<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended December 31, 1999
[ ] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from __________ to __________
Commission File Number: 0-22994
GUNTHER INTERNATIONAL, LTD.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 51-0223195
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE WINNENDEN ROAD, NORWICH, CONNECTICUT 06360
(Address of principal executive offices) (Zip Code)
</TABLE>
860-823-1427
(Issuers Telephone Number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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 __
The number of shares of the Registrant's Common stock outstanding as of January
31, 1999 was 4,291,769.
Transitional Small Business Disclosure Format (check one):
YES __ NO X
<PAGE> 2
GUNTHER INTERNATIONAL, LTD.
Index
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<CAPTION>
Page
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<S> <C> <C>
PART I - CONDENSED FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of December 31, 1999
and March 31, 1999 3
Condensed Statements of Operations for the three and nine
months ended December 31, 1999 and 1998 4
Condensed Statements of Cash Flows for the nine
months ended December 31, 1999 and 1998 5
Notes to Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis or Plan of Operation 9-13
PART II - OTHER INFORMATION
Item 2. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE> 3
PART I. CONDENSED FINANCIAL INFORMATION
Item 1. Financial Statements
Gunther International, Ltd.
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 555,360 $ 731,943
Restricted cash -- 150,000
Accounts receivable, less allowance 2,099,208 1,520,201
Costs and estimated earnings in excess
of billings on uncompleted contracts 663,502 864,525
Inventories 1,385,554 1,506,554
Prepaid expenses 203,349 95,263
------------ ------------
Total current assets 4,906,973 4,868,486
------------ ------------
Property and Equipment:
Machinery and equipment 1,752,917 1,370,552
Furniture and fixtures 384,801 320,262
Leasehold improvements 258,089 255,017
------------ ------------
2,395,807 1,945,831
Accumulated depreciation and amortization (1,323,551) (1,079,954)
------------ ------------
1,072,256 865,877
------------ ------------
Other Assets:
Excess of costs over fair value of net
assets acquired, net 2,830,759 2,998,357
Other 63,127 73,927
------------ ------------
2,893,886 3,072,284
------------ ------------
$ 8,873,115 $ 8,806,647
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Current maturities of long-term debt - related parties $ -- $ 1,000,000
Current maturities of long-term debt - other 362,737 13,440
Accounts payable 2,091,024 2,436,430
Accrued expenses 1,161,201 1,151,518
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,441,335 1,211,673
Deferred service contract revenue 2,047,531 1,521,204
Note payable to stockholder 150,000 150,000
------------ ------------
Total current liabilities 7,253,828 7,484,265
------------ ------------
Long-term debt, less current maturities:
Related parties 5,200,937 3,521,931
Other 3,136 12,319
------------ ------------
Total long-term debt 5,204,073 3,534,250
------------ ------------
Commitments and contingencies (Note 4)
Stockholders' Deficit:
Common stock 4,292 4,292
Additional paid-in capital 12,188,556 12,188,556
Accumulated deficit (15,777,634) (14,404,716)
------------ ------------
Total Stockholders' Deficit (3,584,786) (2,211,868)
------------ ------------
$ 8,873,115 $ 8,806,647
============ ============
</TABLE>
See accompanying notes.
3
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Gunther International, Ltd.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales:
Systems $ 2,102,167 $ 3,523,329 $ 7,997,491 $ 7,984,513
Maintenance 2,425,030 2,158,713 7,076,485 6,391,505
------------ ------------ ------------ ------------
Total sales 4,527,197 5,682,042 15,073,976 14,376,018
------------ ------------ ------------ ------------
Cost of sales:
Systems 1,713,842 2,275,645 5,755,618 5,788,768
Maintenance 1,979,352 1,723,598 6,204,714 4,780,398
------------ ------------ ------------ ------------
Total cost of sales 3,693,194 3,999,243 11,960,332 10,569,166
------------ ------------ ------------ ------------
Gross profit 834,003 1,682,799 3,113,644 3,806,852
------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing 632,952 511,901 1,370,893 1,673,994
Research and development 282,599 206,059 988,448 715,674
General and administrative 677,335 681,586 1,720,914 1,857,256
------------ ------------ ------------ ------------
Total operating expenses 1,592,886 1,399,546 4,080,255 4,246,924
------------ ------------ ------------ ------------
Operating income (loss) (758,883) 283,253 (966,611) (440,072)
Interest expense, net (145,052) (115,829) (406,307) (337,218)
------------ ------------ ------------ ------------
Income (loss) before accounting change (903,935) 167,424 (1,372,918) (777,290)
Cumulative effect of accounting change -- -- -- (622,953)
------------ ------------ ------------ ------------
Net income (loss) (903,935) 167,424 (1,372,918) (1,400,243)
============ ============ ============ ============
Income (loss) per share:
