FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
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Commission File Number 0-17840
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NEW HORIZONS WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2941704
--------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1231 East Dyer Road, Santa Ana, California 92705
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(Address of principal executive offices)
(Zip Code)
(714) 432-7600
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(Registrant's telephone number, including area code)
_____________________________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months or for such shorter
period that the registrant was required to file such reports, and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares of common stock outstanding at September 30, 1999:
9,559,893
1
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
New Horizons Worldwide, Inc. and Subsidiaries
September 30, 1999 and December 31, 1998
(Dollars in thousands)
September December
30, 1999 31, 1998
--------- --------
Assets (unaudited)
------
Current assets:
Cash and cash equivalents ............. $ 4,327 $ 6,873
Investments ........................... 720 15,821
Accounts receivable, net .............. 23,179 16,538
Inventories ........................... 1,327 784
Prepaid expenses ...................... 1,313 1,039
Deferred income tax assets ............ 2,202 2,202
Other current assets .................. 890 773
--------- --------
Total current assets ................ 33,958 44,030
Property, plant and equipment, net ...... 17,744 13,818
Excess of cost over net assets of
acquired companies, net of
accumulated amortization .............. 55,793 25,225
Cash surrender value of life
insurance .............................. 1,291 863
Other assets ............................ 3,319 2,810
--------- --------
Total Assets ............................ $ 112,105 $ 86,746
========= ========
See accompanying notes to condensed consolidated financial statements.
2
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Condensed Consolidated Balance Sheets
New Horizons Worldwide, Inc. and Subsidiaries
September 30, 1999 and December 31, 1998
(Dollars in thousands)
September December
30, 1999 31, 1998
--------- --------
(unaudited)
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable and current portion
of long-term obligations ......... $ 324 $ 3,910
Accounts payable ..................... 2,341 2,391
Income taxes payable ................. 889 354
Deferred revenue ..................... 8,411 5,084
Accounts payable to franchises ....... 4,231 3,497
Other current liabilities ............ 9,388 7,843
---------- ---------
Total current liabilities ........ 25,584 23,079
Long-term obligations, excluding .......... 12,067 267
current portion
Deferred income tax liabilities ........... 981 981
Deferred rent ............................. 735 658
Other long-term liabilities ............... 241 192
---------- ---------
Total liabilities ................ 39,608 25,177
---------- ---------
Stockholders' equity:
Preferred stock, without par value,
2,000,000 shares authorized, no
shares issued ....................... -- --
Common stock, $.01 par value,
15,000,000 shares authorized;
issued and outstanding
9,744,893 shares in 1999
and 9,558,531 shares in 1998 ........ 79 77
Additional paid-in capital ........... 37,020 33,220
Retained earnings .................... 36,618 29,517
Treasury stock at cost - 185,000
shares in 1999 and 1998 .......... (1,298) (1,298)
Accumulated other comprehensive income 78 53
---------- ---------
Total stockholders' equity ....... 72,497 61,569
---------- ---------
Total Liabilities and Stockholders' Equity $ 112,105 $ 86,746
========== =========
See accompanying notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
New Horizons Worldwide, Inc. and Subsidiaries
Three and Nine Months ended September 30, 1999 and September 30, 1998
(Unaudited)
(Dollars in thousands except Earnings Per Share)
Three Months Ended Nine Months Ended
----------------------------------------- ------------------------------------------
September 30,1999 September 30, 1998 September 30, 1999 September 30, 1998
----------------- ------------------ -------------------- ------------------
<S> <C> <C> <C> <C>
Revenues
Franchising
Franchise fees ................. $ 810 $ 613 $ 1,879 $ 1,321
Royalties ...................... 5,120 4,234 14,756 11,831
Other .......................... 670 480 1,987 1,424
----------------- ------------------ ------------------- ------------------
Total franchising revenues ..... 6,600 5,327 18,622 14,576
Company-owned training centers ...... 23,981 14,332 61,961 37,578
----------------- ------------------ ------------------- ------------------
Total revenues ................. 30,581 19,659 80,583 52,154
Cost of revenues ....................... 13,184 8,635 35,445 23,530
Selling, general and
administrative expenses ............. 12,685 8,197 34,094 22,457
----------------- ------------------ ------------------- ------------------
Operating income ....................... 4,712 2,827 11,044 6,167
Investment income, net ................. 60 323 393 894
----------------- ------------------ ------------------- ------------------
Income before income taxes ............. 4,772 3,150 11,437 7,061
Provision for income taxes ............. 1,761 1,281 4,333 2,744
----------------- ------------------ ------------------- ------------------
Net income ............................. $ 3,011 $ 1,869 $ 7,104 $ 4,317
================= ================== =================== ==================
Basic Earnings Per Share ............... $ 0.32 $ 0.20 $ 0.75 $ 0.47
================= ================== =================== ==================
Diluted Earnings Per Share ............. $ 0.30 $ 0.19 $ 0.71 $ 0.45
================= ================== =================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statements of Cash Flows
New Horizons Worldwide, Inc. and Subsidiaries
Nine Months ended September 30, 1999 and September 30, 1998
(Unaudited)
(Dollars in thousands)
Nine Nine
Months Months
Ended Ended
September September
30, 1999 30, 1998
--------- ---------
Cash flows from operating activities
- ------------------------------------
Net income ............................................. $ 7,104 $ 4,317
Adjustments to reconcile net income to net cash provided
by operating activities (net of acquisitions):
Depreciation and amortization ..................... 4,270 2,900
Deferred income taxes ............................. -- 96
Deferred compensation ............................. 103 --
Cash provided (used) from the change in:
Accounts receivable, net ........................ (3,876) (3,335)
Inventories ..................................... (213) 272
Prepaid expenses and other current assets ....... (174) (75)
Other assets .................................... (383) (793)
Accounts payable ................................ (405) (192)
Other current liabilities ....................... 1,100 6,022
Income taxes payable ............................ 544 (1,049)
Deferred rent ................................... (29) 69
--------- --------
Net cash provided by operating activities ..... 8,041 8,232
--------- --------
Cash flows from investing activities
- ------------------------------------
Purchase of marketable securities ................... (4,148) (23,723)
Redemption of marketable securities ................. 19,274 28,798
Cash surrender value of life insurance .............. (428) --
Additions to property, plant and equipment .......... (5,565) (2,170)
Cash paid for acquired companies,net of cash acquired (25,939) (3,787)
Cash paid for previous acquisitions (See Note 4)..... (1,973) (66)
--------- --------
Net cash used by investing activities ............. (18,779) (948)
--------- --------
Cash flows from financing activities
- ------------------------------------
Proceeds from issuance of common stock .............. 22 481
Proceeds from debt obligations ...................... 13,056 78
Principal payments on debt obligations .............. (4,886) (1,977)
--------- --------
Net cash provided(used) by financing activities ... 8,192 (1,418)
--------- --------
Net increase(decrease) in cash and cash equivalents .... (2,546) 5,866
Cash and cash equivalents at beginning of period ....... 6,873 3,129
--------- --------
Cash and cash equivalents at end of period ............. $ 4,327 $ 8,995
========= ========
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash was paid for:
Interest .......................................... $ 64 $ 184
========= ========
Income taxes ...................................... $ 3,355 $ 2,740
========= ========
See accompanying notes to condensed consolidated financial statements.
5
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Condensed Consolidated Statements of Cash Flows
New Horizons Worldwide, Inc. and Subsidiaries
Nine Months ended September 30, 1999
(Unaudited)
(Dollars in thousands)
Supplemental Disclosure of Noncash Transactions
- -----------------------------------------------
During the nine months ended September 30, 1999, the Company completed the
acquisitions of the Albuquerque, New Mexico, Charlotte, North Carolina,
Sacramento and Stockton, California, San Antonio, Texas and Denver, Colorado
franchises summarized as follows (Note 4):
Fair value of assets acquired ......................... $ 33,981
Short term debt and other obligations incurred ........ (921)
Value of stock issued ................................. (2,983)
Cash paid, net of cash acquired ....................... (25,939)
--------
Liabilities assumed ................................... $ 4,138
========
During the nine months ended September 30, 1999, the Company issued 38,690
shares of stock with a value of $684 at the date of issuance for additional
consideration for a previous acquisition.
6
<PAGE>
Notes to Condensed Consolidated Financial Statements
New Horizons Worldwide, Inc. and Subsidiaries
For the Nine Months Ended September 30, 1999 and September 30, 1998
(Unaudited)
(Dollars in thousands except Earnings Per Share)
Note 1 In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (all of
which are normal and recurring) necessary to present fairly the
financial position of the Company at September 30, 1999 and the
results of operations for the three and nine month periods ended
September 30, 1999 and September 30, 1998. The statements and notes
should be read in conjunction with the financial statements and notes
thereto included in the Company's annual report for the year ended
December 31, 1998.
Note 2 The investments consist of short term money market funds as of
September 30, 1999 and tax-exempt and municipal funds as of December
31, 1998. The Company's investments are presented at their aggregate
fair value. Unrealized gains and losses are included as other
comprehensive income, net of tax, until realized.
Note 3 Certain items on the 1998 financial statements have been reclassified
to conform to the 1999 presentation.
Note 4 (a) Albuquerque, New Mexico franchise
On March 1, 1999, the Company purchased the assets of its
franchise in Albuquerque, New Mexico. The consideration paid
included $2,762 in cash, net of cash acquired, and 48,691 shares
(38,953 shares prior to the Company's stock split) of the
Company's common stock. Based upon the average price of the
Company's stock seven days before and after the date of the
transaction, ($20.29 per share), total consideration paid for
this acquisition was $3,791. The selling shareholders will
receive additional consideration, in cash and stock, if certain
performance targets are achieved. The acquisition has been
recorded using the purchase method of accounting and the
operating results have been included in the Company's financial
statements from the date of acquisition. The acquisition resulted
in goodwill of $3,755 which is being amortized over 25 years.
(b) Charlotte, North Carolina franchise
On April 1, 1999, the Company purchased the assets of its
franchise in Charlotte, North Carolina. The consideration paid
included $3,000 in cash, net of cash acquired, and 50,110 shares
(40,088 shares prior to the Company's stock split) of the
Company's common stock. Based upon the average price of the
Company's stock seven days before and after the date of the
transaction ($19.19 per share), total consideration paid for this
acquisition was $3,769. The selling shareholder will receive
additional consideration, in cash and stock, if certain
performance targets are achieved. The acquisition has been
recorded using the purchase method of accounting and the
operating results have been included in the Company's financial
statements from the date of acquisition. The acquisition resulted
in goodwill of $4,097 which is being amortized over 25 years.
7
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(c) Sacramento and Stockton, California franchises
On April 1, 1999, the Company purchased the assets of its
franchises in Sacramento and Stockton, California. The
consideration paid included $2,915 in cash, net of cash acquired.
The selling shareholder will receive additional cash
consideration if certain performance targets are achieved. The
acquisition has been recorded using the purchase method of
accounting and the operating results have been included in the
Company's financial statements from the date of acquisition. The
acquisition resulted in goodwill of $3,475 which is being
amortized over 25 years.
(d) San Antonio, Texas franchise
On May 6, 1999, the Company purchased the assets of its franchise
in San Antonio, Texas. The consideration paid included $3,651 in
cash, net of cash acquired, and 63,244 shares (50,595 shares
prior to the Company's stock split) of the Company's common
stock. Based upon the average price of the Company's stock seven
days before and after the date of the transaction ($20.62 per
share), total consideration paid for this acquisition was $4,843.
