<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission File No. 0-22064
ELEK-TEK, INC.
---------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware
- ------------------------------- 36-3042018
(State or other jurisdiction of ------------------------------------
incorporation or organization) (IRS Employer Identification Number)
7350 N. Linder Ave., Skokie, Illinois 60077
- ------------------------------------- -----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 677-7660
- --------------------------------------------------- --------------
Securities Registered Pursuant to Section 12(b) of the Act:
- -----------------------------------------------------------
None
Securities Registered Pursuant to Section 12(g) of the Act:
- -----------------------------------------------------------
</TABLE>
Common Stock, $.01 Par Value
----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form
10-K.
---
As of April 21, 1997, 6,300,000 shares of Common Stock were outstanding
and the aggregate market value of the Common Stock held by non-affiliates of
the Registrant (based on the closing price as reported on NASDAQ) was
approximately $16,931,250.
Document Incorporated by Reference: Into Form 10-K Part:
- ----------------------------------- --------------------
Proxy Statement for 1997
Annual Meeting of Stockholders III
<PAGE> 2
PART I
ITEM 1. BUSINESS
ELEK-TEK is a full line, regional marketer of microcomputer hardware,
software and related accessories and supplies. The Company sells products
through retail stores, a mail order operation, and corporate sales forces to
individuals, businesses, institutions and government agencies. The Company's
operations are located in the Chicago, Indianapolis, Denver, and Kansas City
regions.
The Company was founded as an Illinois corporation in 1979 and was merged
into a Delaware corporation on June 29, 1993. All references in this Report to
the "Company" or to "ELEK-TEK" refer to ELEK-TEK, Inc., a Delaware corporation,
and its predecessor.
NEW STRATEGY
With a complete change in senior management beginning in the second
quarter of fiscal 1996, the Company adjusted its strategy from a high growth,
decentralized approach to a more controlled growth, centralized approach. In
addition, the Company developed a business plan that redirected the Company's
focus to improving operations, controlling and reducing expenses and
reorienting the Company's corporate culture to emphasize profitability.
In conjunction with this new strategy, the Company adopted a new approach
to its business. Instead of operating its mail order, corporate sales and
retail stores as separate businesses, ELEK-TEK merged these three sales
channels into one business with a unified distribution goal. Management feels
that by reducing redundant functions among the workforce, reducing inventory
levels, and leveraging its resources, such as marketing, across all three
channels, it will be able to better control costs and capitalize on
efficiencies created with one business focus. The Company will begin reporting
on the combined results of operations from corporate sales, mail order and
retail stores in 1997. It is believed that these operations are interrelated
and that the results should be viewed on a combined basis.
CORPORATE SALES
ELEK-TEK's corporate sales accounted for over $135.5 million, or
approximately 40.6%, of the Company's 1996 net sales. The Company markets its
products directly to businesses, and institutions including schools, churches,
hospitals, and local, state and U.S. government agencies. To retain its
competitive posture, ELEK-TEK submits specially priced bids for larger volume
orders.
ELEK-TEK's dedicated corporate salespersons market to businesses and
institutions by providing information through the mail and by telephone. A
salesperson will visit and provide product demonstrations to customers that are
interested in a complete computer system or a large volume order.
The Company provides customer service, technical support, networking, and
custom
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configuration services to its business and institutional customers. In
addition, a new service program was developed in 1996 to address the varied
needs of customers: The PC Lifecycle Program. Through this full-service
program, ELEK-TEK offers analyses and proposals; leasing and asset management;
hardware and software training; dedicated phone support for hardware and
software; and migration and end-of-life services.
During the second quarter of 1996, ELEK-TEK closed its corporate sales
office in Louisville, Kentucky which was open for twelve months and did not
prove to be successful. The Company plans to utilize its mail order
capabilities to reach markets where there is not a corporate sales office.
MAIL ORDER
ELEK-TEK's mail order operation accounted for $57.2 million, or
approximately 17.2%, of the Company's 1996 net sales. Mail order customers
include both businesses and individuals, many of whom have also purchased
merchandise from a retail store.
ELEK-TEK records the names and addresses of many of its mail order,
corporate and retail customers. As a result, the Company has developed an
extensive private customer list which it uses as part of its marketing program.
ELEK-TEK does not sell or rent its customer list. The Company distributed over
seven million catalogs in 1996 and plans to distribute over eight million
catalogs to a nationwide customer base of individuals and businesses during
1997. The Company also mails advertising materials featuring selected products
to particular groups of consumers, such as students and specific equipment
users.
The Company has taken steps to improve the design and quality of its
catalog, and is working toward the implementation of a new circulation
strategy that will reduce catalog distribution costs and improve the targeting
of selected customers. To do so, the Company has made efforts to update,
analyze, profile and segment its existing private customer list, prepare
detailed circulation modeling and analysis, and improve procedures to track
sales activity by customer, mail list and market segment.
ELEK-TEK has also started a test production on a full-line education
catalog that, if successful, will serve as a national direct sales channel, as
well as a product selection guide, for local education accounts.
ELEK-TEK has a dedicated mail order department that handles in-bound
orders by telefax, mail or telephone. Mail order customers have access to the
same merchandise selection (except for a few exceptions which are dictated by
certain vendors) and competitive pricing as is available to the Company's
retail customers. Orders received and approved by 3:00 p.m. are generally
shipped that same day.
ELEK-TEK has pre sales customer service and technical support departments
that are available by telephone to mail order customers. In addition, repair
and authorized services under manufacturer's warranty are also available to
customers.
RETAIL STORES
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ELEK-TEK currently operates eight retail stores. Five retail stores
and the Company's distribution center are located in the Chicago metropolitan
area. The other stores are located in Indianapolis, Indiana, Lenexa, Kansas,
and Denver, Colorado. In each of these markets the Company faces
significant competition from other computer retailers as well as national
consumer electronics and office products superstore chains.
The Company stocks at each retail location over 8,000 stock keeping units
("SKUs"). The Company's retail customers include both businesses and
individuals. The Company provides technical support services through telephone
helplines, repair services, custom configuration services and warranties to its
retail customers. During 1996, the stores generated sales of approximately
$140.8 million or 42.2% of total Company sales.
The Company believes that the microcomputer products reseller industry has
evolved into a market where the distribution model plays a key role in the
sales process along with lower product prices, more powerful machines and an
emphasis on different aspects of customer service. The retail store format
permits "hands-on" demonstration and prompt delivery of merchandise. The
Company also believes that many customers are still looking to the retail
stores to provide valuable selection advice and post-sale support, particularly
with today's wide product assortment, movement toward complex networking and
client/server environments and the need to upgrade existing hardware
components.
ELEK-TEK continues to improve the features and services provided at the
retail stores. In June, a new service was tested: the Software Demo Center,
which gives customers the opportunity to test a vast selection of software
titles before making their purchasing decisions. The Company plans to roll-out
this program to all of its stores in 1997. The stores also feature Room to
Grow, a section dedicated to the development of children by inviting them to
test educational software at colorful kiosks that are just their size. In
October, ELEK-TEK formed a partnership with Ameritech to open an Ameritech
Communications Center in the Chicagoland and Indianapolis stores to offer
telephony products and services to its customers. In December, a new computer
delivery and set-up program was tested, including a customized one-hour
introductory training session which will be available in all stores in early
1997.
ELEK-TEK does not have plans to increase the number of retail stores in
1997, and will continue to evaluate the results of the new store, Lakeview,
which opened in June of 1996, to determine whether to open additional stores in
the future. There can be no assurance that ELEK-TEK will in fact open any
other new retail stores and, if opened, that any new store will be profitable.
MERCHANDISE
As an essential component of its one-stop shopping strategy, the Company stocks
over 12,000 microcomputer hardware, software, accessory and supply products.
BUSINESS AND CONSUMER HARDWARE. Hardware products include desktop and
laptop computers as well as servers from most major manufacturers.
BUSINESS AND CONSUMER SOFTWARE. The Company stocks approximately 3,600
different software titles (including Windows, DOS, Macintosh, CD ROM and
software packages) in the business and personal productivity, utility,
language, educational and entertainment categories.
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ACCESSORIES AND SUPPLIES. Accessories and supplies sold include a broad
range of microcomputer-related items and supplies such as diskettes, paper,
printer products, input devices, connectors and furniture.
PERIPHERALS. Peripheral products include printers, modems, monitors,
scanners and data storage devices; add-on circuit boards; connectivity
(networking) products; and copying and telefax machines as well as CD ROM and
DVD drives, sound boards and speakers.
NETWORKING. ELEK-TEK offers advisory, design, installation and other
support services that enable customers to network their microcomputers and
peripherals into either local and/or wide area networks. The Company is a
Novell Gold authorized reseller, and a Microsoft Solution Provider, employing
Novell and Microsoft Certified Network Engineers.
CONFIGURATIONS. ELEK-TEK offers a customization service that allows
customers to create a personal computer system that will fit their specific
needs. The configuration department loads additional software, and hardware
components, based on the customers specifications which are fully tested before
the product is delivered.
SPECIAL ORDER. In the event customers desire hardware, software or other
products that are newly introduced or not normally stocked at the Company's
retail stores or distribution center, the Company can special order from among
many thousands of additional products.
Subject to the return policy of certain suppliers, the Company's customers
may return merchandise within seven or thirty days from the date purchased
depending on the product purchased.
VENDOR RELATIONS AND PURCHASING
ELEK-TEK's retail, mail order and corporate sales operations are
enhanced by stocking a large array of brand name computer products. ELEK-TEK
believes that it has satisfactory relationships with its suppliers which
often enable it to take advantage of special purchasing situations and
exclusive promotions. Major suppliers who view ELEK-TEK as a reliable interface
with end-users often spend time with ELEK-TEK executives who evaluate the
suppliers' marketing plans and strategies and preview new products. Of the
Company's total purchases Hewlett-Packard, Compaq and IBM accounted for
approximately 12%, 12%, and 8% in 1996, 16%, 11% and 10% in 1995, and 20%, 11%
and 9% in 1994, respectively. The loss of Hewlett-Packard, Compaq or IBM as a
supplier, which is not expected, could have a material adverse effect on the
Company.
The Company utilizes "price protection" and "stock balancing" programs
from its suppliers. A price protection program provides credit to ELEK-TEK in
the event the supplier reduces its price below what ELEK-TEK paid for the goods
within a given time period. A stock balancing arrangement allows the Company
to return certain excess or obsolete inventory to the supplier based on their
terms. Hardware is generally purchased directly from manufacturers, while most
software is purchased through distributors. The Company's retail, mail order
and corporate sales operations require it to maintain a substantial level of
inventory in order to meet the rapid delivery
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requirements of its customers.
As is customary in the industry, vendors provide the Company with
substantial incentives in the form of discounts, rebates, credits, inventory
financing programs, and cooperative advertising and market development funds.
A reduction in or discontinuance of these incentives could have a
material adverse effect on the Company's results of operations and financial
condition.
COMPETITION
Competition in the microcomputer products reseller industry remains
intense, principally in the areas of price and product availability, customer
service and technical support. The Company competes with a variety of
resellers of microcomputers and related products. In the hardware category,
ELEK-TEK finds that the most significant competition comes from other computer
retailers, consumer electronics superstores, mass merchandisers, office
products superstores, mail order houses, value-added resellers and general
office equipment retailers.
In the software and accessory categories, the Company generally competes
with these same competitors as well as software specialty retailers. The
Company also competes with distributors and manufacturers that sell directly to
certain customers.
Many of the Company's competitors are significantly larger and have
substantially greater resources than the Company. The Company believes that
competition will continue to increase in the future. The Company believes that
it competes with other microcomputer resellers on the basis of price, customer
service, product availability, and technical support.
TRADEMARKS AND SERVICE MARKS
The Company conducts its business under the proprietary designation
"ELEK-TEK." The United States Patent and Trademark Office has issued federal
registrations to the Company for the service marks "ELEK-TEK, INC.," "ELEK-TEK
(Stylized)" and "THE COMPUTER WONDERLAND," each relating to the Company's
distributorship services in the field of computers, computer hardware, and
software and accessories associated therewith. The Company substantially
reduced its private label product assortment in 1995 and now carries only
non-electronic computer accessories such as mouse pads under the trademarks
"ELEK-TEK, INC," and "ELEK-TEK (Stylized)." The Company has been issued
federal trademark registrations covering the trademarks "E-TRONICS" and
"E-TRONICS (Stylized)." The Canadian Trademark Office has issued Canadian
registration for the service marks "ELEK-TEK, INC." and "ELEK-TEK (Stylized)".
The Company has adopted and is using in interstate commerce the service marks
"ELEK-TEK TOP SECURITY PROTECTION PLAN" and "ELEK-TEK TOP SECURITY PROTECTION
PLAN and Design" as well as the trademark "ELEK-TEK's COMPUTER ENTHUSIAST." The
Company has preserved, and claims, proprietary common law rights in and to its
trademarks and service marks, based on adoption and use.
EMPLOYEES
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As of December 31, 1996, the Company had 593 full-time and 127 part-time
employees. No employee is represented by a labor union and the Company
believes that its employee relations are excellent.
ITEM 2. PROPERTIES
All of the Company's existing retail stores, except Lenexa, which is
owned, are leased by the Company with lease terms expiring between 1998 and
2008. In most instances, the Company has renewal options at increased rents.
ELEK-TEK leases a 196,400 square foot distribution center in Skokie, Illinois
which also houses the corporate headquarters of the Company. The distribution
center lease expires on January 31, 1999. The lease for the Lincolnwood store
expires on October 31, 1998. The table below shows the square footage of each
of the Company's retail stores and the opening months for such stores.
<TABLE>
<CAPTION>
SQUARE FEET MEZZANINE SQUARE
STORE LOCATION (1) FEET (1) MONTH OPENED
- -------------- ------------- ---------------- ------------
<S> <C> <C> <C>
Illinois:
Lakeview-Chicago 13,500 0 June, 1996
Lincolnwood 18,000 8,000 January, 1982
Willowbrook 20,684 7,200 October, 1987
Rolling Meadows 32,000 8,000 July, 1991
Downtown Chicago 31,000 0 February, 1992
Indianapolis, Indiana 34,000 7,000 November, 1993
Lenexa, Kansas 38,200 1,750 September, 1994
Denver, Colorado 38,144 1,620 December, 1994
</TABLE>
(1) Square feet includes all selling and warehouse space other than mezzanine
square feet. Mezzanine space is primarily used for storage.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant from time to time in lawsuits incidental to its
business. The Company believes that none of the current proceedings,
individually or in the aggregate, will have a materially adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
During the fourth quarter of the fiscal year ended December 31, 1996, the
Company did not submit any matter to a vote of stockholders, through the
solicitation of proxies or otherwise.
EXECUTIVE OFFICERS
Listed below are the names and ages of the executive officers of the Company as
of April 22, 1997, and the positions each has held during the past five years:
NAME AGE POSITION WITH THE COMPANY
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Richard L. Rodriguez 37 President, Chief Executive Officer and Director
Miguel A. Martinez, Jr. 42 Vice President, Chief Financial Officer and
Secretary
Scott Koerner 39 Sr. Vice President-Sales
Karim Hadchiti 33 Vice President-Operations
David Zasada 29 Vice President-Marketing and Merchandising
Jane McCarthy 46 Vice President Human Resources
Richard L. Rodriguez was named Chief Executive Officer and Director of
the Company in April 1996. He joined the Company in March of 1996 as
President and Chief Operating Officer. From February 1993 to February 1996
he was Senior Vice President at Creative Computer Inc., a computer products
reseller. From January 1990 to February 1993, he was General Manager for
Personal Support Computers, Inc.
Miguel A. Martinez, Jr., has been Vice President and Chief Financial
Officer since April 1996. From January 1996 to April 1996 he was Vice
President Finance and Administration of Office 1 Superstores. He was the
Controller at The Reliable Corporation from September 1987 to December 1995.
Scott Koerner was named Sr. Vice President-Sales in April of 1996. From
July 1994 to April 1996 he held various positions with Montgomery Ward &
Company, a national retail conglomerate, including Vice President-Electric
Avenue & More, and Regional Managing Director. In June 1990 he joined Silo
which became Fretter/Silo where he held various positions including Vice
President of Property and Development, and Regional Vice President until July
1994.
Karim Hadchiti joined the Company as Vice President-Operations in April
1996. From January 1996 to April 1996 he was Vice President-Business
Development, and from August 1994 to December 1995 he was Director of
Operations for Creative Computers. From May 1990 to April 1994 he was Vice
President and General Manager for Dustin America, a California based cataloger
of computer software and peripherals.
Dave Zasada was named Vice President-Marketing and Merchandising in May
of 1996. Prior to joining ELEK-TEK, he spent nine years in various positions
of marketing and merchandising with Educational Resources including Sr. Vice
President-Distribution, Vice President Marketing and Merchandising, Director
of Marketing and Merchandising, Marketing Manager and Marketing Coordinator.
Jane McCarthy has been Vice President-Human Resources since April 1996.
From December 1995 until April 1996 she was Director of Human Resources of the
Company. From February 1992 to December 1995 she was Assistant Vice President
of Human Resources for United Insurance Company of America. From December
1988 to February 1992 she was a Human Resources Manager for Macmillan
Information Services Group.
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The Company's officers are elected annually by the Board of Directors.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the NASDAQ National Market
System under the symbol "ELEK" since the Company's initial public offering on
August 13, 1993. Prior to that time, there was no public market for the Common
Stock. As of April 22, 1997 there were 186 shareholders of record of
the Company's Common Stock. This number does not include beneficial owners of
Common Stock whose shares are held in the name of banks, brokers, nominees or
other fiduciaries.
The information appearing in the following table on the range of high and
low trade prices for the Company's Common Stock was obtained from NASDAQ
quotations in the NASD's Monthly Statistical Reports.
<TABLE>
<CAPTION>
Fiscal Fiscal
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Quarter Low High Low High
Ended: Price Price Price Price
- ------- ------ ----- ----- -----
<S> <C> <C> <C> <C>
March 31 1 7/8 3 5/8 5 1/4 8 1/2
June 30 2 5 1/2 5 6 3/4
September 30 2 1/4 4 1/4 4 1/2 6 3/4
December 31 3 1/4 5 1/4 2 3/4 5 1/8
</TABLE>
The Company currently intends to retain any future earnings for use in its
business, and therefore, does not anticipate paying cash dividends in the
foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands of dollars, except per share information and Selected
Operating Data)
<TABLE>
<CAPTION> Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 333,498 $ 338,025 $ 305,602 $ 222,194 $ 176,824
Gross Profit 35,262 46,054 44,503 33,717 27,508
Income (loss) from operations (10,776) 2,082 6,799 7,940 4,736
Net income (loss) (10,563) (299) 3,461 6,133 2,085
Net income (loss) per share (1.68) (0.05) 0.55
Pro forma income data:
Pro forma income before income taxes (1) 7,297 4,460
Pro forma provision for income taxes (2) 2,846 1,739
Pro forma net income 4,451 2,721
Pro forma net income per share (3) 0.78 0.51
SELECTED OPERATING DATA:
Stores open at end of period 8 7 7 5 4
Total store square footage at end of period 225,528 212,028 207,239 130,895 96,895
Average net sales per square foot (4) 1,256 1,268 1,488 1,536 1,287
BALANCE SHEET DATA:
Working capital (2,163) 10,549 35,255 29,424 15,550
Total assets 81,041 93,987 88,306 65,962 40,967
Subordinated notes payable to stockholder 4,286 4,571 5,714 6,857 8,000
Total debt, including subordinated notes
payable to stockholders 24,810 30,871 30,714 20,357 18,976
Total stockholders' equity 11,264 21,827 22,126 18,665 4,731
(1) Pro forma income before income taxes consists of historic income before income taxes adjusted to eliminate
additional payments to stockholders, totaling $2,320,000 for 1992 ("S Distribution"), which were primarily used to
pay taxes on income attributable to stockholders due to the Company's S Corporation status.
(2) Between July 1987 and August 18, 1993, the Company was treated as a S Corporation for income tax
purposes and accordingly, was not subject to federal and certain state income taxes. The pro forma provision
for income taxes represents an effective tax rate of 39% which would have been recorded had the Company
been a C Corporation.
(3) Pro forma net income per share for 1993 is based on 5,705,000 weighted average shares of common stock
outstanding. Prior to 1993, pro forma net income is based on 5,360,000 shares of common stock outstanding,
which includes 4,800,000 shares outstanding and 560,000 shares of common stock assumed to be outstanding.
The 560,000 shares assumed to be outstanding are equivalent to the number of shares required, at the
public offering price for the Company's initial public offering in 1993, net of underwriting discount, to fund the
1993 S Distributions.
(4) Calculated using net sales (combined retail and corporate sales, but excluding mail order sales) divided by square
footage of stores open at the end of the period, weighted by the number of months open during the period.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
With a complete change in senior management beginning in the second quarter of
fiscal 1996, the Company adjusted its strategy from a high growth,
decentralized approach to a more controlled growth, centralized approach. In
addition, the Company developed a business plan that redirected the Company's
focus to improving operations, controlling and reducing expenses and
reorienting the Company's corporate culture to emphasize profitability.
In conjunction with this new strategy, the Company adopted a new approach to
its business. Instead of operating its mail order, corporate sales and retail
stores as separate businesses, ELEK-TEK has merged these three sales channels
into one business with a unified distribution goal. Management feels that by
reducing redundant functions among the workforce, reducing inventory levels,
and leveraging its resources, such as marketing, across all three channels, it
will be able to better control costs and capitalize on efficiencies created
with one business focus. The Company will begin reporting on the combined
results of operations from corporate sales, mail order, and retail stores in
1997. It is believed that these operations are interrelated and that the
results should be viewed on a combined basis.
RESULTS OF OPERATIONS
The following table sets forth certain information as a percentage of sales for
the periods indicated.
<TABLE>
<CAPTION> Three Months
Years Ended December 31, Ended December 31,
--------------------------- -------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995
------- ------ ------ ------- ------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.4 86.4 85.4 88.1 87.8
------ ------ ------ ------ ------
Gross profit 10.6 13.6 14.6 11.9 12.2
Selling, general and administrative expenses 13.8 13.0 12.4 13.6 13.6
------ ------ ------ ------ ------
Income (loss) from operations (3.2) 0.6 2.2 (1.7) (1.4)
Other income, net (0.1) (0.1) (0.1) (0.1) (0.1)
Interest expense 0.8 0.8 0.5 0.9 0.6
------ ------ ------ ------ ------
Income (loss) before income taxes (3.9) (0.1) 1.8 (2.5) (1.9)
Income tax provision (benefit) (0.7) 0.0 0.7 2.2 0.6
------ ------ ------ ------ ------
Net income (loss) (3.2)% (0.1)% 1.1% (4.7)% (1.3)%
====== ===== ==== ====== =====
</TABLE>
1996 COMPARED TO 1995
For the year 1996, net sales decreased 1.3% ($4.5 million) from $338.0 million
in 1995 to $333.5 million in 1996. The Company's three channels of
distribution, corporate sales, mail order and retail stores had mixed results.
Sales increases of 20.6% were generated by the corporate sales channel which
were offset by the decreases in the mail order channel of 13.5% and retail
sales channel of 11.7%. In 1996, corporate sales contributed 40.6% of total
sales, mail order contributed 17.2%, and retail stores contributed 42.2%
compared to 33.2%, 19.6%, and 47.2% of total sales, respectively in 1995.
Corporate sales increased $23.1 million, from $112.4 million in 1995 to $135.5
million in 1996
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despite the closing of the Kentucky operations in the second quarter of 1996
because it did not prove to be successful. The major contributors to the
increase in sales were expanded services and product offerings, an increase in
sales to new and existing customers, and the continued development of the
remote markets; Kansas City, Denver and Indianapolis. Together, the remote
markets have increased 38.5% over 1995 levels, as these operations continue to
aggressively seek additional market share by capitalizing on the services that
ELEK-TEK provides, and offering expanded services to existing customers, such
as extended warranties, on-site technical support, and networking services.
Mail order sales declined over the same period last year from $66.1 million to
$57.2 million, a 13.5% decrease. The mail order channel represented 17.2% of
total sales during 1996. The Company has taken steps to improve the design and
quality of its catalog, and is working toward the implementation of a new
circulation strategy that will reduce catalog distribution costs and improve
the targeting of selected customers. The Company reduced the page count of its
current catalog, and in the second quarter of 1996, reduced the circulation by
18%, which it believes has resulted in decreased catalog sales for the year.
Sales in the retail store channel declined 11.7% for the twelve month period
ending December 31, 1996 over the same period last year from $159.5 million to
$140.8 million. Sales from stores that were open for more than a year were
down by 14.4% compared to last year. Offsetting this slightly were sales
associated with the new Lakeview store which opened in June of 1996. The
lower sales are due, in part, to the slow-down in growth in the retail computer
products industry, lower price points, and management's decision to reduce
free-financing promotions in an effort to focus on profitable sales. Also, the
Company believes the retail computer market was depressed during the fourth
quarter because many consumers deferred their PC purchases in anticipation of
new technology introductions in 1997.
The Company opened a new store in Chicago-Lakeview, during the second quarter
of 1996. This new store contains approximately 13,500 square feet of space
with limited backroom storage. The store is supported by the Company's
distribution center located at corporate headquarters and will require lower
costs to operate. Currently, there are no future plans to open additional
stores.
For the twelve month period ended December 31, 1996 gross margin was $35.3
million (10.6% of net sales) compared to $46.1 million (13.6% of net sales)
for the same period last year. During the second quarter of 1996, there were
special charges of $5.0 million impacting gross margin as previously reported.
In the fourth quarter of 1996, there was an additional special charge of $.6
million which related to an increase in reserves due to a change in estimate of
contested account balances outstanding. Management determined that the basis
for these reserves needed to be revised to better reflect existing conditions.
With these additional special charges, management feels that the Company is
better prepared to move forward in 1997. Also in 1996, an adjustment of $3.5
million for inventory shrink was recorded versus $1.4 million recorded in 1995.
The impact of these adjustments lowered gross margin by $9.1 million or 2.7%
of net sales in 1996. Excluding these adjustments, gross margin as a
percentage of sales would have been 13.3% versus 14.1% in 1995.
The Company's overall gross margin percentage has also been reduced as a result
of the larger proportion of sales being contributed by the corporate sales
channel, which are at lower margin rates. Corporate sales accounted for 40.6%
of the total Company sales in 1996 as compared to
12
<PAGE> 13
33.2% in 1995. Other factors that contributed to the decline in gross margin
are a higher level of purchases from secondary sources during the beginning of
1996 as well as additional pressure put on gross margins by the consumer
electronic and office products retailers. Whether significant
pricing reductions will continue is uncertain, but it is the Company's intent
not to allow its competitors to gain a pricing advantage in the markets in
which it operates.
Offsetting this slightly, the Company has been successful in its efforts to
increase gross margin by implementing a purchasing strategy that focuses on
relationships with fewer vendors to attract better pricing with higher volumes,
improving management of product mix to emphasize sales of products with a
higher gross profit, and increasing marketing participation by vendors. Also,
the Company has improved inventory management practices.
Selling, general and administrative expenses increased 4.5% from $44.0 million
(13.0% of sales) in 1995 to $46.0 million (13.8% of sales) in 1996. The $2.0
million increase in operating expenses is primarily due to the following
reasons:
Total compensation expense increased $.6 million primarily due to employee
severance totaling $.8 million as a result of the restructuring of the
executive and middle management in 1996. Commission expense increased $.7
million, which directly relates to the increase in corporate sales (20.6%)
this period over the same period last year. This was offset in part by a
reduction in salary expense due to a 20% reduction in head count in 1996.
At the beginning of 1996, the head count was 893 versus 720 at the end of
the year.
The Company incurred $.3 million in recruiting costs associated with the
transition in the senior management level. Management took steps to
reduce costs by restructuring the Company's benefits program in the third
quarter of 1996, which will be effective beginning in 1997. Efforts were
made to reduce group plan costs and reallocate a portion of the savings to
expand the existing benefit programs.
Net advertising expense increased by $.3 million in 1996 as a result of
increased marketing efforts in the last six months of 1996. A new
marketing campaign was developed to increase customer awareness and was
rolled-out in the fourth quarter of 1996. The campaign used radio, print,
and direct mail pieces.
Occupancy expenses increased $.1 million over the same period last year,
which was mainly due to the opening of the Lakeview store in the second
quarter of 1996. A fixed portion of the retail store's occupancy expense
was reduced by $.3 million in 1996 as compared to 1995, due to the better
management of the loss prevention function and the renegotiation of
contracted services.
13
<PAGE> 14
Credit and collections expenses increased by $.6 million due to an
increase in the allowance for uncollectable trade accounts receivable,
returned customer checks and bankcard chargebacks.
Interest expense for the twelve month period ended December 31, 1996 was $2.5
million compared to $2.6 million for the same period one year ago, a decrease
of approximately $.1 million. Interest expense consisted of $2.0 million
related to the Company's revolving line of credit facility, $.1 million from
the floor plan facility, and $.4 million resulting from the subordinated
notes held by two shareholders. During 1996, the average borrowings outstanding
under the revolving line of credit were $24.6 million as compared to $28.1
million in 1995. In addition, the average interest rate for the revolving line
of credit was 7.3% in 1996 as compared to 7.6% in 1995. Borrowings decreased
due to lower inventory levels and because of improved cash management practices.
In 1995, the Company had a net deferred tax asset of $821. No valuation
allowance was provided at December 31, 1995 since the asset was expected to be
realized through future operations, or through a net operating loss carryback
since sufficient taxes were paid in prior years. In the fourth quarter of
1996, the Company recorded a full valuation allowance of $2.5 million on the
net deferred tax asset as a result of uncertainty of their ultimate realization.
Net loss was $10.6 million for the period ended December 31, 1996 compared to
$.3 million net loss for the same period last year. The total impact of the
special charges, the reduction in future tax benefits, and other charges due to
changes in estimates recorded in 1996, resulted in an increase in the net loss
by $7.3 million, or $1.16 per share.
FOURTH QUARTER 1996 COMPARED TO FOURTH QUARTER 1995
For the fourth quarter of 1996, corporate sales represented 40.4%, mail-order
sales represented 15.1%, and retail sales represented 44.5% of total sales in
1996. This compares to the fourth quarter of 1995 sales contribution made by
each channel of 31.6%, 16.6%, and 51.8%, respectively.
In the fourth quarter, gross margin was $10.1 million (11.9% of sales) in 1996
versus $11.7 million (12.2% of sales) in 1995. During the fourth quarter of
1996, gross margin was impacted by a special charge adjustment of $.6 million
which related to an increase in reserves due to a change in estimate of
contested account balances outstanding. Excluding this adjustment, gross
margin as a percentage of sales would have been 12.6% versus 12.2% in 1995, an
increase of .4%.
Selling, general, and administrative expenses for the fourth quarter 1996
decreased by $1.5 million primarily due to lower total compensation and benefit
expenses, professional fees, and sales and use tax expense. The decrease in
compensation and benefit expenses was mainly due to the nearly 20% reduction in
head count as compared to the fourth quarter of 1995. In 1996, professional
fees were lower by nearly $.3 million. In 1995, consultants were used for an
inventory management project to design and implement a supply chain purchasing
practice to reduce inventory levels while improving in-stock positions. This
project was discontinued by the new senior management team. The decrease in
sales and use tax expense was due to the recognition of additional tax
liability in 1995 as a result of a sales and use tax audit. These decreases
were offset, in part, by the $.9 million increase in reserves made in the
fourth quarter after the Company reevaluated its estimated liabilities and
determined that additional reserves were needed.
In addition, the estimated future tax benefits were reevaluated and reduced, as
they are not likely to be realized based upon current projections for 1997.
The total impact of the charges from changes in estimates recorded in the fourth
quarter of 1996, resulted in an increase in the net loss by $3.4 million, or
$.54 per share. Excluding these adjustments, the net loss for the fourth
quarter of 1996 would have been $.6 million, or $.09 per share.
1995 COMPARED TO 1994
Net sales for the year ended December 31, 1995 were $338.0 million, an increase
of 10.6% over the 1994 net sales of $305.6 million. The Company had mixed
results in terms of the performance of each of the individual channels of
distribution. The corporate sales channel generated a sales increase in 1995
of 47.5% over 1994 levels, the mail order channel had a 7.0% reduction, and the
retail channel had a .8% increase. In terms of sales mix in 1995, corporate
sales contributed 33.2%, mail order contributed 19.6% and retail contributed
47.2% to total sales. This compares to the 1994 sales contribution for each
channel of 24.9%, 23.3% and 51.8%, respectively.
The growth in the corporate sales was primarily due to sales generated in the
new sales territories, Kansas City and Denver, where stores were operational
for the entire year of 1995, and only open for part of 1994. In addition, a
stand alone sales office in Louisville, Kentucky was opened during the second
quarter of 1995. While generating sales, this location did not prove to be
profitable and, therefore, was closed in April 1996.
In the Chicago and Indianapolis markets, corporate sales generated significant
sales growth as the sales staff expanded their customer base while
simultaneously increasing their sales to current customers.
During 1995, the Company mailed out .5 million fewer catalogs than in 1994
which is believed to be the reason for the reduction in sales in the mail order
channel. The cost of this lower volume reduced marketing expenses, but was
offset by significant increases in postal rates and paper prices that occurred
during the year. In an attempt to generate more sales from fewer catalogs, new
analytical techniques were used to identify mailing lists that would contribute
more new customers.
14
<PAGE> 15
The retail channel ended 1995 on a positive sales trend. For the fourth
quarter, the stores generated a sales increase of 6.5% over the same period in
1994. Comparable store sales for the fourth quarter increased 1.0%. For the
year, sales from the retail channel increased .8% in 1995 over 1994 levels,
while comparable store sales decreased 14.0%.
Gross profit for 1995 was $46.1 million (13.6% of sales), a 3.6% increase from
the $44.5 million (14.6% of sales) gross profit earned in 1994. There are
several factors that contributed to the decrease in the gross profit percent.
First, there was a change in the mix of goods sold during the year. A larger
portion of sales were contributed by the corporate sales channel during 1995,
with margins lower than those of the retail or mail order channels.
Second, the Company increased its use of secondary sources to obtain
merchandise when not available from the primary supplier in order to improve
inventory availability which resulted in increased product costs. The final
factor was the continued erosion on margin in all of the Company's distribution
channels due to competitive pressures.
Selling, general and administrative expenses were $44.0 million (13.0% of sales)
in 1995, a 16.7% increase over the $37.7 million (12.4% of sales) in 1994.
Several factors contributed to this increase in operating expenses:
The Lenexa, Kansas and Denver, Colorado stores opened in September and December
1994, respectively and the stand-alone Louisville sales office opened in the
second quarter of 1995, all of which increased operating expenses directly.
Secondly, there was an increase in the use of outside consultants to improve
inventory management, sales staff training programs, and recruiting costs for
corporate and mail order sales staff. Thirdly, higher commissions were paid
to the corporate sales groups, which is a result of increased sales for 1995.
Fourthly, additional depreciation expense was incurred as a result of the 1995
and 1994 expansion of the corporate office to provide additional space to meet
requirements for customer service, corporate customer training, and mail order
operations. In addition a vendor program was eliminated early in 1995 which
reimbursed the Company for having a product expert in each retail store.
In the fourth quarter, selling, general and administrative expenses were
affected by significant increases in advertising and promotional programs,
consulting fees, personnel costs, and year-end adjustments. The Company
increased its estimate for bad debts by approximately $.2 million due to a
larger trade receivable balance and estimated uncollectible amounts from
returned customer checks and bankcard chargebacks. Additionally, the Company
recognized a $.2 million expense as a result of sales and use tax audits that
were conducted during the fourth quarter. Also, temporary help was needed in
several operating areas during the fourth quarter which resulted in cost of $.1
million.
Interest expense for 1995 was $2.6 million, an 85.7% increase over the 1994
interest expense of $1.4 million. Interest expense consisted of $2.1 million
related to the Company's revolving line of credit facility and $.5 million
resulting from the subordinated notes held by two shareholders. During 1995,
the average borrowings outstanding under the revolving line of credit were
$28.1 million as compared to $16.7 million in 1994. In addition, the average
interest rate for the revolving line of credit was 7.6% in 1995 as compared to
6.4% in 1994.
15
<PAGE> 16
Net loss was $.3 million for the period ended December 31, 1995 compared to
$3.5 million net income for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses from continuing operations of $10.6 million and
$.3 million for the years ended December 31, 1996 and 1995, respectively. The
Company anticipates a loss in the first quarter of 1997 in the range of $.9 to
$1.2 million. The 1996 loss was largely due to $5.6 million in special charges
to reflect estimated amounts of contested account balances, a charge of $3.5
million for inventory shrink, $2.5 million additional tax expense resulting
from the reduction of estimated future tax benefits, and a $.8 million charge
for severance from restructuring of the executive and middle management.