Before cumulative effect of
change in accounting principle $ (0.21) $ 0.04 $ (0.32) $ (0.18)
Cumulative effect of accounting change -- -- -- (0.15)
------------ ------------ ------------ ------------
Income (loss) per share $ (0.21) $ 0.04 $ (0.32) $ (0.33)
============ ============ ============ ============
Weighted average number of common
shares outstanding 4,291,769 4,291,269 4,291,769 4,291,269
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
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Gunther International, Ltd.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(1,372,918) $(1,400,243)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 421,995 406,273
Provision for doubtful accounts 19,400 40,000
Interest accrued on related party note payable 179,008 --
Cumulative effect of accounting change -- 622,953
Changes in operating assets and liabilities:
Accounts receivable (598,407) (910,868)
Inventories 121,000 (267,628)
Prepaid expenses (108,086) 16,526
Accounts payable (345,406) (1,027,500)
Accrued expenses 9,683 27,828
Deferred service contract revenue 526,327 (755,524)
Billings, costs and estimated earnings
on uncompleted contracts, net 430,685 719,805
----------- -----------
Net cash used for operating activities (716,719) (2,528,378)
----------- -----------
Investing activities:
Acquisitions of property and equipment (449,975) (59,115)
Other assets -- 18,017
Proceeds from sale of investment -- 20,000
----------- -----------
Net cash used for investing activities (449,975) (21,098)
----------- -----------
Financing activities:
Repayment of notes payable and long-term debt (509,889) (2,569,614)
Transfer to (from) restricted cash 150,000 (150,000)
Proceeds from notes payable and long-term debt 1,350,000 5,760,419
----------- -----------
Net cash provided by financing activities 990,111 3,040,805
----------- -----------
Net increase (decrease) in cash (176,583) 491,329
Cash, beginning of period 731,943 572,368
----------- -----------
Cash, end of period $ 555,360 $ 1,063,697
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 236,545 $ 214,084
Cash paid for income taxes 7,561 26,245
</TABLE>
See accompanying notes.
5
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GUNTHER INTERNATIONAL, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited interim condensed
financial statements have been prepared in accordance with generally accepted
accounting principles and contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position and
the results of operations for the interim periods. These financial statements
should be read in conjunction with the financial statements and related notes
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1999. The results of operations for the interim periods are not
necessarily indicative of results to be expected for the full year. The
condensed balance sheet as of March 31, 1999 was derived from the audited
financial statements at that date.
2. ACCOUNTING CHANGE:
In the first quarter of fiscal 1999, the Company changed its method of
accounting for deferred preproduction costs, in accordance with AICPA Statement
of Position No. 98-5, "Reporting on the Costs of Start-Up Activities", which
requires costs of start-up activities and organization costs to be expensed as
incurred, rather than capitalizing and subsequently amortizing such costs. The
cumulative effect of the change in accounting principle was to increase the net
loss for the three and nine months ended December 31, 1998 by $622,953, or $0.15
per share.
3. LONG - TERM DEBT AND LIQUIDITY:
On October 2, 1998, the Company entered into a $5.7 million comprehensive
financing transaction by and among the Bank of Boston, Connecticut, N.A. (the
"Bank"), the Estate of Harold S. Geneen (the "Estate") and Gunther Partners LLC
(the "New Lender"), the proceeds of which have been utilized to restructure and
replace the Company's pre-existing senior line of credit, fund a full settlement
with the Company's third party service provider and provide additional working
capital to fund the Company's ongoing business operations. Under the terms of
the transaction, the New Lender loaned an aggregate of $4.0 million to the
Company. At the same time, the Bank reached an agreement with the Estate, which
had guaranteed a portion of the Company's senior line of credit, whereby the
Estate consented to the liquidation of approximately $1.7 million of collateral
and the application of the proceeds of such collateral to satisfy and repay in
full a like amount of indebtedness outstanding under the senior credit facility.
The balance of the indebtedness outstanding under the senior credit facility,
approximately $350,000, was repaid in full from the proceeds of the new
financing. The Company executed a new promissory note in favor of the Estate
evidencing the Company's obligation to repay the amount of the collateral that
was liquidated by the Bank. The Company's obligations to the Estate are
completely subordinated to the Company's obligations to the New Lender.
Approximately $1.4 million of the new financing was utilized to pay a major
vendor all amounts that were due for performing maintenance on Company systems.
