SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
/ x / Annual report under section 13 or 15(d) of the securities exchange
act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
-----------------
/ / Transition report under section 13 or 15(d) of the securities exchange
act of 1934
COMMISSION FILE NUMBER 0-22196
INNODATA CORPORATION
(Name of small business issuer in its charter)
DELAWARE 13-3475943
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
95 ROCKWELL PLACE
BROOKLYN, NEW YORK 11217
(Address of principal executive offices) (Zip Code)
(718) 855-0044
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
REDEEMABLE WARRANTS
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve 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 / /
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. / X /
State issuer's revenues for its most recent fiscal year. $20,536,448
-----------
State the aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing price of the Company's Common Stock on
February 28, 1997 of $1.25 per share. $3,271,173
----------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
4,523,710 SHARES OF COMMON STOCK, $.01 PAR VALUE, AS OF FEBRUARY 28, 1997.
---------
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
[SEE INDEX TO EXHIBITS]
<PAGE>
PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
The Company was incorporated in Delaware in June 1988, maintains its
executive offices in New York City and employs a work force in other locations
in the U.S. and approximately 2,700 persons in the Philippines and Sri Lanka.
The Company is a worldwide electronic publishing services company specializing
in high quality data conversion for Internet, CD-ROM, print and online
database publishers around the globe. Services include all the necessary
steps for product development and data capture: the highest accuracy data
entry (99.995%+), OCR, SGML and custom coding, hypertext linking, imaging and
document management systems, page composition, copyediting, indexing and
abstracting, and applications programming. The Company also offers medical
transcription services to healthcare providers through its Statline division.
The Company intends to utilize its labor force to perform such additional
tasks in the high-tech information and related industries as may be
economically performed by large labor forces at competitive wage rates. As
technology develops in these industries, the Company will seek to employ
persons with advanced skills to exploit these areas of opportunity. At the
same time, the Company intends to diminish or eliminate areas of its business
which may become, or may be rendered, less important or obsolete by advancing
technology.
THE COMPANY'S SERVICES
DATA ENTRY AND CONVERSION
- ----------------------------
The Company's procedures for converting data to the required format depend on
the type of information the customer must use in its business, the manner in
which such information is used, the source of the data (e.g., microfilm,
microfiche, magnetic files or hard copy), turnaround time, and the customer's
updating and processing procedures. The Company typically performs some or
all of the following tasks:
a. Data Preparation and Coding
The customer's data is received in the Philippines either in hard copy by
courier or electronically through scanning and telecommunications equipment.
Customers may elect to locate scanning equipment on their premises or may
choose to use equipment which is available in the Company's New Jersey,
Maryland or United Kingdom offices. The source data is coded with character
strings or schemes which allow the customer to readily process the finished
product on its computers and/or to print the finished product with defined
composition. Customers may select various coding schemes, including Standard
Generalized Markup Language (SGML), which is an international standard for
electronic data formatting.
b. Data Entry
Coded material is keyed once or twice, as requested by the customer, by
separate groups of data entry personnel. The Company guarantees a higher
level of accuracy when the data is keyed twice. The two versions of the keyed
data are programmatically compared. Software automatically flags any
deficiencies for correction by the Company's editors. A "merged" version of
the keyed data is prepared. The Company also performs these services using
OCR technology, where appropriate.
c. Proofreading and Quality Control
The Company has developed a system for data quality audit. As a result,
each employee's work is measured both quantitatively and qualitatively.
For projects which require extremely high quality levels, each character that
is keyed is proofread at least twice. Such projects command a premium in
price. During the entire keying process, on-line spell checkers and syntax
verification programs are used to verify quality and accuracy.
d. Delivery of Converted Data
At this stage, the converted data may be returned to the Company's customers
for commercial or in-house processing. Completed data is compiled and
transmitted to the United States over the Company's dedicated communications
circuit. The Company's U.S. staff downloads the data onto tapes or diskettes
which are forwarded to each customer. The customer then loads the data into
its computer system for printing, publication of CD-ROM's, or dissemination
on-line. Alternatively, the customer may determine to use the data to produce
camera-ready copy for production of books and journals.
INDEXING AND ABSTRACTING
- --------------------------
The Company's indexers analyze and categorize articles, professional
papers or similar materials based on content and the selection of appropriate
descriptive terms from a list of predefined terms. Subscribers to databases
offered by the Company's customers consult the same list of predefined terms
in order to access information corresponding to an area of inquiry.
The Company's abstracting personnel summarize an entire document in a
short paragraph in order to allow a database subscriber to quickly determine
whether a given document contains information relevant to the topic being
researched. Abstracting requires an understanding of the document's subject
matter to ensure that the summary is complete and relevant.
Employees who perform indexing and abstracting work must be sufficiently
knowledgeable to understand, analyze and classify material on an extensive
array of subjects. Most of these employees have degrees and/or work
experience related to the specific material which they abstract.
TYPESETTING AND COMPOSITION
- -----------------------------
The Company offers composition and typesetting services which are managed
from its facility in Halethorpe, Maryland, with services performed in Maryland
and in the Philippines. The Company performs the entire process from data
capture of manuscripts to finished camera-ready copy.
IMAGING AND SCANNING CONVERSION
- ----------------------------------
The Company's Imaging Services division assists companies in successfully
integrating imaging and document management systems, CAD, and imaging
applications. It provides document management software, peripherals, or
complete systems depending on client requirements. It works to select the
appropriate document management system, workflow and viewing software that
would best suit the customer specifications and supports the latest in
state-of-the-art equipment from high-speed document scanners to large format
and film scanners. The capabilities of the Imaging Services division include
the scanning and indexing of all different types of business documents,
technical manuals, engineering drawings, 35mm aperture cards and microfilm.
MEDICAL TRANSCRIPTION SERVICES
- --------------------------------
The Company's Statline division provides medical transcription services to
health care providers by providing proprietary software to its customers to
establish data base information regarding medical records. The Company
provides a portion of such services from its off-shore facilities. The growth
of this business is dependent on the employment and training of qualified
medical transcriptionists in the United States and in its off-shore
facilities.
INTERNET TECHNICAL SUPPORT
- ----------------------------
The Company provides electronic technical support through a strategic alliance
with Softbank Services Group ("SSG"). The alliance combines internet based
services with proprietary software to create superior customer service. The
Company responds to both technical and customer service queries from internet
based end-users with skilled technical support personnel from its call center
facility in Manila, Philippines. Once determined, solutions are routed back
through the Company's high bandwidth overseas channel to SSG's software
system, and ultimately delivered to the end-user via internet e-mail.
ACQUISITIONS
On January 2, 1996 the Company acquired the business of International
Imaging, Inc. ("II"). II provides imaging and document management systems and
scanning/conversion services. The purchase price consisted of $40,000 cash
and 50,000 shares of the Company's restricted common stock. The Company also
paid approximately $300,000 of II's outstanding lease obligations. II's
revenues for the year ended December 31, 1995 were approximately $1,000,000.
On December 1, 1994, the Company acquired certain assets of Engineering
Images ("EI"). EI is a provider of imaging and document management systems
and scanning/conversion services. The purchase price consisted of $427,270
cash (including expenses of $27,270), three-year subordinated notes in the
aggregate principal amount of $300,000 payable in 36 equal monthly
installments commencing December 15, 1994 plus interest at the prime rate, and
56,764 restricted shares of the Company's common stock with piggy-back
registration rights valued at $200,000. The assets acquired consist
principally of certain fixed assets and goodwill.
OCR AND SIMILAR TECHNOLOGIES
Optical Character Recognition ("OCR") involves first producing an image
which is a digital representation of a document and then using one of many OCR
engines to convert that image into a text file corresponding to the characters
on the page. The Company utilizes OCR technology where there are cost savings
to the Company and its customers, and seeks to utilize other new technologies
which may permit it to further automate its operations.
The Company recognizes that OCR and existing or as yet undeveloped
technologies could eventually render straight data entry obsolete.
Accordingly, advances in OCR or other technologies (such as voice recognition)
will increase the relative importance to the Company of its higher level
services such as indexing, abstracting, photocomposition and developing
document management systems, and of other opportunities which will arise as a
result of new technologies or other factors.
EQUIPMENT
The Company's U.S. and Philippine facilities, as well as its United
Kingdom sales office, are interconnected by leased circuits. Each facility is
a local call on the other's PABX, and customers need only dial the Hackensack,
New Jersey office to be transferred, at no additional cost, to either
Philippine facility. This leased circuit enables the Company to transmit data
and image documents to and from the Philippines, rather than by air courier
which can take up to five days. The Company also utilizes scanning equipment
in New Jersey, Halethorpe, Maryland and in the United Kingdom to facilitate
the transmission of information to the Philippines.
SALES AND MARKETING
Sales and marketing functions are primarily conducted by the Company's
full-time sales personnel. Sales and marketing activities have consisted
primarily of exhibiting at trade shows in the United States and Europe, and by
seeking direct personal access to decision-makers. The Company has also
obtained visibility by way of articles published in the trade press. To date,
the Company has not conducted any significant advertising campaign in the
general media.
The Company's Imaging Services division has a reseller program that
allows qualified companies in document and records management, micrographics,
reprographics and CAD to resell conversion services. The division also works
with strategic document imaging systems vendors. The Imaging Services
division's traditional markets include Fortune 500 manufacturers, major
utilities, governmental departments, hospital medical records, litigation
support and commercial back-office applications.
COMPETITION
The Company's ability to compete favorably is, in significant part,
dependent upon its ability to control costs, react timely and appropriately to
short and long-term trends and competitively price its services. Firms
compete based on price, geographic location, quality and speed of turn-around,
as well as on the size of project and the complexity and level of work which
they can perform on an economic basis. Major competitors operating in the
Philippines are Saztec Philippines, Inc., Systems and Encoding Corporation
(Sencor), Unidata Corporation, ASEC International Phils., Inc., Equidata
Philippines, Inc., Data Solutions, Inc., Phil Database and Services, Inc. and
Direct Data Capture, Ltd. QHData and Beijing Formax are major competitors
that perform work in mainland China and APEX Data Services, Inc. performs work
primarily in India. Saztec International, Inc., First Image Data Input
division of First Financial Management Corporation and ASEC International,
Inc. are the Company's major competitors with operations in the United States.
There are also numerous other companies worldwide, with a concentration in
third world countries (including India, Mexico, Sri Lanka and the Caribbean
Basin) which may be regarded as competitive with the Company. The Company may
also be considered in competition with customers' and potential customers'
in-house personnel who may attempt to duplicate the Company's services.
The Company makes substantial efforts to maintain the quality of its work
force. The Company also competes on the basis of its perceived proximity to
its customers. Many offshore conversion companies do not maintain a presence
outside of the country in which their production facility is located. While
such companies are compelled to conduct business and service customers through
brokers or via fax and telephone calls, many of the Company's customer related
functions, including sales, delivery of completed data products and customer
service, are performed in the United States.
The Company's scanning conversion services conducted through its Imaging
Services division competes with numerous companies which may have
substantially greater financial, technical and other resources than the
Company. Firms compete based on price, geographic location, quality and speed
of turn-around, as well as on the size of project and the complexity and level
of work which they can perform on an economic basis. Major national
competitors include Wesco and Docucon. Smaller local competitors include
Drawing Management, Kruse Industries and Berhan Associates. The Company may
also be considered in competition with customers' and potential customers'
in-house personnel who may attempt to duplicate the Company's services.
The Company's Statline transcription services division competes on the
basis of quality, speed of turn-around and price. It competes with many local
transcription services, including work-at-home individuals and medical care
providers' in-house staffs.
RESEARCH AND DEVELOPMENT
The Company has not made significant expenditures in 1996 for research
and development, although expenditures were incurred in connection with OCR
technology developments, enhancing its networking and telecommunications
capabilities and exploring new business ventures, including the internet
technical support business.
CUSTOMERS
The Company generally performs its work for its customers on a task by
task at-will basis, or under short-term contracts or contracts which are
subject to numerous termination provisions.
During 1996 and 1995, one customer that is comprised of twelve affiliated
companies, accounted for 24% and 29% of the Company's revenues, respectively.
No other customer accounted for 10% or more of the Company's revenues.
Revenues from the European market increased to 19% of total revenues in 1996
from 18% in 1995.
FACTORS AFFECTING BUSINESS IN THE PHILIPPINES
While the major part of the Company's operations are carried on in the
Philippines, the Company's headquarters are in the United States and its
customers to date have all been located in North America and Europe. As a
result, the Company is not as affected by economic conditions in the
Philippines as it would be if it depended on revenues from sources internal to
the Philippines. However, such adverse economic factors as inflation,
external debt, negative balance of trade, political pressure to raise salaries
and underemployment may significantly impact the Company. For example, in the
first few months of 1994, the minimum wage rates in the Philippines increased
an aggregate of approximately 23%. Additional minimum wage increases have
also been mandated in 1997.
Certain aspects of the Philippine economy directly affect the Company.
While the political situation currently appears to be stable, business in the
Philippines was significantly disrupted by the political turmoil surrounding
the fall of the Marcos administration in the late 1980s. Further unrest
occurred during the Aquino administration. The Philippines remain vulnerable
to political unrest which could interfere with the Company's operations.
Political instability could also change the present satisfactory legal
environment for the Company through the imposition of restrictions on foreign
ownership, repatriation of funds, adverse labor laws, and the like.
As a United States corporation engaged in business operations in the
Philippines, through March 31, 1995 the Company had been subject to both U.S.
and Philippine income tax with respect to the Philippine source income derived
by the Company. In addition, the Philippine source income of the Company is
subject to other Philippine taxes such as the value-added tax and tax on the
repatriation of profits from the Philippine operations to the Company in the
United States. Under U.S. tax law, the U.S. foreign tax credit is available
(subject to various limitations) to reduce the burden of double taxation on
the Philippine source income of the Company. However, as a result of the
foreign tax credit limitation, the Company may only be entitled to claim a
foreign tax credit with respect to a portion of the income taxes payable in
the Philippines. In addition, the foreign tax credit is not available with
respect to any value added taxes or any other non-income taxes payable in the
Philippines. The Philippines and the United States entered into an Income Tax
Treaty effective October 16, 1982. The Company believes that such treaty has
no material adverse effect on the Company.
Commencing April 1, 1995, the Philippine operations are conducted through
a wholly-owned subsidiary that has been granted an income tax holiday for a
four-year period. Accordingly, no income taxes will be payable on earnings
from operations of the subsidiary during such period, unless repatriated to
the U.S.
The Company funds its operations in the Philippines through the transfer
of United States dollars to the Philippines only as needed and generally does
not maintain any significant amount of funds or monetary assets in Philippine
pesos. Since the Company does not have income generating customers in the
Philippines, the direction of currency flow is largely into the Philippines.
However, to the extent that the Company needs to bring currency out of the
Philippines in the course of its operations, it will be affected by currency
control regulations. Foreign currency or foreign exchange may only be
exported from the Philippines in accordance with the rules and regulations of
the Central Bank of the Philippines. Foreign investments which are made in
the Philippines and are duly registered with the Central Bank or with a
custodian bank duly designated by the foreign investor are entitled to full
and immediate capital repatriation and dividend and interest remittance
privilege without prior Central Bank approval. The Company's investment has
been registered with the Central Bank. However, there can be no assurance
that these regulations may not be altered in the future in a way that would be
unfavorable to the Company.
The Philippines has historically experienced high rates of inflation and
major fluctuations in exchange rate between the Philippine peso and the United
States dollar. Continuing inflation without corresponding devaluation of the
peso against the dollar, or any other increase in value of the peso relative
to the dollar, may have a material adverse effect on the Company's operations
and financial condition. From time to time, the Company has purchased futures
contracts for pesos at fixed prices, in order to ensure a stable cost of
services.
The Philippines is subject to relatively frequent earthquakes, volcanic
eruptions, floods and other natural disasters, which may disrupt the Company's
operations. However, the eruption of Mt. Pinatubo, which is 50 miles from
Manila, did not prevent the Company from fulfilling its customer orders,
although it did have to rely more heavily on electronic transmission of data
since the airports were closed, preventing the arrival and shipping of paper
documents and electronic storage disks. The Company has a facility in Cebu
City, which is located on a separate island 350 miles from Manila and which
also may serve as a disaster recovery site. The Company has an additional
facility in Sri Lanka and expects to open an additional facility in India in
1997.
Power outages lasting for periods of as long as eight hours per day have
occurred. The Company's facilities in Manila and Cebu are equipped with
standby generators which have produced electric power during these outages;
however, there can be no assurance that the Company's operations will not be
adversely affected should municipal power production capacity deteriorate
further.
EMPLOYEES
As of February 28, 1997, the Company employed an aggregate of
approximately 100 persons in the United States and the United Kingdom, and
approximately 2,700 persons in the Philippines and Sri Lanka.
Employees at the Company's Manila facilities voted to join a union. The
Company reached agreement in 1996 on a collective bargaining agreement which
provides for approximately 10% wage increases per annum plus one-half of any
government mandated increases for the five years ended March 31, 2001.
No other of the Company's employees are represented by any labor union.
The Company believes that its relations with its employees are satisfactory.
Production Staff; Recruitment and Training-Philippines
- ----------------------------------------------------------
The Philippines offers a well educated workforce trained in an English
language school system. Economic opportunity in the Philippines is not
commensurate with the level of education in the workforce. The overall
depressed economic conditions and low wage scale permit an educated
professional to enjoy a comfortable standard of living on an income that is
relatively low when compared to that in developed nations.
The Company's staff in the Philippines has a median age of 24. A
significant number of employees have college degrees. A substantial middle
management infrastructure, grown both from within the ranks of the Company and
though experienced hires, is in place. These managers are in charge of
departmental responsibilities, including personnel, public relations,
facilities, quality control, programming, systems and development.
The Company maintains a vigorous recruiting, screening and training
program. All applicants are given an extensive battery of written and
practical tests, many developed specifically by the Company, over a two day
period. The Company hires less than 10% of all applicants. Diagnostic tests
and equipment have allowed the Company to hire the brightest people available
rather than focusing solely on typing ability.
Once hired, the Company uses intensive efforts to train its employees and
to ensure that their skills are constantly upgraded. Training is performed
under close supervision by senior personnel. In addition, the Company has an
in-house training program for new employee applicants who have all the
requisite skills, excepting the speed of their performance. The course
consists of approximately three weeks of half-day sessions. Upon satisfactory
completion, full time employment is offered.
The Company seeks to maintain high levels of motivation and retention.
It offers its employees what it believes to be one of the most comprehensive
benefit packages available in the Philippines. This package includes
comprehensive medical insurance, eye care, food subsidies, a subsidized
general store and canteen, tuition credits, and free computer programming
classes. It maintains a modern and well appointed facility. It conducts
aggressive incentive programs tied to performance. It affords to its
employees the opportunity to advance.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's Manila, Philippines premises are occupied under a five-year
lease which expires on December 31, 1998 and which is cancelable at the
Company's option. The premises consist of a four story, 45,000 square foot
building with a separate cafeteria building. The lease provides for monthly
payments of approximately $27,000 in 1997 and $30,000 in 1998.
The Company's operations in the Philippines city of Cebu are conducted in
approximately 10,000 square feet of space leased through March 2001,
cancelable at the Company's option, at a monthly rental of approximately
$8,000.
The Company has a lease for a 12,000 square foot office and production
facility located in Hackensack, New Jersey. The lease provides for monthly
rental payments of approximately $16,000 through December 1999. In addition,
the Company leases a 6,000 square foot office and production facility in
Maryland for approximately $7,000 per month. The lease expires February,
2002.
The Company has various short-term leases in Sri Lanka, California and
the United Kingdom with lease payments aggregating approximately $8,000 per
month.
The Company has entered into agreements to lease production facilities
currently under construction in India. Pursuant to its terms, upon completion
of the facilities, the Company will be obligated to make payments aggregating
approximately $150,000 per year for an initial term of five years.
The Company believes that it maintains adequate fire, theft and liability
insurance for its facilities and that its facilities are adequate for its
present needs.
ITEM 3. LEGAL PROCEEDINGS.
There is no material litigation pending to which the Company is a party
or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were voted on at the November 7, 1996 Annual
Meeting of Stockholders. The total shares voted were 3,848,466.
<TABLE>
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<S> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN WITHHELD NOT VOTED
--------- ------- ------- -------- ---------
ELECTION OF DIRECTORS:
Barry Hertz 3,820,209 28,257
Todd Solomon 3,715,577 132,889
Jack Abuhoff 3,718,364 130,102
Martin Kaye 3,824,364 24,102
Albert Drillick 3,820,759 27,707
E. Bruce Fredrikson 3,822,259 26,207
Morton Mackof 3,824,364 24,102
Stanley Stern 3,824,864 23,602
1996 STOCK OPTION PLAN 2,146,538 332,897 41,667 1,327,364
APPOINTMENT OF AUDITORS 3,826,928 11,202 10,336
</TABLE>
<PAGE>
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock and Redeemable Warrants are quoted on the
NASDAQ National Market System under the symbols "INOD" and "INODW",
respectively. On February 28, 1997, there were 100 stockholders of record of
the Company's Common Stock, and 54 holders of record of the Redeemable
Warrants based on information provided by the Company's transfer agent.
Virtually all of the Company's publicly held shares are held in "street name"
and the Company believes the actual number of beneficial holders of its Common
Stock to be approximately 1,600.
The following tables set forth the high and low sales prices on a
quarterly basis for the Company's Common Stock and Redeemable Warrants, as
reported on NASDAQ NMS, for the two years ended December 31, 1996.
<TABLE>
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<S> <C> <C> <C> <C>
COMMON STOCK REDEEMABLE WARRANTS
SALE PRICES SALE PRICES
1995 HIGH LOW HIGH LOW
- -------------- ------------ ------- ------------------- ----
First Quarter 5 3/1/8 3/4 3/16
Second Quarter 5-3/8 3-1/4 13/16 3/8
Third Quarter 5 3-1/4 7/16 1/4
Fourth Quarter 5-1/8 3-3/4 7/16 7/32
1996
- --------------
First Quarter 5-3/4 3-11/16 7/16 3/16
Second Quarter 4-5/8 3-3/8 7/16 3/32
Third Quarter 3-3/4 1-15/16 1/4 3/32
Fourth Quarter 2-3/8 1 7/32 3/32
</TABLE>
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The future payment
of dividends, if any, on the Common Stock is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS.