Recognition of the fourth quarter loss placed the Company in violation of the
financial covenants under the Company's credit and floor plan agreements. The
financial covenants include a minimum tangible net worth amount, a leverage
ratio and an interest coverage ratio as defined by the agreements. The Company
continues to be in default and is currently in discussion with its lenders
regarding an amendment to the agreements. The lenders have continued to fund
the Company under the existing terms of the agreements. There can be no
assurance that the lenders will continue to do so. In addition, there can be
no assurances that the Company will be able to obtain an amendment to the
agreements with the lenders. In accordance with the Financial Accounting
Standards Board Emerging Issues Task Force Abstract 95-22, the debt associated
with this credit agreement is classified as short-term and the inventory
financing of $8.9 million is included in accounts payable on the balance sheet
at December 31, 1996.
Without an amendment of the current agreements or a replacement facility, the
Company would not have sufficient funds to pay its debts should the lenders
demand payment. A substantial portion of the inventories are financed through
open trade lines with vendors. The Company believes that it has satisfactory
relationships with its vendors.
The Company's financial statements have been prepared on a going concern basis
and do not contain adjustments which may be necessary should the Company be
forced to liquidate assets or take other action to satisfy debt payments or
discontinue its business.
Management believes that its efforts in the future must be directed toward
reversing the sales decline experienced in 1996, containing operating costs
and improving gross margins. There can be no assurances that these objectives
will be accomplished.
The Company has retained an investment banking firm to assist the Company in
evaluating a range of alternatives, including the possibility of raising
additional equity capital, the sale of the Company, a merger or another form of
business combination or affiliation, the purpose of which is to result in the
introduction of additional funds and/or other interested parties with resources
which may be compatible with the Company. However, no assurances can
be given that the Company will be successful in raising additional capital or
enter into a business alliance. Further, there can be no assurance, assuming
the Company is successful in raising additional funds or entering into a
business alliance, that the Company will achieve profitability. If this is not
achieved, management will be required to implement additional cost cutting
measures.
Net cash provided by operating activities was $1.7 million in 1996 compared to
$1.6 million of net cash provided by operating activities in 1995. The net
cash provided by operating activities during fiscal 1996 increased primarily
due to the $9.8 million reduction in inventory relating to management's new
single business strategy as mentioned earlier, and the $2.0 million increase in
accounts payable relating to the timing of purchases and payments to vendors.
This was partially offset by the $10.6 million net operating loss.
In 1996, approximately $2.1 million was used in investing activities to acquire
property and equipment, primarily related to the company-wide computer network,
leasehold improvements and equipment purchases, of which $.5 million was spent
on leasehold improvements and equipment purchases for the new retail store at
the Lakeview-Chicago location. For 1996, the net cash used in financing
activities totaled $6.0 million and was primarily due to net payments on the
Company's revolving credit facility.
The Company plans to install a new company-wide management information system
in 1997 which will require additional capital expenditures of approximately
$1.9 million and is expected to be financed through cash flows from operations
or an operating lease. The outstanding balance of the Company's revolving
credit facility at December 31, 1996 was $20.5 million.
16
<PAGE> 17
The statements made in this annual report that are not historical facts, are
forward looking statements, and therefore, involve risks and uncertainties,
including, but not limited to, the following risks: interest rates may rise,
competitors may open more stores in each of the Company's markets, further
intensifying competitive pressures; catalog production and mailing costs may
continue to rise; the new store may not attract the expected sales volume; the
new business strategy may not prove successful; and increased competition in
all channels may adversely affect gross margin, as well as other risks. Without
an amendment of the current credit agreement or a replacement facility, the
Company would not have sufficient funds to pay its debts should the lenders
demand payment. Accordingly, actual results may differ materially from those
set forth in the forward looking statements.
NEW ACCOUNTING PRONOUNCEMENT
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" in 1996,
and provided the appropriate disclosures to the financial statements. Refer to
Note 12.
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" in 1997 and will provide appropriate
disclosures in the 1997 financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data called for by this item are
listed in the accompanying table of contents on page twenty-one and are filed
herewith.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes or disagreements with accountants on any matters of
accounting principles, practices or financial statement disclosure.
PART III
ITEM 10, 11,12 AND 13.
The Company intends to file a definitive proxy statement with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the close of the Company's fiscal year ended December 31, 1996.
Accordingly, pursuant to General Instruction G(3), the information called for
by Part III of Form 10-K (except for the section "Executive Officers of the
Registrant" included in Part I hereof) has been omitted and is hereby
incorporated by reference from the proxy statement.
PART IV
17
<PAGE> 18
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits:
(1.) The financial statements listed in the accompanying table of
contents.
(2.) Financial statement schedules: None.
(3.) The exhibits required by Item 601 of Regulation S-K and filed
herewith are listed in the exhibit index which follows the financial statements
and immediately precedes the exhibits filed.
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ELEK-TEK, INC.
Date: April 22, 1997 By: /s/ Richard L. Rodriguez
---------------------------
Richard L. Rodriguez
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on April 22, 1997.
SIGNATURE TITLE
/s/Richard L. Rodriguez Chief Executive Officer, President and
- --------------------------
Richard L. Rodriguez Director
/s/Miguel A. Martinez, Jr. Vice President , Chief Financial Officer and
- --------------------------
Miguel A. Martinez, Jr. Secretary (Chief Financial and Accounting Officer)
/s/ Dennis G. Flanagan Director
- ----------------------
Dennis G. Flanagan
/s/ Susan J. Kaiser Director
- ----------------------
Susan J. Kaiser
18
<PAGE> 19
/s/ Harvey Kinzelberg Director
- ----------------------
Harvey Kinzelberg
/s/ Robert J. Lipsig Director
- ----------------------
Robert J. Lipsig
/s/ Alvin Richer Director
- ----------------------
Alvin Richer
ELEK-TEK, INC.
TABLE OF CONTENTS
- ----------------------------------------------------------------------
PAGE
----
REPORT OF INDEPENDENT ACCOUNTANTS 22
Financial Statements (Item 14(a)(1)):
The following financial statements of ELEK-TEK, Inc.
are included in Part II, Item 8:
Balance sheets - December 31, 1996 and 1995 23
Statements of operations -
years ended December 31, 1996, 1995, and 1994 24
Statements of stockholders' equity -
years ended December 31, 1996, 1995, and 1994 25
Statements of cash flows -
years ended December 31, 1996, 1995, and 1994 26
Notes to financial statements 27-36
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
ELEK-TEK, Inc.
We have audited the accompanying balance sheets of ELEK-TEK, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ELEK-TEK, Inc. as of December
31, 1996 and 1995, and the results of its operations and cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 6 to the
financial statements, the Company has suffered recurring losses from operations
and the Company is in violation of financial covenants of its lending
agreements that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Chicago, Illinois
March 26, 1997, except as to the
information presented in Notes 1 and 6,
for which the date is April 22, 1997.
COOPERS & LYBRAND L.L.P.
20
<PAGE> 21
ELEK-TEK, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,619 $ 8,064
Accounts receivable, trade (net of $490 and $334 of reserves,
respectively) 23,700 23,040
Accounts receivable, vendor (net of $1,303 and $733 of reserves,
respectively) 7,628 6,219
Inventories 28,043 37,852
Other 4,338 2,963
-------- ---------
Total curent assets 65,328 78,138
Property, plant and equipment, net 15,587 15,780
Other assets 126 69
-------- ---------
Total assets $ 81,041 $ 93,987
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,101 $ 38,078
Accrued expenses 4,340 2,570
Customer deposits 526 641
Short-Term Debt 20,524 26,300
Subordinated notes payable to stockholders, current 2,000
-------- ---------
Total current liabilities 67,491 67,589
-------- ---------
Long-term debt:
Subordinated notes payable to stockholders, net of current maturities 2,286 4,571
-------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares authorized; none
issued or outstanding
Common stock, $.01 par value; 20,000,000 shares authorized;
6,300,000 shares issued and outstanding 63 63
Paid-in capital 14,356 14,356
Retained earnings (3,155) 7,408
-------- ---------
Total stockholders' equity 11,264 21,827
-------- ---------
Total liabilities and stockholders' equity $ 81,041 $ 93,987
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
ELEK-TEK, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
<S> <S> <S> <S>
1996 1995 1994
--------- ---------- -----------
Net sales $ 333,498 $ 338,025 $ 305,602
Cost of sales 298,236 291,971 261,099
---------- ---------- -----------
Gross profit 35,262 46,054 44,503
Selling, general, and administrative
expenses 46,038 43,972 37,704
---------- ---------- -----------
Income (loss) from operations (10,776) 2,082 6,799
---------- ---------- -----------
Other (income) expense:
Other income net (341) (303) (298)
Interest expense 2,454 2,633 1,391
---------- ---------- -----------
2,113 2,330 1,093
---------- ---------- -----------
Income (loss) before income tax provision (12,889) (248) 5,706
Income tax provision (benefit) (2,326) 51 2,245
---------- ---- ----- -----------
Net income (loss) $(10,563) $ (299) $ 3,461
========== ========== ===========
Net income (loss) per share $(1.68) $ (0.05) $ 0.55
========== ========== ===========
Weighted average number of common
shares outstanding 6,300,000 6,300,000 6,300,000
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 23
ELEK-TEK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
AT $.01 PAR VALUE TOTAL
----------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 6,300,000 63 14,356 4,246 18,665
Net Income 3,461 3,461
--------- -- ------ ------- ---------
Balance at December 31, 1994 6,300,000 63 14,356 7,707 22,126
Net Loss (299) (299)
--------- -- ------ ------- ---------
Balance at December 31, 1995 6,300,000 63 14,356 7,408 21,827
Net Loss (10,563) (10,563)
--------- -- ------ ------- ---------
Balance at December 31, 1996 6,300,000 63 14,356 (3,155) 11,264
========= === ======= ======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 24
ELEK-TEK, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (10,563) $ (299) $ 3,461
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 2,258 2,312 1,919
Provision for deferred income taxes 821 (475) (104)
Gain on sale of property, plant, and equipment (3)
Changes in assets and liabilities:
Accounts receivable, trade (660) (4,358) (5,457)
Accounts receivable, vendor (1,409) (1,952) (1,118)
Inventories 9,809 (158) (5,715)
Other assets (2,253) 674 (1,939)
Accounts payable 2,023 6,333 8,695
Accrued expenses and customer deposits 1,655 (510) (169)
--------- -------- ---------
Net cash provided by (used in) operating activities 1,681 1,567 (430)
--------- -------- ---------
Cash flows for investing activities:
Additions to property, plant and equipment (2,065) (1,824) (9,813)
--------- -------- ---------
Net cash used in investing activities (2,065) (1,824) (9,813)
--------- -------- ---------
Cash flows from financing activities:
Borrowings on revolving bank line of credit 124,548 77,900 80,535
Payments on revolving bank line of credit (130,324) (76,600) (69,035)
Payments on subordinated notes payable to stockholders (285) (1,143) (1,143)
--------- -------- ---------
Net cash provided by (used in) financing activities (6,061) 157 10,357
--------- -------- ---------
Net (decrease) increase in cash and cash equivalents (6,445) (100) 114
Cash and cash equivalents, beginning of period 8,064 8,164 8,050
--------- -------- ---------
Cash and cash equivalents, end of period $ 1,619 $ 8,064 $ 8,164
========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 2,382 $ 2,160 $ 1,294
--------- -------- ---------
Income Taxes $ 145 $ 1,068 $ 2,663
--------- -------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 25
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
ELEK-TEK, Inc. (the "Company") is a full line, regional marketer of
microcomputer hardware, software and related accessories and supplies. The
Company currently operates eight retail stores and also sells its products
through a mail order operation and a corporate sales force to individuals,
businesses, institutions and government agencies. During 1996, retail, mail
order and corporate sales each contributed 42.2%, 17.2% and 40.6% to total
sales respectively. This compares to the 1995 sales contribution for each area
of 47.2%, 19.6% and 33.2% and 1994 sales contribution of each area of 51.8%,
23.3%, and 24.9%, respectively.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has incurred losses from
continuing operations of $10.6 million and $.3 million for the years ended
December 31, 1996 and 1995, respectively. In addition, the Company anticipates
a loss in the first quarter of 1997 in the range of $.9 million to $1.2
million.
Recognition of the fourth quarter loss placed the Company in violation of the
financial covenants under the Company's credit and floor plan agreements. The
financial covenants include a minimum tangible net worth amount, a leverage
ratio and an interest coverage ratio as defined by the agreements. The Company
continues to be in default and is currently in discussion with its lenders
regarding an amendment to the agreements. The lenders have continued to fund
the Company under the terms of the agreements. There can be no assurance that
the lenders will continue to do so. In addition, there can be no assurances
that the Company will be able to obtain an amendment to the agreements with the
lenders. In accordance with the Financial Accounting Standards Board Emerging
Issues Task Force Abstract 95-22, the debt associated with this credit
agreement is classified as short-term and the inventory financing of $8.9
million is included in accounts payable on the balance sheet at December 31,
1996.
Without an amendment of the current agreements or a replacement facility, the
Company would not have sufficient funds to pay its debts should the lenders
demand payment. A substantial portion of the inventories are financed through
open trade lines with vendors. The Company believes that it has satisfactory
relationships with its vendors.
The Company has retained an investment banking firm to assist the Company in
evaluating a range of alternatives, including the possibility of raising
additional equity capital, the sale of the Company, a merger or another form of
business combination or affiliation, the purpose of which is to result in the
introduction of additional funds and/or other interested parties with resources
which may be compatible with the Company. However, no assurances can be given
that the Company will be successful in raising additional capital or enter into
a business alliance. Further, there can be no assurance, assuming the Company
is successful in raising additional funds or entering into a business alliance,
that the Company will achieve profitability. If this is not achieved,
management will be required to implement additional cost cutting measures.
The Company's financial statements have been prepared on a going concern basis
and do not contain adjustments which may be necessary should the Company be
forced to liquidate assets or take other action to satisfy debt payments or
discontinue its business.
ELEK-TEK believes it has satisfactory relationships with its suppliers, which
often enables it to take advantage of special purchasing situations and
exclusive promotions. Of the Company's total purchases from its suppliers in
each of the last three years, Hewlett-Packard, Compaq and IBM accounted for
approximately 12%, 12% and 8% in 1996, 16%, 11% and 10% in 1995, and 20%, 11%
and 9% in 1994, respectively. The loss of Hewlett-Packard, Compaq or IBM as a
supplier, which is not expected, could have a material adverse effect on the
Company.
As is customary in the industry, vendors provide the Company with substantial
incentives in the form of discounts, rebates, credits, inventory financing
programs, cooperative advertising and market development funds. A
reduction in or discontinuance of these incentives could have a material
adverse effect on the Company's results of operations and financial condition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Substantially all cash and
cash equivalents are concentrated with a bank located in Chicago, Illinois.
Due to the lock-box arrangement under its loan agreement, the Company had $1.3
million in restricted cash as of December 31, 1996.
Inventories
Inventories are valued at the lower of cost or market with cost being
determined on a first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation for property
placed in service on or before December 31, 1990 is computed using accelerated
methods over the assets' estimated useful lives. Depreciation for property
placed in service after December 31, 1990 is computed on a straight-line method
(using half year convention for assets purchased or sold during the year) over
the assets' estimated useful lives which range from 3 to 35 years.
Amortization of leasehold improvements is computed on a straight-line method
over the remaining terms of the leases.
Repairs and maintenance are charged to expense when incurred. Expenditures for
improvements
25
<PAGE> 26
are capitalized. Upon sale or retirement, the related cost and accumulated
depreciation or
26
<PAGE> 27
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment (continued)
amortization are removed from the respective accounts and any resulting gain or
loss is included in operations.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of " in 1995. The adoption had no impact on
the financial results. When facts and circumstances indicate potential
impairment, the Company evaluates the recoverability of long-lived asset
carrying values using estimates of undiscounted future cash flows over remaining
asset lives. When impairment is indicated, any impairment loss is measured by
the excess of carrying values over fair values.
Income Taxes
Taxes on income are accounted for under the liability method. Deferred income
taxes are recorded to reflect the tax consequences on future years of
differences between the basis of assets and liabilities for income tax and for
financial reporting purposes. In addition, the amounts of any future tax
benefits are reduced by a valuation allowance to the extent such benefits are
uncertain of being ultimately realized.
Revenue Recognition
Retail sales are recognized as revenue at point of sale. Mail order and
corporate sales are recognized as revenue when products are shipped. Service
contract revenue is recognized ratably over the contractual period; other
service revenue is recognized as services are provided.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
As of December 31, 1996 the reserve for vendor debits increased $.9 million
from the prior year. The increase in reserve is due to a change in estimate of
contested account balances outstanding, which includes the special charge of $.6
million taken in the fourth quarter of 1996.
In the fourth quarter, the Company reevaluated its estimates for doubtful
accounts and contested account balances and determined additional reserves were
needed. Management believes that the current estimated reserves are more
reflective of related liabilities and assets. In addition, estimated future tax
benefits from deferred tax assets were reevaluted and reduced as a result of
uncertainty of their ultimate realization.
27
<PAGE> 28
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" using the fair value method to calculate compensation cost for
stock-based employee compensation plans. Accordingly, compensation cost for
stock options was measured by using the Black-Scholes option pricing model
which takes into account, as of the grant date, the exercise price, the
expected life of the options, the current price of the underlying stock and its
expected volatility, expected dividends on the stock, and the risk-free
interest rate for the expected term of the options. Refer to Note 12.
Advertising
Advertising costs are expensed as incurred. Reimbursements for advertising are
recognized when they are earned. Advertising expense, net of vendor subsidies,
is reported as selling, general and administrative expenses in the accompanying
financial statements. Net advertising expense in 1996, 1995, and 1994 amounted
to $1.6 million, $1.3 million, and $1.7 million, respectively.
Pre-Opening Expenses
Pre-opening expenses consisting primarily of personnel expenses and occupancy
costs incurred prior to a store's opening and promotional costs related to a
new store are charged to selling, general and administrative expenses as
incurred.
Reclassification
Certain reclassifications have been made to conform prior years' data to the
current presentation. These classifications have no effect on the results of
operations or total stockholders' equity of the Company.
Net Income (loss) per share
Net income (loss) per share is calculated by the treasury stock method. Primary
earnings (loss) per common share are computed by dividing earnings (loss) by the
weighted average number of common shares outstanding plus common stock
equivalents, when dilutive, calculated using the average market price. Fully
diluted earnings per common share are computed on the same basis due to the
anti-dilutive effect in 1996 and 1995.
3. INVENTORIES
Inventories held for sale consist of the following at December 31, 1996 and
1995 (in thousands of dollars):
28
<PAGE> 29
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Distribution center $13,164 $18,107
Retail stores 14,879 19,745
------- -------
$28,043 $37,852
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 1996 and
1995 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Land $ 494 $ 494
Buildings and building improvements 2,982 2,982
Leasehold improvements 9,579 9,346
Furniture, fixtures and equipment 15,070 13,530
Construction in progress 262 -
------- --------
28,387 26,352
Less accumulated depreciation 12,800 10,572
------- --------
$15,587 $15,780
======= ========
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS
On December 28, 1992, the Company distributed an $8,000,000 dividend to its
stockholders by issuing long-term subordinated notes. By their terms the
notes are, in the event of dissolution or liquidation, subordinated to amounts
due or to become due to its bank lender as well as to trade creditors in
respect of goods, materials or services provided by them to the Company. These
notes bear interest at a rate equal to prime plus 1/2% (prime rate was 8-1/4%
at December 31, 1996 and 8-1/2% at December 31,1995), but not less than 6% or
more than 10%. The notes mature on December 31, 1999 and require equal
quarterly principal payments of $286,000 plus interest which began in March
1993. During the second, third and fourth quarters of 1996, the Company did
not make the principal payments on its subordinated notes. The Company will
not resume these payments until results of operations permit.
29
<PAGE> 30
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHORT-TERM DEBT
On April 15, 1996, the Company had extended its revolving bank credit agreement
with LaSalle National Bank through April, 1997. On October 31, 1996 the
Company entered into a new three year revolving credit agreement and floor plan
agreement with Deutsche Financial Services Corporation and NationsCredit
Commercial Corporation of America that replaced its existing credit and floor
plan agreements.
Recognition of the fourth quarter loss placed the Company in violation of the
financial covenants under the Company's credit and floor plan agreements. The
financial covenants include a minimum tangible net worth amount, a leverage
ratio and an interest coverage ratio as defined by the agreements. The Company
continues to be in default and is currently in discussion with its lenders
regarding an amendment to the agreements. The lenders have continued to fund
the Company under the terms of the agreements. There can be no assurance that
the lenders will continue to do so. In addition, there can be no assurances
that the Company will be able to obtain an amendment to the agreements with the
lenders. In accordance with the Financial Accounting Standards Board Emerging
Issues Task Force Abstract 95-22, the debt associated with this credit
agreement is classified as short-term and the inventory financing of $8.9
million is included in accounts payable on the balance sheet at December 31,
1996.
Without an amendment of the current agreements or a replacement facility, the
Company would not have sufficient funds to pay its debts should the lenders
demand payment. A substantial portion of the inventories are financed through
open trade lines with vendors. The Company believes that it has satisfactory
relationships with its vendors.
The Company's financial statements have been prepared on a going concern basis
and do not contain adjustments which may be necessary should the Company be
forced to liquidate assets or take other action to satisfy debt payments or
discontinue its business.
Outstanding borrowings at December 31, 1996 and 1995 were $20.5 million and
$26.3 million, respectively. There were no letters of credit required, or
outstanding at December 31, 1996 under the existing agreement, or as of
December 31, 1995. Outstanding borrowings are collateralized by substantially
all of the Company's assets.
During 1995 and through September of 1996, interest on the outstanding
borrowings was either at the bank's prime rate or LIBOR plus 1-3/4%. From
October through December of 1996, interest on the outstanding borrowings was at
the banks' prime rate plus 1-1/2%. At December 31, 1996, the total outstanding
borrowings bore interest at 9-3/4%.
During 1996, the average amount of credit outstanding during the period was
$24.6 million, based on average month end balances outstanding. The weighted
average interest rate during 1996 was 7.26%, and 7.57% in 1995.
The Company has determined the fair value of its bank debt at December 31,
1996, to approximate the book value as the interest rates that are utilized
are similar to those that are currently available for issuance of debt with
similar terms and maturities.
7. LEASE COMMITMENTS
The Company leases buildings and personal property under noncancelable
operating leases expiring through October 31, 2008. The building leases
contain renewal options and require the Company to pay a proportionate share of
common area maintenance. The Company leases two of its retail stores from its
principal stockholders. Future minimum rental payments for the next five years
and thereafter under noncancelable operating leases, as of December 31, 1996,
are approximately as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Stockholders Others Total
------------ ------- -------
<S> <C> <C> <C>
1997 $ 518 $2,011 $ 2,529
1998 499 2,077 2,576
1999 416 1,519 1,935
2000 416 1,403 1,819
2001 416 1,136 1,552
Thereafter 3,109 653 3,762
-------- ------ -------
$ 5,374 $8,799 $14,173
======== ====== =======
</TABLE>
Total rental expenses for operating leases including the related party leases
amount to approximately $2,860, $2,805 and $2,696 for the years ended December
31, 1996, 1995, and 1994
30
<PAGE> 31
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
respectively. Rentals for retail stores leased from the Company's principal
stockholders were $518, $521, and $502 plus real estate taxes and insurance for
the years ended December 31, 1996, 1995 and 1994, respectively.
8. EMPLOYEE BENEFIT PLANS
All employees who meet certain eligibility requirements can participate in the
Company's 401(k) savings plan. The Company may, at its discretion, match a
portion of the eligible employee contributions. The Company's contributions
were approximately $57,000, $79,000, and $61,000 for the years ended December
31, 1996, 1995, and 1994, respectively.
9. INCOME TAXES
The provision for income taxes consists of (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Current:
Federal $(2,785) $ 315 $1,919
State (362) 211 431
------- ------ ------
Total (3,147) 526 2,350
Deferred:
Federal 716 (414) (92)
State 105 (61) (13)
------- ------ ------
Total 821 (475) (105)
------- ------ ------
Provision for
income taxes $(2,326) $ 51 $2,245
======= ====== ======
</TABLE>
Differences between the federal statutory tax rate and the Company's effective
tax rate are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% 34.0%
State taxes, net of
federal tax benefits (1.0) 40.4 4.7
Valuation Allowance 19.7
Other (2.7) 14.2 0.6
------- ------ -----
Effective tax rate
for the year (18.0)% 20.6% 39.3%
======= ====== =====
</TABLE>
31
<PAGE> 32
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities as of December 31, consist of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
Tax Tax
Effect Effect
-------- -------
<S> <C> <C>
Deferred tax assets:
Unearned service contract revenue $ 117 $ 66
Inventories 510 293
Depreciation 55 70
Accounts payable reserve 468 40
Accrued expenses 335 219
Accounts receivable 197 130
Vendor receivables 372 3
AMT credit 438 -
State tax carryforward 67 -
------ -----
Sub-total 2,559 821
Valuation allowance (2,535) -
------ -----
Total deferred tax assets 24 821
Deferred tax liabilities:
State Tax (24) -
------ -----
Net deferred tax asset $ - $ 821
====== =====
</TABLE>
In 1995, the Company had a net deferred tax asset of $821. No valuation
allowance was provided at December 31, 1995 since the asset was expected to be
realized through future operations, or through a net operating loss carryback
since sufficient taxes were paid in prior years. In the fourth quarter of
1996, the Company recorded a full valuation allowance of $2.5 million on the
net deferred tax asset as a result of uncertainty of their ultimate
realization. The 1995 net deferred tax asset is included in other current
assets in the accompanying financial statements.
In 1996, the Company generated a $9.7 million tax net operating loss which will
be carried back to recover taxes paid from 1993 to 1995. The $3.5 million of
refundable taxes is recorded in other current assets in the balance sheet at
December 31, 1996.
10. TAX INDEMNIFICATION AGREEMENT
On June 30, 1993, the Company entered into a tax indemnification agreement with
its principal stockholders that, among other things, indemnifies each such
stockholder for additional tax liability (including penalties, interest and
legal fees), in excess of $100,000 with respect to each of them, resulting from
the Company's operations during any taxable period for which the Company was an
S Corporation. The Company does not have written agreements with any of the
other stockholders of the Company but will indemnify these stockholders on a
similar basis with no deductible amount.
32
<PAGE> 33
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company does not expect that any payments will be made by the Company, nor
have any payments been made, pursuant to the tax indemnification agreement.
11. SECURED PARTY TRANSACTIONS
In the course of business the Company purchases certain product lines of
inventory that are financed by certain creditors. All financing by these
creditors is used exclusively for the acquisition of product. Each creditor
has a security interest in the Company's inventory to the extent of the
Company's obligation to the creditor. Amounts owed to these creditors at
December 31, 1996 and 1995 were approximated $17,195,000, and $12,855,000,
respectively, and is included in accounts payable.
12. STOCK -BASED COMPENSATION PLANS
On August 12, 1993, the Company's Board of Directors established, and the
Company's stockholders approved, the 1993 Incentive Stock Option Plan (the
"Option Plan"). The Option Plan provides that the Board of Directors may grant
incentive stock options to management and other employees of the Company. The
Company has reserved 500,000 shares of common stock for issuance upon exercise
of options granted under the Option Plan. The options are awarded at 100
percent of the fair market value of the common stock on the date of grant and
vest over a four or five year period. The maximum term of the options is ten
years from the date of grant. At December 31, 1996, no stock options had been
exercised under the Option Plan.
On December 13, 1996, the Company's Board of Directors adopted the Outside
Director Stock Option Plan (the "Plan"). The Option Plan provides that the
Board of Directors may grant stock options to directors of the Company in order
to attract or retain the services of such directors and to provide added
incentive to them by encouraging stock ownership in the Company. The Company
has reserved 150,000 shares of common stock for issuance upon exercise of
options granted under the Plan. The options are awarded at 100 percent of the
fair market value of the common stock on the date of grant and vest over a three
year period. The maximum term of the options is ten years from the date of
grant. At December 31, 1996, no stock options had been exercised under the
Plan.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans.
Information regarding these option plans for 1996, 1995, and 1994 is as
follows:
33
<PAGE> 34
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCK -BASED COMPENSATION PLANS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ------------------- ------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Jan. 1 219,000 9.64 248,000 10.18 212,000 10.75
Options granted 433,500 3.84 44,000 6.76 51,000 8.75
Options exercised - - - - - -
Options forfeifed (147,500) 10.57 (73,000) 10.75 (15,000) 10.75
--------- -------- --------
Outstanding at Dec. 31 505,000 4.41 219,000 9.64 248,000 10.18
========= ======== ========
Available for grant
at Dec. 31 145,000 81,000 52,000
========= ======== ========
Exercisable at Dec. 31 28,900 63,400 38,700
======= ======== ========
Weighted-average fair
value of options granted
during the year $1.36 $2.34
======= ========
Option price range at
year-end $2.75 to $2.88 to $5.88 to
$10.75 $10.75 $10.75
</TABLE>
The following table summarizes information about fixed-price stock options and
the significant option groups outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------
Weighted -
Number Average Weighted - Number Weighted -
Exercise Outstanding Remaining Average Exercisable Average
Prices 12/31/96 Contractual Life Exercise Price 12/31/96 Exercise Price
- -------------- -------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
2.75 126,000 9.2 years 2.75 - -
2.88 10,000 9.0 years 2.88 2,000 2.88
4.38 112,500 10.0 years 4.38 - -
4.75 70,000 9.8 years 4.75 - -
5.88 10,000 8.5 years 5.88 2,000 5.88
8.75 15,000 8.6 years 8.75 3,000 8.75
10.75 36,500 6.7 years 10.75 21,900 10.75
2.78 to 4.88 125,000 9.4 years 3.85 - -
----------- ---------
Total 505,000 28,900
=========== =========
</TABLE>
All options were granted at an exercise price equal to the fair market value of
the Company's common stock at the date of grant. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average
34
<PAGE> 35
ELEK-TEK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
assumptions:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Expected life (years) 4 5
Risk-free interest rate 6.17% 5.79%
Volatility 31% 30%
Dividend yield 0% 0%
</TABLE>
If stock-based compensation granted in years 1996 and 1995 were recognized as
compensation expense, using a straight-line basis over the vesting period of
the grant, it would have increased the loss by $209,000 ($.03 per share), and
$24,000 (no impact per share), to a loss of $10.8 million ($1.71 per share),
and $.3 million ($.05 per share), respectively. The pro forma effect on net
income for both 1996 and 1995 is not representative of the pro forma effect on
net income in future years because it does not take into consideration pro
forma compensation expense related to grants made prior to 1995.
13. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
NET INCOME
GROSS NET INCOME (LOSS)
QUARTER ENDED NET SALES PROFIT (LOSS) PER SHARE
- ------------- ------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
1996
- ----
March 31 88,614 11,180 (560) (0.09)
June 30 77,301 2,597 (6,340) (1.01)
September 30 82,695 11,407 314 0.05
December 31 84,888 10,078 (3,978) (0.63)
1995
- ----
March 31 83,869 13,149 609 0.10
June 30 78,964 11,972 555 0.09
September 30 78,959 11,052 (187) (0.03)
December 31 96,233 9,881 (1,276) (0.21)
</TABLE>
For the fourth quarter of 1996, corporate sales represented 40.4%, mail-order
sales represented 15.1%, and retail sales represented 44.5% of total sales in
1996. This compares to the fourth quarter of 1995 sales contribution made by
each channel of 31.6%, 16.6%, and 51.8%, respectively.
In the fourth quarter, gross margin was $10.1 million (11.9 % of sales)
in 1996 versus $11.7 million
35
<PAGE> 36
(12.2% of sales) in 1995. During the fourth quarter of 1996, gross margin was
impacted by a special charge adjustment of $.6 million which related to an
increase in reserves due to a change in estimate of contested account balances
outstanding. Excluding this adjustment, gross margin as a percentage of sales
would have been 12.6% versus 12.2% in 1995, an increase of .4%.
Selling, general, and administrative expenses for the fourth quarter 1996
decreased by $1.5 million primarily due to lower total compensation and benefit
expenses, professional fees, and sales and use tax expense. The decrease in
compensation and benefit expenses was mainly due to the nearly 20% reduction in
head count as compared to the fourth quarter of 1995. In 1996, professional
fees were lower by nearly $.3 million. In 1995, consultants were used for an
inventory management project to design and implement a supply chain purchasing
practice to reduce inventory levels while improving in-stock positions. This
project was discontinued by the new senior management team. The decrease in
sales and use tax expense was due to the recognition of additional tax
liability in 1995 as a result of a sales and use tax audit. These decreases
were offset, in part, by the $.9 million increase in reserves made in the
fourth quarter after the Company reevaluated its estimated liabilities and
determined that additional reserves were needed.
In addition, the estimated future tax benefits were reevaluated and reduced, as
they are not assured of being realized. The total impact of the charges from
changes in estimates recorded in the fourth quarter of 1996, resulted in an
increase in the net loss by $3.4 million, or $.54 per share. Excluding these
adjustments, the net loss for the fourth quarter of 1996 would have been $.6
million, or $.09 per share.
ELEK-TEK, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------ -------------------
<S> <C>
3.1 Certificate of Incorporation of the Registrant.(1)
3.2 By-laws of the Registrant.(1)
4.1 See Exhibit 3.1, Certificate of Incorporation of the Registrant.(5)
4.2 Specimen Common Stock Certificate of the Registrant.(1)
10.2 Shopping Center Lease made as of January 29, 1987, as amended May
31, 1990 between Registrant and Vantage Properties, Inc., as
beneficiary with power of direction of that certain Trust No.
64044 with respect to which American National Bank and Trust
Company of Chicago is Trustee (relating to real property located
at 6300 S. Kingery Highway, Willowbrook, Illinois).(1)
10.2.1 Form of second amendment dated as of May 7, 1993, to Shopping
Center Lease set forth in Exhibit 10.2. (3)
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------ -------------------
<S> <C>
10.3 Lease dated October 25, 1988, as amended April 7, 1993, between
Registrant and American National Bank and Trust Company of
Chicago, as Trustee under Trust No. 59816 (relating to real
property located at 6557 N. Lincoln Avenue, Lincolnwood, Illinois
60645).(1)
10.4 Office/Warehouse Lease made as of January 13, 1989, as amended
July 2, 1992 and, February 24, 1993, between Registrant and
American National Bank and Trust Company of Chicago, Not
Personally But as Trustee Under Trust Agreement Dated December 3,
1987 and known as Trust No. 104162-04 (relating to real property
located at 7350 N. Linder Avenue, Skokie, Illinois).(1)
10.4.1 Third amendment dated as of December 22, 1993, to Office/Warehouse
Lease set forth in Exhibit 10.4.(3)
10.5 Meadows Town Mall Lease made as of December 21, 1990 between
Registrant and LaSalle National Trust, N.A., not individually but
solely as successor Trustee under Trust Agreement dated October 1,
1988 and known as Trust No. 113782 (relating to real property
located at 1400 E. Golf Road, Rolling Meadows, Illinois). (1)
10.6 Lease Agreement dated April 19, 1991, as amended September 6,
1991, between Registrant and LaSalle National Trust, N.A., not
personally but solely as Trustee under the provisions of a Trust
Agreement known as Trust No. 49371 (relating to real property
located at 105 West Adams Street, Chicago, Illinois).(1)
10.7 1993 Incentive Stock Option Plan.(1)(2)
10.8 Form of Non-Qualified Director Stock Option Agreement.(1)(2)
10.9 Form of Indemnification Agreement for Directors and Officers of
Registrant.(1)(2)
10.10 Form of Tax Indemnification Agreement between Registrant and
Morton Goldman and Hal Goldman. (1)(2)
10.12 IBM Agreement for Authorized Dealers and Industry Remarketers,
Agreement No. OAK0054, dated August 21, 1991, as amended, between
Registrant and International Business Machines Corporation.(1)
10.13 IBM Business Partner Agreements dated May 27, 1994 between
Registrant and International Business Machines Corporation.(4)
10.14 Hewlett-Packard U.S. Reseller Channel Agreement dated September 1,
1990, as amended, between Registrant and Hewlett-Packard
Company.(1)
10.15 Building Lease dated as of November 1, 1993 between Registrant and Hal Goldman
(relating to real property located at Intersection of I-69 and 96th Street,
Crosspoint Business Park, Indianapolis, Indiana). (3)
10.16 Goldsmith Shopping Center Lease made as of June 3, 1994 between
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------ -------------------
<S> <C>
Registrant and N.W. Commercial Mortgage Corporation (relating to real
property located at 8000 E. Quincy Ave, Suite 600, Denver, CO 80237). (4)
10.17 Merchant agreement dated April 19, 1991, between Registrant and
HRSI, N.A. as amended May 23, 1994. (4)
10.18 Compaq Computer Corporation United States Reseller Agreement dated
March 12, 1993 between Registrant and Compaq Computer Corporation.
(4)
10.19 Employment Agreement dated March 1, 1996 between Registrant and
Richard Rodriguez. (5)
10.21 Deutsche Financial Services Corporation/Nations Credit Commercial
Corporation of America-business Credit and Security Agreement
dated October 31, 1996.
10.22 Outside Director Stock Option Plan dated December 13, 1996.
11.0 Computation of Earnings Per Share
23.0 Consent of Coopers and Lybrand L.L.P.
27.0 Financial Data Schedule
</TABLE>
(1) Incorporated herein by reference to the corresponding exhibit to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-65446).
