<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission file number 0-22122
MICROS-TO-MAINFRAMES, INC.
(Exact name of registrant as specified in its charter)
New York 13-3354896
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
614 Corporate Way, Valley Cottage, NY 10989
(Address of principal executive offices)
(914) 268-5000
(Registrant's telephone number )
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1994
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $.001 par value - 4,400,774 shares as of February 11, 1999
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Micros-to-Mainframes, Inc
Condensed Consolidated Balance Sheets
December 31, March 31,
1998 1998
(Unaudited)
----------------------------
Assets
Current Assets
Cash $ 1,518,162 $ 3,991,593
Accounts receivable, net 13,622,382 14,000,562
Inventory 1,473,286 1,332,322
Prepaid expenses and other current assets 651,358 396,618
Deferred income taxes 84,900 402,400
-----------------------------
Total current assets 17,350,088 20,123,495
Property, plant and equipment 2,100,426 1,952,556
Less accumulated deprecation and amortization 1,105,682 877,683
-----------------------------
994,744 1,074,873
Goodwill, net of accumulated amortization
$158,369 and $103,050 732,630 777,181
Investment and advances in Pivot, at cost 1,130,508 -
Other Assets 138,920 100,951
-------------------------------
Total assets $ 20,346,890 $ 22,076,500
===============================
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ 5,000 $ 5,000
Accounts payable and accrued expenses 7,248,700 8,166,141
Income taxes payable - 373,284
Deferred revenue - 810,000
------------------------------
Total current liabilities 7,253,700 9,354,425
Deferred income taxes 37,000 37,000
------------------------------
7,290,700 9,391,425
Shareholders' Equity
Common stock 4,376 4,450
Additional paid-in capital 12,621,619 12,807,900
Retained earnings (deficit) 430,195 (127,275)
-------------------------------
Total shareholders' equity 13,056,190 12,685,075
-------------------------------
Total liabilities and shareholders' equity $ 20,346,890 $ 22,076,500
================================
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Three Months Ended December 31
1998 1997
------------------------------
Revenue
Products sales $ 12,605,748 $ 11,699,580
Services related sales 4,707,234 4,135,512
--------------------------------
17,312,982 15,835,092
--------------------------------
Direct Cost
Products Cost 11,716,333 11,162,388
Cost related to services sales 3,118,578 2,466,678
--------------------------------
14,834,911 13,629,066
--------------------------------
Selling, general and administrative expenses 2,547,142 2,090,744
Interest expenses 492 8,181
-------------------------------
Total cost and expenses 17,382,545 15,727,991
Other Income 298,891 14,265
-------------------------------
Income before income taxes 229,328 121,366
Provision for income taxes 94,000 48,000
--------------------------------
Net income $ 135,328 $ 73,366
================================
Net income per common share:
Basic $ 0.03 $ 0.02
Diluted$ 0.03 0.02
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted per share
Basic 4,377,910 4,450,374
Diluted 4,384,555 4,497,020
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Nine Months Ended December 31,
1998 1997
-----------------------------
Revenue
Products sales $ 34,696,912 $ 40,102,049
Services related sales 14,754,759 10,646,514
-------------------------------
49,451,671 50,748,563
-------------------------------
Direct Cost
Products Cost 33,231,816 38,752,273
Cost related to services sales 9,026,612 5,745,602
-------------------------------
42,258,428 44,497,875
-------------------------------
Selling, general and administrative expenses 7,147,235 5,731,915
Interest expenses 8,728 10,516
-------------------------------
Total cost and expenses 49,414,391 50,240,306
Other Income 907,189 44,412
-------------------------------
Income before income taxes 944,469 552,669
Provision for income taxes 387,000 221,000
-------------------------------
Net income $ 557,469 $ 331,669
================================
Net income per common share:
Basic $ 0.13 $ 0.07
Diluted 0.13 0.07
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted per share
Basic 4,415,931 4,450,374
Diluted 4,423,711 4,486,473
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statement of Cash Flows
Nine Months Ended December 31
1998 1997
-----------------------------
Operating activities
Net income $ 557,469 $ 331,669
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 272,550 262,095
Changes in operating assets and liabilities:
Decrease in accounts receivable 378,180 815,703
Decrease in inventory (140,964) (868,739)
Decrease in prepaid expenses
and other current assets (254,740) (309,242)
Decrease in deferred income taxes 317,500 -
Increase in other assets (37,969)
Decrease in accounts payable
and accrued expenses
(917,440) (929,417)
Decrease in income taxes payable (373,284) (89,293)
Deferred Revenue (810,000)
-----------------------------
Net cash provided by (used in)
operating activities (1,008,698) (786,954)
-----------------------------
Investing activities
Purchase of property and equipment (147,870) (207,279)
Investment in and advances to Pivot (1,130,508)
-----------------------------
Net cash used in investing activities (1,278,378) (207,279)
Financing activities
Repurchase of common stock (186,355)
-----------------------------
Net cash (used in) provided by
financing activities (186,355) -
-----------------------------
Increase (decrease) in cash (2,473,431) (994,233)
Cash at the beginning period 3,991,593 2,879,578
-----------------------------
$ 1,518,162 $ 1,885,345
-----------------------------
Supplement disclosures of cash flow information
Cash paid during the quarter for:
Income taxes $ 723,586 $ 383,619
Interest Expenses 8,728 10,516
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc.
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Micros-to-Mainframes, Inc. and its wholly-owned
subsidiaries Data.Com Results Inc. and MTM Advanced Technology, Inc.
hereafter referred to as the "Company" have been prepared in
accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended
December 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1999. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report Form
10-K (Commission file number 0-22122) for the fiscal year ended
March 31, 1998.
INVENTORIES
Inventories which are comprised principally of computer hardware
and software, are stated at the lower-of-cost or market using the
first-in, first-out (FIFO).
RECLASSIFICATION
Certain amounts have been reclassified to conform to the current year
presentation.
MARKETING AND SERVICE AGREEMENT
The Company entered into a cooperative marketing and service
agreement with BTG in February 1998, under which the Company
received a non-refundable payment of $900,000 from BTG for
consulting services to be provided during the 10 month period
ending December 31, 1998. The Company is recognizing this revenue
ratably over the term of the contract. The Company recognized
$810,000 of income during the nine months ended December 31, 1998.
The Company is not required to provide services exceeding $900,000.
INVESTMENT IN PIVOT
On May 18, 1998, the Company acquired 19.9% of Pivot Technologies,
Inc. ("Pivot"), a remote network servicer, and an option (the
"Option") to cause the merger of Pivot into a to be created wholly-
owned subsidiary of the Company. In consideration for the Option and
the Pivot Shares, the Company paid Pivot (exclusive of the merger
consideration payable upon any exercise of the Option)$475,000
and agreed to make further payments if Pivot was in material
compliance with its Business Plan, as defined in the Purchase and
Option Agreement, up to an aggregate of $346,000 over a five month
period commencing one month after Closing. The Company further
agreed to lend Pivot up to an additional $125,000 in six (6) equal
monthly installments. Such loan is payable, without interest, twelve
months after its issuance, or upon redemption of the Company's
interest in the event the Option is not exercised. No assurance can be
given that the Company will exercise the Option. Pursuant to the
Option, theshareholder s of Pivot (exclusive of the Company) would
receive 377,130 shares of the Company's Common Stock, five (5) year
warrants to acquire 100,000 shares of the Company's Common Stock at
$2.916767 per share, with such warrants becoming first exercisable
one-third at the end of each of the first three years after the
exercise of the Option, and $337,600 in cash. The Option has a term of
six (6) months (the "Initial Option Period") and may be extended for
up to three additional one month terms upon the payment of an
additional $80,000 prior to the expiration of the Initial Option
Period and the commencement of each additional extension period,
respectively. The Company will have certain other rights if the Option
is not exercised or if Pivot receives additional funding. The Company
has extended the Option and the Option is currently outstanding.
During the nine month period ended December 31, 1998, the Company paid
Pivot $475,000 as the initial payment, and made additional payments
(in accordance with the Purchase and Option Agreement) totaling
$506,000 for the Option and Pivot `s shares. In addition, the Company
loaned Pivot $124,000 as provided under the agreement. In additional,
the Company incurred approximately $25,000 in legal and professional
fees on the matter.
<PAGE>
2 EMPLOYEE STOCK OPTION PLAN
The 1993 Employee Stock Option Plan (the 1993 Plan) was adopted by the
Company in 1993 and approved by the shareholders of the Company in May
1993. The 1996 Stock Option Plan (the 1996 Plan) was adopted by the
Company in 1996 and was approved by the shareholders of the Company
on August 20, 1996. The 1998 Stock Option Plan (the 1998 Plan)was
adopted by the Company in 1998 and was approved by the shareholders of
the Company on October 16, 1998. The Plans provide for granting of
options, including incentive stock options, non-qualified stock
options and stock appreciation rights to qualified employees
(including officers and directors) of the Company, independent
contractors, consultants and other individuals, to purchase up
to an aggregate of 250,000, 350,000 and 250,000 shares of common stock
in the 1993 Plan,1996 Plan and 1998 Plan, respectively. The exercise
price of options generally, may not be less than 100% of the fair
market value of the Company's common stock at the date of grant.
Options may not be exercised more than ten years after the date of
grant. Options granted under the Plans become exercisable in
accordance with different vesting schedules depending on the
duration of the options.
Information regarding the Company's stock option plans is summarized
below:
1993 Plan 1996 Plan
-----------------------------------------------
Number Option Number Option
of Exercise of Exercise
Options Price Per Options Price Per
Share Share
Outstanding at March 31, 1998 220,000 $1.25-$7.00 180,700 $2.50-4.43
Options expired during
The First Quarter 1999 (150,000) $3.375
Options Terminated
The First Quarter 1999 (5,000) $3.875
Options issued during
The First Quarter 1999 20,000 $2.75
The Second Quarter 1999 150,000 $2.25
Options repriced during (50,000) $3.9375-$7.00
The Second Quarter 1999 50,000 $ 2.25
Option issued during
The Third Quarter 1999 - 10,000 $1.625
Option terminated
The Third Quarter 1999 ( 2,000)
------- -------
Outstanding at
December 31, 1998 220,000 $1.25-$7.00 203,700 $1.625-$4.43
======= =======
There have been no transactions relating to the 1998 Plan.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The following table sets forth for the periods indicated certain items in
the Company's Consolidated Statements of Income expressed as a percentage
of that period's net sales.
Percentage of Sales
Nine Months ended Three Months ended
December 31, December 31,
1998 1997 1998 1997
------------------------------------------
Product Sales............... 70.16% 79.02% 72.81% 73.88%
Services Related Sales ..... 29.84 20.98 27.19 26.11
Net Sales ................... 100.00 100.00 100.00 100.00
Cost of Products sales ( as a
% of Products sales)...... 95.78 96.63 92.94 95.41
Cost of Service related sales (as
a % of Services related sales) 61.18 53.97 66.25 59.64
Total Direct cost( as a % of
Total sales)............. 85.45 87.68 85.66 86.06
Selling, general and
administrative expenses. 14.45 11.29 14.71 13.20
Other Income (as a % of
Total sales) ............ 1.83 0.09 1.73 0.09
Income before income taxes... 1.91 1.09 1.32 0.77
Net Income................... 1.13 0.65 0.78 0.46
The Company had net sales of approximately $49,452,000 for the Nine Months
Ended December 31, 1998 (the "1999 Period"), as compared to approximately
$50,749,000 for the Nine Months Ended December 31, 1997 (the "1998 Period").
The Company had net sales of approximately $17,313,000 for the Three Months
Ended December 31, 1998 (the "1999 Quarter"), as compared to $15,835,000 for
the Three Months Ended December 31, 1997 (the "1998 Quarter"). The decrease
in sales of approximately 2.6% in the 1999 Period was primarily attributable
to the decrease in the lower margin product sales of approximately
$5,405,00 or 13% and an increase in higher margin sales of services and
related sales of approximately $4,108,000 or 39%. The increase in sales of
approximately $1,478,000 or 9.3% for the 1999 Quarter was primary due to an
increase of both product sales of approximately $906,000 or 8% and services
related sales of approximately $571,000 or 14% in the 1999 Period and the
1999 Quarter. The revenue related to the service and consulting business was
approximately $14,755,000 for the 1999 Period and approximately $4,707,000
for the 1999 Quarter as compared to approximately $10,646,000 for the 1998
Period and approximately $4,135,000 for the 1998 Quarter. These represent an
increase in services related revenue of approximately 39% and 34% for the
1999 Period and 1999 Quarter, respectively. The increase in service related
sales were due to the combination of increased sales to new and existing
customers.
