<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1995
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-6004
------
Scanforms, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1704876
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 Rittenhouse Circle
Keystone Park, Bristol, Pa. 19007
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(215) 785-0101
--------------
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 _____
-----
At August 11,1995, 3,546,648 shares of common stock, $0.01 par value, were
outstanding.
Page 1 of 11
<PAGE>
PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1: Financial Statements.
---------------------
SCANFORMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
July 2 October 2
1995 1994
----------- -----------
Unaudited
-----------
<S> <C> <C>
A S S E T S
- -----------
Current assets:
Cash $3,272,024 $3,522,546
Current portion of note receivable 7,601 -
Accounts receivable, net of allowance
for doubtful accounts of
$435,006 - July 2, 1995 and
$390,000 - October 2, 1994 3,044,857 3,819,234
Inventories - (Note 2) 1,470,223 834,297
Other current assets 349,361 250,100
Deferred income taxes 269,137 268,138
---------- ----------
Total current assets 8,413,203 8,694,315
---------- ----------
Property, plant and equipment at cost
net of accumulated depreciation of
$11,550,104 - July 2, 1995 and
$10,737,020 - October 2, 1994 7,900,382 7,568,548
---------- ----------
Note receivable, net of current portion 13,899 -
---------- ----------
Other assets 109,381 71,522
---------- ----------
Total assets $16,436,865 $16,334,385
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 2 of 11
<PAGE>
SCANFORMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
July 2 October 2
1995 1994
------------ ------------
Unaudited
------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 925,974 $ 1,492,524
Accounts payable 1,351,555 1,476,507
Customer advances 3,349,349 4,109,152
Other current liabilities 574,932 561,143
Income taxes payable 150,533 429,609
------------ ------------
Total current liabilities 6,352,343 8,068,935
------------ ------------
Long-term debt, net of current
maturities shown above 3,959,231 3,152,091
------------ ------------
Deferred income taxes 1,016,402 1,128,807
------------ ------------
Stockholders' equity:
Preferred stock, $1 par value,
500,000 shares authorized;
none issued
Common stock, $0.01 par value,
6,000,000 shares authorized;
3,546,648 shares issued and
outstanding (Note 3) 35,467 36,635
Capital in excess of par value 1,388,462 1,509,471
Retained earnings (Note 3) 4,093,862 2,978,287
Note receivable from stockholder (408,902) (411,663)
Treasury stock (Note 3) - (128,178)
------------ ------------
Stockholders' equity 5,108,889 3,984,552
------------ ------------
Total liabilities and stockholders'
equity $16,436,865 $16,334,385
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 3 of 11
<PAGE>
Unaudited
---------
SCANFORMS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Thirty Nine Weeks Ended Thirteen Weeks Ended
July 2 July 3 July 2 July 3
1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $18,596,480 $17,277,808 $5,098,425 $5,297,911
Cost of sales 13,385,840 12,573,701 3,715,445 3,884,551
----------- ----------- ---------- ----------
Gross profit 5,210,640 4,704,107 1,382,980 1,413,360
Operating expense 3,005,143 2,766,869 946,216 848,208
----------- ----------- ---------- ----------
Income from
operations 2,205,497 1,937,238 436,764 565,152
Other expenses:
Interest cost 313,515 345,724 115,186 117,896
----------- ----------- ---------- ----------
Income before income
taxes and cumulative
effect adjustment 1,891,982 1,591,514 321,578 447,256
Income taxes 776,407 485,156 136,212 85,815
----------- ----------- ---------- ----------
Income before effect
of a change in tax
accounting method 1,115,575 1,106,358 185,366 361,441
Cumulative effect
of a change in
the tax accounting
method - 260,686 - -
----------- ----------- ---------- ----------
Net income 1,115,575 845,672 185,366 361,441
Retained earnings-
beginning 2,978,287 1,814,766 3,908,496 2,298,997
----------- ----------- ---------- ----------
Retained earnings-
ending $ 4,093,862 $ 2,660,438 $4,093,862 $2,660,438
=========== =========== ========== ==========
Weighted average number
of common shares
outstanding 3,652,866 3,615,390 3,652,866 3,615,390
=========== =========== ========== ==========
Earnings per common
share before cumulative
effect $ 0.30 $ 0.30 $ 0.05 $ 0.10
Cumulative accounting
change - (0.07) - -
--------- --------- --------- ---------
Net earnings per
common share $ 0.30 $ 0.23 $ 0.05 $ 0.10
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 11
<PAGE>
Unaudited
---------
SCANFORMS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Thirty Nine Weeks Ended
July 2 July 3
1995 1994
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 18,971,990 $ 17,408,653
Cash paid to suppliers and employees (16,850,160) (14,559,643)
Interest received 132,557 35,931
Interest paid (438,204) (465,251)
Income taxes paid (1,168,887) (363,499)
----------- ----------
Net cash (used in) operating
activities 647,296 2,056,191
----------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment - 30
Purchases of plant and equipment (1,147,168) (465,643)
Payment of note from stockholder 2,761 1,866
----------- ----------
Net cash (used in) investing
activities (1,144,407) (463,747)
----------- ----------
Cash flows from financing activities:
Issuance of common shares
of capital stock 200 5,000
Paid in surplus on issuance of
common shares of capital stock 5,800 120,000
Proceeds from long-term debt 3,850,737 734,983
Repayment of subordinated debt - (793,500)
Repayment of long-term debt (3,592,896) (976,744)
Principle payments under capital
lease obligations (17,252) (53,899)
----------- ----------
Net cash from (used in) financing
activities 246,589 (964,160)
----------- ----------
Net (decrease) in cash ( 250,522) 628,284
Cash:
Beginning 3,522,546 830,246
----------- ----------
Ending $ 3,272,024 $1,458,530
=========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 11
<PAGE>
Unaudited
---------
SCANFORMS, INC.
STATEMENT OF CASH FLOWS
Reconciliation of Net Income to Net Cash Flows From
Operating Activities
<TABLE>
<CAPTION>
Thirty Nine Weeks Ended
July 2 July 3
1995 1994
------------ ------------
<S> <C> <C>
Net Income $1,115,575 $ 845,672
Adjustments to reconcile net income
to net cash (used in) operating
activities:
Depreciation and amortization 814,209 710,677
(Gain)loss on disposal of
fixed assets (20,375) 8,381
Deferred finance charges 50,867 17,897
Interest income stockholder (4,951)
Increase in allowance for doubtful
accounts 45,006 45,006
Decrease(increase) in assets:
Accounts receivable 729,371 84,366
Inventories (635,926) 267,507
Other current assets (99,261) (116,478)
Deferred income taxes (999) -
Other assets (88,726) (84,219)
Increase(decrease) in liabilities:
Accounts payable (124,950) 127,526
Customer advances (759,803) (75,080)
Other current liabilities 13,789 (152,457)
Income taxes payable (279,076) 153,631
Deferred income taxes (112,405) 228,713
---------- ----------
Net cash from(used in) operating
activities $ 647,296 $2,056,191
========== ==========
Schedule of Noncash Investing and Financial Activities
Sale of fixed assets $ (21,500) $
-
Retirement of treasury stock 128,178 -
Common Stock (1,368) -
Paid-in-surplus (126,810) -
Notes receivable from stockholders - 3,085
</TABLE>
See accompanying notes to financial statements.
Page 6 of 11
<PAGE>
Unaudited
---------
SCANFORMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation:
- -------------------------------
Accounting Period:
The registrant employs a fifty-two, fifty-three week year for financial
accounting purposes. Accordingly, these quarterly financial statements are for
the thirteen week and thirty nine week period ended July 2, 1995 and July 3,
1994. The fiscal year ending October 1, 1995 will consist of fifty-two weeks.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of the
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the thirteen weeks and thirty nine weeks
ended July 2, 1995 are not necessarily indicative of the results that may be
expected for the fiscal year ending October 1, 1995. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended October 2, 1994.
Note 2 - Inventories:
- ---------------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
July 2 October 2
1995 1994
---------- ---------
<S> <C> <C>
Raw materials $1,307,004 $464,377
Work in process 163,219 369,920
---------- --------
$1,470,223 $834,297
========== ========
</TABLE>
Note 3 - Treasury stock:
- ------------------------
On June 29,1995, the Board of Directors by unanimous consent approved and
ratified the retirement of 136,812 shares of capital stock held in treasury with
a cost of $128,178. The retirement of the treasury stock will result in a
reduction of common stock of $1,368 and a reduction of capital in excess of par
value of $126,810.
Page 7 of 11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
RESULTS OF OPERATIONS: THIRTY NINE WEEKS ENDED JULY 2, 1995 VS. THIRTY NINE
WEEKS ENDED JULY 3, 1994
The Company's net sales increased from $17,277,808 during the thirty nine
weeks ended July 3, 1994 to $18,596,480 during the thirty nine weeks ended July
2, 1995, a 7.6% increase, principally reflecting an expansion of the customer
base. Gross profit increased by 9.7% from $4,704,107 to $5,210,640. The
increase in gross profit was primarily the result of increased sales volume and
an improved product mix, net of a retro-active workmen's compensation insurance
premium assessment.
Operating expense was $3,005,143 and $2,766,869 for the thirty nine
weeks of fiscal 1995 and fiscal 1994, respectively. The increase of 8.6% was
due to various factors including increased compensation expense, the payment of
performance bonuses, consulting fees and additional employees.
Interest cost decreased from $345,724 to $313,515 during the thirty nine
weeks of fiscal 1995 as compared to the same period in fiscal 1994. The 9.3%
decrease was due to the retirement of fixed debt offset by a write off of
deferred finance charges associated with the change in primary lending
institutions in the amount of $34,855. The $34,855 was being amortized until
1998; however, the lower interest rate from the new primary lending institution
(as described in "Liquidity and Capital Resources") will have a payback within
the first year of the new five year mortgage note.
The Company adopted FASB Statement 109 in the first 13 weeks of fiscal
1994. The cumulative effect of the change in the method of accounting for
income taxes resulting from the Company's adoption of FASB Statement 109 was to
decrease net income during the first thirteen weeks of fiscal 1994 by $260,686,
or $0.07 per share. The $260,686 decrease constituted a non-cash item and was a
one time charge to equity.
RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED JULY 2, 1995 VS. THIRTEEN WEEKS
ENDED JULY 3, 1994
The Company's net sales decreased from $5,297,911 during the thirteen weeks
ended July 3, 1994 to $5,098,425 during the thirteen weeks ended July 2, 1995.
The 3.8% decrease principally reflects a temporary reduction in customer demand.
Gross profit decreased by 2.1% from $1,413,360 to $1,382,980. The decrease in
gross profit was the effect of the decrease in net sales.
Operating expense was $946,216 and $848,208 for the thirteen weeks of
fiscal 1995 and fiscal 1994, respectively. The increase in operating expense of
$98,008 or 11.6% was the result of higher wage costs, increased outside
consultant fees, legal fees and directors fees due to the evaluation of two
proposals described in the Form 10-Q for the period ended April 2, 1995.
Page 8 of 11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-------------------------------------------------
RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED JULY 2, 1995 VS. THIRTEEN WEEKS
ENDED JULY 3, 1994 - (Continued)
Interest cost decreased from $117,896 to $115,186 during the thirteen weeks
of fiscal 1995 as compared to the same period in fiscal 1994. The 2.2% decrease
was due to the retirement of fixed debt offset by a write off of deferred
finance charges associated with the change in primary lending institutions in
the amount of $34,855. The $34,855 was being amortized until 1999; however, the
lower interest rate from the new primary lending institution (as described in
"Liquidity and Capital Resources") will have a payback within the first year of
the new five year mortgage note.
GENERAL:
Competition in the direct mail industry continues to be strong, and some
pricing remains depressed. More pressure has been put on the margins due to
increases in paper prices. As disclosed under "Liquidity and Capital
Resources," the Company has purchased additional production equipment in order
to service its expanded customer base and resulting increased volume.
