to comply with Sections 7
and 8 of this Agreement, as if such sections applied directly to such
Subsidiaries.
7.16 Financial Covenants; Additional Covenants. Customer acknowledges and
agrees that Customer shall at all relevant times maintain the financial
covenants and other covenants set forth in the attachments, exhibits and
other addenda incorporated in this Agreement.
7.17 Joint and Several Guaranty.
(A) Each Customer hereby jointly and severally guarantees to IBM
Credit the prompt payment when due and the full, prompt, and faithful
performance of any and all Obligations upon which IAS or any other Customer
is in any manner obligated, heretofore, now, or hereafter owned, contracted
or acquired by IBM Credit pursuant to this Agreement, whether the same are
individual, joint or several, primary, secondary, direct, contingent or
otherwise. Each Customer irrevocably waives any and all rights to which it
may be entitled, by operation of law or otherwise, upon making any payment
hereunder (i) to be subrogated to the rights of IBM Credit against any
Customer hereto with respect to such payment or otherwise to be reimbursed,
indemnified or exonerated by any other Customer in respect thereof, or (ii)
to receive any payment, in the nature of contribution or for any other
reason, from any Customer hereto with respect to such payment.
(B) Notwithstanding any provision herein to the contrary, the
liability of each Customer hereunder shall in no event exceed the maximum
amount that is valid and enforceable in any action or proceeding involving
any applicable state corporate law or any applicable state or federal
bankruptcy, insolvency, reorganization, fraudulent conveyance or other law
involving the rights of creditors generally.
(C) The liability of each Customer hereunder is direct and
unconditional and shall not be affected by any extension, renewal or other
change in the terms of payment or performance thereof, or the release,
settlement or compromise of or with any party liable for the payment or
performance thereof, the release or nonperfection of any security
thereunder, or any change in any Customer's financial condition. Each
Customer's obligation pursuant to this Section 7.17 shall continue for so
long as any sums owing to you by any Customer remains outstanding and
unpaid, unless terminated in the manner provided herein. Each Customer
acknowledges that its obligations hereunder are in addition to and
independent of any agreement or transaction between IBM Credit and any
other Customer or any other person creating or reserving any lien,
encumbrance or security interest in any property of any Customer or any
other person as security for any obligation of such Customer.
(D) Each Customer has made an independent investigation of the
financial condition of each other Customer and guarantees the Obligations
based on that investigation and not upon any representations made by IBM
Credit. Each Customer acknowledges that it has access to current and
future Customer financial information which will enable each Customer to
continuously remain informed of each other Customer's financial condition.
Each Customer also consents to and agrees that the Obligations shall not be
affected by IBM Credit's subsequent increases or decreases in the credit
line that IBM Credit may grant to any Customer; substitutions, exchanges or
releases of all or any part of the Collateral nor or hereafter securing any
of the Obligations; sales or other dispositions of any or all of the
Collateral nor or hereafter securing any of the Obligations realizing on
the Collateral to the extent you, in your sole discretion deem proper.
(E) Each Customer waives if permitted by applicable law (1) demand,
protest and all notices of protest or dishonor, (2) all notices of payment
and nonpayment, (3) all notices required by law, and (4) all notices of
nonpayment at maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guarantees at any time held by
IBM Credit on which any Customer may, in any way, be liable and each
Customer hereby ratifies and confirms whatever IBM Credit may do in that
regard.
(F) This guaranty obligation and any and all obligations,
liabilities, terms and provisions herein shall survive any and all
bankruptcy or insolvency proceedings, actions and/or claims brought by or
against any Customer, whether such proceedings, actions and/or claims are
federal and/or state.
(G) The Obligations are joint and several, shall be binding upon each
Customer and each Customer's respective successors and assigns, and will be
for IBM Credit's benefit and the benefit of IBM Credit's successors and
assigns. The Obligations and any terms or provisions herein may be
modified or amended only by a document signed by both IBM Credit and
Customer.
7.18 Customer's Organization by Division. Customer will give IBM Credit
fifteen (15) days prior written notice prior to any modification of
Attachment D hereto.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations due hereunder:
8.1 Liens. The Customer will not, directly or indirectly mortgage,
assign, pledge, transfer, create, incur, assume, permit to exist or
otherwise permit any Lien or judgment to exist on any of its property,
assets, revenues or goods, whether real, personal or mixed, whether now
owned or hereafter acquired, except for Permitted Liens.
8.2 Disposition of Assets. The Customer will not, directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of any assets other than
(i) sales or leases of inventory in the ordinary course of business and
short term rental of inventory as demonstrations in amounts not material to
Customer, and (ii) voluntary dispositions of individual assets and obsolete
or worn out property in the ordinary course of business, provided, that the
aggregate book value of all such assets and property so sold or disposed of
under this section 8.2 (ii) in any fiscal year shall not exceed 5% of the
consolidated assets of the Customer as of the beginning of such fiscal
year.
8.3 Corporate Changes. The Customer will not, without the prior written
consent of IBM Credit, directly or indirectly, merge, consolidate,
liquidate, dissolve or enter into or engage in any operation or activity
materially different from that presently being conducted by Customer. The
Customer shall give IBM Credit thirty (30) days prior written notice if the
Customer anticipates utilizing Intelligent Systems Group, Inc. as an active
corporation.
8.4 Guaranties. The Customer will not, directly or indirectly, assume,
guaranty, endorse, or otherwise become liable upon the obligations of any
other Person (other than Pacific On Line Computers, Inc.), except (i) by
the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, (ii) by the giving
of indemnities in connection with the sale of inventory or other asset
dispositions permitted hereunder, (iii) for guaranties in favor of IBM
Credit, (iv) that certain Letter of Credit number 41s-4761 in the amount of
$1,250,000 for the benefit of Hewlett-Packard Company, and (v) that certain
Letter of Credit number 41s-4377 in the amount of $100,000 for the benefit
of PA Building Company.