As a percentage of net sales, total direct cost of products sold
decreased by approximately 2.2% and 0.4% for the 1999 Period and 1998
Quarter, respectively, as compared to the prior year's comparable
periods due to the competitive market pressure.
<PAGE>
The Company increased its technical personnel salaries to
approximately $4,435,000 from approximately $3,131,000 or
a 41% increase in the 1999 Period as compared to the 1998 Period
and an increase to approximately $1,647,000 from approximately $1,095,000
or a 50% increase in the 1999 Quarter as compared to the 1998 Quarter.
Technical services personnel, increased to 112 employees in the 1999 Period
from 93 employees in the comparable period of the prior year, an increase of
20%. This increase in personnel is due to customer demand for the
Company's technical and consulting services. The Company expects to
hire additional professional technicians and engineers to handle the
increased demand pertaining to its system consulting outsourcing
business in the future.
Selling, general and administrative expenses ("SG&A") were
approximately $7,147,000 in the 1999 Period as compared to $5,732,000
in the 1998 Period and $2,547,000 for the 1999 Quarter compared to
$2,091,000 for the 1998 Quarter. This represents an increase of
approximately 25% and 22% for SG&A during the 1999 Period and 1999
Quarter as compared to the 1998 Period and 1998 Quarter, respectively.
The increase is primarily attributable to an increase in salesperson
compensation and increased employee payroll, benefits and payroll
taxes.
Other income increased to approximately $907,000 in the 1999 Period
from approximately $44,000 for the 1998 Period and increased to
approximately $299,000 in the 1999 Quarter from approximately $14,000
in the 1998 Quarter. The increase was due to the Company recognizing
in the 1999 Period and 1999 Quarter $810,000 and $270,000,
respectively, as a result of the contractual payment from BTG, Inc. in
February 1998 for services contracted through the third quarter of
fiscal 1999. The Company recognized the balance of the contractual
payment from BTG, Inc. in the 1999 Quarter.
The effective income tax rates for the 1999 Period and 1999 Quarter as
compared to the 1998 Period and 1998 Quarter were approximately 41%
for both years.
As a result of the forgoing, the Company had net income of
approximately $557,000 in the 1999 Period compared to $332,000 in the
1998 Period and $135,000 for the 1999-Quarter compared to $73,000 for
the 1998 Quarter. This represents an increase of 68% in the 1999
Period as compared to the 1998 Period and an 84% increase for the
1999-Quarter compared to the 1998 Quarter. The Company believes that
its recent investments in personnel, software and equipment, which has
increased overhead and expenses in the 1999 Period and 1999 Quarter,
will have long term benefits for its shareholders.
<PAGE>
Liquidity and Capital Resources
The Company measures its liquidity in a number of ways, including the
following:
December 31, March 31
1998 1998
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 1,519 $ 3,992
Working capital ........................ $10,096 $10,769
Current ratio .......................... 2.38:1 2.15:1
Working capital line available ......... $ 7,912 $ 7,761
The Company had working capital of approximately $10,096,000 as of
December 31, 1999, a decrease of approximately $673,000 from March
31, 1998.
During the 1999 Period, the Company had net cash used in operating
activities of approximately $1,009,000 derived primarily from
$557,000 of net income, a decrease in accounts receivable of
approximately $378,000, a decrease in deferred income taxes of
approximately $318,000. The decease was offset by a decrease in
inventory of approximately $140,000, decrease in prepaid expenses and
other assets of approximately $293,000, a decrease of accounts payable
of approximately $917,000, a decrease in income taxes payable of
approximately $373,000 and a decrease in deferred revenue of $810,000.
The Company used net cash in investing activities of approximately
$1,278,000 for the investment in Pivot, and purchase of office
equipment.
The Company used net cash in financing activities approximately
$186,000 to repurchase 74,600 shares of its common shares in the open
market in the 1999 Period.
As a result of the foregoing, the Company decreased its cash by
approximately $2,473,000.
During the 1999 Period, the Company financed much of its
business through a two-year $5,000,000 revolving credit
facility from a bank, and separately arranged floor-plan-
financing agreements from aggregating $6,800,000. The
Floor plan financing agreements are alternate credit lines
provided by manufacturers or vendor. On January 19, 1999
the Company negotiated and signed a new one-year
$13,000,000 credit facility with one of its current floor
planners. Such facility replaced the aforementioned $5
million revolving credit facility previously held by the
Company. This $13 million credit facility combines and
expands on $5.5 million in inventory financing and $5
million in accounts receivable financing previously held
separately by the floor planner and the aforementioned
bank. The new credit facility includes up to $8 million
in financing based on the Company's inventory from time
to time and $5 million in financing based upon a
percentage of the Company's accounts receivable from time
to time. The combined facility is secured by the Company's
inventory and accounts receivable (other than inventory
and accounts receivable directly financing by other floor
planners who have the lien thereon) and will better
support the Company's rapid growth by providing greater
flexibility and more capital than traditional financing
options. The proceeds from such financing may be used in
any manner the Company elects provided however that no
more than $5 million thereof will be available to the
Company for use on acquisition initiatives.
The floor-plan agreements generally allow the Company to
borrow for a period of 30 to 60 days interest free.
Interest is charged to the Company only after the due
date. These arrangements generally provide for security
interests in the related inventory and/or accounts
receivable
On December 31, 1998, the Company's total outstanding debt
under these arrangements with floor-planners was
approximately $3,933,000 and a balance of $2,867,000 was
available under such lines of credit. On December 31,
1998, the Company's outstanding debt under the bank
revolving line of credit was $5,000 with a balance of
$4,995,000 available under such line of credit.
The Company and its floor planners agreed on two types of
interest rates: (i) the prime rate loan, in which the
Company agreed to pay interest to the floor planner on
daily contract balance of prime rate; and (ii) the LIBOR
rate loan, in which the Company agrees that the unpaid
principal amount of LIBOR loans shall bear interest prior
to maturity at a rate per annum equal to the LIBOR rate in
effect for each interest period, plus 1.5% per annum.
In January 1999 the Company paid an additional $80,000 to
Pivot to extend the Option period until March 3, 1999
and allow the Company to finalize the purchase of Pivot if
it so elects according to the previously mentioned
agreement.
The Company in the process of opening two e-commerce web
sites. Even though no assurance can be given, it is
expected that such web sites will be fully functional by
March 1999. These sites will provide for present and new
customers an efficient electronic ordering and purchasing
system, including shopping cart functionality and product
specifications. It will provide individual secure
(ID/password) sites for each account with product
availability and custom pricing.
The Company's current ratio increased to 2.38:1 at
December 31, 1998 from
2.15:1 at March 31, 1998.
The Company believes that expected cash flow from its operations
combined with available financing arrangements would be sufficient to
satisfy its expected cash requirements for the next 12 months.
<PAGE>
Year 2000 Issue
Many existing computer systems, including certain of the Company's
Internal systems as well as those that the Company sells to customers,
Use only the last two digits to identify years in the date field. As a
result, those systems may not accurately distinguish years in the 21st
century from years in the 20th century, or may not function properly
when faced with years later than 1999. This problem is generally
referred to as the "Year 2000 Issue." Computer systems that are able to
deal correctly with dates after 1999 are referred to as "Year-2000-
Compliant."
Year 2000 Readiness Disclosure
The Company has undertaken a complete and thorough review of all of its
operations to determine those aspects which involve or are dependent
upon a computer application. The Company is reviewing the software and
operating systems for each such application to determine if it is Year-
2000-Compliant. Any such system or application which is not Year-2000-
Compliant is being modified or upgraded to assure the Company's
continued ability to operate without interruption. This process has
been underway since January 1, 1998 and is currently on schedule for
completion by June 30, 1999. The Company is in the process of obtaining
assurances regarding Year 2000 compliance from other companies upon
which it may rely for products or services.
The Company expects to implement successfully the systems and
programming changes necessary to address the Year 2000 Issue. The
Company expects to implement these changes using primarily internal
information technology and other personnel. Moreover, the Company does
not expect the costs associated with that implementation to be material
to the Company's financial position or results of operations.
With respect to products sold to customers, the Company does not
warrant any products sold as Year-2000-Compliant. Instead, the Company
refers customers to warrantees provided by the product's manufacturers.
The Company believes the most reasonably likely worst case Year 2000
scenario would include a combination of some or all of the following:
- - Internal information technology modules or systems may fail to
operate or may give erroneous information. Such failure could result in
shipping delays, inability to generate or delays in generation of
financial reports and statements, inability of the Company to
communicate among its various offices, and computer network downtime
resulting in inefficiencies and higher payroll expenses.
- - Components in HVAC, lighting, telephone, security and similar systems
might fail, causing such systems to fail.
- - Communications with customers and vendors that the Company depends
upon may fail or give erroneous information. These types of problems
could result in such difficulties as the inability to receive or
process customer orders, shipping delays, or sale of products at
erroneous prices. Furthermore, customers may be unable to, or may
suffer delays, in remitting payments to the Company on timely basis. -
The unavailability of products as a result of Year 2000 problems
experienced by one or more key vendors of the Company, or as a result
of changes in inventory levels at aggregators, VARs and similar
providers in response to an anticipated Year 2000 problem and/or the
inability of the Company to develop alternative sources for products.
- - Products sold to some of the Company's customers could fail to
perform some or all of their intended functions. In such a situation,
the Company's maximum obligation would be to repair or replace the
defective products to the extent the Company is required to do so under
manufacturer warranty.
The Company believes its plans for addressing the Year 2000 Issue as
outlined above are adequate to handle the most reasonably likely worst
case scenario. The Company does not believe it will incur a material
financial impact for the risk of failure, or from the costs associated
with assessing the risks of failure, arising from the Year 2000 Issue.
Consequently, the Company does not intend to create a contingency plan
other than as set forth above. In addition, if the Company's assessment
of its vendors, when completed, indicate that certain product shortages
can be anticipated, the Company may adjust its plans accordingly,
although the Company does believe that it has the capacity to maintain
significant levels of inventory.
The statements above describing the Company's plans and objectives for
handling the Year 2000 Issue and the expected impact of the Year 2000
Issue on the Company are forward-looking statements. Those statements
involve risks and uncertainties that could cause actual results to
differ materially from the results discussed above. Factors that might
cause such a difference include, but are not limited to, delays in
executing the plan outlined above and increased or unforeseen costs
associated with the implementation of the plan and any necessary
changes to the Company's systems. Any inability on the part of the
Company to implement necessary changes in a timely fashion could have
an adverse effect on future results of operations. Moreover, even if
the Company successfully implements the changes necessary to address
the Year 2000 Issue, there can be no assurance that the Company will
not be adversely affected by the failure of others to become Year-2000-
Compliant.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits
10.1 Business Financing Agreement as of January 19, 1999 between
Deutsche Financial Services Corporation and Micros-to-
Mainframes, Inc.
10.2 Addendum to Business Financing Agreement and Agreement for
Wholesale Financing.
10.3 Addendum to Agreement for Wholesale Financing
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MICROS-TO-MAINFRAMES, INC.
Date : February 8, 1999 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : February 8, 1999 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer and
President and Director
Date : February 8, 1999 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) and
Secretary
<PAGE>
Exhibit 10.1
BUSINESS FINANCING AGREEMENT
This Business Financing Agreement ("Agreement") is made as of January
19,1999 between Deutsche Financial Services Corporation ("DFS") and
Micros-to-Mainframes, Inc., a New York corporation ("Dealer"), having
a principal place of business located at 614 Corporate Way, Valley
Cottage, New York 10989.
_____________________________________________________________________
1. DEFINITIONS
1.1 Special Definitions. The following terms will have the
following meanings in this Agreement, Agreement for Wholesale
Financing and in the Other Agreements:
"Accounts": all accounts, leases, contract rights,
chattel paper, choses in action and instruments,
including any lien or other security interest that
secures or may secure any of the foregoing, plus all
books, invoices, documents and other records in any
form evidencing or relating to any of the foregoing,
now owned or hereafter acquired by Dealer.
"Accounts Receivable Facility": a credit facility
extended pursuant to this Agreement.