LIQUIDITY AND CAPITAL RESOURCES:
On June 21, 1995, the Company received a revolving line of credit with a
new lending institution in the amount of $2.5 million which is limited to 80% of
eligible accounts receivable less 80% of customer advances plus 50% of raw
material inventories up to $500,000. Borrowings under this line are
collateralized by all accounts receivable, inventories and other personal
property and bear interest at the bank's prime lending rate plus an annual
commitment fee of 1/8% on the unused portion. The agreement with the lender
also provides for mortgage note financing in the amount of $2.5 million with a
principal payment of $13,889 per month plus interest at 1/4% above the bank's
prime lending rate and a final payment of the unpaid principal then due, payable
at the maturity of the note. The proceeds of the mortgage note were used to
retire the existing mortgage note of the former lending institution in the
amount of $2,375,000 and the remainder was used for working capital and deferred
finance fees. The revolving line of credit and the mortgage note are due on
June 21, 2000 and July 1, 2000 respectively.
Under the terms of the revolving line of credit and mortgage note agreement
with the bank, the Company is limited on payment of dividends to 50% of the
Company's net income during the year. The Company is also subject to certain
covenants and restrictions related to increased debt, granting liens, tangible
net worth, earnings before interest and taxes and the ratio of liabilities to
tangible net worth and other items. The agreement prohibits the Company in
making capital expenditures in excess of $500,000 in the aggregate in any one
fiscal year which are not financed with permitted indebtedness.
Page 9 of 11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES - (Continued):
The Company's working capital increased to $2,060,860 as of July 2, 1995,
an increase of $1,435,480 or 229.5% from $625,380 on October 2, 1994. The
increase was the result of net income for the thirty nine weeks, the refinancing
of the mortgage note with the new primary lending institution and the
refinancing of the balloon payment of a press as described below.
Equipment purchased during October 1994, in the amount of $795,114, was
financed with five year term loans in the amount of $794,310. A new water
system for one of the presses has been purchased in the amount of $209,999.
This system is being financed over three years along with the remainder of a
note which was currently due on the press in the amount of $346,428. The new
note is in the amount of $556,427.
Certain other significant balance sheet changes during the thirty nine
weeks ended July 2, 1995 included decreases in customer advances of $759,803,
accounts payable of $124,950 and income taxes payable of $279,076 and increases
in inventories of $635,926. The reduction in customer advances resulted from
the utilization of customer deposits to cover postage costs as the Company
delivered direct mail materials to the post office for shipment. The decrease
in accounts payable reflects the timing of vendors invoices as a result of
purchases relating to the third quarter production. The increase in inventories
is the result of the build up of paper inventory in anticipation of paper price
increases and spot shortages.
During the thirteen weeks ended April 2, 1995, the Company placed $323,789
in orders for production equipment. Currently some of the equipment has not
been delivered; however, the Company intends to obtain term financing for the
equipment.
During the first thirty nine weeks of 1995, the Company did not utilize its
working capital line of credit with its principal lending banks. The Company
believes that the cash flow generated from operations and the amount available
under its working capital line of credit ($500,000 as of July 2, 1995) will
enable the Company to meet its currently anticipated operating requirements at
the levels resulting from the acquisition of equipment described above.
Page 10 of 11
<PAGE>
PART II OTHER INFORMATION
- ------- -----------------
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. Exhibits required by Item 601 of Regulation S-K
10.1 Loan Agreement dated as of June 21, 1995, by and
between the Company and Mellon Bank, N.A.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter for which this report is filed.
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 thereunto duly authorized.
SCANFORMS, INC.
DATE: August 11, 1995
/s/ Robert A. Samans
---------------------------
Robert A. Samans, President
/s/ William P. Carey
---------------------------
William P. Carey, Treasurer
(Principle Financial and
Accounting Officer)
Page 11 of 11
<PAGE>
Exhibit 10.1
EXECUTION COPY
================================================================================
LOAN AGREEMENT
BETWEEN
MELLON BANK, N.A.
AND
SCANFORMS, INC.
DATED AS OF JUNE 21, 1995
================================================================================
<PAGE>
LOAN AGREEMENT
BETWEEN
MELLON BANK, N.A. AND SCANFORMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
I. Definitions............................................ 1
II. Credit Accommodations.................................. 7
2.1 The Revolving Line of Credit.................... 7
2.2 Real Estate Loan................................ 9
2.3 Payments and Computations....................... 10
2.4 Borrowing....................................... 10
2.5 Prepayment and Repayment........................ 10
2.6 Requirements of Law............................. 11
III. Security............................................... 12
3.1 Security Documents.............................. 12
IV. Representations and Warranties of the Borrower......... 12
4.1 Good Standing of the Borrower; Authorization.... 12
4.2 Compliance with Laws and Other Agreements....... 12
4.3 No Conflict; Governmental Approvals............. 12
4.4 Financial and Other Information Regarding
Borrower........................................ 13
4.5 Taxes........................................... 13
4.6 Encumbrances and Guaranties..................... 13
4.7 Material Adverse Changes........................ 14
4.8 Margin Securities............................... 14
4.9 ERISA........................................... 14
4.10 Pending Litigation.............................. 14
4.11 Valid, Binding and Enforceable.................. 14
4.12 Priority of Mortgage............................ 15
4.13 Priority of Security Interests.................. 15
4.14 Environmental Matters........................... 15
4.15 No Untrue Statements............................ 15
4.16 New York Collateral............................. 16
V. Conditions Precedent to the Bank's Obligations......... 16
5.1 Documents to be Delivered by the Borrower
at Closing...................................... 16
5.2 Conditions Precedent to Making Revolving
Line of Credit Loans............................ 17
VI. Affirmative Covenants of the Borrower.................. 18
6.1 Use of Proceeds................................. 18
6.2 Financial Statements............................ 18
6.3 Ordinary Course of Business; Records............ 19
6.4 Information for the Bank........................ 19
6.5 Insurance....................................... 19
6.6 Maintenance..................................... 20
6.7 Taxes........................................... 20
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
6.8 Leases.......................................... 20
6.9 Corporate Existence; Certain Rights; Laws....... 21
6.10 Notice of Litigation or Other Proceedings....... 21
6.11 Indebtedness.................................... 21
6.12 Notice of Events of Default..................... 21
6.13 ERISA........................................... 21
6.14 Deposit Accounts................................ 22
6.15 Management...................................... 22
6.16 Financial Covenants............................. 22
6.17 Compliance with Environmental Laws.............. 22
6.18 Further Actions................................. 22
6.19 Subsidiary...................................... 22
6.20 Change of Name.................................. 22
6.21 JLJ Indebtedness................................ 23
VII. Negative Covenants..................................... 23
7.1 Fundamental Corporate Changes................... 23
7.2 Indebtedness.................................... 23
7.3 Encumbrances.................................... 23
7.4 Guaranties...................................... 24
7.5 Sales and Lease-Backs........................... 24
7.6 Loans, Investments.............................. 24
7.7 Change in Business.............................. 24
7.8 Capital Expenditures............................ 24
7.9 Sale or Discount of Receivables................. 24
7.10 Prepayment of Indebtedness...................... 25
7.11 ERISA........................................... 25
7.12 Restricted Payments............................. 25
7.13 Compliance with Federal Reserve Board
Regulations..................................... 25
7.14 Indebtedness with JLJ Capital................... 25
VIII. Events of Default...................................... 26
8.1 Borrower's Failure to Pay....................... 26
8.2 Breach of Covenants or Conditions............... 26
8.3 Defaults in Other Agreements.................... 26
8.4 Agreements Invalid.............................. 26
8.5 False Warranties; Breach of Representations..... 27
8.6 Judgments....................................... 27
8.7 Bankruptcy or Insolvency of the Borrower........ 27
8.8 Control......................................... 28
8.9 Material Adverse Change......................... 28
IX. Remedies............................................... 28
9.1 Further Advances; Acceleration; Setoff.......... 28
9.2 Further Remedies; Confession of Judgment........ 29
X. Miscellaneous.......................................... 30
10.1 Remedies Cumulative; No Waiver.................. 30
10.2 Notices......................................... 30
10.3 Costs, Expenses and Attorneys' Fees............. 31
10.4 Survival of Covenants........................... 31
10.5 Counterparts; Effectiveness..................... 31
10.6 Headings........................................ 31
10.7 Payment Due On A Day Other Than A
Business Day.................................... 31
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C>
10.8 Judicial Proceedings............................ 32
10.9 Governing Law................................... 32
10.10 Integration..................................... 32
10.11 Amendment and Waiver............................ 32
10.12 Successors and Assigns.......................... 32
10.13 Severability of Provisions...................... 33
10.14 Consent to Jurisdiction and Service of
Process......................................... 33
10.15 Indemnification................................. 33
</TABLE>
(iii)
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Agreement"), dated as of June 21, 1995 is between
MELLON BANK, N.A., a national banking association (the "Bank"), and SCANFORMS,
INC., a Delaware corporation (the "Borrower").
BACKGROUND
----------
The Bank and the Borrower desire to set forth the terms and conditions
under which the Bank will make available to the Borrower certain credit
facilities to be used for the purposes specified in this Agreement. Accordingly,
the Bank and the Borrower, each intending to be legally bound hereby, agree as
follows:
ARTICLE I
DEFINITIONS
-----------
Terms used herein without definition that are defined in the Uniform
Commercial Code shall have the meanings ascribed to them therein, unless the
context requires otherwise. The following terms shall have the following
meanings in this Agreement:
"Account" shall have the meaning given to that term in the Uniform
Commercial Code and, in addition, shall include any right to payment for goods
sold or leased or services rendered which is evidenced by an instrument or
chattel paper.
"Affiliate" shall mean any Subsidiary of the Borrower and any Person or
entity that, now or hereafter, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common ownership or
control with the Borrower. For purposes of this definition, the terms "control,"
"controls" and "controlled" shall refer to the power to determine the management
or policies of a Person, whether resulting from an official position or capacity
with such Person, direct or indirect beneficial ownership of at least twenty
percent (20%) of the voting securities or other equity interests of such Person,
or otherwise.
"Agreement" shall mean this agreement, together with all exhibits,
amendments, modifications and supplements hereto as may be in effect from time
to time.
"Bank" shall have the meaning specified in the initial paragraph of this
Agreement, together with its successors and assigns.
"Borrower" shall have the meaning specified in the initial paragraph of
this Agreement, together with its successors and assigns.
"Borrowing Base" shall mean, at any time, a dollar amount equal to the sum
of the following amounts as they exist at that time:
(a) eighty percent (80%) of all Qualified Accounts; and
(b) fifty percent (50%) of all Qualified Inventory valued in
- 1 -
<PAGE>
accordance with GAAP, provided that not more than $500,000 of the Borrowing Base
shall consist of Qualified Inventory.
"Business Day" shall mean any day upon which the Bank is open for business
at its main office in Pittsburgh, Pennsylvania.
"Capital Lease" shall mean any lease of property which, in accordance with
GAAP, should be capitalized on the lessee's balance sheet.
"Capital Lease Obligation" shall mean the amount of the liability which,
according to GAAP, should be capitalized or disclosed with respect to a Capital
Lease.
"Closing" shall mean the execution and delivery to the Bank of all of the
documents and instruments required by the terms of this Agreement and the
closing of the transactions contemplated by this Agreement.
"Closing Date" shall mean the date on which the Closing takes place.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning set forth in the Security Agreement.
"Encumbrance" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender to, or other secured party of
the Person under any conditional sale or other title retention agreement or
Capital Lease with respect to, any property or asset of the Person.
"Environmental Laws" shall mean the Federal Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S)(S) 9601, et seq., the
-- ---
Federal Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq.,
-- ---
the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 1801, et seq., all
-- ---
other federal, state and local environmental or health laws applicable to the
Borrower or its business, operations or assets now or hereafter enacted, and all
rules, regulations, orders and publications adopted or promulgated pursuant
thereto from time to time.
"ERISA" shall mean the federal Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall have the meaning set forth in Article VIII of this
Agreement.
"Financial Statements" shall have the meaning set forth in Section 4.4(a)
of this Agreement.
"GAAP" shall mean generally accepted accounting principles, as in effect at
the time of application to the provisions hereof, and consistently applied.
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<PAGE>
"Guarantor" shall mean any Person who guarantees the payment and
performance of all or any part of the Obligations.
"Guaranty" shall mean any guaranty or agreement to be a surety or other
contingent liability (other than any endorsement for collection or deposit in
the ordinary course of business), direct or indirect, with respect to any
obligation of another Person.
"Hazardous Materials" shall mean all materials of any kind which are
flammable, explosive, toxic, radioactive or otherwise hazardous to animal or
plant life or the environment, including, without limitation, "hazardous
wastes," "hazardous substances" and "contaminants," as such terms are defined by
Environmental Laws.