The selling shareholder will receive additional consideration, in
cash and stock, if certain performance targets are achieved. The
acquisition has been recorded using the purchase method of
accounting and the operating results have been included in the
Company's financial statements from the date of acquisition. The
acquisition resulted in goodwill of $4,486 which is being
amortized over 25 years.
(e) Denver, Colorado franchise
On September 1, 1999, the Company purchased the assets of its
franchise in Denver, Colorado. The consideration paid included
$13,611 in cash, net of cash acquired, and 21,634 shares of the
Company's common stock. Based upon the average price of the
Company's stock seven days before and after the date of the
transaction ($17.56 per share), total consideration paid for this
acquisition was $14,080. The selling shareholders will receive
additional consideration, in cash and stock, if certain
performance targets are achieved. The acquisition has been
recorded using the purchase method of accounting and the
operating results have been included in the Company's financial
statements from the date of acquisition. The acquisition resulted
in goodwill of $13,141 which is being amortized over 25 years.
(f) Cash Paid for Acquisitions
During the nine months ended September 30, 1999, the Company
granted additional consideration for previous acquisitions of
$1,829 in cash and 38,690 in shares of the Company's stock due to
the acquired centers meeting certain performance targets.
If the results from the acquired locations had been included in the
results of operations for the first nine months of 1999 and 1998, the
Company's revenue, net income, and earnings per share would have
approximated the following:
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Revenue .................. $ 92,221 $ 72,437
Net Income ............... $ 6,861 $ 5,147
Basic Earnings Per Share . $ 0.71 $ 0.55
Diluted Earnings Per Share $ 0.67 $ 0.53
8
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Note 5 Effective January 1, 1998, the Company adopted SFAS No. 130
"Reporting Comprehensive Income." The Company's comprehensive income
for the nine months ended September 30, 1999 and 1998 is presented
below:
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Net income $ 7,104 $ 4,317
Other comprehensive income,
net of tax:
Unrealized holding gains
on available for sale
securities arising during
the year 25 47
------------------ ------------------
Comprehensive income $ 7,129 $ 4,364
================== ==================
Note 6 In June 1997 the Financial Accounting Standards Board issued SFAS No.
131 "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 was adopted by the Company for the fiscal
year ended December 31, 1998.
The Company operates in two business segments - company-owned training
centers and franchising operations. The company-owned training centers
segment operates wholly-owned computer training centers in the United
States and derives its revenues from the operating revenues of those
centers. The franchising segment franchises computer training centers
domestically and internationally and supplies systems of instruction
and sales and management concepts concerning computer training to
independent franchisees. The franchising segment revenues are from the
initial franchise fees and royalties from the franchise operations and
other revenue such as from Corporate Education Solutions. The two
segments are identified on the basis of the source of revenues and the
services offered. Information on the Company's segments is as follows:
Company- Exec-
owned Fran- cutive Consol-
Centers chising Office idated
-------- -------- -------- --------
For the nine months ended
September 30, 1999
Revenues from external
customers ................... $ 61,961 $ 18,622 $ -- $ 80,583
Depreciation and
amortization expenses ....... 3,630 640 -- 4,270
Income tax expense ............ 2,385 1,948 -- 4,333
Net income .................... 3,978 3,126 -- 7,104
Total assets .................. 87,845 19,599 4,661 112,105
Capital expenditures .......... 3,726 1,854 (15) 5,565
9
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Company- Exec-
owned Fran- cutive Consol-
Centers chising Office idated
-------- -------- -------- --------
For the nine months ended
September 30, 1998
Revenues from external
customers .................... $37,578 $14,576 $ -- $52,154
Depreciation and
amortization expenses ........ 2,526 374 -- 2,900
Income tax expense ............. 994 1,750 -- 2,744
Net income ..................... 1,931 2,386 -- 4,317
Total assets ................... 40,277 18,029 21,706 80,012
Capital expenditures ........... 1,589 577 4 2,170
Note 7 The Company computes earnings per share based on SFAS No.128,"Earnings
Per Share" (EPS). SFAS No. 128 requires the Company to report Basic
EPS, as defined therein, which assumes no dilution from outstanding
stock options, and Diluted EPS, as defined therein, which assumes
dilution from the outstanding stock options. Earnings per share
amounts for all periods presented have been calculated to conform to
the requirements of SFAS No. 128.
The computation of Basic EPS is based on the weighted average number
of shares actually outstanding during each year. The computation of
Diluted EPS is based upon the weighted average number of shares
actually outstanding, plus the shares that would be outstanding
assuming the exercise of all outstanding options and warrants,
computed using the treasury stock method.
The weighted average number of shares outstanding in determining EPS
was as follows:
Three Months Ended Nine Months Ended
------------------------- -------------------------
September September September September
30,1999 30, 1998 30, 1999 30, 1998
---------- --------- ---------- ---------
Basic EPS .......... 9,545,314 9,281,979 9,495,210 9,102,901
Diluted EPS ........ 10,135,133 9,770,060 10,044,267 9,510,903
The difference between the shares used for calculating Basic EPS and
Diluted EPS relates to common stock equivalents consisting of stock
options and warrants outstanding during the respective periods.
10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
General
- -------
The Company operates computer training centers in the United States and
franchises computer training centers in the United States and abroad.
Corporate revenues are defined as revenues from company-owned training centers,
initial franchise fees and royalties from franchised operations. System-wide
revenues are comprised of total revenues from all centers, both company-owned
and franchised. System-wide revenues are used to gauge the growth rate of the
entire New Horizons training network.
Revenues from company-owned training centers operated by New Horizons consist
primarily of training fees and fees derived from the sale of courseware. Cost of
revenues consists primarily of instructor costs, courseware costs, rent,
utilities, classroom equipment, and computer hardware, software and peripheral
expenses. Included in selling, general and administrative expenses are costs
associated with technical support personnel, facilities support personnel,
scheduling personnel, training personnel, accounting and finance personnel, and
sales executives.
Revenues from franchising consist primarily of initial franchise fees paid by
franchisees for the purchase of specific franchise territories and franchise
rights, training royalty and advertising fees based on a percentage of gross
training revenues realized by the franchisees, percentage royalty fees received
on the sale of courseware, and revenue earned from Corporate Education Solutions
(formerly known as Major Accounts Program). Cost of revenues consists primarily
of costs associated with franchise support personnel who provide system
guidelines and advice on daily operating issues including sales, marketing,
instructor training, and general business problems. Included in selling, general
and administrative expenses are technical support, courseware development,
accounting and finance support, Corporate Education Solutions support,
advertising expenses, and franchise sales expenses.
Revenues
- --------
Revenues increased $10,922 or 55.6% to $30,581 for the third quarter of 1999 and
increased $28,429 or 54.5% for the first nine months of 1999 compared to the
same periods in 1998. This was primarily due to improved revenues at
company-owned locations, additional revenues resulting from the acquisition of
the Hartford, Albuquerque, Sacramento, Stockton, Charlotte, San Antonio and
Denver franchises since the third quarter of 1998, revenue increases at
franchises open more than twelve months, and additional franchises added to the
system. System-wide revenues for the third quarter were $113,310, up 21.2% from
$93,482 for the same period in 1998. For the first nine months of 1999,
system-wide revenues grew 24.8% to $325,656 from $261,037 for the third quarter
of 1998. System-wide revenues include revenues from both franchised locations
and company-owned training centers. Revenues from locations open more than 12
months, both franchised and company-owned, grew 12.6% in the third quarter of
1999 and 16.5% in the first nine months of 1999 compared to the same periods in
1998.
11
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Cost of Revenues
- ----------------
Cost of revenues increased $4,549 or 52.7% for the third quarter of 1999 and
increased $11,915 or 50.6% for the first nine months of 1999 compared to the
same periods in 1998. As a percentage of revenues, cost of revenues decreased to
43.1% in the third quarter of 1999 from 43.9% and decreased to 44.0% for the
first nine months of 1999 from 45.1% compared to the same periods in 1998. The
increase in the cost of revenues in absolute dollars was a result of the
increase in the revenues for the quarter and the first nine months of 1999 as
discussed above, higher training, facilities and depreciation expenses in and
associated with the acquisition of the Sacramento, Stockton, Charlotte, San
Antonio and Denver franchises in the first nine months of 1999 and the inclusion
of the Memphis, Nashville, and Hartford franchises for the full period in 1999.
The decrease in cost of revenues as a percentage of revenues was primarily due
to improved absorption of fixed costs over an increased revenue base.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased $4,488 or 54.8% for the
third quarter of 1999 and increased $11,637 or 51.8% for the first nine months
of 1999 compared to the same periods in 1998. As a percentage of revenues,
selling, general and administrative expenses decreased to 41.5% for the third
quarter of 1999 and to 42.3% for the first nine months of 1999 from 41.7% and
43.1%, respectively, for the same periods in 1998. The increase in selling,
general and administrative expenses in absolute dollars was due principally to
increased spending in the areas of sales and marketing, national advertising,
franchise support of international operations, the expansion of Corporate
Education Solutions, the acquisition of the Sacramento, Stockton, Charlotte, San
Antonio and Denver franchises in the first nine months of 1999, and the
inclusion of the Memphis, Nashville, and Hartford franchises for the full period
in 1999. The decrease in selling, general and administrative expenses as a
percent of revenues was primarily due to the increase in revenue and control of
the addition of non-revenue producing employees.
Operating Income
- ----------------
Operating income increased $1,885 or 66.7% for the third quarter of 1999 and
increased $4,877 or 79.1% for the first nine months of 1999 compared to the same
periods in 1998. The increase in operating income for the three and nine months
ended September 30, 1999 resulted mainly from the increase in revenues and the
reduction in expenses as a percentage of revenues.
Investment Income, Net
- ----------------------
Investment income decreased $220 or 59.6% for the third quarter of 1999 and
decreased $558 or 50.6% for the first nine months of 1999 compared to the same
periods in 1998. As a percentage of revenues, investment income decreased to
0.5% for the third quarter of 1999 and to 0.7% for the first nine months of 1999
from 1.9% and 2.1%, respectively, for the same periods in 1998. The decrease in
investment income in absolute dollars was due mainly to the use of funds to
purchase the nine franchises acquired since the first quarter of 1998 and the
8.3 acres of undeveloped land in Santa Ana, California.
Interest expense increased $43 or 93.5% for the third quarter of 1999 and
decreased $57 or 27.4% for the first nine months of 1999 compared to the same
periods in 1998. The decrease in interest expense was due mainly to lower
outstanding borrowings in the first nine months of 1999 compared to the
corresponding period in 1998.
12
<PAGE>
Income Taxes
- ------------
The Company's effective tax rate was 36.9% for the third quarter of 1999 and
37.9% for the first nine months of 1999.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1999, the Company's working capital was $8,374 and its cash,
cash equivalents and short-term investments totaled $5,047. Working capital as
of September 30, 1999 reflected a decrease of $12,577 or 60.0% from $20,951 as
of December 31, 1998.
The Company negotiated a $25 million credit facility with a commercial bank, $20
million of which is for future business acquisitions and $5 million of which is
for short-term financing requirements. Total borrowings at September 30, 1999
were $12 million under the acquisition financing portion of the line of credit
agreement.
The nature of the computer education and training industry requires substantial
cash commitments for the purchase of computer equipment, software, and training
facilities. During the first nine months of 1999 the Company spent approximately
$5,565 on capital items and anticipates spending up to a total of $7 million
during 1999.