SELECTED FINANCIAL DATA
<TABLE>
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<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
------------ ------------ ------------ ----------- ----------
REVENUES $20,536,448 $20,767,405 $14,344,914 $9,619,722 $5,893,383
------------ ------------ ------------ ----------- ----------
OPERATING COSTS AND EXPENSES
Direct operating costs 16,783,595 14,044,067 10,764,658 7,003,288 3,817,000
Costs resulting from project termination - - 393,195 - -
Selling and administrative 4,799,739 4,344,793 2,834,534 1,966,103 1,000,131
Interest expense 36,383 18,476 7,392 82,375 86,089
Interest and dividend income (123,771) (151,319) (160,689) (89,767) -
------------ ------------ ------------ ----------- ----------
Total 21,495,946 18,256,017 13,839,090 8,961,999 4,903,220
------------ ------------ ------------ ----------- ----------
(LOSS) INCOME BEFORE
INCOME TAXES (959,498) 2,511,388 505,824 657,723 990,163
INCOME TAXES (357,000) 1,000,000 199,000 215,000 315,000
------------ ------------ ------------ ----------- ----------
NET (LOSS) INCOME $ (602,498) $ 1,511,388 $ 306,824 $ 442,723 $ 675,163
============ ============ ============ =========== ==========
(LOSS) INCOME PER SHARE $ (.13) $ .32 $ .07 $ .13 $ .25
============ ============ ============ =========== ==========
CASH DIVIDENDS PER SHARE - - - - -
============ ============ ============ =========== ==========
AS OF DECEMBER 31, 1996 1995 1994 1993 1992
------------ ------------ ------------ ----------- ----------
WORKING CAPITAL $ 4,774,121 $ 6,247,708 $ 4,972,682 $5,526,467 $ 73,723
============ =========== ==========
TOTAL ASSETS $12,416,296 $12,538,694 $10,077,049 $9,014,247 $2,018,127
============ ============ ============ =========== ==========
LONG-TERM DEBT $ 195,960 $ 92,180 $ 191,666 $ - $ 209,068
============ ============ ============ =========== ==========
STOCKHOLDERS' EQUITY $ 9,477,471 $ 9,747,655 $ 8,327,601 $7,877,512 $ 682,204
============ ============ ============ =========== ==========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Audited
Financial Statements and related Notes thereto of the Company for the years
ended December 31, 1996, 1995 and 1994 included in Item 7 of this Form 10-KSB.
RESULTS OF OPERATIONS
General
The Company is a worldwide electronic publishing services company
specializing in high quality data conversion for Internet, CD-ROM, print and
online database publishers around the globe. Services include all the
necessary steps for product development and data capture: the highest accuracy
data entry (99.995%+), OCR, SGML and custom coding, hypertext linking, imaging
and document management systems, page composition, copyediting, indexing and
abstracting, and applications programming. The Company also offers medical
transcription services to health-care providers through its Statline division.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues decreased 1% to $20,536,448 for the year ended December 31, 1996
compared to $20,767,405 for the similar period in 1995. The decrease in
revenues was due principally to a decrease in volume from existing customers,
net of approximately $846,000 of revenues from International Imaging which was
acquired in January 1996 and the addition of new customers. Revenues from the
European market increased to 19% of total revenues in 1996 from 18% in 1995.
Revenues have been primarily attributable to data entry and conversion
services which accounted for approximately 63% of the Company's revenues in
1996 and 72% of the Company's revenues in 1995. During 1996 and 1995, one
customer comprised of twelve affiliated companies, accounted for 24% and 29%
of the Company's revenues, respectively. No other customer accounted for 10%
or more of the Company's revenues.
Direct operating expenses were $16,783,595 for the year ended December
31, 1996 and $14,044,067 for the similar period in 1995, an increase of 20%.
Direct operating expenses as a percentage of revenues increased to 82% in 1996
compared to 68% in 1995. The increase in direct operating expenses in 1996 was
due to higher fixed costs in the Company's imaging services division of
approximately $700,000, principally resulting from the acquisition of
International Imaging, and increased payroll and related costs in the
Philippines of approximately $1,000,000 resulting principally from a
collective bargaining agreement that became effective on April 1, 1996. In
addition, costs related to telecommunications, occupancy costs and
depreciation in the U.S. based operations increased approximately $800,000.
Direct operating costs include primarily direct payroll, telecommunications,
freight, computer services, supplies and occupancy.
Selling and administrative expense was $4,799,739 and $4,344,793 for the
years ended December 31, 1996 and 1995, respectively, representing an increase
of 10% in 1996 from 1995. Selling and administrative expense as a percentage
of revenues was 23% in 1996 and 21% in 1995. The dollar increase primarily
reflects the expansion of the Company's management team, and also reflects the
added overhead and sales related expenses of International Imaging acquired
during 1996. Selling and administrative expense includes management salaries,
sales and marketing salaries, clerical and administrative salaries, rent and
utilities not included in direct costs, trade shows, travel expense, and
administrative overhead.
Income tax (benefit) expense as a percentage of pre-tax income was (37)%
in 1996 and 40% in 1995.
Net (loss) income was $(602,498) in 1996 and $1,511,388 in 1995. Net
income was reduced significantly in 1996 due to the increased costs discussed
above with no commensurate increase in revenues.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues increased 45% to $20,767,405 for the year ended December 31,
1995 compared to $14,344,914 for the similar period in 1994. The increase in
revenues was due principally to an increase in volume from existing customers,
to the addition of approximately $2,250,000 of revenues from Engineering
Images which was acquired in December 1994 and, to a lesser extent, the
addition of new customers. Revenues from the European market increased to 18%
of total revenues in 1995 from 16% in 1994. Revenues have been primarily
attributable to data entry and conversion services which accounted for
approximately 72% of the Company's revenues in 1995 and 82% of the Company's
revenues in 1994. During 1995 and 1994, one customer comprised of twelve
affiliated companies, accounted for 29% and 37% (14% from one of the companies
in 1994) of the Company's revenues, respectively. No other customer accounted
for 10% or more of the Company's revenues.
Direct operating expenses were $14,044,067 for the year ended December
31, 1995 and $10,764,658 for the similar period in 1994, an increase of 30%.
Direct operating expenses as a percentage of revenues decreased to 68% in 1995
compared to 75% in 1994. A wage increase was mandated in the Philippines in
1994. The effect of such increase has since been reduced primarily through
efficiencies in the production process. Further, significant costs were
incurred in 1994 from a single project outside of the Company's core business
that negatively impacted profits from July 1993 until its termination at the
end of March 1994. Costs associated with this project, primarily for payroll
and high speed telecommunication lines, exceeded revenues by approximately
$300,000 in 1994. In addition, the Company did not realize its normal margins
on work performed in connection with such revenues. The Company also incurred
expenses attributable to terminating this project of $393,195.
Selling and administrative expense was $4,344,793 and $2,834,534 for the
years ended December 31, 1995 and 1994, respectively, representing an increase
of 53% in 1995 from 1994. Selling and administrative expense as a percentage
of revenues was 21% in 1995 and 20% in 1994. The dollar increase primarily
reflects the expansion of the Company's sales and marketing efforts which
resulted in significant increases in revenue, and to a lesser extent also
reflects increases in general overhead as a result of the increased volume,
including additional employees. The dollar increase also reflects the added
overhead and sales related expenses of Engineering Images acquired in December
1994 of approximately $600,000.
Income tax expense as a percentage of pre-tax income was 40% in 1995 and
39% in 1994.
Net income was $1,511,388 in 1995 and $306,824 in 1994. The substantial
increase in 1995 is due principally to the increased revenues in 1995 and that
1994 was adversely impacted by the increased direct costs from the single
project discussed above and the expenses of termination of that project in
March 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $897,085 in 1996 and
$654,622 in 1995. Net cash provided by operating activities for the year
ended December 31, 1996 was increased due to a decrease in accounts
receivable, offset by a loss from operations. Net cash used in investing
activities was $401,919 in 1996 and $1,193,973 in 1995. The decrease in 1996
was due to the acquisition of International Imaging utilizing cash of
$410,646, offset by proceeds from short-term investments of $1,240,000. In
1996, net cash provided by financing activities was $35,373 and, in 1995, net
cash of $257,863 was used in financing activities principally for the purchase
of treasury stock and payments of borrowings.
The Company has a commitment to purchase a perpetual license for certain
production process software for cash totaling $190,000 and 35,000 shares of
the Company's common stock. Payment is contingent upon the successful
completion and testing of the software, expected to occur during 1997.
In January 1997 the Company entered into a revolving credit agreement
with a bank providing for borrowings up to $1,000,000 for equipment purchases.
The borrowings will convert to a term loan payable over a three year period
commencing January 1998. During 1997 interest is payable at % over prime and
interest has been fixed on the term loan at 10.1% per annum. In addition, the
bank has provided a line of credit up to $2,000,000 based on eligible
receivables, as defined. Interest is payable at % over prime. The line of
credit is reviewed annually on June 30 and borrowings are collateralized by a
lien on the assets of the Company.
The Company expects to open a production facility in India in the second
half of 1997. In addition, the Company expects to make capital expenditures
on an ongoing basis for the expansion of its existing production facilities in
the Philippines and Sri Lanka and for additional equipment for its United
States operations. The Company estimates these capital expenditures will
aggregate approximately $1,500,000 during 1997.
INFLATION, SEASONALITY AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. The Company generally performs its work for its customers on a
task by task at-will basis, or under short-term contracts or contracts which
are subject to numerous termination provisions. The Company has flexibility
in its pricing due to the absence of long-term contracts. The Company's
revenues are not significantly affected by seasonality.
ITEM 7. FINANCIAL STATEMENTS.
INNODATA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
--------
Independent Auditors' Report II-7
Consolidated Balance Sheets as of December 31, 1996 and 1995 II-8
Consolidated Statements of Operations for the three years ended II-9
December 31, 1996
Consolidated Statements of Stockholders' Equity for the three years ended II-10
December 31, 1996
Consolidated Statements of Cash Flows for the three years ended II-11
December 31, 1996
Notes to Consolidated Financial Statements II-12-22
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Innodata Corporation
Brooklyn, New York
We have audited the accompanying consolidated balance sheets of Innodata
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Innodata
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Margolin, Winer & Evens LLP
Garden City, New York
March 14, 1997
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,097,193 $ 1,566,654
Accounts receivable-net of allowance for doubtful accounts of $140,000
in 1996 and $175,000 in 1995 (Note 10) 3,718,283 5,057,028
Short-term investments (Note 2) - 1,259,784
Prepaid expenses and other current assets 1,130,510 638,101
Deferred income taxes (Notes 1 and 4) 220,000 72,000
------------ ------------
TOTAL CURRENT ASSETS 7,165,986 8,593,567
FIXED ASSETS-NET (NOTES 1 AND 3) 3,617,939 2,965,596
GOODWILL (NOTES 1 AND 5) 1,159,946 782,270
OTHER ASSETS 472,425 197,261
------------ ------------
TOTAL $12,416,296 $12,538,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Notes 5 and 6) $ 208,298 $ 87,500
Accounts payable and accrued expenses 1,279,519 813,565
Accrued salaries and wages 625,479 524,488
Taxes, other than income taxes 278,569 194,112
Income taxes payable (Notes 1 and 4) - 726,194
------------ ------------
TOTAL CURRENT LIABILITIES 2,391,865 2,345,859
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION (NOTES 5 AND 6) 195,960 92,180
------------ ------------
DEFERRED INCOME TAXES (NOTES 1 AND 4) 351,000 353,000
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 7, 8 AND 9)
STOCKHOLDERS' EQUITY (NOTES 2, 5, 8 AND 9):
Common stock, $.01 par value-authorized 20,000,000 shares;
issued 4,565,210 shares in 1996 and 4,477,273 shares in 1995 45,652 44,773
Additional paid-in capital 8,824,696 8,497,453
Unrealized loss on available-for-sale securities - (4,192)
Retained earnings 751,000 1,353,498
------------ ------------
9,621,348 9,891,532
Less: treasury stock - at cost; 41,500 shares (143,877) (143,877)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,477,471 9,747,655
------------ ------------
TOTAL $12,416,296 $12,538,694
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
REVENUES (NOTE 10) $20,536,448 $20,767,405 $14,344,914
------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Direct operating costs 16,783,595 14,044,067 10,764,658
Costs resulting from project termination (Note 11) - - 393,195
Selling and administrative expenses 4,799,739 4,344,793 2,834,534
Interest expense 36,383 18,476 7,392
Interest income (123,771) (151,319) (160,689)
------------ ------------ ------------
TOTAL 21,495,946 18,256,017 13,839,090
------------ ------------ ------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (959,498) 2,511,388 505,824
(BENEFIT) PROVISION FOR INCOME TAXES (NOTES 1 AND 4) (357,000) 1,000,000 199,000
------------ ------------ ------------
NET (LOSS) INCOME $ (602,498) $ 1,511,388 $ 306,824
============ ============ ============
(LOSS) INCOME PER SHARE (NOTE 1) $ (.13) $ .32 $ .07
============ ============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
---COMMON STOCK--- ADDITIONAL UNREALIZED
------------------ PAID-IN LOSS ON RETAINED TREASURY
SHARES AMOUNT CAPITAL SECURITIES EARNINGS STOCK
--------- ------- ----------- ------------ ------------ ----------
JANUARY 1, 1994 4,210,000 $42,100 $ 6,984,445 $ - $ 850,967 $ -
Net income - - - - 306,824 -
Unrealized loss on
available-for-sale
securities - - - (56,735) - -
Payment of 5%
stock dividend 210,509 2,105 1,313,576 - (1,315,681) -
Issuance of common stock
as partial acquisition cost 56,764 568 199,432 - - -
--------- ------- ----------- ------------ ------------ ----------
DECEMBER 31, 1994 4,477,273 44,773 8,497,453 (56,735) (157,890) -
Net income - - - - 1,511,388 -
Unrealized gain on
available-for-sale
securities - - - 52,543 - -
Purchase of treasury stock - - - - - (143,877)
--------- ------- ----------- ------------ ------------ ----------
DECEMBER 31, 1995 4,477,273 44,773 8,497,453 (4,192) 1,353,498 (143,877)
Net loss - - - - (602,498) -
Issuance of common stock
upon exercise of stock
options 22,937 229 65,539 - - -
Issuance of common stock
as partial acquisition costs 65,000 650 193,303 - - -
Warrant costs for
consulting arrangement - - 68,401 - - -
Redemption of available-
for-sale securities - - - 4,192 - -
--------- ------- ----------- ------------ ------------ ----------
DECEMBER 31, 1996 4,565,210 $45,652 $ 8,824,696 $ - $ 751,000 $(143,877)
========= ======= =========== ============ ============ ==========
<S> <C>
TOTAL
-----------
JANUARY 1, 1994 $7,877,512
Net income 306,824
Unrealized loss on
available-for-sale
securities (56,735)
Payment of 5%
stock dividend -
Issuance of common stock
as partial acquisition cost 200,000
-----------
DECEMBER 31, 1994 8,327,601
Net income 1,511,388
Unrealized gain on
available-for-sale
securities 52,543
Purchase of treasury stock (143,877)
-----------
DECEMBER 31, 1995 9,747,655
Net loss (602,498)
Issuance of common stock
upon exercise of stock
options 65,768
Issuance of common stock
as partial acquisition costs 193,953
Warrant costs for
consulting arrangement 68,401
Redemption of available-
for-sale securities 4,192
-----------
DECEMBER 31, 1996 $9,477,471
===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
OPERATING ACTIVITIES:
Net (loss) income $ (602,498) $ 1,511,388 $ 306,824
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 1,372,731 972,669 717,300
Deferred income taxes (150,000) 240,000 41,000
Changes in operating assets and liabilities:
Accounts receivable 1,380,498 (2,299,781) (696,539)
Prepaid expenses and other current assets (479,251) (462,274) 137,572
Other assets (271,413) (46,957) (115,782)
Accounts payable and accrued expenses 187,764 (103,117) 313,990
Accrued salaries and wages 100,991 211,029 119,409
Taxes, other than income taxes 84,457 93,727 30,997
Income taxes payable (726,194) 537,938 42,004
------------ ------------ ------------
Net cash provided by operating activities 897,085 654,622 896,775
------------ ------------ ------------
INVESTING ACTIVITIES:
Expenditures for fixed assets (1,231,273) (1,193,973) (773,485)
Payments in connection with acquisitions (410,646) - (527,270)
Short-term investments 1,240,000 - -
------------ ------------ ------------
Net cash used in investing activities (401,919) (1,193,973) (1,300,755)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings 626,014 - -
Proceeds from exercise of stock options 65,768 - -
Purchase of treasury stock - (143,877) -
Payments of borrowings (656,409) (111,986) (234,686)
Redemption of preferred stock - (2,000) -
------------ ------------ ------------
Net cash provided by (used in) financing activities 35,373 (257,863) (234,686)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 530,539 (797,214) (638,666)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,566,654 2,363,868 3,002,534
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF YEAR $ 2,097,193 $ 1,566,654 $ 2,363,868
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 35,238 $ 14,963 $ 6,253
============ ============ ============
Income taxes $ 922,789 $ 222,062 $ 116,000
============ ============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION - Innodata Corporation and
subsidiaries (the "Company") performs data entry, data conversion, scanning,
imaging and document management systems, indexing and abstracting, and
typesetting and composition services tailored to customer requirements. The
Company also offers medical transcription services to health care providers.
The Company's services are principally performed in production facilities
located in the Philippines, Sri Lanka and the United States. The consolidated
financial statements include the accounts of the Company and its subsidiaries,
all of which are wholly-owned. All intercompany transactions and balances
have been eliminated in consolidation. Track Data Corporation owns
approximately 28% of the Company and shares certain management.
The financial statements have been prepared in conformity with generally
accepted accounting principles, which requires the use of management's
estimates.
REVENUE RECOGNITION - Revenue is recognized in the period in which the
service is performed. The Company's typesetting and composition service
projects are generally performed over four to six month periods. Revenues
from these projects are recognized using the percentage of completion method.
WORK-IN-PROCESS - Work-in-process, included in other current assets,
consists of actual labor and certain other costs incurred for uncompleted and
unbilled projects.
FOREIGN CURRENCY - The functional currency for the Company's production
operations located in the Philippines and Sri Lanka is U.S. dollars. As such,
transactions denominated in Philippine pesos and Sri Lanka rupees were
translated to U.S. dollars at rates which approximate those in effect on
transaction dates. Monetary assets and liabilities denominated in foreign
currencies at December 31, 1996 and 1995 were translated at the exchange rate
in effect as of those dates. Exchange gains and losses resulting from these
transactions were immaterial. In addition, the Company periodically enters
into contracts to purchase foreign currency as a hedge against a portion of
its foreign production costs. Gains and losses resulting from these contracts
are included as a component of the related transactions.
CASH AND EQUIVALENTS - For financial statement purposes (including cash
flows), the Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
During 1996, the Company leased equipment under capital leases for
approximately $237,000. Supplemental disclosure of non-cash investing and
financing activities is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Acquisition costs $ 563,771 $ - $1,027,270
Notes issued - - (300,000)
Common stock issued (153,125) - (200,000)
---------- ----- -----------
Payments in connection with acquisitions $ 410,646 - $ 527,270
========== ===== ===========
</TABLE>
DEPRECIATION - Depreciation is provided on the straight-line method over
the estimated useful lives of the related assets which are as follows:
<TABLE>
<CAPTION>
<S> <C>
ESTIMATED USEFUL
CATEGORY LIVES
Equipment 3-5 years
Furniture and fixtures 10 years
</TABLE>
Leasehold improvements are amortized on the straight-line basis over the
shorter of their estimated useful lives or the lives of the leases.
INCOME TAXES - Deferred taxes are determined based on the difference
between the financial statement and tax basis of assets and liabilities, using
enacted tax rates, as well as any net operating loss or tax credit
carryforwards expected to reduce taxes payable in future years.
GOODWILL - Goodwill arising from acquisition costs exceeding net assets
acquired is being amortized on a straight-line basis over a 15 year period.
Management assesses the recoverability of the remaining unamortized costs
based principally upon a comparison of the carrying value of the asset to the
undiscounted expected future cash flows to be generated by the asset whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. If management concludes that the asset is impaired, its
carrying value is adjusted to its net realizable value.
ACCOUNTING FOR STOCK-BASED COMPENSATION - The Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," which became effective in
1996. As permitted by SFAS No. 123, the Company has elected to continue to
account for employee stock options under APB No. 25, "Accounting for Stock
Issued to Employees."
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company has estimated the fair
value of financial instruments using available market information and other
valuation methodologies in accordance with SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." Management of the Company believes that
the fair value of financial instruments for which estimated fair value has not
been specifically presented is not materially different than the related
carrying value. Determinations of fair value are based on subjective data and
significant judgment relating to timing of payments and collections and the
amounts to be realized. Different assumptions and/or estimation methodologies
might have a material effect on the fair value estimates. Accordingly, the
estimates of fair value are not necessarily indicative of the amounts the
Company would realize in a current market exchange.
(LOSS) INCOME PER SHARE - (Loss) income per share is computed based on
the weighted average number of shares outstanding. In 1995, pursuant to the
modified treasury stock calculation method, the calculation includes the
effects of the assumed exercise of all outstanding options and warrants, the
repurchase of 20% of the outstanding shares of the Company, and after giving
effect to assumed interest earned on the net proceeds from the exercise and
repurchase. The number of common and common equivalent shares utilized in the
per share computations were 4,509,588, 5,456,266 and 4,425,239 in 1996, 1995
and 1994, respectively. Outstanding options and warrants were not considered
in 1996 and 1994 as they would have been antidilutive in 1996 and were not
dilutive in 1994.
2. SHORT-TERM INVESTMENTS
At December 31, 1995, short-term investments consisted of corporate debt
securities due in 1996. These securities were classified as
available-for-sale. At December 31, 1995, the fair market value of such
securities was less than their net cost by approximately $4,000, and a
valuation allowance was established as a reduction of stockholders' equity.
3. FIXED ASSETS
Fixed assets, stated at cost less accumulated depreciation and
amortization, consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DECEMBER 31,
1996 1995
Equipment $6,092,985 $4,401,308
Furniture and fixtures 375,465 316,697
Leasehold improvements 401,987 308,563
---------- ----------
Total 6,870,437 5,026,568
Less accumulated depreciation
and amortization 3,252,498 2,060,972
---------- ----------
$3,617,939 $2,965,596
========== ==========
</TABLE>
As of December 31, 1996 and 1995, the net book value of fixed assets
located at the Company's production facilities in the Philippines and Sri
Lanka was approximately $1,513,000 and $1,476,000, respectively. In addition,
equipment financed by capital leases has a net book value of $337,000 at
December 31, 1996.
4. INCOME TAXES
The significant components of the (benefit from) provision for income
taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Current income tax (benefit) expense:
Foreign $ - $ 10,000 $ 60,000
Federal (159,000) 535,000 69,000
State and local (48,000) 215,000 29,000
---------- ---------- --------
(207,000) 760,000 158,000
Deferred income tax (benefit) expense (150,000) 240,000 41,000
---------- ---------- --------
(Benefit from) provision for income taxes $(357,000) $1,000,000 $199,000
========== ========== ========
</TABLE>
Reconciliation of the U.S. statutory rate with the Company's effective
tax rate is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Federal statutory rate (34.0)% 34.0% 34.0%
Effect of:
State income taxes (net of federal tax benefit) (5.4) 6.1 3.8
Other 2.2 (0.3) 1.5
------- ----- -----
Effective rate (37.2)% 39.8% 39.3%
======= ===== =====
</TABLE>
As of December 31, 1996 and 1995, the composition of the Company's net
deferred taxes is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Deferred income tax assets:
Allowances not currently deductible $ 105,000 $ 72,000
Expenses not deductible until paid 115,000 -
Net operating loss carryforward 700,000 -
------------ ----------
920,000 72,000
------------ ----------
Deferred income tax liabilities:
Foreign source income, not taxable
unless repatriated (815,000) (235,000)
Depreciation and amortization (236,000) (118,000)
------------ ----------
(1,051,000) (353,000)
------------ ----------
Net deferred income tax liability $ (131,000) $(281,000)
============ ==========
</TABLE>
The Company's net operating loss carryforward of approximately $1,750,000
expires in 2011.