"Indebtedness" shall mean any obligation for borrowed money, including,
without limitation:
(a) any obligation owed for all or any part of the purchase price of
property or other assets or for the cost of property or other assets constructed
or of improvements thereto, other than accounts payable included in current
liabilities and incurred in respect of property purchased in the ordinary course
of business;
(b) any Capital Lease Obligation; and
(c) any reimbursement obligations and other obligations under any
letter of credit, currency swap agreement, interest rate swap, cap, collar or
floor agreement or other interest rate management devise, or any forward sale or
purchase agreement for foreign currencies.
"Judgment" shall have the meaning set forth in Section 8.6 of this
Agreement.
"Loan Documents" shall mean this Agreement, the Security Agreement, the
Mortgage, the Notes, and all agreements, amendments, certificates, financing
statements, schedules, reports, notices, and exhibits now or hereafter executed
or delivered in connection with any of the foregoing, as may be in effect from
time to time.
"Loans" shall mean the Revolving Line of Credit Loans, the Term Loan and
the Real Estate Loan.
"Mortgage" shall mean a mortgage, dated the same day as this Agreement, in
form and substance satisfactory to the Bank, by which the Borrower shall grant
to the Bank a mortgage lien on real property located at 181 Rittenhouse Circle,
Bristol, Pennsylvania, as required pursuant to Article III of this Agreement,
together with all amendments, modifications, exhibits and schedules thereto as
may be in effect from time to time..
"Notes" shall mean the Real Estate Loan Note and the Revolving Line of
Credit Note, and all replacements, amendments, extensions and renewals thereof.
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<PAGE>
"Obligations" shall mean the obligations of the Borrower:
(a) To pay the principal, interest, commitment fees and any other
liabilities of the Borrower to the Bank under this Agreement and the other Loan
Documents in accordance with the terms thereof;
(b) To satisfy all of the other direct or indirect liabilities of the
Borrower to the Bank, whether hereunder or otherwise, whether now existing or
hereafter incurred, whether or not evidenced by any note or other instrument,
matured or unmatured, direct, absolute or contingent, joint or several,
including any extensions, modifications, renewals thereof and substitutions
therefor;
(c) To repay the Bank all amounts advanced by the Bank hereunder or
otherwise on behalf of the Borrower, including, but without limitation, advances
for principal or interest payments to prior secured parties, mortgagors or
lienors, or for taxes, levies, insurance, rent, wages, repairs to or maintenance
or storage of any Collateral; and
(d) To reimburse the Bank, on demand, for all of the Bank's expenses
and costs, including the reasonable fees and expenses of its counsel, in
connection with the negotiation, preparation, administration, amendment,
modification, or enforcement of this Agreement and the documents required
hereunder, including all amounts payable under Section 10.3 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
governmental or political subdivision or agency thereof.
"Prime Rate" shall mean the floating annual rate of interest that is
designated from time to time by the Bank as the "Prime Rate" and is used by the
Bank as a reference based with respect to interest rates charged to borrowers.
The determination and statement of the Prime Rate shall not in any way preclude
the Bank from making loans to other borrowers at rates which are higher or lower
than the Prime Rate.
"Qualified Account" shall mean each Account which meets all of the
following criteria:
(a) The Account arose from a bona fide outright sale of goods by the
Borrower, or for services performed by the Borrower, under an enforceable
contract, within the United States for a Person located within the United States
(or elsewhere if accompanied by an irrevocable letter of credit reasonably
acceptable to the Bank issued in favor of the Borrower at the request of such
Person), and such goods have been shipped to the appropriate account debtor, or
the sale has otherwise been consummated, or the services have been performed for
the appropriate account debtor in accordance with such contract;
(b) The title of the Borrower to the Account, and, except as to the
account debtor, to any goods to be sold or leased in connection
- 4 -
<PAGE>
with the Account, is absolute and is not subject to any prior assignment or
Encumbrance;
(c) The amount of the Account shown on the books of the Borrower and
on any invoice or statement delivered to the Bank is owing to the Borrower and
no partial payment has been made thereon by any Person;
(d) The Account is not a contra account and is not subject to any
claim of reduction, counterclaim, set-off, recoupment, or any claim for credits,
allowances or adjustments by the account debtor because of returned, inferior or
damaged goods or unsatisfactory services, or for any other reason, except for
customary discounts allowed for prompt payment;
(e) The Account is not an account that the Bank, in its discretion,
has reasonably and in good faith determined does not constitute a Qualified
Account in whole or in part, as described in a notice of such determination
given by the Bank to the Borrower;
(f) The account debtor has not returned or refused to accept or
retain any of the goods or services from the sale or furnishing of which the
Account arose;
(g) The Account is due and payable not more than thirty (30) days
from the date of the invoice therefor;
(h) The age of the Account, calculated from the date of the invoice
therefor, is not more than ninety (90) days;
(i) Not more than fifty percent (50%) of all Accounts payable to the
Borrower by the account debtor are older than ninety (90) days from the invoice
date.
(j) The Account does not arise out of a contract with, or order from,
an account debtor that, by its terms, forbids or makes the assignment of that
Account to the Bank void or unenforceable;
(k) The Borrower has not received any note, trade acceptance, draft
or other instrument or chattel paper with respect to or in payment of the
Account, and, if any such instrument is received, the Borrower will immediately
notify the Bank and at the latter's request, endorse or assign and deliver the
same to the Bank;
(l) The Borrower has not received any notice of the dissolution,
termination of existence, insolvency, business failure, appointment of a
receiver for any part of the property of, assignment for the benefit of
creditors by, or the filing of a petition in bankruptcy or the commencement of
any proceeding under any bankruptcy or insolvency laws by or against the account
debtor;
(m) The account debtor is not an Affiliate of the Borrower; and
(n) The Account shall be netted against eighty percent (80%)
- 5 -
<PAGE>
of any customer deposits with the Borrower.
"Qualified Inventory" shall mean inventory of the Borrower which meets all
of the following criteria:
(a) The inventory consists of raw paper stock and does not include
any work-in-process;
(b) The inventory is readily saleable in a bona fide arm's length
transaction, or is usable, in the ordinary course of business of the Borrower;
(c) The title of the Borrower to the inventory is absolute and is not
subject to any prior assignment or Encumbrance, except the security interest of
the Bank; and
(d) If the inventory is located on leased premises, a landlord's
waiver satisfactory in form and substance to the Bank shall have been delivered
to the Bank for such premises.
"Real Estate Loan" shall mean the loan made by the Bank to the Borrower
pursuant to Section 2.2 hereof.
"Real Estate Loan Note" shall have the meaning set forth in Section 2.2 of
this Agreement, together with all replacements, amendments and renewals thereof.
"Revolving Line of Credit" shall mean the line of credit from the Bank to
the Borrower established pursuant to Section 2.1 of this Agreement.
"Revolving Line of Credit Commitment" shall have the meaning set forth in
Section 2.1 of this Agreement.
"Revolving Line of Credit Loans" shall mean the loans made by the Bank to
the Borrower pursuant to the Line of Credit.
"Revolving Line of Credit Note" shall have the meaning set forth in Section
2.1 of this Agreement, together with all replacements, amendments and renewals
thereof.
"Security Agreement" shall mean the agreement between the Borrower as
debtor and the Bank as secured party, dated the same date as this Agreement, in
form and substance satisfactory to the Bank, by which the Borrower shall grant
security interests in certain of its assets to the Bank, as required pursuant to
Article III hereof, together with all amendments, modifications, exhibits, and
schedules thereto as may be in effect from time to time.
"Subsidiary" shall mean, as to any designated corporation, any corporation,
the outstanding shares of which having sufficient voting power (not depending on
the happening of a contingency) to elect at least a majority of the members of
its board of directors, are at the time owned by the designated corporation.
- 6 -
<PAGE>
"Termination Date" shall have the meaning set forth in Section 2.1 of this
Agreement.
"Uniform Commercial Code" shall mean the Uniform Commercial Code of
Pennsylvania as codified at 13 Pa. C.S.A. (S)101 et seq., as in effect on the
-- ---
date of this Agreement.
ARTICLE II
CREDIT ACCOMMODATIONS
---------------------
2.1 The Revolving Line of Credit. The Bank shall make available to the
----------------------------
Borrower, commencing on the Closing Date, a Revolving Line of Credit in the
maximum principal amount of $2,500,000 (the "Revolving Line of Credit
Commitment"), upon the terms and conditions set forth herein, provided that the
Borrower may permanently reduce the Revolving Line of Credit Commitment by
written notice to the Bank.
(a) Generally. At any time and from time to time during the period
---------
commencing on the Closing Date and ending on June 21, 2000 (the "Termination
Date"), upon the request of the Borrower, the Bank shall provide to the Borrower
a loan or loans in multiples of One Thousand Dollars ($1,000), which shall be
used by the Borrower for working capital. The Borrower may use the Revolving
Line of Credit during the period referred to in the preceding sentence by
borrowing, repaying and reborrowing in accordance with the terms of this
Agreement. The aggregate outstanding principal under the Revolving Line of
Credit at any time shall not exceed the lesser of (i) the Revolving Line of
Credit Commitment or (ii) the Borrowing Base at that time. If, at any time, the
aggregate outstanding principal under the Revolving Line of Credit exceeds the
Borrowing Base, then, without any requirement of demand or notice from the Bank,
the Borrower shall immediately pay to the Bank the amount of such excess. Upon
the Termination Date, unless the same has been extended by written agreement
between the Bank and the Borrower, the Bank's commitment to make Revolving Line
of Credit Loans shall terminate, all Revolving Line of Credit Loans shall
immediately mature and all Obligations under the Revolving Line of Credit Loans
shall be immediately due and payable in full.
(b) Letters of Credit.
-----------------
(1) Generally. In addition to making loans to the Borrower under
---------
the Revolving Line of Credit as provided in Section 2.1(a) hereof, the Bank
shall, upon the request of the Borrower and subject to the terms of this
Agreement, also issue one or more letters of credit ("Letters of Credit") for
the account of the Borrower, in an aggregate face amount at any one time
outstanding not to exceed the amount of $1,000,000. All amounts drawn under
Letters of Credit shall be deemed to be loans made under the Revolving Line of
Credit and evidenced by the Revolving Line of Credit Note, and the amount
available to be borrowed under the Revolving Line of Credit shall be reduced by
the aggregate amounts drawn and available to be drawn at any time under all
outstanding Letters of Credit. In no event shall the aggregate amount available
to be drawn on all outstanding Letters of Credit plus the outstanding principal
balance of Revolving Line of Credit Loans
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<PAGE>
exceed the Revolving Line of Credit Commitment. The duration of any Letters of
Credit shall not extend beyond the Termination Date without the written consent
of the Bank.
(2) Issuance of Letters of Credit. Subject to the provisions of
-----------------------------
Section 2.1(b)(1), the Bank shall issue Letters of Credit for the account of the
Borrower, provided that the Borrower (i) provides a written request for each
such Letter of Credit specifying the terms thereof, including, without
limitation, the amount and the name and address of the beneficiary of such
Letter of Credit; (ii) executes and delivers to the Bank an application for each
such Letter of Credit pursuant to the form provided for such purpose by the
Bank; and (iii) executes and delivers to the Bank such other documents and
instruments which the Bank, in its sole and absolute discretion, deems
reasonable and necessary. The Borrower shall pay to the Bank all customary
transaction fees required by the Bank in connection with the issuance of each
Letter of Credit hereunder, including, without limitation, the Bank's standard
remittance, transfer and issuance fees, which fees may be deducted by the Bank
from the Borrower's account as such fees are incurred.
(c) Interest. Interest shall accrue on all loans outstanding under
--------
the Revolving Line of Credit at an annual rate equal at all times to the Prime
Rate. Interest on the aggregate outstanding principal under the Revolving Line
of Credit shall be payable monthly on the first day of each month commencing
with the month immediately following that in which the first advance under the
Revolving Line of Credit is made, and shall change simultaneously and
automatically upon any change in the Prime Rate.
(d) Revolving Line of Credit Note. The obligations of the Borrower to
-----------------------------
repay the aggregate outstanding principal under the Revolving Line of Credit and
to pay accrued interest thereon shall be evidenced by a promissory note, in form
and substance satisfactory to the Bank, to be executed and delivered to the Bank
concurrently with the execution and delivery of this Agreement (the "Revolving
Line of Credit Note").