8.5 Restricted Payments. Subject to the last sentence in this Section
8.5, the Customer will not, directly or indirectly: (i) declare or pay any
dividend (other than dividends payable solely in common stock of Customer)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement
or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital
stock, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or
property or in obligations of Customer; or (ii) make any optional payment
or prepayment on or redemption (including, without limitation, by making
payments to a sinking or analogous fund) or repurchase of any Indebtedness
(other than the Obligations). Notwithstanding the above restrictions,
Customer shall not be restricted from declaring or paying any cash
dividends to its stockholders, provided that immediately after giving
effect to such action, no Default would exist.
8.6 Investments. The Customer will not, directly or indirectly, make,
maintain or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of
deposit) which are insured by the Federal Deposit Insurance Corporation
("FDIC") or a similar federal insurance program;
(B) direct obligations of the government of the United States of
America or any agency or instrumentality thereof or obligations guaranteed
as to principal and interest by the United States of America or any agency
thereof;
(C) stock or obligations issued to Customer in settlement of claims
against others by reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of Customer; and
(D) commercial paper of any corporation organized under the laws of
any State of the United States or any bank organized or licensed to conduct
a banking business under the laws of the United States or any State thereof
having the short-term highest rating then given by Moody's Investor's
Services, Inc. or Standard & Poor's Corporation.
(E) investments which at any one time outstanding do not exceed in
the aggregate $4 million.
8.7 Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property
or the rendering of any service to any Affiliate or Subsidiary of Customer
except in the ordinary course of business and pursuant to the reasonable
requirements of Customer's business upon fair and reasonable terms no less
favorable to Customer than could be obtained in a comparable arm's-length
transaction with an unaffiliated Person.
8.8 ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC, (B) permit any "prohibited transaction"
involving any Plan (other than a "multi-employer benefit plan") which would
subject the Customer to a material tax or penalty on "prohibited
transactions" under the Code or ERISA, (C) fail to pay to any Plan any
contribution which they are obligated to pay under the terms of such Plan,
if such failure would result in a material "accumulated funding
deficiency", whether or not waived, (D) allow or suffer to exist any
occurrence and during the continuance of a "reportable event" or any other
event or condition, which presents a material risk of termination by the
PBGC of any Plan (other than a "multi-employer benefit plan"), or (E) fail
to notify IBM Credit as required in Section 7.5. As used in this
Agreement, the terms "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
the Code and ERISA. For purposes of this Section 8.8, the terms material
liability, tax, penalty, accumulated funding deficiency and risk of
termination shall mean a liability, tax, penalty, accumulated funding
deficiency or risk of termination which could reasonably be expected to
have a Material Adverse Effect.
8.9 Additional Negative Pledges. Customer will not, directly or
indirectly, create or otherwise cause or permit to exist or become
effective any contractual obligation which may restrict or inhibit IBM
Credit's rights or ability to sell or otherwise dispose of the Collateral
or any part thereof after the occurrence and during the continuance of an
Event of Default.
8.10 Storage of Collateral with Bailees and Warehousemen. Collateral,
including Collateral sold on consignment, shall not be stored with a
bailee, warehouseman or similar party without the prior written consent of
IBM Credit unless Customer will, concurrently with the delivery of such
Collateral to such party, cause such party to issue and deliver to IBM
Credit, warehouse receipts in the name of IBM Credit evidencing the storage
of such Collateral.
8.11 Use of Proceeds. The Customer shall not use any portion of the
proceeds of any Advances other than to acquire Products from Authorized
Suppliers and for its general working capital requirements.
8.12 Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating
thereto, which would affect IBM Credit's ability to collect payment on any
Account in whole or in part, except for such extensions, compromises or
settlements made by Customer in the ordinary course of its business,
provided, however, that the aggregate amount of such extensions,
compromises or settlements does not exceed five percent (5%) of the
Customer's Accounts at any time.
8.13 Indebtedness. The Customer will not create, incur, assume or permit
to exist any Indebtedness, except for Permitted Indebtedness.
8.14 Loans. The Customer will not make any loans, advances, contributions
or payments of money or goods to any Subsidiary, Affiliate or parent
corporation or to any officer, director or stockholder of Customer or of
any such corporation (except for compensation for personal services
actually rendered), except for transactions expressly authorized in this
Agreement. Provided, however, Customer shall be authorized to pay the
premiums associated with the life insurance policy of Richard D. Sanford.
