<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: June 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _______________.
Commission File No. 33-24464-NY
------------------------
IMTEK OFFICE SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-2958856
(State of Incorporation) (I.R.S. Employer Identification No.)
8003 Corporate Dr., Suite C Baltimore, MD 21224
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (410) 931-2054
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked price of such stock, as of a specified date within 60 days prior to the
date of filing.
There is currently no market for the issuer's stock.
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Security
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as the latest practicable date. 7,532,361 shares of
common stock, par value $.000001 per share, and 8,370 shares of Series A
Convertible Preferred Stock, par value $.01 per share, issued and outstanding as
of September 30, 1999.
Documents Incorporated by Reference: NONE.
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Part I.
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 15
Item 3. Legal Proceedings.............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders............ 17
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................ 18
Item 6. Selected Financial Data........................................ 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 19
Item 8. Financial Statements and Supplementary Data.................... 30
Part III.
Item 10. Directors and Executive Officers of the Registrant ........ 59
Item 11. Executive Compensation..................................... 61
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 63
Item 13. Certain Relationships and Related Transactions............. 65
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................... 67
SIGNATURES............................................................... 68
INDEX OF EXHIBITS........................................................ 69
2
<PAGE>
PART I
FORWARD LOOKING INFORMATION
This report includes or incorporates by reference certain statements
which are "forward looking statements" within the meaning of the Private
Securities Litigation Act of 1995. Forward-looking statements are based on
various factors and assumptions that include known and unknown risks and
uncertainties, changes in economic conditions, increases in inventory and
equipment costs, subcontract, labor costs and general competitive factors.
Certain words, such as "goal", "expect", "believe" and similar expressions, as
they relate to the Registrant, are intended to identify forward-looking
statements. Such statements reflect the current views of the Registrant with
respect to future events and are subject to certain risks, uncertainties and
assumptions that could cause actual results to differ materially from those
reflected in the forward-looking statement. No assurance can be given that the
results in any forward-looking statement will be achieved.
ITEM 1. BUSINESS.
INTRODUCTION
Imtek Office Solutions, Inc. (the "Registrant"), formerly Spectrum
Equities, Inc., effectively commenced operations on April 1, 1997. The
Registrant has conducted its operations within four segments which include
(i) the office solutions segment, which consists of the wholesale and retail
sale of copiers and facsimile machines, the servicing of office equipment,
and the rebuilding and rental of high volume copiers and duplicators, (ii)
the commercial printing and duplicating services segment, which was
discontinued during the fourth quarter of fiscal year 1999, (iii) the
merchant banking segment, which specializes in the provision of viatical
settlement services, and (iv) the specialty finance segment, which engages in
the origination of office equipment leasing. The Registrant discontinued the
sale at retail of office supplies, which was a minor portion of the office
solutions segment, effective in the fourth quarter of fiscal year 1999. This
activity, although insignificant, was previously included within the office
solutions segment.
The Registrant principally operates in Atlanta, Georgia and the
Mid-Atlantic region, including Philadelphia, Pennsylvania, Baltimore, Maryland,
Washington, D.C., Richmond, Virginia, and the Tidewater area of Southeastern
Virginia.
HISTORY
The Registrant was incorporated in the State of Delaware on November 9,
1987, under the name Vision Capital, Inc. After its organization, the Registrant
conducted business as a photo-finishing laboratory, processing and printing film
for commercial photographers and photographic studios, including portrait studio
operations. As previously reported, the Registrant completed a public stock
offering of 10,000 shares at a price of $5.00 per share in March, 1989.
Wilmoth Acquisition.
On May 31, 1990, the Registrant entered into an agreement with
Wilmoth's Color Lab, Inc., a Tennessee corporation ("Wilmoth"), to acquire all
of the issued and outstanding shares of common stock of Wilmoth in exchange for
a total of 15,340,000 newly issued shares of the Registrant's common stock. This
transaction resulted in a change in the principal business, management, and
voting control of the Registrant. By September 1,
3
<PAGE>
1990, the merger of Wilmoth into the Registrant was completed and the Registrant
changed its name to Diversified Photographic Industries, Inc. It continued the
operations of Wilmoth as a photo-finishing laboratory located in Memphis,
Tennessee.
The Registrant continued its operations as a photo-finishing laboratory
until it ceased operations on March 15, 1992. At that time, the secured
creditors foreclosed upon the principal assets of the Registrant and the
remaining unencumbered assets were sold to United Color Labs, Inc., on August
21, 1992 for $85,000.
Chapter 11 Reorganization.
The Registrant filed for reorganization under Chapter 11 of the
Bankruptcy Code in U.S. Bankruptcy Court for the Northern District of Texas. Its
Plan of Reorganization was approved on October 5, 1995. The Registrant emerged
as a corporate shell with no liabilities relating to its prior business
ventures. On February 26, 1996, the Registrant changed its name to Spectrum
Equities, Inc.
Imtek Corporation Acquisition.
On April 22, 1997, the Registrant acquired all the issued and
outstanding common stock of Imtek Corporation, a Maryland corporation, and
changed its name to Imtek Office Solutions, Inc. This transaction is reported in
the report on Form 8-K filed by the Registrant on May 13, 1997.
Beneficial Assistance, Inc. and Thompson Business Products, Inc. Acquisition.
In October 1997, the Registrant initiated its acquisition strategy.
During that month, the Registrant acquired substantially all of the business of
Beneficial Assistance, Inc. ("Beneficial"). Beneficial is a financial services
corporation specializing in viatical settlements, the buying and reselling of
life insurance policies owned by terminally ill individuals. The acquisition was
made through two separate transactions: an asset purchase (the "Asset Purchase")
and an exchange of stock (the "Exchange").
On October 1, 1997, Imtek Services Corporation ("Services"), a
wholly-owned subsidiary of the Registrant, purchased a computer system from
Beneficial and entered into non-competition agreements with Brad C. Thompson,
Robert W. Hoover and Andrew J. Walter, the stockholders of Beneficial
(hereinafter, the "Beneficial Stockholders"). In exchange the Beneficial
Stockholders received a one-year installment note payable in the aggregate
principal amount of $240,000, bearing interest compounded annually at a rate of
8% (the "Installment Note").
Effective October 1, 1997, Beneficial distributed its assets and
liabilities to the Beneficial Stockholders (hereinafter, the "Distribution").
Approximately $35,000 in cash and a computer system purchased by the Registrant
in the Asset Purchase was excluded from the Distribution and certain contingent
liabilities carried on the books of Beneficial were excluded from the liability
distribution.
The Beneficial Stockholders then contributed the assets and liabilities
received in the Distribution to Thompson Business Products, Inc., a Maryland
corporation formed on October 10, 1997, in exchange for 50,000 shares of common
stock of Thompson. This constituted all of Thompson's authorized and issued
shares of capital stock (the "Contribution").
Immediately following the Contribution, the Registrant acquired
Thompson in a transaction in which Services exchanged 1,000,000 shares of the
4
<PAGE>
Registrant's common stock for all 50,000 shares of capital stock of Thompson.
The effect of the transaction was to make Thompson a direct wholly-owned
subsidiary of Services. Additionally, the Registrant and the Beneficial
Stockholders entered into an agreement whereby the Registrant agreed to pay up
to $185,000 to the Beneficial Stockholders in the event that certain revenue
targets were met (hereinafter the "Earnout").
The written agreements originally entered into by the parties in
connection with the Asset Purchase, the Exchange and the Earnout did not
accurately reflect the intentions of the parties nor the manner in which the
Asset Purchase, Exchange and Earnout was actually consummated. As a result, the
parties to the Asset Purchase, the Exchange and the Earnout entered into a
Restated Asset Purchase Agreement, a Restated Exchange Agreement, and the
Restated Earnout Agreement, respectively, on September 30, 1998.
On November 18, 1997, each of the Beneficial Stockholders became
directors of the Registrant. Brad C. Thompson became Chief Financial Officer and
Senior Vice President of the Registrant and Vice President of each of the
Registrant's subsidiaries. Robert W. Hoover became Executive Vice President of
the Registrant and Vice President of each of the Registrant's subsidiaries.
Andrew J. Walter became President of Funding, Senior Vice President of the
Registrant and Vice President of each of the Registrant's subsidiaries. Andrew
J. Walter resigned from all of his positions with the Registrant and its
subsidiaries effective July 1, 1998. During 1999, Mr. Hoover was elected
President of the Registrant.
On December 23, 1997, Thompson changed its name to Imtek Funding
Corporation ("Funding"). Funding has continued Thompson's and Beneficial's
viatical settlement business. The viatical settlement business is intrinsically
different from the office products and equipment sale and leasing business of
the Registrant.
Acquisition Of Richmond Business Systems, Inc. and Bohanan Business Systems,
Inc.
In October 1997, the Registrant purchased the business of two copier
equipment dealers located in Richmond, Virginia. The first acquisition was of
the assets of Richmond Business Systems, Inc. The Registrant paid $39,500 for
assets, consisting of $17,000 in accounts receivable, $11,000 in inventory,
$9,500 in furniture and fixtures, and $2,000 of goodwill.
The second Richmond, Virginia purchase was Bohanan Business Systems,
Inc., a Virginia corporation. The Registrant acquired certain assets of
Bohanan, consisting of $17,000 in accounts receivable, $12,000 in inventory,
and $5,000 in furniture and fixtures. The purchase was funded through the
assumption of certain liabilities relating to trade accounts payable, of
approximately $27,000, and a note payable in the amount of $7,000.
Acquisition of Office Supply Line Holdings, Inc. and Office Supply Line, Inc.
In November 1997, the Registrant purchased assets consisting of
inventory and equipment from Office Supply Line, Inc. ("OSL"), pursuant to an
Inventory Purchase and Sale Agreement entered into on November 1, 1997 between
OSL, Imtek Corporation and Michael L. Lowe (the "OSL Inventory Purchase
Agreement"). Prior to November 1, 1997, OSL was engaged in the business of
retail office supply sales. Pursuant to the OSL Inventory Purchase Agreement,
the Registrant assumed $70,000 in trade accounts payable, issued a note payable
in the amount of $92,000 and paid $75,000 in cash to OSL in exchange for the
purchased inventory and equipment. The $92,000 note
5
<PAGE>
payable included interest at 10% per annum and was scheduled to mature in August
1998. This note was paid in full in September 1998.
Also in November 1997, the Registrant issued 465,000 shares of its
common stock and paid cash of approximately $142,000 in exchange for all the
issued and outstanding shares of common stock of Office Supply Line Holdings,
Inc., a Virginia corporation ("Holdings").
Michael L. Lowe, President, Director and majority stockholder of
Holdings and OSL, became a director, vice president and Chief Operating Officer
of the Registrant on November 18, 1997. Mr. Lowe resigned as director and
officer of the Registrant effective August 16, 1999.
Acquisition of Capital Prepress Holdings, Inc.
On October 31, 1997, the Registrant acquired all the issued and
outstanding common shares of Capital Prepress Holdings, Inc. ("CPHI"), a
Maryland corporation, through the issuance of approximately 1,010,611 shares of
its common stock and a cash payment of $7,000. The Registrant acquired assets
consisting principally of accounts receivable, inventory, and furniture and
fixtures. CPHI provides electrical imaging for press operations. CPHI had no
significant operations prior to this acquisition.
Acquisition of GLS Holdings, Inc.
The Registrant also purchased GLS Holdings, Inc., a Maryland
corporation, in November 1997. The purchase was made through the exchange of
approximately 56,250 shares of its common stock and a cash payment of $21,636
for all the issued and outstanding shares of GLS Holdings, Inc. GLS Holdings,
Inc. was formed in October 1997 to provide litigation support and copying
services in the Baltimore, Maryland and Richmond, Virginia markets.
Series A Convertible Preferred Stock Offering.
In order to raise additional capital, the Registrant issued a private
placement memorandum dated January 10, 1998 seeking to raise a minimum of
$500,000 and a maximum of $7,500,000 through the issuance of up to 75,000 shares
of Series A Convertible non-voting preferred stock. The offering was on a best
efforts basis with a 5,000 share minimum and a 75,000 share maximum basis at a
price of $100 per share. Proceeds from this offering were designated to assist
the Registrant in financing acquisitions and to a lesser extent, fund working
capital. Proceeds of the offering were placed in escrow until a minimum of 5,000
shares had been sold. Additionally, the Registrant agreed to pay sales
commission of 7% and other anticipated offering expenses of $50,000. The
Registrant expected to receive proceeds, net of offering expenses and sales
commission, of $450,000 at a minimum and a maximum of $7,450,000. The preferred
shares carry an annual dividend rate of 9%, with dividends accruing on a daily
basis and payable annually beginning October 1, 2001. At the option of the
preferred shareholder, the preferred shares may be converted into common stock
of the Registrant at rates which vary according to the number of days the
preferred stockholders hold the preferred shares. The conversion rate varies
from 12 shares of common stock for each share of preferred held between 91 and
180 days to 21 shares of common stock for each share of preferred held if the
holding period exceeds 900 days. In the event that a share was converted into
common stock, the accrued dividends would be waived. The Registrant reserves the
right to redeem the preferred shares beginning 91 days following the issue date.
The redemption price is $100 per share, plus accrued and unpaid dividends, plus
a cash call premium also based upon a floating scale of $2 for each share held
between 91 to 180 days up to a maximum of $20 per share for shares held longer
than 900 days. See the Certificate of Designation attached as Exhibit 3.2 to the
annual report on
6
<PAGE>
Form 10-K for the nine month transition period ended June 30, 1998. The
Registrant raised $778,845 after offering expenses of $58,590. The Registrant
ceased taking subscriptions in this offering in March 1999.
Consulting Arrangement with Ferris Baker Watts, Incorporated.
On April 9, 1998, the Registrant entered into a letter of intent with
Ferris, Baker Watts, Inc. to provide investment-banking services and assist the
Registrant in evaluating its financing options. This letter of intent provided,
among other things, that the Registrant issue 250,000 warrants to Ferris, Baker
Watts to purchase a like number of shares of common stock of the Registrant at a
$5 exercise price. Such warrants would not be exercisable, however, until the
earlier of April 9, 2000, one year after a public offering, or immediately upon
a change in control of the Registrant.
Sirrom Capital Corporation Financing.
On May 29, 1998, the Registrant and its subsidiaries entered into a
financing arrangement with Sirrom Capital Corporation ("Sirrom") for a six
million dollar subordinated acquisition line of credit pursuant to a Loan
Agreement dated the same date (the "Sirrom Loan Agreement"). Advances under this
line bear interest at a rate of 14% per annum, payable monthly through May 28,
2003, at which time the entire outstanding principal balance becomes due. Under
the terms of this facility, the Registrant issued Sirrom 119,891 warrants to
purchase the Registrant's common stock at a $.01 exercise price. Should the
Registrant be unable to repay this note by May 2001 or if the Registrant did not
complete a bona fide public offering with net proceeds to the Registrant in
excess of $15,000,000 by May 1999, the Registrant agreed to issue Sirrom
additional warrants ranging in number from 40,779 to 450,000. As a result of the
Registrant not completing a public offering by May 1999, an additional 449,994
warrants were issued to Sirrom. Thus, Sirrom holds a total of 569,885 warrants
as of June 30, 1999.
The warrants grant the holder the right to require the Registrant to
redeem the warrants for a period of 60 days immediately prior to their
expiration. As a result, the fair value of the warrants has been recorded as
a long term obligation.
Acquisition of Certain Assets and Liabilities of AMI Group, Inc.
In May 1998 the Registrant deposited $460,000 to acquire the office
equipment and copier dealership book of business of the AMI Group, Inc., a
Maryland corporation based in the Washington, D.C. area. The Asset Purchase
Agreement, executed in July 1998, was subsequently amended whereby the
Registrant agreed to assume additional liabilities of approximately $738,500.
The additional liabilities consist of a $518,500 note payable to one
vendor, and $220,000 deferred service liability.
Acquisition of Perfect Copy, Inc.
On June 1, 1998, the Registrant, through its direct wholly-owned
subsidiary Imtek Corporation ("Corporation"), purchased certain assets of
Perfect Copy, Inc., a Georgia corporation ("Perfect Copy"). This acquisition was
made pursuant to an Agreement for the Sale of Assets made effective as of June
1, 1998 (the "Agreement for the Sale of Perfect Copy Assets"). Prior to the
acquisition, Perfect Copy was engaged in the business of selling and servicing
photocopy equipment, typewriters, facsimile machines and other automated office
equipment (the "Business"). Mr. Jimi Epps was the sole owner of Perfect Copy.
7
<PAGE>
The assets acquired by Corporation include all furniture, fixtures,
equipment, automobiles, supplies, tools of trade, accounts receivable,
inventory, contract rights and leasehold interests, books and records, cash in
transit, goodwill, intellectual property, price lists, supplier lists, customer
lists, advertising, and the non-competition obligations of Jimi Epps and Donald
Blackburn (the "Perfect Copy Assets").
The Agreement excluded from the Perfect Copy Assets all cash on hand or
on deposit, the cash surrender value of any life insurance policies, marketable
securities and certain other assets set forth in the schedules to the Agreement.
Corporation did not expressly assume any liabilities in connection with the
acquisition. One exception was an agreement to assume Perfect Copy's liabilities
and responsibilities under the unexpired terms of certain maintenance and
service contracts, provided such liabilities did not exceed One Hundred Thousand
Dollars ($100,000) in the aggregate (the "Assumed Contractual
Responsibilities").
In exchange for the Perfect Copy Assets, Imtek Corporation paid Perfect
Copy Four Hundred and Ten Thousand Dollars ($410,000) at closing, which occurred
on June 3, 1998, and was obligated to pay Fifty Thousand Dollars ($50,000) to
Perfect Copy within one year of closing which was deposited with Perfect Copy's
attorney, to be paid to Perfect Copy on June 1, 1999. In addition, Imtek
Corporation agreed to assume the different maintenance contract liabilities of
Perfect Copy. Imtek Corporation paid a business broker $23,000 in connection
with the acquisition of Perfect Copy. Payment of the cash consideration by Imtek
Corporation is subject to a right of set-off in the event that Perfect Copy
fails to pay all of its liabilities, accounts payable or other obligations which
are not expressly disclosed or which are not expressly assumed by Imtek
Corporation pursuant to the Agreement. As of the date of this report,
approximately $401,000, which is net of offsets, has been paid to Perfect Copy
under the Agreement.
Barbera Business Systems Acquisition.
On July 1, 1998, the Registrant organized Imtek Acquisition
Corporation, a Maryland corporation, as a wholly-owned subsidiary ("Imtek
Acquisition") for the purpose of acquiring Barbera Business Systems, Inc. On
July 22, 1998, the Registrant, through Imtek Acquisition, purchased 600 shares
of capital stock of Barbera Business Systems, Inc., a Maryland corporation
("Barbera"). Three hundred of such shares were purchased from Joseph S. Barbera,
and three hundred of such shares were purchased from Kathleen P. Barbera (the
"Stock Acquisition"), all pursuant to the Stock Purchase Agreement and Plan of
Merger (the "Barbera Acquisition Document"). The 600 shares of Barbera capital
stock acquired by Imtek Acquisition (the "Acquired Securities") represented at
the time of the Stock Transaction, and represents on the date of filing of this
report, 60% of the issued and outstanding shares of Barbera.
The Barbera Acquisition Documents also provided that Imtek Acquisition
is to acquire the remaining 40% of Barbera by merger (the "Merger Transaction").
The Barbera Acquisition Document has now expired and the parties have agreed to
renegotiate the acquisition by Imtek Acquisition of the remaining 40% of
Barbera. As of this filing, the parties have not finalized the renegotiation.
Management expects a consummation of the remaining 40% of Barbera during the
second quarter, but can provide no assurance in that regard.
Upon completion of the Merger Transaction contingent upon successful
further negotiation (i) Imtek Acquisition shall succeed to all of the assets and
liabilities of Barbera and the same shall be automatically vested in Imtek
Acquisition (ii) all of the issued and outstanding shares of Barbera
8
<PAGE>
capital stock held by Joseph P. Barbera and Patricia A. Buddemeyer will be
canceled, and both Joseph P. Barbera and Patricia A. Buddemeyer shall be
entitled to receive a number of shares of the Registrant's common stock. The
amount of shares is yet to be determined.
The assets received in the Barbera Acquisition include customer
lists, inventory, tools, spare parts and supplies, leasehold and other
interests in machinery and equipment, furniture and other personal property,
the Barbera name, customer and supplier contracts, accounts receivable,
prepaid items and books and records (the "Barbera Assets"). Prior to the
Barbera Acquisition, the Barbera Assets were used in connection with
Barbera's sale of office products and equipment. Such use has been continued
after the closing of the Stock Transaction and the Merger Transaction.
The aggregate consideration paid by the Registrant and Imtek
Acquisition for the Acquired Securities was $1,725,119 of which $10,000 was held
in escrow pursuant to the Acquisition Documents. The purpose of the escrow was
to satisfy any liabilities arising out of an IRS audit of Barbera for Barbera's
fiscal year ended June 30, 1995 and any other federal or state taxes of Barbera
for any period ending prior to the date of the Stock Acquisition (the "IRS
Audit"). Such escrowed cash has been released as contingent liabilities have
been resolved.
The Barbera Acquisition Document further provides that Joseph P.
Barbera and Patricia A. Buddemeyer shall serve as directors of Barbera until the
closing date of the Merger Transaction, at which time Joseph P. Barbera and
Patricia A. Buddemeyer will resign from the Board of Directors of Barbera. The
funds used by the Registrant to acquire the Acquired Securities were funds made
available to the Registrant from Sirrom pursuant to the Sirrom Loan Agreement.
Philadelphia Acquisitions.
In July 1998, the Registrant acquired two additional office equipment
dealers located in the metropolitan Philadelphia, Pennsylvania market. The
Registrant purchased Forbes Enterprises, Inc. a Pennsylvania corporation, for
approximately $1,122,463, acquiring accounts receivable of approximately
$250,000, furniture and equipment of approximately $335,000, inventory of
approximately $302,000, and goodwill of approximately $216,000. Additionally,
the Registrant and the Forbes executed covenants not to compete from Leighton
Forbes and Jill Forbes for $10,000 each. The Registrant also acquired Keystone
Digital Imaging, Inc., a Pennsylvania corporation, for approximately $1,826,000.
The Registrant purchased cash of approximately $40,000, accounts receivable of
approximately $266,600, inventory of approximately $616,600, furniture and
fixtures of approximately $234,000, goodwill of approximately $638,800 and
executed covenants not to compete from Ricardo Salcedo and Edmund D. Peach, III
for $15,000 each. The funds used by the Registrant to acquire these two entities
were obtained principally from Sirrom, pursuant to the Sirrom Loan Agreement,
and to a lesser extent working capital.
Mercantile Financing.
On August 30, 1998 Imtek Corporation entered into a $3,000,000
revolving credit facility with Mercantile - Safe Deposit and Trust Company
("Mercantile"). The facility is guaranteed by the Registrant and Imtek
9
<PAGE>
Services Corporation pursuant to a Loan and Security Agreement between the
Registrant, Imtek Corporation, Imtek Services Corporation and Mercantile (the
"Mercantile Loan Agreement"). Advances under the Mercantile Loan Agreement were
collateralized by substantially all of the Registrant's assets. Funds borrowed
under the revolving credit facility bore interest at the prime rate plus 1%
payable monthly. This credit facility was retired in July 1999 and replaced by a
$10,000,000 facility from another lender. See "Provident Financing".
Ruttenberg Acquisition.
In July 1998 the Registrant's Merchant Banking segment consummated
the acquisition of certain assets of Ruttenberg and Associates, a Normal,
Illinois viaticated life insurance policy marketer. The Registrant paid $78,000
for goodwill. Funds to complete this transaction were principally obtained
from Sirrom pursuant to the Sirrom Loan Agreement.
American Copy Systems, Inc. Acquisition.
In November 1998, the Registrant purchased the business and certain
specific assets of American Copy Systems, Inc., a Pennsylvania corporation
supplying office equipment products and supplies, including photocopying and
facsimile equipment for approximately $895,000, consisting of $640,000 cash at
settlement, a note for $160,000 and a $95,000 assumption of deferred service
liabilities. The Registrant acquired property, plant, and equipment of $70,000,
cash and accounts receivable of $236,300, inventory of $213,700, a covenant not
to compete valued at $50,000, and recognized goodwill of approximately $325,000.
The funds used by the Registrant to acquire American Copy Systems, Inc. were
principally from the Sirrom Loan Agreement, and to a lesser extent from
operations. During the fourth quarter of fiscal 1999, the Registrant ceased the
business of the sale of office supplies, which activity was insignificant.
Cannon Business Machines License Agreement.
On March 12, 1999, the Registrant entered into a License and
Non-Compete Agreement with George R. and Delores M. Cannon, director-trustees
of George R. Cannon Business Machines, Inc., formerly a Maryland corporation.
Cannon Business Machine's charter was revoked for nonpayment of certain
taxes. The Registrant acquired the license for approximately $51,000. The
Registrant paid the license fee in equal monthly installments over a period
of six months. The license granted under this agreement is perpetual.
Moreover, for a period of two years from the agreement date, the licensor
provided a covenant not to compete in the State of Maryland and within 100
miles of the location of licensee's place of business. Funds used to acquire
the license and non-compete covenant were principally obtained from
operations.
Corporate Computer Services, Inc. Acquisition.
On April 16, 1999, the Registrant acquired certain specific assets and
the business of Corporate Computer Services, Inc. ("Corporate Computer"), a
Maryland corporation with operations in the Washington, D.C. area. The
Registrant paid $180,900 for property and equipment, $8,300 for other assets and
$169,300 for goodwill. Prior to April 16, 1999, Corporate Computer was in the
business of selling and servicing computer printers and related parts and
supplies. The Registrant used funds from operations to acquire Corporate
Computer.
10
<PAGE>
Provident Financing.
On July 7, 1999, the Registrant, Imtek Corporation and Barbera Business
Systems, Inc., entered into a three year $10,000,000 revolving line of credit
facility with The Provident Bank ("Provident"), an Ohio chartered banking
institution. The Provident credit facility replaced the $3,000,000 Mercantile
credit facility. Pursuant to the Provident loan agreement ("Provident Loan
Agreement"), among other covenants and restrictions, the Registrant must
maintain certain minimum consolidated net worth, consolidated liabilities to
consolidated net worth, consolidated interest coverage, and consolidated fixed
charge coverage ratios. The Provident Loan Agreement bears a variable rate of
interest, the bank's prime rate plus one percent with interest payable monthly.
Moreover, the Provident Loan Agreement requires minimum interest, based on the
variable interest rate on $5,000,000, regardless of the actual loan balance
outstanding. Advances under this credit facility are based upon a defined
borrowing base consisting principally of eligible accounts receivable and
inventory, as defined under the Provident Loan Agreement. Substantially all of
the Registrant's assets secure the debt.
W. J. Nolan
On June 16, 1999, the Registrant executed a letter of intent and term
sheet with W. J. Nolan and Company ("Nolan") which allows Nolan to raise,
through a best efforts private placement, up to $5,000,000 of junior
subordinated debt. Management anticipates that this debt offering would be
subordinated to all current lenders and would bear interest at approximately 8%,
payable semi-annually. This offering is further expected to have a floor of
$2,000,000 with a maximum of $5,000,000, excluding an allowance of 15% for over
subscription. The proposed offering is also anticipated to be in $50,000 units
and each unit would contain a warrant to purchase up to 10,000 shares of the
Registrant's common stock at an exercise price of $.10 per share.
Proceeds of this proposed offering are expected to be used primarily
for financing strategic acquisitions and, to a lesser extent, to fund working
capital requirements.
The Registrant anticipates that it will enter into a placement agency
agreement with Nolan which will allow Nolan to purchase up to an amount equal to
10% of the warrants underlying this offering. Should Nolan be successful in
raising the funds in this proposed offering, the Registrant has agreed to grant
Nolan the right of first refusal to act as a placement agent for any future
private placement offerings, or to co-manage any public stock offering for up to
two years after the closing of this proposed offering.
On July 20, 1999, the Registrant signed a financial advisory and
investment banking agreement with Nolan for a term through July 2001. Under the
terms of this agreement, the Registrant agreed to pay Nolan a monthly fee of
$2,000 commencing September 15, 1999. Moreover, the Registrant agreed to pay
Nolan a fee based upon the common Lehman formula for any acquisition or sale
transaction originated by Nolan.
Management can provide no assurances that the private placement debt
offering will be consummated or, if consummated, that it can be consummated
under terms and conditions favorable to the Registrant.
11
<PAGE>
ACQUISITION STRATEGY
Office Solutions Business.
The Registrant's office solutions business continues the implementation
of its growth strategy through acquisitions. The Registrant's strategy is to
expand its business through the strategic acquisition of companies with similar
products and services within specific geographic regions. Additionally, the
Registrant anticipates acquiring entities in the future which may provide the
Registrant with expanded, enhanced, or additional products, services or markets.
Management cannot, however, provide any assurance that such acquisitions will
occur or that they will indeed result in additional beneficial products,
services or markets. Management believes that acquired entities having similar
products and services would benefit from the Registrant's centralized
management, systems of internal control, additional financial resources, and the
Registrant's marketing efforts, although there can be no assurances that such
benefits will indeed be realized.
Management believes that sufficient acquisition opportunities exist.
The Registrant anticipates that significant acquisitions would be funded from
the issuance of authorized but unissued shares of the Registrant's common stock,
external financing sources and, to a lesser extent, from operating funds. The
Registrant's future success with acquisitions will be dependent upon the timing
and size of the acquisition, the Registrant's ability to integrate the
acquisition into its operations with minimum integration costs, and the
Registrant's ability to successfully grow its infrastructure to sustain and
manage the combined operations. The Registrant evaluates the potential
acquisition candidates after holding discussions with the management of the
potential acquisition and, as a general rule, does not publicly announce any
such acquisition until a definitive agreement is executed.
The previously discussed acquisition transactions have been recorded
under the purchase method of accounting. Accordingly, the results of operations
of the entities, from the acquisition date, are included in the consolidated
financial statements. Generally, the purchase price has been allocated to assets
acquired and liabilities assumed based on the fair market value at the
acquisition date. As acquired entities are assimilated into the operations of
the Registrant during the allocation period, generally one year from the
acquisition date, adjustments may have been made to the allocations of the
acquisition price and, therefore, to goodwill.
COMPETITION
The Registrant's office solutions business is highly competitive with
numerous competitors in its existing geographic markets, as well as in
anticipated expansion markets. The Registrant is in direct competition with
local, regional, and national equipment suppliers and dealers, mass
merchandisers, local buying clubs, and to a lesser extent, internet on-line
competitors. Principal areas of competition focus on quality and response time
of after-the-sale service, parts availability, product capability, rental
agreements, financing and price. The Registrant competes with companies that
have greater financial strength and marketing resources.
As of June 30, 1999, the Registrant's merchant banking business
consisted primarily of providing viatical settlement services consisting of the
purchase and resale to third parties of life insurance policies owned by
terminally ill individuals. The viatical settlement industry is advancing in
maturity with numerous competitors throughout the continental United States and
limited barriers to entry. Management believes that the Registrant is one of the
larger viatical settlement companies in a very fragmented industry. The
Registrant is in direct competition with many small, privately held viatical
settlement companies as well as viatical settlement companies which are owned
by, or are divisions of, large insurance companies. Principal areas
12
<PAGE>
of competition in connection with the purchase of policies focus on the bid
price offered to the terminally ill individual and the timeliness of responses
to any requests for bids. The Registrant is in direct competition with financial
institutions and other investment vehicles in connection with funding the resale
of the policies purchased.
As announced during the third quarter of fiscal year 1999, the
Registrant created an additional segment, Specialty Finance. This segment
consists principally of providing intermediary services in brokering financing
and leasing arrangements of office equipment. The Registrant is in direct
competition with numerous other financial services companies, including
financing companies, banks and thrift institutions, and other financing brokers,
some of which have greater resources and access to lower cost capital. The
Company's Specialty Finance segment is conducted through Imtek Capital
Corporation, a wholly-owned subsidiary of Imtek Services, Inc.
CUSTOMERS AND MARKETING
The Registrant focuses its office solutions segment marketing efforts
primarily on small and mid-size businesses, regional offices of large companies,
professional service firms, hospitals, educational institutions, and
governmental agencies located in or near the area where the Registrant maintains
a physical presence. Sales representatives and sales management are compensated
based on a combination of gross sales revenue and point-of-sale profits. A key
element of the Registrant's operating philosophy is to provide all sales
representatives and managers with an ongoing program of in-house training,
manufacturer-provided training and other educational courses and seminars. The
Registrant holds sales meetings to reinforce the consistent application of its
procedures, policies, and strategies, and manufacturers' advertising campaigns
and cooperative advertising arrangements generally enhance the Registrant's
marketing efforts.
The Registrant has marketed its merchant-banking segment through its
existing sales force and through registered broker-dealers, print media, and
mass communication media such as radio and newspapers.
The Specialty Finance segment's customer base, at present, principally
consists of the office solutions segment's customer base. Since inception, the
segment has relied on its sister segment to provide its customer base. Because
the Specialty Finance segment's customers are basically those of Office
Solutions, the segment has incurred minimal marketing expenses. However, as the
segment matures, management anticipates expanding its customer base by marketing
its service to other equipment dealers and the secondary market.
VENDORS AND SUPPLIERS
Products purchased and distributed by the Registrant's office solutions
segment may be acquired from numerous domestic and international suppliers. The
Registrant has not experienced, and does not anticipate experiencing, any
significant difficulty in obtaining these products and supplies, although the
Registrant cannot provide any assurance that such difficulties will not arise.
The Registrant's primary office solutions products are photocopiers,
facsimile equipment, personal computers, office products, and technologies and
services used in offices to manage information and documents. Management
believes that it is in the Registrant's best interest to maintain a close
working relationship with a number of equipment manufactures in order to allow
the Registrant to purchase equipment and related parts and supplies at
competitive prices. The inability of the Registrant to maintain these key
13
<PAGE>
relationships could result in disruptions of Registrant's operations and have a
material adverse effect on its financial condition.
Because the Registrant's business is dependent upon its vendors and
suppliers, the Registrant has identified several manufacturers of photocopiers
and facsimile machines, and has established close working relationships with
those manufacturers. The Registrant acquires products and supplies for resale
from such sources as Mita, Ricoh, Sharp, Konica, and Gestetner. The Registrant
entered into renewable dealer agreements with MITA Copystar America, Inc.,
("MITA") dated November 26, 1997, Sharp Electronics Corp, dated January 6, 1998,
Gestetner Corp, dated January 5, 1998, and Dex Business Systems, dated January
26, 1998, as reported on the Registrant's Forms 10-K for the year ended
September 30, 1997 and 10-Q for the quarter ended March 31, 1998. These
agreements, among other covenants and restrictions, provide for a minimum level
of purchases by the Registrant, establishment of purchase pricing, establishment
of business locations, and termination provisions.
In July 1998, MITA Corporation, based in Japan, announced that it had
filed for bankruptcy protection. MITA Corporation advised the Registrant that it
did not expect any significant disruption in supplying its customers with
quality equipment, parts, and supplies on a timely basis. To date, the
Registrant has not experienced significant disruptions in its ability to obtain
products or parts from MITA Corporation, but cannot provide any assurances that
such disruptions will not occur in the future. Management believes that its
strategic alliance with MITA and its alternative suppliers will provide the
Registrant with sufficient product for sale at competitive prices.
As of June 30, 1999 the Registrant employed 280 persons, none of whom
were covered by a collective bargaining agreement. Management believes that its
employee relations are good, and that wages and working conditions, as compared
to industry norms, are favorable.
Sales personnel turnover is common in the office solutions industry and
the Registrant expends considerable effort to retain high quality, dedicated,
professional sales personnel. Management believes that the Registrant's sales
personnel compensation plan compares favorably to the industry norm.
Additionally, management has implemented an extensive training program with
clearly defined sales goals and career paths for its sales force. By
establishing goals, providing training and support and a defined career path for
its sales force, management believes it can maintain a high quality sales force
with turnover lower than the industry average, although there can be no
assurances of such an effect on sales force turnover. The Registrant relies
heavily on its senior management and the loss of any one of them could have a
material adverse effect on the Registrant's financial condition and the
Registrant's ability to successfully grow and implement its strategic
acquisition policy.
The Registrant's merchant banking segment purchased viaticated
insurance policies primarily from one broker. For the fiscal year ended June 30,
1999, the Registrant purchased approximately 75% of all policies purchased for
the year from this broker.
TECHNOLOGY
The Registrant believes that the office equipment market will continue
to change with the increased use of digital technology, which allows one piece
of office equipment to network directly with other office equipment. Management
further believes that this technology may result in fewer stand-alone units
being sold and that this shift to multi-functioning equipment may
14
<PAGE>
result in increased training costs for the Registrant's service technicians.
Continued technological improvements add to the complexity of the equipment's
internal working components. The Registrant, therefore, expects that the costs
of training service personnel will likely increase.
ENVIRONMENTAL REGULATION
The Registrant's business and product lines generally do not generate
significant hazardous waste. Federal, state, and the various local regulations
have not had, and are not expected to have, a material adverse affect upon the
Registrant or its financial condition.
FINANCIAL INFORMATION ABOUT
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
Merchant banking $53,962,341 $21,088,242 $ -
Office solutions 20,879,845 3,615,750 2,094,972
Specialty finance 78,017 - -
Intersegment sales - - -
PRETAX PROFIT OR LOSS
Merchant banking $ 4,201,604 $ 1,737,173 $ -
Office solutions (4,336,386) (556,129) 78,967
Specialty finance 64,438 - -
IDENTIFIABLE ASSETS
Merchant banking $ 3,653,054 $ 8,423,800 $ -
Office solutions 16,516,288 7,301,749 1,007,339
Specialty finance 32,203 - -
</TABLE>
ITEM 2. PROPERTIES.
The Registrant's policy is to lease its business locations in lieu of
acquiring facilities. The Registrant leases numerous properties for
administration, sales and service. In general, the Registrant's lease agreements
require a payment from the Registrant for its proportionate share of taxes,
utilities, and other common area maintenance expenses. Management
15
<PAGE>
believes that the properties it occupies are suitable and adequate for its use.
All properties are of brick or block construction and management believes that
all properties are adequately maintained. As of June 30, 1999, the Registrant
leased 17 locations from independent landlords as follows:
The Registrant leases four (4) facilities in the Baltimore, Maryland
metropolitan area. The first location, which serves as the corporate
headquarters and houses the Registrant's Merchant Banking Segment, is a
five-year lease of approximately 10,400 square feet. The second Baltimore
facility, housing the Barbera operation, is a lease which expires in December
2001, and is approximately 9,500 square feet. The third facility utilized by the
Specialty Finance segment consists of approximately 1,550 square feet and
terminates in January 2004. The fourth location, of approximately 1,000 square
feet, is used as an outsourcing sales and production facility expiring November
2001.
The Registrant also has approximately 28,000 square feet of sales,
service and warehouse space located in Glen Dale, Maryland. This lease expires
July 2007.
The Registrant leases four facilities in the Richmond, Virginia
metropolitan area. The first lease is for the office solutions headquarters and
accounting offices. This facility consists of approximately 4,200 square feet of
prime downtown office space. This lease expires December 1999. The second
Richmond lease is for a 2,700 square foot office equipment sales and service
location, which lease expires December 31, 1999. The third Richmond location is
an outsourcing sales and service facility consisting of approximately 4,200
square feet. This lease expires July 2000. The fourth Richmond facility,
comprising approximately 7,200 square feet, is leased through February 2004 and
is a warehouse facility.
The Registrant has two facilities in the Tidewater, Virginia area. The
first facility is located in Newport News, Virginia as an office equipment sales
and service location. This facility consists of approximately 4,400 square feet
with the lease expiring February 2004. The second Tidewater location is a
Virginia Beach equipment sales office consisting of approximately 2,700 square
feet leased through December 1999.
The Registrant has two office equipment sales and service offices
located in the Atlanta, Georgia metropolitan market. The first facility is
located in Gainesville, Georgia consisting of approximately 1,800 square feet
and is leased through December 2000. The second Atlanta location is located in
Athens, Georgia consisting of approximately 1,500 square feet rented on a month
to month basis. It is management's intention to maintain this location on a
month-to-month lease. There can be no assurance that this location can be
maintained on a month-to-month lease basis under terms which are beneficial.
As of September 18, 1998, the Registrant leased three office equipment
and service facilities in the Philadelphia metropolitan market. The first
facility is located in Exton, Pennsylvania and consists of 6,700 square feet
with the lease expiring June 2003. The second facility is located in Broomall,
Pennsylvania consisting of 5,900 square feet and is leased through August 2004.
The third facility is located in Warrington, Pennsylvania consisting of
approximately 3,800 square feet. This facility is presently leased on a
month-to-month basis, which management cannot provide assurance that it can be
maintained.
The Registrant leases one facility in the Washington, D.C. metropolitan
area which consists of approximately 4,250 square feet. This lease expires in
March 2003. Presently, the facility houses outsourcing services.
16
<PAGE>
The Registrant also has one facility in Bloomington, Illinois.
Consisting of approximately 900 square feet, this lease expires April 2003. This
facility services the Registrant's Merchant Banking Operation and is a result of
the previously reported Ruttenberg acquisition.
ITEM 3. LEGAL PROCEEDINGS
As reported in Item 1 of this report, incorporated into this item by
reference, the Registrant filed a voluntary petition for reorganization
pursuant to Chapter 11 of the Bankruptcy Code on January 5, 1995 with the
U.S. Bankruptcy Court for the Northern District of Texas. The Registrant's
Plan of Reorganization was approved by the court on October 5, 1995.
On August 10, 1998, an order of dismissal was entered in the lawsuit
styled LEGAL AMERICA OF VIRGINIA, LTD. V. IMTEK OFFICE SOLUTIONS, INC., GEORGE
L. SIMPSON, AND MICHAEL LOWE, Richmond Circuit Court (Chancery), Case No.
HJ-420-1.
On April 16, 1999, the Kansas Securities Commissioner issued a cease
and desist order against Imtek Funding Corporation, d/b/a Beneficial Assistance,
Inc., finding that the viatical settlement contracts were securities within the
meaning of the Kansas Securities Act. In response, the Registrant ceased all
offers and sales of viatical settlement contracts within the State of Kansas.
Subsequently, the Registrant has agreed to settle the proceeding, without
admitting or denying the allegations of the commissioner, with which the
Registrant did not concur. As part of the settlement, the Registrant has agreed
to offer rescission to the seven Kansas residents who purchased viatical
settlement contracts in Kansas and agreed, in the future, to discontinue all
offers and sales of viatical settlement contracts in Kansas unless registered in
Kansas as a security and sold by persons duly registered in Kansas as
broker-dealers. If all Kansas purchasers to whom the rescission offer was made
were to accept, the Registrant would be required to pay approximately $203,000
plus interest.
Presently, the states of Virginia, Iowa, and Colorado are conducting
investigations into whether viatical settlement contracts sold by the
Registrant, as well as others, constitute securities which require registration
under applicable state law. The Virginia Securities Division has informed the
Registrant that it intends to institute an enforcement proceeding against the
Company. Should such an enforcement proceeding be instituted, the Registrant
presently expects to vigorously defend its position. Management cannot predict
the outcome of such proceedings. An unfavorable outcome in such proceedings
could have a material adverse effect on the Registrant, its business and
financial condition.
The Registrant is a party to other legal proceedings which are in the
ordinary course of business, and management does not believe that a negative
outcome of these other matters would have a material adverse effect on the
Registrant or its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 25, 1999, stockholders entitled to vote 4,500,123 shares of
common stock of the Registrant, constituting in excess of a majority of the
total number of shares of common stock entitled to vote on the matter, signed a
written consent in lieu of a special meeting under the Delaware General
Corporation Law amending and restating the Registrant's Certificate of
Incorporation to reduce the number of shares of common stock, par value $.000001
per share, authorized for issuance under the Certificate from two
17
<PAGE>
hundred fifty million (250,000,000) to fifty million shares (50,000,000).
Stockholders entitled to vote 3,032,238 shares of common stock did not
participate in the written consent. There were no votes against the matter,
abstentions or broker non-votes.
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
There is no known market for the Registrant's common or preferred
stock. As of the latest practicable date there were 161 common stockholders of
record and 23 preferred stockholders of record. The Registrant did not pay
dividends during the fiscal years ended September 30, 1997, June 30, 1998 or
1999, and does not anticipate paying dividends in the future.
Information responsive to Item 701 relating to securities sold by the
Registrant (which were not registered pursuant to the Securities Act) during the
period covered by this report is set forth under Item 1 of this report and is
incorporated into this Item by reference. All such sales were made pursuant to
Section 4(2) of the Securities Act.
Pursuant to the terms of the Provident Loan Agreement and the Sirrom
Loan Agreement, as amended, neither the Registrant nor any of its subsidiaries
may declare or pay any dividend of any kind (other than stock dividends payable
to the holders of capital stock), whether in cash or in property, on any class
of capital stock of any of them.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data presented below as of and for
the Company's fiscal year ended September 30, 1997, nine-month period ended June
30, 1998, and fiscal year ended June 30,1999, have been derived from the audited
consolidated financial statements of the Company. The data set forth below are
qualified in their entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, the notes
thereto and the other financial and statistical information included elsewhere
in this Form 10-K.
18
<PAGE>
<TABLE>
<CAPTION>
Year ended Nine mos. ended Year ended
June 30, 1999 June 30, 1998 September 30, 1997
------------- --------------- ------------------
<S> <C> <C> <C>
Sales $74,920,203 $24,703,902 $2,094,972
Operating income 1,287,944 1,303,033 72,433
Loss from discontinued operations (1,223,342) (110,666) --
Net (loss) income (1,606,306) 603,068 58,367
Earnings per share:
Basic
Continuing operations $ (0.06) $ 0.10 $ 0.03
Discontinued operations (0.16) (0.02) --
----------- ----------- ----------
Net income $ (0.22) $ 0.08 $ 0.03
----------- ----------- ----------
----------- ----------- ----------
Diluted
Continuing operations $ (0.06) $ 0.10 $ 0.03
Discontinued operations (0.16) (0.02) --
----------- ----------- ----------
Net income $ (0.22) $ 0.08 $ 0.03
----------- ----------- ----------
----------- ----------- ----------
Total assets $20,572,529 $16,286,133 $1,007,339
Notes payable, net of original
issue discount 8,694,626 4,062,561 --
Obligations under capital leases 1,247,588 1,222,659 --
Put warrant obligations 2,251,062 335,695 --
Preferred stock 83 67 --
Total stockholders' equity 1,301,710 27,555,991 774,072
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
The Registrant effectively commenced operations on April 12, 1997.
Prior to this time, the Registrant was a development stage company with no
significant operations. Since the Registrant was essentially a "start-up" during
1997, and because of the Registrant's limited activity during the fiscal year
ended September 30, 1997, a period of approximately five (5) months, there are
no meaningful comparisons between 1998 and 1997. Moreover, the Registrant
changed its fiscal year-end from September 30 to June 30, effective June 30,
1998. Thus, the fiscal year ended as of June 30, 1998 consisted of a period of
nine (9) months.
For the year ended September 30, 1997, the Registrant was primarily
engaged in the wholesale and retail sale of copiers and facsimile equipment,
servicing of office equipment, providing commercial printing and duplicating
services and, to a lesser extent, the retail sale of office supplies.
Effective October 1, 1997, through the acquisition of Thompson
described in Item 1 and incorporated by reference, the Registrant began its
Merchant Banking operations by providing viatical settlement services - the
purchase and resale of life insurance policies of terminally ill individuals.
Effective January 1999, the Registrant created a third operating
segment, Specialty Finance. This segment's primary business consists of
originating and placing equipment leases with unrelated lessors. The Specialty
Finance segment essentially acts as an intermediary in financing and leasing
transactions of office equipment and copiers, and markets its product
principally to the Office Solutions segment.
19
<PAGE>
During fiscal year 1999, the Registrant adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. This
statement established revised standards under which an entity must report
business segment information using the same basis that the entity uses to
internally evaluate its performance. As a result the Registrant created an
additional segment. This segment, referred to as Commercial Printing and
Duplicating, was previously a component of the Office Solutions segment. The
financial statements have been restated to reflect this change. In April 1999
the Registrant elected to discontinue the operations of this segment.
RESULTS OF OPERATIONS
In April 1999, the Executive Committee of the Registrant's board of
directors and management elected to discontinue the commercial printing and
duplicating segment, which provided litigation outsourcing services and was
previously included within the office solutions segment. As more fully
discussed in the Notes to the Financial Statements filed with this Form 10-K
(which set forth the periods indicated, the dollar amount and effects of the
change), management made the decision to discontinue operations in this
segment after considering operating results, expectation of future earnings,
and to a lesser extent, competition within its geographic operating regions.
Consolidated.
For the fiscal year ended June 30, 1999, as compared to nine month
period ended June 30, 1998 (which has been annualized for comparison
purposes), consolidated revenue increased to approximately $75 million from
$32.9 million, annualized, for the comparable period of the prior year
primarily as a result of the growth in the Merchant Banking Segment as more
fully described below. The nine month annualized figures may not reflect
seasonal fluctuations and therefore may not be truly comparable.
Operating income from continuing operations was flat at approximately
$1.3 million for both years. On an annualized basis, operating income decreased
from $1.7 million to $1.3 million for the comparable period. Earnings before
interest, taxes, depreciation and amortization from continuing operations was
approximately $2.7 million for the year ended June 30, 1999 and was
approximately $1.8 million annualized for the short year ended June 30, 1998.
Net Income decreased to a loss of approximately $1.6 million for the year ended
June 30, 1999 as compared to an annualized profit of approximately $804,000 for
the nine month period ended June 30, 1998. As previously discussed, there are no
meaningful comparisons between the fiscal period ended June 30, 1998 and the
fiscal year ended September 30, 1997, as the Registrant was a "start-up" during
the five month period ended September 30, 1997.
Office Solutions Segment.
During the fourth quarter of fiscal 1999, after integration of
significant acquisitions within the company's recent history, management
reviewed and evaluated the operations of the segment and implemented a cost
containment program. The cost containment program focused on the identification
of operating inefficiencies, duplication of efforts, and excessive or
duplicative administrative expenses. Based upon the results of this review,
management identified several areas that were and will be focused on to
implement corrective action. Specifically, management had implemented a
reduction in force plan eliminating approximately 120 personnel to the year end
level of 280. Management anticipates, on an ongoing basis, to continue its
review and evaluation of staffing levels, making adjustments
20
<PAGE>
as necessary. Additionally, management is focusing on general and administrative
expenses, in addition to payroll burden to realize reductions.
During the year ended June 30, 1999 the registrant adopted SFAS 131,
Disclosures About Segments of an Enterprise and Related Information. Upon
adoption of this statement, the Registrant reported its business segments using
the same basis as management uses to internally evaluate the Registrant's
performance. As a result, the Registrant established a segment labeled
Commercial Printing and Duplicating Services and restated prior year segment
information. This new segment was previously reported in the Registrant's Office
Solutions segment. The Commercial Printing and Duplicating segment was
principally in the business of providing outsourcing services such as litigation
support, copying services and digital imaging services. This segment operated in
three separate locations within the Mid-Atlantic region. During the fourth
quarter, management elected to discontinue this segment and implemented a
program to eliminate, by sale or transfer to other operating units, the assets
of this segment. As a result of the decision to discontinue the operations of
this segment, the Registrant has recognized a loss of approximately $ 1.2
million, net of tax and inclusive of a provision of approximately $479,000 for
estimated losses during the phase-out period. During the prior fiscal year, the
commercial printing and duplicating segment, which was included within the
office solutions segment, generated an operating loss, net of income taxes, of
approximately $111,000. Management believes that the discontinuance of the
commercial printing and duplicating segment will positively impact future
earnings of the office solutions segment.
In May 1999 the Registrant began modifying its financial reporting
systems for the office solutions segment centralizing data at the operating
unit level. Because of this change, same store comparisons are not meaningful
as certain locations have been combined.
Gross revenue for the office solutions segment, net of discontinued
operations, increased from an annualized fiscal 1998 figure of approximately
$4.8 million to approximately $20.9 million for the year ended June 30, 1999.
This 335% increase is principally due to acquisitions during the current
fiscal year, with significant acquisitions occurring within the first two
months of the year.
Gross revenue for the nine month period ended June 30, 1998, was $3.6
million net of discontinued operations, as compared to $2.1 million for the six
month period ended as of September 30, 1997. This increase was principally
attributable to acquisitions.
Cost of revenue for the year ended June 30, 1999, net of
discontinued operations and as compared to the annualized comparable period
of the prior year, increased by approximately $8.8 million, or 279%. This
increase is again principally due to acquisitions. The segment generated a
gross margin of approximately 43% for the year ended as of June 30, 1999, as
compared to a gross margin of approximately 35% for the prior period. This
increase is principally related to acquisition integration, wherein
management has implemented effective pricing and inventory control procedures
within the acquired operating units. As the segment increases in size and
volume, pricing concessions from significant vendors become more obtainable.
In conjunction with the above discussed cost containment program
implementation and better buying opportunities, management anticipates
nominal future margin increases.
Due to significant acquisitions during the short year ended June 30,
1998, and the limited operations of the segment during the short period ended
21
<PAGE>
September 30, 1997, there are no meaningful year-to-year comparisons of cost of
goods sold or gross margins.
Selling and general expenses increased for the year ended June 30,
1999 as compared to the year ended as of June 30, 1998, annualized to reflect
a comparable period, by approximately $11 million, or approximately 474%. The
increase in these expenses was principally a result of the amortization of
goodwill associated with the acquisitions and deferred financing costs
related to the Sirrom Loan agreement. Amortization expense was approximately
$527,000 for the year ended June 30, 1999 and approximately $78,000 for the
nine months ended June 30, 1998. The segment also experienced an increase of
530.2% in its marketing expenses during the year as compared to the prior
period, going from approximately $22,000 for the nine month period ended June
30, 1998 to approximately $139,000 for the year ended June 30, 1999. Another
contributing factor relates to personnel costs. Administrative salaries
increased 76.8% ($389,000) from approximately $506,000 for the nine month
period ended June 30, 1998 to approximately $896,000 for the year ended June
30, 1999. Professional fees increased dramatically due to the increase in the
costs associated with auditing acquisitions, the exploration and subsequent
closing of refinancings and certain investment banking charges.
During the year ended June 30, 1999, as previously discussed,
management has embarked upon a cost containment program and as also previously
discussed, a significant component of this cost containment program relates to
the elimination of excess and redundant personnel. Thus, during the reporting
year, personnel costs increased significantly as compared to the prior year. In
addition to the personnel direct costs, indirect costs of personnel also
contributed to this increase. The segment also experienced an increase in its
marketing and advertising expenses during the year as it continued to build and
enhance its market position. Management expects that the implementation of its
cost containment program will produce results during the forthcoming year in
overall lower general and administrative expenses.
Selling and general expenses for the nine month period ended June 30,
1998 as compared to the year ended September 30, 1997 also showed a significant
increase. As previously reported, this increase was principally due to
acquisitions.
Other income and expense experienced significant increases for the year
ended June 30, 1999, as compared to the nine month period ended June 30, 1998.
This increase is principally a result of the Registrant carrying a substantial
amount of additional debt. At June 30, 1998 the registrant had total notes
payable and capital lease indebtedness of approximately $5.6 million, of which
$3.4 million was due to Sirrom, a note issued on May 28, 1998. At June 30, 1999
the Registrant had notes payable and capital lease obligations of approximately
$12.0 million, most of which was outstanding for the entire year. For the year
ended September 30, 1997, there is no meaningful comparative analysis.
Merchant Banking Segment.
As previously reported, the nine month period ended June 30, 1998
was the first period of operations for the merchant banking segment and thus
there is no meaningful comparison to any prior period. The merchant banking
segment's business is conducted through the Registrant's wholly owned
subsidiary, Imtek Funding Corporation.
The merchant banking segment derives its revenue and associated costs
primarily from viatical settlements. Viatical settlements involve the buying and
reselling of life insurance policies owned by terminally ill individuals,
22
<PAGE>
and providing viatical settlement services. This segment's business consists of
three distinct functions. The first two are the purchase and resale of the
viaticated life insurance policies. These services are marketed principally
through a network of brokers, primarily insurance agents. The third is providing
document management and production services to assist in the underwriting
process and assistance for trustees engaged in the viatical settlement business.
Management is considering the modification of the merchant banking
segment's business such that the brokerage of viaticated contracts would
increase in significance purchase and subsequent sale of viatications may
become less significant. The segment would likely continue providing document
management services. Should management elect to fully adopt this change,
management expects that gross revenue would decrease significantly but income
from operations should only decrease slightly.
Alternatively, management is considering several marketing
alternatives, including the offering of viaticated insurance policies as a
"securitized" product. Should the segment be successful in offering these
additional "securitized" products, management believes that revenue growth
could be substantial. While there can be no assurance that this volume
increase can or could be achieved, offering these additional "securitized"
products may permit licensed security brokers the opportunity to begin
selling this product, thus expanding the segment's sales network. In fiscal
2000 management intends to expend upwards of $150,000 in designing and
introducing the product to the market. Management continues to believe that
this is a reasonable estimate of the necessary pre-operational marketing
costs which may be expended in the near term, should the company elect this
alternative.
Gross revenue for the year ended June 30, 1999 increased by $25.8
million, or approximately 92% as compared to the prior period, annualized to
represent a full year. This increase is principally due to the continued growth
and expansion of an otherwise immature industry. To a lesser extent, the company
has sought to increase its market share, resulting in increased revenue, and
profitability through economies of scale. Management increased its the market
share principally by lowering its gross profit targets, within a defined range.
The fiscal period ended June 30, 1998, a period of 9 months, was the
first period for the Registrant's merchant banking segment, and thus there is no
comparison to prior years. This first year of operations produced gross revenue
of $21.1 million ($28.9 million annualized).
Management believes that its viatical settlement contracts are not
securities subject to regulation under state securities law. The company is
aware, however, that several states are investigating to determine if the
viatical settlement business or parts of the viaticial settlement process should
be regulated. Some states have advised the Registrant that they believe that the
viatical settlement contract may be a security subject to regulation. The
Registrant can provide no assurance that a state regulatory body looking into
this matter will agree that the Registrant's viatical settlement activities are
not regulated under current law and regulations or that, if challenged,
Registrant would prevail in its position. Should the viatical settlement
contract be determined, on a widespread basis, to be a security, the segment
would experience a material adverse effect on operating income and its financial
condition. The Company is currently considering marketing alternatives to
minimize this potential negative impact. Specifically, the segment is
considering the possible securitization of the viatical settlement contract.
Should the segment be successful in offering such securitized product,
management believes that the segment could experience substantial increase in
volume as the product could be sold by
23
<PAGE>
licensed security brokers which would, in management's opinion expand the
segment's marketing base.
Cost of revenue increased by $22.8 million, or 95%, as compared to the
prior period, annualized to represent a 12-month period. This increase is
principally in response to the revenue increase and the product mix, as affected
by the lowering of the target gross profit percentages when bidding on
viatications. During the year the product mix has been focused toward the longer
viatication periods, which generally produce higher gross margin and lower cost,
as compared to the prior year where the product mix was more diverse. This
positive impact was negated somewhat by the lowering of target margins, as
previously discussed.
The segment's profit margin, within a relevant range, generally varies
by the expected term of viatication. As the viatication period (generally a
12-month period, with a minimum of 1 year and a maximum of 4 or more years)
lengthens, the profit margin generally increases. These viatication periods are
considered the product mix.
In response to the preceding, the segment produced a gross margin of
13.4% for the year ended June 30, 1999, as compared to 14.9% for the nine month
period ended June 30, 1998. Contingent upon the product mix, and the maturation
of the industry, which brings about increased competition and thus lower gross
margins, management anticipates the gross margins to remain relatively constant.
Selling and general expense within the merchant banking segment
increased to approximately $3.0 million for the year ended as of June 30, 1999,
as compared to approximately $1.4 million for the nine month period ended June
30, 1998, annualized to reflect a full year. This approximately 114% increase is
principally in response to higher salaries and employee related costs.
Additionally, as previously reported, with the change in location during the
year, the segment experienced relocation costs, including additional
depreciation expense associated with the replacement and addition of office
furniture, fixtures, and computer equipment. Moreover, with the relocation, the
segment recognized the unamortized leasehold improvement expense. Also, as
previously reported, the segment experienced a significant increase in
professional fees. Professional fees were paid primarily for the audit of the
segments' financial statements and legal fees incurred to explore the
"securitization" of viaticals. The segment also paid fees to its attorneys to
assist in responding to various inquiries from certain states exploring whether
viaticated insurance policies or parts of the viatical settlement process should
be or is subject to be regulated under various state securities and/or insurance
laws and regulations. The segment also experienced an increase in its marketing
expenses associated with its endeavor to expand its position within the
marketplace, especially in light of the commencement of industry maturation.
Selling and general expense amounted to less than 1% of revenue for
both 1999 and 1998.
As previously reported, the Merchant Banking segment did not commence
operations until October 1, 1997. Thus, there is no comparison between the nine
month period ended June 30, 1998 and the year ended September 30, 1997.
Specialty Finance.
As previously discussed, during the third quarter of fiscal 1999, the
Registrant created the specialty finance segment, its third reportable segment,
consisting principally of office equipment financing services. The specialty
finance segment essentially acts as an intermediary in the
24
<PAGE>
financing and leasing transactions of office equipment and copiers, and markets
its product principally to the customers of the Office Solution segment.
Previously, this segment's activities, which were insignificant, were included
within the merchant banking segment. Prior periods have not been restated, as
there were substantially no transactions.
During the year ended June 30, 1999, this segment produced gross
revenue of $78,000 and incurred total expenses of $13,250. Management
anticipates that this segment, through horizontal integration, will experience
revenue growth in the near term, although there can be no assurances of such
growth.
Selling and general expense was $13,250. Management anticipates an
incremental increase in selling and general expense in future periods as revenue
and operations increase.
FINANCIAL CONDITION AND LIQUIDITY
As previously reported, the Registrant experienced growth through
acquisitions, such that period to period comparisons may not provide meaningful
analysis.
The Registrant's ability to receive dividends from its subsidiaries is
restricted by the Sirrom Loan Agreement, the Provident Loan Agreement and other
credit facilities. The loan agreements provide that neither the Registrant nor
any of its subsidiaries may declare or pay any common stock dividend of any kind
(other than stock dividends payable to holders of capital stock), whether in
cash or in property, on any class of capital stock of any of them without the
consent of the lenders.
The Sirrom Loan Agreement, dated May 29, 1998, granted Sirrom the right
to purchase 119,891 shares of the Registrant's common stock. The agreement
further provided that the base number of warrants could increase to 569,885
shares if the Registrant did not complete a public stock offering by May 29,
1999. As of June 30, 1999, the Registrant has issued an additional 449,994
warrants to Sirrom, as the Registrant did not complete the required public stock
offering. Additionally, under the terms of the agreement, the Registrant is
obligated to issue additional warrants to Sirrom equal to 0.5% of the
outstanding warrants issued for each year the note remains unpaid beyond May 29,
2001. The issued warrants may be exercised at any time until July 31, 2003 at
$0.01 per share. The warrants have a put option associated with them that allows
Sirrom to sell the warrants back to the registrant. The Registrant has
recognized a long-term obligation of $2,251,062 and $335,695 as of June 30, 1999
and 1998, respectively.
During the year ended June 30, 1999, the Registrant issued an
additional 1,584 share of non-voting Convertible Series A Preferred Stock.
Proceeds of $152,025, net of issuance costs for the year ended June 30, 1999,
and $626,820, net of issuance costs for the nine month period ended June 30,
1998, were used principally to fund acquisitions, and to a lesser extent for
working capital. The preferred shares carry a dividend rate of 9%, payable
annually beginning October 1, 2001. At June 30, 1999, the Registrant had accrued
$76,407 in cumulative dividends. The Registrant may redeem the shares for $100
per share, plus accrued dividends, plus a call premium based on the elapsed time
between the issue date and cash redemption which ranges from $2.00 for 91 days
to $20.00 for over 900 days. Management does not anticipate redeeming the shares
in the fiscal year ended June 30, 2000.
The Registrant used the Sirrom credit facility primarily to fund
acquisitions. As previously reported, as of September 1998 the Registrant
25
<PAGE>
had fully utilized the Sirrom credit facility. In August 1998 Sirrom
subordinated their security position to the Registrant's senior lender.
Acquisitions during the current fiscal year were funded principally from the
Sirrom Loan Agreement and to a lesser extent, working capital generated by the
Registrant.
In August 1998 the Registrant entered into a two year $3,000,000 line
of credit agreement with Mercantile Safe Deposit and Trust Company. Advances
under this line were limited to 70% of eligible accounts receivable and bore
interest at prime plus 1%, payable monthly. This line was secured by
substantially all of the Registrant's assets.
In July 1999 the Registrant refinanced the Mercantile line of credit
with a $10,000,000 revolving line of credit facility with The Provident Bank
(Provident). This line expires July 1, 2002. Advances bear interest at prime
plus 1% on the higher of a borrowing floor of $5,000,000 or the unpaid principal
balance. Advances are limited to 70% of certain accounts receivable and 40% to
60% of certain inventories. Provident's line of credit is secured by a senior
lien on substantially all of the Company's assets.
The Registrant expects to continue its expansion strategy by
acquisitions and therefore is attempting to secure additional funding sources.
During the fourth quarter of the reporting year, the Registrant began
negotiations with W.J. Nolan and Company to raise, through a best efforts
private placement offering, up to $5 million. Management anticipates that this
may be a debt offering which would likely require issuance of a significant
number of warrants. Proceeds from this offering are expected to be used
primarily for financing acquisitions in markets which the Registrant's Office
Solutions segment currently conducts business, and to a lesser extent, to fund
working capital requirements. There can be no assurance that this financing will
be successful or that future acquisitions can be obtained on terms acceptable to
the Registrant.
Total assets increased to $20.4 million at June 30, 1999 from $16.3
million at June 30, 1998. This increase is principally due to acquisitions
during the year.
OFFICE SOLUTIONS SEGMENT.
The Office Solutions segment increased total assets to $11.7 million,
net of discontinued operations, as compared to $7.2 million as of June 30, 1998.
After taking account of discounted operations, the net increase in total segment
assets of $4.5 million is principally due to acquisitions. As more fully
described in the notes to the financial statements the registrant consummated
eight acquisitions which contributed additional net assets of approximately $7.2
million at the time of purchase. Because acquisitions were accounted for under
the purchase method of accounting, the segment recognized a significant increase
in goodwill.
Accounts receivable increased to $3.8 million as of June 30, 1999, as
compared to $.63 million in the prior year. This significant increase is
principally in response to acquisitions and general revenue growth. However, as
a percent of sales, net of discontinued operations, accounts receivable also
showed a modest decrease to approximately 18% of sales for the year ended June
30, 1999, as compared to approximately 18% for the nine month period ended June
30, 1998.
For the nine month period ended June 30, 1998, as compared to the year
ended September 30, 1997, accounts receivable experienced significant growth,
which was also principally in response to acquisitions.
26
<PAGE>
The segment also experienced significant growth in inventory. For the
year ended June 30, 1999, inventory increased to approximately $3.4 million
compared to $1.6 million for the prior period ended June 30, 1998. Acquisitions
during the year were the principal factor causing this increase. However, as a
percentage of sales, inventory declined to 16% for the year ended June 30, 1999,
as compared to 45% for the nine month period ended June 30, 1998. The segment
continues to monitor its inventory levels and strives to minimize the carrying
costs and excessive inventory. Also, during the year ended June 30, 1999, the
segment reviewed the inventory and reduced the carrying value for items that had
infrequent utilization. Management believes that, in order for the Registrant to
provide the highest level of service to its customers (due to the age of the
machines in the customer base), it may be necessary to stock certain items which
may be slow moving.
Inventory at June 30, 1998 compared to September 30, 1997 also reported
a significant increase, which was principally due to acquisitions.
Property and equipment, net of discontinued operations, increased by
approximately $1.1 million at June 30, 1999 as compared to June 30, 1998. This
increase is principally in response to acquisitions and, to a lesser extent,
increases in the segment's computerized operational and financial systems. Costs
associated with the Y2K problem have been minimal for the segment since the
computerized systems have generally been purchased from third party vendors
having responsibility for upgrading such systems. As previously reported in the
Registrant's Form 10-Q for the quarter dated March 31, 1999 which is hereby
incorporated by reference, the Registrant began a modification of the Office
Solution's segment financial reporting system. The segment began converting its
accounting software in May 1999 and began centralizing its reporting procedures
effectively to the "hub" level. The intended benefit of these modifications is
to provide management more timely and specific financial information. Management
believes that these modifications will ultimately strengthen the accounting
internal controls and provide more concise operational information as well as
other efficiencies. Management can provide no assurance that this conversion
will produce its intended results.
For the nine month period ended June 30, 1998, as compared to the
year ended as of September 30, 1997, property and equipment also reported
significant increases due principally to acquisitions and implementation of
the primary computerized accounting and operational systems.
Intangible assets, consisting principally of goodwill, increased by
approximately $5.5 million as of June 30, 1999 compared to the prior year. This
increase relates primarily to acquisitions during the current year, with Barbera
contributing approximately $1.7 million of this increase. Moreover, the
Philadelphia acquisitions contributed approximately $0.9 million of the
increase. In March 1999, the segment amended the purchase agreement with the AMI
Group, whereby the Registrant agreed to assume additional liabilities, including
$518,500 of notes payable and $220,000 of deferred service liabilities, thus
increasing the purchased goodwill by approximately $738,500. Also, during the
year, the goodwill balances associated with previous acquisitions were adjusted
to reflect additional liabilities assumed or paid our to reflect changes in
estimates or to adjust for other factors which were unknown at time of purchase.
Thus, as the acquisition is assimilated into the Registrant's operations and all
facts and circumstances become more fully known, the acquisition price,
including the assumption of additional liabilities, may, and has, necessitated
increases to the purchased goodwill. Management generally allows for a period
not to exceed 12 months for adjustments to the acquisition price.
27
<PAGE>
Goodwill as of June 30, 1998, compared to September 30,1997 showed a
significant increase due principally to acquisitions.
The segment experienced significant growth in accounts payable and
accrued expenses, net of discontinued operations, as of June 30, 1999 compared
to June 30, 1998. The increase of approximately $2.3 million relates principally
to acquisitions and general revenue and volume increases. To a lesser extent,
this increase relates to the accrual of earned but unpaid wages, salaries, and
the related tax liabilities.
Consistent with previous discussions, accounts payable and accrued
expenses also showed significant increase as of June 30, 1998 compared to
September 30,1997. This increase also was principally due to acquisitions.
Deferred revenue increased by approximately 714.7% as of June 30, 1999
compared to June 30, 1998. The increase of approximately $1.2 million relates
principally to acquisitions, and to a lesser extent, general volume increases
during the year.
Deferred revenue as of June 30, 1998, compared to September 30, 1997
likewise showed an increase primarily as a result of acquisitions.
Notes payable as of June 30, 1999, both current and non-current
portions, increased dramatically as compared to June 30, 1998. This increase of
approximately $6.3 million relates principally to additional borrowings on the
Sirrom Loan Agreement and the Mercantile Bank Loan Agreement. The Sirrom loan
was used principally to fund acquisitions and, to a lesser extent, to fund
working capital requirements. The Sirrom Loan Agreement has been fully utilized
at June 30, 1999. The Mercantile Bank line was used principally to fund working
capital needs.
As previously discussed in Part I, Item 1 of this report on Form 10-K,
the Registrant has replaced the $3 million Mercantile Bank loan agreement with a
$10 million revolving line of credit facility with The Provident Bank. The
Provident loan agreement was effected on July 1, 1999 with a three-year term.
This note bears interest at prime plus 1% with a minimum borrowing floor of $5.0
million. Advances under this agreement are calculated upon a borrowing base
consisting principally of eligible accounts receivable and inventory as defined
in the agreement. Substantially all of the Registrant's assets secure the debt.
This debt is being used to fund working capital requirements and contains
certain covenants including the requirement that the Registrant maintain certain
ratios and net worth.
MERCHANT BANKING SEGMENT.
As previously reported, the Registrant did not commence merchant
banking segment operations until October 1997. The nine month period ended
June 30, 1998 was the first period of operations. Thus, there is no
comparison between June 30, 1998 and September 30, 1997. Because the segment
just commenced operations, with significant anticipated and realized growth,
year to year comparisons may not produce meaningful analysis.
At June 30, 1999, the merchant banking segment reported total assets of
$8.1 million as compared to $8.5 million at June 30, 1998. This decrease of
approximately $0.4 million is principally related to a decrease in accounts
receivable from the prior year-end when the segment recognized several large
viatications during the last days of the fiscal year. These settlements resulted
in the segment recognizing escrowed cash, prepaid commissions and other related
current liabilities. The segment did not replicate these large settlements at
June 30, 1999, and thus escrowed cash, prepaid commissions and
28
<PAGE>
other current liabilities are significantly lower at June 30, 1999. The effect
of the prior year last days' settlements were offset during the current year by
asset and liability increases associated with revenue growth.
During the year, as previously reported, the segment relocated its
headquarters. As a result of this relocation, the segment expended approximately
$177,000 to purchase office furniture and computer equipment. Thus, property
plant and equipment increased by approximately 73% as compared to the prior
year.
Moreover, with the previously announced acquisition of Ruttenberg, the
segment recognized approximately $78,000 of goodwill. As a result of this
acquisition other assets also showed an increase compared to the prior year.
SPECIALTY FINANCE SEGMENT.
As previously discussed, the specialty finance segment effectively commenced
operations during the third quarter of fiscal 1999. Prior to such commencement
of operations, the segment was included within the merchant banking segment
although the segment had no significant assets. Therefore, there can be no
meaningful comparison to the prior years.
Total assets for the specialty finance segment as of June 30, 1999 are
$32,200, consisting principally of cash and other current assets. Liabilities
consist of accounts payable. The Specialty Finance segment has established
working relationships with several funding sources.
YEAR 2000 STATEMENT.
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit year, such that the computer system may interpret the year 2000 as
1900. Should this occur, a system-wide failure of computer systems would be
eminent and may lead to company-wide disruptions. The costs of such company-wide
disruptions could have a material adverse effect on the Registrant's results of
operations and financial condition.
The Registrant has created a three-phase plan to address its Y2K
issues. The first phase is to identify the known sources of potential Y2K
problems. The second phase is to develop and implement a plan of action to
resolve known Y2K problems. The third and final phase is to test the results of
phase two.
The Registrant has substantially completed phase one and two of its
three-phase plan and has identified its significant risk exposure areas. The
Registrant has identified a number of applications within its financial systems,
including the Registrant's core financial and reporting systems, which are Y2K
compliant due to their recent implementation, which applications were acquired
from third party vendors. In other areas, the Registrant either has or is in the
process of contacting vendors to ensure the applicable software and computer
based hardware is or will be Y2K compliant. To date, significant third party
vendors have assured the Registrant that they are or will be Y2K compliant in
the near term.
Management does not anticipate significant additional expenses in
future periods associated with the known Y2K issues confronting the Registrant.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Imtek Office Solutions, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Imtek Office
Solutions, Inc. and Subsidiaries as of June 30, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 1999, and the nine months in the period ended June 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Imtek Office
Solutions, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year ended June 30, 1999 and the nine month period ended June 30, 1998 in
conformity with generally accepted accounting principles.
We have also audited Schedule II for the year ended June 30, 1999 and the
nine month period ended June 30, 1998. In our opinion, the schedule presents
fairly, in all material respects, the information required to be set forth
therein.
/S/ GRANT THORNTON LLP
- -----------------------
BALTIMORE, MARYLAND
OCTOBER 22, 1999
30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Imtek Office Solutions, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Imtek Office
Solutions, Inc. and Subsidiaries as of September 30, 1997 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note B to the financial statements, the Company restated its
financial statements to reflect the change in its method of accounting for the
business combination of Spectrum Equities, Inc. and Imtek Corporation as a
reverse acquisition during the year ended September 30, 1997.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of Imtek Office Solutions, Inc.
and Subsidiaries as of September 30, 1997, and the results of their operations
and their cash flows for the year the ended in conformity with generally
accepted accounting principles.
We have also audited the consolidated financial statement schedules listing on
the accompanying index at Item 14(a)(2) for the year ended September 30, 1997.
In our opinion, the schedules present fairly, in all material respects, the
information required to be set forth therein.
/S/ ROSENBERG, RICH, BAKER, BERMAN & COMPANY
- --------------------------------------------
BALTIMORE, MARYLAND
DECEMBER 19, 1997 (EXCEPT AS TO NOTE B,
AS TO WHICH THE DATE IS SEPTEMBER 23, 1998)
31
<PAGE>
IMTEK OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30,
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 356,489 $ 2,943,968
Escrow deposits 753,711 5,054,220
Accounts receivable, less allowance for doubtful accounts
of $103,075 at June 30, 1999 (1998 - $0) 3,836,580 740,847
Other receivables 109,624 82,168
Inventory 3,388,100 1,626,432
Notes receivable 139,196 --
Deferred tax assets 488,712 82,124
Net assets of discontinued operations 370,984 560,584
Prepaid expenses and other current assets 206,457 775,912
------------ ------------
Total current assets 9,649,853 11,866,255
PROPERTY AND EQUIPMENT - at cost, less accumulated
depreciation and amortization 3,129,551 1,838,655
OTHER NONCURRENT ASSETS 143,477 488,344
DEFERRED FINANCING COSTS, less accumulated amortization
of $75,750 at June 30, 1999 (1998 - $6,135) 288,326 361,941
OTHER INTANGIBLE ASSETS, less accumulated amortization of
$537,584 at June 30, 1999 (1997 - $72,119) 7,361,322 1,730,938
------------ ------------
$ 20,572,529 $ 16,286,133
------------ ------------
------------ ------------
CURRENT LIABILITIES
Current maturities of long term debt $ 953,820 $ 560,055
Current maturities of obligations under capital lease 195,731 234,081
Accounts payable - trade 1,927,931 447,528
Accounts payable - related party 724,598 795,205
Accrued expenses 1,967,110 943,827
Customer escrow accounts 753,711 5,054,220
Deferred revenue 1,369,912 168,153
Income taxes payable 122,125 434,804
------------ ------------
Total current liabilities 8,014,938 8,637,873
LONG TERM DEBT, net of current maturities, less original issue
discounts of $2,138,316 in 1999 and $330,100 in 1998 7,740,806 3,502,506
OBLIGATIONS UNDER CAPITAL LEASE, net of current maturities 1,051,857 988,578
DEFERRED TAX LIABILITY 51,982 65,490
PUT WARRANT OBLIGATION 2,251,062 335,695
MINORITY INTEREST IN SUBSIDIARY 160,174 --
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000 shares; 75,000 Series A
authorized; liquidation preference of $832,400 Series A; issued and
outstanding, 8,324 shares in 1999 and 6,740 shares in 1998 83 67
Common stock, $.000001 par value; authorized 50,000,000 shares in 1999,
250,000,000 shares in 1998; issued and outstanding, 7,532,366 shares 8 8
Additional paid-in-capital 2,246,490 2,094,481
(Accumulated deficit) retained earnings (944,871) 661,435
------------ ------------
1,301,710 2,755,991
------------ ------------
$ 20,572,529 $ 16,286,133
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
32
<PAGE>
IMTEK OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999, NINE MONTHS ENDED JUNE 30, 1998 AND YEAR
ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue
Equipment and supplies $ 20,879,845 $ 3,615,750 $ 2,094,972
Merchant banking 53,962,341 21,088,242 --
Specialty finance 78,017 -- --
------------ ------------ ------------
74,920,203 24,703,992 2,094,972
COST OF REVENUE
Equipment and supplies 11,923,122 2,356,606 1,868,703
Merchant banking 46,704,773 17,943,694 --
Specialty finance 322 -- --
------------ ------------ ------------
58,628,217 20,300,300 1,868,703
------------ ------------ ------------
Gross profit 16,291,986 4,403,692 226,269
SELLING AND GENERAL EXPENSE 15,004,042 3,100,659 153,836
------------ ------------ ------------
Operating income 1,287,944 1,303,033 72,433
Other (expense) income
INTEREST INCOME 2,942 -- 6,534
INTEREST EXPENSE (1,276,752) (121,989) --
MINORITY INTERESTS IN SUBSIDIARY (124,478) -- --
------------ ------------ ------------
(Loss) income from continuing operations before income (70,344) 1,181,044 78,967
taxes
INCOME TAXES 312,620 467,310 20,600
------------ ------------ ------------
Net (loss) income from continuing operations (382,964) 713,734 58,367
DISCONTINUED OPERATIONS
Loss on operation of commercial printing and duplicating
services segment, including provision of $479,169 for
operating losses during phase-out period, less income tax
benefit of $614,744 in 1999 and $69,630 in 1998 (1,223,342) (110,666) --
------------ ------------ ------------
NET (LOSS) INCOME (1,606,306) 603,068 58,367
Preferred stock dividends 71,352 5,055 --
------------ ------------ ------------
(LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (1,677,658) $ 598,013 $ 58,367
------------ ------------ ------------
------------ ------------ ------------
EARNINGS PER SHARE
BASIC
CONTINUING OPERATIONS $ (0.06) $ 0.10 $ 0.03
DISCONTINUED OPERATIONS (0.16) (0.02) --
------------ ------------ ------------
NET INCOME $ (0.22) $ 0.08 $ 0.03
------------ ------------ ------------
------------ ------------ ------------
DILUTED
CONTINUING OPERATIONS $ (0.06) $ 0.10 $ 0.03
DISCONTINUED OPERATIONS (0.16) (0.02) --
------------ ------------ ------------
NET INCOME $ (0.22) $ 0.08 $ 0.03
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES
BASIC 7,532,361 7,412,033 2,253,425
------------ ------------ ------------
------------ ------------ ------------
DILUTED 7,532,361 7,430,570 2,253,425
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
33
<PAGE>
IMTEK OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1999, NINE MONTHS ENDED JUNE 30, 1998 AND YEAR
ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Accumulated
Preferred Stock Common Stock Additional deficit)
-------------------- ---------------------- paid-in retained Stockholders
Shares Amount Shares Amount Capital Earnings Equity
------ ------ ------ ------ ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1996 -- $ -- 243,901,667 $ 244 $ 78,613 $ (76,715) $ 2,142
Issuance of stock -- -- 6,098,333 6 2,994 -- 3,000
1 for 400 share reverse
stock split -- -- (249,375,000) (249) 249 -- --
Exchange of stock for
Imtek Corporation stock -- -- 4,375,000 4 710,559 -- 710,563
Net income for the period -- -- -- -- -- 58,367 58,367
----- ---------- ----------- ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1997 -
AS PREVIOUSLY STATED -- -- 5,000,000 5 792,415 (18,348) 774,072
Adjustment to prior period -- -- -- -- (76,715) 76,715 --
----- ---------- ----------- ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1997 -
AS RESTATED -- -- 5,000,000 5 715,700 58,367 774,072
Shares issued in
connection with -- -- 2,532,361 3 354,528 -- 354,531
acquisitions
Issuance of preferred stock 6,740 67 -- -- 626,753 -- 626,820
Issuance of stock warrants -- -- -- -- 397,500 -- 397,500
Net income for the period -- -- -- -- -- 603,068 603,068
----- ---------- ----------- ------------ ------------ ------------ ------------
Balance at June 30, 1998 6,740 67 7,532,361 8 2,094,481 661,435 2,755,991
Issuance of preferred stock 1,584 16 -- -- 152,009 -- 152,025
Net loss for the year -- -- -- -- -- (1,606,306) (1,606,306)
----- ---------- ----------- ------------ ------------ ------------ ------------
Balance at June 30, 1999 8,324 $ 83 7,532,361 $ 8 $ 2,246,490 $ (944,871) $ (1,301,710)
----- ---------- ----------- ------------ ------------ ------------ ------------
----- ---------- ----------- ------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
34
<PAGE>
IMTEK OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1999, NINE MONTHS ENDED JUNE 30, 1998 AND YEAR
ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(1,606,306) $ 603,068 $ 58,367
Adjustments to reconcile net income to net cash provided by
Continuing operating activities
Loss from discontinued operations 1,223,342 110,666 --
Depreciation and amortization 1,085,092 188,085 3,925
Minority interest equity in earnings 124,478 -- --
Accretion of original issue discount 107,151 5,595 --
Changes in assets and liabilities,
net of effect of acquisitions
Accounts and other receivables (1,752,574) 1,048,051 (36,210)
Inventory (45,447) (649,771) (131,950)
Accounts payable and accrued expenses 218,977 (515,410) 190,299
Deferred revenue (51,738) 168,153 --
Accounts payable - related parties (70,607) 720,240 --
Deferred income taxes (420,096) (16,634) --
Prepaid expenses 662,692 (378,412) --
Other assets 512,675 (472,344) --
Income tax payable (312,679) 414,204 20,600
----------- ----------- -----------
Net cash (used in) provided by continuing operating (325,040) 1,225,491 105,031
activities
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (40,810) (514,334) (35,740)
Cash paid for acquisitions and intangibles (5,106,403) (840,583) --
Cash deposit paid -- -- (40,000)
Net cash used in investing activities (5,147,213) (1,354,917) (75,740)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock -- -- 3,000
Proceeds from notes payable 5,608,722 3,570,000 22,368
Payments on notes payable (1,227,536) (95,182) --
Notes receivable advances -- -- (25,541)
Deferred financing costs -- (368,076) --
Payments on obligations under capital lease (614,695) (18,036) --
Issuance of preferred stock 152,025 626,820 --
----------- ----------- -----------
Net cash provided by (used in) financing activities (173) 3,918,516 3,715,526
CASH FLOWS USED IN DISCONTINUED OPERATIONS (1,033,742) (671,250) --
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (2,587,479) 2,914,850 29,118
CASH AT BEGINNING OF YEAR 2,943,968 29,118 --
----------- ----------- -----------
CASH AT END OF YEAR $ 356,489 $ 2,943,968 $ 29,118
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
35
<PAGE>
IMTEK OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEAR ENDED JUNE 30, 1999, NINE MONTHS ENDED JUNE 30, 1998 AND YEAR
ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
DISCLOSURE OF CASH FLOW SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest $1,112,837 $ 68,656 $ --
Taxes 433,898 -- --
</TABLE>
NONCASH TRANSACTIONS:
During fiscal 1999:
The Company purchased assets and stock of Forbes, KDI, Barbera, American
Copy, Corporate Computer, AMI and Ruttenberg for an aggregate purchase
price of $7,323,267, including cash, assumed liabilities, and notes of
$1,520,301.
The Company has received from an escrow account $4,300,509 representing
the decrease in net deposits from third party purchasers.
The Company acquired property and equipment under capital lease and notes
payable amounting to $639,624 and $354,000 respectively.
The Company issued 449,994 warrants to purchase common stock in connection
with a note payable. At issuance, the warrants had a fair value of
$1,795,476.
The Company revalued warrants issued in fiscal 1998 to purchase common
stock to reflect the increase in the fair value of the stock. The
revaluation resulted in an increase in the original issue discount of
approximately $120,000.
During fiscal 1998:
The Company purchased assets and stock of Thompson, Perfect Copy, OSL,
CPHI, GLS and Chesapeake for 2,532,361 shares of common stock,
representing an aggregate price of $2,063,497, including cash, assumed
liabilities, and notes payable of $1,708,966.
The Company acquired $1,240,695 of office equipment under capital lease.
The Company issued 119,891 warrants to purchase common stock in connection
with a note payable. The warrants had a fair market value of $335,695.
The Company issued 250,000 warrants to purchase common stock in connection
with a consulting agreement. The warrants had a fair value of $397,500.
The Company placed $5,054,220 of deposits from third party purchasers of
viaticated life insurance policies in an escrow account.
During fiscal 1997:
The Company issued 4,375,000 shares of stock in exchange for certain
assets of Imtek Corporation as follows:
<TABLE>
<S> <C>
Inventory $353,954
Accounts receivable 356,609
--------
$710,563
--------
--------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
<PAGE>
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts of
Imtek Office Solutions, Inc., a Delaware corporation, and its wholly-owned
subsidiaries, Imtek Corporation, a Maryland corporation, and Imtek Services
Corporation (Services), a Maryland corporation, and Imtek Acquisition
Corporation (Acquisition), a Maryland Corporation..
During 1999, Acquisition acquired a 60% interest in Barbera Business
Systems, Inc. (Barbera) and Imtek Corporation acquired Forbes Enterprises,
Inc. (t/a Innovative Office Services) (IOS), Keystone Digital Imaging, Inc.
(KDI), Legal America of Virginia, Ltd. (LA), AMI Group, Inc. (AMI), American
Copy Systems, Inc. (ACS), Cannon Business Machines (CBS) and Corporate
Computer Services (CCS). All of the acquisitions were accounted for as
purchases. Revenue and results of operations from the respective dates of
acquisition have been included in the accompanying financial statements.
During 1998, Imtek Corporation acquired Office Supply Line (OSL), Capital
Prepress Holdings, Inc. (CPHI), GLS Holdings, Inc. (GLS), Richmond Business
Systems (RBS), Bohanon Business Systems, Inc. (BBS) and Perfect Copy. The
acquisitions were accounted for as purchases. Revenue and results of
operations from the respective dates of acquisition have been included in
the accompanying financial statements.