(e) Unused Commitment Fees. In addition to the interest payable by
----------------------
the Borrower to the Bank in respect of the Revolving Line of Credit Loans, the
Borrower shall pay an unused commitment fee equal to one eighth of one percent
(1/8%) of the amount of the unused portion of the Revolving Line of Credit
Commitment. Such amount shall be payable on a quarterly basis commencing the
first business day of August, 1995.
(f) Structuring Fee. The Borrower agrees to pay a structuring fee
---------------
equal to $20,000 payable on or prior to the Closing Date.
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<PAGE>
2.2 Real Estate Loan.
----------------
(a) Generally. The Bank shall make available to the Borrower on the
---------
Closing Date a term loan ("Real Estate Loan") of $2,500,000, a portion the
proceeds of which shall be used to refinance existing mortgage debt with respect
to the Property located at 181 Rittenhouse Circle, Bristol, Pennsylvania (the
"Property") and the balance to be used for working capital. The Borrower shall
repay the outstanding principal of the Real Estate Loan in sixty (60)
consecutive, monthly installments of $13,888.89 (based upon a fifteen-year
amortization) on the first day of each month beginning August 1, 1995.
(b) Interest. At the Borrower's election made in writing to the Bank
--------
on or before the Closing Date, interest shall accrue on the outstanding
principal of the Real Estate Loan at either (i) an annual rate equal at all
times to one-quarter of one percent (1/4%) in excess of the Prime Rate, which
rate shall change simultaneously and automatically upon each change in the
Bank's Prime Rate, or (ii) a fixed rate quoted by the Bank to the Borrower on
the Closing Date. Interest shall be payable monthly on the first day of each
month beginning August 1, 1995. The Bank agrees to make available Fixed Rates
upon the request of the Borrower.
(c) Real Estate Loan Note. The obligations of the Borrower to repay
---------------------
the aggregate outstanding principal under the Real Estate Loan and to pay
accrued interest thereon shall be evidenced by a promissory note, in form and
substance satisfactory to the Bank, to be executed and delivered to the Bank
concurrently with the execution and delivery of this Agreement (the "Real Estate
Loan Note").
2.3 Payments and Computations. All amounts payable by the Borrower to the
-------------------------
Bank under this Agreement or the Notes shall be paid directly to the Bank in
immediately available funds at the address of the Bank set forth in Section 10.2
hereof or at such other address of which the Bank shall give notice to the
Borrower pursuant to Section 10.2 hereof. Notwithstanding anything set forth
herein to the contrary, the Borrower hereby authorizes the Bank to charge any
account of the Borrower at the Bank for any payment due by the Borrower under
this Agreement or any of the Notes. All computations of interest hereunder shall
be made by the Bank on the basis of a year of 360 days for the actual number of
days elapsed. All payments under each of the Notes shall be applied first to the
payment of interest due and payable thereunder and then to the reduction of the
outstanding principal balance thereof.
2.4 Borrowing. The Borrower shall notify the Bank of each proposed
---------
borrowing under the Revolving Line of Credit not later than 2:00 p.m.,
Philadelphia, Pennsylvania time on the day of the proposed borrowing.
2.5 Prepayment and Repayment. Prepayment of any amounts of principal
------------------------
of the Real Estate Loan accruing interest at a fixed rate shall not be permitted
unless accompanied by the following prepayment premium:
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<PAGE>
The amount of the prepayment charge shall equal the difference
between (i) the aggregate amount of interest which would otherwise have
been payable on such prepaid amount from the date of prepayment to the date
when such prepaid amount was due and (ii) the aggregate amount of interest
which the Bank would earn if such prepaid amount were invested at the
Treasury Security Yield from the date of prepayment to the date when such
prepaid amount was due, which difference in interest earning shall be
discounted to present value at the Treasury Security Yield. The term
"Treasury Security Yield" means the bond equivalent yield to maturity
available in the secondary market on a Treasury Security with a maturity as
close as possible to the scheduled maturity of the prepaid amount and a
coupon as close as possible to the bond equivalent yield. The Bank's
determination of the amount of any prepayment penalty will be conclusive
and binding absent manifest error, however, Bank will permit the Borrower
to rebut such amounts if it does so in writing, with appropriate evidence
thereof, within five (5) days from the date of notification by Bank.
Except as expressly set forth above, the Borrower may make payments and
prepayments of the Loans in whole or in part at any time and from time to time
without penalty or premium upon notification to the Bank not later than 2:00
p.m. Philadelphia, Pennsylvania time on the date of the proposed payment or
prepayment. All prepayments of the outstanding principal shall be applied to
installments of principal due thereunder in the inverse order of their maturity.
2.6 Requirements of Law. In the event that after the date hereof, any
-------------------
change in any law, regulation or treaty or in the interpretation or application
thereof or compliance by the Bank with any request or directive (whether or not
having the force of law) from any central bank or other governmental authority,
agency or instrumentality:
(a) subjects or shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement, the loans made hereunder, or changes
the basis of taxation of payments to the Bank of principal, commitment fees,
interest or any other amount payable hereunder (except for changes in the rate
of tax on the overall net income, gross receipts or franchise tax of the Bank);
(b) imposes, modifies or holds or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the account
of, advances or loans by, or other credit extended by, or any other acquisition
of funds by, any office of the Bank, which reserve, special deposit, compulsory
loan or similar requirement is not otherwise included in determination of the
interest rate hereunder;
(c) imposes or shall impose on the Bank any other condition;
and the result of any of the foregoing is to, directly or indirectly, increase
the cost to the Bank of making, renewing or maintaining advances or extensions
of credit or to reduce any amount receivable thereunder then, in any such case,
the Borrower shall promptly pay the Bank, upon its demand, any additional
amounts necessary to compensate
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<PAGE>
the Bank for such additional cost or reduced amount receivable. If the Bank
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall promptly notify the Borrower of the event by reason of which it has become
so entitled. The good faith determination as to any additional amounts payable
pursuant to the foregoing sentence by the Bank shall be conclusive in the
absence of manifest error, provided that the Bank shall make such determination
and demand in a manner consistent with the application of similar provisions to
other borrowers of the Bank similarly situated to the Borrower.
ARTICLE III
-----------
SECURITY
--------
3.1 Security Documents. As security for the prompt payment, performance,
------------------
satisfaction and discharge when due of all the Obligations, the Borrower shall
execute and deliver or shall
cause to be executed and delivered to the Bank, concurrently with the execution
of this Agreement, the Security Agreement and the Mortgage.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
In order to induce the Bank to execute and deliver this Agreement and to
make the Loans available to the Borrower, the Borrower represents and warrants
to the Bank that, as of the date hereof:
4.1 Good Standing of the Borrower; Authorization. The Borrower is duly
--------------------------------------------
incorporated, organized and existing and in good standing in the [State of
Delaware] and is duly qualified as a foreign corporation and authorized to do
business in all other jurisdictions wherein the nature of its business or
property makes such qualification necessary, and has the corporate power to own
its properties and to carry on its business as now conducted and where failure
to qualify would have a material adverse effect on the Borrower. The execution,
delivery and performance of this Agreement, and the Loan Documents have been
duly authorized by all necessary corporate proceedings on the part of the
Borrower.
4.2 Compliance with Laws and Other Agreements. The Borrower is in
-----------------------------------------
compliance with all laws, rules, regulations, judgments, decrees, orders,
agreements and requirements (including, without limitation, ERISA, The Code,
Environmental Laws, rules and regulations thereunder) which affect in any
material way the Borrower, its assets or the operation of its business and where
non-compliance would have a material adverse effect on the Borrower and has not
received, and has no knowledge of, any order or notice of any governmental
investigation or of any material violation or claim of a material violation of
any law, regulation, judgment, decree, order, agreement, or other governmental
requirement.
4.3 No Conflict; Governmental Approvals. The execution, delivery, and
-----------------------------------
performance of this Agreement and each of the Loan Documents will not (i)
conflict with, violate, constitute a default under, or result in a breach of any
provision of any applicable law, rule, regulation, judgment, decree, order,
instrument or other agreement applicable to the
- 11 -
<PAGE>
Borrower, or (ii) conflict with or result in a breach of any provision of the
certificate of incorporation or by-laws of the Borrower. No authorization,
permit, consent or approval of or other action by, and no filing, registration
or declaration with, any governmental authority or regulatory body is required
to be obtained or made by the Borrower for the due execution, delivery and
performance of this Agreement or any of the Loan Documents, except such as have
been duly obtained or made prior to the Closing Date and are in full force and
effect as of the Closing Date (copies of which have been delivered to the Bank
on or before the Closing Date).
4.4 Financial and Other Information Regarding Borrower.
--------------------------------------------------
(a) The Borrower has delivered to the Bank true, correct and complete
copies of the balance sheets of the Borrower as of October 2, 1994, and related
statements of income for the period then ended, together with notes thereto and
the unqualified opinion thereon, dated October 2, 1994 of Grant Thorton, and
true and correct copies of the quarterly financial statements of the Borrower as
of April 2, 1995 inclusive of the balance sheet related statement of income for
the period then ended. Those financial statements ("Financial Statements")
present fairly the financial position of the Borrower as of October 2, 1994, and
the results of the operations of the Borrower for the period then ended in
conformity with GAAP, subject, in the case of the April 2, 1995 Financial
Statements to normal year-end adjustments.
(b) The Borrower has no Indebtedness other than as shown in the most
recent Financial Statements and as permitted by Section 7.2(b) and 7.2(c)
hereof.
(c) The Borrower has no "investment" (as such term is defined under
GAAP), whether by stock purchase, capital contribution, loan, advance, purchase
of property or otherwise, in any Person, other than as shown in the most recent
Financial Statements.
4.5 Taxes. The Borrower is not delinquent in payment of any income,
-----
property or other tax, except for any delinquency in the payment of a tax which
is contested in good faith by the Borrower and for which appropriate reserves
have been established in accordance with GAAP.
4.6 Encumbrances and Guaranties.
---------------------------
(a) All properties and assets of the Borrower are owned by the
Borrower free and clear of all Encumbrances except (i) those for taxes or other
government charges either not yet delinquent or the nonpayment of which is
permitted by Section 4.5 of this Agreement; (ii) those not arising in connection
with Indebtedness that do not materially impair the use or value of the
properties or assets of the Borrower in the conduct of its businesses; (iii)
Encumbrances whose release and termination is evidenced by the Borrower's
delivery to the Bank of appropriate documents on the Closing Date; (iv) the Loan
Documents and Encumbrances otherwise permitted under the Security Agreement and
the Mortgages; and (v) Encumbrances disclosed in the most recent Financial
Statements; and (vi) Encumbrances permitted by Sections 7.3(b) and 7.3(f).
- 12 -
<PAGE>
(b) The Borrower is not obligated under any Guaranty.
4.7 Material Adverse Changes. Since April 2, 1995, there has not been any
------------------------
material adverse change in the business, operations, properties or financial
position of the Borrower. The Borrower does not know of any fact (other than
matters of a general economic or political nature) which materially adversely
affects, or, so far as the Borrower can now reasonably foresee, will materially
adversely affect, the business, operations, properties or financial position of
the Borrower or the performance by the Borrower of its obligations under this
Agreement and the other Loan Documents.
4.8 Margin Securities. The assets of the Borrower do not include any
-----------------
"margin securities" within the meaning of Regulations G or U of the Board of
Governors of the Federal Reserve System (12 C.F.R. 207, 221), and the Borrower
does not have any present intention of acquiring any margin security.
4.9 ERISA. The provisions of each employee benefit plan as defined in
-----
Section 3(3) of ERISA ("Plan") maintained by the Borrower complies in all
material respects with all applicable requirements of ERISA and of the Code, and
with all applicable rulings and regulations issued under the provisions of ERISA
and the Code setting forth those requirements. No reportable event, as defined
in Section 4043 of ERISA, has occurred with respect to any Plan; no Plan to
which Section 4021 of ERISA applies has been terminated; no Plan has incurred
any liability to PBGC as provided in Section 4062, 4063 and 4064 of ERISA; no
material Plan has been involved in any prohibited transaction within the meaning
of Section 406 of ERISA or Section 4975 of the Code which could have a material
adverse effect on the financial condition of the Borrower; and there are no
unfunded liabilities with respect to any Plan which are not disclosed in the
Financial Statements.