"Agreement for Wholesale Financing": any Agreement for
Wholesale Financing, as amended from time to time,
which Dealer has executed in conjunction with inventory
financing extended by DFS.
"Business Day": shall mean any day on which banks are
open for business in Boston, Massachusetts and New
York, New York, and on which dealings in dollar
deposits may be carried on in the interbank eurodollar
market.
"Collateral": shall have the meaning set forth in
Section 4.1.
"Conversion", "Convert" and "Converted": each refer to
a conversion of Loans from either LIBOR Loans to Prime
Rate Loans or vice versa.
"Default": the events or occurrences enumerated in
Section 6.
"Electronic Transfers": shall have the meaning set
forth in Section 3.10.
"Entity": any individual, association, firm,
corporation, partnership, limited liability company,
trust, governmental body, agency or instrumentality
whatsoever.
"Eurocurrency Liabilities": has the meaning specified
in Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Eurocurrency Reserve Percentage": for any Interest
Period for all LIBOR Loans comprising part of the same
borrowing, means the daily average reserve percentage
applicable during each day of such Interest Period
under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve
requirement (including without limitation any
emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve
System in New York City with respect to liabilities or
assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to
which the interest rate on LIBOR Loans is determined)
having a term equal to such Interest Period.
"Funding Date": shall mean the date designated by
Dealer for the making of a Loan hereunder.
"Guarantor": a guarantor of any of the Obligations.
"Interest Period": means, for each LIBOR Loan the
period commencing on the date of such LIBOR Loan or the
date of the Conversion of any Prime Rate Loan into a
LIBOR Loan, and ending on the last day of the period
selected by Dealer pursuant to the provisions below
and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest
Period and ending on the last day of the period
selected by the Dealer requesting a LIBOR Loan pursuant
to the provisions below. The duration of each such
Interest Period shall be one, two, or three months, as
Dealer may, upon notice received by DFS not later than
11:00 A.M. (New York, NY time) on the third Business
Day prior to the first day of such Interest Period,
select; provided that:
(a) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business
Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business
Day; provided that, if such extension would cause the
last day of such Interest Period to occur in the next
following calendar month, the last day of such
Interest Period shall occur on the next-preceding
Business Day;
(b) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for
which there is no numerically corresponding day in
the calendar month that succeeds such initial
calendar month by the number of months equal to the
number of months in such Interest Period, such
Interest Period shall end on the last Business Day of
such succeeding calendar month; and
(c) no Interest Period may be selected that ends
after the term of this Agreement.
"Inventory": all of Dealer's presently owned and
hereafter acquired goods which are held for sale or
lease.
"LIBOR Loans": shall mean Loans bearing interest for
Interest Periods at a rate determined by reference to
the LIBOR Rate (Reserve Adjusted).
"LIBOR Rate": means, for any Interest Period, an
interest rate per annum for deposits in U.S. dollars
that appears in the Money Rate column of the New York
edition of The Wall Street Journal two Business Days
before the first day of such Interest Period and for a
period equal to such Interest Period.
"LIBOR Rate (Reserve Adjusted)": shall mean, for any
LIBOR Loan for any Interest Period, the rate per annum
obtained by dividing the LIBOR Rate by a percentage
equal to 100% minus the Eurocurrency Reserve Percentage
for such Interest Period.
"Loan": shall mean any advance made to or for the
benefit of Dealer pursuant to this Agreement.
"Obligations": all liabilities and indebtedness now or
hereafter arising, owing, due or payable from Dealer to
DFS (and any of its subsidiaries and affiliates),
including any third party claims against Dealer
satisfied or acquired by DFS, whether primary or
secondary, joint or several, direct, contingent, fixed
or otherwise, and whether or not evidenced by
instruments or evidences of indebtedness, and all
covenants, agreements (including consent to binding
arbitration), warranties, duties and representations,
whether such Obligations arise under this Agreement,
the Other Agreements or any other agreements
previously, now or hereafter executed by Dealer and
delivered to DFS or by operation of law.
"Other Agreements": all security agreements (including
the Agreement for Wholesale Financing), mortgages,
leases, instruments, documents, guarantees, schedules,
certificates, contracts and similar agreements
heretofore, now or hereafter executed by Dealer and
delivered to DFS or delivered by or on behalf of Dealer
to a third party and assigned to DFS by operation of
law or otherwise.
"Prime Rate": the rate of interest which appears in
the Money Rate column of the New York edition of The
Wall Street Journal as the prime rate or reference
rate; provided, however, that for purposes of this
Agreement, the interest rate charged to Dealer will at
no time be computed on a Prime Rate of less than six
percent (6.0%) per annum. The Prime Rate will change
and take effect for purposes of this Agreement on the
day that any change in such prime rate or reference
rate appears.
"Prime Rate Loans": shall mean Loans bearing interest
at a rate determined by reference to the Prime Rate.
"Schedule": shall have the meaning set forth in Section 3.1.
2. CREDIT FACILITY/INTEREST RATES/FEES
2.1 Accounts Receivable Facility. Subject to the terms of this
Agreement, DFS agrees to provide to Dealer an Accounts
Receivable Facility of FIVE MILLION DOLLARS ($5,000,000).
2.1.1 Loan Options. Each Loan shall be either a Prime Rate
Loan or a LIBOR Loan as shall be selected by the Dealer,
except as otherwise provided herein. During any period that
any Default or any event which with notice, the passage of
time, or both, would constitute a Default, shall occur and be
continuing, Dealer shall no longer have the option of
electing LIBOR Loans, and all Loans made during such period
shall be Prime Rate Loans only; it being understood, however,
that nothing herein shall be construed to waive, amend or
modify any right or power of DFS hereunder, including,
without limitation, all rights to terminate the Accounts
Receivable Facility hereunder and declare all Obligations
immediately due and payable. Not more than three (3) LIBOR
Loans having different Funding Dates, interest rates and/or
Interest Periods shall be outstanding at any time. No LIBOR
Loans shall be made for less than the number of days
designated for the Interest Period of any such Loan, and in
no event less than one month prior to the termination of this
Agreement. Each LIBOR Loan shall be in an original principal
amount of $100,000, or any whole multiple of $25,000 in
excess thereof.
2.1.2 Borrowing Procedures. The Dealer shall give DFS
telephonic notice (promptly confirmed in writing), not later
than 11:00 a.m., New York, NY time, at least three (3)
Business Days prior to the Funding Date in the instance of
LIBOR Loans, or one (1) Business Day prior to the Funding
Date in the instance of Prime Rate Loans. Each notice shall
specify (i) the Funding Date, (ii) the aggregate amount of
the Loans requested, (iii) whether the Loan shall be a Prime
Rate Loan or a LIBOR Loan, and (iv) with respect to LIBOR
Loans, the Interest Period with respect thereto (subject to
the limitations set forth in the definition of Interest
Period). Any notice not specifying the type of Loan shall be
deemed a request for a Prime Rate Loan. In the case of any
LIBOR Loan, failure to deliver a timely notice shall be
deemed a request for a Prime Rate Loan.
2.1.3 Maturity of Loans. Unless Converted or otherwise
continued, each LIBOR Loan shall mature on the last day of
the applicable Interest Period, but in no event later than
the term of this Agreement.
2.1.4 Conversion and Designation of Interest Periods.
(i) Dealer may on any Business Day, upon notice given
to DFS not later than 11:00 A.M. (New York, NY time) on
the third Business Day prior to the date of the
proposed Conversion, Convert all or any portion of the
Loans; provided that:
(1) any conversion of LIBOR Loans into Prime Rate
Loans shall be made only on the last day of an
Interest Period for such LIBOR Loans; any
conversion of Prime Rate Loans into LIBOR Loans,
shall be in an amount not less than the minimum
amount specified in Section 2.1.1;
(2) each Conversion of less than all Loans
comprising part of the same borrowing shall be
deemed to be an additional Loan for purposes of
Section 2.1.1, and no such Conversion of any Loans
may result in there being outstanding more
separate Loans than permitted under Section 2.1.1;
and
(3) no Prime Rate Loans may be Converted into
LIBOR Loans while a Default or any event which
with notice, the passage of time, or both, would
constitute a Default, has occurred and is
continuing.
Each such notice of Conversion shall, within the
restrictions specified above, specify (x) the date of
such Conversion, (y) the Loans to be Converted and (z)
if such conversion is into LIBOR Loans, the initial
Interest Period for such Loans. Each notice of
Conversion shall be irrevocable and binding on the
Dealer.
(ii) On the date on which the aggregate unpaid
principal amount of LIBOR Loans shall be reduced, by
payment or prepayment or otherwise, to less than
$100,000, such LIBOR Loans shall automatically Convert
into Prime Rate Loans.
(iii) If Dealer shall fail to select the duration of
any Interest Period for any LIBOR Loans in accordance
with the provisions contained in the definition of
"Interest Period", DFS will forthwith so notify Dealer,
whereupon each such LIBOR Loan will automatically on
the last day of the then-existing Interest Period
therefor Convert into a Prime Rate Loan.
2.1.5 Interest; Calculation of Charges.
(a) Prime Rate Loans.
(i) Interest. Dealer hereby agrees to pay interest to
DFS, on the Daily Contract Balance (as defined below)
of the Prime Rate Loans at a per annum rate that is
equal to the Prime Rate. Interest on Prime Rate Loans
prior to maturity shall be payable monthly and at
maturity.
(ii) Calculation of Charges. Such interest rate will:
(i) be computed based on a 360 day year; (ii) be
calculated with respect to each day by multiplying the
Daily Rate (as defined below) by the Daily Contract
Balance applicable to the Prime Rate Loans; and (iii)
accrue from the date DFS authorizes any Electronic
Transfer of or otherwise advances a Prime Rate Loan to
or for the benefit of Dealer, until DFS receives full
payment of the principal debt Dealer owes DFS in good
funds in accordance with DFS' payment recognition
policy and DFS applies such payment to Dealer's
principal debt in accordance with the terms of this
Agreement.
(iii) Definitions. The "Daily Rate" is the quotient
of the applicable annual rate provided herein divided
by 360. The "Daily Contract Balance" is the amount of
outstanding principal debt which Dealer owes DFS at the
end of each day (including the amount of all Electronic
Transfers authorized) after DFS has credited payments
which it has received.
(b) LIBOR Loans.
(i) Interest. The unpaid principal amount of the
LIBOR Loans shall bear interest prior to maturity at a
rate per annum equal to the LIBOR Rate (Reserve
Adjusted) in effect for each Interest Period, plus one
and one-half percent (1.5%) per annum. Interest on
LIBOR Loans prior to maturity shall be payable monthly
and at maturity.
(ii) Calculation of Charges. Interest on each LIBOR
Loan shall be computed on the basis of a year
consisting of 360 days and paid for actual days
elapsed, calculated as to each Interest Period from and
including the first day thereof but excluding the last
day thereof.
2.1.6 Unused Line Fee. Dealer agrees to pay DFS an unused
line fee of one hundred twenty-five one-thousandths of
one percent (.125%) per annum on the daily average of
the unused amount of the maximum amount of the Accounts
Receivable Facility during the term of this Agreement
and any renewal term. Such unused line fee shall be
payable quarterly in arrears and due pursuant to the
applicable billing statement. In no event, however,
shall Dealer be obligated to pay such fee to the extent
that all or any portion of such unused amount of the
Accounts Receivable Facility relates solely to DFS'
refusal to make such amounts available for any reason
other than Dealer's failure to satisfy any precondition
to the making of an advance hereunder, a Default (or
the occurrence of any event which, but for the passage
of time or notice, or both, would be a Default), or
insufficiency of Collateral upon which to fund advances
hereunder. Such unused amount of the Accounts
Receivable Facility in any quarter shall mean the
difference between the maximum amount of the Accounts
Receivable Facility and the Daily Contract Balance
during such quarter. Such fee shall also be payable by
Dealer upon the maturity or other termination of this
Agreement.
2.1.7 Maximum Interest. Dealer acknowledges that DFS intends
to strictly conform to the applicable usury laws
governing this Agreement. Regardless of any provision
contained herein or in any other document executed or
delivered in connection herewith or therewith, DFS
shall never be deemed to have contracted for or charged
or be entitled to receive, collect or apply as interest
under this Agreement (whether termed interest herein or
deemed to be interest by judicial determination or
operation of law), any amount in excess of the maximum
amount allowed by applicable law, and, if DFS ever
receives, collects or applies as interest any such
excess, such amount which would be excessive interest
will be applied first to the reduction of the unpaid
principal balances of Loans under this Agreement, and,
second, any remaining excess will be paid to Dealer.