(2) Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Report pursuant to Item 601 of Regulation S-K.
(3) Incorporated herein by reference to the corresponding exhibit to the
Registrant's Annual Report on Form 10-K for 1993.
(4) Incorporated herein by reference to the corresponding exhibit to the
Registrant's Annual Report on Form 10-K for 1994.
(5) Incorporated herein by reference to the corresponding exhibit to the
Registrant's Annual Report on Form 10-K for 1995.
38
<PAGE> 1
EXHIBIT 10.21
EXECUTION COPY
================================================================================
$35,000,000
BUSINESS CREDIT AND SECURITY AGREEMENT
Dated as of October 31, 1996
AMONG
ELEK-TEK, INC.
DEUTSCHE FINANCIAL SERVICES CORPORATION,
AS AGENT AND AS A LENDER
AND
NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA,
AS A LENDER
================================================================================
<PAGE> 2
BUSINESS CREDIT AND SECURITY AGREEMENT
THIS BUSINESS CREDIT AND SECURITY AGREEMENT ("Agreement") entered into
among ELEK-TEK, INC., a Delaware corporation, with its principal place of
business at 7350 North Linder Avenue, Skokie, Illinois 60077 ("Borrower"),
NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA, a North Carolina corporation
("Nations"), as a lender, DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada
corporation ("DFS") as a lender (Nations and DFS, in their role as a lender,
being referred to individually as "Lender" and/or collectively "Lenders"), and
DFS as agent (in such agent capacity, the "Agent")
EFFECTIVE DATE: October 31, 1996
1. RECITALS
Borrower has requested that the Lenders provide Borrower with a credit
facility for working capital purposes.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital letters.
Those terms are defined below, in this Section 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in Section 15.2.
"AWF" means that certain Agreement for Wholesale Financing, as amended
from time to time, between Borrower and DFS, in its individual capacity,
providing for the Floorplan Inventory Facility.
"Account Debtor" shall mean any Person who is or who may become obligated
to Borrower under, with respect to, or on account of, an Account, general
intangible or other Collateral.
"Accounts" shall have the meaning given to that term in the UCC and, to
the extent not included therein, shall also mean all accounts, leases,
contract rights, chattel paper, general intangibles, 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 Borrower.
"Affiliates" shall mean: (i) any individual who is an officer or director
of a Person; and (ii) any Person who directly or indirectly controls, is
controlled by, or is under common control or ownership with, a Person. For the
purposes of this definition, the term "control" shall mean the ownership of or
the ability to direct or control 10% or more of the beneficial interest in the
applicable entity.
"Agent" shall mean Deutsche Financial Services Corporation, a Nevada
corporation, acting in its capacity as agent for the Lenders, and each
successor Agent, appointed pursuant to Section 13.8.
"Agreement" shall mean this Business Credit and Security Agreement, and
any amendments hereto.
"Assignee" shall have the meaning set forth in Section 14.17(a).
<PAGE> 3
"Assignment" shall have the meaning set forth in Section 14.17(a).
"Borrowing Base" shall mean as of any date of determination, an amount
equal to the sum of (i) the Eligible Account Availability plus (ii) the
Eligible Inventory Availability.
"Borrowing Base Certificate" shall have the meaning set forth in Section
3.1(a).
"Business" shall mean the sale and distribution of computers and related
products, including hardware, software, related accessories and supplies,
services telecommunications equipment and electronics.
"Business Day" shall mean any day on which banks are open for business in
Chicago, Illinois and New York, New York.
"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the consolidated balance sheet of Borrower and the Subsidiaries in
respect of (a) the acquisition (including, without limitation, acquisition by
entry into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other fixed
assets or leaseholds, and (b) to the extent related to and not included in
clause (a), materials, contract labor and direct labor (excluding expenditures
properly chargeable to repairs or maintenance in accordance with GAAP).
"Collateral" shall mean all items described in Section 6.1.
"Commitment" shall have the meaning specified in Section 3.1.
"Credit Facility" shall have the meaning set forth in Section 3.
"Daily Contract Balance" shall have the meaning set forth in Section 3.2.
"Daily Rate" shall have the meaning set forth in Section 3.2.
"Debt" shall have the meaning set forth in Section 9.3.
"Default" shall have the meaning set forth in Section 10.
"Default Interest Rate" shall have the meaning set forth in Section 3.6.
"Disputes" shall have the meaning set forth in Section 15.1.
"Effective Date" shall mean the date set forth in the heading on page 1
of this Agreement.
"Eligible Accounts" shall mean all Accounts that are not Ineligible
Accounts.
"Eligible Account Availability" shall have the meaning set forth in
Section 3.1(a).
"Eligible Inventory" means Borrower's finished goods Inventory whose
acquisition by Borrower is not financed pursuant to the Floorplan Inventory
Facility or pursuant to any third party floorplan financing facility, (a) that
is owned by Borrower free and clear of all Liens, security interests and
encumbrances of any third parties, except for the Permitted Liens, (b) which
qualifies for the applicable vendor's or manufacturer's restocking and/or
return policy, (c) which is a current product of Borrower, merchantable and
fit for its intended use, (d) unused and available for sale to Borrower's
normal customers, (e) that is aged not more than 270 days from its
2
<PAGE> 4
purchase date, and (f) which Required Lenders deem, in their reasonable
discretion, to be acceptable for financing.
Notwithstanding the foregoing, to the extent that the Value of Inventory
financed pursuant to the AWF exceeds, at any time, the maximum principal
amount outstanding under the Floorplan Inventory Facility, such Inventory
shall be "Eligible Inventory," to the extent it otherwise complies with the
provisions hereof.
"Eligible Inventory Availability" shall have the meaning set forth in
SECTION 3.1(b).
"Environmental Laws" shall mean the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Solid Waste Disposal Act, as amended, the Water Pollution Control Act, as
amended, the Clean Air Act, as amended, the Clean Water Act, as amended, and
any successor or comparable federal or state statutes, now existing or later
enacted, or any regulation promulgated under any of such federal or state
statutes relating to the protection of the environment.
"Environmental Lien" shall mean a Lien in favor of any governmental
entity for (a) any liability under any Environmental Law, or (b) damages
arising from or costs incurred by such governmental entity in response to a
spillage, disposal, or release into the environment of any Hazardous Material
or other hazardous, toxic or dangerous waste, substance or constituent, or
other substance.
"Equipment" shall have the meaning as given to that term in the UCC, and,
to the extent not included therein, shall also mean all equipment, machinery,
trade fixtures, furnishings, furniture, supplies, materials, tools, machine
tools, office equipment, appliances, apparatus, parts and all attachments,
replacements, substitutions, accessions, additions and improvements to any of
the foregoing.
"Excess Advances" shall have the meaning set forth in Section 5.2.
"FAA" shall have the meaning set forth in Section 15.5.
"Floorplan Inventory Facility" shall mean DFS' facility with Borrower,
set forth in the AWF, pursuant to which DFS may extend credit to Borrower from
time to time to purchase inventory from DFS approved vendors and for other
purposes.
"Floorplan Inventory Facility Participation Agreement" shall mean that
certain participation agreement, as amended from time to time, between DFS and
Nations, pursuant to which DFS shall have granted Nations the right to
participate in fifty percent (50%) of the Floorplan Inventory Facility.
"Funding Date" shall mean the date designated by Borrower for the making
of a Loan hereunder which shall be a Business Day.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Guarantor" shall mean a guarantor of any of the Obligations.
"Hazardous Material" shall mean any and all hazardous or toxic
substances, materials or wastes as defined or listed under the Environmental
Laws.
"Indebtedness" shall mean any sum for borrowed money owed by Borrower or
any Subsidiary to a Person and shall include any debt guaranteed by Borrower
or any Subsidiary, any debt as to which the Borrower has granted or permitted
to exist a Lien
3
<PAGE> 5
on any asset even if non-recourse, letter of credit reimbursement obligations
and capitalized lease obligations.
"Indemnified Liabilities" shall have the meaning set forth in Section 12.1.
"Indemnitees" shall have the meaning set forth in Section 12.1.
"Ineligible Accounts" shall mean: (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 thirty (30) days from date of sale; (b) Accounts unpaid more
than ninety (90) days from date of invoice; (c) all Accounts of any Account
Debtor if fifty percent (50%) or more of the outstanding balance of such
Accounts are unpaid more than ninety (90) days from the date of invoice; (d)
Accounts for which the Account Debtor is an officer, director, shareholder,
partner, member, owner, employee, agent, parent, Subsidiary, or Affiliate of
Borrower or has common shareholders, officers, directors, owners, partners or
members with Borrower; (e) consignment sales; (f) Accounts for which the
payment is or may be conditional, except for Accounts which are subject to
unasserted rights of return under the terms of the "Return Policy" (as defined
in Section 8.19 hereof); (g) Accounts for which the Account Debtor 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 Section 8.19 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
Borrower to another party; (k) Accounts which are progress payment, barter, or
contra accounts; (l) Accounts for which the Account Debtor is the United
States of America, or any state, or any department, agency, instrumentality,
or subdivision thereof unless Borrower assigns its right to payment of such
Account to Agent, in form and substance satisfactory to Agent, so as to comply
with the Assignment of Claims Act, as amended (31 USC Sec. 3727 et seq.), or
any comparable state or local statute, as the case may be; and (m) any and all
other Accounts which Required Lenders deem, in their reasonable discretion, to
be ineligible.
"Intangibles" shall have the meaning set forth in Section 9.3.
"Inventory" shall have the meaning given to that term in the UCC and,
to the extent not included therein, shall also mean all of Borrower's
merchandise, materials, finished goods, work-in-process, component materials,
packaging, shipping materials, parts and other tangible personal property, now
owned or hereafter acquired and held for sale or which contribute to the
finished products or the sale, promotion, storage and shipment thereof,
whether located at facilities owned or leased by Borrower, or in the course of
transport to or from facilities owned or leased by Borrower.
"Lien" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including,
without limitation, the interest of lessors under capitalized leases and the
interest of a vendor under any conditional sale or other title retention
agreement), reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting any of Borrower's property.
"Loan" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement.
"Loan Documents" shall mean all documents executed by Borrower pursuant
to any financial accommodation between Borrower and Agent and/or Lenders
entered into in connection with the transactions herein contemplated. The term
"Loan Documents" includes, but is not limited to, this Agreement, the AWF, the
Floorplan Inventory Facility Participation Agreement, all financing
statements, all pledges, mortgages,
4
<PAGE> 6
deeds of trust, leasehold mortgages, security agreements, guaranties,
assignments, subordination agreements, and any future or additional documents
or writings executed under the terms of this Agreement or any amendments or
modifications hereto.
"Loan Participant" shall have the meaning set forth in Section 14.17(c).
"Loan Participation" shall have the meaning set forth in Section 14.17(c).
"Monthly Reports" shall have the meaning given in Section 3.9(b).
"Obligations" shall mean all liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from
Borrower (and/or any of its Subsidiaries and Affiliates) to the Lenders,
whether primary or secondary, joint or several, direct, contingent, fixed or
otherwise, secured or unsecured, or whether arising under this Agreement, any
other Loan Document or any other agreement now or hereafter executed by
Borrower (or any of its Subsidiaries or Affiliates) in connection with the
transactions herein contemplated. Obligations will include, without
limitation, any third party claims against Borrower (or any of its
Subsidiaries or Affiliates) satisfied or acquired by the Agent or a Lender.
Obligations will also include all obligations of Borrower to pay: (a) any and
all sums reasonably advanced by the Agent or a Lender to preserve or protect
the Collateral or the value of the Collateral or to preserve, protect, or
perfect Agent's security interests in the Collateral; (b) in the event of any
proceeding to enforce the collection of the Obligations after a Default, the
reasonable expenses of retaking, holding, preparing for sale, selling or
otherwise disposing of or realizing on the Collateral, or expenses of any
exercise by Agent or the Lenders of their rights, together with reasonable
attorneys' fees, expenses of collection and court costs, as provided in the
Loan Documents; and (c) any other indebtedness or liability of Borrower to the
Agent or a Lender, whether direct or indirect, absolute or contingent, now or
hereafter arising. Obligations will also include obligations of performance.
"OSHA Law" shall mean the Occupational Safety and Health Act of 1970, any
successor thereto, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"Other Reports" shall have the meaning set forth in Section 3.9(c).
"Permitted Liens" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall
have been set aside in conformity with GAAP and which are, in addition,
satisfactory to Agent in its reasonable discretion; (b) Liens of mechanics,
materialmen, landlords, warehousemen, carriers and similar Liens arising in
the future in the ordinary course of business for sums not yet delinquent, or
being contested in good faith if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor and which are, in addition,
satisfactory to Agent in its reasonable discretion; (c) statutory Liens
incurred in the ordinary course of business in connection with workers'
compensation, unemployment insurance, social security, and similar items for
sums not yet delinquent or being contested in good faith, if a reserve or
other appropriate provision in accordance with GAAP shall have been made
therefor and which are, in addition, satisfactory to Agent in its reasonable
discretion; (d) lessor's Liens arising from operating leases entered into in
the ordinary course of business; (e) Liens arising from legal proceedings, so
long as such proceedings are being contested in good faith by appropriate
proceedings, appropriate reserves have been established therefor in accordance
with GAAP and which are, in addition, satisfactory to Agent in its reasonable
discretion, and so long as execution is stayed and bonded on appeal on all
judgments resulting from any such proceedings; (f) Liens in favor of DFS, in
its
5
<PAGE> 7
individual capacity, as security for the Floorplan Inventory Facility; (g)
Liens in favor of IBM Credit Corporation ("IBMCC") in Inventory bearing the
trademark or trade name of International Business Machines Corporation ("IBM")
or Lexmark or manufactured or sold by IBM or Lexmark, subject to the terms of
a subordination agreement acceptable to Agent; (h) Liens in favor of Hewlett
Packard Company ("HP") in Inventory bearing the trademark or
trade name of Hewlett Packard or manufactured or sold by HP subject to the
terms of a subordination agreement acceptable to Agent; and (i) Liens in favor
of the Agent, on behalf of the Lenders, granted hereunder.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
"Prime Rate" shall mean a fluctuating interest rate per annum equal to
the highest of the prime, base or reference rates of interest announced
publicly from time to time (whether or not charged in each instance) by The
Chase Manhattan Bank and Citibank, N.A. (or any successor thereof) as such
bank's prime, base, or reference rate; provided, however, that for purposes of
this Agreement, the interest rate charged to Borrower will at no time be
computed on a Prime Rate of less than six and one half percent (6.5%) per
annum. Each change in the Prime Rate shall become effective on the day that
the applicable reference bank announces any change in its prime or reference
rate. If any of the banks listed above discontinue the practice of announcing
or publishing a prime, base or reference rate during the term of this
Agreement, then Agent may designate a reasonably comparable bank and/or
publicly announced rate to be thereafter used as a basis for determining Prime
Rate. Borrower acknowledges that any bank listed above may extend credit at
rates of interest less than its announced prime, base or reference rate.
"Pro Rata Share" of any amount means, with respect to any Lender at any
time, an amount equal to:
(i) a fraction the numerator of which is the amount of such Lender's
Commitment at such time and the denominator of which is the Total Credit at
such time, multiplied by
(ii) such amount.
"Required Lenders" shall mean at any time Lenders whose share of the
aggregate Loans outstanding constitutes (or, if no Loans are outstanding,
those whose interest in the Credit Facility constitutes) at least sixty-six
and two thirds percent (66 2/3%).
"Subordinated Debt" shall have the meaning set forth in Section 9.3.
"Subsidiaries" shall mean any corporation in which Borrower owns or
controls greater than 50% of the voting securities, or any partnership or
joint venture in which Borrower owns or controls greater than 50% of the
aggregate equitable interest. The term "Subsidiary" means any one of the
Subsidiaries.
"Tangible Net Worth" shall have the meaning set forth in Section 9.3.
"Total Credit" shall have the meaning set forth in Section 3.
"Total Credit Limit" shall have the meaning set forth in Section 3.1.
"UCC" shall mean the Uniform Commercial Code as in effect in the State of
Illinois and any successor statute, together with any regulations thereunder,
in each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
6
<PAGE> 8
"Unmatured Default" shall mean any event which, but for the passage of
time or notice, or both, would be a Default.
"Value" means the cost to Borrower of Borrower's Eligible Inventory
(without deduction for discounts, rebates, credits (including, without
limitation price protection credits), incentive payments and all other general
intangibles relating to such Eligible Inventory), as determined in accordance
with GAAP.
"Weekly Report" shall have the meaning set forth in Section 3.9(a).
3. CREDIT FACILITY. In consideration of Borrower's payment and
performance of its Obligations and subject to the terms and conditions
contained in this Agreement, the Lenders agree to provide, and Borrower agrees
to accept, an aggregate credit facility of up to THIRTY FIVE MILLION DOLLARS
($35,000,000.00) (the "Total Credit"), on and subject to the terms hereof (the
"Credit Facility"):
3.1 Loans. Subject to the terms and conditions of this Agreement, each
Lender, severally but not jointly, agrees to make Loans to the Borrower from
time to time on any Business Day during the period from the date hereof until
termination hereof, in an aggregate amount not to exceed at any time
outstanding the amount set opposite such Lender's name on the signature pages
hereof (such Lender's "Commitment"), Provided, however, that in no event shall
any Loan be made hereunder if, before or after giving effect thereto, the
aggregate principal balance of all Loans outstanding hereunder would exceed
the lesser of: (a) the Borrowing Base, or (b) the Total Credit (such lesser
amount being the "Total Credit Limit"). Each Loan shall consist of each
Lender's Pro Rata Share of such Loan made on the same day by the Lenders.
Within the limits of each Lender's Commitment, the Borrower may borrow, repay
pursuant to Section 5.4 or prepay and reborrow pursuant to this Section 3.1.
No Loans need be made by Lenders if Borrower is in Default or if there exists
an Unmatured Default. This is an agreement regarding the extension of credit,
and not the provision of goods or services.
(a) Eligible Accounts. On receipt of each Borrowing Base Certificate
substantially in form attached hereto as Exhibit 3.1(a), (the "Borrowing Base
Certificate"), Agent will credit Borrower, for Borrowing Base purposes, with
eighty percent (80%) of the net amount of the Eligible Accounts which are,
absent error or other discrepancy, listed in such Borrowing Base Certificate
("Eligible Account Availability"). For purposes hereof, the net amount of
Eligible Accounts at any time shall be the face amount of such Eligible
Accounts less any and all returns, discounts (which may, at Agent's option, be
calculated on shortest terms), credits, rebates, allowances, or excise taxes
of any nature at any time issued, owing claimed by Account Debtors, granted,
outstanding, or payable in connection with such Accounts at such time.
(b) Eligible Inventory. On receipt of each Borrowing Base Certificate,
Agent will credit Borrower, for Borrowing Base purposes, with the lesser of:
(i) subject to the terms of the sentence immediately following, sixty percent
(60%) of the Value of Eligible Inventory which is, absent error or other
discrepancy, listed in such Borrowing Base Certificate, or (ii) Fifteen
Million Dollars ($15,000,000) (such lesser amount being called the "Eligible
Inventory Availability").
Notwithstanding anything herein to the contrary, Loans shall, to the
extent possible, be made out of the Eligible Account Availability, and
thereafter out of the Eligible Inventory Availability.
3.2 Interest; Fees; Calculation of Charges.
7
<PAGE> 9
(a) Interest. Borrower hereby agrees to pay interest to Agent, on behalf
of the Lenders, on the Daily Contract Balance (as defined below) owed under
Borrower's Loans at a rate that is one and one half percentage points (1.5%)
per annum above the Prime Rate. Interest on the Loans prior to maturity shall
be payable monthly and at maturity.
(b) Administration Fee. Borrower agrees to pay DFS, for DFS' own account,
for its services in acting as Agent hereunder, an administration fee (the
"Administration Fee") on the Daily Contract Balance owed under Borrower's
Loans at a rate that is one quarter of one percentage point (.25%) per annum.
Once received by DFS, no such fee shall be refundable by DFS for any reason,
including early termination of this Agreement.
(c) Unused Line Fee. Borrower agrees to pay Agent for the account of
Lenders an unused line fee of one-quarter of one percent (.25%) per annum on
the daily average of the unused amount of the Total Credit during the term of
this Agreement and any renewal term. Such unused line fee shall be payable
monthly in arrears and due pursuant to the monthly billing statement. Such
unused amount of the Credit Facility in any month shall mean the difference
between the Total Credit and the Daily Contract Balance during such month.
(d) Calculation of Charges. Such interest and the Administration Fee
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; and (iii) accrue from the date of a Loan advanced to or for
the benefit of Borrower, until Agent receives full payment of the principal
debt Borrower owes the Lenders in good funds and Agent applies such payment to
Borrower's principal debt in accordance with the terms of this Agreement.
(e) 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 Borrower owes Lenders on the
Loans at the end of each day after Agent has credited payments which it has
received on the Loans.
3.3 Mandatory Prepayment. If at any time and for any reason the aggregate
amount of outstanding Loans exceeds the Borrowing Base, Borrower will,
immediately upon demand, repay an amount of the Loans made to it by the
Lenders hereunder equal to such excess. In addition, Borrower shall
immediately pay Lenders whatever sums may be necessary from time to time to
remain in compliance with the Total Credit Limit, as such limits may change
from time to time, including, without limitation, as a result of any
Collateral no longer being deemed an Eligible Account or Eligible Inventory,
or as a result of any change in the Value of any Eligible Inventory or in the
amount of any Eligible Account.
3.4 Billing Statement. Agent will send Borrower a monthly billing
statement identifying all charges due on Borrower's account. The charges
specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, absent error affecting the
amount or terms of such charges.
3.5 Loan Proceeds. The parties intend that all indebtedness incurred
hereunder shall be governed exclusively by the terms of this Agreement and the
other Loan Documents, and shall not be evidenced by notes or other evidences
of indebtedness. Upon any such request, Borrower will immediately execute and
deliver any such note or other evidence reasonably requested. Any fees,
charges or expenses charged to Agent or any Lender by any bank for payments
made by Agent or such Lender at Borrower's request shall be immediately
payable by Borrower. All advances and other obligations of Borrower made
hereunder will constitute a single obligation.
8
<PAGE> 10
3.6 Default Interest Rate. If a Default occurs under Section 10(c) or (d)
or with respect to a breach of Section 9.3 hereof, and unless and until cured,
the Agent may, and shall at the request of the Required Lenders, without prior
demand, raise the rate of interest accruing on the unpaid principal balance of
any Loan by three percentage points (3%) above the rate of interest (which
such rate of interest shall include the Administration Fee) otherwise
applicable (the "Default Interest Rate"), whether or not the Required Lenders
elect to accelerate the unpaid principal balance as a result of such Default.
Agent will use reasonable efforts to attempt to notify Borrower before
imposing the Default Interest Rate permitted by this Section. Upon cure of
such Default to the reasonable satisfaction of Agent, the rate of interest
accruing on the unpaid principal balance of any Loan shall return to the then
applicable rate of interest hereunder.
3.7 Interest Rate After Certain Events. If a judgment is entered against
Borrower for sums due under any of the Obligations, as applicable, the amount
of the judgment entered (which may include principal, interest, reasonable
attorneys' fees and costs) shall bear interest at the Default Interest Rate as
of the date of entry of the judgment. All Obligations of Borrower described in
clauses (a) and (b) of the definition thereof shall bear interest at the
Default Interest Rate.
3.8 Verification Rights. The Lenders may directly or by the Agent,
without notice to Borrower 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 Borrower, Lender or Agent, as
applicable.
3.9 Reports.
(a) Weekly Reports. Borrower agrees to provide Agent with a weekly
report, or more frequently if requested by Agent, on diskette or other media,
in such form as is satisfactory to Agent, including supporting information
regarding, but not limited to: (i) a Borrowing Base Certificate; (ii) an
Inventory aging report; (iii) a statement of the current Inventory status,
showing the lower of cost (determined on a "average cost" basis) or market
value thereof; and (iv) an aging of Accounts (the "Weekly Report"). The
Weekly Report will be received by Agent each Monday at its address listed on
the signature pages hereof after the date of the Agreement by noon local time
(in the event that Agent is not open for business on a Monday then the Weekly
Report will be due by noon, Chicago, Illinois Time, of the next Business Day
that Agent is open for business).
(b) Monthly Reports. Borrower agrees to provide to Agent by the 10th
Business Day of each month, or more frequently if requested by DFS, in each
case as of the last day of the immediately prior month, each of the following:
(i) Inventory aging report; (ii) aging of Accounts; and (iii) aging of
Borrower's accounts payable (the "Monthly Reports").
(c) Other Reports. Borrower agrees to provide Agent within ten (10)
days after each request by Agent any other report or information reasonably
requested by Agent (the "Other Reports").
(d) Accuracy of Reports. The Weekly Report, the Monthly Reports and the
Other Reports will be true and correct in all respects. Borrower acknowledges
Agent's and each Lender's reliance on the truthfulness and accuracy of each
Weekly Report, Monthly Report and the Other Reports.
3.10 Establishment of Reserves. Notwithstanding the foregoing provisions
of Section 3.1, Agent shall have the right to establish reserves in such
amounts, and with respect to such matters, as Required Lenders shall deem
reasonably necessary or appropriate, against the amount of Loans which
Borrower may otherwise request under Section 3.1, including, without
limitation, with respect to (a) price adjustments,
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damages, unearned discounts, returned products or other matters for which
credit memoranda are issued in the ordinary course of Borrower's business; (b)
shrinkage, spoilage and obsolescence of Inventory; (c) other sums chargeable
against Borrower as Loans under any section of this Agreement; and (d) such
other matters, events, conditions or contingencies as to which the Required
Lenders, in their reasonable credit judgment determine reserves should be
established from time to time hereunder.
3.11. Capital Adequacy. In the event that any Lender shall have determined
that the adoption of any law, rule or regulation regarding capital adequacy,
or any change therein or in the interpretation or application thereof or
compliance by such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) from any central bank or
governmental authority, does or shall have the effect of reducing the rate of
return on such Lender's capital as a consequence of its obligations hereunder
to a level below that which such Lender could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount deemed by such Lender,
in its sole discretion, to be material, then from time to time, after
submission by such Lender to Borrower of a written demand therefor, Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction. A certificate of such Lender claiming
entitlement to payment as set forth above shall be conclusive in the absence
of manifest error. Such certificate shall set forth the nature of the
occurrence giving rise to such payment, the additional amount or amounts to be
paid to such Lender, and the method by which such amounts were determined. In
determining such amount, such Lender may use any reasonable averaging and
attribution method.
3.12 Collections. Borrower will direct all Account Debtors to make all
remittances to, and Borrower will deposit all collections on Accounts received
directly by Borrower into, an account or accounts designated by Agent, for the
account of Lenders. Additionally, Borrower shall deposit all remittances and
other proceeds of all cash and credit sales into an account or accounts
designated by Agent, for the account of Lenders, which accounts shall then
periodically be swept into a primary or concentration account designated by
Agent, for the account of Lenders. All funds in such accounts immediately
shall become the property of the Lenders and Borrower shall obtain the
agreement of such banks to waive any offset rights against the funds so
deposited. Until delivery to such account(s), Borrower will keep such
remittances separate and apart from Borrower's own funds so that they are
capable of identification as the property of the Lenders and will be held in
trust for the Lenders. Upon Default, Agent may, and shall at the request of
the Required Lenders, notify any Account Debtor of the assignment of Accounts
and collect the same. All proceeds received or collected by Agent with respect
to Accounts, and reserves and other property of Borrower in possession of
Agent at any time or times hereafter, may be held by Agent without interest to
Borrower until all Obligations are paid in full or applied by Agent on account
of the Obligations. Agent may release to Borrower such portions of such
reserves and proceeds as Agent may determine.
3.13 Advancements. If Borrower fails to (a) perform any of the
affirmative covenants contained herein, (b) protect or preserve the Collateral
or (c) protect or preserve the status and priority of the Liens and security
interest of Agent in the Collateral, Agent may make advances to perform those
obligations. Agent will use reasonable efforts to attempt to give Borrower
notice prior to making such advancement. All sums so advanced will be due and
payable on demand, and will immediately upon advancement become secured by the
security interests created by this Agreement and will be subject to the terms
and provisions of this Agreement and all of the Loan Documents. Agent may add
all sums so advanced, plus any expenses or costs incurred by Agent, including
reasonable attorney's fees, as outstanding Loans as Agent may designate in its
sole discretion. The provisions of this Section will not be construed to
prevent the institution of rights and remedies of Agent or any Lender upon the
occurrence of a Default. Any provisions in this Agreement to the contrary
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notwithstanding, the authorizations contained in this Section will impose no
duty or obligation on any Lender or Agent to perform any action or make any
advancement on behalf of Borrower and are for the sole benefit and protection
of Lenders and Agent.
3.14 Continuing Requirements - Accounts. Borrower will: (a) if from time
to time required by Agent, immediately upon their creation, deliver to Agent
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 except in the ordinary course of
business; (c) affix appropriate endorsements or assignments upon all such items
of payment and proceeds so that the same may be properly deposited by Agent for
the account of Lenders; (d) immediately notify Agent in writing which Accounts
may be deemed Ineligible Accounts; and (e) mark all chattel paper and
instruments now owned or hereafter acquired by it to show that the same are
subject to Agent's security interest and immediately thereafter deliver such
chattel paper and instruments to Agent with appropriate endorsements and
assignments to Agent.
4. TERM OF AGREEMENT.
4.1 Termination. This Agreement will continue in full force and effect and
be non-cancellable for three (3) years from the Effective Date (except that it
may be terminated by Agent in the exercise of Agent's and Lender's rights and
remedies upon Default by Borrower) and shall be subject to automatic one-year
renewal periods thereafter unless at least 180 days prior to the expiration of
such initial period or any renewal period, any party shall have notified all
other parties in writing of its intention not to renew this Agreement.
Notwithstanding the foregoing, Borrower may terminate this Agreement prior to
such date upon (a) at least 45 days written notice to Agent; (b) payment to
Agent and Lenders of all Obligations; and (c) payment to Agent for the account
of Lenders of Forty-Five Thousand Dollars ($45,000).
Termination on any date will not entitle Borrower to a refund of any fee
hereunder. DFS shall be entitled to payment of all fees through the effective
date of termination hereunder. These accelerated fees represent liquidated
damages and are not a penalty. Any such written notice of termination
delivered by Borrower to Agent shall be irrevocable. It is understood that
Borrower may elect to terminate this Agreement in its entirety only, no section
or lending facility may be terminated singly.
4.2 Effect of Termination. Borrower will not be relieved from any
Obligations to Agent or Lenders arising out of Lenders' advances or commitments
made before the effective termination date of this Agreement. Agent and Lenders
will retain all of their respective rights, interests and remedies hereunder
until Borrower has paid all of Borrower's Obligations to Lenders and Agent. All
waivers set forth within this Agreement will survive any termination of this
Agreement.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. Borrowing Procedures.
(a) Each Loan shall be made on notice given not later than 11:00
a.m. (Chicago, Illinois Time) on the Funding Date, requesting such Loan to the
Agent which shall give to each Lender prompt notice thereof by telecopier. Each
such notice of a Loan as set forth on any Borrowing Base Certificate shall be
by telex, telecopier or cable, confirmed immediately in writing.
(b) Upon fulfillment of the applicable conditions set forth in Section 7,
Agent will fund such Loan. Each Borrowing Base Certificate shall be irrevocable
and binding on the Borrower. Agent shall settle with the Lenders in accordance
with Section 5.6(b).
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(c) Unless the Agent shall have received notice from a Lender prior to
the date of any Loan that such Lender will not make available to the Agent
such Lender's Pro Rata Share of such Loan, the Agent may assume that such
Lender will make such share available to the Agent in accordance with Section
5.6(b) and the Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that a
Lender shall not have so made such ratable portion available to the Agent at
such time as is required under Section 5.6(b) hereof, and the Agent makes
available to Borrower a corresponding amount, such Lender and Borrower
severally agree to repay or pay to the Agent forthwith on demand such
corresponding amount and to pay interest thereon, for each day from the date
such amount continues to be made available by Agent to the Borrower until the
date such amount is repaid or paid to the Agent, at the interest rate
applicable to Loans at such time pursuant to the terms hereof. If such Lender
shall pay to the Agent such corresponding amount, such amount so paid shall
constitute such Lender's Pro Rate share of such Loan for purposes of this
Agreement. Notwithstanding the foregoing, Borrower's repayment of any such
amounts representing a share of any Loan not funded by a Lender shall not
constitute a waiver by Borrower of such Lender's breach for such failure to
fund such share.
(d) The failure of any Lender to make the advance to be made by it as
part of any Loan shall not relieve any other Lender of its obligation, if any,
hereunder to make its advance on the date of such Loan, but no Lender shall be
responsible for the failure of any other Lender to make the advance to be made
by such other Lender on the date of any Loan.
(e) Notwithstanding anything herein to the contrary (i) the becoming due
of any amount required to be paid under this Agreement as interest shall be
deemed irrevocably to be a request for a Loan on the due date in the amount
required to pay such interest; and (ii) the becoming due of any other
Obligations shall be deemed irrevocably to be a request for a Loan on the due
date in the amount then so due.
5.2 Excess Advances. The Required Lenders may, in their absolute
discretion, elect to permit the total unpaid balance of Loans to exceed the
Total Credit Limit ("Excess Advances"), and no such event or occurrence shall
cause or constitute a waiver by such Lenders of their right to demand payment
of all or any part of the Loans at any time within the terms of this Agreement
or to refuse, in their sole and absolute discretion, to make such further
Loans. Any such Excess Advances shall be payable within one (1) Business Day
after demand therefor, unless otherwise specifically agreed to by the Lenders,
and shall bear interest at the Default Interest Rate.
5.3 All Loans One Obligation. All Obligations of Borrower under this
Agreement and all other Loan Documents shall constitute one obligation secured
by the security interest granted in this Agreement, and by all other Liens
heretofore, now, or at any time or times hereafter granted by Borrower. All of
the rights of Agent and Lenders set forth in this Agreement shall apply to any
modification of or supplement to this Agreement, or Exhibits hereto, unless
otherwise agreed in writing.
5.4 Payments of Princinal and Interest.
(a) All payments and amounts due hereunder by Borrower shall be made or
be payable without set-off or counterclaim and shall be made to Agent prior to
12:00 noon (Chicago, Illinois Time) on the date due at its office(s)
responsible for Borrower's account, or at such other place which Agent may
designate to Borrower in writing. Any payments received after such time shall
be deemed received on the next Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a date other than a Business Day, such
payment may be made on the next succeeding Business Day, and
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such extension of time shall be included in the computation of payment of
interest or any fees.
(b) The Agent will promptly, in accordance with the provisions of Section
5.6(b), remit in immediately available funds to each Lender its Pro Rata Share
of all such payments received by the Agent for the account of such Lender.
(c) Unless the Agent shall have received notice from the Borrower prior
to the date on which any payment is due to any Lender hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each such
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent the Borrower shall not have so made such payment in full to
the Agent and the Agent makes available to a Lender on such date a
corresponding amount, such Lender shall repay to the Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for
each day from the date such amount is distributed to such Lender until the
date such Lender repays such amount to the Agent, at the interest rate
applicable to Loans hereunder pursuant to the terms hereof.
5.5 Collection Days. All payments and all amounts received hereunder will
be credited by Agent to Borrower's account two (2) days after good funds have
been deposited into Agent's general operating account.
5.6 Sharing of Payments, Etc; Settlement.
(a) Sharing of Payments. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Loans made by it in excess of its Pro Rata Share
of payments on account of the Loans obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the
Loans made by them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them, Provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent
of such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section
5.6(a) may, to the fullest extent permitted by law, exercise all of its rights
of payment (including the right of set-off) with respect to such participation
as fully as if such Lender were the direct creditor of the Borrower in the
amount of such participation.
(b) Settlement. Amounts payable by Lenders to Agent in respect of Loans
advanced by Agent, reimbursable expenses and liabilities and other obligations
of Lenders to Agent, and amounts payable by Agent to Lenders in respect of
collections and certain fees as provided herein, and with respect to
settlement under the Floorplan Inventory Facility Participation Agreement,
shall, subject to the terms of the sentence immediately following, be settled
weekly, on Tuesday of each week hereunder in accordance with the following
procedures and in accordance with the terms of a Settlement Certificate,
substantially in the form attached hereto as Exhibit 5.6(b): (i) on each
Tuesday, Agent shall provide Lenders with a written accounting of the Loans
made, reimbursable expenses and liabilities incurred by Agent, collections and
fees received during such week, and the net amount payable by Agent or Lender,
and (ii) the parties owing payment shall pay such amount by electronic funds
transfer in immediately available funds by the close of business on the next
Business Day. Notwithstanding the foregoing, Agent shall not be obligated to
fund a Loan in excess
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of DFS' Commitment, and therefore, upon Agent's written notification as
provided in item (i) immediately preceding, Agent and Lenders shall settle
more frequently than weekly.