4.10 Pending Litigation. There are no actions, suits, proceedings or
------------------
investigations pending, or, to the knowledge of the Borrower, threatened against
or affecting the Borrower, before any court, arbitrator or administrative or
governmental body which, in the aggregate, are reasonably likely to adversely
affect any action taken or to be taken by the Borrower under this Agreement and
the other Loan Documents or which, in the aggregate, are reasonably likely to
materially adversely affect the business, operations, properties or financial
position of the Borrower, or the ability of the Borrower to perform its
obligations under this Agreement and the other Loan Documents.
4.11 Valid, Binding and Enforceable. This Agreement and the Loan Documents
------------------------------
have been duly and validly executed and delivered by the parties thereto (other
than the Bank) and constitute the valid and legally binding obligations of such
parties enforceable in accordance with their respective terms, except as
enforcement of this Agreement and the other Loan Documents may be limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors' rights and except as enforcement is
subject to general equitable principles.
- 13 -
<PAGE>
4.12 Priority of Mortgage. The Mortgage, when recorded in the office of
--------------------
the Recorder of Deeds of Bucks County, Pennsylvania will create a valid first
mortgage lien on the real property described therein.
4.13 Priority of Security Interests. The Security Agreement, upon the
------------------------------
filing of financing statements in the appropriate governmental offices, will
create valid first perfected security interests in the personal property of the
Borrower described therein as collateral for all the Obligations subject to no
prior Encumbrances, except as permitted by Section 7.3 hereof.
4.14 Environmental Matters.
---------------------
(a) The Borrower has performed all of its material obligations under,
has obtained all necessary approvals, permits, authorizations and other consents
required by, and is not in material violation of, any Environmental Laws.
(b) The Borrower has not received any notice, citation, summons,
directive, order or other communication, written or oral, from, and the Borrower
has no knowledge of the filing or giving of any such notice, citation, summons,
directive, order or other communication by, any governmental or quasi-
governmental authority or agency or any other Person concerning the presence,
generation, treatment, storage, transportation, transfer, disposal, release or
other handling of any Hazardous Materials within, on, from, related to, or
affecting any real property owned or occupied by the Borrower.
(c) To the best of the Borrower's knowledge, after reasonable inquiry,
no real property owned or occupied by the Borrower has ever been used, either by
the Borrower or any of its predecessors in interest, to generate, treat, store,
transport, transfer, dispose of, release or otherwise handle any Hazardous
Material in material violation of any applicable Environmental Laws.
(d) To the best of the Borrower's knowledge, after due inspection,
there are no Hazardous Materials within, on or under any real property owned or
occupied by the Borrower in material violation of any applicable Environmental
Laws.
4.15 No Untrue Statements. Neither this Agreement, the Loan Documents nor
--------------------
any other document, certificate or statement furnished or to be furnished by the
Borrower or by any other party to the Bank in connection herewith contains, or
at the time of delivery will contain, any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
4.16 New York Collateral. The value of all assets of the Borrower located
-------------------
in the State of New York does not exceed the amount of $10,000.
- 14 -
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO THE BANK'S OBLIGATIONS
----------------------------------------------
The Bank's obligations hereunder are conditioned upon the satisfaction by
the Borrower of the following conditions precedent:
5.1 Documents to be Delivered by the Borrower at Closing. The Borrower
----------------------------------------------------
shall deliver or cause to be delivered to the Bank at the Closing the following:
(a) This Agreement duly executed by the Borrower;
(b) The Notes duly executed by the Borrower;
(c) The Security Agreement duly executed by the Borrower, together
with such Uniform Commercial Code financing statements and other documents as
the Bank may reasonably require to be executed by the Borrower;
(d) The Mortgage duly executed by the Borrower and acknowledged, in
form suitable for recording;
(e) Evidence of the Borrower's having complied with those covenants
regarding insurance as are contained in this Agreement and the other Loan
Documents;
(f) A certificate of the Secretary or an Assistant Secretary of the
Borrower dated the Closing Date including (i) resolutions duly adopted by the
Borrower authorizing the transactions under the Loan Documents; (ii) a copy of
the by-laws of the Borrower; (iii) evidence of the incumbency and signature of
the officers executing on its behalf any of the Loan Documents and any other
document to be delivered pursuant to any such documents, together with evidence
of the incumbency of such Secretary or Assistant Secretary; (iv) a copy,
certified by the Delaware Secretary of State, as of the most recent date
practicable, of the Borrower's Articles and Certificate of Incorporation,
together with the certification of the Secretary or Assistant Secretary of the
Borrower as of the Closing Date that such Articles and Certificate of
Incorporation have not been amended since the date of the aforesaid
certification by the Secretary of State; and (v) certificates of authority or
good standing for the Borrower from its jurisdiction of incorporation and any
other jurisdiction where the Borrower is qualified to do business;
(g) A copy of each and every authorization, permit, consent, and
approval of and other action by, and notice to and filing with, every
governmental authority and regulatory body which is required to be obtained or
made by the Borrower for the due execution, delivery and performance of this
Agreement and the other Loan Documents;
(h) Policies of title insurance issued by a title company satisfactory
to the Bank insuring the Mortgage, as a valid first mortgage lien, subject only
to exceptions approved by the Bank;
(i) Satisfactory field examination to be paid for by the Borrower,
performed by the Bank or its designee the results of which
- 15 -
<PAGE>
shall be satisfactory, in the sole discretion of the Bank;
(j) The opinion of Wolf, Block, Schorr & Solis-Cohen dated as of
Closing Date, in form and substance reasonably satisfactory to the Bank and its
counsel; and
(k) Appraisals of real estate, in form and substance satisfactory to
the Bank in its sole discretion and by an appraiser satisfactory to the Bank;
(l) Satisfactory review by the Bank in its sole discretion of a
detailed listing of the equipment located at the Property;
(m) Satisfactory review of a Phase I environmental assessment (to be
paid for by the Borrower), by an environmental assessment company engaged by the
Bank; and
(n) Pay-off and Estoppel certificates from Fleet Bank and delivery of
appropriate UCC-3 Termination Statements in form and substance satisfactory to
the Bank.
5.2 Conditions Precedent to Making Revolving Line of Credit Loans. The
-------------------------------------------------------------
Bank shall not be obligated to make any Revolving Line of Credit Loans hereunder
unless:
(a) As of the date of the proposed advance, no Event of Default has
occurred and is continuing and no event has occurred and is continuing which,
with the giving of notice or lapse of time, or both, would constitute an Event
of Default;
(b) The representations and warranties contained in Article IV are
true and correct on the date of the proposed advance, except that the
representations and warranties in Section 4.4 shall refer to the financial
statements most recently supplied to the Bank pursuant to Section 6.2 of this
Agreement; and
(c) No material adverse change has occurred in the financial condition
of the Borrower since the date hereof; and
(d) The Borrower has delivered to the Bank, upon the Bank's request, a
certificate executed on the Borrower's behalf by the chief executive officer or
chief financial officer of the Borrower confirming the statements made in
paragraphs (a), (b), and (c) above.
ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
-------------------------------------
The Borrower hereby covenants and agrees that from the date hereof and
until satisfaction in full of the Obligations, unless the Bank shall otherwise
consent in writing, the Borrower shall do the following:
6.1 Use of Proceeds. Use the proceeds of the borrowings hereunder only
---------------
for the purposes specified in Sections 2.1 and 2.2 of this Agreement.
- 16 -
<PAGE>
6.2 Financial Statements. Furnish to the Bank:
--------------------
(a) within ninety days after the end of each fiscal year, financial
statements of the Borrower, including a balance sheet, statement of income,
statement of cash flows and such other financial statements of the Borrower in
such detail as the Bank may reasonably request. Such financial statements shall
present fairly the financial condition of the Borrower as of the close of such
year and the results of its operations and its cash flows during such year, in
accordance with GAAP, and shall be audited and accompanied by the opinion,
satisfactory in form and substance to the Bank, of an independent public
accountant acceptable to the Bank (it being understood that the Borrower's
current accountant or any "Big 6" accounting firm, or any certified public
accounting firm permitted to issue unqualified opinions to the Securities and
Exchange Commission, is acceptable to the Bank), and a certificate signed by
such accountant to the effect that such accountant does not know of any Event of
Default specified in Article VIII hereof, or of the occurrence and continuance
of any event which, with the giving of notice or lapse of time, or both, would
constitute such an Event of Default, or, if such accountant shall have obtained
knowledge of any such Event of Default or other event, specifying the nature
thereof;
(b) within forty-five days after the end of each fiscal quarter, a
balance sheet, statement of income, statement of cash flows and such other
financial statements in such detail as the Bank may reasonably request, which
shall present fairly the financial position of the Borrower as of the end of
such quarter and the results of its operations and a statement of cash flows
during such quarter, in accordance with GAAP, certified by the chief financial
officer of the Borrower, and the additional certification executed on the
Borrower's behalf by the chief financial officer of the Borrower to the effect
that he knows of no Event of Default specified in Article VIII hereof, or of the
occurrence and continuance of any Event which with the giving of notice or lapse
of time or both would constitute such an Event of Default;
(c) within twenty-five (25) business days after the end of each month,
a certificate in form reasonably satisfactory to the Bank executed on the
Borrower's behalf by the chief financial officer or the controller of the
Borrower as to the amounts of the Qualified Accounts, Qualified Inventory,
Borrowing Base, outstanding principal of Revolving Line of Credit Loans and
availability under the Revolving Line of Credit as of the end of that month
(inclusive of accounts receivable and accounts payable agings, and an inventory
report for such month);
(d) concurrent with the delivery of the financial statements set forth
in Section 6.2(a), pro forma financial statements of the Borrower for such
upcoming year categorized monthly, and in such detail as the Bank shall
reasonably request.
6.3 Ordinary Course of Business; Records. Conduct its business only in
------------------------------------
the ordinary course and keep accurate and complete books and records of its
assets, liabilities and operations consistent with sound business practices and
in accordance with GAAP.
- 17 -
<PAGE>
6.4 Information for the Bank. Make available during normal business hours
------------------------
and upon reasonable prior notice for inspection by the Bank or its designated
representatives any of its books and records when reasonably requested by the
Bank to do so, and furnish the Bank any information reasonably requested
regarding its operations, business affairs and financial condition within a
reasonable time after the Bank gives notice of its request therefor. In
particular, and without limiting the foregoing, the Borrower shall permit,
during normal business hours and upon reasonable prior notice, representatives
of the Bank's Audit Department to make such periodic inspections of the
Borrower's books, records and assets as such representatives deem necessary and
proper.
6.5 Insurance. Carry at all times in financially sound and reputable
---------
insurers: (a) all workers' compensation or similar insurance as may be required
under the laws of any jurisdiction; (b) public liability insurance against
claims for personal injury, death or property damage suffered upon, in or about
any premises occupied by it or occurring as a result of the ownership,
maintenance or operation by it of any automobile, truck or other vehicle or as a
result of the use of products manufactured, constructed or sold by it, or
services rendered by it; (c) business interruption insurance covering risk of
loss as a result of the cessation for all or any part of one year of any
substantial part of the business conducted by it; (d) hazard insurance against
such other hazards as are usually insured against by business entities of
established reputation engaged in like businesses and similarly situated,
including, without limitation, fire (flood, if applicable) and extended
coverage; and (e) such other insurance as the Bank may from time to time
reasonably require, and pay all premiums on the policies for all such insurance
when and as they become due and take all other actions necessary to maintain
such policies in full force and effect at all times. The insurance specified in
Subsections (b), (c) and (d) shall be maintained in such amounts (and with co-
insurance and deductibles) as such insurance is usually carried by business
entities of established reputation engaged in the same or similar business and
similarly situated. The Borrower shall from time to time, upon request by the
Bank, promptly furnish or cause to be furnished to the Bank evidence, in form
and substance satisfactory to the Bank, of the maintenance of all insurance
required to be maintained hereby, including, without limitation, such originals
or copies as the Bank may request of policies, certificates of insurance, riders
and endorsements relating to such insurance and proof of premium payments. The
Borrower shall cause each hazard insurance policy to provide, and the insurer
issuing each such policy to certify to the Bank, that (a) if such insurance be
proposed to be cancelled or materially changed for any reason whatsoever, such
insurer will promptly notify the Bank and such cancellation or change shall not
be effective for 30 days after receipt by the Bank of such notice, unless the
effect of such change is to extend or increase coverage under the policy; (b)
the Bank shall be named as lender loss payee with respect to personal property
and mortgagee with respect to real property; and (c) the Bank will have the
right, at its election, to remedy any default in the payment of premiums within
30 days of notice from the insurer of such default. The foregoing covenants
regarding insurance are in addition to, and not intended to supersede, those
covenants regarding insurance set forth in
- 18 -
<PAGE>
the Security Agreement. In the event and to the extent of any conflict between
the provisions of this Agreement and the provisions of the Security Agreement
regarding the insuring of Collateral, the provisions of the Security Agreement
with respect thereto shall govern.