In determining whether or not the interest paid or
payable under any specific contingency exceeds the
highest lawful rate, Dealer and DFS shall, to the
maximum extent permitted under applicable law: (a)
characterize any non-principal payment (other than
payments which are expressly designated as interest
payments hereunder) as an expense or fee rather than as
interest; (b) exclude voluntary pre-payments and the
effect thereof; and (c) spread the total amount of
interest throughout the entire term of this Agreement
so that the interest rate is uniform throughout such
term.
2.2 Payments. DFS will send Dealer a monthly billing
statement(s) identifying all charges due on Dealer's account
with DFS, and DFS agrees to use its best efforts to mail such
statement to Dealer no later than 7 Business Days from the
beginning of any month. Dealer must immediately notify DFS
if it has not received a billing statement in any month by
the 15th day of such month. The interest and fee charges
specified on each billing statement will be: (a) due and
payable in full immediately on receipt, and (b) an account
stated, unless DFS receives Dealer's written objection
thereto within fifteen (15) days after it is mailed to
Dealer. If DFS does not receive, by the 25th day of any
given month, payment of all charges accrued to Dealer's
account with DFS during the immediately preceding month,
Dealer will (to the extent allowed by law) pay DFS a late fee
("Late Fee") equal to the greater of $5 or 5% of the amount
of all such charges (payment of the Late Fee does not waive
the Default caused by the late payment). Dealer will also
pay DFS $100 for each of Dealer's checks returned unpaid for
insufficient funds (an "NSF check") (such $100 payment repays
DFS' estimated administrative costs; it does not waive the
Default caused by the NSF check). DFS may adjust the billing
statement at any time to conform to applicable law and this
Agreement. Dealer waives the right to direct the application
of any payments hereafter received by DFS on account of the
Obligations. DFS will have the continuing exclusive right to
apply and reapply any and all such payments in such manner as
DFS may deem advisable notwithstanding any entry by DFS upon
its books and records.
2.3 One Loan. DFS may combine all of DFS' Loans to Dealer or on
Dealer's behalf, whether under this Agreement or any Other
Agreements, and whether provided by one or more of DFS'
branch offices, together with all finance charges, fees and
expenses related thereto, to make one debt owed by Dealer.
3. ACCOUNTS RECEIVABLE FACILITY - ADDITIONAL PROVISIONS
3.1 Schedules. Dealer will, no less than weekly or as otherwise
agreed to, furnish DFS with a schedule of Accounts
("Schedule") which will: (a) describe all Accounts created
or acquired by Dealer since the last Schedule furnished DFS;
(b) inform DFS of any rejection of goods by any obligor,
delays in delivery of goods, non-performance of contracts and
of any assertion of any claim, offset or counterclaim by any
obligor; and (c) inform DFS of any adverse information
relating to the financial condition of any obligor.
3.2 Available Credit. On receipt of each Schedule, DFS will
credit Dealer with such amount as DFS may deem advisable up
to eighty-five percent (85%) of the net amount of the
eligible Accounts listed in such Schedule (as determined
pursuant to Section 3.3 hereof), but in no event to exceed
the amount, if any, requested by Dealer. DFS will loan
Dealer such amounts so credited or a part thereof as
requested provided that at no time will such outstanding
Loans exceed Dealer's maximum Accounts Receivable Facility
from time to time established by DFS. No Loans shall be made
by DFS if Dealer has failed to satisfy any precondition to
the making of an advance hereunder, if there exists a Default
or if there occurs any event which, but for the passage of
time or notice, or both, would be a Default.
3.3 Ineligible Accounts. DFS will have the sole right to
determine eligibility of Accounts and, without limiting DFS'
discretion in that regard, the following Accounts will be
deemed ineligible: (a) Accounts created from the sale of
goods and services on non-standard terms and/or that allow
for payment to be made more than sixty (60) days from the
date of sale; (b) Accounts unpaid more than ninety (90) days
from date of invoice; (c) all Accounts of any obligor with
fifty percent (50%) or more of the outstanding balance unpaid
for more than ninety (90) days from the date of invoice; (d)
Accounts for which the obligor is an officer, director,
shareholder, partner, member, owner, employee, agent, parent,
subsidiary, or affiliate of, or is related to Dealer or has
common shareholders, officers, directors, owners, partners or
members; (e) consignment sales; (f) Accounts for which the
payment is or may be conditional; (g) Accounts for which the
obligor is not a commercial or institutional entity or is not
a resident of the United States or Canada; (h) Accounts with
respect to which any warranty or representation provided in
Subsection 3.4 is not true and correct; (i) Accounts which
represent goods or services purchased for a personal, family
or household purpose; (j) Accounts which represent goods used
for demonstration purposes or loaned by the Dealer to another
party; (k) Accounts which are progress payment, barter, or
contra accounts; (l) Accounts which are not denominated in
U.S. Dollars; and (m) any and all other Accounts which DFS
deems to be ineligible. If DFS determines that any Account
is or becomes an ineligible Account, immediately upon notice
thereof from DFS, Dealer will pay to DFS an amount equal to
the monies loaned by DFS for such ineligible Account.
3.4 Warranties and Representations. For each Account which
Dealer lists on any Schedule, Dealer warrants and represents
to DFS that at all times: (a) such Account is genuine; (b)
such Account is not evidenced by a judgment or promissory
note or similar instrument or agreement; (c) it represents an
undisputed bona fide transaction completed in accordance with
the terms of the invoices and purchase orders relating
thereto; (d) the goods sold or services rendered which
resulted in the creation of such Account have been delivered
or rendered to and accepted by the obligor thereon; (e) the
amounts shown on the Schedules, Dealer's books and records
and all invoices and statements delivered to DFS with respect
thereto are owing to Dealer and are not contingent; (f) no
payments have been or will be made thereon except payments
turned over to DFS; (g) there are no offsets, counterclaims
or disputes existing or asserted with respect thereto and
Dealer has not made any agreement with any obligor for any
deduction or discount of the sum payable thereunder except
regular discounts allowed by Dealer in the ordinary course of
its business for prompt payment; (h) there are no facts or
events which in any way impair the validity or enforceability
thereof or reduce the amount payable thereunder from the
amount shown on the Schedules, Dealer's books and records and
the invoices and statements delivered to DFS with respect
thereto; (i) all persons acting on behalf of obligors thereon
have the authority to bind the obligor; (j) the goods sold or
transferred giving rise thereto are not subject to any lien,
claim, encumbrance or security interest which is superior to
that of DFS; and (k) there are no proceedings or actions
known to Dealer which are threatened or pending against any
obligor thereon which might result in any material adverse
change in such obligor's financial condition.
3.5 Notes. Loans made pursuant to this Agreement need not be
evidenced by promissory notes unless otherwise required by
DFS in DFS' sole discretion.
3.6 Certain Charges. Dealer will (a) reimburse DFS for all
charges made by banks, including charges for collection of
checks and other items of payment, and (b) pay DFS' fees for
transfers of funds to or from the Dealer. DFS may, from time
to time, announce its fees for transfers of funds to or from
the Dealer, including the issuance of Electronic Transfers.
3.7 Collections.
3.7.1 Collection and Deposit of Accounts. Unless otherwise
directed by DFS, Dealer is hereby authorized to collect
Accounts from its obligors directly, as agent for DFS and
trustee of an express trust for DFS' benefit. Dealer will
receive all payments on Accounts as agent and in trust for
DFS and will deposit, on the day of receipt thereof, all
original checks, drafts, acceptances, and other evidences of
payment of Accounts, including all cash, into the account
designated in that certain Contingent Blocked Account
Agreement of even date herewith (as amended from time to
time, collectively, the "Blocked Account Documents").
3.7.2 Collections Upon Default. If there exists a Default
or upon the occurrence of an event which, but for the passage
of time or notice, or both, would be a Default:
(a) DFS may send the bank maintaining and servicing
the account designated in the Blocked Account Documents, the
requisite notice which shall "block" the account in favor of
DFS and cease Dealer's ability to withdraw or otherwise
access the account or the funds and remittances therein. Such
notice shall also instruct such bank as to which account(s)
of DFS the remittances and other proceeds shall be
transferred, for application on account of the Obligations.
(b) In no way limiting the foregoing or any other of
DFS' rights and remedies upon the occurrence of a Default,
DFS may notify any or all obligors that the Accounts have
been assigned to DFS, collect the Accounts directly in its
own name and charge the collection costs and expenses,
including attorneys' fees, to Dealer.
(c) The provisions of this Section 3.7.2 will not
serve as a waiver of any Default or of any of DFS' rights and
remedies available to it as a result of any Default.
3.7.3 Collections Generally. The account(s) into which the
remittances and proceeds regarding the Accounts are deposited
shall be established at banks selected by the Dealer and
satisfactory to DFS. All funds deposited in any such account
are subject to DFS' security interest therein, and the
Blocked Account Documents shall contain the agreement of such
bank(s) to waive any offset rights against the funds so
deposited. DFS assumes no responsibility for such account
arrangements, including, without limitation, any claim of
accord and satisfaction or release with respect to deposits
accepted by any bank thereunder. All remittances received by
Dealer on account of Accounts, and the proceeds of any of the
other Collateral, shall be: (i) held by Dealer as trustee of
an express trust for DFS' benefit; and (ii) immediately
deposited in the account(s) designated in the Blocked Account
Documents. All proceeds received or collected by DFS with
respect to Accounts, and reserves and other property of
Dealer in possession of DFS at any time or times hereafter,
may be held by DFS without interest to Dealer until all
Obligations are paid in full or applied by DFS on account of
the Obligations. DFS may release to Dealer such portions of
such reserves and proceeds as DFS may determine. DFS has no
duty to protect, insure, collect or realize upon the Accounts
to preserve rights in them.
3.8 Collection Days. All payments and all amounts received on
any Account will be credited by DFS to Dealer's account
(subject to final collection thereof) after allowing three
(3) Business Days for collection of checks or other
instruments.
3.9 Power of Attorney. Dealer irrevocably appoints DFS (and any
person designated by it) as Dealer's true and lawful
attorney-in-fact with full power to at any time, in the
discretion of DFS (whether or not a Default has occurred) to:
(a) endorse the name of Dealer upon any of the items of
payment or proceeds and deposit the same in the account of
DFS for application to the Obligations; (b) sign the name of
Dealer to verify the accuracy of the Accounts; (c) sign the
name of Dealer on any document or instrument that DFS shall
deem necessary or appropriate to perfect and maintain
perfected the security interests in the Collateral under this
Agreement and the Other Agreements; and (d) endorse Dealer's
name on any check, instrument or other item of payment. Upon
the occurrence and during the continuance of a Default,
Dealer irrevocably appoints DFS (and any person designated by
it) as Dealer's true and lawful attorney-in-fact with full
power at any time, in the discretion of DFS to: (i) demand
payment, enforce payment and otherwise exercise all of
Dealer's rights, and remedies with respect to the collection
of any Accounts; (ii) settle, adjust, compromise, extend or
renew any Accounts; (iii) settle, adjust or compromise any
legal proceedings brought to collect any Accounts; (iv) sell
or assign any Accounts upon such terms, for such amounts and
at such time or times as DFS may deem advisable; (v)
discharge and release any Accounts; (vi) prepare, file and
sign Dealer's name on any Proof of Claim in Bankruptcy or
similar document against any obligor; (vii) endorse the name
of Dealer upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining
thereto; (viii) take control in any manner of any item of
payments or proceeds and for such purpose to notify the
postal authorities to change the address for delivery of mail
addressed to Dealer to such address as DFS may designate, and
(ix) initiate and settle any insurance claim. The power of
attorney is for value and coupled with an interest and is
irrevocable so long as any Obligations remain outstanding and
by DFS exercising such right, DFS shall not waive any right
against Dealer until the Obligations are paid in full.