Services' wholly-owned subsidiaries include Imtek Funding (Funding) which
operates in Merchant Banking and Imtek Capital Corporation (Capital) which
operates the Specialty Finance segment. In October 1997, Funding acquired
Thompson Office Products, a company engaged in the purchase and resale of
viaticated insurance policies. The acquisition was accounted for as a
purchase. Revenue and results of operations from the date of acquisition
have been included in the accompanying financial statements.
Significant intercompany transactions have been eliminated in consolidation.
BUSINESS OPERATIONS
The Company operates in the United States. During fiscal 1999, on the basis
of revenues, the Company's business operations were 28% in the selling and
servicing of office products and supplies, 72% in the purchase and resale of
viaticated insurance policies of terminally ill individuals, with less than
1% of revenue being derived by brokering financing and leasing arrangements
of office equipment. During fiscal 1998, on the basis of revenues, the
Company's business operations were 15% in the selling and servicing of
office products and supplies and 85% in the purchase and resale of
viaticated insurance policies of terminally ill individuals . During fiscal
1997, all of the Company's
37
<PAGE>
business operations were in selling and servicing of office products and
supplies. The primary business segments and a description of the business
operations of each company follows.
Imtek Corporation is in the business of selling and servicing copiers,
facsimile machines and printers, sales of office supplies, and commercial
printing and copying. The Company conducts business in the Philadelphia,
Baltimore, Washington, D.C., Richmond and Tidewater, Virginia, and Atlanta,
Georgia metropolitan areas and grants credit to customers in those regions.
Funding's principal business activity is the purchase and resale of
viaticated insurance policies. Funding contracts with terminally ill
individuals who desire to sell their life insurance policies for cash.
Funding conducts this business through a broker network it has established
throughout the continental United States.
Capital's principal business activity is originating and placing equipment
leases with unrelated leasors.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Escrow deposits are not considered cash.
REVENUE RECOGNITION
Imtek Corporation and Acquisition recognize revenue on equipment sales and
supplies upon shipment of the sale. Revenue for servicing of the equipment
is recognized at the time the service is performed. Deferred revenue
consists of unearned maintenance contract revenue that is recognized using
the straight-line method over the life of the related contract, generally
twelve months.
Imtek Funding recognizes revenue on viatical contracts at the time title to
the policy is transferred to the purchaser.
Capital earns fees upon the origination and placement of equipment leases
with unrelated leasors.
ACCOUNTS RECEIVABLE
The Company utilizes the allowance method of accounting for doubtful
accounts. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for potential credit losses. The allowance is
based on a review of current accounts receivable. Uncollectible accounts are
written off against the allowance when deemed uncollectible.
INVENTORY
Inventories consist of copy machines, facsimile machines, duplicators, and
parts and supplies used in the maintenance of office machines and consumable
supplies. Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
38
<PAGE>
PROPERTY AND EQUIPMENT
The Company provides depreciation and amortization for financial statement
purposes over the estimated useful lives of the fixed assets using the
straight-line method. Accelerated methods are utilized for tax purposes.
Expenditures for maintenance and repairs are charged to expense in the
period the charges are incurred.
The estimated service lives used in determining depreciation and
amortization are as follows:
<TABLE>
<S> <C>
Furniture and fixtures, production equipment and
equipment held for leases 5-7 years
Computer equipment and software 5 years
Leasehold improvements 5-10 years
Vehicles 5 years
</TABLE>
DEFERRED FINANCING COSTS
Deferred financing costs represent costs incurred in obtaining funding under
a note payable. The costs are being amortized over the five year life of the
related note.
OTHER INTANGIBLE ASSETS
Other intangible assets represent costs in excess of net assets acquired and
non-compete agreements in connection with businesses acquired. Costs in
excess of net assets acquired are being amortized to operations on a
straight-line basis over fifteen years. Non-compete agreements are being
amortized over the life of the agreement, generally 3 to 5 years.
ORIGINAL ISSUE DISCOUNT
The original issue discount, which is shown as a reduction of the note
payable, represents the value of warrants issued in connection with the
related note payable. The original issue discount is being amortized over
the remaining life of the note.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, escrow deposits, accounts
receivable, accounts payable, and long-term debt. The carrying amount of
these financial instruments approximates their fair market value.
LONG-LIVED ASSETS
The recoverability of long-lived assets is evaluated at the operating unit
level by an analysis of operating results and consideration of other
significant events or changes in the business environment. If an operating
unit has current operating losses and there is a likelihood that such
operating losses will continue, the Company will determine if impairment
exists based on the undiscounted expected future cash flows from operations
before interest. Impairment losses
39
<PAGE>
would be measured based on the amount by which the carrying amount exceeds
the fair value.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES
Income taxes are provided based on the liability method for financial
reporting purposes. Deferred and prepaid taxes are provided for on temporary
differences in the basis of assets and liabilities which are recognized in
different periods for financial and tax reporting purposes.
ADVERTISING
Advertising costs are expensed as incurred. Total advertising and promotion
expense for the year ended June 30, 1999 and the nine month period ended
June 30, 1998 amounted to $233,525 and $67,907, respectively. There was no
advertising expense for the year ended September 30, 1997.
RECLASSIFICATIONS
Certain items in the fiscal 1998 and 1997 financial statements have been
reclassified to conform to the current year presentation.
EARNINGS PER SHARE
Basic earnings per share amounts have been computed based on the weighted
average number of common shares outstanding. Diluted earnings per share
reflects the increase in average common shares outstanding that would result
from the assumed exercise of outstanding securities, calculated using the
treasury stock method.
FISCAL YEAR CHANGE
In July 1997, the Board of Directors approved a change in the Company's
fiscal year end from September 30 to June 30, effective with the fiscal
period beginning October 1, 1996.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued No. 130, REPORTING COMPREHENSIVE INCOME (SFAS
130), which is effective for fiscal years beginning after December 15, 1997.
The statement establishes standards for reporting and display of
comprehensive income and its components. Implementation of this disclosure
standard did not have an effect on the Company.
40
<PAGE>
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
NEWLY ISSUED ACCOUNTING STANDARDS - CONTINUED
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS 131), which is effective for fiscal
years beginning after December 15, 1997. The statement establishes revised
standards under which an entity must report business segment information in
its financial statements on the basis that is used internally for evaluating
segment performance. The Company adopted SFAS 131 in the fiscal year
beginning July 1, 1998 and has restated its prior year segment data to
conform to this presentation.
In December 1997, SFAS No. 132, EMPLOYERS' DISCLOSURE ABOUT PENSION AND
OTHER POST RETIREMENT BENEFITS, was issued and is effective for the
Company's 1999 fiscal year. The statement revises current disclosure
requirements for employers' pensions and other retiree benefits.
Implementation of this disclosure standard did not affect the Company's
financial position or results of operations.
In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, was issued and is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The statement establishes
accounting and reporting standards for derivative instruments, and for
hedging activities. Implementation of this standard is not anticipated to
have an effect on the Company.
NOTE B - PRIOR PERIOD ADJUSTMENT
Additional paid-in capital and accumulated deficit were restated as of
September 30, 1997 to reflect the acquisition of Imtek Corporation by
Spectrum Equities, Inc. as a reverse acquisition, treating Imtek Corporation
as the acquirer. Previous financial statements reflected Spectrum Equities
as the acquirer.
Prior to the acquisition, Spectrum Equities, Inc. was a public shell
corporation with no operations since 1992. Imtek Corporation was a
development stage enterprise prior to the acquisition.
Simultaneous with the acquisition, the Company was renamed Imtek Office
Solutions, Inc.
NOTE C - DISCONTINUED OPERATIONS
On April 7, 1999, the executive committee of the Board of Directors of the
Company made a decision to discontinue the commercial printing and
duplicating services segment of the business. In 1999, the Company realized
a loss on operations, net of tax benefit, of the commercial printing and
duplicating services segment of $1,223,342, which includes a provision of
$479,169 for operating losses during the phase-out period. In 1998, the
loss, net of tax benefit, on operations was approximately $110,000.
41
<PAGE>
NOTE C - DISCONTINUED OPERATIONS - CONTINUED
Summarized data relating to the discontinued operations of the commercial
printing and duplicating services segment as of and for the year ended June
30, 1999 and the nine month period ended June 30, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Results of operations
Operating revenue $2,306,257 $2,238,650
Operating loss (1,838,086) (180,296)
Net loss (1,223,342) (110,666)
Net assets of discontinued operations
Current assets $832,638 $ 746,167
Property and equipment, net 434,437 42,233
Other assets 19,032 10,808
Current liabilities 915,123 238,624
</TABLE>
NOTE D - ESCROW DEPOSITS AND CUSTOMER ESCROW ACCOUNTS
Deposits by prospective purchasers of viaticated life insurance policies are
made to a "Viatical Trust" bank account administered by an independent
trustee (Trustee.) Fifteen percent of the funds are advanced to the Company
and reflected as a liability until the transaction settles. If the
prospective purchaser decides not to settle the transaction, the Trustee
refunds the deposit and the Company refunds the advance without interest.
Upon a sale, funds are disbursed by the Trustee to the insured for the
agreed purchase price of the life insurance policy. The balance, less fees
to the Trustee for its services, is paid to Funding. The ownership of the
policy is transferred to the Trustee and the purchaser is designated as the
beneficiary.
Upon a sale the Trustee also deposits funds into a separate escrow account
to pay future premiums on the policy based upon the estimated remaining life
of the insured. For policies sold after September 30, 1997, Funding is not
liable for and does not guarantee the payment of insurance premiums beyond
the amounts deposited.
Upon the death of an insured, the Trustee collects the policy proceeds and
remits those funds to the policy purchaser.
NOTE E - BUSINESS ACQUISITIONS
YEAR ENDED JUNE 30, 1999
On July 1, 1998, the Company acquired certain assets of Forbes Enterprises,
Inc. (Forbes) a business engaged in the sale, rental and servicing of office
equipment and supplies in exchange for cash of
42
<PAGE>
$115,000, assumption of liabilities and notes payable of approximately
$1,007,463.
On July 22, 1998, the Company acquired certain assets of Keystone Digital
Imaging, Inc. (KDI), a Pennsylvania corporation engaged in the sale,
leasing, rental, servicing and wholesaling of office equipment, products and
supplies. The transaction was funded through a cash payment of $800,000 at
settlement, issuance of a note payable of $130,000 and assumption of
maintenance contract and other liabilities totaling $896,082.
In July 1998, the Company acquired 60% of the common stock of Barbera
Business Systems, Inc (Barbera), a Maryland corporation engaged in the
retail business of selling, leasing and servicing office equipment and
related supplies throughout Maryland and Washington DC, in exchange for a
cash payment of $1,500,000 and a note payable of $225,119.
In July 1998, the Company entered into an agreement with AMI Group, Inc.
(AMI), a Maryland corporation involved in selling photocopy equipment and
providing third party administrative and marketing services for equipment
resellers. Under the terms of the agreement, the Company purchased certain
assets, in exchange for the assumption of liabilities amounting to $460,000.
In March 1999, the Company amended the purchase agreement whereby the
Company agreed to assume additional liabilities including $518,500 of notes
payable and $220,000 in deferred service liabilities.
In July 1998 the Company entered into an agreement with Ruttenberg &
Associates (Ruttenberg), an Illinois corporation involved in the sale of
viaticated insurance policies. The transaction was accounted for as a
purchase with a cash payment of $78,000 at settlement.
On July 28, 1998, the Company acquired certain assets of Legal America of
Virginia, Ltd. (Legal), a Missouri corporation engaged in commercial
duplication. The transaction was funded through a cash payment of $68,603
at settlement. (See note C).
On November 1, 1998, the Company acquired certain assets of American Copy
Systems, Inc. (ACS), a Pennsylvania corporation engaged in the sale, rental,
servicing and wholesaling of office equipment and supplies. The transaction
was funded through a cash payment of $640,000 at settlement, issuance of a
note payable for $160,000, and the assumption of maintenance contract
liabilities of $95,000.
In March 1999, the Company entered into a License and Non-Compete Agreement
with George R. Cannon Business Machines, Inc. (Cannon), for $51,000, payable
over six months.
On April 16, 1999, the Company acquired certain assets of Corporate Computer
Services, Inc. (Corporate Computer), a business engaged in selling and
servicing computer printers. The transaction was funded through a cash
payment of $100,000 at settlement, assumption of liabilities of $171,000,
and notes payable totaling $87,500.
The fiscal 1999 acquisitions have been recorded under the purchase method of
accounting; accordingly, the results of operations of the entities from
their respective acquisition dates are included in the
43
<PAGE>
accompanying consolidated financial statements. The purchase prices have
been allocated to assets acquired and liabilities assumed based on the fair
market value at the dates of acquisition.
The fair value of assets acquired and liabilities assumed are summarized as
follows:
<TABLE>
<CAPTION>
Corporate
Forbes KDI Barbera AMI Ruttenberg Legal ACS Cannon Computer
----------- ----- ------- ---- ---------- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets $551,330 $923,239 $1,485,937 $ -- $ $ -- $449,679 $ -- $180,890
--
PP&E 335,000 234,000 89,775 56,549 -- 23,000 70,000 -- 8,300
Covenants not to 20,000 30,000 - -- -- 50,000 --
compete
Goodwill 216,133 638,843 1,672,022 1,141,951 78,000 45,603 325,321 51,000 169,310
Other assets -- -- 93,237 -- -- -- -- -- --
Current liabilities -- -- (1,575,659) -- -- -- -- -- --
Long-term -- -- (4,500) -- -- -- -- -- --
liabilities
Minority interest -- -- (35,516) -- -- -- -- -- --
</TABLE>
NINE MONTH PERIOD ENDED JUNE 30, 1998
On October 1, 1997, the Company acquired all of the issued corporate stock
of Thompson Business Products ("Thompson"), an entity owned by officers of
the Company, in exchange for 1,000,000 shares of the Company's common stock
valued at $140,000 and cash of $172,826. Thompson purchases and resells
insurance policies of terminally ill individuals.
On October 1, 1997, the Company acquired certain assets of Richmond Business
Systems, Inc. ("RBS") for cash of $39,500.
On October 1, 1997, the Company acquired certain assets of Bohanon Business
Systems, Inc. ("BBS"). The transaction was funded through the assumption of
trade payables of $27,000 and issuance of a note payable of $7,000.
On October 31, 1997, the Company acquired all of the outstanding common
stock of Capital Prepress Holdings, Inc. ("CPHI") in exchange for 1,010,611
shares of common stock valued at $141,486 and a cash payment of $7,000. CPHI
is a provider of digital imaging services.
On November 1, 1997, the Company acquired all of the common stock of Office
Supply Line Holding, Inc. ("OSLHI"), an entity owned by one of the Company's
officers, in exchange for 465,000 shares of the Company's common stock
valued at $65,170 and cash of $142,161. Additionally, the Company acquired
the inventory of Office Supply Line, Inc., an entity related to OSLHI for
$237,000, payable in $75,000 cash, $70,000 of assumed trade payables, and a
$92,000 note payable. The Office Supply Line entities operate a retail
office supply business.
On November 1, 1997, the Company acquired all of the outstanding common
stock of GLS Holdings, Inc. ("GLS") in exchange for 56,250 shares of common
stock valued at $7,875 and a cash payment of $21,636. GLS is a provider of
litigation support copy services.
44
<PAGE>
NOTE E - BUSINESS ACQUISITIONS - CONTINUED
NINE MONTH PERIOD ENDED JUNE 30, 1998 - CONTINUED
On June 1, 1998, the Company acquired certain assets of Perfect Copy, Inc.
The transaction was funded by a cash payment of $410,000 at settlement, a
$50,000 escrow deposit and the assumption of maintenance contract
liabilities of $100,000.
The fiscal 1998, acquisitions have been recorded under the purchase method
of accounting; accordingly, the results of operations of the entities from
their respective acquisition dates are included in the accompanying
consolidated financial statements. The purchase prices have been allocated
to assets acquired and liabilities assumed based on fair market value at the
dates of acquisition. The fair value of assets acquired and liabilities
assumed are summarized as follows:
<TABLE>
<CAPTION>
OSLHI Perfect
Thompson RBS BBS CPHI and OSL GLS Copy, Inc.
----------- ------- ------- -------- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets $ 1,388,929 $28,000 $29,000 $ - $237,000 $ - $292,000
Property and - 9,500 5,000 - - - 110,000
equipment
Other assets - - - - - - -
Goodwill 1,253,269 2,000 - 148,486 207,331 29,511 123,000
Intangibles 30,000 - - - - - 35,000
Current liabilities (1,279,929) - - - - - -
Long-term liabilities (1,079,443) - - - - - -
</TABLE>
YEAR ENDED SEPTEMBER 30, 1997
On April 22, 1997, the Company purchased a 100% interest in Imtek
Corporation for 4,375,000 shares of the Company's common stock (see Note B).
Imtek Corporation was incorporated on April 1, 1997.
The balance sheet of Imtek Corporation consisted of:
<TABLE>
<S> <C>
Assets
Inventory $353,954
Trade notes receivable 356,609
--------
Stockholders' equity $710,563
--------
--------
</TABLE>
45
<PAGE>
NOTE E - BUSINESS ACQUISITIONS - CONTINUED
The following table reflects unaudited pro forma combined results of
operations of the Company and the above acquisitions on the basis that the
acquisitions had taken place at the beginning of the fiscal period for each
of the periods presented:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Revenues $75,434,443 $25,487,605 $8,958,416
Net (loss) income (1,551,621) 676,781 40,856
Net (loss) income per common share:
Basic (.22) .09 .01
Diluted (.22) .09 .01
Shares used in computation
Basic 7,532,361 7,532,361 7,532,361
Diluted 7,532,361 7,540,117 7,532,361
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred
had the acquisitions been consummated at the beginning of the fiscal years or
of future operations of the combined companies under the ownership and
management of the Company.
NOTE F - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------- ----------
<S> <C> <C>
Office equipment $1,725,113 $1,329,597
Computer equipment and software 331,763 60,355
Furniture and fixtures 1,652,682 527,840
Leasehold improvements 53,431 27,448
Vehicles 24,188 5,029
------- ------
Total property and equipment 3,787,177 1,950,269
Less accumulated depreciation and amortization 657,626 111,614
------- -------
Property and equipment, net $3,129,551 $1,838,655
---------- ----------
---------- ----------
</TABLE>
NOTE G - ACCOUNTS PAYABLE - RELATED PARTY
To finance certain inventory purchases, the Company used the trade credit
facilities of CMS and Amerilease, entities owned by certain of the Company's
officers. The balance payable at June 30, 1999 and 1998 was $724,598 and
$795,205, respectively.
46
<PAGE>
NOTE H - LONG TERM DEBT
Long-term debt consisted of the following at June 30:
<TABLE>
<CAPTION>
1999 1998
------------ ----------------
<S> <C> <C>
Mercantile Bank $2,976,723 $ -
Sirrom Capital Corporation 6,000,000 3,370,000
Former owner of Thompson Office Products 609,126 705,099
Former owners of Keystone Digital Imaging, Inc. 130,000 -
Former owners of American Copy Systems, Inc. 160,000 -
Mita Leasing 605,100 -
Main Street Bank 86,463 -
Former owners of Corporate Computers 87,500 -
Crestar Bank - 51,475
Regency Bank - 200,000
Transamerica 100,000 -
Zulka and Cage 78,030 66,087
------ ------
$10,832,942 $4,392,661
----------- ----------
----------- ----------
Less: current maturities (953,820) (560,055)
----------- ----------
9,879,122 3,832,606
Less: original issue discount (2,138,316) (330,100)
----------- ----------
$ 7,740,806 $3,502,506
----------- ----------
----------- ----------
</TABLE>
In August 1998, the Company entered into a two-year revolving line-of-credit
agreement with Mercantile-Safe Deposit & Trust Company (Mercantile) for a
$3,000,000 revolving credit facility to meet short-term working capital
needs. Advances under the line are limited to 70% of eligible accounts
receivable and leases. The borrowings bear interest at prime plus 1% and
provide for a facility fee of 1/2% of the average unused portion of the
line. The borrowings are collateralized by a first priority lien on accounts
receivable, inventory, equipment and all other assets. The agreement
stipulates certain financial covenants. As disclosed in Note T, this
facility was replaced subsequent to year end, with a revolving
line-of-credit with The Provident Bank, which has a maturity date of July 1,
2002. As a result, the Mercantile note has been classified as non-current.
On May 29, 1998, the Company entered into a subordinated acquisition line of
credit agreement with Sirrom Capital Corporation (Sirrom) for $6,000,000.
The Company is using this facility to finance acquisitions and for working
capital. This note is collateralized by substantially all of the Company's
assets and all outstanding stock of the Company's subsidiaries. Sirrom
subordinated its security position to the revolving line-of-credit lender.
Interest on the balance, due Sirrom at 14% per annum, is payable monthly
through May 28, 2003, at which time the entire outstanding principal balance
is due. As additional consideration, the Company granted Sirrom warrants for
119,891 shares in 1998 and an additional 449,994 warrants in 1999. Issuance
of these warrants is reflected as an original issue discount of $2,131,171
and $335,695 at June 30, 1999 and 1998, respectively, which will be
amortized over the term of the loan on a straight-line basis.
47
<PAGE>
NOTE H - LONG TERM DEBT - CONTINUED
In conjunction with the acquisition of Thompson, the Company issued its
unsecured note payable to a former owner of Thompson. The note has an unpaid
balance of $424,333 and $705,099 at June 30, 1999 and 1998, respectively.
The note required a balloon payment of $160,000 on July 1, 1998 with monthly
payments thereafter of $13,333, including interest at 8%, through June 2002.
On July 1, 1998 the Company entered into a Severance Agreement and
General Release with Andrew J. Walter, a former shareholder of Thompson.
Under the agreement the Company agreed to purchase 150,000 shares of the
Company's common stock from Mr. Walter at a price of $5 per share upon
the effective date of a registration statement relating to a public
offering by the Company of its common stock or December 31, 1999,
whichever is earlier, and agreed to provide Mr. Walter with registration
rights in connection with shares of common stock of the Company which are
not to be purchased by the Company pursuant to the Severance Agreement and
General Release and certain other consideration. At June 30, 1999, the
Company has recorded a note payable in the amount of $184,794 which
represents the difference between the fair value of the stock at the date
of the note and the agreed upon price of $5 per share.
On July 22, 1998, in connection with the acquisition of KDI, the Company
issued a $130,000 unsecured, non-interest leasing note payable maturing July
22, 1999.
In connection with the Company's acquisition of American Copy Systems, Inc.,
the Company issued a $160,000 unsecured, non-interest bearing note payable
which matures November 1999.
On April 15, 1999, the Company assumed three unsecured notes payable to Mita
Copystar America, Inc., formerly with AMI having an aggregate outstanding
balance of $605,100 as of June 30, 1999. The notes bear interest ranging
from 0% to 15% and have maturities ranging from September 15, 1999 to March
15, 2003.
On August 14, 1998, the Company issued a note payable to Main Street Bank
for $110,000. The note requires monthly payments of $3,460, including
interest at 8.25% through October 15, 2001. The note is collateralized by
certain production equipment.
In connection with the acquisition of Corporate Computer, the Company issued
an unsecured note to the sellers in the amount of $75,000. The note requires
monthly payments of $6,250 plus interest at 8%. The note was fully paid at
June 30, 1999.
Also in connection with the acquisition of Corporate Computer, the Company
issued a $12,500 8% convertible note payable to the seller. The note's
principal is due on April 16, 2004. The note is convertible through April
16, 2004 into 12,500 shares of common stock on or after the date on which
the Company has satisfied all of its filing requirements under the
Securities Act of 1934.
The Company had a collateralized note payable outstanding to Crestar Bank.
The note called for monthly installments of $922 including principal and
interest at 8.56%, through February 15, 2002. The note was repaid during
1999.
The Company had a $350,000 revolving line-of-credit with Regency Bank,
bearing interest at prime plus 3/4% payable monthly. The line was
collateralized by all accounts receivable, chattel paper, certain inventory
and general intangibles and was guaranteed by all subsidiaries. This line
was repaid in 1999.
The Company issued a $100,000 note payable to Transamerica Distribution
Finance for the purchase of equipment. The note, which is secured by the
equipment purchased is due in full on December 21, 1999 and bears
interest at 1.5% per month.
48
<PAGE>
The Company has unsecured working capital notes payable to two individuals
which have an aggregate outstanding balance of $88,530 and $66,087 at June
30, 1999 and 1998, respectively. The notes, which are due on August 1,
2001, require monthly payments ranging from $744 to $850 plus interest
ranging from 10% to 12%.
Scheduled maturities of notes payable for the next five years are as
follows:
<TABLE>
<S> <C>
2000 $ 876,207
2001 364,564
2002 330,728
2003 9,064,149
2004 12,500
--------------
$10,648,148
-----------
-----------
</TABLE>
NOTE I - OBLIGATION UNDER CAPITAL LEASE
The Company leases furniture and equipment under capital leases expiring at
various dates through 2004. The following is a schedule of property leased under
these agreements:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Printing equipment $1,667,184 $1,240,695
Furniture and fixtures 213,135
---------
-
1,880,319 1,240,695
Less accumulated depreciation (235,277) (66,466)
-------- -------
$1,645,042 $1,174,229
---------- ----------
---------- ----------
</TABLE>
Minimum future principal payments under the capital leases as of June 30,
1999 are as follows:
<TABLE>
<S> <C>
2000 $195,731
2001 229,970
2002 282,046
2003 437,553
2004 102,288
</TABLE>
Of the total future payments, $1,013,450 are due to Amerilease, an entity
owned by certain of the Company's officers.
NOTE J - PUT WARRANT OBLIGATION
Under an agreement dated May 29, 1998, the warrant holder (Sirrom) was
granted the right to purchase 119,891 shares (Base Number) of the Company's
common stock. The agreement provided that the base number of warrants
increased to 569,885 shares as a result of the Company not completing a
secondary public offering by May 29, 1999. Under the terms of the note, the
Company is obligated to issue additional warrants to Sirrom equal to 0.5% of
the outstanding warrants issued for each year the note remains unpaid beyond
May 29, 2001.
49
<PAGE>
NOTE J - PUT WARRANT OBLIGATION - CONTINUED
The warrants may be exercised at any time until July 31, 2003 at $.01 per
share.
A Put Option on the warrants grants the holder the right to require the
Company to redeem the warrants for a period of 60 days immediately prior to
their expiration for the fair value of the shares of common stock
represented by the warrants. As a result of this Put Option, this liability,
which will be adjusted to reflect changes in the fair value of the
underlying stock, has been classified as a long-term obligation of
$2,251,062 and $335,695 as of June 30, 1999 and 1998, respectively.
NOTE K - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company conducts its operations in leased facilities. Rent under
operating leases which expire at various dates through 2006 and require
monthly rent payments ranging from $750 to $13,917.
In June 1997, the Company entered into a lease agreement for three high
volume Xerox copiers from a related party. These copiers are rented on a
month-to-month basis with a thirty-day notification period required to
terminate the lease. Monthly lease payments are computed based upon $.01 per
copy.
The following is a schedule by year of base real estate rentals payable on
operating leases that have initial or remaining lease terms in excess of one
year as of June 30, 1999.
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
2000 $725,752
2001 692,801
2002 643,695
2003 623,051
2004 422,229
Thereafter 271,211
</TABLE>
Total rent expense for the year ended June 30, 1999, nine months ended June
30, 1998, and year ended September 30, 1997 was $884,155, $271,910, and
$7,674 respectively.
FINANCIAL ADVISOR AGREEMENT
During 1998, the Company entered into a one year agreement with Ferris Baker
Watts (FBW) to provide financial advisory services to the Company. Under
terms of this agreement, the Company issued FBW 250,000 warrants to purchase
the Company's common stock for $5 per share. The warrants were valued at
$397,500, expire May 2003 and are exercisable at the earlier of (1) March
2, 2000, (2) one year after a public offering, or (3) upon a change of
control transaction.
50
<PAGE>
In the event of a public offering, the Company agreed to grant FBW the
option to purchase an additional 15% of the Company's offered Common Stock
up to 30 days subsequent to the public offering at a price which
approximates 93% of the gross price.
LITIGATION
The Company was involved in litigation which alleged copyright infringement
and breach of contract claiming damages of $500,000. In November 1998, a
settlement was reached whereby the Company paid $60,000 in December 1998,
and is required to make semiannual installments totaling $82,500 through
December 2000.
On April 16, 1999, the Kansas Securities Commissioner issued a cease and
desist order against Imtek Funding Corporation d/b/a Beneficial Assistance,
finding that the Company's viatical settlement contracts are securities
within the meaning of the Kansas Securities Act. In response, the Company
has ceased all offers and sales of all viatical settlement contracts within
the State of Kansas. The Company believes that the determination made by the
Securities Commissioner is incorrect and plans to request a hearing to
contest the determination. The Company has sold approximately 8 viatical
settlement contracts to Kansas residents, aggregating approximately
$203,000. If the Company is unsuccessful in contesting the cease and desist
order, the Company will be precluded from offering and selling viatical
settlement contracts in the State of Kansas unless it complies with all
applicable provisions of the Kansas Securities Act and the regulations
promulgated thereunder. Additionally, purchasers of the Company's viatical
settlement contracts who were sold viatical settlement contracts in
violation of applicable Kansas law may become entitled to rescind their
purchases and receive a refund of the purchase price plus interest at the
statutory rate from the date of sale. The Company has received verbal
commitments from 7 of the 8 purchasers who have expressed their interest not
to have the contract rescinded.
Presently, the states of Virginia, Iowa, and Colorado are conducting
investigations into whether viatical settlement contracts sold by the
Registrant, as well as others, constitute securities which require
registration under applicable state law. The Virginia Securities Division
has informed the Registrant that it intends to institute an enforcement
proceeding against the Company. Should such an enforcement proceeding be
instituted, the Registrant presently expects to vigorously defend its
position. Management cannot predict the outcome of such proceedings. An
unfavorable outcome in such proceedings could have a material adverse effect
on the Registrant, its business and financial condition.
The Company is a party to other legal proceedings which are in the ordinary
course of business, and management does not believe that a negative outcome
of these other matters would have a material adverse effect on the
Registrant or its business or financial condition.
PREMIUM LIABILITY
The Company, in conjunction with its purchase of Thompson, acquired
existing viaticated life insurance contracts for which the Company has
premium payment risk should the insured out live the estimated life
51
<PAGE>
expectancy. As of June 30, 1999, the Company has recorded approximately
$126,000 to reserve against these premium losses. For policies entered into
after October 1, 1997, the Company has no liability for future premiums and
has no intention of funding future premiums.
STOCK REPURCHASE AGREEMENT
On July 1, 1998, the Company entered into a Severance Agreement and General
Release with Andrew J. Walter, a former shareholder of Thompson under which
Mr. Walter terminated his employment and resigned from all positions with
the Registrant and its subsidiaries and provided the Registrant and its
subsidiaries with a general release. Under the agreement, the Company agreed
to purchase 150,000 shares of the Company's common stock from Mr. Walter at
a price of $5 per share upon the effective date of a registration statement
relating to a public offering by the Company of its common stock or December
31, 1999, whichever is earlier, and agreed to provide Mr. Walter with
registration rights in connection with shares of common stock of the Company
which are not to be purchased by the Company pursuant to the Severance
Agreement and General Release and certain other consideration.
NOTE L - STOCKHOLDERS' EQUITY
PREFERRED STOCK
In January 1998, the Company offered up to $7,500,000 of non-voting,
Convertible Series A Preferred Stock. Proceeds from the issuance were used
primarily to fund acquisitions. Through June 30, 1998, the Company
terminated the offering after having sold 6,740 shares for $626,820, net of
issuance costs. In fiscal 1999, an additional 1,584 shares were sold for
$151,590, net of issuance costs.
The preferred shares carry a dividend rate of 9.0% payable annually
beginning October 1, 2001. In the event of a conversion of the shares into
common stock, any accrued and unpaid dividends will be waived. At June 30,
1999 the aggregate amount of cumulative dividends in arrears was $76,407, or
$9.18 per share.
The Company may redeem the shares for $100 per share, plus accrued and
unpaid dividends, plus a cash call premium based on the elapsed time between
the issue date and cash redemption which ranges from $2.00 for 91 days to
$20 for over 900 days. Upon liquidation, dissolution, or winding up of the
Company, holders of shares will receive $100 per share plus accrued and
unpaid dividends. Such distributions have priority over any distribution to
common stockholders.
At the option of the holder, the shares are convertible into common stock.
The conversion rate is based upon the conversion date and ranges from 12 to
21 shares of common stock.
STOCK OPTION PLAN
On August 23, 1998, the Board of Directors adopted the Company's 1999 Stock
Option Plan. All present and future employees of the Company are
52
<PAGE>
eligible to receive incentive awards under the Plan. Non-employee directors
and consultants or other independent contractors are also eligible. The Plan
authorizes the reservation of 25,000,000 shares of common stock for issuance
pursuant to incentive awards. No more than 1,000,000 shares may be awarded
to an employee in any year. An independent committee administers the Plan.
Options to purchase shares of common stock granted under the Plan may be
incentive stock options or nonstatutory options. The option price covered by
an incentive stock option may not be less than 100% (or, in the case of an
incentive stock option granted to a 10% stockholder, 110%) of the fair
market value of the common stock on the date of the grant. In addition, no
more than $100,000 of incentive stock options, based on the exercise price,
may be initially exercisable in any calendar year under the Plan. The
exercise price of a non-statutory option may not be less than 100% of the
fair market value of the stock on the date of grant. There are no options
presently outstanding under the plan.
NOTE M - RELATED PARTY TRANSACTIONS
During 1998, the Company entered into a capital lease for equipment with
a value of $1,240,695 from Amerilease, an affiliate. In 1999, furniture
and equipment with a value of $639,624 was leased from Amerilease.
From October 1, 1997 through December 31, 1997, the Company paid $150,000 in
management fees to Beneficial Assistance, Inc., an entity owned by officers
of the Company.
Through October 1, 1997, the Company had a servicing agreement with CMS, an
entity owned by certain of the Company's officers. CMS performed certain
maintenance, repair, marketing and administrative tasks for the Company.
Payments for the year ended September 30, 1997 to CMS were approximately
$977,000.
During fiscal 1997, the Company also engaged in trade credit facility
transactions with Amerilease, a company owned by certain of the Company's
officers. The total compensation to Amerilease for the year ended September
30, 1997 was approximately $107,000.
NOTE N - DEPENDENCE ON MAJOR VENDORS
For the year ended June 30, 1999 approximately $40,388,000 or 75% of the
viaticated insurance policies purchased by the Company were purchased from
one broker.
During 1997 the Company purchased copiers, facsimile machines and other
office equipment primarily from one manufacturer. The cost of the equipment
purchased from this manufacturer was approximately $744,000. During 1999 and
1998 there was no vendor or manufacturer which represented more than 10% of
purchases.
53
<PAGE>
NOTE O - CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash balances at several financial institutions.
The Federal Deposit Insurance Corporation insures deposits at each
institution up to $100,000. Balances in excess of this amount are $92,033
for the year ended June 30, 1999. The company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.
NOTE P - EARNINGS PER COMMON SHARE
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share (EPS) computations.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------- -------------------------------------- ----------
(Loss)
income Income
from from
continuing Discontinued continuing Discontinued
Operations operations Net loss operations operations Net income Net income
<S> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Consolidated $(382,964) $(1,223,342) $(1,606,306) $713,734 $(110,666) $603,068 $58,367
income (loss)
Less deemed
dividend on
preferred stock 71,352 - 71,352 5,055 - 5,055 -
--------- ----------- ----------- -------- --------- -------- -------
Income (loss)
available to
common
stockholders $(454,316) $(1,223,342) $(1,677,658) $708,679 $(110,606) $598,013 $58,367
--------- ----------- ----------- -------- --------- -------- -------
--------- ----------- ----------- -------- --------- -------- -------
Weighted average
number of common
shares
outstanding 7,532,361 7,532,361 7,532,361 7,412,033 7,412,033 7,412,033 2,253,525
---------- ----------- ----------- -------- --------- --------- ---------
---------- ----------- ----------- -------- --------- --------- ---------
Basic EPS $(0.06) $(0.16) $(0.22) $0.10 $(0.02) $.08 $.03
------ ------ ------ ----- ------ ---- ----
------ ------ ------ ----- ------ ---- ----
Diluted EPS
Consolidated
income (loss) $(382,964) $(1,223,342) $(1,606,306) $713,734 $(110,666) $603,068 $58,367
Less deemed dividend
on preferred stock 71,352 - 71,352 - - - -
--------- ----------- ----------- -------- --------- -------- -------
Income (loss)
available to
common
stockholders $(454,316) $(1,677,658) $(1,677,658) $713,734 $(110,666) $603,068 $58,367
--------- ----------- ----------- -------- --------- -------- -------
--------- ----------- ----------- -------- --------- -------- -------
Weighted average
number of common
shares
outstanding 7,532,361 7,532,361 7,532,361 7,412,033 7,412,033 7,412,033 2,253,425
Effect of dilutive
securities:
Stock options
and warrants - - - 10,782 10,782 10,782 -
Convertible
notes payable - - - - - - -
Preferred stock - - - 7,755 7,755 7,755 -
--------- ----------- ----------- -------- --------- -------- -------
Adjusted weighted
average number
of common shares
outstanding 7,532,361 7,532,361 7,532,361 7,430,570 7,430,570 7,430,570 2,253,425
--------- ----------- ----------- --------- --------- ---------- ---------
--------- ----------- ----------- --------- --------- ---------- ---------
Diluted EPS $(0.06) $(0.16) $(0.22) $0.10 $(0.02) $.08 $.03
--------- ----------- ----------- -------- --------- -------- -------
--------- ----------- ----------- -------- --------- -------- -------
</TABLE>
54
<PAGE>
During 1999, warrants for 819,885 shares, 8,324 shares of preferred stock,
and a convertible note for 12,500 shares have been excluded, as they are
anti-dilutive. In 1998, warrants for 250,000 shares of common stock have
been excluded, as they are anti-dilutive.
NOTE Q - INCOME TAXES
The Company deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
The Company's provision for income taxes attributable to continuing
operations is comprised as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Currently payable $ 380,515 $ 414,314 $ 20,600
Benefit of operating loss carryback (259,296) -- --
Deferred 191,401 52,996 --
--------- --------- -------
$ 312,620 $ 467,310 $20,600
--------- --------- -------
--------- --------- -------
</TABLE>
The Company's provision for income taxes attributable to continuing
operations differs from the anticipated Federal statutory rate.
Differences between the statutory rate and the Company's provision are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Taxes at Federal statutory rate $ (23,917) $ 401,555 $ 26,849
Benefit of operating loss carryovers (259,296) -- (11,845)
State income taxes 300,969 65,755 5,596
Valuation allowance 313,551 -- --
Other (18,687) -- --
--------- --------- -------
$ 312,620 $ 467,310 $20,600
--------- --------- -------
--------- --------- -------
</TABLE>
55
<PAGE>
NOTE Q - INCOME TAXES - CONTINUED
Deferred taxes at June 30 are comprised as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current
Operating loss carryforwards $ 263,849 $ 56,948
Phase-out loss on commercial printing and duplicating
services segment 185,055 --
Deferred expense on stock warrants 25,176 --
Allowance for collectible receivables 39,808 --
--------- ---------
Current deferred tax asset 488,712 82,124
Non-current
Depreciation and amortization (108,929) (65,490)
Operating loss carryforwards 465,622 --
--------- ---------
Non-current deferred tax asset(liability) 356,693 (65,490)
--------- ---------
Total deferred tax asset before valuation allowances 845,405 16,634
Valuation allowances (408,675) --
--------- ---------
Net deferred tax asset $ 436,730 $ 16,634
--------- ---------
--------- ---------
</TABLE>
In 1999, the Company generated a net operating loss of approximately
$1,300,000 for tax purposes, of which approximately $671,000 will be carried
back in prior years resulting in a refund of approximately $259,000. The
remaining tax losses of approximately $629,000 are available to offset
future taxable earnings and expire on June 30, 2019.
NOTE R - INDUSTRY SEGMENTS
The Company currently operates in three segments: Office Solutions, Merchant
Banking and Specialty Finance. Prior to its discontinuance in 1999, the
Company also operated in the Commercial Printing and Duplicating Services
segment. Office Solutions includes the sale of business equipment and the
service thereof. Merchant Banking is comprised principally of the processing
of viatical settlements. Specialty Finance consists principally of
brokering, financing and leasing arrangements of office equipment and
copiers. Corporate costs are allocated to each segment's operations monthly
and are included in the measure of each segment's profit or loss. Corporate
and other includes unallocated corporate costs.
56
<PAGE>
NOTE R - INDUSTRY SEGMENTS - CONTINUED
Information by industry segment is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS
Office Solutions $ 20,879,845 $ 3,615,750 $ 2,094,972
Merchant Banking 53,962,341 21,088,242 --
Specialty Finance 78,017 -- --
------------ ------------ ------------
$ 74,920,203 $ 24,703,992 $ 2,094,972
------------ ------------ ------------
------------ ------------ ------------
INTEREST EXPENSE
Office Solutions $ 1,192,606 $ 121,989 $ --
Merchant banking 44,146 -- --
------------ ------------ ------------
$ 1,236,752 $ 121,989 $ --
------------ ------------ ------------
------------ ------------ ------------
INTEREST INCOME
Office Solutions $ 2,942 $ -- $ 6,534
------------ ------------ ------------
------------ ------------ ------------
INCOME TAX (BENEFIT) EXPENSE
Office Solutions $ 1,358,394) $ (204,278) $ 20,600
Merchant Banking 1,646,128 671,588 --
Specialty Finance 24,886 -- --
$ 312,620 $ 467,310 $ 20,600
------------ ------------ ------------
------------ ------------ ------------
DEPRECIATION AND AMORTIZATION
Office Solutions $ 909,450 $ 141,689 $ 3,925
Merchant Banking 175,642 46,396 --
Specialty Finance -- -- --
------------ ------------ ------------
$ 1,085,092 $ 188,085 $ 3,925
------------ ------------ ------------
------------ ------------ ------------
SEGMENT NET PROFIT (LOSS) BEFORE TAXES
Office Solutions $ (4,336,386) $ (556,129) $ 78,967
Merchant Banking 4,201,604 1,737,173 --
Specialty Finance 64,438 -- --
------------ ------------ ------------
$ (70,344) $ 1,181,044 $ 78,967
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
57
<PAGE>
NOTE R - INDUSTRY SEGMENTS - CONTINUED
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
SEGMENT ASSETS
Office Solutions $16,516,288 $ 7,301,749 $ 1,007,339
Merchant Banking 3,653,054 8,423,800 --
Specialty Finance 32,203 -- --
----------- ----------- -----------
Total reportable segments 20,201,545 15,725,549 1,007,339
Discontinued operations 370,984 560,584 --
----------- ----------- -----------
$20,572,529 $16,286,133 $ 1,007,339
----------- ----------- -----------
----------- ----------- -----------
EXPENDITURES FOR SEGMENT ASSETS
Office Solutions $ 4,866,758 $ 1,112,310 $ 35,740
Merchant Banking 280,455 241,707 --
Specialty Finance
-- -- --
----------- ----------- -----------
$ 5,147,213 $ 1,354,017 $ 35,740
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE S - RETIREMENT PLAN
The Company sponsors a defined contribution 401(k) Profit Sharing Plan
covering all full time employees who have been employed for six months. The Plan
is noncontributory by the Company and allows participants to contribute a
portion of their annual salary up to limitations established by ERISA.
NOTE T - SUBSEQUENT EVENTS
Only July 1, 1999, the Company entered into a $10,000,000 revolving
line-of-credit agreement with The Provident Bank. The proceeds of the line
were used to replace the existing line of credit with Mercantile Bank and
for working capital. The line-of-credit expires on July 1, 2002. Borrowings
accrue interest at 1% above the bank's prime on the greater of the unpaid
principal balance of the note or $5,000,000. The line specifies certain
covenants and requirements to maintain specified ratios and net worth. The
line is collateralized by substantially all assets of the Company.
On August 16, 1999, the Company entered into a Severance Agreement and
General Release with Michael Lowe, a former director and officer of the
Company under which Mr. Lowe terminated his employment and resigned from all
positions with the Company and provided a General Release. Under the
agreement, in addition to other covenants and commitments, the Company
agreed to a severance payment of $164,000, payable in equal monthly
installments for a period of 12 months, less standard withholdings required
by law. Additionally, the Company agreed to issue to Mr. Lowe stock options
to purchase 10,000 shares
58
<PAGE>
of the common stock of the Registrant, at a price of $1.00 per share, which
will vest in four equal quarterly installments beginning of the sixth month
anniversary of the Agreement. Finally, the Agreement contains a limited
non-compete provisions for a period of one year from the date of the
Agreement.
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged Balance
Beginning Costs and To Other at end
Description Of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1999
Allowance for Doubtful
Receivables $ -0- $103,075 $ -0- $ -0- $103,075
------ -------- ------ ------ --------
------ -------- ------ ------ --------
Valuation allowances on
deferred tax assets $ -0- $408,675 $ -0- $ -0- $408,675
------ -------- ------ ------ --------
------ -------- ------ ------ --------
Nine Month Period Ended
June 30, 1998
Allowance for Doubtful
Receivables $4,000 $ -0- $ -0- $4,000 $ -0-
------ -------- ------ ------ --------
------ -------- ------ ------ --------
Year Ended
September 30, 1997
Allowance for
Doubtful Receivables $ -0- $ 4,000 $ -0- $ -0- $ 4,000
------ -------- ------ ------ --------
------ -------- ------ ------ --------
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors, executive officers and key management employees of the
Registrant as of October 29, 1999 are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Edwin C. Hirsch 51 Chairman of the Board,
Chief Executive Officer
Robert W. Hoover 53 Director, President
Brad C. Thompson 43 Director,Chief Financial
Officer, Treasurer and
Assistant Secretary
Robert J. Brown 53 Senior Vice President
Secretary
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C>
Richard H. Guilford 71 Director, Executive Vice
President
Peter B. Lilly 51 Director
Bruce A. Edge 47 Director
</TABLE>
Edwin C. Hirsch has been the Registrant's Chief Executive Officer and
Chairman of the Board of Directors since April 22, 1997. Mr. Hirsch served as
President of the Registrant from April 22, 1997 to June 1998. From August 1995
through October 1997, Mr. Hirsch was the President of CMS Inc. From 1990 through
1996 Mr. Hirsch served as the President of Reptech, Inc., a US-China
joint-venture entity in connection with the sale and production of high energy
magnets. Mr. Hirsch currently serves on the Board of Directors of Reptech, Inc.
From 1984 through 1989, Mr. Hirsch was a principal in Commonwealth Financial
Associates, Inc., a merchant banking company. Mr. Hirsch holds a B.S. in
Engineering from the US Military Academy at West Point. After completing his
military obligation, Mr. Hirsch began his professional career in sales with IBM
and Commercial Credit Company.
Robert W. Hoover has been the Registrant's President since June 1998
and has been a Director of the Registrant since November 18, 1997. Prior to that
time Mr. Hoover was the Executive Vice President of the Registrant since joining
the Registrant November 18, 1997. From 1995 through September 30, 1997, Mr.
Hoover was the President of Beneficial Assistance, Inc., an entity acquired by
the Registrant in October 1997. The business of Beneficial Assistance, Inc. is
currently conducted by Imtek Funding, a wholly-owned indirect subsidiary of the
Registrant. From 1984 through 1994, Mr. Hoover was a principal with Commonwealth
Financial Associates. From 1977 through 1983, Mr. Hoover was employed by
Commercial Credit Company holding several senior management positions.
Mr. Hoover holds a B.A. from Loyola College in Baltimore.
Brad C. Thompson CPA has been the Registrant's Chief Financial Officer
and Director since November 18, 1997. From January 1997 until September 30,
1997, Mr. Thompson served as Vice President of Beneficial Assistance, Inc., an
entity acquired by the Registrant in October 1997. From 1993 through October
1997, Mr. Thompson was a director and shareholder in the public accounting firm
of Schiller, Holinsky & Gardyn, PA. From 1980 through 1993, Mr. Thompson was a
senior manager with Grant Thornton LLP. Prior to that Mr. Thompson was employed
by a local Baltimore accounting firm. Mr. Thompson is a 1978 graduate of Loyola
College in Baltimore.
Robert J. Brown has served as a Senior Vice President and Secretary
since April 1997. Mr. Brown served as director of the Registrant from April 1997
through September 11, 1998. Prior to joining the Registrant, Mr. Brown owned and
managed several equipment leasing and financial services companies including
American Banking Services, Inc. which managed equipment and lease portfolios for
the RTC and several banks. From 1967 through 1982, Mr. Brown was employed by
Commercial Credit Company where he held a variety of credit and marketing
management positions. Mr. Brown is a graduate of the University of Baltimore.
Richard H. Guilford was elected as a director of the Registrant on
September 11, 1998. Additionally, he was appointed to the position of Executive
Vice President, effective August 31, 1999. Mr. Guilford
60
<PAGE>
currently serves as the Chairman of the Board of Corporate & Financial
Management, Ltd., a Richmond, Virginia professional services Firm; Market-Pro,
Inc. an Atlanta Georgia based employment placement firm; and the Star Group
Ltd., an environmental engineering firm. Mr. Guilford is also a member of the
board of directors of Environmentics, Inc. Previously he founded an
environmental engineering firm, HazWaste Industries, Inc., an INC. 500 Company,
and served as its Chairman, President and Treasurer until the company was sold
in 1995. Prior to HazWaste Industries, Inc., Mr. Guilford served in a variety of
senior management level positions of several financial services companies,
including President & COO of Fidelity Corporation, a NYSE multinational
financial services holding company. Mr. Guilford attended the University of
Richmond and completed the Executive Program from the Darden Graduate School of
Business, University of Virginia.
Peter B. Lilly, was elected a director of the Registrant on September
11, 1998. Mr. Lilly currently serves as a director for Peabody Holding Company,
Inc., the National Coal Association and the National Mining Association. From
1991 through 1998, Mr. Lilly served as the President and Chief Operating Officer
of Peabody Holding Company, Inc. From 1980 through 1991, Mr. Lilly served as a
Senior Vice President of the Kerr-McGee Corporation and was the President of
Kerr-McGee Coal Corporation. Mr. Lilly received a B.S. in Engineering from the
US Military Academy, an MBA in Industrial Marketing and Operations Management
from Harvard University and graduated from the Kellogg School at Northwestern
University.
Bruce A. Edge was appointed as an interim director of the Registrant
on October 13, 1999 by the board of directors to fill the vacancy created by
the resignation of Michael Lowe. Mr. Edge was elected by the stockholders of
the Registrant at its annual meeting held on October 27, 1999. Mr. Edge
currently serves as Chief Executive Officer and Chairman of Rite Off, Inc.
which is engaged in the production of packaged aerosol goods, a position he
has held since January. In 1994, Mr. Edge co-found Apex Specialty Materials,
Inc. ("ASM"), where he served as Chairman of the Board, co-CEO, and CFO, and
had strategic and financial responsibility for the company until January,
1999 when he joined Rite Off, Inc. Prior to joining ASM, Mr. Edge was with
Hercules, Inc. where he worked in the areas of specialty chemicals and
plastics. Mr. Edge holds a Bachelor of Science degree in accounting from
Delaware State University.
All directors hold office until the next annual meeting of the
shareholders of the Registrant and until their successors are elected and
qualified. Officers hold office until the first meeting of the directors
following the annual meeting of shareholders and until their successors are
elected and qualified, subject to earlier removal by the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant has not awarded or paid bonuses or other non-cash
compensation to its executives since the effective commencement of operations.
<TABLE>
<CAPTION>
1999 1998 (1) 1997(2)
NAME AND PRINCIPAL POSITION
<S> <C> <C> <C>
Edwin C. Hirsch
Chief Executive Officer 179,250 61,167 0 (3)
Robert W. Hoover
Executive Vice President 179,000 60,333 0 (4)
Brad C. Thompson
Chief Financial Officer 154,800 57,317 0 (5)
Robert J. Brown
Senior Vice President 126,300 54,817 0 (6)
</TABLE>
61
<PAGE>
<TABLE>
<S> <C> <C> <C>
Richard H. Guilford
Chief Operating Officer 71,500 0 0 (7)
Michael L. Lowe
Chief Operating Officer 171,000 60,333 0 (8)
(resigned August 16, 1999)
</TABLE>
(1) Salaries stated for fiscal year 1998 represent amounts
actually earned during such nine-month period. Prior to
January 1, 1998, none of the persons listed were compensated
for their services. From January 1, 1998 through May 31, 1998,
the annual salary for each executive listed and employed was
$100,000 per year.
(2) As previously reported, the Registrant conducted no operations
prior to April 1997. The officers of the Registrant received
no compensation for their services to the Registrant prior to
January 1998.
(3) During the 1997 fiscal year, Mr. Hirsch served as the
Company's Chief Executive Officer and Chairman. During such
time, Mr. Hirsch received no compensation.
(4) Robert W. Hoover was not employed by the Registrant during the
1997 fiscal year.
(5) Mr. Thompson was not employed by the Registrant during the
1997 fiscal year.
(6) Mr. Brown served as a Senior Vice President and Secretary of
the Registrant since April 1997, but received no salary for
his services during the 1997 fiscal year.
(7) Mr. Guilford was not employed by the Registrant during the
1997 or 1998 fiscal year.
(8) Mr. Lowe served as Chief Operating Officer of the Registrant
from April 1997 until August 1999, at which time he resigned
from the Registrant, but received no salary for his services
during the 1997 fiscal year.
The Registrant has not adopted a policy for compensating its directors.
The Registrant's Board of Directors has not elected committees. It is
anticipated that the Board will establish, at a minimum, an audit committee and
a compensation committee. The Registrant did not compensate any Director in
connection with service on the Board. The Registrant compensated its directors
who are also officers as noted above, in their capacity as officers of the
Registrant.
As previously reported, on July 1, 1998 the Registrant and its
subsidiaries entered into a Severance Agreement and General Release with Andrew
J. Walter, under which Mr. Walter terminated his employment and resigned from
all positions with the Registrant and its subsidiaries and provided the
Registrant and its subsidiaries with a general release. Under the agreement, the
Registrant made a cash payment of $160,000 to Mr. Walter, less standard
withholdings required
62
<PAGE>
by law, and made a commitment to pay Mr. Walter $160,000 a year for the four
year period following July 1, 1998 on a bi-weekly basis in accordance with its
regular payroll policies and practices. In addition, the Registrant agreed to
purchase 150,000 shares of common stock of the Registrant from Mr. Walter at a
price of $5 per share upon the effective date of a registration statement
relating to a public offering by the Registrant of its common stock or December
31, 1999, whichever is earlier, and agreed to provide Mr. Walter with
registration rights in connection with shares of common stock of the Registrant
which are not to be purchased by the Registrant pursuant to the Severance
Agreement and General Release and certain other consideration.
On August 16, 1999, the Registrant and its subsidiaries entered into a
Severance Agreement and General Release with Michael L. Lowe, under which Mr.
Lowe terminated his employment and resigned from all positions with the
Registrant and its subsidiaries and provided the Registrant with a General
Release. Under the agreement, in addition to other covenants and commitments,
the Registrant agreed to a severance payment of $164,000, payable in equal
monthly installments for a period of 12 months, less standard withholdings
required by law. Additionally, the Registrant agreed to issue to Mr. Lowe stock
options to purchase 10,000 shares of the common stock of the Registrant, at a
price of $1.00 per share, which vest in four equal quarterly installments
beginning on the sixth month anniversary of the Agreement. The agreement also
contains a limited non-compete provision for a period of one year from the date
of the Agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of October 14, 1999, there were 7,532,361 shares of Common Stock
outstanding and and 8370 shares of non-voting preferred stock, par value $.01
per share (the "Preferred Stock"), outstanding. The following table and
footnotes thereto set forth certain information about the Common Stock of the
Company beneficially owned as of October 14, 1999, by (i) each of the executive
officers identified in the Summary Compensation Table (the "Named Executive
Officers") and each director of the Company; (ii) the directors and executive
officers as a group; and (iv) each other person who is known by the Company to
own beneficially more than five percent (5%) of the Company's outstanding equity
securities. None of the persons or entities named below beneficially own any
Preferred Stock. Except as otherwise indicated, each of the stockholders named
below has sole voting and investment power with respect to securities
beneficially owned.
63
<PAGE>
<TABLE>
<CAPTION>
Percent
Number of of
Name Shares Class
<S> <C> <C>
Robert J. Brown, V.P., Director 1,386,844 (9) 18.41
1210 Lorene Drive
Pasadena, MD 21122
Edwin C. Hirsch, CEO, Director
704 Severnside Avenue
Serverna Park, MD 21146 2,273,590 (10) 30.18
Brad C. Thompson, CFO, Director
8348 Fairwood Court
Pasadena, MD 21122 425,500 (11) 5.65
Robert W. Hoover, EVP, Director
2593 Lawnside Road
Timonium, MD 21093 680,000 (12) 9.01
Richard H. Guilford, Director 0 0
Peter B. Lilly, Director 320,500 (13) 4.25
Bruce A. Edge, Director 0 0
All Directors and Executive Officers as a
Group (6 Persons) 4,826,307 64.07
Other Beneficial Owners of More Than 5% of
Common Stock
Bison Financial, LLC 742,246 9.85
Michael L. Lowe 709,325 (14) 9.42
</TABLE>
9 Includes (i) 1,043,000 shares owned of record by Mr. Brown, (ii) 314,217
shares owned of record by Pamela Brown, Mr. Brown's spouse, and (iii) 29,627
shares which are owned of record by American Trading Services, Inc. and with
respect to which Mr. Brown shares voting and investment power with Mr. Hirsch as
fifty percent (50%) owner of American Trading Services, Inc.
10 Includes (i) 943,000 shares owned of record by Mr. Hirsch with respect to
which Mr. Hirsch has exclusive voting and investment power, (ii) 314,217 shares
owned of record by Mr. Hirsch's spouse, Janet M. Eckman, (iii) 742,246 shares
which are owned by Bison Financial, LLC of which Mr. Hirsch is sole member, (iv)
244,500 shares owned by
64
<PAGE>
Mescalero, LLC of which Mr. Hirsch is a sole member, and (v) 29,627 shares owned
by American Trading Systems, Inc., and with respect to which Mr. Hirsch shares
voting and investment power with Mr. Brown, a fifty percent (50%) owner of
American Trading Services, Inc.
11 Includes (i) 123,000 shares owned of record by Mr. Thompson, with respect to
which Mr. Thompson has exclusive voting and investment power, (ii) 50,000 shares
owned of record by Janice F. Thompson, Mr. Thompson's spouse, (iii) 10,000
shares owned of record by Eric F. Thompson, Mr. Thompson's son, (iv) 10,000
shares owned of record by Mary E. Thompson, Mr. Thompson's daughter, (v) 230,500
shares owned of record by Toas, LLC, a limited liability company, with respect
to which Mr. Thompson shares voting and investment power with Mr. Lowe and Mr.
Guilford, as a forty-five percent (45%) member of Taos, LLC, and (vi) 1,000
shares owned by Louis Thompson and 1,000 shares owned by Margaret Thompson,
parents of Mr. Brad Thompson.
12 Includes (i) 179,000 shares owned of record by Mr. Hoover, with respect to
which Mr. Hoover has exclusive voting and investment power, (ii) 200,000 shares
owned of record by Sandra Hoover, Mr. Hoover's wife, (iii) 300,000 shares owned
of record by Wilderness, LLC, a limited liability company wholly owned by Mr.
Hoover, and (iv) 500 shares owned by Charles Firth and 500 shares owned by Betty
Firth, Mr. Hoover's father and mother-in-law, respectively.
13 Includes (i) 90,000 shares owned by JOJ, LLC owned jointly by Mr. Hirsch and
Mr. Guilford, and (ii) 230,500 shares owned of record by Taos, LLC, with respect
to which Mr. Guilford has a ten percent (10%) voting interest.
14 Includes (i) 463,325 shares owned beneficially and of record by Michael L.
Lowe, (ii) 2,750 shares owned of record by Matthew Lowe, Mr. Lowe's son, (iii)
2,750 shares owned of record by Brian Lowe, Mr. Lowe's son, (iv) 10,000 shares
owned of record by Karen Lowe, Mr. Lowe's spouse, and (v) 230,500 shares owned
of record by Taos, LLC, a limited liability company with respect to which Mr.
Lowe shares voting and investment power with Mr.
Thompson and Mr. Guilford, as a forty-five percent (45%) member.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For the period from April 22, 1997 (the date of commencement of
operations) through September 30, 1997, the Company had a servicing agreement
with CMS, Inc. ("CMS"), an entity equally owned by Edwin C. Hirsch, an officer
and a director of the Registrant, and Robert J. Brown, an officer of the
Registrant. Under the terms of this agreement, CMS performed certain
maintenance, repair, marketing and administrative tasks for the Registrant. The
Company paid approximately $977,000 for these services during the year ended
September 30, 1997. This contract was terminated October 1, 1997.
65
<PAGE>
During the year ended June 30, 1998, the Registrant used the trade
credit facilities of CMS. The balance due CMS at June 30, 1998 was approximately
$511,000.
During the nine month period ended June 30, 1998, the Registrant
purchased certain equipment for resale through Amerilease, Inc. ("AI"), an
entity owned equally by Messrs. Hirsch and Brown. Equipment purchased under this
arrangement amounted to approximately $366,000. The Registrant owed AI
approximately $284,000 under this arrangement at June 30, 1998.
The Registrant also leases certain equipment from AI. The equipment
involved in connection with these leases, having an approximate value of
$1,880,319 at June 30, 1999, has been accounted for as capital leases on the
Registrant's financial statements. Under the terms of these leases, the
Registrant paid AI $614,695 during the year ended June 30, 1999. The present
value of the net minimum lease payments as of June 30, 1999 was approximately
$1,013,450.
From October 1 through December 31, 1997, the Registrant paid $150,000
in management fees to Beneficial Assistance, Inc., an entity owned by Robert W.
Hoover, Brad Thompson (current officers and directors of the Registrant) and
Andrew J. Walter, a former officer and director of the Company.
On July 1, 1998 as previously reported the Registrant and its
subsidiaries entered into a Severance Agreement and General Release with Andrew
J. Walter, under which Mr. Walter terminated his employment and resigned from
all positions with the Registrant and its subsidiaries and provided the
Registrant and its subsidiaries with a General Release. Under the agreement, the
Registrant made a cash payment of $160,000 to Mr. Walter, less standard
withholdings required by law, and made a commitment to pay Mr. Walter $160,000 a
year for the four-year period following July 1, 1998 on a bi-weekly basis in
accordance with its regular payroll policies and practices. In addition, the
Registrant agreed to purchase 150,000 shares of common stock of the Registrant
from Mr. Walter at a price of $5 per share upon the effective date of a
registration statement relating to a public offering by the Registrant of its
common stock or December 31, 1999, whichever is earlier, and agreed to provide
Mr. Walter with registration rights in connection with shares of common stock of
the Registrant which are not to be purchased pursuant to the Severance Agreement
and General Release and certain other consideration.
On August 16, 1999, the Registrant and its subsidiaries entered into a
Severance Agreement and General Release with Michael L. Lowe, under which Mr.
Lowe terminated his employment and resigned from all positions with the
Registrant and its subsidiaries and provided a General Release. Under the
agreement, in addition to other covenants and commitments, the Registrant agreed
to a severance payment of $164,000, payable in equal monthly installments for a
period of 12 months, less standard withholdings required by law. Additionally,
the Registrant agreed to issue to Mr. Lowe stock options to purchase 10,000
shares of the common stock of the Registrant, at a price of $1.00 per share,
which will vest in four equal quarterly installments beginning on the sixth
month anniversary of the Agreement. Finally, the
66
<PAGE>
Agreement contains a limited non-compete provision for a period of one year from
the date of the Agreement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) The following documents are filed as part of this report:
(1) List of Financial Statements. The following Consolidated
Financial Statements of Imtek Office Solutions, Inc. and Subsidiaries
are included in Item 8 on pages 30 through 58 of this report:
(i) Audit Report of Grant Thornton LLP
(ii) Audit Report of Rosenberg Rich Baker Berman & Company
(iii) Consolidated Balance Sheets as of June 30, 1999 and
1998.
(iv) Consolidated Statements of Operations for the year ended
June 30, 1999, the nine month period ended June 30, 1998, and the year ended
September 30, 1997
(v) Consolidated Statements of Stockholders' Equity for the
year ended June 30, 1999,the nine month period ended June 30, 1998, and the year
ended September 30, 1997
(vi) Consolidated Statements of Cash Flows for the year ended
June 30, 1999, the nine month period ended June 30, 1998, and the year ended
September 30, 1997
(vii) Notes to Consolidated Financial Statements for June 30,
1999, June 30, 1998 and September 30, 1997
(2) List of Financial Statement Schedules. Schedule II is
included herein on page __. Other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instruction or are inapplicable, and therefore
have been omitted.
(b) Reports on Form 8-K. NONE.
(c) Exhibits. A list of Exhibits required to be filed as part of this
report is set forth in the Index to Exhibits, which immediately precedes such
Exhibits, and is incorporated herein by reference.
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMTEK OFFICE SOLUTIONS, INC.
By: /s/ Edwin C. Hirsch
--------------------
Date: October 15, 1999 Edwin C. Hirsch,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ EDWIN C. HIRSCH Chairman
- -----------------------
Edwin C. Hirsch Principal Executive Officer 11/1/99
and Director
/s/ ROBERT W. HOOVER President and Director 11/1/99
- -----------------------
Robert W. Hoover
/s/ BRAD C. THOMPSON Chief Financial Officer 11/1/99
- -----------------------
Brad C. Thompson (Principal Financial and
Accounting Officer) and Director
/s/ RICHARD H. GUILFORD Director 11/1/99
- -----------------------
Richard H. Guilford
</TABLE>
68
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Registrant is filing this annual report pursuant to Section 15(d)
of the Act and has furnished to the Securities and Exchange Commission (the
"Commission") for its information at the time of filing of this report, four
copies of every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of its security holders with respect to any
annual or other meeting of security holders. No annual report to security
holders was required to be sent or has been sent to security holders during the
period covered by this report or prior to the date this annual report was filed
with the Commission.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- ---------------------------
<S> <C> <C>
2. Plans of Acquisition. Schedules to the following
agreements have been omitted. The Registrant will
furnish a copy of any omitted schedule to the
Securities and Exchange Commission upon request.
2.1 Restated Beneficial Assistance Asset Purchase
Agreement dated September 30, 1998 but made effective
October 1, 1997, attached as Exhibit 2.1 to the
Annual Report on Form 10-K for the transition period
ended June 30, 1998 and incorporated herein by
reference.
2.2 Restated Thompson Exchange Agreement dated September
30, 1998 but made effective October 30, 1997,
attached as Exhibit 2.2 to the Annual Report on Form
10-K for the transition period ended June 30, 1998
and incorporated herein by reference.
2.3 Restated Earnout Agreement dated September 30, 1998
but made effective October 30, 1997, attached as
Exhibit 2.3 to the Annual Report on Form 10-K for the
transition period ended June 30, 1998 and
incorporated herein by reference.
</TABLE>
69
<PAGE>
<TABLE>
<S> <C> <C>
2.4 Holdings Exchange Agreement dated as of November 1,
1997 between the Registrant, Office Supply Line
Holdings, Inc., Michael L. Lowe and certain other
shareholders of Office Supply Line Holdings, Inc.,
attached as Exhibit 2.4 to the Annual Report on Form
10-K for the transition period ended June 30, 1998
and incorporated herein by reference.
2.5 OSL Inventory Purchase Agreement dated as of November
1, 1997 between the Registrant, Office Supply Line,
Inc., and Michael L. Lowe, attached as Exhibit 2.5 to
the Annual Report on Form 10-K for the transition
period ended June 30, 1998 and incorporated herein by
reference.
2.6 Perfect Copy Agreement for Sale of Assets dated June
3, 1998 between but made effective June 1, 1998
between Imtek Corporation and Perfect Copy, Inc.,
attached as Exhibit 2.6 to the Annual Report on Form
10-K for the transition period ended June 30, 1998
and incorporated herein by reference.
2.7 Stock Purchase Agreement and Plan of Merger among the
Registrant, Imtek Acquisition Corporation, Barbera
Business Systems, Inc. and certain stockholders of
Barbera Business Systems, Inc., dated July 22, 1998,
attached as Exhibit 99.1 to the Current Report on
Form 8-K filed with the Commission on August 13, 1999
and incorporated herein by reference.
3. Articles of Incorporation and Bylaws.
3.1 Amended and Restated Certificate of Incorporation
adopted by stockholders by unanimous written consent
on May 28, 1998, attached as Exhibit 3.1 to the
Annual Report on Form 10-K for the transition period
ended June 30, 1998 and incorporated herein by
reference.
3.2 Certificate of Designation of Series A Convertible
Preferred Stock of Registrant, as filed with the
Delaware Secretary of State on March
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
23, 1998, attached as Exhibit 3.2 to the Annual
Report on Form 10-K for the transition period ended
June 30, 1998 and incorporated herein by reference.
3.3 Amended and Restated Certificate of Incorporation
adopted by stockholder by unanimous written consent
on June 25, 1999.
3.4 Amended and Restated Bylaws, as amended and restated
by the Board of Directors on September 11, 1998,
attached as Exhibit 3.3 to the Annual Report on Form
10-K for the transition period ended June 30, 1998
and incorporated herein by reference.
4. Instruments defining the rights of security holders,
including indentures.
4.1 Certificate of Designation of Series A Convertible
Preferred Stock of Registrant, as filed with the
Delaware Secretary of State on March 23, 1998,
attached as Exhibit 3.2 to the Annual Report on Form
10-K for the transition period ended June 30, 1998
and incorporated herein by reference.
4.2 Loan and Security Agreement relating to the
$10,000,000 Revolving Line of Credit provided by The
Provident Bank to Imtek Corporation and Barbera
Business Systems, Inc. (the "Provident Loan"),
attached hereto as Exhibit 10.15 and incorporated
herein by reference.
4.3 Loan Agreement among Registrant, Imtek Corporation,
Imtek Services Corporation, Imtek Funding Corporation
and Sirrom Capital Corporation dated May 29, 1998,
attached hereto as Exhibit 10.9.1 and incorporated
herein by reference.
4.4 Stock Purchase Warrant and Registration Rights
Agreement issued by Registrant to Sirrom Capital
Corporation dated May 29, 1998,
</TABLE>
71
<PAGE>
<TABLE>
<S> <C> <C>
attached hereto as Exhibit 10.9.3 and incorporated
herein by reference.
4.5 Stock Purchase Warrant and Registration Rights
Agreement from Imtek Office Solutions to Finova
Mezzanine Capital dated July 1999, attached hereto as
Exhibit 10.9.6 and incorporated herein by reference.
10. Material Contracts.
10.1 Reserved.
10.2 Reserved.
10.3 Reserved.
10.4 Reserved.
10.5 Reserved.
10.6.1 Reserved.
10.6.2 Lease with The Morris Weinman Company for 111 Water
Street expiring November 26, 2000, attached as
Exhibit 10.6.2 to the Annual Report on Form 10-K for
the transition period ended June 30, 1998 and
incorporated herein by reference.
10.6.3 Lease with Glenn Dale Business Center, L.L.C. for
Glenn Dale Business Center location expiring July
2007, attached as Exhibit 10.6.3 to the Annual Report
on Form 10-K for the transition period ended June 30,
1998 and incorporated herein by reference.
10.6.4 Lease with White Marsh Business Center Limited
Partnership expiring November 2001, attached as
Exhibit 10.6.4 to the Annual Report on Form 10-K for
the transition period ended June 30, 1998 and
incorporated herein by reference.
10.6.5 Lease with Athens Associates Limited for 2375 W.
Broad Street, Suite A, Athens, Georgia location,
attached as Exhibit 10.6.5 to the Annual Report on
Form 10-K for the transition
</TABLE>
72
<PAGE>
<TABLE>
<S> <C> <C>
period ended June 30, 1998 and incorporated herein by
reference.
10.6.6 Lease with Executive Cove, L.L.C. for 5604 Executive
Cove Center expiring December 31, 1999, attached as
Exhibit 10.6.6 to the Annual Report on Form 10-K for
the transition period ended June 30, 1998 and
incorporated herein by reference.
10.6.7 Lease with E&M Realty Holding Company for the 10th
floor of the 8th and Main Building expiring December
30, 1998, attached as Exhibit 10.6.7 to the Annual
Report on Form 10-K for the transition period ended
June 30, 1998 and incorporated herein by reference.
10.6.8 Lease with Pied Ventures, LLC for office space on 1st
and 2nd floor of the building located at 20 North 8th
Street, Richmond Virginia, attached as Exhibit 10.6.8
to the Annual Report on Form 10-K for the transition
period ended June 30, 1998 and incorporated herein by
reference.
10.6.9 Lease with Larry Bielfeldt, Agent for office space
known as Suite 3, 1603 Visa Dr., Normal, IL, attached
as Exhibit 10.6.9 to the Annual Report on Form 10-K
for the transition period ended June 30, 1998 and
incorporated herein by
reference.
10.7 Severance Agreement and General Release between the
Registrant and its subsidiaries and Andrew J. Walter
dated July 1, 1998, attached as Exhibit 10.7 to the
Annual Report on Form 10-K for the transition period
ended June 30, 1998 and incorporated herein by
reference.
10.8 Severance Agreement and General Release between the
Registrant and its subsidiaries and Michael L. Lowe
dated August 16, 1999.
10.9.1 Loan Agreement among Registrant, Imtek Corporation,
Imtek Services Corporation, Imtek Funding Corporation
and Sirrom Capital
</TABLE>
73
<PAGE>
<TABLE>
<S> <C> <C>
Corporation dated May 29, 1998.
10.9.2 $6,000,000 Secured Promissory Note.
10.9.3 Stock Purchase Warrant and Registration Rights
Agreement issued by Registrant to Sirrom Capital
Corporation on May 29, 1998.
10.9.4 Second Amendment to Loan Agreement and Loan
Documents among Registrant, Imtek Corporation,
Imtek Services Corporation and Imtek Funding
Corporation and Finova Mezzanine Capital,
Inc. dated July 1999.
10.9.5 $6,000,000 Amended and Restated Secured Promissory
Note from Registrant, Imtek Corporation, Imtek
Services Corporation, Imtek Funding Corporation,
Imtek Acquisition Corporation, Barbera Business
Systems and Imtek Capital Corporation to Finova
Mezzanine Capital, Inc.
10.9.6 Stock Purchase Warrant and Registration Rights
Agreement from Registrant to Finova Mezzanine Capital
dated July 1999.
10.10.1 Loan and Security Agreement relating to the
$10,000,000 Revolving Line of Credit provided by The
Provident Bank to Imtek Corporation and Barbera
Business Systems, Inc. (the "Provident Loan").
10.10.2 $10,000,000 Revolving Loan Promissory Note.
10.10.3 Secured Guaranty Agreement entered into between the
Registrant and The Provident Bank relating to the
Provident Loan.
10.10.4 Stock Pledge Agreement between the Registrant and
The Provident Bank pledging stock of Imtek
Corporation.
10.10.5 Stock Pledge Agreement between Imtek Services
Corporation and The Provident Bank pledging stock of
Imtek Funding Corporation and Imtek Capital
Corporation.
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C>
10.10.6 Stock Pledge Agreement between Imtek Acquisition
Corporation and The Provident Bank pledging stock of
Barbera Business Systems, Inc.
10.11 Cannon License Agreement dated March 12, 1999
between Imtek Corporation, George R. Cannon and
Dolores M. Cannon.
10.12 Stock Option Plan adopted by stockholders at the
annual meeting of stockholders of the Registrant held
on September 11, 1998.
11 Statement re: Computation of Earnings Per Share.
Exhibit 11 is included on page 40 of this Annual
Report.
14 Subsidiaries of the Registrant.
14.1 Imtek Corporation, a Maryland corporation.
14.2 Imtek Services Corporation, a Maryland corporation.
14.3 Imtek Funding Corporation, a Maryland corporation
doing business under the name of Beneficial
Assistance, is a wholly owned subsidiary of Imtek
Services Corporation.
14.4 Imtek Acquisition Corporation, a Maryland corporation.
14.5 Barbera Business Systems, Inc., a Maryland
corporation, is 60% owned by the Registrant.
14.6 Imtek Capital Corporation, a Maryland corporation.
27 Financial Data Schedule.
</TABLE>
75
<PAGE>
Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IMTEK OFFICE SOLUTIONS, INC.
Imtek Office Solutions, Inc., a Delaware corporation (the
"Corporation") hereby files this Amended and Restated Certificate of
Incorporation.
NOW, THEREFORE, IT IS HEREBY CERTIFIED THAT:
1. The name of the corporation filing this Amended and Restated Certificate of
Incorporation is Imtek Office Solutions, Inc., a Delaware corporation.
2. The Corporation was originally incorporated under the name of Vision
Capital, Inc., a Delaware corporation ("Vision"). Vision originally filed
its Certificate of Incorporation with the Secretary of State of Delaware on
November 9, 1987.
3. This Amended and Restated Certificate of Incorporation hereby amends and
restates in its entirety the Certificate of Incorporation of the
Corporation to read as follows:
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IMTEK OFFICE SOLUTIONS, INC.
ARTICLE I.
NAME
The name of this corporation is Imtek Office Solutions, Inc.
ARTICLE II.
REGISTERED OFFICE; REGISTERED AGENT
The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the
1
<PAGE>
registered agent of the corporation in the State of Delaware at such address is
The Corporation Trust Company.
ARTICLE III.
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV.
CAPITAL STOCK
A. GENERAL AUTHORIZATION. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock". The total number of shares of all classes of stock which the Corporation
shall have the authority to issue shall be Fifty-Five Million (55,000,000)
shares. Fifty Million (50,000,000) shares shall be Common Stock, each having a
par value of $.000001 per share. Five Million (5,000,000) shares shall be
Preferred Stock, each having a par value of $0.01 per share.
B. COMMON STOCK. The Common Stock of the Corporation shall have such
designations, voting powers, preferences, and such other special rights and
qualifications, limitations and restrictions thereon as are provided by Delaware
General Corporation Law.
C. PREFERRED STOCK. (1) The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby authorized, by
filing a certificate pursuant to the Delaware General Corporation Law, to fix or
alter from time to time the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof, including without limitation the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them (a "Preferred Stock Designation"), and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series. Different
series of Preferred Stock shall not be considered to constitute different
classes of shares for the purpose of voting by classes (except as otherwise
fixed by the Board of Directors with respect to any series at the time of the
creation thereof).
2
<PAGE>
(2) The Corporation has authority to issue 75,000 shares of
its Preferred Stock as Series A Convertible Preferred Stock, par value $.01 per
share, pursuant to that certain Certificate of Designation of Series A
Convertible Preferred Stock of the Corporation filed with the Secretary of State
of Delaware on March 23, 1998 (the "Series A Convertible Preferred
Designation"). The designation, voting powers or lack thereof, preferences, and
such other special rights and qualifications, limitations and restrictions of
the Series A Convertible Preferred Stock are as set forth in the Series A
Convertible Preferred Designation.
D. NEGATION OF PREEMPTIVE RIGHTS. Except as set forth in a duly adopted
resolution of the Board of Directors or pursuant to a written agreement duly
authorized by the Board of Directors, the holders of the capital stock of the
Corporation shall have no preemptive rights to subscribe for any shares of any
class of stock of the Corporation whether now or hereafter authorized.
ARTICLE V.
BOARD OF DIRECTORS AND STOCKHOLDERS
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted from time to time by the Board of Directors.
B. From and after the closing of the Corporation's initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of the Common Stock (the
"Initial Public Offering"), the directors of the Corporation shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors prior to the Initial Public
Offering. At the first annual meeting of stockholders following the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years
3
<PAGE>
to succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
C. The Board of Directors is expressly authorized to alter, amend, or
repeal or adopt new Bylaws by the affirmative vote of a majority of directors
present and voting at a meeting of directors duly called and noticed at which a
quorum of directors is present.
D. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
E. From and after the Initial Public Offering, any director, or the
entire Board of Directors, may be removed from office only (i) for cause, and
(ii) by the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the then-outstanding shares of
the voting stock.
ARTICLE VI.
ALTERATION, AMENDMENT OR REPEAL OF CERTAIN ARTICLES
From and after the Initial Public Offering and notwithstanding any
other provisions of this Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the voting
stock required by law, this Certificate of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the voting stock, voting together as a single class, shall be required
to alter, amend or repeal Article V, Article VI , Article VIII or Article IX
hereof.
ARTICLE VII.
SECTION 102(b)(2) STATEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-
4
<PAGE>
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court at which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE VIII.
RESERVATION OF RIGHT TO AMEND, ALTER, CHANGE OR REPEAL CERTIFICATE OF
INCORPORATION
Subject to Article VI hereof, the corporation reserves the right at any
time, and from time to time, to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, and other provisions authorized
by the laws of the State of Delaware at the time in force may be added or
inserted, in the manner now or hereafter prescribed by law, and all rights,
preferences and privileges of whatsoever nature conferred upon the stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the rights reserved in this Article.
ARTICLE IX.
LIMITATION OF LIABILITY AND INDEMNIFICATION
A. The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
B. The Corporation is authorized to provide indemnification of agents
(as defined in Section 145 of the Delaware General Corporation Law) for breach
of duty to the Corporation and its stockholders through bylaw provisions,
through agreements with the agents, and/or through stockholder resolutions, or
otherwise, in excess of the indemnification otherwise permitted by Section 145
of the Delaware General Corporation Law.
C. Any repeal or modification of this Article IX shall be prospective
and shall not affect the rights under this Article IX in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
4. The Board of Directors of the Corporation adopted a resolution
setting forth this Amended and Restated Certificate of Incorporation herein
certified, declaring its advisability and submitting this Amended and Restated
Certificate of Incorporation to the stockholders entitled to vote in respect
thereof in order to consider the adoption of this Amended and Restated
Certificate of Incorporation.
5
<PAGE>
5. Pursuant to the aforementioned resolution of the Corporation?s Board
of Directors, the Amended and Restated Certificate of Incorporation herein
certified was duly adopted in accordance with Section 242 of the Delaware
General Corporation Law by the consent of at least a majority of the outstanding
stock entitled to vote thereon, and a majority of the outstanding stock of each
class entitled to vote thereon as a class. This Amended and Restated Certificate
of Incorporation herein certified has been duly adopted in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law.
6. This Amended and Restated Certificate of Incorporation shall become
effective when filed with the Secretary of State of Delaware.
SIGNED AND ACKNOWLEDGED JUNE 25, 1999:
IMTEK OFFICE SOLUTIONS, INC.
/s/ Edwin C. Hirsch
- ----------------------------
Edwin C. Hirsch, President
ATTEST:
/s/ Robert J. Brown
- ----------------------------
Robert J. Brown, Secretary
6
<PAGE>
Exhibit 10.8
SEVERANCE AGREEMENT AND GENERAL RELEASE
THIS SEVERANCE AGREEMENT AND GENERAL RELEASE (this "Agreement") is made
as of the 16th day of August, 1999, by and between Michael L. Lowe ("Michael
Lowe") and Karen W. Lowe ("Karen Lowe") (each an "Employee" and collectively,
the "Employees") and their successors and assigns, and Imtek Office Solutions,
Inc. and its affiliates and wholly-owned direct and indirect subsidiaries,
officers, directors, representatives, agents, predecessors, successors and
assigns (referred to herein, collectively and individually, as "Imtek").
For and in consideration of the mutual promises and commitments
specified herein, the Employees, jointly and severally, and Imtek hereby agree
as follows:
1. TERMINATION OF EMPLOYMENT; RESIGNATION, CONTINUATION OF INDEMNITY.
Employees agree and acknowledge that their employment is terminated effective as
of 12:00 a.m. on the date of this Agreement, and that as of such time Imtek
shall have no liability or further obligation in connection with such employment
or the termination thereof, including, without limitation, for salary, benefits
or other compensation, or in respect of any other matter, except as expressly
provided in this Agreement, and Employees, except as otherwise expressly
provided in this Agreement, to the fullest extent permitted under law, waive
application of any and all laws, rules, regulations or provisions which would
provide for any compensation or benefits from and after the date hereof.
Further, Michael Lowe agrees to resign, and does hereby resign from all offices
and directorships of Imtek held by him effective as of the date first set forth
above, including, without limitation, from the offices of president of Imtek
Corporation, the board of directors of Imtek Corporation, vice-president of
Imtek Office Solutions, Inc. and from the board of directors of Imtek Office
Solutions, Inc., and agrees to provide written resignations to Imtek
simultaneous with the execution of this Agreement. Imtek and Mike Lowe
acknowledge that Mike Lowe has acted under limited authority since March 17,
1999 with respect to the foregoing offices and directorships. Imtek agrees for
itself and by its execution of this Agreement for Imtek Corporation that Michael
Lowe shall retain any and all indemnity or insurance provided under any
applicable by-law, resolution, corporate charter, state law, common law or
policy of insurance for any alleged act or omission by him during the time of
his service in any of the foregoing capacities, in accordance with the terms of
such by-law, resolution, corporate charter, state law, commom law, or policy of
insurance, to the extent the same would be available had he continued with all
or any of the foregoing positions.
2. ACCEPTANCE OF RESIGNATION. Imtek Office Solutions, Inc., by its
execution of this Agreement hereby warrants and represents its actual authority
to accept these resignations on behalf of the pertinent entities.
1
<PAGE>
3. REFERENCES TO MICHAEL LOWE. Effective as of the date hereof, Imtek
agrees that it will not in any way represent or indicate to any person that
Michael Lowe remains associated with Imtek other than under the terms of this
Agreement.
4. CERTAIN ACKNOWLEDGMENTS. In connection with the transactions
contemplated by (i) that certain Agreement (the "Exchange Agreement") dated as
of November 1, 1997 by and among Imtek Office Solutions, Inc., a Delaware
corporation, Michael Lowe, Karen Lowe and all other persons who were
shareholders of Office Supply Line Holdings, Inc. ("OSL Holdings") immediately
prior to the effective time of the Exchange Agreement (the "OSL Shareholders"),
a true and accurate copy of which is attached hereto as EXHIBIT A, and (ii) that
certain Inventory Purchase and Sale Agreement (the "Purchase Agreement" and,
together with the Exchange Agreement, dated as of November 1, 1997 by and among
Imtek Corporation, Michael Lowe and Office Supply Line, Inc., a Virginia
corporation ("OSL"), a true and accurate copy of which is attached hereto as
EXHIBIT B, (collectively, the "Acquisition Documents") Michael Lowe, Karen Lowe
and Imtek, hereby agree and acknowledge as follows:
(a) the Acquisition Documents were effective to, and did duly
transfer (i) to Imtek all right, title and interest in and to the Inventory
(within the meaning of the Purchase Agreement) of OSL and all of the issued and
outstanding capital stock of OSL Holdings, which transactions Michael Lowe
hereby ratifies, and (ii) 465,000 shares of common stock of Imtek Office
Solutions, Inc. to Michael Lowe, 2,750 shares to Brian Lowe, 10,000 shares to
Karen Lowe, and 2,750 shares to Matthew Lowe, the receipt and sufficiency of
which the undersigned hereby acknowedge.
(b) all conditions, limitations and restrictions on the resale
of the Inventory, if any, are forever waived by the undersigned;
(c) that Imtek shall not be liable for any liabilities
associated with OSL prior to November 1, 1997 or any liabilities of OSL from and
after November 1, 1997 other than the Assumed Liabilities (within the meaning of
the Purchase Agreement), and further agree, jointly and severally and subject to
reasonable prior written notice, to indemnify and hold Imtek harmless from and
against any and all claims, losses, damages, expenses (including reasonable
attorneys' fees) and other costs relating to or arising out of any breach of any
representation, acknowledgment, warranty, covenant or obligation contained in
this Agreement. Imtek by its execution of this Agreement warrants and represents
that it has not incurred and will not in the future incur any indebtedness with
any former vendors of OSL for which either OSL or Michael Lowe is or may be
liable.
(d) that all payment and other obligations of Imtek to
Employees or any other person or entity in consideration of or with respect to
the purchase of the Inventory, the Purchase Agreement and
2
<PAGE>
the Exchange Agreement have been fully paid and satisfied in full including,
without limitation, that certain promissory note in the original principal
amount of $92,000 in favor of OSL, which Michael Lowe shall return to Imtek for
cancellation on the date hereof.
(e) By her execution of this Agreement Karen Lowe warrants and
represents to Imtek that to the best of her knowledge the foregoing statements
of Michael Lowe are true and correct.
5. SEVERANCE PAYMENTS. Provided (i) except for breaches of Section 12
hereof, neither Employee shall then have breached any material term of this
Agreement and have failed to cure such breach within twenty calendar days after
written notice to such Employee reasonably specifying the nature of such breach
(or within such longer time as reasonably may be necessary to effect such cure,
provided that the Employee who is alleged to be in such breach is proceeding
with reasonable and continuing diligence to effect such cure), and (ii) neither
Employee has breached Section 12 hereof at any time during the term of this
Agreement, Imtek Office Solutions, Inc. agrees to pay Employees the aggregate
sum of $164,000, payable in twelve monthly equal installments (without interest)
of $13,666.67, beginning on the first business day following the date of this
Agreement. Of each monthly payment, Karen Lowe shall be entitled to receive
$4,000 and Michael Lowe shall be entitled to receive the remainder.