6.6 Maintenance. Maintain its equipment, real property and other
-----------
properties in good condition and repair (normal wear and tear excepted) and pay
and discharge the cost of repairs thereto or maintenance thereof.
6.7 Taxes. Pay all taxes, assessments, charges and levies imposed upon it
-----
or on any of its property, or which it is required to withhold and pay over, and
provide evidence of payment thereto to the Bank if the Bank so requests, except
where contested in good faith by lawful and appropriate proceedings and where
adequate reserves therefor have been set aside on its books; provided, however,
that the Borrower shall pay all such taxes, assessments, charges and levies
forthwith whenever foreclosure on any lien which attaches or security therefor
appears imminent.
6.8 Leases. Pay all rent or other sums required by every lease to which
------
the Borrower is a party as the same becomes due and payable, perform all its
obligations as tenant or lessee thereunder where failure to do so would have a
material adverse effect on the Borrower, except where contested in good faith by
lawful and appropriate proceedings and where adequate reserves therefor have
been set aside; and keep all such leases at all times in full force and effect
during the terms thereof.
6.9 Corporate Existence; Certain Rights; Laws. Do all things necessary to
-----------------------------------------
preserve and keep in full force and effect in each jurisdiction in which it
conducts business the business existence, licenses, permits, rights, patents,
trademarks, trade names and franchises of the Borrower and comply with all
present and future laws, ordinances, rules, regulations judgments, orders and
decrees which affect in any material way the Borrower, its assets or the
operation of its business.
6.10 Notice of Litigation or Other Proceedings. Give prompt notice to the
-----------------------------------------
Bank of (i) the existence of any dispute, (ii) the institution of any
litigation, administrative proceeding or governmental investigation involving
the Borrower or (iii) the entry of any judgment, decree or order against or
involving the Borrower, any of which are reasonably likely to materially and
adversely affect the operation, financial condition, property or business of the
Borrower or affect the enforceability of this Agreement or any of the other Loan
Documents.
6.11 Indebtedness. Pay or cause to be paid when due (or within applicable
------------
grace periods) all Indebtedness of the Borrower.
6.12 Notice of Events of Default. Give immediate notice to the Bank if the
---------------------------
Borrower becomes aware of the occurrence of any Event of Default, or of any
fact, condition or event which with the giving of notice or lapse of time, or
both, would be an Event of Default, or of the failure of the Borrower to observe
or perform any of the conditions or covenants to be observed or performed by it
under this Agreement or
- 19 -
<PAGE>
any of the other loan Documents.
6.13 ERISA. Maintain each Plan in material compliance with all applicable
-----
requirements of ERISA, the Code and all applicable rulings and regulations
issued under the provisions of ERISA and of the Code. As promptly as
practicable (but in any event not later than ten Business Days) after the
Borrower receives from the PBGC a notice of intent to terminate any Plan or to
appoint a trustee to administer any Plan, after the Borrower has notified the
PBGC that any reportable event, as defined in Section 4043 of ERISA, with
respect to any Plan has occurred, or after the Borrower has provided a notice of
intent to terminate to each affected party, as defined for purposes of Section
4041(a)(2) of ERISA, with respect to any Plan termination under Section 4041(c)
of ERISA, a certificate of the chief executive officer of the Borrower shall be
furnished to the Bank setting forth the details with respect to the events
resulting in such reportable event, as the case may be, and the action which the
Borrower proposes to take with respect thereto, together with a copy of the
notice of intent to terminate or to appoint a trustee from the PBGC, of the
notice of such reportable event or of the Borrower's notice of intent to
terminate, as the case may be.
6.14 Deposit Accounts. Use the Bank as its primary depository institution
----------------
to the extent reasonably feasible unless otherwise agreed in writing by the
Bank; and notify the Bank, in writing and on a continuing basis, of all deposit
accounts and certificates of deposit (including the numbers thereof) maintained
with or purchased from other banks and other financial institutions.
6.15 Management. Furnish to Bank within five (5) days of any election or
----------
appointment of officers or directors, written notice of any change in the
persons who from time to time become officers and directors of Borrower.
6.16 Financial Covenants. Observe the financial covenants set forth on
-------------------
Schedule 6.16 attached hereto and made a part hereof.
6.17 Compliance with Environmental Laws. Comply in all material respects
----------------------------------
with all Environmental Laws and not use any property which it owns or occupies
to generate, treat, store, transport, transfer, dispose of, release or otherwise
handle any Hazardous Material, except in compliance with all Environmental Laws.
6.18 Further Actions. Cooperate and join with the Bank, at its own
---------------
expense, in taking all such further actions as the Bank, in its sole judgment
(which shall be reasonably exercised), shall deem necessary to effectuate the
provisions of the Loan Documents and to perfect or continue the perfected status
of all Encumbrances granted to the Bank pursuant to the Loan Documents,
including, without limitation, the execution, delivery and filing of financing
statements, amendments thereto and continuation statements, the delivery of
chattel paper, documents or instruments to the Bank, and the notation of
Encumbrances in favor of the Bank on certificates of title.
6.19 Subsidiary. Provide written notice to the Bank thirty (30) days prior
----------
to the acquisition of any Subsidiary and cooperate with the
- 20 -
<PAGE>
Bank in taking such action as the Bank deems necessary with respect to such
Subsidiary, including, without limitation, causing such Subsidiary to join in
and become bound by the provisions of this Agreement.
6.20 Change of Name. Provide written notice to the Bank thirty days prior
--------------
to any change in its name and cooperate with the Bank in taking such action as
the Bank deems necessary with respect to such name change, including, without
limitation, executing additional UCC financing statements.
6.21 JLJ Indebtedness. Pay and fully discharge all Indebtedness described
----------------
in Section 7.14 hereof, and cause all liens relating thereto to be released, on
or before September 30, 1995.
ARTICLE VII
NEGATIVE COVENANTS
------------------
The Borrower hereby covenants and agrees that from the Closing Date until
satisfaction in full of the Obligations, it will not do any one or more of the
following without first obtaining the written consent of the Bank:
7.1 Fundamental Corporate Changes.
-----------------------------
(a) Enter into or effect any merger, consolidation, share exchange,
division, conversion, reclassification, recapitalization, reorganization or
other transaction of like effect, or dissolve; or
(b) Sell, transfer, lease or otherwise dispose of all or (except in
the ordinary course of business) any material part of its assets or any
significant product line or process.
7.2 Indebtedness. Incur, create, assume or have any Indebtedness except:
------------
(a) The Loans;
(b) Not more than $1,000,000 in purchase money indebtedness per year
(inclusive of Capital Lease Obligations) and $2,000,000 in purchase money
indebtedness (inclusive of Capital Lease Obligations) in the aggregate for the
period commencing the Closing Date and ending on the Termination Date; and
(c) Indebtedness set forth on Schedule 7.2(c).
7.3 Encumbrances. Create or allow any Encumbrances to be on or otherwise
------------
affect any of its property or assets except:
(a) Encumbrances in favor of the Bank;
(b) Encumbrances for taxes, assessments and other governmental charges
incurred in the ordinary course of business which are not yet due and payable;
(c) Pledges or deposits made in the ordinary course of
- 21 -
<PAGE>
business to secure payment of workmen's compensation or to participate in any
fund in connection with workmen's compensation, unemployment insurance or other
social security obligations;
(d) Good faith pledges or deposits made in the ordinary course of
business to secure performance of tenders, contracts (other than for the
repayment of Indebtedness) or leases or to secure statutory obligations or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business;
(e) Liens of mechanics, materialmen, warehousemen, carriers or other
similar liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable;
(f) Encumbrances securing Indebtedness permitted under Section 7.2(b)
and 7.2(c), provided that (i) no other covenants of this Agreement are thereby
violated and (ii) no equipment other than the equipment so acquired secures such
Indebtedness;
(g) Encumbrances, if any, otherwise expressly permitted by the
Security Agreement or the Mortgage; and
(h) Encumbrances disclosed in the Financial Statements.
7.4 Guaranties. Directly or indirectly make any Guaranty.
----------
7.5 Sales and Lease-Backs. Sell, transfer or otherwise dispose of any
---------------------
property, real or personal, now owned or hereafter acquired, with the intention
of directly or indirectly taking back a lease on such property.
7.6 Loans, Investments. Purchase, invest in, or make any loan in the
------------------
nature of an investment in the stocks, bonds, notes or other securities or
evidence of Indebtedness of any Person, or make any loan or advance to or for
the benefit of any Person (including, without limitation, Custom Data, Inc.)
except for (i) short-term obligations of the Treasury of the United States of
America; (ii) certificates of deposit issued by banks with shareholders' equity
of at least $100,000,000; (iii) repurchase agreements not exceeding 29 days in
duration issued by banks with shareholders' equity of at least $100,000,000;
(iv) notes and other instruments generally known as "commercial paper" which
arise out of current transactions, which have maturities at the time of issuance
thereof not exceeding nine months and which have, at the time of such purchase,
investment or other acquisition, the highest credit rating of Standard & Poor's
Corporation or Moody's Investors Service, Inc., (v) the note executed by Robert
A. Samans in favor of the Borrower in the original principal amount of $417,760,
and (vi) an additional loan in the amount of $50,000 made by the Borrower to
Robert A. Samans.
7.7 Change in Business. Discontinue any substantial part, or change the
------------------
nature of, the business of the Borrower, or enter into any new business
unrelated to the present business conducted by the Borrower.
- 22 -
<PAGE>
7.8 Capital Expenditures. Expend or become obligated to expend in excess
--------------------
of $500,000 in the aggregate in the acquisition, improvement, replacement or
refurbishment of fixed assets in any one fiscal year not financed with
Indebtedness permitted pursuant to Section 7.2 hereof.
7.9 Sale or Discount of Receivables. Sell any notes receivable or
-------------------------------
accounts receivable, with or without recourse.
7.10 Prepayment of Indebtedness. Make any voluntary prepayments of
--------------------------
Indebtedness other than the Loans, provided that no Event of Default (or any
event which, with the giving of notice or the passage of time, or both, would
become an Event of Default) has occurred and is continuing.
7.11 ERISA.
-----
(a) Terminate any Plan maintained by the Borrower to which Section
4021 of ERISA applies;
(b) Allow the value of the Plan benefits guaranteed under Title IV of
ERISA to exceed the value of assets allocable to such benefits;
(c) Incur a withdrawal liability within the meaning of Section 4201 of
ERISA.
7.12 Restricted Payments. Declare or pay any dividend, or make any
-------------------
distributions of cash or property, to holders of any shares of its capital
stock, or, directly or indirectly, redeem or otherwise acquire any such shares
or any option, warrant or right to acquire any such shares; provided that the
Borrower may declare and may pay dividends not exceeding fifty percent (50%) of
Net Income (as defined in Schedule 6.16 hereto) after taxes during any fiscal
year, provided no Event of Default (and no event which, with the giving of
notice or passage of time, or both would become an Event of Default) has
occurred and is continuing at the time of such declaration or payment and
provided further that the payment of such dividend will not cause the occurrence
of an Event of Default or any event which, with the giving of notice or passage
of time, or both, would become an Event of Default.
7.13 Compliance with Federal Reserve Board Regulations. (i) Use any of the
-------------------------------------------------
proceeds of the Loans, directly or indirectly, for the purposes of purchasing or
carrying any "margin security" within the meaning of Regulations G or U of the
Board of Governors of the Federal Reserve System (12 C.F.R. 207, 221), (ii) use
any of the proceeds of the Loans, directly or indirectly, for the purpose of
purchasing, carrying or trading in any securities under such circumstances as to
involve the Borrower in a violation of Regulation X of such Board (12 C.F.R.
224), or (iii) take or permit to be taken any other action which would result in
the Loans or the consummation of any of the other transactions contemplated
hereby being violative of such regulations or any other regulation of such
Board.
7.14 Indebtedness with JLJ Capital. Incur, create, assume any additional
-----------------------------
Indebtedness with JLJ Capital, a division of J.L.J Financial Corporation, P.C.