3.10 Continuing Requirements. Loans hereunder will be made by
DFS, at Dealer's direction, by paper check, electronic
transfer by Automated Clearing House ("ACH"), Fed Wire Funds
Transfer ("Fed Wire") or such other electronic means as DFS
may announce from time to time (ACH, Fed Wire and such other
electronic transfer are collectively referred to as
"Electronic Transfers"). If Dealer does not request a Loan
be made in a specific method of transfer, DFS may determine
from time to time in its sole discretion what method of
transfer to use. Dealer will: (a) if from time to time
required by DFS, immediately upon their creation, deliver to
DFS copies of all invoices, delivery evidences and other such
documents relating to each Account; (b) not permit or agree
to any extension, compromise or settlement or make any change
to any Account; (c) affix appropriate endorsements or
assignments upon all such items of payment and proceeds so
that the same may be properly deposited by DFS to DFS'
account; (d) immediately notify DFS in writing which Accounts
may be deemed ineligible as defined in Subsection 3.3; (e)
mark all chattel paper and instruments now owned or hereafter
acquired by it to show that the same are subject to DFS'
security interest and immediately thereafter deliver such
chattel paper and instruments to DFS with appropriate
endorsements and assignments to DFS; (f) within ten (10) days
after the end of each month, provide DFS with a detailed
aging of its Accounts for each month, together with the names
and addresses of all obligors.
3.11 Release. Dealer releases DFS from all claims and causes of
action which Dealer may now or hereafter have for any loss or
damage to it claimed to be caused by or arising from: (a)
any failure of DFS to protect, enforce or collect, in whole
or in part, any Account; (b) DFS' notification to any
obligors thereon of DFS' security interest in any of the
Accounts; (c) DFS' directing any obligor to pay any sum owing
to Dealer directly to DFS; and (d) any other act or omission
to act on the part of DFS, its officers, agents or employees,
except for willful misconduct. DFS will have no obligation
to preserve rights to Accounts against prior parties. Dealer
waives all rights of offset and counterclaims Dealer may have
against DFS.
3.12 Review. Dealer grants DFS an irrevocable license to enter
Dealer's business locations during normal business hours
without notice to Dealer to: (a) account for and inspect all
Collateral; (b) verify Dealer's compliance with this
Agreement; and (c) review, examine, and make copies of
Dealer's books, records, files and business procedures and
practices. DFS may, without notice to Dealer and at any time
or times hereafter, verify the validity, amount or any other
matter relating to any Account by mail, telephone, or other
means, in the name of Dealer or DFS.
3.13
(a) Increased Costs. If, as a result of any law, regulation,
treaty or directive, or any change therein, or in the
interpretation or application thereof or compliance by DFS with
any request or directive (whether or not having the force of
law) from any court or governmental authority, agency or
instrumentality:
(i) the basis of taxation of payments to DFS (for purposes of
this Section 3.13, "DFS" shall also refer to any affiliates
of DFS engaged in the funding of the lending obligations
hereunder) of the principal of or interest on any LIBOR Loan
(other than taxes imposed on the overall net income of DFS by
the jurisdiction in which DFS has its principal office) is
changed;
(ii) any reserve, special deposit or similar requirements
against assets of, deposits with or for the account of, or
credit extended by, DFS are imposed, modified or deemed
applicable; or
(iii) any other condition affecting this Agreement or the
LIBOR Loans is imposed on DFS or the interbank eurodollar
market;
and DFS determines that, by reason thereof, the cost to DFS of
making or maintaining any of the LIBOR Loans is increased, or
the amount of any sum receivable by DFS hereunder in respect of
any of the LIBOR Loans is reduced;
then, Dealer shall pay to DFS upon demand (which demand shall be
accompanied by a statement setting forth the basis for the
calculation thereof but only to the extent not theretofore
provided to Dealer) such additional amount or amounts as will
compensate DFS for such additional cost or reduction (provided
such amount has not been compensated for in the calculation of
the Eurocurrency Reserve Percentage). Determinations by DFS for
purposes of this Section of the additional amounts required to
compensate DFS in respect of the foregoing shall be conclusive,
absent manifest error. Dealer's obligations hereunder will
survive termination of this Agreement.
(b) Eurodollar Deposits Unavailable or Interest Rate
Unascertainable. If Dealer has any LIBOR Loan outstanding, or
has notified DFS of the intention to borrow a LIBOR Loan as
provided herein, then in the event that prior to any Interest
Period DFS shall have determined (which determination shall be
conclusive and binding on the parties hereto) that deposits of
the necessary amount for that relevant Interest Period are not
available to DFS in the interbank eurodollar market or that, by
reason of circumstances affecting such market, adequate and
reasonable means do not exist for ascertaining the LIBOR Rate
applicable to such Interest Period, DFS shall promptly give
notice of such determination to Dealer, and any notice of new
LIBOR Loans previously given by Dealer and not yet borrowed or
Converted shall be deemed a notice to make a Prime Rate Loan to
the extent of DFS' proposed LIBOR Loan.
(c) Changes in Law Rendering LIBOR Loans Unlawful. If at any
time due to any new law, treaty or regulation, or any change of
any existing law, treaty or regulation, or any interpretation
thereof by any governmental or other regulatory authority
charged with the administration thereof, or for any other reason
arising subsequent to the date hereof, it shall become unlawful
for DFS to fund any LIBOR Loan which it is committed to make
hereunder, the obligation of DFS to provide LIBOR Loans shall,
upon the happening of such event, forthwith be suspended for the
duration of such illegality. If any such change shall make it
unlawful to continue LIBOR Loans previously made by it
hereunder, DFS shall, upon the happening of such event, notify
Dealer thereof in writing stating the reasons therefor, and
Dealer shall, if required by such law, regulation or
interpretation, on such date as shall be specified in such
notice, either Convert such unlawful LIBOR Loans to Prime Rate
Loans, or prepay all such LIBOR Loans, without any penalty or
premium whatsoever (except as provided in Section 3.13(e)), to
DFS in full. Any prepayment made pursuant to this Section
3.13(c) shall be deemed to reduce the aggregate credit available
hereunder by the principal amount so prepaid. Any such
prepayment shall be subject to the provisions of Section
3.13(e).
(d) Capital Adequacy. If DFS shall determine at any time
after the date of this Agreement that the adoption of or any
change in any law, rule, guideline or regulation regarding
capital adequacy, or compliance with any law, rule, guideline or
regulation regarding capital adequacy, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by DFS
with any request or directive or compliance with any law, rule,
guideline or regulation regarding capital adequacy (whether or
not having the force of law) from any such authority, central
bank or comparable agency, has or would have the effect of
reducing the rate of return on DFS' capital as a consequence of
its obligations hereunder to a level below that which DFS could
have achieved but for such adoption, change or compliance
(taking into consideration DFS' policies with respect to capital
adequacy) by an amount deemed by DFS to be material, then Dealer
shall pay to DFS upon demand such amount or amounts, in addition
to the amounts payable under the other provisions of this
Agreement, as will compensate DFS for such reduction. Any such
demand by DFS hereunder shall be in writing, and shall set forth
the reasons for such demand and copies of all documentation
reasonably relevant in support thereof. Determinations by DFS
for purposes of this Section 3.13(d) of the additional amount or
amounts required to compensate DFS in respect of the foregoing
shall be conclusive in the absence of manifest error. In
determining such amount or amounts, DFS may use any reasonable
averaging and attribution methods. Dealer's obligations
hereunder will survive termination of this Agreement.
(e) Indemnity. The Dealer will indemnify DFS against any loss
or expense which DFS may sustain or incur, including without
limitation, any loss or expense sustained or incurred in
obtaining, liquidating or employing deposits or other funds
acquired to effect, fund or maintain a Loan (a) as a consequence
of any failure by Dealer to make any payment when due of any
amount due hereunder in connection with a LIBOR Loan, (b) due to
any failure of Dealer to borrow, continue or Convert on a date
specified therefor in a notice thereof, or (c) due to any
payment, prepayment or Conversion of any LIBOR Loan on a date
other than the last day of the Interest Period for such Loan.
Determinations by DFS for purposes of this Section of any
amounts required to compensate DFS in respect of the foregoing
shall be delivered to Dealer in writing and shall be conclusive,
absent manifest error. Dealer's obligations hereunder will
survive termination of this Agreement.
(f) Discretion as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary, DFS shall be
entitled to fund and maintain its funding of all or any part of
its LIBOR Loans in any manner it elects, it being understood,
however, that for the purposes of this Agreement all
determinations hereunder shall be made as if DFS had actually
funded and maintained each LIBOR Loan through the purchase of
deposits having a maturity corresponding to the maturity of each
LIBOR Loan and bearing an interest rate equal to the LIBOR Rate.
DFS may, if it so elects, fulfill any commitment to make LIBOR
Loans by causing a foreign affiliate to make or continue such
LIBOR Loans, provided, however, that in such event such Loans
shall be deemed for the purposes of this Agreement to have been
made by DFS, and the obligation of the Dealer to repay such
Loans shall nevertheless be to DFS and shall be deemed held by
DFS, to the extent of such Loans, for the account of such branch
or affiliate.
Notwithstanding anything herein to the contrary, any participant
of DFS shall also be entitled to the benefit of and be
permitted to rely on the terms of Sections 3.13 (a), (c), (d)
and (e) hereof as if each reference to DFS therein referenced
such participant as well.
4. SECURITY - COLLATERAL
4.1 Grant of Security Interest. To secure payment of all of
Dealer's current and future Obligations and to secure
Dealer's performance of all of the provisions under this
Agreement and the Other Agreements, Dealer grants DFS a
security interest in all of Dealer's inventory, equipment,
fixtures, accounts, contract rights, chattel paper, security
agreements, instruments, deposit accounts, reserves,
documents, and general intangibles; and all judgments,
claims, insurance policies, and payments owed or made to
Dealer thereon; all whether now owned or hereafter acquired,
all attachments, accessories, accessions, returns,
repossessions, exchanges, substitutions and replacements
thereto, and all proceeds thereof. All such assets are
collectively referred to herein as the "Collateral." All of
such terms for which meanings are provided in the Uniform
Commercial Code of the applicable state are used herein with
such meanings. Dealer covenants with DFS that DFS may
realize upon all or part of any Collateral in any order it
desires and any realization by any means upon any Collateral
will not bar realization upon any other collateral. Dealer's
liability under this Agreement is direct and unconditional
and will not be affected by the release or nonperfection of
any security interest granted hereunder. All Collateral
financed by DFS, and all proceeds thereof, will be held in
trust by Dealer for DFS, with such proceeds being payable in
accordance with this Agreement.
5. WARRANTIES AND REPRESENTATIONS
5.1 Affirmative Warranties and Representations. Except as
otherwise specifically provided in the Other Agreements,
Dealer warrants and represents to DFS that: (a) Dealer has
good title to all Collateral; (b) DFS' security interest in
the Collateral will at all times constitute a perfected,
first priority security interest and will not become
subordinate to the security interest, lien, encumbrance or
claim of any Entity; (c) Dealer will execute all documents
DFS requests to perfect and maintain DFS' security interest
in the Collateral and to fully consummate the transactions
contemplated under this Agreement and the Other Agreements;
(d) Dealer is and will at all times be duly organized,
existing, in good standing, qualified and licensed to do
business in each state, county, or parish, in which the
nature of its business or property so requires; (e) Dealer
has the right and is duly authorized to enter into this
Agreement; (f) Dealer's execution of this Agreement does not
constitute a breach of any agreement to which Dealer is now
or hereafter becomes bound; (g) there are and will be no
actions or proceedings pending or threatened against Dealer
which might result in any material adverse change in Dealer's
financial or business condition or which might in any way
adversely affect any of Dealer's assets; (h) Dealer will
maintain the Collateral in good condition and repair; (i)
Dealer has duly filed and will duly file all tax returns
required by law; (j) Dealer has paid and will pay when due
all taxes, levies, assessments and governmental charges of
any nature; (k) Dealer will maintain a system of accounting
in accordance with generally accepted accounting principles
and account records which contain such information in a
format as may be requested by DFS; (l) Dealer will keep and
maintain all of its books and records pertaining to the
Accounts at its principal place of business designated in
this Agreement; (m) Dealer will promptly supply DFS with such
information concerning it or any Guarantor as DFS hereafter
may reasonably request; (n) Dealer will give DFS thirty (30)
days prior written notice of any change in Dealer's identity,
name, form of business organization, principal place of
business, Collateral locations or other business locations;
and before moving any books and records to any other
location; (o) Dealer will observe and perform all matters
required by any lease, license, concession or franchise
forming part of the Collateral in order to maintain all the
rights of DFS thereunder; (p) Dealer will advise DFS of the
commencement of material legal proceedings against Dealer or
any Guarantor; (q) Dealer will comply with all applicable
laws and will conduct its business in a manner which
preserves and protects the Collateral and the earnings and
incomes thereof; (r) the making and performance of this
Agreement and all Other Agreements, will not immediately, or
with the passage of time, the giving of notice, or both: (i)
violate the provisions of the bylaws or any other corporate
document of Dealer; or (ii) violate any laws or judgments
applicable to the Dealer, to the best of Dealer's knowledge
after diligent inquiry; (s) Dealer has the corporate power to
borrow and to execute, deliver and carry out the terms and
provisions of this Agreement and the Other Agreements; (t)
Dealer has taken or caused to be taken all necessary
corporate action to authorize the execution, delivery and
performance of this Agreement and all Other Agreements and
the borrowing hereunder; (u) this Agreement and each Other
Agreement executed by Dealer are the valid and binding
obligations of Dealer and are enforceable against Dealer in
accordance with their terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to
the enforcement of creditors' rights; (v) Dealer has obtained
all material consents, permits, licenses, approvals or
authorization of, or effected the filing, registration or
qualification with, any governmental entity which is required
to be obtained or effected by Dealer in connection with its
business or the execution and delivery of this Agreement and
the Other Agreements the failure of which to obtain or effect
would have a material adverse effect on Dealer individually,
or on Dealer and its subsidiaries on a consolidated basis;
and (w) Dealer will keep the Collateral insured for its full
insurable value under an "all risk" property insurance policy
with a company acceptable to DFS, naming DFS as a lender
loss-payee or mortgagee and containing standard lender's loss
payable and termination provisions. Dealer will provide DFS
with written evidence of such property insurance coverage and
lender's loss-payee or mortgagee endorsement.