5. ACQUISITIONS
On December 1, 1994, the Company acquired certain assets of Engineering
Images ("EI"), an unaffiliated partnership. EI is a provider of imaging and
document management systems and scanning/conversion services. The purchase
price consisted of $427,270 cash (including expenses of $27,270), three-year
subordinated notes in the aggregate principal amount of $300,000 payable in 36
equal monthly installments commencing December 15, 1994 plus interest at the
prime rate (8.25% at December 31, 1996), and 56,764 restricted shares of the
Company's common stock with piggy-back registration rights valued at $200,000.
The assets acquired consist principally of certain fixed assets and goodwill.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of EI are included since the date of acquisition.
Further, in January 1994, the Company acquired the medical transcription
business of Statline, Inc. for approximately $100,000 cash, principally
consisting of fixed assets.
On January 2, 1996, the Company acquired certain assets of International
Imaging, Inc. ("II"). II is located in Azusa, California and provides imaging
and document management systems and scanning/conversion services. The
purchase price consisted of $40,000 cash and 50,000 shares of the Company's
restricted common stock. The Company also paid approximately $300,000 of II's
outstanding lease obligations. II's revenues for the year ended December 31,
1995 were approximately $1,000,000.
6. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Equipment leases, at 9.6% to 13.5% $365,846 $ -
Acquisition notes - subordinated, at prime 91,667 179,680
-------- --------
457,513 179,680
Less: deferred interest 53,255 -
-------- --------
Total 404,258 179,680
Less: current portion of long-term debt 208,298 87,500
-------- --------
Long-term debt $195,960 $ 92,180
======== ========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $236,855
1998 139,038
1999 55,458
2000 19,043
2001 7,119
$457,513
========
</TABLE>
7. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES - The Company is obligated under various operating lease
agreements for office and production space. The agreements contain escalation
clauses and requirements that the Company pay taxes, insurance and maintenance
costs. The lease agreements for production space in the Philippines, which
expire through 2001, contain provisions pursuant to which the Company may
cancel the leases at any time. The annual rental for the leased space in the
Philippines is approximately $500,000. For the years ended December 31, 1996,
1995 and 1994, rent expense totaled approximately $825,000, $500,000 and
$408,000, respectively.
At December 31, 1996, future minimum annual rental commitments on
noncancellable leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $314,000
1998 275,000
1999 275,000
2000 80,000
--------
$944,000
========
</TABLE>
EMPLOYMENT AGREEMENTS - The Company has an employment agreement with its
President that expires on September 30, 1999, pursuant to which he receives
annual compensation consisting of $231,000 plus a bonus of up to an additional
15% based upon performance criteria, and options to purchase 31,000 shares of
the Company's common stock in each year of the agreement at the market price
of the common stock at each date of grant. In addition, if certain
performance criteria are achieved, he is eligible to receive, on an annual
basis, options to purchase up to an additional 30,000 shares of common stock.
Furthermore, if the President is employed on September 30, 1999 and the
Company has met certain earnings criteria, as defined, for a period of 30 days
ending October 30, 1999, he may "put" up to 400,000 shares of the Company's
common stock owned by him, to the Company at $5.00 per share. If the "put" is
exercised, payment is to be made in equal monthly installments over a three
year period.
OTHER COMMITMENTS - The Company has a commitment to purchase a perpetual
license for certain production process software for cash totaling $190,000 and
35,000 shares of the Company's common stock. Payment is contingent upon the
successful completion and testing of the software, expected to occur during
1997. In addition, the Company has contracts to purchase an aggregate of
$1,500,000 of Philippine pesos on various dates through February 1997.
The Company has entered into agreements to lease production facilities
currently under construction in India. Upon completion of the facilities, the
Company will be obligated to make payments aggregating approximately $150,000
per year for an initial term of five years.
Employees at the Company's Manila facilities voted to join a union. The
Company reached agreement in 1996 on a collective bargaining agreement which
provides for approximately 10% wage increases per annum plus one-half of any
government mandated increases for the five years ended March 31, 2001.
PHILIPPINE PENSION REQUIREMENT - The Philippine government enacted
legislation requiring businesses to provide a lump-sum pension payment to
employees working at least five years and who are employed by the Company at
age 60. Those eligible employees are to receive approximately 59% of one
month's pay for each year of employment with the Company. The terms of the
collective bargaining agreement provide benefits similar to the government.
Based on actuarial assumptions and calculations in accordance with SFAS No.
87, "Employers' Accounting for Pensions," the liability for the future payment
is insignificant at December 31, 1996. Under the legislation, the Company is
not required to fund future costs, if any.
8. CAPITAL STOCK
COMMON STOCK DIVIDEND - On August 9, 1994 the Board of Directors declared
a 5% stock dividend to holders of record on August 25, 1994, payable on
September 19, 1994. All share and per share information have been adjusted to
reflect such dividend.
COMMON STOCK AND REDEEMABLE WARRANTS - In August and September 1993 the
Company sold pursuant to a public offering 1,610,000 shares (1,690,500 after
dividend) of its common stock at $5.00 per share and 2,415,000 warrants
("Redeemable Warrants") at $.10 per warrant and realized net proceeds after
all expenses of the offering of $6,752,585. From August 10, 1994 until August
9, 1997 the holders may exchange four Redeemable Warrants for 1.05 shares of
common stock upon payment of $6.68 per whole share. No fractional shares will
be issued. The warrants are redeemable by the Company at $.10 per warrant
upon 30 days prior written notice, provided the closing bid price of the
common stock equals or exceeds $9.50 per share for 20 trading days within a
period of 30 consecutive trading days.
In connection with the offering, the Company sold to the underwriter for
nominal consideration warrants to purchase up to 147,887 shares of common
stock at $7.81 per share and 210,000 warrants at $.157 per warrant to purchase
55,015 shares of common stock at $6.68 per share through August 9, 1998. The
warrants are substantially identical to the Redeemable Warrants, except they
are not redeemable. The underwriter's warrants contain piggy-back
registration rights for a period of seven years with respect to the underlying
securities and a demand registration right for a period of five years for two
registration filings, one of which is at the Company's expense.
PREFERRED STOCK - The Board of Directors is authorized to fix the terms,
rights, preferences and limitations of the preferred stock and to issue the
preferred stock in series which differ as to their relative terms, rights,
preferences and limitations. During 1995, the Company redeemed its Series A
and Series B preferred stock for an aggregate consideration of $2,000.
COMMON STOCK RESERVED - At December 31, 1996, the Company reserved for
issuance 2,878,637 shares of its common stock as follows: (a) 1,728,063 shares
pursuant to the Company's Stock Option Plans (including 21,000 options issued
to the Company's Chairman which were not granted under the plans); (b) 632,672
shares upon conversion of Redeemable Warrants; (c) 202,902 shares issuable
upon exercise of underwriter's warrants; and (d) 315,000 shares issuable upon
exercise of warrants issued to consultants.
9. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company adopted, with stockholder approval, 1993, 1994, 1995 and 1996
Stock Option Plans (the "1993 Plan," "1994 Plan," "1994 DD Plan," "1995 Plan"
and the "1996 Plan") which provide for the granting of options to purchase not
more than an aggregate of 262,500, 315,000, 52,500, 600,000 and 500,000 shares
of common stock, respectively, subject to adjustment under certain
circumstances. Such options may be incentive stock options ("ISOs") within
the meaning of the Internal Revenue Code of 1986, as amended, or options that
do not qualify as ISOs ("Non-Qualified Options").
The option exercise price per share may not be less than the fair market
value per share of common stock on the date of grant (110% of such fair market
value for an ISO, if the grantee owns stock possessing more than 10% of the
combined voting power of all classes of the Company's stock). Options may be
granted under the Stock Option Plan to all officers, directors and employees
of the Company and, in addition, Non-Qualified Options may be granted to other
parties who perform services for the Company. No options may be granted under
the 1993 Plan after April 30, 2003, under the 1994 Plan and 1994 DD Plan,
after May 19, 2004, under the 1995 Plan, after May 16, 2005 and under the 1996
Plan, after July 8, 2006.
The Plans may be amended from time to time by the Board of Directors of
the Company. However, the Board of Directors may not, without stockholder
approval, amend the Plans to increase the number of shares of common stock
which may be issued under the Plans (except upon changes in capitalization as
specified in the Plans), decrease the minimum exercise price provided in the
Plans or change the class of persons eligible to participate in the Plans.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation expense has been recognized for
stock options granted to employees. Had compensation cost for the Company's
stock option grants been determined based on the fair value at the grant date
for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net loss would have been $(738,987), or $(.16) per share, in
1996 and net income would have been $1,496,341, or $.32 per share, in 1995.
The fair value of options at date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions:
expected life of four years; risk free interest rate of 6.4% in 1996 and 6.2%
in 1995; expected volatility of 40%; and a zero dividend yield. The effects
of applying SFAS No. 123 in this disclosure are not indicative of future
disclosures. SFAS No. 123 does not apply to awards prior to 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE WEIGHTED WEIGHTED FAIR
PER SHARE REMAINING AVERAGE AVERAGE VALUE,
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE DATE OF
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE GRANT
---------------- ------------ ----------- --------- ----------- --------- ---------
Balance 1/1/94 $ 4.76 - 7.38 262,763 4 $ 5.15
Canceled $ 4.76 (8,400)
Repriced $ 4.76 - 7.38 (241,763)
Repriced $ 2.63 - 3.01 199,763 3 $ 2.86
Repriced $ 4.33 - 5.63 42,000 3 $ 5.31
Granted $ 2.63 - 3.25 220,600 5 $ 2.63
Granted $ 4.20 - 5.95 78,000 5 $ 4.73
------------
Balance 12/31/94 $ 2.63 - 3.25 420,363 4 $ 2.74
$ 4.20 - 5.95 132,600 4 $ 4.92
------------
552,963 143,791 $ 3.66
Canceled $ 2.63 - 4.63 (24,275)
Granted $ 3.38 - 4.63 274,550 5 $ 3.91 $ 1.57
------------
Balance 12/31/95 $ 2.63 - 3.25 398,088 3 $ 2.75
$ 3.38 - 5.95 405,150 3 $ 4.31
------------
803,238 360,295 $ 3.46
Canceled $ 3.01 (500)
Granted $ 2.31 - 3.93 89,000 5 $ 3.06 $ 1.22
Exercised $ 2.63 - 3.01 (22,937)
------------
Balance 12/31/96 $ 2.31 - 3.25 416,151 3 $ 2.71 334,541 $ 2.96
$ 3.38 - 5.95 452,650 3 $ 4.23 267,473 $ 4.39
-----------
868,801 602,014
============ ===========
</TABLE>
The majority of options become exercisable one-third on each of the first
three anniversary dates.
WARRANTS
In February 1995, the Company entered into financial consulting
arrangements with an entity and two individuals pursuant to which the
consultants are to assist the Company for a two year period in merger and
acquisition transactions and developing financial strategies and plans. Two
of the consultants were granted warrants to purchase 150,000 and 50,000
shares, respectively, at $4.50 per share exercisable in 25% cumulative
quarterly increments commencing April 1995 and expiring on December 31, 1997.
Another consultant was granted warrants to purchase 65,000 shares at $4.00 per
share exercisable in 25% cumulative increments commencing September 1, 1995
and expiring on December 31, 1997. All warrants contain demand and piggyback
registration rights after the warrants first become exercisable.
In addition, in connection with a consulting agreement on December 18,
1995, the Company issued a warrant to purchase 50,000 shares at a price of
$3.8125 per share. The warrant is exercisable commencing December 18, 1996
and expires in 2000.
10. REVENUES AND ACCOUNTS RECEIVABLE
During 1996, 1995 and 1994, one customer that is comprised of twelve
affiliated companies, accounted for 24%, 29% and 37% (14% from one of the
companies), of the Company's revenues, respectively. No other customer
accounted for 10% or more of the Company's revenues. Further, in 1996, 1995
and 1994, export revenues, all of which were derived from European customers,
accounted for 19%, 18% and 16%, respectively, of total revenues.
A significant amount of the Company's revenues are derived from customers
in the publishing industry. Accordingly, the Company's accounts receivable
generally include significant amounts due from such customers.
11. COSTS RESULTING FROM PROJECT TERMINATION
Costs resulting from project termination represent the provision for
expenses and losses that were attributable to the termination in 1994 of an
unprofitable project that commenced in 1993.
12. SUBSEQUENT EVENT
In January 1997, the Company entered into a revolving credit agreement
with a bank providing for borrowings up to $1,000,000 for equipment purchases.
The borrowings will convert to a term loan payable over a three year period
commencing January 1998. During 1997 interest is payable at % over prime and
interest has been fixed on the term loan at 10.1% per annum. In addition, the
bank has provided a line of credit up to $2,000,000 based on eligible
receivables, as defined. Interest is payable at % over prime. The line of
credit is reviewed annually on June 30 and borrowings are collateralized by a
lien on the assets of the Company.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Not reviewed by independent accountants.
<TABLE>
<CAPTION>
(in thousands, except per share)
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1994
Revenues $ 3,088 $ 3,414 $ 3,702 $ 4,141
Net (loss) income (355) 134 244 284
Net (loss) income per share $ (.08) $ .03 $ .06 $ .06
1995
Revenues $ 4,442 $ 5,219 $ 5,532 $ 5,574
Net income 316 372 408 415
Net income per share $ .07 $ .08 $ .09 $ .08
1996
Revenues $ 5,590 $ 5,250 $ 4,951 $ 4,745
Net income (loss) 326 13 (405) (536)
Net income (loss) per share $ .07 $ - $ (.09) $ (.11)
</TABLE>
<PAGE>
ITEM 8. CHANGE IN ACCOUNTANTS.
None.
<PAGE>
------
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
- ----------------------- --- ------------------------------------------------
Barry Hertz 47 Chairman of the Board of Directors
Todd Solomon 35 President, Chief Executive Officer and Director
Martin Kaye 49 Vice President - Finance, Secretary and Director
Jack Abuhoff 35 Director
Dr. Albert Drillick 51 Director
Dr. E. Bruce Fredrikson 59 Director
Morton Mackof 49 Director
Stanley Stern 46 Director
</TABLE>
BARRY HERTZ has been Chairman since 1988 and Chief Executive Officer of
the Company until August 1995. He is involved in the strategic planning and
management of the Company. He founded Track Data Corporation ("Track") in
1981. He was Track's sole stockholder and Chief Executive Officer until its
merger (the "Merger") on March 31, 1996 with Global Market Information, Inc.
("Global"), a public company co-founded by Mr. Hertz, who was its Chairman and
Chief Executive Officer. Track was a principal stockholder of Global, a
company engaged in the financial information services market. Upon
consummation of the Merger, Global changed its name to Track Data Corporation
("TDC"). Mr. Hertz holds a B.S. degree in mathematics from Brooklyn College
(1971) and an M.S. degree in computer science from New York University (1973).
TODD SOLOMON has been President and a Director of the Company since its
founding by him in 1988. He was appointed as Chief Executive Officer in
August 1995. He is responsible for the day to day operations of the Company
world wide. Mr. Solomon was President of Ruck Associates, an executive
recruiting firm from 1986 until 1987. Mr. Solomon holds an A.B. in history
and physics from Columbia University (1986). He is also a director of TDC.
MARTIN KAYE has been Chief Financial Officer of the Company since October
1993 and was elected Vice President - Finance in August 1995. He was
appointed as a Director in March 1995. He is a certified public accountant
and serves as Vice President of Finance and a Director of TDC. Mr. Kaye had
been an audit partner with Deloitte & Touche for more than five years until
his resignation in 1993. Mr. Kaye holds a B.B.A. in accounting from Baruch
College (1970).
JACK ABUHOFF has been a Director of the Company since 1990. He is
currently Managing Director of CRC, an international computer technology
consulting firm. Until 1994, he was employed as an attorney by Chadbourne &
Parke. He has practiced law for more than the past five years. He holds an
A.B. degree from Columbia College (1983) and a J.D. degree from Harvard Law
School (1986).
DR. ALBERT DRILLICK has been a Director of the Company since 1990. He
has served as a director of applications and senior systems analyst for TDC
for more than the past five years. He holds a Ph.D. degree in mathematics
from New York University Courant Institute (1971).
DR. E. BRUCE FREDRIKSON has been a Director of the Company since August
1993. He is currently a professor of finance at Syracuse University School of
Management where he has taught since 1966 and has previously served as
chairman of the finance department. Dr. Fredrikson has a B.A. in economics
from Princeton University and a M.B.A. and a Ph.D. in finance from Columbia
University. He is a director of Eagle Finance Corp., a company which acquires
and services non-prime automobile installment sales contracts. He is also an
independent general partner of Fiduciary Capital Partners, L.P. and Fiduciary
Capital Pension Partners, L.P. He is also a director of TDC.
MORTON MACKOF has been a Director of the Company since April 1993. He
had been executive vice president of Track since February 1991 and its
President since December 1994 until his resignation in November 1996. From
1986 to 1991 he was president of Medical Leasing of America, Inc. From 1981
to 1986 he was vice president of sales with Fonar Corp. He holds a B.S.
degree in electrical engineering from Rensselaer Polytechnic Institute (1970)
and did graduate work in computer science. He is also a director of TDC.
STANLEY STERN has been a Director of the Company since August 1988. He
has served as chief operating officer of Track, and in predecessor positions,
for more than five years and since the Merger serves as Executive Vice
President of TDC. Mr. Stern holds a B.B.A. from Baruch College (1973). He is
also a director of TDC.
There are no family relationships between or among any directors or
officers of the Company. A.S. Goldmen & Co., Inc., the underwriter of the
Company's public offering of its common stock on August 10, 1993, is entitled
to designate one member of the Board of Directors for five years expiring on
August 9, 1998. No such member has been elected to date. Directors are
elected to serve until the next annual meeting of stockholders and until their
successors are elected and qualified. Officers serve at the discretion of the
Board.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Company believes that during the period from January 1, 1996 through
December 31, 1996 all officers, directors and greater than ten-percent
beneficial owners complied with Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation
paid by the Company for services to the Company during the three fiscal years
ended December 31, 1996 to those executive officers whose aggregate cash and
cash equivalent compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ANNUAL
---------------------
COMPENSATION NUMBER OF
---------------------
NAME AND PRINCIPAL CALENDAR STOCK OPTIONS
POSITION YEAR SALARY BONUS AWARDED
Barry Hertz 1996 $ 50,000 $ - -
Chairman 1995 - - 45,000
1994 - - 45,000
21,000(A)
Todd Solomon 1996 $ 231,000 $ - 31,000
President, CEO 1995 222,814 - 31,000
1994 175,000 - 74,350
78,750(A)
<FN>
A) Options granted 1993 and repriced in 1994.
</TABLE>
The above compensation does not include certain insurance and other personal
benefits, the total value of which does not exceed as to any named officer,
the lesser of $50,000 or 10% of such person's cash compensation. The Company
has not granted any stock appreciation rights nor does it have any "long-term
incentive plans", other than its stock option plan.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF PERCENT OF TOTAL OPTIONS EXPIR-
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE PRICE ATION
NAME GRANTED FISCAL YEAR PER SHARE DATE
Todd Solomon 31,000 35% $ 2.313 10/2001
</TABLE>
The options become exercisable one-third on each of the first three
anniversary dates.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR;
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES ACQUIRED OPTIONS AT FISCAL YEAR END MONEY OPTIONS AT FISCAL YEAR END
NAME ON EXERCISE EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
Barry Hertz None 66,000/45,000 $ -/$-
Todd Solomon None 138,649/76,451 $ -/$-
</TABLE>
DIRECTORS COMPENSATION
Dr. E. Bruce Fredrikson and Jack Abuhoff were compensated at the rate of
$1,250 and $833 per month, respectively, plus out-of-pocket expenses for each
meeting attended. No other director is compensated for his services as
director. Further, Messrs. Fredrikson and Abuhoff received options to
purchase 7,000 and 3,500 shares, respectively, in 1996.
EMPLOYMENT AGREEMENT
The Company has an employment agreement with Todd Solomon, its President
and Chief Executive Officer. The agreement expires on September 30, 1999.
Mr. Solomon's annual compensation consists of $231,000 plus a bonus of up to
an additional 15% based on performance criteria established by the Board of
Directors. Further, he is to receive options to purchase 31,000 shares in
each year and is eligible to receive up to an additional 30,000 shares in each
year based on performance, as detemined by the Board of Directors. In
addition, if Mr. Solomon is employed on September 30, 1999, and provided the
Company has achieved certain earnings criteria during the four years ended
September 30, 1999, then during the month of October 1999, Mr. Solomon may
"put" up to 400,000 shares of the Company's common stock owned by him to the
Company at $5.00 per share to be paid over a three-year period.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of February 28, 1997 information
regarding the beneficial ownership of the Company's Common Stock based upon
the most recent information available to the Company for (i) each person known
by the Company to own beneficially more than five (5%) percent of the
Company's outstanding Common Stock, (ii) each of the Company's officers and
directors and (iii) all officers and directors of the Company as a group.
Unless otherwise indicated, each stockholder's address is c/o Company, 95
Rockwell Place, Brooklyn, NY 11217.
<TABLE>
<CAPTION>
<S> <C> <C>
SHARES OWNED BENEFICIALLY (1)
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
Track Data Corporation (2) 1,366,825 30.2%
Barry Hertz (3) 1,310,244 28.5%
Todd Solomon (4) 678,596 14.6%
Martin Kaye (5) 33,833 *
Jack Abuhoff (5)
263 W. 93 Street
New York, NY 10025 18,550 *
Albert Drillick (5) 6,575 *
Dr. E. Bruce Fredrikson (5)
Syracuse University
School of Management
Syracuse, NY 13244 24,500 *
Morton Mackof (5) 6,575 *
Stanley Stern (5) 6,575 *
All Officers and Directors
as a Group (8 persons)
(2)(3)(4)(5) 2,208,029 45.8%
______________________________
<FN>
* Less than 1%.
1. Except as noted otherwise, all shares are owned beneficially and of
record. Includes shares pursuant to options presently exercisable or which are
exercisable within 60 days.
2. Consists of 1,244,244 shares owned by Track Data Corporation, which is
majority owned by Mr. Hertz, and 122,581 shares which are owned by the Track Data
Corporation Employee 401K Savings Plan.
3. Includes 1,244,244 shares owned by Track Data Corporation, which is
majority owned by Mr. Hertz, and currently exercisable options to purchase 66,000
shares of Common Stock.
4. Includes currently exercisable options to purchase 138,649 shares of
Common Stock.
5. Consists of shares issuable upon exercise of currently exercisable options
granted under the Company's Stock Option Plans.