Management believes that its current working capital position, cash flows from
operations, along with its credit facility, will be adequate to support its
current and anticipated capital and operating expenditures and its strategies to
grow its computer education and training business.
Information About Forward Looking Statements
- --------------------------------------------
The statements made in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements. Such statements are based on
current expectations but involve risks, uncertainties, and other factors which
may cause actual results to differ materially from those contemplated by such
forward-looking statements. All statements that address operating performance,
events or developments that management anticipates will occur in the future,
including statements relating to future revenue, profits, expenses, income and
earnings per share or statements expressing general optimism about future
results, are forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). In addition, such words as
"expects," "anticipates," "intends," "plans," "believes," "estimates,"
variations of such words, and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are subject to safe
harbors created in the Exchange Act. Important factors which may result in
variations from results contemplated by such forward-looking statements include,
but are by no means limited to: (1) the Company's ability to respond effectively
to potential changes in the manner in which computer training is delivered,
including the increasing acceptance of technology-based training which could
have more favorable economics with respect to timing and delivery costs and the
emergence of just-in-time interactive training; (2) the Company's ability to
attract and retain qualified instructors; (3) the rate at which new software
applications are introduced by manufacturers and the Company's ability to keep
up with new applications and enhancements to existing applications; (4) the
level of expenditures devoted to upgrading information systems and computer
software by customers; (5) the Company's ability to compete effectively with low
cost training providers who may not be authorized by software manufacturers; and
(6) the Company's ability to manage the growth of its business.
13
<PAGE>
The Company's strategy focuses on enhancing revenues and profits at current
locations, and also includes the possible opening of new company-owned
locations, the sale of additional franchises, the selective acquisition of
existing franchises in the United States which have demonstrated the ability to
achieve exceptional profitability while increasing market share, and the
acquisition of companies in similar or of assumptions concerning trends in the
information technology training industry. These include the continuation of
growth in the market for information technology training and the trend toward
outsourcing. To the extent that the Company's assumptions with respect to any of
these matters are inaccurate, its results of operations and financial condition
could be adversely effected.
Year 2000
- ---------
The issues raised by the inability of computers, software, and other equipment
utilizing microprocessors to recognize and properly process data fields
containing a 2-digit year are commonly referred to as Year 2000 ("Y2K") issues.
A company-wide Y2K compliance program has been implemented to determine Y2K
issues and develop strategies to assure compliance. The compliance program has
four major areas of concentration: internal information technology systems,
non-information technology systems, systems and processes utilized by
franchisees, and compliance issues related to major suppliers. A Y2K project
team has been established and is directing the activity regarding the issues
confronted in each area, monitoring progress of the effort, and reporting
findings to management. As the Y2K compliance program proceeds, contingency
plans have been prepared, updated, and implemented as necessary to address the
risks identified.
With respect to internal information technology systems, among the most critical
systems to the ongoing operations of both the company-owned and franchised
training centers are those systems which provide customer contact and student
registration information. The systems currently used by the company-owned
centers are now Y2K compliant. Certain franchised locations use the same systems
as the company-owned centers and have received upgrades from the Company which
should make them Y2K compliant. Other franchised locations use contact
management and/or student registration software from various vendors which, in
many cases, may require updating to become Y2K compliant. Franchisees have been
and will continue to be advised to bring their systems into compliance. The
Company is reviewing its computer hardware and upgrading or replacing items as
necessary. With respect to the Company's accounting system currently used to
consolidate results from the company-owned centers, a new system was selected
and installation was completed by the end of the third quarter, 1999 at those
locations that did not have Y2K compliant accounting systems at a total project
cost of not more than $500.
Regarding non-information technology systems, the project team has inventoried
the items potentially affected by Y2K issues, and believe that none have the
potential for a material adverse impact.
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PART I. FINANCIAL INFORMATION
(Dollars in thousands)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates. It
monitors the risks associated with interest rates and financial instrument
positions.
The Company's primary interest rate risk exposure results from floating rate
debt on its line of credit. At September 30, 1999, most of the Company's total
long-term debt consisted of floating rate debt. If interest rates were to
increase 100 basis points (1.0%) from September 30, 1999 rates, and assuming no
changes in long-term debt from the September 30, 1999 levels, the additional
annual expense would be approximately $120 on a pre-tax basis. The Company
currently does not hedge its exposure to floating interest rate risk.
The Company accounts for investments pursuant to Statement of Financial
Accounting Standards (SFAS) No.115, "Accounting for Certain Investments in Debt
and Equity Securities." At September 30, 1999 and December 31, 1998, the
Company's investments have been categorized as "available for sale" and, as a
result, are stated at fair value. Accordingly, any unrealized holding gains and
losses are included as a component of accumulated other comprehensive income,
net of tax, until realized. Investments at September 30, 1999 consist of $720 in
short term money market funds.
There were unrealized gains of $78 and $53 recorded as of September 30, 1999 and
December 31, 1998, respectively.
The Company's revenue derived from international operations is not material and,
therefore, the risk related to foreign currency exchange rates is not material.
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PART II. FINANCIAL INFORMATION
(Dollars in thousands)
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
c) Recent Sale of Unregistered Securities
No securities of the Company that were not registered under the Securities Act
of 1933 have been issued or sold by the Company for the period covered by this
Quarterly Report on Form 10-Q other than the following:
On September 1, 1999, the Company acquired its franchise locations in Denver,
Englewood, Broomfield, and Colorado Springs, Colorado for $13,611 in cash, net
of cash acquired, and 21,634 shares of the Company's common stock. The average
price of the Company's stock seven days before and after the date of the
transaction was $17.56 per share of common stock. Thus, the aggregate value of
the 21,634 shares of common stock on the date of the transaction was $380.
Registration under the Securities Act of 1933 was not effected with respect to
the transaction described above in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933.
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PART II: Other Information
Item 5. Other Information
Effective August 27, 1999, the Company's principal executive office is
located at 1231 E. Dyer Road, Santa Ana, California 92705, and the
Company's phone number is 714-432-7600.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
(b) Reports on Form 8-K. During the quarter ended September 30, 1999, the
Company filed a Current Report on Form 8-K dated September 1, 1999 to
report the Company's acquisition, through its indirect wholly-owned
subsidiary, New Horizons Computer Learning Center of Denver, Inc., a
Delaware corporation, of substantially all of the assets used in the
computer training business conducted by Vernon Business Systems, Inc.,
a Colorado corporation.
Exhibit
Number Description of Documents
4.1 Secured Revolving Line of Credit, guaranteed by the Registrant*
10.1** Relocation Agreement dated July 27, 1999 between the Registrant and
Thomas J. Bresnan*
27 Financial Data Schedule*
* Filed herewith
** Compensatory plan or agreement
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
NEW HORIZONS WORLDWIDE, INC.
(Registrant)
Date: November 12, 1999 By: /s/
Robert S. McMillan
NEW HORIZONS WORLDWIDE, INC.
Chief Financial Officer
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BUSINESS LOAN AGREEMENT
This Agreement dated as of August 23rd, 1999, is between Bank of America
N.A. (the "Bank") and New Horizons Worldwide, Inc., a Delaware corporation (the
"Borrower").
1. FACILITY NO. ONE: LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will
provide a line of credit ("Facility No. One") to the Borrower.
The amount of the line of credit (the "Facility No. One
Commitment") is Five Million Dollars ($5,000,000).
(b) This is a revolving line of credit providing for cash advances
and letters of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit plus the outstanding
amounts of any letters of credit, including amounts drawn on
letters of credit and not yet reimbursed, to exceed the Facility
No. One Commitment.
(d) The Borrower may at any time, upon not less than ten (10) days
written notice to the Bank, terminate or reduce the amount of the
Facility No. One Commitment, and any such reduction will be in an
amount not less than One Million Dollars ($1,000,000) and any
multiple thereof. Any termination in full of Facility No. One
will be accompanied by a prepayment in full of the unpaid
principal amount of the advances then outstanding, together with
the payment of any accrued and unpaid interest and fees. Any
reduction in the Facility No. One Commitment will be accompanied
by the prepayment of the respective advances to the extent, if
any, that the aggregate principal amount thereof plus the
outstanding amounts of any letters of credit including amounts
drawn on letters of credit and not yet reimbursed, exceed the
Facility No. One Commitment as then reduced.
1.2 Availability Period. The line of credit is available between the date
of this Agreement and September 30, 2002 (the "Facility No. One
Expiration Date") unless an Event of Default (as defined in Section
10) exists.
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Reference Rate minus one
half of one percentage point (0.50%).
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(b) The Reference Rate is the per annum rate of interest publicly
announced from time to time by the Bank as its Reference Rate.
The Reference Rate is set by the Bank based on various factors,
including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers
at, above, or below the Reference Rate. Any change in the
Reference Rate shall take effect at the opening of business on
the day specified in the public announcement of a change in the
Bank's Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on August 30, 1999, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit
no later than the Facility No. One Expiration Date. Any interest
period for an optional interest rate (as described below) shall
expire no later than the Facility No. One Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect the optional interest
rates listed below for this Facility No. One during interest periods
agreed to by the Bank and the Borrower. The optional interest rates
shall be subject to the terms and conditions described later in this
Agreement. Any principal amount bearing interest at an optional rate
under this Agreement is referred to as a "Portion." The following
optional interest rate is available:
(a) the LIBOR Rate plus one and three-quarters percentage points
(1.75%).
1.6 Letters of Credit.
(a) This line of credit may be used for financing:
(i) commercial letters of credit with a maximum maturity of 365
days but not to extend more than 120 days beyond the
Facility No. One Expiration Date. Each commercial letter of
credit will require drafts payable at sight.
(ii) standby letters of credit with a maximum maturity of 365
days but not to extend more than 120 days beyond the
Facility No. One Expiration Date.
(iii)The amount of the letters of credit outstanding at any one
time (including amounts drawn on letters of credit and not
yet reimbursed) may not exceed One Million Dollars
($1,000,000).
(b) The Borrower agrees:
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(i) any sum drawn under a letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under
this Agreement. The amount will bear interest and be due as
described elsewhere in this Agreement.
(ii) if there is an Event of Default under this Agreement, to
immediately prepay and make the Bank whole for any
outstanding letters of credit.
(iii)the issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's written approval
and must be in form and content satisfactory to the Bank and
in favor of a beneficiary acceptable to the Bank.
(iv) to sign the Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement for
Standby Letter of Credit.
(v) to pay any standard issuance and/or other standard fees that
the Bank notifies the Borrower will be charged for issuing
and processing letters of credit for the Borrower.
(vi) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other charges.
(vii)to pay the Bank a non-refundable fee equal to 1.75% per
annum of the outstanding undrawn amount of each standby
letter of credit, payable quarterly in advance, calculated
on the basis of the face amount outstanding on the day the
fee is calculated. If there is an Event of Default which has
occurred and is continuing under this Agreement, at the
Bank's option upon written notice to the Borrower, the
amount of the fee shall be increased to 3.75% per annum,
effective starting on the day the Bank provides notice of
the increase to the Borrower.
2. FACILITY NO. TWO LINE OF CREDIT AMOUNT AND TERMS
2.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will
provide a line of credit ("Facility No. Two") to the Borrower.
The amount of the line of credit (the "Facility No. Two
Commitment") is Twenty Million Dollars ($20,000,000).
(b) This is a revolving line of credit with a term repayment option,
and providing for cash advances. During the availability period,
the Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit to exceed the
Facility No. Two Commitment.