Employees acknowledge and agree that the their severance payments, when
and if made in full (or if waived due to a violation of this Agreement as set
forth in this section), will satisfy Imtek's obligations with respect to earned
or accrued but unpaid vacation, sick and other leave time and so long as such
payments are made when and as required, covenant not to assert their rights,
under any applicable law, rule, regulation, contract or agreement, to the
fullest extent permitted by law, to receive any further payment on account of
earned or accrued but unpaid vacation, sick or other leave time. Upon Imtek's
full and complete performance of its obligations to pay such severance, Imtek
shall be deemed to have been released from any and all liability for any and all
earned or accrued but unpaid vacation, sick or other leave time.
6. BENEFITS AND EXPENSE REIMBURSEMENTS. Following the date of this
Agreement, Imtek agrees to pay to Michael Lowe expense allowances for expenses
incurred in the ordinary course of carrying out Imtek's business, to include the
1999 Nike Dominion Open golf tournament, all upon the presentation of receipts
or other proof of the amount and purpose therefor reasonably satisfactory to
Imtek. For a one year period from the date of this Agreement or until Mike Lowe
is eligible to obtain health benefits from another employer and is insurable
under such employer's policies, Imtek shall maintain, in accordance with its
current practices, as such may be modified with respect to all applicable
employees generally from time to time, Mike Lowe's current benefits package
under Imtek's current payroll administrator.
3
<PAGE>
7. STOCK OPTIONS. Imtek agrees to issue Michael Lowe stock options to
purchase 10,000 shares of Common Stock of Imtek, as adjusted for stock
dividends, stock splits, and the like, at a price of $1.00 per share, which will
vest in four equal quarterly installments beginning on the sixth month
anniversary of this Agreement, provided that at the time such vesting would
occur (i) except for breaches of Section 12 hereof, neither Employee shall then
have breached any material term of this Agreement and have failed to cure such
breach within twenty calendar days after written notice to such Employee
reasonably specifying the nature of such breach (or within such longer time as
reasonably may be necessary to effect such cure, provided that the Employee who
is alleged to be in such breach is proceeding with reasonable and continuing
diligence to effect such cure), and (ii) neither Employee has breached Section
12 hereof at any time prior thereto. Imtek has no current intention to grant any
options to any of Ed Hirsch, Robert Hoover or Brad Thompson in the short term.
8. GENERAL RELEASE. Except as specifically set forth in this Agreement,
in consideration of the mutual promises and other consideration set forth in
this Agreement, each of the parties hereto covenant and agree, for themselves
and their successors and assigns, irrevocably and unconditionally waives,
acquits, releases and forever discharges each of the other parties, its
directors, officers, employees and agents, from any and all claims, charges,
promises, actions, causes of action, covenants, contracts, controversies,
agreements, complaints, suits, damages, debts, demands, obligations and any and
all liabilities of any nature and kind whatsoever, known or unknown, whether
accrued or not and regardless of whether arising in law or in equity, that any
party ever had, now have or hereafter may have arising out of either or both of
Employees' employment with Imtek and the termination thereof, the Acquisition
Documents and the transactions contemplated thereby or relating thereto,
including, but not limited to:
(a) the employment obligations of Imtek to Employees
including, without limitation, all unpaid salary, bonuses and benefits and all
sick, vacation and other leave time;
(b) the representations and warranties made in the Acquisition
Documents;
(c) any claims relating to the type or value of the
consideration, or the manner in which such consideration was provided, in
connection with the Acquisition Documents including, with respect to the Shares,
any rescission rights arising under state or federal laws or otherwise;
(d) to the greatest extent permitted under applicable law,
wrongful discharge, breach of express or implied contract, failure to comply
with any federal or state securities laws, breach of fiduciary duty, fraud,
misrepresentation, breach of warranty, defamation,
4
<PAGE>
liability in tort, contract or otherwise, claims of any kind that may be brought
in any court or administrative agency; and
(e) any claims under Title VII of the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1866 and 1991, as amended, Americans
With Disabilities Act, Federal Equal Pay Act, the Age Discrimination in
Employment Act, the Older Workers Benefit Protection Act, the Employee
Retirement Income Security Act, the Fair Labor Standards Act, the Family and
Medical Leave Act or any other federal, state or local law, including, without
limitation, the laws of the Commonwealth of Virginia and the State of Maryland,
relating to employment, employee benefits or the termination of employment, or
any other claim arising out of or relating to the foregoing.
Anything to the contrary herein notwithstanding, the foregoing release shall
not, however, serve to release any rights of Michael Lowe to receive stock
options as set out elsewhere herein, nor shall it be deemed to include any
rights the Employees, either of them, or any of their affiliates hold or may
hold as a shareholder of Imtek.
IT IS EXPRESSLY UNDERSTOOD BY EMPLOYEES THAT THIS IS A GENERAL RELEASE;
provided, however, that no party hereby waives any future rights or claims
arising after the date of this Agreement or based upon the terms or conditions
of this Agreement.
11. NON-DISCLOSURE OF TERMS AND CONDITIONS OF AGREEMENT. Employees and
Imtek agree that the terms of this Agreement are confidential, and each agrees
not to disclose such terms or conditions to any person, corporation,
partnership, limited liability company, proprietorship or other entity
("Person") other than such party's attorney, income tax preparer or similar
professional, except to the extent compelled by legal process or as may occur in
the event of litigation between or among the parties hereto, in connection with
any financing (debt or equity) or public reporting by Imtek, or sought by the
Employees or either of them, or otherwise as required by law. The parties agree
to instruct such Persons that this information is to be kept confidential.
12. NON-COMPETE. In exchange for the consideration to be paid or
provided to the Employees by Imtek hereunder and so long as Imtek performs such
obligations, each of the Employees, jointly and severally, covenant and agree
that he/she will not, directly or indirectly (except as is expressly permitted
in this Agreement), for a period of one year from the date of this Agreement:
(i) solicit or cause or permit any person controlled
by either Employee to solicit in any way the services of any employee, officer
or director of Imtek regardless of the function of such Imtek employee or, at
any time, defame or slander Imtek or any of its shareholders, directors,
affiliates, officers, employees, or agents; or
5
<PAGE>
(ii) use any confidential or proprietary information
(within the meaning of this Agreement) or any other non-public information
relating to Imtek or any of its subsidiaries, to solicit any person, business or
other entity who or which is or was a client or customer of Imtek at any time
since April 22, 1997.
Each of the Employees agree, within seven (7) calendar days of
the execution of this Agreement, to deliver to Imtek all documents, contracts,
agreements and other written material, magazine and other advertisements and
promotional material, memoranda, records, notes, disclosure matters, and other
materials in their possession or control, whether prepared by them or others,
that relate to Imtek or are or were used in connection with the business or
operations of Imtek. Employees may retain copies of any such documents Employees
in good faith deem reasonably necessary for their personal records, provided
that on the documents returned to Imtek the Employees shall note any documents
of which they have retained any copies. Employees acknowledge Imtek's ownership
of such documents. Michael Lowe may retain possession of his Compaq notebook
computer but shall delete therefrom all computer files in accordance with this
paragraph and may retain copies of records also in accordance with this
paragraph.
13. CONFIDENTIALITY. Employees agree, jointly and severally, that they
will not, at any time, use, divulge or give anyone any confidential or
proprietary information, data or trade secrets obtained by either of them during
their employment with Imtek or during the negotiation and consummation of the
Acquisition Documents, which concern Imtek's business or affairs. Such
information, data or trade secrets shall include, but is not limited to,
customer and client lists and information, mailing lists, computer programs,
pricing information, operating costs, profit margins, financial statements,
salary information, business projections, market surveys, confidential product
information, customer needs, customer names, viatical settlement information,
other information relating to Imtek's servicing of its customers, and any other
non-public information concerning Imtek's business, its products and processes,
customers and manner of operation. Employees understand why the foregoing
information should not be divulged to others, and that they also may have
learned certain things that may or may not require confidential treatment.
Employees understand that it may be difficult to draw an exact line of
distinction as to what does and does not require confidential treatment,
although as a general rule, it may be said that any unpublished information is
secret and confidential and protected under this Section. In those cases where
any good faith doubt arises, Employees will treat the information as
confidential and not use or disclose it unless they first obtain written
permission from Imtek to do so. Employees also agree not to disclose any
information concerning any legal matters or proceedings in which the Imtek is
involved except as required by a lawfully issued subpoena or as may be
reasonably necessary to defend or prosecute any litigation in which they may be
involved.
6
<PAGE>
14. SURVIVAL OF OBLIGATIONS AND ENFORCEMENT.
(a) All terms and conditions of this Agreement shall survive
the termination of Employees' employment.
(b) Employees agree, jointly and severally, that if either or
both of them breach or threaten to breach any provision of this Agreement,
Imtek's remedies at law may be inadequate, and Imtek in such event, subject to
the discretion of the court having jurisdiction of such matter, shall be
entitled to an injunction restraining one or both of the Employees from such
breach or threatened breach. Such remedy shall be in addition to all other
remedies available at law or in equity.
(c) In the event any litigation arises under or as a result of
this Agreement, the parties agree that the prevailing party or parties, as
determined by the court having jurisdiction of such litigation, shall recover
reasonable attorneys' fees and related litigation expenses from the other party
or parties.
(d) It is the parties' intention to provide Imtek in this
Agreement the maximum protection against unfair competition possible in the
geographic area in which Imtek does business. The parties, however, in no way
intend to include a provision which contravenes the public policy of any state.
Therefore, if any provision of the Agreement is unlawful, against public policy
or otherwise declared void, such provision shall not be deemed part of this
Agreement, which otherwise shall remain in full force and effect; provided,
however, that if a court of competent jurisdiction deems the duration, scope or
area restriction stated herein to be unreasonable under the circumstances then
existing, the parties desire that such court enforce the restrictions to the
extent it deems reasonable.
15. COOPERATION. Employees and Imtek recognize that, because of
Employees' former positions with Imtek, it is important that Imtek's employees
and customers perceive that their separation from Imtek is amicable. Employees
agree that they will continue to cooperate with Imtek by projecting a positive
attitude toward Imtek, its customers and employees, and its products.
16. NO ADMISSION. It is understood and agreed that neither party admits
any liability in connection with any dispute or controversy arising out of or in
connection with the Acquisition Documents or the transactions contemplated
thereby or in connection with the termination of the Employees' employment with
Imtek.
17. NOTICES. Any notice required or permitted to be given hereunder
shall be deemed to have been given when and only when, and as of the date, such
notice is mailed by certified mail, return receipt requested and a facsimile
copy is transmitted as follows:
(a) To Employees or either of them:
7
<PAGE>
Michael L. Lowe
Karen W. Lowe
12205 Renwick Court
Glen Allen, VA 23060
Facsimile: (804) 364-0691
with copy to:
Hirschler, Fleischer, Weinberg, Cox & Allen
a Professional Corporation
Attention: Louis J. Rogers, Esq.
P. O. Box 500
Richmond, Virginia 23218
Facsimile: (804) 644-0957
(b) To Imtek:
Imtek Office Solutions, Inc.
Attention: Edwin C. Hirsch
8003 Corporate Drive, Suite C
Baltimore, Maryland 21236
Facsimile: (410) 931-2731
with copy to:
McGuire, Woods, Battle & Boothe LLP
Attention: Patrick M. Shelley, Esq.
Seven St. Paul Street
Suite 1000
Baltimore, MD 21202-1626
Facsimile: (410) 659-4535
Any notice given on a banking holiday shall be deemed to have been given on the
next immediate business day. Any party desiring to changes its address for
purposes of notice shall give notice of such change of address in the foregoing
manner and the effective date of such notice of change of address shall be five
calendar days after such notice is given.
18. OBLIGATIONS OF SUCCESSORS. During the period of one year following
the date of this Agreement, Imtek agrees to provide Mike Lowe with reasonable
prior written notice of any contemplated sale of any wholly-owned direct or
indirect subsidiary corporations or any purchase of the major assets or business
of Imtek or its wholly-owned direct or indirect subsidiaries.
19. AUTHORITY. The individuals executing this Agreement personally
warrant and represent to all other signatories hereto their actual authority to
execute this Agreement.
20. ENTIRE AGREEMENT.
8
<PAGE>
(a) This Agreement supersedes and terminates all contracts,
negotiations and understandings between the parties. The parties understand and
agree that all terms of this Agreement are contractual and are not a mere
recital, and represent and warrant that they are competent and possess the full
and complete authority to covenant and agree as herein provided.
(b) Employees understand, agree, and represent that the
covenants made herein and the releases herein executed may affect rights and
liabilities of Employees to a substantial extent, and agree that the covenants
and releases provided herein are in their best interest on the date hereof.
Employees represent and warrant that, in negotiating and executing this
Agreement, they have had an adequate opportunity to consult with competent
counsel or other representatives of their choosing concerning the meaning and
effect of each term and provision hereof, and that there are no representations,
promises or agreements other than those expressly set forth in writing herein.
(c) The parties have carefully read this Agreement in its
entirety, fully understand and agree to its terms and conditions, intend and
agree that it is final and binding and understand that, in the event of a
breach, either party may seek relief, including damages, restitution and
injunctive relief, at law or in equity, in a court of competent jurisdiction.
21. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Maryland, without regard to its choice of law
provisions.
IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed the foregoing Severance Agreement and General Release this 16th day of
August, 1999. This Agreement may be signed in counterparts, each of which shall
be deemed an original and which shall together constitute but one instrument.
This Agreement shall be deliverable by facsimile.
AUGUST 16, 1999 /s/ Michael L. Lowe
- ------------------------------- ----------------------------
Date MICHAEL L. LOWE
AUGUST 16, 1999 /s/ Karen W. Lowe
- ------------------------------- ----------------------------
Date KAREN W. LOWE
AUGUST 16, 1999 IMTEK OFFICE SOLUTIONS, INC.
- -------------------------------
Date
By: /s/Robert Hoover
------------------------
Name: Robert Hoover
Title: President
9
<PAGE>
Exhibit 10.9.1
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 29th day of May,
1998, is made and entered into on the terms and conditions hereinafter set
forth, by and between IMTEK OFFICE SOLUTIONS, INC., a Delaware corporation, (the
"Parent Company"), IMTEK CORPORATION, a Maryland corporation ("Imtek
Corporation"), IMTEK SERVICES CORPORATION, a Maryland corporation ("Imtek
Services Corporation") and IMTEK FUNDING CORPORATION, a Maryland corporation
("Imtek Funding Corporation"; Parent Company, Imtek Corporation, Imtek Services
Corporation and Imtek Funding Corporation are referred to herein from time to
time individually as a "Borrower" and collectively as the "Borrowers"), and
SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Lender").
RECITALS:
WHEREAS, Borrowers have requested that Lender make available to
Borrowers a term loan in the original principal amount of Six Million Dollars
($6,000,000) (the "Loan") on the terms and conditions hereinafter set forth, and
for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrowers,
Borrowers have made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrowers, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:
1
<PAGE>
ARTICLE 1
THE LOAN
1.1 EVIDENCE OF LOAN INDEBTEDNESS AND REPAYMENT. Subject to the terms
and conditions contained herein, the Lender shall make the Loan to Borrowers by
wire transfer in immediately available funds. The Loan shall be advanced to
Borrowers in five (5) advances (individually, an "Advance" and collectively, the
"Advances"). The first Advance shall be in the principal amount of $815,000 and
shall be made on the date hereof. The subsequent Advances shall be in increments
of $500,000. Lender's obligation to fund the subsequent Advances shall be
subject to the conditions set forth in Section 4.2. In no event shall the
subsequent Advances be made after November 30, 1999. The Loan shall be evidenced
by a Secured Promissory Note in the original principal amount of Six Million
Dollars ($6,000,000), dated as of the date thereof executed by Borrowers in
favor of Lender (the "Note"). The Loan shall be payable in accordance with the
terms of the Note. The Note, this Agreement and any other instruments and
documents executed by Borrowers, any guarantor of Borrowers, or any shareholder,
member, partner, subsidiary or affiliate of Borrowers ("Affiliates"), now or
hereafter evidencing, securing or in any way related to the indebtedness
evidenced by the Note are herein individually referred to as a "Loan Document"
and collectively referred to as the "Loan Documents." The term "Obligations" as
used herein shall refer to (a) the Loan to be made concurrently or in connection
with this Agreement, as evidenced by the Note, and any renewals or extensions
thereof, (b) the full and prompt payment and performance of any and all other
indebtednesses and other obligations of Borrowers to Lender, direct or
contingent (including but not limited to obligations incurred as indorser,
guarantor or surety), however evidenced or denominated, and however and whenever
incurred, including but not limited to indebtednesses incurred pursuant to any
present or future commitment of Lender to Borrowers and (c) all future advances
made by Lender for taxes, levies, insurance and preservation of the Collateral
and all attorneys' fees, court costs and expenses of whatever kind incident to
the collection of any of said indebtedness or other obligations and the
enforcement and protection of the security interest created hereby or by the
other Loan Documents.
1.2 PROCESSING FEE. Borrowers shall pay Lender a processing fee of One
Hundred Twenty Thousand Dollars ($120,000), Sixty Thousand Dollars ($60,000) of
which has previously been paid to Lender and Sixty Thousand Dollars ($60,000) of
which shall be paid on the date the Loan is funded.
1.3 PREPAYMENT. Borrowers may prepay the indebtedness evidenced by the
Note in whole or in part at any time and from time to time, without penalty or
premium.
1.4 PURPOSES OF LOAN AND USE OF PROCEEDS. The purpose of the Loan shall
be to finance the acquisition by Borrowers of companies in the same line of
business as presently conducted by Borrowers and to provide additional working
capital to Borrowers.
2
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 BORROWER'S REPRESENTATIONS. Each Borrower hereby represents and
warrants to Lender as follows:
(a) CORPORATE STATUS. The Parent Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. Each of the Borrowers other than Parent Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Maryland. Each Borrower has the corporate
power to own and operate its properties, to carry on its business as
now conducted and to enter into and to perform its obligations under
this Agreement and the other Loan Documents to which it is a party.
Each Borrower is duly qualified to do business and in good standing in
each state in which a failure to be so qualified would have a material
adverse effect on such Borrower's financial condition or its ability to
conduct its business in the manner now conducted.
(b) SUBSIDIARIES. Schedule 2.1(b) hereto is a complete list of
each corporation, partnership, joint venture or other business
organization (the "Subsidiary" or, with respect to all such
organizations, the "Subsidiaries") in which each Borrower or any
Subsidiary owns, directly or indirectly, any capital stock or other
equity interest, or with respect to which each Borrower or any
Subsidiary, alone or in combination with others, is in a control
position, which list shows the jurisdiction of incorporation or other
organization and the percentage of stock or other equity interest of
each Subsidiary owned by such Borrower. Each Subsidiary which is a
corporation is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and is duly
qualified to transact business as a foreign corporation and is in good
standing in the jurisdictions listed in Schedule 2.1(b), which are the
only jurisdictions in which a failure to be so qualified would have a
material adverse effect on such Subsidiary's financial condition or its
ability to conduct its business in the manner now conducted. Each
Subsidiary which is not a corporation is duly organized and validly
existing under the laws of the jurisdiction of its organization. The
outstanding capital stock of each Subsidiary which is a corporation is
validly issued, fully paid and nonassessable. Each Borrower and its
Subsidiaries have good and valid title to the equity interests in the
Subsidiaries shown as owned by each of them on Schedule 2.1(b), free
and clear of all liens, claims, charges, restrictions, security
interests, equities, proxies, pledges or encumbrances of any kind.
Except where otherwise indicated herein or unless the context otherwise
3
<PAGE>
requires, any reference to Borrowers herein shall include Borrowers and
all of their Subsidiaries.
(c) AUTHORIZATION. Each Borrower has full legal right, power
and authority to conduct its business and affairs. Each Borrower has
full legal right, power and authority to enter into and perform its
obligations under the Loan Documents, without the consent or approval
of any other person, firm, governmental agency or other legal entity.
The execution and delivery of this Agreement, the borrowing hereunder,
the execution and delivery of each Loan Document to which each Borrower
is a party, and the performance by each Borrower of its obligations
thereunder are within the corporate powers of each Borrower and have
been duly authorized by all necessary corporate action properly taken
and each Borrower has received all necessary governmental approvals, if
any, that are required. The officer(s) executing this Agreement, the
Note and all of the other Loan Documents to which each Borrower is a
party are duly authorized to act on behalf of each Borrower.
(d) VALIDITY AND BINDING EFFECT. This Agreement and the other
Loan Documents are the legal, valid and binding obligations of each
Borrower, enforceable in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or the
application of general equitable principles.
(e) CAPITALIZATION. As of the date hereof, the authorized
capital stock of Parent Company consists solely of 250,000,000 shares
of common stock, $.000001 par value per share ("Common Stock"), of
which 7,488,611 shares are issued and outstanding (the "Common Shares")
and 707,914 shares of which are reserved for issuance upon exercise of
the Stock Purchase Warrant dated as of the date hereof and issued to
Lender (the "Warrant") and 500,000 shares of preferred stock, $.01 par
value per share ("Preferred Stock"), of which 6,500 shares are issued
and outstanding (the "Preferred Shares") (the Common Shares and
Preferred Shares are referred to herein collectively as the "Shares");
provided, however, that the number of shares reserved for issuance upon
exercise of the Warrant may be increased from time to time in
accordance with the term of the Warrant. Attached hereto as Schedule
2.1(e) as a table showing the capitalization of Parent Company, as of
the date hereof, on a fully diluted basis. As of the date hereof,
Parent Company does not have outstanding any stock or securities
convertible or exchangeable for any shares of its Common Stock or
Preferred Stock or containing any profit participation features, and
does not have outstanding any rights or options to subscribe for or to
purchase its Common Stock or Preferred Stock or any stock appreciation
rights or phantom stock plans, except as set forth on Schedule 2.1(e)
and the Warrant. Schedule 2.1(e) accurately sets forth the following
with respect to all outstanding options and rights to acquire the
Parent Company's Common Stock or Preferred Stock: (i) the total number
of shares issuable upon exercise of all outstanding options; (ii) the
range of exercise prices for all such outstanding options; (iii) the
4
<PAGE>
number of shares issuable, the exercise price and the expiration date
for each such outstanding option; and (iv) with respect to all
outstanding options, warrants and rights to acquire Parent Company's
capital stock other than the Warrant, the holder, the number of shares
covered, the exercise price and the expiration date. As of the date
hereof, Parent Company is not subject to any obligation (contingent or
otherwise) to repurchase, redeem, retire or otherwise acquire any
shares of its capital stock or any warrants, options or other rights to
acquire its capital stock, except as set forth in the Warrant or on
Schedule 2.1(e). As of the date hereof, all of the outstanding shares
of Parent Company's capital stock are validly issued, fully paid and
nonassessable. Except as set forth on Schedule 2.1(e), there are no
statutory or contractual preemptive rights, rights of first refusal,
anti-dilution rights or any similar rights, held by stockholders or
option holders of Parent Company, with respect to the issuance of the
Warrant or the issuance of the Common Stock upon exercise of the
Warrant and all such rights have been effectively waived with regard to
the issuance of the Warrant, the exercise of the Warrant and the
issuance of the Common Stock upon exercise of the Warrant. Except as
set forth on Schedule 2.1(e), Parent Company has not violated any
applicable federal or state securities laws in connection with the
offer, sale or issuance of any of its capital stock, and the offer,
sale and issuance of the Warrant hereunder do not require registration
under the Securities Act of 1933, as amended, or any applicable state
securities laws. To the best of Parent Company's knowledge, there are
no agreements among Parent Company's shareholders with respect to any
other aspect of Borrowers' affairs, except as set forth on Schedule
2.1(e). The Parent Company owns all of the issued and outstanding
shares of capital stock of each of the other Borrowers.
(f) TRADEMARKS, PATENTS, ETC. Schedule 2.1(f) is an accurate
and complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses,
formulas and applications therefor owned by each Borrower or used or
required by each Borrower in the operation of its business, title to
each of which is, except as set forth in Schedule 2.1(f) hereto, held
by such Borrower free and clear of all adverse claims, liens, security
agreements, restrictions or other encumbrances. Except as set forth in
Schedule 2.1(f), each Borrower owns or possesses adequate (and will use
its best
5
<PAGE>
efforts to obtain as expediently as possible any additional) licenses
or other rights to use all patents, trademarks, trade names, service
marks, trade secrets or other intangible property rights and know-how
necessary to entitle such Borrower to conduct its business as presently
being conducted. There is no infringement action, lawsuit, claim or
complaint which asserts that any Borrower's operations violate or
infringe the rights or the trade names, trademarks, trademark
registrations, service names, service marks or copyrights of others
with respect to any apparatus or method of such Borrower or any
adversely held trademarks, trade names, trademark registrations,
service names, service marks or copyrights, and no Borrower is in any
way making use of any confidential information or trade secrets of any
person, except with the consent of such person. Except as set forth in
Schedule 2.1(f), each Borrower has taken reasonable steps to protect
its proprietary information (except disclosure of source codes pursuant
to licensing agreements) and is the lawful owner of the proprietary
information free and clear of any claim of any third party. As used
herein, "proprietary information" includes without limitation, (i) any
computer programming language, software, hardware, firmware or related
documentation, inventions, technical and nontechnical data related
thereto, and (ii) other documentation, inventions and data related to
patterns, plans, methods, techniques, drawings, finances, customer
lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used
by any Borrower or marketing studies conducted by any Borrower, all of
which such Borrower considers to be commercially important and
competitively sensitive and which generally has not been disclosed to
third parties.
(g) NO CONFLICTS. Consummation of the transactions
contemplated hereby and the performance of the obligations of each
Borrower under and by virtue of the Loan Documents do not conflict
with, and will not result in any breach of, or constitute a default or
trigger a lien under, any mortgage, security deed or agreement, deed of
trust, lease, bank loan or credit agreement, corporate charter or
bylaws, agreement or certificate of limited partnership, partnership
agreement, license, franchise or any other instrument or agreement to
which any Borrower is a party or by which any Borrower or its
respective properties may be bound or affected or to which any Borrower
has not obtained an effective waiver which conflict, breach, default or
lien would have a material adverse effect on any Borrower's financial
condition or its ability to conduct its business in the manner now
conducted.
(h) LITIGATION. There are no actions, suits, arbitrations,
administrative hearings or other proceedings pending, or, to the
knowledge of each Borrower threatened, against or affecting any
Borrower or any of such Borrower's property or involving the validity
or enforceability of any of the Loan Documents at law or in equity, or
before any governmental or administrative agency. To each Borrower's
knowledge, such Borrower is not subject to any order, writ, injunction,
decree or demand of any court or any governmental authority.
6
<PAGE>
(i) FINANCIAL STATEMENTS. The financial statements of
Borrowers dated March 31, 1998, which are attached hereto as Schedule
2.1(i)(A), are true and correct in all material respects, have been
prepared on the basis of generally accepted accounting principles
consistently applied, and fairly present the financial condition of any
Borrower as of the date(s) thereof. No material adverse change has
occurred in the financial condition of any Borrower since the date(s)
thereof, and no additional borrowings have been made by any Borrower
since the date(s) thereof other than as set forth on Schedule
2.1(i)(B).
(j) OTHER AGREEMENTS; NO DEFAULTS. No Borrower is a party to
any indenture, loan or credit agreement, lease or other agreement or
instrument, or subject to any charter or corporate restriction, that
could have a material adverse effect on the business, properties,
assets, operations or conditions, financial or otherwise, of any
Borrower, or the ability of any Borrower to carry out its obligations
under the Loan Documents to which it is a party. No Borrower is in
default in any respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any
agreement or instrument material to its business to which it is a
party, including but not limited to this Agreement and the other Loan
Documents, and no other default or event has occurred and is continuing
that with notice or the passage of time or both would constitute a
default or event of default under any of same.
(k) COMPLIANCE WITH LAW. Each Borrower has obtained all
necessary material licenses, permits and approvals and authorizations
necessary or required in order to conduct its business and affairs as
heretofore conducted and as hereafter intended to be conducted. Each
Borrower is in compliance with all laws, regulations, decrees and
orders applicable to it (including but not limited to laws,
regulations, decrees and orders relating to environmental, occupational
and health standards and controls, antitrust, monopoly, restraint of
trade or unfair competition), except to the extent that any
noncompliance, in the aggregate, cannot reasonably be expected to have
a material adverse effect on its business, operations, property or
financial condition and will not materially adversely affect such
Borrower's ability to perform its obligations under the Loan Documents.
(l) DEBT. Schedule 2.1(l) is a complete and correct list of
all credit agreements, indentures, purchase agreements, promissory
notes and other evidences of indebtedness, guaranties, capital leases
and other instruments, agreements and arrangements presently in effect
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which each Borrower or any of its
properties is in any manner directly or contingently obligated and the
maximum principal or face amounts of the credit in question that are
outstanding and that can be outstanding are correctly stated, and all
7
<PAGE>
liens of any nature given or agreed to be given as security therefor
are correctly described or indicated in Schedule 2.1(l).
(m) TAXES. Each Borrower has filed or caused to be filed all
tax returns that are required to be filed (except for returns that have
been appropriately extended), and has paid, or will pay when due, all
taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on it by any
governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith
by appropriate proceedings, for which appropriate amounts have been
reserved). No tax liens have been filed against any Borrower or any of
its property.
(n) CERTAIN TRANSACTIONS. Except as set forth on Schedule
2.1(n) hereto, no Borrower is indebted, directly or indirectly, to any
of its shareholders, officers or directors or to their respective
spouses or children, in any amount whatsoever, and none of said
shareholders, officers or directors or any members of their immediate
families, are indebted to any Borrower or have any direct or indirect
ownership interest in any firm or corporation with which any Borrower
has a business relationship, or any firm or corporation which competes
with any Borrower, except that shareholders, officers and/or directors
of each Borrower may own no more than 4.9% of outstanding stock of
publicly traded companies which may compete with any Borrower. No
shareholder, officer or director or any member of their immediate
families of any Borrower, is, directly or indirectly, interested in any
material contract with any Borrower. No Borrower is a guarantor or
indemnitor of any indebtedness of any other person, firm, corporation
or other legal entity.
(o) STATEMENTS NOT FALSE OR MISLEADING. No representation or
warranty given as of the date hereof by any Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by any Borrower to Lender pursuant hereto, taken as a whole, contains
or will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading.
(p) MARGIN REGULATIONS. No Borrower is engaged in the business
of extending credit for the purpose of purchasing or carrying margin
stock. No proceeds received pursuant to this Agreement will be used to
purchase or carry any equity security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
(q) SIGNIFICANT CONTRACTS. Schedule 2.1(q) is a complete and
correct list of all contracts, agreements and other documents pursuant
to which any Borrower receives revenues in excess of $25,000 per fiscal
8
<PAGE>
year or has committed to make expenditures in excess of $25,000 per
fiscal year. Each such contract, agreement and other document is in
full force and effect as of the date hereof and no Borrower knows of
any reason why such contracts, agreements and other documents would not
remain in full force and effect pursuant to the terms thereof.
(r) ENVIRONMENT. Each Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder. Each Borrower has
been issued and will maintain all required federal, state and local
permits, licenses, certificates and approvals relating to (i) air
emissions; (ii) discharges to surface water or groundwater; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (which shall include any and all such materials
listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder as hazardous or
potentially hazardous); or (vi) other environmental, health or safety
matters. No Borrower has received notice of, or knows of, or suspects
facts which might constitute any violations of any federal, state or
local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder with respect to its
businesses, operations, assets, equipment, property, leaseholds, or
other facilities. Except in accordance with a valid governmental
permit, license, certificate or approval, there has been no emission,
spill, release or discharge into or upon (i) the air; (ii) soils, or
any improvements located thereon; (iii) surface water or groundwater;
or (iv) the sewer, septic system or waste treatment, storage or
disposal system servicing the premises. There has been no complaint,
order, directive, claim, citation or notice by any governmental
authority or any person or entity with respect to (i) air emissions;
(ii) spills, releases or discharges to soils or improvements located
thereon, surface water, groundwater or the sewer, septic system or
waste treatment, storage or disposal systems servicing the premises;
(iii) noise emissions; (iv) solid or liquid waste disposal; (v) the
use, generation, storage, transportation or disposal of toxic or
hazardous substances or waste; or (vi) other environmental, health or
safety matters affecting any Borrower or its business, operations,
assets, equipment, property, leaseholds or other facilities. No
Borrower has any indebtedness, obligation or liability (absolute or
contingent, matured or not matured), with respect to the storage,
treatment, cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation any
such indebtedness, obligation, or liability with respect to any current
regulation, law or statute regarding such storage, treatment, cleanup
or disposal).
(s) FEES/COMMISSIONS. Except as set forth in Schedule 2.1(s),
no Borrower has agreed to pay any finder's fee, commission, origination
fee (except for the processing and commitment fees due pursuant to
9
<PAGE>
Section 1.2 hereof) or other fee or charge to any person or entity with
respect to the Loan and investment transactions contemplated hereunder.
(t) ERISA. Each Borrower is in compliance in all material
respects with all applicable provisions of Title IV of the Employee
Retirement Income Security Act of 1974, Pub. L. No. 93-406, September
2, 1974, 88 Stat. 829, 29 U.S.C.A. 1001 et seq. (1975), as amended
form time to time ("ERISA"). Neither a reportable event nor a
prohibited transaction (as defined in ERISA) has occurred and is
continuing with respect to any pension plan that is subject to the
requirements of ERISA (a "Plan"); no notice of intent to terminate a
Plan has been filed nor has any Plan been terminated; no circumstances
exist which constitute grounds entitling the Pension Benefit Guaranty
Corporation (together with any entity succeeding to or all of its
functions, the "PBGC") to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted
any such proceedings; no Borrower nor any commonly controlled entity
(as defined in ERISA) has completely or partially withdrawn from a
multiemployer plan (as defined in ERISA); each Borrower and each
commonly controlled entity has met its minimum funding requirements
under ERISA with respect to all of its Plans and the present fair
market value of all Plan property exceeds the present value of all
vested benefits under each Plan, as determined on the most recent
valuation date of the Plan and in accordance with the provisions of
ERISA and the regulations thereunder for calculating the potential
liability of any Borrower or any commonly controlled entity to the PBGC
or the Plan under Title IV or ERISA; and no Borrower nor any commonly
controlled entity has incurred any liability to the PBGC under ERISA.
(u) TITLE TO PROPERTIES. Each Borrower has good, indefeasible
and insurable title to, or valid leasehold interests in, all its real
properties and good title to its other assets, free and clear of all
liens other than Permitted Liens (as defined in Section 3.15 hereof).
(v) LIMITED OFFERING OF NOTE AND WARRANT. No Borrower nor
anyone acting on its behalf has offered the Note, the Warrant or any
similar securities for sale to, or solicited any offer to buy any of
the same from, or otherwise approached or negotiated in respect
thereof, with, any person other than Lender and not more than 35 other
institutional investors. No Borrower nor anyone acting on its behalf
has taken, or will take, any action which would subject the issuance or
sale of the Note and Warrant to Section 5 of the Securities Act of
1933, as amended, or the registration or qualification provisions of
the blue sky laws of any state.
(w) REGISTRATION RIGHTS. Except as described in the Warrant,
no Borrower is under any obligation to register under the Securities
Act of 1933, as amended, or the Trust Indenture Act of 1939, as
amended, any of its presently outstanding securities or any of its
securities that may subsequently be issued.
10
<PAGE>
(x) EMPLOYEES. No Borrower has current labor problems or
disputes which have resulted or which such Borrower reasonably believes
could be expected to have a material adverse effect on the operations,
properties or financial condition of such Borrower, or such Borrower's
ability to perform its obligations hereunder.
(y) ISSUANCE TAXES. All taxes imposed on any Borrower in
connection with the issuance, sale and delivery of the Note, the
Warrant and the capital stock issuable upon exercise of the Warrant
have been or will be fully paid, and all laws imposing such taxes have
been or will be fully satisfied by Borrowers.
(z) SOLVENCY. As of the date hereof and giving effect to the
making of the Loan, each Borrower (i) has capital sufficient to carry
on its business and transactions and all business and transactions in
which it is about to engage and is able to pay its debts as they
mature, (ii) owns property having a value, both at fair valuation and
at present fair saleable value, greater than the amount required to pay
its probable liabilities (including contingencies), and (iii) does not
believe that it will incur debts or liabilities beyond its ability to
pay such debts or liabilities as they mature.
(aa) LOCATION OF PROPERTIES, PLACES OF BUSINESS. The only
jurisdictions in which each Borrower maintains any tangible personal
property or carries on business are as listed in Schedule 2.1(aa)
hereto. All billings for the supply of goods and services by each
Borrower are made from, and require payment to be made to, the chief
executive office of such Borrower. Except as set forth on Schedule
2.1(aa), no Borrower has, during the five years preceding the date of
this Agreement, been known as or used any other corporate, trade or
fictitious name, nor acquired all or substantially all of the assets,
capital stock or operating units of any person. No Borrower has, during
the five years preceding the date of this Agreement, had a business
location at any address other than addresses set forth on Schedule
2.1(aa).
(bb) YEAR 2000 COMPATIBILITY. Each Borrower has reviewed its
financial accounting systems and other computer systems for year 2000
compatibility and has not identified any issued that could have a
material adverse effect on such Borrower's business, operations,
property or financial condition.
11
<PAGE>
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrowers covenant and agree, jointly and severally, that during the
term of this Agreement:
3.1 PAYMENT OF OBLIGATIONS. Borrowers shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Borrowers to
Lender, direct or contingent, however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtedness incurred pursuant
to any present or future commitment of Lender to Borrowers, together with
interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof.
3.2 FINANCIAL STATEMENTS AND REPORTS. Parent Company shall furnish to
Lender (a) as soon as practicable and in any event within ninety (90) days after
the end of each fiscal year of Parent Company, (or within such a later period as
may be granted by the Securities and Exchange Commission), an audited
consolidated and consolidating balance sheet of Borrowers as of the close of
such fiscal year, an audited consolidated and consolidating statement of
operations of Borrowers as of the close of such fiscal year and an audited
consolidated and consolidating statement of cash flows for Borrowers for such
fiscal year, prepared in accordance with generally accepted accounting
principles consistently applied and accompanied by an unqualified audit report
prepared by an independent certified public accountant acceptable to Lender
showing the financial condition of Borrowers at the close of such fiscal year
and the results of their operations during such fiscal year and accompanied by a
certificate of the President of Parent Company, stating that to the best of the
knowledge of such officer, each Borrower has kept, observed, performed and
fulfilled each covenant, term and condition of this Agreement and the other Loan
Documents during the preceding fiscal year and that no Event of Default has
occurred and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action such Borrower proposes to take in connection therewith), (b) within
thirty (30) days of the end of each calendar month, a status report indicating
the financial performance of each Borrower during such month and the financial
position of each Borrower as of the end of such month in the format required by
Lender (which format will be delivered to Borrowers on a diskette), (c) within
thirty (30) days of the end of each quarter, a consolidated and consolidating
balance sheet of Borrowers as of the close of such quarter and a consolidated
and consolidating statement of operations of Borrowers as of the close of such
quarter, all in reasonable detail, and prepared substantially in accordance with
generally accepted accounting principles consistently applied (except for the
absence of footnotes and subject to year-end adjustments), and (d) with
reasonable promptness, such other financial data, including without limitation,
accounts receivable agings, as Lender may reasonably request. Without Lender's
prior written consent, no Borrower shall modify or change any accounting
policies or procedures, including such Borrower's fiscal year, in effect on the
date hereof.
12
<PAGE>
3.3 MAINTENANCE OF BOOKS AND RECORDS; INSPECTION. Each Borrower shall
maintain its books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and after reasonable notice from
Lender permit Lender, its officers and employees and any professionals
designated by Lender in writing, at such Borrower's expense, to visit and
inspect any of its properties, corporate books and financial records, and to
discuss its accounts, affairs and finances with such Borrower or the principal
officers of such Borrower during reasonable business hours, all at such times as
Lender may reasonably request; provided that no such inspection shall materially
interfere with the conduct of such Borrower's business.
3.4 INSURANCE. Without limiting any of the requirements of any of the
other Loan Documents, each Borrower shall maintain, in amounts customary for
entities engaged in comparable business activities, (a) to the extent required
by applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to be
unreasonably withheld or delayed), and (b) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts as
are customary in such Borrower's business. Each Borrower will make reasonable
efforts to obtain and maintain public liability insurance in an amount, and at a
cost, deemed reasonable to such Borrower's Board of Directors. At the request of
Lender, Borrowers will deliver forthwith a certificate specifying the details of
such insurance in effect.
3.5 TAXES AND ASSESSMENTS. Each Borrower shall (a) file all tax returns
and appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (b) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon such Borrower upon
its income and profits or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and (c) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that any Borrower in good faith
may contest any such tax, assessment, governmental charge or levy described in
the foregoing clauses (b) and (c) so long as appropriate reserves in accordance
with generally accepted accounting principles are maintained with respect
thereto.
3.6 CORPORATE EXISTENCE. Each Borrower shall maintain its corporate
existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in each jurisdiction in
which a failure to be so qualified would have a material adverse effect on such
Borrower's financial condition or its ability to conduct its business in the
manner now conducted.
3.7 COMPLIANCE WITH LAW AND OTHER AGREEMENTS. Except where the failure
to do so would not materially adversely affect a Borrower's operations,
properties, financial condition or its ability to fulfill its obligations under
the Loan Documents, each Borrower shall maintain its business operations and
property owned or used in connection therewith in
13
<PAGE>
compliance with (a) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, and (b) all agreements, licenses, franchises, indentures and
mortgages to which each Borrower is a party or by which each Borrower or any of
its properties is bound. Without limiting the foregoing, each Borrower shall pay
all of its indebtedness promptly in accordance with the terms thereof.
3.8 NOTICE OF DEFAULT; PERCEIVED BREACH. Borrowers shall give written
notice to Lender of the occurrence of any default, event of default or Event of
Default under this Agreement or any other Loan Document promptly upon the
occurrence thereof. Borrowers agree to give Lender prompt written notice of any
action or inaction by or on behalf of Lender in connection with this Agreement
or the Obligations that Borrowers believe may be actionable against Lender or a
defense to payment of any or all Obligations for any reason, including, but not
limited to, commission of a tort or violation of any contractual duty or duty
implied by law.
3.9 NOTICE OF LITIGATION. Borrowers shall give notice, in writing, to
Lender of (a) any actions, suits or proceedings, instituted by any persons
whomsoever against any Borrower or affecting any of the assets of Borrowers
wherein the amount at issue is in excess of Twenty-Five Thousand and No/100ths
Dollars ($25,000.00) and (b) any dispute, not resolved within sixty (60) days of
the commencement thereof, between any Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might materially
interfere with the normal operations of any Borrower.
3.10 CONDUCT OF BUSINESS. Each Borrower will continue to engage in a
business of the same general type and manner as conducted by it on the date of
this Agreement. Without ten (10) days' prior written notice to Lender, no
Borrower shall change its name or its location(s) of doing business. In the
event any Borrower makes a change of its name or location of business, such
Borrower shall promptly execute any and all financing statements, and amendments
or continuations thereof and any other documents that Lender may reasonably
request to evidence, continue, and/or perfect any security interest in or pledge
of collateral securing the Loan.
3.11 ERISA PLAN. If any Borrower has in effect, or hereafter
institutes, a Plan that is subject to the requirements of ERISA, then the
following warranty and covenants shall be applicable during such period as any
such Plan shall be in effect: (a) such Borrower hereby warrants that no fact
that might constitute grounds for the involuntary termination of the Plan, or
for the appointment by the appropriate United States District Court of a trustee
to administer the Plan, exists at the time of execution of this Agreement; (b)
such Borrower hereby covenants that throughout the existence of the Plan, such
Borrower's contributions under the Plan will meet the minimum funding standards
required by ERISA and such Borrower will not institute a distress termination of
the Plan; and (c) such Borrower covenants that it will send to Lender a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the Pension Benefit Guaranty Corporation, at
the time that such notice is so filed.
14
<PAGE>
3.12 DIVIDENDS, DISTRIBUTIONS, STOCK RIGHTS, ETC. Without the prior
written consent of Lender, no Borrower shall declare or pay any dividend of any
kind (other than stock dividends payable to all holders of any class of capital
stock), in cash or in property, on any class of the capital stock of any
Borrower, or purchase, redeem, retire or otherwise acquire for value any shares
of such stock, nor make any distribution of any kind in cash or property in
respect thereof, nor make any return of capital of shareholders, nor make any
payments in cash or property in respect of any stock options, stock bonus or
similar plan nor grant any preemptive rights with respect to the capital stock
of any Borrower.
3.13 GUARANTIES; LOANS; PAYMENT OF DEBT. Without the prior written
consent of Lender, no Borrower shall guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness of any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to any Borrower for deposit or collection in the ordinary course of
business. Without the prior written consent of Lender, no Borrower shall (a)
make any loan, advance or extension of credit to any person other than in the
normal course of its business, or (b) make any payment on any subordinated debt
other than trade payables incurred in the ordinary course of such Borrower's
business.
3.14 DEBT. Without the prior written consent of Lender, no Borrower
shall create, incur, assume or suffer to exist indebtedness of any description
whatsoever, excluding:
(a) the indebtedness evidenced by the Note;
(b) the endorsement of negotiable instruments payable to any
Borrower for deposit or collection in the ordinary course of business;
(c) trade payables incurred in the ordinary course of business
(each of which, individually, does not exceed $100,000);
(d) indebtedness incurred in connection with a lien permitted
under Section 3.15(c) below;
(e) first lien indebtedness against any assets of Borrowers or
their affiliates, such indebtedness not to exceed four (4) times the
EBITDA (as such term is defined below) of Borrowers, on a consolidated
basis, for the previous fiscal year without the prior written consent
of Lender; and
(f) the indebtedness listed on Schedule 2.1(l) hereto.
For purposes of this Loan Agreement, the term "EBITDA" shall mean net
income PLUS interest expense PLUS income taxes PLUS depreciation expenses PLUS
amortization expenses, all determined in accordance with generally accepted
accounting principals consistently applied.
15
<PAGE>
3.15 NO LIENS. Without prior the written consent of Lender, no Borrower
shall create, incur, assume or suffer to exist any lien, security interest,
security title, mortgage, deed of trust or other encumbrance upon or with
respect to any of its assets, now owned or hereafter acquired, except the
following permitted liens (the "Permitted Liens"):
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental
charges or levies if not yet due and payable;
(c) liens on leased or financed equipment granted in
connection with the leasing or financing of such equipment in favor of
the lessor or Seller of such equipment;
(d) liens described on Schedule 2.1(l) hereto.
(e) liens securing indebtedness permitted under Section
3.14(e) above.
3.16 MERGERS, CONSOLIDATIONS, ACQUISITIONS AND SALES. Without the prior
written consent of Lender, no Borrower shall (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, or lease all or any substantial part of its assets, nor (d) create any
Subsidiaries nor convey any of its assets to any Subsidiary. Lender hereby
consents to any transaction described in item (a) above if: (i) a Borrower is
the surviving entity; (ii) the transaction involves a company or companies in
the same line of business as presently conducted by Borrowers; and (iii) and any
affiliates of Borrowers resulting from the transaction becomes bound by the
terms of this Agreement and such other agreements as Lender may reasonably
require and grants Lender at least a second priority lien against each such
affiliate's assets. Lender hereby consents to a transaction described in item
(b) above if: (i) the transaction is related to the same line of business as
presently conducted by Borrowers; (ii) Lender is granted at least a second
priority security interest in the acquired assets; and (iii) any affiliates of
Borrowers resulting from the transaction become bound by the terms of this
Agreement and such other agreements as Lender may reasonably require. Lender
hereby consents to any transaction described in item (d) above if the Subsidiary
(i) is in the same line of business as presently conducted by Borrowers; (ii)
Lender is granted at least a second priority interest in the assets of the
Subsidiary; and (iii) the Subsidiary becomes bound by the terms of this
Agreement and any other agreement as may be reasonably required by Lender.
Notwithstanding anything to the contrary contained in this Agreement, without
Lender's prior written consent, Borrowers shall not engage in any transaction
contemplated by this Section 3.16 if the value of the transaction exceeds
$3,000,000.
16
<PAGE>
3.17 TRANSACTIONS WITH AFFILIATES. No Borrower shall enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of a Borrower's
business and upon fair and reasonable terms no less favorable to such Borrower
than such Borrower would obtain in a comparable arm's length transaction with a
person not an affiliate. For the purposes of this Section 3.17, "affiliate"
shall mean a person, corporation, partnership or other entity controlling,
controlled by or under common control with a Borrower.
3.18 EMPLOYMENT CONTRACTS. Without the prior written consent of Lender,
no Borrower shall (a) enter into any employment agreement or other written
compensation agreement that has a term of greater than one year with any of such
Borrower's executive officers or (b) increase total compensation paid to the
executive officers of Borrowers by more than ten percent (10%) per year.
3.19 ENVIRONMENT. Each Borrower shall be and remain in compliance with
the provisions of all material federal, state and local environmental, health,
and safety laws, codes and ordinances, and all rules and regulations issued
thereunder; notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
its premises; immediately contain and remove the same, in compliance with all
applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at
Lender's request, and at such Borrower's expense, provide a report of a
qualified environmental engineer, satisfactory in scope, form, and content to
Lender, and such other and further assurances reasonably satisfactory to Lender
that the condition has been corrected.
3.20 LANDLORD CONSENTS. Each Borrower shall use its best efforts to
obtain a Landlord Consent and Subordination of Lien, in a form reasonably
satisfactory to Lender, from each landlord from whom such Borrower now or
hereafter may lease space.
3.21 ISSUANCE OF CAPITAL STOCK. Without the prior written consent of
Lender, no Borrower shall issue any shares of capital stock of such Borrower or
securities convertible into or exercisable for shares of capital stock of such
Borrower.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 CLOSING OF THE LOAN. The obligation of Lender to fund the Loan on
the date hereof (the "Closing Date") is subject to the fulfillment, on or prior
to the Closing Date, of each of the following conditions:
17
<PAGE>
(a) Borrowers shall have performed and complied in all
material respects with all of the covenants, agreements, obligations
and conditions required by this Agreement.
(b) Lender shall have received an opinion of the Borrowers'
counsel, McGuire, Woods, Battle & Boothe, LLP, dated the Closing Date,
in form and substance satisfactory to Lender's counsel, Chambliss,
Bahner & Stophel, P.C.
(c) Borrowers shall have delivered to Lender a Note executed
by Borrowers, in form and substance satisfactory to Lender.
(d) Borrowers shall have delivered to Lender a Stock Purchase
Warrant executed by Parent Company, in form and substance satisfactory
to Lender, and the related Warrant Valuation Letter executed by Parent
Company.
(e) Borrowers shall have delivered to Lender a Security
Agreement and related UCC-1 Financing Statement(s), executed by
Borrowers, all in form and substance satisfactory to Lender.
(f) Borrowers shall have delivered to Lender a Pledge and
Security Agreement and related stock certificates, stock powers and
voting proxies, executed by Parent Company, in form and substance
satisfactory to Lender.
(g) Borrowers shall have delivered to Lender an Intellectual
Property Security Agreement executed by Borrowers and related UCC-1
Financing Statement(s), all in form and substance satisfactory to
Lender.
(h) Borrowers shall have delivered to Lender a Landlord's
Consent and Subordination of Lien, executed by each of Borrowers'
landlords, in form and substance satisfactory to Lender.
(i) Borrowers shall have delivered to Lender an Authorization
Agreement for Pre-Authorized Payments (Debit) executed by Borrowers, in
form and substance satisfactory to Lender.
(j) Borrowers shall have delivered to Lender copies of the
corporate charter and other publicly filed organizational documents of
each Borrower, certified by the Secretary of State or other appropriate
public official in the jurisdiction in which each Borrower is
incorporated.
(k) Borrowers shall have delivered to Lender certified (as of
the date of this Agreement) copies of all corporate action taken by
each Borrower, including resolutions of its Board of Directors,
authorizing the execution, delivery and performance of the Loan
Documents.
18
<PAGE>
(l) Borrowers shall have delivered to Lender a certificate as
to the legal existence and good standing of each Borrower, issued by
the Secretary of State or other appropriate public official in the
jurisdiction in which such the Borrower is incorporated.
(m) Borrowers shall have delivered to Lender certificates of
the Secretaries of State or other appropriate public officials as to
each Borrower's qualification to do business and good standing in each
jurisdiction in which a failure to be so qualified would have a
material adverse effect on its financial condition or its ability to
conduct its business in the manner now conducted and as hereafter
intended to be conducted.
(n) Borrowers shall have delivered to Lender a BIDCO Report
completed and executed by Borrowers (in form and substance acceptable
to Lender).
4.2 SUBSEQUENT ADVANCES. The obligation of Lender to fund the
subsequent Advance on the date of such Advance is subject to the fulfillment, on
or prior to such date, of each of the following conditions:
(a) An Event of Default (as herein defined) shall not have
occurred and be continuing.
(b) Borrowers shall have delivered a Closing Certificate (in a
form reasonably acceptable to Lender), executed by Borrowers.
(c) Borrowers shall have delivered to Lender an Authorization
Agreement for Pre-Authorized Payments (Debit) executed by Borrowers, in
form acceptable to Lender.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest on
the indebtedness evidenced by the Note in accordance with the terms of
the Note, which default is not cured within five (5) days;
(b) Any misrepresentation by Borrowers, any guarantor of the
Loan, or any Affiliate as to any material matter hereunder or under any
of the other Loan Documents, or delivery by Borrowers of any schedule,
statement, resolution, report, certificate, notice or writing to Lender
that is untrue in any material respect on the date as of which the
facts set forth therein are stated or certified;
(c) Failure of Borrowers, any guarantor of the Loan, or any
Affiliate to perform any of its obligations, covenants or agreements
under this Agreement, the Note or any of the other Loan Documents;
19
<PAGE>
(d) Any Borrower (i) shall generally not pay or shall be
unable to pay its debts as such debts become due, or (ii) shall make an
assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for it
or a substantial part of its assets, or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it that is not dismissed within sixty (60) days, or
(v) shall indicate, by any act or intentional and purposeful omission,
its consent to, approval of or acquiescence in any such petition,
application, proceeding or order for relief or the appointment of a
custodian, receiver or trustee for it or a substantial part of its
assets, or (vi) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of sixty (60) days or
more;
(e) Any Borrower shall be liquidated, dissolved, partitioned
or terminated, or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under any of the
other Loan Documents and, if subject to a cure right, such default or
event of default shall not be cured within the applicable cure period;
(g) Any Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of any Borrower now or hereafter
owed to Lender;
(h) Any Borrower shall have defaulted and continue to be in
default in the timely payment of or performance of any covenant
relating to any other indebtedness or obligation, which in the
aggregate exceeds Twenty-Five Thousand and No/100ths Dollars
($25,000.00) or materially adversely affects such Borrower's
operations, properties or financial condition, including the
indebtedness owed to any lender which holds a lien against any of such
Borrower's assets which has priority over Lender's lien;
(i) A significant change in the executive staff or management
of any Borrower shall occur; or
(j) Lender in good faith determines that a material adverse
change has occurred in the financial condition or business of
Borrowers.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a "Curable
Default"), the occurrence of such Curable Default shall not constitute an Event
of Default hereunder if such Curable Default is fully cured and/or corrected
within thirty (30) days (ten (10) days, if such
20
<PAGE>
Curable Default may be cured by payment of a sum of money) of notice thereof to
Borrowers given in accordance with the provisions hereof; provided, however,
that this provision shall not require notice to Borrowers and an opportunity to
cure any Curable Default of which any Borrower has had actual knowledge for the
requisite number of days set forth.
5.2 ACCELERATION OF MATURITY; REMEDIES. Upon the occurrence of any
Event of Default described in subsection 5.1(d), the indebtedness evidenced by
the Note as well as any and all other indebtedness of any Borrower to Lender
shall be immediately due and payable in full; and upon the occurrence of any
other Event of Default described above, Lender at any time thereafter may at its
option accelerate the maturity of the indebtedness evidenced by the Note as well
as any and all other indebtedness of any Borrower to Lender; all without notice
of any kind. Upon the occurrence of any such Event of Default and the
acceleration of the maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any and
all rights and remedies possessed by Lender pursuant to the terms of
the Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies
that Lender may now or hereafter possess at law, in equity or by
statute.
5.3 REMEDIES CUMULATIVE; NO WAIVER. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
5.4 PROCEEDS OF REMEDIES. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy or remedies exercised, if none is
specified, or if the remedy is provided by this Agreement, then as follows:
First, to the costs and expenses, including without limitation
reasonable attorneys' fees and disbursements, incurred by Lender in
connection with the exercise of its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole discretion, to
cure the default that has occurred;
21
<PAGE>
Third, to the payment of the Obligations of Borrowers,
including but not limited to the payment of the principal of and
interest on the indebtedness evidenced by the Note, in such order of
priority as Lender shall determine in its sole discretion; and
Fourth, the remainder, if any, to Borrowers or to any other
person lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 TERMINATION OF THIS AGREEMENT. This Agreement shall remain in full
force and effect until the payment in full by Borrowers of the Obligations, at
which time Lender shall cancel the Note and deliver it to Borrowers; provided,
however, that the indemnities provided in Section 7.15 shall survive the
termination of this Agreement.
ARTICLE 7
MISCELLANEOUS
7.1 PERFORMANCE BY LENDER. If Borrowers shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorneys' fees), with interest thereon at the highest
default rate provided in the Note, shall be immediately repaid to Lender by
Borrowers and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
7.2 SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrowers or by or on behalf of Lender shall bind and inure
to the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
7.3 COSTS AND EXPENSES. Borrowers agree to pay all reasonable costs and
expenses incurred by Lender in connection with the making of the Loan, including
but not limited to filing fees, recording taxes and reasonable attorneys' fees,
promptly upon demand of Lender. Borrowers further agree to pay all premiums for
insurance required to be maintained by Borrowers pursuant to the terms of the
Loan Documents and all of the out-of-pocket costs and expenses incurred by
Lender in connection with the collection of the Loan, amendment to the Loan
Documents, or prepayment of the Loan,
22
<PAGE>
including but not limited to reasonable attorneys' fees, promptly upon demand of
Lender.
7.4 ASSIGNMENT. The Note, this Agreement and the other Loan Documents
may be endorsed, assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Upon notice to Borrowers, Lender may grant participations in all
or any portion of its interest in the indebtedness evidenced by the Note, and in
such event Borrowers shall continue to make payments due under the Loan
Documents to Lender and Lender shall have the sole responsibility of allocating
and forwarding such payments in the appropriate manner and amounts. Borrowers
shall not assign any of their rights nor delegate any of their duties hereunder
or under any of the other Loan Documents without the prior written consent of
Lender.
7.5 TIME OF THE ESSENCE. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrowers hereunder and under
all of the other Loan Documents.
7.6 SEVERABILITY. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
7.7 INTEREST AND LOAN CHARGES NOT TO EXCEED MAXIMUM ALLOWED BY LAW.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and other charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrowers in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then IPSO FACTO, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrowers so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
7.8 ARTICLE AND SECTION HEADINGS; DEFINED TERMS. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
23
<PAGE>
7.9 NOTICES. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at the address set
forth below, or at such other address as may be supplied in writing and of which
receipt has been acknowledged in writing. The date of personal delivery or
telecopy or two (2) business days after the date of mailing (or the next
business day after delivery to such courier service), as the case may be, shall
be the date of such notice, election or demand. For the purposes of this
Agreement:
The Address of Lender is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: John Harrison
Telecopy No.: 615/726-1208
with a copy to: Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No.: 423/265-9574
The Address of Borrowers is: Imtek Office Solutions, Inc.
Imtek Corporation
Imtek Services Corporation
Imtek Funding Corporation
2111 Van Deman Street
Suite 100
Baltimore, MD 21224
Attention: Brad Thompson
Telecopy No.: 410/633-5215
with a copy to: McGuire, Woods, Battle
& Boothe, LLP
The Blaustein Building
1 North Charles Street
Baltimore, MD 21201
Attention: Patrick M. Shelley, Esq.
Telecopy No.: 410/659-4527
7.10 ENTIRE AGREEMENT. This Agreement and the other written agreements
between Borrowers and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement
24
<PAGE>
and the other Loan Documents by Borrowers were not based upon any fact or
material provided by Lender, nor were Borrowers induced or influenced to enter
into this Agreement or the other Loan Documents by any representation,
statement, analysis or promise by Lender.
7.11 GOVERNING LAW AND AMENDMENTS. This Agreement shall be construed
and enforced under the laws of the State of Tennessee applicable to contracts to
be wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
7.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or in any of the Loan Documents or made by or
furnished on behalf of Borrowers in connection herewith or in any Loan Documents
shall survive the execution and delivery of this Agreement and the other Loan
Documents.
7.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.14 CONSTRUCTION AND INTERPRETATION. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that Borrowers, Lender and their respective agents have participated in the
preparation hereof.
7.15 GENERAL INDEMNIFICATION. Borrowers agree, jointly and severally,
to indemnify Lender, its officers, directors, employees and agents
(individually, an "Indemnified Party" and collectively, the "Indemnified
Parties") and each of them and agree, jointly and severally, to hold each of
them harmless from and against any and all losses, liabilities, damages, costs,
expenses and claims of any and every kind whatsoever (except those arising
solely by reason of the gross negligence or wilful misconduct of an Indemnified
Party) which may be imposed on, incurred by, or asserted against the Indemnified
Parties or any of them arising by reason of any action or inaction or omission
to any act legally required of Borrowers (including as required pursuant hereto
or pursuant to any other Loan Document).
7.16 STANDARD OF CARE; LIMITATION OF DAMAGES. Lender shall be liable to
Borrowers only for matters arising from this Agreement or otherwise related to
the Obligations resulting from Lender's gross negligence or wilful misconduct,
and liability for all other matters is hereby waived. Lender shall not in any
event be liable to Borrowers for special or consequential damages arising from
this Agreement or otherwise related to the Obligations.
25
<PAGE>
7.17 CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Borrowers hereby
irrevocably consent to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Lender
may be a party and which concerns this Agreement or the Obligations. It is
further agreed that venue for any such action shall lie exclusively with courts
sitting in Davidson County, Tennessee, unless Lender agrees to the contrary in
writing.
7.18 WAIVER OF TRIAL BY JURY. LENDER AND BORROWERS HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR
THE LOAN DOCUMENTS.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By:
-------------------------------
Title:
----------------------------
BORROWER:
IMTEK OFFICE SOLUTIONS, INC.,
a Delaware corporation
By:
-------------------------------
Title:
----------------------------
IMTEK CORPORATION,
a Maryland corporation
By:
-------------------------------
Title:
----------------------------
IMTEK SERVICES CORPORATION,
a Maryland corporation
By:
-------------------------------
Title:
----------------------------
IMTEK FUNDING CORPORATION,
a Maryland corporation
By:
-------------------------------
Title:
----------------------------
27
<PAGE>
The undersigned Subsidiaries join in the execution of this Agreement in
order to evidence their acknowledgement and agreement to be bound by Articles II
and III hereof.
[SUBSIDIARY]
By:
-------------------------------
Title:
----------------------------
[SUBSIDIARY]
By:
-------------------------------
Title:
----------------------------
[SUBSIDIARY]
By:
-------------------------------
Title:
----------------------------
[SUBSIDIARY]
By:
-------------------------------
Title:
----------------------------
28
<PAGE>
INDEX OF SCHEDULES
Schedule 2.1(b) - Subsidiaries
Schedule 2.1(e) - Capitalization Table
Schedule 2.1(f) - Intellectual Property
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(l) - Debt and Liens
Schedule 2.1(n) - Shareholder Loans
Schedule 2.1(q) - Significant Contracts
Schedule 2.1(s) - Fees and Commissions
Schedule 2.1(aa) - Location of Properties and Place of Business
29
<PAGE>
Exhibit 10.9.2
THIS INSTRUMENT AND ALL RIGHTS OF THE PARTIES HEREUNDER ARE SUBJECT TO AND
GOVERNED BY THE TERMS AND CONDITIONS OF A SUBORDINATION AND INTERCREDITOR
AGREEMENT DATED AUGUST 28, 1998, BY AND BETWEEN MERCANTILE-SAFE DEPOSIT AND
TRUST COMPANY AND SIRROM CAPITAL CORPORATION. WITHOUT LIMITATION TO THE
FOREGOING, ALL RIGHTS OF PAYMENT, LIEN RIGHTS, AND ENFORCEMENT RIGHTS OF THE
HOLDER OF THIS INSTRUMENT, ARE EXPRESSLY SUBORDINATED AND SUBJECT TO THE RIGHTS
OF MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY.
SECURED PROMISSORY NOTE
$6,000,000.00 May 29, 1998
FOR VALUE RECEIVED, the undersigned, IMTEK OFFICE SOLUTIONS, INC., a
Delaware corporation, IMTEK CORPORATION, a Maryland corporation, IMTEK SERVICES
CORPORATION, a Maryland corporation, and IMTEK FUNDING CORPORATION, a Maryland
corporation, (collectively "Maker"), promises to pay to the order of SIRROM
CAPITAL CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at Sirrom Capital Corporation, P.O. Box 30378, Nashville, TN
37241-0378, or at such other place as Holder may designate to Maker in writing
from time to time, the principal sum of up to SIX MILLION AND NO/100THS DOLLARS
($6,000,000.00) or so much thereof as is disbursed hereunder, together with
interest on the outstanding principal balance hereof from the date hereof at the
rate of fourteen percent (14.0%) per annum (computed on the basis of a 360-day
year).
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on the
first (1st) day of July, 1998, and subsequent installments being payable on the
first (1st) day of each succeeding month thereafter until May 28, 2003 (the
"Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full.
Any advance by payee to Maker that is not evidenced by another
instrument or agreement between the parties shall be conclusively presumed to
have been made hereunder when such advance is made in accordance with the oral
or written instructions of Maker. The entire balance of all advances hereunder
that may be outstanding from time to time shall constitute a single
indebtedness, and no single advance increasing the outstanding balance hereof
shall itself be considered a separate loan, but rather an increase in the
aggregate outstanding balance of the indebtedness evidenced hereby.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without premium or penalty. Any such
1
<PAGE>
prepayments shall be credited first to any accrued and unpaid interest and then
to the outstanding principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any Event of Default shall occur under and as defined in that
certain Loan Agreement of even date herewith, between Maker and Payee (the "Loan
Agreement"), which Event of Default is not cured following the giving of any
applicable notice and within any applicable cure period set forth in the Loan
Agreement, then, and in such event, the entire outstanding principal balance of
the indebtedness evidenced hereby, together with any other sums advanced
hereunder, under the Loan Agreement and/or under any other instrument or
document now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby, together with all unpaid interest accrued
thereon, shall, at the option of Holder and without notice to Maker, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any Event of Default as set
forth herein, at the option of Holder and without notice to Maker, all accrued
and unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at an annual rate (the "Default Rate") equal to
the lesser of (i) the rate that is seven percentage points (7.0%) in excess of
the above-specified interest rate, or (ii) the maximum rate of interest allowed
to be charged under applicable law (the "Maximum Rate"), regardless of whether
or not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such Event of Default.
2
<PAGE>
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
reasonable attorneys? fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of an Event of
Default hereunder, acceptance of a past-due installment or other indulgences
granted from time to time, shall be construed as a novation of this Note or as a
waiver of such right of acceleration or of the right of Holder thereafter to
insist upon strict compliance with the terms of this Note or to prevent the
exercise of such right of acceleration or any other right granted hereunder or
by applicable law. No extension of the time for payment of the indebtedness
evidenced hereby or any installment due hereunder, made by agreement with any
person now or hereafter liable for payment of the indebtedness evidenced hereby,
shall operate to release, discharge, modify, change or affect the original
liability of Maker hereunder or that of any other person now or hereafter liable
for payment of the indebtedness evidenced hereby, either in whole or in part,
unless Holder agrees otherwise in writing. This Note may not be changed orally,
but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee, as more specifically described in the Loan Agreement.
3
<PAGE>
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, IPSO FACTO, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
Maker hereby irrevocably consents to the jurisdiction of the United
States District Court for the Middle District of Tennessee and of all Tennessee
state courts sitting in Davidson County, Tennessee, for the purpose of any
litigation to which Lender may be a party and which concerns this Note or the
indebtedness evidenced hereby. It is further agreed that venue for any such
action shall lie exclusively with courts sitting in Davidson County, Tennessee,
unless Holder agrees to the contrary in writing.
HOLDER AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF
COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR
COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY,
ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
4
<PAGE>
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
IMTEK OFFICE SOLUTIONS, INC.,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
IMTEK CORPORATION,
a Maryland corporation
By:
---------------------------------
Title:
------------------------------
IMTEK SERVICES CORPORATION,
a Maryland corporation
By:
---------------------------------
Title:
------------------------------
IMTEK FUNDING CORPORATION,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
5
<PAGE>
EXHIBIT 10.9.3
STOCK PURCHASE WARRANT AND REGISTRATION RIGHTS AGREEMENT
This STOCK PURCHASE WARRANT AND REGISTRATION RIGHTS AGREEMENT ("Warrant
Agreement") is issued this 29th day of May, 1998, by IMTEK OFFICE SOLUTIONS,
INC., a Delaware corporation (the "Company"), to SIRROM CAPITAL CORPORATION, a
Tennessee corporation (SIRROM CAPITAL CORPORATION and any subsequent assignee or
transferee hereof are hereinafter referred to collectively as "Holder" or
"Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM.
(a) For and in consideration of SIRROM CAPITAL CORPORATION making
a loan to the Company in an amount of Six Million and no/100ths Dollars
($6,000,000) pursuant to the terms of one or more secured promissory notes
(collectively the "Note") and related loan agreement of even date herewith (the
"Loan Agreement"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 119,891 shares ("Base Amount") of the Company's
common stock (the "Common Stock"), which the Company represents to equal 1.5% of
the shares of capital stock outstanding on the date hereof, calculated on a
fully diluted basis and assuming exercise of this Warrant, provided that in the
event that any portion of the indebtedness evidenced by the Note is outstanding
on the following dates, the Base Amount shall be increased to the corresponding
number set forth below (the "Outstanding Debt Rachets"):
<TABLE>
<CAPTION>
DATE BASE AMOUNT
- ---------------------------------------- ----------------------------------------------------
<S> <C>
May 29, 2001 160,670 shares, which the Company
represents to equal 2.0% of the shares of the
Company's capital stock outstanding on the date
hereof calculated on a fully diluted basis after
exercise of this Warrant
May 29, 2002 201,868 shares, which the Company
represents to equal 2.5% of the shares of the
Company's capital stock outstanding on the date
hereof calculated on a fully diluted basis after
exercise of this Warrant
May 29, 2003 243,491 shares, which the
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Company represents to equal 3.0% of the shares of
the Company's capital stock outstanding on the date
hereof calculated on a fully diluted basis after
exercise of this Warrant
</TABLE>
and further provided that the initial Base Amount shall be increased to 569,885
shares, which the Company represents equals 6.75% of the shares of the Company's
capital stock outstanding on the date hereof calculated on a fully diluted basis
after exercise in the event the Company does not complete a bona fide
underwritten secondary public offering with net proceeds to the Company of at
least $15,000,000 by May 29, 1999. If the initial Base Amount is increased as
set forth above, the Outstanding Debt Rachets shall be adjusted to increase the
adjusted initial Base Amount by .5% for each year the Note remains outstanding
beyond May 29, 2001. By way of illustration, if the initial Base Amount adjusted
to 6.75% because the Company does not complete a bona fide underwritten
secondary public offering with net proceeds to the Company of at least
$15,000,000 by May 29, 1999, the Outstanding Debt Rachets for 2001, 2002, and
2003 shall be 7.25%, 7.75%, and 8.25%, respectively.
(b) The shares of Common Stock issuable upon exercise of this
Warrant are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time from the date hereof until July
31, 2003 (the "Expiration Date").
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant Agreement shall be One Cent ($.01).
3. EXERCISE. The Warrants granted pursuant to this Warrant
Agreement may be exercised by the Holder hereof (but only on the conditions
hereinafter set forth) in whole or in part, upon delivery of written notice of
intent to exercise (the "Exercise Notice") to the Company in the manner and at
the address of the Company set forth in Section 14 hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
so purchased. The Exercise Notice shall set forth the number of Warrants to be
exercised and will contain a written acknowledgement that the Holder has read
and been afforded an opportunity to ask questions of the Company's management
regarding all financial and other information provided to Holder regarding the
Company. In addition to exercise of the Warrants, Holder shall permit the
Company to deliver to Holder all financial and other information regarding the
Company it believes necessary to enable Holder to make an informed investment
decision, and Holder shall make all customary investment representations
(including, without limitation, regarding securities compliance) which the
Company shall reasonably require. The Exercise Price shall be payable, at the
option of the Holder, (i) by certified or bank check, (ii) by the surrender of
the Note or portion thereof having an outstanding principal balance equal to the
aggregate Exercise Price or (iii) by the surrender of a portion of the Warrants
granted pursuant to this Warrant Agreement where the Shares subject to the
portion of the Warrants granted pursuant to this Warrant Agreement that are
surrendered have a fair market value equal to the aggregate Exercise Price. In
the absence of an established public market for the Common Stock, fair market
value shall be established by the Company's board of directors in a commercially
reasonable
2
<PAGE>
manner. Upon exercise of the Warrants granted pursuant to this Warrant
Agreement as aforesaid, the Company shall as promptly as practicable, and in
any event within fifteen (15) days thereafter, execute and deliver to the
Holder under this Warrant Agreement a certificate or certificates for the
total number of whole Shares for which the Warrants granted pursuant to this
Warrant Agreement are being exercised in such names and denominations as are
requested by such Holder. If the Warrants granted pursuant to this Warrant
Agreement shall be exercised with respect to less than all of the Shares, the
Holder shall be entitled to receive a new Warrant Agreement covering the
number of Shares in respect of which this Warrant Agreement shall not have
been exercised, which new Warrant Agreement shall in all other respects be
identical to this Warrant Agreement. The Company covenants and agrees that it
will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant Agreement or the issuance
of any Shares upon exercise of the Warrants granted pursuant to this Warrant
Agreement.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither the Warrants granted pursuant to this Warrant
Agreement nor the Shares have been registered under the Securities Act
of 1933, as amended ("Securities Act"), or any state securities laws
("Blue Sky Laws"). The Warrants granted pursuant to this Warrant
Agreement have been acquired for investment purposes and not with a
view to distribution or resale and may not be sold or otherwise
transferred without (i) an effective registration statement for such
Warrants under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws (the Company hereby acknowledges that
Chambliss, Bahner & Stophel, P.C. is acceptable counsel). Transfer of
the Shares shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares
shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems necessary
to effect the compliance of the issuance of the Warrants granted
pursuant to this Warrant Agreement and any shares of Common Stock
issued upon exercise hereof with applicable federal and state
securities laws. Sirrom Capital Corporation hereby represents to the
3
<PAGE>
Company that it is an "accredited investor" as defined in Regulation D
promulgated under the Act.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of the Warrants granted pursuant to this
Warrant Agreement will, upon issuance and payment therefor, be legally
and validly issued and outstanding, fully paid and nonassessable, free
from all taxes, liens, charges and preemptive rights, if any, with
respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of the
Warrants granted pursuant to this Warrant Agreement such number of
authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of the Warrants granted pursuant to this
Warrant Agreement.
(c) The Company covenants and agrees that it shall not sell
any shares of the Company's capital stock at a price per share below
the fair market value of such shares, without the prior written consent
of the Holder hereof (which consent shall not be unreasonably
withheld). In the event that the Company sells shares of Common Stock
at a price per share below the fair market value of such shares (a
"Below Market Transaction"), without the prior written consent of the
Holder hereof, the Company covenants and agrees that the number of
shares issuable upon exercise of the Warrants granted pursuant to this
Warrant Agreement shall be equal to the product obtained by multiplying
the number of shares issuable pursuant to this Warrant Agreement prior
to the Below Market Transaction by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately
prior to consummation of the Below Market Transaction plus the number
of shares of Common Stock issued in the Below Market Transaction, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the Below Market Transaction plus the
number of shares of Common Stock that the aggregate consideration
received by the Company in the Below Market Transaction would purchase
at fair market value. For purposes of this subsection, Common Stock
shall be deemed to include that number of shares of Common Stock that
would be obtained assuming (i) the conversion of any securities of the
Company which, by their terms, are convertible into or exchangeable for
Common Stock, and (ii) the exercise of all options to purchase or
rights to subscribe for Common Stock or securities which, by their
terms, are convertible into or exchangeable for Common Stock. In the
absence of an established public market for the securities sold by the
Company in a Below Market Transaction, fair market value shall be
established by the Company's board of directors in a commercially
reasonable manner.
5. TRANSFER OF WARRANTS. Subject to the provisions of Section 4
hereof, the Warrants granted pursuant to this Warrant Agreement may be
transferred, in whole or in part, to any person or business entity, by
presentation of this Warrant Agreement to the Company with written instructions
for such transfer. Prior to transferring any Warrant to any person, Holder shall
cause the prospective transferee to be bound by this Warrant Agreement and to
execute and deliver a counterpart of this Warrant Agreement to the Company,
pursuant to which such transferee will, with respect to the Warrants acquired by
such transferee, be bound by the
4
<PAGE>
obligations of the transferor under this Warrant Agreement. Upon such
presentation for transfer, the Company shall promptly execute and deliver a new
Warrant or Warrants in the form hereof in the name of the assignee or assignees
and in the denominations specified in such instructions. The Company shall pay
all expenses incurred by it in connection with the preparation, issuance and
delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE
RIGHTS. Except as otherwise provided herein, this Warrant Agreement does not
confer upon the Holder, as such, any right whatsoever as a shareholder of the
Company. Notwithstanding the foregoing, if the Company should offer to all of
the Company's shareholders the right to purchase any securities of the Company,
then all shares of Common Stock that are subject to this Warrant Agreement shall
be deemed to be outstanding and owned by the Holder and the Holder shall be
entitled to participate in such rights offering. The Company shall not grant any
preemptive rights with respect to any of its capital stock without the prior
written consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant Agreement shall
receive prior written notice of and be entitled to attend or may send a
representative to attend in person (or in the case of a telephonic meeting, join
in the conference call) all meetings of the Company's Board of Directors in a
non-voting observation capacity and shall receive a copy of all correspondence
and information delivered to the Company's Board of Directors, from the date
hereof until such time as the indebtedness evidenced by the Note has been paid
in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of the Warrants granted
pursuant to this Warrant Agreement shall be exercised subsequent to any
stock split, stock dividend, recapitalization, combination of shares of
the Company, or other similar event, occurring after the date hereof,
then the Holder exercising any such Warrants shall receive, for the
aggregate Exercise Price, the aggregate number and class of shares
which such Holder would have received if the Warrants granted pursuant
to this Warrant Agreement had been exercised immediately prior to such
stock split, stock dividend, recapitalization, combination of shares,
or other similar event. If any adjustment under this Section 8(a),
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant Agreement
shall be the next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant to this Section
8(a), the Company shall forthwith notify the Holder or Holders of this
Warrant Agreement of such adjustment, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated.
(b) If all or any portion of the Warrants granted
pursuant to this Warrant Agreement shall be exercised subsequent to any
merger, consolidation, exchange of shares, separation, reorganization
or liquidation of the Company, or other similar event, occurring after
the date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or
5
<PAGE>
another class or classes of securities of the Company or another
entity, or the holders of Common Stock are entitled to receive cash or
other property, then the Holder exercising such Warrants shall receive,
for the aggregate Exercise Price, the aggregate number and class of
shares, cash or other property which such Holder would have received if
such Warrants had been exercised immediately prior to such merger,
consolidation, exchange of shares, separation, reorganization or
liquidation, or other similar event. If any adjustment under this
Section 8(b) would create a fractional share of Common Stock or a right
to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares subject to this Warrant
Agreement shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to
this Section 8(b), the Company shall forthwith notify the Holder or
Holders of this Warrant Agreement of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated.
9. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to Holder
the right and option to sell to the Company (the "Put") the Warrants
granted pursuant to this Warrant Agreement for a period of sixty (60)
days immediately prior to the Expiration Date, at a purchase price (the
"Put Price") equal to the Fair Market Value (as hereinafter defined) of
the shares of Common Stock issuable to Holder upon exercise of such
Warrants.
(b) Holder may exercise the Put by delivery of written notice
(the "Put Notice") of such exercise to the Company in the manner and at
the address of the Company set forth in Section 14 hereof. The Company
shall pay to Holder, in cash or by wire transfer of immediately
available funds, the Put Price within thirty (30) days of the receipt
of the Put Notice.
(c) For purposes of this Section 9, the Fair Market Value of
the shares of Common Stock of the Company issuable pursuant to this
Warrant Agreement shall be determined as follows:
(i) The Company and the Holder shall each appoint
an independent, experienced appraiser who is a member of a
recognized professional association of business appraisers.
The two appraisers shall determine the value of the shares of
Common Stock which would be issued upon the exercise of the
Warrants granted pursuant to this Warrant Agreement, assuming
that the sale would be between a willing buyer and a willing
seller, both of whom have full knowledge of the financial and
other affairs of the Company, and neither of whom is under any
compulsion to sell or to buy.
(ii) If the higher of the two appraisals is not
ten percent (10%) greater than the lower of the appraisals,
the Fair Market Value shall be the average of the two
appraisals. If the higher of the two appraisals is equal to or
greater than ten percent (10%) more than the lower of the two
appraisals, then a
6
<PAGE>
third appraiser shall be appointed by the two appraisers, and
if they cannot agree on a third appraiser, the American
Arbitration Association shall appoint the third appraiser. The
third appraiser, regardless of who appoints him or her, shall
have the same qualifications as the first two appraisers.
(iii) The Fair Market Value after the appointment
of the third appraiser shall be the mean of the three
appraisals.
(iv) The fees and expenses of the appraisers shall
be paid one-half by the Company and one-half by the Holder.
10. REGISTRATION.
(a) The Company and the Holders of the Shares agree that if at
any time after the date hereof the Company shall propose to file a
registration statement with respect to any of its Common Stock on a
form suitable for a secondary offering (including its initial public
offering), it will give notice in writing to such effect to the
registered holder(s) of the Shares at least fifteen (15) days prior to
such filing, and, at the written request of any such registered holder,
made within ten (10) days after the receipt of such notice, will
include therein at the Company's cost and expense (including the fees
and expenses of counsel to such holder(s), but excluding underwriting
discounts, commissions and filing fees attributable to the Shares
included therein) such of the Shares as such holder(s) shall request;
provided, however, that if the offering being registered by the Company
is underwritten and if the representative of the underwriters advises
the Company in writing (a copy of which is provided to the Holder
requesting inclusion of the Shares therein) that, in its opinion, the
inclusion therein of the Shares would materially and adversely affect
the sale of the securities to be sold by the Company thereunder, then
the Company shall be required to include in such registration only that
number of securities which the underwriters determine in their sole
discretion will not jeopardize the success of the offering selected in
the following order of priority: (i) in the case of a primary
registration on behalf of the Company (A) first, the securities that
the Company intends to be including in such registration, and (B)
second, Shares that Holder and all other parties requested to be
included in such registration (pro rata according to the securities
proposed to be included in the registration by such other parties or
Holder); or (ii) in the case of a secondary registration for the
account of any holders (including Holder) of the Company's security's,
(A), first, the securities requested to be included therein by the
holders initially requesting such registration and the Shares requested
to be included in such registration by Holder (pro rata according to
the securities proposed to be included in the registration by such
other parties or Holder), and (B) second, securities hold by all other
parties requested to be included in such registration (pro rata
according to the securities proposed to be included in the registration
by such other parties).
(b) Whenever the Company undertakes to effect the registration
of any of the Shares, the Company shall, as expeditiously as reasonably
possible:
7
<PAGE>
(i) Prepare and file with the Securities and
Exchange Commission (the "Commission") a registration
statement covering such Shares and use its best efforts to
cause such registration statement to be declared effective by
the Commission as expeditiously as possible and to keep such
registration effective until the earlier of (A) the date when
all Shares covered by the registration statement have been
sold or (B) one hundred eighty (180) days from the effective
date of the registration statement; provided, that before
filing a registration statement or prospectus or any amendment
or supplements thereto, the Company will furnish to each
Holder of Shares covered by such registration statement and
the underwriters, if any, copies of all such documents
proposed to be filed (excluding exhibits, unless any such
person shall specifically request exhibits), which documents
will be subject to the review of such Holders and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus or any
supplement thereto (including any documents incorporated by
reference therein) with the Commission if (A) the
underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or
prospectus concerning a particular selling Holder has changed
and such Holder or the underwriters, if any, shall reasonably
object.
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to such registration
statement as may be necessary to keep such registration
statement effective during the period referred to in Section
10(b)(i) and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered
by such registration statement, and cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed with the Commission pursuant to Rule
424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers
of copies of such registration statement, each amendment
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), each
supplement thereto and such other documents as they may
reasonably request in order to facilitate the disposition of
the Shares owned by them.
(iv) Use its reasonable efforts to register and
qualify under such other securities laws of such jurisdictions
as shall be reasonably requested by any selling Holder and do
any and all other acts and things which may be reasonably
necessary or advisable to enable such selling Holder to
consummate the disposition of the Shares owned by such Holder,
in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to transact business, to subject
itself to taxation, or to file a general consent to service of
process in any such states or jurisdictions.
8
<PAGE>
(v) Promptly notify each selling Holder of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to
make the statements therein not misleading and, at the request
of any such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Shares, such prospectus will not
contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for
all such Shares not later than the effective date of such
registration statement.
(vii) Enter into such customary agreements
(including underwriting agreements in customary form for a
primary offering) and take all such other actions as the
underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Shares (including,
without limitation, effecting a stock split or a combination
of shares).
(viii) Make available for inspection by any selling
Holder or any underwriter participating in any disposition
pursuant to such registration statement and any attorney,
accountant or other agent retained by any such selling Holder
or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the officers, directors, employees and independent accountants
of the Company to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent
in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if
requested by any such person) confirm such notification in
writing: (A) the filing of the prospectus or any prospectus
supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment
thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments
or supplements to the registration statement or the prospectus
or for additional information, (C) the issuance or threat of
issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the initiation
of any proceedings for that purpose and (D) the receipt by the
Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction
or the initiation or threat of initiation of any proceeding
for such purposes.
(x) Use its reasonable efforts to prevent the
entry of any order suspending the effectiveness of the
registration statement and obtain at the earliest possible
moment the withdrawal of any such order, if entered.
9
<PAGE>
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Shares to be sold
and not bearing any restrictive legends, and enable such
Shares to be in such lots and registered in such names as the
underwriters may request at least two (2) business days prior
to any delivery of the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the
registration statement and any post-effective amendment
thereto and at each closing of an underwritten offering, (A)
make such representations and warranties to the selling
Holder(s) and the underwriters, if any, with respect to the
Shares and the registration statement as are customarily made
by issuers in primary underwritten offerings; (B) use its
reasonable efforts to obtain "cold comfort" letters and
updates thereof from the Company's independent certified
public accountants addressed to the selling Holders and the
underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold
comfort" letters by underwriters in connection with primary
underwritten offerings; (C) deliver such documents and
certificates as may be reasonably requested (1) by the holders
of a majority of the Shares being sold, and (2) by the
underwriters, if any, to evidence compliance with clause (A)
above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Company; and (D) obtain opinions of counsel to the Company and
updates thereof (which counsel and which opinions shall be
reasonably satisfactory to the underwriters, if any), covering
the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be
reasonably requested by the selling Holders and underwriters
or their counsel. Such counsel shall also state that no facts
have come to the attention of such counsel which cause them to
believe that such registration statement, the prospectus
contained therein, or any amendment or supplement thereto, as
of their respective effective or issue dates, contains any
untrue statement of any material fact or omits to state any
material fact necessary to make the statements therein not
misleading (except that no statement need be made with respect
to any financial statements, notes thereto or other financial
data or other expertized material contained therein). If for
any reason the Company's counsel is unable to give such
opinion, the Company shall so notify the Holders of the Shares
and shall use its best efforts to remove expeditiously all
impediments to the rendering of such opinion.
(xiv) Otherwise use its reasonable efforts to
comply with all applicable rules and regulations of the
Commission, and make generally available to its security
holders earnings statements satisfying the provisions of
Section 11(a) of the Securities Act,
10
<PAGE>
no later than forty-five (45) days after the end of any
twelve-month period (or ninety (90) days, if such period is a
fiscal year) (A) commencing at the end of any fiscal quarter
in which the Shares are sold to underwriters in a firm or best
efforts underwritten offering, or (B) if not sold to
underwriters in such an offering, beginning with the first
month of the first fiscal quarter of the Company commencing
after the effective date of the registration statement, which
statements shall cover such twelve-month periods.