6. SECURITY FOR THE OBLIGATIONS
6.1 Grant of Security Interest. To secure payment of all of Borrower's
current and future Obligations and to secure Borrower's performance of all of
the provisions under this Agreement and the other Loan Documents, Borrower
grants Agent a security interest in all of Borrower'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 relating to the "Collateral,"
and payments owed or made to Borrower 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 such terms for which meanings are provided in the UCC are
used herein with such meanings. All Collateral financed by Lenders, and all
proceeds thereof, will be held in trust by Borrower for Lenders, with such
proceeds being payable in accordance with this Agreement. Borrower covenants
with Agent that Agent 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. Borrower'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.
6.2 Future Advances. Agent's security interests shall secure all current
and all future advances to Borrower made by Lenders under the Loan Documents.
6.3 Financing Statements. Borrower shall execute and deliver to Agent for
the benefit of Lenders such financing statements, certificates of title and
original documents as may be required by Agent with respect to Agent's
security interests.
6.4 Guaranties. Borrower shall cause any and all Subsidiaries, whether
now existing or hereafter acquired, to execute and deliver collateralized
guaranties of the Obligations secured by a first priority, perfected security
interest in the same type of assets of such Subsidiaries as are described in
Section 6.1.
6.5 Further Assurances. Borrower will execute and deliver to Agent, at
such time or times as Agent may request, all financing statements, security
agreements, assignments, certificates, affidavits, reports, schedules, and
other documents and instruments (a) that Agent may deem necessary to perfect
and maintain Agent's perfected security interests in the Collateral and (b) as
reasonably requested by Lenders through Agent, to fully consummate the
transactions contemplated under all Loan Documents. All filing, recording or
negotiation fees shall be payable by Borrower.
6.6 Intellectual Property. Borrower shall execute and deliver a
collateral assignment of patents, copyrights and trademarks in form and
substance reasonably acceptable to Agent granting Agent a first priority
security interest in and to the items listed in Exhibit 8.21 in form
acceptable for recordation.
7. CONDITIONS PRECEDENT
All duties and obligations of Lenders under the Loan Documents on the
Effective Date, and at all times during the term of this Agreement, are
specifically subject to the full and continued satisfaction by Borrower of the
conditions precedent set forth below.
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7.1 Conditions Precedent to Closing. The following conditions must be
satisfied as of the Effective Date:
(a) Lender's Counsel. Each Lender's counsel must approve of all matters
pertaining to (i) title to the Collateral; (ii) the form, substance and due
execution of all Loan Documents; (iii) Borrower's organizational documents;
and (iv) all other legal matters, including the application of any laws
relating to usury.
(b) Material Chance. There must not have been any material adverse change,
between August 31, 1996 and the Effective Date, in the condition of Borrower,
the condition of the Business, the value and condition of the Collateral, the
structure of Borrower other than as contemplated herein, or in the financial
information, audits and the like obtained by Agent.
(c) Perfected Liens. Agent shall have a perfected first priority Lien and
security interest in the Collateral, subject only to the Permitted Liens.
(d) Insurance. Borrower shall provide Agent with certificates of
insurance evidencing that Borrower has obtained the insurance as required in
Section 9.1.2.
(e) Laws. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited to,
all Environmental Laws, the failure to comply with which would have a material
adverse effect on Borrower, its Subsidiaries or the Business.
(f) Certificate of Good Standing. A certificate of good standing for
Borrower (or other similar certificate) must be delivered to the Agent, from
the appropriate governmental authority of Borrower's state of incorporation
and other jurisdictions in which Borrower does business, dated not earlier
than 30 days prior to the Effective Date.
(g) Opinion of Borrower's Counsel. Agent must receive a written opinion
from counsel for Borrower, dated the Effective Date, and addressed to and for
the benefit of Agent and the Lenders, in form and substance satisfactory to
Lenders.
(h) UCC Searches. Agent must receive a certificate from a provider of
financing statement searches acceptable to Agent which identifies all
financing statements of public record not more than 5 days before the
Effective Date, that pertain to the Collateral.
(i) President's Certificate. The delivery to Agent of a President's
Certificate in the form attached hereto as Exhibit 7.1(i).
(j) Articles of Incorporation. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement shall be delivered
to Agent.
(k) Secretary's Certificate of Resolution and Incumbency. Such
certificate, in the form attached hereto as Exhibit 7.1(k), shall be delivered
to Agent.
(l) Pre-closing Expenses. Borrower shall pay to the Lenders all fees and
expenses required under this Agreement that are due on or before the Effective
Date.
(m) Pre-closing Reviews. Lenders must complete reviews with satisfactory
results of Borrower's Inventory and Accounts. All costs and expenses for such
pre-closing reviews will be included within the pre-closing expenses.
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(n) Payoff Letter. A lien release and payoff letter executed by any and all
lienholders on any of the Collateral, including but not limited to any of the
intellectual property listed on Exhibit 8.21 hereof, other than with respect
to the Permitted Liens.
(o) Nations' Terminations. Satisfaction of all outstanding indebtedness in
favor of Nations under its existing floorplan facility, and Nations'
termination of all UCC financing statements filed on any assets of Borrower.
(p) Other Documents. Such other documents, submissions, insurance policies
and other matters as reasonably requested by any Lender through the Agent
relating to the results of any due diligence or Borrower's representations
made hereunder, including but not limited to the AWF and the Floorplan
Inventory Facility Participation Agreement.
7.2 Conditions Precedent For All Loans. The following conditions must be
satisfied as of each Loan, including the initial Loan:
(a) Each of Borrower's representations and warranties provided herein
shall be true and correct in all material respects, as of the date of each
such Loan (or, if any such representation or warranty is limited to a specific
date, as of such specific date). In connection therewith, Borrower agrees that
both Borrower's Notice of Borrowing for a Loan, and acceptance of any Loan
hereunder shall be deemed to constitute Borrower's representation and warranty
that the representations and warranties set forth in this Agreement are true
and correct in all material respects, and restated as of the dates of such
request, and such acceptance (or, if any such representation or warranty is
limited to a specific date, as of such specific date).
(b) There shall not have occurred and be continuing any Default or any
Unmatured Default, and Borrower's Notice of Borrowing for a Loan, and
acceptance of any Loan hereunder shall be deemed to constitute Borrower's
representation and warranty to such effect.
(c) With respect to any Notice of Borrowing, the amount requested for
such Loan, if any, together with the then current total unpaid outstanding
balance of all Loans hereunder shall not exceed the then existing Total Credit
Limit.
7.3 Determinations Under Section 7.1. For purposes of determining
compliance with the conditions specified in Section 7.1, each Lender shall be
deemed to have consented to, approved or accepted or to be satisfied with each
document or other matter required thereunder to be consented to or approved by
or acceptable or satisfactory to the Lenders unless an officer of the Agent
responsible for the transactions contemplated by the Loan Documents shall have
received notice from such Lender prior to the initial Loan specifying its
objection thereto and such Lender shall not have made available to the Agent
such Lender's Pro Rata Share of such Loan.
8. REPRESENTATIONS AND WARRANTIES
To induce Lenders to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true
and correct in all material respects during the term of this Agreement (or, if
any such representation and warranty is limited to a specific date, as of a
such specific date). Borrower acknowledges each Lender's justifiable right to
rely upon the representations and warranties set forth below.
8.1 Financial Statements. Borrower's audited consolidated financial
statements as of December 31, 1995 and Borrower's unaudited consolidated
financial statement as of August 31, 1996, copies of which have been
previously submitted to
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Agent, have been prepared in conformity with GAAP and present fairly the
financial condition of Borrower and its consolidated Subsidiaries as at such
dates and the results of their operations for the periods then ended. Borrower
warrants and represents to Lenders that all financial statements and
information relating to Borrower or any Guarantor which have been or may
hereafter be delivered by Borrower or any Guarantor present fairly the
information set forth therein and have been and will be prepared in accordance
with GAAP, excluding footnotes and, with respect to such previously delivered
statements or information, there has been no material adverse change in the
financial or business condition of Borrower or any Guarantor since the
submission to Agent, either as of the date of delivery, or, if different, the
date specified therein, and Borrower acknowledges Lenders' reliance thereon.
8.2 Non-Existence of Defaults. Except as set forth on Exhibit 8.2,
neither Borrower nor any of its Subsidiaries is in default with respect to any
material amount of its existing Indebtedness. The making and performance of
this Agreement and all other Loan Documents, will not immediately, or with the
passage of time, the giving of notice, or both: (a) violate the provisions of
the bylaws or any other corporate document of Borrower; (b) violate any laws
to the best of Borrower's knowledge after diligent inquiry; (c) result in a
material default under any contract, agreement, or instrument to which
Borrower is a party or by which Borrower or its properties are bound; or (d)
result in the creation or imposition of any security interest in, or Lien or
encumbrance upon, any of the Collateral except the Permitted Liens.
8.3 Litigation. Set forth on Exhibit 8.3 is a list of all actions,
suits, investigations or proceedings pending or, to the knowledge of Borrower,
threatened against Borrower or any of its Subsidiaries, as of the date hereof
in which there is a reasonable probability of an adverse decision which would
materially and adversely affect Borrower, the Business, or the Collateral.
8.4 Material Adverse Changes. Borrower does not know of or expect any
material adverse change in the Business, or in Borrower's or any of the
Subsidiaries' assets, liabilities, properties, or condition, financial or
otherwise, including changes in Borrower's financial condition from August 31,
1996 through the Effective Date.
8.5 Title to Collateral. Except as set forth on Exhibit 8.5, Borrower has
good and marketable title to all of the Collateral, free and clear of any and
all Liens, claims and encumbrances, other than the Permitted Liens.
8.6 Corporate Status. Borrower and each of the Subsidiaries is a
corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective
jurisdictions of formation. Borrower and its Subsidiaries have the corporate
power and authority to own their properties and to transact the Business in
which they are engaged and presently propose to engage. Borrower and each
Subsidiary is duly qualified as a foreign corporation and in good standing in
all states where the nature of their Business or the ownership or use of their
property requires such qualification, and where failure to so qualify would
have a material adverse effect on its Business, operations or financial
condition.
8.7 Subsidiaries. Exhibit 8.7 hereto lists the Subsidiaries as of the
Effective Date.
8.8 Power and Authority. Borrower has the corporate power to borrow and
to execute, deliver and carry out the terms and provisions of the Loan
Documents. Borrower has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement
and all other Loan Documents and the borrowing hereunder.
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8.9 Place of Business. Borrower's chief executive office and the
principal place of business is located at 7350 North Linder Avenue, Skokie, IL
60077. Borrower's records concerning the Collateral are kept at such chief
executive office, or will be kept at such other place that Borrower informs
Agent of not less than 30 days in advance of relocation.
8.10 Enforceability of the Loan Documents. The Loan Documents executed by
Borrower are the valid and binding obligations of Borrower and are enforceable
against Borrower in accordance with their terms, except as limited by
bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights.
8.11 Taxes. Borrower's federal tax identification number is 36-3042018.
Borrower has (a) filed all federal, state and local tax returns and other
reports that it is required by law to file, (b) paid or caused to be paid all
taxes, assessments and other governmental charges that are due and payable,
the failure of which to pay would have a material adverse effect on the
Business, except those contested in good faith and in accordance with accepted
procedures, and for which adequate reserves have been established in
accordance with GAAP, and (c) made adequate provision for the payment of such
taxes, assessments or other charges accruing but not yet payable. Borrower has
no knowledge of any deficiency or additional assessment in a material amount
in connection with any taxes, assessments or charges.
8.12 Compliance with Laws. Borrower, to the best of its knowledge, has
complied, and shall cause each Subsidiary to comply, in all material respects
with all applicable laws, including any Environmental Laws and any zoning
laws, the failure to comply with which would have a material adverse effect on
Borrower individually, or Borrower and its Subsidiaries on a consolidated
basis.
8.13 Consents. Borrower and the Subsidiaries have 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 Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement
and the other Loan Documents the failure of which to obtain or effect would
have a material adverse effect on Borrower individually, or on Borrower and
its Subsidiaries on a consolidated basis.
8.14 Purpose. Borrower will use the advances which the Lenders make under
the Credit Facility solely for lawful purposes and as described in Section 3
hereof.
8.15 Condition of the Business. All material assets used in the conduct
of the Business are in good operating condition and repair and are fully
usable in the ordinary course thereof, reasonable wear and tear excepted.
8.16 Capital. All issued shares and all outstanding shares in the
Subsidiaries as reflected in Borrower's financial statements are validly
issued pursuant to proper authorization of the board of directors of such
Subsidiary, and are fully paid, and non-assessable. Except for the Elek-Tek,
Inc. 1993 Incentive Stock Option Plan, as amended, and the Elek-Tek, Inc.
Non-Qualified Director Stock Option Plan, each as described on Exhibit 8.16,
copies of which have been delivered to Agent, which such plans shall not be
amended, modified, revised or restated without the prior written consent of
Agent, there are no outstanding subscriptions, warrants, options, calls or
commitments, obligations or securities convertible or exchangeable for shares
of any stock of Borrower or the Subsidiaries. Borrower and the Subsidiaries
shall give Agent thirty (30) days prior written notice before entering any
agreement to register any new issues of its equity or debt securities under
the Securities Act of 1933, as amended, or any state securities law, which are
not so registered on the date hereof. All Borrower's issued shares and
outstanding capital stock are fully paid and non-assessable, and its capital
structure is as set forth on Exhibit 8.16.
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8.17 Location of Collateral. Exhibit 8.17 describes the locations where
any of the Collateral is located or stored as of the date hereof.
8.18 Real Property. Neither Borrower nor any Subsidiary own or lease any
real property, except as set forth on Exhibit 8.18 attached hereto.
8.19 Warranties and Representations-Accounts. For each Account listed by
Borrower on any Borrowing Base Certificate, Borrower warrants and represents
to Lenders 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 Account Debtor; (e) the amounts shown on the Borrowing Base Certificate,
Borrower's books and records and all invoices and statements delivered to
Agent with respect thereto are owing to Borrower and are not contingent except
for unassorted rights of return given by Borrower to Account Debtors in the
ordinary course of Business (collectively, the "Return Policy") which such
Return Policy shall be disclosed to Agent and shall not be materially modified
or amended without Agent's prior written consent; (f) no payments have been or
will be made thereon except payments turned over to Lenders; (g) there are no
offsets, counterclaims or disputes existing or asserted with respect thereto
and Borrower has not made any agreement with the Account Debtor for any
deduction or discount of the sum payable thereunder except regular discounts
allowed by Borrower in the ordinary course of its business for prompt payment;
(b) 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 Borrowing Base Certificate, Borrower's books and records and the
invoices and statements delivered to Agent with respect thereto; (i) to the
best of Borrower's knowledge, all persons acting on behalf of the Account
Debtor thereon have the authority to bind the Account Debtor; (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 Agent's; (k)
such Account is subject to Agent's perfected, first priority security interest
and no other Lien other than a Permitted Lien; and (l) there are no
proceedings or actions known to Borrower which are threatened or pending
against the Account Debtor thereon which might result in any material adverse
change in such Account Debtor's financial condition.
Notwithstanding the foregoing provisions of Section 8.19(g) above, only
that portion of such Account equal to the offset, counterclaim or dispute
shall not be considered an Eligible Account.
8.20 Environmental, Health and Safety Matters. Except as disclosed on
Exhibit 8.20: To the best of Borrower's knowledge, (a) the operations of
Borrower and each of the Subsidiaries complies in all respects with (i) all
applicable Environmental Laws, and (ii) all applicable OSHA Laws; (b) none of
the operations of Borrower or any Subsidiary are subject to any judicial or
administrative proceeding alleging the violation of any Environmental Law or
OSHA Law; (c) none of the operations of Borrower or any Subsidiary is the
subject of federal or state investigation evaluating whether any remedial
action is needed to respond to (i) a spillage, disposal or release into the
environment of any Hazardous Material or other hazardous, toxic or dangerous
waste, substance or constituent, or other substance, or (ii) any unsafe or
unhealthful condition at any premises of Borrower or any Subsidiary; (d)
neither Borrower nor any Subsidiary has filed any notice under any
Environmental Law or OSHA Law indicating or reporting (i) any past or present
spillage, disposal or release into the environment of, or treatment, storage
or disposal of, any Hazardous Material or other hazardous, toxic or dangerous
waste, substance or constituent, or other substance or (ii) any unsafe or
unhealthful condition at any premises of Borrower or any Subsidiary; and (e)
neither Borrower nor any Subsidiary has any known contingent liability in
connection with (i) any spillage,
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disposal or release into the environment of, or otherwise with respect to, any
Hazardous Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance or (ii) any unsafe or unhealthful condition at
any premises of Borrower or any Subsidiary.
8.21 Patents, Copyrights, Trademarks, Etc. To the best of Borrower's
knowledge, the Borrower and each of the Subsidiaries possesses or has the
right to use all of the patents, trademarks, trade names, service marks and
copyrights, and applications therefor, and all technology, know-how,
processes, methods and designs used in or necessary for the conduct of its
business, without known conflict with the rights of others. All such licenses,
patents, trademarks, trade names, service marks and copyrights, and
applications therefor existing on the date hereof are listed on Exhibit 8.21.
8.22 Solvency. The Borrower and each of the Subsidiaries now has capital
sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent
and able to pay its respective debts as they mature, and Borrower and each of
the Subsidiaries now owns property having a value, greater than the amount
required to pay Borrower's or such Subsidiary's debts.
8.23 Leases. Exhibit 8.23(a) attached hereto is a complete listing of all
capitalized leases of Borrower and Exhibit 8.23(b) attached hereto is a
complete listing of all operating leases of Borrower.
8.24 Labor Relations. Except as described on Exhibit 8.24 attached hereto
and made a part hereof, neither Borrower nor any of its Subsidiaries is a
party to any collective bargaining agreement, and there are no material
grievances, disputes or controversies with any union or any other organization
of Borrower's employees, or threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or organization.
8.25 Business Locations; Agent for Process. During the preceding seven
(7) year period, Borrower has had no office, place of business or agent for
service of process located in any state or county other than as shown Exhibit
8.17.
8.26 Reaffirmation. Each request for a Loan made by Borrower pursuant to
this Agreement or any of the other Loan Documents shall constitute (a) an
automatic representation and warranty by Borrower to Lenders that there does
not then exist any Default or any Unmatured Default, and (b) a reaffirmation
as of the date of said request of all of the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents.
8.27 Survival of Representations and Warranties. Borrower covenants,
warrants and represents to Lenders that all representations and warranties of
Borrower contained in this Agreement or any of the other Loan Documents shall
be true at the time of Borrower's execution of this Agreement and the other
Loan Documents, and shall survive the execution, delivery and acceptance
thereof by Agent and Lenders and the parties thereto and the closing of the
transactions described therein or related thereto.
9. BORROWER'S COVENANTS
9.1 Affirmative Covenants. During the term of this Agreement and
thereafter for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to by the Required Lenders in
writing, it shall perform all the acts and promises required by this Agreement
and all the acts and promises set forth below.
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9.1.1 Payment and Performance. Borrower will pay and perform all
Obligations in full when and as due hereunder.
9.1.2 Insurance.
(a) Type of Insurance. Borrower will at all times cause the Business
and the Collateral to be insured by insurers of reasonable financial
soundness and having an A. M. Best rating of A or better, with such
policies, against such risks and in such amounts as are appropriate
for reasonably prudent businesses in Borrower's industry and of
Borrower's size and financial strength.
(b) Requirements as to Insurance Policies. The policies of insurance
which Borrower is required to carry shall comply with the
requirements listed below:
(i) Each such policy shall provide that it may not be canceled or
allowed to lapse at the end of a policy period without at least 30
days' prior written notice to Agent;
(ii) Each liability and hazard insurance policy shall name Agent as
an additional insured; and
(iii) Each property insurance policy required hereunder shall
contain a standard lender's loss payable clause in favor of Agent.
Such insurance policies shall also contain lender's loss payable
endorsements satisfactory to Agent providing, among other things,
that any loss shall be payable in accordance with the terms of such
policy notwithstanding any act of Borrower which might otherwise
result in forfeiture of such insurance.
(c) Collection of Claims. Borrower will promptly advise Agent of any
insured casualty and Borrower agrees that Agent may direct all
insurance proceeds therefrom to be paid directly to Agent to the
extent that such loss is not adequately insured under an insurance
policy which names Agent as a loss payee, and hereby appoints Agent
its attorney-in-fact for such purpose.
(d) Blanket Policies. Any insurance required hereunder may be
supplied by means of a blanket or umbrella insurance policy.
(e) Delivery of Policies or Certificates of Insurance. Borrower shall
deliver to Agent certificates of insurance issued by insurers to
evidence that the insurance maintained by Borrower complies with the
requirements hereunder.
9.1.3 Collection of Receivables; Sale of Inventory. Borrower will collect
its Accounts and sell its Inventory only in the ordinary course of business.
9.1.4 Notice of Litigation and Proceedings. Borrower will give prompt
notice to Agent of: (a) any litigation or proceeding (including fines and
penalties of any public authority) in which it, or any of the Subsidiaries is
a party in which there is a reasonable probability of a material adverse
decision which would require it or any of the Subsidiaries to pay money or
deliver assets, whether or not the claim is considered to be covered by
insurance; (b) any class action litigation against it, regardless of size; and
(c) the institution of any other suit or proceeding that might materially and
adversely affect the operations, financial condition, property or the Business
of Borrower individually, or of Borrower and the Subsidiaries on a
consolidated basis.
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9.1.5 Payment of Indebtedness to Third Persons. Borrower will, and will
cause each Subsidiary to, pay, when due, subject to all applicable grace
periods, all Indebtedness and any other liability due third persons, except
when the amount thereof is being contested in good faith by appropriate
proceedings and with adequate reserves therefor satisfactory to Agent in
accordance with GAAP being set aside by Borrower or such Subsidiary. Agent
will use reasonable efforts to attempt to give Borrower notice before Agent
requires Borrower to set aside additional reserves.
9.1.6 Notice of Change of Business Location. Borrower will notify Agent 30
days in advance of: (a) any change in or discontinuation of the location of
the Collateral, Borrower's principal place of business, or any of the
Subsidiaries' existing offices or places of business, (b) the establishment of
any new places of business relating to the Business, and (c) any change in or
addition to the locations where Borrower's Inventory or records are kept.
9.1.7 Payment of Taxes. Borrower will, and will cause each Subsidiary to,
pay or cause to be paid, when and as due, all taxes, assessments and charges
or levies imposed upon it or on any of its property or that it is required to
withhold and pay over to the taxing authority or that it must pay on its
income, the failure of which to pay would have a material adverse effect on
Borrower individually, or on Borrower and the Subsidiaries on a consolidated
basis, except where contested in good faith by appropriate proceedings with
adequate reserves therefor satisfactory to Agent., in accordance with GAAP,
having been set aside by Borrower or such Subsidiary. Agent will use
reasonable efforts to attempt to give Borrower notice before Agent requires
additional reserves. However, Borrower will, and will cause each Subsidiary
to, pay or cause to be paid all such taxes, assessments, charges or levies
immediately whenever foreclosure of any Lien that attaches on the Collateral
appears imminent.
9.1.8 Further Assurances. Borrower agrees to, and will cause each
Subsidiary to, execute such other and further documents, including, without
limitation, deeds of trust, promissory notes, security agreements, financing
statements, continuation statements, certificates of title, and the like as
may from time to time in the reasonable opinion of Agent be necessary to
perfect, confirm, establish, re-establish, continue, or complete the security
interests, collateral assignments and Liens in the Collateral, and the
purposes and intentions of this Agreement.
9.1.9 Maintenance of Status. Borrower will take all necessary steps to
(a) preserve its, and each Subsidiary's, existence as a corporation, (b)
preserve Borrower's and the Subsidiaries' material franchises and permits, and
(c) comply with all present and future material agreements to which Borrower,
or any of the Subsidiaries, is subject, and (d) maintain, and cause each
Subsidiary to maintain, its qualification and good standing in all states in
which such qualification is necessary or in which the failure to be so
qualified might have a material adverse effect on the financial condition or
properties of Borrower individually, or of Borrower and the Subsidiaries on a
consolidated basis or the Business. Borrower will not change the nature of the
Business during the term of this Agreement.
9.1.10 Financial Statements; Reporting Requirements; Certification as to
Defaults. During the term of this Agreement, Borrower will furnish two copies
of the following to Agent:
(a) within 100 days after the end of each fiscal year, annual financial
statements for Borrower and its consolidated and consolidating Subsidiaries
as of the end of such fiscal year, consisting of a consolidated and
consolidating balance sheet, consolidated and consolidating statement of
operations, consolidated and consolidating statements of cash flows and
consolidated and consolidating statement of
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stockholder's equity, in comparative form, together with a narrative
description of the financial condition and results of operations and the
liquidity and capital resources of Borrower and setting forth in
comparative form the corresponding figures for the corresponding period of
the prior fiscal year and the corresponding figures from the most recent
financial projections of Borrower, discussing the reasons for any
significant variations. The statements and balance sheet will be audited by
an independent firm of certified public accountants selected by Borrower
and acceptable to the Required Lenders, and certified by that firm of
certified public accountants to have been prepared in accordance with GAAP.
The certified public accountants will render an unqualified opinion as to
such statements and balance sheets. The Lenders through the Agent will have
the absolute and irrevocable right, from time to time, to discuss the
affairs of Borrower directly with the independent certified public
accountant after prior notice to Borrower and the reasonable opportunity of
Borrower to be present at any such discussions;
(b) by the 25th day of each month, financial statements for Borrower and
its consolidated and consolidating Subsidiaries as of the end of the
immediately preceding month, consisting of consolidated and consolidating
balance sheet and statement of operations prepared by Borrower;
(c) by the 50th day of each quarter, a certificate of the President, or
Chief Financial Officer, in the form of Exhibit 9.1.10(c) attached hereto,
of Borrower stating that such person has reviewed the provisions of the
Loan Documents and that a review of the activities of Borrower during such
quarter has been made by or under such person's supervision with a view to
determining whether borrower has observed and performed all of Borrower's
obligations under the Loan Documents, and that, to the best of such
person's knowledge, information and belief, Borrower has observed and
performed each and every undertaking contained in the Loan Documents and is
not at the time in default in the observance or performance of any of the
terms and conditions thereof or, if Borrower will be so in default,
specifying all of such defaults and events of which such person may have
knowledge;
(d) by the end of each fiscal year, an annual budget and income statement
with cash flow projections for the following fiscal year;
(e) promptly upon receipt thereof, copies of all final reports and final
management letters submitted to Borrower or any of the Borrower's
Subsidiaries by independent accountants in connection with any
annual or interim audit of the books of Borrower or such Subsidiaries made
by such accountants;
(f) copies of any and all reports, filings and other documentation
delivered to the Securities and Exchange Commission by or on behalf of
Borrower promptly after the delivery thereof, if applicable;
(g) (i) By the 25th day after the end of each month, with respect to the
Financial Covenants set forth in Sections 9.3.1(a) and (b), and (ii) by the
50th day after the end of each quarter with respect to the Financial
Covenant set forth in Section 9.3.1(c), or more often if requested by
Agent, the President or Chief Financial Officer of Borrower will certify to
Agent that Borrower is in compliance with such Financial Covenants, in a
form acceptable to Agent in its sole discretion;
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(h) if requested by Agent, within fifteen (15) days after the end of each
month, a list of the Inventory financed by IBMCC and HP, and a list of the
total amount due and payable by Borrower to each such entity; and
(i) any other statements, reports and other information as any Lender
through the Agent may reasonably request concerning the financial condition
or operations of Borrower and its properties.
9.1.11 Notice of Existence of Default. Borrower will, and will cause
its Subsidiaries to, promptly notify Agent of: (a) the existence of any known
condition or event, which constitutes or which will constitute a Default or an
Unmatured Default and (b) the actual or threatened termination, suspension,
lapse or relinquishment of any material license, authorization, permit or other
right granted Borrower or for Borrower's benefit and used in the Business, or
granted to any of its Subsidiaries or for any such Subsidiaries' benefit, by
any governmental agency material to the Business.
9.1.12 Compliance with Laws. Borrower will, and will cause its
Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations and orders.
9.1.13 Maintenance of Collateral. Borrower will maintain all material
Collateral and every part thereof in good condition and repair. Borrower will
not permit the value of the Collateral to be materially impaired. Borrower will
defend the Collateral against all claims and legal proceedings by persons other
than the Lenders. Borrower will not transfer the Collateral from the premises
where now located (other than Inventory sold in the ordinary course of business
and other Collateral transferred in the ordinary course of business), or permit
the Collateral to become a fixture or accession (unless so affixed on the
Effective Date) to any goods which are not items of Collateral, without the
prior written approval of Agent. Borrower will not permit the
Collateral to be used in violation of any applicable law, regulations, or any
policy of insurance. As to Collateral consisting of instruments and chattel
paper, Borrower will preserve rights in it against prior parties.
9.1.14 Collateral Records and Statements. Borrower will keep such
accurate and complete books and records pertaining to the Collateral in such
detail and form as Agent reasonably requires, including, but not limited to:
schedules of inventory; original orders; invoices; shipping documents; billing
settlements and receivables; sold receivables; Inventory listing containing
model, serial number (if available) and location. Other reporting will be
available upon reasonable request by Lenders through Agent, including, but not
be limited to, accounts payable agings in such form as the Agent and/or a
Lender reasonably requires. The statements will be in the form and will contain
the information as is prescribed by Agent.
9.1.15 Inspection of Collateral. Agent and the Lenders may examine the
Collateral at any time, and from time to time during normal business hours.
Agent and the Lenders will have full access to, and the right to review,
inspect and make abstracts and copies from Borrower's books and records
pertaining to the Collateral, wherever located, at any time during reasonable
business hours, and from time to time. Borrower will assist Agent and the
Lenders in so doing. Borrower will pay a fee to DFS, for its own account (even
if other Lenders accompany the Agent on such review) in the amount of $1,500
per quarter for such Collateral reviews and any other reviews performed under
the Loan Documents as frequently as Agent shall reasonably determine, but at
least quarterly, and Borrower agrees that such fee is not interest but rather
reimburses Agent for its out-of-pocket and allocated overhead expenses incurred
in conducting such audits.
9.1.16 Landlord's Agreements.
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(a) Existing Leases. Within 120 days after the Effective Date, Borrower
will provide a landlord waiver and agreement, in a form acceptable to Agent,
for its premises located at 7350 North Linder Avenue, Skokie, IL 60077.
Borrower shall deliver such a landlord waiver, on or prior to the Effective
Date, for each and every lease of real property pursuant to which Borrower has
granted a landlord a Lien on any of its assets. For each and every other
existing lease of real property listed on Exhibit 8.23(b), Borrower shall make
a good faith effort to deliver such a landlord waiver.
(b) Future Leases. Borrower will provide or cause to be provided,
landlord waivers and agreements in a form acceptable to Agent with respect to
any future leases of real property, prior to entering into them. In no event,
however, shall the Borrower execute a lease for any premises which grants to a
landlord a Lien on any assets of Borrower.
9.1.17 Reimbursement for Bank Charges. Borrower will reimburse Lenders
for all charges made by banks for collection of checks and other items of
payment and for transfer of funds to or from Borrower.
9.2 Negative Covenants. During the term of this Agreement and thereafter,
for so long as any Obligations are outstanding and unpaid, Borrower covenants
that unless otherwise consented to in writing by the Required Lenders,
Borrower shall not perform or cause or permit to be performed the following
acts:
9.2.1 Change of Name, Etc. Borrower and the Subsidiaries will not change
their name, or begin to trade under any assumed names or trade names without
thirty (30) days prior written notice to Agent. Borrower will not, and will
not permit any Subsidiary to, change its manner of organization, enter into
any mergers, consolidations, reorganizations or recapitalizations without the
Required Lenders' prior written consent other than as contemplated herein.
9.2.2 Sale or Transfer of Assets. Except in the ordinary course of
business, Borrower and the Subsidiaries will not sell, transfer, lease
(including sale-leaseback) or otherwise dispose of all or any substantial part
of their assets. This provision will not apply to any sale if the proceeds of
such sale pay the Obligations in full.
9.2.3 Encumbrance of Assets. Borrower will not, and will not permit a
Subsidiary to, mortgage, pledge, grant or permit to exist a security interest
in or Lien upon any of the Collateral, now owned or hereafter acquired except
for the Permitted Liens.
9.2.4 Acquisition of Stock or Assets. Borrower and the Subsidiaries will
not, acquire, or enter into any agreement or commitment letter to acquire, all
or substantially all the assets of, equity interest or stock in, another
business.
9.2.5 False Certificates or Documents. Borrower has not and will not,
permit any Subsidiary to, furnish Agent or any Lender with any
certificate or other document that contains any untrue statement of material
fact or that omits to state a material fact necessary to make it not
misleading in light of the circumstances under which it was furnished.
9.2.6 Assignment. Borrower will not assign or attempt to assign the Loan
Documents or any of its interests under the Loan Documents.
9.2.7 Transactions with Affiliates. Borrower will not enter into any
contracts, leases, sales or other transactions with any Affiliate on terms
less favorable than could be obtained generally by Borrower from a
non-Affiliate.
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9.2.8 Dividends. Borrower will not, and will not permit any Subsidiary
to, declare or pay any dividends upon its capital stock other than stock
dividends.
9.2.9 Capital Expenditures. Borrower will not make, or commit to make, any
expenditure for capital improvements (including, without limitation,
capitalized leases) or the acquisition of capital goods in excess of: (a)
subject to the provisions of Section 9.2.9(b) immediately following, Five
Hundred Thousand Dollars ($500,000) per calendar year, and (b) notwithstanding
the foregoing, up to Two Million Eight Hundred Thousand Dollars ($2,800,000)
solely in connection with Borrower's inventory and accounting software and
hardware systems upgrade.
9.2.10 Loans by Borrower. Except as described on Exhibit 9.2.10, which
such loans shall not be modified, amended, supplemented, refinanced, or
otherwise revised without the prior written consent of Agent, Borrower will
not, and will not permit any Subsidiary to, make any loan to any Person,
except for loans in anticipation of reasonable and normally reimbursable
business expenses and trade credit extended in the ordinary course of
Business.
9.2.11 Fiscal Year. Borrower will not, and will not permit any Subsidiary
to, change its fiscal year-end without sixty (60) days prior written notice to
Agent.
9.2.12 Total Indebtedness. Borrower shall not create, incur, assume, or
suffer to exist, or permit any Subsidiary to create, incur or suffer to exist,
any Indebtedness, except:
(i) the Obligations;
(ii) Subordinated Debt;
(iii) Indebtedness of any Subsidiary to Borrower; and
(iv) Accounts payable to trade creditors and current operating expenses
(other than for money borrowed) incurred in the ordinary course of
business which are aged not more than thirty (30) days past due, unless
actively contested in good faith and by appropriate and lawful
proceedings, and for which adequate reserves have been established in
accordance with GAAP.
9.2.13 Adverse Transactions. Borrower will not enter into any
transaction, or permit any Subsidiary to enter into any transaction, which
materially and adversely affects or may materially and adversely affect the
Collateral or Borrower's ability to repay the Obligations or permit or agree
to any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any
of the terms relating thereto, other than discounts and allowances in the
ordinary course of business, all of which shall be reflected in the Borrowing
Base Certificate submitted to Agent pursuant to Section 3.2 of this Agreement.
9.2.14 Guaranties. Borrower will not guarantee, assume, endorse or
otherwise, in any way, become directly or contingently liable with respect to
the Indebtedness of any Person, except by endorsement of instruments or items
of payment for deposit or collection.
9.2.15 Bill-and-Hold Sales. Etc. Borrower will not make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on
approval or consignment basis, or any sale on a repurchase or return basis.
9.2.16 Stock Redemption. Borrower will not redeem or purchase any of its
outstanding capital stock, warrants, or stock options or convert or permit
such stock, warrants or options to be converted into cash, nor has or shall
Borrower guaranty to any of its shareholders any minimum stock price or
valuation.
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9.2.17 Use of Names. Borrower will not without the prior written consent
of the applicable party, use the name of Agent or any Lender or the name of
any Affiliates of such party in connection with any of Borrower's business or
activities, except in connection with internal business matters, as required
in dealings with governmental agencies and financial institutions and to trade
creditors of Borrower solely for credit reference purposes or as required by
law.
9.2.18 Margin Securities. Borrower will not own, purchase or acquire, or
permit any Subsidiary to own, purchase or acquire, (or enter, or permit any
Subsidiary to enter, into any contract to purchase or acquire) any "margin
security" as defined by any regulation of the Federal Reserve Board as now in
effect or as the same may hereafter be in effect unless, prior to any such
purchase or acquisition or entering into any such contract, Lenders shall have
received an opinion of counsel satisfactory to Lenders to the effect that such
purchase or acquisition will not cause this Agreement to violate Regulations G
or U or any other regulation of the Federal Reserve Board then in effect.
9.2.19 Leases. Borrower will not become a lessee under any operating
lease of real property other than those listed on Exhibit 8.23(b) without the
prior written consent of Agent.
9.2.20 Tax Consolidation. Borrower will not file or consent to the filing
of any consolidated income tax return with any Person other than a Subsidiary.