The principal balance of the $4.0 million debt originally was to be repaid
in monthly installments of $100,000 from November 1, 1998 and continuing to and
including September 1, 1999, $400,000 on October 1, 1999 and the balance was to
be due on October 1, 2003. Interest is paid quarterly, at the rate of 8% per
annum, beginning January 1, 1999 and continuing until the principal and interest
due is paid in full. Through June 30, 1999, the Company made principal payments
of $800,000 to the New Lender. In September 1999, the Company and the New Lender
agreed to modify the terms of the borrowing to defer payment of the $700,000 due
from July 1999 through October 1999 and to relend the Company the $800,000 of
principal that was previously repaid, thereby restoring the aggregate principal
amount of the indebtedness to the original principal amount of $4.0 million. As
amended, the total balance due of $4 million is to be repaid in nine payments as
follows: (a) $200,000 shall be paid on the first day of each month commencing on
October 1, 2001 and continuing and including April 1, 2002; (b) $100,000 shall
be paid on May 1, 2002; and (c) the balance shall be paid on October 1, 2003.
If, at any time prior to October 1, 2001, the accumulated deficit of the
Company, determined in accordance with generally accepted accounting principles,
improves by $1.0 million or more above the Company's accumulated deficit at June
30, 1999 (a "Triggering Event"), then the principal payments due on October 1,
2001 through May 1, 2002 shall be accelerated and become due in consecutive
monthly installments beginning on the first day of the second month following
the Triggering Event.
To induce the New Lender to enter into the original financing transaction,
the Company granted the New Lender a stock purchase warrant entitling the New
Lender, at any time during the period commencing on January 1, 1999 and ending
on the fifth anniversary of the transaction, to purchase up to 35% of the pro
forma, fully diluted number of shares of the Common stock of the Company,
determined as of the date of exercise. The exercise price of the warrant is
$1.50 per share. The warrant was valued at $345,000 at the
6
<PAGE> 7
time of the lending and was included in additional paid-in capital, reducing the
debt value to $3,655,000. The effective interest rate for the loan is 9.8%. The
imputed interest on the difference between the face value of the note and the
note value based on the effective interest rate will be added to the principal
loan balance until the full face value is recorded.
In addition, the Company, the New Lender, the Estate and certain other
shareholders (Park Investment Partners, Gerald H. Newman, Four Partners and
Robert Spiegel) entered into a separate voting agreement, pursuant to which they
each agreed to vote all shares of the Company's stock held by them in favor of
(i) that number of persons nominated by the New Lender constituting a majority
of the Board of Directors, (ii) one person nominated by the Estate and (iii) one
person nominated by Park Investment Partners.
The promissory note in favor of the Estate for approximately $1.7 million
is to be repaid at the earlier of one year after the Company's obligations to
the New Lender are paid in full or on October 2, 2004. Interest, at 5.44% per
annum, shall accrue on principal and unpaid interest, which is added to the
outstanding balance and is due at the time of principal payments. The
indebtedness is secured by a security interest in all tangible and intangible
personal property and is subordinated to all rights of the New Lender. The
Company has recorded the promissory note at an effective interest rate of 10.5%,
reducing the principal balance to $1.3 million. The balance of $453,000 was
recorded as additional paid-in capital. The imputed interest on the difference
between the face value of the note and the note value based on the effective
interest rate will be added to the principal loan balance until the full face
value is recorded.
On November 8, 1999, the Company entered into a revolving loan agreement
with a bank pursuant to which the bank has agreed to loan the Company up to
$500,000 based on a borrowing base of eligible accounts receivable. Eligible
accounts receivable include accounts receivable under 60 days past due,
excluding receivables from agencies of the United States. As of December 31,
1999, the Company has borrowed $350,000 under the revolving loan agreement.
Interest is to be paid monthly at the annual rate of prime plus 1.5%. The
revolving loan agreement contains certain covenants, including a debt service
coverage ratio of not less than 1.25 to 1. Unless extended by the bank, the
revolving loan agreement expires on August 31, 2000. As of December 31, the
Company is in default of the debt service ratio. The Company is anticipating
that a waiver will be obtained. In the event a waiver is not obtained, the
Company believes that financing similar to that under the revolving loan
agreement is available from other sources.
The Company also borrowed $200,000 from a director of the Company on a
short-term basis on December 16, 1999. The total amount plus interest at 8% was
paid back to the director prior to December 31, 1999.
In the current and certain prior periods, the Company incurred net
operating losses. Further, cash of $717,000 was used by operating activities for
the nine months ended December 31,1999 compared to $2.5 million for the
comparable period last year. As of December 31, 1999, the Company has a
deficiency in working capital and net assets of $2.3 million and $3.6 million,
respectively. These conditions raise doubt about the Company's ability to meet
its obligations as they become due in the ordinary course of business. Despite
the incurred losses of $904,000 and $1,373,000 for the three and nine month
periods ended December 31, 1999, the Company believes it has made significant
improvements to its production processes which will result in reduced production
time and assembly costs. Also, as of December 31, 1999 the Company's backlog has
grown to $4.5 million. As the backlog is completed, the Company will receive
$4.0 million during the next two fiscal quarters under the payment terms of the
contracts. Lastly, the Company believes that additional funding, if necessary,
may be made available to it from existing lenders and investors.