Section 9. DEFAULT
9.1 Event of Default. Any one or more of the following events shall
constitute an Event of Default by the Customer under this Agreement and the
Other Documents:
(A) The failure to make timely payment of the Obligations (including
any payments pursuant to the TLMA) or any part thereof when due and payable
if such failure shall remain unremedied for five (5) days after written
notice thereof shall have been given to Customer by IBM Credit or ten (10)
days after such payment is due;
(B) Customer fails to comply with or observe any term, covenant or
agreement contained in this Agreement or any of the Other Documents;
(C) Any representation, warranty, statement, report or certificate
made or delivered by or on behalf of Customer or any of its officers,
employees or agents or by or on behalf of any guarantor to IBM Credit was
false in any material respect at the time when made or deemed made;
(D) The occurrence of any event or circumstance which could reasonably
be expected to have a Material Adverse Effect;
(E) Customer, any Subsidiary or any guarantor shall generally not pay
its debts as such debts become due, become or otherwise declare itself
insolvent, file a voluntary petition for bankruptcy protection, have filed
against it any involuntary bankruptcy petition, cease to do business as a
going concern, make any assignment for the benefit of creditors, or a
custodian, receiver, trustee, liquidator, administrator or person with
similar powers shall be appointed for Customer, any Subsidiary or any
guarantor or any of its respective properties or have any of its respective
properties seized or attached, or take any action to authorize, or for the
purpose of effectuating, the foregoing, provided, however, that Customer,
any Subsidiary or any guarantor shall have a period of forty-five (45) days
within which to discharge any involuntary petition for bankruptcy or
similar proceeding;
(F) The use of any funds borrowed from IBM Credit under this Agreement
for any purpose other than as provided in this Agreement;
(G) The entry of any judgment against Customer or any guarantor in an
amount in excess of $1 million and such judgment is not satisfied,
dismissed, stayed or superseded by bond within thirty (30) days after the
day of entry thereof (and in the event of a stay or supersedeas bond, such
judgment is not discharged within thirty (30) days after termination of any
such stay or bond) or such judgment is not fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such
judgment in full;
(H) The dissolution or liquidation of Customer or any guarantor, or
Customer or any guarantor or its directors or stockholders shall take any
action to dissolve or liquidate Customer or any guarantor;
(I) Any "going concern" or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of his
opinion relative to any Financial Statement delivered to IBM Credit under
this Agreement;
(J) There issues a warrant of distress for any rent or taxes with
respect to any premises occupied by Customer in or upon which the
Collateral, or any part thereof, may at any time be situated and such
warrant shall continue for a period of ten (10) Business Days from the date
such warrant is issued;
(K) Customer suspends business;
(L) The occurrence of any event or condition which enables the holder
of any Indebtedness arising in one or more related or unrelated
transactions, in aggregate principal amount exceeding $1 million to
accelerate the maturity thereof or the failure of Customer to pay when due
any such Indebtedness;
(M) Any guaranty of any or all of the Customer's Obligations executed
by any guarantor in favor of IBM Credit, shall at any time for any reason
cease to be in full force and effect or shall be declared to be null and
void by a court of competent jurisdiction or the validity or enforceability
thereof shall be contested or denied by any such guarantor, or any such
guarantor shall deny that it has any further liability or obligation
thereunder or any such guarantor shall fail to comply with or observe any
of the terms, provisions or conditions contained in any such guaranty;
(N) Customer is in default under the material terms of any of the
Other Documents after the expiration of any applicable cure periods;
(O) There shall occur a "reportable event" with respect to any Plan,
or any Plan shall be subject to termination proceedings (whether voluntary
or involuntary) and there shall result from such "reportable event" or
termination proceedings a liability of Customer to the PBGC which in the
reasonable opinion of IBM Credit will have a Material Adverse Effect;
(P) Any "person" (as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) acquires a beneficial interest in 50% or
more of the Voting Stock of Customer.
9.2 Acceleration. Upon the occurrence and during the continuance of an
Event of Default which has not been waived in writing by IBM Credit, IBM
Credit may, in its sole discretion, take any or all of the following
actions, without prejudice to any other rights it may have at law or under
this Agreement to enforce its claims against the Customer: (a) declare all
Obligations to be immediately due and payable (except with respect to any
Event of Default set forth in Section 9.1(E) hereof, in which case all
Obligations shall automatically become immediately due and payable without
the necessity of any notice or other demand) without presentment, demand,
protest or any other action or obligation of IBM Credit; and
(b) immediately terminate the Credit Line hereunder.
9.3 Remedies. (A) Upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, IBM
Credit may exercise all rights and remedies of a secured party under the
U.C.C. Without limiting the generality of the foregoing, IBM Credit may:
(i) remove from any premises where same may be located any and all
documents, instruments, files and records (including the copying of any
computer records), and any receptacles or cabinets containing same,
relating to the Accounts, or IBM Credit may use (at the expense of the
Customer) such of the supplies or space of the Customer at Customer's place
of business or otherwise, as may be necessary to properly administer and
control the Accounts or the handling of collections and realizations
thereon; (ii) bring suit, in the name of the Customer or IBM Credit and
generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Customer or IBM Credit; (iii)
sell, assign and deliver the Accounts and any returned, reclaimed or
repossessed merchandise, with or without advertisement, at public or
private sale, for cash, on credit or otherwise, at IBM Credit's sole option
and discretion, and IBM Credit may bid or become a purchaser at any such
sale; and (iv) foreclose the security interests created pursuant to this
Agreement by any available judicial procedure, or to take possession of any
or all of the Collateral without judicial process and to enter any premises
where any Collateral may be located for the purpose of taking possession of
or removing the same.
(B) Upon the occurrence and during the continuance of any Event of
Default which has not been waived in writing by IBM Credit, IBM Credit
shall have the right to sell, lease, or otherwise dispose of all or any
part of the Collateral, whether in its then condition or after further
preparation or processing, in the name of Customer or IBM Credit, or in the
name of such other party as IBM Credit may designate, either at public or
private sale or at any broker's board, in lots or in bulk, for cash or for
credit, with or without warranties or representations, and upon such other
terms and conditions as IBM Credit in its sole discretion may deem
advisable, and IBM Credit shall have the right to purchase at any such
sale. If IBM Credit, in its sole discretion determines that any of the
Collateral requires rebuilding, repairing, maintenance or preparation, IBM
Credit shall have the right, at its option, to do such of the aforesaid as
it deems necessary for the purpose of putting such Collateral in such
saleable form as IBM Credit shall deem appropriate. The Customer hereby
agrees that any disposition by IBM Credit of any Collateral pursuant to and
in accordance with the terms of a repurchase agreement between IBM Credit
and the manufacturer or any supplier (including any Authorized Supplier) of
such Collateral constitutes a commercially reasonable sale. The Customer
agrees, at the request of IBM Credit, to assemble the Collateral and to
make it available to IBM Credit at places which IBM Credit shall select,
whether at the premises of the Customer or elsewhere, and to make available
to IBM Credit the premises and facilities of the Customer for the purpose
of IBM Credit's taking possession of, removing or putting such Collateral
in saleable form. If notice of intended disposition of any Collateral is
required by law, it is agreed that ten (10) Business Days notice shall
constitute reasonable notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM
Credit is hereby granted, upon the occurrence and during the continuance of
any Event of Default which has not been waived in writing by IBM Credit, an
irrevocable, non-exclusive license to use, assign, license or sublicense
all computer software programs, data bases, processes and materials used by
the Customer in its businesses or in connection with any of the Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any
of the foregoing rights (after deducting all charges, costs and expenses,
including reasonable attorneys' fees) shall be applied by IBM Credit to the
payment of Customer's Obligations, whether due or to become due, in such
order as IBM Credit may in it sole discretion elect. Customer shall remain
liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to
remit to Customer or its successors or assigns, any surplus resulting
therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise
of any other rights, all of which shall be cumulative.