(c) After the date hereof, the Company shall not grant to any
holder of securities of the Company any registration rights which have
a priority greater than or equal to those granted to Holders pursuant
to this Warrant without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 10(a) above with
respect to each Holder of Shares are expressly conditioned upon such
Holder's (i) agreeing to sell its securities on the basis provided in
any underwriting arrangements approved by the persons entitled to
approve such arrangements; (ii) furnishing to the Company in writing
such information concerning such Holder and the terms of such Holder's
proposed offering as the Company shall reasonably request for inclusion
in the registration statement and (iii) completing and executing all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of
such underwriting arrangements and this Warrant Agreement. If any
registration statement including any of the Shares is filed, then the
Company shall indemnify each Holder thereof (and each underwriter for
such holder and each person, if any, who controls such underwriter
within the meaning of the Securities Act) from any loss, claim, damage
or liability arising out of, based upon or in any way relating to any
untrue statement of a material fact contained in such registration
statement or any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except for any such statement or omission based on
information furnished in writing by such holder of the Shares expressly
for use in connection with such registration statement; and such Holder
shall indemnify the Company (and each of its officers and directors who
has signed such registration statement, each director, each person, if
any, who controls the Company within the meaning of the Securities Act,
each underwriter for the Company and each person, if any, who controls
such underwriter within the meaning of the Securities Act) and each
other such holder against any loss, claim, damage or liability arising
from any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares expressly for use in connection with such registration
statement.
(e) For purposes of this Section 10, all of the Shares shall
be deemed to be issued and outstanding.
11
<PAGE>
11. CERTAIN NOTICES. In case at any time the Company shall propose
to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders
of its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell of
all or substantially all of its assets to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant Agreement, by certified or registered mail, (i)
at least twenty (20) days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Any notice required by clause (i) shall also specify,
in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled
thereto, and any notice required by clause (ii) shall specify the date
on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
12
<PAGE>
12. RIGHTS OF CO-SALE.
(a) None of Edwin C. Hirsch, Michael L. Lowe, Robert J. Brown,
Brad C. Thompson, Andrew J. Walter or Robert W. Hoover (the "Management
Shareholders") shall enter into any transaction that would result in
the sale by it of any Common Stock now or hereafter owned by him,
unless prior to such sale such Management Shareholder shall give
written notice (the "Co-Sale Notice") to Holder addressed and delivered
as set forth in Section 14 hereof, of its intention to effect such sale
in order that Holder may exercise its rights under this Section 12 as
hereinafter described. Such notice shall set forth (i) the number of
shares to be sold by such Management Shareholder, (ii) the principal
terms of the sale, including the price at which the shares are intended
to be sold, and (iii) an offer by such Management Shareholder to use
his best efforts to cause to be included with the shares to be sold by
it in the sale, on a share-by-share basis and on the same terms and
conditions, the Shares issuable or issued to Holder pursuant this
Warrant Agreement.
(b) If Holder has not accepted such offer in writing within a
period of ten (10) days from the date of receipt of the Co-Sale Notice,
then such Management Shareholder shall thereafter be free for a period
of ninety (90) days to sell the number of shares specified in the
Co-Sale Notice, at a price no greater than the price set forth in the
Co-Sale Notice and on otherwise no more favorable terms to such
Management Shareholder than as set forth in the Co-Sale Notice, without
any further obligation to Holder in connection with such sale. In the
event that such Management Shareholder fails to consummate such sale
within such ninety-day period, the shares specified in Co-Sale Notice
shall continue to be subject to this Section 12.
(c) If Holder accepts such offer in writing within ten-day
period, then such acceptance shall be irrevocable unless such
Management Shareholder shall be unable to cause to be included in his
sale the number of Shares of stock held by Holder and set forth in the
written acceptance. In that event, such Management Shareholder and
Holder shall participate in the sale equally, with such Management
Shareholder and Holder each selling half the total number of such
shares to be sold in the sale.
13. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant Agreement.
14. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant Agreement shall be in writing, signed by
the party giving such notice, election or demand and shall be delivered
personally, telecopied, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery to such courier service), as
13
<PAGE>
the case may be, shall be the date of such notice, election or demand. For the
purposes of this Warrant Agreement:
The Address of Lender is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: John Harrison
Telecopy No.: 615/726-1208
with a copy (which shall Chambliss, Bahner & Stophel, P.C.
not constitute notice) to: 1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No.: 423/265-9574
The Address of Borrower is: Imtek Office Solutions, Inc.
2111 Van Deman Street
Suite 100
Baltimore, MD 21224
Attention: Brad Thompson
Telecopy No.: 410/633-5215
with a copy (which shall McGuire, Woods, Battle
not constitute notice) to: & Boothe, LLP
The Blaustein Building
1 North Charles Street
Baltimore, MD 21201
Attention: Patrick M. Shelley, Esq.
Telecopy No.: 410/659-4599
15. SEVERABILITY. If any provisions(s) of this Warrant Agreement
or the application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
16. ENTIRE AGREEMENT. This Warrant Agreement between the Company
and Holder represents the entire agreement between the parties concerning the
subject matter hereof, and all oral discussions and prior agreement are merged
herein.
17. GOVERNING LAW AND AMENDMENTS. This Warrant Agreement shall be
construed and enforced under the laws of the State of Tennessee applicable to
contracts to be wholly performed in such State. No amendment or modification
hereof shall be effective except in a writing executed by each of the parties
hereto.
18. COUNTERPARTS. This Warrant Agreement may be executed in any
number of counterparts and be different parties to this Warrant Agreement in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Warrant Agreement.
14
<PAGE>
19. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. The Company hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Holder
may be a party and which concerns this Warrant Agreement. It is further agreed
that venue for any such action shall lie exclusively with courts sitting in
Davidson County, Tennessee, unless Holder agrees to the contrary in writing.
20. WAIVER OF TRIAL BY JURY. HOLDER AND THE COMPANY HEREBY
KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY
ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR
OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
WARRANT AGREEMENT.
15
<PAGE>
21. EQUITY PARTICIPATION. This Warrant Agreement is issued in
connection with the Loan Agreement. It is intended that this Warrant Agreement
constitute an equity participation under and pursuant to T.C.A. 47-24-101, ET
SEQ. and that equity participation be permitted under said statutes and not
constitute interest on the Note. If under any circumstances whatsoever,
fulfillment of any obligation of this Warrant Agreement, the Loan Agreement, or
any other agreement or document executed in connection with the Loan Agreement,
shall violate the lawful limit of any applicable usury statute or any other
applicable law with regard to obligations of like character and amount, then the
obligation to be fulfilled shall be reduced to such lawful limit, such that in
no event shall there occur, under this Warrant Agreement, the Loan Agreement, or
any other document or instrument executed in connection with the Loan Agreement,
any violation of such lawful limit, but such obligation shall be fulfilled to
the lawful limit. If any sum is collected in excess of the lawful limit, such
excess shall be applied to reduce the principal amount of the Note.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY:
IMTEK OFFICE SOLUTIONS, INC.,
a Delaware corporation
By:
------------------------------
Title:
---------------------------
HOLDER:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By:
------------------------------
Title:
---------------------------
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Warrant Agreement to be executed as of the date first above written for the
purpose of agreeing to the terms and conditions of Section 12 hereof.
MANAGEMENT SHAREHOLDERS:
/s/ Edwin C. Hirsch
-----------------------------
Edwin C. Hirsch
/s/ Michael L. Lowe
-----------------------------
Michael L. Lowe
/s/ Robert J. Brown
-----------------------------
Robert J. Brown
16
<PAGE>
/s/ Brad C. Thompson
-----------------------------
Brad C. Thompson
/s/ Andrew J. Walter
-----------------------------
Andrew J. Walter
/s/ Robert W. Hoover
-----------------------------
Robert W. Hoover
17
<PAGE>
Exhibit 10.9.4
SECOND AMENDMENT TO
LOAN AGREEMENT AND LOAN DOCUMENTS
THIS SECOND AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS ("Second
Amendment") dated as of the ____ day of July, 1999, is made and entered into on
the terms and conditions hereinafter set forth, by and among IMTEK OFFICE
SOLUTIONS, INC., a Delaware corporation ("Imtek Office Solutions"), IMTEK
CORPORATION, a Maryland corporation ("Imtek Corporation"), IMTEK SERVICES
CORPORATION, a Maryland corporation ("Imtek Services"), IMTEK FUNDING
CORPORATION, a Maryland corporation ("Imtek Funding"), IMTEK ACQUISITION
CORPORATION, a Maryland corporation ("Imtek Acquisition"), BARBERA BUSINESS
SYSTEMS, INC., a Maryland corporation ("Barbera") and IMTEK CAPITAL CORPORATION,
a Maryland corporation ("Imtek Capital") (Imtek Office Solutions, Imtek
Corporation, Imtek Services, Imtek Funding, Imtek Acquisition, Barbera and Imtek
Capital are referred to herein from time to time individually as a "Borrower"
and collectively as the "Borrowers"), and FINOVA MEZZANINE CAPITAL INC., a
Tennessee corporation, f/k/a Sirrom Capital Corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Lender has previously made a term loan to the Borrowers
(excluding Barbera and Imtek Capital) in the original principal amount of Six
Million and No/100ths Dollars ($6,000,000.00) (the "Loan") on the terms and
conditions set forth in that certain Loan Agreement dated as of May 29, 1998, by
and among Lender and Imtek Office Solutions, Imtek Corporation, Imtek Services,
Imtek Funding and Imtek Acquisition (as now or hereafter amended, the "Loan
Agreement");
WHEREAS, the Loan is further evidenced and secured by certain
agreements, documents and instruments as more particularly described in the Loan
Agreement and defined therein as the "Loan Documents";
WHEREAS, Borrowers have requested Lender's consent and Lender has
consented to the refinancing and increasing of Borrower's senior credit facility
and to the creation of Imtek Capital, as a new subsidiary of Imtek Services, in
accordance with and subject to the terms and conditions of the Loan Agreement,
which provide among other things that any affiliates of Borrowers resulting from
such a transaction become bound by the terms of the Loan Agreement and the Loan
Documents;
WHEREAS, Borrowers and Lender desire that Imtek Capital and Barbera
become parties to and be bound by the terms and conditions, covenants and other
provisions of the Loan Agreement and Loan Documents;
WHEREAS, this Second Amendment shall amend the Loan Agreement and Loan
Documents.
1
<PAGE>
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:
1. Capitalized terms used herein but not otherwise defined shall have
the meanings ascribed thereto in the Loan Agreement.
2. The obligations of Borrowers in connection with and/or relating to
the Loan are further evidenced and/or secured by the Loan Documents.
3. Borrowers hereby represent and warrant, jointly and severally, to
Lender that all of the representations made in Section 2 of the Loan Agreement,
as amended, are true and correct as of the date hereof, except as modified or
supplemented by SCHEDULE A attached hereto and incorporated herein by this
reference.
4. Borrowers hereby represent and warrant, jointly and severally, to
Lender that the address(es) set forth on SCHEDULE B attached hereto and
incorporated herein by this reference are the principal places of Imtek
Capital's and Barbera's business and the location of all tangible collateral and
the place where the records concerning all intangible collateral are kept and/or
maintained.
5. Borrowers warrant and represent, jointly and severally, that (a)
the Loan Documents are valid, binding and enforceable against Borrowers
according to their terms, subject to principles of equity and laws applicable to
the rights of creditors generally, including bankruptcy laws, (b) no default or
Event of Default presently exists under the Loan Documents and no condition
presently exists which, with the giving of notice, the passing of time, or both,
would cause such a default or Event of Default. Borrowers further acknowledge
that Borrowers' obligations evidenced by the Loan Documents are not subject to
any counterclaim, defense or right of setoff, and Borrowers hereby release
Lender from any claim, known or unknown, that Borrowers may have against Lender
as of the execution of this Second Amendment.
6. The terms "Loan Document" and "Loan Documents" as defined in the
Loan Agreement are amended to include this Second Amendment.
7. The terms "Borrower" and "Borrowers" as defined in the Loan
Agreement are amended to include Imtek Capital and Barbera. Each of the
Borrowers hereby acknowledges that all references to a "Borrower" and the
"Borrowers" in the Loan Documents shall hereafter include Imtek Capital and
Barbera and that Imtek Capital and Barbera are and shall be bound by the terms
of the Loan Agreement and the Loan Documents.
8. The Borrowers hereby represent and warrant that Imtek Capital is
in the same line of business as presently conducted by the other Borrowers
(excluding Imtek Acquisition).
9. The Borrowers and Lender hereby agree that the Security Agreement
referred to in the Loan Agreement is amended to grant Lender a security interest
in all of the Collateral (as defined in said Security Agreement) of
2
<PAGE>
Imtek Acquisition, Barbera and Imtek Capital, such security interests to be
evidenced by the filing of financing statements in the appropriate filing
offices.
10. Based on the terms of the Second Amendment, Lender hereby consents
to the creation of Imtek Capital.
11. This Second Amendment may be executed in any number of counterparts
and by different parties to this Second Amendment in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Second Amendment.
12. Except as modified and amended hereby, the Loan Documents shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment, or have caused this Second Amendment to be executed by their duly
authorized officers, as of the day and year first above written.
BORROWER:
IMTEK OFFICE SOLUTIONS, INC.,
a Delaware corporation
By:
-----------------------------------
Title:
---------------------------------
IMTEK CORPORATION,
a Maryland corporation
By:
-----------------------------------
Title:
---------------------------------
IMTEK SERVICES CORPORATION,
a Maryland corporation
By:
-----------------------------------
Title:
---------------------------------
(signatures continue on next page)
3
<PAGE>
IMTEK FUNDING CORPORATION,
a Maryland corporation
By:
-----------------------------------
Title:
---------------------------------
IMTEK ACQUISITION CORPORATION,
a Maryland corporation
By:
-----------------------------------
Title:
---------------------------------
BARBERA BUSINESS SYSTEMS, INC.,
a Maryland corporation
By:
-----------------------------------
Title:
---------------------------------
IMTEK CAPITAL CORPORATION,
a Maryland corporation
By:
-----------------------------------
Title:
---------------------------------
LENDER:
FINOVA MEZZANINE CAPITAL INC.,
a Tennessee corporation, f/k/a Sirrom
Capital Corporation
By:
-----------------------------------
Title:
---------------------------------
4
<PAGE>
SCHEDULE A
MODIFICATIONS AND SUPPLEMENTS
TO
REPRESENTATIONS AND WARRANTIES
5
<PAGE>
SCHEDULE B
LOCATION OF PRINCIPAL PLACE
OF BUSINESS AND COLLATERAL
THIS INSTRUMENT AND ALL RIGHTS OF THE PARTIES HEREUNDER ARE SUBJECT TO AND
GOVERNED BY THE TERMS AND CONDITIONS OF A SUBORDINATION AND INTERCREDITOR
AGREEMENT DATED JULY ___, 1999, BY AND BETWEEN THE PROVIDENT BANK AND FINOVA
MEZZANINE CAPITAL INC. WITHOUT LIMITATION TO THE FOREGOING, ALL RIGHTS OF
PAYMENT, LIEN RIGHTS, AND ENFORCEMENT RIGHTS OF THE HOLDER OF THIS INSTRUMENT,
ARE EXPRESSLY SUBORDINATED AND SUBJECT TO THE RIGHTS OF THE PROVIDENT BANK.
6
<PAGE>
<PAGE>
EXHIBIT 10.9.5
AMENDED AND RESTATED
SECURED PROMISSORY NOTE
$6,000,000.00 July ___, 1999
1
<PAGE>
FOR VALUE RECEIVED, the undersigned, IMTEK OFFICE SOLUTIONS, INC., a
Delaware corporation, IMTEK CORPORATION, a Maryland corporation, IMTEK SERVICES
CORPORATION, a Maryland corporation, IMTEK FUNDING CORPORATION, a Maryland
corporation, IMTEK ACQUISITION CORPORATION, a Maryland corporation, BARBERA
BUSINESS SYSTEMS, INC., a Maryland corporation and IMTEK CAPITAL CORPORATION, a
Maryland corporation (collectively "Maker"), promise to pay to the order of
FINOVA MEZZANINE CAPITAL INC., a Tennessee corporation, f/k/a Sirrom Capital
Corporation ("Payee"; Payee and any subsequent holder[s] hereof are hereinafter
referred to collectively as "Holder"), at the office of Payee at Finova
Mezzanine Capital Inc., P.O. Box 30378, Nashville, TN 37241-0378, or at such
other place as Holder may designate to Maker in writing from time to time, the
principal sum of up to SIX MILLION AND NO/100THS DOLLARS ($6,000,000.00) or so
much thereof as is disbursed hereunder, together with interest on the
outstanding principal balance hereof from the date hereof at the rate of
fourteen percent (14.0%) per annum (computed on the basis of a 360-day year).
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on the
first (1st) day of August, 1999, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until May 28, 2003 (the
"Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full.
Any advance by Payee to Maker that is not evidenced by another
instrument or agreement between the parties shall be conclusively presumed to
have been made hereunder when such advance is made in accordance with the oral
or written instructions of Maker. The entire balance of all advances hereunder
that may be outstanding from time to time shall constitute a single
indebtedness, and no single advance increasing the outstanding balance hereof
shall itself be considered a separate loan, but rather an increase in the
aggregate outstanding balance of the indebtedness evidenced hereby.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without premium or penalty. Any such
prepayments shall be credited first to any accrued and unpaid interest and then
to the outstanding principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any Event of Default shall occur under and as defined in that
certain Loan Agreement dated May 29, 1998, between Maker and Payee (as amended
from time to time, the "Loan Agreement"), which Event of Default is not cured
following the giving of any applicable notice and within any applicable cure
period set forth in the Loan Agreement, then, and in such event, the entire
outstanding principal balance of the indebtedness evidenced hereby, together
with any other sums advanced hereunder, under the Loan Agreement and/or under
any other instrument or document now or hereafter evidencing, securing or in any
way relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall, at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the stipulated date of maturity. Upon the occurrence of any Event of Default
as set forth herein, at the option of Holder and
2
<PAGE>
without notice to Maker, all accrued and unpaid interest, if any, shall be added
to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is
seven percentage points (7.0%) in excess of the above-specified interest rate,
or (ii) the maximum rate of interest allowed to be charged under applicable law
(the "Maximum Rate"), regardless of whether or not there has been an
acceleration of the payment of principal as set forth herein. All such interest
shall be paid at the time of and as a condition precedent to the curing of any
such Event of Default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
reasonable attorneys' fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of an Event of
Default hereunder, acceptance of a past-due installment or other indulgences
granted from time to time, shall be construed as a novation of this Note or as a
waiver of such right of acceleration or of the right of Holder thereafter to
insist upon strict compliance with the terms of this Note or to prevent the
exercise of such right of acceleration or any other right granted hereunder or
by applicable law. No extension of the time for payment of the indebtedness
evidenced hereby or any installment due hereunder, made by agreement with any
person now or hereafter liable for payment of the indebtedness evidenced hereby,
shall operate to release, discharge, modify, change or affect the original
liability of Maker hereunder or that of any other person now or hereafter liable
for payment of the indebtedness evidenced hereby, either in whole or in part,
unless Holder agrees otherwise in writing. This Note may not be changed orally,
but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
This Note amends and restates that written Secured Promissory Note
dated May 29, 1998 and the indebtedness and other obligations evidenced by this
Note are further evidenced by (i) the Loan Agreement and (ii) certain other
instruments and documents, as may be required to protect and preserve the rights
of Maker and Payee, as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of
3
<PAGE>
interest in excess of the Maximum Rate, then, IPSO FACTO, the obligation to pay
interest hereunder shall be reduced to the Maximum Rate; and if from any
circumstance whatsoever, Holder shall ever receive interest, the amount of which
would exceed the amount collectible at the Maximum Rate, such amount as would be
excessive interest shall be applied to the reduction of the principal balance
remaining unpaid hereunder and not to the payment of interest. This provision
shall control every other provision in any and all other agreements and
instruments existing or hereafter arising between Maker and Holder with respect
to the indebtedness evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
Maker hereby irrevocably consents to the jurisdiction of the United
States District Court for the Middle District of Tennessee and of all Tennessee
state courts sitting in Davidson County, Tennessee, for the purpose of any
litigation to which Lender may be a party and which concerns this Note or the
indebtedness evidenced hereby. It is further agreed that venue for any such
action shall lie exclusively with courts sitting in Davidson County, Tennessee,
unless Holder agrees to the contrary in writing.
HOLDER AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF
COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR
COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY,
ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
IMTEK OFFICE SOLUTIONS, INC.,
a Delaware corporation
By:
------------------------------
Title:
---------------------------
(signatures continue on next page)
4
<PAGE>
IMTEK CORPORATION,
a Maryland corporation
By:
------------------------------
Title:
---------------------------
IMTEK SERVICES CORPORATION,
a Maryland corporation
By:
------------------------------
Title:
---------------------------
IMTEK FUNDING CORPORATION,
a Maryland corporation
By:
------------------------------
Title:
---------------------------
IMTEK ACQUISITION CORPORATION,
a Maryland corporation
By:
------------------------------
Title:
---------------------------
BARBERA BUSINESS SYSTEMS, INC.,
a Maryland corporation
By:
------------------------------
Title:
---------------------------
IMTEK CAPITAL CORPORATION,
a Maryland corporation
By:
------------------------------
Title:
---------------------------
5
<PAGE>
Exhibit 10.9.6
STOCK PURCHASE WARRANT AND
REGISTRATION RIGHTS AGREEMENT
This STOCK PURCHASE WARRANT AND REGISTRATION RIGHTS AGREEMENT ("Warrant
Agreement") is issued this _______ day of July, 1999, by IMTEK OFFICE SOLUTIONS,
INC., a Delaware corporation (the "Company"), to FINOVA MEZZANINE CAPITAL INC.,
a Tennessee corporation f/k/a Sirrom Capital Corporation (FINOVA Mezzanine
Capital Inc. and any subsequent assignee or transferee hereof are hereinafter
referred to collectively as "Holder" or "Holders").
AGREEMENT:
13. ISSUANCE OF WARRANT; TERM.
(a) For and in consideration of FINOVA MEZZANINE CAPITAL INC.
agreeing to subordinate its loan to the Company in an amount of Six
Million and no/100ths Dollars ($6,000,000) pursuant to the terms of one
or more secured promissory notes (as amended from time to time,
collectively the "Note") and related loan agreement dated May 29, 1998
(as amended from time to time, the "Loan Agreement") to a senior credit
facility from The Provident Bank in a principal amount not exceeding
$10,000,000, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants
to Holder the right to purchase _______ shares of the Company's common
stock (the "Common Stock"), which the Company represents to equal 3.0%
of the shares of capital stock outstanding on the date hereof,
calculated on a fully diluted basis and assuming exercise of this
Warrant, provided that in the event that (i) the Company's EBITDA (as
hereinafter defined) exceeds $2,700,000 for the fiscal year ending June
30, 1999 and $3,215,200 for the fiscal year ending June 30, 2000, or
(ii) the Company receives additional cash equity or indebtedness
subordinate in all respects to the Note, the related loan and
collateral documents, and the related security interests and liens in
an amount of at least $3,000,000 pursuant to an arm's-length bona fide
transaction prior to December 31, 1999, this Warrant Agreement shall
terminate and Holder shall not be entitled to purchase any Shares (as
hereinafter defined) hereunder. For purposes of this Warrant Agreement
the term "EBITDA" shall mean net income PLUS interest expense PLUS
income taxes PLUS depreciation expenses PLUS amortization expenses, all
determined in accordance with generally accepted accounting principles.
(b) The shares of Common Stock issuable upon exercise of this
Warrant are hereinafter referred to as the "Shares." This Warrant shall
be exercisable at any time and from time to time from July 1, 2000
until July 31, 2003 (the "Expiration Date").
1
<PAGE>
14. EXERCISE PRICE. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant Agreement shall be One Cent ($.01).
15. EXERCISE. The Warrants granted pursuant to this Warrant Agreement
may be exercised by the Holder hereof (but only on the conditions hereinafter
set forth) in whole or in part, upon delivery of written notice of intent to
exercise (the "Exercise Notice") to the Company in the manner and at the address
of the Company set forth in Section 14 hereof, together with this Warrant and
payment to the Company of the aggregate Exercise Price of the Shares so
purchased. The Exercise Notice shall set forth the number of Warrants to be
exercised and will contain a written acknowledgement that the Holder has read
and been afforded an opportunity to ask questions of the Company's management
regarding all financial and other information provided to Holder regarding the
Company. In addition to exercise of the Warrants, Holder shall permit the
Company to deliver to Holder all financial and other information regarding the
Company it believes necessary to enable Holder to make an informed investment
decision, and Holder shall make all customary investment representations
(including, without limitation, regarding securities compliance) which the
Company shall reasonably require. The Exercise Price shall be payable, at the
option of the Holder, (i) by certified or bank check, (ii) by the surrender of
the Note or portion thereof having an outstanding principal balance equal to the
aggregate Exercise Price or (iii) by the surrender of a portion of the Warrants
granted pursuant to this Warrant Agreement where the Shares subject to the
portion of the Warrants granted pursuant to this Warrant Agreement that are
surrendered have a fair market value equal to the aggregate Exercise Price. In
the absence of an established public market for the Common Stock, fair market
value shall be established by the Company's board of directors in a commercially
reasonable manner. Upon exercise of the Warrants granted pursuant to this
Warrant Agreement as aforesaid, the Company shall as promptly as practicable,
and in any event within fifteen (15) days thereafter, execute and deliver to the
Holder under this Warrant Agreement a certificate or certificates for the total
number of whole Shares for which the Warrants granted pursuant to this Warrant
Agreement are being exercised in such names and denominations as are requested
by such Holder. If the Warrants granted pursuant to this Warrant Agreement shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant Agreement covering the number of Shares in
respect of which this Warrant Agreement shall not have been exercised, which new
Warrant Agreement shall in all other respects be identical to this Warrant
Agreement. The Company covenants and agrees that it will pay when due any and
all state and federal issue taxes which may be payable in respect of the
issuance of this Warrant Agreement or the issuance of any Shares upon exercise
of the Warrants granted pursuant to this Warrant Agreement.
16. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
2
<PAGE>
(a) Neither the Warrants granted pursuant to this Warrant
Agreement nor the Shares have been registered under the Securities Act
of 1933, as amended ("Securities Act"), or any state securities laws
("Blue Sky Laws"). The Warrants granted pursuant to this Warrant
Agreement have been acquired for investment purposes and not with a
view to distribution or resale and may not be sold or otherwise
transferred without (i) an effective registration statement for such
Warrants under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws (the Company hereby acknowledges that
Chambliss, Bahner & Stophel, P.C. is acceptable counsel). Transfer of
the Shares shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares
shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems necessary
to effect the compliance of the issuance of the Warrants granted
pursuant to this Warrant Agreement and any shares of Common Stock
issued upon exercise hereof with applicable federal and state
securities laws. Sirrom Capital Corporation hereby represents to the
Company that it is an "accredited investor" as defined in Regulation D
promulgated under the Act.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of the Warrants granted pursuant to this
Warrant Agreement will, upon issuance and payment therefor, be legally
and validly issued and outstanding, fully paid and nonassessable, free
from all taxes, liens, charges and preemptive rights, if any, with
respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of the
Warrants granted pursuant to this Warrant Agreement such number of
authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of the Warrants granted pursuant to this
Warrant Agreement.
3
<PAGE>
(c) The Company covenants and agrees that it shall not sell
any shares of the Company's capital stock at a price per share below
the fair market value of such shares, without the prior written consent
of the Holder hereof (which consent shall not be unreasonably
withheld). In the event that the Company sells shares of Common Stock
at a price per share below the fair market value of such shares (a
"Below Market Transaction"), without the prior written consent of the
Holder hereof, the Company covenants and agrees that the number of
shares issuable upon exercise of the Warrants granted pursuant to this
Warrant Agreement shall be equal to the product obtained by multiplying
the number of shares issuable pursuant to this Warrant Agreement prior
to the Below Market Transaction by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately
prior to consummation of the Below Market Transaction plus the number
of shares of Common Stock issued in the Below Market Transaction, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the Below Market Transaction plus the
number of shares of Common Stock that the aggregate consideration
received by the Company in the Below Market Transaction would purchase
at fair market value. For purposes of this subsection, Common Stock
shall be deemed to include that number of shares of Common Stock that
would be obtained assuming (i) the conversion of any securities of the
Company which, by their terms, are convertible into or exchangeable for
Common Stock, and (ii) the exercise of all options to purchase or
rights to subscribe for Common Stock or securities which, by their
terms, are convertible into or exchangeable for Common Stock. In the
absence of an established public market for the securities sold by the
Company in a Below Market Transaction, fair market value shall be
established by the Company's board of directors in a commercially
reasonable manner.
17. TRANSFER OF WARRANTS. Subject to the provisions of Section 4
hereof, the Warrants granted pursuant to this Warrant Agreement may be
transferred, in whole or in part, to any person or business entity, by
presentation of this Warrant Agreement to the Company with written instructions
for such transfer. Prior to transferring any Warrant to any person, Holder shall
cause the prospective transferee to be bound by this Warrant Agreement and to
execute and deliver a counterpart of this Warrant Agreement to the Company,
pursuant to which such transferee will, with respect to the Warrants acquired by
such transferee, be bound by the obligations of the transferor under this
Warrant Agreement. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
18. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE RIGHTS.
Except as otherwise provided herein, this Warrant Agreement does not confer upon
the Holder, as such, any right whatsoever as a
4
<PAGE>
shareholder of the Company. Notwithstanding the foregoing, if the Company should
offer to all of the Company's shareholders the right to purchase any securities
of the Company, then all shares of Common Stock that are subject to this Warrant
Agreement shall be deemed to be outstanding and owned by the Holder and the
Holder shall be entitled to participate in such rights offering. The Company
shall not grant any preemptive rights with respect to any of its capital stock
without the prior written consent of the Holder.
19. OBSERVATION RIGHTS. The Holder of this Warrant Agreement shall
receive prior written notice of and be entitled to attend or may send a
representative to attend in person (or in the case of a telephonic meeting, join
in the conference call) all meetings of the Company's Board of Directors in a
non-voting observation capacity and shall receive a copy of all correspondence
and information delivered to the Company's Board of Directors, from the date
hereof until such time as the indebtedness evidenced by the Note has been paid
in full.
20. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of the Warrants granted pursuant to
this Warrant Agreement shall be exercised subsequent to any stock
split, stock dividend, recapitalization, combination of shares of the
Company, or other similar event, occurring after the date hereof, then
the Holder exercising any such Warrants shall receive, for the
aggregate Exercise Price, the aggregate number and class of shares
which such Holder would have received if the Warrants granted pursuant
to this Warrant Agreement had been exercised immediately prior to such
stock split, stock dividend, recapitalization, combination of shares,
or other similar event. If any adjustment under this Section 8(a),
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant Agreement
shall be the next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant to this Section
8(a), the Company shall forthwith notify the Holder or Holders of this
Warrant Agreement of such adjustment, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated.
(b) If all or any portion of the Warrants granted pursuant to
this Warrant Agreement shall be exercised subsequent to any merger,
consolidation, exchange of shares, separation, reorganization or
liquidation of the Company, or other similar event, occurring after the
date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or
another class or classes of securities of the Company or another
entity, or the holders of Common Stock are entitled to receive cash or
other property, then the Holder exercising such Warrants shall receive,
for the aggregate Exercise Price, the aggregate number and class
5
<PAGE>
of shares, cash or other property which such Holder would have received
if such Warrants had been exercised immediately prior to such merger,
consolidation, exchange of shares, separation, reorganization or
liquidation, or other similar event. If any adjustment under this
Section 8(b) would create a fractional share of Common Stock or a right
to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares subject to this Warrant
Agreement shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to
this Section 8(b), the Company shall forthwith notify the Holder or
Holders of this Warrant Agreement of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated.
21. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to Holder
the right and option to sell to the Company (the "Put") the Warrants
granted pursuant to this Warrant Agreement for a period of sixty (60)
days immediately prior to the Expiration Date, at a purchase price (the
"Put Price") equal to the Fair Market Value (as hereinafter defined) of
the shares of Common Stock issuable to Holder upon exercise of such
Warrants.
(b) Holder may exercise the Put by delivery of written notice
(the "Put Notice") of such exercise to the Company in the manner and at
the address of the Company set forth in Section 14 hereof. The Company
shall pay to Holder, in cash or by wire transfer of immediately
available funds, the Put Price within thirty (30) days of the receipt
of the Put Notice.
(c) For purposes of this Section 9, the Fair Market Value of
the shares of Common Stock of the Company issuable pursuant to this
Warrant Agreement shall be determined as follows:
(i) The Company and the Holder shall each appoint an
independent, experienced appraiser who is a member of a
recognized professional association of business appraisers.
The two appraisers shall determine the value of the shares of
Common Stock which would be issued upon the exercise of the
Warrants granted pursuant to this Warrant Agreement, assuming
that the sale would be between a willing buyer and a willing
seller, both of whom have full knowledge of the financial and
other affairs of the Company, and neither of whom is under any
compulsion to sell or to buy.
(ii) If the higher of the two appraisals is not ten
percent (10%) greater than the lower of the appraisals, the
Fair Market Value shall be the average of the two appraisals.
If the higher of the two appraisals is equal to or greater
than ten percent (10%) more than the lower of the two
appraisals, then a third appraiser shall be
6
<PAGE>
appointed by the two appraisers, and if they cannot agree on
a third appraiser, the American Arbitration Association shall
appoint the third appraiser. The third appraiser, regardless
of who appoints him or her, shall have the same qualifications
as the first two appraisers.
(iii) The Fair Market Value after the appointment of
the third appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be
paid one-half by the Company and one-half by the Holder.
22. REGISTRATION.
(a) The Company and the Holders of the Shares agree that if at
any time after the date hereof the Company shall propose to file a
registration statement with respect to any of its Common Stock on a
form suitable for a secondary offering (including its initial public
offering), it will give notice in writing to such effect to the
registered holder(s) of the Shares at least fifteen (15) days prior to
such filing, and, at the written request of any such registered holder,
made within ten (10) days after the receipt of such notice, will
include therein at the Company's cost and expense (including the fees
and expenses of counsel to such holder(s), but excluding underwriting
discounts, commissions and filing fees attributable to the Shares
included therein) such of the Shares as such holder(s) shall request;
provided, however, that if the offering being registered by the Company
is underwritten and if the representative of the underwriters advises
the Company in writing (a copy of which is provided to the Holder
requesting inclusion of the Shares therein) that, in its opinion, the
inclusion therein of the Shares would materially and adversely affect
the sale of the securities to be sold by the Company thereunder, then
the Company shall be required to include in such registration only that
number of securities which the underwriters determine in their sole
discretion will not jeopardize the success of the offering selected in
the following order of priority: (i) in the case of a primary
registration on behalf of the Company (A) first, the securities that
the Company intends to be including in such registration, and (B)
second, Shares that Holder and all other parties requested to be
included in such registration (pro rata according to the securities
proposed to be included in the registration by such other parties or
Holder); or (ii) in the case of a secondary registration for the
account of any holders (including Holder) of the Company's security's,
(A), first, the securities requested to be included therein by the
holders initially requesting such registration and the Shares requested
to be included in such registration by Holder (pro rata according to
the securities proposed to be included in the registration by such
other parties or Holder), and (B) second, securities hold by all other
parties requested to be included in such registration (pro rata
according to the
7
<PAGE>
securities proposed to be included in the registration by such other
parties).
(b) Whenever the Company undertakes to effect the registration
of any of the Shares, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and
Exchange Commission (the "Commission") a registration
statement covering such Shares and use its best efforts to
cause such registration statement to be declared effective by
the Commission as expeditiously as possible and to keep such
registration effective until the earlier of (A) the date when
all Shares covered by the registration statement have been
sold or (B) one hundred eighty (180) days from the effective
date of the registration statement; provided, that before
filing a registration statement or prospectus or any amendment
or supplements thereto, the Company will furnish to each
Holder of Shares covered by such registration statement and
the underwriters, if any, copies of all such documents
proposed to be filed (excluding exhibits, unless any such
person shall specifically request exhibits), which documents
will be subject to the review of such Holders and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus or any
supplement thereto (including any documents incorporated by
reference therein) with the Commission if (A) the
underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or
prospectus concerning a particular selling Holder has changed
and such Holder or the underwriters, if any, shall reasonably
object.
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to such registration
statement as may be necessary to keep such registration
statement effective during the period referred to in Section
10(b)(i) and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered
by such registration statement, and cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed with the Commission pursuant to Rule
424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers
of copies of such registration statement, each amendment
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), each
supplement thereto and such other documents as they may
reasonably request in order to facilitate the disposition of
the Shares owned by them.
8
<PAGE>
(iv) Use its reasonable efforts to register and
qualify under such other securities laws of such jurisdictions
as shall be reasonably requested by any selling Holder and do
any and all other acts and things which may be reasonably
necessary or advisable to enable such selling Holder to
consummate the disposition of the Shares owned by such Holder,
in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to transact business, to subject
itself to taxation, or to file a general consent to service of
process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to
make the statements therein not misleading and, at the request
of any such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Shares, such prospectus will not
contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all
such Shares not later than the effective date of such
registration statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary
offering) and take all such other actions as the underwriters,
if any, reasonably request in order to expedite or facilitate
the disposition of such Shares (including, without limitation,
effecting a stock split or a combination of shares).
(viii) Make available for inspection by any selling
Holder or any underwriter participating in any disposition
pursuant to such registration statement and any attorney,
accountant or other agent retained by any such selling Holder
or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the officers, directors, employees and independent accountants
of the Company to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent
in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if
requested by any such person) confirm such notification in
writing: (A) the filing of the prospectus or any
9
<PAGE>
prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with
respect to the registration statement or any post-effective
amendment thereto, the declaration of the effectiveness of
such documents, (B) any requests by the Commission for
amendments or supplements to the registration statement or the
prospectus or for additional information, (C) the issuance or
threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or
the initiation of any proceedings for that purpose and (D) the
receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Use its reasonable efforts to prevent the entry
of any order suspending the effectiveness of the registration
statement and obtain at the earliest possible moment the
withdrawal of any such order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Shares to be sold
and not bearing any restrictive legends, and enable such
Shares to be in such lots and registered in such names as the
underwriters may request at least two (2) business days prior
to any delivery of the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each
closing of an underwritten offering, (A) make such
representations and warranties to the selling Holder(s) and
the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in
primary underwritten offerings; (B) use its reasonable efforts
to obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed
to the selling Holders and the underwriters, if any, such
letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten
offerings; (C) deliver such documents and certificates as may
be reasonably requested (1) by the holders of a majority of
the Shares being sold, and (2) by the underwriters, if any, to
evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement
or other agreement
10
<PAGE>
entered into by the Company; and (D) obtain opinions of
counsel to the Company and updates thereof (which counsel and
which opinions shall be reasonably satisfactory to the
underwriters, if any), covering the matters customarily
covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by the
selling Holders and underwriters or their counsel. Such
counsel shall also state that no facts have come to the
attention of such counsel which cause them to believe that
such registration statement, the prospectus contained therein,
or any amendment or supplement thereto, as of their respective
effective or issue dates, contains any untrue statement of any
material fact or omits to state any material fact necessary to
make the statements therein not misleading (except that no
statement need be made with respect to any financial
statements, notes thereto or other financial data or other
expertized material contained therein). If for any reason the
Company's counsel is unable to give such opinion, the Company
shall so notify the Holders of the Shares and shall use its
best efforts to remove expeditiously all impediments to the
rendering of such opinion.
(xiv) Otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the Commission,
and make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than forty-five (45) days after the
end of any twelve-month period (or ninety (90) days, if such
period is a fiscal year) (A) commencing at the end of any
fiscal quarter in which the Shares are sold to underwriters in
a firm or best efforts underwritten offering, or (B) if not
sold to underwriters in such an offering, beginning with the
first month of the first fiscal quarter of the Company
commencing after the effective date of the registration
statement, which statements shall cover such twelve-month
periods.
(c) After the date hereof, the Company shall not grant to any
holder of securities of the Company any registration rights which have
a priority greater than or equal to those granted to Holders pursuant
to this Warrant without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 10(a) above with
respect to each Holder of Shares are expressly conditioned upon such
Holder's (i) agreeing to sell its securities on the basis provided in
any underwriting arrangements approved by the persons entitled to
approve such arrangements; (ii) furnishing to the Company in writing
such information concerning such Holder and the terms of such Holder's
proposed offering as the Company shall reasonably request for inclusion
in the registration statement and (iii) completing and executing all
questionnaires,
11
<PAGE>
powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting
arrangements and this Warrant Agreement. If any registration statement
including any of the Shares is filed, then the Company shall indemnify
each Holder thereof (and each underwriter for such holder and each
person, if any, who controls such underwriter within the meaning of the
Securities Act) from any loss, claim, damage or liability arising out
of, based upon or in any way relating to any untrue statement of a
material fact contained in such registration statement or any omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except for any
such statement or omission based on information furnished in writing by
such holder of the Shares expressly for use in connection with such
registration statement; and such Holder shall indemnify the Company
(and each of its officers and directors who has signed such
registration statement, each director, each person, if any, who
controls the Company within the meaning of the Securities Act, each
underwriter for the Company and each person, if any, who controls such
underwriter within the meaning of the Securities Act) and each other
such holder against any loss, claim, damage or liability arising from
any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares expressly for use in connection with such registration
statement.
(e) For purposes of this Section 10, all of the Shares shall
be deemed to be issued and outstanding.
23. CERTAIN NOTICES. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders
of its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell of
all or substantially all of its assets to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
12
<PAGE>
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant Agreement, by certified or registered mail, (i) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
24. RIGHTS OF CO-SALE.
(a) None of Edwin C. Hirsch, Michael L. Lowe, Robert J. Brown,
Brad C. Thompson, Andrew J. Walter or Robert W. Hoover (the "Management
Shareholders") shall enter into any transaction that would result in
the sale by it of any Common Stock now or hereafter owned by him,
unless prior to such sale such Management Shareholder shall give
written notice (the "Co-Sale Notice") to Holder addressed and delivered
as set forth in Section 14 hereof, of its intention to effect such sale
in order that Holder may exercise its rights under this Section 12 as
hereinafter described. Such notice shall set forth (i) the number of
shares to be sold by such Management Shareholder, (ii) the principal
terms of the sale, including the price at which the shares are intended
to be sold, and (iii) an offer by such Management Shareholder to use
his best efforts to cause to be included with the shares to be sold by
it in the sale, on a share-by-share basis and on the same terms and
conditions, the Shares issuable or issued to Holder pursuant this
Warrant Agreement.
(b) If Holder has not accepted such offer in writing within a
period of ten (10) days from the date of receipt of the Co-Sale Notice,
then such Management Shareholder shall thereafter be free for a period
of ninety (90) days to sell the number of shares specified in the
Co-Sale Notice, at a price no greater than the price set forth in the
Co-Sale Notice and on otherwise no more favorable terms to such
Management Shareholder than as set forth in the Co-Sale Notice, without
any further obligation to Holder in connection with such sale. In the
event that such Management Shareholder fails to consummate such sale
within such ninety-day period, the shares specified in Co-Sale Notice
shall continue to be subject to this Section 12.
13
<PAGE>
(c) If Holder accepts such offer in writing within ten-day
period, then such acceptance shall be irrevocable unless such
Management Shareholder shall be unable to cause to be included in his
sale the number of Shares of stock held by Holder and set forth in the
written acceptance. In that event, such Management Shareholder and
Holder shall participate in the sale equally, with such Management
Shareholder and Holder each selling half the total number of such
shares to be sold in the sale.
25. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant Agreement.
26. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant Agreement shall be in writing, signed by
the party giving such notice, election or demand and shall be delivered
personally, telecopied, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery to such courier service), as the case may be,
shall be the date of such notice, election or demand. For the purposes of this
Warrant Agreement:
The Address of Lender is: FINOVA Mezzanine Capital Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Attention: Christy Mason
Telecopy No.: 615/726-1208
with a copy (which shall Chambliss, Bahner & Stophel, P.C.
not constitute notice) to: 1000 Tallan Building
Two Union Square
Chattanooga, Tennessee 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No.: 423/265-9574
The Address of Borrower is: Imtek Office Solutions, Inc.
8003 Corporate Drive, Suite C
Baltimore, Maryland 21236
Attention: Brad Thompson
Telecopy No.: 410/931-2837
with a copy (which shall McGuire, Woods, Battle & Boothe, LLP
not constitute notice) to: 7 St. Paul Street, Suite 1000
Baltimore, Maryland 21202
Attention: Patrick M. Shelley, Esq.
Telecopy No.: 410/659-4599
14
<PAGE>
27. SEVERABILITY. If any provisions(s) of this Warrant Agreement or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
28. ENTIRE AGREEMENT. This Warrant Agreement between the Company and
Holder represents the entire agreement between the parties concerning the
subject matter hereof, and all oral discussions and prior agreement are merged
herein.
29. GOVERNING LAW AND AMENDMENTS. This Warrant Agreement shall be
construed and enforced under the laws of the State of Tennessee applicable to
contracts to be wholly performed in such State. No amendment or modification
hereof shall be effective except in a writing executed by each of the parties
hereto.
30. COUNTERPARTS. This Warrant Agreement may be executed in any number
of counterparts and be different parties to this Warrant Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Warrant
Agreement.
31. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. The Company hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Holder
may be a party and which concerns this Warrant Agreement. It is further agreed
that venue for any such action shall lie exclusively with courts sitting in
Davidson County, Tennessee, unless Holder agrees to the contrary in writing.
32. WAIVER OF TRIAL BY JURY. HOLDER AND THE COMPANY HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS WARRANT
AGREEMENT.
33. EQUITY PARTICIPATION. This Warrant Agreement is issued in
connection with the Loan Agreement. It is intended that this Warrant Agreement
constitute an equity participation under and pursuant to T.C.A. ss.47-24-101, ET
SEQ. and that equity participation be permitted under said statutes and not
constitute interest on the Note. If under any circumstances whatsoever,
fulfillment of any obligation of this Warrant Agreement, the Loan Agreement, or
any other agreement or document executed in connection with the Loan Agreement,
shall violate the lawful limit of any applicable usury statute or any other
applicable law with regard to obligations of like character and amount, then the
obligation to be fulfilled shall be reduced to such lawful limit, such that in
no event shall there occur, under this Warrant Agreement, the Loan Agreement, or
any other document or instrument executed in connection with the Loan Agreement,
any violation of such
15
<PAGE>
lawful limit, but such obligation shall be fulfilled to
the lawful limit. If any sum is collected in excess of the lawful limit, such
excess shall be applied to reduce the principal amount of the Note.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY:
IMTEK OFFICE SOLUTIONS, INC., a
Delaware corporation
By:
-------------------------------
Title:
----------------------------
HOLDER:
FINOVA MEZZANINE CAPITAL INC.,
a Tennessee corporation f/k/a
Sirrom Capital Corporation
By:
-------------------------------
Title:
----------------------------
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Warrant Agreement to be executed as of the date first above written for the
purpose of agreeing to the terms and conditions of Section 12 hereof.
MANAGEMENT SHAREHOLDERS:
/s/ Edwin C. Hirsch
--------------------
Edwin C. Hirsch
/s/ Michael L. Lowe
-------------------
Michael L. Lowe
/s/ Robert J. Brown
-------------------
Robert J. Brown
/s/ Brad C. Thompson
--------------------
Brad C. Thompson
/s/ Andrew J Walter
-------------------
Andrew J. Walter
/s/ Robert W. Hoover
--------------------
Robert W. Hoover
17
<PAGE>
EXHIBIT 10.10.1
LOAN AND SECURITY AGREEMENT
between
IMTEK CORPORATION,
A Maryland Corporation
and
BARBERA BUSINESS SYSTEMS, INC.,
A Maryland Corporation
Collectively, "BORROWERS"
and
THE PROVIDENT BANK,
An Ohio Chartered Banking Institution
"LENDER"
$10,000,000 REVOLVING LINE OF CREDIT
Dated: July 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 - DEFINITIONS...........................................................................................1
Section 1.1. Account Debtor...........................................................................2
Section 1.2. Accounts, Chattel Paper, Documents, Equipment, Fixtures, General
Intangibles, Goods, Instruments and Investment Property..................................2
Section 1.3. Affiliate. .............................................................................2
Section 1.4. Agreement. .............................................................................2
Section 1.5. Borrowing Base...........................................................................2
Section 1.6. Business Day. ..........................................................................3
Section 1.7. Capital Adequacy Requirement. ..........................................................3
Section 1.8. Capital Expenditures.....................................................................3
Section 1.9. Capital Lease. .........................................................................3
Section 1.10. Capital Lease Obligations. .............................................................3
Section 1.11. Closing. ...............................................................................3
Section 1.12. Code. ..................................................................................3
Section 1.13. Collateral. ............................................................................4
Section 1.14. Collection Account. ....................................................................4
Section 1.15. Commercial Account. ....................................................................4
Section 1.16. Companies................................................................................4
Section 1.17. Consolidated Capital Expenditures. .....................................................4
Section 1.18. Consolidated EBITDA......................................................................4
Section 1.19. Consolidated Fixed Charge Coverage Ratio.................................................4
Section 1.20. Consolidated Interest Coverage Ratio.....................................................5
Section 1.21. Consolidated Interest Expense............................................................5
Section 1.22. Consolidated Liabilities.................................................................5
Section 1.23. Consolidated Net Worth...................................................................5
Section 1.24. Consolidated Total Funded Indebtedness...................................................5
Section 1.25. Default. ...............................................................................5
Section 1.26. Dollar Cap. ............................................................................5
Section 1.27. EBITDA...................................................................................5
Section 1.28. Eligible Accounts. .....................................................................5
Section 1.29. Eligible Inventory. ....................................................................7
Section 1.30. Employee Benefit Plan. .................................................................7
Section 1.31. Environmental Laws. ....................................................................7
Section 1.32. EPA Permit. ............................................................................8
Section 1.33. ERISA. .................................................................................8
Section 1.34. ERISA Affiliate. .......................................................................8
Section 1.35. ERISA Liabilities. .....................................................................8
Section 1.36. Event Of Default. ......................................................................8
Section 1.37. Excess Availability. ...................................................................8
Section 1.38. Facilities. ............................................................................9
Section 1.39. FINOVA. ................................................................................9
Section 1.40. Fiscal Year. ...........................................................................9
Section 1.41. G.A.A.P. ...............................................................................9
Section 1.42. Guaranteed Pension Plan. ...............................................................9
Section 1.43. Guarantors. ............................................................................9
Section 1.44. Guaranty Agreements. ...................................................................9
Section 1.45. Guaranty Indebtedness. .................................................................9
Section 1.46. Indebtedness. .........................................................................10
Section 1.47. Insolvency Proceedings. ...............................................................10
Section 1.48. Interest Expense........................................................................10
Section 1.49. Interest Rate Protection Agreement. ...................................................10
Section 1.50. Inventory. ............................................................................10
Section 1.51. Laws. .................................................................................10
Section 1.52. Lender Expenses. ......................................................................11
i
<PAGE>
<CAPTION>
PAGE
<S> <C>
Section 1.53. Letters Of Credit. ....................................................................11
Section 1.54. Liabilities.............................................................................11
Section 1.55. Loan. .................................................................................11
Section 1.56. Loan Documents. .......................................................................11
Section 1.57. Lock Box. .............................................................................12
Section 1.58. Material Adverse Event. ...............................................................12
Section 1.59. Maximum Loan Amount. ..................................................................12
Section 1.60. Multiemployer Plan. ...................................................................12
Section 1.61. Net Worth...............................................................................12
Section 1.62. Note. .................................................................................12
Section 1.63. Obligations. ..........................................................................12
Section 1.64. Permitted Liens. ......................................................................13
Section 1.65. Person. ...............................................................................13
Section 1.66. Qualified Purchase Order. .............................................................13
Section 1.67. Receivables. ..........................................................................14
Section 1.68. Records. ..............................................................................14
Section 1.69. Regulated Substance. ..................................................................14
Section 1.70. Release. ..............................................................................14
Section 1.71. Restricted Payment. ...................................................................14
Section 1.72. Solvent. ..............................................................................14
Section 1.73. Subordinated Debt.......................................................................14
Section 1.74. Subsidiary. ...........................................................................15
Section 1.75. Termination Event. ....................................................................15
Section 1.76. Total Funded Indebtedness...............................................................15
ARTICLE 2 - TERMS OF THE LOAN....................................................................................15
Section 2.1. Agreement To Extend The Loan............................................................15
Section 2.1.1. Conditions Precedent To Each Advance....................................................16
Section 2.1.2. Interest And Lender=s Records...........................................................17
Section 2.1.3. Commitment Fee..........................................................................17
Section 2.1.4. Facility Fee............................................................................17
Section 2.1.5. Termination Fee.........................................................................17
Section 2.1.6. Term....................................................................................18
Section 2.1.7. Purpose.................................................................................18
Section 2.2. Letters Of Credit.......................................................................18
Section 2.2.1. Issuance Of Letters Of Credit. ........................................................18
Section 2.2.2. Rights And Remedies Of The Lender. ....................................................18
Section 2.2.3. Indemnification. ......................................................................19
Section 2.2.4. Reimbursement Obligations. ............................................................19
Section 2.2.5. Fees, Charges And Other Terms. ........................................................19
Section 2.3. Capital Adequacy. .....................................................................19
Section 2.4. Payments. .............................................................................20
Section 2.5. Advancements. .........................................................................20
Section 2.6. Cross-Guaranty; Waiver Of Suretyship Defenses; Subordination. .........................20
Section 2.6.1. Cross-Guaranty. .......................................................................20
Section 2.6.2. Postponement of Subrogation. ..........................................................21
Section 2.6.3. Subordination. ........................................................................21
Section 2.6.4. Joint And Several Liability; Appointment Of Agent. .....................................21
ARTICLE 3 - SECURITY FOR THE OBLIGATIONS.........................................................................22
Section 3.1. Grant Of Security Interest. ...........................................................22
Section 3.2. Proceeds And Products. ................................................................22
Section 3.3. Priority Of Security Interests. .......................................................22
Section 3.4. Future Advances. ......................................................................22
Section 3.5. Receivable Collections. ...............................................................22
Section 3.6. Collection Of Receivables By Lender. ...................................................23
Section 3.7. Maintenance Of Principal Accounts.......................................................24
Section 3.8. Guaranty Agreements. ..................................................................24
Section 3.9. Further Assurances. ...................................................................24
ii
<PAGE>
<CAPTION>
PAGE
<S> <C>
Section 3.10. Fair Labor Standards Act. .............................................................25
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES.......................................................................25
Section 4.1. Accuracy Of Information. ..............................................................25
Section 4.2. No Litigation. ........................................................................25
Section 4.3. No Liability Or Adverse Change. .......................................................25
Section 4.4. Title To Collateral. ..................................................................25
Section 4.5. Authority; Approvals And Consents. ....................................................25
Section 4.5.1. Authority. ............................................................................26
Section 4.5.2. Approvals. ............................................................................26
Section 4.5.3. Consents. .............................................................................26
Section 4.6. Binding Effect Of Documents, Etc. .....................................................26
Section 4.7. Other Names. ..........................................................................26
Section 4.8. No Events Of Default. .................................................................26
Section 4.9. Guaranty Agreements. ..................................................................27
Section 4.10. Taxes. ................................................................................27
Section 4.11. Compliance With Laws. .................................................................27
Section 4.12. Chief Place Of Business. ..............................................................27
Section 4.13. Location Of Inventory. ................................................................27
Section 4.14. No Subsidiaries. ......................................................................27
Section 4.15. No Labor Agreements. ..................................................................27
Section 4.16. Eligible Accounts. ....................................................................27
Section 4.17. Eligible Inventory. ...................................................................28
Section 4.18. Approvals. ............................................................................28
Section 4.19. Financial Statements. .................................................................28
Section 4.20. Solvency. .............................................................................28
Section 4.21. Fair Labor Standards Act. .............................................................28
Section 4.22. Employee Benefit Plans. ...............................................................28
Section 4.22.1. Compliance. ...........................................................................28
Section 4.22.2. Absence Of Termination Event. .........................................................29
Section 4.22.3. Actuarial Value. ......................................................................29
Section 4.22.4. No Withdrawal Liability. ..............................................................29
Section 4.23. Environmental Conditions. .............................................................29
Section 4.23.1. Existence Of Permits. .................................................................29
Section 4.23.2. Compliance With Permits. ..............................................................29
Section 4.23.3. No Litigation. ........................................................................29
Section 4.23.4. No Releases. ..........................................................................29
Section 4.23.5. Transportation. .......................................................................30
Section 4.23.6. No Violation Notices. .................................................................30
Section 4.23.7. No Notice Of Violations. ..............................................................30
Section 4.24. Year 2000. ............................................................................30
ARTICLE 5 - AFFIRMATIVE COVENANTS................................................................................30
Section 5.1. Payment. ..............................................................................30
Section 5.2. Insurance. ............................................................................30
Section 5.3. Books And Records. ....................................................................31
Section 5.4. Collection Of Accounts; Sale Of Inventory. ............................................31
Section 5.5. Notice Of Litigation And Proceedings. .................................................31
Section 5.6. Payment Of Liabilities To Third Persons. ..............................................31
Section 5.7. Notice Of Change Of Business Location. .................................................31
Section 5.8. Payment Of Taxes. .....................................................................32
Section 5.9. Inspections Of Records. ...............................................................32
Section 5.10. Notice Of Events Affecting Collateral; Compromise Of Receivables;
Returned Or Repossessed Goods. ........................................................32
Section 5.11. Documentation Of Collateral. ..........................................................33
Section 5.12. Reporting Requirements. ...............................................................33
Section 5.12.1. Inventory Reports. ....................................................................33
Section 5.12.2. Receivables And Accounts Payable Reports. .............................................33
Section 5.12.3. Borrowing Base Report. ................................................................33
iii
<PAGE>
<CAPTION>
PAGE
<S> <C>
Section 5.12.4. Monthly Financial Statements............................................................33
Section 5.12.5. Annual Financial Statements.............................................................34
Section 5.12.6. SEC And Other Filings...................................................................34
Section 5.12.7. Management Letters. ...................................................................34
Section 5.12.8. Certificates Of No Default. ...........................................................34
Section 5.12.9. Reports To Other Creditors. ...........................................................35
Section 5.12.10. Management Changes. ...................................................................35
Section 5.12.11. General Information.....................................................................35
Section 5.13. Employee Benefit Plans And Guaranteed Pension Plans. ..................................35
Section 5.14. Maintenance Of Fixed Assets. ..........................................................36
Section 5.15. Consignments. .........................................................................36
Section 5.16. Federal Assignment Of Claims Act. .....................................................36
Section 5.17. Compliance With Laws. .................................................................36
Section 5.18. Consolidated Financial Covenants........................................................37
Section 5.18.1. Minimum Consolidated Net Worth..........................................................37
Section 5.18.2. Ratio Of Consolidated Liabilities To Consolidated Net Worth.............................37
Section 5.18.3. Consolidated Interest Coverage Ratio....................................................38
Section 5.18.4. Consolidated Fixed Charge Coverage Ratio................................................38
Section 5.19. Year 2000. ............................................................................39
ARTICLE 6 - NEGATIVE COVENANTS...................................................................................39
Section 6.1. No Change Of Name, Merger, Etc. .......................................................39
Section 6.2. No Sale Or Transfer Of Assets. ........................................................39
Section 6.3. No Encumbrance Of Assets. .............................................................39
Section 6.4. No Indebtedness. ......................................................................39
Section 6.5. Restricted Payments. ..................................................................39
Section 6.6. Transactions With Affiliates. .........................................................39
Section 6.7. Loans, Investments And Sale-Leasebacks. ...............................................39
Section 6.8. No Acquisition Of Equity In Or Assets Of Third Persons. ...............................40
Section 6.9. No Assignment. ........................................................................40
Section 6.10. No Alteration Of Structure Or Operations. .............................................40
Section 6.11. Unpermitted Uses Of Loan Proceeds. ....................................................40
Section 6.12. Long Term Contracts. ..................................................................40
Section 6.13. Changes In Fiscal Year. ...............................................................40
Section 6.14. Limitation On Issuance Of Equity Interests. ...........................................40
Section 6.15. Capital Expenditures....................................................................40
ARTICLE 7 - EVENTS OF DEFAULT....................................................................................40
Section 7.1. Failure To Pay. .......................................................................41
Section 7.2. Violation Of Covenants. ...............................................................41
Section 7.3. Representation Or Warranty. ...........................................................41
Section 7.4. Default Under Loan Documents. .........................................................41
Section 7.5. Cross-Default. ........................................................................41
Section 7.6. Judgments. ............................................................................41
Section 7.7. Levy By Judgment Creditor. ............................................................41
Section 7.8. Failure To Pay Liabilities. ...........................................................41
Section 7.9. Involuntary Insolvency Proceedings. ...................................................41
Section 7.10. Voluntary Insolvency Proceedings. ......................................................42
Section 7.11. Insolvency Proceedings Pertaining To Guarantors. ......................................42
Section 7.12. Material Adverse Event. ...............................................................42
Section 7.13. Default By Guarantors. ................................................................42
Section 7.14. Attempt To Terminate Guaranties. ......................................................42
Section 7.15. ERISA. ................................................................................42
Section 7.16. Transfer Of Equity Interests. .........................................................42
Section 7.17. Indictment Of Borrowers Or Guarantors. ................................................43
Section 7.18. Injunction. ...........................................................................43
Section 7.19. Notice And Cure Rights. ...............................................................43
ARTICLE 8 - RIGHTS AND REMEDIES ON THE OCCURRENCE OF
AN EVENT OF DEFAULT..............................................................................................43
Section 8.1. Lender=s Specific Rights And Remedies. ................................................43
iv
<PAGE>
<CAPTION>
PAGE
<S> <C>
Section 8.2. Automatic Acceleration. ...............................................................43
Section 8.3. Sale Of Collateral. ...................................................................44
Section 8.4. Remedies Cumulative. ..................................................................44
ARTICLE 9 - GENERAL CONDITIONS AND TERMS.........................................................................44
Section 9.1. Obligations Are Unconditional. ........................................................44
Section 9.2. Indemnity. ............................................................................45
Section 9.3. Lender Expenses. ......................................................................45
Section 9.4. Authorization To Obtain Financial Information. ........................................45
Section 9.5. Incorporation; Construction Of Inconsistent Provisions. ...............................45
Section 9.6. Waivers. ..............................................................................45
Section 9.7. Continuing Obligation Of Borrowers. ...................................................46
Section 9.8. Choice Of Law. ........................................................................46
Section 9.9. Submission To Jurisdiction; Venue; Actions Against Lender. ............................46
Section 9.9.1. Jurisdiction. .........................................................................46
Section 9.9.2. Venue. ................................................................................46
Section 9.9.3. Waiver Of Objections To Venue. ........................................................46
Section 9.10. Notices. ..............................................................................47
Section 9.11. Participations. .......................................................................48
Section 9.12. Miscellaneous Provisions. .............................................................48
Section 9.13. Waiver Of Trial By Jury. ..............................................................48
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
SCHEDULES
<S> <C>
Schedule 1.64 Permitted Liens
Schedule 4.2 Litigation
Schedule 4.7 Other Names
Schedule 4.12 Chief Place Of Business
Schedule 4.13 Location Of Inventory
Schedule 4.19 Liabilities And Obligations Not Disclosed In Financial Statements
</TABLE>
vi
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of July 1, 1999 by and
between IMTEK CORPORATION (AIMTEK@), a Maryland corporation, and BARBERA
BUSINESS SYSTEMS, INC. (ABARBERA@), a Maryland corporation (collectively,
ABORROWERS@); and THE PROVIDENT BANK, an Ohio chartered banking institution
(ALENDER@).
RECITALS
The BORROWERS have requested that the LENDER extend various credit
accommodations to the BORROWERS. The LENDER is willing to provide the requested
credit accommodations upon the terms and conditions of this Loan And Security
Agreement, and upon the granting by the BORROWERS to the LENDER of the security
interests, liens, and other assurances of payment provided for in this Loan And
Security Agreement.
The BORROWERS' businesses are a mutual and collective enterprise and
the BORROWERS believe that the consolidation of their facilities and other
financial accommodations in accordance with the terms of this Loan And Security
Agreement will enhance the aggregate borrowing powers of the BORROWERS and ease
the administration of their loan relationship with the LENDER, all to the mutual
advantage of the BORROWERS. In order to utilize the financial powers of the
BORROWERS in the most efficient and economical manner, and in order to
facilitate the administration of their financing needs, the LENDER will, at the
request of a BORROWER, extend financial accommodations to both of the BORROWERS
on a combined basis in accordance with the provisions set forth in this Loan And
Security Agreement. The LENDER'S willingness to extend credit to the BORROWERS
and to administer the collateral security therefor on a combined basis as more
fully set forth in this Loan And Security Agreement is done solely as an
accommodation to the BORROWERS and at the BORROWERS' joint request and in
furtherance of the BORROWERS' mutual and collective enterprise.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Loan And Security Agreement, the terms set forth in
this Article 1 have the meanings set forth below, unless the specific context of
this Loan And Security Agreement clearly requires a different meaning. Terms
defined in this Article 1 or elsewhere in this Loan And Security Agreement are
in all capital letters throughout this Loan And Security Agreement. The singular
use of any defined term includes the plural and the plural use includes the
singular.
Section 1.1. ACCOUNT DEBTOR. The term AACCOUNT DEBTOR@ means
collectively each PERSON: (a) to or for whom either or both of the BORROWERS has
provided or has agreed to provide any goods or services; or (b) which owes
either or both of the BORROWERS any sum of money as a result of goods sold or
services provided by either or both of the BORROWERS; or (c) which is
<PAGE>
the maker or endorser on any INSTRUMENT payable to either or both of the
BORROWERS or otherwise owes either or both of the BORROWERS any sum of money on
account of any loan or other payment obligation. With respect to each RECEIVABLE
which is payable by any governmental authority, AACCOUNT DEBTOR@ includes,
without limitation, the agency, instrumentality or official which has the duty
of remitting or causing the remittance of the amounts owing on such ACCOUNT or
other RECEIVABLE.
Section 1.2. ACCOUNTS, CHATTEL PAPER, DOCUMENTS, EQUIPMENT, FIXTURES,
GENERAL INTANGIBLES, GOODS, INSTRUMENTS AND INVESTMENT PROPERTY. The terms
AACCOUNTS,@ ACHATTEL PAPER,@ ADOCUMENTS,@ AEQUIPMENT,@ AGENERAL INTANGIBLES,@
AGOODS,@ AINSTRUMENTS,@ and AINVESTMENT PROPERTY@ shall have the same respective
meanings as are given to those terms in the UNIFORM COMMERCIAL CODE-SECURED
TRANSACTIONS, Title 9, COMMERCIAL LAW ARTICLE, ANNOTATED CODE OF MARYLAND, as
amended. The term AFIXTURES@ shall have the meaning provided by the common law
of the state in which the fixtures are located.
Section 1.3. AFFILIATE. The term AAFFILIATE@ means collectively any
PERSON: (a) that directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with either or both of
the BORROWERS, including, without limitation, the officers, managers and
directors of the BORROWERS; (b) that directly or beneficially owns or holds ten
percent (10%) or more of any equity interests in either or both of the
BORROWERS; or (c) ten percent (10%) or more of whose equity interests are owned
directly or controlled by either or both of the BORROWERS. As used herein, the
term Acontrol@ (including, with correlative meanings, the terms Acontrolled by@
and Aunder common control with@) shall mean possession, directly or indirectly,
of the power to direct the management or policies of a PERSON, whether through
ownership of equity interests, by contract or otherwise.
Section 1.4. AGREEMENT. The term AAGREEMENT@ means this Loan And
Security Agreement, as amended, extended, or modified from time to time by the
parties hereto, as well as all schedules, exhibits and attachments hereto.
Section 1.5. BORROWING BASE. The term ABORROWING BASE@ means an amount
equal to: (a) seventy-five percent (75%) of the face amount (less maximum
discounts, credits and allowances which may be taken by or are granted to
ACCOUNT DEBTORS in connection therewith) of billed ELIGIBLE ACCOUNTS of the
BORROWERS; PLUS (b) the lesser of (i) Four Million Dollars ($4,000,000), or (ii)
the sum of (x) sixty percent (60%) of the LENDER'S valuation of the ELIGIBLE
INVENTORY of the BORROWERS which consists of new equipment held as INVENTORY,
(y) forty percent (40%) of the LENDER'S valuation of the ELIGIBLE INVENTORY of
the BORROWERS that consists of new parts and supplies or of used equipment held
as INVENTORY (provided each unit of used equipment shall not be valued at more
than One Hundred Dollars ($100.00) per unit), and (z) one hundred percent (100%)
of the face amount of QUALIFIED PURCHASE ORDERS for INVENTORY of the BORROWERS
which meets all of the criteria for ELIGIBLE INVENTORY other than the criteria
set forth in Sections 1.35(e) and 1.35(k), not to exceed One Million Dollars
($1,000,000) in aggregate amount at any one time; MINUS (c) the aggregate stated
amount of all outstanding LETTERS OF CREDIT and unsatisfied reimbursement
obligations of the BORROWERS arising out of LETTERS OF CREDIT and such reserves
as the LENDER deems appropriate from
<PAGE>
time to time, including without limitation, reserves determined by the LENDER to
be reasonably appropriate with respect to bankers' acceptances, GUARANTY
INDEBTEDNESS, INTEREST RATE PROTECTION AGREEMENTS, and other obligations of the
BORROWERS.
Section 1.6. BUSINESS DAY. The term ABUSINESS DAY@ means any day other
than a Saturday, Sunday, or other day on which commercial banking institutions
in the State of Maryland are required to be closed.
Section 1.7. CAPITAL ADEQUACY REQUIREMENT. The term ACAPITAL ADEQUACY
REQUIREMENT@ means any LAW imposing any capital adequacy requirement or any
other similar requirement (including but not limited to the capital adequacy
regulations contained in Parts 3, 208 and 225 of Title 12 of the CODE OF FEDERAL
REGULATIONS, as amended), any change in such LAWS or in the interpretation or
application thereof, and any request or directive regarding capital adequacy
(whether or not having the force of law) from any central bank or government
authority.
Section 1.8. CAPITAL EXPENDITURES. The term "CAPITAL EXPENDITURES"
means, for any period, the aggregate of all expenditures (whether paid in cash
or accrued as liabilities and including expenditures on liabilities for CAPITAL
LEASE OBLIGATIONS) by the referenced PERSON during such period that are required
by G.A.A.P. to be included in or reflected by the property, plant, equipment or
similar capital asset accounts on the consolidated balance sheet of the
referenced PERSON.
Section 1.9. CAPITAL LEASE. The term ACAPITAL LEASE@ means a lease with
respect to which the lessee=s obligations thereunder should, in accordance with
G.A.A.P., be capitalized and reflected as a liability on the balance sheet of
the lessee.
Section 1.10. CAPITAL LEASE OBLIGATIONS. The term ACAPITAL LEASE
OBLIGATIONS@ means any indebtedness incurred as a lessee pursuant to a CAPITAL
LEASE.
Section 1.11. CLOSING. The term ACLOSING@ means the execution and
delivery of this AGREEMENT, the NOTE, and various other LOAN DOCUMENTS. The date
of CLOSING is the date written above as the date of this AGREEMENT.
Section 1.12. CODE. The term ACODE@ means the INTERNAL REVENUE CODE OF
1986, as amended, and all Treasury regulations, revenue rulings, revenue
procedures or announcements issued thereunder.
Section 1.13. COLLATERAL. The term ACOLLATERAL@ means all of the
tangible and intangible assets of either or both of the BORROWERS, wherever
located, whether now owned or hereafter acquired by the BORROWERS, together with
all substitutions therefor, and all replacements and renewals thereof, and all
accessions, additions, replacement parts, manuals, warranties and packaging
relating thereto, including but not limited to the following tangible and
intangible assets and property rights of either of the BORROWERS: (a) ACCOUNTS;
(b) CHATTEL PAPER; (c) DOCUMENTS; (d) EQUIPMENT; (e) FIXTURES; (f) GENERAL
INTANGIBLES; (g) GOODS; (h) INSTRUMENTS; (i) INVENTORY, including returned,
rejected, or repossessed INVENTORY and rights of reclamation and stoppage in
transit with respect to INVENTORY; (j) INVESTMENT PROPERTY; (k) RECEIVABLES; (l)
deposit accounts; (m) letter of
3
<PAGE>
credit rights; (n) copyrights, trademarks, patents, and all pending applications
thereof; and (o) all RECORDS relating to or pertaining to any of the above
listed COLLATERAL.
Section 1.14. COLLECTION ACCOUNT. The term ACOLLECTION ACCOUNT@ means a
bank account designated by the LENDER from which the LENDER alone has power of
access and withdrawal.
Section 1.15. COMMERCIAL ACCOUNT. The term ACOMMERCIAL ACCOUNT@ means
the commercial checking account to be established and maintained by either or
both of the BORROWERS with the LENDER and which may be utilized as the means of
advancing funds under the LOAN.
Section 1.16. COMPANIES. The term ACOMPANIES@ means collectively the
BORROWERS and the GUARANTORS.
Section 1.17. CONSOLIDATED CAPITAL EXPENDITURES. The term "CONSOLIDATED
CAPITAL EXPENDITURES" means, for any period, the aggregate of all CAPITAL
EXPENDITURES of the COMPANIES and their SUBSIDIARIES.
Section 1.18. CONSOLIDATED EBITDA. The term ACONSOLIDATED EBITDA@
means, with respect to any period, the consolidated EBITDA of the COMPANIES and
their SUBSIDIARIES, as determined in accordance with G.A.A.P. for such period of
determination.
Section 1.19. CONSOLIDATED FIXED CHARGE COVERAGE RATIO. The term
ACONSOLIDATED FIXED CHARGE COVERAGE RATIO@ means, with respect to any period,
the COMPANIES= (and their SUBSIDIARIES') ratio of: (a) CONSOLIDATED EBITDA for
that period MINUS CONSOLIDATED CAPITAL EXPENDITURES for such period of
determination that are not financed with the use of borrowed funds or CAPITAL
LEASES for such period of determination; to (b) principal payments and
prepayments of principal on the CONSOLIDATED TOTAL FUNDED INDEBTEDNESS, paid or
scheduled to be paid during such period of determination (except payments of
principal made upon non-amortizing INDEBTEDNESS), PLUS CONSOLIDATED INTEREST
EXPENSE for such period, PLUS payments under all CAPITAL LEASES paid or
scheduled to be paid during such period of determination, plus taxes paid or
accrued during the period of determination.
Section 1.20. CONSOLIDATED INTEREST COVERAGE RATIO. The term
ACONSOLIDATED INTEREST COVERAGE RATIO@ means the ratio of CONSOLIDATED EBITDA to
CONSOLIDATED INTEREST EXPENSE.
Section 1.21. CONSOLIDATED INTEREST EXPENSE. The term ACONSOLIDATED
INTEREST EXPENSE@ means, for any period of determination, all INTEREST EXPENSE
of the COMPANIES and their SUBSIDIARIES for such period of determination.
Section 1.22. CONSOLIDATED LIABILITIES. The term ACONSOLIDATED
LIABILITIES@ means the aggregate amount of the LIABILITIES of the COMPANIES and
their SUBSIDIARIES, excluding intercompany items.
Section 1.23. CONSOLIDATED NET WORTH. The term ACONSOLIDATED NET WORTH@
means the consolidated NET WORTH of the COMPANIES and their SUBSIDIARIES, as
determined in accordance with G.A.A.P.
4
<PAGE>
Section 1.24. CONSOLIDATED TOTAL FUNDED INDEBTEDNESS. The term
ACONSOLIDATED TOTAL FUNDED INDEBTEDNESS@ means the consolidated TOTAL FUNDED
INDEBTEDNESS of the COMPANIES and their SUBSIDIARIES as determined in accordance
with G.A.A.P.
Section 1.25. DEFAULT. The term ADEFAULT@ means any event, occurrence
or omission which, with the giving of notice, the passage of time, or both,
would constitute an EVENT OF DEFAULT.
Section 1.26. DOLLAR CAP. The term ADOLLAR CAP@ means Ten Million
Dollars ($10,000,000).
Section 1.27. EBITDA. The term AEBITDA@ means, with respect to any
period of determination, the earnings of the referenced PERSON for such period
of determination before interest, taxes, depreciation, and amortization, and
without regard to gains or losses arising from asset sales not in the ordinary
course of business, all as determined in accordance with G.A.A.P.
Section 1.28. ELIGIBLE ACCOUNTS. The term AELIGIBLE ACCOUNTS@ means
those ACCOUNTS which are acceptable to the LENDER. The criteria for eligibility
may be fixed and revised from time to time by the LENDER in its discretion. An
ACCOUNT in no event shall be deemed eligible unless: (a) the ACCOUNT arises from
goods sold or leased in the ordinary course of business of either or both of the
BORROWERS; (b) the delivery of the goods or the performance of the services has
been completed; (c) no return, rejection, or repossession has occurred; (d) the
goods delivered or the services performed have been finally and unconditionally
accepted by the ACCOUNT DEBTOR without dispute, objection, complaint, offset,
defense, counterclaim, adjustment or allowance; (e) the ACCOUNT DEBTOR'S
obligation to pay the ACCOUNT is not subject to any repurchase obligation or
return right, as with sales made on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval (except with respect to ACCOUNTS in connection
with which ACCOUNT DEBTORS are entitled to return INVENTORY solely on the basis
of the quality of such INVENTORY) or consignment basis; (f) no more than ninety
(90) days have elapsed from the billing or invoice date and no more than sixty
(60) days have elapsed from the due date; (g) no prior, contemporaneous, or
subsequent assignment, claim, lien, or security interest, other than that of the
LENDER, applies to the ACCOUNT; (h) no bankruptcy or insolvency proceedings or
payment moratoriums of any kind apply to the ACCOUNT; (i) the ACCOUNT DEBTOR is
not, in the LENDER=S sole opinion, unlikely to pay because of death,
incompetency, disappearance, potential bankruptcy, insolvency, damage to or
disposition of the goods, default, or any other reason whatsoever; (j) the
LENDER has not, by notice to either or both of the BORROWERS, in the LENDER=S
sole discretion, deemed the ACCOUNT unsatisfactory for any reason; (k) no
bonding company or surety asserts or has the ability to assert any claim based
upon the legal doctrine of equitable subrogation, or under any other right to
claim a lien into or right to payment of the ACCOUNT; (l) the ACCOUNT does not
arise from or pertain to any transaction with any AFFILIATE; (m) the ACCOUNT
does not arise from any maintenance or services agreements; (n) the ACCOUNT is
not payable from any ACCOUNT DEBTOR located outside of the geographic boundaries
of the United States of America (unless such ACCOUNT is
5
<PAGE>
fully secured by a letter of credit or credit insurance acceptable to the
LENDER); (o) the BORROWER is legally empowered to collect the ACCOUNT against
the ACCOUNT DEBTOR in the jurisdiction in which the ACCOUNT DEBTOR is located;
(p) the ACCOUNT is not payable by an ACCOUNT DEBTOR with respect to which more
than twenty-five percent (25%) of the dollar amount of that ACCOUNT DEBTOR=S
RECEIVABLES to either or both of the BORROWERS are more than ninety (90) days
due from the date of invoice or more than sixty (60) days due from the due date;
(q) the ACCOUNT does not arise from any contract or agreement with any federal,
state, local or foreign government unless such governmental authority is the
United States of America or an agency or representative thereof and the LENDER
has obtained full compliance to its complete satisfaction with all provisions
necessary to protect the LENDER=S interests under THE ASSIGNMENT OF CLAIMS ACT
of 1940, as amended, and all regulations promulgated thereunder, and all other
applicable federal procurement laws and regulations; (r) the LENDER has a
perfected first priority security interest therein; (s) the ACCOUNT is not
subject to any filed financing statement or other public lien filings by anyone
other than the LENDER, unless any such financing statement is subordinated to
the LENDER'S security interests and liens in accordance with written agreements
acceptable to the LENDER; and (t) the ACCOUNT does not arise from the sale or
lease of any INVENTORY in which any PERSON other than the LENDER claims a
security interest or lien, unless such PERSON has expressly agreed to
subordinate such security interest or lien to the liens of the LENDER in
accordance with written agreements acceptable to the LENDER. An ACCOUNT which
otherwise satisfies the LENDER=S criteria for eligibility shall also be subject
to the following eligibility limitations: (i) if the ACCOUNT is payable by an
ACCOUNT DEBTOR to whom either or both of the BORROWERS owes money, only the
portion of the ACCOUNT in excess of the amount owed by either or both of the
BORROWERS to the ACCOUNT DEBTOR may be eligible; (ii) if the ACCOUNT is due from
an ACCOUNT DEBTOR whose ACCOUNTS in the aggregate constitute in excess of ten
percent (10%) of all of the ACCOUNTS of either or both of the BORROWERS, only
the portion of the aggregate amount of the ACCOUNTS from that ACCOUNT DEBTOR
which does not exceed ten percent (10%) of all of the ACCOUNTS of either or both
of the BORROWERS may be eligible; and (iii) to the extent the ACCOUNT contains
finance charges, delivery charges or sales taxes, such finance charges, delivery
charges or sales taxes shall not be eligible.
Section 1.29. ELIGIBLE INVENTORY. The term AELIGIBLE INVENTORY@ means
all INVENTORY owned by either or both of the BORROWERS which is acceptable to
the LENDER to be included in the calculation of the BORROWING BASE. The criteria
for eligibility may be fixed and revised by the LENDER from time to time in its
discretion. INVENTORY in no event shall be deemed to be eligible unless: (a) the
LENDER has a first priority perfected security interest in the INVENTORY; (b) no
vender, supplier or other PERSON claims any security interest or lien in or to
the INVENTORY which is not expressly subordinated to the LENDER'S securities
interests or liens therein; (c) it is normally and currently saleable in the
ordinary course of business of either or both of the BORROWERS; (d) it is not
raw materials or work in process; (e) it is located on the premises of either of
the BORROWERS; (f) it does not consist of obsolete, returned or repossessed
items of INVENTORY or used goods or goods taken in trade; (g) it does not
consist of slow moving items or items determined by the LENDER in its sole
discretion to be stale or dated merchandise; (h) it does not consist of packing
materials, catalogs,
6
<PAGE>
promotion materials, items used as demonstrators, prototypes, or salesman=s
samples; (i) it does not consist of an item consigned to either or both of the
BORROWERS or with respect to which any PERSON claims a lien; (j) it has not been
consigned by either or both of the BORROWERS to a consignee; (k) it has not been
leased by any PERSON; (l) it is not held by any PERSON (other than the BORROWER)
or located upon any premises not owned in fee simple by the BORROWER unless such
PERSON or the owner of such premises has executed a lien waiver agreement in
form and substance satisfactory to the LENDER; and (m) it has not been deemed
unsatisfactory by the LENDER for any reason, in the LENDER=S sole discretion, by
written notice to either or both of the BORROWERS. The value of any INVENTORY
deemed to meet the criteria for ELIGIBLE INVENTORY shall be determined at the
least of: (i) the BORROWERS= net purchase or manufacturing cost; (ii) the lowest
then-existing market price; (iii) the BORROWERS= lowest selling price, less
estimated expenses for packing, selling and delivery; or (iv) any price ceiling
which may be established by governmental order, regulation, or restriction. The
LENDER shall be the discretionary judge of the value of any INVENTORY, based
upon such information as it deems in its discretion to be relevant or applicable
in making that determination.
Section 1.30. EMPLOYEE BENEFIT PLAN. The term AEMPLOYEE BENEFIT PLAN@
means an Aemployee benefit plan@ as defined in Section 3(3) of ERISA.
Section 1.31. ENVIRONMENTAL LAWS. The term AENVIRONMENTAL LAWS@ means
individually or collectively any local, state or federal LAW, statute, rule,
regulation, order, ordinance, common law, permit or license term or condition,
or state superlien or environmental clean-up or disclosure statutes pertaining
to the environment or to environmental contamination, regulation, management,
control, treatment, storage, disposal, containment, removal, clean-up,
reporting, or disclosure, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as now or
hereafter amended (including, but not limited to, the Superfund Amendments and
Reauthorization Act); the Resource Conservation and Recover Act, as now or
hereafter amended (including, but not limited to, the Hazardous and Solid Waste
Amendments of 1984); the Toxic Substances Control Act, as now or hereafter
amended; the Clean Water Act, as now or hereafter amended; the Safe Drinking
Water Act, as now or hereafter amended; or the Clean Air Act, as now or
hereafter amended.
Section 1.32. EPA PERMIT. The term AEPA PERMIT@ has the meaning given
that term in Section 4.23 of this AGREEMENT.
Section 1.33. ERISA. The term AERISA@ means the Employee Retirement
Income Security Act of 1974 and regulations issued thereunder, as amended from
time to time and any successor statute.
Section 1.34. ERISA AFFILIATE. The term AERISA AFFILIATE@ means, in
relation to any PERSON, any trade or business (whether or not incorporated)
which is a member of a group of which that PERSON is a member and which is under
common control within the meaning of the regulations promulgated under Section
414 of the CODE.
Section 1.35. ERISA LIABILITIES. The term AERISA LIABILITIES@ means the
aggregate of all unfunded vested benefits under any employee pension benefit
7
<PAGE>
plan, within the meaning of Section 3(2) of ERISA, of either of the BORROWERS or
any ERISA AFFILIATE of either of the BORROWERS under any plan covered by ERISA
that is not a MULTIEMPLOYER PLAN and all potential withdrawal liabilities of
either of the BORROWERS or any ERISA AFFILIATE under all MULTIEMPLOYER PLANS.
Section 1.36. EVENT OF DEFAULT. The term AEVENT OF DEFAULT@ means any
of the events set forth in Article 7 of this AGREEMENT, provided that any
requirement for the giving of notice, the lapse of time, or both, or any other
expressly stated condition, has been satisfied.
Section 1.37. EXCESS AVAILABILITY. The term AEXCESS AVAILABILITY@
means, as of the date of determination by the LENDER, the excess, if any, of (a)
the BORROWING BASE, over (b) the unpaid principal balance of the LOAN as of the
close of business on such date. For purposes of calculating the BORROWERS'
EXCESS AVAILABILITY, all of the BORROWERS' trade payables and outstanding
INDEBTEDNESS, other than the unpaid principal balance of the LOAN, which remain
unpaid more than thirty (30) days after the due date thereof shall, on the date
of the determination of EXCESS AVAILABILITY, be deemed hypothetically to have
been paid by the BORROWERS with an advance of proceeds of the LOAN, which
hypothetical amount shall then be added to the actual unpaid principal balance
of the LOAN as advanced on the date of determination.
Section 1.38. FACILITIES. The term AFACILITIES@ means all real property
and the improvements thereon used or occupied or leased by either of the
BORROWERS or otherwise used at any time by either of the BORROWERS in the
operation of its business or for the manufacture, storage, or location of any of
the COLLATERAL.
Section 1.39. FINOVA. The term AFINOVA@ means FINOVA Mezzanine Capital
Inc., f/k/a Sirrom Capital Corporation, a Tennessee corporation.
Section 1.40. FISCAL YEAR. The term AFISCAL YEAR@ means the fiscal year
of each of the BORROWERS which is the twelve (12) month accounting period
commencing July 1 and ending June 30 of each calendar year.
Section 1.41. G.A.A.P. The term AG.A.A.P.@ means, with respect to any
date of determination, generally accepted accounting principles as used by the
Financial Accounting Standards Board and/or the American Institute of Certified
Public Accountants consistently applied and maintained throughout the periods
indicated.
Section 1.42. GUARANTEED PENSION PLAN. The term AGUARANTEED PENSION
PLAN@ means any pension plan maintained by either of the BORROWERS or an ERISA
AFFILIATE of either of the BORROWERS, or to which either of the BORROWERS or an
ERISA AFFILIATE contributes, some or all of the benefits under which are
guaranteed by the United States Pension Benefit Guaranty Corporation.
Section 1.43. GUARANTORS. The term AGUARANTORS@ means collectively
Imtek Acquisition Corporation, a Maryland corporation; Imtek Capital
Corporation, a Maryland corporation; Imtek Funding Corporation, a Maryland
8
<PAGE>
corporation; Imtek Office Solutions, Inc., a Delaware corporation; and Imtek
Services Corporation, a Maryland corporation.
Section 1.44. GUARANTY AGREEMENTS. The term AGUARANTY AGREEMENTS@ means
collectively the Guaranty Agreements executed from time to time by the
GUARANTORS for the benefit of the LENDER.
Section 1.45. GUARANTY INDEBTEDNESS. The term AGUARANTY INDEBTEDNESS@
means any obligation, contingent or otherwise, of any referenced PERSON directly
or indirectly guaranteeing any debt or obligation of any other PERSON and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such PERSON: (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such debt or obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise, other than agreements
to purchase goods at an arm=s length price in the ordinary course of business);
or (b) entered into for the purpose of assuring in any other manner the holder
of such debt or obligation of the payment thereof or to protect such holder
against loss in respect thereof (in whole or in part). The term GUARANTY
INDEBTEDNESS shall not include endorsements for collection or deposit in the
ordinary course of business.
Section 1.46. INDEBTEDNESS. The term AINDEBTEDNESS@ means, as to any
referenced PERSON (determined without duplication): (a) indebtedness of such
PERSON for borrowed money (whether by loan or the issuance and sale of debt
securities), or for the deferred purchase or acquisition price of property or
services (other than accounts payable incurred in the ordinary course of
business); (b) obligations of such PERSON in respect of letters of credit or
similar instruments issued or accepted by financial institutions for the account
of such PERSON (whether or not such obligations are contingent); (c) CAPITAL
LEASE OBLIGATIONS of such PERSON; (d) obligations of such PERSON to redeem or
otherwise retire equity interests in such PERSON; (e) indebtedness of others of
the type described in clause (a), (b), (c) or (d) above secured by a lien on any
of the property of such PERSON, whether or not the respective obligation so
secured has been assumed by such PERSON; and (f) GUARANTY INDEBTEDNESS.