5.2 Negative Covenants. Dealer will not at any time (without
DFS' prior written consent): (a) grant to or in favor of any
Entity a security interest in or permit to exist a lien,
claim or encumbrance in the Collateral which is superior to
the interest of DFS; (b) other than in the ordinary course of
its business, sell, lease or otherwise dispose of or transfer
any of its assets; (c) merge or consolidate with another
Entity in a transaction pursuant to which Dealer is not the
survivor; (d) enter into any transaction not in the ordinary
course of business; (e) guarantee or indemnify or otherwise
become in any way liable with respect to the obligations of
any Entity, except by endorsement of instruments or items of
payment for deposit to the general account of Dealer or which
are transmitted or turned over to DFS on account of the
Obligations; (f) [RESERVED]; (g) make any change in Dealer's
capital structure or in any of its business objectives or
operations which might in any way adversely affect the
ability of Dealer to repay the Obligations; (h) make any
distribution of Dealer's assets not in the ordinary course of
business; (i) incur any debts outside of the ordinary course
of business except renewals or extensions of existing debts
and interest thereon; or (j) make any loans, advances,
contributions or payments of money or in goods to any
affiliated entity or to any officer, director, stockholder,
member or partner of Dealer or of any such entity (except for
(1) compensation for personal services actually rendered, and
(2) loans to any officer, director, or stockholder of Dealer
which loans in the aggregate to all such persons do not
exceed $100,000 at any time). Except upon thirty (30) days
prior written notice to DFS, Dealer will not at any time,
acquire the assets or ownership interest of any other Entity.
5.3 Financial Statements. Dealer will deliver to DFS: (a)
within ninety (90) days after the end of each of Dealer's
fiscal years, a reasonably detailed balance sheet as of the
last day of such fiscal year and a reasonably detailed income
statement covering Dealer's operations for such fiscal year,
in a form satisfactory to DFS; (b) within forty-five (45)
days after the end of each of Dealer's fiscal quarters, a
reasonably detailed balance sheet as of the last day of such
quarter and an income statement covering Dealer's operations
for such quarter in a form satisfactory to DFS; and (c)
within ten (10) days after request therefor by DFS, any other
report requested by DFS relating to the Collateral or the
financial condition of Dealer. Dealer warrants and
represents to DFS that all financial statements and
information relating to Dealer or any Guarantor which have
been or may hereafter be delivered by Dealer or any Guarantor
to DFS are true and correct and have been and will be
prepared in accordance with generally accepted accounting
principles consistently applied and, with respect to such
previously delivered statements or information, there has
been no material adverse change in the financial or business
condition of Dealer or any Guarantor since the submission to
DFS, either as of the date of delivery, or, if different, the
date specified therein, and Dealer acknowledges DFS' reliance
thereon.
6. DEFAULT
6.1 Definition. Dealer will be in default under this Agreement
if: (a) Other than the breach described in Section 6.1(d)
below, Dealer breaches any terms, warranties or
representations contained herein or in any Other Agreements
and such breach is not cured within ten (10) days of Dealer's
receipt of written notice of such breach from DFS; (b) any
Guarantor of Dealer's debts to DFS breaches any terms,
warranties or representations contained in any guaranty or
Other Agreements and such breach is not cured within ten (10)
days of Dealer's receipt of written notice of such breach
from DFS; (c) any representation, statement, report, or
certificate made or delivered by Dealer or any Guarantor to
DFS is not accurate when made and such breach is not cured
within ten (10) days of Dealer's receipt of written notice of
such breach from DFS; (d) Dealer fails to pay any of the
Obligations within five (5) Business Days of when due and
payable; (e) Dealer abandons a material amount of any
Collateral; (f) Dealer or any Guarantor is or becomes in
default in the payment of any debt owed to any third party
which in the aggregate as to Dealer and all Guarantors at any
time exceeds $350,000; (g) a money judgment issues against
Dealer or any Guarantor which in the aggregate as to Dealer
and all Guarantors at any time exceeds $350,000; (h) an
attachment, sale or seizure issues or is executed against any
assets of Dealer or of any Guarantor; (i) [RESERVED]; (j)
[RESERVED]; (k) Dealer or any Guarantor shall cease existence
as a corporation, partnership, limited liability company or
trust, as applicable; (l) Dealer or any Guarantor ceases or
suspends business; (m) Dealer, any Guarantor or any member
while Dealer's business is operated as a limited liability
company, as applicable, makes a general assignment for the
benefit of creditors; (n) Dealer, any Guarantor or any member
while Dealer's business is operated as a limited liability
company, as applicable, becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code,
any state insolvency law or any similar law; (o) any receiver
is appointed for any assets of Dealer, any Guarantor or any
member while Dealer's business is operated as a limited
liability company, as applicable; (p) any guaranty of
Dealer's debt to DFS is terminated; (q) Dealer loses any
material franchise, permission, license or right to sell or
deal in any Collateral which DFS finances; (r) Dealer or any
Guarantor misrepresents Dealer's or such Guarantor's
financial condition or organizational structure; or (s) DFS
determines in good faith that it is insecure with respect to
any of the Collateral or the payment of any part of Dealer's
Obligations.
6.2 Rights of DFS. In the event of a Default:
(a) DFS may at any time at DFS' election, with notice
and/or demand to Dealer, do any one or more of the
following: cease making advances hereunder, declare
all or any of the Obligations immediately due and
payable, together with all costs and expenses of DFS'
collection activity, including, without limitation, all
reasonable attorneys' fees; exercise any or all rights
under applicable law (including, without limitation,
the right to possess, transfer and dispose of the
Collateral); and/or cease extending any additional
credit to Dealer.
(b) Dealer will segregate and keep the Collateral in trust
for DFS, and in good order and repair, and will not
sell, rent, lease, consign, otherwise dispose of or use
any Collateral, nor further encumber any Collateral.
(c) Upon DFS' oral or written demand, Dealer will
immediately deliver the Collateral to DFS, in good
order and repair, at a place specified by DFS, together
with all related documents; or DFS may, in DFS' sole
discretion and without notice or demand to Dealer, take
immediate possession of the Collateral together with
all related documents.
(d) DFS may, with notice, apply a default finance charge to
Dealer's outstanding principal indebtedness equal to
the default rate specified in Dealer's financing
program with DFS, if any, or if there is none so
specified, at the lesser of 3% per annum above the rate
in effect immediately prior to the Default, or the
highest lawful contract rate of interest permitted
under applicable law.
(e) DFS may, with notice to Dealer and at any time or times
enforce payment and collect, by legal proceedings or
otherwise, Accounts in the name of Dealer or DFS; and
take control of any cash or non-cash items of payment
or proceeds of Accounts and of any rejected, returned,
repossessed or stopped in transit goods relating to
Accounts. DFS may at its sole election and with demand
enter, with or without process of law, any premises
where Collateral might be and, without charge or
liability to DFS therefor do one or more of the
following: (i) take possession of the Collateral and
use or store it in said premises or remove it to such
other place or places as DFS may deem convenient; (ii)
take possession of all or part of such premises and the
Collateral and place a custodian in the exclusive
control thereof until completion of enforcement of DFS'
security interest in the Collateral or until DFS'
removal of the Collateral and, (iii) remain on such
premises and use the same, together with Dealer's
materials, supplies, books and records, for the purpose
of performing all acts necessary and incidental to the
collection or liquidation of such Collateral.
(f) Upon the occurrence of a default under Sections 6.1(m),
(n), or (o), all Obligations shall automatically be
accelerated and due and payable and default finance
charges shall automatically apply as of the date of the
first occurrence of such default, without any prior
notice, demand or action of any type on the part of
DFS.
(g) In addition, DFS may exercise all of the rights and
remedies of a secured party under the Uniform
Commercial Code and under applicable law, and all other
legal and equitable rights to which DFS may be
entitled, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, and
shall be in addition to any other rights contained in
this Agreement or any of the Other Agreements.
All of DFS' rights and remedies are cumulative. DFS'
failure to exercise any of DFS' rights or remedies
hereunder will not waive any of DFS' rights or remedies
as to any past, current or future Default.
6.3 Sale of Collateral. Dealer agrees that if DFS conducts a
private sale of any Collateral by requesting bids from 10 or
more dealers or distributors in that type of Collateral, any
sale by DFS of such Collateral in bulk or in parcels within
120 days of: (a) DFS' taking possession and control of such
Collateral; or (b) when DFS is otherwise authorized to sell
such Collateral; whichever occurs last, to the bidder
submitting the highest cash bid therefor, is a commercially
reasonable sale of such Collateral under the Uniform
Commercial Code. Dealer agrees that the purchase of any
Collateral by a vendor, as provided in any agreement between
DFS and the vendor, is a commercially reasonable disposition
and private sale of such Collateral under the Uniform
Commercial Code, and no request for bids shall be required.
Dealer further agrees that 7 or more days prior written
notice will be commercially reasonable notice of any public
or private sale (including any sale to a vendor). Dealer
irrevocably waives any requirement that DFS retain possession
and not dispose of any Collateral until after an arbitration
hearing, arbitration award, confirmation, trial or final
judgment. If DFS disposes of any such Collateral other than
as herein contemplated, the commercial reasonableness of such
disposition will be determined in accordance with the laws of
the state governing this Agreement.
7. MISCELLANEOUS
7.1 Termination. This Agreement will continue in full force and
effect and be non-cancellable by Dealer (except that it may
be terminated by DFS in the exercise of its rights and
remedies upon the occurrence of a Default) for a period of
one (1) year from the first day of the first month following
the date hereof and for successive one (1) year periods
thereafter, subject to termination as to future transactions
at the end of any such period on at least ninety (90) days
prior written notice by Dealer to DFS. If such notice of
termination is given by Dealer to DFS, such notice will be
ineffective unless Dealer pays to DFS all Obligations on or
before the termination date. Any termination of this
Agreement by Dealer or DFS will have the effect of
accelerating the maturity of all Obligations not then
otherwise due.
7.1.1 Termination Privilege. Despite anything to the
contrary in Section 7.1 of this Agreement, this
Agreement may be terminated by Dealer at any time upon
ninety (90) days prior written notice and payment to
DFS of the following sum, if terminated on or prior to
the original one-year term of this Agreement, (in
addition to payment of all Obligations, whether or not
by their terms then due) which sum represents
liquidated damages for the loss of the bargain and not
as a penalty, and the same is hereby acknowledged by
Dealer: (1) the product of (a) one hundred twenty-five
one-thousandths of one percent (.125%) per annum
multiplied by (b) of the maximum amount of the Accounts
Receivable Facility, multiplied by (2) the number of
months remaining in such original term. This sum will
also be paid by Dealer if the Agreement is terminated
on account of a Default.