9.3 FINANCIAL COVENANTS.
9.3.1 Amounts. Borrower agrees that it will at all times maintain the
following:
(a) a Tangible Net Worth plus Subordinated Debt in the combined amount of
not less than: (i) Twelve Million Five Hundred Thousand Dollars
($12,500,000) for the calendar quarter ending 12/31/96, and (ii) Thirteen
Million Dollars ($13,000,000), thereafter;
(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth plus
Subordinated Debt of not more than: (i) Five and eight-tenths to One (5.8
to 1.0) for the calendar quarter ending 12/31/96, and (ii) Five and
One-half to One (5.5 to 1.0), thereafter; and
(c) a ratio of EBIT to total interest expenses of not less the ratio set
forth below for the period corresponding thereto:
Period Ratio
Calendar quarter ending 9/30/96 1.5 to 1.0
Calendar quarter ending 12/31/96 2.5 to 1.0
Calendar quarter ending 3/31/97 2.5 to 1.0
Calendar quarter ending 6/30/97 1.5 to 1.0
Calendar quarter ending 9/30/97 2.5 to 1.0
and each calendar quarter thereafter
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For purposes of this paragraph: (i) "Tangible Net Worth" means the book
value of Borrower's assets less liabilities (including as liabilities all
reserves for contingencies and other potential liabilities), excluding from
such assets all Intangibles; (ii) "Intangibles" means and includes general
intangibles (as that term is defined in the UCC); accounts receivable and
advances due from officers, directors, member, owner, employees,
stockholders and affiliates; leasehold improvements net of depreciation;
licenses; goodwill; 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; provided,
however, "Intangibles" shall not include tax refunds payable to Borrower,
or other tax assets of Borrower resulting from loss carryforwards or other
temporary differences in the recognition of income and/or losses for tax
reporting purposes; (iii) "Debt" means all of Borrower's liabilities and
indebtedness for borrowed money of any kind and nature whatsoever other
than Subordinated Debt (as defined below), whether direct or indirect,
absolute or contingent, and including obligations under capitalized leases,
guaranties or with respect to which Borrower has pledged assets to secure
performance, whether or not direct recourse liability has been assumed by
Borrower; (iv) "EBIT" shall mean, for any period of determination, the
consolidated net income of Borrower and the Subsidiaries before provision
for income taxes and interest expense (including, without limitation,
implicit interest expense on capitalized leases), all as determined in
accordance with GAAP, excluding therefrom (to the extent included): (A)
non-operating gains (including, without limitation, extraordinary or
nonrecurring gains, gains from discontinuance of operations and gains
arising from the sale of assets other than Inventory) during the applicable
period; (B) net earnings of any business entity (other than a Subsidiary)
in which Borrower has an ownership interest unless such net earnings shall
have actually been received by Borrower in the form of cash distributions;
(C) any portion of the net earnings of any Subsidiary which for any
reason is unavailable for payment of dividends to Borrower; (D) the
earnings of any Person to which any assets of Borrower shall have been
sold, transferred or disposed of, or into which Borrower shall have merged,
or been a party to any consolidation or other form of reorganization, prior
to the date of such transaction; (E) any gain arising from the acquisition
of any securities of Borrower; and (F) non-operating losses arising from
the sale of capital assets during such period; and (v) "Subordinated Debt"
means all of Borrower's Debt which is subordinated to the payment of
Borrower's liabilities to the Lenders by an agreement in form and substance
satisfactory to the Required Lenders. The foregoing terms will be
determined in accordance with GAAP consistently applied, and, if
applicable, on a consolidated basis ("Financial Covenants").
10. DEFAULT/REMEDIES
Borrower will be in default (each a "Default") under this Agreement if:
(a) Except for the breach described in item l0 (c) or (d) below, Borrower
breaches any terms, covenants, warranties or representations contained herein,
or in any other Loan Document, and such breach which is susceptible to cure by
Borrower, is not cured to Agent's reasonable satisfaction within thirty (30)
days after Borrower's receipt of notice of such breach from Agent, provided,
however that if in Agent's discretion, Borrower is reasonably proceeding to
cure such breach, Borrower shall be entitled to such additional time as may
reasonably be needed to effectuate such cure, but in no event longer than
sixty (60) days from the date of Agent's notice;
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(b) any representation, statement, report or certificate made or delivered
by Borrower to Agent or any Lender is not accurate when made;
(c) Borrower fails to pay any portion of Borrower's obligations
consisting of interest, fees or other amounts (exclusive of principal
payments) due to Agent or any Lender when due and payable hereunder or under
any other agreement between any Lender and Borrower, including but not limited
to the AWF, and such failure is not cured to Lender's satisfaction within
three (3) days after the applicable due date; provided however, that during
any period of 180 consecutive days commencing at any time hereafter, Borrower
shall be entitled to no more than two (2) such 3-day cure periods, and as to
any such payment failures in excess of such limitation, no such cure period
shall be available to Borrower;
(d) Borrower fails to pay any portion of Borrower's obligations
consisting of principal payments due to Agent or any Lender when due and
payable hereunder or any other agreement between any Lender and Borrower.
including but not limited to the AWF;
(e) Borrower abandons any Collateral;
(f) except as disclosed on Exhibit 8.2, Borrower is or becomes in default
in the payment of any debt for money borrowed owed to any third party which
exceeds at any time the aggregate amount of $50,000;
(g) an unpaid money judgment issues against Borrower which exceeds at
any time the aggregate amount of $50,000, and such judgment or judgments shall
have remained undischarged and unstayed for a period of thirty (30) days;
(h) an attachment, sale or seizure issues or is executed against any
assets of Borrower which is not satisfied or released within thirty (30) days;
(i) Borrower ceases existence as a corporation;
(j) Borrower ceases or suspends business;
(k) Borrower makes a general assignment for the benefit of creditors:
(l) Borrower becomes insolvent or voluntarily or involuntarily becomes
subject to the Federal Bankruptcy Code, any state insolvency law or any
similar law;
(m) any receiver is appointed for any of Borrower's assets;
(n) Borrower loses any material franchise, permission, license or right
to sell or deal in any Collateral which any Lender finances;
(o) Borrower misrepresents Borrower's financial condition or organizational
structure;
(p) any of the Collateral becomes subject to any Lien, claim, encumbrance
or security interest other than a Permitted Lien;
(q) Borrower shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any
material part of its Business which shall have remained undischarged and
unstated for a period of thirty (30) days; or any material lease or agreement
pursuant to which Borrower leases, uses or occupies any property shall be
canceled or terminated prior to the expiration of its stated term, or any part
of the Collateral shall be taken through condemnation or the value thereof
shall be impaired through condemnation;
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(r) Agent or any Lender reasonably determines in good faith that it is
insecure with respect to any of the Collateral or the payment of any part of
Borrower's Obligations; or
(s) there exists any default by Borrower, not cured after the expiration
of any applicable grace period, under the AWF or the Floorplan Inventory
Facility Participation Agreement, or the Floorplan Inventory Facility
Participation Agreement is terminated by reason of a default by Borrower.
In the event of a Default:
(i) Agent may at any time at its election, and shall at the request of the
Required Lenders, without notice or demand to Borrower, do any one or
more of the following: cease making further Loans and declare all or any
of the Obligations immediately due and payable, together with all costs
and expenses of Agent's and Lender's 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 Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for Agent, 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.
(iii) Upon Agent's oral or written demand, Borrower will immediately deliver
the Collateral to Agent, in good order and repair, at a place specified
by Agent, together with all related documents; or Agent may, and shall
at the request of the Required Lenders and without notice or demand to
Borrower, take immediate possession of the Collateral together with all
related documents.
(iv) Agent may, and shall at the request of the Required Lenders, without
notice, apply the Default Interest Rate if applicable under Section 3.6
hereof.
(v) Agent may, and shall at the request of the Required Lenders, without
notice to Borrower and at any time or times hereafter enforce payment and
collect, by legal proceedings or otherwise, Accounts in the name of
Borrower or Agent; 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. Agent may,
and shall at the request of the Required Lenders and without demand
enter, with or without process of law, any premises where Collateral
might be and, without charge or liability to Agent or any Lender 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 Agent 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 Agent's
security interest in the Collateral or until Agent's removal of the
Collateral and, (iii) remain on such premises and use the same, together
with Borrower's materials, supplies, books and records, for the purpose
of liquidating or collecting such Collateral and conducting and preparing
for disposition of such Collateral.
(vi) Upon the occurrence of a Default described in Sections 10(k), (lm) or
(m), all Obligations shall automatically be accelerated and due and
payable and the Default Interest Rate 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 Agent or any Lender.
All of Agent's and each Lender's rights and remedies are cumulative. Agent's
or any Lender's failure to exercise any of its rights or remedies hereunder
will not waive any of such party's rights or remedies as to any past, current
or future Default.
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11. SALE OF COLLATERAL
Borrower agrees that if Agent 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 Agent of such Collateral in bulk or in parcels within
120 days of: (a) Agent's taking possession and control of such Collateral; or
(b) when Agent 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 UCC. Borrower
further agrees that a public sale of the Collateral in accordance with the
provisions of the Uniform Commercial Code is a commercially reasonable sale of
such Collateral under the Uniform Commercial Code. Borrower agrees that the
purchase of any Collateral by a vendor, as provided in an agreement between
DFS and the vendor, if any, is a commercially reasonable disposition and
private sale of such Collateral under the UCC, and no request for bids shall
be required. Borrower 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). Borrower irrevocably waives any requirement
that Agent retain possession and not dispose of any Collateral until after an
arbitration hearing, arbitration award, confirmation, trial or final judgment.
If Agent 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.
12. INDEMNIFICATIONS
12.1 General Indemnity. In addition to the payment of expenses and
attorneys' fees, if applicable, whether or not the transactions contemplated
hereby shall be consummated, Borrower agrees to indemnify, pay and hold Agent
and each Lender and the officers, directors, employees, agents, and affiliates
of Agent and each Lender and such holders (collectively called the
"Indemnitees") harmless from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for any
of such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by Agent or any Lender, each Lender's agreement to make the
Loans or any other payment hereunder, or the use or intended use of the
proceeds of any of the Loans hereunder (the "Indemnified Liabilities");
Provided, however, that Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of an Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
provisions of the undertakings and indemnification set out in this Section
12.1 shall survive satisfaction and payment of the Obligations and termination
of this Agreement.
12.2 Environmental and Safety and Health Indemnity. Borrower hereby
indemnifies the Indemnitees and agrees to hold the Indemnitees harmless from
and against any and all losses, liabilities, damages, injuries, costs,
expenses and claims of any and every kind whatsoever (including, without
limitation, court costs and
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attorneys' fees) which at any time or from time to time may be paid, incurred
or suffered by, or asserted against, an Indemnitee for, with respect to, or as
a direct or indirect result of the violation by Borrower or any Subsidiary, of
any Environmental Law or OSHA Law; or with respect to, or as a direct or
indirect result of (a) the presence on or under, or the escape, seepage,
leakage, spillage, disposal, discharge, emission or release from, properties
utilized by Borrower and/or any Subsidiary in the conduct of its business into
or upon any land, the atmosphere, or any watercourse, body of water or
wetland, of any Hazardous Material or other hazardous, toxic or dangerous
waste, substance or constituent, or other substance (including, without
limitation, any losses, liabilities, damages, injuries, costs, expenses or
claims asserted or arising under the Environmental laws) or (b) the
existence of any unsafe or unhealthful condition on or at any premises
utilized by Borrower and/or any Subsidiary in the conduct of its business. The
provision of and undertakings and indemnification set out in this Section 12.2
shall survive satisfaction and payment of the Obligations and termination of
this Agreement.
13. RELATIONSHIP AMONG LENDERS.
13.1 Appointment and Grant of Authority. Each Lender hereby appoints the
Agent, and the Agent hereby agrees to act, as agent under this Agreement. The
Agent shall have and may exercise such powers under this Agreement as are
specifically delegated to the Agent by the terms hereof, together with such
other powers as are reasonably incidental thereto. Each Lender hereby
authorizes, consents to, and directs the Borrower to deal with the Agent as
the true and lawful agent of such Lender to the extent set forth herein.
13.2 Non-Reliance on Agent. Each Lender agrees that it has, independently
and without reliance on the Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and the decision to enter into this Agreement and
that it will, independently and without reliance upon the Agent, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement. The Agent shall not be required to keep informed as to
the performance or observance by the Borrower of this Agreement or any other
document referred to or provided for herein or to inspect the properties or
books of the Borrower. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition or business of the Borrower (or any of its related companies) which
may come into the Agent's possession; provided, however, that to the extent
Agent has not received any such notice, report or other documents and
information, Agent shall have no such obligation to provide such information
to the Lenders.
13.3 Responsibility of the Agent and Other Matters.
(a) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and those duties and liabilities shall
be subject to the limitations and qualifications set forth in this Section.
The duties of the Agent shall be mechanical and administrative in nature.
(b) Neither the Agent nor any of its directors, officers or employees
shall be liable for any action taken or omitted (whether or not such action
taken or omitted is within or without the Agent's responsibilities and duties
expressly set forth in this Agreement) under or in connection with this
Agreement or any other instrument or document in connection herewith,
including review and approval of any of the conditions precedent set forth in
Section 7 hereof, except for gross negligence or willful misconduct. Without
limiting the foregoing, neither the Agent nor any of its directors, officers
or employees shall be responsible for, or have any duty to inquire
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into (i) the genuineness, execution, validity, effectiveness, enforceability,
value or sufficiency of (a) this Agreement or any other Loan Document, or (b)
any document or instrument furnished pursuant to or in connection with this
Agreement or any other Loan Document, (ii) the collectibility of any amounts
owed by the Borrower, (iii) any recitals or statements or representations or
warranties in connection with this Agreement or any other Loan Document, (iv)
any failure of any party to this Agreement to receive any communication sent,
or (v) the assets, liabilities, financial condition, results of operations,
business or creditworthiness of the Borrower.
(c) The Agent shall be entitled to act, and shall be fully protected in
acting upon, any communication in whatever form believed by the Agent in good
faith to be genuine and correct and to have been signed or sent or made by a
proper person or persons or entity. The Agent may consult counsel and shall be
entitled to act, and shall be fully protected in any action taken in good
faith, in accordance with advice given by counsel. The Agent may employ agents
and attorneys-in-fact and shall not be liable for the default or misconduct of
any such agents or attorneys-in-fact selected by the Agent with reasonable
care. The Agent shall not be bound to ascertain or inquire as to the
performance or observance of any of the terms, provision or conditions of this
Agreement or any other Loan Document on the Borrower's part. The Agent shall,
upon receipt of any written notice from the Borrower specifically advising the
Agent that a Default has occurred and is continuing, notify each of the
Lenders of the occurrence of such Default.
13.4 Action on Instructions. The Agent shall be entitled to act or
refrain from acting, and in all cases shall be fully protected in acting or
refraining from acting, under this Agreement or any other Loan Document or any
other instrument or document in connection herewith or therewith in accordance
with instructions in writing from the Required Lenders, as applicable.
13.5 Indemnification. To the extent the Borrower does not reimburse and
save the Agent harmless according to the terms hereof for and from all
reasonable costs, expenses and disbursements in connection herewith, such
costs, expenses and disbursements shall be borne by the Lenders in accordance
with their respective Pro Rata Shares and the Lenders hereby agree on such
basis (i) to reimburse the Agent for all such costs, expenses and
disbursements on request and (ii) to indemnify and save harmless the Agent
against and from any and all losses, expenses, obligations, penalties,
actions, judgments and suits and other costs, expenses and disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent, other than as a consequence of actual gross negligence or
willful misconduct on the part of the Agent, arising out of or in connection
with this agreement or any other Loan Document or any instrument or document
in connection herewith or therewith, or any request of the Lenders, including
without limitation the costs, expenses and disbursements in connection with
preserving or protecting the Collateral or establishing or maintaining any
security interest therein, enforcing any rights of the Agent or the Lenders
hereunder, or defending itself against any claim or liability, or answering
any subpoena, related to the exercise or performance of any of its powers or
duties under this Agreement or taking of any action under or in connection
with this Agreement or any other Loan Document.
13.6 DFS and Affiliates. With respect to DFS' commitment and any Loans by
DFS under this Agreement, and any interest of DFS in any Loan, DFS shall have
the same rights and powers under this Agreement and such Loans as any other
Lender and may exercise the same as though it were not the Agent. DFS and its
affiliates may accept deposits from, lend money to, and generally engage, and
continue to engage, in any kind of business with the Borrower as if DFS were
not the Agent.
13.7 Notice to Holder of Notes. The Agent may deem and treat the payee of
any promissory notes evidencing all or part of the Obligations as the owners
thereof for all purposes unless a written notice of assignment, negotiation or
transfer
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thereof has been filed with the Agent. Any request, authority or consent of
any holder of any such note shall be conclusive and binding on any subsequent
holder, transferee or assignee of such note.
13.8 Successor Agent. The Agent may resign at any time by giving 30 days'
written notice thereof to the Lenders. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Agent. If no successor
Agent shall have been appointed by the Required Lenders and accepted such
appointment in connection herewith or therewith within 30 days after the
retiring Agent's giving notice of resignation, then the retiring Agent may,
but shall not be required to, on behalf of the Lenders, appoint a successor
Agent. The Required Lenders (calculated as though that portion of the Credit
Facility held by Deutsche Financial Services Corporation in its individual
capacity had been paid in full) may, upon the request of Borrower, elect to
remove Deutsche Financial Services Corporation as Agent hereunder, provided,
however, that simultaneously with any such removal, all outstanding Loans and
other indebtedness hereunder or under any other agreement executed in
connection herewith, owing to Deutsche Financial Services Corporation shall
have been paid or prepaid in full by the Borrower (including any amounts
payable pursuant to Section 3.2(b) hereof) or purchased by the remaining
Lenders.
13.9 Nonsolicitation. No Lender, other than DFS, will contact Borrower or
any of Borrower's subsidiaries or affiliated companies, agents,
representatives or employees during the term of this Agreement, in order to
solicit or offer any potential credit facilities or other financial
accommodations (except for depository or cash management services), either
upon terms similar or dissimilar to the terms of this Agreement.
14. OTHER TERMS
14.1 Amendment, Changes and Modification. No amendment or waiver of any
provision of this Agreement or any other Loan Document, nor consent to any
departure therefrom by the Borrower shall be effective unless the same shall
be in writing and signed by the Borrower and Agent (with the written consent
of the Required Lenders), and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given,
provided, however, that Agent may, without the prior consent of Required
Lenders, (a) perform all administrative functions relating to the Loans,
including disbursement of advances, receipt and posting of payments,
reconciliation of billing statements with Borrower, responses to accountants
and credit checks, processing discounts, credits and similar items, and
continuation and recordation of Liens, (b) receive, process and accept reports
from Borrower, including Borrowing Base calculations and financial statements,
(c) determine whether individual items of Collateral meet Borrowing Base
eligibility standards set forth in this Agreement, (d) accept, monitor,
assess, process and make claims under Borrower's hazard and other insurance
policies, (e) release immaterial portions of Collateral, and (f) waive
non-monetary defaults by Borrower under the Loan Documents for up to 10
consecutive days, so long as all Lenders are notified of such waivers
concurrently with Agent's delivery of the next Settlement Certificate under
Section 5.6(b) hereof.
Notwithstanding the foregoing, no amendment, waiver or consent shall,
unless in writing and signed by the Agent, in addition to the Lenders required
above to take such action, affect the rights or duties of Agent under this
Agreement or any other Loan Document.
Anything in this Agreement to the contrary notwithstanding, if any Lender
shall fail to fulfill its obligations to make a Loan hereunder then, for so
long as such failure shall continue, such Lender shall (unless Borrower and
the Required Lenders determined as if such Lender were not a "Lender"
hereunder, shall otherwise consent in writing) be deemed for all purposes
relating to amendments, modifications, waivers or consents under this
Agreement or the other Loan Documents
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(including without limitation under this Section 14.1) to have no Loans or
Commitments, shall not be treated as a "Lender" hereunder when performing the
computation of Required Lenders, and shall have no rights under this Section
14.1; provided that any action taken by the other Lenders with respect to any
change in the amount or term of the Commitment, any waiver, extension or
reduction of any principal or interest payment, or any material release of
Collateral without such Lender's written consent, shall not be effective as
against such Lender.
14.2 Binding Effect. The Loan Documents will be binding upon the parties,
their successors and assigns.
14.3 Broker Fee. Neither party is obligated to pay any premium or other
charge, brokerage fee or commission in connection with the agreements set
forth herein. Each party will indemnify the other and hold it harmless from
any such claim arising out of such party's acts or those of its
representatives.
14.4 Entire Agreement. The Loan Documents embody the entire agreement of
the parties relating to the Credit Facility. There are no promises, terms,
conditions, obligations or warranties other than those contained in the Loan
Documents. The Loan Documents supersede all prior communications,
representations or agreements, verbal or written, between the parties relating
to the Credit Facility.
14.5 Headings. The Headings to the sections of this Agreement are
included only for the convenience of the parties and will not have the effect
of defining, diminishing or enlarging the rights of the parties or affecting
the construction or interpretation of any portion of this Agreement.
14.6 Incorporation by Reference. All other Loan Documents are
incorporated herein by this reference and are made a part of this Agreement as
if fully set forth herein. This Agreement, prior to such incorporation,
controls in the event of any conflict with the terms of any other Loan
Documents.
14.7 Interpretation. For the purpose of construing this Agreement, unless
the context otherwise requires, words in the singular will be deemed to
include words in the plural, and vice versa.
14.8 Notices. Any notice under the Loan Documents, will be in writing.
Any notice to be given or document to be delivered under the Loan Documents
will be deemed to have been duly given upon delivery, if delivered in person
or by any expedited delivery service which provides proof of delivery, upon
tested telex or facsimile transmission, or on the fifth Business Day after
mailing, if mailed by registered or certified mail, return receipt requested,
postage prepaid mail, addressed to Lender, Agent or Borrower at the
appropriate addresses. Agent and each Lender will use reasonable efforts to
deliver any notice such party is required to give to Borrower; provided,
however, that failure by such party to actually give any such notice will not
be deemed to be a waiver of any rights or remedies of such party and will not
give rise to any claims, defenses or damages by Borrower. The addresses for
notices are those set forth below or such other addresses as may be hereafter
specified by written notice by the parties:
to Agent: Deutsche Financial Services Corporation
4747 Lincoln Highway, Suite 410
Matteson IL 60443
Facsimile No.: (708) 481-2294
with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
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<PAGE> 37
Facsimile No.:(314) 523-3228
to Borrower: Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, IL 60077
Attention: Mr. Michael Martinez, CFO
Facsimile No.: (847) 677-7741
with a copy to: Lord, Bissell & Brook
115 South LaSalle Street
Chicago, Illinois 60601
Attention: Louis E. Rosen, Esq.
Facsimile No.: (312) 443-0615
to any Lender: At the address indicated on the signature page hereto.
14.9 No Third Party Beneficiary Rights and Reliance. No Person not a
party to this Agreement will have any benefit under this Agreement nor have
third-party beneficiary rights as a result of any of the Loan Documents, nor
will any party be entitled to rely on any actions or inactions of Agent, any
Lender or their respective agents, all of which are done for the sole benefit
and protection of Agent and the Lenders.
14.10 Protection or Preservation of Collateral. Neither Agent nor any
Lender will have any contractual duty to protect, insure, collect or realize
upon the Collateral or preserve rights in it against prior parties. Neither
Agent nor any Lender will be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral
regardless of the cause.
14.11 Relationship of the Parties. Neither Agent nor any Lender on the
one hand nor Borrower on the other hand will be deemed a partner, joint
venturer or related entity of the other by reason of the Loan Documents.
14.12 Reversal of Payments. To the extent that Borrower makes a payment
or payments to Agent or any Lender, which payment or payments or proceeds or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law, or
equitable cause, then to the extent of such payment or proceeds received, the
Credit Facility will be revived and continue in full force and effect, as if
such payment or proceeds had not been received by such party.
14.13 Severability. If any provision of this Agreement (either generally,
or as to a specific application to a set of facts) will be held to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability will
not affect any other provision of this Agreement (either in its entirety, or
as to or the application of such provision to any other set of facts), but
this Agreement will be construed as if such invalid, illegal or unenforceable
provision never had been included in this Agreement.
14.14 Maximum Interest. Borrower acknowledges that Agent and each Lender
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, Agent and
each Lender shall never be deemed to have contracted for, charged or be
entitled to receive, collect or apply as interest on 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 Agent or any Lender ever receives, collects or applies
as interest any such excess, such amount which would be excessive interest
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<PAGE> 38
will be applied first to the reduction of the unpaid principal balances of
advances under this Agreement, and, second, any remaining excess will be paid
to Borrower. In determining whether or not the interest paid or payable under
any specific contingency exceeds the highest lawful rate, Borrower, Agent and
each Lender 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.
14.15 Waivers by Agent/Lenders. Agent and/or any Lender may at any time
or from time to time waive all or any of their respective rights under any of
the Loan Documents to the extent waivable by such party or parties, but any
waiver or indulgence at any time or from time to time will not constitute,
unless specifically so expressed by Agent or such Lender, as applicable, in
writing, a future waiver by such party of performance by Borrower.
14.16 Survival. The grant of security interest herein to secure all
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until
all Obligations have been paid in full and this Agreement has been terminated.
The Agreement to arbitrate all Disputes will survive termination of this
Agreement.
14.17 Assignments and Participations; Information.
(a) Assignments. Each Lender shall have the right, subject to the further
provisions of this Section 14.17 and subject to the prior written consent of
the other Lender and Borrower, to sell, assign, or negotiate all or any part
of its interest in the Credit Facility, Loans, and other rights and
obligations under this Agreement and related documents (such transfer, an
"Assignment") to any commercial lender, other financial institution or other
entity (an "Assignee"); provided, however, nothing herein will prevent DFS
from securitizing all or any part of its interest hereunder to a trust or
special purpose funding entity. Upon such Assignment becoming effective as
provided in Section 14.17(b), the assigning Lender shall be relieved from the
portion of the Credit Facility, obligations to indemnify the Agent and other
obligations hereunder to the extent assumed and undertaken by the Assignee,
and to such extent the Assignee shall have the rights and obligations of a
"Lender" hereunder. Notwithstanding the foregoing, unless otherwise consented
to by the Borrower and the Agent, (i) each Assignment shall be of a constant,
and not a varying, percentage of the assigning Lender's interest in the Credit
Facility, (ii) each Assignment shall be in a principal amount of not less than
$5,000,000 in the aggregate for all Loans and interest in the Credit Facility
assigned, (iii) such Assignee shall pay to DFS, for DFS' own account, an
administration and processing fee of $5,000, and (iv) each Assignment shall be
documented by an agreement between the assigning Lender and the Assignee in a
form acceptable to Agent and Borrower (an "Assignment and Assumption
Agreement").
(b) Effectiveness of Assignments. An Assignment shall become effective
hereunder when all of the following shall have occurred: (i) the Agent and the
Borrower shall have given prior written consent to such Assignment unless the
Assignee is already a Lender under this Agreement, which consent shall not be
unreasonably withheld, (ii) the Assignee shall have submitted the relevant
Assignment and Assumption Agreement, or other document in which the Assignee
shall have agreed in writing to have irrevocably assumed and undertaken the
transferred portion of the assigning Lender's obligations hereunder (including
without limitation the obligations to indemnify the Agent hereunder and to
comply with Section 14.29), to the Agent with a copy for the Borrower, and
shall have provided to the Agent information the Agent shall have reasonably
requested to make payments to the Assignee, and (iii) the assigning Lender,
the Borrower and the Agent shall have agreed upon a date upon which
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<PAGE> 39
the Assignment shall become effective. Upon the Assignment becoming effective,
the Agent shall forward all payments of interest, principal, fees and other
amounts that would have been made to the assigning Lender, in proportion to
the percentage of the assigning Lender's rights transferred, to the Assignee.
(c) Loan Participations. Each Lender shall have the right, subject to the
further provisions of this Section 14.17, to grant or sell a participation in
all or any part of its Loans and Commitments (a "Loan Participation") to any
commercial lender, other financial institution or other entity (a "Loan
participant") upon prior written notice to and with the consent of the
Borrower, the other Lender and Agent, which consent shall not be unreasonably
withheld, Provided, however, that (i) such Loan Participant shall pay to DFS,
for DFS' own account, an administration and processing fee of $5,000, and (ii)
any such Loan Participant shall expressly agree to the provisions of Section
13.9 as though it were a Lender hereunder.
(d) Limitation of Rights of any Assignee or Loan Participant.
Notwithstanding anything in the foregoing to the contrary, except in the
instance of an Assignment that has become effective as provided in Section
14.17(b), (i) no Assignee or Loan Participant shall have any direct rights
hereunder, (ii) the Borrower, the Agent and the Lender's other than the
assigning or selling Lender shall deal solely with the assigning or selling
Lender and shall not be obligated to extend any rights or make any payment to,
or seek any consent of, the Assignee or Loan Participant, (iii) no Assignment
or Loan Participation shall relieve the assigning or selling Lender from its
commitment to make Loans hereunder or any of its other obligations hereunder
and such Lender shall remain solely responsible for the performance thereof,
and (iv) no Assignee or Loan Participant, other than an affiliate of the
assigning or selling Lender, shall be entitled to require such Lender to take
or omit to take any action hereunder, including release of any Collateral and
waivers or amendments of, or consents to, any Default hereunder, except that
such Lender may agree with such Assignee or Loan Participant that such Lender
will not, without such Assignee's or Loan Participant's consent, take any
action which would, in the case of any principal, interest or fee in which the
Assignee or Loan Participant has an ownership or beneficial interest: (i)
extend the maturity of any Loans or extend the termination of the Credit
Facility, (ii) reduce the interest rate on the Loans or the rate of fees paid
on the Credit Facility, or (iii) forgive any principal of, or interest on, the
Loans or any fees. The Borrower further agrees that Section 14.28 of this
Agreement shall apply to each Assignee and Loan Participant with respect to
its interest in the Loans and Commitments as fully as if such Loan Participant
or Assignee were a Lender hereunder.
(e) Information. Each Lender may furnish any public or non-public
information concerning the Borrower, including notices, certificates and
documents delivered hereunder, which are in the possession of such Lender from
time to time to Assignees and Participants and potential Assignees and Loan
Participants, provided that no such non-public information, certificates,
notices or documents shall be furnished without the written undertaking of the
recipient, a copy of which shall be furnished to the Borrower promptly upon
receipt thereof, to keep all such non-public information confidential, except
as may be required by law.
14.18 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
14.19 Release of Information. Each Lender and Agent may provide credit
references to any third party from time to time in response to credit
reference requests.
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<PAGE> 40
14.20 Release. Borrower releases Agent and each Lender from all claims
and causes of action which Borrower may now or hereafter have for any loss or
damage to it claimed to be caused by or arising from: (a) any failure of Agent
or any Lender to protect, enforce or collect, in whole or in part, any
Account; (b) Agent's notification to any Account Debtors thereon of Agent's
security interest in any of the Accounts; (c) Agent's directing any Account
Debtor to pay any sum owing to Borrower directly to Agent; and (d) any other
act or omission to act on the part of Agent, any Lender, or their respective
officers, agents or employees, except for willful misconduct or gross
negligence. Neither Agent nor any Lender will have any obligation to preserve
rights to Accounts against prior parties.
14.21 Miscellaneous. Time is of the essence regarding Borrower's
performance of its obligations to Agent and Lenders notwithstanding any course
of dealing or custom on Agent's or any Lender's part to grant extensions of
time. Borrower'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. Agent and the Lenders will have the right to
refrain from or postpone enforcement of this Agreement or any other Loan
Documents without prejudice and the failure to strictly enforce the Loan
Documents will not be construed as having created a course of dealing between
such parties and Borrower contrary to the specific terms of the Loan Documents
or as having modified, released or waived the same. The express terms of this
Agreement and the other Loan Documents will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the terms
hereof. If Borrower fails to pay any taxes, fees or other obligations which
may impair Agent's interest in the Collateral, or fails to keep the Collateral
insured, Agent may, but shall not be required to, pay such taxes, fees or
obligations and pay the cost to insure the Collateral, and the amounts paid
will be: (a) an additional debt owed by Borrower to the Lenders, which shall
be subject to finance charges as provided herein; and (b) due and payable
immediately in full. Borrower agrees to pay all of Agent's and each Lender's
reasonable attorneys' fees and expenses incurred by such party in enforcing
its rights hereunder.
14.22 Waivers bv Borrower. Borrower irrevocably waives notice of: Agent's
and each Lender's acceptance of this Agreement, presentment, demand, protest,
nonpayment, nonperformance, and dishonor. Borrower, Agent and each Lender
irrevocably waive all rights to claim any punitive and/or exemplary damages.
Borrower waives all rights of offset and counter claims Borrower may have
against Agent or any Lender. Borrower waives all notices of default and
non-payment at maturity of any or all of the Accounts.
14.23 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY,
EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU,
(BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, AND
IN THE OTHER LOAN DOCUMENTS, WHICH ARE THE COMPLETE AND EXCLUSIVE STATEMENT OF
THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY
ANY OF THEM. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
14.24 Supplement. If Borrower and Agent or any Lender 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 Borrower and Agent or any Lender, and in
that event, this Agreement shall neither be deemed a novation nor a
termination of such previously executed agreement nor shall execution of this
Agreement be deemed a satisfaction of any obligation secured by such
previously executed agreement.
14.25 Use of Counsel and Receipt of Agreement. Borrower acknowledges that
it has received a true and complete copy of this Agreement. Borrower
acknowledges
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that it has (a) had representation of counsel during negotiation of this
Agreement, and (b) read and understood this Agreement.
14.26 Facsimiles, Etc. Notwithstanding anything herein to the contrary:
(a) Agent and each Lender may rely on any facsimile copy, electronic data
transmission or electronic data storage of any 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 Loan Document, and for all evidentiary purposes before any
arbitrator, court or other adjudicatory authority.
14.27 Power of Attorney. Borrower irrevocably appoints Agent (and any
person designated by it) as Borrower's true and lawful Attorney with full
power to at any time, in the discretion of Agent (whether or not Default has
occurred) to: (a) endorse the name of Borrower upon any of the items of
payment of proceeds of the Collateral and deposit the same in the account of
Agent for application to the Obligations; (b) sign the name of Borrower to
verify the accuracy of the Accounts; (c) sign the name of Borrower on any
document or instrument that Agent shall deem necessary or appropriate to
perfect and maintain perfected the security interests in the Collateral under
this Agreement and other Loan Documents; (d) initiate and settle any insurance
claim and endorse Borrower's name on any check, instrument or other item of
payment; (e) endorse the name of Borrower upon financing statements,
instruments, Certificates of Title and Statements of Origin pertaining to the
Collateral; (f) supply omitted information and correct errors in any documents
between Agent or a Lender and Borrower; and (g) do anything to preserve and
protect the Collateral and Agent's rights and interest therein. In the event
of a Default, Borrower irrevocably appoints Agent (and any person designated
by it) as Borrower's true and lawful Attorney with full power to at any time,
in the discretion of Agent to: (i) demand payment, enforce payment and
otherwise exercise all of Borrower'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 Agent may deem advisable; (v)
discharge and release any Accounts; (vi) prepare, file and sign Borrower's
name on any Proof of Claim in Bankruptcy or similar document against any
Account Debtor; (vii) endorse the name of Borrower 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 Borrower to such address as Agent may designate.
This power of attorney is for value and coupled with an interest and is
irrevocable so long as any Obligations remain outstanding and by Agent
exercising such right, Agent shall not waive any right against Borrower until
the Obligations are paid in full.
14.28 Right of Set-off. Upon (a) the occurrence and during the
continuance of any Default and (b) the making of the request or the granting
of the consent specified by Section 10 to authorize the Agent to declare the
Obligations due and payable pursuant to the provisions of Section 10, each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply an and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any and all of the Obligations of the Borrower
now or hereafter existing under this Agreement, irrespective of whether or not
such Lender shall have made any demand under this Agreement and although such
Obligations may be unmatured. Each Lender agrees promptly to notify the
Borrower after any such set-off and application made by such Lender, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Lender under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Lender may have.
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14.29 Expenses. Borrower agrees, whether or not any Loan is made
hereunder, to pay the Agent and/or the Lenders upon demand for all reasonable
expenses, including reasonable fees of attorneys for the Agent or any Lender
(who may be employees of the Agent or any Lender), incurred by (a) the Agent
in connection with the preparation, negotiation, and execution of this
Agreement and any other Loan Document, (b) the Agent in connection with the
preparation of any and all amendments to this Agreement and any other Loan
Document, and all search, recording, filing, and registration expenses, and
(c) the Agent and the Lenders in connection with the enforcement of the
Borrower's obligations hereunder or under any other Loan Document. Borrower
also agrees to (i) indemnify and hold the Agent harmless from any loss or
expense which may arise or be created by the acceptance of telephonic or other
instructions for making Loans, except for any loss or expense arising from the
Agent's gross negligence or willful misconduct (provided, however, that
reliance alone upon telephonic or other instructions shall not itself be
deemed to constitute gross negligence or willful misconduct), and (ii) to pay
and save Agent and the Lenders harmless from all liability for, any stamp or
other taxes which may be payable with respect to the execution or delivery of
this Agreement or any of the other Loan Documents. Borrower's obligations
under this Section 14.29 shall survive any termination of this Agreement.