9.4 Waiver. If IBM Credit seeks to take possession of any of the
Collateral by any court process Customer hereby irrevocably waives to the
extent permitted by applicable law any bonds, surety and security relating
thereto required by any statute, court rule or otherwise as an incident to
such possession and any demand for possession of the Collateral prior to
the commencement of any suit or action to recover possession thereof. In
addition, Customer waives to the extent permitted by applicable law all
rights of set-off it may have against IBM Credit. Customer further waives
to the extent permitted by applicable law presentment, demand and protest,
and notices of non-payment, non-performance, any right of contribution,
dishonor, and any other demands, and notices required by law.
Section 10. MISCELLANEOUS
10.1 Term; Termination. (A) This Agreement shall remain in force until
the earlier of (i) the Termination Date, (ii) the date specified in a
written notice by the Customer that they intend to terminate this Agreement
which date shall be no less than ninety (90) days following the receipt by
IBM Credit of such written notice, and (iii) termination by IBM Credit
after the occurrence and during the continuance of an Event of Default.
Upon the date that this Agreement is terminated, all of Customer's
Obligations shall be immediately due and payable in their entirety, even if
they are not yet due under their terms.
(B) Customer may from time to time request an extension of the
Termination Date in six-month increments by providing IBM Credit written
notice of such request no less than sixty (60) days, and no greater than
ninety (90) days, prior to the requested effective date of the extension.
Any such request by Customer shall be irrevocable for sixty (60) days. No
later than sixty (60) days following receipt of such request, IBM Credit
shall notify Customer in writing of IBM Credit's decision, which IBM Credit
may exercise in its sole and absolute discretion, to extend or not extend
the Termination Date for six (6) months. Failure by IBM Credit to provide
Customer with written notice of its decision within such sixty-day period
shall be deemed to constitute notice to Customer that IBM Credit has
decided not to extend the Termination Date. If IBM Credit notifies
Customer that it has agreed to the request for extension of the Termination
Date, the Termination Date shall be extended for an additional six (6)
months upon the receipt by IBM Credit from Customer of the extended term
fee listed in Attachment A hereto.
(C) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other
Documents shall in any way affect or impair the Customer's Obligations to
IBM Credit including, without limitation, any transaction or event
occurring prior to such termination, and IBM Credit's security interest in
the Collateral.
10.2 Indemnification. The Customer hereby agrees to indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims,
damages, liabilities or other expenses (including reasonable attorneys'
fees and court costs now or hereinafter arising from the enforcement of
this Agreement, the "Losses") to which any of them may become subject
insofar as such Losses arise out of or are based upon any event,
circumstance or condition (a) occurring or existing on or before the date
of this Agreement relating to any financing arrangements IBM Credit may
from time to time have with (i) Customer, (ii) any Person that shall be
acquired by Customer or (iii) any Person that Customer may acquire all or
substantially all of the assets of, or (b) directly or indirectly, relating
to the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, the Customer shall not be
obligated to indemnify IBM Credit for any Losses incurred by IBM Credit
which are a result of IBM Credit's gross negligence or willful misconduct.
The indemnity provided herein shall survive the termination of this
Agreement. Notwithstanding the foregoing, for purpose of clauses (a)(ii)
and (a)(iii), Losses shall consist solely of payment obligations for money
owed to IBM Credit by such Person.
10.3 Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit
may, at any time or times hereafter, but shall be under no obligation so to
do, pay, acquire or accept any assignment of any security interest, lien,
encumbrance or claim against the Collateral asserted by any person. All
sums paid by IBM Credit in performing in satisfaction or on account of the
foregoing and any expenses, including reasonable attorney's fees, court
costs, and other charges relating thereto, shall be a part of the
Obligations, payable on demand and secured by the Collateral.
10.4 LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER DOCUMENTS OR ANY CLAIMS IN ANY MANNER RELATED THERETO.
NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO
CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY
IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
10.5 Alteration/Waiver. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by the Customer
and by IBM Credit. No delay or omission of IBM Credit to exercise any
right or remedy hereunder, whether before or after the occurrence of any
Event of Default, shall impair any such right or remedy or shall operate as
a waiver thereof or as a waiver of any such Event of Default. In the event
that IBM Credit at any time or from time to time dispenses with any one or
more of the requirements specified in this Agreement or any of the Other
Documents, such dispensation shall not be deemed to constitute a waiver of
any such requirement subsequent thereto. IBM Credit's failure at any time
or times to require strict compliance and performance by the Customer of
any undertakings, agreements, covenants, warranties and representations of
this Agreement or any of the Other Documents shall not waive, affect or
diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the
Customer under this Agreement or any of the Other Documents shall not waive
or affect any other Default by the Customer under this Agreement or any of
the Other Documents, whether such Default is prior or subsequent to such
other Default and whether of the same or a different type. None of the
undertakings, agreements, warranties, covenants, and representations of the
Customer contained in this Agreement or the Other Documents and no Default
by the Customer shall be deemed waived by IBM Credit unless such waiver is
in writing signed by an authorized representative of IBM Credit.
10.6 Severability. If any provision of this Agreement or the Other
Documents or the application thereof to any Person or circumstance is held
invalid or unenforceable, the remainder of this Agreement and the Other
Documents and the application of such provision to other Persons or
circumstances will not be affected thereby, the provisions of this
Agreement and the Other Documents being severable in any such instance.
10.7 One Loan. All Advances heretofore, now or at any time or times
hereafter made by IBM Credit to the Customer under this Agreement or the
Other Documents shall constitute one loan secured by IBM Credit's security
interests in the Collateral and by all other security interests, liens and
encumbrances heretofore, now or from time to time hereafter granted by the
Customer to IBM Credit or any assignor of IBM Credit.