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<PAGE>
2.2 Availability Period. The line of credit is available between the date
of this Agreement and December 31, 2000 (the "Facility No. Two
Expiration Date") unless an Event of Default exists.
2.3 Interest Rate. Unless the Borrower elects an optional rate as
described below, the interest rate is the Bank's Reference Rate minus
one-half of one percentage point (0.50%).
2.4 Repayment Terms.
(a) The Borrower will pay interest on August 30, 1999, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
(b) The Borrower will repay the principal amount outstanding on the
Facility No., Two Expiration Date in 16 successive equal
quarterly installments starting March 31, 2001. On December 31,
2004, the Borrower will repay the remaining principal balance
plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time.
The prepayment will be applied to the most remote payment of
principal due under this Agreement.
(d) Notwithstanding the repayment terms in (b) above, the Borrower
will be required to repay in full the outstanding principal
balance of Facility No. Two, together with any interest then due,
if Facility No. One is terminated for any reason. Such
termination could be the result of: (i) the Borrower's request to
cancel the line; (ii) cancellation of the line by the Bank
because of an Event of Default; (iii) the Bank's decision not to
renew the line of credit beyond any applicable availability
period; or (iv) the Borrower's decision not to accept the Bank's
offer to renew the line of credit upon such terms and condition
as may be offered by the Bank. Repayment of Facility No. Two
shall be due on the date of cancellation of Facility No. One, as
referred to in (i) and (ii) above, or for any non-renewal of
Facility No. One, as referred to in (iii) and (iv) above, on
September 30, 2002.
2.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect the optional interest
rates listed below for this Facility No. Two during the interest
periods agreed to by the Bank and the Borrower. The optional interest
rates shall be subject to the terms and conditions described later
this Agreement. Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "Portion". The following
optional interest rate is available:
(a) The LIBOR Rate plus one and three-quarters percentage points
(1.75%).
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<PAGE>
3. OPTIONAL INTEREST RATES
3.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and, if
the interest period is longer than one month then on the last day of
each month during the interest period. At the end of any interest
period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another optional
interest rate for the Portion. No Portion will be converted to a
different interest rate during the applicable interest period. Upon
the occurrence and continuance of an Event of Default under this
Agreement, the Bank may terminate the availability of optional
interest rates for interest periods commencing after the default
occurs.
3.2 LIBOR Rate. The election of LIBOR Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in effect
will be one, two or three weeks, or one, two, three, four, five,
six, seven, eight, nine, ten, eleven, or twelve months. The first
day of the interest period must be a day, other than a Saturday
or a Sunday, on which the Bank is open for business in
California, New York and London and dealing in offshore dollars
(a "LIBOR Banking Day"). The last day of the interest period and
the actual number of days during the interest period will be
determined by the Bank using the practices of the London
inter-bank market.
(b) Each LIBOR Rate Portion will be for an amount not less than the
following:
(i) for interest periods of four months or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of one, two or three months, One
Million Dollars ($1,000,000).
(iii)for interest periods of one, two or three weeks, an amount
which, when multiplied by the number of days in the
applicable interest period, is not less than thirty million
(30,000,000) dollar-days.
(c) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
the Bank as of the first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
---------------------------------
(1.00 - Reserve Percentage)
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<PAGE>
Where,
(i) "London Inter-Bank Offered Rate" means the interest
rate at which the Bank's London Branch, London, Great
Britain, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the
London inter-bank market at approximately 11:00 a.m.
London time two (2) London Banking Days before the
commencement of the interest period. A "London Banking
Day" is a day on which the Bank's London Branch is open
for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve
System for Eurocurrency Liabilities, as defined in
Federal Reserve Board Regulation D, rounded upward to
the nearest 1/100 of one percent. The percentage will
be expressed as a decimal, and will include, but not be
limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion
no later than 12:00 noon San Francisco time on the LIBOR
Banking Day preceding the day on which the London Inter-Bank
Offered Rate will be set, as specified above. For example,
if there are no intervening holidays or weekend days in any
of the relevant locations, the request must be made at least
three days before the LIBOR Rate takes effect.
(e) The Borrower may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the
last day of the applicable interest period.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid and
a prepayment fee as described below. A "prepayment" is a
payment of an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement.
The prepayment fee shall be equal to the amount (if any) by
which:
(i) the additional interest which would have been payable
during the interest period on the amount prepaid had it
not been prepaid, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
domestic certificate of deposit market, the eurodollar
deposit market, or other appropriate money market
selected by the Bank, for a period starting on the date
on which it was prepaid and ending on the last day of
the interest period for such Portion (or the scheduled
payment date for the amount prepaid, if earlier).
(g) The Bank will have no obligation to accept an election for a
LIBOR Rate Portion if any of the following described events
has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR Rate
Portion are not available in the London inter-bank
market; or
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<PAGE>
(ii) the LIBOR Rate does not accurately reflect the cost of
a LIBOR Rate Portion.
4. FEES AND EXPENSES
4.1 Fees.
(a) Unused commitment fee (Facility No. One). Upon the termination of
Facility No. Two and/or the repayment in full of all obligations
outstanding under Facility No. Two, the Borrower agrees to pay a
fee (with respect to the period following such termination) on
any difference between the Facility No. One Commitment, as the
same may be reduced pursuant to Section 1.1(d) above, and the
amount of credit it actually uses, determined by the weighted
average credit outstanding during the specified period. The fee
will be calculated at 0.25% per year. The calculation of credit
outstanding shall include the undrawn amount of letters of
credit. When applicable, the fee shall be payable in arrears on
the last day of each calendar quarter until expiration of the
Facility No. One availability period.
(b) Unused commitment fee (Facility No. Two). The Borrower agrees to
pay a fee for the period commencing January 1, 2000 and ending
December 31, 2000, on any difference, if any, between $10,000,000
minus the amount of credit it actually uses, determined by the
weighted average credit outstanding during the specified period.
The fee will be calculated at 0.375% per year. This fee is due on
March 31, 2000, and on the last day of each calendar quarter
through December 31, 2000.
(c) Waiver Fee. If the Bank, at its discretion, agrees to waive or
amend any terms of this Agreement, the Borrower will, at the
Bank's option, pay the Bank a fee for each waiver or amendment in
an amount advised by the Bank at the time the Borrower requests
the waiver or amendment. Nothing in this paragraph shall imply
that the Bank is obligated to agree to any waiver or amendment
requested by the Borrower. The Bank may impose additional
requirements as a condition to any waiver or amendment.
4.2 Expenses. The Borrower agrees to promptly repay the Bank for
reasonable expenses that include, but are not limited to, filing,
recording and search fees and documentation fees.
4.3 Reimbursement Costs. The Borrower agrees to reimburse the Bank for any
reasonable expenses it incurs in the preparation of this Agreement and
any agreement or instrument required by this Agreement. Expenses
include, but are not limited to, reasonable attorneys' fees, including
any allocated costs of the Bank's in-house counsel.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another
means acceptable to the Bank.
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<PAGE>
5.2 Disbursements and Payments.
(a) Disbursements by the Bank shall be made to Borrowers deposit
account number 14587-26757, or such other of the Borrowers
accounts with the Bank as designated in writing by the Borrower;
(b) All payments and disbursements shall be made in immediately
available funds;
(c) All payments and disbursements shall be evidenced by records kept
by the Bank. In addition, the Bank may, at its discretion,
require the Borrower to sign one or more promissory notes.
5.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances
or repayments or for the designation of optional interest rates
and telefax requests for the issuance of letters of credit given
by any one of the individuals authorized to sign loan agreements
on behalf of the Borrower, or any other individual designated by
any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn
from the Borrower's account number 14587-26757, or such other of
the Borrower's accounts with the Bank as designated in writing by
the Borrower.
(c) The Bank will provide written confirmation to the Borrower of
transactions made based on telephone or telefax instructions. The
Borrower agrees to notify the Bank promptly of any discrepancy
between the confirmation and the telephone or telefax
instructions.
(d) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and
costs in connection with any act resulting from telephone or
telefax instructions the Bank reasonably believes are made by any
individual authorized by the Borrower to give such instructions.
This indemnity and excuse will survive this Agreement's
termination.
5.4 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit the Borrower's
deposit account number 14587-26757, or such other of the
Borrower's accounts with the Bank as designated in writing by the
Borrower (the "Designated Account") on the date each payment of
principal and interest and any fees from the Borrower becomes due
(the "Due Date"). If the Due Date is not a banking day, the
Designated Account will be debited on the next banking day.
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<PAGE>
(b) Approximately 10 days prior to each Due Date, the Bank will mail
to the Borrower a statement of the amounts that will be due on
that Due Date (the "Billed Amount"). The calculation will be made
on the assumption that no new extensions of credit or payments
will be made between the date of the billing statement and the
Due Date, and that there will be no changes in the applicable
interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued
Amount"). If the Billed Amount debited to the Designated Account
differs from the Accrued Amount, the discrepancy will be treated
as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased
by the amount of the discrepancy. The Borrower will not be
in default by reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased
by the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue
to accrue based on the actual amount of principal
outstanding without compounding. The Bank will not pay the
Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated
Account to cover each debit. If there are insufficient funds in
the Designated Account on the date the Bank enters any debit
authorized by this Agreement, the debit will be reversed.
5.5 Direct Debit (Line of Credit)
(a) The Borrower agrees that the Bank may create advances under the
line of credit to pay interest and any fees that are due under
this Agreement.
(b) The Bank will create such advances on the dates the payments
become due. If a due date does not fall on a banking day, the
Bank will create the advance on the first banking day following
the due date.
(c) If the creation of an advance under the line of credit causes the
total amount of credit outstanding under the line to exceed the
limitations set forth in this Agreement, the Borrower will
immediately pay the excess to the Bank upon the Bank's demand.
5.6 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day, other than a Saturday or a Sunday, on which the Bank is
open for business in California. For amounts bearing interest at an
offshore rate (if any), a banking day is a day other than a Saturday
or a Sunday on which the Bank is open for business in California and
dealing in offshore dollars. All payments and disbursements which
would be due on a day which is not a banking day will be due on the
next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
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<PAGE>
5.7 Taxes.
(a) If any payments to the Bank under this Agreement are made from
outside the United States, the Borrower will not deduct any
foreign taxes from any payments it makes to the Bank. If any such
taxes are imposed on any payments made by the Borrower (including
payments under this paragraph), the Borrower will pay the taxes
and will also pay to the Bank, at the time interest is paid, any
additional amount which the Bank specifies as necessary to
preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. The Borrower will confirm that it has
paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date.
(b) Payments made by the Borrower to the Bank will be made without
deduction of United States withholding or similar taxes. If the
Borrower is required to pay U.S. withholding taxes, the Borrower
will pay such taxes in addition to the amounts due to the Bank
under this Agreement. If the Borrower fails to make such tax
payments when due, the Borrower indemnifies the Bank against any
liability for such taxes, as well as for any related interest,
expenses, additions to tax, or penalties asserted against or
suffered by the Bank with respect to such taxes.
5.8 Additional Costs. The Borrower will pay the Bank, on written demand,
for the Bank's costs or losses incurred not more than sixty (60) days
prior to the date of such written demand, arising from any statute or
regulation, or any request or requirement of a regulatory agency which
is applicable to all national banks or a class of all national banks.
The costs and losses will be allocated to the loan in a manner
determined by the Bank, using any reasonable method. The costs include
the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
5.9 Interest Calculation. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed. This results in
more interest or a higher fee than if a 365-day year is used.