Section 1.47. INSOLVENCY PROCEEDINGS. The term AINSOLVENCY PROCEEDINGS@
means, with respect to any referenced PERSON, any case or proceeding commenced
by or against such PERSON, under any provision of the UNITED STATES BANKRUPTCY
CODE, as amended, or under any other federal or state bankruptcy or insolvency
law, or any assignments for the benefit of creditors, formal or informal
moratoriums, receiverships, compositions or extensions with some or all
creditors with respect to any indebtedness of such PERSON.
Section 1.48. INTEREST EXPENSE. The term AINTEREST EXPENSE@ means for
any period of determination, all interest paid or accrued by the referenced
PERSON on any INDEBTEDNESS during such period.
Section 1.49. INTEREST RATE PROTECTION AGREEMENT. The term AINTEREST
RATE PROTECTION AGREEMENT@ means, with respect to any referenced PERSON, an
interest rate swap, hedge, cap or collar agreement or similar arrangement
between such PERSON and one or more financial institutions providing for the
9
<PAGE>
transfer or mitigation of interest risks either generally or under specific
contingencies.
Section 1.50. INVENTORY. The term AINVENTORY@ shall have the same
meaning as provided to such term in the UNIFORM COMMERCIAL CODE - SECURED
TRANSACTIONS, Title 9, COMMERCIAL LAW ARTICLE, ANNOTATED CODE OF MARYLAND, as
amended, together with all of the BORROWERS= goods, merchandise, materials, raw
materials, goods in process, finished goods, work in progress, bindings or
component materials, packaging and shipping materials and other tangible or
intangible personal property, now owned or hereafter acquired and held for sale
or lease or furnished or to be furnished under contracts of service or which
contribute to the finished products or the sale, promotion, storage and shipment
thereof, whether located at facilities owned or leased by either of the
BORROWERS, in the course of transport to or from ACCOUNT DEBTORS, used for
demonstration, placed on consignment, or held at storage locations.
Section 1.51. LAWS. The term ALAWS@ means all ordinances, statutes,
rules, regulations, orders, injunctions, writs or decrees of any government or
political subdivision or agency thereof, or any court or similar entity
established by any thereof.
Section 1.52. LENDER EXPENSES. The term ALENDER EXPENSES@ means the
out-of-pocket expenses or costs incurred by the LENDER arising out of,
pertaining to, or in any way connected with this AGREEMENT, any of the other
LOAN DOCUMENTS or the OBLIGATIONS, or any documents executed in connection
herewith or transactions hereunder. The term ALENDER EXPENSES@ shall include,
without limitation: (a) the costs or expenses required to be paid by either or
both of the BORROWERS pursuant to this AGREEMENT or any of the LOAN DOCUMENT;
(b) taxes and insurance premiums advanced or otherwise paid by the LENDER in
connection with the COLLATERAL or on behalf of either or both of the BORROWERS;
(c) filing, recording, title insurance, environmental and consulting fees, audit
fees, search fees and other expenses paid or incurred by the LENDER in
connection with the LENDER=S transactions with either or both of the BORROWERS;
(d) costs and expenses incurred by the LENDER in the collection of the ACCOUNTS
(with or without the institution of legal action), or to enforce any provision
of this AGREEMENT, or in gaining possession of, maintaining, handling,
evaluating, preserving, storing, shipping, selling, preparing for sale and/or
advertising to sell the COLLATERAL or any other property of either of the
BORROWERS whether or not a sale is consummated; (e) costs and expenses of
litigation incurred by the LENDER, or any participant of the LENDER in any of
the OBLIGATIONS, in enforcing or defending this AGREEMENT or any portion hereof
or in collecting any of the OBLIGATIONS; (f) reasonable attorneys= fees and
expenses incurred by the LENDER in obtaining advice or the services of its
attorneys with respect to the structuring, drafting, negotiating, reviewing,
amending, terminating, enforcing or defending of this AGREEMENT, or any portion
hereof or any agreement or matter related hereto, whether or not litigation is
instituted; and (g) travel expenses related to any of the foregoing.
Section 1.53. LETTERS OF CREDIT. The term ALETTERS OF CREDIT@ means
collectively letters of credit issued from time to time by the LENDER for the
account or benefit of either or both of the BORROWERS.
Section 1.54. LIABILITIES. The term ALIABILITIES@ means, as to any
referenced PERSON, liabilities of such PERSON which are or should be
10
<PAGE>
reflected on a balance sheet of such PERSON prepared in accordance with G.A.A.P.
and shall include all INDEBTEDNESS.
Section 1.55. LOAN. The term ALOAN@ means the revolving credit facility
extended by the LENDER to the BORROWERS as co-obligors in accordance with the
terms set forth in this AGREEMENT.
Section 1.56. LOAN DOCUMENTS. The term ALOAN DOCUMENTS@ means all
agreements, instruments and documents, including without limitation each
document listed as a ALoan Document@ on a Closing Index of even date herewith,
together with all other loan agreements (including without limitation this
AGREEMENT), notes (including without limitation the NOTE), guarantees,
subordination agreements, intercreditor agreements, pledges, affidavits, powers
of attorney, consents, assignments, landlord and mortgage waivers, opinions,
collateral assignments, reimbursement agreements, contracts, notices, leases,
financing statements, mortgages, deeds of trusts, assignments of rents or
contract proceeds, intellectual property security agreements, pledges, letter of
credit applications, INTEREST RATE PROTECTION AGREEMENTS, and all other written
matter, whether heretofore, now or hereafter executed by or on behalf of either
or both of the BORROWERS, any of the GUARANTORS, or by any other PERSON in
connection with any of the OBLIGATIONS.
Section 1.57. LOCK BOX. The term ALOCK BOX@ has the meaning given that
term in Section 3.5 of this AGREEMENT.
Section 1.58. MATERIAL ADVERSE EVENT. The term AMATERIAL ADVERSE EVENT@
means the occurrence of any event, condition, or omission which the LENDER in
the good faith reasonable exercise of the LENDER=S discretion determines could
be expected to have a material adverse effect upon: (a) the condition (financial
or otherwise), results of operations, properties, assets, liabilities
(including, without limitation, tax liabilities, liabilities under ENVIRONMENTAL
LAWS, and ERISA LIABILITIES), businesses, operations, capitalization, equity,
licenses, franchises or prospects of either of the BORROWERS or of any of the
GUARANTORS; (b) the ability of either of the BORROWERS or of any of the
GUARANTORS to perform any of the OBLIGATIONS when and as required by the terms
of the LOAN DOCUMENTS; (c) the rights and remedies of the LENDER as provided by
the LOAN DOCUMENTS; or (d) the value, condition, use, or availability of the
COLLATERAL or upon any of the LENDER=S liens and security interests securing the
OBLIGATIONS.
Section 1.59. MAXIMUM LOAN AMOUNT. The term AMAXIMUM LOAN AMOUNT@ means
the LESSER of the BORROWING BASE or the DOLLAR CAP.
Section 1.60. MULTIEMPLOYER PLAN. The term AMULTIEMPLOYER PLAN@ means a
Amultiemployer plan@ as defined in Section 4001(a)(3) of ERISA which is
maintained for employees of the BORROWERS, or any ERISA AFFILIATE of the
BORROWERS.
Section 1.61. NET WORTH. The term ANET WORTH@ means the shareholders'
equity, as determined in accordance with G.A.A.P., of the referenced corporate
entity.
11
<PAGE>
Section 1.62. NOTE. The term ANOTE@ means the Revolving Loan Promissory
Note of even date herewith from the BORROWERS as co-makers thereof which is
payable to the order of the LENDER in the stated principal amount of Ten Million
Dollars ($10,000,000).
Section 1.63. OBLIGATIONS. The term AOBLIGATIONS@ means collectively
all of the obligations of each of the BORROWERS to pay to the LENDER: (a) sums
due to the LENDER arising out of or in connection with the LOAN or otherwise
pursuant to the terms of the LOAN DOCUMENTS; (b) indemnification obligations
owed by either or both of the BORROWERS to the LENDER in accordance with the
terms of the LOAN DOCUMENTS; (c) LENDER EXPENSES; (d) overdrafts of either of
the BORROWERS upon any accounts with the LENDER; (e) payments, duties or
obligations owed to the LENDER arising from or with respect to INTEREST RATE
PROTECTION AGREEMENTS, foreign exchange facilities or currency transactions,
existing or arising from time to time; (f) any sums owed to the LENDER arising
out of or relating to any LETTERS OF CREDIT including, without limitation, all
reimbursement and indemnification obligations, and obligations to pay fees; (g)
all duties of payment and performance owed to the LENDER in connection with any
guaranties; (h) all other indebtedness or liability of either of the BORROWERS
to the LENDER, whether direct or indirect, joint or several, absolute or
contingent, contemplated or not presently contemplated, now existing or
hereafter arising; and (i) any indebtedness or liability which may exist or
arise as a result of any payment made by or for the benefit of either of the
BORROWERS being avoided or set aside for any reason including, without
limitation, any payment being avoided as a preference under Sections 547 and 550
of the UNITED STATES BANKRUPTCY CODE, as amended, or under any state law
governing insolvency or creditors= rights.
Section 1.64. PERMITTED LIENS. The term APERMITTED LIENS@ means: (a)
liens for taxes, assessments, or similar charges incurred in the ordinary course
of business that are not yet due and payable; (b) liens in favor of the LENDER;
(c) any existing liens specifically described on Schedule 1.64 hereof; (d) any
lien on specifically allocated money or securities to secure payments under
workmen=s compensation, unemployment insurance, social security and other
similar LAWS, or to secure the performance of bids, tenders or contracts (other
than for the repayment of borrowed money) or to secure statutory obligations or
appeal bonds, or to secure indemnity, performance or other similar bonds in the
ordinary course of business; (e) purchase money security interests for the
acquisition of equipment to be used in the ordinary course of the BORROWERS' and
GUARANTORS' businesses in an aggregate amount outstanding not to exceed Two
Hundred Fifty Thousand Dollars ($250,000.00), and provided that such liens
extend only to the equipment being financed and not to any of the other assets
of the BORROWERS or of any of the GUARANTORS; and (f) subsequently arising liens
which are expressly approved in advance of the creation of any such liens by the
LENDER in writing.
Section 1.65. PERSON. The term APERSON@ means any individual,
corporation, partnership, limited liability company, association, joint-stock
company, trust, estate, unincorporated organization, joint venture, court,
government or political subdivision or agency thereof, or other legal entity.
12
<PAGE>
Section 1.66. QUALIFIED PURCHASE ORDER. The term AQUALIFIED PURCHASE
ORDER@ means a purchase order from a BORROWER to a vender of new equipment to be
sold by the vender to a BORROWER in the ordinary course of the vender's business
with respect to which: (a) the subject equipment has been unconditionally
ordered by a customer of the BORROWER pursuant to a bona fide written purchase
order or other written agreement; (b) the BORROWER has written evidence that it
has paid the vender of the equipment in full; (c) the BORROWER has the absolute
and unconditional right to receive immediate delivery of the equipment, free and
clear of all liens other than liens for the benefit of the LENDER, without any
conditions to be satisfied; (d) the equipment is in the process of being shipped
to the BORROWER; and (e) the purchase order from the BORROWER to the vender has
not been in existence for more than thirty (30) days.
Section 1.67. RECEIVABLES. The term ARECEIVABLES@ means all of the
ACCOUNTS, INSTRUMENTS, DOCUMENTS, GENERAL INTANGIBLES, CHATTEL PAPER, notes,
notes receivable, drafts, acceptances, and choses in action, of either or both
of the BORROWERS, now existing or hereafter created or acquired, and all
proceeds and products thereof, and all rights thereto, arising from the sale or
lease of or the providing of INVENTORY, GOODS, or services by either of the
BORROWERS to ACCOUNT DEBTORS, as well as all other rights, contingent or
non-contingent, of any kind of either of the BORROWERS to receive payment,
benefit, or credit from any PERSON.
Section 1.68. RECORDS. The term ARECORDS@ means correspondence,
memoranda, tapes, discs, papers, books and other documents, or transcribed
information of any type, whether expressed in ordinary, computer or machine
language.
Section 1.69. REGULATED SUBSTANCE. The term AREGULATED SUBSTANCE@ means
any substance which, pursuant to any ENVIRONMENTAL LAW, is identified as a
hazardous substance (or other term having similar import) or is otherwise
subject to special requirements in connection with the use, storage,
transportation, disposition or other handling thereof.
Section 1.70. RELEASE. The term ARELEASE@ means a Arelease@ as defined
in Section 101(22) of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as now or hereafter amended.
Section 1.71. RESTRICTED PAYMENT. The term ARESTRICTED PAYMENT@ means
collectively: (a) any dividend or other payment or distribution, direct or
indirect, on account of any equity interest in either of the BORROWERS now or
hereafter outstanding, except a dividend or distribution payable solely in the
same class or type of equity interest to the holders of that class or type; (b)
any redemption, conversion, exchange, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, by either
of the BORROWERS of any equity interest in either of the BORROWERS now or
hereafter outstanding; (c) any payment made by either of the BORROWERS to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire equity interests in either of the BORROWERS now or
hereafter outstanding; or (d) any payment by either of the BORROWERS of any
management, consulting or similar fees which are not salary payments in amounts
comparable to sums paid in the marketplace for similar services to unrelated
employees for services actually performed.
13
<PAGE>
Section 1.72. SOLVENT. The term ASOLVENT@ means, as to any referenced
PERSON, that such PERSON at the time of determination: (a) owns assets whose
fair saleable aggregate value is greater than the amount required to pay all of
its liabilities; (b) is able to pay all of its liabilities as such liabilities
mature; and (c) has paid in and unimpaired capital sufficient to carry on its
business and transactions and all business and transactions in which it engages
or is about to engage.
Section 1.73. SUBORDINATED DEBT. The term ASUBORDINATED DEBT@ means the
INDEBTEDNESS of either or both of the BORROWERS to any PERSON which is expressly
subordinated to the repayment and enforcement of the OBLIGATIONS pursuant to a
written agreement acceptable to the LENDER, including without limitation the
INDEBTEDNESS owed by the BORROWERS to SIRROM which is subordinated to the
repayment and performance of the OBLIGATIONS in accordance with the
Subordination And Intercreditor Agreement between the LENDER and SIRROM.
Section 1.74. SUBSIDIARY. The term ASUBSIDIARY@ means, with respect to
any PERSON, any other PERSON of which securities or other ownership interests
representing an aggregate of fifty percent (50%) of more of the equity or the
ordinary voting power are, at the time as of which any determination is being
made, owned or controlled directly, or indirectly through one or more
intermediaries, by such PERSON.
Section 1.75. TERMINATION EVENT. The term ATERMINATION EVENT@ means:
(a) a AReportable Event@ described in Section 4043 of ERISA and the regulations
issued thereunder, but not including any such event for which the 30-day notice
requirement has been waived by applicable regulation; (b) the withdrawal of
either of the BORROWERS or an ERISA AFFILIATE of either of the BORROWERS from a
GUARANTEED PENSION PLAN during a plan year in which it was a Asubstantial
employer@ as defined in Section 4001(a)(2) of ERISA; (c) the filing of a notice
of intent to terminate a GUARANTEED PENSION PLAN or the treatment of a
GUARANTEED PENSION PLAN amendment as a termination under Section 4041 of ERISA;
(d) the institution of proceedings to terminate a GUARANTEED PENSION PLAN by the
Pension Benefit Guaranty Corporation; (e) the withdrawal or partial withdrawal
of either of the BORROWERS or an ERISA AFFILIATE of either of the BORROWERS from
a MULTIEMPLOYER PLAN; or (f) any other event or condition which might reasonably
be expected to constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any GUARANTEED PENSION PLAN.
Section 1.76. TOTAL FUNDED INDEBTEDNESS. The term ATOTAL FUNDED
INDEBTEDNESS@ means: (a) the sum of all indebtedness for borrowed money; PLUS
(b) all CAPITAL LEASE OBLIGATIONS, but excluding trade indebtedness arising in
the ordinary course of business and other normal accruals incurred in the
ordinary course of business, all as determined in accordance with G.A.A.P.
ARTICLE 2
TERMS OF THE LOAN
Section 2.1. AGREEMENT TO EXTEND THE LOAN. Subject to the terms and
conditions stated herein, the LENDER agrees to extend the LOAN to the
14
<PAGE>
BORROWERS as joint and several co-obligors. The LENDER shall advance proceeds of
the LOAN to the BORROWERS by depositing into the COMMERCIAL ACCOUNT or in
accordance with such other procedures as may be agreed to between the LENDER and
the BORROWERS, such proceeds of the LOAN as the BORROWERS may request, provided
that the aggregate outstanding principal balance of the LOAN shall never exceed
at any time the MAXIMUM LOAN AMOUNT. The BORROWERS shall not request or permit
any advance of proceeds of the LOAN which would cause the aggregate amount of
advances made to or for the BORROWERS and outstanding under the LOAN DOCUMENTS
to exceed the MAXIMUM LOAN AMOUNT. In the event that the principal balance
outstanding under the LOAN ever exceeds the MAXIMUM LOAN AMOUNT, the BORROWERS
shall immediately, upon the demand of the LENDER, reduce the principal balance
of the LOAN to an amount which is not in excess of the MAXIMUM LOAN AMOUNT. Any
termination of the LOAN by the LENDER shall relieve the LENDER of the LENDER=S
obligation to lend money or to make financial accommodations to or for either or
both of the BORROWERS and the BORROWERS= accounts, and shall in no way release,
terminate, discharge or excuse either of the BORROWERS from its absolute duty to
pay or perform the OBLIGATIONS.
Section 2.1.1. CONDITIONS PRECEDENT TO EACH ADVANCE. The
obligation of the LENDER to make any advances under the LOAN, including the
initial advance, shall be subject to each of the following conditions precedent:
a. EXCESS AVAILABILITY. The BORROWERS shall have
EXCESS AVAILABILITY as of the date of CLOSING of not less than One Million
Dollars ($1,000,000), after giving effect to all advances of proceeds of the
LOAN on such date.
b. NO DEFAULTS OR EVENTS OF DEFAULT. No event shall
have occurred on or prior to such date and be continuing on such date, and no
condition shall exist on such date, which constitutes a DEFAULT or EVENT OF
DEFAULT.
c. CONTINUING ACCURACY OF REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties made by or on behalf of
the BORROWERS or by the GUARANTORS to the LENDER in the LOAN DOCUMENTS shall be
true and correct in all material respects when made and shall be deemed to be
repeated as true, accurate and complete as of the date of the BORROWERS= request
for each advance.
d. RECEIPT OF REPORTS. The LENDER shall be in receipt
of all reports, financial statements, financial information and financial
disclosures required by the LOAN DOCUMENTS, except to the extent that the LENDER
has waived the receipt thereof.
e. NO ILLEGALITIES. It shall not be unlawful for the
LENDER to perform any of the agreements or obligations imposed upon the LENDER
by any of the LOAN DOCUMENTS or for either of the BORROWERS or the GUARANTORS to
perform any of their respective agreements or obligations as provided by the
LOAN DOCUMENTS.
f. MERGER OF BORROWERS. BARBERA shall have merged
with ACQUISITION and ACQUISITION shall have merged with IMTEK prior to
August 31,
15
<PAGE>
1999, with IMTEK being the sole surviving entity of such mergers. As a result of
such mergers, IMTEK shall have acquired all of the assets of ACQUISITION and
BARBERA and shall have assumed all of the LIABILITIES of ACQUISITION and
BARBERA, including without limitation BARBERA'S duties to pay and perform the
OBLIGATIONS.
g. NO MATERIAL ADVERSE EVENT. No MATERIAL ADVERSE
EVENT shall have occurred and be then continuing.
Section 2.1.2. INTEREST AND LENDER=S RECORDS. All sums
advanced under the LOAN shall be evidenced by, and shall be repaid with interest
in accordance with, the provisions of the NOTE, the terms and conditions of
which are incorporated herein by reference. The date and amounts of each advance
made by the LENDER and each payment made by either of the BORROWERS shall be
recorded by the LENDER on the books and records of the LENDER, but any failure
to record such dates or amounts shall not relieve either of the BORROWERS of its
duties and obligations under the LOAN DOCUMENTS. Interest accrued upon the LOAN
shall be computed on outstanding balances as reflected on the LENDER=S books and
records.
Section 2.1.3. COMMITMENT FEE. For each calendar month or
portion thereof during which the LOAN is in existence and has not been
terminated, until the termination of the LOAN, the BORROWERS shall pay to the
LENDER a commitment fee of one-half percent (1/2%) per annum on that sum
obtained by subtracting the greater of Five Million Dollars ($5,000,000) or the
average daily disbursed principal balance of the LOAN during such calendar
quarter or portion thereof from the DOLLAR CAP. The commitment fee shall be
payable monthly in arrears, on the first day of each succeeding month or on the
last day of a portion of a month commencing with the first of such payments to
be made on August 1, 1999. The commitment fee is not to be considered a fee
being paid by the BORROWERS to the LENDER as an inducement to the LENDER to make
advances, nor shall it be considered to modify or limit the ability of the
LENDER to terminate in accordance with the provisions of this AGREEMENT the
ability of the BORROWERS to borrow under the LOAN, but is instead intended as
part of the compensation which is earned by the LENDER for agreeing to provide
the LOAN in accordance with the terms of the LOAN DOCUMENTS.
Section 2.1.4. FACILITY FEE. The BORROWERS shall pay to the
LENDER on or before CLOSING a non-refundable and unconditional facility fee of
Fifty Thousand Dollars ($50,000), which shall be the absolute property of the
LENDER upon payment. The facility fee shall not be considered to be a payment of
any of the LENDER=S expenses incurred in connection with the LOAN and shall be
paid independent of the amount of proceeds of the LOAN ultimately advanced to
the BORROWERS, even if that amount is less than the stated principal amount of
the LOAN.
Section 2.1.5. TERMINATION FEE. If this AGREEMENT or the LOAN
is terminated prior to July 1, 2002 for any reason other than the sale of all of
the stock or all of the assets of IMTEK, including, in the sole discretion of
the LENDER, if an effective termination results from the actions of the
BORROWERS in electing to not borrow proceeds of the LOAN for any extended period
of time, the BORROWERS agree to pay to the LENDER, as a termination fee, in
addition to the payment of all other INDEBTEDNESS owing by the
16
<PAGE>
BORROWERS, an amount equal to: (i) two percent (2%) of the DOLLAR CAP if this
AGREEMENT is terminated prior to July 1, 2000; (ii) one percent (1%) of the
DOLLAR CAP if this AGREEMENT is terminated on or before July 1, 2000 but prior
to July 1, 2001; and (iii) one percent (1%) of the DOLLAR CAP if this AGREEMENT
is terminated on or after July 1, 2001 but prior to July 1, 2002. In light of
the difficulty of accurately calculating actual damages arising out of any early
termination, the LENDER and the BORROWERS have agreed that the termination fee
provided for above is a reasonable estimate of the actual damages that would be
incurred by the LENDER as a result of an early termination.
Section 2.1.6. TERM. All sums due under the LOAN shall be paid
in full on July 1, 2002.
Section 2.1.7. PURPOSE. The proceeds of the LOAN shall be used
by the BORROWERS solely for refinancing an existing revolving credit facility to
Mercantile-Safe Deposit And Trust Company and for funding the general working
capital needs of the BORROWERS.
Section 2.2. LETTERS OF CREDIT.
Section 2.2.1. ISSUANCE OF LETTERS OF CREDIT. The LENDER may
in its discretion issue LETTERS OF CREDIT as requested by either of the
BORROWERS, provided that no DEFAULT or EVENT OF DEFAULT has occurred and is
continuing and provided that the aggregate amount of all LETTERS OF CREDIT
issued and outstanding and any reimbursement obligations owed to the LENDER
arising out of any LETTERS OF CREDIT do not exceed Five Hundred Thousand Dollars
($500,000.00). No LETTER OF CREDIT shall have an expiry date which occurs after
July 1, 2002. Any amounts paid by the LENDER in connection with any LETTER OF
CREDIT shall be treated as an advance of proceeds of the LOAN, shall be secured
by all of the COLLATERAL, and shall bear interest (including the default rate of
interest) and be payable at the same rate and in the same manner as the LOAN.
Section 2.2.2. RIGHTS AND REMEDIES OF THE LENDER. In the event
that, coincident with or subsequent to the occurrence of, and during the
continuance of, a DEFAULT or an EVENT OF DEFAULT, the LENDER becomes aware of
the possibility of a draw, or enforcement of the LENDER's obligations, under a
LETTER OF CREDIT, the LENDER, at its option, may, but shall not be required to,
pay the obligations to the beneficiary or holder of such LETTER OF CREDIT
directly to such beneficiary or holder, and, in such event, the amount of any
such payment made by the LENDER shall be treated for all purposes and shall have
the same force and effect as if such amount had been loaned by the LENDER to the
BORROWERS as an advance of proceeds of the LOAN, shall be secured by all of the
COLLATERAL and shall bear interest and be payable at the same rate (including
the default rate of interest) and in the same manner as the LOAN. If any LETTER
OF CREDIT is drawn upon to discharge any obligation of either of the BORROWERS
to the beneficiary of such LETTER OF CREDIT, in whole or in part, the LENDER
shall be fully subrogated to the rights of such beneficiary with respect to the
obligations owed by such BORROWER to such beneficiary discharged with the
proceeds of the LETTER OF CREDIT.
17
<PAGE>
Section 2.2.3. INDEMNIFICATION. The BORROWERS jointly and
severally and unconditionally and irrevocably agree to indemnify the LENDER and
to hold the LENDER harmless from any and all losses, claims or liabilities
arising from any transactions or occurrences relating to LETTERS OF CREDIT
issued, established, opened or accepted for the account of either of the
BORROWERS, and any drafts or acceptances thereunder, and all OBLIGATIONS
incurred in connection therewith, other than losses, claims or liabilities
arising from the gross negligence or wanton misconduct of the LENDER.
Section 2.2.4. REIMBURSEMENT OBLIGATIONS. The BORROWERS
jointly and severally agree to reimburse the LENDER on the day of drawing (or
upon such later date as either or both of the BORROWERS receives notice of the
payment of the presented draft by the LENDER) upon any LETTER OF CREDIT (either
with the proceeds of the LOAN obtained hereunder or otherwise) in same day funds
in the amount of the drawing. If the BORROWERS fail to reimburse the LENDER as
provided herein or as provided in any separate letter of credit application
agreements or other LOAN DOCUMENTS, the unreimbursed amount of such drawing
shall bear interest at a per annum rate equal to the highest interest rate
(including the default rate of interest) applicable to the LOAN. The BORROWERS'
reimbursement obligations hereunder shall be absolute and unconditional under
all circumstances irrespective of any rights of set-off, counterclaim or defense
to payment either of the BORROWERS may claim or have against the LENDER, the
beneficiary of the LETTER OF CREDIT or any other PERSON, including, without
limitation, any defense based on any failure of either of the BORROWERS to
receive consideration or the legality, validity, regularity or unenforceability
of the LETTER OF CREDIT or any irregularities in the presentment of the draft
presented upon the LETTER OF CREDIT.
Section 2.2.5. FEES, CHARGES AND OTHER TERMS. The BORROWERS
jointly and severally agree to pay to the LENDER such issuance, amendment,
extension and other fees as the LENDER quotes from time to time with respect to
each LETTER OF CREDIT, and shall execute such applications, reimbursement
agreements, or other documents as the LENDER requires from time to time with
respect to the issuance, extension, amendment, or any other requested or
required action concerning a LETTER OF CREDIT.
Section 2.3. CAPITAL ADEQUACY. If the LENDER determines at any time
that the adoption or implementation of any CAPITAL ADEQUACY REQUIREMENT, or the
compliance therewith by the LENDER or any corporation or other PERSON
controlling the LENDER, affects the amount of capital to be maintained by the
LENDER or any PERSON controlling the LENDER as a result of its obligations
hereunder, or reduces the effective rate of return on the LENDER=S or such
controlling PERSON'S capital to a level below that which the LENDER or such
controlling PERSON would have achieved but for such CAPITAL ADEQUACY REQUIREMENT
as a consequence of its obligations hereunder (taking into consideration the
LENDER=S or such controlling PERSON'S policies with respect to capital
adequacy), then after submission by the LENDER to the BORROWERS of a written
request therefor and a statement of the basis for such determination, the
BORROWERS shall pay to the LENDER such additional amounts as will compensate the
LENDER or the controlling PERSON for the cost of maintaining the increased
capital or for the reduction in the rate of return on capital, together with
interest thereon at the highest rate of interest
18
<PAGE>
then in effect under the NOTE from the date the LENDER requests such additional
amounts until those amounts are paid in full.
Section 2.4. PAYMENTS. All payments received by the LENDER which are to
be applied to reduce the OBLIGATIONS shall be credited to the balances due from
either or both of the BORROWERS pursuant to the normal and customary practices
of the LENDER, but shall be provisional and shall not be considered final unless
and until such payment is not subject to avoidance under any provision of the
UNITED STATES BANKRUPTCY CODE, as amended, including Sections 547 and 550, or
any state law governing insolvency or creditors= rights. If any payment is
avoided or set aside under any provision of the UNITED STATES BANKRUPTCY CODE,
including Sections 547 and 550, or any state law governing insolvency or
creditors= rights, the payment shall be considered not to have been made for all
purposes of this AGREEMENT and the LENDER shall adjust its records to reflect
the fact that the avoided payment was not made and has not been credited against
the OBLIGATIONS.
Section 2.5. ADVANCEMENTS. If either of the BORROWERS fails to perform
any of its agreements or covenants contained in this AGREEMENT or if either of
the BORROWERS fails to protect or preserve the COLLATERAL or the status and
priority of the security interest of the LENDER in the COLLATERAL, the LENDER
may make advances to perform the same on behalf of such BORROWER to protect or
preserve the COLLATERAL or the status and priority of the security interest of
the LENDER in the COLLATERAL, and all sums so advanced shall immediately upon
advance become secured by the security interests granted in this AGREEMENT, and
shall become part of the principal amount owed to the LENDER with interest to be
assessed at the applicable rate thereon and subject to the terms and provisions
of this AGREEMENT and all of the LOAN DOCUMENTS. The BORROWERS shall repay on
demand all sums so advanced on any BORROWER'S behalf, plus all expenses or costs
incurred by the LENDER, including reasonable legal fees, with interest thereon
at the highest rate authorized in any of the NOTE. The provisions of this
Section shall not be construed to prevent the institution of the rights and
remedies of the LENDER upon the occurrence of an EVENT OF DEFAULT. The
authorization contained in this Section is not intended to impose any duty or
obligation on the LENDER to perform any action or make any advancement on behalf
of either or both of the BORROWERS and is intended to be for the sole benefit
and protection of the LENDER.
Section 2.6. CROSS-GUARANTY; WAIVER OF SURETYSHIP DEFENSES;
SUBORDINATION.
Section 2.6.1. CROSS-GUARANTY. Each BORROWER guarantees to the
LENDER the payment in full of all of the OBLIGATIONS of the other BORROWER and
further guarantees the due performance by the other BORROWER of its respective
duties and covenants made in favor of the LENDER hereunder and under the other
LOAN DOCUMENTS. Each BORROWER agrees that neither this cross guaranty nor the
joint and several liability of the BORROWERS provided in this AGREEMENT nor the
LENDER's liens and rights in any of the COLLATERAL shall be impaired or affected
by any modification, supplement, extension or amendment of any contract or
agreement to which the parties hereto may hereafter agree, nor by any
modification, release or other alteration of any of the rights of the LENDER
with respect to any of the COLLATERAL, nor by any delay, extension of time,
renewal, compromise or other indulgence granted by
19
<PAGE>
the LENDER with respect to any of the OBLIGATIONS, nor by any other agreements
or arrangements whatever with the other BORROWER or with any other PERSON, each
BORROWER hereby waiving all notice of any such delay, extension, release,
substitution, renewal, compromise or other indulgence, and hereby consenting to
be bound thereby as fully and effectively as if it had expressly agreed thereto
in advance. The liability of each BORROWER hereunder is direct and unconditional
as to all of the OBLIGATIONS, and may be enforced without requiring the LENDER
first to resort to any other right, remedy or security.
Section 2.6.2. POSTPONEMENT OF SUBROGATION. Until all of the
OBLIGATIONS are paid in full, no BORROWER shall have any right of subrogation,
reimbursement or indemnity whatsoever, nor any right of recourse to security for
any of the OBLIGATIONS, and nothing shall discharge or satisfy the liability of
a BORROWER hereunder, until the full, final and absolute payment and performance
of all of the OBLIGATIONS at any time after all commitments of the LENDER under
this AGREEMENT are terminated. Any and all present and future debts and
obligations of each BORROWER to each other BORROWER are hereby waived and
postponed in favor of and subordinated to the full payment and performance of
all present and future OBLIGATIONS.
Section 2.6.3. SUBORDINATION. Each BORROWER hereby
subordinates any claims (other than claims evidenced by notes which have been
assigned and delivered to the LENDER), including, without limitation, any other
right of payment, subrogation, contribution and indemnity that it may have from
or against the other BORROWER, and any successor or assign of the other
BORROWER, including, without limitation, any trustee, receiver or
debtor-in-possession, howsoever arising, due or owing and whether heretofore,
now or hereafter existing, to all of the OBLIGATIONS of the other BORROWER to
the LENDER.
Section 2.6.4. JOINT AND SEVERAL LIABILITY; APPOINTMENT OF
AGENT. Notwithstanding anything to the contrary contained herein, the BORROWERS
shall be jointly and severally liable to the LENDER for all OBLIGATIONS,
regardless of whether such OBLIGATIONS arise as a result of credit extensions to
one BORROWER, it being stipulated and agreed that the LOAN, the LETTERS OF
CREDIT, and all of the credit extensions hereunder to one BORROWER inure to the
benefit of both BORROWERS, and that the LENDER is relying on the joint and
several liability of the BORROWERS in extending the LOAN and in issuing any of
the LETTERS OF CREDIT and in providing credit hereunder. To facilitate the
administration of the LOAN, BARBERA hereby irrevocably appoints IMTEK as its
true and lawful agent and attorney-in-fact with full power and authority to
execute, deliver and acknowledge, as appropriate, all LOAN DOCUMENTS or
certificates from time to time deemed necessary or appropriate by the LENDER in
connection with the LOAN, any LETTERS OF CREDIT, or the issuance or
administration of any of the other OBLIGATIONS. This power-of-attorney is
coupled with an interest and cannot be revoked, modified or amended without the
prior written consent of the LENDER. Upon the request of the LENDER, BARBERA
shall execute, acknowledge and deliver to the LENDER a form of power of attorney
confirming and restating the power-of-attorney granted herein.
20
<PAGE>
ARTICLE 3
SECURITY FOR THE OBLIGATIONS
The payment, performance and satisfaction of the OBLIGATIONS shall be
secured by the following assurances of payment and security.
Section 3.1. GRANT OF SECURITY INTEREST. In order to secure the
repayment and performance of all OBLIGATIONS, both currently existing and
arising in the future, each of the BORROWERS grants to the LENDER an immediate
and continuing security interest in and to the COLLATERAL. Each of the BORROWERS
further pledges, hypothecates and grants to the LENDER a continuing security
interest in and to, all amounts that may be owing at any time and from time to
time by the LENDER to either of the BORROWERS in any capacity, including but not
limited to any balance or share belonging to either of the BORROWERS of any
deposit or other account with the LENDER, which security interest shall be
independent of and in addition to any right of set-off to which the LENDER may
be entitled. The LENDER shall have the right to require either or both of the
BORROWERS to pledge and grant a security interest to the LENDER in such
additional security as the LENDER may request from time to time in the event
that the LENDER deems itself to be insecure.
Section 3.2. PROCEEDS AND PRODUCTS. The LENDER=S security interests
provided for herein shall apply to the proceeds, including but not limited to
insurance proceeds, and the products of the COLLATERAL.
Section 3.3. PRIORITY OF SECURITY INTERESTS. Each of the security
interests, pledges, and liens granted by each of the BORROWERS to the LENDER
pursuant to any of the LOAN DOCUMENTS shall be perfected first priority security
interests, pledges, and liens.
Section 3.4. FUTURE ADVANCES. The security interests, liens, and
pledges granted by each of the BORROWERS to the LENDER pursuant to the LOAN
DOCUMENTS shall secure all current and all future advances made by the LENDER to
the BORROWERS, or for the account or benefit of either of the BORROWERS, and the
LENDER may advance or readvance upon repayment by either of the BORROWERS all or
any portion of the sums loaned to the BORROWERS and any such advance or
readvance shall be fully secured by the security interests, liens, and pledges
created by the LOAN DOCUMENTS.
Section 3.5. RECEIVABLE COLLECTIONS. Each of the BORROWERS shall
deposit into the COMMERCIAL ACCOUNT, immediately upon receipt thereof, all cash,
checks, drafts, and other instruments for the payment of money, properly
endorsed, which have been received by it in full or partial payment of any
RECEIVABLE; provided, each of the BORROWERS shall, if requested in writing by
the LENDER at any time during any continuing DEFAULT or EVENT OF DEFAULT,
deposit or cause to be deposited into the COLLECTION ACCOUNT all of such items
of payment immediately upon receipt thereof. Prior to any such deposit by either
of the BORROWERS into either the COMMERCIAL ACCOUNT or the COLLECTION ACCOUNT,
as the case may be, neither of the BORROWERS will commingle such items of
payment with any of its other funds or property but will hold them separate and
apart. Upon the written request of the LENDER during any continuing DEFAULT or
EVENT OF DEFAULT, each of the BORROWERS shall instruct all of its ACCOUNT
DEBTORS to make all payments on is
21
<PAGE>
RECEIVABLES to a post office box in which the LENDER alone shall have sole
access (ALOCK BOX@). If payment of either BORROWER'S RECEIVABLES is paid into
the LOCK BOX the LENDER shall, on each BUSINESS DAY, withdraw the items of
payment from the LOCK BOX and deposit them into either the COLLECTION ACCOUNT or
the COMMERCIAL ACCOUNT, as determined by the LENDER. The LENDER, from time to
time, shall apply all of the collected funds held in the COLLECTION ACCOUNT
toward payment of all or any part of the OBLIGATIONS, whether or not then due,
in such order of application as the LENDER may determine. The LENDER shall have
no obligation to provide any provisional or other credit for any deposited funds
which are not collected funds free of any rights of return.
Section 3.6. COLLECTION OF RECEIVABLES BY LENDER. The LENDER shall have
the right during any continuing DEFAULT or EVENT OF DEFAULT to send notices of
assignment or notices of the LENDER=S security interest to any and all ACCOUNT
DEBTORS or any third party holding or otherwise concerned with any of the
COLLATERAL, and thereafter the LENDER shall have the sole right to collect the
RECEIVABLES and to take possession of the COLLATERAL and RECORDS relating
thereto. All of the LENDER=S collection expenses shall be charged to the
BORROWERS' accounts and added to the OBLIGATIONS. During any continuing DEFAULT
or EVENT OF DEFAULT the LENDER shall have the right to receive, indorse, assign
and deliver in the LENDER=S name or either of the BORROWER'S name any and all
checks, drafts and other instruments for the payment of money relating to the
RECEIVABLES, and each of the BORROWERS hereby waives notice of presentment,
protest and non-payment of any instrument so endorsed. If the LENDER is
collecting the RECEIVABLES, each of the BORROWERS hereby constitutes the LENDER
or the LENDER=S designee as its attorney-in-fact with power with respect to the
RECEIVABLES: (a) to indorse its name upon all notes, acceptances, checks,
drafts, money orders or other evidences of payment of COLLATERAL that may come
into the LENDER=S possession; (b) to sign its name on any invoices relating to
any of the RECEIVABLES, drafts against ACCOUNT DEBTORS, assignments and
verifications of RECEIVABLES and notices to ACCOUNT DEBTORS; (c) to send
verifications of RECEIVABLES to any ACCOUNT DEBTOR; (d) to notify the Post
Office to change the address for delivery of mail addressed to it to such
address as the LENDER may designate; (e) to receive and open all mail addressed
to it and to remove therefrom all cash, checks, drafts and other payments of
money; and (f) to do all other acts and things necessary, proper, or convenient
to carry out the terms and conditions and purposes and intent of this AGREEMENT.
All acts of such attorney or designee are hereby ratified and approved, and such
attorney or designee shall not be liable for any acts of omission or commission,
nor for any error of judgment or mistake of fact or law in accordance with this
AGREEMENT, with the exception of acts arising from actual fraud or gross and
wanton negligence. The power of attorney hereby granted, being coupled with an
interest, is irrevocable while any of the OBLIGATIONS remain unpaid. If the
LENDER is collecting RECEIVABLES in accordance with the terms of this Section,
the LENDER, without notice to or consent from either of the BORROWERS, may sue
upon or otherwise collect, extend the time of payment of or compromise or settle
for cash, credit or otherwise upon any terms, any of the RECEIVABLES or any
securities, instruments or insurances applicable thereto or release the obligor
thereon. If the LENDER is collecting RECEIVABLES in accordance with the terms of
this Section, the LENDER is authorized and empowered to accept the return of the
goods represented by any of the RECEIVABLES, without notice to or consent by
either of the BORROWERS,
22
<PAGE>
all without discharging or in any way affecting the liability of either of the
BORROWERS under the LOAN DOCUMENTS. The LENDER does not, by anything herein or
in any assignment or otherwise, assume any of the obligations of either of the
BORROWERS under any contract or agreement assigned to the LENDER, and the LENDER
shall not be responsible in any way for the performance by either of the
BORROWERS of any of the terms and conditions thereof.
Section 3.7. MAINTENANCE OF PRINCIPAL ACCOUNTS. As further security for
the OBLIGATIONS, each of the BORROWERS shall maintain its principal transaction
and depository accounts with the LENDER.
Section 3.8. GUARANTY AGREEMENTS. Each of the GUARANTORS shall execute
and deliver a GUARANTY AGREEMENT which shall guarantee, among other things, the
absolute full payment and performance by the BORROWERS of the OBLIGATIONS.
Section 3.9. FURTHER ASSURANCES. Each of the BORROWERS will, at its
expense, promptly execute and deliver all further instruments and documents and
take all further action that may be necessary or desirable or that the LENDER
may request from time to time in order: (a) to perfect and protect the security
interests to be created hereby; (b) to enable the LENDER to exercise and enforce
its rights and remedies hereunder in respect of the COLLATERAL; or (c) otherwise
to effect the purposes of this AGREEMENT, including, without limitation: (i)
upon such BORROWER'S acquisition thereof, delivering to the LENDER each item of
CHATTEL PAPER of the BORROWER, (ii) if any RECEIVABLES are evidenced by an
INSTRUMENT delivering and pledging to the LENDER such INSTRUMENT duly endorsed
and accompanied by executed instruments of transfer or assignment, all in form
and substance satisfactory to the LENDER, (iii) executing and filing such
financing statements or amendments thereto as may be necessary or desirable or
that the LENDER may request in order to perfect and preserve the security
interests purported to be created hereby, (iv) upon the acquisition after the
date hereof by such BORROWER of any EQUIPMENT covered by a certificate of title
or ownership, cause the LENDER to be listed as the lienholder on such
certificate of title and within sixty (60) days of the acquisition thereof
deliver evidence of the same to the LENDER, and (v) upon the acquisition after
the date hereof of any asset for which an assignment, pledge, mortgage, or other
document is required to be filed in order to grant or perfect a lien therein for
the benefit of the LENDER, execute and deliver to the LENDER such assignment,
pledge, mortgage, or other INSTRUMENT within thirty (30) days of the acquisition
thereof. If either of the BORROWERS fails to execute any instrument or document
described above within five (5) BUSINESS DAYS of being requested to do so by the
LENDER, each of the BORROWERS hereby appoints the LENDER or any officer of the
LENDER as such BORROWER'S attorney in fact for purposes of executing such
instruments or documents in such BORROWER'S name, place and stead, which power
of attorney shall be considered as coupled with an interest and irrevocable.
Section 3.10. FAIR LABOR STANDARDS ACT. As further security for the
OBLIGATIONS, each of the BORROWERS shall comply in all material respects with
the FAIR LABOR STANDARDS ACT OF 1938, as amended.
23
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the LENDER to extend the LOAN and to enter into this
AGREEMENT, each of the BORROWERS makes the representations and warranties set
forth in this Article 4. Each of the BORROWERS acknowledges the LENDER=S
justifiable right to rely upon these representations and warranties.
Section 4.1. ACCURACY OF INFORMATION. All information submitted by or
on behalf of either of the BORROWERS or any of the GUARANTORS in connection with
any of the OBLIGATIONS is true, accurate and complete in all material respects
as of the date made and contain no knowingly false, incomplete or misleading
statements.
Section 4.2. NO LITIGATION. There are no actions, suits,
investigations, or proceedings pending or, to the knowledge of either the
BORROWERS, threatened against either of the BORROWERS or the assets of either of
the BORROWERS, except as specifically disclosed on Schedule 4.2 attached hereto.
Section 4.3. NO LIABILITY OR ADVERSE CHANGE. Neither of the BORROWERS
has any direct or contingent liability known to either of the BORROWERS and not
previously disclosed to the LENDER, nor does either of the BORROWERS know of or
have any reason to expect any material adverse change in either BORROWER'S
assets, liabilities, properties, business, or condition, financial or otherwise.
Section 4.4. TITLE TO COLLATERAL. Each of the BORROWERS has good and
marketable title to the COLLATERAL. The liens granted by each of the BORROWERS
to the LENDER in the COLLATERAL will have the priority required by the LOAN
DOCUMENTS.
Section 4.5. AUTHORITY; APPROVALS AND CONSENTS.
Section 4.5.1. AUTHORITY. Each of the BORROWERS has the legal
authority to enter into each of the LOAN DOCUMENTS and to perform, observe and
comply with all of such BORROWER'S agreements and obligations thereunder,
including, without limitation the borrowings contemplated hereby.
Section 4.5.2. APPROVALS. The execution and delivery by each
of the BORROWERS of each of the LOAN DOCUMENTS, the performance by each of the
BORROWERS of all of its agreements and obligations under the LOAN DOCUMENTS, and
the borrowings contemplated by this AGREEMENT, have been duly authorized by all
necessary action on the part of each BORROWER and do not and will not (i)
contravene any provision of the organizational documents of either of the
BORROWERS; (ii) conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in the creation of any
lien upon any of the property of either of the BORROWERS under any agreement,
trust deed, indenture, mortgage or other instrument to which either of the
BORROWERS is a party or by which either of the BORROWERS or any property of
either of the BORROWERS is bound or affected (except for liens created for the
benefit of the LENDER); (iii) violate or contravene any provision of any LAW,
rule or regulation (including, without limitation, Regulations G, T, U or X of
the Board of Governors of the Federal Reserve
24
<PAGE>
System) or any order, ruling or interpretation thereunder or any decree, order
of judgment of any court or governmental or regulatory authority, bureau, agency
or official (all as from time to time in effect and applicable to either of the
BORROWERS); or (iv) require any waivers, consents or approvals by any of the
creditors of either of the BORROWERS.
Section 4.5.3. CONSENTS. Other than filings and recordings
required to perfect the security interests and liens granted hereunder, no
approval, consent, order, authorization or license by, or giving notice to, or
taking any other action with respect to, any governmental or regulatory
authority or agency is required for the execution and delivery by either of the
BORROWERS of the LOAN DOCUMENTS or for the performance by each of the BORROWERS
of any of the agreements and obligations thereunder.
Section 4.6. BINDING EFFECT OF DOCUMENTS, ETC. Each of the LOAN
DOCUMENTS which each of the BORROWERS has executed and delivered as contemplated
and required to be executed and delivered as of the date of CLOSING by this
AGREEMENT, has been duly executed and delivered by each BORROWER and is the
legal, valid and binding obligation of each BORROWER and is enforceable against
each BORROWER in accordance with all stated terms.
Section 4.7. OTHER NAMES. Neither of the BORROWERS has changed its
name, been the surviving entity in a merger, or changed the location of its
chief executive office within the last twelve (12) years, except as is disclosed
on Schedule 4.7 attached hereto. Neither BORROWER trades under any trade or
fictitious names except as set forth on Schedule 4.7.
Section 4.8. NO EVENTS OF DEFAULT. There is not currently existing any
action, event, or condition which presently constitutes a DEFAULT or an EVENT OF
DEFAULT
Section 4.9. GUARANTY AGREEMENTS. The GUARANTY AGREEMENTS are the valid
and binding obligation of the GUARANTORS and are fully enforceable against the
GUARANTORS in accordance with all outstanding terms.
Section 4.10. TAXES. Each of the BORROWERS: (a) has filed all federal,
state and local tax returns and other reports which such BORROWER is required by
LAW to file prior to the date hereof and which are material to the conduct of
the business of such BORROWER; (b) has paid or caused to be paid all taxes,
assessments and other governmental charges that are due and payable prior to the
date hereof; and (c) has made adequate provision for the payment of such taxes,
assessments or other charges accruing but not yet payable. Neither of the
BORROWERS has any knowledge of any deficiency or additional assessment in
connection with any taxes, assessments or charges not provided for on such
BORROWER'S books of account or reflected in such BORROWER'S financial
statements.
Section 4.11. COMPLIANCE WITH LAWS. Each of the BORROWERS has complied
in all material respects with all applicable LAWS, including, but not limited
to, all LAWS with respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that it sells or to the services it
performs; (b) the conduct of its business; and (c) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its business.
25
<PAGE>
Section 4.12. CHIEF PLACE OF BUSINESS. The chief executive office,
chief place of business, and the place where each of the BORROWERS keeps its
RECORDS concerning the COLLATERAL is set forth on Schedule 4.12 attached hereto.
Section 4.13. LOCATION OF INVENTORY. The INVENTORY is and shall be kept
solely at the BORROWERS= locations set forth on Schedule 4.13 attached hereto,
and shall not be moved, sold or otherwise disposed of without prior notification
to the LENDER, except for sales of INVENTORY to ACCOUNT DEBTORS in the ordinary
course of the BORROWERS= businesses. None of the INVENTORY is stored with or in
the possession of any bailee, warehouseman, or other similar PERSON, except as
specifically disclosed on Schedule 4.13 attached hereto.
Section 4.14. NO SUBSIDIARIES. Neither of the BORROWERS has any
SUBSIDIARIES.
Section 4.15. NO LABOR AGREEMENTS. Neither of the BORROWERS is subject
to any collective bargaining agreement or any agreement, contract, decree or
order requiring it to recognize, deal with or employ any PERSONS organized as a
collective bargaining unit or other form of organized labor.
Section 4.16. ELIGIBLE ACCOUNTS. Each ACCOUNT which either of the
BORROWERS contends should be included in the calculation of the BORROWING BASE
from time to time will be an ELIGIBLE ACCOUNT. At the time each ELIGIBLE ACCOUNT
is listed on or included in (whether singularly or in the aggregate with other
ELIGIBLE ACCOUNTS) a schedule or report delivered to the LENDER to be included
in the calculation of the BORROWING BASE, all of such ELIGIBLE ACCOUNTS will
have been generated in compliance with such BORROWER'S normal credit policies as
historically in effect (or as modified from time to time on prior written notice
of the LENDER), or on such other reasonable terms disclosed in writing to the
LENDER in advance of the creation of such ACCOUNTS, and such terms shall be
expressly set forth on the face of all invoices.
Section 4.17. ELIGIBLE INVENTORY. Each item of INVENTORY which either
of the BORROWERS from time to time contends should be included in the
calculation of the BORROWING BASE shall be ELIGIBLE INVENTORY.
Section 4.18. APPROVALS. Each of the BORROWERS possesses all
franchises, approvals, licenses, contracts, merchandising agreements,
merchandising contracts and governmental approvals, registrations and exemptions
necessary for it lawfully to conduct its business and operation as presently
conducted and as anticipated to be conducted after CLOSING.
Section 4.19. FINANCIAL STATEMENTS. The financial statements of each of
the BORROWERS which have been delivered to the LENDER prior to the date of this
AGREEMENT, fairly present the financial condition of the BORROWERS as of the
respective dates thereof and the results and operations of the BORROWERS for the
fiscal periods ended on such respective dates, all in accordance with G.A.A.P.
Neither of the BORROWERS has any direct or contingent liability or obligation
known to either of the BORROWERS and not disclosed on the financial statements
delivered to the LENDER or disclosed on Schedule 4.19 hereto. There has been no
adverse change in the financial condition of
26
<PAGE>
either of the BORROWERS since the financial statements of the BORROWERS dated
March 31, 1999, and neither of the BORROWERS knows of or have any reason to
expect any material adverse change in the assets, liabilities, properties,
business, or condition, financial or otherwise, of either of the BORROWERS.
Section 4.20. SOLVENCY. Each of the BORROWERS will be SOLVENT both
before and after CLOSING, after giving full effect to the OBLIGATIONS and all of
the BORROWERS= respective liabilities.
Section 4.21. FAIR LABOR STANDARDS ACT. Each of the BORROWERS has
complied in all material respects with the FAIR LABOR STANDARDS ACT OF 1938, as
amended.
Section 4.22. EMPLOYEE BENEFIT PLANS.
Section 4.22.1. COMPLIANCE. Each of the BORROWERS and its
ERISA AFFILIATES are in compliance in all material respects with all applicable
provisions of ERISA and the regulations thereunder and of the CODE with respect
to all EMPLOYEE BENEFIT PLANS.
Section 4.22.2. ABSENCE OF TERMINATION EVENT. No TERMINATION
EVENT has occurred or is reasonably expected to occur with respect to any
GUARANTEED PENSION PLAN.
Section 4.22.3. ACTUARIAL VALUE. The actuarial present value
(as defined in Section 4001 of ERISA) of all benefit commitments (as defined in
Section 4001 of ERISA) under each GUARANTEED PENSION PLAN does not exceed the
assets of that plan.
Section 4.22.4. NO WITHDRAWAL LIABILITY. Neither of the
BORROWERS nor any of their ERISA AFFILIATES has incurred or reasonably expects
to incur any withdrawal liability under ERISA in connection with any
MULTIEMPLOYER PLANS.
Section 4.23. ENVIRONMENTAL CONDITIONS.
Section 4.23.1. EXISTENCE OF PERMITS. Each of the BORROWERS
has obtained all legally required permits, licenses, variances, clearances and
all other necessary approvals (collectively, the AEPA PERMITS@) for use of the
FACILITIES and the operation and conduct of its business from all applicable
federal, state, and local governmental authorities, utility companies or
development-related entities including, but not limited to, any and all
appropriate Federal or State environmental protection agencies and other county
or city departments, public water works and public utilities in regard to the
use of the FACILITIES, the operation and conduct of its business, and the
handling, transporting, treating, storage, disposal, discharge, or RELEASE of
REGULATED SUBSTANCES, if any, into, on or from the environment (including, but
not limited to, any air, water, or soil).
Section 4.23.2. COMPLIANCE WITH PERMITS. Each issued EPA
PERMIT is in full force and effect, has not expired or been suspended, denied or
revoked, and is not under challenge by any PERSON. Each of the BORROWERS is in
compliance in all material aspects with each issued EPA PERMIT.
27
<PAGE>
Section 4.23.3. NO LITIGATION. Neither of the BORROWERS nor
any of the FACILITIES is subject to any private or governmental litigation, or
to the knowledge of either of the BORROWERS, threatened litigation, lien or
judicial or administrative notice, order or action involving either of the
BORROWERS or any of the FACILITIES relating to REGULATED SUBSTANCES or
environmental problems, impairments or liabilities.
Section 4.23.4. NO RELEASES. To the best knowledge of each of
the BORROWERS, there has been no RELEASE into, on or from any of the FACILITIES
and no REGULATED SUBSTANCES are located on or have been treated, stored,
processed, disposed of, handled or transported to or from, any of the FACILITIES
in violation of any ENVIRONMENTAL LAWS. To the best knowledge of each of the
BORROWERS, no REGULATED SUBSTANCES have been treated, stored, disposed,
RELEASED, located, discharged, possessed, managed, processed, or otherwise
handled in the operation or conduct of either BORROWER'S business in violation
of any ENVIRONMENTAL LAWS. Each of the BORROWERS has complied in all material
respects with all ENVIRONMENTAL LAWS affecting the FACILITIES and each
BORROWER'S business.
Section 4.23.5. TRANSPORTATION. Neither of the BORROWERS
transports, in any manner, any REGULATED SUBSTANCES except in the ordinary
course of such BORROWER'S business in material compliance with all ENVIRONMENTAL
LAWS.
Section 4.23.6. NO VIOLATION NOTICES. Neither BORROWER has
received any notices that any REGULATED SUBSTANCES transported from any FACILITY
have been disposed of in violation of any ENVIRONMENTAL LAWS.
Section 4.23.7. NO NOTICE OF VIOLATIONS. Neither BORROWER has
received written notice of any circumstances which would be likely to result in
any obligation under any ENVIRONMENTAL LAW to investigate or remediate any
REGULATED SUBSTANCES in, on or under any of the FACILITIES.
Section 4.24. YEAR 2000. None of the material computer software,
computer firmware, and computer hardware (whether general or special purpose)
used or relied upon by either of the BORROWERS in the conduct of either
BORROWER'S business will malfunction, cease to function, or generate incorrect
results when processing, providing or receiving date-related data into and
between the twentieth and twenty-first centuries, or date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
ARTICLE 5
AFFIRMATIVE COVENANTS
Each of the BORROWERS agrees during the term of this AGREEMENT and
while any OBLIGATIONS are outstanding and unpaid to do and perform each of the
acts and promises set forth in this Article 6:
Section 5.1. PAYMENT. All OBLIGATIONS shall be paid in full when and as
due.
28
<PAGE>
Section 5.2. INSURANCE. Each of the BORROWERS shall obtain and maintain
such insurance coverages as are reasonable, customary and prudent for businesses
engaged in activities similar to the business activities of the BORROWERS.
Without limitation to the foregoing, each of the BORROWERS shall maintain for
all of its assets and properties, whether real, personal, or mixed and including
but not limited to the COLLATERAL, fire and extended coverage casualty insurance
in amounts satisfactory to the LENDER and sufficient to prevent any co-insurance
liability (which amount shall be the full insurable value of the assets and
properties insured unless the LENDER in writing agrees to a lesser amount),
naming the LENDER as sole loss payee with respect to the COLLATERAL, with
insurance companies and upon policy forms containing standard mortgagee clauses
which are acceptable to and approved by the LENDER. Each of the BORROWERS shall
submit to the LENDER the originals of the casualty insurance policies and paid
receipts evidencing payment of the premiums due on the same. The casualty
insurance policies shall be endorsed so as to make them noncancellable unless
thirty (30) days prior notice of cancellation is provided to the LENDER. The
proceeds of any insured loss shall be applied by the LENDER to the OBLIGATIONS,
in such order of application as determined by the LENDER, unless the LENDER in
its sole discretion permits the use thereof to repair or replace damaged or
destroyed COLLATERAL.
Section 5.3. BOOKS AND RECORDS. Each of the BORROWERS shall notify the
LENDER in writing if either of the BORROWERS modifies or changes its method of
accounting or enters into, modifies, or terminates any agreement presently
existing, or at any time hereafter entered into with any third party accounting
firm for the preparation and/or storage of either BORROWER'S accounting records.
Section 5.4. COLLECTION OF ACCOUNTS; SALE OF INVENTORY. Each of the
BORROWERS shall only collect its RECEIVABLES and sell its INVENTORY in the
ordinary course of its business.
Section 5.5. NOTICE OF LITIGATION AND PROCEEDINGS. Each of the
BORROWERS shall give prompt notice to the LENDER of any action, suit, citation,
violation, direction, notice or proceeding before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting either of the BORROWERS, or the assets or properties thereof,
which, if determined adversely to either of the BORROWERS: (a) could require
either or both of the BORROWERS to pay over more than Twenty-five Thousand
Dollars ($25,000) or deliver assets the value of which exceeds that sum (whether
or not the claim is considered to be covered by insurance); or (b) could
reasonably be expected to have a material adverse effect upon the financial
condition or business operations of either of the BORROWERS.
Section 5.6. PAYMENT OF LIABILITIES TO THIRD PERSONS. Each of the
BORROWERS shall pay when and as due, or within applicable grace periods, all
liabilities due to third persons, except when the amount thereof is being
contested in good faith by appropriate proceedings and with adequate reserves
therefor being set aside.
Section 5.7. NOTICE OF CHANGE OF BUSINESS LOCATION. Each of the
BORROWERS shall notify the LENDER thirty (30) days in advance of: (a) any
29
<PAGE>
change in the location of its existing offices or place of business; (b) the
establishment of any new, or the discontinuation of any existing, place of
business; and (c) any change in or addition to the locations at which the
COLLATERAL is kept. Prior to moving any COLLATERAL to any location not owned by
it (other than deliveries to ACCOUNT DEBTORS of sold or leased items), each of
the BORROWERS shall obtain and deliver to the LENDER an agreement, in form and
substance acceptable to the LENDER, pursuant to which the owner of such location
shall: (a) subordinate any rights which it may have, or thereafter may obtain,
in any of the COLLATERAL to the rights and security interests of the LENDER in
the COLLATERAL; and (b) allow the LENDER access to the COLLATERAL in order to
remove the COLLATERAL from such location. In the event any COLLATERAL is stored
with a warehousemen or other bailee, and the COLLATERAL is evidenced by a
negotiable document of title, each of the BORROWERS shall immediately deliver
the document of title to the LENDER.
Section 5.8. PAYMENT OF TAXES. Each of the BORROWERS shall pay or cause
to be paid when and as due all taxes, assessments and charges or levies imposed
upon it or on any of its property or which it is required to withhold and pay
over to the taxing authority or which it must pay on its income, except where
contested in good faith, by appropriate proceedings and at its own cost and
expense; provided, however, that neither of the BORROWERS shall be deemed to be
contesting in good faith by appropriate proceedings unless: (a) such proceedings
operate to prevent the taxing authority from attempting to collect the taxes,
assessments or charges; (b) the COLLATERAL is not subject to sale, forfeiture or
loss during such proceedings; (c) such BORROWER'S contest does not subject the
LENDER to any claim by the taxing authority or any other person; (d) such
BORROWER establishes appropriate reserves, satisfactory to the LENDER in its
sole discretion, for the payment of all taxes, assessments, charges, levies,
legal fees, court costs and other expenses for which such BORROWER would be
liable if unsuccessful in the contest; (e) such BORROWER prosecutes the contest
continuously to its final conclusion; and (f) at the conclusion of the
proceedings, such BORROWER promptly pays all amounts determined to be payable,
including but not limited to all taxes, assessments, charges, levies, legal fees
and court costs.
Section 5.9. INSPECTIONS OF RECORDS. Each of the BORROWERS shall permit
representatives of the LENDER access to each BORROWER'S places of business, at
intervals and at such times as determined by the LENDER, to inspect the
COLLATERAL and to review and make extracts from or photocopies of the books and
records of each of the BORROWERS. Each of the BORROWERS agrees to pay to the
LENDER the audit fees and other expenses incurred by the LENDER in connection
with such inspections.
Section 5.10. NOTICE OF EVENTS AFFECTING COLLATERAL; COMPROMISE OF
RECEIVABLES; RETURNED OR REPOSSESSED GOODS. Each of the BORROWERS shall promptly
report to the LENDER: (a) any reclamation, return or repossession of goods; (b)
all claims or disputes asserted by any ACCOUNT DEBTOR or other obligor involving
in excess of Seven Thousand Five Hundred Dollars ($7,500.00); and (c) all
matters materially affecting the value, enforceability or collectibility of any
of the COLLATERAL. Without the LENDER=S consent, neither of the BORROWERS shall
compromise or adjust any of the RECEIVABLES which have been included by either
of the BORROWERS in the determination of the BORROWING BASE, extend the time for
payment thereof, or grant any additional discounts, allowances or credits
thereon; provided,
30
<PAGE>
however, that either of the BORROWERS may grant, in the ordinary course of
business, to any party obligated on any of the RECEIVABLES, any rebate, refund,
or adjustment to which such party may be lawfully entitled, and may accept, in
connection therewith, the return of goods, sale, or lease of which shall have
given rise to such RECEIVABLES. If any goods, the sale of which has resulted in
RECEIVABLES included in determining the BORROWING BASE, are returned by the
ACCOUNT DEBTOR for credit or repossessed by either of the BORROWERS, the
BORROWERS shall receive and hold such goods as trustee for the LENDER and as
additional security for the payment of the OBLIGATIONS, and make disposition
thereof as required by the LENDER.
Section 5.11. DOCUMENTATION OF COLLATERAL. Each of the BORROWERS agrees
that upon the request of the LENDER, each of the BORROWERS will provide the
LENDER with: (a) written statements or schedules identifying and describing the
COLLATERAL, and all additions, substitutions, and replacements thereof, in such
detail as the LENDER may require; (b) copies of ACCOUNT DEBTORS= invoices or
billing statements; (c) evidence of shipment or delivery of goods or merchandise
to or performance of services for ACCOUNT DEBTORS; and (d) such other schedules
and information as the LENDER reasonably may require. The items to be provided
under this Section shall be in form satisfactory to the LENDER and are to be
executed and delivered to the LENDER from time to time solely for the LENDER=S
convenience in maintaining RECORDS of the COLLATERAL. The failure of either of
the BORROWERS to give any of such items to the LENDER shall not affect,
terminate, modify or otherwise limit the LENDER=S security interests in the
COLLATERAL. The LENDER shall have the right, at any time and from time to time,
to verify the eligibility of the BORROWERS= RECEIVABLES, including obtaining
verification of the RECEIVABLES directly from ACCOUNT DEBTORS.
Section 5.12. REPORTING REQUIREMENTS. The BORROWERS shall submit the
following items to the LENDER:
Section 5.12.1. INVENTORY REPORTS. On or before the 15th day
of each calendar month, reports of INVENTORY on such reporting forms as are
required by the LENDER from time to time, certified to be accurate and correct
by the chief financial officer of each of the BORROWERS, which reports shall be
compiled in a manner acceptable to the LENDER.
Section 5.12.2. RECEIVABLES AND ACCOUNTS PAYABLE REPORTS. On
or before the 15th day of each calendar month: (i) a RECEIVABLES report and
aging; and (ii) an accounts payable report and aging, both in form reasonably
acceptable to the LENDER and containing such information as the LENDER may
specify from time to time. Such reports shall be accompanied by such reports,
copies of sales journals, remittance reports, and other documentation as the
LENDER may reasonably request from time to time.
Section 5.12.3. BORROWING BASE REPORT. Once each calendar
week, or more frequently if requested by the LENDER, a collateral and loan
report in such form and context as may be specified by the LENDER from time to
time.
Section 5.12.4. MONTHLY FINANCIAL STATEMENTS. As soon as
available and in any event within twenty (20) calendar days after the end of
each month of each FISCAL YEAR of the COMPANIES, the BORROWERS shall submit to
the LENDER a consolidated and consolidating balance sheet of the COMPANIES
31
<PAGE>
and their SUBSIDIARIES as of the end of such month, a consolidated and
consolidating statement of income and retained earnings of the COMPANIES and
their SUBSIDIARIES for the period commencing at the end of the previous FISCAL
YEAR and ending with the end of such month, and a consolidated and consolidating
statement of cash flow of the COMPANIES and their SUBSIDIARIES for the portion
of the FISCAL YEAR ended with the last day of such month, all in reasonable
detail and stating in comparative form the respective consolidated and
consolidating figures for the corresponding date and period in the previous
FISCAL YEAR and all prepared in accordance with G.A.A.P. and certified by the
chief financial officer or officers of the COMPANIES and their SUBSIDIARIES
(subject to year-end adjustments).
Section 5.12.5. ANNUAL FINANCIAL STATEMENTS. As soon as
available and in any event within one hundred twenty (120) calendar days after
the end of each FISCAL YEAR of the COMPANIES, the BORROWERS shall submit to the
LENDER a consolidated and consolidating balance sheet of the COMPANIES and their
SUBSIDIARIES as of the end of such FISCAL YEAR and a consolidated and
consolidating statement of income and retained earnings of the COMPANIES and
their SUBSIDIARIES for such FISCAL YEAR, and a consolidated and consolidating
statement of cash flow of the COMPANIES and their SUBSIDIARIES for such FISCAL
YEAR, all in reasonable detail and stating in comparative form the respective
consolidated and consolidating figures for the corresponding date and period in
the prior FISCAL YEAR and all prepared in accordance with G.A.A.P. and
accompanied by an audited opinion thereon acceptable to the LENDER by
independent accountants selected by the COMPANIES and acceptable to the LENDER.
Section 5.12.6. SEC AND OTHER FILINGS. Within five (5) days
after the sending, filing, or receipt thereof, copies of: (a) all financial
statements, reports, notices and proxy statements that any of the COMPANIES
sends to its shareholders; and (b) all regular, periodic and special reports,
registration statements and prospectuses that any of the COMPANIES renders to or
files with the Securities And Exchange Commission or any national securities
exchange, including without limitation each of the Forms 10-K and 10-Q filed by
any of the COMPANIES with the Securities And Exchange Commission.
Section 5.12.7. MANAGEMENT LETTERS. Promptly upon receipt
thereof, each of the BORROWERS shall submit to the LENDER copies of any reports
submitted to either of the BORROWERS or any SUBSIDIARY by independent certified
public accountants in connection with the examination of the financial
statements of the BORROWERS or any SUBSIDIARY made by such accountants.
Section 5.12.8. CERTIFICATES OF NO DEFAULT. Within thirty (30)
calendar days after the end of each of the quarters of each FISCAL YEAR of each
of the BORROWERS, each of the BORROWERS shall submit to the LENDER certificates
of the chief financial officers of each of the BORROWERS certifying that: (i)
there exists no DEFAULT or EVENT OF DEFAULT, or if a DEFAULT or an EVENT OF
DEFAULT exists, specifying the nature thereof, the period of existence thereof
and what action such BORROWER proposes to take with respect thereto; (ii) no
material adverse change in the condition, financial or otherwise, business,
property or results of operations of such BORROWER has occurred since the
previous certificate was sent to the LENDER
32
<PAGE>
by such BORROWER or, if any such change has occurred, specifying the nature
thereof and what action such BORROWER has taken or proposes to take with respect
thereto; (iii) all insurance premiums then due have been paid; (iv) all taxes
then due have been paid or, for those taxes which have not been paid, a
statement of the taxes not paid and a description of such BORROWER'S rationale
therefor; (v) no litigation, investigation or proceedings, or injunction, writ
or restraining order is pending or threatened or, if any such litigation,
investigation, proceeding, injunction, writ or order is pending, describing the
nature thereof; and (vi) stating whether or not the GUARANTORS and the BORROWERS
are in compliance with the covenants in this AGREEMENT, including a calculation
of the financial covenants in the schedule attached to such officers'
certificates in form satisfactory to the LENDER.
Section 5.12.9. REPORTS TO OTHER CREDITORS. Promptly after the
furnishing thereof, each of the BORROWERS shall submit to the LENDER copies of
any statement or report furnished to any other PERSON pursuant to the terms of
any indenture, loan, or credit or similar agreement and not otherwise required
to be furnished to the LENDER pursuant to any other provisions of this
AGREEMENT.
Section 5.12.10. MANAGEMENT CHANGES. Each of the BORROWERS
shall notify the LENDER immediately of any changes in the personnel holding the
positions of either President or Chief Financial Officer of either of the
BORROWERS.
Section 5.12.11. GENERAL INFORMATION. In addition to the items
set forth in subparagraphs 5.12.1 through 5.12.10 above, each of the BORROWERS
agrees to submit to the LENDER such other information respecting the condition
or operations, financial or otherwise, of each of the BORROWERS as the LENDER
may reasonably request from time to time.
Section 5.13. EMPLOYEE BENEFIT PLANS AND GUARANTEED PENSION PLANS. Each
of the BORROWERS will, and will cause each of its ERISA AFFILIATES to: (a)
comply with all requirements imposed by ERISA and the CODE, applicable from time
to time to any of its GUARANTEED PENSION PLANS or EMPLOYEE BENEFIT PLANS; (b)
make full payment when due of all amounts which, under the provisions of
EMPLOYEE BENEFIT PLANS or under applicable LAW, are required to be paid as
contributions thereto; (c) not permit to exist any material accumulated funding
deficiency, whether or not waived; (d) file on a timely basis all reports,
notices and other filings required by any governmental agency with respect to
any of its EMPLOYEE BENEFITS PLANS; (e) make any payments to MULTIEMPLOYER PLANS
required to be made under any agreement relating to such MULTIEMPLOYER PLANS, or
under any LAW pertaining thereto; (f) not amend or otherwise alter any
GUARANTEED PENSION PLAN if the effect would be to cause the actuarial present
value of all benefit commitments under any GUARANTEED PENSION PLAN to be less
than the current value of the assets of such GUARANTEED PENSION PLAN allocable
to such benefit commitments; (g) furnish to all participants, beneficiaries and
employees under any of the EMPLOYEE BENEFIT PLANS, within the periods prescribed
by LAW, all reports, notices and other information to which they are entitled
under applicable LAW; and (h) take no action which would cause any of the
EMPLOYEE BENEFIT PLANS to fail to meet any qualification requirement imposed by
the CODE. As used in this Section, the term Aaccumulated funding deficiency@ has
the meaning specified in Section 302 of ERISA and Section 412 of the CODE, and
33
<PAGE>
the terms Aactuarial present value@, Abenefit commitments@ and Acurrent value@
have the meaning specified in Section 4001 of ERISA.
Section 5.14. MAINTENANCE OF FIXED ASSETS. Each of the BORROWERS shall
maintain and preserve all of its fixed assets in a state of good and efficient
working order.
Section 5.15. CONSIGNMENTS. Each of the BORROWERS shall advise the
LENDER of all PERSONS to whom it has consigned or assigned INVENTORY for sale or
distribution, and the location of the INVENTORY subject to any such consignment
or assignment arrangement. Each of the BORROWERS shall: (a) duly and properly
file financing statements in all applicable places of public record with respect
to each of such consignments or assignments, which filings shall comply with
Section 9-114 of the 1972 version of the UNIFORM COMMERCIAL CODE and with all
other requirements necessary for such BORROWER to protect its interests therein
under applicable LAWS; (b) supply the LENDER with prior evidence of such filing
and with a financing statement, judgment and tax lien search in the name of the
consignee or assignee in all applicable places of public record; and (c) provide
written notification to any holder of any security interests in the inventory of
the consignee or assignee who has filed a financing statement before such
BORROWER files its financing statement, which notice shall state that such
BORROWER expects to deliver goods or assignments, shall describe the goods by
item or type and which notification shall be received by any such holder within
five (5) years before the consignee receives possession of the goods and at five
(5) year intervals thereafter.
Section 5.16. FEDERAL ASSIGNMENT OF CLAIMS ACT. Each of the BORROWERS
shall notify the LENDER if any RECEIVABLE arises out of a contract with the
United States of America, or any department, agency or instrumentality thereof,
and shall execute all documents or instruments and shall take all steps or
actions required by the LENDER so that all monies due or to become due under
such contract are assigned to the LENDER and notice given thereof to the United
States in accordance with the requirements of the FEDERAL ASSIGNMENT OF CLAIMS
ACT, as amended.
Section 5.17. COMPLIANCE WITH LAWS. Each of the BORROWERS shall comply
in all material respects with all applicable LAWS, including, but not limited
to, all LAWS with respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that it sells or to the services it
performs; (b) the conduct of its business; (c) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its business; and (d) the obtaining and maintenance of all necessary
licenses, franchises, permits and governmental approvals, registrations and
exemptions necessary to engage in its business. Without limiting the generality
of the preceding Section, each of the BORROWERS shall: (i) comply in all
material respects with, and ensure such compliance by all tenants and
subtenants, if any, with, all applicable ENVIRONMENTAL LAWS and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
ENVIRONMENTAL LAWS; (ii) conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required under
ENVIRONMENTAL LAWS, and promptly comply with all
34
<PAGE>
lawful orders and directives of any governmental authority regarding
ENVIRONMENTAL LAWS; and (iii) defend, indemnify and hold harmless the LENDER,
and its employees, agents, officers and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature known or unknown, contingent or otherwise, arising
out of, or in any way relating to the violation of, noncompliance with or
liability under any ENVIRONMENTAL LAWS applicable to the operations of each of
the BORROWERS, or any orders, requirements or demands of governmental
authorities related thereto, including, without limitation, reasonable
attorney=s and consultant=s fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of the
foregoing directly result from the gross negligence or willful misconduct of the
party seeking indemnification therefor. Each of the BORROWERS agrees to promptly
notify the LENDER of any RELEASE of a REGULATED SUBSTANCE on, to or from any
FACILITY in violation of any ENVIRONMENTAL LAWS or of any notice received by
such BORROWER that such BORROWER or any FACILITY is not in compliance with any
ENVIRONMENTAL LAWS.
Section 5.18. CONSOLIDATED FINANCIAL COVENANTS. The BORROWERS shall
take such actions and cause each of the COMPANIES to take such actions as are
necessary for the COMPANIES on a consolidated basis to comply at all times
during the term of the LOAN with the following consolidated financial covenants:
Section 5.18.1. MINIMUM CONSOLIDATED NET WORTH. The COMPANIES
shall maintain a minimum CONSOLIDATED NET WORTH of not less than the following
amounts measured as of the following dates:
06/30/99 $3,459,000
09/30/99 $3,700,000
12/31/99 $4,100,000
03/31/00 $4,700,000
06/30/00 $5,400,000
09/30/00 $5,700,000
12/31/00 $6,000,000
03/31/01 $6,300,000
06/30/01 $6,600,000
09/30/01 $7,000,000
12/31/01 $7,300,000
03/31/02 $7,700,000
06/30/02 $8,100,000
Section 5.18.2. RATIO OF CONSOLIDATED LIABILITIES TO
CONSOLIDATED NET WORTH. The COMPANIES shall maintain a ratio of CONSOLIDATED
LIABILITIES to CONSOLIDATED NET WORTH of not more than the following ratios
measured as of the following times:
35
<PAGE>
06/30/99 4.21 to 1.0
09/30/99 4.25 to 1.0
12/31/99 4.25 to 1.0
03/31/00 4.00 to 1.0
06/30/00 3.75 to 1.0
09/30/00 3.75 to 1.0
12/31/00 3.75 to 1.0
03/31/01 3.75 to 1.0
06/30/01 3.75 to 1.0
09/30/01 3.75 to 1.0
12/31/01 3.75 to 1.0
03/31/02 3.75 to 1.0
06/30/02 3.75 to 1.0
Section 5.18.3. CONSOLIDATED INTEREST COVERAGE RATIO. The
COMPANIES shall maintain a CONSOLIDATED INTEREST COVERAGE RATIO of not less than
the following ratios measured as of the following times:
06/30/99 3.21 to 1.0
09/30/99 2.00 to 1.0
12/31/99 2.25 to 1.0
03/31/00 2.25 to 1.0
06/30/00 2.50 to 1.0
09/30/00 2.50 to 1.0
12/31/00 2.50 to 1.0
03/31/01 2.50 to 1.0
06/30/01 3.00 to 1.0
09/30/01 3.00 to 1.0
12/31/01 3.00 to 1.0
03/31/02 3.00 to 1.0
06/30/02 3.00 to 1.0
Section 5.18.4. CONSOLIDATED FIXED CHARGE COVERAGE RATIO. The
COMPANIES shall maintain a CONSOLIDATED FIXED CHARGE COVERAGE RATIO of not less
than the following ratios measured as of the following times:
06/30/99 1.83 to 1.0
09/30/99 1.10 to 1.0
12/31/99 1.25 to 1.0
03/31/00 1.25 to 1.0
06/30/00 1.50 to 1.0
09/30/00 1.50 to 1.0
12/31/00 1.50 to 1.0
03/31/01 1.50 to 1.0
06/30/01 1.50 to 1.0
09/30/01 1.50 to 1.0
12/31/01 1.50 to 1.0
03/31/02 1.50 to 1.0
06/30/02 1.50 to 1.0
Section 5.19. YEAR 2000. Each of the BORROWERS agrees to take all
actions necessary to assure that each BORROWER'S computer-based system is able
to operate and effectively process data including dates on and after January 1,
2000.
36
<PAGE>
ARTICLE 6
NEGATIVE COVENANTS
Each of the BORROWERS covenants while any OBLIGATIONS are outstanding
and unpaid not to do or to permit to be done or to occur any of the acts or
occurrences set forth in this Article 6 without the prior written authorization
of the LENDER.
Section 6.1. NO CHANGE OF NAME, MERGER, ETC. Neither of the BORROWERS
shall change its name or enter into any merger, consolidation, reorganization or
recapitalization, except as contemplated by the provisions of Section 2.1.1.f of
this AGREEMENT.
Section 6.2. NO SALE OR TRANSFER OF ASSETS. Neither of the BORROWERS
shall sell, transfer, lease or otherwise dispose of all or any part of the
COLLATERAL, or all or any part of any of its other assets, except that INVENTORY
may be sold to ACCOUNT DEBTORS in the ordinary course of a BORROWER'S business.
Section 6.3. NO ENCUMBRANCE OF ASSETS. Neither of the BORROWERS shall
mortgage, pledge, grant or permit to exist a security interest in or lien upon
any of its assets of any kind, now owned or hereafter acquired, except for
PERMITTED LIENS.
Section 6.4. NO INDEBTEDNESS. Neither of the BORROWERS shall incur,
create, assume, or permit to exist any INDEBTEDNESS except: (a) the OBLIGATIONS;
and (b) INDEBTEDNESS secured by PERMITTED LIENS.
Section 6.5. RESTRICTED PAYMENTS. Neither of the BORROWERS shall make
any RESTRICTED PAYMENTS.
Section 6.6. TRANSACTIONS WITH AFFILIATES. Neither of the BORROWERS
shall make any contract for the purchase of any items from any AFFILIATE or the
performance of any services (including employment services) by any AFFILIATE,
unless such contract is on terms which fairly represent generally available
terms to be obtained in transactions of a similar nature with independent third
PERSONS.
Section 6.7. LOANS, INVESTMENTS AND SALE-LEASEBACKS. Neither of the
BORROWERS shall make any advance, loan, investment, or material acquisition of
assets or enter into any sale-leaseback transactions.
Section 6.8. NO ACQUISITION OF EQUITY IN OR ASSETS OF THIRD PERSONS.
Neither of the BORROWERS shall acquire any equity interests in, or all or
substantially all of the assets of, any PERSON.
Section 6.9. NO ASSIGNMENT. Neither of the BORROWERS shall assign or
attempt to assign its rights under this AGREEMENT.
Section 6.10. NO ALTERATION OF STRUCTURE OR OPERATIONS. Neither of the
BORROWERS shall amend or change materially its capital structure (except as
contemplated by Section 2.1.1.f of this AGREEMENT) or its line or scope of
37
<PAGE>
business, nor shall it engage in business ventures other than those in which it
is presently engaged.
Section 6.11. UNPERMITTED USES OF LOAN PROCEEDS. Neither of the
BORROWERS shall use any part of the proceeds of the LOAN hereunder for any
purpose which constitutes a violation of, or is inconsistent with, regulations
of the Board of Governors of the Federal Reserve System, including without
limitation, the purchase or carrying of (or refinancing of indebtedness
originally incurred to purchase or carry) margin securities.
Section 6.12. LONG TERM CONTRACTS. Neither of the BORROWERS shall enter
into any management contract, employment contract, consulting contract,
non-competition contract, service contract or the like, having a term in excess
of thirteen (13) months or requiring the payment of any monies by either of the
BORROWERS on a date occurring more than thirteen (13) months after the date of
such contract with any AFFILIATE.
Section 6.13. CHANGES IN FISCAL YEAR. Neither of the BORROWERS shall
change its FISCAL YEAR.
Section 6.14. LIMITATION ON ISSUANCE OF EQUITY INTERESTS. Neither of
the BORROWERS shall issue or sell any equity interest in such BORROWER that, by
its terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or passage of time would be:
(a) convertible or exchangeable into a liability of such BORROWER; or (b)
required to be redeemed or repurchased, including at the option of the holder,
in whole or in part, or has, or upon the happening of an event or passage of
time would have, a redemption or similar payment due.
Section 6.15. CAPITAL EXPENDITURES. The COMPANIES shall not make
CONSOLIDATED CAPITAL EXPENDITURES in any FISCAL YEAR in excess of __________
Dollars ($__________) in aggregate amount.
ARTICLE 7
EVENTS OF DEFAULT
Subject to the notice and cure provisions set forth in Section 7.19,
the occurrence of any of the following events shall constitute an EVENT OF
DEFAULT.
Section 7.1. FAILURE TO PAY. The failure by either or both of the
BORROWERS to pay any of the OBLIGATIONS when and as due.
Section 7.2. VIOLATION OF COVENANTS. The failure by either or both of
the BORROWERS to perform or a violation of any of the covenants or agreements
provided in this AGREEMENT or in any of the other LOAN DOCUMENTS.
Section 7.3. REPRESENTATION OR WARRANTY. The failure of any
representation or warranty made by either or both of the BORROWERS or by any of
the GUARANTORS to be true in any material respect, as of the date made.
Section 7.4. DEFAULT UNDER LOAN DOCUMENTS. A breach of or default by
either or both of the BORROWERS under the terms, covenants, and conditions set
forth in any other LOAN DOCUMENT.
38
<PAGE>
Section 7.5. CROSS-DEFAULT. A breach of or default under the terms,
covenants, or conditions of any agreement, loan, guaranty, or other transaction
of either or both of the BORROWERS or any of the GUARANTORS with any other
lender after the expiration of any applicable notice or cure rights for any
default arising from the non-payment of any monetary amount, and after any
acceleration of any such transaction for any default not arising from the
failure to timely pay any monetary amount. A breach or default under any other
agreement or transaction between the LENDER and either of the BORROWERS or any
of the GUARANTORS after the expiration of any applicable notice and cure rights
shall constitute an EVENT OF DEFAULT.
Section 7.6. JUDGMENTS. Either of the BORROWERS or any of the
GUARANTORS shall suffer final judgments for the payment of money aggregating in
excess of Seventy-Five Thousand Dollars ($75,000) and shall not discharge the
same within a period of thirty (30) days unless, pending further proceedings,
execution has not been commenced or if commenced has been effectively stayed.
Section 7.7. LEVY BY JUDGMENT CREDITOR. A judgment creditor of either
of the BORROWERS shall obtain possession of any of the COLLATERAL by any means,
including but not limited to levy, distraint, replevin or self-help, and neither
of the BORROWERS shall remedy same within thirty (30) days thereof; or a writ of
garnishment is served on the LENDER relating to any of the accounts of either of
the BORROWERS maintained by the LENDER.
Section 7.8. FAILURE TO PAY LIABILITIES. Either of the BORROWERS shall
fail to pay any of its debts, in any material amount, due any third PERSON and
such failure shall continue beyond any applicable grace period, unless the
applicable BORROWER holds a good faith defense to payment and has set aside
reasonable reserves for the payment thereof.
Section 7.9. INVOLUNTARY INSOLVENCY PROCEEDINGS. The institution of
involuntary INSOLVENCY PROCEEDINGS against either of the BORROWERS and the
failure of any such INSOLVENCY PROCEEDINGS to be dismissed before the earliest
to occur of: (a) the date which is ninety (90) days after the institution of
such INSOLVENCY PROCEEDINGS; (b) the entry of any order for relief in the
INSOLVENCY PROCEEDING or any order adjudicating either or both of the BORROWERS
insolvent; or (c) the impairment (as to validity, priority or otherwise) of any
security interest or lien of the LENDER in any of the COLLATERAL.
Section 7.10. VOLUNTARY INSOLVENCY PROCEEDINGS. The commencement by
either of the BORROWERS of INSOLVENCY PROCEEDINGS.
Section 7.11. INSOLVENCY PROCEEDINGS PERTAINING TO GUARANTORS. The
occurrence of any of the events listed in Sections 7.9 and 7.10 above to any
GUARANTOR.
Section 7.12. MATERIAL ADVERSE EVENT. The occurrence of a MATERIAL
ADVERSE EVENT.
39
<PAGE>
Section 7.13. DEFAULT BY GUARANTORS. The failure by any of the
GUARANTORS to satisfy any obligation imposed upon it in the GUARANTY AGREEMENTS.
Section 7.14. ATTEMPT TO TERMINATE GUARANTIES. The receipt by the
LENDER of notice from a GUARANTOR that the GUARANTOR is attempting to terminate
or limit any portion of its obligations under a GUARANTY AGREEMENT.
Section 7.15. ERISA. If any TERMINATION EVENT shall occur and as of the
date thereof or any subsequent date, the sum of the various liabilities of
either of the BORROWERS and its ERISA AFFILIATES (such liabilities to include,
without limitation, any liability to the Pension Benefit Guaranty Corporation
(or any successor thereto) or to any other party under Sections 4062, 4063, or
4064 of ERISA or any other provision of LAW and to be calculated after giving
effect to the tax consequences thereof) resulting from or otherwise associated
with such event exceeds One Hundred Thousand Dollars ($100,000); or either of
the BORROWERS or any of its ERISA AFFILIATES as an employer under any
MULTIEMPLOYER PLAN shall have made a complete or partial withdrawal from such
MULTIEMPLOYER PLANS and the plan sponsors of such MULTIEMPLOYER PLANS shall have
notified such withdrawing employer that such employer has incurred a withdrawal
liability requiring a payment in an amount exceeding Fifty Thousand Dollars
($50,000).