10.8 Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are
hereby pledged by Customer to IBM Credit as security for the payment of
Customer's Obligations and shall be applied promptly by IBM Credit on
account of the Customer's Obligations; provided, however, IBM Credit may
release to the Customer such portions of such monies, reserves and proceeds
as IBM Credit may from time to time determine, in its sole discretion.
10.9 No Merger or Novations. (A) Notwithstanding anything contained in
any document to the contrary, it is understood and agreed by the Customer
and IBM Credit that the claims of IBM Credit arising hereunder and existing
as of the date hereof constitute continuing claims arising out of the
Obligations of Customer under the Financing Agreement and any Other
Agreement. Customer acknowledges and agrees that such Obligations
outstanding as of the date hereof have not been satisfied or discharged and
that this Agreement is not intended to effect a novation of the Customer's
Obligations under the Financing Agreement or any of the Other Documents.
(B) Neither the obtaining of any judgment nor the exercise of any
power of seizure or sale shall operate to extinguish the Obligations of the
Customer to IBM Credit secured by this Agreement and shall not operate as a
merger of any covenant in this Agreement, and the acceptance of any payment
or alternate security shall not constitute or create a novation and the
obtaining of a judgment or judgments under a covenant herein contained
shall not operate as a merger of that covenant or affect IBM Credit's
rights under this Agreement.
10.10 Paragraph Titles. The Section titles used in this Agreement and the
Other Documents are for convenience only and do not define or limit the
contents of any Section.
10.11 Binding Effect; Assignment. This Agreement and the Other Documents
shall be binding upon and inure to the benefit of IBM Credit and the
Customer and their respective successors and assigns; provided, that the
Customer shall have no right to assign this Agreement or any of the Other
Documents without the prior written consent of IBM Credit.
10.12 Notices. Except as otherwise expressly provided in this Agreement,
any notice required or desired to be served, given or delivered hereunder
shall be in writing, and shall be deemed to have been validly served, given
or delivered (A) upon receipt if deposited in the United States mails,
first class mail, with proper postage prepaid, (B) upon receipt of
confirmation or answerback if sent by telecopy, or other similar facsimile
transmission, (C) one Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (D) when delivered, if hand-delivered
by messenger, all of which shall be properly addressed to the party to be
notified and sent to the address or number indicated as follows:
If to IBM Credit at:
IBM Credit Corporation
2707 W. Butterfield Road
Oak Brook, IL 60521
Attention: Remarketer Finance Center Manager
Telecopy: (708) 573-7510
If to Customer at:
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Attention: Chief Executive Officer or President
Telecopy: (610) 458-0599
With a copy to:
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Attention: Chief Financial Officer
Telecopy: (610) 458-0599
or to such other address or number as each party designates to the other in
the manner prescribed herein.
10.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto were upon the same instrument.
10.14 ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product
Financing Period set forth in Attachment A from time to time if on at least
two occasions during any three-month period a Shortfall Amount has become
due and payable and may modify the Collateral Insurance Amount set forth in
Attachment A from time to time, in each case, by providing Customer with a
new Attachment A. Any such new Attachment A shall be effective as of the
date specified in the new Attachment A.
10.15 SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE
IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL
DISTRICT COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH
ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER
AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH
IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY THE LAWS (WITHOUT
GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.16 JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE
CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT
OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN
CONNECTION HEREWITH.
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has
caused its authorized representatives to execute this Agreement and has
caused its corporate seal to be affixed hereto as of the date first written
above.
IBM CREDIT CORPORATION, INTELLIGENT ELECTRONICS, INC.
a Delaware corporation a Pennsylvania corporation
By: /s/ Paul M. Leiba By: /s/ T.J. Coffey
--------------------------- -------------------------
Print Name: Paul M. Leiba Print Name: Thomas J. Coffey
Title: Manager of Credit Title: VP and CFO
CS COMPUTERS, INC., CS COMPUTERS OF CALIFORNIA,
a Colorado corporation INC.,
a California corporation
By: /s/ T.J. Coffey By: /s/ T.J. Coffey
--------------------------- -------------------------
Print Name: Thomas J. Coffey Print Name: Thomas J. Coffey
Title: VP, CFO & Assistant Secretary Title: VP, CFO & Assistant Secretary
INTELLICOM SOLUTIONS, INC., INTELLIGENT ADVANCED
a Pennsylvania corporation SYSTEMS, INC.,
a Delaware corporation
By: /s/ T.J. Coffey By: /s/ T.J. Coffey
--------------------------- -------------------------
Print Name: Thomas J. Coffey Print Name: Thomas J. Coffey
Title: VP, CFO & Assistant Secretary Title: VP, CFO & Assistant Secretary
INTELLIGENT EXPRESS, INC., RND, INC.,
a Pennsylvania corporation a Colorado corporation
By: /s/ T.J. Coffey By: /s/ T.J. Coffey
--------------------------- -------------------------
Print Name: Thomas J. Coffey Print Name: Thomas J. Coffey
Title: VP, CFO & Assistant Secretary Title: VP, CFO & Assistant Secretary
THE FUTURE NOW, INC., INTELLINET, LTD.,
an Ohio corporation a Pennsylvania corporation
By: /s/ Stephanie Cohen By: /s/ T.J. Coffey
--------------------------- -------------------------
Print Name: Stephanie Cohen Print Name: Thomas J. Coffey
Title: VP, Secretary & Treasurer Title: VP, CFO & Assistant Secretary
INTELLIGENT DISTRIBUTION INTELEVEST HOLDINGS, INC.,
SERVICES, INC., a Delaware corporation
a Delaware corporation
By: /s/ T.J. Coffey By: /s/ Alan Resneck
--------------------------- -------------------------
Print Name: Thomas J. Coffey Print Name: Alan Resneck
Title: VP, CFO & Assistant Secretary Title: VP & Treasurer
INTELLIGENT SP, INC., MONTEREY-WALDEC, INC.,
a Colorado corporation a Pennsylvania corporation
By: /s/ T.J. Coffey By: /s/ Stephanie Cohen
--------------------------- -------------------------
Print Name: Thomas J. Coffey Print Name: Stephanie Cohen
Title: VP, CFO & Assistant Secretary Title: VP, Secretary & Treasurer
THE FUTURE NOW, INC. THE FUTURE NOW INC.