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There were no material related party transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits which are indicated as being included in previous filings are
incorporated herein by reference.
<TABLE>
<CAPTION>
<S> <C> <C>
EXHIBIT DESCRIPTION FILED ASEXHIBIT
- ------- ------------------------------------------------ ---------------------------------------------------------------
3.1 Restated Certificate of Incorporation Exhibit 3.1 to Form SB-2 Registration Statement No. 33-62012
3.2 By-Laws Exhibit 3.2 to Form SB-2 Registration Statement No. 33-62012
4.1 Form of Redeemable Warrant Agreement between Exhibit 4.1 to Form SB-2 Registration Statement No. 33-62012
the Company and the Warrant Agent
4.2 Specimens of Common Stock and Redeemable Exhibit 4.2 to Form SB-2 Registration Statement No. 33-62012
Warrant certificates
10.1 1994 Stock Option Plan Exhibit A to Definitive Proxy dated August 9, 1994
10.2 Contract of Lease with JM and Company, Inc. Exhibit 10.2 to Form 10-KSB for year ended December 31, 1993
10.3 Contract of Lease with Elcado Realty Corporation Exhibit 10.3 to Form SB-2 Registration Statement No. 33-62012
10.4 1993 Stock Option Plan Exhibit 10.4 to Form SB-2 Registration Statement No. 33-62012
10.5 Form of Indemnity Agreement with Directors Exhibit 10.5 to Form SB-2 Registration Statement No. 33-62012
10.6 Employment Agreement dated August 24, 1995 Exhibit 10.6 to Form 10-QSB for the Quarter ended September 30
with Todd Solomon , 1995
10.7 1994 Disinterested Directors Stock Option Plan Exhibit B to Definitive Proxy dated August 9, 1994
10.8 Agreement dated July 13, 1992 between the Exhibit 10.7 to Form SB-2 Registration Statement No. 33-62012
Company and West Publishing Co.
10.9 Form of Financial Advisory and Consulting Exhibit 10.8 to Form SB-2 Registration Statement No. 33-62012
Agreement
10.10 Agreement of Purchase and Sale of Engineering Exhibit 10.10 to Form 8-K dated as of December 1, 1994
Images dated December 1, 1994
10.11 Contract of Sublease with Computer Leasing, Inc. Exhibit 10.11 to Form 10-KSB for year ended December 31, 1995
10.12 1995 Stock Option Plan Exhibit A to Definitive Proxy dated August 10, 1995
10.13 1996 Stock Option Plan Exhibit A to Definitive Proxy dated November 7, 1996
10.14 Revolving Credit Agreement Filed herewith
11 Statement re Computation of Per Share Earnings Filed herewith
21 Subsidiaries of Small Business Issuer Filed herewith
23 Consent of Margolin, Winer & Evens LLP Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
(b) There were no reports on Form 8-K filed during the quarter ended
December 31, 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INNODATA CORPORATION
By /s/
---
Barry Hertz
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ----------------------- ------------------------------------ --------------
/s/ Chairman of the Board March 25, 1997
- -----------------------
Barry Hertz
/s/ President, Chief Executive Officer March 25, 1997
- -----------------------
Todd Solomon and Director
/s/ Vice President - Finance (Principal March 25, 1997
- -----------------------
Martin Kaye Accounting and Financial Officer),
Director
/s/ Director March 25, 1997
- -----------------------
Jack Abuhoff
/s/ Director March 25, 1997
- -----------------------
Dr. Albert Drillick
/s/ Director March 25, 1997
- -----------------------
Dr. E. Bruce Fredrikson
/s/ Director March 25, 1997
- -----------------------
Morton Mackof
/s/ Director March 25, 1997
- -----------------------
Stanley Stern
</TABLE>
LOAN AGREEMENT
Dated as of January 30, 1997
INNODATA CORPORATION, a Delaware corporation, having its principal place of
business at 95 Rockwell Place, Brooklyn, New York 11217 (the "Borrower"), and
THE CHASE MANHATTAN BANK, a New York banking corporation, having an office at
One Pierrepont Plaza, Brooklyn, New York 11201-2791 (the "Bank") hereby agree
as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following
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terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADJUSTED LIBOR RATE" means, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded, if not already a whole
multiple of 1/100 of one (.01%) percent to the nearest 1/100 of one (.01%)
percent) equal to the product of (a) the LIBOR Rate and (b) Statutory
Reserves.
"AFFILIATE" means, as to any Person (i) a Person which directly or indirectly
controls, or is controlled by, or is under common control with, such Person;
(ii) a Person which directly or indirectly beneficially owns or holds five
(5%) percent or more of any class of voting stock of, or five (5%) percent or
more of the equity interest in, such Person; or (iii) a Person five (5%)
percent or more of the voting stock of which, five (5%) or more of the equity
interest of which, is directly or indirectly beneficially owned or held by
such Person. The term control means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"AGREEMENT" means this Loan Agreement, as amended, supplemented or modified
from time to time.
"BOARD OF GOVERNORS" means the Board of Governors of the Federal Reserve
System of the United States of America.
"BUSINESS DAY" means a day of the year on which banks are not required or
authorized to close in New York City, provided that, if the relevant day
relates to a Eurodollar Loan, a Eurodollar Interest Period, or notice with
respect to a Eurodollar Loan, the term "Business Day" shall mean a day on
which dealings in dollar deposits are also carried on in the London Interbank
Market and banks are open for business in London.
"CAPITAL LEASE" means a lease which has been or should be, in accordance with
GAAP, capitalized on the books of the lessee.
"COLLATERAL" means all property which is subject or is to be subject to the
Lien granted by the Security Agreement.
"COMMITMENT" means the Bank's obligation, subject to the terms and conditions
hereof, to make Revolving Credit Loans to the Borrower pursuant to the terms
and conditions of this Agreement and to convert the outstanding balance of
such Revolving Credit Loans to the Converted Term Loan on the Conversion
Date.
"CONSOLIDATED AFFILIATES" means, as to any Person from time to time, those
Affiliates of such Person which are consolidated with such Person in the
financial statements delivered pursuant to Section 5.01 (b).
"CONSOLIDATED CAPITAL EXPENDITURES" means, as to any Person, the aggregate
amount of any expenditures (including purchase money Liens) by such Person and
its Consolidated Affiliates for assets (including fixed assets acquired under
Capital Leases) which it is contemplated will be used or usable in fiscal
years subsequent to the year of acquisition.
"CONSOLIDATED CURRENT ASSETS" means, as to any Person, at any date, the
aggregate amount of all assets of such Person and its Consolidated Affiliates
which would be properly classified as current assets at such date, but
excluding any prepaid items such as rent or insurance and deferred assets, all
computed and consolidated in accordance with GAAP.
"CONSOLIDATED CURRENT LIABILITIES" means, as to any Person, the aggregate
amount of all liabilities of such Person and its Consolidated Affiliates
(including tax and other proper accruals) which would be properly classified
as current liabilities, including the current portion of the outstanding
principal amount of the Notes, all computed and consolidated in accordance
with GAAP.
"CONSOLIDATED EBITDA" shall mean, with respect to the Borrower and its
Consolidated Affiliates for any period of determination, the sum of (i) net
income excluding any non-operating income (i.e., other than in the Borrower's
ordinary course of business), (ii) Interest Expense, (iii) depreciation and
amortization and (iv) Federal, state and local income taxes, in each case of
the Borrower and its Consolidated Affiliates on a consolidated basis for such
period, computed in accordance with GAAP.
"CONSOLIDATED SUBORDINATED DEBT" means, as to any Person, all of the
Subordinated Debt of such Person and its Consolidated Affiliates, computed and
consolidated in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, as to any Person, the excess of (i)
the sum of such Person's Consolidated Total Assets plus such Person's
Consolidated Subordinated Debt, including the current portion thereof, less
all intangible assets properly classified as such in accordance with GAAP
including, but without limitation, patents, patent rights, trademarks, trade
names, franchises, copyrights, licenses (other than licenses for purchased
software used in such Person's ordinary course of business, in amounts not
exceeding $1,300,000.00 in the aggregate), permits and goodwill, over (ii)
such Person's Consolidated Total Liabilities.
"CONSOLIDATED TOTAL ASSETS" means, as to any Person, the aggregate book value
of the assets of such Person and its Consolidated Affiliates after all
appropriate adjustments in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization and excluding the amount of any write-up or revaluation of any
asset).
"CONSOLIDATED TOTAL LIABILITIES" means, as to any Person, all of the
liabilities of such Person and its Consolidated Affiliates, including all
items which, in accordance with GAAP would be included on the liability side
of the balance sheet (other than capital stock, capital surplus and retained
earnings) computed and consolidated in accordance with GAAP.
"CONSOLIDATED TOTAL UNSUBORDINATED LIABILITIES" means, as to any Person, the
Consolidated Total Liabilities less Consolidated Subordinated Debt of such
Person and its Consolidated Affiliates, computed and consolidated in
accordance with GAAP.
"CONSOLIDATED UNFUNDED CAPITAL EXPENDITURES" means, as to any Person,
Consolidated Capital Expenditures made by such Person without the incurrence
of Debt; provided, however, that 100% of the purchase price of Eligible
Equipment financed with Revolving Credit Loans shall be deemed a funded
capital expenditure.
"CONVERSION DATE" means December 31, 1997.
"CONVERTED TERM LOAN" shall have the meaning assigned in Section 2.05 hereof.
"CONVERTED TERM LOAN MATURITY DATE" means the third anniversary of the
Conversion Date.
"CONVERTED TERM LOAN NOTE" means a promissory note of the Borrower payable to
the order of the Bank, in substantially the form of Exhibit B annexed hereto,
evidencing the indebtedness of the Borrower to the Bank resulting from the
Converted Term Loan made by the Bank to the Borrower pursuant to this
Agreement.
"DEBT" means, as to any Person, (i) all indebtedness or liability of such
Person for borrowed money; (ii) indebtedness of such Person for the deferred
purchase price of property or services (including trade obligations); (iii)
obligations of such Person as a lessee under Capital Leases; (iv) current
liabilities of such Person in respect of unfunded vested benefits under any
Plan; (v) obligations of such Person under letters of credit issued for the
account of such Person; (vi) obligations of such Person arising under
acceptance facilities; (vii) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business) and other contingent
obligations to purchase, to provide funds for payment, to supply funds to
invest in any other Person, or otherwise to assure a creditor against loss;
(viii) obligations secured by any Lien on property owned by such Person
whether or not the obligations have been assumed; and (ix) all other
liabilities recorded as such, or which should be recorded as such, on such
Person's financial statements in accordance with-GAAP.
"DEBT SERVICE COVERAGE RATIO" shall mean, with respect to the Borrower and its
Consolidated Affiliates on a consolidated basis for the applicable period of
determination, the ratio of (A) Consolidated EBITDA less Consolidated Unfunded
Capital Expenditures for the period of determination to (B) the sum of (i) the
aggregate of payments of principal with respect to indebtedness for borrowed
money (other than indebtedness relating to the Line of Credit or other
indebtedness obtained in compliance with Section 5.02 (a) (x) hereof during
the period of determination), plus (ii) the aggregate of payments of principal
on Capitalized Lease obligations during the period of determination, plus
(iii) cash Interest Expense during the period of determination, plus (iv) cash
dividend payments made by the Borrower and, without duplication, Consolidated
Affiliates during the period of determination; provided, however, that
dividends paid to or from the Borrower to or from Consolidated Affiliates, as
the case may be, shall not be considered cash dividend payments for the
purposes of this clause (iv).
"DEFAULT" means any of the events specified in Section 6.01 of this Agreement,
whether or not any requirement for notice or lapse of time or any other
condition has been satisfied.
"DOLLARS" AND THE SIGN "$" mean lawful money of the United States of America.
"ELIGIBLE EQUIPMENT" means any item of equipment which, after giving effect to
the purchase thereof through the use of proceeds of a Loan to be made
hereunder, will be owned by the Borrower free and clear of any Lien, except
the Bank's Lien under the Security Agreement, and which will meet each of the
following criteria:
(a) such equipment constitutes personalty and "equipment", and neither
constitutes nor includes, fixtures, inventory, chattel paper, accounts or
contract rights as such terms are defined in the Uniform Commercial Code of
New York as in effect from time to time;
(b) such equipment is not (i) a motor vehicle; (ii) the subject of any
lease or conditional sales arrangement; or (iii) intended for use primarily
for personal, family or household purposes;
(c) such equipment is not "consumer goods" as such terms are defined in
the Uniform Commercial Code of New York as in effect from time to time;
(d) such equipment at all times will be located in either the Philippines,
Sri Lanka, India, the United Kingdom or the State of New York, California,
Maryland or New Jersey, and the Bank (i) has received notice of such location
pursuant to Section 2.01 hereof, and (ii) continues to receive reports of the
location of such equipment outside the United States as part of the Borrower's
quarterly reporting requirements pursuant to Section 5.01 (b) (ii) hereof;
(e) such equipment is not interrelated or interconnected (in a manner
similar to an attachment or accession) to other equipment which is not
Collateral;
(f) such equipment is in good condition, repair and working order and is
insured in accordance with this Agreement and the Security Agreement;
(g) with respect to any software forming a component of equipment, the
Borrower has a license or a right to use such software, which license or right
by its terms may be assigned to the Bank pursuant to the Security Agreement
and/or an exercise by the Bank of its rights thereunder;
(h) such equipment is not aircraft or aircraft parts; and
(i) the Bank is the holder of a first priority security interest in the
Borrower's interest therein, and such security interest is perfected against
all Persons and is subject to no other Liens.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, the regulations promulgated thereunder and the published
interpretations thereof as in effect from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not incorporated)
which together with any other Person would be treated, with such Person, as a
single employer under Section 4001 of ERISA.
"EURODOLLAR LOAN" means a Loan bearing interest at a rate based on the
Adjusted LIBOR Rate in accordance with the provisions of Article II hereof.
"EVENT OF DEFAULT" means any of the events specified in Section 6.01 of this
Agreement, provided that any requirement for notice or lapse of time or any
other condition has been satisfied.
"FIXED RATE LOANS" means Eurodollar Loans.
"GAAP" means Generally Accepted Accounting Principles.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means those generally accepted
accounting principles and practices which are recognized as such by the
American Institute of Certified Public Accountants acting through the
Financial Accounting Standards Board ("FASB") or through other appropriate
boards or committees thereof and which are consistently applied for all
periods so as to properly reflect the financial condition, operations and cash
flows of a Person, except that any accounting principle or practice required
to be changed by the FASB (or other appropriate board or committee of the
FASB) in order to continue as a generally accepted accounting principle or
practice may be so changed. Any dispute or disagreement between the Borrower
and the Bank relating to the determination of Generally Accepted Accounting
Principles shall, in the absence of manifest error, be conclusively resolved
for all purposes hereof by the written opinion with respect thereto, delivered
to the Bank, of the independent accountants selected by the Borrower and
approved by the Bank for the purpose of auditing the periodic financial
statements of the Borrower.
"HAZARDOUS MATERIALS" includes, without limit, any flammable explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or
toxic substances, or related materials defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act, as amended (42 U.S.C. Sections 9601 et. seq.), and in the
regulations adopted and publications promulgated pursuant thereto, or any
other federal, state or local environmental law, ordinance, rule or
regulation.
"INTEREST DETERMINATION DATE" means, in the case of a Fixed Rate Loan, the
last day of the applicable Interest Period.
"INTEREST EXPENSE" means, with respect to the Borrower and its Consolidated
Affiliates for the applicable period of determination thereof, the interest
expense of the Borrower and its Consolidated Affiliates during such period
determined on a consolidated basis in accordance with GAAP, and shall in any
event include, without limitation (i) the amortization of debt discounts, (ii)
the amortization of all fees payable in connection with the incurrence of Debt
to the extent included in interest expense, and (iii) the portion of any
Capital Lease obligations allocable to interest expense.
"INTEREST PAYMENT DATE" means (i) as to each Fixed Rate Loan, the first
Business Day of each month during the applicable Interest Period and the last
day of the applicable Interest Period and (ii) as to each Prime Rate Loan, the
first Business Day of each month.
"INTEREST PERIOD" means (i) as to any Eurodollar Loan, the period commencing
on the date of such Eurodollar Loan and ending on the numerically
corresponding day in the calendar month that is one, two, three, six or twelve
months thereafter; as the Borrower may elect (or, if there is no numerically
corresponding day, on the last Business Day of such month), and (ii) if any
Interest Period would end on a day which is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day, (iii) no
Interest Period in respect of a Fixed Rate Loan representing a portion of the
principal required to be paid in accordance with the terms hereof may be
selected unless the outstanding Prime Rate Loans and Fixed Rate Loans for
which the relevant Interest Periods end on or prior to the date of such
payment are in an aggregate amount which will be sufficient to make such
payment, (iv) interest shall accrue from and including the first day of such
Interest Period to but excluding the date of payment of such interest, and (v)
no Interest Period of particular duration with respect to a Eurodollar Loan
may be selected by the Borrower if the Bank determines, in its sole
discretion, that Eurodollar Loans with such maturities are not generally
available.
"INVESTMENT" means any stock, evidence of Debt or other security of any
Person, any loan, advance, contribution of capital, extension of credit or
commitment therefor, including without limitation the guaranty of loans made
to others (except for current trade and customer accounts receivable for
services rendered in the ordinary course of business and payable in accordance
with customary trade terms in the ordinary course of business) and any
purchase of (i) any security of another Person or (ii) any business or
undertaking of any Person or any commitment or option to make any such
purchase, or any other investment.
"LIBOR RATE" means the rate (rounded upwards, if not already a whole multiple
of 1/16 of one (1%) percent, to the next higher of 1/16 of one (1%) percent)
at which dollar deposits approximately equal in principal amount to the
requested Eurodollar Loan and for a maturity equal to the requested Interest
Period are offered in immediately available funds to the London office of the
Bank by leading banks in the London Interbank Market for Eurodollars at
approximately 11:00 a.m., London time, three (3) Business Days prior to the
commencement of such Interest Period.
"LIEN" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory
or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction to evidence any of the foregoing.
"LINE OF CREDIT" shall have meaning ascribed thereto in Section 5.02(a) (x)
hereof.
"LOAN" OR "LOANS" means the Revolving Credit Loans or the Converted Term Loan
or any or all of the same as the context may require and includes Prime Rate
Loans and Fixed Rate Loans.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security Agreement and
any other document executed or delivered pursuant to this Agreement, the Swap
Documentation or the Line of Credit.
"MATERIAL ADVERSE CHANGE" means, as to any Person, (i) a material adverse
change in the financial condition, business, operations, properties or results
of operations of such Person or (ii) any event or occurrence which could have
a material adverse effect on the ability of such Person to perform its
obligations under the Loan Documents.
"MULTIEMPLOYER PLAN" means a Plan described in Section 4001(a) (3) of ERISA
which covers employees of the Borrower or any ERISA Affiliate.
"NOTE" OR "NOTES" means the Revolving Credit Note or the Converted Term Loan
Note or any or all of the same as the context may require.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.
"PERMITTED INVESTMENTS" means, after giving effect to Investments made by the
Borrower in accordance with the terms and conditions hereof (i) direct
obligations of the United States of America or any governmental agency
thereof, or obligations guaranteed by the United States of America, provided
that such obligations mature within one year from the date of acquisition
thereof; (ii) time certificates of deposit having a maturity of one year or
less issued by any commercial bank organized and existing under the laws of
the United States or any state thereof and having aggregate capital and
surplus in excess of $1,000,000,000.00; (iii) money market mutual funds having
assets in excess of $2,500,000,000; (iv) commercial paper rated not less than
P-1 or A-1 or their equivalent by Moody's Investor Services, Inc. or Standard
& Poor's Corporation, respectively; or (v) tax exempt securities rated Prime 2
or better by Moody's Investor Services, Inc. or A-1 or better by Standard &
Poor's Corporation.
"PERSON" means an individual, partnership, corporation (including a business
trust), joint stock -company, trust, unincorporated association, joint venture
or other entity or a federal, state or local government, or a political
subdivision thereof or any agency of such government or subdivision.
"PLAN" means any employee benefit plan established, maintained, or to which
contributions have been made by the Borrower or any ERISA Affiliate.
"PRIME RATE" means the rate per annum announced by the Bank from time to time
as its prime rate in effect at its principal office on a 360-day basis; each
change in the Prime Rate shall be effective on the date such change is
announced to become effective.
"PRIME RATE LOAN" means a Loan bearing interest at the Prime Rate plus the
margin as set forth in Section 2.08 hereof.
"PROHIBITED TRANSACTION" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from
time to time.
"REGULATION D" means Regulation D of the Board of Governors, as the same may
be amended and in effect from time to time.
"REGULATION G" means Regulation G of the Board of Governors, as the same may
be amended and in effect from time to time.
"REGULATION T" means Regulation T of the Board of Governors, as the same may
be amended and in effect from time to time.
"REGULATION U" means Regulation U of the Board of Governors, as the same may
be amended and in effect from time to time.
"REGULATION X" means Regulation X of the Board of Governors, as the same may
be amended and in effect from time to time.
"REPORTABLE EVENT" means any of the events set forth in Section 4043 of ERISA.
"REVOLVING CREDIT LOANS" shall have the meaning assigned to such term in
Section 2.01 of this Agreement.
"REVOLVING CREDIT NOTE" means a promissory note of the Borrower payable to the
order of the Bank, in substantially the form of Exhibit A annexed hereto,
evidencing the aggregate indebtedness of the Borrower to the Bank resulting
from Revolving Credit Loans made by the Bank to the Borrower pursuant to this
Agreement.
"SECURITY AGREEMENT" means a security agreement, in substantially the form of
Exhibit C annexed hereto, to be executed and delivered pursuant to the terms
of this Agreement.
"STATUTORY RESERVES" means a fraction (expressed as a decimal), the numerator
of which is the number one and the denominator of which is the number one
minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency, or supplemental reserves)
expressed as a decimal established by the Board of Governors and any other
banking authority to which the Bank is subject with respect to the Adjusted
LIBOR Rate for Eurocurrency Liabilities (as defined in Regulation D). Such
reserve percentages shall include, without limitation, those imposed under
such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or offsets
which may be available from time to time to the Bank under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
"SUBORDINATED DEBT" means Debt of any Person, the repayment of which the
obligee has agreed in writing, on terms which have been approved by the Bank
in advance in writing, shall be subordinate and junior to the rights of the
Bank with respect to Debt owing from such Person to the Bank.
"SUBSIDIARY" means, as to any Person, any corporation, partnership or joint
venture whether now existing or hereafter organized or acquired: (i) in the
case of a corporation, of which a majority of the securities having ordinary
voting power for the election of directors (other than securities having such
power only by reason of the happening of a contingency) are at the time owned
by such Person and/or one or more Subsidiaries of such Person or (ii) in the
case of a partnership or joint venture of which a majority of the partnership
or other ownership interests are at the time owned by such Person and/or more
of its Subsidiaries.
"SWAP DOCUMENTATION" shall have the meaning ascribed thereto in Section
3.01(i) hereof.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
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computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding".