Section 7.16. TRANSFER OF EQUITY INTERESTS. The transfer of any equity
interests in either of the BORROWERS from the ownership existing as of CLOSING
(after giving effect to the transactions contemplated by Section 2.1.1.f of this
AGREEMENT, the dissolution of either of the BORROWERS, the pledge of any equity
interests of either of the BORROWERS except to the LENDER, or the issuance of
additional equity interests in either of the BORROWERS which issuance has the
effect of diluting the existing interests of the existing equity holders in
either of the BORROWERS.
Section 7.17. INDICTMENT OF BORROWERS OR GUARANTORS. The indictment of
either of the BORROWERS or of any of the GUARANTORS for a felony under any
federal, state or other LAW.
Section 7.18. INJUNCTION. The issuance of any injunction against either
of the BORROWERS which enjoins or restrains either of the BORROWERS from
continuing to conduct any material part of either BORROWER'S business affairs.
Section 7.19. NOTICE AND CURE RIGHTS. Notwithstanding any provision to the
contrary set forth in any of the LOAN DOCUMENTS, an EVENT OF DEFAULT shall not
be deemed to have occurred with respect to: (a) the failure to pay a monetary
amount due to the LENDER pursuant to the terms of the LOAN DOCUMENTS until two
(2) calendar days after the LENDER has forwarded notice of such failure to pay
to the BORROWERS and the BORROWERS have failed to pay such unpaid amount; and
(b) with respect to the violation of any other covenant or requirement of the
LOAN DOCUMENTS, excepting the specific provisions of this AGREEMENT excluded in
the next succeeding sentence of this Section, until after the LENDER has
forwarded notice of such violation to the BORROWERS and the BORROWERS have
failed to correct such violation within five (5) calendar days after the date of
the sending of such notice. A violation of any of the following Sections of this
AGREEMENT shall immediately
40
<PAGE>
constitute an EVENT OF DEFAULT without the BORROWERS having any notice or cure
rights: Sections 6.1 through 6.15 inclusive, 7.3, 7.5, 7.6, 7.7, 7.9, 7.10,
7.11, 7.14, 7.16 and 7.17.
ARTICLE 8
RIGHTS AND REMEDIES ON THE OCCURRENCE
OF AN EVENT OF DEFAULT
Section 8.1. LENDER=S SPECIFIC RIGHTS AND REMEDIES. In addition to all
other rights and remedies provided by LAW and the LOAN DOCUMENTS, upon the
occurrence of any EVENT OF DEFAULT, the LENDER may: (a) accelerate and call
immediately due and payable all or any part of the OBLIGATIONS; (b) seek
specific performance or injunctive relief to enforce performance of the
undertakings, duties, and agreements provided in the LOAN DOCUMENTS, whether or
not a remedy at law exists or is adequate; and (c) exercise any rights of a
secured creditor under the UNIFORM COMMERCIAL CODE, as adopted and amended in
Maryland, including the right to take possession of the COLLATERAL without the
use of judicial process or hearing of any kind and the right to require either
or both of the BORROWERS to assemble the COLLATERAL at such place as the LENDER
may specify.
Section 8.2. AUTOMATIC ACCELERATION. Upon the occurrence of an EVENT OF
DEFAULT as described in Sections 7.9 or 7.10 of this AGREEMENT, the OBLIGATIONS
shall be automatically accelerated and due and payable without any notice,
demand or action of any type on the part of the LENDER.
Section 8.3. SALE OF COLLATERAL. In addition to any other remedy
provided herein, upon the occurrence of an EVENT OF DEFAULT, the LENDER, in a
commercially reasonable fashion, may sell at public or private sale or otherwise
realize upon, in Baltimore, Maryland, or elsewhere, the whole or, from time to
time, any part of all COLLATERAL which is personal property, or any interest
which either of the BORROWERS may have therein. Pending any such action, the
LENDER may collect and liquidate the COLLATERAL. After deducting from the
proceeds of sale or other disposition of such COLLATERAL all expenses, including
all expenses for legal services, the LENDER shall apply such proceeds toward the
satisfaction of the OBLIGATIONS. Any remainder of the proceeds after
satisfaction in full of the OBLIGATIONS shall be distributed as required by
applicable LAW. Notice of any sale or other disposition (other than sales or
other dispositions of COLLATERAL which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market) shall
be given to the BORROWERS not less than ten (10) calendar days before the time
of any intended public sale or of the time after which any intended private sale
or other disposition of the COLLATERAL is to be made, which each of the
BORROWERS hereby agrees shall be commercially reasonable notice of such sale or
other disposition. The BORROWERS shall assemble, or shall cause to be assembled,
at the BORROWERS' own expense, the COLLATERAL at such place or places as the
LENDER shall designate. At any such sale or other disposition, the LENDER may,
to the extent permissible under applicable law, purchase the whole or any part
of the COLLATERAL, free from any right of redemption on the part of either of
the BORROWERS, which right is hereby waived and released to the extent lawfully
permitted. Without limiting the generality of any of the rights and remedies
conferred upon the LENDER under this Section, the LENDER may, to the
41
<PAGE>
full extent permitted by applicable law: (a) enter upon the premises of either
of the BORROWERS, exclude therefrom either of the BORROWERS or any PERSON
connected therewith, and take immediate possession of the COLLATERAL, either
personally or by means of a receiver appointed by a court of competent
jurisdiction, using all necessary force to do so; (b) at the LENDER=S option,
use, operate, manage, and control the COLLATERAL in any lawful manner; (c)
collect and receive all income, revenue, earnings, issues, and profits
therefrom; and (d) maintain, alter or remove the COLLATERAL as the LENDER may
determine in the LENDER=S discretion.
Section 8.4. REMEDIES CUMULATIVE. The rights and remedies provided in
this AGREEMENT and in the other LOAN DOCUMENTS or otherwise under applicable
LAWS shall be cumulative and the exercise of any particular right or remedy
shall not preclude the exercise of any other rights or remedies in addition to,
or as an alternative of, such right or remedy.
ARTICLE 9
GENERAL CONDITIONS AND TERMS
Section 9.1. OBLIGATIONS ARE UNCONDITIONAL. The payment and performance
of the OBLIGATIONS shall be the absolute and unconditional joint and several
duty and obligation of each of the BORROWERS, and shall be independent of any
defense or any rights of set-off, recoupment or counterclaim which either of the
BORROWERS might otherwise have against the LENDER. The BORROWERS shall pay the
payments of the principal and interest to be made upon the OBLIGATIONS, free of
any deductions and without abatement, diminution or set-off other than those
herein expressly provided. Until such time as the OBLIGATIONS have been fully
paid and performed, neither of the BORROWERS shall: (a) suspend or discontinue
any payments required by the LOAN DOCUMENTS; and (b) fail to perform and observe
all of each BORROWER'S covenants and agreements set forth in the LOAN DOCUMENTS.
Section 9.2. INDEMNITY. Each of the BORROWERS agrees to defend,
indemnify and hold harmless the LENDER and the entities affiliated with the
LENDER and all of the LENDER=S and its affiliated entities' employees, agents,
officers and directors, from and against any losses, penalties, fines,
liabilities, settlements, damages, costs and expenses, suffered in connection
with any claim, investigation, litigation or other proceeding (whether or not
the LENDER or an affiliated entity is a party thereto) and the prosecution and
defense thereof, arising out of or in any way connected with any LOAN DOCUMENT,
including without limitation reasonable attorneys= and consultant=s fees, except
to the extent that any of the foregoing directly result from the gross
negligence or willful misconduct of the party seeking indemnification therefor.
Notwithstanding any termination of this AGREEMENT or payment and performance of
the OBLIGATIONS, the indemnities provided for herein shall continue in full
force and effect and shall protect all of the above-described PERSONS against
events arising after such termination, payment or performance as well as before.
Section 9.3. LENDER EXPENSES. All LENDER EXPENSES shall be paid by the
BORROWERS, whether incurred prior to or after CLOSING, such that the subject
transactions shall at all times be cost free to the LENDER.
42
<PAGE>
Section 9.4. AUTHORIZATION TO OBTAIN FINANCIAL INFORMATION. Each of the
BORROWERS hereby irrevocably authorizes its accounting firm to provide the
LENDER from time to time with such information as may be requested by the
LENDER, and hereby authorizes the LENDER to contact directly such accounting
firm in order to obtain such information.
Section 9.5. INCORPORATION; CONSTRUCTION OF INCONSISTENT PROVISIONS.
The terms and conditions of the LOAN DOCUMENTS are incorporated by reference and
made a part hereof, as if fully set forth herein. In the event of any
inconsistency between this AGREEMENT and any other LOAN DOCUMENT, such
inconsistency shall be construed, interpreted, and resolved so as to benefit the
LENDER, independent of whether this AGREEMENT or another LOAN DOCUMENT controls,
and the LENDER=S election of which interpretation or construction is for the
LENDER=S benefit shall govern.
Section 9.6. WAIVERS. The LENDER at any time or from time to time may
waive all or any rights under this AGREEMENT or any other LOAN DOCUMENT, but any
waiver or indulgence by the LENDER at any time or from time to time shall not
constitute a future waiver of performance or exact performance by either of the
BORROWERS.
Section 9.7. CONTINUING OBLIGATION OF BORROWERS. The terms, conditions,
and covenants set forth herein and in the LOAN DOCUMENTS shall survive CLOSING
and shall constitute a continuing obligation of each of the BORROWERS during the
course of the transactions contemplated herein. The security interests, liens
and other security provided by this AGREEMENT shall remain in effect so long as
any OBLIGATION, whether direct or contingent, is outstanding, unpaid or
unsatisfied.
Section 9.8. CHOICE OF LAW. The laws of the State of Maryland
(excluding, however, conflict of law principles) shall govern and be applied to
determine all issues relating to this AGREEMENT and the rights and obligations
of the parties hereto, including the validity, construction, interpretation, and
enforceability of this AGREEMENT and its various provisions and the consequences
and legal effect of all transactions and events which resulted in the execution
of this AGREEMENT or which occurred or were to occur as a direct or indirect
result of this AGREEMENT having been executed.
Section 9.9. SUBMISSION TO JURISDICTION; VENUE; ACTIONS AGAINST LENDER.
For purposes of any action, in law or in equity, which is based directly or
indirectly on this AGREEMENT, any other LOAN DOCUMENT or any matter related to
this AGREEMENT or any other LOAN DOCUMENT, including any action for recognition
or enforcement of any of the LENDER=S rights under the LOAN DOCUMENTS or any
judgment obtained by the LENDER in respect thereof, each of the BORROWERS
hereby:
Section 9.9.1. JURISDICTION. Irrevocably submits to the
non-exclusive general jurisdiction of the courts of the State of Maryland and,
if a basis for federal jurisdiction exists at any time, the courts of the United
States of America for the District of Maryland.
Section 9.9.2. VENUE. Agrees that venue shall be proper in the
Circuit Court for Baltimore City, Maryland, the Circuit Court for any county in
the state of Maryland, as selected by the LENDER, and, if a basis for
43
<PAGE>
federal jurisdiction exists, the courts of the United States of America for the
District of Maryland.
Section 9.9.3. WAIVER OF OBJECTIONS TO VENUE. Waives any right
to object to the maintenance of any suit in any of the courts specified in
Section 9.9.2 above on the basis of improper venue or convenience of forum. Each
of the BORROWERS further agrees that it shall not institute any suit or other
action against the LENDER, in law or in equity, which is based directly or
indirectly on this AGREEMENT, any other LOAN DOCUMENT or any matter related to
this AGREEMENT or any other LOAN DOCUMENT, in any court other than a court
specified in Section 9.9.2 above; provided, that in any instance in which there
is then pending a suit instituted by the LENDER against either of the BORROWERS
in a court other than a court specified in Section 9.9.2 above, each of the
BORROWERS may file in such suit any counterclaim which it has against the LENDER
but only if such counterclaim is a compulsory counterclaim and would be barred
if not filed as a counterclaim in such suit. Each of the BORROWERS agrees that
any suit brought by it against the LENDER not in accordance with this paragraph
should be forthwith dismissed or transferred to a court specified in Section
9.9.2 above.
Section 9.10. NOTICES. Any notice required or permitted by or in
connection with this AGREEMENT shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the LENDER or the BORROWERS at the appropriate address set forth
below or to such other address as may be hereafter specified by written notice
by the LENDER or the BORROWERS. Notice shall be considered given as of the date
of the facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3) calendar
days after the date of mailing, independent of the date of actual delivery or
whether delivery is ever in fact made, as the case may be, provided the giver of
notice can establish the fact that notice was given as provided herein. If
notice is tendered pursuant to the provisions of this Section and is refused by
the intended recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
If to the LENDER:
THE PROVIDENT BANK
One E. Fourth Street
Cincinnati, Ohio 45202
Attn: Barry Peterson, Vice President
Facsimile: (513) 763-8069
44
<PAGE>
And to:
THE PROVIDENT BANK
1340 Smith Avenue, Suite 200
Baltimore, Maryland 21209
Attn: J. David Kommalan, Vice President
Facsimile: (410) 779-1337
If to the BORROWERS:
IMTEK CORPORATION
8003 Corporate Drive, Suite C
Baltimore, MD 21236
Attn: Brad C. Thompson, Chief Financial Officer
Facsimile: (410) 931-2731
BARBERA BUSINESS SYSTEMS, INC.
8003 Corporate Drive, Suite C
Baltimore, MD 21236
Attn: Brad C. Thompson, Chief Financial Officer
Facsimile: (410) 931-2731
With A Courtesy Copy To:
MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.
7 St. Paul Street, Suite 1000
Baltimore, Maryland 21202-1626
Attn.: Patrick M. Shelley, Esquire
Fax No.: (410) 659-4599
The failure of the LENDER to send the above courtesy copy shall not impair the
effectiveness of notice given to the BORROWERS in the manner provided herein.
Section 9.11. PARTICIPATIONS. The LENDER reserves the right to assign
all or any portion of its interests in any of the OBLIGATIONS or the LOAN
DOCUMENTS or to participate with other lending institutions any of the
OBLIGATIONS and the LOAN DOCUMENTS on such terms and at such times as the LENDER
may determine from time to time, all without any consent thereto or notice
thereof to the BORROWERS. Each of the BORROWERS hereby grants to each
participating lending institution, to the full extent of the OBLIGATIONS, the
right to set off deposit accounts maintained by the BORROWERS with such
institution, and each of the BORROWERS agrees to pay the LENDER EXPENSES of any
such participating lending institution which arise or are incurred as a result
of the occurrence of an EVENT OF DEFAULT.
Section 9.12. MISCELLANEOUS PROVISIONS. The parties agree that: (a)
this AGREEMENT shall be effective as of the date first above written,
independent of the date of execution or delivery hereof; (b) this AGREEMENT
shall be binding upon the parties and their successors and assigns, contains the
final and entire agreement and understanding of the parties, and may neither be
amended or altered except by a writing signed by the parties; (c) time is
strictly of the essence of this AGREEMENT; (d) as used herein, the singular
includes the plural and the plural includes the singular, the use of
45
<PAGE>
any gender applies to all genders; (e) the captions contained herein are for
purposes of convenience only and are not a part of this AGREEMENT; (f) a carbon,
photographic, photocopy or other reproduction of a security agreement or
financing statement shall be sufficient as a financing statement; (g) this
AGREEMENT may be delivered by facsimile, and a facsimile of any party=s
signature to this AGREEMENT shall be deemed an original signature for all
purposes; and (h) this AGREEMENT may be executed in several counterparts, each
of which shall be an original, but all of which, when taken together, shall
constitute one and the same document.
46
<PAGE>
Section 9.13. WAIVER OF TRIAL BY JURY. Each party to this AGREEMENT
agrees that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by either party hereto or any successor or assign of any
party on or with respect to this AGREEMENT or any other LOAN DOCUMENT or which
in any way relates, directly or indirectly, to the OBLIGATIONS or any event,
transaction, or occurrence arising out of or in any way connected with any of
the OBLIGATIONS, or the dealings of the parties with respect thereto, shall be
tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.
IN WITNESS WHEREOF, the LENDER and the BORROWERS have duly executed
this AGREEMENT under seal as of the date first above written.
WITNESS/ATTEST: THE PROVIDENT BANK,
An Ohio Chartered Banking Institution
By: /S/ J. David Kommalan (SEAL)
----------------------------
J. David Kommalan,
Vice President
IMTEK CORPORATION,
A Maryland Corporation
BY: /S/ Robert W. Hoover (Seal)
----------------------------
Robert W. Hoover, Vice President
BARBERA BUSINESS SYSTEMS, INC.,
A Maryland Corporation
BY: /S/ Robert W. Hoover (Seal)
----------------------------
Robert W. Hoover, Vice President
47
\
<PAGE>
EXHIBIT 10.10.2
Baltimore, Maryland $10,000,000.00
July 1, 1999
REVOLVING LOAN PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned IMTEK CORPORATION, a Maryland corporation,
and BARBERA BUSINESS SYSTEMS, INC., a Maryland corporation (collectively,
"BORROWERS"), jointly and severally promise to pay to the order of THE PROVIDENT
BANK, an Ohio chartered banking institution ("LENDER"), at the LENDER'S offices
at One E. Fourth Street, Cincinnati, Ohio 45202, or at such other places as the
holder of this Promissory Note may from time to time designate, the principal
sum of Ten Million Dollars ($10,000,000.00), or so much as may have been
advanced to the BORROWER as proceeds of the "LOAN," as such term is defined and
described in the Loan And Security Agreement ("AGREEMENT") of even date herewith
between the LENDER and the BORROWERS, together with interest thereon at the rate
or rates hereafter specified until paid in full and any and all other sums which
may be owing to the holder of this Promissory Note by the BORROWERS pursuant to
this Promissory Note. The following terms shall apply to this Promissory Note.
1. INTEREST RATE. The BORROWERS agree to pay interest to the
holder of this Promissory Note upon the greater of the actual unpaid principal
balance of this Promissory Note or Five Million Dollars ($5,000,000.00) (even if
the unpaid principal balance is less than Five Million Dollars ($5,000,000.00)
or the BORROWERS would not be authorized by the terms of the AGREEMENT to
principal advances in such aggregate amount outstanding) until the LOAN has been
terminated and repaid in full at a fluctuating annual rate of interest, adjusted
daily, which shall equal the rate obtained by adding one (1) percentage point to
the PRIME RATE OF INTEREST of the LENDER in effect from time to time. The term
"PRIME RATE OF INTEREST" means that rate of interest set by the LENDER from time
to time as an interest rate base for borrowings. The PRIME RATE OF INTEREST is
one (1) of several interest rates bases used by the LENDER. The LENDER lends at
rates above or below the PRIME RATE OF INTEREST. It is intended by the BORROWERS
and the LENDER that the LENDER shall at all times during the term of this LOAN
be entitled to interest in a minimum amount not less than the interest which
would accrue at the above-stated rate on a minimum hypothetical unpaid principal
balance of Five Million Dollars ($5,000,000.00).
2. CALCULATION OF INTEREST. Interest shall be calculated on the
basis of a three hundred sixty (360) days per year factor applied to the actual
days on which there exists an unpaid balance hereunder.
3. REPAYMENT. Accrued and unpaid interest, plus any then due
applicable late payment charges or default interest, shall be paid in
consecutive monthly payments beginning on August 1, 1999 and continuing on the
first calendar day of each succeeding month until July 1, 2002, which is the
final and absolute maturity date of this Promissory Note,
1
<PAGE>
at which time all sums due hereunder that remain unpaid, including principal,
interest, charges and fees, shall be paid in full.
4. LATE PAYMENT CHARGE. If any payment due hereunder, including
any final installment, is not received by the holder within fifteen (15)
calendar days after its due date, the BORROWERS shall pay a late payment charge
equal to five percent (5%) of the amount then due (including both principal and
interest). The late payment charge shall be due whether or not the holder
declares this Promissory Note in default or accelerates and demands immediate
payment of the sums due hereunder. The existence of the right by the holder to
receive a late payment charge shall not constitute a grace period or provide any
right in the BORROWERS to make a payment other than on its due date.
5. APPLICATION OF PAYMENTS. All payments made hereunder shall be
applied first to late payment charges or other sums owed to the holder, next to
accrued interest, and then to principal, or in such other order or proportion as
the holder, in the holder's sole discretion, may elect from time to time.
6. EARLY TERMINATION. The BORROWERS shall pay to the holder the
termination fee required by Section 2.1.5 of the AGREEMENT if the LOAN is
terminated by the BORROWERS prior to the final maturity date of this Promissory
Note.
7. RIGHTS UPON OCCURRENCE OF AN EVENT OF DEFAULT. Upon the
occurrence of an "EVENT OF DEFAULT," as such term is defined in the AGREEMENT,
the holder of this Promissory Note shall have the following rights in addition
to such other rights and remedies as are authorized by the AGREEMENT or
otherwise available to the holder under applicable laws:
7.1. ACCELERATION. The holder of this Promissory Note, in
the holder's sole discretion and without notice or demand, may accelerate and
declare due and immediately owing the entire unpaid principal balance plus
accrued interest and all other sums payable under the LOAN DOCUMENTS, as such
term is defined in the AGREEMENT.
7.2. DEFAULT INTEREST RATE. The holder of this Promissory
Note, in the holder's sole discretion and without notice or demand, may raise
the rate of interest accruing on the unpaid principal balance by two (2)
percentage points above the rate of interest otherwise applicable, independent
of whether the holder elects to accelerate the unpaid principal balance as a
result of such default, unless prior to the imposition of the default rate of
interest, the BORROWERS cure such event to the satisfaction of the holder
hereof. Any individual waiver of the holder's right to impose the default rate
of interest shall not be considered a waiver of this section or any future right
of the holder to impose the default rate of interest pursuant to this Section.
7.3. CONFESSION OF JUDGMENT. Each of the BORROWERS
authorizes any attorney admitted to practice before any court of record in the
United States to appear on its behalf in any court in one or more proceedings,
or before any clerk thereof or prothonotary or other court official, and to
confess judgment against the BORROWERS in favor of the holder of this Promissory
Note
2
<PAGE>
in the full amount due on this Promissory Note (including principal, accrued
interest and any and all charges, fees and costs) plus attorneys' fees equal to
fifteen percent (15%) of the amount due, plus court costs, all without prior
notice or opportunity of the BORROWERS for prior hearing. Each of the BORROWERS
agrees and consents that venue and jurisdiction shall be proper in the Circuit
Court of any County of the State of Maryland or of Baltimore City, Maryland, or
in the United States District Court for the District of Maryland. Each of the
BORROWERS waives the benefit of any and every statute, ordinance, or rule of
court which may be lawfully waived conferring upon it any right or privilege of
exemption, homestead rights, stay of execution, or supplementary proceedings, or
other relief from the enforcement or immediate enforcement of a judgment or
related proceedings on a judgment. The authority and power to appear for and
enter judgment against the BORROWERS shall not be exhausted by one or more
exercises thereof, or by any imperfect exercise thereof, and shall not be
extinguished by any judgment entered pursuant thereto; such authority and power
may be exercised on one or more occasions from time to time, in the same or
different jurisdictions, as often as the holder shall deem necessary,
convenient, or proper. In the event that the holder receives, as a result of
execution on a judgment confessed hereunder, attorneys' fees which exceed the
actual legal fees incurred by the holder in connection with the unpaid balance
due to the holder pursuant to this Promissory Note, then, upon full and final
payment of all other sums due and owing to the holder pursuant to this
Promissory Note and payment of the actual attorneys' fees incurred by the
holder, the holder shall remit such excess amount of attorneys' fees to the
BORROWERS. Although the BORROWERS have agreed to the confession of judgment for
attorneys' fees in the above-stated fifteen percent (15%) amount, the holder of
this Promissory Note may not execute upon such judgment for attorneys' fees in
an amount greater than the attorneys' fees actually incurred by the holder in
connection with the loan evidenced by this Promissory Note and the enforcement
and collection thereof.
8. EXPENSES OF COLLECTION AND ATTORNEYS' FEES. Should this
Promissory Note be referred to an attorney for collection, whether or not
judgment has been confessed or suit has been filed, the BORROWERS shall pay all
of the holder's reasonable costs, fees and expenses, including reasonable
attorneys' fees, resulting from such referral.
9. WAIVER OF DEFENSES. In the event any one or more holders of
this Promissory Note transfer this Promissory Note for value, each of the
BORROWERS agrees that all subsequent holders of this Promissory Note who take
for value and without actual knowledge of a claim or defense of the BORROWERS
against a prior holder shall not be subject to any claims or defenses which the
BORROWERS may have against a prior holder, all of which are waived as to the
subsequent holder, and that all such subsequent holders shall have all rights of
a holder in due course with respect to the BORROWERS even though the subsequent
holder may not qualify, under applicable law, absent this section, as a holder
in due course. The BORROWERS shall retain all rights and claims which the
BORROWERS may have against prior holders despite any such transfers and the
waiver of defenses provided in this section as to subsequent holders.
10. WAIVER OF PROTEST. The BORROWERS, and all other parties to
this Promissory Note, whether maker, indorser, or guarantor, waive presentment,
notice of dishonor and protest.
3
<PAGE>
11. EXTENSIONS OF MATURITY. All parties to this Promissory Note,
whether maker, indorser, or guarantor, agree that the maturity of this
Promissory Note, or any payment due hereunder, may be extended at any time or
from time to time without releasing, discharging, or affecting the liability of
such party.
12. MANNER AND METHOD OF PAYMENT. All payments called for in this
Promissory Note shall be made in lawful money of the United States of America.
If made by check, draft, or other payment instrument, such check, draft, or
other payment instrument shall represent immediately available funds. In the
holder's discretion, any payment made by a check, draft, or other payment
instrument shall not be considered to have been made until such time as the
funds represented thereby have been collected by the holder. Should any payment
date fall on a non-banking day, the BORROWERS shall make the payment on the next
succeeding banking day.
13. MAXIMUM RATE OF INTEREST. Any provision contained in the LOAN
DOCUMENTS to the contrary notwithstanding, the holder of this Promissory Note
shall not be entitled to receive or collect, nor shall the BORROWERS be
obligated to pay, interest hereunder in excess of the maximum rate of interest
permitted by the laws of any state determined to be applicable thereto or the
laws of the United States of America applicable to loans in such applicable
state or states, and if any provisions of this Promissory Note or of any of the
other LOAN DOCUMENTS shall ever be construed or held to permit or require the
charging, collection or payment of any amount of interest in excess of that
permitted by such laws applicable thereto, the provisions of this paragraph
shall control and shall override any contrary or inconsistent provision. The
intention of the parties is to at all times conform strictly with all applicable
usury laws, and other applicable laws regulating the rates of interest which may
be lawfully charged upon the credit facility evidenced by this Promissory Note.
The interest to be paid in accordance with the terms of this Promissory Note
shall be held subject to reduction to the amount allowed under any usury or
other laws as now or hereafter construed by the courts having jurisdiction, and
any sums of money paid in excess of the interest rate allowed by law shall be
applied in reduction of the principal amounts owing under this Promissory Note.
14. NOTICES. Any notice or demand required or permitted by or in
connection with this Promissory Note shall be given in the manner specified in
the AGREEMENT for the giving of notices under the AGREEMENT. Notwithstanding
anything to the contrary, all notices and demands for payment from the holder
actually received in writing by the BORROWERS shall be considered to be
effective upon the receipt thereof by the BORROWERS regardless of the procedure
or method utilized to accomplish delivery thereof to the BORROWERS.
15. ASSIGNABILITY. This Promissory Note may be assigned by the
LENDER or any holder at any time or from time to time.
16. BINDING NATURE. This Promissory Note shall inure to the
benefit of and be enforceable by the LENDER and the LENDER'S successors and
assigns and any other person to whom the LENDER or any holder may grant an
interest in the BORROWERS' obligations hereunder, and shall be binding and
enforceable against the BORROWERS and the BORROWERS' successors and assigns.
4
<PAGE>
17. INVALIDITY OF ANY PART. If any provision or part of any
provision of this Promissory Note shall for any reason be held invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Promissory Note and this
Promissory Note shall be construed as if such invalid, illegal or unenforceable
provision or part thereof had never been contained herein, but only to the
extent of its invalidity, illegality, or unenforceability.
18. CHOICE OF LAW. The laws of the State of Maryland (excluding,
however, conflict of law principles) shall govern and be applied to determine
all issues relating to this Promissory Note and the rights and obligations of
the parties hereto, including the validity, construction, interpretation, and
enforceability of this Promissory Note and its various provisions and the
consequences and legal effect of all transactions and events which resulted in
the issuance of this Promissory Note or which occurred or were to occur as a
direct or indirect result of this Promissory Note having been executed.
19. CONSENT TO JURISDICTION; AGREEMENT AS TO VENUE. Each of the
BORROWERS irrevocably consents to the non-exclusive jurisdiction of the courts
of the State of Maryland and of the United States District Court for the
District of Maryland, if a basis for federal jurisdiction exists. Each of the
BORROWERS agrees that venue shall be proper in any circuit court of the State of
Maryland selected by the LENDER or in the United States District Court for the
District of Maryland if a basis for federal jurisdiction exists and waives any
right to object to the maintenance of a suit in any of the state or federal
courts of the State of Maryland on the basis of improper venue or of
inconvenience of forum.
20. UNCONDITIONAL OBLIGATIONS. The BORROWERS' obligations under
this Promissory Note shall be the joint and several, absolute, and unconditional
duty and obligation of each of the BORROWERS and shall be independent of any
rights of set-off, recoupment or counterclaim which the BORROWER might otherwise
have against the holder of this Promissory Note, and the BORROWER shall pay
absolutely the payments of principal, interest, fees and expenses required
hereunder, free of any deductions and without abatement, diminution or set-off.
21. SEAL AND EFFECTIVE DATE. This Promissory Note is an instrument
executed under seal and is to be considered effective and enforceable as of the
date set forth on the first page hereof, independent of the date of actual
execution and delivery.
22. TENSE; GENDER; DEFINED TERMS; SECTION HEADINGS. As used
herein, the singular includes the plural and the plural includes the singular. A
reference to any gender also applies to any other gender. Defined terms are
entirely capitalized throughout. The section headings are for convenience only
and are not part of this Promissory Note.
5
<PAGE>
23. ACTIONS AGAINST LENDER. Any action brought by either of the
BORROWERS against the LENDER which is based, directly or indirectly, on this
Promissory Note or any matter in or related to this Promissory Note, including
but not limited to the making of the loan evidenced hereby or the administration
or collection thereof, shall be brought only in the courts of the State of
Maryland. The BORROWERS may not file a counterclaim against the LENDER in a suit
brought by the LENDER against the BORROWERS in a state other than the State of
Maryland unless under the rules of procedure of the court in which the LENDER
brought the action the counterclaim is mandatory, and not merely permissive, and
will be considered waived unless filed as a counterclaim in the action
instituted by the LENDER. Each of the BORROWERS agrees that any forum other than
the State of Maryland is an inconvenient forum and that a suit brought by the
BORROWERS against the LENDER in a court of any state other than the State of
Maryland should be forthwith dismissed or transferred to a court located in the
State of Maryland by that Court.
24. WAIVER OF JURY TRIAL. Each of the BORROWERS (by execution of
this Promissory Note) and the LENDER (by acceptance of this Promissory Note)
agree that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by or against the BORROWERS or the LENDER, or any
successor or assign of the BORROWERS or the LENDER, on or with respect to this
Promissory Note or any of the other LOAN DOCUMENTS, or which in any way relates,
directly or indirectly, to the obligations of the BORROWERS to the LENDER under
this Promissory Note or any of the other LOAN DOCUMENTS, or the dealings of the
parties with respect thereto, shall be tried only by a court and not by a jury.
THE BORROWERS AND THE LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY SUCH SUIT, ACTION, OR PROCEEDING. The BORROWERS and the LENDER
acknowledge and agree that this provision is a specific and material aspect of
the agreement between the parties and that the LENDER would not enter into the
transaction with the BORROWERS if this provision were not part of their
agreement.
IN WITNESS WHEREOF, each of the BORROWERS has duly executed this
Promissory Note under seal as of the date first above written.
WITNESS/ATTEST: THE BORROWERS:
IMTEK CORPORATION,
A Maryland Corporation
By: /s/ Robert W. Hoover (SEAL)
--------------------------
Robert W. Hoover, Vice President
BARBERA BUSINESS SYSTEMS, INC.,
A Maryland Corporation
6
<PAGE>
By: /s/ Robert W. Hoover (SEAL)
--------------------------
Robert W. Hoover, Vice President
7
<PAGE>
EXHIBIT 10.10.3
SECURED GUARANTY AGREEMENT
By
IMTEK ACQUISITION CORPORATION,
A MARYLAND CORPORATION,
IMTEK CAPITAL CORPORATION,
A MARYLAND CORPORATION,
IMTEK FUNDING CORPORATION,
A MARYLAND CORPORATION,
IMTEK OFFICE SOLUTIONS, INC.,
A DELAWARE CORPORATION,
AND
IMTEK SERVICES CORPORATION,
A MARYLAND CORPORATION,
GUARANTORS
For The Benefit Of
THE PROVIDENT BANK,
AN OHIO CHARTERED BANKING INSTITUTION
LENDER
With Respect To The Obligations Of
IMTEK CORPORATION,
A MARYLAND CORPORATION,
AND
BARBERA BUSINESS SYSTEMS, INC.,
A MARYLAND CORPORATION
BORROWERS
Dated As Of July 1, 1999
<PAGE>
SECURED GUARANTY AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions............................................................................................1
Section 1.1. Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods,
Instruments, Inventory, And Investment Property................................................1
Section 1.2. Affiliate.......................................................................................2
Section 1.3. Business Day....................................................................................2
Section 1.4. Capital Expenditures............................................................................2
Section 1.5. Capital Lease...................................................................................2
Section 1.6. Capital Lease Obligations.......................................................................2
Section 1.7. Code............................................................................................2
Section 1.8. Collateral......................................................................................2
Section 1.9. Consolidated Capital Expenditures...............................................................2
Section 1.10. Consolidated EBITDA.............................................................................3
Section 1.11. Consolidated Fixed Charge Coverage Ratio........................................................3
Section 1.12. Consolidated Interest Coverage Ratio............................................................3
Section 1.13. Consolidated Interest Expense...................................................................3
Section 1.14. Consolidated Liabilities........................................................................3
Section 1.15. Consolidated Net Worth..........................................................................3
Section 1.16. Consolidated Total Funded Indebtedness..........................................................3
Section 1.17. EBITDA..........................................................................................3
Section 1.18. Employee Benefit Plan...........................................................................4
Section 1.19. Environmental Laws..............................................................................4
Section 1.20. EPA Permit......................................................................................4
Section 1.21. ERISA...........................................................................................4
Section 1.22. ERISA Affiliate.................................................................................4
Section 1.23. ERISA Liabilities...............................................................................4
Section 1.24. Events Of Default...............................................................................4
Section 1.25. Facilities......................................................................................5
Section 1.26. FINOVA..........................................................................................5
Section 1.27. Fiscal Year.....................................................................................5
Section 1.28. G.A.A.P.........................................................................................5
Section 1.29. Guaranteed Pension Plan.........................................................................5
Section 1.30. Guaranty Indebtedness...........................................................................5
Section 1.31. Indebtedness....................................................................................6
Section 1.32. Insolvency Proceedings..........................................................................6
Section 1.33. Interest Expense................................................................................6
Section 1.34. Laws............................................................................................6
Section 1.35. Lender Expenses.................................................................................6
Section 1.36. Liabilities.....................................................................................7
Section 1.37. Loan Agreement..................................................................................7
Section 1.38. Loan Documents..................................................................................7
Section 1.39. Loan............................................................................................7
Section 1.40. Material Adverse Event..........................................................................7
Section 1.41. Net Worth.......................................................................................7
Section 1.42. Obligations.....................................................................................7
Section 1.43. Permitted Liens.................................................................................8
Section 1.44. Person..........................................................................................8
Section 1.45. Records.........................................................................................8
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1.46. Regulated Substance.............................................................................8
Section 1.47. Release.........................................................................................8
Section 1.48. Restricted Payment..............................................................................8
Section 1.49. Subordinated Debt...............................................................................9
Section 1.50. Subrogation Rights..............................................................................9
Section 1.51. Subsidiary......................................................................................9
Section 1.52. Termination Event...............................................................................9
Section 1.53. Total Funded Indebtedness.......................................................................9
Section 2. Guaranty; Agreement To Pay Lender Expenses............................................................10
Section 3. Nature Of Guaranty....................................................................................10
Section 4. Security For The Obligations..........................................................................10
Section 4.1. Grant Of Security Interest.....................................................................10
Section 4.2. Proceeds And Products..........................................................................11
Section 4.3. Priority Of Security Interest..................................................................12
Section 4.4. Future Advances................................................................................12
Section 4.5. Further Assurances.............................................................................12
Section 4.6. Pledge Agreements..............................................................................12
Section 5. Representations And Warranties........................................................................13
Section 5.1. Accuracy Of Information........................................................................13
Section 5.2. No Litigation..................................................................................13
Section 5.3. No Liability Or Adverse Change.................................................................13
Section 5.4. Title To Collateral............................................................................13
Section 5.5. Authority; Approvals And Consents..............................................................13
Section 5.5.1. Authority..................................................................................13
Section 5.5.2. Approvals..................................................................................13
Section 5.5.3. Consent....................................................................................14
Section 5.6. Taxes..........................................................................................14
Section 5.7. Compliance With Laws...........................................................................14
Section 5.8. Chief Place Of Business And Locations Of Records...............................................14
Section 5.9. Location Of Equipment And Fixtures.............................................................14
Section 5.10. Location Of Inventory..........................................................................14
Section 5.11. Subsidiaries...................................................................................15
Section 5.12. Approvals......................................................................................15
Section 5.13. Financial Statements...........................................................................15
Section 5.14. Employee Benefit Plans.........................................................................15
Section 5.14.1. Compliance................................................................................15
Section 5.14.2. Absence Of Termination Event..............................................................15
Section 5.14.3. Actuarial Value...........................................................................15
Section 5.14.4. No Withdrawal Liability...................................................................16
Section 5.15. Environmental Conditions.......................................................................16
Section 5.15.1. Existence Of Permits......................................................................16
Section 5.15.2. Compliance With Permits...................................................................16
Section 5.15.3. No Litigation.............................................................................16
Section 5.15.4. No Releases...............................................................................16
Section 5.15.5. Transportation............................................................................16
Section 5.15.6. No Violation Notices......................................................................16
Section 5.15.7. No Notice Of Violations...................................................................17
Section 6. Affirmative Covenants.................................................................................17
Section 6.1. Payment And Performance........................................................................17
Section 6.2. Casualty Insurance.............................................................................17
Section 6.3. Liability And Worker's Compensation Insurance..................................................17
Section 6.4. Books And Records..............................................................................17
Section 6.5. Collection Of Accounts; Sale Of Inventory......................................................18
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.6. Notice Of Litigation And Proceedings...........................................................18
Section 6.7. Payment Of Liabilities To Third Persons........................................................18
Section 6.8. Notice Of Change Of Business Location..........................................................18
Section 6.9. Payment Of Taxes...............................................................................18
Section 6.10. Inspections Of Records.........................................................................19
Section 6.11. Reporting Requirements.........................................................................19
Section 6.11.1. Monthly Financial Statements..............................................................19
Section 6.11.2. Annual Financial Statements...............................................................19
Section 6.11.3. Reports To SEC And To Shareholders........................................................20
Section 6.11.4. Management Letters........................................................................20
Section 6.11.5. Certificates Of No Default................................................................20
Section 6.11.6. Reports To Other Creditors................................................................20
Section 6.11.7. Management Changes........................................................................21
Section 6.11.8. General Information.......................................................................21
Section 6.12. Employee Benefit Plans And Guaranteed Pension Plans............................................21
Section 6.13. Maintenance Of Assets..........................................................................21
Section 6.14. Compliance With Laws...........................................................................21
Section 6.15. Environmental Laws.............................................................................22
Section 6.16. Consolidated Financial Covenants...............................................................22
Section 6.16.1. Minimum Consolidated Net Worth........................................................22
Section 6.16.2. Ratio Of Consolidated Liabilities To Consolidated Net Worth...........................23
Section 6.16.3. Consolidated Interest Coverage Ratio..................................................23
Section 6.16.4. Consolidated Fixed Charge Coverage Ratio..............................................24
Section 7. Negative Covenants....................................................................................24
Section 7.1. No Change Of Name, Merger, Etc.................................................................24
Section 7.2. No Sale Or Transfer Of Assets..................................................................24
Section 7.3. No Encumbrance Of Assets.......................................................................24
Section 7.4. No Indebtedness................................................................................25
Section 7.5. Restricted Payments............................................................................25
Section 7.6. Transactions With Affiliates...................................................................25
Section 7.7. Loans And Investments..........................................................................25
Section 7.8. No Sale-Leaseback Transactions.................................................................25
Section 7.9. No Acquisition Of Third Person.................................................................25
Section 7.10. No Alteration Of Structure Or Operations.......................................................25
Section 7.11. Long Term Contracts............................................................................26
Section 7.12. Changes In Fiscal Year.........................................................................26
Section 7.13. Limitation On Issuance Of Equity Interests.....................................................26
Section 8. Acceleration Rights...................................................................................26
Section 9. Lender Need Not Pursue Other Rights...................................................................26
Section 10. Enforcement Of Liens...........................................................................26
Section 11. Confession Of Judgment.........................................................................27
Section 12. Subrogation....................................................................................27
Section 13. Right of Contribution..........................................................................28
Section 14. Certain Rights Of Lender.......................................................................28
Section 15. Waivers By Guarantors..........................................................................29
Section 16. Unenforceability Of Obligations Of Borrowers...................................................29
Section 17. No Conditions Precedent........................................................................29
Section 18. No Duty To Disclose............................................................................29
Section 19. Enforcement During Bankruptcy..................................................................30
Section 20. Cumulative Liability...........................................................................30
Section 21. Obligations Are Unconditional..................................................................30
Section 22. Defenses Against Borrowers.....................................................................30
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 23. Remedies Cumulative............................................................................30
Section 24. Discharge Of Guaranty..........................................................................31
Section 25. Subordination Of Certain Indebtedness..........................................................31
Section 26. Exchange Of Information........................................................................31
Section 27. Choice Of Law..................................................................................31
Section 28. Consent To Jurisdiction; Agreement As To Venue.................................................31
Section 29. Invalidity Of Any Part.........................................................................31
Section 30. Amendment Or Waiver............................................................................32
Section 31. Notices........................................................................................32
Section 32. Joint And Several Nature.......................................................................33
Section 33. Final Agreement................................................................................33
Section 34. Tense, Gender, Defined Terms, Captions.........................................................33
Section 35. Seal And Effective Date........................................................................33
Section 36. Waiver Of Trial By Jury........................................................................33
</TABLE>
iv
<PAGE>
SCHEDULES TO GUARANTY AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Schedule 1.43 Permitted Liens
Schedule 5.2 Pending Litigation
Schedule 5.9 Location of Equipment and Fixtures
Schedule 5.10 Location of Inventory
Schedule 5.13 Financial Disclosures
</TABLE>
v
<PAGE>
SECURED GUARANTY AGREEMENT
THIS SECURED GUARANTY AGREEMENT "GUARANTY" is made this first day of
July, 1999 by IMTEK ACQUISITION CORPORATION, a Maryland corporation
"ACQUISITION", IMTEK CAPITAL CORPORATION, a Maryland corporation "CAPITAL",
IMTEK FUNDING CORPORATION, a Maryland corporation "FUNDING", IMTEK OFFICE
SOLUTIONS, INC., a Delaware corporation "SOLUTIONS", and IMTEK SERVICES
CORPORATION "SERVICES", a Maryland corporation, for the benefit of THE
PROVIDENT BANK, an Ohio chartered banking institution "LENDER", with respect
to various duties and obligations of IMTEK CORPORATION, a Maryland corporation
"IMTEK", and BARBERA BUSINESS SYSTEMS, INC., a Maryland corporation
"BARBERA". Hereafter, ACQUISITION, CAPITAL, FUNDING, SOLUTIONS and SERVICES
are collectively referred to as the "GUARANTORS"; IMTEK and BARBERA are
collectively referred to as the "BORROWERS"; and the GUARANTORS and the
BORROWERS are collectively referred to as the "COMPANIES."
RECITALS:
The BORROWERS have requested that the LENDER provide certain credit
facilities. The LENDER has conditioned its agreement to provide the requested
credit facilities to the BORROWERS upon the receipt by the LENDER of the
unconditional joint and several guaranties of the GUARANTORS of all of the
duties and obligations of payment and performance owed from time to time by the
BORROWERS to the LENDER in connection with the requested credit facilities.
Each of the GUARANTORS has a business relationship with each of the
BORROWERS and expects to receive substantial economic and other direct and
indirect benefits from the proposed credit facilities. The GUARANTORS have each
executed and delivered this GUARANTY in order to induce the LENDER to provide
the requested credit facilities to the BORROWERS.
Section 1. DEFINITIONS. As used in this GUARANTY, the terms set forth
in this Article 1 have the meanings set forth below, unless the specific context
of this GUARANTY clearly requires a different meaning. Terms defined in this
Article 1 or elsewhere in this GUARANTY are in all capital letters throughout
this GUARANTY. The singular use of any defined term includes the plural and the
plural use includes the singular.
Section 1.1. ACCOUNTS, CHATTEL PAPER, DOCUMENTS, EQUIPMENT,
FIXTURES, GENERAL INTANGIBLES, GOODS, INSTRUMENTS, INVENTORY, AND INVESTMENT
PROPERTY. The terms "ACCOUNTS," "CHATTEL PAPER," "DOCUMENTS," "EQUIPMENT,"
"GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," "INVENTORY," and "INVESTMENT
PROPERTY" shall have the same respective meanings as are given to those terms in
the MARYLAND UNIFORM COMMERCIAL CODE-SECURED Transactions, Title 9, COMMERCIAL
LAW ARTICLE, ANNOTATED CODE OF MARYLAND, as amended. The term "FIXTURES" shall
have the meaning provided by the common law of the state in which the fixtures
are physically located.
Section 1.2. AFFILIATE. The term "AFFILIATE" means any PERSON:
(i) that directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with any of the COMPANIES,
<PAGE>
including, without limitation, the officers, managers and directors of each of
the COMPANIES; (ii) that directly or beneficially owns, holds or controls ten
percent (10%) or more of any equity interests in any of the COMPANIES; or (iii)
ten percent (10%) or more of whose equity interests are owned or controlled
directly or beneficially or held by any of the COMPANIES. As used herein, the
term "control" (including, with correlative meanings, the terms "controlled by"
and "under common control with" shall mean possession, directly or indirectly,
of the power to direct the management or policies of a PERSON, whether through
ownership of equity interests, by contract or otherwise.
Section 1.3. BUSINESS DAY. The term "BUSINESS DAY" means any
day other than a Saturday, Sunday, or other day on which commercial banking
institutions in the State of Maryland are required to be closed.
Section 1.4. CAPITAL EXPENDITURES. The term "CAPITAL
EXPENDITURES" means, for any period, the aggregate of all expenditures (whether
paid in cash or accrued as liabilities and including expenditures on liabilities
for CAPITAL LEASE OBLIGATIONS) by the referenced PERSON during such period that
are required by G.A.A.P. to be included in or reflected by the property, plant,
equipment or similar capital asset accounts on the consolidated balance sheet of
the referenced PERSON.
Section 1.5. CAPITAL LEASE. The term "CAPITAL LEASE" means a
lease with respect to which the lessee's obligations thereunder should, in
accordance with G.A.A.P., be capitalized and reflected as a liability on the
balance sheet of the lessee.
Section 1.6. CAPITAL LEASE OBLIGATIONS. The term "CAPITAL
LEASE OBLIGATIONS" means any indebtedness incurred as a lessee pursuant to a
CAPITAL LEASE.
Section 1.7. CODE. The term "CODE" means the INTERNAL REVENUE
CODE OF 1986, as amended, and all Treasury regulations, revenue rulings, revenue
procedures or announcements issued thereunder.
Section 1.8. COLLATERAL. The term "COLLATERAL" means all of the
tangible and intangible assets, property rights, and benefits with respect to
which any of the GUARANTORS grants a security interest, pledge or lien to the
LENDER as security or otherwise pledges or conveys as collateral security from
time to time to the LENDER.
Section 1.9. CONSOLIDATED CAPITAL EXPENDITURES. The term
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate of all
CAPITAL EXPENDITURES of the COMPANIES and their SUBSIDIARIES.
Section 1.10. CONSOLIDATED EBITDA. The term "CONSOLIDATED
EBITDA" means, with respect to any period, the consolidated EBIDTA of the
COMPANIES and their SUBSIDIARIES (after the elimination of intercompany items),
as determined in accordance with G.A.A.P. for such period of determination.
Section 1.11. CONSOLIDATED FIXED CHARGE COVERAGE RATIO. The term
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any period,
the COMPANIES' (and their SUBSIDIARIES') ratio of: (a) CONSOLIDATED EBITDA
2
<PAGE>
for that period MINUS CONSOLIDATED CAPITAL EXPENDITURES for such period of
determination that are not financed with the use of borrowed funds or CAPITAL
LEASES for such period of determination; to (b) principal payments and
prepayments of principal on the CONSOLIDATED TOTAL FUNDED INDEBTEDNESS, paid or
scheduled to be paid during such period of determination (except payments of
principal made upon non-amortizing INDEBTEDNESS), PLUS CONSOLIDATED INTEREST
EXPENSE for such period, PLUS payments under all CAPITAL LEASES paid or
scheduled to be paid during such period of determination, plus taxes paid or
accrued during the period of determination.
Section 1.12. CONSOLIDATED INTEREST COVERAGE RATIO. The term
"CONSOLIDATED INTEREST COVERAGE RATIO" means the ratio of CONSOLIDATED EBITDA to
CONSOLIDATED INTEREST EXPENSE.
Section 1.13. CONSOLIDATED INTEREST EXPENSE. The term
"CONSOLIDATED INTEREST EXPENSE" means, for any period of determination, all
INTEREST EXPENSE of the COMPANIES and their SUBSIDIARIES for such period of
determination.
Section 1.14. CONSOLIDATED LIABILITIES. The term "CONSOLIDATED
LIABILITIES" means the aggregate amount of the LIABILITIES of the COMPANIES and
their SUBSIDIARIES, excluding intercompany items.
Section 1.15. CONSOLIDATED NET WORTH. The term "CONSOLIDATED NET
WORTH" means the consolidated NET WORTH of the COMPANIES and their SUBSIDIARIES,
as determined in accordance with G.A.A.P.
Section 1.16. CONSOLIDATED TOTAL FUNDED INDEBTEDNESS. The term
"CONSOLIDATED TOTAL FUNDED INDEBTEDNESS" means the consolidated TOTAL FUNDED
INDEBTEDNESS of the COMPANIES and their SUBSIDIARIES as determined in accordance
with G.A.A.P.
Section 1.17. EBITDA. The term "EBITDA" means, with respect to
any period of determination, the earnings of the referenced PERSON for such
period of determination before interest, taxes, depreciation, and amortization,
and without regard to gains or losses arising from asset sales not in the
ordinary course of business, all as determined in accordance with G.A.A.P.
Section 1.18. EMPLOYEE BENEFIT PLAN. The term "EMPLOYEE BENEFIT
PLAN" means an "employee benefit plan" as defined in Section 3(3) of ERISA.
Section 1.19. ENVIRONMENTAL LAWS. The term "ENVIRONMENTAL LAWS"
means individually or collectively any local, state or federal LAW, statute,
rule, regulation, order, ordinance, common law, permit or license term or
condition, or state superlien or environmental clean-up or disclosure statutes
pertaining to the environment or to environmental contamination, regulation,
management, control, treatment, storage, disposal, containment, removal,
clean-up, reporting, or disclosure, including, but not limited to, the
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, as
now or hereafter amended (including, but not limited to, the SUPERFUND
AMENDMENTS AND REAUTHORIZATION ACT); the RESOURCE CONSERVATION AND RECOVERY ACT,
as now or hereafter amended (including, but not limited to, the
3
<PAGE>
HAZARDOUS AND SOLID WASTE AMENDMENTS OF 1984); the TOXIC SUBSTANCES CONTROL ACT,
as now or hereafter amended; the CLEAN WATER ACT, as now or hereafter amended;
the SAFE DRINKING WATER ACT, as now or hereafter amended; or the CLEAN AIR ACT,
as now or hereafter amended.
Section 1.20. EPA PERMIT. The term "EPA PERMIT" has the meaning
given that term in Section 5.15.1 of this GUARANTY.
Section 1.21. ERISA. The term "ERISA" means the EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974 and regulations issued thereunder, as
amended from time to time and any successor statute.
Section 1.22. ERISA AFFILIATE. The term "ERISA AFFILIATE" means,
in relation to any referenced PERSON, any trade or business (whether or not
incorporated) which is a member of a group of which that PERSON is a member and
which is under common control within the meaning of the regulations promulgated
under Section 414 of the CODE.
Section 1.23. ERISA LIABILITIES. The term "ERISA LIABILITIES"
means the aggregate of all unfunded vested benefits under any employee pension
benefit plan, within the meaning of Section 3(2) of ERISA, of any of the
COMPANIES or any ERISA AFFILIATE of any of the COMPANIES under any plan covered
by ERISA that is not a MULTIEMPLOYER PLAN and all potential withdrawal
liabilities of any of the COMPANIES or any ERISA AFFILIATE under all
MULTIEMPLOYER PLANS.
Section 1.24. EVENTS OF DEFAULT. The term "EVENTS OF DEFAULT"
means collectively: (a) any of the events which constitute an "EVENT OF DEFAULT"
in the LOAN AGREEMENT, after the expiration of any applicable notice or cure
periods; (b) any failure of the representations and warranties set forth in this
GUARANTY to be true and accurate in all material respects; (c) any failure of
the GUARANTORS to pay any of the OBLIGATIONS within two (2) calendar days after
notice thereof (which notice period shall be deemed to run concurrently and not
consecutively with any notice or cure periods applicable to non-payment set
forth in the LOAN AGREEMENT); (d) the institution of any INSOLVENCY PROCEEDINGS
by or against any of the COMPANIES and the failure of any involuntary INSOLVENCY
PROCEEDINGS to be dismissed within ninety (90) days of filing; (e) the breach by
the GUARANTORS of any of the negative covenants set forth in Section 7 of this
GUARANTY; or (f) the breach by the GUARANTORS of any affirmative covenants
(other than the covenant to pay the OBLIGATIONS) set forth in Section 6 of this
GUARANTY after the expiration of five (5) calendar days of notice thereof (which
period shall be deemed to run concurrently and not consecutively with any notice
period applicable to similar events set forth in the LOAN AGREEMENT).
Section 1.25. FACILITIES. The term "FACILITIES" means all real
property and the improvements thereon used, occupied or leased by any of the
COMPANIES or otherwise used at any time by any of the COMPANIES in the operation
of their respective businesses or for the manufacture, storage, or location of
any of the COLLATERAL.
Section 1.26. FINOVA. The term "FINOVA" means FINOVA Mezzanine
Capital Inc., f/k/a/ Sirrom Capital Corporation, a Tennessee corporation.
4
<PAGE>
Section 1.27. FISCAL YEAR. The term "FISCAL YEAR" means with
respect to each of the COMPANIES, the twelve (12) month accounting period of
each of the COMPANIES commencing July 1 of each year and ending on June 30 of
the next calendar year.
Section 1.28. G.A.A.P. The term "G.A.A.P." means, with respect
to any date of determination, generally accepted accounting principles as used
by the Financial Accounting Standards Board and/or the American Institute of
Certified Public Accountants consistently applied and maintained throughout the
periods indicated.
Section 1.29. GUARANTEED PENSION PLAN. The term "GUARANTEED
PENSION PLAN" means any pension plan maintained by any of the COMPANIES or an
ERISA AFFILIATE of any of the COMPANIES, or to which any of the COMPANIES or an
ERISA AFFILIATE contributes, some or all of the benefits under which are
guaranteed by the United States Pension Benefit Guaranty Corporation.
Section 1.30. GUARANTY INDEBTEDNESS. The term "GUARANTY
INDEBTEDNESS" means any obligation, contingent or otherwise, of a referenced
PERSON directly or indirectly guaranteeing any debt or obligation of any other
PERSON and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such PERSON: (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such debt or
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise, other than
agreements to purchase goods at an arm's length price in the ordinary course of
business); or (ii) entered into for the purpose of assuring in any other manner
the holder of such debt or obligation of the payment thereof or to protect such
holder against loss in respect thereof (in whole or in part), PROVIDED that the
term GUARANTY INDEBTEDNESS shall not include endorsements for collection or
deposit in the ordinary course of business.
Section 1.31. INDEBTEDNESS. The term "INDEBTEDNESS" means, as to
any referenced PERSON (determined without duplication): (a) indebtedness of such
PERSON for borrowed money (whether by loan or the issuance and sale of debt
securities), or for the deferred purchase or acquisition price of property or
services (other than accounts payable incurred in the ordinary course of
business); (b) obligations of such PERSON in respect of letters of credit or
similar instruments issued or accepted by banks and other financial institutions
for the account of such PERSON (whether or not such obligations are contingent);
(c) CAPITAL LEASE OBLIGATIONS of such PERSON; (d) obligations of such PERSON to
redeem or otherwise retire equity interests in such PERSON; (e) indebtedness of
others of the type described in clause (a), (b), (c) or (d) above secured by a
lien on any of the property of such PERSON, whether or not the respective
obligation so secured has been assumed by such PERSON; and (f) GUARANTY
INDEBTEDNESS.
Section 1.32. INSOLVENCY PROCEEDINGS. The term "INSOLVENCY
PROCEEDINGS" means, with respect to any referenced PERSON, any case or
proceeding commenced by or against such PERSON, under any provision of the
UNITED STATES BANKRUPTCY CODE, as amended, or under any other bankruptcy or
5
<PAGE>
insolvency LAW, or any assignments for the benefit of creditors, formal or
informal moratoriums, receiverships, compositions or extensions with some or all
creditors with respect to any indebtedness of such PERSON.
Section 1.33. INTEREST EXPENSE. The term "INTEREST EXPENSE"
means for any period of determination, all interest paid or accrued by the
referenced PERSON on any INDEBTEDNESS during such period.
Section 1.34. LAWS. The term "LAWS" means all ordinances,
statutes, rules, regulations, orders, injunctions, writs or decrees of any
government or political subdivision or agency thereof, or any court or similar
entity established by any thereof.
Section 1.35. LENDER EXPENSES. The term "LENDER EXPENSES" means
all out-of-pocket expenses or costs incurred by the LENDER arising out of,
pertaining to, or in any way connected with this GUARANTY, the LOAN, any of the
other LOAN DOCUMENTS or the OBLIGATIONS, or any documents executed in connection
herewith or transactions hereunder. The term "LENDER EXPENSES" shall include,
without limitation: (a) all costs or expenses required to be paid by the
GUARANTORS pursuant to this GUARANTY or any of the LOAN DOCUMENT; (b) taxes and
insurance premiums of every nature and kind advanced or otherwise paid by the
LENDER in connection with the COLLATERAL or on behalf of the GUARANTORS; (c)
filing, recording, title insurance, environmental and consulting fees, audit
fees, search fees and other expenses paid or incurred by the LENDER in
connection with the LENDER'S transactions with the COMPANIES; (d) costs and
expenses of litigation incurred by the LENDER, or any participant of the LENDER,
in enforcing or defending the LOAN, this GUARANTY or any portion hereof or in
collecting any of the OBLIGATIONS, or in enforcing any of the LOAN DOCUMENTS, or
in defending any claims brought against the LENDER by any PERSON, including
without limitation any of the COMPANIES, which arise out of or relate to this
GUARANTY, the LOAN, the LOAN DOCUMENTS, or any conduct of the LENDER with
respect thereto; (e) attorneys' fees and expenses incurred by the LENDER in
obtaining advice or the services of its attorneys with respect to the
structuring, drafting, negotiating, reviewing, amending, terminating, enforcing
or defending of this GUARANTY or any other LOAN DOCUMENT, or any portion thereof
or any agreement or matter related thereto, whether or not litigation is
instituted; and (f) travel expenses related to any of the foregoing.
Section 1.36. LIABILITIES. The term "LIABILITIES" means, as to
any referenced PERSON, liabilities of such PERSON which are or should be
reflected on a balance sheet of such PERSON prepared in accordance with G.A.A.P.
and shall include all INDEBTEDNESS.
Section 1.37. LOAN AGREEMENT. The term "LOAN AGREEMENT" means
the Loan And Security Agreement of even date herewith by and between the LENDER
and the BORROWERS, as amended, modified, or restated from time to time.
Section 1.38. LOAN DOCUMENTS. The term "LOAN DOCUMENTS" means
the LOAN AGREEMENT, and all agreements, instruments, documents and writings
included in the definition of "LOAN DOCUMENTS" set forth in the LOAN AGREEMENT.
6
<PAGE>
Section 1.39. LOAN. The term "LOAN" means the revolving credit
facility extended by the LENDER to the BORROWERS in accordance with the terms of
the LOAN DOCUMENTS, as modified, extended or refinanced from time to time.
Section 1.40. MATERIAL ADVERSE EVENT. The term "MATERIAL ADVERSE
EVENT" means the occurrence of any event, condition, or omission which the
LENDER in the good faith exercise of the LENDER'S discretion determines could
reasonably be expected to have a material adverse effect upon: (a) the condition
(financial or otherwise), results of operations, properties, assets, liabilities
(including, without limitation, tax liabilities, liabilities under ENVIRONMENTAL
LAWS, and ERISA LIABILITIES), business, operations, capitalization, equity,
licenses, franchises or prospects of any of the COMPANIES; (b) the ability of
any of the COMPANIES to pay or perform any obligations or duties owed to the
LENDER when and as required by the terms of this GUARANTY or any of the LOAN
DOCUMENTS; (c) the rights and remedies of the LENDER under the LOAN DOCUMENTS;
or (d) the value, condition, use, or availability of the COLLATERAL or any
collateral securing the LOAN or upon any of the LENDER'S liens and security
interests securing the repayment and performance of the LOAN or the OBLIGATIONS,
or any of the LENDER'S liens and security interests securing any other duties of
payment and performance which are owed from time to time by any of the COMPANIES
to the LENDER.
Section 1.41. NET WORTH. The term "NET WORTH" means the
shareholders' equity, as determined in accordance with G.A.A.P., of the
referenced corporate entity.
Section 1.42. OBLIGATIONS. The term "OBLIGATIONS" means the
obligations and duties of payment, performance, indemnification, reimbursement,
and suretyship which the GUARANTORS have undertaken and assumed in accordance
with the terms of this GUARANTY or any terms of any of the other LOAN DOCUMENTS.
Section 1.43. PERMITTED LIENS. The term "PERMITTED LIENS" means:
(i) liens for taxes, assessments, or similar charges incurred in the ordinary
course of business that are not yet due and payable; (a) liens in favor of the
LENDER; (b) liens securing SUBORDINATED DEBT if such liens are subordinated to
the liens securing the LENDER in accordance with agreements and terms acceptable
to the LENDER; (c) any existing liens specifically described on Schedule 1.43
hereof; (d) any lien on specifically allocated money or securities to secure
payments under workmen's compensation, unemployment insurance, social security
and other similar LAWS, or to secure the performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or to secure
statutory obligations or appeal bonds, or to secure indemnity, performance or
other similar bonds in the ordinary course of business; (e) purchase money
security interests for the acquisition of equipment to be used in the ordinary
course of the OBLIGORS' businesses in an aggregate amount outstanding not to
exceed Two Hundred Fifty Thousand Dollars ($250,000.00), and provided that such
liens extend only to the equipment being financed and not to any of the other
assets of any of the OBLIGORS; and (f) subsequently arising liens which are
expressly approved in advance of the creation of any such liens by the LENDER in
writing.
7
<PAGE>
Section 1.44. PERSON. The term "PERSON" means any individual,
corporation, partnership, limited liability company, association, joint-stock
company, trust, estate, unincorporated organization, joint venture, court,
government or political subdivision or agency thereof, or other legal entity.
Section 1.45. RECORDS. The term "RECORDS" means correspondence,
memoranda, tapes, discs, papers, books and other documents, or transcribed
information of any type, whether expressed in ordinary, computer or machine
language.
Section 1.46. REGULATED SUBSTANCE. The term "REGULATED
SUBSTANCE" means any substance which, pursuant to any ENVIRONMENTAL LAW, is
identified as a hazardous substance (or other term having similar import) or is
otherwise subject to special requirements in connection with the use, storage,
transportation, disposition or other handling thereof.
Section 1.47. RELEASE. The term "RELEASE" means a "release" as
defined in Section 101(22) of the COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION AND LIABILITY ACT OF 1980, as now or hereafter amended.
Section 1.48. RESTRICTED PAYMENT. The term "RESTRICTED PAYMENT"
means: (a) any dividend or other distribution, direct or indirect, on account of
any equity interest in any of the GUARANTORS now or hereafter outstanding,
except a dividend or distribution payable solely in the same class or type of
equity interest to the holders of that class or type; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, by any of the GUARANTORS of any
equity interest in any of the GUARANTORS now or hereafter outstanding; (c) any
payment made by any of the GUARANTORS to retire, or to obtain the surrender of,
any outstanding warrants, options or other rights to acquire equity interests in
any of the GUARANTORS now or hereafter outstanding; or (d) any payment by any of
the GUARANTORS of any management, consulting or similar fees.
Section 1.49. SUBORDINATED DEBT. The term "SUBORDINATED DEBT"
means the INDEBTEDNESS of any the GUARANTORS to any PERSON which is expressly
subordinated to the repayment and enforcement of the OBLIGATIONS pursuant to a
written agreement acceptable to the LENDER, including without limitation the
INDEBTEDNESS owed by the GUARANTORS to SIRROM which is subordinated to the
repayment and performance of the OBLIGATIONS in accordance with the
Subordination And Intercreditor Agreement between the LENDER and SIRROM.
Section 1.50. SUBROGATION RIGHTS. The term "SUBROGATION RIGHTS"
means any and all rights of subrogation, reimbursement, exoneration,
contribution or indemnification, any right to participate in any claim or remedy
acquired as a result of the payment, performance or enforcement by a GUARANTOR
of any of the OBLIGATIONS, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including the right to take or
receive, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other rights.
8
<PAGE>
Section 1.51. SUBSIDIARY. The term "SUBSIDIARY" means, with
respect to any PERSON, any other PERSON of which securities or other ownership
interests representing an aggregate of fifty percent (50%) of more of the equity
or the ordinary voting power are, at the time as of which any determination is
being made, owned or controlled directly, or indirectly through one or more
intermediaries, by such PERSON.
Section 1.52. TERMINATION EVENT. The term "TERMINATION EVENT"
means: (a) a "Reportable Event" described in Section 4043 of ERISA and the
regulations issued thereunder, but not including any such event for which the
30-day notice requirement has been waived by applicable regulation; (b) the
withdrawal of any of the COMPANIES or an ERISA AFFILIATE of any of the COMPANIES
from a GUARANTEED PENSION PLAN during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA; (c) the filing of a notice
of intent to terminate a GUARANTEED PENSION PLAN or the treatment of a
GUARANTEED PENSION PLAN amendment as a termination under Section 4041 of ERISA;
(d) the institution of proceedings to terminate a GUARANTEED PENSION PLAN by the
Pension Benefit Guaranty Corporation; (e) the withdrawal or partial withdrawal
of any of the COMPANIES or an ERISA AFFILIATE of any of the COMPANIES from a
MULTIEMPLOYER PLAN; or (f) any other event or condition which might reasonably
be expected to constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any GUARANTEED PENSION PLAN.
Section 1.53. TOTAL FUNDED INDEBTEDNESS. The term "TOTAL FUNDED
INDEBTEDNESS" means: (a) the sum of all INDEBTEDNESS for borrowed money; PLUS
(b) all CAPITAL LEASE OBLIGATIONS, but excluding trade indebtedness arising in
the ordinary course of business and other normal accruals incurred in the
ordinary course of business, all as determined in accordance with G.A.A.P.
Section 20 GUARANTY; AGREEMENT TO PAY LENDER EXPENSES. The GUARANTORS,
jointly and severally, irrevocably and unconditionally, guarantee to the LENDER:
(a) the absolute payment of any and all sums now or hereafter due and owing to
the LENDER by either or both of the BORROWERS as a result of or in connection
with any and all existing or future INDEBTEDNESS, liability, or obligation of
every kind, nature, type, and variety owed by either or both of the BORROWERS
from time to time to the LENDER, including but not limited to all obligations
arising out of or related to the LOAN or the "OBLIGATIONS," as such terms is
defined in the LOAN AGREEMENT, or any other credit accommodation, loan, letter
of credit, guaranty, transaction, overdraft, or other event, or occurrence,
whether direct or indirect, absolute or contingent, primary or secondary, joint
or several, unconditional or conditional, known or unknown, liquidated or
unliquidated, contractual or tortious, including all renewals, refinancings,
extensions, substitutions, amendments, and modifications thereof, no matter when
or how created, arising, evidenced, or acquired, and whether or not presently
contemplated or anticipated, including, but not limited to, all amounts of
principal, interest, penalties, reimbursements, advancements, escrows, and fees;
(b) that all sums now or hereafter due and owing by either or both of the
BORROWERS to the LENDER shall be paid when and as due, whether by reason of
installment, maturity, acceleration or otherwise, time being of the essence; and
(c) the timely, complete, continuous, and strict performance and observance by
the BORROWERS of all of the obligations, terms, covenants,
9
<PAGE>
agreements and conditions required or set forth in any of the LOAN DOCUMENTS.
The GUARANTORS, jointly and severally, agree to pay and reimburse to the LENDER
all of the LENDER EXPENSES upon the demand by the LENDER of payment thereof.
Section 30 NATURE OF GUARANTY. This GUARANTY is irrevocable,
absolute and unconditional, direct, immediate, and primary, and a guaranty of
payment and not just a guaranty of collection.
Section 4. SECURITY FOR THE OBLIGATIONS. The payment and
satisfaction of the OBLIGATIONS shall be secured by the following-described
security interests, liens, and pledges:
Section 4.1. GRANT OF SECURITY INTEREST. To secure the repayment
and performance of the OBLIGATIONS, each of the GUARANTORS hereby assigns to the
LENDER all of its right, title, and interest in and to, and grants to the LENDER
a continuing security interest in and to, all of its tangible and intangible
assets, wherever located, whether now owned or hereafter acquired by it,
together with all substitutions therefor, and all replacements and renewals
thereof, and all accessions, additions, replacement parts, manuals, warranties
and packaging relating thereto, including but not limited to the following
tangible and intangible assets and property rights:
<TABLE>
<S> <C>
i ACCOUNTS;
ii CHATTEL PAPER;
iii DOCUMENTS;
iv EQUIPMENT;
v FIXTURES;
vi GENERAL INTANGIBLES;
vii GOODS;
viii INSTRUMENTS;
ix INVENTORY;
x Leasehold improvements;
xi INVESTMENT PROPERTY;
xii RECEIVABLES;
xiii Rights to returned, rejected, or repossessed
INVENTORY and rights of reclamation and stoppage in
transit with respect to INVENTORY;
xiv All monies, bank accounts, and deposits with any financial
institution;
xv All letter of credit rights;
xvi All contracts with account debtors, deposit accounts,
franchises, licenses, permits, tax refunds, leases,
rights of indemnification, warranty rights, patents,
patent applications, trademarks, service marks,
trade names, copyrights, rights to sue for violations
or infringements of intellectual property rights,
tort claims, insurance claims, and judgments;
xvii All rights as a secured party with respect to
collateral security now or hereafter securing any of
the obligations of third parties to it, together with
all agreements and instruments evidencing or creating
any such security; and
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
xviii All RECORDS relating to or pertaining to any of the above
listed COLLATERAL.
</TABLE>
In addition to the kinds and types of property described above, each of
the GUARANTORS hereby assigns, transfers and sets over to the LENDER all of its
right, title and interest in and to, and grants to the LENDER a continuing
security interest in and to, all amounts that may be owing at any time and from
time to time by the LENDER to it in any capacity, including but not limited to
any balance or share belonging to it of any deposit or other account with the
LENDER, which security interest shall be independent of and in addition to any
right of set-off which the LENDER may have. The LENDER shall have the right to
require the GUARANTORS to pledge and grant a security interest therein into such
additional security as the LENDER shall require from time to time in the event
that it deems itself to be insecure. The LENDER acknowledges that the GUARANTORS
shall not be required to grant security interests in, or pledge or hypothecate,
any funds which the GUARANTORS hold as trustees or in any other fiduciary
capacity for other PERSONS which are not AFFILIATES of the GUARANTORS .
Section 4.2. PROCEEDS AND PRODUCTS. The LENDER'S security
interests provided for herein shall apply to the proceeds, including but not
limited to insurance proceeds, and the products of the COLLATERAL.
Section 4.3. PRIORITY OF SECURITY INTEREST. Each of the security
interests granted by the GUARANTORS to the LENDER pursuant to this GUARANTY or
in any other LOAN DOCUMENT shall be a perfected first priority security interest
in the COLLATERAL, except as expressly agreed in advance to the contrary by the
LENDER in writing.
Section 4.4. FUTURE ADVANCES. The security interests granted by
the GUARANTORS to the LENDER hereunder shall secure all current and all future
advances made by the LENDER to the BORROWERS or to the GUARANTORS, or for the
account or benefit of the BORROWERS or the GUARANTORS, and the LENDER may
advance or readvance upon repayment by the BORROWERS or the GUARANTORS all or
any portion of the sums loaned to the BORROWERS or the GUARANTORS and any such
advance or readvance shall be fully secured by the security interests created
herein.
Section 4.5. FURTHER ASSURANCES. The GUARANTORS will, at their
expense, promptly execute and deliver all further instruments and documents and
take all further action that may be necessary or that the LENDER may request
from time to time in order: (a) to perfect and protect the security interests
purported to be created hereby; (b) to enable the LENDER to exercise and enforce
its rights and remedies under this GUARANTY the LOAN DOCUMENTS in respect of the
COLLATERAL; or (c) otherwise to effect the purposes of this GUARANTY, including,
without limitation: (i) upon the acquisition thereof by any of the GUARANTORS
delivering to the LENDER each item of CHATTEL PAPER of the GUARANTORS, (ii) if
any RECEIVABLES shall be evidenced by a promissory note or other INSTRUMENT,
delivering and pledging to the LENDER such note or INSTRUMENT duly endorsed and
accompanied by executed instruments of transfer or assignment, all in form and
substance satisfactory to the LENDER, (iii) executing and filing such financing
statements or amendments thereto as may be necessary or desirable or that the
LENDER may request in order to perfect and preserve the security interests
11
<PAGE>
purported to be created hereby, (iv) upon the acquisition after the date hereof
by any of the GUARANTORS of any EQUIPMENT covered by a certificate of title or
ownership, cause the LENDER to be listed as the lienholder on such certificate
of title and within sixty (60) days of the acquisition thereof deliver evidence
of the same to the LENDER, and (v) upon the acquisition after the date hereof of
any asset for which an assignment, pledge, mortgage, or other document is
required to be filed in order to grant or perfect a lien therein for the benefit
of the LENDER, execute and deliver to the LENDER such assignment, pledge,
mortgage, or other INSTRUMENT within thirty (30) days of the acquisition
thereof. If any of the GUARANTORS fails to execute any instrument or document
described above within five (5) BUSINESS DAYS of being requested to do so by the
LENDER, each of the GUARANTORS hereby appoints the LENDER or any officer of the
LENDER as its attorney in fact for purposes of executing such instruments or
documents in its name, place and stead, which power of attorney shall be
considered as coupled with an interest and irrevocable.
Section 4.6. PLEDGE AGREEMENTS. In order to further secure the
repayment and performance of the OBLIGATIONS: (a) SOLUTIONS shall pledge to the
LENDER one hundred percent (100%) of the issued and outstanding stock of
SERVICES, IMTEK, and ACQUISITION; (b) SERVICES shall pledge to the LENDER one
hundred percent (100%) of the issued and outstanding stock of FUNDING and one
hundred percent (100%) of the issued and outstanding stock of CAPITAL; and (c)
ACQUISITION shall pledge to the LENDER all of the issued and outstanding stock
owned by ACQUISITION in BARBERA. Such pledges shall be in accordance with Stock
Pledge Agreements in form and substance satisfactory to the LENDER. The pledges
and security interests of the LENDER in the subject pledged stock shall be in a
first priority lien position.
Section 5. REPRESENTATIONS AND WARRANTIES. To induce the LENDER to
extend the LOAN to the BORROWERS, each of the GUARANTORS makes the
representations and warranties set forth below to the LENDER. Each of the
GUARANTORS acknowledges the justifiable right of the LENDER (and of its assigns
and successors) to rely upon the GUARANTORS' representations and warranties.
Section 5.1. ACCURACY OF INFORMATION. All information,
documents, reports, statements, financial statements, and data submitted by or
on behalf of the COMPANIES in connection with the LOAN, this GUARANTY, or any of
the transactions described in the LOAN DOCUMENTS, are true, accurate, and
complete in all material respects as of the date made and contain no knowingly
false, incomplete or misleading statements.
Section 5.2. NO LITIGATION. There are no actions, suits,
investigations, or proceedings pending or, to the knowledge of the GUARANTORS,
threatened against any of the COMPANIES or the assets of any of the COMPANIES,
except as specifically disclosed on Schedule 5.2 attached hereto.
Section 5.3. NO LIABILITY OR ADVERSE CHANGE. The COMPANIES do
not have any direct or contingent liability or INDEBTEDNESS known to the
GUARANTORS and not previously disclosed to the LENDER, nor do the GUARANTORS
know of or expect any materially adverse change in the assets, LIABILITIES,
12
<PAGE>
properties, business, or condition, financial or otherwise, of any of the
COMPANIES.
Section 5.4. TITLE TO COLLATERAL. Each of the GUARANTORS has
good and marketable title to all of the COLLATERAL pledged by it to the LENDER.
Section 5.5. AUTHORITY; APPROVALS AND CONSENTS.
Section 5.5.1. AUTHORITY. Each of the GUARANTORS has
authority to enter into this GUARANTY and each of the other LOAN DOCUMENTS to be
executed by it, and to perform, observe and comply with all of its agreements
and obligations under each of such documents.
Section 5.5.2. APPROVALS. The execution and delivery by
the GUARANTORS of this GUARANTY, and the performance by the GUARANTORS of all of
their respective agreements and obligations under this GUARANTY, have been duly
authorized by all necessary action on the part of the GUARANTORS and do not and
will not (a) contravene any provision of the GUARANTORS' organizational
documents; (b) conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in the creation of any
lien upon any of the properties of any of the GUARANTORS under any agreement,
trust deed, indenture, mortgage or other instrument to which any of the
GUARANTORS is a party or by which any of the GUARANTORS or any property of any
of the GUARANTORS is bound or affected; or (c) require any waivers, consents or
approvals by any of the creditors or trustees for creditors of any of the
GUARANTORS, or to the extent required, have been duly obtained.
Section 5.5.3. CONSENT. Other than filings and recordings
required to perfect the security interests and liens granted hereunder, no
approval, consent, order, authorization or license by, or giving notice to, or
taking any other action with respect to, any governmental or regulatory
authority or agency is required, under any provision of any applicable LAW for
the execution and delivery by any of the GUARANTORS of this GUARANTY.
Section 5.6. TAXES. Each of the COMPANIES: (i) has filed all
federal, state and local tax returns and other reports which it is required by
LAW to file prior to the date hereof and which are material to the conduct of is
business; (ii) has paid or caused to be paid all taxes, assessments and other
governmental charges that are due and payable prior to the date hereof; and
(iii) has made adequate provision for the payment of such taxes, assessments or
other charges accruing but not yet payable. The GUARANTORS have no knowledge of
any deficiency or additional assessment in connection with any taxes,
assessments or charges not provided for on the COMPANIES' books of account or
reflected in the COMPANIES' financial statements.
Section 5.7. COMPLIANCE WITH LAWS. Each of the COMPANIES has
complied in all material respects with all applicable LAWS, including, but not
limited to, all LAWS with respect to: (i) all restrictions, specifications, or
other requirements pertaining to products that it sells or to the services it
performs; (ii) the conduct of its business; and (iii) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its business.
13
<PAGE>
Section 5.8. CHIEF PLACE OF BUSINESS AND LOCATIONS OF RECORDS.
The chief executive office and chief place of business of each of the GUARANTORS
is 8003 Corporate Drive, Suite C, Baltimore, Maryland 21236, and the places
where the GUARANTORS keep the RECORDS concerning the COLLATERAL are 8003
Corporate Drive, Suite C, Baltimore, Maryland 21236 and 707 E. Main Street,
Suite 1450, Richmond, Virginia 23219.
Section 5.9. LOCATION OF EQUIPMENT AND FIXTURES. The
GUARANTORS own no EQUIPMENT or FIXTURES which are COLLATERAL and which are
located at a location other than the locations set forth on Schedule 5.9
attached hereto.
Section 5.10. LOCATION OF INVENTORY. The INVENTORY of each of
the GUARANTORS is and shall be kept solely at the locations set forth on
Schedule 5.10 attached hereto, and shall not be moved, sold or otherwise
disposed of without prior notification to the LENDER, except for sales or leases
of INVENTORY to account debtors in the ordinary course of the GUARANTORS'
businesses. None of the INVENTORY is stored with or in the possession of any
bailee, warehouseman, or other similar PERSON, except as specifically disclosed
on Schedule 5.10 attached hereto, or to the extent that INVENTORY is being
leased in the ordinary course of business of the GUARANTORS.
Section 5.11. SUBSIDIARIES. As of the date hereof, the only
SUBSIDIARIES of SOLUTIONS are IMTEK, SERVICES, and ACQUISITION. The only
SUBSIDIARY of SERVICES is FUNDING. The only SUBSIDIARY of FUNDING is CAPITAL.
The only SUBSIDIARY of ACQUISITION is BARBERA. IMTEK does not have any
SUBSIDIARIES.
Section 5.12. APPROVALS. Each of the GUARANTORS possesses all
franchises, approvals, licenses, contracts, merchandising agreements,
merchandising contracts and governmental approvals, registrations and exemptions
necessary for it lawfully to conduct its business and operation as presently
conducted and as anticipated to be conducted.
Section 5.13. FINANCIAL STATEMENTS. The financial statements of
the COMPANIES which have been delivered to the LENDER prior to the date of this
GUARANTY, fairly present the consolidated and consolidating financial conditions
of the COMPANIES as of the respective dates thereof and the results and
operations of the COMPANIES for the fiscal periods ended on such respective
dates, all in accordance with G.A.A.P. The COMPANIES have no direct or
contingent liability or obligation known to the COMPANIES and not disclosed on
the financial statements delivered to the LENDER or disclosed on Schedule 5.13
hereto. There have been no materially adverse changes in the financial
conditions of any of the COMPANIES since the date of the most recent financial
statements of the COMPANIES which have been delivered to the LENDER, and the
GUARANTORS do not know of or expect any materially adverse change in the assets,
liabilities, properties, business, or condition, financial or otherwise, of any
of the COMPANIES.
Section 5.14. EMPLOYEE BENEFIT PLANS.
Section 5.14.1. COMPLIANCE. Each of the COMPANIES
and its ERISA AFFILIATES are in compliance in all material respects with all
14
<PAGE>
applicable provisions of ERISA and the regulations thereunder and of the CODE
with respect to all EMPLOYEE BENEFIT PLANS.
Section 5.14.2. ABSENCE OF TERMINATION EVENT. No
TERMINATION EVENT has occurred or is reasonably expected to occur with respect
to any GUARANTEED PENSION PLAN.
Section 5.14.3. ACTUARIAL VALUE. The actuarial
present value (as defined in Section 4001 of ERISA) of all benefit commitments
(as defined in Section 4001 of ERISA) under each GUARANTEED PENSION PLAN does
not exceed the assets of that plan.
Section 5.14.4. NO WITHDRAWAL LIABILITY. No
COMPANY nor any of its ERISA AFFILIATES has incurred or reasonably expects to
incur any withdrawal liability under ERISA in connection with any MULTIEMPLOYER
PLANS.
Section 5.15. ENVIRONMENTAL CONDITIONS.
Section 5.15.1. EXISTENCE OF PERMITS. The
COMPANIES have obtained all necessary permits, licenses, variances, clearances
and all other necessary approvals (collectively, the "EPA PERMITS") for use of
the FACILITIES and the operation and conduct of their respective businesses from
all applicable federal, state, and local governmental authorities, utility
companies or development-related entities including, but not limited to, any and
all appropriate Federal or State environmental protection agencies and other
county or city departments, public water works and public utilities in regard to
the use of the FACILITIES, the operation and conduct of their respective
businesses, and the handling, transporting, treating, storage, disposal,
discharge, or RELEASE of REGULATED SUBSTANCES, if any, into, on or from the
environment (including, but not limited to, any air, water, or soil).
Section 5.15.2. COMPLIANCE WITH PERMITS. Each
issued EPA PERMIT is in full force and effect, has not expired or been
suspended, denied or revoked, and is not under challenge by any PERSON. Each of
the COMPANIES is in compliance in all material aspects with each issued EPA
PERMIT.
Section 5.15.3. NO LITIGATION. Neither the
COMPANIES nor any of the FACILITIES are subject to any private or governmental
litigation, or to the GUARANTORS' knowledge, threatened litigation, lien or
judicial or administrative notice, order or action involving the COMPANIES or
any of the FACILITIES relating to REGULATED SUBSTANCES or environmental
problems, impairments or liabilities.
Section 5.15.4. NO RELEASES. There has been no
RELEASE into, on or from any of the FACILITIES and no REGULATED SUBSTANCES are
located on or have been treated, stored, processed, disposed of, handled or
transported to or from, any of the FACILITIES in violation of any ENVIRONMENTAL
LAWS. To the GUARANTORS' knowledge, no REGULATED SUBSTANCES have been treated,
stored, disposed, RELEASED, located, discharged, possessed, managed, processed,
or otherwise handled in the operation or conduct of the COMPANIES' businesses in
violation of any ENVIRONMENTAL LAWS. The COMPANIES have complied in all material
respects with all ENVIRONMENTAL LAWS affecting the FACILITIES and the COMPANIES'
businesses.
15
<PAGE>
Section 5.15.5. TRANSPORTATION. The COMPANIES
do not transport any REGULATED SUBSTANCES except in the ordinary course of
business in compliance with all ENVIRONMENTAL LAWS.
Section 5.15.6. NO VIOLATION NOTICES. The
COMPANIES have not received any notices that any REGULATED SUBSTANCES
transported from any FACILITY have been disposed of in violation of any
ENVIRONMENTAL LAWS.
Section 5.15.7. NO NOTICE OF VIOLATIONS. The
COMPANIES have not received written notice of any circumstances which would
result in any obligation under any ENVIRONMENTAL LAW to investigate or remediate
any REGULATED SUBSTANCES in, on or under any of the FACILITIES.
Section 6. AFFIRMATIVE COVENANTS. Each of the GUARANTORS
covenants during the term of this GUARANTY and while any OBLIGATIONS are
outstanding and unpaid to do and perform each of the following acts and
promises:
Section 6.1. PAYMENT AND PERFORMANCE. The GUARANTORS shall pay
and perform all OBLIGATIONS when and as due, without any abatement, set-off or
compromise.
Section 6.2. CASUALTY INSURANCE. Each of the GUARANTORS shall
maintain for all of its respective assets and properties, whether real,
personal, or mixed and including but not limited to the COLLATERAL, fire and
extended coverage casualty insurance in amounts satisfactory to the LENDER and
sufficient to prevent any co-insurance liability (which amount shall be the full
insurable value of the assets and properties insured unless the LENDER in
writing agrees to a lesser amount), naming the LENDER as sole loss payee with
respect to the COLLATERAL, with an insurance company and upon policy forms
containing standard mortgagee clauses which are acceptable to and approved by
the LENDER. The GUARANTORS shall submit to the LENDER the originals of the
casualty insurance policies and paid receipts evidencing payment of the premiums
due on the same. The casualty insurance policies shall be endorsed so as to make
them noncancellable unless thirty (30) days prior notice of cancellation is
provided to the LENDER. The proceeds of any insured loss shall be applied by the
LENDER to the OBLIGATIONS, in such order of application as determined by the
LENDER, unless the LENDER in its sole discretion permits the use thereof to
repair or replace damaged or destroyed COLLATERAL.
Section 6.3. LIABILITY AND WORKER'S COMPENSATION INSURANCE. Each
of the GUARANTORS shall maintain public liability and property damage insurance
in such amounts, with insurance companies, and upon policy forms acceptable to
and approved by the LENDER. In addition, each of the GUARANTORS shall maintain
worker's compensation insurance in such amounts, with insurance companies, and
upon policy forms acceptable to and approved by the LENDER. Each of the
GUARANTORS, on request, shall submit to the LENDER copies of the liability and
worker's compensation insurance policies and receipts evidencing the payment of
premiums due thereon or, alternatively, certificates from the insurance
companies certifying to the existence of the policies, summarizing the terms of
the policies, and indicating the payment of premiums due thereon.