OF ARKANSAS, OF DELAWARE,
an Arkansas corporation a Delaware corporation
By: /s/ Stephanie Cohen By: /s/ Stephanie Cohen
--------------------------- -------------------------
Print Name: Stephanie Cohen Print Name: Stephanie Cohen
Title: VP, Secretary & Treasurer Title: VP, Secretary & Treasurer
THE FUTURE NOW, INC. THE FUTURE NOW, INC.
OF MASSACHUSETTS, OF TEXAS,
a Massachusetts corporation a Texas corporation
By: /s/ Stephanie Cohen By: /s/ Stephanie Cohen
--------------------------- -------------------------
Print Name: Stephanie Cohen Print Name: Stephanie Cohen
Title: VP, Secretary & Treasurer Title: VP, Secretary & Treasurer
ENTRE COMPUTER CENTERS ENTRE COMPUTER CENTERS
OF NEW YORK, INC., OF VIRGINIA, INC.,
a New York corporation a Virginia corporation
By: /s/ Stephanie Cohen By: /s/ Stephanie Cohen
--------------------------- -------------------------
Print Name: Stephanie Cohen Print Name: Stephanie Cohen
Title: VP, Secretary & Treasurer Title: VP, Secretary & Treasurer
PREMIUM COMPUTER CORPORATE CENTER,
a California corporation
By: /s/ Stephanie Cohen
---------------------------
Print Name: Stephanie Cohen
Title: VP, Secretary & Treasurer
<PAGE>
ATTACHMENT A, EFFECTIVE DATE April 5, 1996, ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED April 5, 1996
Customer: Intelligent Electronics, Inc. et al
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Two Hundred and Twenty Five Million dollars
($225,000,000.00);
(B) Borrowing Base:
(i) 80 % of the amount of the Customer's Eligible Accounts as of the
date of determination as reflected in the Customer's most recent
Collateral Management Report;
Plus:
(ii) 100% of the Customer's inventory in the Customer's possession as
of the date of determination as reflected in the Customer's most
recent Collateral Management Report constituting Products (other than
service parts) financed through a Product Advance by IBM Credit. The
value to be assigned to such inventory shall be based upon the
Authorized Supplier's invoice price to Customer for Financed Products
net of all applicable price reduction credits.
Plus:
(iii) 100% of the amount of International Business Machines
Corporation Claims (as defined in Section III, Financial Covenants, of
this Attachment) as of the date of determination as reflected in the
Customer's most recent Collateral Management Report;
Plus:
(iv) 100% of the value of In-transit Inventory (as defined in Section
III, Financial Covenants, of this Attachment) as of the date of
determination as reflected in the Customer's most recent Collateral
Management Report. Furthermore, this value is to be based on an
average number of days in-transit determined by comparing Customer's
receipt records with the date of note on the billing statement
provided by IBM Credit. Such days shall be determined by IBM Credit,
from time to time, from the results of IBM Credit's most recently
completed periodic audit of inventory.
Minus:
(vi) 40% of the Total Amount Financed by IBM Credit under the Term
Lease Agreement between Customer and IBM Credit.
Page 1 of 1tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
(C) Product Advance Charge : Prime Rate plus 1. 25% ( "BASE RATE" )
Prime Rate plus 1.50% ("BASE RATE"),
effective May 1, 1996
(D) Product Advance Term: 130 days
(E) Collateral Insurance Amount: Four Hundred Million dollars
($400,000,000.00)
I. Fees, Rates and Repayment Terms:
(F) A/R Finance Charge:
(i) PRO Advance Charge: BASE RATE
(ii) WCO Advance Charge: BASE RATE
(iii) Term Loan Charge: BASE RATE plus 1.0%
(G) Delinquency Fee Rate: Prime Rate plus 6.500%;
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
(I) Other Charges:
(i) Extended Term Fee: $50,000.00
(ii) Monthly Service Fee: $ 4,000.00
(iii) Monthly Service Fee: $ 6,000.00, effective May 1, 1996
Page 2 of 2tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) and Intermediary
Account(s) will be maintained at the following Bank(s):
(i) For The Future Now, Inc., CS Computers, Inc., CS Computers of CA,
Inc., Monterey-Waldec, Inc., The Future Now, Inc. of Arkansas,
The Future Now Inc. of Delaware, The Future Now, Inc. of
Massachusetts, and Premium Computer Corporate Center
Name of Bank: PNC Bank, Ohio, National Association
Address: 201 E. 5th Street, 26th Floor
Cincinnati, OH 45201 - 1199
Attn: Mr. Matthew D. Tevis (FAX) 513-651-8952
Lockbox Address(es): (TO BE SUPPLIED BY CUSTOMER)
Intermediary Accounts: 372, 543, 442, 501, 551, 373,
421, 557, 564, 571, 500, 585, 524, 513, 960606,960595,
960610, 960615, 960618, all in Cincinnati, OH; 89043
in Dallas, TX, and 641327 in Pittsburgh, PA.
Special Account # 40-1948-0794
(ii) For Intelligent Electronics, Inc., Intelligent Advanced Systems, Inc.,
Intelligent Distribution Services, Inc., Intelligent Express, Inc.,
Intellicom Solutions, Inc. and Intellinet, Ltd.
Name of Bank: PNC Bank, National Association
Address: 100 South Broad Street
Philadelphia, PA 19110
Phone: Attn: M. Victoria Ziff (FAX) 215-585-6037
Lockbox Address: (TO BE SUPPLIED BY CUSTOMER)
Special Account # 85-453114-03
Intermediary Accounts: 4140; 4136 in Philadelphia, PA;
358 in Dallas,TX; 4215; 4270; 5072 in NY, NY; 5076 in
Boston, MA; 5080 in Washington, D.C.; 910028, 910034,
and 91005 in Los Angeles, CA, and 4296.