SECTION 1.03. ACCOUNTING TERMS. Except as otherwise herein specifically
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provided, each accounting term used herein shall have the meaning given to it
under GAAP. Without limiting the generality of the foregoing, the term
"current portion" shall mean that portion of the amount to be received or
expended, as the case may be, during the immediately next succeeding four (4)
consecutive fiscal quarterly periods reflected in the financial statements
having been most recently delivered to the Bank in accordance with the terms
and conditions hereof.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.01. THE REVOLVING CREDIT LOANS. The Bank agrees, on the date of this
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Agreement, and on the terms and conditions and in reliance upon the
representations and warranties hereinafter set forth in this Agreement, to
lend to the Borrower prior to the Conversion Date such amounts as the Borrower
may request from time to time (individually, a "Revolving Credit Loan" or
collectively, the "Revolving Credit Loan"), provided, however, that the
aggregate amount of such Revolving Credit Loans outstanding at any one time
shall not exceed One Million ($1, 000,000.00) Dollars (the "Commitment"), or
such lesser amount of the Commitment as may be reduced pursuant to the terms
hereof. Revolving Credit Loans borrowed and repaid may not be reborrowed and
the Commitment shall be reduced by the amount of such repaid Revolving Credit
Loans. The Bank shall have no obligation to respond to a notice given under
Section 2.02 hereof or to make a Revolving Credit Loan unless (1) the Bank
shall have received, at least 3 days prior to the proposed date of the
requested Revolving Credit Loan, true and complete copies of purchase invoices
(in form and substance satisfactory to the Bank) in respect of the equipment
which is to be purchased with the proceeds of such requested Revolving Credit
Loan; (2) the Borrower demonstrates to the Bank's satisfaction that such
equipment meets all of the criteria of Eligible Equipment including, without
limitation, the name of the country outside the United States or the name(s)
of the State(s) and counties within the United States within which such
equipment will be located; and (3) the Revolving Credit Loan to be used to pay
up to 80% of the purchase price of such equipment will constitute the only
Debt incurred with respect to such equipment, and each request by the Borrower
for a Revolving Credit Loan hereunder shall constitute the Borrower's
representation and warranty that the substance of each of clauses (2) and (3)
above, and all information provided in compliance therewith, is true and
complete in all respects.
Each Revolving Credit Loan shall be a Prime Rate Loan or a Fixed Rate Loan (or
a combination thereof) as the Borrower may request subject to and in
accordance with Section 2.02. The Bank may at its option make any Eurodollar
Loan by causing a foreign branch or affiliate to make such Loan, provided that
any exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of the Revolving Credit Note.
Subject to the other provisions hereof, Revolving Credit Loans of more than
one type may be outstanding at the same time.
SECTION 2.02. NOTICE OF REVOLVING CREDIT LOANS.
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(a) The Borrower shall give the Bank irrevocable written, telex,
telephonic (immediately confirmed in writing) or facsimile notice (i) at least
three (3) Business Days prior to each Revolving Credit Loan comprised in whole
or in part of one or more Eurodollar Loans, and (ii) prior to 11:00 a.m. on
the day of each Revolving Credit Loan consisting solely of a Prime Rate Loan.
Such notice shall specify the date of such borrowing, the amount thereof, and
whether such Loan is to be (or what portion or portions thereof are to be) a
Prime Rate Loan or a Fixed Rate Loan and, if such Loan or any portion
therefore is to consist of one or more Fixed Rate Loans, the principal amounts
thereof and Interest Period or Interest Periods with respect thereto. If no
election as to a type of Loan is specified in such notice, such Loan (or
portion thereof as to which no election is specified) shall be a Prime Rate
Loan. If no election as to the Interest Period is specified in such notice
with respect to any Eurodollar Loan, the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(b) The Borrower may elect, subject to the terms and conditions hereof, to
continue a Fixed Rate Loan or a portion thereof from one Interest Period into
a subsequent Interest Period by giving the Bank at least three (3) Business
Days' prior written, telex, telephonic (immediately confirmed in writing) or
facsimile irrevocable notice of its intention to do so (subject to
availability). If no such election is made, or if an election is made to
continue a Fixed Rate Loan at the end of its Interest Period when such Loans
are not available, and the applicable Fixed Rate Loan is not otherwise
continued or converted, such Fixed Rate Loan shall automatically be converted
to a Prime Rate Loan on the expiration of such Interest Period.
(c) No Interest Period may be selected with respect to a Loan which would,
in either case, end later than the Conversion Date or the Converted Term Loan
Maturity Date.
SECTION 2.03. REVOLVING CREDIT NOTE. Each Revolving Credit Loan shall be in
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the minimum principal amount, and in minimum multiples thereafter, of One
Hundred Thousand ($100,000.00) Dollars, except that if a Prime Rate Loan so
requested shall exhaust the remaining available Commitment, such Prime Rate
Loan may be in an amount equal to the amount of the remaining available
Commitment, and shall be evidenced by the Revolving Credit Note of the
Borrower. The Revolving Credit Note shall be dated the date hereof and be in
the principal amount of One Million ($1,000,000.00) Dollars, and shall mature
on the Conversion Date, at which time the entire outstanding principal balance
and all interest thereon shall be due and payable. The Revolving Credit Note
shall be entitled to the benefits and subject to the provisions of this
Agreement.
At the time of the making of each Revolving Credit Loan and at the time of
each payment of principal thereon, if any, the holder of the Revolving Credit
Note is hereby authorized by the Borrower to make a notation on the schedule
annexed to the Revolving Credit Note of the date and amount, and the type and
Interest Period of the Revolving Credit Loan or payment, as the case may be.
Failure to make a notation with respect to any Revolving Credit Loan shall not
limit or otherwise affect the obligation of the Borrower hereunder or under
the Revolving Credit Note with respect to such Revolving Credit Loan, and any
payment of principal on the Revolving Credit Note by the Borrower shall not be
affected by the failure to make a notation thereof on said schedule.
SECTION 2.04. CONVERSION AND CONTINUATION OF LOANS. The Borrower shall have
--------------------------------------
the right, at any time, on three (3) Business Days' prior irrevocable written
notice to the Bank (which notice, to be effective, must be received by the
Bank not later than 11:00 a.m., New York City time, on the third (3rd)
Business Day preceding the date of any continuation or conversion (i) to
continue any Fixed Rate Loan or portion thereof into a subsequent Interest
Period (subject to availability) or (ii) to convert a Prime Rate Loan into a
Fixed Rate Loan (subject to availability), subject to the following:
(a) no Event of Default shall have occurred and be continuing at the time
of any proposed conversion or continuation;
(b) in the case of a continuation or conversion of fewer than all Loans,
the aggregate principal amount of each Fixed Rate Loan continued or converted
shall be in the minimum amount of $100,000 and in minimum multiples of
$100,000;
(c) each continuation or conversion shall be effected by the Bank applying
the proceeds of the new Loan to the Loan (or portion thereof) being continued
or converted;
(d) if the new Loan made as a result of a continuation or conversion shall
be a Fixed Rate Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;
(e) each request for a Eurodollar Loan which shall fail to state an
applicable Interest Period shall be deemed to be a request for an Interest
Period of one month; and
(f) in the event that the Borrower shall not give notice to continue a
Fixed Rate Loan as provided above, such Loan shall automatically be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.
SECTION 2.05. CONVERSION DATE: MAKING OF CONVERTED TERM LOAN.
-----------------------------------------------------
(a) The Borrower shall be obligated to pay to the Bank on the Conversion
Date the then outstanding principal amount of the Revolving Credit Loans and
all accrued but unpaid interest thereon. The Bank agrees, upon the terms and
subject to the conditions hereof including, without limitation, the conditions
of Section 3.03 hereof, and provided that no Default or Event of Default shall
have occurred and be continuing, to make a converted term loan (the "Converted
Term Loan") to the Borrower, on the Conversion Date in an amount equal to the
lesser of the Commitment or the aggregate principal amount of Revolving Credit
Loans then outstanding under the Revolving Credit Note.
(b) The Bank shall make the Converted Term Loan by crediting the amount
thereof towards the repayment of the principal amount of Revolving Credit
Loans outstanding under the Revolving Credit Note.
(c) The Converted Term Loan shall bear interest, at the Borrower's option,
at a rate per annum equal to an interest rate based upon the Eurodollar Rate
or upon the Prime Rate, in each case, as set forth in Section 2.08 hereof.
SECTION 2.06. CONVERTED TERM LOAN NOTE. The Converted Term Loan shall be
----------------------------
evidenced by the Converted Term Loan Note of the Borrower. The Converted Term
Loan Note shall be dated the Conversion Date and shall mature on the Converted
Term Loan Maturity Date at which time the entire outstanding principal balance
and all interest thereon shall be due and payable. The Converted Term Loan
Note shall be entitled to the benefits and subject to the provisions of this
Agreement.
SECTION 2.07. REPAYMENT OF CONVERTED TERM LOAN NOTE. The principal balance of
--------------------------------------
the Converted Term Loan Note together with interest at the applicable interest
rate(s) shall be payable in thirty-six (36) monthly installments, due on the
first Business Day of each month beginning on the first such day after the
Conversion Date, and continuing on the first Business Day of each calendar
month thereafter, each such installment being in an amount equal to 1/36th of
the principal amount of the Converted Term Loan.
SECTION 2.08. PAYMENT OF INTEREST.
----------------------
(a) In the case of a Prime Rate Loan, interest shall be payable at a rate
per annum (computed on the basis of the actual number of days elapsed over a
year of 360 days) equal to 3/4% in excess of the Prime Rate (which interest
rate shall change when and as the Prime Rate changes). Such interest shall be
payable on each Interest Payment Date, commencing with the first Interest
Payment Date after the date of such Prime Rate Loan. Any change in the rate of
interest on a Note due to a change in the Prime Rate shall take effect as of
the date of such change in the Prime Rate.
(b) In the case of a Eurodollar Loan, interest shall be payable at a rate
per annum (computed on the basis of the actual number of days elapsed over a
year of 360 days) equal to the Adjusted LIBOR Rate plus three and one half of
one (3 1/2%) percent. Interest shall be payable on each Interest Payment Date,
commencing with the first Interest Payment Date after the date of such
Eurodollar Loan and on each Interest Determination Date. The Bank shall
determine the rate of interest applicable to each requested Eurodollar Loan
for each Interest Period at 11:00 a.m., New York City time, or as soon as
practicable thereafter, three (3) Business Days prior to the commencement of
such Interest Period and shall notify the Borrower of the rate of interest so
determined. Such determination shall be conclusive absent manifest error.
SECTION 2.09. USE OF PROCEEDS. The proceeds of the Revolving Credit Loans
------------------
shall be used by the Borrower to finance not more than 80% of the purchase
price of Eligible Equipment covered by invoices delivered to the Bank prior to
the making of a Revolving Credit Loan, all pursuant to Section 2.01 hereof.
The proceeds of the Converted Term Loan shall be used by the Borrower
exclusively to satisfy existing obligations to the Bank under the Revolving
Credit Note. No part of the proceeds of any Loan may be used for any purpose
that directly or indirectly violates or is inconsistent with, the provisions
of Regulations G, T, U or X.
SECTION 2.10. COMMITMENT FEE; DEFAULT FEE. The Borrower agrees to pay to the
----------------------------
Bank from the date of this Agreement through and including the Conversion Date
on the first Business Day of each month a commitment fee computed at the rate
of one eighth of one (1/8%) percent per annum (computed on the basis of the
actual number of days elapsed over 360 days) on the average daily unused
amount of the Commitment, such commitment fee being payable for the calendar
month, or part thereof, preceding the payment date. Additionally, upon the
occurrence of any Event of Default hereunder, the Borrower shall pay the Bank
$1,000.00 per each such occurrence, irrespective of a decision by the Bank to
waive, or refrain from waiving, such Event of Default.
SECTION 2.11. REDUCTION OF COMMITMENT. Upon at least three (3) Business Days'
------------------------
prior written notice, the Borrower may irrevocably elect to have the unused
Commitment terminated in whole or reduced in part provided, however, that any
such partial reduction shall be in a minimum amount of One Hundred Thousand
($100,000.00) Dollars, or whole multiples thereof. The Commitment, once
terminated or reduced, shall not be reinstated without the express written
approval of the Bank.
SECTION 2.12. PREPAYMENT.
-----------
(a) The Borrower shall have the right at any time and from time to time to
prepay any Prime Rate Loan, in whole or in part, without premium or penalty on
the same day on which telephonic notice is given to the Bank (immediately
confirmed in writing) of such prepayment provided, however, that each such
prepayment shall be on a Business Day and shall be in an aggregate principal
amount which is an integral multiple of $100,000.
(b) The Borrower shall have the right at any time and from time to time,
subject to the indemnity and reimbursement provisions hereof, to prepay any
Eurodollar Loan, in whole or in part, on three (3) Business Days prior
irrevocable written notice to the Bank, provided, however, that such
prepayment may only be made on an Interest Determination Date.
(c) The Borrower shall have the right at any time and from time to time,
subject to the indemnity and reimbursement provisions hereof, to prepay the
Converted Term Loan, in whole or in part upon at least three (3) Business Days
prior irrevocable written notice to the Bank; provided, however, that each
such prepayment shall be on a Business Day and shall be in an aggregate
principal amount which is an integral multiple of $100,000.
(d) The notice of prepayment shall set forth the prepayment date and the
principal amount of the Loan being prepaid and shall be irrevocable and shall
commit the Borrower to prepay such Loan by the amount and on the date stated
therein. All prepayments shall be accompanied by accrued interest on the
principal amount being prepaid to the date of prepayment. Each prepayment
shall be applied first towards unpaid interest on the amount being prepaid and
then towards the principal in whole or partial prepayment of Loans by the
Borrower. In the absence of such specification, amounts being prepaid in
respect of Revolving Credit Loans shall be applied first to any Prime Rate
Loan then outstanding. Eurodollar Loans may be prepaid only in accordance with
the provisions of paragraph (b) above. In the case of the Converted Term Loan,
all partial prepayments shall be applied to installments of principal of the
Converted Term Loan in the inverse order of maturity.
SECTION 2.13. REIMBURSEMENT BY BORROWER.
----------------------------
(a) The Borrower shall reimburse the Bank upon the Bank's demand for any
loss incurred or to be incurred by it in the reemployment of the funds
released by any prepayment or conversion of a Fixed Rate Loan required or
permitted by this Agreement, if such Fixed Rate Loan is prepaid or converted
(whether voluntarily or by acceleration) other than on the last day of the
Interest Period for such Fixed Rate Loan, or if the Borrower fails to borrow
(or is not able to borrow because of an Event of Default or for any other
reason hereunder) after having given the Bank notice of such borrowing. Such
loss shall be the product of (i) the difference as determined by the Bank
between (x) the rate of interest applicable to such Fixed Rate Loan being
prepaid for the remainder of the Interest Period and (y) the rate of interest
payable on United States Treasury obligations in an amount and with a maturity
similar to such Fixed Rate Loan times (ii) the aggregate amount of principal
so prepaid or converted times (iii) the number of days remaining in the
applicable Interest Period divided by 360.
(b) The Borrower shall reimburse the Bank upon the Bank's demand for any
loss, cost or expense incurred or to be incurred by it (in the Bank's
determination) as a result of any prepayment or conversion (whether
voluntarily or by acceleration) of any Eurodollar Loan other than on the last
day of the Interest Period for such Loan, or if the Borrower fails to borrow
the Eurodollar Loan (or is not able to borrow because of an Event of Default
or for any other reason hereunder) after having given the Bank irrevocable
notice of such borrowing. Such reimbursement shall include, but not be limited
to, any loss, cost or expense incurred by the Bank in obtaining, liquidating
or redeploying any funds used or to be used in making or maintaining the
Eurodollar Loan.
SECTION 2.14. STATUTORY RESERVES. It is understood that the cost to the Bank
-------------------
of making or maintaining Eurodollar Loans may fluctuate as a result of the
applicability of, or change in, Statutory Reserves. The Borrower agrees to pay
to the Bank from time to time, such amounts as shall be necessary to
compensate the Bank for the portion of the cost of making or maintaining any
Eurodollar Loans made by it resulting from any such Statutory Reserves, or
change therein, it being understood that the rates of interest applicable to
Eurodollar Loans hereunder have been determine don the basis of Statutory
Reserves in effect at the time of determination of the Adjusted LIBOR Rate and
that such rates do not reflect costs imposed on the Bank in connection with
any change to such Statutory Reserves. It is agreed that for purposes of this
paragraph the Eurodollar Loans made hereunder shall be deemed to constitute
Eurocurrency Liabilities as defined in Regulation D and to be subject to the
reserve requirements of Regulation D without benefit or credit of proration,
exemptions or offsets which might otherwise be available to the Bank from time
to time under Regulation D.
SECTION 2.15. INCREASED COSTS. If, after the date of this Agreement, the
-----------------
adoption of, or any change in, any applicable law, regulation, rule or
directive, or any interpretation thereof by any authority charged with the
administration or interpretation thereof:
(a) subjects the Bank to any tax with respect to its Commitment, the Notes
or on any amount paid or to be paid under or pursuant to this Agreement or the
Notes (other than any tax measured by or based upon the overall net income of
the Bank);
(b) changes the basis of taxation of payments to the Bank of any amounts
payable hereunder (other than any tax measured by or based upon the overall
net income to the Bank);
(c) imposes, modifies or deems applicable any reserve, capital adequacy or
deposit requirements against any assets held by, deposits with or for the
account of, or loans made by, the Bank; or
(d) imposes on the Bank any other condition affecting its Commitment, the
Notes or this Agreement; and the result of any of the foregoing is to increase
the cost to the Bank of maintaining this Agreement or the Commitment or making
the Loans, or to reduce the amount of any payment (whether of principal,
interest or otherwise) receivable by the Bank or to require the Bank to make
any payment on or calculated reference to the gross amount of any sum received
by it, in each case by an amount which the Bank in its sole judgment deems
material, then and in any such case:
(i) the Bank shall promptly advise the Borrower of such event, together
with the date thereof, the amount of such increased cost or reduction or
payment and the way in which such amount has been calculated; and
(ii) the Borrower shall pay to the Bank, within ten (10) days after the
advice referred to in subsection (a) hereinabove, such an amount or amounts as
will compensate the Bank for such additional cost, reduction or payment for so
long as the same shall remain in effect.
The determination of the Bank as to additional amounts payable shall be
conclusive evidence of such amounts absent manifest error.
SECTION 2.16. CAPITAL ADEQUACY. If the Bank shall have determined that the
------------------
applicability of any law, rule, regulation or guideline, or the adoption after
the date hereof of any other law, rule, regulation or guideline regarding
capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any governmental
authority, central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by the Bank (or any lending office of
the Bank) or the Bank's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the Bank's capital or on the capital
of the Bank's holding company, if any, as a consequence of its obligations
hereunder to a level below that which the Bank or the Bank's holding company
could have achieved but for such adoption, change or compliance (taking into
consideration to the Bank's policies and the policies of the Bank's holding
company with respect to capital adequacy) by an amount deemed by the Bank to
be material, then from time to time the Borrower shall pay to the Bank such
additional amount or amounts as will compensate the Bank or the Bank's holding
company for any such reduction suffered.
SECTION 2.17. CHANGE IN LEGALITY.
---------------------
(a) Notwithstanding anything to the contrary contained elsewhere in this
Agreement, if any change after the date hereof in law, rule, regulation,
guideline or order, or in the interpretation thereof by any governmental
authority charged with the administration thereof, shall make it unlawful for
the Bank to make or maintained any Fixed Rate Loan or to give effect to its
obligations as contemplated hereby with respect to a Fixed Rate Loan, then, by
written notice to the Borrower, the Bank may:
(1) declare that Fixed Rate Loans will not thereafter be made hereunder,
whereupon the Borrower shall be prohibited from requesting such Fixed Rate
Loans hereunder unless such declaration is subsequently withdrawn; and
(2)require that, subject to the provisions hereof, all outstanding Fixed
Rate Loans made by it be converted to a Prime Rate Loan, whereupon all of such
Fixed Rate Loans shall be automatically converted to a Prime Rate Loan as of
effective date of such notice as provided in paragraph (b) below.
(b) For purposes hereof, a notice to the Borrower by the Bank pursuant to
paragraph (a) above shall be effective, for the purposes of paragraph (a)
above, if lawful, and if any Fixed Rate Loans shall then be outstanding, on
the last day of the then current Interest Period; otherwise, such notice shall
be effective on the date of receipt by the Borrower.
SECTION 2.18. INDEMNITY. The Borrower will indemnify the Bank against any loss
----------
or expense which the Bank may sustain or incur as a consequence of any default
in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, by notice of prepayment or otherwise), or the occurrence of any
Event of Default, including but not limited to any loss or expense sustained
or incurred in liquidating or employing deposits from third parties acquired
to affect or maintain such Loan or any part thereof. The Bank shall provide to
the Borrower a statement, signed by an officer of the Bank, explaining the
amount of any such loss or expense (including the calculation of such amount),
which statement shall, in the absence of manifest error, be conclusive with
respect to the parties hereto.
SECTION 2.19. CHANGE IN LIBOR; AVAILABILITY OF RATES. In the event, and on
-----------------------------------------
each occasion, that, on the day the interest rate for any Fixed Rate Loan is
to be determined, for (i) a requested Eurodollar Loan, the Bank shall have
determined (which determination, absent manifest error, shall be conclusive
and binding upon the Borrower) that dollar deposits in the amount of the
principal amount of the requested Eurodollar Loan are not generally available
in the London Interbank Market, or that the rate at which such dollar deposits
are being offered will not adequately and fairly reflect the cost to the Bank
of making or maintaining the principal amount of such Eurodollar Loan during
such Interest Period, such Eurodollar Loan shall be unavailable, or (ii) the
Converted Term Loan, the Bank shall have determined (which determination,
absent manifest error, shall be conclusive and binding upon the Borrower) that
reasonable means do not exist for ascertaining the rate of interest to be
applied to such Converted Term Loan, Loans based on such rate (or rates) shall
be unavailable. The Bank shall, as soon as practicable thereafter, give
written, telex or telephonic notice of such determination of unavailability to
the Borrower. Any request by the Borrower for an unavailable Fixed Rate Loan
shall be deemed to have been a request for a Prime Rate Loan. After such
notice shall have been given and until the Bank shall have notified the
Borrower that the circumstances giving rise to such notice no longer exist,
each subsequent request for an unavailable Fixed Rate Loan shall be deemed to
be a request for a Prime Rate Loan.
SECTION 2.20. AUTHORIZATION TO DEBIT BORROWER'S ACCOUNT. The Bank is hereby
-------------------------------------------
authorized to debit the Borrower's account maintained with the Bank for all
scheduled payments of principal and/or interest under the Notes and the
commitment fee to be paid periodically pursuant to the terms and conditions
hereof.
SECTION 2.21. LATE CHARGES, DEFAULT INTEREST.
----------------------------------
(a) If the Borrower shall default in the payment of any principal
installment of or interest on any Loan or any other amount becoming due
hereunder, the Borrower shall pay interest, to the extent permitted by law, on
such defaulted amount up to the date of actual payment (after as well as
before judgment) at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to two (2%) percent in
excess of the interest rate otherwise in effect with respect to the type of
Loan in connection with which the required payments have not been made.