15. BINDING ARBITRATION.
15.1 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 and/or any amendments and addenda hereto, or the breach,
invalidity or termination hereof; (b) any previous or subsequent agreement
between Lenders and Borrower; (c) any act committed by Agent or Lender or by
any parent company, subsidiary or affiliated company thereof (the
"Companies"), or by any employee, agent, officer or director of a Company
whether or not arising within the scope and course of employment or other
contractual representation of the Companies provided that such act arises
under a relationship, transaction or dealing between the Agent and/or any
Lender and Borrower; and/or (d) any other relationship, transaction or dealing
between the Lenders and Borrower or among the Lenders relating to this
transaction (collectively the "Disputes"), will be subject to and resolved by
binding arbitration.
15.2 Administrative Body.
All arbitration hereunder will be conducted by 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 Cook County, Illinois.
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15.3 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. Depositions shall be
permitted but no more than two for each party and no single deposition shall
extend for more than two days nor more than seven hours during a one day
period. Request for production of documents shall be responded to (or objected
to) within 20 days of the request. All objections shall be ruled upon by the
arbitrator. 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. Other discovery
shall be permitted upon the consent of the arbitrator.
15.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages.
15.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, except to the
extent required by law, 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.
15.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent Agent's, any Lender's or Borrower's use of bankruptcy,
receivership, injunction, repossession, replevin, claim and delivery,
sequestration, seizure, attachment, foreclosure, 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 Agent's, and Lender's or Borrower's right to compel arbitration of
any Dispute.
15.7 Attorneys' Fees. If either Borrower, Agent or a Lender brings any
other action for judicial relief with respect to any Dispute (other than those
set forth in Section 15.6) 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.
15.8 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 court proceeding, with
respect to such Dispute.
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15.9 Survival After Termination. The agreement to arbitrate will survive
the termination of this Agreement.
16. 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. BORROWER, AGENT AND EACH LENDER WAIVE ANY RIGHT TO A JURY
TRIAL IN ANY SUCH PROCEEDING.
17. GOVERNING LAW. Borrower acknowledges and agrees that this and all
other agreements between Borrower, Agent and Lenders have been substantially
negotiated, and will be substantially performed, in the state of Illinois.
Accordingly, Borrower 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, the parties have, by their duly authorized officers,
executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS
ATTEST: ELEK-TEK, INC.
By: /s/ Miguel A. Martinez, Jr. By: /s/ Richard L. Rodriquez
---------------------------- -----------------------------
Secretary Print Name: Richard L. Rodriquez
----------------------
Title: President & CEO
---------------------------
LENDERS:
- --------
Commitments:
$17,500,000 DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Richard E. Kravits
-------------------------------
$17,500,000 Print Name: Richard E. Kravits
-------------------------------
Title: Sr. Regional Vice President
-------------------------------
NATIONSCREDIT COMMERCIAL CORPORATION
By: /s/ Ralph Throneberry
-------------------------------
Print Name: Ralph Throneberry
-------------------------------
Title: Sr. Vice President
-------------------------------
Address:
222 West Las Colinas Blvd.
Suite 1300, North Tower
Irving, Texas 75039
Facsimile No.: (972) 402-3596
Total of Commitments:
- ---------------------
$35,000,000
===========
AGENT:
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DEUTSCHE FINANCIAL SERVICES
CORPORATION, as Agent
By: /s/ Richard E. Kravits
--------------------------
Print Name: Richard E. Kravits
--------------------------
Title:
--------------------------
44
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EXHIBIT 3 .1 (a)
BORROWING BASE CERTIFICATFE
45
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EXHIBIT 5.6(b)
Settlement Certificate
NationsCredit Commercial Corporation of America
Attn: Ralph Throneberry
SETTLEMENT CERTIFICATE
Client: Elek-Tek, Inc.
Settlement Date: Certificate Number:
----------------- ---------------
This Settlement Certificate ("Certificate") is delivered by the
undersigned on behalf of Deutsche Financial Services Corporation ("DFS"),
pursuant to Section 6 of the Participation Agreement ("Agreement") dated as of
October 31, 1996 between DFS and NationsCredit Commercial Corporation of
America ("Nations") and pursuant to Section 5.6(b) of the Business Credit and
Security Agreement dated as of October 31, 1996 among DFS, Elek-Tek, Inc.
("Borrower") and Nations pursuant to which the parties certify the following
information as of the Settlement Date set forth above:
<TABLE>
<S> <C> <C>
Floorplan Accounts
Outstandinqs Inventory Receivable
1. Beginning Balance $ $
--------- ----------
2. Purchases/Advances $ $
--------- ----------
3. Payments/Collections $ $
--------- ----------
4. Ending Balance $ $
--------- ----------
5. Total Current Balance $ (Total of line 4)
---------
6. Open Approvals Balance $
---------
7. Future Advance Balance $
---------
</TABLE>
<TABLE>
<S><C>
8. Nations' Prior Balance $ (from Certificate Number: )
--------- ----
9. Nations' Current Requirement $ (50% of line 5, not to exceed $25,000,000.00)
--------
10. Reimbursement required $ (Due DFS)
---------------------------
11. Reduction due $ (Due Nations)
--------------------------
12. Nations' New Balance $
------------------------
</TABLE>
Capitalized terms used herein and not defined to the contrary have the
same meanings given them in the Agreement or in the Business Credit and
Security Agreement as applicable.
DEUTSCHE FINANCIAL NATIONSCREDIT COMMERCIAL
SERVICES CORPORATION CORPORATION OF AMERICA
By: By:
---------------- --------------------
Name: NAME:
---------------- --------------------
Title: TITLE:
---------------- --------------------
46
<PAGE> 48
EXHIBIT 7.1 (j)
PRESIDENT'S CERTIFICATE
I, , President of Elek-Tek, Inc., a Delware corporation
("Borrower"),hereby certify to Deutsche Financial Services Corporation, as
Agent ("Agent"), in connection with the Business Credit and Security Agreement
dated as of October 31, 1996 among the Borrower, Agent and the Lenders (the
"Credit Agreement"; terms defined in the Credit Agreement are used herein as so
defined), that:
1. The representations and warranties of Borrower contained in Section 8
of the Credit Agreement are true and correct in all material respects, as of
the date hereof (or, if any such representation or warranty is limited to a
specific date. as of such specific date);
2. No event has occurred and is continuing, or would result from any Loan
being made to Borrower under the Credit Agreement on the date hereof, which
constitutes a Default; and
3. After the funding of the Loans to be made by the Lenders to Borrower
on the date hereof, Borrower will be in full compliance with all of the terms
and provisions of the Credit Agreement.
IN WITNESS WHEREOF, I have signed this Certificate this _ day of ___ 1996.
------------------------------
,President
------------------
47
<PAGE> 49
EXHIBIT 7.1(1)
SECRETARY'S CERTIFICATE OF RESOLUTION AND INCUMBENCY
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 the "Lenders" listed
in that certain Business Credit and Security Agreement dated as of October 31,
1996. ('Lenders') 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 Lenders 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 Lenders as collateral security for any obligations of
this corporation to Lenders, 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:
-------------------------- -----------------------
(Print Name) (Signature)
Vice-President:
-------------------------- -----------------------
(Print Name) (Signature)
Secretary:
-------------------------- -----------------------
(Print Name) (Signature)
Treasurer:
-------------------------- -----------------------
(Print Name) (Signature)
Agent:
-------------------------- -----------------------
(Print Name) (Signature)
Witness by hand and seal of said corporation this day of .
----- ------
(seal) ----------------------
Secretary
ELEK-TEK, INC.
48
<PAGE> 50
EXHIBIT 8.2
EXISTING DEFAULTS
Second Modification Agreement between LaSalle National Bank and ELEK-TEK, Inc.
Covenant Defaults - Senior Lender
- Tangible Net Worth below $15,500,000
- Leverage Ratio exceeding 4.25 to 1
- Net Profits for the first nine months ending September 30, 1996 of at
least $1.00
Subordinated Promissory Note
- No principal payments have been made on the note to Mort Goldman since
April 1, 1996. No payment has been made to the Estate of Hal Goldman
since January 1, 1996. No principal payments have been made due to
covenant defaults on the senior loans.
<PAGE> 51
EXHIBIT 8.3
LITIGATION
1. Magan Guston v. Elek-Tek, Inc. et al. (Circuit Court of Cook County,
Illinois): Action for $750,000.00, plus costs for False Arrest, False
Imprisonment, Battery and Malicious Prosecution in connection with theft
allegedly committed by Plaintiff while employed by Elek-Tek, Inc. This
action is currently in the pleading phase and discovery has not yet
commenced.
2. S Industries, Inc. v. Diamond Multimedia Systems, Inc. (U.S. District Court
-Northern District of Illinois): Action for trademark infringement against
manufacturer of computer components. Elek-Tek, Inc was joined as a result of
its position as a retail seller of the allegedly infringing product.
Plaintiff has not made a definite demand for damages, however, Diamond
Multimedia Systems, Inc. has agreed in writing to both defend Elek-Tek,
Inc. and pay any award that may be granted in favor of the plaintiff in
this action.
<PAGE> 52
EXHIBIT 8.5
LIENS
Contractors Claim for Lien
Gregg Communications Systems, Inc.
$23,000
47
<PAGE> 53
EXHIBIT 8.7
SUBSIDIARIES
No Subsidiaries
48
<PAGE> 54
EXHIBIT 8.16
CAPITAL STRUCTURE
20,000,000 shares authorized
6,300,000 shares outstanding
.01 par value
0 treasury shares
49
<PAGE> 55
EXHIBIT 8.17
Elek-Tek. Inc.
Schedule of Inventory Locations
<TABLE>
<CAPTION>
Property Location Property Address Landlord Landlord Address Leased/Owned
- --------------------- --------------------------- ------------------------- ---------------------- ------------
<S> <C> <C> <C> <C>
Lincolnwood, IL 6557 N. Lincoln Ave. Morton Goldman 170 Yerington Leased
Lincolnwood, IL 60645 Glenbrook, NV 89413
- -------------------------------------------------------------------------------------------------------------------
Willowbrook, IL 6300 S. Kingery Hwy Hinsdale Lake Commons 1300 Post Oak Blvd Leased
Willowbrook, IL 60154 c/o Vantage Properties Houston, TX 77056
- -------------------------------------------------------------------------------------------------------------------
Rolling Meadows, IL Meadows Town Mall Bradley Operating LTD 1400 E. Golf Rd Leased
1400 E. Golf Rd. c/o Tucker Properties Rolling Mdws, IL 60008
Rolling Mdws, IL 60008
- -------------------------------------------------------------------------------------------------------------------
Skokie, IL 7350 N. Linder Podolsky Associates One Westbrook Corp Ctr Leased
Skokie, IL 60077 Westchester, IL 60154
- -------------------------------------------------------------------------------------------------------------------
Chicago, IL (loop) 105 W. Adams St. Bankers Building Realty 105 W. Adams St. Leased
Chicago, IL 60603 Chicago, IL 60603
- -------------------------------------------------------------------------------------------------------------------
Lakeview, IL (north) 3111 N. Ashland Grossprop Associates 6900 N. McCormick Blvd Leased
Chicago, IL 60657 Lincolnwood, IL 60645
- -------------------------------------------------------------------------------------------------------------------
Indianapolis, IN 7710 E. 96th St. Estate of Hal Goldman 12 Bridlewood Rd. Leased
Fishers, IN 46038 Northbrook, IL 60062
- -------------------------------------------------------------------------------------------------------------------
Denver, CO 8000 E. Quincy Mile High Property 1700 Broadway Leased
Denver, CO 80237 c/o NW Commercial Mrtg Denver, CO 80290
- -------------------------------------------------------------------------------------------------------------------
Lenexa, KS 9750 Quivira Ave. N/A N/A Owned
Lenexa, KS 66215
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 56
EXHIBIT 8.18
Elek-Tek Inc.
Schedule of Property Leased and Owned
<TABLE>
<CAPTION>
Property Location Property Address Landlord Landlord Address Leased/Owned
- -------------------- ----------------------- --------------------- ------------------ ------------
<S> <C> <C> <C> <C>
Lincolnwood, IL. 6557 N. Lincoln Ave. Morton Goldman 170 Yerington Leased
Lincolnwood, IL. 60645 Glenbrook, NV 89413
- ------------------------------------------------------------------------------------------------------------
Willowbrook, IL. 6300 S. Kingery Hwy Hinsdale Lake Commons 1300 Post Oak Blvd Leased
Willowbrook, IL. 60154 c/o Vantage Properties Houston, Tx. 77056
- ------------------------------------------------------------------------------------------------------------
Rolling Meadows, IL. Meadows Town Mall Bradley Operating LTD 1400 E. Golf Rd. Leased
1400 E. Golf Rd. c/o Tucker Properties Rolling Mdws, IL. 60008
Rolling Mdws, IL. 60008
- ------------------------------------------------------------------------------------------------------------
Skokie, IL. 7350 N. Linder Podolsky Associates One Westbrook Corp Ctr Leased
Skokie, IL. 60077 Westchester, IL. 60154
- ------------------------------------------------------------------------------------------------------------
Chicago, IL. (loop) 105 W. Adams St. Bankers Building Realty 105 W. Adams St. Leased
Chicago, IL. 60603 Chicago, IL. 60603
- ------------------------------------------------------------------------------------------------------------
Lakeview, IL.(north) 3111 N. Ashland Grossprop Associates 6900 N. McCormick Blvd Leased
Chicago, IL. 60657 Lincolnwood, IL. 60645
- ------------------------------------------------------------------------------------------------------------
Indianapolis, IN. 7710 E. 96th St. Estate of Hal Goldman 12 Bridlewood Rd. Leased
Fishers, In. 46038 Northbrook, IL. 60062
- ------------------------------------------------------------------------------------------------------------
Denver, CO. 8000 E. Quincy Mile High Property 1700 Broadway Leased
Denver, Co. 80237 c/o NW Commercial Mrtg Denver, Co. 80290
- ------------------------------------------------------------------------------------------------------------
Lenexa, KS 9750 Quivira Ave. N/A N/A Owned
Lenexa, KS 66215
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 57
EXHIBIT 8.20
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
No Issues as of October 24, 1996
52
<PAGE> 58
EXHIBIT 8.21
PATENTS, COPYRIGHTS, TRADEMARKS
TRADEMARKS
ELEK-TEK, Inc.
Your Computer Wonderland
ELEK-TEK, Inc.
The Computer Wonderland
When It Comes To Computers
ELEK-TEK
ELEK
"Room To Grow"
"Plugged Into The Revolution From The Start"
"ELEK-TEK's Computer Enthusiast"
"E-Tronics"
"Key Tronic"
53
<PAGE> 59
EXHIBIT 8.23(a)
CAPITALIZED LEASES
No Capital Leases as of October 24, 1996
54
<PAGE> 60
EXHIBIT 8.23(b)
Elek-Tek, Inc.
Schedule of Operating Leases
<TABLE>
<CAPTION>
Lessor Description Serial # Payment Term # of payments
- ----------------- ----------- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
Xerox Corporation 5034 Copier 79H-411622 329.16 08/96-07/99 36 Months
Xerox Corporation 5034 Copier 79H-024639 329.16 09/96-08/99 36 Months
Xerox Corporation 5385 Copier 88Y-001349 1,004.25 09/96-08/99 36 Months
Oce - USA 2475 Copier 4721 620.00 08/95-07/00 60 Months
Mr. Leasing BMW 1,090.00 10/96-5/00 44 Months
</TABLE>
<PAGE> 61
EXHIBIT 8.24
LABOR RELATIONS
None
<PAGE> 62
EXHIBIT 9.1.10(c)
ELEK-TEK, INC.
BUSINESS CREDIT AND SECURITY AGREEMENT CERTIFICATIONS
AS OF ______, 19__
In accordance with Section 9.1.10(c) of the Business Credit and Security
Agreement dated as of October 31, 1996 ("Credit Agreement"), among Elek-Tek,
Inc. ("Borrower"), Deutsche Financial Services Corporation, as agent, and
certain Lenders named therein, I certify that:
(i) the enclosed Borrower prepared monthly financial package
(Consolidating Balance Sheet and Consolidating Statement of Operations) as of
and for the period ending , 19 , all unaudited, fairly present the
financial position and results of operations of Borrower and its Subsidiaries
and have been prepared in accordance with GAAP, except for the interim financial
statements on which footnotes have been excluded.
(ii) to the best of my knowledge, Borrower has kept, observed, performed
and fulfilled each and every covenant, obligation and agreement binding upon
Borrower under the Credit Agreement and that no Default has occurred.
ELEK-TEK, INC.
By:
---------------------
Title:
------------------
61
<PAGE> 63
EXHIBIT 9.2.10
LOANS BY BORROWER
Richard L. Rodriguez $150,000
Karim Hadchiti $ 25,000
58
<PAGE> 64
AGREEMENT FOR WHOLESALE FINANCING
This Agreement for Wholesale Financing ("Agreement") is made as of October 31,
1996 between DEUTSCHE FINANCIAL SERVICES CORPORATION ("DFS") and ELEK-TEK,
INC., a Delaware corporation ("Dealer"), having a principal place of business
located at 7350 North Linder Avenue, Skokie, Illinois 60077.
- --------------------------------------------------------------------------------
1. EXTENSION OF CREDIT.
(a) Subject to the terms of this Agreement, the maximum principal amount
available to Dealer hereunder shall be Fifteen Million Dollars ($15,000,000)
(the "Floorplan Inventory Facility"), BUT ONLY TO THE EXTENT that DFS has
received, upon terms acceptable to DFS, in its sole discretion,
participation(s) in the Floorplan Inventory Facility of at least Seven Million
Five-Hundred Thousand Dollars ($7,500,000).
In furtherance of the foregoing, anything in this Agreement to the
contrary notwithstanding, DFS shall have no obligation to make any advance
hereunder unless one or more financial institution(s) acceptable to DFS shall
have entered into, and performs its obligations under, a participation
agreement(s) mutually acceptable to DFS and such financial institution(s)
pursuant to which DFS shall sell to such financial institution(s) an undivided
economic participation in that portion of the Floorplan Inventory Facility
which exceeds $7,500,000. DFS may exercise its rights under this Section
(absent the failure of any other conditions to any such advance which would
otherwise permit DFS not to make an advance) upon immediate notice to Dealer,
and thereupon the Floorplan Inventory Facility will be automatically reduced
by the amount of the terminated or nonperforming participation agreement(s),
as the case may be. Nothing herein shall be construed to limit the
discretionary nature of this credit facility.
(b) Subject to the provisions of the foregoing Section l(a) and other
terms of this Agreement, DFS may extend credit to Dealer by making advances to
Dealer or on Dealer's behalf, from time to time to purchase inventory from DFS
approved vendors ("Vendors") and for other purposes. If DFS advances funds to
Dealer following Dealer's execution of this Agreement, DFS will be deemed to
have entered into this Agreement with Dealer, whether or not executed by DFS.
DFS' decision to advance funds will not be binding until the funds are
actually advanced. DFS may combine all of DFS' advances to Dealer or on
Dealer's behalf, whether under this Agreement or any other agreement, 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. DFS may, at any time and without notice to Dealer, elect not to
finance any inventory sold by particular Vendors who are in default of their
obligations to DFS, or with respect to which DFS reasonably feels insecure.
This is an agreement regarding the extension of credit, and not the provision
of goods or services.
2. FINANCING TERMS AND STATEMENTS OF TRANSACTION. Dealer and DFS agree that
certain financial terms of any advance made by DFS under this Agreement,
whether regarding finance charges, other fees, maturities, curtailments
or other financial terms, are not set forth herein because such terms
depend, in part, upon the availability of Vendor discounts, payment terms
or other incentives, prevailing economic conditions, DFS' floorplanning
volume with Dealer and with Dealer's Vendors, and other economic factors
which may vary over time. Dealer and DFS further agree that it is
therefore in their mutual best interest to set forth in this Agreement
only the general terms of Dealer's financing arrangement with DFS. Upon
agreeing to finance a particular item of inventory for Dealer, DFS will
send Dealer a Statement
1
<PAGE> 65
of Transaction identifying such inventory and the applicable financial
terms. Unless Dealer notifies DFS in writing of any objection within
fifteen (15) days after a Statement of Transaction is mailed to Dealer:
(a) the amount shown on such Statement of Transaction will be an account
stated; (b) Dealer will have agreed to all rates, charges and other terms
shown on such Statement of Transaction; (c) Dealer will have agreed that
DFS is financing the items of inventory referenced in such Statement of
Transaction at Dealer's request; and (d) such Statement of Transaction
will be incorporated herein by reference, will be made a part hereof as if
originally set forth herein, and will constitute an addendum hereto. If
Dealer objects to the terms of any Statement of Transaction, Dealer agrees
to pay DFS for such inventory in accordance with the most recent terms for
similar inventory to which Dealer has not objected (or, if there are no
prior terms, at the lesser of 16% per annum or at the maximum lawful
contract rate of interest permitted under applicable law), but Dealer
acknowledges that DFS may then elect to terminate Dealer's financing
program pursuant to Section 17, and cease making additional advances to
Dealer. However, such termination will not accelerate the maturities of
advances previously made, unless Dealer shall otherwise be in default of
this Agreement.
3. GRANT OF SECURITY INTEREST. To secure payment of all of Dealer's current
and future debts to DFS, whether under this Agreement or any current or
future guaranty or other agreement, 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 relating to the "Collateral," 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. 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 Section 9.
4. AFFIRMATIVE WARRANTIES AND REPRESENTATIONS. Dealer warrants and
represents to DFS that: (a) Dealer has good title to all Collateral; (b)
DFS' security interest in the Collateral financed by DFS is not now and
will not become subordinate to the security interest, lien, encumbrance
or claim of any person; (c) Dealer will execute all documents DFS
requests to perfect and maintain DFS' security interest in the
Collateral; (d) Dealer will deliver to DFS immediately upon each
request, and DFS may retain, each Certificate of Title or Statement of
Origin issued for Collateral financed by DFS; (e) Dealer 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 unless the failure to so
qualify would not have a material adverse effect on the business or
financial condition of Dealer; (f) Dealer has the right and is duly
authorized to enter into this Agreement; (g) Dealer's execution of this
Agreement does not constitute a breach of any agreement to which Dealer
is now or hereafter becomes bound; (h) 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; (i) Dealer will maintain the Collateral in good condition and
repair; (j) Dealer has duly filed and will duly file all tax returns
required by law; (k) Dealer has paid and will pay when due all taxes,
levies, assessments and governmental charges of any nature; (l) Dealer
will keep and maintain all of its books and records pertaining to the
Collateral 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) all Collateral will be kept at Dealer's principal place of business
listed above, and such other locations, if any, of which Dealer has
notified DFS in
2
<PAGE> 66
writing or as listed on any current or future Exhibit "A" attached hereto
which written notice(s) to DFS and Exhibit A(s) are incorporated herein by
reference; (o) Dealer will give DFS thirty (30) days prior written notice of
any change in Dealer's identity, name, form of business organization,
ownership, management, principal place of business, Collateral locations or
other business locations, and before moving any books and records to any other
location; (p) 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; (q) Dealer will advise DFS
of the commencement of material legal proceedings against Dealer or any
guarantor; and (r) Dealer will comply in all material respects with all
applicable laws and will conduct its business in a manner which preserves and
protects the Collateral and the earnings and incomes thereof.
5. NEGATIVE COVENANTS. Dealer will not at any time (without DFS' prior
written consent): (a) other than in the ordinary course of its business,
sell, lease or otherwise dispose of or transfer any of its assets; (b)
rent, lease, demonstrate, consign, or use any Collateral financed by DFS;
or (c) merge or consolidate with another entity.
6. INSURANCE. Dealer will immediately notify DFS of any loss, theft or
damage to any Collateral.
(a) Type of Insurance. Dealer will at all times cause the
Business and the Collateral to be insured by insurers of
reasonable financial soundness and having an A. M. Best rating
of A or better, with such policies, against such risks and in
such amounts as are appropriate for reasonably prudent
businesses in Dealer's industry and of Dealer's size and
financial strength.
(b) Requirements as to Insurance Policies. The policies of
insurance which Dealer is required to carry shall comply with
the requirements listed below:
(i) Each such policy shall provide that it may not be canceled
or allowed to lapse at the end of a policy period without at
least 30 days' prior written notice to DFS;
(ii) Each liability and hazard insurance policy shall name DFS
as an additional insured; and
(iii) Each property insurance policy required hereunder shall
contain a standard lender's loss payable clause in favor
of DFS. Such insurance policies shall also contain lender's
loss payable endorsements satisfactory to DFS providing, among
other things, that any loss shall be payable in accordance with
the terms of such policy notwithstanding any act of Dealer
which might otherwise result in forfeiture of such insurance.
(c) Collection of Claims. Dealer will promptly advise DFS of
any insured casualty and Dealer agrees that may direct all
insurance proceeds therefrom to be paid directly to DFS to the
extent that such loss is not adequately insured under an
insurance policy which names DFS as a loss payee, and hereby
appoints DFS its attorney-in-fact for such purpose.
(d) Blanket Policies. Any insurance required hereunder may be
supplied by means of a blanket or umbrella insurance policy.
3
<PAGE> 67
(e) Delivery of Policies or Certificates of Insurance. Dealer
shall deliver to DFS certificates of insurance issued by
insurers to evidence that the insurance maintained by Dealer
complies with the requirements hereunder.
Dealer will provide DFS with written evidence of such property
insurance coverage and lender's loss-payee or mortgagee
endorsement.
7. FINANCIAL STATEMENTS; COVENANTS.
(a) Financial Statements. Dealer will deliver to DFS financial statements
at the times and in the forms described in Section 9.1.10 of that certain
Business Credit and Security Agreement of even date among Dealer, DFS, in its
individual capacity and as agent, and NationsCredit Commercial Corporation
of America ("Nations") (as amended from time to time, the "Credit Agreement")
Capitalized terms used but not defined herein shall have the meanings given to
them in the Credit Agreement. 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 present
fairly the information set forth therein and have been and will be prepared in
accordance with generally accepted accounting principles consistently applied
except for any interim financial statements for which footnotes shall be
omitted, 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.
(b) Financial Covenants.
Dealer will at all times maintain:
(i) a Tangible Net Worth and Subordinated Debt in the combined amount
of not less than: (i) Twelve Million Five Hundred Thousand Dollars ($12,500,000)
for the calendar quarter ending 12/31/96, and (ii) Thirteen Million Dollars
($13,000,000), thereafter;
(ii) a ratio of Debt minus Subordinated Debt to Tangible Net Worth and
Subordinated Debt of not more than: (i) Five and eight-tenths to One (5.8 to
1.0) for the calendar quarter ending 12/31/96, and (ii) Five and One-half to
One (5.5 to 1.0), thereafter; and
(iii) a ratio of EBIT to total interest expenses of not less the ratio
set forth below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Calendar quarter ending 9/30/96 1.5 to 1.0
Calendar quarter ending 12/31/96 2.5 to 1.0
Calendar quarter ending 3/31/97 2.5 to 1.0
Calendar quarter ending 6/30/97 1.5 to 1.0
Calendar quarter ending 9/30/97 2.5 to 1.0
and each calendar quarter thereafter
</TABLE>
4
<PAGE> 68
The foregoing terms shall be determined in accordance with generally
accepted accounting principles consistently applied, and, if applicable,
on a consolidated basis.
8. REVIEWS. 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) examine and copy Dealer's books
and records related to the Collateral.
9. PAYMENT TERMS. Dealer will immediately pay DFS the principal
indebtedness owed DFS on each item of Collateral financed by DFS (as
shown on the Statement of Transaction identifying such Collateral) on the
earliest occurrence of any of the following events: (a) when such
Collateral is lost, stolen or damaged; (b) for Collateral financed under
Pay-As-Sold ("PAS") terms (as shown on the Statement of Transaction
identifying such Collateral), when such Collateral is sold, transferred,
rented, leased, otherwise disposed of or matured; (c) in strict
accordance with any curtailment schedule for such Collateral (as shown on
the Statement of Transaction identifying such Collateral); (d) for
Collateral financed under Scheduled Payment Program ("SPP") terms (as
shown on the Statement of Transaction identifying such Collateral), in
strict accordance with the installment payment schedule; and (e) when
otherwise required under the terms of any financing program agreed to in
writing by the parties. Regardless of the SPP terms pertaining to any
Collateral financed by DFS, if DFS determines that the current
outstanding debt which Dealer owes to DFS exceeds the aggregate wholesale
invoice price of such Collateral in Dealer's possession, Dealer will
immediately upon demand pay DFS the difference between such outstanding
debt and the aggregate wholesale invoice price of such Collateral. If
Dealer from time to time is required to make immediate payment to DFS of
any past due obligation discovered during any Collateral audit, or at any
other time, Dealer agrees that acceptance of such payment by DFS shall
not be construed to have waived or amended the terms of its financing
program. The proceeds of any Collateral received by Dealer will be held
by Dealer in trust for DFS' benefit, for application as provided in this
Agreement. Dealer will send all payments to DFS' branch office(s)
responsible for Dealer's account. DFS may apply: (i) payments to reduce
finance charges first and then principal, regardless of Dealer's
instructions; and (ii) principal payments to the oldest (earliest)
invoice for Collateral financed by DFS, but, in any event, all principal
payments will first be applied to such Collateral which is sold, lost,
stolen, damaged, rented, leased, or otherwise disposed of or unaccounted
for. Any third party discount, rebate, bonus or credit granted to Dealer
for any Collateral will not reduce the debt Dealer owes DFS until DFS has
received payment therefor in cash. Dealer will: (1) pay DFS even if any
Collateral is defective or fails to conform to any warranties extended by
any third party; (2) not assert against DFS any claim or defense Dealer
has against any third party; and (3) indemnify and hold DFS harmless
against all claims and defenses asserted by any buyer of the Collateral
relating to the condition of, or any representations regarding, any of
the Collateral. Dealer waives all rights of offset and counterclaims
Dealer may have against DFS.
10. CALCULATION OF CHARGES. Dealer will pay finance charges to DFS on the
outstanding principal debt which Dealer owes DFS for each item of
Collateral financed by DFS at the rate(s) shown on the Statement of
Transaction identifying such Collateral, unless Dealer objects thereto as
provided in Section 2. The finance charges attributable to the rate shown
on the Statement of Transaction will: (a) be computed based on a 360 day
year; (b) be calculated by multiplying the Daily Charge (as defined
below) by the actual number of days in the applicable billing period; and
(c) accrue from the invoice date of the Collateral identified on such
Statement of Transaction until DFS receives full payment in good funds of
the principal debt Dealer owes DFS for each item of such Collateral in
accordance with DFS' payment recognition policy and DFS applies such
payment to Dealer's principal debt in
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accordance with the terms of this Agreement. The "Daily Charge" is the product
of the Daily Rate (as defined below) multiplied by the Average Daily Balance
(as defined below). The "Daily Rate" is the quotient of the annual rate shown
on the Statement of Transaction divided by 360, or the monthly rate shown on
the Statement of Transaction divided by 30. The "Average Daily Balance" is the
quotient of (i) the sum of the outstanding principal debt owed DFS on each day
of a billing period for each item of Collateral identified on a Statement of
Transaction, divided by (ii) the actual number of days in such billing period.
Dealer will also pay DFS $100 for each check 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). The annual
percentage rate of the finance charges relating to any item of Collateral
financed by DFS will be calculated from the invoice date of such Collateral,
regardless of any period during which any finance charge subsidy shall be paid
or payable by any third party. 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, charged or be entitled to receive, collect or apply as
interest on 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 advances 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.
11. BILLING STATEMENT. DFS will send Dealer a monthly billing statement
identifying all charges due on Dealer's account with DFS. The 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 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 such finance charges (payment of the Late Fee does not waive
the default caused by the late payment). DFS may adjust the billing
statement at any time to conform to applicable law and this Agreement.
12. DEFAULT. Dealer will be in default under this Agreement if: (a) Except for
the breach described in item 12(c) or (d) below, Dealer breaches
any terms, covenants, warranties or representations contained herein, in
any Statement of Transaction to which Dealer has not objected as provided
in Section 2, or in any other Loan Document, and such breach which is
susceptible to cure by Dealer, is not cured to DFS' reasonable
satisfaction within thirty (30) days after Dealer's receipt of notice of
such breach from DFS, provided, however that if in DFS' discretion, Dealer
is reasonably proceeding to cure such breach, Dealer shall be entitled to
such additional time as may reasonably be needed to effectuate such cure,
but in no event longer than sixty (60) days from the date of DFS' notice;
(b) any representation, statement, report or certificate made or delivered
by Dealer to DFS is not accurate when made; (c) Dealer fails to pay any
portion of Dealer's obligations consisting of interest, fees or other
amounts (exclusive of principal payments) due to DFS when due and payable
hereunder or under any other agreement between DFS and Dealer, including
but not limited to the Credit Agreement, and such
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failure is not cured to DFS' satisfaction within three (3) days after the
applicable due date; provided however, that during any period of 180
consecutive days commencing at any time hereafter, Dealer shall be entitled to
no more than two (2) such 3-day cure periods, and as to any such payment
failures in excess of such limitation, no such cure period shall be available
to Dealer; (d) Dealer fails to pay any portion of Dealer's obligations
consisting of principal payments due to DFS when due and payable hereunder or
any other agreement between DFS and Dealer, including but not limited to the
Credit Agreement; (e) Dealer abandons any Collateral; (f) except as disclosed
on Exhibit 8.2 of the Credit Agreement, Dealer is or becomes in default in the
payment of any debt for money borrowed owed to any third party which exceeds
at any time the aggregate amount of $50,000; (g) an unpaid money judgment
issues against Dealer which exceeds at any time the aggregate amount of
$50,000, and such judgment or judgments shall have remained undischarged and
unstayed for a period of thirty (30) days; (h) an attachment, sale or seizure
issues or is executed against any assets of Dealer which is not satisfied or
released within 30 days; (i) Dealer shall cease existence as a corporation;
(j) Dealer ceases or suspends business; (k) Dealer makes a general assignment
for the benefit of creditors; (l) Dealer becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law; (m) any receiver is appointed for any
assets of Dealer; (n) Dealer loses any material franchise, permission, license
or right to sell or deal in any Collateral which DFS finances; (o) Dealer
misrepresents its financial condition or organizational structure; (p) there
exists any default under the terms of the Credit Agreement; (q) any of the
Collateral becomes subject to any Lien, claim, encumbrance or security
interest other than a Permitted Lien; (r) Dealer shall be enjoined, restrained
or in any way prevented by court, governmental or administrative order from
conducting all or any material part of its Business which shall have remained
undischarged and unstayed for a period of thirty (30) days; or any material
lease or agreement pursuant to which Dealer leases, uses or occupies any
property shall be canceled or terminated prior to the expiration of its stated
term, or any part of the Collateral shall be taken through condemnation or the
value thereof shall be impaired through condemnation; or (s) DFS reasonably
determines in good faith that it is insecure with respect to any of the
Collateral or the payment of any part of Dealer's obligation to DFS.
13. RIGHTS OF DFS UPON DEFAULT. In the event of a default:
(a) DFS may at any time at DFS' election, without notice or demand to
Dealer, do any one or more of the following: declare all or any part of
the debt Dealer owes DFS 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 (DFS' right to cease
extending credit shall not be construed to limit the discretionary
nature of this credit facility).
(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, without 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.
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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.
14. 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. Borrower further agrees that a public
sale of the Collateral in accordance with the provisions of the Uniform
Commercial Code 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.
15. POWER OF ATTORNEY. Dealer grants DFS an irrevocable power of attorney
to: execute or endorse on Dealer's behalf any checks, financing
statements, instruments, Certificates of Title and Statements of Origin
pertaining to the Collateral; supply any omitted information and correct
errors in any documents between DFS and Dealer; initiate and settle any
insurance claim pertaining to the Collateral; and do anything to preserve
and protect the Collateral and DFS' rights and interest therein.
16. INFORMATION. DFS may provide to any third party any credit, financial or
other information on Dealer that DFS may from time to time possess. DFS
may obtain from any Vendor any credit, financial or other information
regarding Dealer that such Vendor may from time to time possess.
17. TERMINATION. Either party may terminate this Agreement at any time by
written notice received by the other party. If DFS terminates this
Agreement, Dealer agrees that if: (a) Dealer is not in default
hereunder, 30 days prior notice of termination is reasonable and
sufficient (although this provision shall not be construed to mean that
shorter periods may not, in particular circumstances, also be reasonable
and sufficient); (b) Dealer is in default hereunder, no prior notice of
termination is required; (c) there exists any default under the terms of
the Floorplan Inventory Facility Participation Agreement, including but
not limited to, Nations' failure to fund its share of any advance under
the Floorplan Inventory Facility or to provide at least $7,500,000 of
participations in the Floorplan Inventory Facility, no prior notice of
termination is required; or (d) the Floorplan Inventory Facility
Participation Agreement is terminated for any reason, no prior notice of
termination is required. Dealer will not be relieved from any obligation
to DFS arising out of DFS' advances 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 debts to DFS. All waivers set forth within this Agreement will
survive any termination of this Agreement.