4. COMMITMENTS AND CONTINGENCIES:
As previously reported, a purported class action lawsuit was filed against
the Company, its then-current chief executive officer and its then-current chief
financial officer asserting claims under the federal securities laws. The action
was filed in the United States District Court for the District of Connecticut.
Among other things, the complaint alleges that the Company's financial
statements for the first three quarters of fiscal 1998 were materially false and
misleading in violation of Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and Rule 10b-5 promulgated thereunder, and Section 20(a) of
the Exchange Act. The plaintiffs are seeking compensatory damages and
reimbursement for the reasonable costs and expenses, including attorneys' fees,
incurred in connection with the action.
On December 17, 1999, the plaintiffs requested leave to file a second
amended and consolidated complaint. On January 21, 2000, the Company filed a
formal objection to this request. The Company's objection is currently pending
before the Court.
7
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Although the Company believes the complaint is without merit and will
vigorously defend the action, it is not possible to predict with certainty the
final outcome of this proceeding.
8
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Item 2. Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
SALES: Systems sales include sales of high-speed assembly systems, upgrades to
previously sold systems and inc.jet imager systems and ancillary products. Sales
for high-speed assembly systems and upgrades are recorded by the percentage of
completion method. Sales are typically recognized over a period of six months or
less. Sales for the inc.jet imager systems and ancillary products are recorded
as systems are shipped.
Total sales for the three and nine months ended December 31, 1999 were $4.5
million and $15.1 million, respectively, a decrease of 20% and an increase of 5%
over the comparable periods of the prior year. Systems sales for the three and
nine months ended December 31, 1999 were $2.1 million and $8.0 million,
respectively, a decrease of 40% and no change over the comparable periods of the
prior year. The decrease in systems sales for the three months ended December
31, 1999 was primarily due to a decrease of 48% in high speed assembly systems
and related upgrades, partially offset by a 67% increase in inc.jet sales.
Inc.jet sales comprised 18% of total systems sales for the three months ended
December 31, 1999 as compared to 7% over the comparable period of the prior
year. Total system sales for the nine months ended December 31, 1999 remained
relatively stable as compared to the nine months ended December 31, 1998. Sales
of high speed assembly systems in the nine months ended December 31, 1999
decreased 12% over the comparable period of the prior year and inc.jet sales
increased $966,000 in the nine months ended December 31, 1999 over the
comparable period of the prior year. Inc.jet sales comprised 16% of total
systems sales for the three months ended December 31, 1999 as compared to 4%
over the comparable period of the prior year. The decrease in system sales for
the three and nine months ended December 31, 1999 is primarily due to a slow
period of system orders as indicated by the backlog reported in last two
previous quarters. The backlog, consisting of total contract price less revenue
recognized to date for all signed orders on hand, at December 31, 1999 is $4.5
million , compared to $4.9 million at December 31, 1998, $2.0 million at June
30, 1999 and September 30, 1999. The increase in the backlog at December 31,
1999, as compared to June 30, 1999 and September 30, 1999, was primarily due to
an increase in system orders during the quarter. Substantially all of the
backlog at December 31, 1999 is expected to be completed no later than June 30,
2000. Maintenance sales for the three and nine months ended December 31, 1999
were $2.4 million and $7.1 million, respectively, an increase of 12% and 11%
over the comparable periods of the prior year. The increase was primarily due to
an increase in contract services on a larger installed base of systems. A
summary of orders, sales and backlog for each of the last three fiscal quarters
for the high speed assembly systems and related upgrades is as follows:
<TABLE>
<CAPTION>
December 31, 1999 September 30, 1999 June 30, 1999
----------------- ------------------ -------------
(in millions)
<S> <C> <C> <C>
Backlog, beginning of period $ 2.0 $ 2.0 $ 4.3
Orders 4.2 2.1 .6
Sales (1.7) (2.1) (2.9)
----- ----- -----
Backlog, end of period $ 4.5 $ 2.0 $ 2.0
===== ===== =====
</TABLE>
GROSS PROFIT: Gross profit as a percentage of total sales for the three months
ended December 31, 1999 decreased to 18% from 30% for the comparable period of
the prior year. Gross profit as a percentage of total sales for the nine months
ended December 31, 1999 decreased to 21% from 26% for the comparable period of
the prior year. Gross profit as a percentage of systems sales for the three
months ended December 31, 1999 decreased to 18% from 35% for the comparable
period of the prior year. Gross profit as a percentage of systems sales for the
nine months ended December 31, 1999 remained relatively stable at 28% as
compared to the comparable period of the prior year. The decrease in the gross
profit percentage for the three months ended December 31, 1999 as compared to
December 31, 1998 was primarily due to fewer systems in the manufacturing
process during 1999 which resulted in an increase in unabsorbed fixed
manufacturing overhead. Material costs and direct labor on systems remained
relatively stable between the periods. Gross profit as a percentage of
maintenance sales for the three and nine months ended December 31, 1999
decreased to 18% and 12% respectively, from 20% and 25%, respectively, for the
comparable periods of the prior year. The decrease in the gross profit
percentage is primarily a result of an increase the cost of
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sales of maintenance. The increase in the maintenance expenses related to the
transition of the service function from the third party service provider to the
Company's own internal maintenance personnel. The transition of maintenance
services began on April 1, 1999 and is expected to be completed by March 31,
2000. During the nine months ended December 31, 1999, the Company's transition
expenses were higher than expected because the number of customer service
engineers expected to transition from the third party service provider to the
Company was less than anticipated. This resulted in the Company having to
recruit and train more personnel than anticipated and to incur additional
expenses to provide customer support from the Connecticut location to customer
sites. The Company has also incurred an increase in service parts costs during
this transition period. As sites are transitioned, Company personnel are
performing preventive maintenance reviews on the systems at the various sites.