(b) Upon the occurrence and during the continuation of an Event of
Default, the Borrower shall pay interest on all amounts owing under the Notes
and this Agreement (after as well as before judgment) at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of 360
days) equal to two (2%) percent in excess of the interest rate otherwise in
effect hereunder.
SECTION 2.22. PAYMENTS.All payments by the Borrower hereunder or under the
---------
Notes shall be made in U.S. dollars in immediately available funds at the
office of the Bank by 12:00 noon, New York City time on the date on which such
payment shall be due. Interest on the Notes shall accrue from and including
the date of each Loan to but excluding the date on which such Loan is paid in
full or refinanced with a Loan of a different type.
SECTION 2.23. INTEREST ADJUSTMENTS.
----------------------
(a) If the provisions of this Agreement or the Notes would at any time
otherwise require payment by the Borrower to the Bank of any amount of
interest in excess of the maximum amount then permitted by applicable law the
interest payments shall be reduced to the extent necessary so that the Bank
shall not receive interest in excess of such maximum amount. To the extent
that, pursuant to the foregoing sentence, the Bank shall receive interest
payments hereunder or under the Notes in an amount less than the amount
otherwise provided, such deficit (hereinafter called the "Interest Deficit")
will cumulate and will be carried forward (without interest) until the
termination of this Agreement. Interest otherwise payable to the Bank
hereunder and under the
(b) Notes for any subsequent period shall be increased by such maximum
amount of the Interest Deficit that may be so added without causing the Bank
to receive interest in excess of the maximum amount then permitted by
applicable law.
(c) The amount of the Interest Deficit shall be treated as a prepayment
penalty and paid in full at the time of any optional prepayment by the
Borrower to the Bank of all outstanding Loans. The amount of the Interest
Deficit relating to the Notes at the time of any complete payment of the Notes
at that time outstanding (other than an optional prepayment thereof) shall be
cancelled and not paid.
SECTION 2.24. PARTICIPATIONS, ETC. The Bank shall have the right at any time,
--------------------
with or without notice to the Borrower, to sell, assign, transfer or negotiate
all or any part of the Revolving Credit Note or the Converted Term Loan Note
or the Commitment or grant participations therein to one or more banks
(foreign or domestic, including an affiliate of the Bank), insurance companies
or other financial institutions, pension funds or mutual funds. The Borrower
agrees and consents to the Bank providing financial and other information
regarding its business and operations to prospective purchasers or
participants and further agree that to the extent that the Bank should sell,
assign, transfer or negotiate all or any part of the Notes or the Commitment,
the Bank shall be forever released and discharged from its obligations under
the Notes, the Commitment and this Agreement to the extent same is sold,
assigned, transferred or negotiated.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITION PRECEDENT TO THE MAKING OF THE INITIAL REVOLVING
--------------------------------------------------------------
CREDIT LOAN. The obligation of the Bank to make the initial Revolving Credit
--------
Loan contemplated by this Agreement is subject to the condition precedent that
the Bank shall have received from the Borrower on or before the date of this
Agreement the following, each dated such day, in form and substance
satisfactory to the Bank and its counsel:
(a) The Revolving Credit Note duly executed and payable to the order of
the Bank and receipt of the Bank of an origination fee in the amount of
$5,000.00.
(b) Certified (as of the date of this Agreement) copies of the resolutions
of the Board of Directors of the Borrower authorizing the Loans and
authorizing and approving this Agreement and the other Loan Documents and the
execution, delivery and performance thereof and certified copies of all
documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement and the other Loan
Documents.
(c) A certificate of the Secretary or an Assistant Secretary (attested to
by another officer) of the Borrower certifying: (i) the names and true
signatures of the officer or officers of the Borrower authorized to sign this
Agreement, the Revolving Credit Note, the Converted Term Loan Note and other
Loan Documents to be delivered hereunder on behalf of the Borrower; and (ii) a
copy of the Borrower's by-laws as complete and correct on the date of this
Agreement.
(d) Copies of the certificate of incorporation and all amendments thereto
of the Borrower certified by the Secretary of State (or equivalent officer) of
the state of incorporation of the Borrower and a certificate of existence and
good standing with respect to the Borrower from the Secretary of State (or
equivalent officer) of any state in which the Borrower is authorized to do
business.
(e) An opinion of Oscar Folger, Esq., counsel for the Borrower as to
certain matters referred to in Article IV hereof and as to such other matters
as the Bank or its counsel may reasonably request.
(f) From the Borrower, an executed Security Agreement giving to the Bank a
first priority perfected security interest in the Eligible Equipment to which
the initial Revolving Credit Loan relates and a first priority security
interest in all other assets of the Borrower including, but not limited to,
all personal property, equipment, fixtures, inventory, accounts, chattel paper
and general intangibles all whether now owned or hereafter acquired (the
"Collateral"); provided, however, that the Bank's first priority position in
the Collateral shall not relate to the assets of the Borrower more fully
described on Schedule 5.02 (a) annexed hereto under the heading: "Existing
Liens" until the obligations underlying such existing liens on such assets
(hereinafter, the "Existing Liens") are satisfied.
(g) From the Borrower, (i) a lien search (effective the date of the
initial Revolving Credit Loan) conducted in (A) the offices of the New York
Secretary of State and the Secretary of State of each of California, New
Jersey and Maryland and (B) the Clerk of Kings County, New York and the clerk
of each county within the States of California, New Jersey and Maryland within
which Eligible Equipment to be financed with proceeds of Loans will be
located, in each case demonstrating that no Liens exist against the Borrower
except for Existing Liens; (ii) the invoices required pursuant to Section 2.01
hereof in respect of the Eligible Equipment to which the initial Revolving
Credit Loan relates; and (iii) UCC-1 filings perfecting the Bank's first
priority security interest in the Collateral including, without limitation,
Bank's first priority security interest in such Eligible Equipment.
(h) Receipt and review by the Bank to its satisfaction of (A) a property
damage insurance policy for the for the Collateral, in the amount of the
greater of (1) the replacement value of the Collateral or (2) the principal
amount outstanding under the Loans, naming the Bank as loss payee with an
insurance company acceptable to the Bank. The policies shall provide for
thirty (30) days prior notice to the Bank of cancellation or change.
(i) The Bank shall have received documentation in form and substance
satisfactory to the Bank in its sole discretion (collectively, the "Swap
Documentation"), fully executed by the Borrower, providing for one or more
interest rate swap transactions.
(j) The following statements shall be true and the Bank shall have
received a certificate signed by the President or Chief Financial Officer of
the Borrower dated the date hereof, stating that:
(1) The representations and warranties contained in Section 2.01 and
Article IV of this Agreement are true and correct on and as of such date; and
(2) No Default or Event of Default has occurred and is continuing, or
would result from the making of the initial Revolving Credit Loan.
(k) All legal matters incident to this Agreement and the Loan transactions
contemplated hereby shall be satisfactory to Cullen and Dykman, counsel to the
Bank.
(l) The Bank's counsel shall have been paid their fees and disbursements
relating to this Agreement, the Loan Documents and the transactions
contemplated hereby and thereby.
(m) Receipt by the Bank of such other approvals, opinions or documents as
the Bank or its counsel may reasonably request.
SECTION 3.02. CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT LOANS. The
---------------------------------------------------------
obligations of the Bank to make each Revolving Credit Loan (including the
initial Revolving Credit Loan) shall be subject to the further condition
precedent that on the date of such Revolving Credit Loan:
The following statements shall be true and the Bank shall have received a
certificate signed by the President or the Chief Financial Officer of the
Borrower dated the date of such Revolving Credit Loan, stating that:
(a) The representations and warranties contained in Section 2.01 and
Article IV of this Agreement are true and correct on and as of such date as
though made on and as of such date; and
(b) No Default or Event of Default has occurred and is continuing, or
would result from such Revolving Credit Loan.
The Borrower shall have compiled with each of the terms and conditions of
Section 2.01 relating to the Collateral for such Revolving Credit Loan
including, without limitation, the delivery of an amendment to the Security
Agreement and UCC-3 amendment statements, in each case, referring to, and
describing in sufficient detail, such Collateral and providing invoices
relating thereto, and the Borrower shall have demonstrated to the Bank's
satisfaction that such Collateral meets the criteria of Eligible Equipment and
that, after giving effect to the making of such Revolving Credit Loan, the
Bank will have a first priority security interest in the Collateral located
within the United States.
The Bank shall have received such other approvals, opinions or documents
as the Bank may reasonably request.
SECTION 3.03. CONDITIONS PRECEDENT TO THE CONVERTED TERM LOAN. The obligation
------------------------------------------------
of the Bank to make the Converted Term Loan shall be subject to the condition
precedent that the Bank shall have received on or before the Conversion Date
all of the documents required by Sections 3.01 and 3.02 and each of the
following, in form and substance satisfactory to the Bank and its counsel:
The Converted Term Loan Note duly executed by the Borrower:
An opinion of Oscar Folger, Esq., counsel for the Borrower, dated the
Conversion Date, as to such matters as the Bank or its counsel may reasonably
request;
Officer's Certificate, Etc. The following statements shall be true and
----------------------------
the Bank shall have received a certificate signed by the President or the
Chief Financial Officer of the Borrower dated the Conversion Date stating
that:
(a) The representations and warranties contained in Section 2.01 and
Article IV of this Agreement are true and correct on and as of the Conversion
Date as though made on and as of such date; and
(b) No Default or Event of Default has occurred and is continuing, or
would result from the making of the Converted Term Loan.
Additional Documentation. The Bank shall have received such other
-------------------------
approvals, opinions, or documents as the Bank or its counsel may reasonably
--
request.
ARTICLE IV
REPRESENTATION AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES. On the date hereof, on each date
that the Borrower requests a Revolving Credit Loan and on the Conversion Date
the Borrower represents and warrants as follows:
(a) On the date hereof, the only Subsidiaries of the Borrower are those
set forth on Schedule 4.01(a) annexed hereto, which Schedule accurately sets
forth with respect to each such Subsidiary, its name and address, any other
addresses at which it conducts business, its state of incorporation and each
other jurisdiction in which it is qualified to do business and the identity
and share holdings of its stockholders. Except as set forth on Schedule
4.01(a), all of the issued and outstanding shares of each Subsidiary which are
owned by the Borrower are owned by the Borrower free and clear of any
mortgage, pledge, lien or encumbrance. Except as set forth on Schedule
4.01(a), there are not outstanding any warrants, options, contracts or
commitments of any kind entitling any Person to purchase or otherwise acquire
any shares of common or capital stock or other equity interest of the Borrower
or any Subsidiary of the Borrower, nor are there outstanding any securities
which are convertible into or exchangeable for any shares of the common or
capital stock of the Borrower or any Subsidiary of the Borrower.
(b) The Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has
the corporate power to own its assets and to transact the business in which it
is presently engaged and is duly qualified and is in good standing in all
other jurisdictions where the character or nature of its business requires
such qualification.
(c) The execution, delivery and performance by the Borrower of the Loan
Documents to which it is a party are within the Borrower's corporate power and
have been duly authorized by all necessary corporate action and do not and
will not (i) require any consent or approval of the stockholders of the
Borrower; (ii) do not contravene the Borrower's certificate of incorporation,
charter or by-laws; (iii) violate any provision of any law, rule, regulation,
contractual restriction, order, writ, judgment, injunction, or decree,
determination or award binding on or affecting the Borrower; (iv) result in a
breach of or constitute a default under any indenture or loan or credit
agreement, or any other agreement, lease or instrument to which the Borrower
is a party or by which it or its properties may be bound or affected; or (v)
result in, or require, the creation or imposition of any Lien (other than the
Existing Liens and the Lien of the Loan Documents) upon or with respect to any
of the properties now owned or hereafter acquired by the Borrower.
(d) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Borrower of any Loan Document
to which it is a party, except authorizations, approvals, actions, notices or
filings which have been obtained, taken or made, as the case may be.
(e) The Loan Documents when delivered hereunder will have been duly
executed and delivered on behalf of the Borrower and will be legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
(f) The consolidated financial statements of the Borrower and its
Consolidated Affiliates for the fiscal year ended December 31, 1995 and the
three fiscal quarterly periods ended September 30, 1996, copies of which have
been furnished to the Bank, fairly present the financial condition of the
Borrower and its Consolidated Affiliates as at such date and the results of
operations of the Borrower and its Consolidated Affiliates for the period
ended on such date, all in accordance with GAAP, and since such date there has
been (i) no material increase in the liabilities of the Borrower and its
Consolidated Affiliates and (ii) no Material Adverse Change in the Borrower
and its Consolidated Affiliates.
(g) There is no pending or threatened action, proceeding or investigation
affecting the Borrower or any Subsidiary of the Borrower before any court,
governmental agency or arbitrator, which may either in one case or in the
aggregate, result in a Material Adverse Change in the Borrower or any such
Subsidiary.
(h) The Borrower has filed all federal, state and local tax returns
required to be filed and have paid all taxes, assessments and governmental
charges and levies thereon to be due, including interest and penalties. The
federal income tax liability of the Borrower has been determined and satisfied
for all taxable years up to and including the taxable year ending December 31,
1995.
(i) The Borrower and each Subsidiary of the Borrower possess all licenses,
permits, franchises, patents, copyrights, trademarks and trade names, or
rights thereto, to conduct their respective businesses substantially as now
conducted and as presently proposed to be conducted, and neither the Borrower
nor any such Subsidiary is in violation of any similar rights of others.
(j) Neither the Borrower nor any Subsidiary of the Borrower is a party to
any indenture, loan or credit agreement or any other agreement, lease or
instrument or subject to any charter or corporate restriction which could
result in a Material Adverse Change in the Borrower or any such Subsidiary.
(k) The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation G, T, U or X), and no proceeds of any Loan will be used to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or in any other way which will cause
the Borrower to violate the provisions of Regulations G, T, U, or X.
(l) No proceeds of any Loan will be used to acquire any security in any
transaction which is subject to Section 13 or 14 of the Securities Exchange
Act of 1934.
(m) The Borrower and each Subsidiary of the Borrower are in all material
respects in compliance with all federal and state laws and regulations in all
jurisdictions where the failure to comply with such laws or regulations could
result in a Material Adverse Change in the Borrower or any such Subsidiary.
(n) The Borrower, each Subsidiary of the Borrower and each ERISA Affiliate
are in compliance in all material respects with all applicable provisions of
ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred
and is continuing with respect to any Plan; no notice of intent to terminate a
Plan has been filed nor has any Plan been terminated; no circumstances exist
which constitute grounds under Section 4042 of ERISA entitling the PBGC to
institute proceedings to terminate, or appoint a trustee to administrate, a
Plan, nor has the PBGC instituted any such proceedings; neither the Borrower,
any Subsidiary of the Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer
Plan; the Borrower, each Subsidiary of the Borrower and each ERISA Affiliate
have met their minimum funding requirements under ERISA with respect to all of
their Plans and the present fair market value of all Plan assets exceeds the
present value of all vested benefits under each Plan, as determined on the
most recent valuation date of the Plan in accordance with the provisions of
ERISA for calculating the potential liability of the Borrower, any such
Subsidiary or any ERISA Affiliate to PBGC or the Plan under Title IV of ERISA;
and neither the Borrower, any such Subsidiary nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA.
(o) The Borrower and each Subsidiary of the Borrower are in compliance
with all federal, state or local laws, ordinances, rules, regulations or
policies governing Hazardous Materials and neither the Borrower nor any such
Subsidiary has used Hazardous Materials on, from, or affecting any property
now owned or occupied or hereafter owned or occupied by the Borrower or any
such Subsidiary in any manner which violates federal, state or local laws,
ordinances, rules, regulations or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials, and that to the best of the Borrower's and
such Subsidiaries' knowledge, no prior owner of any such property or any
tenant, subtenant, prior tenant or prior subtenant have used Hazardous
Materials on, from or affecting such property in any manner which violates
federal, state or local laws, ordinances, rules, regulations, or policies
governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of Hazardous Materials.
(p) The proceeds of the Revolving Credit Loans and the Converted Term Loan
shall be used exclusively for the purposes set forth herein.
(q) The properties and assets of the Borrower are not subject to any Lien
other than the Existing Liens and the Liens under the Loan Documents.
(r) Neither the business nor the properties of the Borrower or any
Subsidiary of the Borrower are affected by any fire, explosion, accident,
strike, hail, earthquake, embargo, act of God or of the public enemy, or other
casualty (whether or not covered by insurance), which could result in a
Material Adverse Change in the Borrower or any such Subsidiary.
(s) The Lien on the Collateral created by the Security Agreement
constitutes a valid first priority perfected security interest in favor of the
Bank, except for that portion of the Collateral to which the Existing Liens
relate. Each Lien on Eligible Equipment created by the Security Agreement
constitutes, or will constitute, as the case may be, a first priority security
interest in favor of the Bank.
(t) Schedule 4.01(x) is a complete and correct list of all credit
agreements, indentures, purchase agreements, guaranties, Capital Leases, and
other investments, agreements and arrangements presently in effect providing
for or relating to extensions of credit (including agreements and arrangements
for the issuance of letters of credit or for acceptance financing) in respect
of which the Borrower is in any manner directly or contingently obligated, and
the maximum principal or face amounts of the credit in question, outstanding
or to be outstanding, are correctly stated, and all Liens of any nature given
or agreed to be given as security therefor are correctly described or
indicated in such Schedule.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any amount shall remain
-----------------------
outstanding under the Revolving Credit Note or the Converted Term Loan Note,
or so long as the Commitment shall remain in effect, the-Borrower will, unless
the Bank shall otherwise consent in writing:
Compliance with Laws, Etc. Comply, and cause each Subsidiary of the
-----------------------------
Borrower to comply, in all material respects with all applicable laws, rules,
regulations and orders, where the failure to so comply could result in a
Material Adverse Change in the Borrower or any such Subsidiary.
Reporting Requirements. Furnish to the Bank:
------------------------
(a) Annual Financial Statements. As soon as available and in any event
----------------------------
within ninety (90) days after the end of each fiscal year of the Borrower (1)
a copy of the audited consolidated financial statements of the Borrower and
its Consolidated Affiliates for such year, including balance sheets with
related statements of income and retained earnings and statements of cash
flows, all in reasonable detail and setting forth in comparative form the
figures for the previous fiscal year, together with an unqualified opinion,
prepared by independent certified public accountants selected by the Borrower
and satisfactory to the Bank, all such financial statements to be prepared in
accordance with GAAP; and (2) annual projections relating to the Borrower and
its Consolidated Affiliates on a consolidated basis covering the then current
fiscal year together with the next succeeding fiscal year thereafter.
(b) Quarterly Financial Statements. As soon as available and in any event
-------------------------------
within forty five (45) days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, a copy of the consolidated
financial statements of the Borrower and its Consolidated Affiliates for such
quarter, including a balance sheet with related statements of income and
retained earnings and a statement of cash flows, all in reasonable detail and
setting forth in comparative from the figures for the comparable quarter for
the previous fiscal year, prepared by the Borrower and satisfactory to Bank,
all such financial statements to be prepared in accordance with GAAP. The
Borrower and the Bank acknowledge that delivery to the Bank of the Borrower's
10Q statement as delivered to the Securities and Exchange Commission (together
with all amendments thereto, if applicable) shall satisfy Borrower's
obligations under this Section 5.01(b) (ii) to the extent such 10Q statement
contains the financial statements referred to in this Section 5.01(b) (ii).
(c) Management Letters. Promptly upon receipt thereof, copies of any
--------------------
reports submitted to the Borrower by independent certified public accountants
in connection with examination of the financial statements of the Borrower
made by such accountants;
(d) Certificate of No Default. Simultaneously with the delivery of the
--------------------------
financial statements referred to in Section 5.01(b) (i) and (ii), a
certificate of the President or the Chief Financial Officer of the Borrower
(1) certifying that no Default or Event of Default has occurred and is
continuing, or if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto; and (2) with computations
demonstrating compliance with the covenants contained in Section 5.03.
(e) Notice of Litigation. Promptly after the commencement thereof, notice
---------------------
of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, affecting the Borrower or any Subsidiary of the Borrower which, if
determined adversely to the Borrower or any such Subsidiary could result in a
Material Adverse Change in the Borrower or any such Subsidiary.
(f) Notice of Defaults and Events of Default. As soon as possible and in
-----------------------------------------
any event within five (5) days after the occurrence of each Default or Event
of Default, a written notice setting forth the details of such Default or
Event of Default and the action which is proposed to be taken by the Borrower
with respect thereto.
(g) ERISA Reports. Promptly after the filing or receiving thereof, copies
--------------
of all reports, including annual reports, and notices which the Borrower or
any Subsidiary of the Borrower files with or receives from the PBGC or the
U.S. Department of Labor under ERISA; and as soon as possible after the
Borrower or any such Subsidiary knows or has reason to know that any
Reportable Event or Prohibited Transaction has occurred with respect to any
Plan or that the PBGC or the Borrower or any such Subsidiary has instituted or
will institute proceedings under Title IV or ERISA to terminate any plan, the
Borrower will deliver to the Bank a certificate of the President or the Chief
Financial Officer of the Borrower setting forth details as to such Reportable
Event or Prohibited Transaction or Plan termination and the action the
Borrower proposes to take with respect thereto.
(h) Reports to Other Creditors. Promptly after the furnishing thereof,
---------------------------
copies of any statement or report furnished to any other party pursuant to the
terms of any indenture, loan, or credit or similar agreement and not otherwise
required to be furnished to the Bank pursuant to any other clause of this
Section 5.01(b).
(i) Proxy Statements, Etc. Promptly after the sending or filing thereof,
----------------------
copies of all proxy statements, financial statements and reports which the
Borrower sends to its stockholders, and copies of all regular, periodic, and
special reports, and all registration statements which the Borrower files with
the Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange.
(j) General Information. Such other information respecting the condition
--------------------
or operations, financial or otherwise, of the Borrower or any Subsidiary of
the Borrower as the Bank may from time to time reasonably request.
Taxes. Pay and discharge, and cause its Subsidiaries to pay and
------
discharge, all taxes, assessments and governmental charges upon it or them,
----
its or their income and its or their properties prior to the dates on which
penalties are attached thereto, unless and only to the extent that (i) such
taxes shall be contested in good faith and by appropriate proceedings by the
Borrower or any such Subsidiary, as the case may be, and (ii) there be
adequate reserves therefor in accordance with GAAP entered on the books of the
Borrower or any such Subsidiary.
Corporate Existence. Preserve and maintain, and cause its Subsidiaries to
--------------------
preserve and maintain, their corporate existence and good standing in the
jurisdiction of their incorporation and the rights, privileges and franchises
and the Borrower and each such Subsidiary in each case where failure to so
preserve or maintain could result in a Material Adverse Change in the Borrower
or such Subsidiary.
Maintenance of Properties and Insurance. (i) Keep, and cause any
--------------------------------------------
Subsidiaries to keep, the respective properties and assets (tangible or
---
intangible) that are useful and necessary in its business, in good working
-
order and condition, reasonable wear and tear excepted; and (ii) maintain, and
cause any Subsidiaries to maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering
such risks as are usually carried by companies engaged in similar businesses
and owning properties doing business in the same general areas in which the
Borrower and any such Subsidiaries operate.