Leasing, a division of Phoenixcor, Inc. or The
- 23 -
<PAGE>
Connecticut National Bank, as Trustee of Phoenixcor/LMSI unless and until the
Borrower has paid to Phoenixcor, Inc. c/o The Connecticut National Bank all
indebtedness evidenced by the promissory note dated September 21, 1990, in the
original principal amount of $400,000 made by the Borrower in favor of JLJ
Capital and Bank has received such UCC-3 termination statements as it may
reasonably require in connection with such payoff, including UCC-3 termination
statements terminating (i) UCC-1 financing statement number 18951593 filed with
the Secretary of the Commonwealth of Pennsylvania on September 27, 1990, and
(ii) UCC-1 financing statement number 64417 filed with the recorder of deeds of
Bucks County on September 28, 1990.
ARTICLE VIII
EVENTS OF DEFAULT
-----------------
An event of default ("Event of Default") under this Agreement shall be
deemed to exist if any one or more of the following events occurs and is
continuing, whatever the reason therefor:
8.1 Borrower's Failure to Pay. The Borrower (i) fails to pay any amount
-------------------------
of principal or interest as and when due, under this Agreement or any of the
Loan Documents, whether upon stated maturity, acceleration, or otherwise and has
not remedied and fully cured such failure to pay within five (5) Business Days
after the date such payment is so due, provided that the Borrower shall be
charged a late fee in the amount of two percent (2%) of the amount of any
regularly scheduled payment (but not any accelerated payment) of principal or
interest if not paid within ten (10) Business Days of the date such payment was
due, or (ii) fails to pay any fees or sums or any other Obligation under this
Agreement or any of the other Loan Documents and has not remedied and fully
cured such failure within fifteen (15) Business Days after the Bank has given
notice thereof to the Borrower.
8.2 Breach of Covenants or Conditions. The Borrower fails to perform or
---------------------------------
observe any term, covenant, agreement or condition in this Agreement or any of
the other Loan Documents or is in violation of or non-compliance with any
provision of this Agreement or any of the Loan Documents, and has not remedied
and fully cured such non-performance, non-observance, violation of or non-
compliance within twenty (20) days after the Bank has given written notice
thereof to the Borrower; provided, however, that during such twenty (20) day
period the Bank's obligations to make further Loans to the Borrower shall be
suspended.
8.3 Defaults in Other Agreements. The Borrower fails to perform or
----------------------------
observe any term, covenant, agreement or condition contained in, or there shall
occur any default under or as defined in, any other agreement applicable to the
Borrower or by which it is bound involving a material liability in excess of
$100,000 of the Borrower which shall not be remedied within the period of time
(if any) within which such other agreement permits such default to be remedied,
unless such default is waived by the other party thereto or excused as a matter
of law.
8.4 Agreements Invalid. The validity, binding nature of, or
------------------
enforceability of any material term or provision of any of the Loan Documents is
disputed by, on behalf of, or in the right or name of the
- 24 -
<PAGE>
Borrower or any material term or provision of any such Loan Document is found or
declared to be invalid, avoidable, or non-enforceable by any court of competent
jurisdiction.
8.5 False Warranties; Breach of Representations. Any warranty or
-------------------------------------------
representation made by the Borrower in this Agreement or any other Loan Document
or in any certificate or other writing delivered under or pursuant to this
Agreement or any other Loan Document, or in connection with any provision of
this Agreement or related to the transactions contemplated hereby shall prove to
have been false or incorrect or breached in any material respect on the date as
of which made.
8.6 Judgments. A final judgment or judgments is entered, or an order or
---------
orders of any judicial authority or governmental entity is issued against the
Borrower (such judgment(s) and order(s) hereinafter collectively referred to as
"Judgment") (i) for payment of money, which Judgment, in the aggregate, exceeds
Fifty Thousand Dollars ($50,000.00) outstanding at any one time and is not
stayed or dismissed within sixty (60) days; or (ii) for injunctive or
declaratory relief which would have a material adverse effect on the ability of
the Borrower to conduct its business, and such Judgment is not discharged or
execution thereon or enforcement thereof stayed pending appeal, within thirty
days after entry or issuance thereof, or, in the event of such a stay, such
Judgment is not discharged within thirty days after such stay expires.
8.7 Bankruptcy or Insolvency of the Borrower.
----------------------------------------
(a) The Borrower becomes insolvent, or generally fails to pay, or is
generally unable to pay, or admits in writing its inability to pay, its debts as
they become due or applies for, consents to, or acquiesces in, the appointment
of a trustee, receiver or other custodian for the Borrower or a substantial part
of its property, or makes a general assignment for the benefit of creditors.
(b) The Borrower commences any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any state or federal bankruptcy
or insolvency law, or any dissolution or liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any state or federal bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is involuntarily commenced against or in
respect of the Borrower, or an order for relief is entered in any such
proceeding and is not stayed or dismissed within sixty (60) days.
(d) A trustee, receiver, or other custodian is appointed for the
Borrower or a substantial part of such Person's property.
8.8 Control. In the event Robert Samans owns less than twenty-five
-------
percent (25%) of the voting common stock of the Borrower.
8.9 Material Adverse Change. In the event of a material adverse change in
-----------------------
the business, property, collateral or financial condition of the Borrower.
- 25 -
<PAGE>
ARTICLE IX
REMEDIES
--------
9.1 Further Advances; Acceleration; Setoff.
--------------------------------------
(a) Upon the occurrence of any one or more Events of Default, the Bank
may, in its sole discretion, refuse to make any further advances or Loans to the
Borrower;
(b) Automatically upon the occurrence of any Event of Default
described in Section 8.7 of this Agreement, and in the sole discretion of the
Bank upon the occurrence of any other Event of Default, the unpaid principal
balance of all Loans, all interest and fees accrued and unpaid thereon, and all
other amounts and Obligations payable by the Borrower under this Agreement and
the other Loan Documents shall immediately become due and payable in full, all
without protest, presentment, demand, or further notice of any kind to the
Borrower, all of which are expressly waived by the Borrower;
(c) If any of the Obligations shall be due and payable or any one or
more Events of Default shall have occurred, the Bank shall have the right, in
addition to all other rights and remedies available to it, without notice to the
Borrower, to apply toward and set-off against and apply to the then unpaid
balance of the Notes and the other Obligations any items or funds held by the
Bank, any and all deposits (whether general or special, time or demand, matured
or unmatured, fixed or contingent, liquidated or unliquidated) now or hereafter
maintained by the Borrower for its own account with the Bank, and any other
indebtedness at any time held or owing by the Bank to or for the credit or the
account of the Borrower. For such purpose the Bank shall have, and the Borrower
hereby grants to the Bank, a first lien on all such deposits. The Bank is
hereby authorized to charge any such account or indebtedness for any amounts due
to the Bank. Such right of set-off shall exist whether or not the Bank shall
have made any demand under this Agreement, the Notes or any other Loan Document
and whether or not the Notes and the other Obligations are matured or unmatured.
The Borrower hereby confirms the Bank's lien on such accounts and right of set-
off, and nothing in this Agreement shall be deemed any waiver or prohibition of
such lien and right of set-off.
9.2 Further Remedies; Confession of Judgment.
----------------------------------------
(a) Upon the occurrence of any one or more Events of Default, the Bank
may proceed to protect and enforce its rights under this Agreement and the other
Loan Documents by
exercising such remedies as are available to the Bank in respect thereof under
applicable law, either by suit in equity or by action at law, or both, whether
for specific performance of any provision contained in this Agreement or any of
the other Loan Documents or in aid of the exercise of any power granted in this
Agreement or any of the other Loan Documents.
(b) THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE BANK,
BY ITS ATTORNEY, OR BY THE PROTHONOTARY OR CLERK OF ANY COURT
- 26 -
<PAGE>
OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE
PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT AND DURING THE
CONTINUATION THEREOF, TO APPEAR FOR THE BORROWER AND CONFESS AND ENTER JUDGMENT
AGAINST IT IN FAVOR OF THE BANK IN ANY JURISDICTION IN WHICH THE BORROWER OR ANY
OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS, TOGETHER WITH
COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING REASONABLE ATTORNEYS'
FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE
OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS
AGREEMENT OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE
BORROWER HEREBY WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL APPRAISEMENT,
STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS
AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY THE EXERCISE THEREOF, AND SHALL
CONTINUE UNTIL THE OBLIGATIONS ARE FULLY PAID, PERFORMED, DISCHARGED AND
SATISFIED.
BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE
VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY THE BANK UNDER THIS
AGREEMENT BEFORE JUDGMENT CAN BE ENTERED AND BEFORE ASSETS OF THE BORROWER CAN
BE GARNISHED AND ATTACHED, THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO THE BANK,
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, ENTERING
JUDGMENT AGAINST THE BORROWER BY CONFESSION AND ATTACHING AND GARNISHING THE
BANK ACCOUNTS AND OTHER ASSETS OF THE BORROWER, WITHOUT PRIOR NOTICE OR
OPPORTUNITY FOR A HEARING. THE BORROWER ACKNOWLEDGES THAT IT HAS HAD THE
ASSISTANCE OF LEGAL COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND
FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING PROVISIONS
CONCERNING CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO THE BORROWER BY
SUCH COUNSEL.
ARTICLE X
MISCELLANEOUS
-------------
10.1 Remedies Cumulative; No Waiver. The rights, powers and remedies of
------------------------------
the Bank provided in this Agreement and the other Loan Documents are cumulative
and not exclusive of any right, power or remedy provided by law or equity, and
no failure or delay on the part of any party in the exercise of any right,
power, or remedy shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or remedy preclude other or further
exercise thereof, or the exercise of any other right, power or remedy.
10.2 Notices. Every notice and communication under this Agreement or any
-------
of the other Loan Documents shall be in writing and shall be given by either (i)
hand-delivery, (ii) first class mail (postage prepaid), (iii) reliable overnight
commercial courier (charges prepaid), or (iv) telecopy or other means of
electronic transmission, if confirmed promptly by any of the methods specified
in clauses (i), (ii) and (iii) of this sentence, to the following addresses:
- 27 -
<PAGE>
If to the Borrower:
Scanforms, Inc.
181 Rittenhouse Circle
Bristol, PA 19007
Attn: Mr. William Carey
Chief Financial Officer
With a copy to:
Wolf, Block, Schorr & Solis-Cohen
Packard Building
15th & Chestnut Streets
12th Floor
Philadelphia, PA 19102
Attn: Mark K. Kessler, Esquire
If to the Bank:
Mellon Bank, N.A.
Plymouth Meeting Executive Campus
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
Attn: Mr. Anthony R. Caringi
Assistant Vice President
With a copy to:
Duane, Morris & Heckscher
One Liberty Place
Philadelphia, PA 19103
Attn: Thomas J. Karl, Esquire
Notice given by telecopy or other means of electronic transmission shall be
deemed to have been given and received when sent. Notice by overnight courier
shall be deemed to have been given and received on the date scheduled for
delivery. Notice by mail shall be deemed to have been given and received three
(3) calendar days after the date first deposited in the United States Mail.
Notice by hand delivery shall be deemed to have been given and received upon
delivery. A party may change its address by giving written notice to the
other party as specified herein.
10.3 Costs, Expenses and Attorneys' Fees. Whether or not the transactions
-----------------------------------
contemplated by this Agreement and the other Loan Documents are fully
consummated, the Borrower shall promptly pay (or reimburse, as the Bank may
elect) all costs and expenses which the Bank has incurred or may hereafter incur
in connection with the negotiation, preparation, reproduction, interpretation
and enforcement of this Agreement and the other Loan Documents, the collection
of all amounts due hereunder and thereunder, and any amendment, modification,
consent or waiver which may be hereafter requested by the Borrower or otherwise
required. Such costs and expenses shall include, without limitation, the
reasonable fees and disbursements of counsel to the Bank, the costs of appraisal
fees, searches of public records, costs of filing and recording documents with
public offices, and similar costs and expenses incurred by the Bank. Upon the
occurrence of an Event of Default, such costs shall also include the fees of any
accountants, consultants or other
- 28 -
<PAGE>
professionals retained by the Bank. The Borrower's reimbursement obligations
under this Section shall survive any termination of this Agreement.
10.4 Survival of Covenants. This Agreement and all covenants, agreements,
---------------------
representations and warranties made herein and in any certificates delivered
pursuant hereto shall survive the making of the Loans and the execution and
delivery of the Notes and, subject to the provisions of 10.15 hereof, shall
continue in full force and effect until all of the Obligations have been fully
paid, performed, satisfied and discharged.