Installments of principal which are not paid when due under this
Agreement shall continue to bear interest until paid.
5.10 Default Rate. Upon the occurrence and during the continuation of any
Event of Default under this Agreement, following written notice from
the Bank, principal amounts outstanding under this Agreement will at
the option of the Bank bear interest at a rate which is two (2)
percentage point(s) higher than the rate of interest otherwise
provided under this Agreement. This will not constitute a waiver of
any default.
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5.11 Interest Compounding. At the Bank's sole option in each instance, any
interest, fees or costs which are not paid when due under this
Agreement shall bear interest from the due date at the Bank's
Reference Rate plus two (2) percentage points. This may result in
compounding of interest.
5.12 Overdrafts. At the Bank's sole option in each instance, the Bank may
do one of the following:
(a) The Bank may make advances under this Agreement to prevent or
cover an overdraft on any account of the Borrower with the Bank.
Each such advance will accrue interest from the date of the
advance or the date on which the account is overdrawn, whichever
occurs first, at the interest rate described in this Agreement.
(b) The Bank may reduce the amount of credit otherwise available
under this Agreement by the amount of any overdraft then
outstanding on any account of the Borrower with the Bank.
This paragraph shall not be deemed to authorize the Borrower to
create overdrafts on any of the Borrower's accounts with the
Bank.
6. CONDITIONS
The Bank must receive the following items, in form and content acceptable
to the Bank, before it is required to extend any credit to the Borrower
under this Agreement:
6.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower and each guarantor of this Agreement and any
instrument or agreement required under this Agreement have been duly
authorized.
6.2 Governing Documents. A copy of the articles of incorporation or
organization for the Borrower and each subsidiary.
6.3 Master Guaranty. A master continuing and unconditional guaranty
("Master Guaranty") signed by each subsidiary set forth on Exhibit A
hereto.
6.4 Good Standing. Certificates of good standing for the Borrower and each
subsidiary from its state of formation and from any other state in
which the Borrower and each subsidiary is required to qualify to
conduct its business.
6.5 Payment of Fees. Payment of all accrued and unpaid expenses incurred
by the Bank as required by the paragraph entitled "Reimbursement
Costs."
6.6 Year 2000 Information. A completed Bank form of Year 2000
Questionnaire.
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6.7 Borrower Certificate. A certificate of the Borrower, signed by an
authorized officer of Borrower, confirming to the best knowledge of
Borrower, the accuracy in all material respects, of the Bank prepared
company projections for the fiscal year end periods December 31, 1999
through December 31, 2003.
6.8 Lien Search. A UCC lien search showing no security interests and liens
on the assets of the Borrower and its subsidiaries, except those the
Bank consents to in writing.
6.9 Other Items. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
7.1 Organization of Borrower. The Borrower is a corporation duly formed
and existing under the laws of the state where organized. Each
subsidiary of the Borrower including without limitation, the
subsidiaries set forth on Exhibit A hereto (individually a
Subsidiary and collectively, the Subsidiaries), is a corporation
or a limited liability company duly formed and existing under the laws
of the state where organized.
7.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
The execution, delivery and performance by each Subsidiary of the
Master Guaranty is within its corporate powers, has been duly
authorized and does not conflict with any of its organizational
papers.
7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in
accordance with its terms, and any instrument or agreement required
hereunder from the Borrower or any Subsidiary, when executed and
delivered, will be similarly legal, valid, binding and enforceable,
except as enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws relating to or affecting enforcement
of creditors rights generally or by general equitable principles.
7.4 Good Standing. In each state in which the Borrower and each Subsidiary
does business, it is properly licensed, in good standing, and, where
required, in compliance with fictitious name statutes, except where
the failure to do so would not have a material adverse effect on the
Borrower and its Subsidiaries taken as a whole.
7.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower or any Subsidiary is
bound.
7.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank, including the Borrower's
consolidated financial statement dated as of March 31, 1999, is:
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(a) prepared in accordance with generally accepted accounting
principles, consistently applied, and fairly presents the
financial condition, including all material contingent
liabilities, of the Borrower and its Subsidiaries.
(b) in compliance in all material respects with all government
regulations that apply.
Since the date of the financial statement specified above, there has
been no material adverse change in the business condition (financial
or otherwise), operations, properties or prospects of the Borrower or
any Subsidiary.
7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower or any Subsidiary which, if lost,
would materially impair the Borrower's and its Subsidiaries financial
condition taken as a whole or ability to repay the loan, except as
have been disclosed in writing to the Bank.
7.8 Permits, Franchises. The Borrower and each Subsidiary possesses all
permits, memberships, franchises, contracts and licenses required and
all trademark rights, trade name rights, patent rights and fictitious
name rights necessary to enable it to conduct the business in which it
is now engaged, except where the failure to own or possess any of the
foregoing would not have a material adverse effect on the financial
condition or operations of the Borrower and its Subsidiaries taken as
a whole.
7.9 Other Obligations. Neither the Borrower nor any Subsidiary is in
default on any obligation for borrowed money, any purchase money
obligation or any other material lease, commitment, contract,
instrument or obligation, in excess of $200,000 in the aggregate,
except as have been disclosed in writing to the Bank.
7.10 Income Tax Matters. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year in excess of
$500,000 in the aggregate, except as have been disclosed in writing to
the Bank.
7.11 No Tax Avoidance Plan. The Borrower's obtaining of credit from the
Bank under this Agreement does not have as a principal purpose the
avoidance of U.S. withholding taxes.
7.12 No Event of Default. There is no Event of Default which has occurred
and is continuing.
7.13 Insurance. The Borrower has obtained, and maintained in effect, the
insurance coverage required in the "Covenants" section of this
Agreement.
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7.14 ERISA Plans.
(a) Each Plan (other than a multiemployer plan) is in compliance in
all material respects with the applicable provisions of ERISA,
the Code and other federal or state law, except to the extent
that any non-compliance would not result in a material liability
of Borrower. Each Plan has received a favorable determination
letter from the IRS and to the best knowledge of the Borrower,
nothing has occurred which would cause the loss of such
qualification in any case where the failure to be qualified would
result in a material liability of Borrower. The Borrower has
fulfilled its obligations, if any, under the minimum funding
standards of ERISA and the Code with respect to each Plan, except
to the extent that any failure to fulfill such obligation would
not result in a material liability of Borrower, and has not
incurred any material liability with respect to any Plan under
Title IV of ERISA.
(b) There are no claims, lawsuits or actions (including by any
governmental authority), and there has been no prohibited
transaction or violation of the fiduciary responsibility rules,
with respect to any Plan which has resulted or could reasonably
be expected to result in a material adverse effect.
(c) With respect to any Plan subject to Title IV of ERISA:
(i) No reportable event has occurred under Section 4043(c) of
ERISA for which the PBGC requires 30-day notice, which would
result in a material liability of Borrower.
(ii) No action by the Borrower or any ERISA Affiliate to
terminate or withdraw from any Plan has been taken and no
notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA, which termination or withdrawal would
result in a material liability of Borrower.
(iii)No termination proceeding has been commenced with respect to
a Plan under Section 4042 of ERISA, and to Borrowers
knowledge, no event has occurred or condition exists which
might constitute grounds for the commencement of such a
proceeding.
(d) The following terms have the meanings indicated for purposes of
this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
(iii)"ERISA Affiliate" means any trade or business (whether or
not incorporated) under common control with the Borrower
within the meaning of Section414(b) or (c) of the Code.
(iv) "PBGC" means the Pension Benefit Guaranty Corporation.
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(v) "Plan" means a pension, profit-sharing, or stock bonus plan
intended to qualify under Section 401(a) of the Code,
maintained or contributed to by the Borrower or any ERISA
Affiliate, including any multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA.
7.15 Location of Borrower. Subject to Section 8.13(e), the Borrower's place
of business (or, if the Borrower has more than one place of business,
its chief executive office) is located at the address listed under the
Borrower's signature on this Agreement.
7.16 Environmental Matters. Neither the Borrower nor any Subsidiary (a) is
in violation of any health, safety, or environmental law or regulation
regarding hazardous substances and (b) is the subject of any claim,
proceeding, notice, or other communication regarding hazardous
substances, which could reasonably be expected to have a material
adverse effect on the financial condition or operations of the
Borrower and its Subsidiaries taken as a whole. "Hazardous substances"
means any substance, material or waste that is or becomes designated
or regulated as "toxic," "hazardous," "pollutant," or "contaminant" or
a similar designation or regulation under any federal, state or local
law (whether under common law, statute, regulation or otherwise) or
judicial or administrative interpretation of such, including without
limitation petroleum or natural gas.
7.17 Year 2000 Compliance. The Borrower has conducted a comprehensive
review and assessment of the Borrower's and its Subsidiaries systems
and equipment applications and made inquiry of the Borrower's and its
Subsidiaries key suppliers, vendors and customers with respect to the
"year 2000 problem" (that is, the inability of computers, as well as
embedded microchips in non-computing devices, to properly perform
date-sensitive functions with respect to certain dates prior to and
after December 31, 1999). Based on that review and inquiry, the
Borrower does not believe the year 2000 problem, including costs of
remediation, will result in a material adverse change in the business
condition (financial or otherwise), operations, properties or
prospects of the Borrower or any Subsidiary, or in the Borrowers
ability to repay the credit. The Borrower has developed adequate
contingency plans which it believes at the time of such development
will ensure uninterrupted and unimpaired business operation in the
event of a failure of its own or a third party's systems or equipment
due to the year 2000 problem, including those of vendors, customers,
and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure.
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:
8.1 Use of Proceeds.
(a) To use the proceeds of Facility No. One only for general
corporate purpose, including, but not limited to working capital
requirements, letters of credit, and non-acquisition related
capital expenditures.
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(b) To use the proceeds of Facility No. Two to finance permitted
acquisitions and non-acquisition related capital expenditures,
and for the purchase price of permitted acquisitions, including,
but not limited to, up-front acquisition costs and related
earn-out payments related to permitted acquisitions.
8.2 Use of Proceeds - Ineligible Securities. Not to use any portion of the
proceeds of the credit to purchase during the underwriting period, or
for thirty days thereafter, Ineligible Securities underwritten by Banc
of America Securities, LLC. Banc of America Securities, LLC is a
wholly-owned subsidiary of Bank of America Corporation, and is a
registered broker-dealer which is permitted to underwrite and deal in
certain Ineligible Securities. "Ineligible Securities" means
securities which may not be underwritten or dealt in by member banks
of the Federal Reserve System under Section 16 of the Banking Act of
1933 (12 U.S.C. 24, Seventh), as amended. The restrictions of this
paragraph shall also cover Ineligible Securities underwritten by any
other present or future subsidiary of Bank of America Corporation
which underwrites Ineligible Securities.
8.3 Financial Information. To provide the following financial information
and statements in form and content reasonably acceptable to the Bank,
and such additional information as reasonably requested by the Bank
from time to time:
(a) Within 120 days of the Borrower's fiscal year end, the Borrower's
annual consolidated financial statements. These financial
statements must be audited (with an unqualified opinion) by a
Certified Public Accountant (one of the Big 5 firms or otherwise
acceptable to the Bank). The statements shall be prepared on a
consolidated basis.
(b) Within 120 days of Borrower's fiscal year end, and concurrently
with the filing of Borrower's Form 10-Q Quarterly Report as
provided in (d) below, the Borrower's annual and quarterly
consolidating financial statements. These financial statements
may be prepared by the Borrower.