Books of Record and Account. Keep and cause any Subsidiaries to keep,
--------------------------------
adequate records and proper books of record and account in which complete
entries will be made in a manner to enable the preparation of financial
statements in accordance with GAAP, reflecting all financial transactions of
the Borrower and any such Subsidiaries.
Visitation. Upon 3 Business Days prior notice, permit the Bank or any
-----------
agents or representatives thereof, to examine and make copies of and abstracts
from the books and records of, and visit the properties of, the Borrower and
to discuss the affairs, finances and accounts of the Borrower with any of the
officers or directors of the Borrower or the Borrower's independent
accountants.
Performance and Compliance with Other Agreements. Perform and comply with
-------------------------------------------------
each of the provisions of each and every agreement the failure to perform or
comply with which could result in a Material Adverse Change in the Borrower or
any Subsidiary.
Continued Perfection of Liens and Security Interest. Record or file or
-------------------------------------------------------
rerecord or refile the Loan Documents or a financing statement or any other
filing or recording or refiling or rerecording in each and every office where
and when necessary to preserve and perfect the security interests of the Loan
Documents.
Pension Funding. Comply with the following and cause each ERISA Affiliate
----------------
of the Borrower or any Subsidiary of the Borrower to comply with the
following:
(a) engage solely in transactions which would not subject any of such
entities to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in either
case in an amount in excess of $25,000.00;
(b) make full payment when due of all amounts which, under the provisions
of any Plan or ERISA, the Borrower, any such Subsidiary or any ERISA Affiliate
of any of same is required to pay as contributions thereto;
(c) all applicable provisions of the Internal Revenue Code and the
regulations promulgated thereunder, including but not limited to Section 412
thereof, and all applicable rules, regulations and interpretations of the
Accounting Principles Board and the Financial Accounting Standards Board;
(d) not fail to make any payments in an aggregate amount greater than
$25,000.00 to any Multiemployer Plan that the Borrower, any such Subsidiary or
any ERISA Affiliate may be required to make under any agreement relating to
such Multiemployer Plan, or any law pertaining thereto; or
(e) not take any action regarding any Plan which could result in the
occurrence of a Prohibited Transaction.
Licenses. Maintain at all times, and cause each Subsidiary to maintain at
---------
all times, all licenses or permits necessary to the conduct of its business or
as may be required by any governmental agency or instrumentality thereof.
New Affiliates. Cause any Affiliate of the Borrower formed after the date
---------------
of this Agreement to become a Guarantor of all Debts and other obligations of
the Borrower to the Bank; provided, however, that this Section 5.01(1) shall
relate only to such Affiliates in the event (i) the Borrower's Investment
therein equals or exceeds $1,000,00.00; or (ii) such Affiliate would still be
considered an Affiliate of the Borrower after application of the definition
"Affiliate" set forth in Article 1 hereof with the percentages set forth
therein deemed to be 80% instead of 5%.
SECTION 5.02. NEGATIVE COVENANTS. So long as any amount shall remain
--------------------
outstanding under the Revolving Credit Note or the Converted Term Loan Note,
or so long as the Commitment shall remain in effect, the Borrower will not,
without the written consent of the Bank:
Liens, Etc. Create, incur, assume or suffer to exist, any Lien, upon or
with respect to any of its properties, now owned or hereafter acquired,
except:
(a) Liens in favor of the Bank and the Existing Liens;
(b) Liens for taxes or assessments or other government charges or levies
if not yet due and payable or if due and payable if they are being contested
in good faith by appropriate proceedings and for which appropriate reserves
are maintained;
(c) Liens imposed by law, such as mechanics', materialmen's, landlords',
warehousemen's, and carriers' Liens, and other similar Liens, securing
obligations incurred in the ordinary course of business which are not past due
or which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established;
(d) Liens under workers' compensation, unemployment insurance, Social
Security, or similar legislation;
(e) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory
obligations, surety, stay, appeal, indemnity, performance or other similar
bonds, or other similar obligations arising in the ordinary course of
business;
(f) Liens and Existing Liens described in Schedule 5.02(a), provided that
no such Liens or Existing Liens or obligations secured thereby shall be
renewed, extended or refinanced;
(g) Judgment and other similar Liens arising in connection with court
proceedings (other than those described in Section 6.01(f)), provided the
execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings;
(h) Easements, rights-of-way, restrictions, and other similar encumbrances
which, in the aggregate, do not materially interfere with the Borrower's
occupation, use and enjoyment of the property or assets encumbered thereby in
the normal course of its business or materially impair the value of the
property subject thereto;
(i) Purchase money Liens on any property other than Eligible Equipment
hereafter acquired or the assumption of any Lien on property existing at the
time of such acquisition, or a Lien incurred in connection with any
conditional sale or other title retention agreement or a Capital Lease,
provided that:
(j) Any property subject to any of the foregoing does not constitute
Eligible Equipment finance or to be financed by a Loan hereunder, and has been
acquired by the Borrower in the ordinary course of its business and the Lien
on any such property has been created contemporaneously with such acquisition;
(k) Each such Lien shall attach only to the property so acquired and fixed
improvements thereon;
(l) The obligation secured by such Lien is permitted by the provisions of
Section 5.02(b) after giving effect to the other terms and conditions hereof;
and
(m) Liens granted by the Borrower to a lender in order to secure working
capital financing on terms similar to those governing the line of credit
maintained by the Bank for the Borrower (the "Line of Credit"); provided,
however, that the Borrower and the Bank acknowledge and agree that such Liens
may only be granted in the event the Bank refuses a request for borrowing
under the Line of Credit and there are no loans outstanding under the Line of
Credit at the time of such refusal; provided, further, that the Borrower and
the Bank acknowledge and agree that such additional Liens shall be granted
upon terms and conditions which in all respects fully subordinate the rights
of payment and remedy of such lender to the rights of the Bank to the
indefeasible repayment of all indebtedness, liabilities and obligations of the
Borrower to the Bank and all of the Bank's remedies relating thereto.
Debt. Create, incur, assume, or suffer to exist, any Debt, except:
-----
(a) Debt of the Borrower under this Agreement, the Notes, the Swap
Documentation and the Line of Credit;
(b) Debt described in Schedule 5.02(b), provided that no such Debt shall
be renewed, extended or refinanced;
(c) Subordinated Debt including, without limitation, any indebtedness
secured by liens granted in accordance with Section 5.02(a) (x) hereof for so
long as such indebtedness remains Subordinated Debt;
(d) Accounts payable to trade creditors for goods or services which are
not aged more than One Hundred Eighty (180) days past due and with respect to
which, payment has been demanded, and current operating liabilities (other
than for borrowed money) which are not more than One Hundred Eighty (180) days
past due, in each case incurred in the ordinary course of business and paid
within the specified time, unless contested in good faith and by appropriate
proceedings;
(e) Debt of the Borrower secured by purchase money Liens or Existing Liens
permitted by Section 5.02(a) (ix).
Lease Obligations. Create, incur, assume, or suffer to exist any
-------------------
obligation as lessee for the rental or hire of any real or personal property,
---
except (i) Capital Leases permitted by Section 5.02(a); (ii) leases existing
on the date of this Agreement and any extensions or renewals thereof; and
(iii) leases (other than Capital Leases) which do not in the aggregate require
the Borrower to make payments (including taxes, insurance, maintenance, and
similar expenses which the Borrower is required to pay under the terms of any
lease) in any fiscal year of the Borrower in excess of One Million Five
Hundred Thousand ($1,500,000.00) Dollars.
Merger. Merge into, or consolidate with or into, or have merged into it,
-------
any Person; and, for the purpose of this subsection (d), the acquisition or
sale by the Borrower by lease, purchase or otherwise, of all, or substantially
all, of the common stock or the assets of any Person shall be deemed a merger
of such Person with the Borrower; provided, however, that notwithstanding the
foregoing, the Borrower shall be permitted to enter into agreements, and to
consummate transactions relating to (i) mergers or joint ventures resulting in
the Borrower as the surviving entity thereof (or, in the case of a joint
venture, if the entity(s) formed as a result of the joint venture
constitute(s) an Affiliate of the Borrower) and involving aggregate
consideration to be paid upon the consummation thereof in an aggregate amount
of less than $1,000,000.00; and (ii) mergers or joint ventures involving
aggregate consideration to be paid upon the consummation thereof in an
aggregate amount equal to or exceeding $1,000,000.00 with respect to which the
Borrower has received the Bank's prior written consent.
Sale of Assets, Etc. Sell, assign, transfer, lease or otherwise dispose
-----------------
of any of its assets, (including a sale leaseback transaction) with or without
recourse, except for (i) inventory disposed of in the ordinary course of
business; and (ii) the sale or other disposition of assets no longer used or
useful in the conduct of its business.
Investments, Etc. After giving effect to the terms and conditions hereof,
-----------------
make any Investment other than Permitted Investments.
Transactions With Affiliates. Except for transactions between the
-------------------------------
Borrower and Consolidated Subsidiaries or Guarantors and except in the
--
ordinary course of business and pursuant to the reasonable requirements of the
--
Borrower's or a Subsidiary's business and upon fair and reasonable terms no
less favorable to the Borrower or the Subsidiary than would be obtained in a
comparable arm's length transaction with a Person not an Affiliate, enter into
any transaction including, without limitation, the purchase, sale, or exchange
of property or the rendering of any service, with any Affiliate.
Prepayment of Outstanding Debt. Pay, in whole or in part, any outstanding
-------------------------------
Debt (other than Debt owing to the Bank) of the Borrower, which by its terms
is not then due and payable.
Guarantees. Guaranty, or in any other way become directly or contingently
-----------
obligated for any Debt of any other Person (including any agreements relating
to working capital maintenance, take or pay contracts or similar arrangements)
other than the endorsement of negotiable instruments for deposit in the
ordinary course of business.
Change of Business. Materially alter the nature of its business.
---------------------
Fiscal Year. Change the ending date of its fiscal year from December
-------------
31st.
Losses. Incur a net loss for any fiscal year; provided, however, that a
-------
net loss of not more than $650,000 may be incurred by the Borrower in respect
of its fiscal year ending December 31, 1996.
Accounting Policies. Change any accounting policies, except as permitted
---------------------
by GAAP.
Change of Tax Status. Change its tax reporting status without the prior
-----------------------
written consent of the Bank.
Dividends, Etc. Declare or pay any dividends, purchase, redeem, retire or
---------------
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such,
whether in cash, assets, or in obligations of the Borrower; or allocate or
otherwise set apart any sum for the payment of any dividend or distribution
on, or for the purchase, redemption or retirement of any shares of its capital
stock; or make any other distribution by reduction of capital or otherwise in
respect of any share of its capital stock; provided, however, that the
Borrower may declare and pay stock dividends in respect of its capital stock
and may repurchase shares of its common stock so long as both before and after
giving effect to any such declaration, payment or repurchase, no Default or
Event of Default then exists.
Hazardous Material. The Borrower and each Subsidiary of the Borrower
--------------------
shall not cause or permit any property owned or occupied by the Borrower or
any such Subsidiary to be used to generate, manufacture, refine, transport,
treat, store, handle, dispose, transfer, produce or process Hazardous
Materials, except in compliance with all applicable federal, state and local
laws or regulations nor shall the Borrower or any such Subsidiary cause or
permit, as a result of any intentional or unintentional act or omission on the
part of the Borrower or any such Subsidiary or any tenant or subtenant, a
release of Hazardous Materials onto any property owned or occupied by the
Borrower or any such Subsidiary or onto any other property. The Borrower and
each such Subsidiary shall not fail to comply with all applicable federal,
state and local laws, ordinances, rules and regulations, whenever and by
whomever triggered, and shall not fail to obtain and comply with, any and all
approvals, registrations or permits required thereunder. The Borrower shall
execute any documentation required by the Bank in connection with the
representations, warranties and covenants contained in this paragraph and
Section 4.01 of this Agreement.
Loans; Advances.Make any loan or advance to any third party; provided,
-----------------
however, that the Borrower may make loans and advances (i) in unlimited
amounts to wholly owned Subsidiaries which are also Consolidated Affiliates
and Guarantors hereunder; (ii) in amounts not exceeding $1,000,000.00 per
entity to Affiliates and Subsidiaries which are not Guarantors hereunder; and
(iii) in an aggregate amount not to exceed $100,000.00 to third parties which
are not Guarantors, Affiliates or Subsidiaries.
Agree to acquire stock or assets of any Person without the prior written
consent of the Bank.
SECTION 5.03. FINANCIAL REQUIREMENTS. So long as any amount shall remain
------------------------
outstanding under the Revolving Credit Note or the Converted Term Loan Note or
so long as the Commitment shall remain in effect or so long as there shall
remain outstanding any indebtedness, liabilities or obligations of the
Borrower to the Bank:
(a) Minimum Consolidated Tangible Net Worth. The Borrower will maintain as
----------------------------------------
at the dates referred to below a Consolidated Tangible Net Worth of not less
than the amounts set forth below opposite each such date(s):
<TABLE>
<CAPTION>
<S> <C>
Dates Minimum Consolidated
Tangible Net Worth
12/31/96 $ 8,100,000.00
3/31/97 and 6/30/97 $ 7,800,000.00
9/30/97 and the last day of each fiscal quarter thereafter $ 8,000,000.00
</TABLE>
(b) Leverage Ratio. The Borrower will maintain as the dates referred to
---------------
below a ratio of Consolidated Total Liabilities to Consolidated Tangible Net
Worth at not greater than the ratio set forth below opposite each date(s):
<TABLE>
<CAPTION>
<S> <C>
Maximum Ratio of Consolidated
Total Liabilities to
Dates Consolidated Tangible Net Worth
12/31/96 and the last day of
each fiscal quarter thereafter 1.00:1.00
</TABLE>
(c) Debt Service Coverage Ratio. The Borrower will maintain for the four
----------------------------
consecutive fiscal quarterly periods ending on a determination date, a Debt
Service Coverage Ratio at not less than the ratio set forth below opposite the
applicable determination date:
<TABLE>
<CAPTION>
<S> <C>
Determination Date: Minimum Debt Service Coverage Ratio
December 31, 1997 1.00:1.00
March 31, 1998 and the last day of each
fiscal quarter thereafter 1.25:1.00
</TABLE>
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("Events of
-------------------
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any installment of principal of, or
interest on the Revolving Credit Note or the Converted Term Loan Note or any
fees or other amounts owed in connection with this Agreement within ten (10)
days after due under the terms hereof; or
(b) Any representation or warranty made by the Borrower herein or in the
Loan Documents or which is contained in any certificate, document, opinion, or
financial or other statement furnished at any time under or in connection with
any Loan Document shall prove to have been incorrect in any material respect
when made; or
(c) The Borrower shall fail to perform any term, covenant, or agreement
contained in this Agreement or in any other Loan Document (other that the
Notes) or any other agreement, instrument or document on its part to be
performed or observed in favor of the Bank or any other Person including,
without limitation, with respect to the Swap Documentation or the Line of
Credit.
(d) The Borrower or any Subsidiary of the Borrower shall fail to pay any
Debt (excluding Debt evidenced by the Revolving Credit Note and the Converted
Term Loan Note) of the Borrower, or any such Subsidiary (as the case may be),
or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other default under any agreement
or instrument relating to any such Debt, or any other event shall occur and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or
any such Debt shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof; or
(e) The Borrower or any Subsidiary of the Borrower shall generally not pay
its Debts as such Debts become due, or shall admit in writing its inability to
pay its Debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
any such Subsidiary seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its Debts under any law relating
to bankruptcy, insolvency or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its property and
if instituted against the Borrower or any such Subsidiary shall remain
undismissed for a period of 30 days; or the Borrower or any such Subsidiary
shall take any action to authorize any of the actions set forth above in this
subsection (e); or
(f) Any judgment or order or combination of judgments or orders for the
payment of money, in excess of $50,000 in the aggregate, which sum shall not
be subject to full, complete and effective insurance coverage, shall be
rendered against the Borrower or any Subsidiary of the Borrower and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(g) Any of the following events occur or exist with respect to the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate: (i) any
Prohibited Transaction involving any Plan; (ii) any Reportable Even with
respect to any Plan; (iii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (iv) any event
or circumstance that might constitute grounds entitling the PBGC to institute
proceedings under Section 4042 of ERISA for the termination of, or for the
appointment of a trustee to administer, any Plan, or the institution of the
PBGC of any such proceedings; (v) complete or partial withdrawal under Section
4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization
insolvency, or termination of any Multiemployer Plan; and in each case above,
such event or condition, together with all other events or conditions, if any,
could in the opinion of the Bank subject the Borrower, any such Subsidiary or
any ERISA Affiliate to any tax, penalty, or other liability to a Plan, a
Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which
in the aggregate exceeds or may exceed Fifty Thousand ($50,000) Dollars.
(h) This Agreement or any other Loan Document, at any time after its
execution and delivery and for any reason, ceases to be in full force and
effect or shall be declared to be null and void, or the validity or
enforceability of any document or instrument delivered pursuant to this
Agreement shall be contested by the Borrower or any party to such document or
instrument or the Borrower or any party to such document or instrument shall
deny that it has any or further liability or obligation under any such
document or instrument; or
(i) An event of default specified in any Loan Document other than this
Agreement shall have occurred and be continuing.
(j) Any event occurs which would, after notice or lapse of time or both,
adversely affect the security interest of the Bank in Collateral including,
without limitation, any first priority security interest granted to the Bank
under the terms hereof and the Loan Documents in Eligible Equipment.
SECTION 6.02. REMEDIES ON DEFAULT. Upon the occurrence and continuance of an
--------------------
Event of Default the Bank may by notice to the Borrower, (i) terminate the
Commitment, (ii) declare the Revolving Credit Note, the Converted Term Loan
Note, all interest thereon and all other amounts payable under this Agreement
to be forthwith due and payable, whereupon the Commitment shall be terminated,
the Revolving Credit Note, the Converted Term Loan Note, all such interest and
all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower and (ii) proceed to enforce its rights
whether by suit in equity or by action at law, whether for specific
performance of any covenant or agreement contained in this Agreement or any
Loan Document, or in aid of the exercise of any power granted in either this
Agreement or any Loan Document or proceed to obtain judgment or any other
relief whatsoever appropriate to the enforcement of its rights, or proceed to
enforce any other legal or equitable right which the Bank may have by reason
of the occurrence of any Event of Default hereunder or under any Loan
Document, provided, however, upon the occurrence of an Event of default
referred to in Section 6.01(e), the Commitment shall be immediately
terminated, the Revolving Credit Note and the Converted Term Loan Note, all
interest thereon and all other amounts payable under this Agreement shall be
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower.
Any amounts collected pursuant to action taken under this Section 6.02 shall
be applied to the payment of, first, any costs incurred by the Bank in taking
such action, including but without limitation attorneys fees and expenses,
second, to payment of the accrued interest on the Revolving Credit Note and
the Converted Term Loan Note, and third, to payment of the unpaid principal of
the Revolving Credit Note and the Converted Term Loan Note.
SECTION 6.03. REMEDIES CUMULATIVE. No remedy conferred upon or reserved to the
--------------------
Bank hereunder or in any Loan Document is intended to be exclusive of any
other available remedy, but each and every such remedy shall be cumulative and
in addition to every other remedy given under this Agreement or any Loan
Document or now or hereafter existing at law or in equity. No delay or
omission to exercise any right or power accruing upon any Event of Default
shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and
as often as may be deemed expedient. In order to entitle the Bank to exercise
any remedy reserved to it in this Article VI, it shall not be necessary to
give any notice, other than such notice as may be herein expressly required in
this Agreement or in any Loan Document.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. AMENDMENTS, ETC. No amendment, modification, termination or
-----------------
waiver of any provision of any Loan Document to which the Borrower is a party,
nor consent to any departure by the Borrower from any Loan Document to which
it is a party, shall in any event be effective unless the same shall be in
writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 7.02. NOTICES, ETC. All notices and other communications provided for
-------------
hereunder shall be in writing (including telegraphic communication) and
mailed, telegraphed, sent by facsimile or delivered, if to the Borrower, at
the address of the Borrower set forth at the beginning of this Agreement and
if to the Bank, at the address of the Bank set forth at the beginning of this
Agreement to the attention of the Bank's Account Officer, or, as to each
party, at such other address as shall be designated by such party' in a
written notice complying as to delivery with the terms of this Section 7.02 to
the other parties. All such notices and communications shall be effective when
mailed, telegraphed or delivered, except that notices to the Bank shall not be
effective until received by the Bank.
SECTION 7.03. NO WAIVER, REMEDIES. No failure on the part of the Bank to
----------------------
exercise, and no delay in exercising, any right, power or remedy under any
Loan Document, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
SECTION 7.04. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand
--------------------------
all costs and expenses of the Bank in connection with the preparation,
execution, delivery and administration of this Agreement, the Revolving Credit
Note, the Converted Term Loan Note and any other Loan Documents, including,
without limitation, the fees and expenses of counsel for the Bank with respect
thereto and with respect to advising the Bank as to its rights and
responsibilities under this Agreement, and all costs and expenses, if any
(including counsel fees and expenses), in-connection with the enforcement of
this Agreement, the Revolving Credit Note, the Converted Term Loan Note and
any other Loan Documents. The Borrower shall at all times protect, indemnify,
defend and save harmless the Bank from and against any and all claims,
actions, suits and other legal proceedings, and liabilities, obligations,
losses, damages, penalties, judgments, costs, expenses or disbursements which
the Bank may, at any time, sustain or incur by reason of or in consequence of
or arising out of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. The Borrower
acknowledges that it is the intention of the parties hereto that this
Agreement shall be construed and applied to protect and indemnify the Bank
against any and all risks involved in the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, all of
which risks are hereby assumed by the Borrower, including, without limitation,
any and all risks of the acts or omissions, whether rightful or wrongful, of
any present or future de jure or de facto government or governmental
authority, provided that the Borrower shall not be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Bank's gross
negligence or willful misconduct. The provisions of this Section 7.04 shall
survive the payment of the Notes and the termination of this Agreement.
SECTION 7.05. RIGHT OF SET-OFF. Upon (i) the occurrence and during the
-------------------
continuance of any Event of Default and (ii) the declaration of the making of
the Revolving Credit Note or the Converted Term Loan Note due and payable
pursuant to the provisions of Section 6.02, the Bank is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by the Bank to or for the credit or the account of the Borrower against
any and all of the obligations of the Borrower now or hereafter existing under
this Agreement and the Revolving Credit Note and the Converted Term Loan Note,
irrespective of whether or not the Bank shall have made any demand under this
Agreement or the Revolving Credit Note or the Converted Term Loan Note and
although such obligations may be unmatured. The rights of the Bank under this
Section are in addition to all other rights and remedies (including, without
limitation, other rights of set-off) which the Bank may have.