10.5 Counterparts; Effectiveness. This Agreement may be executed in any
---------------------------
number of counterparts and by the different parties on separate counterparts.
Each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement. This
Agreement shall be deemed to have been executed and delivered when the Bank has
received counterparts hereof executed by all parties listed on the signature
page(s) hereto.
10.6 Headings. The headings of sections have been included herein for
--------
convenience only and shall not be considered in interpreting this Agreement.
10.7 Payment Due On A Day Other Than A Business Day. If any payment due or
----------------------------------------------
action to be taken under this Agreement or any Loan Document falls due or is
required to be taken on a day which is not a Business Day, such payment or
action shall be made or taken on the next succeeding Business Day and such
extended time shall be included in the computation of interest.
10.8 Judicial Proceedings. Each party to this Agreement agrees that any
--------------------
suit, action or proceeding, whether claim or counterclaim, brought or instituted
by any party hereto or any successor or assign of any party, on or with respect
to this Agreement or any of the other Loan Documents or the dealings of the
parties with respect hereto, or thereto, shall be tried only by a court and not
by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further,
each party waives any right it may have to claim or recover, in any such suit,
action or proceeding, any special, exemplary, punitive or consequential damages
or any damages other than, or in addition to, actual damages. THE BORROWER
ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF
THIS AGREEMENT AND THAT THE BANK WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE
WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT.
10.9 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the internal laws of the Commonwealth of Pennsylvania.
10.10 Integration. This Agreement and the other Loan Documents constitute
-----------
the sole agreement of the parties with respect to the subject matter hereof and
thereof and supersede all oral negotiations and prior writings with respect to
the subject matter hereof and thereof.
- 29 -
<PAGE>
10.11 Amendment and Waiver. No amendment of this Agreement, and no waiver
--------------------
of any one or more of the provisions hereof shall be effective unless set forth
in writing and signed by the parties hereto.
10.12 Successors and Assigns.
----------------------
(a) Generally. This Agreement (i) shall be binding upon the Borrower
---------
and the Bank and their respective successors and assigns, and (ii) shall inure
to the benefit of
the Borrower and the Bank and its respective successors and assigns, provided,
however, that no party may assign its rights hereunder or any interest herein
without the prior written consent of the other party, and any such assignment or
attempted assignment by the Borrower shall be void and of no effect with respect
to the other party, provided, that the Bank may assign its rights hereunder or
any interest herein to another party in connection with the sale of the assets
or capital stock of the Bank or any other merger or acquisition entered into
between the Bank and such party.
(b) Participations. The Bank may from time to time sell or otherwise
--------------
grant participations in the Loans and the Notes, and the holder of any such
participation, if the participation agreement so provides, (i) shall, with
respect to its participation, be entitled to all of the rights of the Bank and
(ii) may exercise any and all rights of setoff or banker's lien with respect
thereto, in each case as fully as though the Borrower were directly indebted to
the holder of such participation in the amount of such participation. The Bank
may disclose to prospective participants such information regarding the
Borrower's affairs as the Bank possesses. The Bank shall give notice to the
Borrower of the grant of such participations; however, the failure to give such
notice shall not affect any of the Bank's rights hereunder.
10.13 Severability of Provisions. Any provision in this Agreement that is
--------------------------
held to be inoperative, unenforceable, voidable, or invalid in any jurisdiction
shall, as to that jurisdiction, be ineffective, unenforceable, void or invalid
without affecting the remaining provisions, and to this end the provisions of
this Agreement are declared to be severable.
10.14 Consent to Jurisdiction and Service of Process. The Borrower
----------------------------------------------
irrevocably appoints each and every officer of the Borrower as its attorneys
upon whom may be served, by regular or certified mail at the address set forth
in Section 10.2 hereof, any notice, process or pleading in any action or
proceeding against it arising out of or in connection with this Agreement or any
of the other Loan Documents; and the Borrower hereby (i) consents that any
action or proceeding against it be commenced and maintained in any court within
the Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania by service of process on any such officer; (ii)
agrees that the courts of the Commonwealth of Pennsylvania and the United States
District Court for the Eastern District of Pennsylvania shall have jurisdiction
with respect to the subject matter hereof and the person of the Borrower and the
Collateral, and (iii) waives any objection that such Borrower may now or
hereafter have as to the venue of any such suit, action or proceeding brought in
such a court or that
- 30 -
<PAGE>
such court is an inconvenient forum. Notwithstanding the foregoing, the Bank, in
its absolute discretion may also initiate proceedings in the courts of any other
jurisdiction in which the Borrower may be found or in which any of its
properties or the Collateral may be located.
10.15 Indemnification
---------------
(a) If, after receipt of any payment of all or any part of the
Obligations, the Bank is compelled to surrender such payment to any Person or
entity for any reason (including, without limitation, a determination that such
payment is void or voidable as a preference or fraudulent conveyance, an
impermissible setoff, or a diversion of trust funds), then this Agreement and
the other Loan Documents shall continue in full force and effect, and the
Borrower shall be liable for, and shall indemnify, defend and hold harmless the
Bank with respect to the full amount so surrendered.
(b) The Borrower shall indemnify, defend and hold harmless the Bank
with respect to any and all claims, expenses, demands, losses, costs, fines or
liabilities of any kind, including reasonable attorneys' fees and costs, arising
from or in any way related to (i) acts or conduct of the Borrower or any of the
Other Loan Parties under, pursuant to or related to this Agreement and the other
Loan Documents, (ii) Borrower's or any Other Loan Party's breach or violation of
any representation, warranty, covenant or undertaking contained in this
Agreement or the other Loan Documents, and (iii) Borrower's or any other Loan
Party's failure to comply with any or all laws, statutes, ordinances,
governmental rules, regulations or standards, whether federal, state, or local,
or court or administrative orders or decrees, including without limitation those
resulting from any Hazardous Materials or dangerous environmental condition
within, on, from, related to or affecting any real property owned or occupied by
the Borrower, unless resulting from the acts or conduct of the Bank constituting
gross negligence, bad faith actions or willful misconduct.
(c) The provisions of this section shall survive the termination of
this Agreement and the other Loan Documents and shall be and remain effective
notwithstanding the payment of the Obligations, the cancellation of any of the
Notes, the release of any Encumbrance securing the Obligations or any other
action which the Bank may have taken in reliance upon its receipt of such
payment. Any cancellation of any of the Notes, release of any Encumbrance or
other such action shall be deemed to have been conditioned upon any payment of
the Obligations having become final and irrevocable.
- 31 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized officers on the date first above written.
Attest: SCANFORMS, INC.
___________________________ By: /s/ William P. Carey
----------------------------
Title: Title: Treasurer
MELLON BANK, N.A.
By: /s/ Anthony R. Caringi
----------------------------
Title: Asst. Vice President
- 32 -
<PAGE>
SCHEDULE 6.16
-------------
FINANCIAL COVENANTS
-------------------
This Schedule is a part of the Loan Agreement dated June 21, 1995 between
Mellon Bank, N.A. and Scanforms, Inc.
A. Tangible Net Worth--The Borrower shall have a Tangible Net Worth at
------------------
the end of each calendar quarter of not less than $3,500,000 plus fifty percent
----
(50%) of the Borrower's cumulative Net Income since January 1, 1995.
B. Earnings Before Interest and Taxes--The Borrower shall have Earnings
----------------------------------
Before Interest and Taxes for each calendar quarter of not less than twice its
interest expense, treated on a rolling four-quarters basis.
C. Ratio of Liabilities to Tangible Net Worth--The Borrower shall have
------------------------------------------
a ratio of Liabilities to Tangible Net Worth at the end of each calendar quarter
of not more than 3.25 to 1.00. For purposes of the Ratio of Liabilities to
Tangible Net Worth, cash in excess of $100,000 but no greater than the amount of
Customer Deposits will be offset against Liabilities when calculating this
ratio.
For purposes of this Schedule, all capitalized terms used herein and not
otherwise defined shall have the meanings given to them, respectively, in the
Loan Agreement, and the following terms shall have the following meanings:
"Customer Deposits" shall mean any and all deposits made by a customer of
the Borrower for purposes of the prepayment of postage or prepayment for goods
or services to be rendered.
"Earnings Before Interest and Taxes" shall mean, for any period, the Net
Income (before the deduction of interest and federal and state income taxes) of
the Borrower, determined in accordance with GAAP.
"Liabilities" shall mean, at any time, all liabilities which, in
accordance with GAAP, shall be classified as liabilities of the Borrower.
"Net Income" shall mean, for any period, the net income (before the
deduction of federal and state income taxes) of the Borrower, determined in
accordance with GAAP, excluding:
(a) the proceeds of any insurance policy;
(b) any gain or loss arising from:
(1) the sale or other disposition of any assets (other than
Current Assets);
(2) any write-up of assets; or
(3) the acquisition of outstanding securities
- 33 -
<PAGE>
representing Indebtedness of the Borrower;
(c) any amount representing any interest in the undistributed
earnings of any Person;
(d) any earnings, prior to the date of acquisition, of any Person
acquired in any manner;
(e) any earnings of a successor to or transferee of the assets of
the Borrower prior to becoming such successor or transferee;
(f) any deferred credit (or amortization of a deferred credit)
arising from the acquisition of any Person; and
(g) any other item constituting an extraordinary gain or loss under
GAAP.
"Stockholders' Equity" shall mean, at any time, stockholders' equity as
determined in accordance with GAAP.
"Tangible Net Worth" shall mean, at any time, the aggregate Stockholders'
Equity, less all intangible assets of the Borrower, including, without
limitation, organization costs, securities issuance costs, unamortized debt
discount and expense, goodwill, excess of purchase costs over net assets
acquired, patents, trademarks, trade names, copyrights, trade secrets, knowhow,
licenses, franchises, capitalized research and development expenses, amounts
owing from officers and/or Affiliates and any amount reflected as treasury
stock.
- 34 -
<PAGE>
SCHEDULE 7.2(c)
---------------
INDEBTEDNESS
------------
Note Payable Schedule as of 6/19/95
-----------------------------------
<TABLE>
<CAPTION>
Vendor # Vendor Note # Balance
- -------- ------ ------ -------
<S> <C> <C> <C>
H9885 Hyster Credit Co. 5138001 10,740.87
P4610 Phoenix Cor Inc. 1141 27,337.11
P4610 Phoenix Cor Inc. 3171 375,000.00
8C660 Concord Commercial 1-27061 529,456.67
8T390 Textrom Financing 5*00005 74,113.02
8T390 Textrom Financing 5*00006 138,257.83
8T390 Textrom Financing 5*00007 209,939.66
8T390 Textrom Financing 5*00008 295,189.20
8T452 Tildem 1456 273,556.08
8U553 UJB Leasing 1455 273,556.08
G/L Acct 204 N/P Equipment 2,383,280.15
- --------------------------------------------------------------------
B3535 Bell Atlantic 3380 419.82
8J580 JLJ Capital 1147 1,503.06
P4618 Phoenix Leasing 033201 2.79
G/L Acct 209 Capital Leases Payable 1,925.67
- --------------------------------------------------------------------
8S444 Signet Leasing Tentative 325,000.00
Award not
Documented
</TABLE>
- 35 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-1-1995
<PERIOD-START> OCT-3-1994
<PERIOD-END> JUL-2-1995
<CASH> 3,272,024
<SECURITIES> 0
<RECEIVABLES> 3,044,857
<ALLOWANCES> 435,006
<INVENTORY> 1,470,223
<CURRENT-ASSETS> 8,413,203
<PP&E> 19,450,486
<DEPRECIATION> 11,550,104
<TOTAL-ASSETS> 16,436,865
<CURRENT-LIABILITIES> 6,352,343
<BONDS> 0
<COMMON> 35,467
0
0
<OTHER-SE> 5,073,422
<TOTAL-LIABILITY-AND-EQUITY> 16,436,865
<SALES> 18,596,480
<TOTAL-REVENUES> 18,596,480
<CGS> 13,385,840
<TOTAL-COSTS> 13,385,840
<OTHER-EXPENSES> 3,005,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 313,515
<INCOME-PRETAX> 1,891,982
<INCOME-TAX> 776,407
<INCOME-CONTINUING> 1,115,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,115,575
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.30
</TABLE>