(c) Promptly, upon sending or receipt, copies of any management
letters and correspondence relating to management letters, sent
or received by the Borrower to or from the Borrower's auditor.
(d) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q
Quarterly Report and Form 8-K Current Report within 15 days after
the date of filing with the Securities and Exchange Commission.
(e) Within 60 days of the Borrower's fiscal year end, projections of
the Borrower's consolidated financial statements for the
succeeding calendar years (through the maturity of the credit
facilities provided under this Agreement) on a quarterly basis
for the next fiscal year and annually thereafter. These
projections may be Borrower prepared.
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(f) Within the period(s) provided in (a) and (d) above, a compliance
certificate of the Borrower signed by an authorized financial
officer of the Borrower substantially in the form of Exhibit B
hereto, setting forth (i) the information and computations (in
sufficient detail) to establish that the Borrower is in
compliance with all financial covenants at the end of the period
covered by the financial statements then being furnished and (ii)
whether there existed as of the date of such financial statements
and whether there exists as of the date of the certificate, any
default under this Agreement and, if any such default exists,
specifying the nature thereof and the action the Borrower is
taking and proposes to take with respect thereto.
(g) Promptly upon receipt, copies of all notices, orders, or other
communications regarding (i) any material enforcement action by
any governmental authority relating to health, safety, the
environment, or any hazardous substances with regard to the
property, activities, or operations of the Borrower or any
Subsidiary, or (ii) any claim against the Borrower or any
Subsidiary regarding hazardous substances.
8.4 Fixed Charge Coverage Ratio. To maintain on a consolidated basis a
Fixed Charge Coverage Ratio of at least the amounts indicated for each
period specified below:
Period Ratio
from September 30, 1999 through 1.50:1.0
June 30, 2001
from September 30, 2001 through 1.30:1.0
June 30, 2002
from September 30, 2002 and 1.50:1.0
thereafter
"Fixed Charge Coverage Ratio" means the sum of net income, plus income
tax expenses, plus gross interest expense, plus depreciation, plus
non-cash amortization, less extraordinary income/ gains, less
non-financed tangible capital expenditures, less cash income taxes
paid; divided by the sum of gross interest expense, plus scheduled
principal payments on debt and capital leases, plus earn-out payments
made during the calculation period. For the purposes of this ratio,
capital expenditures financed under Facility No. One will be
considered as "non-financed capital expenditures" whereas capital
expenditures financed under Facility No. Two will be considered as
"financed capital expenditures." This ratio will be calculated at the
end of each fiscal quarter, using the results of that quarter and each
of the 3 immediately preceding quarters. For the purposes of
calculating compliance with this ratio for the quarter ending
September 30, 1999, there will be excluded from the capital
expenditures portion of the calculation the real property acquired in
1998.
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8.5 EBITDA. To maintain on a consolidated basis EBITDA equal to at least
the amounts indicated for each period specified below:
Period Amount
---------------------- -----------
at September 30, 1999 $15,000,000
from December 31, 1999 $20,000,000
through June 30, 2000
from September 30, 2000 $28,000,000
through June 30, 2001
from September 30, 2001 $35,000,000
through June 30, 2002
from September 30, 2002 $40,000,000
and thereafter
"EBITDA" means net profit before taxes, plus interest expense,
depreciation, amortization and taxes. This covenant will be calculated
at the end of each fiscal quarter, using the results of that quarter
and each of the 3 immediately preceding quarters.
8.6 Funded Debt to EBITDA. To maintain on a consolidated basis a ratio of
Funded Debt to EBITDA not exceeding 1.0:1.0. "Funded Debt" means the
sum of all liabilities for borrowed money, plus interest bearing
obligations, plus all obligations under capital leases, plus standby
letters of credit, plus all guaranties of financial obligations, plus
the estimated earn-out payments for any acquisitions during the
calculation period. This ratio will be calculated at the end of each
fiscal quarter, using the results of that quarter and each of the 3
immediately preceding quarters. For purposes of determining EBITDA (as
defined in Section 8.5), there shall be included, for any acquisition
completed during the calculation period, its trailing 4 quarter
EBITDA, to the extent not already included in EBITDA.
8.7 Other Debts. The Borrower shall not and shall not permit any
Subsidiary to have outstanding or incur any direct or contingent
liabilities or lease obligations (other than those to the Bank), or
become liable for the liabilities of others, without the Bank's
written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities for standby letters of credit in existence on the
date of this Agreement not to exceed $250,000 in the aggregate.
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(e) Purchase money debts in existence on the date of this Agreement
disclosed on Schedule 1 hereto.
(f) Additional debts and lease obligations for the acquisition of
fixed assets not to exceed $5,000,000 in the aggregate per fiscal
year.
8.8 Other Liens. The Borrower shall not, and shall not permit any
Subsidiary to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower or any Subsidiary
now or later owns, except: (a) deeds of trust and security agreements
in favor of the Bank; (b) purchase money liens outstanding on the date
of this Agreement disclosed on Schedule 1 hereto; (c) additional
purchase money security interests in equipment or other personal
property fixed assets acquired after the date of this Agreement that
secure debts permitted in Section 8.7(f); (d) liens for taxes,
assessments, levies or other governmental charges not yet due (subject
to applicable grace periods) or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Borrower or such
Subsidiary, as the case may be, in accordance with generally accepted
accounting principles; (e) carriers, warehousemen, mechanics,
landlords, vendors, materialmen, repairmen, sureties or other like
liens arising in the ordinary course of business (or deposits to
obtain the release of any such lien); (f) pledges or deposits in
connection with workers compensation, unemployment insurance and other
social security legislation; (g) deposits to secure insurance in the
ordinary course of business, the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases,
licenses, franchises, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business; (h) easements, rights-of-way,
covenants, reservations, exceptions, encroachments, zoning and similar
restrictions and other similar encumbrances or title defects incurred
in the ordinary course of business which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract
from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Borrower and its
Subsidiaries taken as a whole; (i) liens arising pursuant to any order
of attachment, distraint or similar legal process arising in
connection with any court proceeding being contested in good faith by
appropriate proceedings or the payment of which is covered in full
(subject to customary deductibles) by insurance and that doesn't
constitute an Event of Default hereunder; (j) rights of lessees or
sublessees in assets leased by the Borrower or any Subsidiary; (k)
inchoate liens arising under ERISA to secure contingent liabilities of
the Borrower or any Subsidiary; (l) bankers' liens arising by
operation of law in connection with the clearing of checks; (m) liens
arising from the extension, renewal or replacement of any indebtedness
secured by any of the foregoing liens covered by paragraphs (a)
through (l) above so long as the aggregate principal amount thereof
and the security therefor is not thereby increased.
8.9 Guaranties of New Subsidiaries. Cause any of its Subsidiaries, within
60 days after becoming a Subsidiary, to become a guarantor under the
Master Guaranty and to deliver to the Bank (i) a Certificate Regarding
Additional Guarantors, substantially in the form of Exhibit B to the
Master Guaranty with appropriate insertions made, executed by its
authorized officer, and (ii) a Certificate of Secretary, substantially
in the form of Exhibit C to the Master Guaranty with appropriate
insertions made, executed by its secretary or other responsible
officer, with respect to its articles of incorporation and any
amendments thereto, the resolutions of its board of directors
authorizing the execution and delivery of the Master Guaranty, and the
identity, authorization, and specimen signature to each of its
officers authorized to execute the Master Guaranty on its behalf.
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8.10 Dividends. Not to declare or pay any dividends on any of its shares,
and not to purchase, redeem or otherwise acquire for value any of its
shares, or create any sinking fund in relation thereto, except:
(a) dividends payable in its capital stock;
(b) stock repurchases not in excess of Two Million Dollars
($2,000,000) in any one fiscal year.
8.11 Loans to Officers or Affiliates. Not to make any loans, advances or
other extensions of credit (including extensions of credit in the
nature of accounts receivable or notes receivable arising from the
sale or lease of goods or services) to any of the executives,
officers, directors or shareholders (or any relatives of any of the
foregoing), or to any affiliated entities of the Borrower or any
Subsidiary in excess of One Million Five Hundred Thousand Dollars
($1,500,000) in the aggregate at any one time.
8.12 Out of Debt Period. To repay any advances in full under Facility No.
One, and not to draw any additional advances under Facility No. One
for a period of at least 30 consecutive days in each line-year.
"Line-year" means the period between the date of this Agreement and
September 30, 2000, and each subsequent one-year period (if any). For
the purposes of this paragraph, "advances" does not include undrawn
amounts of outstanding letters of credit.
8.13 Notices to Bank. To promptly notify the Bank in writing of Borrower's
knowledge of:
(a) any lawsuit over One Million Dollars ($1,000,000) against the
Borrower or any Subsidiary.
(b) any substantial dispute between the Borrower or any Subsidiary
and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the business condition (financial
or otherwise), operations, properties or prospects of the
Borrower and its Subsidiaries taken as a whole, or in the
Borrowers ability to repay the credit.
(e) any change in the Borrower's name, legal structure, place of
business, or chief executive office if the Borrower has more than
one place of business.
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(f) the receipt of any notice or communication which could reasonably
be expected to have a material adverse effect on the financial
condition or operations of the Borrower and its Subsidiaries
taken as a whole, regarding (i) any threatened or pending
investigation or enforcement action by any governmental authority
or any other claim relating to health, safety, the environment,
or any hazardous substances with regard to the property,
activities, or operations of the Borrower or any Subsidiary or
(ii) any belief or suspicion of the Borrower or any Subsidiary
that hazardous substances exist on or under the real property of
the Borrower or any Subsidiary.
8.14 Books and Records. To maintain, and cause each of its Subsidiaries to
maintain, adequate books and records.
8.15 Audits. To allow the Bank and its agents to inspect the Borrower's and
its Subsidiaries properties and examine, audit, and make copies of
books and records at any reasonable time. Prior to the occurrence of
any Event of Default, the Bank agrees to give reasonable prior notice
to Borrower of its desire to conduct any inspection or audit. If any
of the Borrower's or any Subsidiaries properties, books or records are
in the possession of a third party, the Borrower authorizes that third
party to permit the Bank or its agents to have access to perform
inspections or audits and to respond to the Bank's requests for
information concerning such properties, books and records.
The Bank has no duty to inspect the Borrower's or any Subsidiaries
properties or to examine, audit, or copy books and records and the
Bank shall not incur any obligation or liability by reason of not
making any such inspection or inquiry. In the event that the Bank
inspects the Borrower's or any Subsidiaries properties or examines,
audits, or copies books and records, the Bank will be acting solely
for the purposes of protecting the Bank's security and preserving the
Bank's rights under this Agreement. Neither the Borrower nor any other
party is entitled to rely on any inspection or other inquiry by the
Bank. The Bank owes no duty of care to protect the Borrower or any
other party against, or to inform the Borrower or any other party of,
any adverse condition that may be observed as affecting the Borrower's
or any Subsidiaries properties or premises, or the Borrower's or any
Subsidiaries business. In the event that the Bank has a duty or
obligation under applicable laws, regulations or legal requirements to
disclose any report or findings made as a result of, or in connection
with, any site visit, observation or testing by the Bank, the Bank may
make such a disclosure to the Borrower or any other party.