7.1.2 Effect of Termination. Dealer will not be relieved
from any Obligations to DFS arising out of DFS' Loans
or commitments made before the effective termination
date of this Agreement. DFS will retain all of its
rights, interests and remedies hereunder until Dealer
has paid all of Dealer's Obligations to DFS. All
waivers set forth within this Agreement will survive
any termination of this Agreement.
7.2 Collection. Checks and other instruments delivered to DFS on
account of the Obligations will constitute conditional
payment until such items are actually paid to DFS.
7.3 Demand, Etc. Dealer irrevocably waives notice of: DFS'
acceptance of this Agreement, presentment, demand, protest,
nonpayment, nonperformance, and dishonor. Dealer and DFS
irrevocably waive all rights to claim any punitive and/or
exemplary damages. Dealer waives all notices of default and
non-payment at maturity of any or all of the Accounts.
7.4 Reimbursement. Dealer will assume and reimburse DFS upon
demand for all expenses incurred by DFS in connection with
the preparation of this Agreement and the Other Agreements
(including fees and costs of outside counsel) and all filing
and recording fees and taxes payable in connection with the
filing or recording of all documents under this Agreement and
the Other Agreements; provided, however, that such
reimbursement by Dealer hereunder will not exceed the sum of
ONE THOUSAND DOLLARS ($1,000.00).
7.5 Additional Obligations; Enforcement Expenses. DFS, without
waiving or releasing any Obligation or Default, may perform
any Obligations that Dealer fails or refuses to perform. All
sums paid by DFS on account of the foregoing and any
expenses, including reasonable attorneys' fees, will be a
part of the Obligations, payable on demand and secured by the
Collateral. Dealer agrees, whether or not any advance is
made hereunder, to pay DFS upon demand for all reasonable
expenses, including reasonable fees of attorneys for DFS (who
may be employees of DFS), incurred by or on behalf of DFS in
connection with the enforcement of Dealer's obligations
hereunder or under any Other Agreement.
7.6 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBTS
ARE NOT ENFORCEABLE. TO PROTECT DEALER AND DFS FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS COVERING
SUCH MATTERS ARE CONTAINED IN THIS WRITING AND THE OTHER
AGREEMENTS, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF
THE AGREEMENT BETWEEN THE PARTIES, EXCEPT AS SPECIFICALLY
PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE IN WRITING
TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES. DFS may, from time to time, announce in writing to
Dealer its policies and procedures regarding its
administration of this facility, including, without
limitation, DFS' fees for transfers of funds to or from
Dealer, including Electronic Transfers; any subsequent use by
Dealer of this facility following any such announcement shall
constitute Dealer's acceptance of such revised policies and
procedures. Time is of the essence regarding Dealer's
performance of its obligations to DFS notwithstanding any
course of dealing or custom on DFS' part to grant extensions
of time. DFS will have the right to refrain from or postpone
enforcement of this Agreement or any Other Agreements between
DFS and Dealer without prejudice and the failure to strictly
enforce these agreements will not be construed as having
created a course of dealing between DFS and Dealer contrary
to the specific terms of the agreements or as having
modified, released or waived the same. The express terms of
this Agreement will not be modified by any course of dealing,
usage of trade, or custom of trade which may deviate from the
terms hereof.
7.7 Severability. If any provision of this Agreement or the
Other Agreements or the application thereof is held invalid
or unenforceable, the remainder of this Agreement and the
Other Agreements will not be impaired or affected and will
remain binding and enforceable.
7.8 Supplement. If Dealer and DFS have heretofore executed Other
Agreements in connection with all or any part of the
Collateral, this Agreement shall supplement each and every
Other Agreement previously executed by and between Dealer and
DFS, and in that event this Agreement shall neither be deemed
a novation nor a termination of any such previously executed
Other Agreement nor shall execution of this Agreement be
deemed a satisfaction of any obligation secured by such
previously executed Other Agreement. In the event of any
conflict between the terms of this Agreement and any
previously executed Business Financing Agreement between DFS
and Dealer, the terms of this Agreement shall control.
7.9 Section Titles. The Section titles used in this Agreement
are for convenience only and do not define or limit the
contents of any Section.
7.10 Binding Effect. Dealer cannot assign its interest in this
Agreement or any Other Agreements without DFS' prior written
consent, although DFS may assign or participate DFS'
interest, in whole or in part, without Dealer's consent.
This Agreement and the Other Agreements will protect and bind
DFS' and Dealer's respective heirs, representatives,
successors and assigns.
7.11 Notices. Except as otherwise stated herein, all notices,
arbitration claims, responses, requests and documents will be
sufficiently given or served if mailed or delivered or sent
via facsimile: (a) to Dealer at Dealer's principal place of
business specified above, or if sent via facsimile to: (914)
268-4640; and (b) to DFS at 655 Maryville Centre Drive, St.
Louis, Missouri 63141-5832, or if sent via facsimile to:
(314) 523-3190, Attention: General Counsel, or such other
address as the parties may hereafter specify in writing.
7.12 Receipt of Agreement. Dealer acknowledges that it has
received a true and complete copy of this Agreement. Dealer
acknowledges that it has read and understood this Agreement.
Notwithstanding anything herein to the contrary: (a) DFS may
rely on any facsimile copy, electronic data transmission or
electronic data storage of any Schedule, statement, financial
statements or other reports, and (b) such facsimile copy,
electronic data transmission or electronic data storage will
be deemed an original, and the best evidence thereof for all
purposes, including, without limitation, under this Agreement
or any Other Agreements, and for all evidentiary purposes
before any arbitrator, court or other adjudicatory authority.
8. BINDING ARBITRATION
8.1 Arbitrable Claims. Except as otherwise specified below, all
actions, disputes, claims and controversies under common law,
statutory law or in equity of any type or nature whatsoever
(including, without limitation, all torts, whether regarding
negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin,
wrongful sequestration, fraud in the inducement, usury or any
other tort, all contract actions, whether regarding express
or implied terms, such as implied covenants of good faith,
fair dealing, and the commercial reasonableness of any
Collateral disposition, or any other contract claim, all
claims of deceptive trade practices or lender liability, and
all claims questioning the reasonableness or lawfulness of
any act), whether arising before or after the date of this
Agreement, and whether directly or indirectly relating to:
(a) this Agreement or any Other Agreements and/or any
amendments and addenda hereto or thereto, or the breach,
invalidity or termination hereof or thereof; (b) any previous
or subsequent agreement between DFS and Dealer; (c) any act
committed by DFS or by any parent company, subsidiary or
affiliated company of DFS (the "DFS Companies"), or by any
employee, agent, officer or director of an DFS Company
whether or not arising within the scope and course of
employment or other contractual representation of the DFS
Companies provided that such act arises under a relationship,
transaction or dealing between DFS and Dealer; and/or (d) any
other relationship, transaction or dealing between DFS and
Dealer (collectively the "Disputes"), will be subject to and
resolved by binding arbitration.
8.2 Administrative Body. All arbitration hereunder will be
conducted in accordance with the Commercial Arbitration Rules
of The American Arbitration Association ("AAA"). If the AAA
is dissolved, disbanded or becomes subject to any state or
federal bankruptcy or insolvency proceeding, the parties will
remain subject to binding arbitration which will be conducted
by a mutually agreeable arbitral forum. The parties agree
that all arbitrator(s) selected will be attorneys with at
least five (5) years secured transactions experience. The
arbitrator(s) will decide if any inconsistency exists between
the rules of any applicable arbitral forum and the
arbitration provisions contained herein. If such
inconsistency exists, the arbitration provisions contained
herein will control and supersede such rules. The site of
all arbitration proceedings will be in the Division of the
Federal Judicial District in which AAA maintains a regional
office that is closest to Dealer.
8.3 Discovery. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than
thirty (30) days after the filing of a claim for arbitration,
the parties will exchange detailed statements setting forth
the facts supporting the claim(s) and all defenses to be
raised during the arbitration, and a list of all exhibits and
witnesses. No later than twenty-one (21) days prior to the
arbitration hearing, the parties will exchange a final list
of all exhibits and all witnesses, including any designation
of any expert witness(es) together with a summary of their
testimony; a copy of all documents and a detailed description
of any property to be introduced at the hearing. Under no
circumstances will the use of interrogatories, requests for
admission, requests for the production of documents or the
taking of depositions be permitted. However, in the event of
the designation of any expert witness(es), the following will
occur: (a) all information and documents relied upon by the
expert witness(es) will be delivered to the opposing party,
(b) the opposing party will be permitted to depose the expert
witness(es), (c) the opposing party will be permitted to
designate rebuttal expert witness(es), and (d) the
arbitration hearing will be continued to the earliest
possible date that enables the foregoing limited discovery to
be accomplished.
8.4 Exemplary or Punitive Damages. The arbitrator(s) will not
have the authority to award exemplary or punitive damages.
8.5 Confidentiality of Awards. All arbitration proceedings,
including testimony or evidence at hearings, will be kept
confidential, although any award or order rendered by the
arbitrator(s) pursuant to the terms of this Agreement may be
entered as a judgment or order in any state or federal court
and may be confirmed within the federal judicial district
which includes the residence of the party against whom such
award or order was entered. This Agreement concerns
transactions involving commerce among the several states.
The Federal Arbitration Act, Title 9 U.S.C. Sections 1 et
seq., as amended ("FAA") will govern all arbitration(s) and
confirmation proceedings hereunder.
8.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent DFS' or Dealer's use of bankruptcy,
receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure,
dation and/or any other prejudgment or provisional action or
remedy relating to any Collateral for any current or future
debt owed by either party to the other. Any such action or
remedy will not waive DFS' or Dealer's right to compel
arbitration of any Dispute.
8.7 Attorneys' Fees. If either Dealer or DFS brings any other
action for judicial relief with respect to any Dispute (other
than those set forth in Section 8.6), the party bringing such
action will be liable for and immediately pay all of the
other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer
such Dispute to arbitration. If either Dealer or DFS brings
or appeals an action to vacate or modify an arbitration award
and such party does not prevail, such party will pay all
costs and expenses, including attorneys' fees, incurred by
the other party in defending such action. Additionally, if
Dealer sues DFS or institutes any arbitration claim or
counterclaim against DFS in which DFS is the prevailing
party, Dealer will pay all costs and expenses (including
attorneys' fees) incurred by DFS in the course of defending
such action or proceeding.
8.8 Limitations. Any arbitration proceeding must be instituted:
(a) with respect to any Dispute for the collection of any
debt owed by either party to the other, within two (2) years
after the date the last payment was received by the
instituting party; and (b) with respect to any other Dispute,
within two (2) years after the date the incident giving rise
thereto occurred, whether or not any damage was sustained or
capable of ascertainment or either party knew of such
incident. Failure to institute an arbitration proceeding
within such period will constitute an absolute bar and waiver
to the institution of any proceeding, whether arbitration or
a court proceeding, with respect to such Dispute.
8.9 Survival After Termination. The agreement to arbitrate will
survive the termination of this Agreement.
9. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS
AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL
PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. DEALER AND
DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING.
10. Governing Law. Dealer acknowledges and agrees that this and all
Other Agreements between Dealer and DFS have been substantially
negotiated, and will be substantially performed, in the state of
New York. Accordingly, Dealer agrees that all Disputes will be
governed by, and construed in accordance with, the laws of such
state, except to the extent inconsistent with the provisions of
the FAA which shall control and govern all arbitration
proceedings hereunder.
IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement
as of the date first set forth hereinabove.
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND
PUNITIVE DAMAGE WAIVER PROVISIONS.
DEUTSCHE FINANCIAL SERVICES CORPORATION MICROS-TO-MAINFRAMES, INC.
By: /s/ Mark B. Schafer By: /s/ Steven H. Rothman
Print Name: Mark B Schafer Print Name: Steven H Rothman
Title: Regional Branch Manager Title: President & CEO
ATTEST: /s/ Frank T. Wong
(Assistant) Secretary
Print Name: Frank T. Wong
<PAGE>
SECRETARY'S CERTIFICATE OF RESOLUTION
I certify that I am the Secretary or Assistant Secretary of the
corporation named below, and that the following completely and
accurately sets forth certain resolutions of the Board of Directors
of the corporation adopted at a special meeting thereof held on due
notice (and with shareholder approval, if required by law), at which
meeting there was present a quorum authorized to transact the
business described below, and that the proceedings of the meeting
were in accordance with the certificate of incorporation, charter and
by-laws of the corporation, and that they have not been revoked,
annulled or amended in any manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion:
"RESOLVED, That the several officers, directors, and agents of
this corporation, or any one or more of them, are hereby authorized
and empowered on behalf of this corporation: to obtain financing
from Deutsche Financial Services Corporation ("DFS") in such amounts
and on such terms as such officers, directors or agents deem proper;
to enter into financing, security, pledge and other agreements with
DFS relating to the terms upon which such financing may be obtained
and security and/or other credit support is to be furnished by this
corporation therefor; from time to time to supplement or amend any
such agreements; execute and deliver any and all assignments and
schedules; and from time to time to pledge, assign, mortgage, grant
security interests, and otherwise transfer, to DFS as collateral
security for any obligations of this corporation to DFS, whenever and
however arising, any assets of this corporation, whether now owned or
hereafter acquired; the Board of Directors hereby ratifying,
approving and confirming all that any of said officers, directors or
agents have done or may do with respect to the foregoing."