The Company has found that in certain sites a substantial amount of time and
materials were required to bring the systems to the higher level of operation
the Company considers appropriate for that site. The Company expects that until
the transition is completed, maintenance costs will be abnormally high,
resulting in lower than normal gross margins.
OPERATING EXPENSES: Selling and marketing expenses, as a percentage of total
revenues, for the three and nine months ended December 31, 1999 were 14% and
24%, respectively, as compared to 9% and 24%, respectively, for the comparable
periods of the prior year. For the three months ended December 31, 1999, these
expenses increased by 24% as compared to the comparable period of the prior year
and for the nine months ended December 31, 1999, these expenses decreased 18% as
compared to the comparable period of the prior year. The increase in the three
months ended December 31, 1999 as compared to comparable period of the prior
year was primarily due to a increase in costs associated with the Company's
attendance at the largest industry trade show. The Company was able to increase
its presence at the show through larger booth space, new literature and an
increase in personnel attending the show. In the prior year, costs allocated to
the show were restricted due to Company finances. The decrease in the nine
months ended December 31, 1999 as compared to a comparable period of the prior
year was primarily due to a decrease in personnel costs, including wages and
commissions, related benefits and travel costs, as well as a shift in personnel
from the inc.jet department back to research and development. During the 1998
period, inc.jet personnel were concentrating on bringing the new imager to
market. After the introduction of the inc.jet imager to the market, a majority
of the inc.jet personnel have concentrated their efforts on enhancements to the
inc.jet imager.
Research and development expenses, as a percentage of total revenues, for the
three and nine months ended December 31, 1999 were 6% and 17%, respectively, as
compared to 4% and 13%, respectively, for the comparable periods of the prior
year. For the three and nine months ended December 31, 1999, these expenses
increased by 37% and 38% as compared to the comparable periods of the prior
year. The primary focus of the research and development in the three and nine
months ended December 31, 1999 was the further development of enhancements to
the current product line of systems and the inc.jet imager.
General and administrative expenses, as a percentage of total revenues, for the
three and nine months ended December 31, 1999 were 15% and 30% respectively, as
compared to 12% and 33%, respectively, for the comparable periods of the prior
year. For the three and nine months ended December 31, 1999, these expenses
decreased by 1% and 7% as compared to the comparable periods of the prior year
primarily due to a decrease in the number of executive officers and a reduction
in normal operating expenses.
Interest expense, net, in the three and nine months ended December 31, 1999
increased to $145,000 and $406,000, respectively, from $116,000 and $337,000 in
the three and nine months ended December 31, 1998, respectively, due to the
interest on the debt from the October 2, 1998 financing transaction described
below.
In the first quarter of fiscal 1999, the Company changed its method of
accounting for deferred preproduction costs, in accordance with AICPA Statement
of Position No. 98-5, "Reporting on the Costs of Start-Up Activities", which
requires costs of start-up activities and organization costs to be expensed as
incurred, rather than capitalizing and subsequently amortizing such costs. The
effect of the change in accounting principle was to increase the net loss for
the nine months ended December 31, 1998 by approximately $623,000, or $0.15 per
share.