18. BINDING EFFECT. Dealer cannot assign its interest in this Agreement
without DFS' prior written consent, although DFS may assign or
participate DFS' interest, in
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whole or in part, without Dealer's consent. This Agreement will protect
and bind DFS' and Dealer's respective heirs, representatives,
successors and assigns.
19. NOTICES. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered to the parties and in accordance with the
provisions of the Credit Agreement.
20. 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, THE CREDIT AGREEMENT
AND IN THE OTHER LOAN DOCUMENTS, WHICH ARE THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, EXCEPT AS SPECIFICALLY
PROVIDED HEREIN, THEREIN OR AS THE PARTIES MAY LATER AGREE IN WRITING TO
MODIFY ANY OF THEM. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.
21. OTHER WAIVERS. 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.
22. SEVERABILITY. If any provision of this Agreement or its application is
invalid or unenforceable, the remainder of this Agreement will not be
impaired or affected and will remain binding and enforceable.
23. 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 such previously
executed agreement nor shall execution of this Agreement be deemed a
satisfaction of any obligation secured by such previously executed
agreement. Notwithstanding the foregoing, this Agreement replaces in its
entirety and renders null and void that certain Agreement for Wholesale
Financing between DFS and Dealer dated as of September 2, 1994.
24. 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 this Agreement, any Statement
of Transaction, billing statement, invoice from a Vendor, 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 agreement between DFS and
Dealer, and for all evidentiary purposes before any arbitrator, court or
other adjudicatory authority.
25. MISCELLANEOUS. 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. 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. 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
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terms hereof. If Dealer fails to pay any taxes, fees or other obligations
which may impair DFS' interest in the Collateral, or fails to keep the
Collateral insured, DFS may, but shall not be required to, pay such taxes,
fees or obligations and pay the cost to insure the Collateral, and the amounts
paid will be: (a) an additional debt owed by Dealer to DFS, which shall be
subject to finance charges as provided herein; and (b) due and payable
immediately in full. Dealer agrees to pay all of DFS' reasonable attorneys'
fees and expenses incurred by DFS in enforcing DFS' rights hereunder. The
Section titles used in this Agreement are for convenience only and do not
define or limit the contents of any Section.
26. BINDING ARBITRATION.
26.1 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 and/or
any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (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 a 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.
26.2 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.
26.3 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. Depositions shall be
permitted but no more than two for each party and no single
deposition shall extend for more than two days nor more than seven
hours
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during a one day period. Request for production of documents shall be
responded to (or objected to) within 20 days of the request. All
objections shall be ruled upon by the arbitrator. 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.
Other discovery shall be permitted upon the consent of the
arbitrator.
26.4 EXEMPLARY OR PUNITIVE DAMAGES. The Arbitrator(s) will not have
the authority to award exemplary or punitive damages.
26.5 CONFIDENTIALITY OF AWARDS. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, except
as otherwise required by law, 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.
26.6 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 Dealers right
to compel arbitration of any Dispute.
26.7 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 26.6), 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.
26.8 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.
26.9 SURVIVAL AFTER TERMINATION. The agreement to arbitrate will
survive the termination of this Agreement.
27. 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.
28. 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
Illinois. Accordingly, Dealer agrees that all Disputes will be
governed by, and construed in accordance with, the laws of
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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 ELEK-TEK, INC.
By: /s/ Richard E. Kravitz By: /s/ Richard L. Rodriguez
-------------------------------- ------------------------------
Print Name: Richard E. Kravitz Print Name: Richard L. Rodriguez
------------------------ ---------------------
Title: Sr. Regional Vice President Title: President & CEO
---------------------------- -------------------------
ATTEST:
/s/ Miguel A. Martinez, Jr.
--------------------------------
Secretary
Print Name: Miguel A. Martinez, Jr.
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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; 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."
IN WITNESS WHEREOF, I have executed and affixed the seal of the
corporation on the date stated below.
Dated:_________________, 19____ ________________________________________
(Assistant) Secretary
ELEK-TEK, INC
(SEAL)
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NationsCredit Commercial Corporation
Attn: Ralph Throneberry
SETTLEMENT CERTIFICATE
Client: Elek-Tek, Inc.
Settlement Date:____________ Certificate Number:_____________
This Settlement Certificate ("Certificate") is delivered by the
undersigned on behalf of Deutsche Financial Services Corporation ("DFS"),
pursuant to Section 6 of the Participation Agreement ("Agreement") dated as of
_____, 1996 between DFS and NationsCredit Commercial Corporation of America
("Nations") and pursuant to Section 5.6 of the Business Credit and Security
Agreement dated as of_____ , 1996 among DFS, Elek-Tek, Inc. ("Borrower") and
Nations pursuant to which the parties certify the following information as of
the Settlement Date set forth above:
<TABLE>
<CAPTION>
Floorplan Accounts
Outstandings Inventory Receivable
- ------------
<S> <C> <C>
1. Beginning Balance $________ $________
2. Purchases/Advances $________ $________
3. Payments/Collections $________ $________
4. Ending Balance $________ $________
5. Total Current Balance $________ (Total of Line 4)
6. Open Approvals Balance $________
7. Future Advance Balance $________
8. Nations' Prior Balance $_______ (from Certificate Number:_________)
9. Nations' Current Requirement $__ (50% of line 5, not to exceed $25,000,000.00)
10. Reimbursement required $___________________ (Due DFS)
11. Reduction due $_____________________ (Due Nations)
12. Nations' New Balance $________________________
</TABLE>
Capitalized terms used herein and not defined to the contrary have the
same meanings given them in the Agreement.
DEUTSCHE FINANCIAL SERVICES NATIONSCREDIT COMMERCIAL
CORPORATION CORPORATION OF AMERICA
By:__________________________ By:________________________
Name:________________________ Name:______________________
Title:_______________________ Title:_____________________
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EXECUTION COPY
FLOORPLAN INVENTORY FACILITY
PARTICIPATION AGREEMENT
THIS FLOORPLAN INVENTORY FACILITY PARTICIPATION AGREEMENT ("Agreement") is
made as of the 31st day of October, 1996, by and between Deutsche Financial
Services Corporation, a Nevada corporation ("DFS") and NationsCredit
Commercial Corporation of America, a North Carolina corporation
("Participant"), each with an address as indicated on the signature page
hereof.
RECITALS
WHEREAS, DFS and Elek-Tek, Inc. ("Borrower") have entered into a certain
Agreement for Wholesale Financing dated as of October 31, 1996 (as amended
from time to time ("AWF"), a copy of which is attached hereto as Exhibit "A"
and incorporated herein by reference, pursuant to which DFS may, from time to
time, finance Borrower's purchase of inventory from certain manufacturers,
distributors or other vendors approved by DFS ("Vendors"); and
WHEREAS, Participant desires to purchase from DFS, and DFS desires to
sell to Participant, an undivided interest in the Advances, Collateral and
Collections (as defined below), pursuant to the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the covenants contained herein and
for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, DFS and Participant agree as follows:
1. Definitions. As used in this Agreement, and unless otherwise
specifically indicated, the following terms will have the meanings associated
therewith (such meanings will be equally applicable to both the singular and
plural form of the terms defined):
"Advances" means all amounts which DFS loans or advances to or on
behalf of Borrower pursuant to the AWF by paying the Vendor for
inventory Borrower has purchased.
"Business Day" means any day on which DFS is open for business, and
commercial banks are open for domestic business in Chicago,
Illinois.
"Collateral" will have that same meaning as set forth in the AWF, and
will also include DFS' rights under any guarantees of the Advances,
rights under the AWF, and benefits under any repurchase agreements with
Vendors.
"Collections" mean all monies which DFS receives from Borrower or
other sources as principal, interest or charges on account of the
Advances or as proceeds of the Collateral.
"Commitment" means the aggregate line of credit available to Dealer
from DFS pursuant to the AWF, as may be increased or decreased
from time to time in the sole discretion of DFS. As of the date of this
Agreement, the Commitment is Fifteen Million Dollars ($15,000,000), to
the extent that DFS has received Participant's Commitment of at least
the amount set forth herein.
"Credit Agreement" means that certain Business Credit and Security
Agreement of even date among DFS, as agent, Participant and
Borrower,
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as amended from time to time, which provides Borrower with a working
capital facility.
"Effective Date" means the date on which DFS and the Participant
execute this Agreement.
"Event of Default" means any default by Borrower under the AWF.
"Future Advance" means any amount which DFS is obligated to advance to
a Vendor within a certain period after receiving the invoice for
inventory which DFS has agreed to finance for Borrower pursuant to the
AWF.
"Obligations" all liabilities and indebtedness now or hereafter
arising, owing, due or payable from Borrower 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 the AWF or any other agreements previously, now or hereafter
executed by Dealer and delivered to DFS in connection therewith or
by operation of law.
"Open Approval" means DFS' approval to finance particular inventory for
Borrower which is evidenced by DFS issuing a financing approval number
to the Vendor of such inventory, but for which approval DFS has not
received the invoice for such inventory from the Vendor.
"Outstandings" means, at any time, an amount equal to the Advances;
minus any cash Collections which DFS receives prior to such
calculation date.
"Participation" means an undivided interest in the Advances, Vendor
required Collateral and Collections.
"Participant Commitment" means, with respect to Participant, $7,500,000.
"Prime Rate" means a fluctuating interest rate per annum equal to the
highest of the prime, base or reference rates of interest announced
publicly from time to time (whether or not charged in each instance) by
The Chase Manhattan Bank and Citibank, N.A. (or any successor thereof)
as such bank's prime, base, or reference rate. Each change in the Prime
Rate shall become effective on the day that the applicable reference
bank announces any change in its prime or reference rate. If any of the
banks listed above discontinue the practice of announcing or publishing
a prime, base or reference rate during the term of this Agreement, then
DFS may, in its reasonable judgment, designate a comparable bank and/or
publicly announced rate to be thereafter used as a basis for
determining Prime Rate. The parties acknowledge that any bank listed
above may extend credit at rates of interest less than its announced
prime, base or reference rate.
"Pro Rata Share" means with respect to either DFS or Participant, fifty
percent (50%) of any item or amount, as applicable.
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"Settlement Certificate" means a certificate which DFS provides to
Participant substantially in the form attached hereto as Exhibit
"B".
"Settlement Date" means each Tuesday that this Agreement is in effect,
or if Tuesday is not a Business Day, the next succeeding Business
Day.
"Termination Date" means the earlier of: (a) the date on which the Credit
Agreement terminates; or (b) the date on which the AWF terminates.
2. Sale of Participations. Subject to the terms and conditions hereof, DFS
agrees to sell and deliver to Participant, and Participant agrees to purchase
and accept from DFS, on the Settlement Date following the Effective Date and on
each Settlement Date thereafter, for Participant's own account and full risk
(without recourse to DFS), a Participation equal to Participant's Pro Rata
Share of the Outstandings as of the Friday immediately preceding the initial
Settlement Date and each Settlement Date thereafter, equal to Participant's Pro
Rata Share of the amount by which the Outstandings calculated as of the Friday
immediately preceding a Settlement Date exceed the Outstandings as calculated
for the immediately preceding Settlement Date. Notwithstanding the foregoing,
Participant will not be required to purchase a Participation in the
Outstandings to the extent that such Participation would cause the aggregate
dollar amount of its Participation to exceed its Participant Commitment. If the
Participation in the Outstandings would cause the aggregate dollar amount of
its Participation to exceed its Participant Commitment, then its Participation
in such Outstandings will be limited to that portion of such Outstandings that
would cause the aggregate outstanding dollar amount of the Participant's total
Participation to equal its Participant Commitment. The payment of the purchase
price for each Participation in accordance with this Section will constitute a
sale and purchase of such Participation and DFS will have thereupon transferred
and delivered to Participant an undivided interest in all of DFS' right, title
and interest in and to the Advances, Collateral and the Collections relating
thereto, to the extent of Participant's Participation therein.
3. Collections Generally and Application Prior to Maturity.
(a) Collections Generally. All Collections of any nature whatsoever,
including but not limited to, direct remittance, set-off, or judicial
proceedings, will be made to and received by DFS in trust for the benefit of
DFS and the Participant in accordance with their respective Pro Rata Shares,
subject to any offset rights of DFS, until Participant's Pro Rata Share thereof
is delivered to Participant in accordance with this Agreement. If Participant
receives from any source other than DFS whatsoever, whether by direct
remittance, set-off, foreclosure of security interest, or otherwise, any
payment on the Outstandings, Participant will immediately pay such amount to
DFS for application as provided herein. All Collections which DFS receives will
be applied to Borrower's account at such time and in such manner, including
application to principal or interest, as is provided in the AWF and this
Agreement. If, for any reason, DFS is required to return to Borrower any amount
received from Borrower, Participant will, upon notice from DFS, return to DFS
the share of such amount which Participant has received from DFS, but without
interest for the period since it was received. Participant assumes all of the
risk of loss directly or indirectly relating to or arising from each Advance,
to the full extent of Participant's Pro Rata Share therein, plus all costs and
expenses associated therewith that Participant is liable for as provided in
Section 11 herein. DFS does not assume nor will DFS have any liability or
obligation whatsoever to Participant for Borrower's repayment of all or any
part of any Advance or any charges thereon. Participant agrees that its
payments to DFS under this Agreement do not constitute loans to DFS.
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(b) Application Prior to Maturity. Prior to maturity or acceleration of
Borrower's Obligations in consequence of an Event of Default, and subject to
Sections 4 and 16(b) hereof, all Collections received by DFS shall be applied
as follows:
(i) Interest. Promptly after receipt in cash or good funds of any
interest payments under the AWF, DFS will remit to Participant interest on the
average daily balance of Participant's Participation in the Outstandings at
the per annum interest rate equal to the Prime Rate plus two percent (2.00%);
provided that DFS receives all due and payable interest which Borrower owes to
DFS. Interest will be computed on the basis of a 360 day year and assessed for
the actual number of days elapsed. If DFS receives only a partial payment of
the total amount of interest due and payable in a month, then the interest
otherwise payable to Participant pursuant to this Section will be reduced pro
rata in accordance with the percentage of all due and payable interest which
DFS actually receives for such period. (For example, if DFS receives only 80%
of the aggregate interest due and payable by Borrower, DFS will forward to
Participant only 80% of the interest otherwise payable to Participant
hereunder.) DFS shall retain for its own account the balance, if any, of all
interest paid by the Borrower.
(ii) Principal Payments. Out of any amounts received by DFS in cash or
good collected funds representing repayment of principal of the Advances, DFS
shall remit to Participant, promptly upon receipt thereof, an amount equal to
Participant's Pro Rata Share thereof.
4. Application of Collections After Event of Default and Demand for
Payment. All Collections received by DFS after demand for payment of all of
the Obligations, or after the initiation by or against Borrower of a
bankruptcy or other insolvency proceeding, whether received pursuant to such
demand or from the sale or collection of the Collateral or as a result of
legal proceedings against Borrower or through payment by or action against any
other person in any way liable for the Obligations, shall be applied (subject
to Section 16(b) hereof), so far as the same will reach, in the following
order:
(a) First, to the costs and expenses, including attorneys' fees, incurred
solely by DFS in effecting such recovery, in enforcing any right or
remedy under the AWF, in disposing of the Collateral, or in any way
related to the AWF, the Advances, the Future Advances, Open Approvals,
Collections or Collateral;
(b) Second, to unpaid principal, ratably in accordance with DFS' and
Participant's respective Pro Rata Shares; and
(c) Third, to accrued interest, ratably in accordance with DFS' and
Participant's respective Pro Rata Shares - with Participant's Pro Rata
Share of such interest being calculated in accordance with Section 3
hereof.
5. Recovery of Preferential or Other Payments. If either party hereto
shall be sued or threatened with suit by a receiver or trustee in any
bankruptcy or other insolvency proceeding involving Borrower or any other
person liable on Borrower's obligations to DFS on account of any alleged
preferential or fraudulent transfer received or alleged to have been received,
directly or indirectly, from Borrower as the result of any transaction in
respect of which Participant shall have participated with DFS hereunder, then
to the extent not paid by Borrower or satisfied out of Collections each party
shall contribute its Pro Rata Share of any monies paid in satisfaction of such
suit, claim, action and each party hereto shall pay its Pro Rata Share of any
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expenses, costs and attorneys' fees paid or incurred in connection therewith,
as well as any costs, expenses and attorneys' fees which the parties may incur
in enforcing, protecting or realizing on the AWF or the Collateral in
connection herewith (but not any expenses of ordinary overhead, clerical or
executive compensation of either party). To the extent that any amount
previously paid in respect of the Obligations is recovered from DFS or
Participant in any such action, such amount shall be reinstated as an
Obligation of Borrower to be repaid from Collections according to the
priorities established in Section 4 hereof.
6. Settlement Certificate and Participation Payments. DFS will deliver a
Settlement Certificate to the Participant, before 11:00 a.m. Chicago time, on
the Business Day immediately preceding a Settlement Date, setting forth the
Participant's Pro Rata Share of the Outstandings as of such Settlement Date.
If the Settlement Certificate certifies that Outstandings have increased since
the prior Settlement Date, Participant will, subject to the amount of the
Participant Commitment, by 3:00 p.m. Chicago time on such Settlement Date,
remit to DFS, via Automated Clearing House ("ACH") and/or wire transfers, its
Pro Rata Share of such increase in Outstandings. If the Settlement Certificate
certifies that aggregate Outstandings have decreased as a result of
Collections or other reductions received since the immediately preceding
Settlement Date, DFS will, by 3:00 p.m. Chicago time on such Settlement Date,
remit to Participant, via ACH and/or wire transfers, its Pro Rata Share of
such decrease or reduction in Outstandings. Each payment due to DFS and
Participant will be paid in immediately available funds according to the
electronic transfer instructions provided in Section 23 herein, and if not
timely paid in accordance with this Agreement, will bear interest until paid
at the Prime Rate plus two percent (2.0%) per annum. Any payment relating to a
purchase of a Participation which DFS receives from Participant pursuant to
this Section will be deemed to be held in trust by DFS for the benefit of
Participant until either advanced by DFS under an Advance request or applied
by DFS as reimbursement to DFS for an Advance made by DFS prior to receipt by
DFS of Participant's Pro Rata Share in such Advance. Participant's Pro Rata
Share in any Collections will be deemed to be held in trust for the benefit of
Participant, subject to any offset rights of DFS, until delivered to
Participant under the terms of this Agreement.
7. Documents and Administration of the Advances.
(a) Generally. DFS will hold all documents in its own name and will make
all Collections thereunder and otherwise administer the Collections in
accordance with DFS' established practices and procedures. DFS will exercise
the same degree of care in managing, enforcing and administering the AWF,
Collateral and Collections that it exercises in making and administering
similar financing programs for its own account.
(b) Administration. Notwithstanding the foregoing, in the administration
of the AWF, Collateral and Collections: (a) DFS will not be liable for any
action taken or omitted on the advice of counsel, accountants, appraisers, and
any other experts which DFS selects with reasonable care; and (b) DFS may rely
upon any notice, communication, certificate or other statement from Borrower
or any other party which DFS believes to be authentic. DFS has no liability or
obligation whatsoever to Participant for any current or future action, failure
to act, error of judgment, negligence, mistake or oversight whatsoever on the
part of DFS or any of its agents, officers, employees or attorneys directly or
indirectly relating to Borrower, the AWF, any Advances, any Collections, any
Collateral or any other matter, other than those arising from its willful
misconduct or gross negligence.
8. Enforcement of AWF, Certain Actions Requiring Participant's Consent.
No amendment or waiver of any provision of the AWF, nor consent to any
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departure therefrom by Borrower shall be effective unless the same shall be in
writing and signed by the Borrower and DFS (with the written consent of
Participant), and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given, provided,
however, that DFS may, without the prior consent of Participant, (a) perform
all administrative functions relating to the Advances, including disbursement
of advances, receipt and posting of payments, reconciliation of billing
statements with Borrower, responses to accountants and credit checks,
processing discounts, credits and similar items, and continuation and
recordation of liens, (b) receive, process and accept reports from Borrower,
including availability calculations and financial statements, (c) determine
whether individual items of Collateral meet eligibility standards set forth in
the AWF, (d) accept, monitor, assess, process and make claims under Borrower's
hazard and other insurance policies, (e) release immaterial portions of
Collateral, and (f) waive non-monetary defaults by Borrower under the AWF for
up to 10 consecutive days, so long as Participant is notified of such waivers
concurrently with DFS' delivery of the next Settlement Certificate under
Section 6 hereof.
If DFS desires to waive an Event of Default described in the preceding
paragraph requiring Participant's consent, or amend the relevant provision of
the AWF described in the preceding paragraph, as applicable, DFS will furnish
Participant with a written notice specifying the Event of Default to be waived
or term to be amended and the terms and conditions of the proposed waiver or
amendment. If Participant declines to give its consent to any such waiver or
amendment, it must notify DFS in writing of such fact within ten (10) days
thereafter. If Participant fails to give such notice, its consent to such
waiver or amendment shall be deemed to have been given. If Participant
notifies DFS that it does not give its consent to such waiver or amendment,
then DFS, at DFS' sole option, exercisable within the period of 120 days after
Participant's response (during which period Participant shall still be
obligated hereunder for its Participation), may either (i) repurchase
Participant's Participation hereunder, in whole and not in part, by paying to
Participant all principal and interest owing to Participant as of the date of
purchase, or (ii) notify Borrower that such Event of Default shall not be
waived, and thereupon commence the exercise of remedies against the Borrower
in such order or manner as DFS may deem appropriate.
9. Examination of Books and Records. DFS will promptly advise Participant
of all material information which DFS receives regarding Borrower. Participant
will have the right at any reasonable time, upon reasonable notice to DFS and
during DFS' normal business hours, to examine all of DFS' books or accounts or
other records relating to the Outstandings. DFS will deliver to Participant:
(a) upon Participant's reasonable request therefore, copies of all reports
which DFS generates regarding Outstandings, and, (b) upon receipt thereof,
copies of all financial statements and information which Borrower is required
to furnish to DFS under the AWF or the Credit Agreement.
10. No Representations; Participant's Credit Decision. DFS makes no
representation as to, and will be under no obligation or responsibility for,
the financial condition of, or any representation made by, or any act or
omission of, Borrower or for Borrower's obligations under the AWF or for the
enforceability, validity or sufficiency thereof or of any other documents; or
for the failure or delay in the exercise of any rights or power which DFS
possesses. DFS has not made, nor does it hereby make, any representations or
warranties whatsoever to Participant (whether express or implied) directly or
indirectly relating to Borrower, the AWF, any Advances, the Collateral, any
Collections or any other matter. DFS assumes no liability or obligation
whatsoever to Participant with respect to: (a) the present or future solvency
or financial condition of Borrower or other obligors under the AWF or any
guaranties; (b) the enforcement, validity, sufficiency, value, collectibility
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or priority of the AWF, Advances or Collateral; or (c) Borrower's title or
right to transfer, assign or pledge any Collateral to DFS. Participant
represents and warrants that it has made an independent investigation and
evaluation, without reliance on any representation of DFS, or DFS' officers,
agents or employees, of Borrower, and the enforceability, validity and
sufficiency of the AWF, the Collateral, and all other pertinent matters, and
Participant enters into this Agreement based on its own investigation and
evaluation, and not as a direct or indirect result of any representation made
by DFS. Nothing in this Agreement will be construed to establish or imply the
existence of any partnership or joint venture between DFS and Participant.
11. Costs and Expenses. All costs, expenses, fees or disbursements which
DFS incurs: (a) through the use of outside agencies or attorneys to effect
collection of Outstandings; (b) in enforcing, maintaining or preserving DFS'
rights under the AWF; or (c) which DFS may incur in enforcing, protecting,
realizing or collecting Outstandings (excluding ordinary costs and expenses
which DFS incurs in the collection of Outstandings) will be shared by
Participant, and reimbursed to DFS, in accordance with its Pro Rata Share.
Except with respect to DFS' Pro Rata Share as provided herein, such
reimbursement will be payable upon demand made by DFS, together with an
accounting of such costs and expenses, and may, in DFS' discretion, be applied
on any Settlement Date against amounts owed to Participant. In no event will
Participant take any action which could result in DFS incurring any claim,
charge, suit, judicial order, cost or expense, unless Participant obtains DFS'
prior written consent to such action.
12. [RESERVED]
13. Termination Date and Payment of Participant's Participation. Upon the
occurrence of any Termination Date, DFS and Participant will calculate
Participant's Participations in the Outstandings and the Outstandings which
may result from Advances, Future Advances and Open Approvals existing as of
such Termination Date. Subject to the provisions of the sentence immediately
following, upon receipt of Collections relating to the Outstandings in which
Participant has a Participation, DFS will pay Participant in accordance with
its Pro Rata Share. If such Termination Date results from the termination of
the AWF then, notwithstanding the foregoing, if Borrower fails to pay the
Obligations to DFS in full upon such termination or if Borrower is then or
subsequently becomes a debtor in an insolvency proceeding, the provisions of
Section 4 hereof shall apply to any payment to be made to Participant.
14. Other Deposits and Extensions. DFS and each Participant may accept
deposits from, and extend other credit to, Borrower other than as set forth in
the AWF and the Credit Agreement, and without any duty to account to one
another therefor. The parties hereto will have no interest in any such
deposits or extensions of credit made by or to the other party or Participant,
or the proceeds thereof, unless the same is applied in payment of the
Outstandings.
15. Assignments. Nothing herein contained will confer on either DFS or
Participant any interest in (except for Participant's Participation), or
subject either of them to any liability for or with respect to, the business,
assets, profits, losses or obligations of the other. Participant will not
sell, pledge, assign, sub-participate or otherwise transfer all or any part of
its interest hereunder without DFS' prior written consent. So long as the
Commitment does not exceed $15,000,000, DFS agrees that it will not sell,
pledge, assign, sub-participate or otherwise transfer all or any part of its
interest hereunder without Participant's prior written consent. In the event
that DFS desires to increase the Commitment in excess of $15,000,000,
Participant shall have a right of first refusal to participate in such
increased facility. Such right shall be exercised by Participant's written
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agreement, delivered to DFS within thirty (30) days of DFS' delivery to
Participant of the relevant terms of such increased facility, to satisfy, in
the reasonable discretion of DFS, all of the terms of such increased facility.
Failure by Participant to satisfy the preceding conditions within the time
period indicated above shall be deemed a waiver of such right of first
refusal. Nothing herein will prevent DFS from securitizing all or any part of
the non-participated part of the Advances pursuant to which title to the
non-participated part of the Advances may be transferred to a trust or special
purpose funding entity, (and in either case DFS need not notify or obtain the
consent of Participant) so long as: (i) DFS at all times continues to manage
the loan; and (ii) such securitization does not affect DFS' duties to
Participant or Participant's rights or obligations under this Agreement.
16. Default by Participant.
(a) Repurchase Upon Default. If Participant shall fail to perform any
obligation to be performed by it under this Agreement, including but not
limited to the failure to maintain its Participation at anytime hereunder
and/or maintain the maximum amount of Participant's Commitment at $7,500,000,
at its sole option DFS may terminate and thereby acquire, or place with one or
more other entities, all or any part of Participant's Participation hereunder
upon payment to Participant of the principal amount of Participant's
Participation plus interest accrued thereon to the date of payment, without,
however, relieving Participant from any liability hereunder or for actual
damages, costs and expenses suffered by DFS as a result of Participant's
default hereunder. While such default shall continue, Participant shall cease
to be entitled to receive any amounts received by DFS hereunder.
(b) Application of Collections After Participant's Default. If DFS funds
Advances to Borrower and Participant fails for any reason to fund its portion
of such Advance in default of any provision on this Agreement, then the
Advance so funded by DFS shall constitute a special class of Advances
hereunder, and any Collections and other monies received by DFS thereafter
shall be applied first to repayment in full of such class of Advances before
application of such Collections and other monies to any other Advances. The
priority of application established in this subsection (b) shall govern over
the priorities established in Sections 3(b) and 4 hereof.
17. Indemnification and Contribution by Participant.
(a) General. Participant hereby agrees to indemnify and hold DFS harmless
from and against, and to contribute to DFS, Participant's Pro Rata Share of
any costs, expenses, assessments, damages or liabilities of any nature
whatsoever, including attorneys' fees (collectively, "Losses"), suffered or
incurred by DFS arising out of any suit, action, claim or demand of any kind
arising out of or relating to the transactions contemplated by the AWF, except
for such matters resulting from DFS' gross negligence or willful misconduct.
For purposes of this Section 17, "willful misconduct" shall mean intentional
conduct performed in bad faith or with actual knowledge that such conduct is
wrongful.
(b) Lender Liability Claims. Participant acknowledges that the collection
of defaulted loans often results in a borrower asserting a "lender liability"
claim or counterclaim as a defense in the lender's collection efforts. Such
claims tend to be exaggerated or wholly unfounded, and often must be defended
under circumstances or in forums favorable to the claimants. Without limiting
the generality of the preceding subsection (a), Participant agrees to
indemnify and hold DFS harmless from, and to contribute to DFS, Participant's
Pro Rata Share of, any Losses suffered or incurred by DFS in
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connection with any such "lender liability" or related claim arising out of or
relating to the Borrower, the AWF or the transactions contemplated thereby,
except to the extent that such Losses result from DFS' willful misconduct. To
the fullest extent permitted by law, except as provided in the preceding
sentence, the indemnification and right of contribution provided for in this
Section 17(b) shall be absolute and unconditional in all cases and
circumstances, notwithstanding any finding by the court or other tribunal
adjudicating any such claim that DFS' conduct was intentional or that DFS
breached a contractual, fiduciary or statutory duty owing to the claimant. If
the preceding indemnification or right of contribution is not enforceable
under applicable law with respect to any claim, then in such case DFS'
entitlement to indemnification or contribution shall be determined by an
arbitrator under the Commercial Arbitration Rules of the American Arbitration
Association. In any such arbitration, the findings of fact and conclusions of
law in such other court or tribunal shall have no res judicata, collateral
estoppel or other preclusive effect, and the arbitrator shall determine de
nova whether DFS' conduct was of such a character as to preclude
indemnification or contribution under applicable law.
(c) Survival. The indemnification provisions of this Section 17 shall
survive termination of the AWF and/or Participant's Participation therein;
provided that Participant shall not indemnify DFS with respect to any Losses
that result solely from any act or acts of DFS occurring prior to the
execution of this Agreement or following its termination.
18. Review Fee. DFS shall pay a fee to Participant in the amount of
$5,000 per quarter, for such reviews, audits and examinations of Borrower
and/or the Collateral as DFS and/or Participant shall perform pursuant to the
Credit Agreement and/or the AWF.
19. Entire Agreement: Amendment. This Agreement embodies the entire
agreement and understanding between DFS and Participant and supersedes any and
all prior agreements and understandings with respect to the subject matter
hereof. This Agreement may not be amended or in any manner modified unless
such amendment modification is in writing and signed by both parties.
20. Corporate Authority. The execution and delivery of this Agreement by
DFS and Participant and the performance by DFS and Participant of their
respective obligations hereunder is and will be with full right and authority,
and all necessary corporate action has been taken by DFS and Participant,
respectively, to authorize the consummation of this Agreement. DFS and
Participant further represents and warrant that the transactions contemplated
herein are not in violation of any agreements to which it is a party, or by
which it is bound nor are such transactions in violation of its corporate
charter, by-laws or resolutions, and DFS further represents that it sells the
Participations free and clear of all liens, security interests, encumbrances
and claims.
21. Choice of Law. This Agreement will be construed in accordance with
the laws of the State of Illinois. Whenever possible, each provision of this
Agreement will be interpreted in such manner to be effective and valid under
applicable law, but if any provision of this Agreement will be prohibited by
or invalid under applicable law, such provisions will be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
22. Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement or any modification thereof, the relationship
resulting in or from this Agreement or the breach of any obligation hereunder
will be settled by binding arbitration in accordance with the Rules of the
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American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
23. Notices. All notices under this Agreement will be deemed to be made
and received: (a) three (3) Business Days after depositing same in the U.S.
mail, postage prepaid, to the party to whom such notice is directed at the
address set forth opposite such party's signature hereto; or (b) one (1)
Business Day after facsimile transmission to the party to whom such notice is
directed at the number set forth opposite such party's signature hereto.
24. Electronic Transfer Instructions. All payments will be made in
immediately available funds by 2:00 p.m. Chicago time on the same day as due
pursuant to this Agreement in accordance with the transfer instructions set
forth opposite the signatures of the parties hereto or.
25. Execution in Counterparts. This Agreement may be executed in several
counterparts, and each executed copy will constitute an original instrument,
but such counterparts will together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above written.
DEUTSCHE FINANCIAL SERVICES NATIONSCREDIT COMMERCIAL
CORPORATION CORPORATION OF AMERICA
By: /s/ Richard E. Kravitz By: /s/ Ralph Thornberry
------------------------------ ------------------------
Name: Richrad E. Kravitz Name: Ralph Thornberry
---------------------------- ----------------------
Title : Sr. Reg. Vice President Title: Sr. Vice President
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4747 Lincoln Highway, Suite 410 222 West Las Colinas Blvd.
Matteson, Illinois 60443 Suite 1300, North Tower
Attn: Regional Vice President Irving, TX 75039
Facsimile: (708) 481-2294 Attn: Credit Manager
Facsimile: (972) 402-3596
Wire Transfer Instructions:
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Bank: Bank of America Bank: NationsBank - Dallas
ABA Routing No.: 071000039 ABA Routing No: 111000025
Account No.: 7469381 Account No.:1290919001
Reference: Wire Dept.
Deutsche Fin. Serv.
Branch Chicago WFD
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EXHIBIT "A"
[Copy of AWF]
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AGREEMENT FOR WHOLESALE FINANCING
This Agreement for Wholesale Financing ("Agreement") is made as of October 31,
1996 between DEUTSCHE FINANCIAL SERVICES CORPORATION ("DFS") and ELEK-TEK,
INC., a Delaware corporation ("Dealer"), having a principal place of business
located at 7350 North Linder Avenue, Skokie, Illinois 60077.
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1. EXTENSION OF CREDIT.
(a) Subject to the terms of this Agreement, the maximum principal
amount available to Dealer hereunder shall be Fifteen Million Dollars
($15,000,000) (the Floorplan Inventory Facility"), BUT ONLY TO THE EXTENT
that DFS has received, upon terms acceptable to DFS, in its sole
discretion, participation(s) in the Floorplan Inventory Facility of at
least Seven Million Five-Hundred Thousand Dollars ($7,500,000).
In furtherance of the foregoing, anything in this Agreement to the
contrary notwithstanding, DFS shall have no obligation to make any advance
hereunder unless one or more financial institution(s) acceptable to DFS
shall have entered into, and performs its obligations under, a
participation agreement(s) mutually acceptable to DFS and such financial
institution(s) pursuant to which DFS shall sell to such financial
institution(s) an undivided economic participation in that portion of the
Floorplan Inventory Facility which exceeds $7,500,000. DFS may exercise
its rights under this Section (absent the failure of any other conditions
to any such advance which would otherwise permit DFS not to make an
advance) upon immediate notice to Dealer, and thereupon the Floorplan
Inventory Facility will be automatically reduced by the amount of the
terminated or nonperforming participation agreement(s), as the case may
be. Nothing herein shall be construed to limit the discretionary nature of
this credit facility.
(b) Subject to the provisions of the foregoing Section l(a) and other
terms of this Agreement, DFS may extend credit to Dealer by making
advances to Dealer or on Dealer's behalf, from time to time to purchase
inventory from DFS approved vendors ("Vendors") and for other purposes. If
DFS advances funds to Dealer following Dealer's execution of this
Agreement, DFS will be deemed to have entered into this Agreement with
Dealer, whether or not executed by DFS. DFS' decision to advance funds
will not be binding until the funds are actually advanced. DFS may combine
all of DFS' advances to Dealer or on Dealer's behalf, whether under this
Agreement or any other agreement, 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. DFS may, at any time and
without notice to Dealer, elect not to finance any inventory sold by
particular Vendors who are in default of their obligations to DFS, or
with respect to which DFS reasonably feels insecure. This is an agreement
regarding the extension of credit, and not the provision of goods or
services.