8.16 Compliance with Laws. To comply, and cause each Subsidiary to comply,
with the laws (including any fictitious name statute), regulations,
and orders of any government body with authority over the Borrower's
business and the business of each Subsidiary, except where the failure
to comply will not have a material adverse effect on the Borrower and
its Subsidiaries taken as a whole.
8.17 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower and each Subsidiary now has,
except where the failure to maintain the foregoing will not have a
material adverse effect on the Borrower and its Subsidiaries taken as
a whole.
8.18 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's properties and the properties of
its Subsidiaries in good working condition, except where the failure
to do so will not have a material adverse effect on the Borrower and
its Subsidiaries taken as a whole.
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8.19 Cooperation. To take any action reasonably requested by the Bank to
carry out the intent of this Agreement.
8.20 Insurance.
(a) General Business Insurance. To maintain insurance of the kind
customarily carried or maintained under similar circumstances by
corporations of established reputation engaged in similar
businesses covering property damage (including loss of use and
occupancy) to any of the Borrower's and its Subsidiaries
properties, public liability insurance including coverage for
contractual liability, product liability and workers'
compensation, and any other insurance which is usual for the
Borrower's and its Subsidiaries businesses.
(b) Evidence of Insurance. Upon the request of the Bank, to deliver
to the Bank a copy of each insurance policy, or, if permitted by
the Bank, a certificate of insurance listing all insurance in
force.
8.21 Additional Negative Covenants. The Borrower shall not and shall not
permit any Subsidiary to, without the Bank's written consent:
(a) engage in any business activities substantially different from
the present business of the Borrower and its Subsidiaries.
(b) liquidate or dissolve the business of the Borrower or any
Subsidiary.
(c) enter into any consolidation, merger, or other combination, or
become a partner in a partnership, a member of a joint venture,
or a member of a limited liability company, except any Subsidiary
of the Borrower may be merged with or into the Borrower or any
Subsidiary of Borrower and in connection with any acquisitions
permitted under Section 8.22.
(d) sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to
do so, except as permitted in (f) below. For the purpose of this
Paragraph, "fair market value" shall be deemed to mean (i) with
respect to accounts receivable, the balance outstanding
thereunder, subject to any adjustments made in the ordinary
course of business; (ii) with respect to inventory, the
Borrower's cost thereof; and (iii) with respect to fixed assets
or equipment, the greater of the amount determined by an
appraisal acceptable to the Bank or the outstanding balance of
any financing (or portion thereof) obtained from the Bank to
finance or refinance the acquisition of, or which is secured by,
such equipment or fixed assets; provided, however, that sales of
equipment or other personal property fixed assets.
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(e) sell, assign, lease, transfer or otherwise dispose of all or a
substantial part of the business or the assets of the Borrower or
any Subsidiary.
(f) sell, assign, lease, transfer or otherwise dispose of any assets,
or enter into any agreement to do so, except:
(i) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(ii) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are
reasonably promptly applied to the purchase price of such
replacement equipment;
(g) enter into any sale and leaseback agreement covering any of its
fixed assets; and
(h) voluntarily suspend all or a substantial part of its business
operations for more than 5 business days in any 30 day period.
8.22 Acquisitions.
(a) The Borrower shall not, and shall not permit any Subsidiary to,
without the Bank's written consent, acquire or purchase a
business or all or substantially all of its assets for a
consideration including assumption of direct or contingent debt,
and the up-front purchase price (including stock and cash
portions), in excess of the aggregate amounts indicated for each
period specified below:
Period Aggregate Amount
----------------------------- ----------------
from January 1, 1999 through $35,000,000
December 31, 1999
from January 1, 2000 through $20,000,000
December 31, 2000
from January 1, 2001, for each $17,000,000
fiscal year thereafter
(b) Notwithstanding anything to the contrary set forth herein,
Borrower shall not, and shall not use the proceeds of any credit
facilities under this Agreement, to purchase or otherwise acquire
any shares of any corporation or association or any interest in
any other business entity (i) if such entity is not engaged in a
business similar to the businesses of the Borrower and its
Subsidiaries and (ii) if such purchase or acquisition is opposed
by such entity's board of directors or other governing body or by
a shareholder or shareholders controlling a significant portion
of the voting shares of such entity or to make such purchase or
acquisition with knowledge of facts or circumstances that such
purchase or acquisition is likely to be hostile or unfriendly.
23
<PAGE>
(c) Prior to the consummation of any acquisition otherwise permitted
hereunder, Bank shall receive the following, in form and
substance satisfactory to Bank: (aa) a certificate of the
Borrower stating (i) that no Event of Default has occurred and is
continuing, (ii) information and computations (in sufficient
detail) to establish compliance by the Borrower with all
financial covenants after giving effect to such acquisition, and
(iii) information confirming that the acquisition target has
positive earnings before interest and taxes (EBIT) for the
preceding fiscal year and that the purchase price does not exceed
8.25 times such entity's EBIT for the preceding twelve months;
(bb) for each acquisition exceeding $10,000,000 in total
consideration (excluding the potential acquisition previously
disclosed to Bank), the Bank shall receive at least 15 days prior
to the scheduled closing date (i) a copy of the most recent draft
of the purchase agreement, and (ii) a copy of the most recent
fiscal year end and interim financial statements of the
acquisition target.
8.23 ERISA Plans. With respect to a Plan subject to Title IV of ERISA, to
give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(c) of
ERISA for which the PBGC requires 30-day notice.
(b) Any action by the Borrower or any ERISA Affiliate to terminate or
withdraw from a Plan or the filing of any notice of intent to
terminate under Section 4041 of ERISA.
(c) The commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA.
8.24 Compliance with Environmental Requirements. With regard to the
property, activities, or operations of the Borrower and its
Subsidiaries, to comply and cause each Subsidiary to comply, with the
recommendations of any qualified environmental engineer or orders or
directions issued by any governmental authority relating to health,
safety, the environment, or any hazardous substances including those
orders or directives requiring the investigation, clean-up, or removal
of hazardous substances, except where the failure to comply will not
have a material adverse effect on the Borrower and its Subsidiaries
taken as a whole.
24
<PAGE>
9. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's
property or operations or property leased to the Borrower. The indemnity
includes but is not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.
Notwithstanding anything to the contrary herein, the Borrower shall not
have any obligation hereunder to indemnify the Bank for any loss or
liability resulting from the gross negligence or willful misconduct of the
Bank. "Hazardous substances" means any substance, material or waste that is
or becomes designated or regulated as "toxic," "hazardous," "pollutant," or
"contaminant" or a similar designation or regulation under any federal,
state or local law (whether under common law, statute, regulation or
otherwise) or judicial or administrative interpretation of such, including
without limitation petroleum or natural gas. This indemnity will survive
repayment of the Borrower's obligations to the Bank.
10. DEFAULT
If any of the following events (Event of Default) occurs, the Bank may do
one or more of the following: declare the Borrower in default, stop making
any additional credit available to the Borrower, and require the Borrower
to repay its entire debt immediately and without prior notice. If an event
of default occurs under the paragraph entitled "Bankruptcy," below, with
respect to the Borrower, then the entire debt outstanding under this
Agreement will automatically be due immediately. As used herein "Material
Subsidiary" means as of any date, any Subsidiary of Borrower that (i) has
tangible assets of at least 10% of the consolidated tangible assets of
Borrower and its Subsidiaries as of the last day of the most recently ended
fiscal quarter of Borrower or (ii) has annual revenues (or annualized
revenues in the case of any entity that has not been a Subsidiary of
Borrower for a full year) of at least 10% of the consolidated annual
revenues of Borrower and its Subsidiaries as of the most recently ended
fiscal quarter of Borrower, or (iii) has annual net income (or annualized
net income in the case of any entity that has not been a Subsidiary of
Borrower for a full year) of at least 10% of the consolidated annual net
income of Borrower and its Subsidiaries as of the most recently ended
fiscal quarter of Borrower.
10.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement within five (5) days of the date when due.
10.2 False Information. The Borrower or any Subsidiary has given the Bank
information or representations that are false or misleading in any
material respect.
10.3 Bankruptcy. The Borrower or any Subsidiary files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower or any
Material Subsidiary or the Borrower or any Material Subsidiary makes a
general assignment for the benefit of creditors. The default will be
deemed cured if any bankruptcy petition filed against the Borrower or
any Material Subsidiary is dismissed within a period of 30 days after
the filing; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrower during that period.
10.4 Receivers. A receiver or similar official is appointed for the
Borrower's or any Material Subsidiaries business, or the business is
terminated, or any Material Subsidiary is liquidated or dissolved.
25
<PAGE>
10.5 Lawsuits. Any lawsuit or lawsuits are filed against the Borrower or
any Subsidiary in an aggregate amount of Five Million Dollars
($5,000,000) or more in excess of any insurance coverage.
10.6 Judgments. Any judgments or arbitration awards are entered against the
Borrower or any Subsidiary, or the Borrower or any Subsidiary enters
into any settlement agreements with respect to any litigation or
arbitration, in an aggregate amount of One Million Dollars
($1,000,000) or more in excess of any insurance coverage.
10.7 Government Action. Any government authority takes action that
materially adversely affects the financial condition of the Borrower
and its Subsidiaries taken as a whole or their ability to repay.
10.8 Material Adverse Change. A material adverse change occurs, or is
reasonably likely to occur, in the business condition (financial or
otherwise), operations, properties or prospects of the Borrower and
its Subsidiaries taken as a whole, or their ability to repay the
credit.
10.9 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower or any Subsidiary or any of the
Borrower's related entities or affiliates has obtained from anyone
else or which the Borrower or any Subsidiary or any of the Borrower's
related entities or affiliates has guaranteed in the amount of One
Million Dollars ($1,000,000) or more in the aggregate.
10.10 Default under Master Guaranty. The Master Guaranty is violated or no
longer in effect.
10.11 Other Bank Agreements. The Borrower or any Subsidiary fails to meet
the conditions of, or fails to perform any obligation under any other
agreement the Borrower or any Subsidiary has with the Bank or any
affiliate of the Bank.
10.12 ERISA Plans. Any one or more of the following events occurs, and
continues unremedied for more than thirty (30) days, with respect to a
Plan of the Borrower subject to Title IV of ERISA, provided such event
or events could reasonably be expected, in the judgment of the Bank,
to subject the Borrower to any tax, penalty or liability (or any
combination of the foregoing) which, in the aggregate, could have a
material adverse effect on the financial condition of the Borrower and
its Subsidiaries taken as a whole:
(a) A reportable event shall occur under Section 4043(c) of ERISA
with respect to a Plan.
(b) Any Plan termination (or commencement of proceedings to terminate
a Plan) or the full or partial withdrawal from a Plan by the
Borrower or any ERISA Affiliate.
26
<PAGE>
10.13 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of
this Agreement not specifically referred to in this Article, except as
provided below. This includes any failure or anticipated failure by
the Borrower to comply with any financial covenants set forth in this
Agreement, whether such failure is evidenced by financial statements
delivered to the Bank or is otherwise known to the Borrower or the
Bank. The Borrower shall not be in default hereof for the failure to
observe or perform the provisions of Section 8.3, if such failure is
cured within 15 days, or Sections 8.16, 8.17, 8.18, 8.20, 8.23 and
8.24, if such failure is cured within 30 days.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently
applied.
Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be
made in accordance with accounting principles applied consistently
with those applied in the preparation of the Borrower's financial
statements dated March 31, 1999.