LIQUIDITY AND CAPITAL RESOURCES
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In the current and certain prior periods, the Company incurred net operating
losses. Further, cash of $717,000 was used by operating activities for the nine
months ended December 31,1999 compared to $2.5 million for the comparable period
last year. As of December 31, 1999, the Company has a deficiency in working
capital and net assets of $2.3 million and $3.6 million, respectively. These
conditions raise doubt about the Company's ability to meet its obligations as
they become due in the ordinary course of business. Despite the incurred losses
of $904,000 and $1,373,000 for the three and nine month periods ended December
31, 1999, the Company believes it has made significant improvements to its
production processes which will result in reduced production time and assembly
costs. Also, as of December 31, 1999 the Company's backlog has grown to $4.5
million. As the backlog is completed, the Company will receive $4.0 million
during the next two fiscal quarters under the payment terms of the contracts.
Lastly, the Company believes that additional funding, if necessary, may be made
available to it from existing lenders and investors.
The Company's primary need for liquidity is to fund operations while it
endeavors to increase sales and achieve profitability. Historically, the Company
has derived liquidity through system and maintenance sales (including customer
deposits), bank borrowings, financing arrangements with third parties and, from
time to time, sales of its equity securities.
During the nine months ended December 31, 1999 and 1998, the Company had
negative cash flows from operating activities of $717,000 and $2.5 million,
respectively. The increase in the cash flows from operating activities is
primarily due to the deferred contract service revenue and the timing of
payments on accounts payable. Accounts payable were at an abnormally high level
at March 31, 1998 due to the Company's finances. After the comprehensive
financing transaction was consummated on October 2, 1998 (described in detail
below), the Company was able to pay down the accounts payable to a more typical
level.
Under the Company's normal pricing policy, approximately 50% of the purchase
price of each system is received by the Company at the time an order is placed
by a customer and machine specifications are completed, approximately 40% of the
purchase price is received at the time the system is shipped to the customer and
the remaining 10% of the purchase price is received approximately 30 days after
delivery of the system. As a result, the Company receives a significant cash
flow benefit from the receipt of new orders. In a period when costs incurred on
contracts are greater than the billings and subsequent receipts, there will be a
negative impact on the period's cash flows from operating activities. In a
period when billings and their subsequent receipts are greater than the costs
incurred on contracts, there will be a positive impact on the period's cash
flows from operating activities. During the nine months ended December 31, 1999
and 1998, billings and subsequent receipts exceeded costs on contracts and had a
positive impact of $431,000 and $720,000 on cash flows from operating
activities. During the three months ended December 31, 1999, the Company
received three orders from agencies of the United States government, with
payment terms that did not include the Company's typical deposit of 50% upon the
contract signing and completion of the system specification. Payment is expected
in full on each of these systems during the next two fiscal quarters. The
acceptance of these orders had an adverse impact on cash flows from operating
activities. The payment terms under these contracts does not affect the payment
terms for non-government contracts.
During the nine months ended December 31, 1999 and 1998, the Company used cash
for investing activities of $450,000 and $59,000, respectively, to purchase
machinery and equipment. Machinery and equipment purchased during 1999 includes
the construction of a training system to train incoming customer service
engineers.
During the nine months ended December 31, 1999 the Company used cash for
financing activities of $510,000 to pay down long-term debt. The Company also
received an additional $1,350,000 as described below.
As previously reported, the Company completed a $5.7 million comprehensive
financing transaction on October 2, 1998, the proceeds of which have been
utilized to restructure and replace the Company's then-existing senior line of
credit, fund a full settlement with the Company's third-party service provider
and provide additional working capital to fund the Company's ongoing business
operations. See Note 3 to the financial statements. In September 1999, the
Company and the New Lender agreed to modify the terms of the borrowing to defer
payment of the $700,000 due from July 1999 through October 1999 and to relend
the Company the $800,000 of principal that was previously repaid, thereby
restoring the aggregate principal amount of the indebtedness to the original
principal amount of $4.0 million. As amended, the total balance due of $4
million is to be repaid in nine payments as follows: (a) $200,000 shall be paid
on the first day of each month commencing on October 1, 2001 and continuing and
including April 1, 2002; (b) $100,000 shall be paid on May 1, 2002; and (c) the
balance shall be paid on October 1, 2003. If, at any
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time prior to October 1, 2001, the accumulated deficit of the Company,
calculated in accordance with generally accepted accounting principles, improves
by $1.0 million or more above the Company's accumulated deficit at June 30, 1999
(a "Triggering Event"), then the principal payments due on October 1, 2001
through May 1, 2002 shall be accelerated and become due in consecutive monthly
installments beginning on the first day of the second month following the
Triggering Event.