16
<PAGE>
Section 6.4. BOOKS AND RECORDS. Each of the GUARANTORS at all
times hereafter shall maintain a system of accounting in accordance with
G.A.A.P. Each of the GUARANTORS shall notify the LENDER in writing if it
modifies or changes its method of accounting or enters into, modifies, or
terminates any agreement presently existing, or at any time hereafter entered
into with any third party accounting firm for the preparation and/or storage of
its accounting records; PROVIDED, that such accounting firm agrees to provide to
the LENDER information regarding the COLLATERAL and such GUARANTOR'S financial
condition.
Section 6.5. COLLECTION OF ACCOUNTS; SALE OF INVENTORY. The
GUARANTORS shall collect their RECEIVABLES and sell and lease their INVENTORY
only in the ordinary course of business, unless written permission to the
contrary is obtained from the LENDER.
Section 6.6. NOTICE OF LITIGATION AND PROCEEDINGS. The
GUARANTORS shall give immediate notice to the LENDER of any action, suit,
citation, violation, direction, notice or proceeding before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting any of the GUARANTORS or any SUBSIDIARY of a
GUARANTOR, or the assets or properties thereof, which, if determined adversely:
(i) could require a GUARANTOR or a SUBSIDIARY of a GUARANTOR to pay over more
than Twenty-Five Thousand Dollars ($25,000.00) or deliver assets the value of
which exceeds that sum (whether or not the claim is considered to be covered by
insurance); or (ii) could reasonably be expected to cause a MATERIAL ADVERSE
EVENT.
Section 6.7. PAYMENT OF LIABILITIES TO THIRD PERSONS. Each of
the GUARANTORS shall pay when and as due, or within applicable grace periods,
all LIABILITIES owed by it to third PERSONS, except when the amount thereof is
being contested in good faith by appropriate proceedings and with adequate
reserves therefor being set aside by it.
Section 6.8. NOTICE OF CHANGE OF BUSINESS LOCATION. The
GUARANTORS shall notify the LENDER thirty (30) days in advance of: (i) any
change in the location of existing offices or places of business; (ii) the
establishment of any new, or the discontinuation of any existing, places of
business; and (iii) any change in or addition to the locations at which the
COLLATERAL is kept. In the event any COLLATERAL is to be moved to a location
which is not owned by any of the GUARANTORS, then prior to moving any COLLATERAL
to such location the GUARANTORS shall obtain and deliver to the LENDER an
agreement, in form and substance acceptable to the LENDER, pursuant to which the
owner of such location shall: i) subordinate any rights which it may have, or
thereafter may obtain, in any of the COLLATERAL to the rights and security
interests of the LENDER in the COLLATERAL; and ii) allow the LENDER access to
the COLLATERAL in order to remove the COLLATERAL from such location. In the
event any COLLATERAL is stored with a warehousemen or other bailee, and the
COLLATERAL is evidenced by a negotiable document of title, the GUARANTORS shall
immediately deliver the document of title to the LENDER.
Section 6.9. PAYMENT OF TAXES. Each of the GUARANTORS shall pay
or cause to be paid when and as due all taxes, assessments and charges or levies
imposed upon it or on any of its property or which it is required to
17
<PAGE>
withhold and pay over to the taxing authority or which it must pay on its
income, except where contested in good faith, by appropriate proceedings and at
its own cost and expense; provided, however, that a GUARANTOR shall not be
deemed to be contesting in good faith by appropriate proceedings unless: (i)
such proceedings operate to prevent the taxing authority from attempting to
collect the taxes, assessments or charges; (ii) the COLLATERAL is not subject to
sale, forfeiture or loss during such proceedings; (iii) such GUARANTOR'S contest
does not subject the LENDER to any claim by the taxing authority or any other
person; (iv) the BORROWER establishes appropriate reserves, satisfactory to the
LENDER in its sole discretion, for the payment of all taxes, assessments,
charges, levies, legal fees, court costs and other expenses for which it would
be liable if it is unsuccessful in its contest; (v) it prosecutes the contest
continuously to its final conclusion; and (vi) at the conclusion of the
proceedings, it promptly pays all amounts determined to be payable, including
but not limited to all taxes, assessments, charges, levies, legal fees and court
costs.
Section 6.10. INSPECTIONS OF RECORDS. The GUARANTORS shall
permit representatives of the LENDER access to the GUARANTORS' places of
business, without hindrance or delay, at intervals to be determined by the
LENDER, before or after an EVENT OF DEFAULT, to inspect the COLLATERAL and to
audit, inspect, verify, check and make extracts or photocopies from, the RECORDS
of the GUARANTORS and other data relating to the COLLATERAL or any LIABILITIES
of any of the GUARANTORS, and the GUARANTORS shall reimburse the LENDER for the
entire cost of all of such audits, inspections, verifications, copying, and
extractions.
Section 6.11. REPORTING REQUIREMENTS. The GUARANTORS shall
submit the following items to the LENDER:
Section 6.11.1. MONTHLY FINANCIAL STATEMENTS.
As soon as available and in any event within twenty (20) calendar days after the
end of each month of each FISCAL YEAR of the COMPANIES, the GUARANTORS shall
submit to the LENDER a consolidated and consolidating balance sheet of the
COMPANIES and their SUBSIDIARIES as of the end of such month, a consolidated and
consolidating statement of income and retained earnings of the COMPANIES and
their SUBSIDIARIES for the period commencing at the end of the previous FISCAL
YEAR and ending with the end of such month, and a consolidated and consolidating
statement of cash flow of the COMPANIES and their SUBSIDIARIES for the portion
of the FISCAL YEAR ended with the last day of such month, all in reasonable
detail and stating in comparative form the respective consolidated and
consolidating figures for the corresponding date and period in the previous
FISCAL YEAR and all prepared in accordance with G.A.A.P. and certified by the
chief financial officer or officers of the COMPANIES and their SUBSIDIARIES
(subject to year-end adjustments).
Section 6.11.2. ANNUAL FINANCIAL STATEMENTS.
As soon as available and in any event within one hundred twenty (120) calendar
days after the end of each FISCAL YEAR of the COMPANIES, the GUARANTORS shall
submit to the LENDER a consolidated and consolidating balance sheet of the
COMPANIES and their SUBSIDIARIES as of the end of such FISCAL YEAR and a
consolidated and consolidating statement of income and retained earnings of the
COMPANIES and their SUBSIDIARIES for such FISCAL YEAR, and a consolidated
18
<PAGE>
and consolidating statement of cash flow of the COMPANIES and their SUBSIDIARIES
for such FISCAL YEAR, all in reasonable detail and stating in comparative form
the respective consolidated and consolidating figures for the corresponding date
and period in the prior FISCAL YEAR and all prepared in accordance with G.A.A.P.
and accompanied by an audited opinion thereon acceptable to the LENDER by
independent accountants selected by the COMPANIES and acceptable to the LENDER.
Section 6.11.3. REPORTS TO SEC AND TO SHAREHOLDERS.
Promptly upon the filing or sending thereof, the GUARANTORS shall submit to the
LENDER copies of all regular, periodic, or special reports (including but not
limited to all 10-K and 10-Q filings) and all registration statements of
SOLUTIONS and its SUBSIDIARIES filed with the Securities And Exchange Commission
or any other governmental authority or agency and copies of all proxy statements
or other communications made by any of the COMPANIES or their SUBSIDIARIES.
Section 6.11.4. MANAGEMENT LETTERS. Promptly upon
receipt thereof, the GUARANTORS shall submit to the LENDER copies of any reports
submitted to the COMPANIES by independent certified public accountants in
connection with the examination of the financial statements of the COMPANIES
made by such accountants.
Section 6.11.5. CERTIFICATES OF NO DEFAULT. Within
thirty (30) calendar days after the end of each of the quarters of each FISCAL
YEAR of the COMPANIES, the GUARANTORS shall submit to the LENDER a certificate
of the chief financial officer or officers of each of the COMPANIES certifying
that: (1) there exists no EVENT OF DEFAULT, or if an EVENT OF DEFAULT exists,
specifying the nature thereof, the period of existence thereof and what action
the COMPANIES propose to take with respect thereto; (2) no material adverse
change in the condition, financial or otherwise, business, property or results
of operations of any of the COMPANIES has occurred since the previous
certificate was sent to the LENDER by the GUARANTORS or, if any such change has
occurred, specifying the nature thereof and what action the COMPANIES have taken
or propose to take with respect thereto; (3) all insurance premiums then due
have been paid; (4) all taxes then due have been paid or, for those taxes which
have not been paid, a statement of the taxes not paid and a description of the
rationale for such non-payment; (5 no litigation, investigation or proceedings,
or injunction, writ or restraining order is pending or threatened or, if any
such litigation, investigation, proceeding, injunction, writ or order is
pending, describing the nature thereof; and (6) stating whether or not the
BORROWERS are in compliance with the covenants of the LOAN AGREEMENT and whether
or not the GUARANTORS are in compliance with the covenants in this GUARANTY,
including a calculation of the financial covenants in the schedule attached to
such officer's certificate in form satisfactory to the LENDER.
Section 6.11.6. REPORTS TO OTHER CREDITORS.
Promptly after the furnishing thereof, the GUARANTORS shall submit to the LENDER
copies of any statement or report furnished by any of the COMPANIES to any other
party pursuant to the terms of any indenture, loan, or credit or similar
agreement and not otherwise required to be furnished to the LENDER pursuant to
any other provisions of this GUARANTY.
19
<PAGE>
Section 6.11.7. MANAGEMENT CHANGES. The
GUARANTORS shall notify the LENDER immediately of any changes in the personnel
holding executive management positions with each of the COMPANIES at the time of
CLOSING, including but not limited to the President and Chief Financial Officer
of each of the COMPANIES.
Section 6.11.8. GENERAL INFORMATION. In addition
to the items set forth in Sections 6.11.1 through 6.11.7 above, the GUARANTORS
shall submit to the LENDER such other information respecting the condition or
operations, financial or otherwise, of the COMPANIES as the LENDER may request
from time to time.
Section 6.12. EMPLOYEE BENEFIT PLANS AND GUARANTEED PENSION
PLANS. The GUARANTORS will, and will cause each of their ERISA AFFILIATES to:
(a) comply with all requirements imposed by ERISA and the CODE, applicable from
time to time to any of its GUARANTEED PENSION PLANS or EMPLOYEE BENEFIT PLANS;
(b) make full payment when due of all amounts which, under the provisions of
EMPLOYEE BENEFIT PLANS or under applicable LAW, are required to be paid as
contributions thereto; (c) not permit to exist any material accumulated funding
deficiency, whether or not waived; (d) file on a timely basis all reports,
notices and other filings required by any governmental agency with respect to
any of its EMPLOYEE BENEFITS PLANS; (e) make any payments to MULTIEMPLOYER PLANS
required to be made under any agreement relating to such MULTIEMPLOYER PLANS, or
under any LAW pertaining thereto; (f) not amend or otherwise alter any
GUARANTEED PENSION PLAN if the effect would be to cause the actuarial present
value of all benefit commitments under any GUARANTEED PENSION PLAN to be less
than the current value of the assets of such GUARANTEED PENSION PLAN allocable
to such benefit commitments; (g) furnish to all participants, beneficiaries and
employees under any of the EMPLOYEE BENEFIT PLANS, within the periods prescribed
by LAW, all reports, notices and other information to which they are entitled
under any applicable LAWS; and (h) take no action which would cause any of the
EMPLOYEE BENEFIT PLANS to fail to meet any qualification requirement imposed by
the CODE. As used in this Section, the term "accumulated funding deficiency" has
the meaning specified in Section 302 of ERISA and Section 412 of the CODE, and
the terms "actuarial present value", "benefit commitments" and "current value"
have the meaning specified in Section 4001 of ERISA.
Section 6.13. MAINTENANCE OF ASSETS. The GUARANTORS
shall maintain and preserve all of their respective assets in a state of good
and efficient working order.
Section 6.14. COMPLIANCE WITH LAWS. The GUARANTORS shall comply
in all material respects with all applicable LAWS, including, but not limited
to, all LAWS with respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that the GUARANTORS sell or to the services
that the GUARANTORS perform; (b) the conduct of their respective businesses; (c)
the use, maintenance, and operation of the real and personal properties owned or
leased by the GUARANTORS in the conduct of their businesses; and (d) the
obtaining of all necessary licenses, franchises, permits and governmental
approvals, registrations and exemptions necessary to engage in their businesses.
20
<PAGE>
Section 6.15. ENVIRONMENTAL LAWS. In addition to and without
limiting the generality of the preceding Section, the GUARANTORS shall: (i)
comply in all material respects with, and ensure such compliance by all tenants
and subtenants, if any, with, all applicable ENVIRONMENTAL LAWS and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
ENVIRONMENTAL LAWS; (ii) conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required under
ENVIRONMENTAL LAWS, and promptly comply with all lawful orders and directives of
any governmental authority regarding ENVIRONMENTAL LAWS; and (iii) defend,
indemnify and hold harmless the LENDER, and its employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under any ENVIRONMENTAL LAWS
applicable to the operations of the GUARANTORS, or any orders, requirements or
demands of governmental authorities related thereto, including, without
limitation, reasonable attorney's and consultant's fees, investigation and
laboratory fees, response costs, court costs and litigation expenses, except to
the extent that any of the foregoing directly result from the gross negligence
or willful misconduct of the party seeking indemnification therefor. The
GUARANTORS shall notify the LENDER of any RELEASE of REGULATED SUBSTANCE on, to
or from any FACILITY in violation of any ENVIRONMENTAL LAWS or of any notice
received by any of the GUARANTORS that the GUARANTORS or any FACILITY is not in
compliance with any ENVIRONMENTAL LAWS within five (5) BUSINESS DAYS after any
such RELEASE or receipt of any such notice.
Section 6.16. CONSOLIDATED FINANCIAL COVENANTS. The GUARANTORS
shall take such actions and cause the BORROWERS to take such action as are
necessary for the COMPANIES to comply on a consolidated basis with the following
consolidated financial covenants:
Section 6.16.1. MINIMUM CONSOLIDATED NET WORTH.
The COMPANIES shall maintain a minimum CONSOLIDATED NET WORTH of not less than
the following amounts measured as of the following dates:
<TABLE>
<CAPTION>
<S> <C>
06/30/99 $3,459,000
09/30/99 $3,700,000
12/31/99 $4,100,000
03/31/00 $4,700,000
06/30/00 $5,400,000
09/30/00 $5,700,000
12/31/00 $6,000,000
03/31/01 $6,300,000
06/30/01 $6,600,000
09/30/01 $7,000,000
12/31/01 $7,300,000
03/31/02 $7,700,000
06/30/02 $8,100,000
</TABLE>
21
<PAGE>
Section 6.16.2. RATIO OF CONSOLIDATED LIABILITIES
TO CONSOLIDATED NET WORTH. The COMPANIES shall maintain a ratio of CONSOLIDATED
LIABILITIES to CONSOLIDATED NET WORTH of not more than the following ratios
measured as of the following times:
<TABLE>
<CAPTION>
<S> <C>
06/30/99 4.21 to 1.0
09/30/99 4.25 to 1.0
12/31/99 4.25 to 1.0
03/31/00 4.00 to 1.0
06/30/00 3.75 to 1.0
09/30/00 3.75 to 1.0
12/31/00 3.75 to 1.0
03/31/01 3.75 to 1.0
06/30/01 3.75 to 1.0
09/30/01 3.75 to 1.0
12/31/01 3.75 to 1.0
03/31/02 3.75 to 1.0
06/30/02 3.75 to 1.0
</TABLE>
Section 6.16.3. CONSOLIDATED INTEREST COVERAGE
RATIO. The COMPANIES shall maintain a CONSOLIDATED INTEREST COVERAGE RATIO of
not less than the following ratios measured as of the following times:
<TABLE>
<CAPTION>
<S> <C>
06/30/99 3.21 to 1.0
09/30/99 2.00 to 1.0
12/31/99 2.25 to 1.0
03/31/00 2.25 to 1.0
06/30/00 2.50 to 1.0
09/30/00 2.50 to 1.0
12/31/00 2.50 to 1.0
03/31/01 2.50 to 1.0
06/30/01 3.00 to 1.0
09/30/01 3.00 to 1.0
12/31/01 3.00 to 1.0
03/31/02 3.00 to 1.0
06/30/02 3.00 to 1.0
</TABLE>
Section 6.16.4. CONSOLIDATED FIXED CHARGE COVERAGE
RATIO. The COMPANIES shall maintain a CONSOLIDATED FIXED CHARGE COVERAGE RATIO
of not less than the following ratios measured as of the following times:
<TABLE>
<CAPTION>
<S> <C>
06/30/99 1.83 to 1.0
09/30/99 1.10 to 1.0
12/31/99 1.25 to 1.0
03/31/00 1.25 to 1.0
06/30/00 1.50 to 1.0
09/30/00 1.50 to 1.0
12/31/00 1.50 to 1.0
03/31/01 1.50 to 1.0
06/30/01 1.50 to 1.0
09/30/01 1.50 to 1.0
12/31/01 1.50 to 1.0
03/31/02 1.50 to 1.0
06/30/02 1.50 to 1.0
</TABLE>
22
<PAGE>
Section 7. NEGATIVE COVENANTS. Each of the GUARANTORS covenants
and agrees during the term of this GUARANTY and while any OBLIGATIONS are
outstanding and unpaid not to do or to permit to be done or to occur any of the
following acts or happenings:
Section 7.1. NO CHANGE OF NAME, MERGER, ETC. None of the
GUARANTORS shall change its respective name or enter into any mergers,
consolidations, reorganizations or recapitalizations, except for mergers in
which: (a) the applicable GUARANTOR is the sole surviving entity and the mergers
contemplated in Section 2.1.1.f of the LOAN AGREEMENT; (b) the transaction
involves a company or companies in the same line of business as presently
conducted by the applicable GUARANTOR; (c) any assets acquired by the applicable
GUARANTOR become subject to the LENDER'S liens in a first priority lien position
and are not subject to any liens other than PERMITTED LIENS and the LENDER'S
liens; and (d) no DEFAULT or EVENT OF DEFAULT or MATERIAL ADVERSE EVENT occurs
or is, in the opinion of the LENDER, likely to occur as a result thereof.
Section 7.2. NO SALE OR TRANSFER OF ASSETS. No GUARANTOR shall
not sell, transfer, lease or otherwise dispose of all or any part of the
COLLATERAL, or all or any part of any of their other assets, except that: (a)
INVENTORY may be sold or leased to account debtors in the ordinary course of
business; and (b) items of equipment may be sold or exchanged if that equipment
is replaced in the ordinary course of the GUARANTORS' businesses to the
satisfaction of the LENDER by equipment of a similar value and which is subject
to the first lien security interest of the LENDER provided for herein.
Section 7.3. NO ENCUMBRANCE OF ASSETS. No GUARANTOR shall
mortgage, pledge, grant or permit to exist a security interest in or lien upon
any of its assets of any kind, now owned or hereafter acquired, except for
PERMITTED LIENS or as otherwise permitted hereunder.
Section 7.4. NO INDEBTEDNESS. No GUARANTOR shall incur,
create, assume, or permit to exist any INDEBTEDNESS except: (a) the OBLIGATIONS;
(b) SUBORDINATED DEBT; and (c) INDEBTEDNESS secured by PERMITTED LIENS.
Section 7.5. RESTRICTED PAYMENTS. No GUARANTOR shall make any
RESTRICTED PAYMENTS.
Section 7.6. TRANSACTIONS WITH AFFILIATES. No GUARANTOR shall
make any purchase from, or contract for the performance of any services by, any
AFFILIATE, except on terms which fairly represent generally available terms to
be obtained in transactions of a similar nature with independent third PERSONS.
Section 7.7. LOANS AND INVESTMENTS. No GUARANTOR shall make any
advance, loan, investment, or material acquisition of assets, except loans from
a GUARANTOR to another GUARANTOR or to a BORROWER which are: (a) pre-approved by
the LENDER; and (b) evidenced by documentation acceptable to the LENDER which is
assigned to the LENDER. The LENDER agrees that it will not
23
<PAGE>
unreasonably withhold or unduly delay its approval of the acquisition of assets
by the GUARANTORS to the extent that: (i) any of the GUARANTORS is acquiring
such assets as a result of the acquisition of all or substantially all of the
assets of a PERSON in the same line of business as is then being engaged in by
the acquiring GUARANTOR; (ii) such assets shall be subject to the liens of the
LENDER in a first priority lien position and shall not be subject to any other
liens other than PERMITTED LIENS; and (iii) the acquisition will not cause or in
the sole opinion of the LENDER be likely to cause a DEFAULT, an EVENT OF
DEFAULT, or a MATERIAL ADVERSE EVENT.
Section 7.8. NO SALE-LEASEBACK TRANSACTIONS. No GUARANTORS
shall enter into any sale-leaseback transactions.
Section 7.9. NO ACQUISITION OF THIRD PERSON. No GUARANTOR shall
acquire any equity interests in any PERSON without the prior approval of the
LENDER. The LENDER agrees that it will not unreasonably withhold or unduly delay
its approval of the acquisition of equity interests by the GUARANTORS to the
extent that: (a) any of the GUARANTORS is acquiring such equity interests as a
result of the acquisition of all or substantially all of the equity interests of
a PERSON in the same line of business as is then being engaged in by the
acquiring GUARANTOR; (b) the assets of the acquired PERSON will be subject to
the first priority liens of the LENDER and shall not be subject to any other
liens other than PERMITTED LIENS; and (c) the acquisition will not cause or in
the opinion of the LENDER be likely to cause a DEFAULT, an EVENT OF DEFAULT, or
a MATERIAL ADVERSE EVENT.
Section 7.10. NO ALTERATION OF STRUCTURE OR OPERATIONS. No
GUARANTOR shall amend or materially change its capital structure or its line or
scope of business.
Section 7.11. LONG TERM CONTRACTS. No GUARANTOR shall enter into
any management contract, employment contract, consulting contract,
non-competition contract, service contract or the like, having a term in excess
of thirteen (13) months or requiring the payment of any monies by the GUARANTORS
on a date occurring more than thirteen (13) months after the date of such
contract with any AFFILIATE.
Section 7.12. CHANGES IN FISCAL YEAR. No GUARANTOR shall
change its FISCAL YEAR without the LENDER'S consent, which consent shall not be
unreasonably withheld.
Section 7.13. LIMITATION ON ISSUANCE OF EQUITY INTERESTS. No
GUARANTOR shall issue or sell any equity interests that, by their terms or by
the terms of any securities into which they are convertible or exchangeable,
are, or upon the happening of an event or passage of time would be: (i)
convertible or exchangeable into a LIABILITY of such GUARANTOR; or (ii) required
to be redeemed or repurchased, including at the option of the holder, in whole
or in part, or has, or upon the happening of an event or passage of time would
have, a redemption or similar payment due.
Section 8. ACCELERATION RIGHTS. Upon the occurrence of an EVENT OF
DEFAULT, the LENDER shall have the immediate right to elect to accelerate the
payment of all OBLIGATIONS and to demand payment therefor from the GUARANTORS
without regard as to whether the obligations of the BORROWERS under the LOAN
24
<PAGE>
DOCUMENTS have been accelerated, are in default, or are being paid as agreed by
the BORROWERS in accordance with the terms of the LOAN DOCUMENTS.
Section 9. LENDER NEED NOT PURSUE OTHER RIGHTS. The LENDER shall be
under no obligation to pursue the LENDER'S rights against the BORROWERS or any
GUARANTOR or any other guarantor or source of repayment before pursuing the
LENDER'S rights against any other GUARANTOR.
Section 10. ENFORCEMENT OF LIENS. Upon the acceleration of the payment
of the OBLIGATIONS as authorized by this GUARANTY, the LENDER may, in addition
to all other rights and remedies provided by applicable LAWS or the LOAN
DOCUMENTS, exercise any rights of a secured creditor under the UNIFORM
COMMERCIAL CODE, as adopted and amended in Maryland, including the right to take
possession of the COLLATERAL without the use of judicial process or hearing of
any kind. Without limitation to the foregoing, the LENDER, in a commercially
reasonable fashion, may sell at public or private sale or otherwise realize
upon, in Baltimore, Maryland, or elsewhere, the whole or, from time to time, any
part of all COLLATERAL which is personal property, or any interests which the
GUARANTORS may have therein. Pending any such action, the LENDER may collect and
liquidate such COLLATERAL. After deducting from the proceeds of sale or other
disposition of such COLLATERAL all expenses, including all expenses for legal
services, the LENDER shall apply such proceeds toward the satisfaction of the
OBLIGATIONS. Any remainder of the proceeds after satisfaction in full of the
OBLIGATIONS shall be distributed as required by applicable LAW. Notice of any
sale or other disposition shall be given to the GUARANTORS at least ten (10)
days before the time of any intended public sale or of the time after which any
intended private sale or other disposition of the COLLATERAL is to be made,
which the GUARANTORS hereby agree shall be commercially reasonable notice of
such sale or other disposition. The GUARANTORS shall assemble, or shall cause to
be assembled, at the GUARANTORS' own expense, the COLLATERAL at such place or
places as the LENDER shall designate. At any such sale or other disposition, the
LENDER may, to the extent permissible under applicable law, purchase the whole
or any part of the COLLATERAL, free from any right of redemption on the part of
the GUARANTORS, which right is hereby waived and released to the extent lawfully
permitted. Without limiting the generality of any of the rights and remedies
conferred upon the LENDER under this Section, the LENDER may, to the full extent
permitted by applicable law: (a) enter upon the premises of the GUARANTORS,
exclude therefrom the GUARANTORS or any PERSON connected therewith, and take
immediate possession of the COLLATERAL, either personally or by means of a
receiver appointed by a court of competent jurisdiction, using all necessary
force to do so; (b) at the LENDER'S option, use, operate, manage, and control
the COLLATERAL in any lawful manner; (c) collect and receive all income,
revenue, earnings, issues, and profits therefrom; and (d) maintain, alter or
remove the COLLATERAL as the LENDER may determine in the LENDER'S discretion.
Section 11. CONFESSION OF JUDGMENT. Upon the occurrence of an EVENT OF
DEFAULT, each of the GUARANTORS authorizes any attorney admitted to practice
before any court of record in the United States, or the clerk of such court, to
appear on behalf of it and to confess judgment in any such court against it in
the full amount due on this GUARANTY at such time plus attorneys' fees equal to
fifteen percent (15%) of the amount due on this GUARANTY and court
25
<PAGE>
costs. Each of the GUARANTOR waives any right to notice or a hearing prior to
the entry of judgment and to the benefit of any and every statute, ordinance, or
rule of court which may be lawfully waived conferring upon the GUARANTORS any
right or privilege of exemption, appeal, stay of execution, or supplementary
proceedings, or other relief from the enforcement or immediate enforcement of a
judgment or related proceedings on a judgment. The authority and power which
each of the GUARANTORS has given for any attorney admitted to practice before
any court of record in the United States, or the clerk of such court, to appear
for and confess judgment against each of the GUARANTORS shall be a continuous
authority which shall not be exhausted or extinguished by any one or more
exercises or imperfect exercises thereof or by any one or more judgments entered
pursuant thereto and may be exercised on one or more occasions and at such times
and from time to time after default and in the same or different courts or
jurisdictions as the LENDER may consider necessary or advisable. In the event
that the LENDER receives, as a result of execution on a judgment confessed
hereunder, amounts in respect of attorneys' fees which exceed the actual legal
fees incurred by the LENDER in connection with this GUARANTY, then, upon full
and final payment of all of the other OBLIGATIONS, the LENDER shall remit such
excess to the GUARANTORS.
Section 12. SUBROGATION. Each of the GUARANTORS hereby irrevocably
agrees to subordinate any SUBROGATION RIGHTS to the rights of the LENDER (and
its assigns and successors in interest) to recover from the BORROWERS or any
other GUARANTOR or any other PERSON with respect to any payments made or
obligations incurred as a result of this GUARANTY. To effectuate such
subordination, each of the GUARANTORS hereby agrees that it shall not be
entitled to any payment from the BORROWERS or from any other GUARANTOR or PERSON
in respect of any SUBROGATION RIGHT until all of the OBLIGATIONS have been
indefeasibly paid in full. If any amount shall be paid to any GUARANTOR in
violation of the preceding sentence and the OBLIGATIONS shall not have been paid
in full, such amount shall be deemed to have been paid to such GUARANTOR for the
benefit of, and held in trust for, the LENDER (and its assigns and successors in
interest), and shall forthwith be paid to the LENDER (or its assigns or
successors in interest) to be credited and applied to the OBLIGATIONS, whether
matured or unmatured. Each of the GUARANTORS acknowledges that it will receive
direct and indirect benefits from the credit transactions contemplated by the
LOAN DOCUMENTS and that the subordination set forth in this Section is knowingly
made in contemplation of obtaining such benefits.
Section 13. RIGHT OF CONTRIBUTION. Each of the GUARANTORS hereby agrees
that to the extent that a GUARANTOR shall have paid more than its proportionate
share of any payment made hereunder upon the OBLIGATIONS, such GUARANTOR shall
be entitled to seek and receive contribution from and against any other
GUARANTOR hereunder which has not paid its proportionate share of such payment.
Each GUARANTOR'S right of contribution shall be subject to the terms and
subordination conditions of this GUARANTY. The provisions of this Section shall
in no respect limit the obligations and liabilities of any GUARANTOR hereunder
and each GUARANTOR shall remain jointly and severally liable for the full amount
guaranteed by the GUARANTORS hereunder.
Section 14. CERTAIN RIGHTS OF LENDER. Each of the GUARANTORS hereby
assents to any and all terms and agreements between the LENDER and the
26
<PAGE>
BORROWERS or between the LENDER and any other GUARANTOR, and all amendments and
modifications thereof, whether presently existing or hereafter made and whether
oral or in writing. The LENDER may, without compromising, impairing,
diminishing, or in any way releasing the GUARANTORS from the GUARANTORS' duties
to pay and perform the OBLIGATIONS and without notifying or obtaining the prior
approval of any of the GUARANTORS, at any time or from time to time: (a) waive
or excuse a default by the BORROWERS or any other GUARANTOR, or delay in the
exercise of any or all of the LENDER'S rights or remedies with respect to such
default or defaults; (b) grant extensions of time for payment or performance by
the BORROWERS or any other GUARANTOR; (c) release, substitute, exchange,
surrender, or add collateral of the BORROWERS or of any other GUARANTOR, or
waive, release, or subordinate, in whole or in part, any lien or security
interest held by the LENDER on any real or personal property securing payment or
performance, in whole or in part, of the obligations of the BORROWERS to the
LENDER or of any other GUARANTOR or any other PERSON; (d) release the BORROWERS
or any other GUARANTOR or other PERSON from any duties or obligations owed by
the BORROWERS or any other GUARANTOR or other PERSON to the LENDER; (e) increase
the obligations of the BORROWERS under the LOAN DOCUMENTS; and (f) modify,
change, renew, extend, terminate, or amend in any respect any of the LOAN
DOCUMENTS or the LENDER'S agreements with the BORROWERS or with any other
GUARANTOR.
Section 15. WAIVERS BY GUARANTORS. Each of the GUARANTORS waives: (a)
any and all notices whatsoever with respect to this GUARANTY or with respect to
any of the obligations owed by the BORROWERS to the LENDER, including, but not
limited to, notice of (i) the acceptance hereof by the LENDER or of the
intention to act by the LENDER, or any action taken by the LENDER in reliance
hereon, (ii) the present existence or future incurring of any of the obligations
of the BORROWERS to the LENDER or any terms or amounts thereof or any change
therein, (iii) any default by the BORROWERS or any surety, pledgor, grantor of
security, or any PERSON who has guaranteed or secured in whole or in part any of
the obligations of the BORROWERS to the LENDER, and (iv) the obtaining or
release of any guaranty or surety agreement, pledge, assignment, or other
security for any of the obligations of the BORROWERS to the LENDER; (b)
presentment and demand for payment of any sum due from the BORROWERS or any
other GUARANTOR and protest of nonpayment; (c) demand for performance by the
BORROWERS or any other GUARANTOR; and (d) any defenses to this GUARANTY or the
payment and performance of the OBLIGATIONS based upon any suretyship or
impairment of collateral.
Section 16. UNENFORCEABILITY OF OBLIGATIONS OF BORROWERS. This GUARANTY
shall be valid, binding, and enforceable even if any or all of the obligations
of the BORROWERS to the LENDER which are guaranteed hereby are now, or
hereafter, become invalid or unenforceable for any reason, or are set aside,
avoided or determined to have been invalid for any reason, in whole or in part.
Section 17. NO CONDITIONS PRECEDENT. This GUARANTY shall be effective
and enforceable immediately upon its execution. The GUARANTORS acknowledge that
no unsatisfied conditions precedent to the effectiveness and enforceability of
this GUARANTY exist as of the date of its execution and that the effectiveness
and enforceability of this GUARANTY is not in any way conditioned or contingent
upon
27
<PAGE>
any event, occurrence, or happening, or upon any condition existing or coming
into existence either before or after the execution of this GUARANTY.
Section 18. NO DUTY TO DISCLOSE. The LENDER shall not have any present
or future duty or obligation to discover or to disclose to any GUARANTOR any
information, financial or otherwise, concerning the BORROWERS, any other
GUARANTOR, the LOAN, the LOAN DOCUMENTS, or any collateral securing the
obligations of the BORROWERS to the LENDER or of any other PERSON who may have
guaranteed in whole or in part the obligations of the BORROWERS to the LENDER.
Each of the GUARANTORS waives any right to claim or assert any such duty or
obligation on the part of the LENDER. The GUARANTORS agree to obtain all
information which the GUARANTORS consider either appropriate or relevant to this
GUARANTY and the agreements and undertakings of the GUARANTORS hereunder from
sources other than the LENDER and to become and remain at all times current and
continuously apprised of all information concerning the BORROWERS, other
GUARANTORS, the LOAN, or the LOAN DOCUMENTS which the GUARANTORS consider to be
material or relevant to the duties of the GUARANTORS pursuant to this GUARANTY
or the payment and performance of the OBLIGATIONS by the GUARANTORS.
Section 19. ENFORCEMENT DURING BANKRUPTCY. Enforcement of this GUARANTY
against any GUARANTOR shall not be stayed or in any way delayed as a result of
the filing of a petition under the UNITED STATES BANKRUPTCY CODE, as amended, by
or against either of the BORROWERS or any other GUARANTOR. Should the LENDER (or
the assignee or successor in interest thereof) be required to obtain an order of
the United States Bankruptcy Court to begin enforcement of this GUARANTY after
the filing of a petition under the UNITED STATES BANKRUPTCY Code, as amended, by
or against any GUARANTOR, such GUARANTOR hereby consents to this relief and
agrees to file or cause to be filed all appropriate pleadings to evidence and
effectuate such consent and to enable the LENDER (or the assignee or successor
in interest thereof) to obtain the relief requested.
Section 20. CUMULATIVE LIABILITY. The liability of the GUARANTORS to
the LENDER pursuant to this GUARANTY shall be cumulative to, and not in lieu of,
all other duties, obligations and liabilities owed by any of the GUARANTORS to
the LENDER from time to time.
Section 21. OBLIGATIONS ARE UNCONDITIONAL. The payment and performance
of the OBLIGATIONS shall be the absolute and unconditional duty and obligation
of each of the GUARANTORS, and shall be independent of any defense or any rights
of set-off, recoupment or counterclaim which any of the GUARANTORS might
otherwise have against the LENDER. The GUARANTORS shall pay and perform all
OBLIGATIONS, free of any deductions and without abatement, diminution or
set-off. Until such time as the OBLIGATIONS have been fully paid and performed,
each GUARANTOR: (a) shall not suspend or discontinue any payments provided for
herein; (b) shall perform and observe all of the covenants and agreements
contained in this GUARANTY; and (c) shall not terminate or attempt to terminate
this GUARANTY, in whole or in part, for any reason. No delay by the LENDER in
making demand upon the GUARANTORS for satisfaction of the OBLIGATIONS shall
prejudice or in any way impair the ability of the LENDER to enforce this
GUARANTY.
28
<PAGE>
Section 22. DEFENSES AGAINST BORROWERS. Until the OBLIGATIONS of the
GUARANTORS hereunder have been satisfied in full, each of the GUARANTOR waives
any right to assert against either of the BORROWERS any defense (whether legal
or equitable), claim, counterclaim, or right of set-off or recoupment which the
GUARANTORS may now or hereafter have against the BORROWERS or any other
GUARANTOR or PERSON.
Section 23. REMEDIES CUMULATIVE. All of the LENDER>S rights and
remedies shall be cumulative and any failure of the LENDER to exercise any right
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right at any time, and from time to time, thereafter.
Section 24. DISCHARGE OF GUARANTY. This GUARANTY shall not be
discharged and the GUARANTORS shall not be released from liability until all
OBLIGATIONS (including contingent OBLIGATIONS) have been paid, performed and
satisfied in full and the satisfaction of the OBLIGATIONS is not subject to
challenge, contest or any other potential contingency. If all or any portion of
the OBLIGATIONS are satisfied and the LENDER is required by order of a court of
competent jurisdiction to pay to any PERSON the sums used to satisfy the
OBLIGATIONS, the OBLIGATIONS shall remain in effect and enforceable to the
extent thereof.
Section 25. SUBORDINATION OF CERTAIN INDEBTEDNESS. If any of the
GUARANTORS has advanced or advances any sums to the BORROWERS or their
successors or assigns or if the BORROWERS or their successors or assigns shall
hereafter become indebted to the GUARANTOR, such sums and indebtedness shall be
subordinate in payment and right of enforcement and in all other respects to the
amounts then or thereafter due and owing to the LENDER by the BORROWERS.
Section 26. EXCHANGE OF INFORMATION. Each of the GUARANTORS irrevocably
authorizes the LENDER to share and discuss with any holder of SUBORDINATED DEBT
such information concerning the GUARANTORS, the BORROWERS, the OBLIGATIONS, the
LOAN, the COLLATERAL, this GUARANTY and the finances, business affairs and
operations of the GUARANTORS and the BORROWERS as the LENDER may desire from
time to time without any notice or consent from the GUARANTORS. The GUARANTORS
also authorize any holder of SUBORDINATED DEBT to share and discuss any such
information with the LENDER.
Section 27. CHOICE OF LAW. The laws of the State of Maryland
(excluding, however, conflict of law principles) shall govern and be applied to
determine all issues relating to this GUARANTY and the rights and obligations of
the parties hereto, including the validity, construction, interpretation, and
enforceability of this GUARANTY and its various provisions and the consequences
and legal effect of all transactions and events which resulted in the issuance
of this GUARANTY or which occurred or were to occur as a direct or indirect
result of this GUARANTY having been executed.
Section 28. CONSENT TO JURISDICTION; AGREEMENT AS TO VENUE. Each of the
GUARANTORS irrevocably consents to the non-exclusive jurisdiction of the courts
of the State of Maryland and of the United States District Court for the
District of Maryland, if a basis for federal jurisdiction exists. Each of the
GUARANTORS agrees that venue shall be proper in any circuit court of
29
<PAGE>
the State of Maryland selected by the LENDER or in the United States District
Court for the District of Maryland if a basis for federal jurisdiction exists
and waives any right to object to the maintenance of a suit in any of the state
or federal courts of the State of Maryland on the basis of improper venue or of
inconvenience of forum.
Section 29. INVALIDITY OF ANY PART. If any provision or part of any
provision of this GUARANTY shall for any reason be held invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions or the remaining part of any effective
provisions of this GUARANTY, and this GUARANTY shall be construed as if such
invalid, illegal, or unenforceable provision or part thereof had never been
contained herein, but only to the extent of its invalidity, illegality, or
unenforceability.
Section 30. AMENDMENT OR WAIVER. This GUARANTY may be amended only by a
writing duly executed by the GUARANTORS and by the LENDER. No waiver by the
LENDER of any of the provisions of this GUARANTY or any of the rights or
remedies of the LENDER with respect hereto shall be considered effective or
enforceable unless in writing.
Section 31. NOTICES. Any notice required or permitted by or in
connection with this GUARANTY shall be in writing and shall be made by facsimile
(confirmed on the date the facsimile is sent by one of the other methods of
giving notice provided for in this Section) or by hand delivery, by Federal
Express, or other similar overnight delivery service, or by certified mail,
unrestricted delivery, return receipt requested, postage prepaid, addressed to
the LENDER or to the GUARANTORS at the appropriate address set forth below or to
such other address as may be hereafter specified by written notice by the LENDER
or the GUARANTORS. Notice shall be considered given as of the date of the
facsimile or the hand delivery, one (1) calendar day after delivery to Federal
Express or similar overnight delivery service, or three (e) calendar days after
the date of mailing, independent of the date of actual delivery or whether
delivery is ever in fact made, as the case may be, provided the giver of notice
can establish the fact that notice was given as provided herein. If notice is
tendered pursuant to the provisions of this Section and is refused by the
intended recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
If to the LENDER:
THE PROVIDENT BANK
One E. Fourth Street
Cincinnati, Ohio 45202
Attn: Barry Peterson, Vice President
Facsimile: (513) 763-8069
And to:
THE PROVIDENT BANK
1340 Smith Avenue, Suite 200
Baltimore, Maryland 21209
30
<PAGE>
Attn: J. David Kommalan, Vice President
Facsimile: (410) 779-1337
If to the GUARANTORS:
Imtek Acquisition Corporation
Imtek Capital Corporation
Imtek Funding Corporation
Imtek Office Solutions, Inc.
Imtek Services Corporation
8003 Corporate Drive, Suite C
Baltimore, Maryland 21236
Attn: Brad C. Thompson, Chief Financial Officer
Facsimile: (410) 931-2731
With A Courtesy Copy To:
McGuire, Woods, Battle & Boothe, L.L.P.
The Blaustein Building
7 St. Paul Street, Suite 1000
Baltimore, Maryland 21202-1626
Attn: Patrick M. Shelley, Esquire
Facsimile: (410) 659-4599
The failure of the LENDER to send the above courtesy copy shall not impair the
effectiveness of notice given to the GUARANTORS in the manner provided herein.
Section 32. JOINT AND SEVERAL NATURE. The liability of each
GUARANTOR shall be joint and several with the liability of the other GUARANTORS
which are parties to this GUARANTY.
Section 33. FINAL AGREEMENT. This GUARANTY contains the final and
entire agreement between the LENDER and the GUARANTORS with respect to the
guaranty by the GUARANTORS of the BORROWERS' obligations to the LENDER.
Section 34. TENSE, GENDER, DEFINED TERMS, CAPTIONS. As used herein,
the plural includes the singular, and the singular includes the plural. The use
of any gender applies to any other gender. All defined terms are completely
capitalized throughout this GUARANTY. All captions are for the purpose of
convenience only.
Section 35. SEAL AND EFFECTIVE DATE. This GUARANTY is an instrument
executed under seal and is to be considered effective and enforceable as of the
date set forth on the first page hereof, independent of the date of actual
execution.
31
<PAGE>
Section 36. WAIVER OF TRIAL BY JURY. Each of the GUARANTORS and the
LENDER, by their execution and acceptance, respectively, of this GUARANTY, agree
that any suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party on or
with respect to this GUARANTY or the LOAN DOCUMENTS or which in any way relates,
directly or indirectly, to this GUARANTY or the LOAN or any event, transaction,
or occurrence arising out of or in any way connected with this GUARANTY or the
LOAN DOCUMENTS, or the dealings of the parties with respect thereto or the
administration thereof, shall be tried only by a court and not by a jury. EACH
PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
ACTION, OR PROCEEDING.
IN WITNESS WHEREOF, each of the GUARANTORS has executed this GUARANTY
under seal as of the date first written above.
WITNESS/ATTEST: GUARANTORS:
IMTEK ACQUISITION CORPORATION,
A Maryland Corporation
By: /s/ Robert W. Hoover (SEAL)
-----------------------------
Robert W. Hoover, Vice President
IMTEK CAPITAL CORPORATION,
A Maryland Corporation
By: /s/ Robert W. Hoover (SEAL)
-----------------------------
Robert W. Hoover, Vice President
IMTEK FUNDING CORPORATION,
A Maryland Corporation
By: /s/ Robert W. Hoover (SEAL)
-----------------------------
Robert W. Hoover, President
IMTEK OFFICE SOLUTIONS, INC.,
A Delaware Corporation
By: /s/ Robert W. Hoover (SEAL)
-----------------------------
Robert W. Hoover, President
IMTEK SERVICES CORPORATION,
A Maryland Corporation
By: /s/ Robert W. Hoover (SEAL)
-----------------------------
Robert W. Hoover, Vice President
<PAGE>
EXHIBIT 10.10.4
STOCK PLEDGE AGREEMENT
(Stock In Imtek Acquisition Corporation,
Imtek Corporation, and Imtek Services Corporation)
THIS STOCK PLEDGE AGREEMENT ("PLEDGE AGREEMENT") is made this first
day of July, 1999, by IMTEK OFFICE SOLUTIONS, INC., a Delaware corporation
("PLEDGOR"), for the benefit of THE PROVIDENT BANK, an Ohio chartered banking
institution ("LENDER").
RECITALS
Imtek Corporation (AIMTEK@) and Barbera Business Systems, Inc.
(ABARBERA@) have requested that the LENDER provide them with certain credit
accommodations. As a condition precedent to the extension of the requested
credit accommodations, the LENDER has required that the PLEDGOR guaranty the
obligations of the IMTEK and BARBERA with respect to such credit accommodations,
and secure such guaranty with a pledge of certain collateral, including but not
limited to the assets of the PLEDGOR which are being pledged by the PLEDGOR
pursuant to the terms of this PLEDGE AGREEMENT. The PLEDGOR has executed and
delivered this PLEDGE AGREEMENT in order to induce the LENDER to provide such
credit accommodations.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the PLEDGOR agrees as follows:
Section 1. DEFINITIONS. As used in this PLEDGE AGREEMENT, the
following terms have the following meanings. Terms defined in this Section 1 or
elsewhere in this PLEDGE AGREEMENT are in all capital letters throughout this
PLEDGE AGREEMENT. The singular use of any defined term includes the plural and
the plural use includes the singular.
Section 1.1. ACCOUNTS, CHATTEL PAPER, DOCUMENTS, FINANCIAL ASSETS,
GENERAL INTANGIBLES, INSTRUMENTS, INVESTMENT PROPERTY, SECURITIES ACCOUNT AND
SECURITY ENTITLEMENTS. The terms "ACCOUNTS," "CHATTEL PAPER," "DOCUMENTS,"
"GENERAL INTANGIBLES," and "INSTRUMENTS" shall have the same respective meanings
as are given to those terms in Maryland Uniform Commercial Code - Secured
Transactions, Title 9 (Michie 1992 Repl. Vol.). The terms "FINANCIAL ASSETS,"
"INVESTMENT PROPERTY," "SECURITIES ACCOUNT," and "SECURITY ENTITLEMENTS" shall
have the same respective meanings as are given to the terms in Maryland Uniform
Commercial Code - Investment Securities, Title 8, and -Secured Transactions,
Title 9 (Michie 1992 Repl. Vol.).
Section 1.2. ACQUISITION. The term "ACQUISITION" means Imtek
Acquisition Corporation, a Maryland corporation.
Section 1.3. BORROWERS. The term "BORROWERS" means collectively IMTEK
and BARBERA.
1
<PAGE>
Section 1.4. CAPITAL. The term "CAPITAL" means Imtek Capital
Corporation, a Maryland corporation.
Section 1.5. COLLATERAL. The term "COLLATERAL" collectively means: (a)
the PLEDGED STOCK and the proceeds, profits, and products of the PLEDGED STOCK;
(b) all dividends (cash and stock) and distributions of any kind made from time
to time with respect to the PLEDGED STOCK or which arise as a result of the
ownership of the PLEDGED STOCK; (c) all certificates representing the PLEDGED
STOCK and certificates representing any subsequent stock dividends or other
distributions of stock paid or made in connection with the PLEDGED STOCK; (d)
all distributions of cash or stock made or arising from any increase or
reduction of capital, reclassification, merger, consolidation, stock split or
other transactions involving any of the CORPORATIONS or the PLEDGED STOCK; (e)
all options, warrants or rights of the PLEDGOR with respect to any of the
CORPORATIONS and/or the PLEDGED STOCK, whether as an addition to or in
substitution or in exchange for any of the PLEDGED STOCK; (f) all ACCOUNTS,
CHATTEL PAPER, DOCUMENTS, FINANCIAL ASSETS, GENERAL INTANGIBLES, INSTRUMENTS,
INVESTMENT PROPERTY, SECURITIES ACCOUNTS, and SECURITY ENTITLEMENTS of the
PLEDGOR which arise out of or relate in any respect to the PLEDGED STOCK or the
ownership by the PLEDGOR of the PLEDGED STOCK; (g) the products and proceeds of
all of the foregoing; and (h) all RECORDS relating or pertaining to any of the
foregoing.
Section 1.6. CORPORATIONS. The term "CORPORATIONS" means collectively
ACQUISITION, IMTEK, and SERVICES.
Section 1.7. EVENTS OF DEFAULT. The term "EVENTS OF DEFAULT"
collectively means: (a) the occurrence of any event authorizing the acceleration
of the PLEDGOR=S obligations under the GUARANTY; and (b) the occurrence of any
AEVENT OF DEFAULT,@ as such term is defined in the GUARANTY, or any other
default or violation by the PLEDGOR of any covenants, promises, or agreements of
the PLEDGOR set forth in the GUARANTY or this PLEDGE AGREEMENT, after the
expiration of any applicable notice and cure rights.
Section 1.8. FUNDING. The term "FUNDING" means Imtek Funding
Corporation, a Maryland corporation.
Section 1.9. GOVERNMENTAL AUTHORITY. The term "GOVERNMENTAL AUTHORITY"
means any nation or government, any state or other political subdivision thereof
and any municipality, court or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
Section 1.10. GUARANTY. The term "GUARANTY" means the Secured Guaranty
Agreement of even date herewith from the PLEDGOR, ACQUISITION, CAPITAL, FUNDING,
and SERVICES for the benefit of the LENDER, as amended from time to time.
Section 1.11. LAWS. The term "LAWS" means all ordinances, statutes,
rules, regulations, orders, injunctions, writs or decrees of any GOVERNMENTAL
AUTHORITY.
2
<PAGE>
Section 1.12. LOAN AGREEMENT. The term "LOAN AGREEMENT" means the Loan
And Security Agreement between the BORROWERS and the LENDER of even date
herewith, as amended from time to time.
Section 1.13. OBLIGATIONS. The term "OBLIGATIONS" shall have the same
meaning as given to that term in the GUARANTY.
Section 1.14. PERSON. The term "PERSON" means any individual,
corporation, partnership, limited liability company, association, joint-stock
company, trust, business trust, unincorporated organization, joint venture,
court, or GOVERNMENTAL AUTHORITY.
Section 1.15. PLEDGED STOCK. The term "PLEDGED STOCK" means all shares
of stock of the CORPORATIONS owned by the PLEDGOR and all additional shares of
stock in the CORPORATIONS acquired by the PLEDGOR from time to time together
with all rights, options, and issuances therefrom, including but not limited to:
(a) 50,000 shares of the common stock of IMTEK, as evidenced by Certificate
No.1; (b) 100 shares of the common stock of SERVICES, as evidenced by
Certificate No.1; and (c) 1,000 shares of the common stock of ACQUISITION, as
evidenced by Certificate No. 1.
Section 1.16. RECORDS. The term "RECORDS" means correspondence,
memoranda, tapes, discs, papers, books and other documents, or transcribed
information of any type, whether expressed in ordinary, computer or machine
language.
Section 1.17. SERVICES. The term "SERVICES" means Imtek Services
Corporation, a Maryland corporation.
Section 2. PLEDGE; GRANT OF SECURITY INTERESTS AND LIENS. In order to
secure the payment and performance of the OBLIGATIONS when and as due, the
PLEDGOR hereby assigns, grants and pledges to the LENDER a continuing security
interest, pledge and lien in and to all of the COLLATERAL, whether now owned or
hereafter acquired by the PLEDGOR, together with all substitutions,
replacements, renewals, products and proceeds thereof. Future advances are
secured.
Section 3. DELIVERY OF CERTIFICATES. Except as may be otherwise agreed
to by the LENDER, the PLEDGOR shall deliver to the LENDER all of the
certificates representing the PLEDGED STOCK, together with stock powers duly
executed in blank by the PLEDGOR in accordance with the terms and purposes of
this PLEDGE AGREEMENT.
Section 4. FUTURE RECEIPT OF COLLATERAL. Except as expressly authorized
to the contrary by the terms of this PLEDGE AGREEMENT or as otherwise agreed to
by the LENDER, the PLEDGOR shall accept as the agent and in trust for the LENDER
all COLLATERAL received by the PLEDGOR after the date of this PLEDGE AGREEMENT,
and shall promptly deliver all of such COLLATERAL to the LENDER.
Section 5. VOTING RIGHTS; RIGHTS INCIDENTAL TO COLLATERAL. Until the
occurrence of any EVENT OF DEFAULT and the written election of the LENDER
described below, the PLEDGOR shall retain all voting rights with respect to the
PLEDGED STOCK, not inconsistent with the terms of this PLEDGE AGREEMENT,
3
<PAGE>
and, for that purpose, the LENDER shall execute and deliver to the PLEDGOR any
necessary proxies. Immediately upon the occurrence of an EVENT OF DEFAULT and
without regard as to whether the PLEDGED STOCK has been registered in the names
of the LENDER or the nominee of the LENDER, the LENDER shall have the right (but
not the obligation) to make a written election to exercise all voting rights as
to the PLEDGED STOCK, together with all conversion, exchange, subscription or
other rights, privileges or options pertaining thereto as if the LENDER were the
absolute owner thereof, including, without limitation, the right to exchange any
or all of the PLEDGED STOCK upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any of the CORPORATIONS, or upon the
exercise by any of the CORPORATIONS of any right, privilege, or option
pertaining to any of the PLEDGED STOCK, and, in connection therewith, to deliver
any of the PLEDGED STOCK to any committee, depository, transfer agent, registrar
or other designated agency upon such terms and conditions as the LENDER may
determine to be appropriate, all without liability except to account for
property actually received by the LENDER or the nominee of the LENDER. The
LENDER shall have no duty to exercise any of the aforesaid rights, privileges or
options. The LENDER shall not be deemed or construed to have exercised any
voting rights with respect to the PLEDGED STOCK unless and until the LENDER has
made the above-described written election to exercise such voting rights.
Section 6. CASH DIVIDENDS AND CASH DISTRIBUTIONS. All cash dividends
and cash distributions made upon the PLEDGED STOCK shall be paid to the PLEDGOR
until the occurrence of an EVENT OF DEFAULT except to the extent otherwise
prohibited by the terms and conditions of the LOAN AGREEMENT, the GUARANTY, or
any other agreements between the LENDER and any of the BORROWERS, the PLEDGOR,
or the CORPORATIONS. During the continuance of any EVENT OF DEFAULT, all cash
dividends and cash distributions shall be paid to the LENDER, and if any such
dividends or distributions are paid to the PLEDGOR, the PLEDGOR shall accept the
same as the LENDER'S agent, in trust for the LENDER, and shall deliver such
dividends or distributions forthwith to the LENDER in exactly the form received
with, as applicable, the PLEDGOR'S endorsement thereon. During the continuance
of any EVENT OF DEFAULT, all cash dividends, cash distributions, and other
distributions paid with respect to the PLEDGED STOCK shall be applied to the
repayment of the OBLIGATIONS, in such order of application as the LENDER
determines, regardless of when the amounts due upon the OBLIGATIONS mature and
are due and payable.
Section 7. WARRANTIES AND REPRESENTATIONS. The PLEDGOR represents and
warrants to the LENDER that:
Section 7.1. AUTHORITY. The PLEDGOR has, and has duly exercised, all
requisite power and authority to enter into this PLEDGE AGREEMENT, to pledge the
PLEDGED STOCK for the purposes described herein and to carry out the
transactions contemplated by this PLEDGE AGREEMENT.
Section 7.2. OWNERSHIP. The PLEDGOR is the sole legal and beneficial
owner of the shares of PLEDGED STOCK set forth below, which shares of PLEDGED
STOCK constitute one hundred percent (100%) of the issued and outstanding common
stock of each of the CORPORATIONS. The PLEDGOR is the registered owner of such
PLEDGED STOCK.
IMTEK:
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Certificate Number Of Date Of
Number Shares Issue
8 50,000 05/05/97
SERVICES:
Certificate Number Of Date Of
Number Shares Issue
1 100 10/11/97
ACQUISITION:
Certificate Number Of Date Of
Number Shares Issue
1 1,000 07/01/98
</TABLE>
Section 7.3. STATUS OF PLEDGED STOCK. All of the shares of the
PLEDGED STOCK currently outstanding have been duly and validly issued, are fully
paid and nonassessable, and are owned by the PLEDGOR free of any pledge,
mortgage, hypothecation, lien, charge, encumbrance or security interest in such
shares or the proceeds thereof, except for the security interests and pledges
granted herein and a pledge to FINOVA Mezzanine Capital Inc. f/k/a Sirrom
Capital Corporation which is subordinated in all respects to the pledge to the
LENDER contained herein.
Section 7.4. NO VIOLATION OF RESTRICTIONS. The execution and
delivery of this PLEDGE AGREEMENT by the PLEDGOR and the consent by the
CORPORATIONS thereto, and the performance of this PLEDGE AGREEMENT in accordance
with its stated terms, will not result in any violation of any provision of the
Charters or Bylaws of the PLEDGOR or of any of the CORPORATIONS, or violate or
constitute a default under the terms of any agreement, restrictive shareholder's
agreement, indenture or other instrument, license, judgment, decree, order, or
LAWS applicable to the PLEDGOR, the CORPORATIONS, the PLEDGED STOCK, or any of
the property of the PLEDGOR or the CORPORATIONS.
Section 7.5. APPROVALS. No approvals, consents, orders,
authorizations, or licenses are required from any PERSON or GOVERNMENTAL
AUTHORITY for the execution and delivery by the PLEDGOR of this AGREEMENT and
the consummation of the transactions described herein.
Section 7.6. RESTRICTIONS. There are no restrictions upon the
voting rights or upon the transfer of any of the PLEDGED STOCK other than as
physically appear upon the face of the certificates evidencing the PLEDGED
STOCK.
Section 7.7. VALID AND BINDING OBLIGATION. This PLEDGE AGREEMENT
is the valid and binding obligation of the PLEDGOR, fully enforceable in
accordance with all stated terms, except as enforceability may
5
<PAGE>
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect generally affecting creditors' rights, and subject to
general equity principles.
Section 8. NO DUTIES OTHER THAN CUSTODIAL DUTIES. The LENDER shall have
no duty with respect to any of the COLLATERAL other than the duty to use
reasonable care in maintaining the safe physical custody of the certificates
evidencing the PLEDGED STOCK.
Section 9. NO OBLIGATION TO MONITOR COLLATERAL. The LENDER shall have
no duty or responsibility for collecting or receiving any amounts payable on or
with respect to the PLEDGED STOCK or any of the other COLLATERAL or for
ascertaining, monitoring, or enforcing any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to the PLEDGED STOCK or
any of the other COLLATERAL or for informing the PLEDGOR with respect to any of
such matters. The LENDER shall have no liability to the PLEDGOR for any decline
in the value of the PLEDGED STOCK which may occur while the COLLATERAL is
subject to the terms of this PLEDGE AGREEMENT. The PLEDGOR represents to the
LENDER that the PLEDGOR has made its own arrangements for keeping informed of
changes or potential changes affecting the COLLATERAL, including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights.
Section 10. NO OBLIGATION TO PRESERVE RIGHTS. The LENDER shall be
under no obligation to take any steps to preserve rights or privileges in or to
the COLLATERAL against any PERSON.
Section 11. COVENANTS OF PLEDGOR. The PLEDGOR agrees that, until all of
the OBLIGATIONS have been paid, performed and satisfied in full, the PLEDGOR, in
addition to the covenants of the PLEDGOR set forth in the GUARANTY, will comply
with each of the following covenants:
Section 11.1. NO TRANSFERS. The PLEDGOR will not sell, convey, or
otherwise dispose of any of the COLLATERAL or any interest therein, or create,
incur, or permit to exist any pledge, mortgage, lien, charge, encumbrance or any
security interest whatsoever in or with respect to any of the COLLATERAL or the
proceeds thereof, except as may be expressly consented to by the LENDER in
writing.
Section 11.2. WARRANT TITLE. The PLEDGOR will, at the PLEDGOR'S sole
expense, warrant and defend the right, title, special property and security
interests and pledges of the LENDER in and to the COLLATERAL against the claims
of any PERSON, firm, CORPORATIONS or other entity.
Section 11.3. NO ADDITIONAL SHARES. The PLEDGOR will not consent to or
approve the issuance of any additional shares of any class of capital stock in
any of the CORPORATIONS or any securities convertible voluntarily by the holder
thereof or automatically upon the occurrence or non-occurrence of any event or
condition into, or exchangeable for, any such shares; or any warrants, options,
rights, or other commitments entitling any person to purchase or otherwise
acquire any such shares.
Section 11.4. DELIVERY OF NOTICES CONCERNING COLLATERAL. The PLEDGOR
agrees to promptly forward to the LENDER, copies of any written
6
<PAGE>
notices or other communications received by the PLEDGOR which relate or pertain
to the COLLATERAL.
Section 11.5. FURTHER ASSURANCES AND POWER OF ATTORNEY. The PLEDGOR
shall execute and delivery from time to time such writings, and documents which,
in the reasonable opinion of the LENDER or the LENDER'S counsel, may be
necessary to perfect, confirm, establish, reestablish, continue, or complete the
security interests, pledges and liens of the LENDER in the COLLATERAL, it being
the intention of the PLEDGOR to provide hereby a full and absolute warranty of
further assurance to the LENDER. If the PLEDGOR fails to execute any such
document within five (5) business days of being requested to do so by the
LENDER, the PLEDGOR hereby appoints the LENDER or any officer of the LENDER as
the PLEDGOR'S attorney in fact for purposes of executing such documents in the
PLEDGOR'S name, place and stead, which power of attorney shall be considered as
coupled with an interest and irrevocable.
Section 11.6. COOPERATION WITH ENFORCEMENT ACTIVITIES. The PLEDGOR,
upon the occurrence of an EVENT OF DEFAULT and the written request therefor by
the LENDER, will promptly execute and deliver to the LENDER such documents,
letters, or written representations as may reasonably be requested by the LENDER
or any broker, from time to time in order to accomplish the sale of all or any
part of the COLLATERAL, including but not limited to, all forms and documents
required under any applicable LAWS.
Section 12. WAIVERS. No course of dealing between the PLEDGOR and the
LENDER, nor any failure to exercise, nor any delay in exercising, any right,
power or privilege of the LENDER hereunder or under any other agreement between
the PLEDGOR and the LENDER, or under any agreement between the LENDER and any of
the CORPORATIONS, shall operate as a waiver of any term or condition of this
PLEDGE AGREEMENT; nor shall any single or partial exercise of any right, power
or privilege hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
Section 13. SALE OF COLLATERAL.
Section 13.1. TERMS OF SALE. In addition to all other rights
and remedies available to the LENDER pursuant to any other agreements with the
PLEDGOR or as otherwise provided by applicable LAWS, the LENDER, may upon the
occurrence of an EVENT OF DEFAULT sell or otherwise dispose of and deliver all
or any portion of the PLEDGED STOCK, in one or more parcels, at public or
private sale or sales, at any exchange, broker's board or at any location
selected by the LENDER, at such prices and on such terms as the LENDER may deem
best for cash or on credit, or for future delivery without assumption of any
credit risk. Any such sale shall be in compliance with all applicable LAWS. Any
purchaser of the PLEDGED STOCK, including the LENDER, shall purchase the PLEDGED
STOCK in whole or in part free of any right or equity of redemption in the
PLEDGOR, which right or equity is hereby expressly waived and released by the
PLEDGOR, to the extent permitted by applicable LAWS. The PLEDGOR acknowledges
that the terms of sale for the PLEDGED STOCK may include: (a) a requirement that
the PLEDGED STOCK be sold to only one individual purchaser for such purchaser's
own account and not as a representative of any purchaser; (b) a requirement that
any purchaser of
7
<PAGE>
all or any part of the PLEDGED STOCK represent in writing that such purchase is
purchasing the shares constituting the PLEDGED STOCK for investment purposes
only and without any intention to make a distribution thereof; (c) a requirement
that the certificates for any PLEDGED STOCK bear a legend to the effect that the
stock may not be resold without compliance with applicable federal and state
securities laws; and (d) a requirement that any purchaser of the PLEDGED STOCK
make such representations and warranties to the LENDER as deemed necessary by
the LENDER.
Section 13.2. DELAYS IN SALE; PRIVATE SALES. The PLEDGOR acknowledges
that it will be commercially reasonable for the LENDER to: (a) defer disposing
of all or any portion of the PLEDGED STOCK after an EVENT OF DEFAULT has
occurred for as long as any of the CORPORATIONS or the LENDER may require to
comply with any requirements of applicable LAWS, notwithstanding the fact that
the value of the PLEDGED STOCK may decline during the time that disposition is
deferred; and (b) sell all or any part of the PLEDGED STOCK at private sale,
subject to investment letter or in any other manner which will not require the
PLEDGED STOCK, or any part thereof, to be registered in accordance with the
SECURITIES ACT OF 1933, as amended, or the rules and regulations promulgated
thereunder, or any other applicable LAW. The PLEDGOR acknowledges that the
LENDER may, in the LENDER'S sole and absolute discretion, approach a restricted
number of potential purchasers and that a sale under such circumstances may
yield a lower price for the PLEDGED STOCK or any portions thereof than would
otherwise be obtainable if the PLEDGED STOCK were registered and sold in the
open market. The PLEDGOR acknowledges that a private sale of the PLEDGED STOCK
would be a commercially reasonable sale.
Section 13.3. LIQUIDATION AS AN ALTERNATIVE TO SALE. As an alternative
to public or private sale of the PLEDGED STOCK, the LENDER may, in the LENDER'S
sole and absolute discretion, elect to dispose of the PLEDGED STOCK after an
EVENT OF DEFAULT by causing any or all of the CORPORATIONS to dissolve,
liquidate, and make liquidating distributions to their stockholders, and such
dissolution and liquidation are hereby acknowledged to be a commercially
reasonable manner of disposing of the PLEDGED STOCK.
Section 13.4. APPLICATION OF PROCEEDS OF DISPOSITION. The proceeds from
any sale or from any other disposition of the COLLATERAL shall be applied as
follows:
a. FIRST, to the costs and expenses incurred in connection
with the sale or disposition of the COLLATERAL, including but not limited to all
costs incurred in the care or safekeeping of the COLLATERAL, reasonable
attorneys' fees, broker's commissions, appraiser's fees and other expenses
incurred by the LENDER.
b. SECOND, to the satisfaction of the OBLIGATIONS regardless
of when the amounts due upon the OBLIGATIONS mature and are due and payable,
c. THIRD, to the payment of any other amounts required by
applicable LAWS (including, without limitation the requirements of Md. Code
Ann., Commercial Law I ' 9-504(1)(c) (Michie 1992 Repl. Vol.).
8
<PAGE>
d. FOURTH, to the PLEDGOR to the extent of any surplus
proceeds.
Section 13.5. NOTICE; PROCEDURES OF SALE. The LENDER need not give more
than twenty (20) business days notice of the time and place of any public sale
or of the time after which a private sale of any or all of the COLLATERAL may
take place, which notice the PLEDGOR hereby agrees to be commercially
reasonable. The LENDER shall be entitled to purchase any or all of the
COLLATERAL in any sale in the name or names of the LENDER, or in the name of any
designee or nominee of the LENDER. In connection with any sale or transfer of
any or all of the COLLATERAL, the nominee of the LENDER shall have the right to
execute any document or form, in the name of the LENDER or in the name of the
PLEDGOR, which may be necessary or desirable in order to implement such sale,
including without limitation any forms required pursuant to RULE 144 promulgated
by the Securities And Exchange Commission. The PLEDGOR hereby agrees to
cooperate fully with the LENDER in order to permit the LENDER to sell, at
foreclosure or other private sale, any or all of the COLLATERAL in compliance
with all applicable LAWS.
Section 14. REMEDIES AND RIGHTS CUMULATIVE. The rights and remedies
provided in this PLEDGE AGREEMENT and in the GUARANTY or otherwise provided by
any other agreement between the PLEDGOR and the LENDER shall be cumulative, and
the exercise of any particular right or remedy shall not preclude the exercise
of any other rights or remedies.
Section 15. INVALIDITY OF ANY PART. If any provision or part of any
provision of this PLEDGE AGREEMENT shall for any reason be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions or the remaining part of
any effective provisions of this PLEDGE AGREEMENT, and this PLEDGE AGREEMENT
shall be construed as if such invalid, illegal, or unenforceable provision or
part thereof had never been contained herein, but only to the extent of its
invalidity, illegality, or unenforceability.
Section 16. AMENDMENT OR WAIVER. This PLEDGE AGREEMENT may be amended
only by a writing duly executed by the PLEDGOR and by the LENDER. No waiver by
the LENDER of any of the provisions of this PLEDGE AGREEMENT or of any of the
rights or remedies of the LENDER with respect hereto shall be considered
effective or enforceable unless in writing.
Section 17. FEES AND EXPENSES; INDEMNIFICATION. The PLEDGOR shall pay
all fees, expenses, costs and charges, including reasonable attorney's fees,
which may be incurred by the LENDER in connection with enforcing any term or
provision of this PLEDGE AGREEMENT. The PLEDGOR shall indemnify and hold the
LENDER harmless from and against, and reimburse the LENDER with respect to, any
and all loss, damage, liability, cost or expense (including reasonable
attorneys' fees) incurred by the LENDER from time to time which in any manner
relate or pertain to this PLEDGE AGREEMENT and the actions and transactions
contemplated herein. The foregoing indemnification obligation shall include, but
is not limited to, indemnification of the LENDER with respect to all claims
brought against the LENDER based upon allegations that any prospectus,
memorandum or other disclosure document furnished to the purchaser of any of the
COLLATERAL contains any untrue or allegedly untrue statement of a
9
<PAGE>
material fact which statement is derived from statements or representations made
by the PLEDGOR.
Section 18. NOTICES. Any notice required or permitted by or in
connection with this AGREEMENT shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the LENDER or the PLEDGOR at the appropriate address set forth
below or to such other address as may be hereafter specified by written notice
by the LENDER or the PLEDGOR. Notice shall be considered given as of the date of
the facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3) calendar
days after the date of mailing, independent of the date of actual delivery or
whether delivery is ever in fact made, as the case may be, provided the giver of
notice can establish the fact that notice was given as provided herein. If
notice is tendered pursuant to the provisions of this Section and is refused by
the intended recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
If to the LENDER:
THE PROVIDENT BANK
One E. Fourth Street
Cincinnati, Ohio 45202
Attn: Barry Peterson, Vice President
Facsimile: (513) 763-8069
And to:
THE PROVIDENT BANK
1340 Smith Avenue, Suite 200
Baltimore, Maryland 21209
Attn: J. David Kommalan, Vice President
Facsimile: (410) 779-1337
If to the PLEDGOR:
IMTEK OFFICE SOLUTIONS, INC.
8003 Corporate Drive, Suite C
Baltimore, MD 21236
Attn: Brad C. Thompson, Chief Financial Officer
Facsimile: (410) 931-2731
With A Courtesy Copy To:
MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.
7 St. Paul Street, Suite 1000
Baltimore, Maryland 21202-1626
Attn.: Patrick M. Shelley, Esquire
Fax No.: (410) 659-4599
10
<PAGE>
The failure of the LENDER to send the above courtesy copy shall not impair the
effectiveness of notice given to the PLEDGOR in the manner provided herein.
Section 19. BINDING EFFECT. This PLEDGE AGREEMENT shall inure to the
benefit of and shall be binding upon the respective heirs, successors and
assigns of the parties hereto.
Section 20. CHOICE OF LAW. The laws of the State of Maryland
(excluding, however, conflict of law principles) shall govern and be applied to
determine all issues relating to this PLEDGE AGREEMENT and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this PLEDGE AGREEMENT and its various
provisions and the consequences and legal effect of all transactions and events
which resulted in the execution of this PLEDGE AGREEMENT or which occurred or
were to occur as a direct or indirect result of this PLEDGE AGREEMENT having
been executed.
Section 21. CONSENT TO JURISDICTION; AGREEMENT AS TO VENUE. The PLEDGOR
irrevocably consents to the non-exclusive jurisdiction of the courts of the
State of Maryland and, if a basis for federal jurisdiction exists, of the United
States District Court For The District Of Maryland. The PLEDGOR agrees that
venue shall be proper in any circuit court of the State of Maryland selected by
the LENDER or in the United States District Court For The District Of Maryland
if a basis for federal jurisdiction exists and waives any right to object to the
maintenance of a suit in any of the state or federal courts of the State of
Maryland on the basis of improper venue or of inconvenience of forum.
Section 22. PHOTOCOPIES SUFFICIENT. The PLEDGOR agrees that the LENDER
may record photographic or carbon copies of this PLEDGE AGREEMENT or any
financing statement executed by the PLEDGOR in connection with this transaction,
and that such copies shall be as fully effective and valid as original
documents.
Section 23. NUMBER, GENDER AND CAPTIONS. As used herein, the singular
shall include the plural and the plural may refer to only the singular. The use
of any gender shall be applicable to all genders. The captions contained herein
are for purposes of convenience only and are not a part of this PLEDGE
AGREEMENT.
Section 24. FINAL AGREEMENT. This PLEDGE AGREEMENT contains the final
and entire understanding of the parties relating to the pledge and assignment of
the PLEDGED STOCK and any terms and conditions not set forth in this PLEDGE
AGREEMENT relating to the pledge and assignment of the PLEDGED STOCK are not a
part of this PLEDGE AGREEMENT and the understandings of the parties.
Section 25. ACTIONS AGAINST LENDER. Any action brought by the PLEDGOR
against the LENDER which is based, directly or indirectly, upon this PLEDGE
AGREEMENT or any matter related to this PLEDGE AGREEMENT or any action taken by
the LENDER in enforcing or construing this PLEDGE AGREEMENT shall be brought
only in the courts of the State of Maryland. The PLEDGOR agrees that any forum
other than the State of Maryland is an inconvenient forum and that
11
<PAGE>
a suit brought by the PLEDGOR against the LENDER in a court of any state other
than the State of Maryland should be forthwith dismissed or transferred to a
court located in the State of Maryland by that court.
Section 26. WAIVER OF TRIAL BY JURY. The PLEDGOR and the LENDER, by
their execution and acceptance, respectively, of this PLEDGE AGREEMENT, agree
that any suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party on or
with respect to this PLEDGE AGREEMENT or which in any way relates, directly or
indirectly, to this PLEDGE AGREEMENT or any event, transaction, or occurrence
arising out of or in any way connected with this PLEDGE AGREEMENT, or the
dealings of the parties with respect thereto, shall be tried only by a court and
not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY SUCH SUIT, ACTION, OR PROCEEDING.
IN WITNESS WHEREOF, the parties have duly executed this PLEDGE
AGREEMENT under seal as of the date first above written.
WITNESS/ATTEST: THE PLEDGOR:
IMTEK OFFICE SOLUTIONS, INC.,
A Delaware Corporation
By: (Seal)
-----------------------------
Robert W. Hoover, President
Date: July ____, 1999
12
<PAGE>
ACKNOWLEDGMENT OF ISSUERS
Imtek Acquisition Corporation, Imtek Corporation, and Imtek Services
Corporation (collectively, "CORPORATIONS") each acknowledge this first day of
July, 1999, the receipt of an executed copy of the Stock Pledge Agreement
("AGREEMENT") of even date herewith from Imtek Office Solutions, Inc., a
Delaware corporation ("PLEDGOR"), for the benefit of THE PROVIDENT BANK, an Ohio
chartered banking institution, and agree to evidence such receipt and
acknowledgment upon their stock registries and books and records. Each of the
CORPORATIONS further agrees not to make any payments or to take any actions
which would cause the PLEDGOR to be in violation of the terms of the AGREEMENT,
or which would otherwise not be in compliance with the AGREEMENT.
WITNESS/ATTEST: IMTEK ACQUISITION CORPORATION,
A Maryland Corporation
By: /S/ ROBERT W. HOOVER (SEAL)
-----------------------------------------
Robert W. Hoover, Vice President
Date: July 1, 1999
IMTEK CORPORATION,
A Maryland Corporation
By: /S/ ROBERT W. HOOVER (SEAL)
----------------------------------------
Robert W. Hoover, Vice President
Date: July 1, 1999
IMTEK SERVICES CORPORATION,
A Maryland Corporation
By: /S/ ROBERT W. HOOVER (SEAL)
---------------------------------------
Robert W. Hoover, Vice President
Date: July 1, 1999
13
<PAGE>
EXHIBIT 10.10.5
STOCK PLEDGE AGREEMENT
(Stock In Imtek Funding Corporation
and Imtek Capital Corporation))
THIS STOCK PLEDGE AGREEMENT ("PLEDGE AGREEMENT") is made this first day
of July, 1999, by IMTEK SERVICES CORPORATION, a Maryland corporation
("PLEDGOR"), for the benefit of THE PROVIDENT BANK, an Ohio chartered banking
institution ("LENDER").
RECITALS
Imtek Corporation (AIMTEK@) and Barbera Business Systems, Inc.
(ABARBERA@) have requested that the LENDER provide them with certain credit
accommodations. As a condition precedent to the extension of the requested
credit accommodations, the LENDER has required that the PLEDGOR guaranty the
obligations of IMTEK and secure such guaranty and the credit accommodations to
be provided to the PLEDGOR with a pledge of certain collateral, including but
not limited to the assets of the PLEDGOR which are being pledged by the PLEDGOR
pursuant to the terms of this PLEDGE AGREEMENT. The PLEDGOR has executed and
delivered this PLEDGE AGREEMENT in order to induce the LENDER to provide such
credit accommodations.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the PLEDGOR agrees as follows:
Section 1. DEFINITIONS. As used in this PLEDGE AGREEMENT, the following
terms have the following meanings. Terms defined in this Section 1 or elsewhere
in this PLEDGE AGREEMENT are in all capital letters throughout this PLEDGE
AGREEMENT. The singular use of any defined term includes the plural and the
plural use includes the singular.
Section 1.1. ACCOUNTS, CHATTEL PAPER, DOCUMENTS, FINANCIAL
ASSETS, GENERAL INTANGIBLES, INSTRUMENTS, INVESTMENT PROPERTY, SECURITIES
ACCOUNT AND SECURITY ENTITLEMENTS. The terms "ACCOUNTS," "CHATTEL PAPER,"
"DOCUMENTS," "GENERAL INTANGIBLES," and "INSTRUMENTS" shall have the same
respective meanings as are given to those terms in Maryland Uniform Commercial
Code - Secured Transactions, Title 9 (Michie 1992 Repl. Vol.). The terms
"FINANCIAL ASSETS," "INVESTMENT PROPERTY," "SECURITIES ACCOUNT," and "SECURITY
ENTITLEMENTS" shall have the same respective meanings as are given to the terms
in Maryland Uniform Commercial Code - Investment Securities, Title 8, and
- -Secured Transactions, Title 9 (Michie 1992 Repl. Vol.).
Section 1.2. BORROWERS. The term "BORROWERS" means
collectively IMTEK and BARBERA.
Section 1.3. COLLATERAL. The term "COLLATERAL" collectively
means: (a) the PLEDGED STOCK and the proceeds, profits, and products of the
PLEDGED STOCK; (b) all dividends (cash and stock) and distributions of any
1
<PAGE>
kind made from time to time with respect to the PLEDGED STOCK or which arise as
a result of the ownership of the PLEDGED STOCK; (c) all certificates
representing the PLEDGED STOCK and certificates representing any subsequent
stock dividends or other distributions of stock paid or made in connection with
the PLEDGED STOCK; (d) all distributions of cash or stock made or arising from
any increase or reduction of capital, reclassification, merger, consolidation,
stock split or other transactions involving the CORPORATION or the PLEDGED
STOCK; (e) all options, warrants or rights of the PLEDGOR with respect to the
CORPORATION and/or the PLEDGED STOCK, whether as an addition to or in
substitution or in exchange for the PLEDGED STOCK; (f) all ACCOUNTS, CHATTEL
PAPER, CONTRACT RIGHTS, DOCUMENTS, FINANCIAL ASSETS, GENERAL INTANGIBLES,
INSTRUMENTS, INVESTMENT PROPERTY, SECURITIES ACCOUNTS, and SECURITY ENTITLEMENTS
of the PLEDGOR which arise out of or relate in any respect to the PLEDGED STOCK
or the ownership by the PLEDGOR of the PLEDGED STOCK; (g) the products and
proceeds of all of the foregoing; and (h) all RECORDS relating or pertaining to
any of the foregoing.
Section 1.4. CORPORATIONS. The term "CORPORATIONS" means collectively
Imtek Funding Corporation, a Maryland corporation, and Imtek Capital
Corporation, a Maryland corporation.
Section 1.5. EVENTS OF DEFAULT. The term "EVENTS OF DEFAULT"
collectively means the occurrence of any AEVENT OF DEFAULT,@ as such term is
defined in the LOAN AGREEMENT and in the GUARANTY.
Section 1.6. GOVERNMENTAL AUTHORITY. The term "GOVERNMENTAL AUTHORITY"
means any nation or government, any state or other political subdivision thereof
and any municipality, court or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
Section 1.7. GUARANTY. The term "GUARANTY" means the Secured Guaranty
Agreement of even date herewith from the PLEDGOR, and various other guarantors
parties thereto, for the benefit of the LENDER, as amended from time to time.
Section 1.8. LAWS. The term "LAWS" means all ordinances, statutes,
rules, regulations, orders, injunctions, writs or decrees of any GOVERNMENTAL
AUTHORITY.
Section 1.9. LOAN AGREEMENT. The term "LOAN AGREEMENT" means the Loan
And Security Agreement between the BORROWERS and the LENDER of even date
herewith, as amended from time to time.
Section 1.10. OBLIGATIONS. The term "OBLIGATIONS" shall have the same
meaning as given to that term in the GUARANTY.
Section 1.11. PERSON. The term "PERSON" means any individual,
corporation, partnership, limited liability company, association, joint-stock
company, trust, business trust, unincorporated organization, joint venture,
court, or GOVERNMENTAL AUTHORITY.
Section 1.12. PLEDGED STOCK. The term "PLEDGED STOCK" means all shares
of stock of the CORPORATIONS owned by the PLEDGOR and all additional
2
<PAGE>
shares of stock in the CORPORATIONS acquired by the PLEDGOR from time to time
together with all rights, options, and issuances therefrom, including but not
limited to 100 shares of the common stock of Imtek Funding Corporation, as
evidenced by Certificate No. 1, and 1,000 shares of the common stock of Imtek
Capital Corporation, as evidenced by Certificate No. 1.
Section 1.13. RECORDS. The term "RECORDS" means correspondence,
memoranda, tapes, discs, papers, books and other documents, or transcribed
information of any type, whether expressed in ordinary, computer or machine
language.
Section 2. PLEDGE; GRANT OF SECURITY INTERESTS AND LIENS. In order to
secure the payment and performance of the OBLIGATIONS when and as due, the
PLEDGOR hereby assigns, grants and pledges to the LENDER a continuing security
interest, pledge and lien in and to all of the COLLATERAL, whether now owned or
hereafter acquired by the PLEDGOR, together with all substitutions,
replacements, renewals, products and proceeds thereof. Future advances are
secured.
Section 3. DELIVERY OF CERTIFICATES. Except as may be otherwise agreed
to by the LENDER, the PLEDGOR shall deliver to the LENDER all of the
certificates representing the PLEDGED STOCK, together with stock powers duly
executed in blank by the PLEDGOR in accordance with the terms and purposes of
this PLEDGE AGREEMENT.
Section 4. FUTURE RECEIPT OF COLLATERAL. Except as expressly authorized
to the contrary by the terms of this PLEDGE AGREEMENT or as otherwise agreed to
by the LENDER, the PLEDGOR shall accept as the agent and in trust for the LENDER
all COLLATERAL received by the PLEDGOR after the date of this PLEDGE AGREEMENT,
and shall promptly deliver all of such COLLATERAL to the LENDER.
Section 5. VOTING RIGHTS; RIGHTS INCIDENTAL TO COLLATERAL. Until the
occurrence of any EVENT OF DEFAULT and the written election of the LENDER
described below, the PLEDGOR shall retain all voting rights with respect to the
PLEDGED STOCK, not inconsistent with the terms of this PLEDGE AGREEMENT, and,
for that purpose, the LENDER shall execute and deliver to the PLEDGOR any
necessary proxies. Immediately upon the occurrence of an EVENT OF DEFAULT and
without regard as to whether the PLEDGED STOCK has been registered in the names
of the LENDER or the nominee of the LENDER, the LENDER shall have the right (but
not the obligation) to make a written election to exercise all voting rights as
to the PLEDGED STOCK, together with all conversion, exchange, subscription or
other rights, privileges or options pertaining thereto as if the LENDER were the
absolute owner thereof, including, without limitation, the right to exchange any
or all of the PLEDGED STOCK upon the merger, consolidation, reorganization,
recapitalization or other readjustment of either of the CORPORATIONS, or upon
the exercise by either of the CORPORATIONS of any right, privilege, or option
pertaining to the PLEDGED STOCK, and, in connection therewith, to deliver any of
the PLEDGED STOCK to any committee, depository, transfer agent, registrar or
other designated agency upon such terms and conditions as the LENDER may
determine to be appropriate, all without liability except to account for
property actually received by the LENDER or the nominee of the LENDER. The
LENDER shall have no duty to exercise any of the aforesaid rights, privileges
3
<PAGE>
or options. The LENDER shall not be deemed or construed to have exercised any
voting rights with respect to the PLEDGED STOCK unless and until the LENDER has
made the above-described written election to exercise such voting rights.
Section 6. CASH DIVIDENDS AND CASH DISTRIBUTIONS. All cash dividends
and cash distributions made upon the PLEDGED STOCK shall be paid to the PLEDGOR
until the occurrence of an EVENT OF DEFAULT except to the extent otherwise
prohibited by the terms and conditions of the LOAN AGREEMENT or the GUARANTY or
any other agreements between the LENDER and any of the BORROWERS, the PLEDGOR,
or the CORPORATIONS. During the continuance of any EVENT OF DEFAULT, all cash
dividends and cash distributions shall be paid to the LENDER, and if any such
dividends or distributions are paid to the PLEDGOR, the PLEDGOR shall accept the
same as the LENDER'S agent, in trust for the LENDER, and shall deliver such
dividends or distributions forthwith to the LENDER in exactly the form received
with, as applicable, the PLEDGOR'S endorsement thereon. During the continuance
of any EVENT OF DEFAULT, all cash dividends, cash distributions, and other
distributions paid with respect to the PLEDGED STOCK shall be applied to the
repayment of the OBLIGATIONS, in such order of application as the LENDER
determines, regardless of when the amounts due upon the OBLIGATIONS mature and
are due and payable.
Section 7. WARRANTIES AND REPRESENTATIONS. The PLEDGOR represents and
warrants to the LENDER that:
Section 7.1. AUTHORITY. The PLEDGOR has, and has duly exercised,
all requisite power and authority to enter into this PLEDGE AGREEMENT, to pledge
the PLEDGED STOCK for the purposes described herein and to carry out the
transactions contemplated by this PLEDGE AGREEMENT.
Section 7.2. OWNERSHIP. The PLEDGOR is the sole legal and
beneficial owner of the shares of PLEDGED STOCK set forth below, which shares of
PLEDGED STOCK constitute one hundred percent (100%) of the issued and
outstanding common stock of each of the CORPORATIONS. The PLEDGOR is the
registered owner of such PLEDGED STOCK.
IMTEK FUNDING CORPORATION:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Certificate Number Of Date Of
Number Shares Issue
1 100 01/01/98
IMTEK CAPITAL CORPORATION:
Certificate Number Of Date Of
Number Shares Issue
1 1,000 06/23/98
</TABLE>
Section 7.3. STATUS OF PLEDGED STOCK. All of the shares of the PLEDGED
STOCK currently outstanding have been duly and validly issued, are
4
<PAGE>
fully paid and nonassessable, and are owned by the PLEDGOR free of any pledge,
mortgage, hypothecation, lien, charge, encumbrance or security interest in such
shares or the proceeds thereof, except for the security interests and pledges
granted herein, and a pledge to FINOVA Mezzanine Capital Inc. f/k/a Sirrom
Capital Corporation which is subordinated in all respects to the pledge to the
LENDER contained herein.
Section 7.4. NO VIOLATION OF RESTRICTIONS. The execution and
delivery of this PLEDGE AGREEMENT by the PLEDGOR and the consent by the
CORPORATIONS thereto, and the performance of this PLEDGE AGREEMENT in accordance
with its stated terms, will not result in any violation of any provision of the
Charters or Bylaws of the PLEDGOR or of the CORPORATIONS, or violate or
constitute a default under the terms of any agreement, restrictive shareholder's
agreement, indenture or other instrument, license, judgment, decree, order, or
LAWS applicable to the PLEDGOR, the CORPORATIONS, the PLEDGED STOCK, or any of
the property of the PLEDGOR or the CORPORATIONS.