Page 3 of 3tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants
Definitions: The following terms shall have the following respective
meanings in this Attachment A. All amounts shall be determined in
accordance with generally accepted accounting principles (GAAP).
Amortization Expense shall mean the amount as reported on Customer's
financial statements.
Capital Lease shall mean any lease which is required to be capitalized
on a balance sheet of the lessee in accordance with generally accepted
accounting principles.
Capital Lease Obligations shall mean the aggregate amount which, in
accordance with generally accepted accounting principles, is required
to be reported as a liability on the balance sheet of Customer at such
time in respect of Customer's interest as lessee under a Capital
Lease.
Capital Lease Payments shall mean the aggregate amount which, in
accordance with generally accepted accounting principles, reduced
Capital Lease Obligations for a given period.
Current shall mean within the on-going twelve month period.
Current Assets shall have the meaning as defined in accordance
with generally accepted accounting principles(GAAP).
Current Liabilities shall have the meaning as defined in accordance
with generally accepted accounting principles (GAAP).
Depreciation Expense shall mean the amount by which the Customer
reduces the value of its assets and which is included in its
calculation of expenses as reported on Customer's financial
statements.
Interest Expense shall mean, for any period, without duplication, the
aggregate of all interest paid or accrued by Customer during such
period for Current Liabilities or Long Term Debt.
In-transit Inventory shall mean Products (other than service parts)
shipped to Customer from an Authorized Supplier, but not yet received,
financed through a Product Advance by IBM Credit. The value to be
assigned to such inventory shall be based upon the Authorized
Supplier's invoice price to Customer of Financed Products net of all
applicable price reduction credits.
Page 4 of 4tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which
mature more than twelve months from the date of determination, or
mature within twelve months from such date but are renewable or
extendible at the option of the debtor to a date more than twelve
months from the date of determination.
Net Profit after Tax shall mean Revenue plus all other income, minus
all costs, including applicable taxes.
Operating Lease shall mean any lease which is not required to be
capitalized on a balance sheet of the lessee in accordance with
generally accepted accounting principles.
Operating Lease Obligations shall mean the aggregate amount which, in
accordance with generally accepted accounting principles, is not
required to be reported as a liability on the balance sheet of
Customer at such time in respect of Customer's interest as a lessee
under an Operating Lease.
Operating Lease Payments shall mean the aggregate amount which, in
accordance with generally accepted accounting principles, reduced
Operating Lease Obligations for a given period.
Revenue shall mean the monetary expression of the aggregate of
products or services transferred by an enterprise to its customers for
which said customers have paid or are obligated to pay, plus other
income as allowed.
Subordinated Debt shall mean Customer's indebtedness to officers or
owners as evidenced by an executed Notes Payable Subordination
Agreement in favor of IBM Credit.
Scheduled Debt Repayments shall mean any obligation Customer must pay
on a scheduled basis other than obligations under this Agreement.
Page 5 of 5tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean Stockholder's Equity minus goodwill.
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities, Long Term Debt
plus any other non-current liabilities resulting from past or current
transactions, that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in
an enterprise) is equal to Total Assets minus Total Liabilities.
Vendor Claims shall mean all claims for rebates, discounts, credits,
warranties and incentive payments which Customer has submitted to an
Authorized Supplier (but for which Customer has not been paid) and in
which IBM Credit has a valid, perfected, first priority security
interest under this Agreement.
Working Capital shall mean Current Assets minus Current Liabilities.
Page 6 of 6tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios and
amounts as of Customer's 1Q96 (5/4/96)
a) The ratio sum of Net Profit After Tax plus Depreciation Expense
plus Amortization Expense to the sum of Interest Expense plus
Operating Rent Payments plus Capital Lease Payments plus
Scheduled Debt Repayments plus Dividends shall be greater than
zero and equal to or less than.4:1.0;
b) Total Long Term Debt to Tangible Net Worth ratio greater than
zero and equal to or less than 4.05:1.0;
c) Working Capital equal to or greater than Twenty Two Million Seven
Hundred Thousand Dollars ($22,700,000.), and
d) Tangible Net Worth equal to or greater than Twenty Million
Dollars ($20,000,000.).
Customer will be required to maintain the following financial ratios and
amounts as of Customer's 2Q96 (8/3/96):
a) The ratio sum of Net Profit After Tax plus Depreciation Expense
plus Amortization Expense to the sum of Interest Expense plus
Operating Rent Payments plus Capital Lease Payments plus
Scheduled Debt Repayments plus Dividends shall be greater than
zero and equal to or less than 1.0:1.0;
b) Total Long Term Debt to Tangible Net Worth ratio greater than
zero and equal to or less than 3.35:1.0;
c) Working Capital equal to or greater than Twenty Seven Million
Four Hundred Thousand dollars ($27,400,000.), and
d) Tangible Net Worth equal to or greater than Twenty Four Million
Dollars ($24,000,000).
Page 7 of 7tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
Customer will be required to maintain the following financial ratios and
amounts as of Customer's 3Q96 (11/2/96)
a) The ratio sum of Net Profit After Tax plus Depreciation Expense
plus Amortization Expense to the sum of Interest Expense plus
Operating Rent Payments plus Capital Lease Payments plus
Scheduled Debt Repayments plus Dividends shall be greater than
zero and equal to or less than 1.50:1.0;
b) Total Long Term Debt to Tangible Net Worth ratio greater than
zero and equal to or less than 3.3:1.0;
c) Working Capital equal to or greater than Thirty Three Million
Dollars ($33,000,000.), and
d) Tangible Net Worth equal to or greater than Thirty Million
Dollars ($30,000,000.).