On November 8, 1999, the Company entered into a revolving loan agreement with a
bank pursuant to which the bank has agreed to loan the Company up to $500,000
based on a borrowing base of eligible accounts receivable. Eligible accounts
receivable include accounts receivable under 60 days past due, excluding
receivables from agencies of the United States. As of December 31, 1999, the
Company has borrowed $350,000 under the loan agreement. Interest is to be paid
monthly at the annual rate of prime plus 1.5%. The loan agreement contains
certain covenants, including a debt service coverage ratio of not less than 1.25
to 1. Unless extended by the bank, the loan agreement expires on August 31,
2000. As of December 31, the Company is in default of the debt service ratio.
The Company is anticipating that a waiver will be obtained. In the event a
waiver is not obtained, the Company believes that financing similar to that
under the revolving loan agreement is available from other sources.
The Company also borrowed $200,000 from a director of the Company on a
short-term basis on December 16, 1999. The total amount plus interest at 8% was
paid back to the director prior to December 31, 1999.
Except for the financing transaction with the New Lender and the revolving line
of credit with the bank, the Company does not have commitments for outside
funding of any kind. In addition, the Loan and Security Agreement entered into
between the Company and the New Lender expressly prohibits the Company from
incurring any additional indebtedness from any person or entity other than the
New Lender. The Company must depend, therefore, on current cash balances, the
generation of sufficient internally generated funds and the revolving line of
credit to finance its operations during the balance of fiscal 2000 and
thereafter. At December 31, 1999, the Company had cash and cash equivalents of
approximately $555,000, as well as approximately $2.1 million of accounts
receivable.
The need to borrow funds during the three months ended December 31, 1999 was
primarily due to a reduction in the order flow during the previous two quarters.
In addition, the Company has had to fund the manufacture of the three systems
for the agencies of the United States government without the typical deposit
received on non-government contracts. The total of the deposits, had they been
on typical payment terms, would have been $740,000. The Company believes this
would have reduced, or possibly eliminated, its need for outside funding during
the quarter. Cash flows in future periods will be favorably impacted by the
receipt of this amount. On a going forward basis, management believes that the
Company has sufficient cash and cash equivalents, together with the cash
expected to be derived from the completion of existing contracts, additional
sales and maintenance revenues, to meet the Company's cash needs for the
remainder of fiscal 2000. The Company's cash needs may be affected by a number
of factors, however, many of which are beyond the control of management. See
"Forward Looking Statements," below. Thus, there can be no assurance that the
Company will not need significantly more cash than is presently forecasted by
management or that the Company's current and expected sources of cash will be
sufficient to fund the Company's ongoing operations.
INFLATION
The effect of inflation on the Company has not been significant during the last
two fiscal years.
YEAR 2000
The Company undertook a project designed to assess the potential impact of the
year 2000 on its internal business systems, products and operations. The
Company's year 2000 initiatives included (i) testing and upgrading internal
business systems and facilities, (ii) testing and developing necessary upgrades
for the Company's products; (iii) contacting key suppliers, vendors and
customers to determine their year 2000 compliance status; and (iv) developing
contingency plans. All phases of the project were completed before December 31,
1999.
The costs incurred by the Company in connection with the year 2000 issue have
not been material, and the Company does not expect any remaining year 2000
remediation costs to be material. However, the Company has not
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separately tracked the internal costs incurred in its year 2000 project. Such
costs are principally for payroll and related costs for management and
information systems employees.
Since January 1, 2000, the Company has not experienced any significant problems
associated with the change in the century, and management does not anticipate
that any such problems will develop. Nonetheless, there can be no assurance that
year 2000 issues will not have a material adverse impact on the Company's
business, operations or financial condition. Despite the Company's efforts to
ensure that its material current products are year 2000 compliant, the Company
may see an increase in warranty and other claims, especially those related to
Company products that incorporate, or operate using, third-party hardware or
software. If any of the Company's significant suppliers, vendors or customers
experience business disruptions due to year 2000 issues, the Company might also
be materially adversely affected. In addition, the Company's research and
development, production, distribution, financial, administrative and
communications operations might be disrupted. There is expected to be a
significant issue amount of litigation related to the year 2000 issue and there
can be no assurance that the Company will not incur material costs in defending
or bringing lawsuits. Any unexpected costs or delays arising from the year 2000
issue could have a significant adverse impact on the Company's business,
operations and financial condition.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. In general, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements within the meaning of Section
21E. Without limiting the generality of the foregoing, the words "believes,"
"anticipates," "plans," "expects," and other such similar expressions are
intended to identify forward-looking statements. Investors should be aware that
such forward-looking statements are based on the current expectations of
management and are inherently subject to a number of risks and uncertainties
that could cause the actual results of the Company to differ materially from
those reflected in the forward-looking statements. Some of the important factors
which could cause actual results to differ materially from those projected
include, but are not limited to, the following: general economic conditions and
growth rates in the finishing and related industries; competitive factors and
pricing pressures; changes in the Company's product mix; technological
obsolescence of existing products and the timely development and acceptance of
new products; inventory risks due to shifts in market demands; component
constraints and shortages; the ramp-up and expansion of manufacturing capacity;
the continued availability of financing; and the expenses associated with Year
2000 compliance. The Company does not undertake to update any forward-looking
statement made in this report or that may from time-to-time be made by or on
behalf of the Company.