SECTION 7.06. BINDING EFFECT. This Agreement shall become effective when it
----------------
shall have been executed by the Borrower and the Bank and thereafter it shall
be binding upon and inure to the benefit of the Borrower and the Bank and
their respective successors and assigns, except that the Borrower shall not
have any right to assign its rights hereunder to any interest herein without
the prior written consent of the Bank.
SECTION 7.07. FURTHER ASSURANCES. The Borrower agrees at any time and from
--------------------
time to time at its expense, upon request of the Bank or its counsel, to
promptly execute, deliver, or obtain or cause to be executed, delivered or
obtained any and all further instruments and documents and to take or cause to
be taken all such other action the Bank may deem desirable in obtaining the
full benefits of, or in preserving the liens on or security interests in the
Collateral.
SECTION 7.08. SECTION HEADINGS, SEVERABILITY, ENTIRE AGREEMENT. Section and
--------------------------------------------------
subsection headings have been inserted herein for convenience only and shall
not be construed as part of this Agreement. Every provision of this Agreement
and each Loan Document is intended to be severable; if any term or provision
of this Agreement, any Loan Document, or any other document delivered in
connection herewith shall be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions hereof or thereof shall not in any way be affected or impaired
thereby. All exhibits and schedules to this Agreement shall be annexed hereto
and shall be deemed to be part of this Agreement. This Agreement and the
exhibits and schedules attached hereto embody the entire Agreement and
understanding between the Borrower and the Bank and supersede all prior
agreements and understandings relating to the subject matter hereof.
SECTION 7.09. GOVERNING LAW.This Agreement, the Revolving Credit Note and the
--------------
Converted Term Loan Note and all other Loan Documents shall be governed by,
and construed in accordance with, the laws of the State of New York.
SECTION 7.10. WAIVER OF JURY TRIAL. The Borrower, each Guarantor and the Bank
---------------------
waive all rights to trial by jury on any cause of action directly or
indirectly involving the terms, covenants or conditions of this Agreement or
any Loan Document.
SECTION 7.11. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
--------------------------
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
INNODATA CORPORATION
By:______/S/__________
Name: Martin Kaye
Title: V. P. Finance
THE CHASE MANHATTAN BANK
By:______/S/__________
Name: Brian A. Ziemba
Title: Vice Presdident
<PAGE>
REVOLVING CREDIT NOTE
$1,000,000.00
Brooklyn, New York
January 30, 1997
FOR VALUE RECEIVED, on the earlier of the Conversion Date (as defined in the
Agreement defined below) or December 31, 1997, INNODATA CORPORATION, a
Delaware corporation, having its principal place of business at 95 Rockwell
Place, Brooklyn, New York 11217 (the "Borrower"), promises to pay to the order
of THE CHASE MANHATTAN BANK ("Bank") at its office located at One Pierrepont
Plaza, Brooklyn, New York 11201, the principal sum of the lesser of: (a) ONE
MILLION ($1,000,000.00) Dollars; or (b) the aggregate unpaid principal amount
of all Revolving Credit Loans made by Bank to Borrower pursuant to the
Agreement (as defined below).
Borrower shall pay interest on the unpaid principal balance of this Note from
time to time outstanding, at said office, at the rates of interest, at the
times and for the periods set forth in the Agreement.
All payments including prepayments on this Note shall be made in lawful money
of the United States of America in immediately available funds. Except as
otherwise provided in the Agreement, if a payment becomes due and payable on a
day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day, and interest shall be payable thereon at the
rate herein specified during such extension.
Borrower hereby authorizes Bank to enter from time to time the amount of each
Loan to Borrower and the amount of each payment on a Loan on the schedule
annexed hereto and made a part hereof. Failure of Bank to record such
information on such schedule shall not in any way effect the obligation of
Borrower to pay any amount due under this Note.
This Note is the Revolving Credit Note referred to in that certain Loan
Agreement between Borrower and Bank of even date herewith (the "Agreement"),
as such Agreement may be further amended from time to time, and is subject to
prepayment and its maturity is subject to acceleration upon the terms
contained in said Agreement. All capitalized terms used in this Note and not
defined herein shall have the meanings given them in the Agreement.
If any action or proceeding be commenced to collect this Note or enforce any
of its provisions, Borrower further agrees to pay all costs and expenses of
such action or proceeding and attorneys' fees and expenses and further
expressly waives any and every right to interpose any counterclaim in any such
action or proceeding. Borrower hereby submits to the jurisdiction of the
Supreme Court of the State of New York and agrees with Bank that personal
jurisdiction over Borrower shall rest with the Supreme Court of the State of
New York for purposes of any action on or related to this Note, the
liabilities, or the enforcement of either or all of the same. Borrower hereby
waives personal service by manual delivery and agrees that service of process
may be made post-paid certified mail directed to the Borrower at the
Borrower's address set forth above or at such other `address as may be
designated in writing by the Borrower to Bank in accordance with Section 7.02
of the Agreement, and that upon mailing of such process such service be
effective with the same effect as though personally served. Borrower hereby
expressly waives any and every right to a trial by jury in any action on or
related to this Note, the liabilities or the enforcement of either or all of
the same. Bank may transfer this Note and may deliver the security or any part
thereof to the transferee or transferees, who shall thereupon become vested
with all the powers and rights above given to Bank in respect thereto, and
Bank shall thereafter be forever relieved and fully discharged from any
liability or responsibility in the matter. The failure of any holder of this
Note to insist upon strict performance of each and/or all of the terms and
conditions hereof shall not be construed or deemed to be a waiver of any such
terms or condition.
Borrower and all endorsers and guarantors hereof waive presentment and demand
for payment, notice of non-payment, protest, and notice of protest.
This Note shall be construed in accordance with and governed by the laws of
the State of New York.
INNODATA CORPORATION
By: _____/S/_____
Name: Martin Kaye
Title: V. P. Finance
<PAGE>
CHASE
GRID TIME PROMISSORY NOTE
January 30, 1997
For value received, the undersigned unconditionally (and if more than one,
jointly and severally) promises to pay to the order of THE CHASE MANHATTAN
BANK ("Chase"), at its office located at 270 PARK AVE, NEW YORK, NEW YORK
10017, or to such other address as Chase may notify the undersigned, the sum
of TWO MILLION AND NO CENTS Dollars ($2,000,000) or such unpaid principal
amount of each loan made to the undersigned by Chase and outstanding under
this Note, on the maturity date(s) as shown on the attached schedule or any
continuation of the schedule.
This Note includes any Schedule or Rider attached hereto.
MATURITY DATE(S). Each loan shall mature on the last day of the Interest
- ------------------
Period therefor, as noted on the Interest Period column on the attached
- -----
schedule. As to a Variable Rate loan, if no Interest Period is noted, then
- -----
such loan is payable On Demand.
- ---
INTEREST. The undersigned promise(s) to pay interest on the unpaid balance of
- ---------
the principal amount of each such loan from and including the date of each
loan to but excluding the date such loan shall be paid in full at the
following applicable rates (check Other Rate box if applicable):
Variable Rate: A rate of interest per year which shall automatically increase
or decrease from time to time so that all times such rate shall remain equal
to that rate of interest from time to time announced by Chase at its head
office as its prime commercial lending rate (the "Prime Rate") plus 1/2%.
Changes in the rate of interest hereunder shall be effective as of and for the
entire day on which such change in the Prime Rate becomes effective.
and
x Other Rate: see Rider(s) attached hereto.
Interest shall be payable, as to a Variable Rate loan, on the 1st day of each
month and as to an Other Rate loan, on the last day of each Interest Period,
or if such Interest Period is more than 90 days, then on the 90th day after
the date of such loan and on the last day of such Interest Period, unless
otherwise specified on a Rider attached hereto, in respect of the
corresponding principal. Interest shall be calculated on the basis of a year
of 360 days and payable for the actual number of days elapsed.
After the occurrence of an Event of Default set forth below, Chase, at its
option, by written notice to the undersigned may increase the interest rate on
this Note by an additional four percent (4%) per year effective on the date of
such notice.
PAYMENTS. All payments under this Note shall be made in lawful money of the
- ---------
United States of America and in immediately available funds at Chase's office
- --
specified above. Chase may (but shall not be obligated) debit the amount of
any payment (principal or interest) under this Note when due to any deposit
account of (any of) the undersigned with Chase. If the undersigned are more
than one, all obligations of each of the undersigned under this Note shall be
joint and several. This Note may be prepaid without premium unless otherwise
specified on a Rider attached hereto. Chase may apply any money received or
collected for payment of this Note to the principal of, interest on or any
other amount payable under, this Note in any order that Chase may elect.
Whenever any payment to be made hereunder (including principal and interest)
shall be stated to be due on a day which Chase's head office is not open for
business, that payment will be due on the next following banking day, and any
extension of time shall in each case be included in the computation of
interest payable on this Note.
If any payment (principal or interest) shall not be paid when due other than a
payment of the entire principal balance of the Note due upon acceleration
after default, the undersigned shall pay a late payment charge equal to five
percent (5%) of the amount of such delinquent payment, provided that the
amount of such late payment charge shall be not less than $25 nor more than
$500.
AUTHORIZATIONS. The undersigned hereby authorizes Chase to make loans and
- ---------------
disburse the proceeds thereof to the account listed below and to make
- ----
repayments of such loans by debiting such account upon oral, telephonic or
- ----
telecopied instructions made by any person purporting to be an officer or
- ---
agent of the undersigned who is empowered to make such requests and give such
- ---
instructions. The undersigned may amend these instructions, from time to time,
effective upon actual receipt of the amendment by Chase. Chase shall not be
responsible for the authority, or lack of authority, of any person giving such
telephonic instructions to Chase pursuant to these provisions. By executing
this Note, the undersigned agrees to be bound to repay any loan obtained
hereunder as reflected on Chase's books and records and made in accordance
with these authorizations, regardless of the actual receipt of the proceeds
thereof.
RECORDS. The date, amount and maturity date of each loan under this Note and
- --------
each payment of principal, loan(s) to which such principal is applied (which
shall be at the discretion of Chase) and the outstanding principal balance of
loans, shall be recorded by Chase on its books and prior to any transfer of
this Note (or, at the discretion of Chase at any other time) endorsed by Chase
on the schedule attached or any continuation of the schedule. Any such
endorsement shall be conclusive absent manifest error.
REPRESENTATIONS AND WARRANTIES. If the undersigned is other than an
- ---------------------------------
individual, the undersigned represents and warrants upon the execution and
- ----------
delivery of this Note and upon each loan request hereunder, that: (a) it is
- ---
duly organized and validly existing under the laws of the jurisdiction of its
- --
organization or incorporation and, if relevant under such laws, in good
standing; (b) it has the power to execute and deliver this Note and to perform
its obligations hereunder and has taken all necessary action to authorize such
execution, delivery and performance; (c) such execution, delivery and
performance do not violate or conflict with any law applicable to it, any
provision of its organizational documents, any order or judgment of any court
or other agency of government applicable to it or any of its assets or any
material contractual restriction binding on or materially affecting it or any
of its assets; (d) to the best of undersigned's knowledge, all governmental
and other consents that are required to have been obtained by it with respect
to this Note have been obtained and are in full force and effect and all
conditions of any such consents have been complied with; (e) its obligations
under this Note constitute its legal, valid and binding obligations,
enforceable in accordance with its terms except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency or other
similar laws affecting creditors' rights generally; (f) all financial
statements and related information furnished and to be furnished to Chase from
time to time by the undersigned are true and complete and fairly present the
financial or other information stated therein as at such dates or for the
periods covered thereby; (g) there are no actions, suits, proceedings or
investigations pending or, to the knowledge of the undersigned, threatened
against or affecting the undersigned before any court, governmental agency or
arbitrator, which involve forfeiture of any assets of the undersigned or which
may materially adversely affect the financial condition, operations,
properties or business of the undersigned or the ability of the undersigned to
perform its obligation under this Note; and (h) there has been no material
adverse change in the financial condition of the undersigned since the last
such financial statements or information. If the undersigned is an individual,
the undersigned represents and warrants at the times set forth at the
beginning of this section, the correctness of clauses (c), (d), (e), (f), (g)
and (h) above to the extent applicable to an individual.
NO COMMITMENT. This Note does not create and shall not be deemed or construed
- ---------------
to create any contractual commitment to lend by Chase. Any such commitment in
respect of this Note can only be made by and shall only be effective to the
extent set forth in a separate writing expressly designated for that purpose
and subscribed by a duly authorized officer of Chase.
SECURITY. As collateral security for the payment of this Note and of any and
- ---------
all other obligations and liabilities of the undersigned to Chase, now
existing or hereafter arising, the undersigned grants to Chase a security
interest in and a lien upon and right of offset against all moneys, deposit
balances, securities or other property or interest therein of the undersigned
now or at any time hereafter held or received by or for or left in the
possession or control of Chase or any of its affiliates, including
subsidiaries, whether for safekeeping, custody, transmission, collection,
pledge or for any other or different purpose.
DEFAULT. IF any of the following events of default shall occur with respect to
- --------
any of the undersigned (each an "Event of Default").
(a) the undersigned shall fail to pay the principal of, or interest on,
this Note, or any other amount payable under this Note, as and when due and
payable;
(b) any representation or warranty made or deemed made by the undersigned
in this Note or in any document granting security or support for (or otherwise
executed in connection with) this Note or by any third party supporting or
liable with respect to this Note (whether by guaranty, subordination, grant of
security or any other credit support, a "Third Party") in any document
evidencing the obligations of a Third Party (this Note and all of the
foregoing documents and all agreements, instruments or other documents
executed by the undersigned or a Third Party being the "Facility Documents")
or which is contained in any certificate, document, opinion, financial or
other statement furnished at any time under or in connection with any Facility
Document, shall prove to have been incorrect in any material respect on or as
of the date made or deemed made;
(c) the undersigned or any Third Party shall fail to perform or observe
any term, covenant or agreement contained in any Facility Document on its part
to be performed or observed, and such failure shall continue for 30
consecutive days;
(d) the undersigned or any Third Party shall fail to pay when due any
indebtedness (including but not limited to indebtedness for borrowed money) or
if any such indebtedness shall become due and payable, or shall be capable of
becoming due and payable at the option of any holder thereof, by acceleration
of its maturity, or if there shall be any default by the undersigned or any
Third Party under any agreement relating to such indebtedness;
(e) the undersigned or any Third Party: (i) shall generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as such
debts become due; (ii) shall make an assignment for the benefit of creditors;
(iii) shall file a petition in bankruptcy or for any relief under any law of
any jurisdiction relating to reorganization, arrangement, readjustment of
debt, dissolution or liquidation; (iv) shall have any such petition filed
against it and the same shall remain undismissed for a period of 30 days or
shall consent or acquiesce thereto; or (v) shall have had a receiver,
custodian or trustee appointed for all or a substantial part of its property;
(f) if the undersigned or any Third Party is an individual, such
individual shall die or be declared incompetent;
(g) any Third Party Facility Document shall at any time and for any reason
cease to be in full force and effect or shall be declared null and void, or
its validity or enforceability shall be contested by the relevant Third Party
or such Third Party shall deny it has any further liability or obligation
under any Facility Document or shall fail to perform its obligations under any
Facility Document; (h) any security agreement or other agreement (whether by
the undersigned or any Third Party) granting a security interest, lien,
mortgage or other encumbrance securing obligations under any Facility Document
shall at any time and for any reason cease to create a valid and perfected
first priority security interest, lien, mortgage or other encumbrance in or on
the property purported to be subject to such agreement or shall cease to be in
full force and effect or shall be declared null and void, or the validity or
enforceability of any such agreement shall be contested by any party to such
agreement, or such party shall deny it has any further liability or obligation
under such agreement or any such party shall fail to perform any of its
obligations under such agreement.
(h) the undersigned shall make or permit to be made any material change in
the character, management or direction of the undersigned's business or
operations (including, but not limited to, a change in its executive
management or in the ownership of its capital stock which effects a change in
the control of any such business or operations), which is not satisfactory to
Chase;
(i) the undersigned or any Third Party shall suffer a material adverse
change in its business, financial condition, properties or prospects;
(j) any action, suit, proceeding or investigation against or affecting the
undersigned or a Third Party before any court or governmental agency which
involves forfeiture of any assets of the undersigned or a Third Party shall
have been commenced; or
(k) one or more judgments, decrees or orders for the payment of money in
excess of $50,000 in the aggregate shall be rendered against the undersigned
and shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal.
THEN, IN ANY SUCH CASE, if Chase shall elect by notice to the undersigned, the
unpaid principal amount of this Note, together with accrued interest, shall
become forthwith due and payable; provided that in the case of an event of
default under (e) above, the unpaid principal amount of this Note, together
with accrued interest, shall immediately become due and payable without any
notice or other action by Chase.
THE EVENTS OF DEFAULT AND REMEDIES SET FORTH ABOVE ARE IN ADDITION TO AND
WITHOUT IN ANY WAY DIMINISHING ANY RIGHT BY CHASE TO MAKE DEMAND FOR PAYMENT
AT ANY TIME.
CERTAIN WAIVERS. The undersigned waive(s) presentment, notice of dishonor,
- -----------------
protest and any other notice or formality with respect to this Note.
- ---
COSTS. The undersigned agree(s) to reimburse Chase on demand for all costs,
- ------
expenses and charges (including, without limitation, fees and charges of
- --
external legal counsel for Chase and costs allocated by its internal legal
- --
department) in connection with the preparation, interpretation, performance or
- --
enforcement of this Note and the Facility Documents.
NOTICES. All notices, requests, demands or other communications to or upon the
- --------
undersigned or Chase shall be in writing and shall be deemed to be delivered
upon receipt if delivered by hand or overnight courier or five days after
mailing to the address (a) of the undersigned as set forth next to the
undersigned's execution of this Note, (b) of Chase as first set forth above,
or (c) of the undersigned or Chase at such other address as the undersigned or
Chase shall specify to the other in writing.
ASSIGNMENT. This note shall be binding upon the undersigned and its or their
- -----------
successors and shall inure to the benefit of Chase and its successors and
assigns.
AMENDMENT AND WAIVER. This Note may be amended only by a writing signed on
- -----------------------
behalf of each party and shall be effective only to the extent set forth in
- ---
that writing. No delay by Chase in exercising any power or right hereunder
- --
shall operate as a waiver thereof or of any other power or right; nor shall
- --
any single or partial exercise of any power or right preclude other or future
- --
exercise thereof, or the exercise of any other power or right hereunder.
GOVERNING LAW: JURISDICTION. This Note shall governed by and construed in
- ------------------------------
accordance with the laws of the State of New York, Connecticut or New Jersey,
- ----
depending on the location of the Chase office set forth in this Note. The
undersigned consent(s) to the nonexclusive jurisdiction and venue of the state
or federal courts located in such state. In the event of a dispute hereunder,
suit may be brought against the undersigned is such courts or in any
jurisdiction where the undersigned or any of its assets may be located.
Service of process by Chase in connection with any dispute shall be binding on
the undersigned if sent to the undersigned by registered mail at the
address(es) specified below or to such further address(es) as the undersigned
may specify to Chase in writing.
MAXIMUM INTEREST. Notwithstanding any other provision of this Note, the
- ------------------
undersigned shall not be required to pay any amount pursuant to this Note
- ------
which is in excess of the maximum amount permitted to be charged by national
- ----
banks under applicable law and any such excess interest paid shall be refunded
to the undersigned or applied to principal owing hereunder.
Commercial Transaction. IF THE UNDERSIGNED IS A CONNECTICUT DOMICILED ENTITY
OR RESIDENT, EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT THIS NOTE AND
THE TRANSACTIONS CONTEMPLATED HEREBY CONSTITUTE COMMERCIAL TRANSACTIONS WITHIN
THE MEANING OF SECTION 52L-278a OF THE CONNECTICUT GENERAL STATUTES. EACH OF
THE UNDERSIGNED EXPRESSLY WAIVES ANY AND ALL RIGHTS, CONSTITUTIONAL OR
OTHERWISE, WITH RESPECT TO NOTICE AND HEARING AND ANY RIGHTS UNDER CHAPTER
903A OF THE CONNECTICUT GENERAL STATUTES IN CONNECTION WITH ANY PREJUDGMENT
REMEDY AVAILABLE TO CHASE.
BORROWER WAIVERS. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND
- ------------------
INTENTIONALLY WAIVE(S) (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY
- ----------
RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE
OR ANY FACILITY DOCUMENT, AND AGREES THAT ANY SUCH DISPUTE SHALL, AT CHASE'S
OPTION, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
IN ADDITION, THE UNDERSIGNED WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE BASED
UPON ANY STATUTE OF LIMITATIONS OR ANY CLAIM OF DELAY BY CHASE AND ANY SET-OFF
OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION.
Chase Account No. to be charged for
Disbursements and Payments: 012 -080020
INNODATA CORPORATION
By _____/S/_____
Print Name MARTY KAYE
Title: Chief Financial Officer
By ________
Print Name:
Title:
Address for notices
95 ROCKWELL
BROOKLYN, NY 11217
Telecopier No. (718) 260 4375
INNODATA CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
<S> <C>
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE 1995
Reconciliation of net income per statement
of income to amount used
in earnings per share computation:
Net income, as reported $1,511,388
Add-Interest on investment, net
of tax effect, on application of
assumed proceeds from exercise of
options and warrants in
excess of 20% limitation 249,974
----------
Net income, as adjusted $1,761,362
==========
Reconciliation of weighted average number
of shares outstanding to amount
used in earnings per share computation:
Weighted average number of
shares outstanding 4,448,473
----------
Add-Shares issuable from assumed
exercise of options and warrants
in excess of 20% limitation 1,007,793
Weighted average number of shares
outstanding, as adjusted 5,456,266
==========
Primary and fully diluted earnings per share $ .32
==========
</TABLE>
SUBSIDIARIES OF SMALL BUSINESS ISSUER
<TABLE>
<CAPTION>
<S> <C> <C>
STATE OR OTHER NAME UNDER
JURISDICTION OF WHICH SUBSIDIARY
NAME OF SUBSIDIARY INCORPORATION CONDUCTS BUSINESS
Innodata Philippines, Inc. Philippines Same
Statline, Inc. New Jersey Same
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements of Innodata Corporation on Form S-8 (Registration No. 33-85530,
dated October 21, 1994 and Registration No. 333-3466, dated April 11, 1996)
and on Form S-3 (Registration No. 333-3464, dated April 11, 1996) of our
report dated March 14, 1997, appearing in the Annual Report on Form 10-KSB of
Innodata Corporation for the year ended December 31, 1996.
Margolin, Winer & Evens LLP
Garden City, New York
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000903651
<NAME> INNODATA CORPORATION
<CAPTION>
<S>
<C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,097,193
<SECURITIES> 0
<RECEIVABLES> 3,718,283
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,165,986
<PP&E> 3,617,939
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,416,296
<CURRENT-LIABILITIES> 2,391,865
<BONDS> 0
0
0
<COMMON> 45,652
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,416,296
<SALES> 0
<TOTAL-REVENUES> 20,536,448
<CGS> 0
<TOTAL-COSTS> 21,495,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,383
<INCOME-PRETAX> (959,498)
<INCOME-TAX> (357,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (602,498)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> 0
</TABLE>