I do further certify that the following are the names and
specimen signatures of the officers and agents of said corporation so
empowered and authorized, namely:
President: Steven H. Rothman /s/ Steven H Rothman
(Print Name) (Signature)
Vice-President: Howard Pavony /s/ Howard Pavony
(Print Name) (Signature)
Secretary: Frank T. Wong /s/ Frank T. Wong
(Print Name) (Signature)
Treasurer: Frank T. Wong /s/ Frank T. Wong
(Print Name) (Signature)
Agent:
(Print Name) (Signature)
IN WITNESS WHEREOF, I have executed and affixed the seal of the
corporation on the date stated below.
Dated:January 19, 1999 /s/ Frank T. Wong
(Assistant) Secretary
MICROS-TO-MAINFRAMES, INC.
Micros-to- Mainframes, Inc
Corporation seal
<PAGE>
Exhibit 10.2
ADDENDUM TO BUSINESS FINANCING AGREEMENT AND
AGREEMENT FOR WHOLESALE FINANCING
This Addendum is made to (i) that certain Business Financing Agreement
executed on the 19th day of January , 1999, between Micros-To-Mainframes,
Inc. ("Dealer") and Deutsche Financial Services Corporation ("DFS"), as
amended ("BFA") and (ii) that certain Agreement for Wholesale Financing
between Dealer and DFS dated May 12, 1994, as amended ("AWF").
FOR VALUE RECEIVED, DFS and Dealer agree as follows:
1. Section 3.2 of the BFA is hereby amended to read as follows, and,
to the extent applicable, the following provisions shall also amend the
AWF (capitalized terms shall have the same meaning as defined in the BFA
unless otherwise indicated):
"3.2 Available Credit; Paydown. On receipt of each Schedule, DFS
will credit Dealer with such amount as DFS may deem advisable up to
the remainder of eighty-five percent (85%) of the net amount of
eligible Accounts listed in such Schedule (as determined pursuant to
Section 3.3 hereof), but in no event to exceed the amount, if any,
requested by Dealer, minus the amount of Dealer's SPP Deficit (as
defined below) under Dealer's Agreement for Wholesale Financing (the
'AWF') with DFS as in effect from time to time (the 'Available
Credit').
Dealer's 'SPP Deficit' shall mean the amount, if any, by which
Dealer's total current outstanding indebtedness to DFS under the AWF
as of the date of the Inventory Report (referred to below) exceeds
the Inventory Value (as defined below) as determined by, and as of
the date of, the Inventory Report. Such SPP Deficit, if any, will
remain in effect for purposes of this Agreement until the
preparation and delivery by Dealer to DFS of a new Inventory Report.
Dealer will forward to DFS by the 10th day of every month an
Inventory Report dated as of the last day of the prior month which
specifies the total aggregate wholesale invoice price of all of
Dealer's inventory financed by DFS under the AWF that is unsold and
in Dealer's possession and control as of the date of the Inventory
Report.
The term Inventory Value is defined herein to mean one hundred
percent (100%) of the total aggregate wholesale invoice price of all
of Dealer's inventory financed by DFS under the AWF that is unsold
and in Dealer's possession and control as of the date of the
Inventory Report and to the extent that DFS has a first priority,
fully perfected security interest therein.
In addition, if Dealer's outstanding loans under Dealer's accounts
receivable credit facility as set forth in Section 2.1 of this
Agreement at any time exceed Dealer's Available Credit, Dealer will
immediately pay to DFS an amount not less than the difference
between (i) Dealer's outstanding loans under Dealer's accounts
receivable credit facility as set forth in Section 2.1 of this
Agreement, and (ii) Dealer's Available Credit.
Furthermore, as an amendment to the AWF, in the event Dealer's SPP
Deficit exceeds at any time (a) eighty-five percent (85%) of the net
amount of Dealer's eligible Accounts, minus (b) Dealer's outstanding
loans under Dealer's accounts receivable credit facility as set
forth in Section 2.1 of this Agreement, Dealer will immediately pay
to DFS, as a reduction of Dealer's total current outstanding
indebtedness to DFS under the AWF, the difference between (i)
Dealer's SPP Deficit, and (ii) (a) eighty-five percent (85%) of the
net amount of Dealer's eligible Accounts minus (b) Dealer's
outstanding loans under Dealer's accounts receivable credit facility
as set forth in Section 2.1 of this Agreement. At no time will the
outstanding Loans exceed Dealer's maximum accounts receivable credit
facility as set forth in Section 2.1 of this Agreement. No Loans
shall be made by DFS if Dealer has failed to satisfy any
precondition to the making of an advance hereunder, if there exists
a Default or if there occurs any event which, but for the passage of
time or notice, or both, would be a Default."
2. DFS and Dealer agree that the following paragraph is incorporated
into the AWF and BFA as if fully and originally set forth therein:
"Dealer will at all times maintain:
(a) a Tangible Net Worth and Subordinated Debt in the combined
amount of not less than Eight Million Dollars ($8,000,000); and
(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth
and Subordinated Debt of not more than Two and One-Half to One
(2.5:1.0).
For purposes of this paragraph: (i) 'Tangible Net Worth' means the
book value of Dealer's assets less liabilities, excluding from such
assets all Intangibles; (ii) 'Intangibles' means and includes
general intangibles (as that term is defined in the Uniform
Commercial Code); accounts receivable and advances due from
officers, directors, employees, stockholders and affiliates;
leasehold improvements net of depreciation; licenses; good will;
prepaid expenses; escrow deposits; covenants not to compete; the
excess of cost over book value of acquired assets; franchise fees;
organizational costs; finance reserves held for recourse
obligations; capitalized research and development costs; and such
other similar items as DFS may from time to time determine in DFS'
sole discretion; (iii) 'Debt' means all of Dealer's liabilities and
indebtedness for borrowed money of any kind and nature whatsoever,
whether direct or indirect, absolute or contingent, and including
obligations under capitalized leases, guaranties, or with respect to
which Dealer has pledged assets to secure performance, whether or
not direct recourse liability has been assumed by Dealer; and (iv)
'Subordinated Debt' means all of Dealer's Debt which is subordinated
to the payment of Dealer's liabilities to DFS by an agreement in
form and substance satisfactory to DFS. The foregoing terms will be
determined in accordance with generally accepted accounting
principles consistently applied, and, if applicable, on a
consolidated basis."
All other terms and provision of the BFA and AWF, to the extent
consistent with the foregoing, are hereby ratified and will remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, Dealer and DFS each have executed this Addendum
as of the 19 th day of January, 1999.
MICROS-TO-MAINFRAMES, INC.
Attest:
By:/s/ Steven H. Rothman
Title: President & CEO
/s/ Frank T. Wong
(Assistant) Secretary
DEUTSCHE FINANCIAL SERVICES CORPORATION
By :/s/ Mark B. Schafer
Title:Regional Branch Manager
<PAGE>
Exhibit 10.3
ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
This Addendum is made to the Agreement for Wholesale Financing
executed by and between Deutsche Financial Services Corporation ("DFS")
and Micros-to-Mainframes, Inc. ("Dealer") on May 12, 1994 (as amended,
the "Agreement").
FOR VALUE RECEIVED, Dealer and DFS agree to amend the Agreement to
provide as follows (capitalized terms shall have the same meaning as
defined in the Agreement unless otherwise indicated):
Valid Claims.
(a) Subject to the terms hereof, Dealer shall have the right to
deduct from the amounts due to DFS for purchases from a Vendor, an
amount equal to the Valid Claims (as defined below) which are
asserted in good faith by Dealer against such Vendor and set forth
in a Deduction Notice (as defined below). The deduction shall be
no greater than the amount of the Valid Claim desired to be charged
back by or on behalf of Dealer to such Vendor. A copy of the
charge-back documentation and any other documentation needed to
substantiate a Valid Claim must be furnished to DFS, along with
Dealer's written notice to DFS (sent via facsimile to DFS at (781)
255-9063) of Dealer's intent to exercise such deduction option
(herein, a "Deduction Notice").
(b) "Valid Claim" shall be a claim, asserted by Dealer in good
faith and after having made a good faith effort to resolve such
claim independently with the applicable Vendor, to a right of
payment or credit from such Vendor that arises no more than thirty
(30) days prior to the date of Dealer's related Deduction Notice.
Valid Claims shall be limited to those claims of Dealer against a
Vendor which arise from discrepancies involving price, quantity
shipped, defective product, open or damaged crates or boxes, or
mis-shipment. Any claims for payment or credit that arise from
circumstances (i) other than as described herein, (ii) after
termination of Dealer's right to exercise this deduction option, as
described in subsection (c) below, or (iii) after termination of
the Agreement, are not eligible to be Valid Claims.
Notwithstanding anything herein, if for any reason the
amount of any Valid Claim is not reimbursed or otherwise satisfied
to DFS within thirty (30) days after the date of the related
Deduction Notice, Dealer shall immediately upon DFS' demand, pay to
DFS the amount of such Valid Claim, or portion thereof. The
provisions of and undertakings set out in this paragraph shall
survive satisfaction and payment of Dealer's obligations to DFS and
termination of the Agreement.
(c) Additionally, (i) upon the occurrence of a default under
the Agreement or (ii) at any other time after DFS' delivery to
Dealer of written notice (sent via facsimile to Dealer at (914-
267-3785); Dealer shall immediately be prohibited from utilizing
the provisions of subsections (a) and (b) above and Dealer shall
immediately cease deducting the amount of any Valid Claims from any
amounts due DFS.
(d) Dealer will indemnify DFS and all of its present and
future parent, subsidiary and affiliated companies, and their
officers, directors, employees and agents, as well as their heirs,
administrators, executors, successors and assigns, and will hold
such persons and entities harmless from and against any and all
losses, liabilities, claims, expenses, charges, demand, suits,
judgments, and awards (including all reasonable attorney's fees)
(collectively, "Losses") arising from the taking of any deduction
by Dealer, including without limitation, all Losses arising from
any unsatisfied Valid Claim that cannot be resolved satisfactorily
with the applicable Vendor, or otherwise. All amounts that become
payable pursuant to the above indemnity shall be paid by Dealer to
DFS immediately upon demand therefor. The provisions of and
undertakings and indemnifications set out in this subsection (d)
shall survive satisfaction and payment of Dealer's obligations to
DFS and termination of the Agreement.
(e) Dealer's failure to satisfy any outstanding Valid Claim
amounts immediately upon DFS' demand therefor and/or Dealer's
failure to comply with any other provision of this Addendum shall
constitute a default under the Agreement.
Dealer waives notice of DFS' acceptance of this Addendum.
All other terms and provisions of the Agreement, to the extent not
inconsistent with the foregoing, are ratified and remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, Dealer and DFS have executed this Addendum as of
the 19th day of January, 1999
MICROS-TO-MAINFRAMES, INC.
ATTEST:
By: /s/ Steven H. Rothman
Frank T. Wong Title: President & CEO
(Assistant) Secretary
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:/s/ Mark B. Schafer
Title: Regional Branch Manager
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,518
<SECURITIES> 0
<RECEIVABLES> 13,622
<ALLOWANCES> 0
<INVENTORY> 1,473
<CURRENT-ASSETS> 17,350
<PP&E> 2,100
<DEPRECIATION> 1,106
<TOTAL-ASSETS> 20,347
<CURRENT-LIABILITIES> 7,291
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,622
<TOTAL-LIABILITY-AND-EQUITY> 13,056
<SALES> 49,452
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 42,258
<OTHER-EXPENSES> 7,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 944
<INCOME-TAX> 387
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 557
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