11.2 California Law. This Agreement is governed by California law.
11.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it
may not assign this Agreement without the Bank's prior consent. The
Bank may sell participations in or assign this loan, and may exchange
financial information about the Borrower with actual or potential
participants or assignees; provided that such actual or potential
participants or assignees shall agree to treat all financial
information exchanged as confidential. If a participation is sold or
the loan is assigned, the purchaser will have the right of set-off
against the Borrower.
11.4 Arbitration and Waiver of Jury Trial
(a) This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Bank, whether arising in
contract, tort or by statute, including but not limited to
controversies or claims that arise out of or relate to: (i) this
Agreement (including any renewals, extensions or modifications);
or (ii) any document related to this Agreement (collectively a
"Claim").
(b) At the request of the Borrower or the Bank, any Claim shall be
resolved by arbitration in accordance with the Federal
Arbitration Act (Title 9, United States Code) (the "Act"). The
Act will apply even though this Agreement provides that it is
governed by the law of a specified state.
(c) Arbitration proceedings will be determined in accordance with the
Act, the rules and procedures for the arbitration of financial
services disputes of J.A.M.S./Endispute or any successor thereof
("J.A.M.S."), and the terms of this paragraph. In the event of
any inconsistency, the terms of this paragraph shall control.
27
<PAGE>
(d) The arbitration shall be administered by J.A.M.S. and conducted
in any state where the Bank office originating the Indebtedness
of the Borrower hereunder is located. All Claims shall be
determined by one arbitrator; however, if the Claim is in excess
of Five Million U.S. Dollars ($5,000,000), upon the request of
any party, the Claim shall be decided by three arbitrators. All
arbitration hearings shall commence within 90 days of the demand
for arbitration and close within 90 days of commencement, and the
award of the arbitrator(s) shall be issued within 30 days of the
close of the hearing. However, the arbitrator(s), upon a showing
of good cause, may extend the commencement of the hearing for up
to an additional 60 days. The arbitrator(s) shall provide a
concise written statement of reasons for the award. The
arbitration award may be submitted to any court having
jurisdiction to be confirmed and enforced.
(e) The arbitrator(s) will have the authority to decide whether any
Claim is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis. For purposes of the
application of the statute of limitations, the service on
J.A.M.S. under applicable J.A.M.S. rules of a notice of claim is
the equivalent of the filing of a lawsuit. Any dispute concerning
this arbitration provision or whether a Claim is arbitrable shall
be determined by the arbitrator(s). The arbitrator(s) shall have
the power to award legal fees pursuant to the terms of this
Agreement.
(f) This paragraph does not limit the right of the Borrower or the
Bank to: (i) exercise self-help remedies, such as but not limited
to, set-off, (ii) initiate judicial or nonjudicial foreclosure
against any real or personal property collateral, (iii) exercise
any judicial or power of sale rights, or (iv) act in a court of
law to obtain an interim remedy, such as but not limited to,
injunctive relief, writ of possession or appointment of a
receiver, or additional or supplementary remedies.
(g) The procedure described above will not apply if the Claim, at the
time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property
located in California. In this case, both the Borrower and the
Bank must consent to submission of the Claim to arbitration. If
both parties do not consent to arbitration, the Claim will be
resolved as follows: The Borrower and the Bank will designate a
referee (or a panel of referees) selected under the auspices of
J.A.M.S. in the same manner as arbitrators are selected in
J.A.M.S. administered proceedings. The designated referee(s) will
be appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections. The
referee (or the presiding referee of the panel) will be an active
attorney or a retired judge. The award that results from the
decision of the referee(s) will be entered as a judgment in the
court that appointed the referee, in accordance with the
provisions of California Code of Civil Procedure Sections 644 and
645.
(h) The filing of a court action is not intended to constitute a
waiver of the right of the Borrower or the Bank, including the
suing party, thereafter to require submittal of the Claim to
arbitration.
28
<PAGE>
(i) By agreeing to binding arbitration, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury in
respect of any claim. Furthermore, without intending in any way
to limit this agreement to arbitrate, to the extent any claim is
not arbitrated, the parties irrevocably and voluntarily waive any
right they may have to a trial by jury in respect of such claim.
This provision is a material inducement for the parties entering
into this Agreement.
11.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank
retains all rights, even if it makes a loan after default. If the Bank
waives a default, it may enforce a later default. Any consent or
waiver under this Agreement must be in writing.
11.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering
this Agreement.
11.7 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or
remedies under this Agreement and any other documents executed in
connection with this Agreement, and in connection with any amendment,
waiver, "workout" or restructuring under this Agreement. In the event
of a lawsuit or arbitration proceeding, the prevailing party is
entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined
by the court or arbitrator. In the event that any case is commenced by
or against the Borrower under the Bankruptcy Code (Title 11, United
States Code) or any similar or successor statute, the Bank is entitled
to recover costs and reasonable attorneys' fees incurred by the Bank
related to the preservation, protection, or enforcement of any rights
of the Bank in such a case. As used in this paragraph, "attorneys'
fees" includes the allocated costs of the Bank's in-house counsel.
11.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between
the Bank and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and
the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete
and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will prevail.
29
<PAGE>
11.9 Indemnification. The Borrower will indemnify and hold the Bank
harmless from any loss, liability, damages, judgments, and costs of
any kind relating to or arising directly or indirectly out of (a) this
Agreement or any document required hereunder, (b) any credit extended
or committed by the Bank to the Borrower hereunder, and (c) any
litigation or proceeding related to or arising out of this Agreement,
any such document, or any such credit. This indemnity includes but is
not limited to attorneys' fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent,
subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns. This indemnity will survive
repayment of the Borrower's obligations to the Bank. All sums due to
the Bank hereunder shall be obligations of the Borrower, due and
payable immediately without demand.
11.10 Confidentiality. The Bank shall hold all non-public information
obtained pursuant to the requirements of this Agreement from the
Borrower in accordance with such Bank's customary procedures for
handling confidential information of this nature and in accordance
with safe and sound lending practices, and shall use such nonpublic
information only in connection with the negotiation, execution,
administration, enforcement, assignment and participation of the
transactions contemplated hereunder and the matters contemplated
hereby and by the other loan documents or in connection with other
business now or hereafter existing or contemplated with the Borrower
or any of its Subsidiaries, provided that the Bank in any event may
make disclosure (a) if such information was or becomes generally
available to the public other than by disclosure by the Bank, (b) was
or becomes available on from a non-confidential basis from a source
other than the Borrower, (c) to any of its legal or financial advisors
or as reasonably required by a bona fide offeree, transferee or
participant in connection with any contemplated transfer or
participation or any recipient reasonably acceptable to the Borrower
or as required or requested by an governmental or regulatory agency or
representative thereof or pursuant to legal process or other
requirement of law or order or as reasonably required in any
litigation to which the Bank is a party, (d) to the extent reasonably
required in connection with the enforcement of this Agreement or any
other loan document and (e) to their affiliates, so long as any such
legal or financial advisor, offeree, transferee or participant or
other approved recipient shall be made aware of the provisions of this
Section 11.10 and shall undertake to comply (and undertake to each of
any of its offerees, transferees or participants or other approved
recipient to comply) with this Section 11.10.
11.11 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to
the addresses on the signature page of this Agreement, or to such
other addresses as the Bank and the Borrower may specify from time to
time in writing.
11.12 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of
this Agreement.
11.13 Counterparts. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the
same agreement.
11.14 Commitment Expiration. The Bank's commitment to extend credit under
this Agreement will expire on August 30, 1999,unless this Agreement
and any documents required by this Agreement have been signed and
returned to the Bank on or before that date.
30
<PAGE>
This Agreement is executed as of the date stated at the top of the first page.
Bank of America, N.A. New Horizons Worldwide, Inc.
By_______________________ By_________________________
Name: Elizabeth M. Amendt Name: Thomas J. Bresnan
Title: Vice President Title: President and Chief Operating
Officer
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
675 Anton Boulevard, 2nd Floor 1231 East Dyer Road, Suite 140
Costa Mesa, CA 92626 Santa Ana, CA 92705-5643
{RELOCATION OF EXECUTIVE OFFICE;2}
500 Campus Drive, Suite 200
Morganville, New Jersey 07751
Fax (732)536-0289
31
<PAGE>
July 27, 1999
Thomas J. Bresnan
President
New Horizons Worldwide, Inc.
500 Campus Drive
Suite 200
Morganville, NJ 07751
Dear Tom:
This letter is intended to set forth the agreement we have reached
concerning your relocation to California on behalf of New Horizon Worldwide,
Inc. (the "Company") and its subsidiaries. Specifically, it is agreed as
follows:
1. The Company will pay or reimburse you for all reasonable costs of moving
you and your family and your personal belongings to the residence you have
contracted to purchase in Anaheim Hills, California.
2. The Company will lend you up to $700,000, interest free, to facilitate the
closing of the purchase of your new residence. The amount borrowed in
excess of $300,000 will be repaid from the proceeds of the sale of your
home in New Jersey, but in any event not later than one year from the date
of closing of the purchase of your home in California. The $300,000 balance
will be payable in full on the fifth anniversary of the date of borrowing.
You will execute a promissory note reflecting such terms and a second
mortgage as security.
3. Effective September 7, 1999 your base salary will increase to a rate of
$300,000 per year.
4. In the event of a Change of Control (as defined in the Company's Omnibus
Equity Plan) which occurs during the three year period commencing with the
date of hereof:
a. Any amount still owed under the above loan, including accrued
interest, will be forgiven;
b. You will receive a lump sum payment equal to the lesser of (i)
$1,000,000 or (ii) the amount which the Company could pay without its
loss or reduction of a deduction or the imposition of an excise tax on
you pursuant to Section 280G (or its successor) of the Internal
Revenue Code of 1986; as amended.
c. All options to acquire shares of the Company's Common Stock, $.01 par
value, which are not then otherwise fully exercisable shall be fully
exercisable;
d. The Company will pay or reimburse you for the reasonable costs of
moving you, your family and your personable possessions and up to
$60,000 of any loss (after commissions and other expenses) on the
resale of your California home should you elect, for any reason,
within eighteen months of such Change of Control, to relocate from
Southern California to another location in the continental United
States.
If you are in agreement with the foregoing, please execute this letter and
the enclosed duplicate in the space provided and return one of such copies to
me.
Very truly yours,
Curtis Lee Smith, Jr.,
Chairman of the Board
AGREED:
____________________________
Thomas J. Bresnan
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's 1998 Consolidated Balance Sheets and Consolidated Statements of
Operations, and is qualified in its entirety by reference to such 1998 10-K.
</LEGEND>
<CIK> 0000850414
<NAME> NEW HORIZONS WORLDWIDE
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.00
<CASH> 4,327
<SECURITIES> 720
<RECEIVABLES> 24,102
<ALLOWANCES> 923
<INVENTORY> 1,327
<CURRENT-ASSETS> 33,958
<PP&E> 31,597
<DEPRECIATION> 13,853
<TOTAL-ASSETS> 112,105
<CURRENT-LIABILITIES> 25,584
<BONDS> 12,067
0
0
<COMMON> 79
<OTHER-SE> 72,418
<TOTAL-LIABILITY-AND-EQUITY> 112,105
<SALES> 80,583
<TOTAL-REVENUES> 80,583
<CGS> 35,445
<TOTAL-COSTS> 69,539
<OTHER-EXPENSES> (544)
<LOSS-PROVISION> 126
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> 11,437
<INCOME-TAX> 4,333
<INCOME-CONTINUING> 7,104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,104
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.71
</TABLE>