Customer will be required to maintain the following financial ratios and
amounts as of Customer's 4Q96(2/1/97)
a) The ratio sum of Net Profit After Tax plus Depreciation Expense
plus Amortization Expense to the sum of Interest Expense plus
Operating Rent Payments plus Capital Lease Payments plus
Scheduled Debt Repayments plus Dividends shall be greater than
zero and equal to or less than 1.75:1.0;
b) Total Long Term Debt to Tangible Net Worth ratio greater than
zero and equal to or less than 2.875:1.0;
c) Working Capital equal to or greater than Forty Eight Million and
Three Hundred Thousand Dollars ($48,300,000.), and
d) Tangible Net Worth equal to or greater than Forty Million Dollars
($40,000,000.).
Page 8 of 8tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement:
. Copies of the resolutions of the Board of Directors of each
Customer certified by the secretary or the assistant secretary of
each Customer authorizing the execution, delivery and performance
of the Agreement and Other Documents;
. A certificate of the secretary or an assistant secretary of each
Customer certifying the names and true signatories of the
officers of each Customer authorized to sign the Agreement and
Other Documents;
. An Opinion of Counsel by whereby the Customer's in-house counsel
states his or her opinion about the execution, delivery and
performance of the financing agreement and other documents;
. An Opinion of Counsel by Pepper, Hamilton & Scheetz whereby the
Customer's counsel states his or her opinion about the execution
delivery and performance of the financing agreement and other
documents;
. A copy of all-risk insurance certificates and policies insuring
the Collateral with IBM Credit listed as "Lender's Loss Payee" or
a similar "mortgage clause" in substance and form satisfactory to
IBM Credit.
Page 9 of 9tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Documentation Requirements -CONDITIONS SUBSEQUENT TO CLOSING -
Customer agrees to provide the following prior to 4/30/96:
. Detailed financial projections, by month, for each division or
business segment, but at a minimum, by the "core" businesses
(RND), The Future Now, Inc. (Direct) and XLCONNECT;
. Copies of all Lockbox Agreements, including Special and Inter-
mediary accounts between PNC and Intelligent Electronics, Inc. et
al ;
. Copies of all Lockbox Agreements, including Special and Inter-
mediary accounts between PNC and The Future Now, Inc. et al;
Customer agrees to provide the following prior to 5/15/96:
. Intercreditor Agreement with Nations Credit Commercial
Corporation in respect to Intelligent Express, Inc.;
. Executed Amendment to the Intercreditor Agreement with DFS and
ATT to acknowledge subsidiaries of The Future Now, Inc.;
. Amendment to TN UCC filing to reflect appropriate inventory
levels at TN locations.
. Listing of liens for: Intellinet SP, Inc., Intelligent
Distribution Services, Inc.; Intellinet, LTD., Intellicom
Solutions, Inc. Intelevest Holdings, Inc., The Future Now, Inc.
of Massachusetts, Premium Corporate Center, and Entre Corporate
Centers of New York, Inc.;
. Copies of each Customer's certificates of incorporation and by-
laws for Intellicom Solutions, Inc., Intelligent SP, Inc.,
Intellinet, Inc., and Intelevest Holdings, Inc.
. Re-execute Contingent Blocked Account Amendments within thirty
days after Customer replaces its wholesale lockbox procedures
with new lockbox service agreements;
. An Opinion of Counsel by Pepper, Hamilton & Scheetz whereby the
Customer's counsel states his or her opinion about the execution
delivery and performance of the Contingent Blocked Account
Amendments;
Page 10 of 10tot
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
. Copies of Good Standing Certificates (GSC) for
- Intellicom Solutions, Inc. in all jurisdictions where they
are authorized to do business (GSC has been received for PA),
- The Future Now, Inc. - GSC pending for IL,
- Entre Computer Centers of Virginia, Inc. - GSC pending
for MO, and
- The Future Now, Inc. of Massachusetts - GSC pending for OH;
. Executed Filings with United States Patent and Trademark Office
on Intellectual Property;
. Operating bank accounts established as specified in the
Contingent Blocked Account Amendments itemized in this Section
IV.
V. Documentation Requirements (Monthly, Quarterly or Annually or
as permitted in IWCF)
. Semi-monthly Collateral Management Reports in the form of
Attachment F, including certification of insurance status, due by
the 15th and 30th of each month;
. Consolidated and Consolidating Financial Statements, monthly;
. Consolidated and Consolidating Financial Statements, quarterly;
. A Compliance Certificate in the form of Attachment C as to
Customer's compliance with the financial covenants set forth in
Attachment A as of the fiscal quarter end of Customer within 30
days of fiscal quarter end;
. Fiscal year end Financial Statements of Customer as of the end of
each fiscal year of Customer, audited by an independent certified
public accountant and delivered to IBM Credit no later than 90
days therefrom, and
. A Certificate of Location of Collateral in the form of Attachment
G whereby the Customer certifies where Customer keeps or sells
inventory, equipment and other tangible Collateral on a semi-
annual basis (required within 30 days of Customer's second and
fourth fiscal quarter ends);
Page 11 of 11tot
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-1-1997
<PERIOD-START> FEB-4-1996
<PERIOD-END> MAY-4-1996
<CASH> 21,862
<SECURITIES> 0
<RECEIVABLES> 206,284
<ALLOWANCES> 9,019
<INVENTORY> 332,320
<CURRENT-ASSETS> 571,780
<PP&E> 100,979
<DEPRECIATION> 36,112
<TOTAL-ASSETS> 811,760
<CURRENT-LIABILITIES> 544,222
<BONDS> 0
0
0
<COMMON> 399
<OTHER-SE> 174,455
<TOTAL-LIABILITY-AND-EQUITY> 811,760
<SALES> 877,939
<TOTAL-REVENUES> 877,939
<CGS> 832,355
<TOTAL-COSTS> 832,355
<OTHER-EXPENSES> 42,020
<LOSS-PROVISION> 3,420
<INTEREST-EXPENSE> 3,867
<INCOME-PRETAX> (3,723)
<INCOME-TAX> (529)
<INCOME-CONTINUING> (3,194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,194)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