2. FINANCING TERMS AND STATEMENTS OF TRANSACTION. Dealer and DFS agree that
certain financial terms of any advance made by DFS under this.Agreement,
whether regarding finance charges, other fees, maturities, curtailments
or other financial terms, are not set forth herein because such terms
depend, in part, upon the availability of Vendor discounts, payment terms
or other incentives, prevailing economic conditions, DFS' floorplanning
volume with Dealer and with Dealer's Vendors, and other economic factors
which may vary over time. Dealer and DFS further agree that it is
therefore in their mutual best interest to set forth in this Agreement
only the general terms of Dealer's financing arrangement with DFS. Upon
agreeing to finance a particular item of inventory for Dealer, DFS will
send Dealer a Statement
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of Transaction identifying such inventory and the applicable financial
terms. Unless Dealer notifies DFS in writing of any objection within
fifteen (15) days after a Statement of Transaction is mailed to Dealer:
(a) the amount shown on such Statement of Transaction will be an account
stated; (b) Dealer will have agreed to all rates, charges and other terms
shown on such Statement of Transaction; (c) Dealer will have agreed that
DFS is financing the items of inventory referenced in such Statement of
Transaction at Dealer's request; and (d) such Statement of Transaction
will be incorporated herein by reference, will be made a part hereof as if
originally set forth herein, and will constitute an addendum hereto. If
Dealer objects to the terms of any Statement of Transaction, Dealer agrees
to pay DFS for such inventory in accordance with the most recent terms for
similar inventory to which Dealer has not objected (or, if there are no
prior terms, at the lesser of 16% per annum or at the maximum lawful
contract rate of interest permitted under applicable law), but Dealer
acknowledges that DFS may then elect to terminate Dealer's financing
program pursuant to Section 17, and cease making additional advances to
Dealer. However, such termination will not accelerate the maturities of
advances previously made, unless Dealer shall otherwise be in default of
this Agreement.
3. GRANT OF SECURITY INTEREST. To secure payment of all of Dealer's
current and future debts to DFS, whether under this Agreement or any
current or future guaranty or other agreement, 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 relating to the
"Collateral, 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. 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 Section 9.
4. AFFIRMATIVE WARRANTIES AND REPRESENTATIONS. Dealer warrants and
represents to DFS that: (a) Dealer has good title to all Collateral; (b)
DFS' security interest in the Collateral financed by DFS is not now and
will not become subordinate to the security interest, lien, encumbrance or
claim of any person; (c) Dealer will execute all documents DFS requests to
perfect and maintain DFS' security interest in the Collateral; (d) Dealer
will deliver to DFS immediately upon each request, and DFS may retain,
each Certificate of Title or Statement of Origin issued for Collateral
financed by DFS; (e) Dealer 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 unless the failure to so qualify would not have a material
adverse effect on the business or financial condition of Dealer; (f)
Dealer has the right and is duly authorized to enter into this Agreement;
(g) Dealer's execution of this Agreement does not constitute a breach of
any agreement to which Dealer is now or hereafter becomes bound; (h) 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; (i) Dealer will maintain the Collateral in good
condition and repair; (j) Dealer has duly filed and will duly file all tax
returns required by law; (k) Dealer has paid and will pay when due all
taxes, levies, assessments and governmental charges of any nature; (l)
Dealer will keep and maintain all of its books and records pertaining to
the Collateral 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) all Collateral will be kept at Dealer's principal place of business
listed above, and such other locations, if any, of which Dealer has
notified DFS in
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writing or as listed on any current or future Exhibit "A" attached hereto
which written notice(s) to DFS and Exhibit A(s) are incorporated herein by
reference; (o) Dealer will give DFS thirty (30) days prior written notice
of any change in Dealer's identity, name, form of business organization,
ownership, management, principal place of business, Collateral locations or
other business locations, and before moving any books and records to any
other location; (p) 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; (q) Dealer will
advise DFS of the commencement of material legal proceedings against Dealer
or any guarantor; and (r) Dealer will comply in all material respects with
all applicable laws and will conduct its business in a manner which
preserves and protects the Collateral and the earnings and incomes thereof.
5. NEGATIVE COVENANTS. Dealer will not at any time (without DFS' prior
written consent): (a) other than in the ordinary course of its
business, sell, lease or otherwise dispose of or transfer any of its
assets; (b) rent, lease, demonstrate, consign, or use any Collateral
financed by DFS; or (c) merge or consolidate with another entity.
6. INSURANCE. Dealer will immediately notify DFS of any loss, theft or
damage to any Collateral.
(a) Type of Insurance. Dealer will at all times cause the Business
and the Collateral to be insured by insurers of reasonable financial
soundness and having an A. M. Best rating of A or better, with such
policies, against such risks and in such amounts as are appropriate for
reasonably prudent businesses in Dealer's industry and of Dealer's size
and financial strength.
(b) Requirements as to Insurance Policies. The policies of insurance
which Dealer is required to carry shall comply with the requirements
listed below:
(i) Each such policy shall provide that it may not be canceled or
allowed to lapse at the end of a policy period without at least 30
days' prior written notice to DFS;
(ii) Each liability and hazard insurance policy shall name DFS as
an additional insured; and
(iii) Each property insurance policy required hereunder shall contain a
standard lender's loss payable clause in favor of DFS. Such insurance
policies shall also contain lender's loss payable endorsements
satisfactory to DFS providing, among other things, that any loss shall
be payable in accordance with the terms of such policy notwithstanding
any act of Dealer which might otherwise result in forfeiture of such
insurance.
(c) Collection of Claims. Dealer will promptly advise DFS of any
insured casualty and Dealer agrees that may direct all insurance
proceeds therefrom to be paid directly to DFS to the extent that such
loss is not adequately insured under an insurance policy which names
DFS as a loss payee, and hereby appoints DFS its attorney-in-fact for
such purpose.
(d) Blanket Policies. Any insurance required hereunder may be supplied by
means of a blanket or umbrella insurance policy.
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(e) Delivery of Policies or Certificates of Insurance. Dealer shall
deliver to DFS certificates of insurance issued by insurers to evidence
that the insurance maintained by Dealer complies with the requirements
hereunder.
Dealer will provide DFS with written evidence of such property
insurance coverage and lender's loss-payee or mortgagee endorsement.
7. FINANCIAL STATEMENTS; COVENANTS.
(a) Financial Statements. Dealer will deliver to DFS financial
statements at the times and in the forms described in Section 9.1.10 of
that certain Business Credit and Security Agreement of even date among
Dealer, DFS, in its individual capacity and as agent, and NationsCredit
Commercial Corporation of America ("Nations") (as amended from time to
time, the "Credit Agreement") Capitalized terms used but not defined herein
shall have the meanings given to them in the Credit Agreement. 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 present fairly the
information set forth therein and have been and will be prepared in
accordance with generally accepted accounting principles consistently
applied except for any interim financial statements for which footnotes
shall be omitted, 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.
(b) Financial Covenants.
Dealer will at all times maintain:
(i) a Tangible Net Worth and Subordinated Debt in the combined amount of
not less than: (i) Twelve Million Five Hundred Thousand Dollars ($12,500,000)
for the calendar quarter ending 12/31/96, and (ii) Thirteen Million Dollars
($13,000,000), thereafter;
(ii) a ratio of Debt minus Subordinated Debt to Tangible Net Worth and
Subordinated Debt of not more than: (i) Five and eight-tenths to One (5.8 to
1.0) for the calendar quarter ending 12/31/96, and (ii) Five and One-half to
One (5.5 to 1.0), thereafter; and
(iii) a ratio of EBIT to total interest expenses of not less the ratio
set forth below for the period corresponding thereto:
Period Ratio
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Calendar quarter ending 9/30/96 1.5 to 1.0
Calendar quarter ending 12/31/96 2.5 to 1.0
Calendar quarter ending 3/31/97 2.5 to 1.0
Calendar quarter ending 6/30/97 1.5 to 1.0
Calendar quarter ending 9/30/97
and each calendar quarter thereafter 2.5 to 1.0
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The foregoing terms shall be determined in accordance with generally accepted
accounting principles consistently applied, and, if applicable, on a
consolidated basis.
8. REVIEWS. 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) examine and copy Dealer's books
and records related to the Collateral.
9. PAYMENT TERMS. Dealer will immediately pay DFS the principal
indebtedness owed DFS on each item of Collateral financed by DFS (as
shown on the Statement of Transaction identifying such Collateral) on the
earliest occurrence of any of the following events: (a) when such
Collateral is lost, stolen or damaged; (b) for Collateral financed under
Pay-As-Sold ("PAS") terms (as shown on the Statement of Transaction
identifying such Collateral), when such Collateral is sold, transferred,
rented, leased, otherwise disposed of or matured; (c) in strict
accordance with any curtailment schedule for such Collateral (as shown on
the Statement of Transaction identifying such Collateral); (d) for
Collateral financed under Scheduled Payment Program ("SPP") terms (as
shown on the Statement of Transaction identifying such Collateral), in
strict accordance with the installment payment schedule; and (e) when
otherwise required under the terms of any financing program agreed to in
writing by the parties. Regardless of the SPP terms pertaining to any
Collateral financed by DFS, if DFS determines that the current
outstanding debt which Dealer owes to DFS exceeds the aggregate wholesale
invoice price of such Collateral in Dealer's possession, Dealer will
immediately upon demand pay DFS the difference between such outstanding
debt and the aggregate wholesale invoice price of such Collateral. If
Dealer from time to time is required to make immediate payment to DFS of
any past due obligation discovered during any Collateral audit, or at any
other time, Dealer agrees that acceptance of such payment by DFS shall
not be construed to have waived or amended the terms of its financing
program. The proceeds of any Collateral received by Dealer will be held
by Dealer in trust for DFS' benefit, for application as provided in this
Agreement. Dealer will send all payments to DFS' branch office(s)
responsible for Dealer's account. DFS may apply: (i) payments to reduce
finance charges first and then principal, regardless of Dealer's
instructions; and (ii) principal payments to the oldest (earliest)
invoice for Collateral financed by DFS, but, in any event, all principal
payments will first be applied to such Collateral which is sold, lost,
stolen, damaged, rented, leased, or otherwise disposed of or unaccounted
for. Any third party discount, rebate, bonus or credit granted to Dealer
for any Collateral will not reduce the debt Dealer owes DFS until DFS has
received payment therefor in cash. Dealer will: (1) pay DFS even if any
Collateral is defective or fails to conform to any warranties extended by
any third party; (2) not assert against DFS any claim or defense Dealer
has against any third party; and (3) indemnify and hold DFS harmless
against all claims and defenses asserted by any buyer of the Collateral
relating to the condition of, or any representations regarding, any of
the Collateral. Dealer waives all rights of offset and counterclaims
Dealer may have against DFS.
10. CALCULATION OF CHARGES. Dealer will pay finance charges to DFS on the
outstanding principal debt which Dealer owes DFS for each item of
Collateral financed by DFS at the rate(s) shown on the Statement of
Transaction identifying such Collateral, unless Dealer objects thereto as
provided in Section 2. The finance charges attributable to the rate shown
on the Statement of Transaction will: (a) be computed based on a 360 day
year; (b) be calculated by multiplying the Daily Charge (as defined
below) by the actual number of days in the applicable billing period; and
(c) accrue from the invoice date of the Collateral identified on such
Statement of Transaction until DFS receives full payment in good funds of
the principal debt Dealer owes DFS for each item of such Collateral in
accordance with DFS' payment recognition policy and DFS applies such
payment to Dealer's principal debt in
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accordance with the terms of this Agreement. The "Daily Charge" is the
product of the Daily Rate (as defined below) multiplied by the Average
Daily Balance (as defined below. The "Daily Rate" is the quotient of
the annual rate shown on the Statement of Transaction divided by 360, or
the monthly rate shown on the Statement of Transaction divided by 30. The
"Average Daily Balance" is the quotient of (i) the sum of the outstanding
principal debt owed DFS on each day of a billing period for each item of
Collateral identified on a Statement of Transaction, divided by (ii) the
actual number of days in such billing period. Dealer will also pay DFS
$100 for each check 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). The annual percentage
rate of the finance charges relating to any item of Collateral financed by
DFS will be calculated from the invoice date of such Collateral,
regardless of any period during which any finance charge subsidy shall be
paid or payable by any third party. 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, charged or be entitled to receive,
collect or apply as interest on 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 advances 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.
11. BILLING STATEMENT. DFS will send Dealer a monthly billing statement
identifying all charges due on Dealer's account with DFS. The 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 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 such finance charges (payment of the Late Fee does not waive
the default caused by the late payment). DFS may adjust the billing
statement at any time to conform to applicable law and this Agreement.
12. DEFAULT. Dealer will be in default under this Agreement if: (a) Except for
the breach described in item 12(c) or (d) below, Dealer breaches any
terms, covenants, warranties or representations contained herein, in any
Statement of Transaction to which Dealer has not objected as provided in
Section 2, or in any other Loan Document, and such breach which is
susceptible to cure by Dealer, is not cured to DFS' reasonable
satisfaction within thirty (30) days after Dealer's receipt of notice of
such breach from DFS, provided, however that if in DFS' discretion, Dealer
is reasonably proceeding to cure such breach, Dealer shall be entitled to
such additional time as may reasonably be needed to effectuate such cure,
but in no event longer than sixty (60) days from the date of DFS' notice;
(b) any representation, statement, report or certificate made or delivered
by Dealer to DFS is not accurate when made; (c) Dealer fails to pay any
portion of Dealer's obligations consisting of interest, fees or other
amounts (exclusive of principal payments) due to DFS when due and payable
hereunder or under any other agreement between DFS and Dealer, including
but not limited to the Credit Agreement, and such
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failure is not cured to DFS' satisfaction within three (3) days after
the applicable due date; provided however, that during any period
of 180 consecutive days commencing at any time hereafter, Dealer shall
be entitled to no more than two (2) such 3-day cure periods, and as to
any such payment failures in excess of such limitation, no such cure
period shall be available to Dealer; (d) Dealer fails to pay any
portion of Dealer's obligations consisting of principal payments due to
DFS when due and payable hereunder or any other agreement between DFS
and Dealer, including but not limited to the Credit Agreement; (e)
Dealer abandons any Collateral; (f) except as disclosed on Exhibit 8.2
of the Credit Agreement, Dealer is or becomes in default in the payment
of any debt for money borrowed owed to any third party which exceeds at
any time the aggregate amount of $50,000; (g) an unpaid money judgment
issues against Dealer which exceeds at any time the aggregate amount of
$50,000, and such judgment or judgments shall have remained
undischarged and unstayed for a period of thirty (30) days; (h) an
attachment, sale or seizure issues or is executed against any assets of
Dealer which is not satisfied or released within 30 days; (i) Dealer
shall cease existence as a corporation; (j) Dealer ceases or suspends
business; (k) Dealer makes a general assignment for the benefit of
creditors; (1) Dealer becomes insolvent or voluntarily or involuntarily
becomes subject to the Federal Bankruptcy Code, any state insolvency
law or any similar law; (m) any receiver is appointed for any assets
of Dealer; (n) Dealer loses any material franchise, permission, license
or right to sell or deal in any Collateral which DFS finances; (o)
Dealer misrepresents its financial condition or organizational
structure; (p) there exists any default under the terms of the Credit
Agreement; (q) any of the Collateral becomes subject to any Lien,
claim, encumbrance or security interest other than a Permitted Lien;
(r) Dealer shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any
material part of its Business which shall have remained undischarged
and unstayed for a period of thirty (30) days; or any material lease or
agreement pursuant to which Dealer leases, uses or occupies any
property shall be canceled or terminated prior to the expiration of its
stated term, or any part of the Collateral shall be taken through
condemnation or the value thereof shall be impaired through
condemnation; or (s) DFS reasonably determines in good faith that it is
insecure with respect to any of the Collateral or the payment of any
part of Dealer's obligation to DFS.
13. RIGHTS OF DFS UPON DEFAULT. In the event of a default:
(a) DFS may at any time at DFS' election, without notice or demand
to Dealer, do any one or more of the following: declare all or any
part of the debt Dealer owes DFS 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
(DFS' right to cease extending credit shall not be construed to
limit the discretionary nature of this credit facility).
(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, without 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.
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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.
14. 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. Borrower further agrees that a public
sale of the Collateral in accordance with the provisions of the Uniform
Commercial Code 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.
15. POWER OF ATTORNEY. Dealer grants DFS an irrevocable power of attorney
to: execute or endorse on Dealer's behalf any checks, financing
statements, instruments, Certificates of Title and Statements of Origin
pertaining to the Collateral; supply any omitted information and correct
errors in any documents between DFS and Dealer; initiate and settle any
insurance claim pertaining to the Collateral; and do anything to preserve
and protect the Collateral and DFS' rights and interest therein.
16. INFORMATION. DFS may provide to any third party any credit, financial or
other information on Dealer that DFS may from time to time possess.
DFS may obtain from any Vendor any credit, financial or other information
regarding Dealer that such Vendor may from time to time possess.
17. TERMINATION. Either party may terminate this Agreement at any time by
written notice received by the other party. If DFS terminates this
Agreement, Dealer agrees that if: (a) Dealer is not in default hereunder,
30 days prior notice of termination is reasonable and sufficient (although
this provision shall not be construed to mean that shorter periods may
not, in particular circumstances, also be reasonable and sufficient); (b)
Dealer is in default hereunder, no prior notice of termination is
required; (c) there exists any default under the terms of the Floorplan
Inventory Facility Participation Agreement, including but not limited to,
Nations' failure to fund its share of any advance under the Floorplan
Inventory Facility or to provide at least $7,500,000 of participations in
the Floorplan Inventory Facility, no prior notice of termination is
required; or (d) the Floorplan Inventory Facility Participation Agreement
is terminated for any reason, no prior notice of termination is required.
Dealer will not be relieved from any obligation to DFS arising out of DFS'
advances 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 debts to DFS. All
waivers set forth within this Agreement will survive any termination of
this Agreement.
18. BINDING EFFECT. Dealer cannot assign its interest in this Agreement
without DFS' prior written consent, although DFS may assign or
participate DFS' interest, in
8
<PAGE> 97
whole or in part, without Dealer's consent. This Agreement will protect
and bind DFS' and Dealer's respective heirs, representatives, successors
and assigns.
19. NOTICES. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered to the parties and in accordance with the
provisions of the Credit Agreement.
20. 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, THE CREDIT AGREEMENT
AND IN THE OTHER LOAN DOCUMENTS, WHICH ARE THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, EXCEPT AS SPECIFICALLY
PROVIDED HEREIN, THEREIN OR AS THE PARTIES MAY LATER AGREE IN WRITING TO
MODIFY ANY OF THEM. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.
21. OTHER WAIVERS. 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.
22. SEVERABILITY. If any provision of this Agreement or its application
is invalid or unenforceable, the remainder of this Agreement will not be
impaired or affected and will remain binding and enforceable.
23. 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 such previously
executed agreement nor shall execution of this Agreement be deemed a
satisfaction of any obligation secured by such previously executed
agreement. Notwithstanding the foregoing, this Agreement replaces in its
entirety and renders null and void that certain Agreement for Wholesale
Financing between DFS and Dealer dated as of September 2, 1994.
24. 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 this Agreement, any Statement
of Transaction, billing statement, invoice from a Vendor, 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 agreement between DFS and
Dealer, and for all evidentiary purposes before any arbitrator, court or
other adjudicatory authority.
25. MISCELLANEOUS. 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. 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. 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
9
<PAGE> 98
terms hereof. If Dealer fails to pay any taxes, fees or other obligations
which may impair DFS' interest in the Collateral, or fails to keep the
Collateral insured, DFS may, but shall not be required to, pay such taxes,
fees or obligations and pay the cost to insure the Collateral, and the
amounts paid will be: (a) an additional debt owed by Dealer to DFS, which
shall be subject to finance charges as provided herein; and (b) due and
payable immediately in full. Dealer agrees to pay all of DFS' reasonable
attorneys' fees and expenses incurred by DFS in enforcing DFS' rights
hereunder. The Section titles used in this Agreement are for convenience
only and do not define or limit the contents of any Section.
26. BINDING ARBITRATION.
26.1 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 and/or
any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (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 a 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.
26.2 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.
26.3 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. Depositions shall
be permitted but no more than two for each party and no single
deposition shall extend for more than two days nor more than seven
hours
10
<PAGE> 99
during a one day period. Request for production of documents shall be
responded to (or objected to) within 20 days of the request. All
objections shall be ruled upon by the arbitrator. 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.
Other discovery shall be permitted upon the consent of the
arbitrator.
26.4 EXEMPLARY OR PUNITIVE DAMAGES. The Arbitrator(s) will not have
the authority to award exemplary or punitive damages.
26.5 CONFIDENTIALITY OF AWARDS. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, except
as otherwise required by law, 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
l et seq., as amended ("FAA") will govern all arbitration(s) and
confirmation proceedings hereunder.
26.6 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.
26.7 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 26.6), 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.
26.8 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.
26.9 SURVIVAL AFTER TERMINATION. The agreement to arbitrate will survive
the termination of this Agreement.
27. 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.
28. 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 Illinois. Accordingly,
Dealer agrees that all Disputes will be governed by, and construed in
accordance with, the laws of
11
<PAGE> 100
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 ELEK-TEK, INC.
By: /s/ Richard E. Kravitz By: /s/ Richard L. Rodriguez
------------------------------- -----------------------------
Print Name: Richard E. Kravitz Print Name: Richard L. Rodriguez
----------------------- ---------------------
Title: Sr. Regional Vice President Title: President & CEO
---------------------------- --------------------------
ATTEST:
/s/ Miguel A. Martinez, Jr.
------------------------------
Secretary
Print Name:Miguel A. Martinez, Jr.
-----------------------
12
<PAGE> 101
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; 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."
IN WITNESS WHEREOF, I have executed and affixed the seal of the
corporation on the date stated below.
Dated:______________________, 19____ _____________________________________
(Assistant) Secretary
ELEK-TEK, INC.
(SEAL)
13
<PAGE> 1
Exhibit 10.22
ELEK-TEK, INC.
OUTSIDE DIRECTOR STOCK OPTION PLAN
Adopted by the Board of Directors on December 13, 1996
1. Purpose.
The purpose of the Elek-Tek, Inc. Outside Director Stock Option Plan (the
"Plan") is to advance the interests of Elek-Tek, Inc. (the "Company") and its
stockholders by granting selected directors of the Company options to purchase
shares of Common Stock of Elek-Tek, Inc., par value of $0.01 per share (the
"Common Stock"), in order to attract or retain the services of such directors
and to provide added incentive to them by encouraging stock ownership in the
Company. Except where the context otherwise requires, the term "Company" shall
include the parent, if any, and all present and future subsidiaries of the
Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code
of 1986, as amended or replaced from time to time (the "Code").
2. Type of Options and Administration.
(a) Type of Options. Except for options granted automatically pursuant to
subparagraph 6(a)(i) hereof, options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of Elek-Tek, Inc. (the "Board").
All options granted pursuant to the Plan shall be non-qualified stock options
not intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, and shall be classified as either Director Options,
Committee Options, or Chairman Options (as those terms are hereinafter
defined).
(b) Administration. The Plan will be administered by the Board, whose
construction and interpretation of the terms and provisions of the Plan shall
be final and conclusive. Subject to the terms and conditions expressly set
forth in the Plan, the Board will have the authority, in its sole discretion,
to determine all matters relating to the options to be granted under the Plan.
In addition, the Board shall have authority, subject to the express provisions
of the Plan, to construe the respective option agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan and to
make all other determinations in the judgment of the Board necessary or
desirable for the administration of the Plan. The Board may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency.
<PAGE> 2
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply only to persons that are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
Options shall be granted, pursuant to Paragraph 6 hereunder, to persons
who are, at the time of grant, directors of the Company who are not full-time
employees of the Company (hereinafter a "Director"). Except for options granted
automatically pursuant to subparagraph 6(a)(i) hereof, the Board shall have
sole discretion to determine whether an individual is eligible to participate
in the Plan.
4. Stock Subject to Plan.
The stock subject to the Plan shall be the Common Stock presently
authorized but unissued or stock subsequently reacquired by the Company.
Subject to adjustment as provided in Paragraph 12, the maximum number of shares
of Common Stock which may be issued and sold under the Plan is 150,000. If an
option granted under the Plan shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject to such option
shall again be available for subsequent option grants under the Plan.
5. Form of Option Agreements.
Options granted under the Plan shall be evidenced by written option
agreements in such form not inconsistent with the Plan as may be approved by
the Board from time to time, which agreement shall contain such terms,
conditions, limitations and restrictions as the Board shall deem advisable and
which are not inconsistent with the Plan. Such option agreements may differ
among recipients even when made simultaneously. The provisions of the Plan
shall be deemed included in such agreements or incorporated therein by
reference. The grant of an option pursuant to the Plan shall be conditional on
the execution of the applicable stock option agreement by the recipient of such
grant.
6. Terms of Options.
(a) Current Directors, Committee Chairmen, and Chairman of the Board.
(i) Grant. Each Director serving as of the date of adoption of this Plan
is hereby granted an option to purchase 15,000 shares of Common Stock
("Director Option"). Each Director serving as Chair of the Compensation
Committee or Audit Committee ("Committee Chairman") as of the date of adoption
of this Plan is hereby granted an additional option to purchase 7,500 shares of
Common Stock ("Committee Option"). The Director serving as Chairman of the
Board as of the date
<PAGE> 3
of adoption of this Plan is hereby granted an additional option to purchase
22,500 shares of Common Stock ("Chairman Option").
(ii) Exercise. All Director Options, Committee Options and Chairman
Options shall become exercisable ratably over three years, with one-third of
each option becoming exercisable on each anniversary of the date of grant
("Anniversary Date"). Except in the case of termination, as defined below,
each option shall remain exercisable for a period of ten years.
(iii) Termination.
a. Director. If, for any reason, a Director ceases to serve
as a Director, the exercisable portion of his Director Option shall remain
exercisable for a period of one year from the date the Director ceased to serve
as a Director. A pro rata portion of the remaining unexercisable portion of
his Director Option shall become exercisable upon termination and shall remain
exercisable for one year from the date the Director ceased to serve as a
Director. The pro rata portion shall be calculated by multiplying the
remaining unexercisable portion of his Director Option by a fraction, the
numerator of which is the number of days between the immediately preceding
Anniversary Date and the date the Director ceased to serve as a Director and
the denominator of which is the number of days between the immediately
preceding Anniversary Date and the third Anniversary Date.
b. Chairman. If, for any reason, a Committee Chairman or the
Chairman of the Board ceases to serve as a Committee Chairman or Chairman
of the Board, whichever is applicable, the exercisable portion of his Committee
Option or Chairman Option shall remain exercisable for a period of one year
from the date the Committee Chairman ceased to serve as a Committee Chairman
(or the date the Chairman ceased to serve as a Chairman of the Board, in the
case of a Chairman Option). A pro rata portion of the remaining unexercisable
portion of a Committee Option or Chairman Option shall become exercisable upon
termination and shall remain exercisable for one year from the date the
Committee Chairman ceased to serve as a Committee Chairman (or the date the
Chairman ceased to serve as a Chairman of the Board, in the case of a Chairman
Option). The pro rata portion shall be calculated by multiplying the remaining
unexercisable portion of his Committee Option or Chairman Option, whichever is
applicable, by a fraction, the numerator of which is the number of days between
the immediately preceding Anniversary Date and the date the Committee Chairman
ceased to serve as a Committee Chairman (or the date the Chairman ceased to
serve as a Chairman of the Board, in the case of a Chairman Option) and the
denominator of which is the number of days between the immediately preceding
Anniversary Date and the third Anniversary Date.
(b) Future Directors, Committee Chairmen and Chairman of the Board.
<PAGE> 4
The Directors, at their discretion, may grant options to individuals who
begin serving as Directors, Committee Chairmen or Chairman of the Board after
the date of adoption of this Plan on such terms and conditions as the Directors
determine, provided however that no individual shall be granted an option to
purchase shares in excess of 15,000 for service as a Director; 7,500 for
service as a Committee Chairman; and 22,500 for service as Chairman of the
Board. Further, no individual granted options under subparagraph 6(a)(i) hereof
shall be granted additional options pursuant to this subparagraph 6(b) prior to
May 1, 2000.
7. Purchase Price.
(a) General. The purchase price per share of Common Stock deliverable
upon the exercise of an option shall be determined by the Board and set forth
in the applicable option agreement, provided, however, that the purchase price
per share of Common Stock shall not be less than 100% of the fair market value
of a share of Common Stock, as determined by the Board, at the time of grant of
such option (without regard to any restriction other than a restriction which,
by its terms, will never lapse).
(b) Payment of Purchase Price. Unless otherwise provided in the
applicable option agreement, the exercise price for options granted under the
Plan shall be paid by cash or a certified check to the order of the Company.
8. Option Period.
Each option and all rights with respect thereto shall expire on such date
as shall be set forth in the applicable option agreement, except that (a) such
date shall not be later than ten years after the date on which such option
becomes exercisable and (b) in all cases, options shall be subject to earlier
termination as provided in the Plan or in the applicable option agreement.
9. Nontransferability of Options.
Options granted under the Plan and the rights and privileges conferred
thereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than (a) by will, or (b) by
the applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of any such option or of any right or
privilege conferred thereby, contrary to the Plan, or the sale or levy or
similar process upon the rights and privileges conferred thereby, shall be null
and void. The Board shall have the discretionary authority, however, to grant
options which may be transferable to members of an optionee's immediate family,
including trusts for the benefit of such family members and partnerships in
which such family members are the only partners. For purposes of this
Paragraph, a transferred option may be exercised by the transferee only to the
extent that the
<PAGE> 5
optionee would have been entitled to exercise the option had the option not
been transferred.
10. General Restrictions.
(a) Investment Representations. The Board may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Board to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Board deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
(i) the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, (ii) the
consent or approval of any governmental or regulatory body, or (iii) the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition, shall have been effected or obtained on
conditions acceptable to the Board. Nothing contained herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
11. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with respect
to any shares covered by the option (including, but not limited to, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
12. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, as a result of any reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, (i) the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities of the Company, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed
with respect to such shares of Common Stock
<PAGE> 6
or other securities, an appropriate and proportionate adjustment may be made in
(x) the maximum number and kind of shares reserved for issuance under the Plan,
(y) the number and kind of shares or other securities subject to any then
outstanding options under the Plan, and (z) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. In the event of
any merger, consolidation, sale of all or substantially all of the assets of
the Company or other similar occurrence, the Company shall have the right to
make any adjustments the Company deems appropriate to outstanding options under
the Plan, including adjustments to the terms of the options, the number and
kind of shares subject to the Plan and the per share purchase price.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Paragraph 12 if such adjustment would cause the Plan to fail to comply with
Rule 16b-3.
(b) Board Authority to Make Adjustments. Any adjustments under this
Paragraph 12 will be made by the Board, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account
of any such adjustments.
13. Change in Control
Notwithstanding anything herein to the contrary, all options granted
pursuant to the Plan shall become fully exercisable upon a Change in Control as
hereinafter defined. A "Change in Control" shall be deemed to have occurred on
the first to occur of any of the following after the close of the 1997
Stockholders Meeting (the "Change in Control Date"):
a. an "acquisition" (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") (a) by
any "Person" or "Group"(as such terms are used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")), that has direct or indirect "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of thirty percent (30%) or more of the combined voting
power of the Company's then outstanding Voting Securities
immediately prior to such acquisition, or (b) by any Person or
Group that, immediately after such acquisition, has direct or
indirect Beneficial Ownership of thirty percent (30%) or more of
the combined voting power of the Company's then outstanding Voting
Securities;
b. the individuals who, immediately prior to the Change in Control
Date, are members of the Board (the "Incumbent Board"), cease for
any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes
<PAGE> 7
of this Policy, be considered as a member of the Incumbent Board;
provided, further, however, that no individual shall be considered
a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under
the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest;
or
c. approval by stockholders of the Company of:
(i) a merger, consolidation or reorganization
involving the Company, unless
(a) the stockholders of the Company immediately before
such merger, consolidation or reorganization, own or
will own, directly or indirectly, immediately
following such merger, consolidation or reorganization,
at least fifty-one percent (51%) of the combined
voting power of the outstanding Voting Securities of
the corporation resulting from such merger or
consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization;
(b) the individuals who were members of the Incumbent
Board immediately prior to the execution of the
agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of
the members of the Board of Directors of the Surviving
Corporation; and
(c) no Person (other than the Company, any
Subsidiary, any employee benefit plan maintained by
the Company, the Surviving Corporation or any
Subsidiary (or any trust forming a part thereof), or
any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifteen percent (15%) or more of the
combined voting power of the Company's then
outstanding Voting Securities) has direct or indirect
Beneficial Ownership of fifteen percent (15%) or more
of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities.
<PAGE> 8
(ii) a complete liquidation or dissolution of
the Company; or
(iii) an agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
(other than a transfer to a Subsidiary).
14. No Commitment to Retain.
Nothing in the Plan or any grant hereunder shall be construed to give any
Director the right to be nominated or elected as a director of the Company, or
to affect the right of the shareholders to remove Directors or the right of the
Company or its shareholders to seek judicial removal of Directors.
15. Amendment of the Plan.
(a) The Board may at any time, and from time to time, modify or amend the
Plan in any respect, except that, if at any time the approval of the
stockholders of the Company is required under Rule 16b-3, such modification or
amendment shall not become effective until such approval is obtained and no
modification or amendment may alter the last sentence of subparagraph 6(b)
regarding grant of additional options to individuals granted options under
subparagraph 6(a)(i) hereof.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee,
however, the Board may amend outstanding option agreements between the Company
and such optionee in a manner not inconsistent with the Plan. In addition, the
Board shall in any event have the right to amend or modify (i) the terms and
provisions of the Plan and of any outstanding options granted under the Plan to
the extent necessary to qualify any or all such options for any favorable
federal income tax treatment and (ii) the terms and provisions of the Plan and
of any outstanding option to the extent necessary to ensure the qualification
of the Plan under Rule 16b-3.
16. Withholding.
(a) The Company shall have the right in its discretion to deduct from
payments of any kind otherwise due to the optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to any shares
issued upon exercise of options under the Plan. Subject to the prior approval
of the Board, which may be withheld by the Board in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by
<PAGE> 9
delivering to the Company shares of Common Stock already owned by the optionee.
The shares so delivered or withheld shall have a fair market value equal to
such withholding obligation. The fair market value of the shares used to
satisfy such withholding obligation shall be determined by the Board as of the
date that the amount of tax to be withheld is to be determined. An optionee
who has made an election described above under his or her option agreement with
the Company, consistent with the terms of this Paragraph 16(a), may only
satisfy his or her withholding obligation with shares of Common Stock which are
not subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
17. Effective Date and Termination of the Plan.
(a) Effective Date. This Plan shall become effective upon adoption by the
Board, but no option granted under this Plan shall become exercisable unless
and until this Plan shall have been approved by the stockholders of the
Company. If such stockholder approval is not obtained within twelve months
after the date of the Board's adoption of this Plan, all options previously
granted under this Plan shall be forfeited and no options shall be granted
thereafter. Subject to this limitation, options may be granted under this Plan
at any time after the effective date and before the date fixed for termination
of this Plan.
(b) Termination. This Plan shall terminate upon the tenth anniversary of
the date of its adoption by the Board. Options outstanding on such date shall
continue to have force and effect in accordance with the provisions of the
option agreement applicable to such options.
<PAGE> 1
EXHIBIT 11
ELEK-TEK, INC.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share information)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Net Earnings (Loss) $ (10,563) $ (299) $ 3,461
Weighted average common shares
outstanding 6,300,000 6,300,000 6,300,000
Primary earnings per common share (1.68) (0.05) 0.55
========== ========== ===========
====================================================================================================
FULLY DILUTED EARNINGS PER COMMON SHARE
Net Earnings (Loss) $ (10,563) $ (299) $ 3,461
Weighted average common shares
outstanding 6,300,000 6,300,000 6,300,000
Stock options assumed to be exercised - - -
Weighted average common shares --------- ---------- -----------
outstanding, as adjusted 6,300,000 6,300,000 6,300,000
========== ========== ===========
Fully diluted earnings per common share (1.68) (0.05) 0.55
========== ========== ===========
====================================================================================================
</TABLE>
Fully diluted earnings per common share was calculated using the treasury stock
method of accounting for stock options.
In 1995 and 1994, stock options were anti-dilutive. In 1996, there were 392,500
stock options outstanding which have not been included in the earnings per share
calculation because most of which were anti-dilutive.
<PAGE> 1
Exhibit 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference to the registration statement of
ELEK-TEK, Inc. on Form S-8 (File No.33-79758) of our report, which includes an
explanatory paragraph about the Company's ability to continue as a going
concern, dated March 26, 1997 except as to information presented in Notes 1 and
6 for which the date is April 22, 1997, on our audits of the financial
statements of ELEK-TEK, Inc. as of December 31, 1996 and 1995, and for the
three years in the period ended December 31, 1996, which report is included in
this Annual Report on Form 10-K.
Chicago, Illinois
April 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000908613
<NAME> ELEK-TEK, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1619
<SECURITIES> 0
<RECEIVABLES> 24190
<ALLOWANCES> (490)
<INVENTORY> 28043
<CURRENT-ASSETS> 65328
<PP&E> 28387
<DEPRECIATION> (12800)
<TOTAL-ASSETS> 81041
<CURRENT-LIABILITIES> 67491
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 11,201
<TOTAL-LIABILITY-AND-EQUITY> 81041
<SALES> 328732
<TOTAL-REVENUES> 333498
<CGS> 288077
<TOTAL-COSTS> 298236
<OTHER-EXPENSES> 46038
<LOSS-PROVISION> 1155
<INTEREST-EXPENSE> 2454
<INCOME-PRETAX> (12889)
<INCOME-TAX> (2326)
<INCOME-CONTINUING> (10563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10563)
<EPS-PRIMARY> (1.68)
<EPS-DILUTED> (1.68)
</TABLE>