Section 7.5. APPROVALS. No approvals, consents, orders,
authorizations, or licenses are required from any PERSON or GOVERNMENTAL
AUTHORITY for the execution and delivery by the PLEDGOR of this AGREEMENT and
the consummation of the transactions described herein.
Section 7.6. RESTRICTIONS. There are no restrictions upon
the voting rights or upon the transfer of any of the PLEDGED STOCK other than as
physically appear upon the face of the certificates evidencing the PLEDGED
STOCK.
Section 7.7. VALID AND BINDING OBLIGATION. This PLEDGE
AGREEMENT is the valid and binding obligation of the PLEDGOR, fully enforceable
in accordance with all stated terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect generally affecting creditors' rights, and subject to
general equity principles.
Section 8. NO DUTIES OTHER THAN CUSTODIAL DUTIES. The LENDER
shall have no duty with respect to any of the COLLATERAL other than the duty to
use reasonable care in maintaining the safe physical custody of the certificates
evidencing the PLEDGED STOCK.
Section 9. NO OBLIGATION TO MONITOR COLLATERAL. The LENDER
shall have no duty or responsibility for collecting or receiving any amounts
payable on or with respect to the PLEDGED STOCK or any of the other COLLATERAL
or for ascertaining, monitoring, or enforcing any maturities, calls,
conversions, exchanges, offers, tenders, or similar matters relating to the
PLEDGED STOCK or any of the other COLLATERAL or for informing the PLEDGOR with
respect to any of such matters. The LENDER shall have no liability to the
PLEDGOR for any decline in the value of the PLEDGED STOCK which may occur while
the COLLATERAL is subject to the terms of this PLEDGE AGREEMENT. The PLEDGOR
represents to the LENDER that the PLEDGOR has made its own arrangements for
keeping informed of changes or potential changes affecting the COLLATERAL,
including, but not limited to, rights to convert, rights to subscribe, payment
of dividends, reorganization or other exchanges, tender offers and voting
rights.
5
<PAGE>
Section 10. NO OBLIGATION TO PRESERVE RIGHTS. The LENDER shall be
under no obligation to take any steps to preserve rights or privileges in or to
the COLLATERAL against any PERSON.
Section 11. COVENANTS OF PLEDGOR. The PLEDGOR agrees that, until all of
the OBLIGATIONS have been paid, performed and satisfied in full, the PLEDGOR, in
addition to the covenants of the PLEDGOR set forth in the GUARANTY, will comply
with each of the following covenants:
Section 11.1. NO TRANSFERS. The PLEDGOR will not sell, convey, or
otherwise dispose of any of the COLLATERAL or any interest therein, or create,
incur, or permit to exist any pledge, mortgage, lien, charge, encumbrance or any
security interest whatsoever in or with respect to any of the COLLATERAL or the
proceeds thereof, except as may be expressly consented to by the LENDER in
writing.
Section 11.2. WARRANT TITLE. The PLEDGOR will, at the PLEDGOR'S sole
expense, warrant and defend the right, title, special property and security
interests and pledges of the LENDER in and to the COLLATERAL against the claims
of any PERSON, firm, the CORPORATIONS, or other entity.
Section 11.3. NO ADDITIONAL SHARES. The PLEDGOR will not consent to or
approve the issuance of any additional shares of any class of capital stock in
the CORPORATIONS or any securities convertible voluntarily by the holder thereof
or automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such shares; or any warrants, options, rights, or
other commitments entitling any person to purchase or otherwise acquire any such
shares.
Section 11.4. DELIVERY OF NOTICES CONCERNING COLLATERAL. The PLEDGOR
agrees to promptly forward to the LENDER, copies of any written notices or other
communications received by the PLEDGOR which relate or pertain to the
COLLATERAL.
Section 11.5. FURTHER ASSURANCES AND POWER OF ATTORNEY. The PLEDGOR
shall execute and delivery from time to time such writings, and documents which,
in the reasonable opinion of the LENDER or the LENDER'S counsel, may be
necessary to perfect, confirm, establish, reestablish, continue, or complete the
security interests, pledges and liens of the LENDER in the COLLATERAL, it being
the intention of the PLEDGOR to provide hereby a full and absolute warranty of
further assurance to the LENDER. If the PLEDGOR fails to execute any such
document within five (5) business days of being requested to do so by the
LENDER, the PLEDGOR hereby appoints the LENDER or any officer of the LENDER as
the PLEDGOR'S attorney in fact for purposes of executing such documents in the
PLEDGOR'S name, place and stead, which power of attorney shall be considered as
coupled with an interest and irrevocable.
Section 11.6. COOPERATION WITH ENFORCEMENT ACTIVITIES. The PLEDGOR,
upon the occurrence of an EVENT OF DEFAULT and the written request therefor by
the LENDER, will promptly execute and deliver to the LENDER such documents,
letters, or written representations as may reasonably be requested by the LENDER
or any broker, from time to time in order to accomplish the
6
<PAGE>
sale of all or any part of the COLLATERAL, including but not limited to, all
forms and documents required under any applicable LAWS.
Section 12. WAIVERS. No course of dealing between the PLEDGOR and the
LENDER, nor any failure to exercise, nor any delay in exercising, any right,
power or privilege of the LENDER hereunder or under any other agreement between
the PLEDGOR and the LENDER, or under any agreement between the LENDER and the
CORPORATIONS, shall operate as a waiver of any term or condition of this PLEDGE
AGREEMENT; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
Section 13. SALE OF COLLATERAL.
Section 13.1. TERMS OF SALE. In addition to all other rights and
remedies available to the LENDER pursuant to any other agreements with the
PLEDGOR or as otherwise provided by applicable LAWS, the LENDER, may upon the
occurrence of an EVENT OF DEFAULT sell or otherwise dispose of and deliver all
or any portion of the PLEDGED STOCK, in one or more parcels, at public or
private sale or sales, at any exchange, broker's board or at any location
selected by the LENDER, at such prices and on such terms as the LENDER may deem
best for cash or on credit, or for future delivery without assumption of any
credit risk. Any such sale shall be in compliance with all applicable LAWS. Any
purchaser of the PLEDGED STOCK, including the LENDER, shall purchase the PLEDGED
STOCK in whole or in part free of any right or equity of redemption in the
PLEDGOR, which right or equity is hereby expressly waived and released by the
PLEDGOR, to the extent permitted by applicable LAWS. The PLEDGOR acknowledges
that the terms of sale for the PLEDGED STOCK may include: (a) a requirement that
the PLEDGED STOCK be sold to only one individual purchaser for such purchaser's
own account and not as a representative of any purchaser; (b) a requirement that
any purchaser of all or any part of the PLEDGED STOCK represent in writing that
such purchase is purchasing the shares constituting the PLEDGED STOCK for
investment purposes only and without any intention to make a distribution
thereof; (c) a requirement that the certificates for any PLEDGED STOCK bear a
legend to the effect that the stock may not be resold without compliance with
applicable federal and state securities laws; and (d) a requirement that any
purchaser of the PLEDGED STOCK make such representations and warranties to the
LENDER as deemed necessary by the LENDER.
Section 13.2. DELAYS IN SALE; PRIVATE SALES. The PLEDGOR acknowledges
that it will be commercially reasonable for the LENDER to: (a) defer disposing
of all or any portion of the PLEDGED STOCK after an EVENT OF DEFAULT has
occurred for as long as the CORPORATIONS or the LENDER may require to comply
with any requirements of applicable LAWS, notwithstanding the fact that the
value of the PLEDGED STOCK may decline during the time that disposition is
deferred; and (b) sell all or any part of the PLEDGED STOCK at private sale,
subject to investment letter or in any other manner which will not require the
PLEDGED STOCK, or any part thereof, to be registered in accordance with the
SECURITIES ACT OF 1933, as amended, or the rules and regulations promulgated
thereunder, or any other applicable LAW. The PLEDGOR acknowledges that the
LENDER may, in the LENDER'S sole and absolute discretion, approach a restricted
number of potential purchasers and that a sale under such circumstances may
yield a lower price for the PLEDGED STOCK
7
<PAGE>
or any portions thereof than would otherwise be obtainable if the PLEDGED STOCK
were registered and sold in the open market. The PLEDGOR acknowledges that a
private sale of the PLEDGED STOCK would be a commercially reasonable sale.
Section 13.3. LIQUIDATION AS AN ALTERNATIVE TO SALE. As an alternative
to public or private sale of the PLEDGED STOCK, the LENDER may, in the LENDER'S
sole and absolute discretion, elect to dispose of the PLEDGED STOCK after an
EVENT OF DEFAULT by causing either or both of the CORPORATIONS to dissolve,
liquidate, and make liquidating distributions to its stockholders, and such
dissolution and liquidation are hereby acknowledged to be a commercially
reasonable manner of disposing of the PLEDGED STOCK.
Section 13.4. APPLICATION OF PROCEEDS OF DISPOSITION. The proceeds
from any sale or from any other disposition of the COLLATERAL shall be applied
as follows:
a. FIRST, to the costs and expenses incurred in connection with
the sale or disposition of the COLLATERAL, including but not limited to all
costs incurred in the care or safekeeping of the COLLATERAL, reasonable
attorneys' fees, broker's commissions, appraiser's fees and other expenses
incurred by the LENDER.
b. SECOND, to the satisfaction of the OBLIGATIONS regardless of
when the amounts due upon the OBLIGATIONS mature and are due and payable,
c. THIRD, to the payment of any other amounts required by
applicable LAWS (including, without limitation the requirements of Md. Code
Ann., Commercial Law I ' 9-504(1)(c) (Michie 1992 Repl. Vol.).
d. FOURTH, to the PLEDGOR to the extent of any surplus proceeds.
Section 13.5. NOTICE; PROCEDURES OF SALE. The LENDER need not give more
than twenty (20) business days notice of the time and place of any public sale
or of the time after which a private sale of any or all of the COLLATERAL may
take place, which notice the PLEDGOR hereby agrees to be commercially
reasonable. The LENDER shall be entitled to purchase any or all of the
COLLATERAL in any sale in the name or names of the LENDER, or in the name of any
designee or nominee of the LENDER. In connection with any sale or transfer of
any or all of the COLLATERAL, the nominee of the LENDER shall have the right to
execute any document or form, in the name of the LENDER or in the name of the
PLEDGOR, which may be necessary or desirable in order to implement such sale,
including without limitation any forms required pursuant to RULE 144 promulgated
by the Securities And Exchange Commission. The PLEDGOR hereby agrees to
cooperate fully with the LENDER in order to permit the LENDER to sell, at
foreclosure or other private sale, any or all of the COLLATERAL in compliance
with all applicable LAWS.
Section 14. REMEDIES AND RIGHTS CUMULATIVE. The rights and remedies
provided in this PLEDGE AGREEMENT and in the GUARANTY or otherwise provided by
any other agreement between the PLEDGOR and the LENDER shall be cumulative, and
the exercise of any particular right or remedy shall not preclude the exercise
of any other rights or remedies.
8
<PAGE>
Section 15. INVALIDITY OF ANY PART. If any provision or part of any
provision of this PLEDGE AGREEMENT shall for any reason be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions or the remaining part of
any effective provisions of this PLEDGE AGREEMENT, and this PLEDGE AGREEMENT
shall be construed as if such invalid, illegal, or unenforceable provision or
part thereof had never been contained herein, but only to the extent of its
invalidity, illegality, or unenforceability.
Section 16. AMENDMENT OR WAIVER. This PLEDGE AGREEMENT may be amended
only by a writing duly executed by the PLEDGOR and by the LENDER. No waiver by
the LENDER of any of the provisions of this PLEDGE AGREEMENT or of any of the
rights or remedies of the LENDER with respect hereto shall be considered
effective or enforceable unless in writing.
Section 17. FEES AND EXPENSES; INDEMNIFICATION. The PLEDGOR shall pay
all fees, expenses, costs and charges, including reasonable attorney's fees,
which may be incurred by the LENDER in connection with enforcing any term or
provision of this PLEDGE AGREEMENT. The PLEDGOR shall indemnify and hold the
LENDER harmless from and against, and reimburse the LENDER with respect to, any
and all loss, damage, liability, cost or expense (including reasonable
attorneys' fees) incurred by the LENDER from time to time which in any manner
relate or pertain to this PLEDGE AGREEMENT and the actions and transactions
contemplated herein. The foregoing indemnification obligation shall include, but
is not limited to, indemnification of the LENDER with respect to all claims
brought against the LENDER based upon allegations that any prospectus,
memorandum or other disclosure document furnished to the purchaser of any of the
COLLATERAL contains any untrue or allegedly untrue statement of a material fact
which statement is derived from statements or representations made by the
PLEDGOR.
Section 18. NOTICES. Any notice required or permitted by or in
connection with this AGREEMENT shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the LENDER or the PLEDGOR at the appropriate address set forth
below or to such other address as may be hereafter specified by written notice
by the LENDER or the PLEDGOR. Notice shall be considered given as of the date of
the facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3) calendar
days after the date of mailing, independent of the date of actual delivery or
whether delivery is ever in fact made, as the case may be, provided the giver of
notice can establish the fact that notice was given as provided herein. If
notice is tendered pursuant to the provisions of this Section and is refused by
the intended recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
9
<PAGE>
If to the LENDER:
THE PROVIDENT BANK
One E. Fourth Street
Cincinnati, Ohio 45202
Attn: Barry Peterson, Vice President
Facsimile: (513) 763-8069
And to:
THE PROVIDENT BANK
1340 Smith Avenue, Suite 200
Baltimore, Maryland 21209
Attn: J. David Kommalan, Vice President
Facsimile: (410) 779-1337
If to the PLEDGOR:
IMTEK SERVICES CORPORATION
8003 Corporate Drive, Suite C
Baltimore, MD 21236
Attn: Brad C. Thompson, Chief Financial Officer
Facsimile: (410) 931-2731
With A Courtesy Copy To:
MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.
7 St. Paul Street, Suite 1000
Baltimore, Maryland 21202-1626
Attn.: Patrick M. Shelley, Esquire
Fax No.: (410) 659-4599
The failure of the LENDER to send the above courtesy copy shall not impair the
effectiveness of notice given to the PLEDGOR in the manner provided herein.
Section 19. BINDING EFFECT. This PLEDGE AGREEMENT shall inure to the
benefit of and shall be binding upon the respective heirs, successors and
assigns of the parties hereto.
Section 20. CHOICE OF LAW. The laws of the State of Maryland
(excluding, however, conflict of law principles) shall govern and be applied to
determine all issues relating to this PLEDGE AGREEMENT and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this PLEDGE AGREEMENT and its various
provisions and the consequences and legal effect of all transactions and events
which resulted in the execution of this PLEDGE AGREEMENT or which occurred or
were to occur as a direct or indirect result of this PLEDGE AGREEMENT having
been executed.
Section 21. CONSENT TO JURISDICTION; AGREEMENT AS TO VENUE. The PLEDGOR
irrevocably consents to the non-exclusive jurisdiction of the courts of the
State of Maryland and, if a basis for federal jurisdiction exists, of the United
States District Court For The District Of Maryland. The PLEDGOR
10
<PAGE>
agrees that venue shall be proper in any circuit court of the State of Maryland
selected by the LENDER or in the United States District Court For The District
Of Maryland if a basis for federal jurisdiction exists and waives any right to
object to the maintenance of a suit in any of the state or federal courts of the
State of Maryland on the basis of improper venue or of inconvenience of forum.
Section 22. PHOTOCOPIES SUFFICIENT. The PLEDGOR agrees that the LENDER
may record photographic or carbon copies of this PLEDGE AGREEMENT or any
financing statement executed by the PLEDGOR in connection with this transaction,
and that such copies shall be as fully effective and valid as original
documents.
Section 23. NUMBER, GENDER AND CAPTIONS. As used herein, the singular
shall include the plural and the plural may refer to only the singular. The use
of any gender shall be applicable to all genders. The captions contained herein
are for purposes of convenience only and are not a part of this PLEDGE
AGREEMENT.
Section 24. FINAL AGREEMENT. This PLEDGE AGREEMENT contains the final
and entire understanding of the parties relating to the pledge and assignment of
the PLEDGED STOCK and any terms and conditions not set forth in this PLEDGE
AGREEMENT relating to the pledge and assignment of the PLEDGED STOCK are not a
part of this PLEDGE AGREEMENT and the understandings of the parties.
Section 25. ACTIONS AGAINST LENDER. Any action brought by the PLEDGOR
against the LENDER which is based, directly or indirectly, upon this PLEDGE
AGREEMENT or any matter related to this PLEDGE AGREEMENT or any action taken by
the LENDER in enforcing or construing this PLEDGE AGREEMENT shall be brought
only in the courts of the State of Maryland. The PLEDGOR agrees that any forum
other than the State of Maryland is an inconvenient forum and that a suit
brought by the PLEDGOR against the LENDER in a court of any state other than the
State of Maryland should be forthwith dismissed or transferred to a court
located in the State of Maryland by that court.
Section 26. WAIVER OF TRIAL BY JURY. The PLEDGOR and the LENDER, by
their execution and acceptance, respectively, of this PLEDGE AGREEMENT, agree
that any suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party on or
with respect to this PLEDGE AGREEMENT or which in any way relates, directly or
indirectly, to this PLEDGE AGREEMENT or any event, transaction, or occurrence
arising out of or in any way connected with this PLEDGE AGREEMENT, or the
dealings of the parties with respect thereto, shall be tried only by a court and
not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY SUCH SUIT, ACTION, OR PROCEEDING.
IN WITNESS WHEREOF, the parties have duly executed this PLEDGE
AGREEMENT under seal as of the date first above written.
WITNESS/ATTEST: THE PLEDGOR:
IMTEK SERVICES CORPORATION,
A Maryland Corporation
By: (SEAL)
-------------------------------
Robert W. Hoover, Vice President
Date: July 1, 1999
11
<PAGE>
ACKNOWLEDGMENT OF ISSUERS
Imtek Funding Corporation and Imtek Capital Corporation (collectively,
ACORPORATIONS@) each acknowledge this first day of July, 1999, the receipt of an
executed copy of the Stock Pledge Agreement ("AGREEMENT") of even date herewith
from Imtek Services Corporation, a Maryland corporation ("PLEDGOR"), for the
benefit of THE PROVIDENT BANK, an Ohio chartered banking institution, and agree
to evidence such receipt and acknowledgment upon their respective stock
registries and books and records. The CORPORATIONS further agree not to make any
payments or to take any actions which would cause the PLEDGOR to be in violation
of the terms of the AGREEMENT, or which would otherwise not be in compliance
with the AGREEMENT.
WITNESS/ATTEST: IMTEK FUNDING CORPORATION,
A Maryland Corporation
By: /S/ ROBERT W. HOOVER (SEAL)
----------------------------------
Robert W. Hoover, President
Date: July 1, 1999
IMTEK CAPITAL CORPORATION,
A Maryland Corporation
By: /S/ ROBERT W. HOOVER (SEAL)
---------------------------------
Robert W. Hoover, Vice President
Date: July 1, 1999
12
<PAGE>
EXHIBIT 10.10.6
STOCK PLEDGE AGREEMENT
(Stock In Barbera Business Systems, Inc.)
THIS STOCK PLEDGE AGREEMENT ("PLEDGE AGREEMENT") is made this first day
of July, 1999, by IMTEK ACQUISITION CORPORATION, a Maryland corporation
("PLEDGOR"), for the benefit of THE PROVIDENT BANK, an Ohio chartered banking
institution ("LENDER").
RECITALS
Imtek Corporation (AIMTEK@) and Barbera Business Systems, Inc.
(ABARBERA@) have requested that the LENDER provide them with certain credit
accommodations. As a condition precedent to the extension of the requested
credit accommodations, the LENDER has required that the PLEDGOR guaranty the
obligations of IMTEK and BARBERA and secure such guaranty with a pledge of
certain collateral, including but not limited to the assets of the PLEDGOR which
are being pledged by the PLEDGOR pursuant to the terms of this PLEDGE AGREEMENT.
The PLEDGOR has executed and delivered this PLEDGE AGREEMENT in order to induce
the LENDER to provide such credit accommodations.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the PLEDGOR agrees as follows:
Section 1. DEFINITIONS. As used in this PLEDGE AGREEMENT, the following
terms have the following meanings. Terms defined in this Section 1 or elsewhere
in this PLEDGE AGREEMENT are in all capital letters throughout this PLEDGE
AGREEMENT. The singular use of any defined term includes the plural and the
plural use includes the singular.
Section 1.1. ACCOUNTS, CHATTEL PAPER, DOCUMENTS, FINANCIAL
ASSETS, GENERAL INTANGIBLES, INSTRUMENTS, INVESTMENT PROPERTY, SECURITIES
ACCOUNT AND SECURITY ENTITLEMENTS. The terms "ACCOUNTS," "CHATTEL PAPER,"
"DOCUMENTS," "GENERAL INTANGIBLES," and "INSTRUMENTS" shall have the same
respective meanings as are given to those terms in Maryland Uniform Commercial
Code - Secured Transactions, Title 9 (Michie 1992 Repl. Vol.). The terms
"FINANCIAL ASSETS," "INVESTMENT PROPERTY," "SECURITIES ACCOUNT," and "SECURITY
ENTITLEMENTS" shall have the same respective meanings as are given to the terms
in Maryland Uniform Commercial Code - Investment Securities, Title 8, and
- -Secured Transactions, Title 9 (Michie 1992 Repl. Vol.).
Section 1.2. BORROWERS. The term "BORROWERS" means collectively
IMTEK and BARBERA.
Section 1.3. COLLATERAL. The term "COLLATERAL" collectively
means: (a) the PLEDGED STOCK and the proceeds, profits, and products of the
PLEDGED STOCK; (b) all dividends (cash and stock) and distributions of any kind
made from time to time with respect to the PLEDGED STOCK or which arise as a
result of the ownership of the PLEDGED STOCK; (c) all certificates
1
<PAGE>
representing the PLEDGED STOCK and certificates representing any subsequent
stock dividends or other distributions of stock paid or made in connection with
the PLEDGED STOCK; (d) all distributions of cash or stock made or arising from
any increase or reduction of capital, reclassification, merger, consolidation,
stock split or other transactions involving the CORPORATION or the PLEDGED
STOCK; (e) all options, warrants or rights of the PLEDGOR with respect to the
CORPORATION and/or the PLEDGED STOCK, whether as an addition to or in
substitution or in exchange for the PLEDGED STOCK; (f) all ACCOUNTS, CHATTEL
PAPER, CONTRACT RIGHTS, DOCUMENTS, FINANCIAL ASSETS, GENERAL INTANGIBLES,
INSTRUMENTS, INVESTMENT PROPERTY, SECURITIES ACCOUNTS, and SECURITY ENTITLEMENTS
of the PLEDGOR which arise out of or relate in any respect to the PLEDGED STOCK
or the ownership by the PLEDGOR of the PLEDGED STOCK; (g) the products and
proceeds of all of the foregoing; and (h) all RECORDS relating or pertaining to
any of the foregoing.
Section 1.4. CORPORATION. The term "CORPORATION" means Barbera
Business Systems, Inc., a Maryland corporation.
Section 1.5. EVENTS OF DEFAULT. The term "EVENTS OF DEFAULT" means the
occurrence of any AEVENT OF DEFAULT,@ as such term is defined in the GUARANTY.
Section 1.6. GOVERNMENTAL AUTHORITY. The term "GOVERNMENTAL AUTHORITY"
means any nation or government, any state or other political subdivision thereof
and any municipality, court or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
Section 1.7. GUARANTY. The term "GUARANTY" means the Secured Guaranty
Agreement of even date herewith from the PLEDGOR, and various other guarantors
parties thereto, for the benefit of the LENDER, as amended from time to time.
Section 1.8. LAWS. The term "LAWS" means all ordinances, statutes,
rules, regulations, orders, injunctions, writs or decrees of any GOVERNMENTAL
AUTHORITY.
Section 1.9. LOAN AGREEMENT. The term "LOAN AGREEMENT" means the Loan
And Security Agreement between the BORROWERS and the LENDER of even date
herewith, as amended from time to time.
Section 1.10. OBLIGATIONS. The term "OBLIGATIONS" shall have the same
meaning as given to that term in the GUARANTY.
Section 1.11. PERSON. The term "PERSON" means any individual,
corporation, partnership, limited liability company, association, joint-stock
company, trust, business trust, unincorporated organization, joint venture,
court, or GOVERNMENTAL AUTHORITY.
Section 1.12. PLEDGED STOCK. The term "PLEDGED STOCK" means all shares
of stock of the CORPORATION owned by the PLEDGOR and all additional shares of
stock in the CORPORATION acquired by the PLEDGOR from time to time together with
all rights, options, and issuances therefrom, including but not
2
<PAGE>
limited to 600 shares of the common stock of the CORPORATION, as evidenced by
Certificate Nos. 10 and 11.
Section 1.13. RECORDS. The term "RECORDS" means correspondence,
memoranda, tapes, discs, papers, books and other documents, or transcribed
information of any type, whether expressed in ordinary, computer or machine
language.
Section 2. PLEDGE; GRANT OF SECURITY INTERESTS AND LIENS. In order to
secure the payment and performance of the OBLIGATIONS when and as due, the
PLEDGOR hereby assigns, grants and pledges to the LENDER a continuing security
interest, pledge and lien in and to all of the COLLATERAL, whether now owned or
hereafter acquired by the PLEDGOR, together with all substitutions,
replacements, renewals, products and proceeds thereof. Future advances are
secured.
Section 3. DELIVERY OF CERTIFICATES. Except as may be otherwise agreed
to by the LENDER, the PLEDGOR shall deliver to the LENDER all of the
certificates representing the PLEDGED STOCK, together with stock powers duly
executed in blank by the PLEDGOR in accordance with the terms and purposes of
this PLEDGE AGREEMENT.
Section 4. FUTURE RECEIPT OF COLLATERAL. Except as expressly authorized
to the contrary by the terms of this PLEDGE AGREEMENT or as otherwise agreed to
by the LENDER, the PLEDGOR shall accept as the agent and in trust for the LENDER
all COLLATERAL received by the PLEDGOR after the date of this PLEDGE AGREEMENT,
and shall promptly deliver all of such COLLATERAL to the LENDER.
Section 5. VOTING RIGHTS; RIGHTS INCIDENTAL TO COLLATERAL. Until the
occurrence of any EVENT OF DEFAULT and the written election of the LENDER
described below, the PLEDGOR shall retain all voting rights with respect to the
PLEDGED STOCK, not inconsistent with the terms of this PLEDGE AGREEMENT, and,
for that purpose, the LENDER shall execute and deliver to the PLEDGOR any
necessary proxies. Immediately upon the occurrence of an EVENT OF DEFAULT and
without regard as to whether the PLEDGED STOCK has been registered in the names
of the LENDER or the nominee of the LENDER, the LENDER shall have the right (but
not the obligation) to make a written election to exercise all voting rights as
to the PLEDGED STOCK, together with all conversion, exchange, subscription or
other rights, privileges or options pertaining thereto as if the LENDER were the
absolute owner thereof, including, without limitation, the right to exchange any
or all of the PLEDGED STOCK upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the CORPORATION, or upon the exercise
by the CORPORATION of any right, privilege, or option pertaining to the PLEDGED
STOCK, and, in connection therewith, to deliver any of the PLEDGED STOCK to any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as the LENDER may determine to be appropriate, all
without liability except to account for property actually received by the LENDER
or the nominee of the LENDER. The LENDER shall have no duty to exercise any of
the aforesaid rights, privileges or options. The LENDER shall not be deemed or
construed to have exercised any voting rights with respect to the PLEDGED STOCK
unless and until the
3
<PAGE>
LENDER has made the above-described written election to exercise such voting
rights.
Section 6. CASH DIVIDENDS AND CASH DISTRIBUTIONS. All cash dividends
and cash distributions made upon the PLEDGED STOCK shall be paid to the PLEDGOR
until the occurrence of an EVENT OF DEFAULT except to the extent otherwise
prohibited by the terms and conditions of the LOAN AGREEMENT, the GUARANTY, or
any other agreements between the LENDER and any of the BORROWERS, the PLEDGOR,
or the CORPORATION. During the continuance of any EVENT OF DEFAULT, all cash
dividends and cash distributions shall be paid to the LENDER, and if any such
dividends or distributions are paid to the PLEDGOR, the PLEDGOR shall accept the
same as the LENDER'S agent, in trust for the LENDER, and shall deliver such
dividends or distributions forthwith to the LENDER in exactly the form received
with, as applicable, the PLEDGOR'S endorsement thereon. During the continuance
of any EVENT OF DEFAULT, all cash dividends, cash distributions, and other
distributions paid with respect to the PLEDGED STOCK shall be applied to the
repayment of the OBLIGATIONS, in such order of application as the LENDER
determines, regardless of when the amounts due upon the OBLIGATIONS mature and
are due and payable.
Section 7. WARRANTIES AND REPRESENTATIONS. The PLEDGOR represents and
warrants to the LENDER that:
Section 7.1. AUTHORITY. The PLEDGOR has, and has duly exercised,
all requisite power and authority to enter into this PLEDGE AGREEMENT, to pledge
the PLEDGED STOCK for the purposes described herein and to carry out the
transactions contemplated by this PLEDGE AGREEMENT.
Section 7.2. OWNERSHIP. The PLEDGOR is the sole legal and
beneficial owner of the shares of PLEDGED STOCK set forth below, which shares of
PLEDGED STOCK constitute sixty percent (60%) of the issued and outstanding
common stock of the CORPORATION. The PLEDGOR is the registered owner of such
PLEDGED STOCK.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Certificate Number Of Date Of
Numbers Shares Issue
10 300 07/10/98
11 300 07/10/98
</TABLE>
Section 7.3. STATUS OF PLEDGED STOCK. All of the shares of
the PLEDGED STOCK currently outstanding have been duly and validly issued, are
fully paid and nonassessable, and are owned by the PLEDGOR free of any pledge,
mortgage, hypothecation, lien, charge, encumbrance or security interest in such
shares or the proceeds thereof, except for the security interests and pledges
granted herein, and a pledge to FINOVA Mezzanine Capital Inc. f/k/a Sirrom
Capital Corporation which is subordinated in all respects to the pledge to the
LENDER contained herein.
Section 7.4. NO VIOLATION OF RESTRICTIONS. The execution and
delivery of this PLEDGE AGREEMENT by the PLEDGOR and the consent by the
CORPORATION thereto, and the performance of this PLEDGE AGREEMENT in accordance
with its stated terms, will not result in any violation of any
4
<PAGE>
provision of the Charters or Bylaws of the PLEDGOR or of the CORPORATION, or
violate or constitute a default under the terms of any agreement, restrictive
shareholder's agreement, indenture or other instrument, license, judgment,
decree, order, or LAWS applicable to the PLEDGOR, the CORPORATION, the PLEDGED
STOCK, or any of the property of the PLEDGOR or the CORPORATION.
Section 7.5. APPROVALS. No approvals, consents, orders,
authorizations, or licenses are required from any PERSON or GOVERNMENTAL
AUTHORITY for the execution and delivery by the PLEDGOR of this AGREEMENT and
the consummation of the transactions described herein.
Section 7.6. RESTRICTIONS. There are no restrictions upon the
voting rights or upon the transfer of any of the PLEDGED STOCK other than as
physically appear upon the face of the certificates evidencing the PLEDGED
STOCK.
Section 7.7. VALID AND BINDING OBLIGATION. This PLEDGE
AGREEMENT is the valid and binding obligation of the PLEDGOR, fully enforceable
in accordance with all stated terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect generally affecting creditors' rights, and subject to
general equity principles.
Section 8. NO DUTIES OTHER THAN CUSTODIAL DUTIES. The LENDER shall have
no duty with respect to any of the COLLATERAL other than the duty to use
reasonable care in maintaining the safe physical custody of the certificates
evidencing the PLEDGED STOCK.
Section 9. NO OBLIGATION TO MONITOR COLLATERAL. The LENDER shall have
no duty or responsibility for collecting or receiving any amounts payable on or
with respect to the PLEDGED STOCK or any of the other COLLATERAL or for
ascertaining, monitoring, or enforcing any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to the PLEDGED STOCK or
any of the other COLLATERAL or for informing the PLEDGOR with respect to any of
such matters. The LENDER shall have no liability to the PLEDGOR for any decline
in the value of the PLEDGED STOCK which may occur while the COLLATERAL is
subject to the terms of this PLEDGE AGREEMENT. The PLEDGOR represents to the
LENDER that the PLEDGOR has made its own arrangements for keeping informed of
changes or potential changes affecting the COLLATERAL, including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights.
Section 10. NO OBLIGATION TO PRESERVE RIGHTS. The LENDER shall be
under no obligation to take any steps to preserve rights or privileges in or to
the COLLATERAL against any PERSON.
Section 11. COVENANTS OF PLEDGOR. The PLEDGOR agrees that, until all of
the OBLIGATIONS have been paid, performed and satisfied in full, the PLEDGOR, in
addition to the covenants of the PLEDGOR set forth in the GUARANTY, will comply
with each of the following covenants:
Section 11.1. NO TRANSFERS. The PLEDGOR will not sell, convey,
or otherwise dispose of any of the COLLATERAL or any interest therein, or
5
<PAGE>
create, incur, or permit to exist any pledge, mortgage, lien, charge,
encumbrance or any security interest whatsoever in or with respect to any of the
COLLATERAL or the proceeds thereof, except as may be expressly consented to by
the LENDER in writing.
Section 11.2. WARRANT TITLE. The PLEDGOR will, at the
PLEDGOR'S sole expense, warrant and defend the right, title, special property
and security interests and pledges of the LENDER in and to the COLLATERAL
against the claims of any PERSON, firm, the CORPORATION, or other entity.
Section 11.3. NO ADDITIONAL SHARES. The PLEDGOR will not
consent to or approve the issuance of any additional shares of any class of
capital stock in the CORPORATION or any securities convertible voluntarily by
the holder thereof or automatically upon the occurrence or non-occurrence of any
event or condition into, or exchangeable for, any such shares; or any warrants,
options, rights, or other commitments entitling any person to purchase or
otherwise acquire any such shares.
Section 11.4. DELIVERY OF NOTICES CONCERNING COLLATERAL. The
PLEDGOR agrees to promptly forward to the LENDER, copies of any written notices
or other communications received by the PLEDGOR which relate or pertain to the
COLLATERAL.
Section 11.5. FURTHER ASSURANCES AND POWER OF ATTORNEY. The
PLEDGOR shall execute and delivery from time to time such writings, and
documents which, in the reasonable opinion of the LENDER or the LENDER'S
counsel, may be necessary to perfect, confirm, establish, reestablish, continue,
or complete the security interests, pledges and liens of the LENDER in the
COLLATERAL, it being the intention of the PLEDGOR to provide hereby a full and
absolute warranty of further assurance to the LENDER. If the PLEDGOR fails to
execute any such document within five (5) business days of being requested to do
so by the LENDER, the PLEDGOR hereby appoints the LENDER or any officer of the
LENDER as the PLEDGOR'S attorney in fact for purposes of executing such
documents in the PLEDGOR'S name, place and stead, which power of attorney shall
be considered as coupled with an interest and irrevocable.
Section 11.6. COOPERATION WITH ENFORCEMENT ACTIVITIES. The
PLEDGOR, upon the occurrence of an EVENT OF DEFAULT and the written request
therefor by the LENDER, will promptly execute and deliver to the LENDER such
documents, letters, or written representations as may reasonably be requested by
the LENDER or any broker, from time to time in order to accomplish the sale of
all or any part of the COLLATERAL, including but not limited to, all forms and
documents required under any applicable LAWS.
Section 12. WAIVERS. No course of dealing between the PLEDGOR and the
LENDER, nor any failure to exercise, nor any delay in exercising, any right,
power or privilege of the LENDER hereunder or under any other agreement between
the PLEDGOR and the LENDER, or under any agreement between the LENDER and the
CORPORATION, shall operate as a waiver of any term or condition of this PLEDGE
AGREEMENT; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
6
<PAGE>
Section 13. SALE OF COLLATERAL.
Section 13.1. TERMS OF SALE. In addition to all other rights
and remedies available to the LENDER pursuant to any other agreements with the
PLEDGOR or as otherwise provided by applicable LAWS, the LENDER, may upon the
occurrence of an EVENT OF DEFAULT sell or otherwise dispose of and deliver all
or any portion of the PLEDGED STOCK, in one or more parcels, at public or
private sale or sales, at any exchange, broker's board or at any location
selected by the LENDER, at such prices and on such terms as the LENDER may deem
best for cash or on credit, or for future delivery without assumption of any
credit risk. Any such sale shall be in compliance with all applicable LAWS. Any
purchaser of the PLEDGED STOCK, including the LENDER, shall purchase the PLEDGED
STOCK in whole or in part free of any right or equity of redemption in the
PLEDGOR, which right or equity is hereby expressly waived and released by the
PLEDGOR, to the extent permitted by applicable LAWS. The PLEDGOR acknowledges
that the terms of sale for the PLEDGED STOCK may include: (a) a requirement that
the PLEDGED STOCK be sold to only one individual purchaser for such purchaser's
own account and not as a representative of any purchaser; (b) a requirement that
any purchaser of all or any part of the PLEDGED STOCK represent in writing that
such purchase is purchasing the shares constituting the PLEDGED STOCK for
investment purposes only and without any intention to make a distribution
thereof; (c) a requirement that the certificates for any PLEDGED STOCK bear a
legend to the effect that the stock may not be resold without compliance with
applicable federal and state securities laws; and (d) a requirement that any
purchaser of the PLEDGED STOCK make such representations and warranties to the
LENDER as deemed necessary by the LENDER.
Section 13.2. DELAYS IN SALE; PRIVATE SALES. The PLEDGOR
acknowledges that it will be commercially reasonable for the LENDER to: (a)
defer disposing of all or any portion of the PLEDGED STOCK after an EVENT OF
DEFAULT has occurred for as long as the CORPORATION or the LENDER may require to
comply with any requirements of applicable LAWS, notwithstanding the fact that
the value of the PLEDGED STOCK may decline during the time that disposition is
deferred; and (b) sell all or any part of the PLEDGED STOCK at private sale,
subject to investment letter or in any other manner which will not require the
PLEDGED STOCK, or any part thereof, to be registered in accordance with the
SECURITIES ACT OF 1933, as amended, or the rules and regulations promulgated
thereunder, or any other applicable LAW. The PLEDGOR acknowledges that the
LENDER may, in the LENDER'S sole and absolute discretion, approach a restricted
number of potential purchasers and that a sale under such circumstances may
yield a lower price for the PLEDGED STOCK or any portions thereof than would
otherwise be obtainable if the PLEDGED STOCK were registered and sold in the
open market. The PLEDGOR acknowledges that a private sale of the PLEDGED STOCK
would be a commercially reasonable sale.
Section 13.3. LIQUIDATION AS AN ALTERNATIVE TO SALE. As an
alternative to public or private sale of the PLEDGED STOCK, the LENDER may, in
the LENDER'S sole and absolute discretion, elect to dispose of the PLEDGED STOCK
after an EVENT OF DEFAULT by causing the CORPORATION to dissolve, liquidate, and
make liquidating distributions to its stockholders, and such dissolution and
liquidation are hereby acknowledged to be a commercially reasonable manner of
disposing of the PLEDGED STOCK.
7
<PAGE>
Section 13.4. APPLICATION OF PROCEEDS OF DISPOSITION. The
proceeds from any sale or from any other disposition of the COLLATERAL shall be
applied as follows:
a. FIRST, to the costs and expenses incurred in connection
with the sale or disposition of the COLLATERAL, including but not limited to all
costs incurred in the care or safekeeping of the COLLATERAL, reasonable
attorneys' fees, broker's commissions, appraiser's fees and other expenses
incurred by the LENDER.
b. SECOND, to the satisfaction of the OBLIGATIONS regardless
of when the amounts due upon the OBLIGATIONS mature and are due and payable,
c. THIRD, to the payment of any other amounts required by
applicable LAWS (including, without limitation the requirements of Md. Code
Ann., Commercial Law I ' 9-504(1)(c) (Michie 1992 Repl. Vol.).
d. FOURTH, to the PLEDGOR to the extent of any surplus
proceeds.
Section 13.5. NOTICE; PROCEDURES OF SALE. The LENDER need not give more
than twenty (20) business days notice of the time and place of any public sale
or of the time after which a private sale of any or all of the COLLATERAL may
take place, which notice the PLEDGOR hereby agrees to be commercially
reasonable. The LENDER shall be entitled to purchase any or all of the
COLLATERAL in any sale in the name or names of the LENDER, or in the name of any
designee or nominee of the LENDER. In connection with any sale or transfer of
any or all of the COLLATERAL, the nominee of the LENDER shall have the right to
execute any document or form, in the name of the LENDER or in the name of the
PLEDGOR, which may be necessary or desirable in order to implement such sale,
including without limitation any forms required pursuant to RULE 144 promulgated
by the Securities And Exchange Commission. The PLEDGOR hereby agrees to
cooperate fully with the LENDER in order to permit the LENDER to sell, at
foreclosure or other private sale, any or all of the COLLATERAL in compliance
with all applicable LAWS.
Section 14. REMEDIES AND RIGHTS CUMULATIVE. The rights and remedies
provided in this PLEDGE AGREEMENT and in the GUARANTY or otherwise provided by
any other agreement between the PLEDGOR and the LENDER shall be cumulative, and
the exercise of any particular right or remedy shall not preclude the exercise
of any other rights or remedies.
Section 15. INVALIDITY OF ANY PART. If any provision or part of any
provision of this PLEDGE AGREEMENT shall for any reason be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions or the remaining part of
any effective provisions of this PLEDGE AGREEMENT, and this PLEDGE AGREEMENT
shall be construed as if such invalid, illegal, or unenforceable provision or
part thereof had never been contained herein, but only to the extent of its
invalidity, illegality, or unenforceability.
8
<PAGE>
Section 16. AMENDMENT OR WAIVER. This PLEDGE AGREEMENT may be amended
only by a writing duly executed by the PLEDGOR and by the LENDER. No waiver by
the LENDER of any of the provisions of this PLEDGE AGREEMENT or of any of the
rights or remedies of the LENDER with respect hereto shall be considered
effective or enforceable unless in writing.
Section 17. FEES AND EXPENSES; INDEMNIFICATION. The PLEDGOR shall pay
all fees, expenses, costs and charges, including reasonable attorney's fees,
which may be incurred by the LENDER in connection with enforcing any term or
provision of this PLEDGE AGREEMENT. The PLEDGOR shall indemnify and hold the
LENDER harmless from and against, and reimburse the LENDER with respect to, any
and all loss, damage, liability, cost or expense (including reasonable
attorneys' fees) incurred by the LENDER from time to time which in any manner
relate or pertain to this PLEDGE AGREEMENT and the actions and transactions
contemplated herein. The foregoing indemnification obligation shall include, but
is not limited to, indemnification of the LENDER with respect to all claims
brought against the LENDER based upon allegations that any prospectus,
memorandum or other disclosure document furnished to the purchaser of any of the
COLLATERAL contains any untrue or allegedly untrue statement of a material fact
which statement is derived from statements or representations made by the
PLEDGOR.
Section 18. NOTICES. Any notice required or permitted by or in
connection with this AGREEMENT shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the other
methods of giving notice provided for in this Section) or by hand delivery, by
Federal Express, or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid,
addressed to the LENDER or the PLEDGOR at the appropriate address set forth
below or to such other address as may be hereafter specified by written notice
by the LENDER or the PLEDGOR. Notice shall be considered given as of the date of
the facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3) calendar
days after the date of mailing, independent of the date of actual delivery or
whether delivery is ever in fact made, as the case may be, provided the giver of
notice can establish the fact that notice was given as provided herein. If
notice is tendered pursuant to the provisions of this Section and is refused by
the intended recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
If to the LENDER:
THE PROVIDENT BANK
One E. Fourth Street
Cincinnati, Ohio 45202
Attn: Barry Peterson, Vice President
Facsimile: (513) 763-8069
And to:
THE PROVIDENT BANK
1340 Smith Avenue, Suite 200
Baltimore, Maryland 21209
9
<PAGE>
Attn: J. David Kommalan, Vice President
Facsimile: (410) 779-1337
If to the PLEDGOR:
IMTEK OFFICE SOLUTIONS, INC.
8003 Corporate Drive, Suite C
Baltimore, MD 21236
Attn: Brad C. Thompson, Chief Financial Officer
Facsimile: (410) 931-2731
With A Courtesy Copy To:
MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.
7 St. Paul Street, Suite 1000
Baltimore, Maryland 21202-1626
Attn.: Patrick M. Shelley, Esquire
Fax No.: (410) 659-4599
The failure of the LENDER to send the above courtesy copy shall not impair the
effectiveness of notice given to the PLEDGOR in the manner provided herein.
Section 19. BINDING EFFECT. This PLEDGE AGREEMENT shall inure to the
benefit of and shall be binding upon the respective heirs, successors and
assigns of the parties hereto.
Section 20. CHOICE OF LAW. The laws of the State of Maryland
(excluding, however, conflict of law principles) shall govern and be applied to
determine all issues relating to this PLEDGE AGREEMENT and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this PLEDGE AGREEMENT and its various
provisions and the consequences and legal effect of all transactions and events
which resulted in the execution of this PLEDGE AGREEMENT or which occurred or
were to occur as a direct or indirect result of this PLEDGE AGREEMENT having
been executed.
Section 21. CONSENT TO JURISDICTION; AGREEMENT AS TO VENUE. The PLEDGOR
irrevocably consents to the non-exclusive jurisdiction of the courts of the
State of Maryland and, if a basis for federal jurisdiction exists, of the United
States District Court For The District Of Maryland. The PLEDGOR agrees that
venue shall be proper in any circuit court of the State of Maryland selected by
the LENDER or in the United States District Court For The District Of Maryland
if a basis for federal jurisdiction exists and waives any right to object to the
maintenance of a suit in any of the state or federal courts of the State of
Maryland on the basis of improper venue or of inconvenience of forum.
Section 22. PHOTOCOPIES SUFFICIENT. The PLEDGOR agrees that the LENDER
may record photographic or carbon copies of this PLEDGE AGREEMENT or any
financing statement executed by the PLEDGOR in connection with this transaction,
and that such copies shall be as fully effective and valid as original
documents.
10
<PAGE>
Section 23. NUMBER, GENDER AND CAPTIONS. As used herein, the singular
shall include the plural and the plural may refer to only the singular. The use
of any gender shall be applicable to all genders. The captions contained herein
are for purposes of convenience only and are not a part of this PLEDGE
AGREEMENT.
Section 24. FINAL AGREEMENT. This PLEDGE AGREEMENT contains the final
and entire understanding of the parties relating to the pledge and assignment of
the PLEDGED STOCK and any terms and conditions not set forth in this PLEDGE
AGREEMENT relating to the pledge and assignment of the PLEDGED STOCK are not a
part of this PLEDGE AGREEMENT and the understandings of the parties.
Section 25. ACTIONS AGAINST LENDER. Any action brought by the PLEDGOR
against the LENDER which is based, directly or indirectly, upon this PLEDGE
AGREEMENT or any matter related to this PLEDGE AGREEMENT or any action taken by
the LENDER in enforcing or construing this PLEDGE AGREEMENT shall be brought
only in the courts of the State of Maryland. The PLEDGOR agrees that any forum
other than the State of Maryland is an inconvenient forum and that a suit
brought by the PLEDGOR against the LENDER in a court of any state other than the
State of Maryland should be forthwith dismissed or transferred to a court
located in the State of Maryland by that court.
Section 26. WAIVER OF TRIAL BY JURY. The PLEDGOR and the LENDER, by
their execution and acceptance, respectively, of this PLEDGE AGREEMENT, agree
that any suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party on or
with respect to this PLEDGE AGREEMENT or which in any way relates, directly or
indirectly, to this PLEDGE AGREEMENT or any event, transaction, or occurrence
arising out of or in any way connected with this PLEDGE AGREEMENT, or the
dealings of the parties with respect thereto, shall be tried only by a court and
not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY SUCH SUIT, ACTION, OR PROCEEDING.
IN WITNESS WHEREOF, the parties have duly executed this PLEDGE
AGREEMENT under seal as of the date first above written.
WITNESS/ATTEST: THE PLEDGOR:
IMTEK ACQUISITION CORPORATION,
A Maryland Corporation
By: (SEAL)
--------------------------------
Robert W. Hoover, Vice President
Date: July 1, 1999
11
<PAGE>
ACKNOWLEDGMENT OF ISSUER
Barbera Business Systems, Inc. (ACORPORATION@) acknowledges this first
day of July, 1999, the receipt of an executed copy of the Stock Pledge Agreement
("AGREEMENT") of even date herewith from Imtek Acquisition Corporation, a
Maryland corporation ("PLEDGOR"), for the benefit of THE PROVIDENT BANK, an Ohio
chartered banking institution, and agrees to evidence such receipt and
acknowledgment upon its stock registry and books and records. The CORPORATION
further agrees not to make any payments or to take any actions which would cause
the PLEDGOR to be in violation of the terms of the AGREEMENT, or which would
otherwise not be in compliance with the AGREEMENT.
WITNESS/ATTEST: BARBERA BUSINESS SYSTEMS, INC.,
A Maryland Corporation
By: /S/ ROBERT W. HOOVER (SEAL)
-----------------------------------
Robert W. Hoover, Vice President
Date: July 1, 1999
12
<PAGE>
EXHIBIT 10.11
LICENSE, NON-COMPETE AND CONFIDENTIALITY AGREEMENT
THIS LICENSE, NON-COMPETE AND CONFIDENTIALITY AGREEMENT ("Agreement")
is entered into this 12th day of March, 1999, by and between GEORGE R. CANNON
AND DELORES M. CANNON (being referred to individually and collectively, joint
and severally, herein as "Licensor"), being all director-trustees of GEORGE R.
CANNON BUSINESS MACHINES, INC., formerly a Maryland corporation ("CBM"), and
IMTEK CORPORATION, a Maryland corporation ("Licensee").
WHEREAS, the corporate charter of CBM was forfeited on October 2, 1997
by the Maryland State Department of Assessments and Taxation in accordance with
Section 3-503 of the Maryland General Corporation Law, due to the failure by CBM
to pay certain taxes to the State of Maryland (the "Forfeiture");
WHEREAS, Licensor constituted the full board of directors of CBM at the
time of the Forfeiture and became the only trustees of CBM upon the Forfeiture
by operation of law, and continue to serve in such capacity as of the date of
this Agreement;
WHEREAS, CBM's assets, including the customer list attached hereto as
EXHIBIT A and incorporated herein by reference (the "Customer List"), were
automatically transferred to Licensor as trustees for the benefit of the
creditors and stockholders of CBM at the time of the Forfeiture;
WHEREAS, Licensor has determined in good faith that it is in the best
interests of CBM and its creditors and stockholders to license the Customer List
to Licensee under the terms of this Agreement, thereby permitting Licensor to
receive the License Fee (hereinafter defined) provided for herein for the
benefit of the stockholders and creditors of CBM, and apply the same to pay
CBM's creditors as more fully set forth herein; and
WHEREAS, Licensor collectively owns all rights, title and interest in
and to the Customer List, and Licensor has agreed to license the Customer List
to Licensee on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. GRANT OF LICENSE. In exchange for the License Fee set forth in
Article 2 hereof, Licensor grants to Licensee the exclusive (even as to
Licensor), worldwide, perpetual license and right to use, reproduce, modify,
exploit, disclose, develop, service and market the Customer List and to receive
for Licensee's use and benefit all proceeds and benefits arising from the
Customer List from and after the date hereof (the "License"). The License shall
be sublicensable and assignable by Licensee.
1
<PAGE>
2. LICENSE FEE.
(A) LICENSE FEE. Provided that Licensee's rights in and to the
License have not been disturbed, threatened or otherwise challenged in any way
(whether through legal action or otherwise), as sole consideration for the
granting of this License and the other consideration provided by Licensor
hereunder and in lieu of any other payment, Licensor shall be entitled to
receive a licensing fee of $51,000 payable in six equal monthly installments of
$8,500 per month, payable on the 15th day of each month beginning after the date
of this Agreement.
(B) MANNER OF PAYMENT. Licensee shall pay the License Fee
hereunder into an account which shall be set up on or prior to the date of this
Agreement (the "Account") at a bank to be mutually agreed upon by the parties.
Withdrawals from the account shall require the signature of both Licensor and an
authorized representative of Licensee, it being understood and agreed that funds
deposited in the Account shall be withdrawn and applied toward the payment of
those liabilities and obligations of CBM listed on SCHEDULE 1 attached hereto
(the "Liabilities"), as and in the amount the same come due each month. All
amounts deposited into the Account shall be deemed paid to Licensor hereunder;
PROVIDED, HOWEVER, that Licensee shall not assume any of Licensor's liabilities
or other obligations hereby and this Agreement shall not be construed as an
express or implied assumption of such liabilities and obligations. Licensor
agrees to promptly provide any and all information reasonably requested by
Licensee to permit the proper withdrawal and payment of the Liabilities. The
foregoing notwithstanding, from and after the 180th day following the date of
this Agreement, Licensee agrees to pay License Fee accruing after such date, if
any, to Licensor directly, without deposit into the Account.
(C) CONDITIONS TO PAYMENT. In the event that Licensee's right
to fully use and enjoy the License granted hereunder shall be challenged,
threatened, disputed or otherwise interfered with (except because of an act of
Licensee), Licensee's obligation to pay the License Fee shall immediately
terminate from and after the date on which Licensee learns of such challenge,
threat or dispute.
(D) PERPETUAL LICENSE. The License granted pursuant to this
Agreement shall be perpetual, and shall not terminate upon a termination of
Licensor's right to receive the License Fee or upon final payment of all monthly
License Fees called for under this Agreement. This Section shall survive the
termination of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF LICENSOR. Licensor represents and
warrants to Licensee the following as of the date of this Agreement:
(A) AUTHORITY. Licensor is the sole trustee of CBM and has
acquired all right, title and interest in and to the Customer List. As sole
trustee of CBM, Licensor the full capacity, power and authority to execute and
deliver this Agreement and to grant the License contemplated hereby. This
Agreement has been duly executed and delivered by Licensor and this Agreement
2
<PAGE>
constitutes the valid and binding obligations of Licensor, enforceable against
Licensor in accordance with its terms, except as such terms may be limited by
(i) bankruptcy, insolvency or similar laws affecting creditors' rights generally
or (ii) general principles of equity, whether considered in a proceeding in
equity or at law.
(B) NO VIOLATION. The execution and delivery by Licensor of
this Agreement and the granting of the License hereunder does not, and the
consummation of the transactions contemplated hereby will not (i) violate any
rights of CBM, its shareholders or creditors or any other person holding rights
in or to the Customer List, if any, (ii) result in a default, or give rise to
any right of termination, modification or acceleration, under the terms or
provisions of any agreement or other instrument or obligation to which Licensor
or CBM is a party or by which Licensor, CBM or the Customer List may be bound,
or (iii) violate any law or regulation, or any judgment, order or decree of any
court, governmental body, commission, agency or arbitrator applicable to
Licensor, CBM or the Customer List.
(C) CONSENTS AND APPROVALS. There is no requirement applicable
to Licensor to make any filing with, or to obtain any consent or approval from
any person or entity as a condition to the granting of the License to Licensee
and the consummation of the transactions contemplated by this Agreement.
(D) FINANCIAL STATEMENTS. Licensor has previously furnished
Licensee with true and complete copies of the financial statements relating to
its maintenance service business (which shall consist of a balance sheet, income
statement, and statement of cash flows) of Licensor for the years ending
December 31, 1997 and 1998, including the notes thereto (the "Financial
Statements"). The Financial Statements present fairly the financial position of
Licensor and amount of revenues attributable to the Customer List as of the
dates thereof and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis.
(E) ABSENCE OF CHANGE. Since December 31, 1998, there has not
been any material adverse change, or development involving a prospective change
which affects or can reasonably be expected to affect, materially or adversely,
the value of the Customer List to Licensee or Licensee's ability to service the
customers listed on the Customer List or generate revenue from the Customer List
including, without limitation, any deterioration in the business relationship
between Licensor and any person or entity on the Customer List.
(F) UNDISCLOSED LIABILITIES. All of Licensor's liabilities are
reflected on the Financial Statements. Since December 31, 1998, Licensor has not
incurred any liabilities other than those which were incurred subsequent to such
date in the ordinary course of business and consistent with past practices and
which have not and cannot reasonably be expected to have a material adverse
effect on the value of the Customer List to Licensee or Licensee's ability to
service the customers listed on the Customer List or generate revenue from the
Customer List. There has been no deterioration in
3
<PAGE>
the business relationship between Licensor and any person or entity on the
Customer List.
(G) LITIGATION. There are no actions, suits, claims,
investigations or proceedings pending or, to the knowledge of Licensor,
threatened against Licensor, before any court, governmental body, commission,
agency or arbitrator, which have or can reasonably be expected to have a
material adverse effect on the Customer List or Licensee's use thereof as
contemplated by this Agreement or which seek to limit, in any manner, the right
of Licensee to control the Customer List after the consummation of the
transactions contemplated by this Agreement. Furthermore, there are no
judgments, orders or decrees of any court, governmental body, commission, agency
or arbitrator which have or can reasonably be expected to have any such effect.
(H) TITLE TO CUSTOMER LIST. Licensor holds good and marketable
title to the Customer List, free and clear of liens, mortgages, charges,
security interests or other defects in title ("Encumbrances").
(I) NO FRAUDULENT INTENT. Licensor and Licensee reasonably
believe that the License granted pursuant to this Agreement will improve
Licensor's financial condition and will facilitate the payment of the
Liabilities. Licensor represents and warrants that he has no intention of
hindering or delaying payment to, or satisfaction of any obligations owed or
owing to, any creditors including, without limitation, federal, state and local
tax authorities, by consummating the transactions with Licensee as set forth in
this Agreement.
(J) NO BANKRUPTCY. With respect to Licensor (either
individually or in their capacity as trustees/directors of CBM) and CBM, there
has not been: any adjudication of the Licensor or CBM as insolvent, or any entry
of any order of relief with respect to Licensor or CBM under any applicable
insolvency or bankruptcy laws, or the filing of any involuntary petition in
bankruptcy against Licensor or CBM, or any filing against Licensor or CBM of a
petition for reorganization under the Federal Bankruptcy Code or any state
statute, or a general assignment by Licensor or CBM for the benefit of creditors
(except by CBM to Licensor upon the Forfeiture), or the voluntary claim (by
Licensor or CBM) that it is insolvent or entitled to relief under any provisions
of the Federal Bankruptcy Code (or any state insolvency statute), or the
appointment for Licensor or CBM of a temporary or permanent receiver, trustee,
custodian or sequestrator, and, to the knowledge of Licensor, none of the
foregoing acts have been threatened.
(K) FULL DISCLOSURE. None of the representations and
warranties made in this Article contains any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF LICENSEE. Licensee represents and
warrants to Licensor the following as of the date of this Agreement:
4
<PAGE>
(A) ORGANIZATION; AUTHORITY. Licensee is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. Licensee has corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery by Licensee of this Agreement and the consummation by it of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Licensee and no other corporate proceedings on the part of Licensee
are necessary with respect thereto. This Agreement has been duly executed and
delivered by Licensee, and this Agreement, when executed and delivered by
Licensee and Licensor, will constitute the valid and binding obligations of
Licensee, enforceable in accordance with their terms except as their terms may
be limited by (i) bankruptcy, insolvency, or similar laws affecting creditors'
rights generally or (ii) general principles of equity, whether considered in a
proceeding in equity or at law.
(B) CONSENTS AND APPROVALS. There is no requirement applicable
to Licensee to make any filing with, or to obtain any consent or approval of any
person or entity as a condition to the consummation of the transactions
contemplated by this Agreement.
(C) NO VIOLATION. The execution and delivery by Licensee of
this Agreement does not and will not (i) violate or result in a breach of any
provision of the Articles of Incorporation or Bylaws, as amended to date, of
Licensee, (ii) result in a default, or give rise to any right of termination,
modification or acceleration under the terms, conditions or provisions of any
agreement or other instrument or obligation to which Licensee is a party or by
which Licensee may be bound, or (iii) violate any law or regulation, or
judgment, order or decree of any court, governmental body, commission, agency or
arbitrator applicable to Licensee.
5. RESTRICTIONS ON LICENSOR.
(A) NON-COMPETE. Licensor agrees that, for a period beginning
on the date of this Agreement and ending on the second anniversary of this
Agreement (the "Restricted Period"), Licensor will not directly or indirectly:
(i) engage in any business which is competitive with
the business of Licensee;
(ii) own or control any interest of whatever nature
in or act as an officer, director, agent or employee of, or consultant, sales
representative, independent contractor or advisor to, any person or entity of
whatever nature which is, directly or indirectly, in competition with the
business of Licensee.
The limitations set forth in this subsection apply to business
conducted:
5
<PAGE>
(x) in Maryland;
(y) in all areas within 50 miles of the location of
Licensee's place of business or Licensor's home or place of business; and
(z) in all areas within 100 miles of the location of
Licensee's place of business or Licensor's home or place of business.
The limitation of this provision to the Restrictive Period should not
be construed to limit the perpetual and exclusive (even as to Licensor) nature
of the License granted pursuant to this Agreement or permit the use of the
Customer List by Licensor in violation of Licensee's exclusive (even as to
Licensor) License at any time.
(B) DEFINITION. For the purposes of this Agreement, a business
activity is competitive with the business of Licensee if it involves engaging in
(i) the business of providing office product maintenance services through
whatever means, or (ii) is of the same type of business as the business of
Licensee, competes with the business of Licensee or supplies goods or services
which may substitute, directly or indirectly, for services or products of
Licensee, whether or not such business activity is pursued for gain, profit, or
other pecuniary advantage.
(C) ACKNOWLEDGMENT. Licensor acknowledges that the geographic
scope of the restrictions contained in this Section is necessary for the
protection of Licensee and specifically covenants that the restrictions,
including the limitations as to scope, period of time and geographic area, are
reasonable and necessary to protect the legitimate business interests of
Licensee.
(D) NON-SOLICITATION. Licensor agrees that, during the
Restricted Period:
(i) Licensor will not solicit, or divert or attempt
to solicit or divert, any customers, suppliers, or accounts from Licensee
including, without limitation, those on the Customer List; and
(ii) Licensor will not hire, attempt to hire,
solicit, entice away or in any other manner persuade or attempt to persuade any
officer, employee, independent contractor or agent of Licensee to discontinue
his/her relationship with Licensee nor will Licensee hire or solicit for hire
any former officer, employee or agent of Licensee for any reason, if such person
is subject to the operation of any covenant not to compete with the Company.
(E) INJUNCTIVE RELIEF. Licensor agrees that in the event of
any breach of the restrictive covenants contained herein, the Company shall be
entitled to seek preliminary and permanent injunctive relief to restrain the
violation of the terms hereof by Licensor and all persons acting for or on
Licensor's behalf.
6
<PAGE>
(F) MODIFICATION. The parties have attempted to limit
Licensor's right to compete to the extent necessary to protect Licensee from
unfair competition. The parties recognize, however, that reasonable people may
differ in making such a determination. Consequently, the parties hereby agree
that, if the scope or enforceability of the restrictive covenants are in any way
disputed at any time, a court or other trier of fact may modify and enforce the
covenants to the extent that it believes to be reasonable under the
circumstances existing at that time.
(G) SURVIVAL. The provisions of this Section shall survive the
termination or expiration of this Agreement and shall be deemed a separate and
independent agreement.
6. CONFIDENTIALITY. Licensor acknowledges that the value of the License
contained herein would be substantially reduced if the Customer List were
disclosed to any person or entity other than Licensee or if another person or
entity acquired the use of the Customer List. Therefore, the Customer List is
and shall be treated as confidential by Licensor. Licensor agrees that it will
limit access to the Customer List and information and other data relating to the
Customer List to George R. Cannon only. Licensor shall take such measures to
protect the confidentiality of the Customer List as it customarily takes to
protect its trade secrets and as are otherwise reasonable and customary within
the industry. After the date hereof, the Customer List shall not be disclosed by
Licensor to any person or entity and shall not be used for any purpose other
than by Licensee. Licensor agrees that it shall be liable for any damage to
Licensee caused by breach of the confidentiality obligations herein agreed to,
including but not limited to any unauthorized disclosure or use of the Customer
List by its present or former directors, officers, agents, representatives and
employees or third parties to whom disclosure is or was made by any of such
individuals and any consequential loss of business or revenues arising out of or
in connection with such unauthorized disclosure or use. In addition to monetary
damages and any other rights or remedies, Licensee shall be entitled to
appropriate equitable relief, including an injunction, to protect and prevent
unauthorized disclosure of the Customer List. Licensor agrees that it will
return to the Company upon request all materials containing the Customer List or
any information relating thereto.
7. INFRINGEMENT PROCEEDINGS: INDEMNIFICATION. Licensor agrees to
provide prompt written notification to Licensee of any unauthorized use of the
Customer List as it comes to Licensor's attention. Licensee shall have sole
right and discretion to bring infringement or unfair competition proceedings
involving the Customer List.
8. TERM AND TERMINATION The License granted hereunder, the obligation
to pay the License Fee, and the other terms of this Agreement not expressly
surviving the termination of this Agreement are terminable by Licensee upon 30
days prior written notice to Licensor with or without cause, all without further
liability on the part of Licensee.
9. MISCELLANEOUS
7
<PAGE>
(A) NOTICES. In any case where any notice or other
communication is required or permitted to be given hereunder, such notice shall
be in writing, and (i) personally delivered, or (ii) sent by Federal Express or
other nationally recognized overnight delivery service to the following
addresses:
If to Licensor:
Mr. George R. Cannon and Dolores M. Cannon
44199 Medleys Neck Rd.
Leonardtown, MD 20650
If to Licensee:
Imtek Corporation
707 E. Main Street, Suite 1450
Richmond, VA 23219
with a copy to:
Patrick M. Shelley, Esquire
McGuire, Woods, Battle & Boothe LLP
Seven Saint Paul Street, Suite 1000
Baltimore, Maryland 21202-1626
(B) EFFECTIVE TIME OF NOTICE. If delivered personally, the
date on which a notice, request, instruction or document is delivered shall be
the date on which such delivery is made and, if delivered by Federal Express or
other overnight delivery service the date on which such notice, request,
instruction or document is received shall be the date of delivery and, if
delivered by telecopy, 9:00 a.m. on the business day after the date on which
such notice, request, instruction or document is sent shall be the date of
delivery. Any party hereto may change its address specified for notices herein
by designating a new address by notice in accordance with this Section.
(C) RELATIONSHIP OF THE PARTIES. The parties hereto are
licensor and licensee only. Except as expressly set forth in this Agreement,
none shall (i) incur any obligation on behalf of any other, (ii) engage any
other's credit or authority, or (iii) be deemed to be an agent of the other.
Each party hereto shall be itself solely liable and responsible for its own
actions and omissions. Nothing in this Agreement shall constitute or be deemed
to constitute a partnership between the parties hereto or to constitute any
party as a partner of any other party for any purpose whatsoever.
(D) EFFECTIVENESS; SEVERABILITY. All rights, remedies and
powers provided in this Agreement may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all the
provisions of this Agreement are intended to be subject to all
8
<PAGE>
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render this Agreement
invalid, unenforceable in whole or in part, or not entitled to be recorded,
registered or filed under the provisions of any applicable law. If any provision
hereof is invalid and unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction and shall be liberally construed in order
to carry out the intentions of the parties hereto as nearly as may be possible;
and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provisions
in any other jurisdiction.
(E) GOVERNING LAW. This Agreement, the relationship of the
Licensor and the Licensee, any and all dealings of the parties that are directly
or indirectly connected to the subject matter of this Agreement, and any and all
questions or disputes arising in connection therewith, will be governed by and
construed in accordance with the internal law, and not the law of conflicts, of
the State of Maryland.
(F) HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(G) AMENDMENT. This document constitutes the entire agreement
between the parties; it shall not be varied or supplemented except by a written
document referencing this Agreement and signed by the proper authorized persons
representing the parties.
(H) INTEGRATION CLAUSE. This Agreement supercedes and cancels
any and all previous and contemporaneous understandings, agreements and
commitments between the parties relating to the subject matters covered hereby.
It expresses the complete and final understanding of the parties hereto.
(I) WAIVER. No delay in acting or failure to act shall
constitute a waiver of any right of any party under this Agreement. Any waiver
must be in writing and signed by the party entitled to the benefit of the right
being waived. Unless otherwise stated in the waiver, any waiver applies only to
the specific circumstance for which the waiver is given and not to any
subsequent circumstance involving the same or any other right.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed as of the day and year first above written.
GEORGE R. CANNON, AS DIRECTOR-TRUSTEE OF
GEORGE R. CANNON BUSINESS
MACHINES, INC.
BY:/s/ GEORGE R. CANNON
---------------------------------
GEORGE R. CANNON, DIRECTOR-TRUSTEE
9
<PAGE>
DOLORES M. CANNON, AS DIRECTOR-TRUSTEE
OF GEORGE R. CANNON BUSINESS
MACHINES, INC.
BY:/s/ DOLORES M. CANNON
---------------------------------
DOLORES M. CANNON, DIRECTOR-TRUSTEE
GEORGE R. CANNON, INDIVIDUALLY
/s/ GEORGE R. CANNON
-----------------------------------
GEORGE R. CANNON
DOLORES M. CANNON, INDIVIDUALLY
/s/ DOLORES M. CANNON
-----------------------------------
DOLORES M. CANNON
IMTEK CORPORATION
By: /s/ MICHAEL LOWE
---------------------------------
Michael Lowe
President
10
<PAGE>
EXHIBIT A
Exhibit A, omitted herefrom, contains a list of CBM customers and
clients.
SCHEDULE 1
Schedule 1, omitted herefrom, contains a list of obligations and
liabilities of CBM which will be paid from the license fees contemplated by
this agreement.
11
<PAGE>
EXHIBIT 10.12
IMTEK OFFICE SOLUTIONS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Imtek Office Solutions, Inc. Stock
Option Plan (the "Plan") is to further the long term stability and financial
success of Imtek Office Solutions, Inc. (the "Company") by attracting and
retaining key employees and obtaining the services of directors and consultants
through the use of stock incentives. It is believed that ownership of Company
Stock will stimulate the efforts of those employees and consultants upon whose
judgment and interest the Company is and will be largely dependent for the
successful conduct of its business. It is also believed that Incentive Awards
granted to such employees under this Plan will strengthen their desire to remain
with the Company and will further the identification of those employees' and
directors' interests with those of the Company's shareholders. The Plan is
intended to conform to the provisions of Securities and Exchange Commission Rule
16b-3, if the Company Stock becomes Publicly Traded in the future.
2. DEFINITIONS. As used in the Plan, the following terms have the
meanings indicated:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Applicable Withholding Taxes" means the aggregate amount
of federal, state and local income and payroll taxes that the Company
is required to withhold in connection with any exercise of a
Nonstatutory Stock Option by an employee.
(c) "Board" means the board of directors of the Company.
(d) "Change of Control" means, before the Company Stock is
Publicly Traded, an event described in (i), (ii) or (iii):
(i) the closing date of any sale or other disposition
of substantially all the assets of the Company other than in
the ordinary course of business.
(ii) any person or persons shall be the owner of more
than 50% of the Company Stock, other than the person or
persons who own Company Stock as of the Effective Date (the
"Existing Shareholders"), any trusts, partnerships or
corporations controlled by the Existing Shareholders, the
Company, any subsidiary of the Company, any employee benefit
plan of the Company or any subsidiary, or any entity holding
Company Stock for or pursuant to the terms of any such
employee benefit plan.
1
<PAGE>
(iii) an initial public offering of the Company
Stock, to the extent provided in an option agreement.
A Change of Control means, after the Company Stock is Publicly
Traded, an event described in (iv), (v), (vi), or (vii):
(iv) The acquisition by a Group of Beneficial
Ownership of 35% or more of the Stock or the Voting Power of
the Company, but excluding for this purpose: (A) any
acquisition by the Company (or a subsidiary), or an employee
benefit plan of the Company; or (B) any acquisition of Common
Stock of the Company by management employees of the Company.
"Group" means any individual, entity or group within the
meaning of Section 13(d)(3) or 14(d)(2) of the Act,
"Beneficial Ownership" has the meaning in Rule 13d-3
promulgated under the Act, "Stock" means the then outstanding
shares of common stock, and "Voting Power" means the combined
voting power of the outstanding voting securities entitled to
vote generally in the election of directors.
(v) Individuals who constitute the Board on the date
immediately after the Company Stock becomes Publicly Traded
(the "Incumbent Board") cease to constitute at least a
majority of the Board, provided that any director whose
nomination was approved by a majority of the Incumbent Board
shall be considered a member of the Incumbent Board unless
such individual's initial assumption of office is in
connection with an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Act).
(vi) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, in
which the owners of more than 50% of the Stock or Voting Power
of the Company do not, following such reorganization, merger
or consolidation, beneficially own, directly or indirectly,
more than 50% of the Stock or Voting Power of the corporation
resulting from such reorganization, merger or consolidation.
(vii) A complete liquidation or dissolution of the
Company or of its sale or other disposition of all or
substantially all of the assets of the Company, or the
approval by the Shareholders of the Company of any such event.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means the committee appointed by the Board as
described under Section 12.
(g) "Company" means Imtek Office Solutions, Inc., a Delaware
corporation.
2
<PAGE>
(h) "Company Stock" means Common Stock, $.000001 par value, of
the Company. If the par value of the Company Stock is changed, or in
the event of a change in the capital structure of the Company (as
provided in Section 11), the shares resulting from such a change shall
be deemed to be Company Stock within the meaning of the Plan.
(i) "Date of Grant" means the date on which an Incentive Award
is granted by the Committee.
(j) "Disability" or "Disabled" means, as to an Incentive Stock
Option, a Disability within the meaning of Code section 22(e)(3). As to
all other Incentive Awards, the Committee shall determine whether a
Disability exists and such determination shall be conclusive.
(k) "Fair Market Value" means as of the Date of Grant (or, if
there were no trades on the Date of Grant, the last preceding day on
which Company Stock is traded if the Company Stock is actively traded)
(i) if the Company Stock is traded on an exchange the average of the
highest and lowest registered sales prices of the Company Stock at
which it is traded on the immediately prior trading day on the exchange
on which it generally has the greatest trading volume, (ii) if the
Company Stock is traded on the over-the-counter market, the average
between the lowest bid and highest asked prices as reported by THE WALL
STREET JOURNAL on the immediately prior trading day, or (iii) if shares
of Common Stock are not traded on any exchange or over-the-counter
market, the fair market value shall be determined by the Committee
using any reasonable method in good faith.
(l) "Incentive Award" means, collectively, the award of an
Nonstatutory Stock Option or Incentive Stock Option under the Plan.
(m) "Incentive Stock Option" means an Option intended to meet
the requirements of, and qualify for favorable federal income tax
treatment under, Code section 422.
(n) "Non-Employee Director" means a member of the Board who is
not an employee of the Company, a Parent or a Subsidiary.
(o) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code section 422, or, even if meeting the
requirements of Code section 422, is not intended to be an Incentive
Stock Option and is so designated.
(p) "Option" means a right to purchase Company Stock granted
under the Plan, at a price determined in accordance with the Plan.
(q) "Parent" means, with respect to any corporation, a parent
of that corporation within the meaning of Code section 424(e).
3
<PAGE>
(r) "Participant" means any employee who receives an Incentive
Award under the Plan.
(s) "Publicly Traded" means after a registration statement
with respect to Company Stock filed by the Company with the Securities
and Exchange Commission has become effective.
(t) "Rule 16b-3" means Rule 16b-3 of the Securities and
Exchange Commission promulgated under the Act. A reference in the Plan
to Rule 16b-3 shall include a reference to any corresponding rule (or
number redesignation) of any amendments to Rule 16b-3 enacted after the
effective date of the Plan's adoption. The provisions of the Plan
relating to Rule 16b-3 shall be applicable only if the Company Stock
becomes Publicly Traded.
(u) "Subsidiary" means, with respect to any corporation, a
subsidiary of that corporation within the meaning of Code section
424(f).
(v) "10% Shareholder" means a person who owns, directly or
indirectly, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or
Subsidiary of the Company. Indirect ownership of stock shall be
determined in accordance with Code section 424(d).
3. GENERAL. Incentive Awards under the Plan may be either Incentive
Stock Options or Nonstatutory Stock Options.
4. STOCK. Subject to Section 11 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 750,000 shares of Company Stock,
which shall be authorized, but unissued shares. Shares allocable to Options or
portions thereof granted under the Plan that expire or otherwise terminate
unexercised may again be subjected to an Incentive Award under the Plan. The
Committee is expressly authorized to make an Incentive Award to a Participant
conditioned upon the surrender for cancellation of an option granted under an
existing Incentive Award. For purposes of determining the number of shares that
are available for Incentive Awards under the Plan, such number shall include the
number of shares surrendered by an optionee or retained by the Company in
payment of Applicable Withholding Taxes. No more than 200,000 shares may be
allocated to the Incentive Awards that are granted to any individual Participant
during any single calendar year.
4
<PAGE>
5. ELIGIBILITY.
(a) All present and future employees of the Company and
individuals who are consultants to the Company (or any Parent or Subsidiary of
the Company, whether now existing or hereafter created or acquired) shall be
eligible to receive Incentive Awards under the Plan. The Committee shall have
the power and complete discretion, as provided in Section 12, to select eligible
employees to receive Incentive Awards and to determine for each employee the
terms and conditions, the nature of the award and the number of shares to be
allocated to each employee as part of each Incentive Award. Non-Employee
Directors are eligible to receive Incentive Awards in accordance with Section
13.
(b) The grant of an Incentive Award shall not obligate the
Company or any Parent or Subsidiary of the Company to pay a Participant any
particular amount of remuneration, to continue the employment of the Participant
after the grant or to make further grants to the Participant at any time
thereafter.
6. STOCK OPTIONS.
(a) Whenever the Committee deems it appropriate to grant
Options, notice shall be given to the Participant stating the number of shares
for which Options are granted, the Option price per share, whether the Options
are Incentive Stock Options or Nonstatutory Stock Options, and the conditions to
which the grant and exercise of the Options are subject. This notice, when duly
accepted in writing by the Participant, shall become a stock option agreement
between the Company and the Participant.
(b) The exercise price of shares of Company Stock covered by
an Incentive Stock Option shall be not less than 100% of the Fair Market Value
of such shares on the Date of Grant; provided that if an Incentive Stock Option
is granted to a Participant who, at the time of the grant, is a 10% Shareholder,
then the exercise price of the shares covered by the Incentive Stock Option
shall be not less than 110% of the Fair Market Value of such shares on the Date
of Grant.
(c) The exercise price of shares covered by a Nonstatutory
Stock Option shall be not less than 100% of the Fair Market Value of such shares
on the Date of Grant.
(d) Options may be exercised in whole or in part at such times
as may be specified by the Committee in the Participant's stock option
agreement; provided that, the exercise provisions for Incentive Stock Options
shall in all events not be more liberal than the following provisions:
(i) No Incentive Stock Option may be exercised after
ten years (or, in the case of an Incentive Stock Option
granted to a 10% Shareholder, five years) from the Date of
Grant.
5
<PAGE>
(ii) An Incentive Stock Option by its terms, shall be
exercisable in any calendar year only to the extent that the
aggregate Fair Market Value (determined at the Date of Grant)
of the Company Stock with respect to which Incentive Stock
Options are exercisable for the first time during the calendar
year does not exceed $100,000 (the "Limitation Amount").
Incentive Stock Options granted under the Plan and all other
plans of the Company and any Parent or Subsidiary of the
Company shall be aggregated for purposes of determining
whether the Limitation Amount has been exceeded. The Board may
impose such conditions as it deems appropriate on an Incentive
Stock Option to ensure that the foregoing requirement is met.
(iii) If Incentive Stock Options that first become
exercisable in a calendar year exceed the Limitation Amount,
the excess Options will be treated as Nonstatutory Stock
Options to the extent permitted by law. If an Option
designated as an Incentive Stock Option otherwise fails to
qualify as an incentive stock option under the Code, the
Option shall be treated as a Nonstatutory Stock Option.
(e) The Committee may, in its discretion, grant Options that
by their terms become fully exercisable upon a Change of Control,
notwithstanding other conditions on exercisability in the stock option
agreement.
7. METHOD OF EXERCISE OF OPTIONS.
(a) Options may be exercised by the Participant giving written
notice of the exercise to the Company, stating the number of shares the
Participant has elected to purchase under the Option. Such notice shall be
effective only if accompanied by the exercise price in full in cash; provided,
however, that if the terms of an Option so permit, the Participant may (i)
deliver, or cause to be withheld from the Option shares, shares of Company Stock
(valued at their Fair Market Value on the date of exercise) in satisfaction of
all or any part of the exercise price, (ii) deliver a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company, from the sale or loan proceeds with respect to the sale of Company
Stock or a loan secured by Company Stock, the amount necessary to pay the
exercise price and, if required by the Committee, Applicable Withholding Taxes,
or (iii) deliver an interest bearing promissory note, payable to the Company, in
payment of all or part of the exercise price together with such collateral as
may be required by the Committee at the time of exercise. The interest rate
under any such promissory note shall be established by the Committee and shall
be at least equal to the minimum interest rate required at the time to avoid
imputed interest under the Code.
6
<PAGE>
(b) The Company may place on any certificate representing
Company Stock issued upon the exercise of an Option any legend deemed desirable
by the Company's counsel to comply with federal or state securities laws, and
the Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment,
including any Applicable Withholding Taxes, and has had issued a certificate for
the shares of Company Stock acquired, he or she shall possess no shareholder
rights with respect to the shares.
(c) Each Participant shall agree as a condition of the
exercise of an Option to pay to the Company, or make arrangements satisfactory
to the Company regarding the payment to the Company of, Applicable Withholding
Taxes. Until such amount has been paid or arrangements satisfactory to the
Company have been made, no stock certificate shall be issued upon the exercise
of an Option.
(d) As an alternative to making a cash payment to the Company
to satisfy Applicable Withholding Taxes, if the Option agreement so provides,
the Participant may, subject to the provisions set forth below, elect to (i)
deliver shares of already owned Company Stock or (ii) have the Company retain
that number of shares of Company Stock that would satisfy all or a specified
portion of the Applicable Withholding Taxes. The Committee shall have sole
discretion to approve or disapprove any such election.
(e) Notwithstanding anything herein to the contrary, if the
Company Stock is Publicly Traded, Options shall always be granted and exercised
in such a manner as to conform to the provisions of Rule 16b-3.
8. NONTRANSFERABILITY OF OPTIONS. Nonstatutory Stock Options shall be
transferable by will or by the laws of descent and distribution, and to such
greater extent as specifically provided in the Incentive Award. Incentive Stock
Options, by their terms, shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable, during the Participant's
lifetime, only by the Participant.
9. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan is
September 11, 1998. The Plan shall be submitted to the shareholders of the
Company for approval. Until (i) the Plan has been approved by the Company's
shareholders, and (ii) the requirements of any applicable Federal or State
securities laws have been met, no Option shall be exercisable.
10. TERMINATION, MODIFICATION, CHANGE. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on September 11, 2008.
No Incentive Awards shall be made under the Plan after its termination. The
Board may terminate the Plan or may amend the Plan in such respects as it shall
deem advisable; provided, that to the extent required by any Federal or state
law or regulation or the rules of any domestic stock exchange on which the
Company Stock is traded, no amendment may be made that requires shareholder
approval unless the amendment is authorized by the
7
<PAGE>
shareholders of the Company. Notwithstanding the foregoing, the Board may
unilaterally amend the Plan and Incentive Awards as it deems appropriate to
cause Incentive Stock Options to meet the requirements of the Code and
regulations thereunder. Except as provided in the preceding sentence, a
termination or amendment of the Plan shall not, without the consent of the
Participant, adversely affect a Participant's rights under an Incentive Award
previously granted to him or her.
11. CHANGE IN CAPITAL STRUCTURE.
(a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or merger in which the Company is the
surviving corporation or other change in the Company's capital stock (including,
but not limited to, the creation or issuance to shareholders generally of
rights, options or warrants for the purchase of common stock or preferred stock
of the Company), the number and kind of shares of stock or securities of the
Company to be subject to the Plan and to Options then outstanding or to be
granted thereunder, the maximum number of shares or securities which may be
delivered under the Plan, the exercise price and other relevant provisions shall
be appropriately adjusted by the Committee, whose determination shall be binding
on all persons. If the adjustment would produce fractional shares with respect
to any unexercised Option, the Committee may adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.
(b) If the Company is a party to an initial public offering, a
consolidation or a merger in which the Company is not the surviving corporation,
a transaction that results in the acquisition of substantially all of the
Company's outstanding stock by a single person or entity, or a sale or transfer
of substantially all of the Company's assets, the Committee may take such
actions with respect to outstanding Incentive Awards as the Committee deems
appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the
Committee may take the foregoing actions without the consent of any Participant,
and the Committee's determination shall be conclusive and binding on all persons
for all purposes.
12. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee who shall be appointed by the Board. If the Company Stock is Publicly
Traded, the Committee shall consist of two or more Non-Employee Directors.
Subject to paragraph (d) below, if the Company Stock is Publicly Traded, the
Committee shall be the Compensation Committee unless the Board shall appoint
another Committee to administer the Plan. The Committee shall have general
authority to impose any limitation or condition upon an Incentive Award the
Committee deems appropriate to achieve the objectives of the Incentive Award and
the Plan and, without limitation and in addition to powers set forth elsewhere
in the Plan, shall have the following specific
8
<PAGE>
authority (subject to Section 13 with respect to Incentive Awards for
Non-Employee Directors):
(a) The Committee shall have the power and complete discretion
to determine (i) which eligible employees shall receive Incentive
Awards and the nature of each Incentive Award, (ii) the number of
shares of Company Stock to be covered by each Incentive Award, (iii)
whether Options shall be Incentive Stock Options or Nonstatutory Stock
Options, (iv) the Fair Market Value of Company Stock, (v) the time or
times when an Incentive Award shall be granted, (vi) whether an
Incentive Award shall become vested over a period of time and when it
shall be fully vested, (vii) when Options may be exercised, (viii)
whether a Disability exists, (ix) the manner in which payment will be
made upon the exercise of Options, (x) conditions relating to the
length of time before disposition of Company Stock received upon the
exercise of Options is permitted, (xi) whether to approve a
Participant's election (A) to deliver shares of already owned Company
Stock to satisfy Applicable Withholding Taxes or (B) to have the
Company withhold from the shares to be issued upon the exercise of a
Nonstatutory Stock Option the number of shares necessary to satisfy
Applicable Withholding Taxes, (xii) notice provisions relating to the
sale of Company Stock acquired under the Plan, and (xiii) any
additional requirements relating to Incentive Awards that the Committee
deems appropriate. The Committee shall have the power to amend the
terms of previously granted Incentive Awards so long as the terms as
amended are consistent with the terms of the Plan and provided that the
consent of the Participant is obtained with respect to any amendment
that would be detrimental to him or her, except that such consent will
not be required if such amendment is for the purpose of complying with
Rule 16b-3 or any requirement of the Code applicable to the Incentive
Award.
(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of
the Plan by the Committee shall be final and conclusive. The Committee
may consult with counsel, who may be counsel to the Company, and shall
not incur any liability for any action taken in good faith in reliance
upon the advice of counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by
a majority of the members present. Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall
be fully effective as if it had been taken at a meeting.
(d) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.
13. GRANTS TO NON-EMPLOYEE DIRECTORS. All provisions of the Plan shall
apply to the grant of Incentive Awards to Non-Employee Directors,
9
<PAGE>
except as specifically provided in this section. All Incentive Awards to
Non-Employee Directors will be Nonstatutory Stock Options. With respect to
Incentive Awards to Non-Employee Directors, the Board will have all of the
authority of the Committee under the Plan. The Board may delegate its authority
to the Compensation Committee or another committee of the Board that is composed
solely of Non-Employee Directors. The provisions for payment of Applicable
Withholding Taxes will not apply to Incentive Awards to Non-Employee Directors.
14. NOTICE. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company - at its principal business address to the
attention of the Treasurer of the Company at the principal address of the
Company; (b) if to any Participant - at the last address of the Participant
known to the sender at the time the notice or other communication is sent.
15. INTERPRETATION. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his or
her delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect. The terms of
this Plan shall be governed by the laws of the State of Delaware.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 356,489
<SECURITIES> 0
<RECEIVABLES> 4,049,279
<ALLOWANCES> (103,075)
<INVENTORY> 3,388,100
<CURRENT-ASSETS> 9,649,653
<PP&E> 3,787,177
<DEPRECIATION> (657,626)
<TOTAL-ASSETS> 20,572,529
<CURRENT-LIABILITIES> 8,018,938
<BONDS> 0
0
83
<COMMON> 8
<OTHER-SE> 1,301,710
<TOTAL-LIABILITY-AND-EQUITY> 20,572,529
<SALES> 74,920,203
<TOTAL-REVENUES> 74,920,203
<CGS> 58,628,217
<TOTAL-COSTS> 58,628,217
<OTHER-EXPENSES> 15,004,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,236,752
<INCOME-PRETAX> (70,844)
<INCOME-TAX> 312,620
<INCOME-CONTINUING> (382,964)
<DISCONTINUED> (1,223,342)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,606,306)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