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GUNTHER INTERNATIONAL, LTD.
PART II -- Other Information
Item 1. Legal Proceedings.
As previously reported, a purported class action lawsuit was filed against
the Company, its then-current chief executive officer and its then-current chief
financial officer asserting claims under the federal securities laws. The action
was filed in the United States District Court for the District of Connecticut.
Among other things, the complaint alleges that the Company's financial
statements for the first three quarters of fiscal 1998 were materially false and
misleading in violation of Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and Rule 10b-5 promulgated thereunder, and Section 20(a) of
the Exchange Act. The plaintiffs are seeking compensatory damages and
reimbursement for the reasonable costs and expenses, including attorneys' fees,
incurred in connection with the action.
On December 17, 1999, the plaintiffs requested leave to file a second
amended and consolidated complaint. On January 21, 2000, the Company filed a
formal objection to this request. The Company's objection is currently pending
the Court.
Although the Company believes the complaint is without merit and will
vigorously defend the action, it is not possible to predict with certainty the
final outcome of this proceeding.
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Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits required by Item 601 of Regulation S-B:
10.1 Revised Commitment Letter, dated as of August 27, 1999
from People's Bank to the Registrant, as amended by
(i) a letter to the People's Bank from the Registrant
dated September 2, 1999 and (ii) a letter to People's
Bank from the Registrant dated October 23, 1999
10.2 Commercial Loan Agreement,dated as of October 23, 1999,
between the Registrant and People's Bank.
10.3 Promissory Note, dated as of October 23, 1999, between the
Registrant and People's Bank.
10.4 Commercial Revolving Loan Agreement, dated as of October
23, 1999, between the Registrant and People's Bank.
10.5 Security Agreement, dated as of October 23, 1999, between
the Registrant and People's Bank.
10.6 Subordination and Intercreditor Agreement, dated as of
October 23, 1999, between People's Bank, Gunther Partners,
LLC and the Registrant.
10.7 Subordination and Intercreditor Agreement, dated as of
October 23, 1999, between People's Bank and June H.
Geneen, Phil E. Gilbert, Jr., Thomas W. Keesee and the
United States Trust Company of New York, as Co-Executors
of the Estate of Harold S. Geneen, late of New York, New
York and the Registrant.
10.8 Subordination and Intercreditor Agreement, dated as of
October 23, 1999, between People's Bank, Connecticut
Innovations, Inc. and the Registrant.
10.9 Employment Agreement, dated as of October 3, 1999, between
the Registrant and Marc I. Perkins.
10.10 Promissory Note, dated December 16, 1999, between the
Registrant and Robert Spiegel.
27.1 Financial Data Schedule
B. Reports on Form 8-K.
On November 15, 1999, the Registrant filed a Form 8-K reporting a
change in the Registrant's Certifying Accountant.
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<PAGE> 16
GUNTHER INTERNATIONAL, LTD.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GUNTHER INTERNATIONAL, LTD.
(Registrant)
/s/ Michael M. Vehlies Date: February 14, 2000
Michael M. Vehlies
Chief Financial Officer and Treasurer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
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<PAGE> 1
REVISED August 27, 1999
Gunther International, Ltd.
One Winnenden Road
Norwich, Connecticut 06360
Attention: Marc Perkins and Michael Vehlies
Re: PEOPLE'S BANK
$200,000 Credit Line Relative
to Standby Letters of Credit
$500,000 Revolving Credit Line
Dear Mr. Perkins and Mr. Vehlies:
In response to your request for certain credit line facilities to support the
business operations of GUNTHER INTERNATIONAL, LTD, a corporation duly organized,
in good standing and registered to do business in the State of Connecticut, we
are pleased to advise you that People's Bank ("Lender" or "Bank"), agrees to
loan to Borrower the maximum principal sum of $700,000.00 under two credit
facilities as follows: a $200,000.00 Credit Line in support of Bank's
undertaking to issue certain short term standby letters of credit as more
particularly described herein (the "$200k Line"); and a $500,000.00 Revolving
Line of Credit as more particularly described herein (the "$500k Line"); both
facilities being sometimes hereafter collectively referred to as the "Loan".
Bank's commitment to make the Loan and the Loan itself is subject to the
following terms, provisions, limitations and conditions:
1. Purpose of the $200k Loan.
The $200k Loan shall be made to Borrower for the purpose of
facilitating the issuance of certain Standby Letters of Credit in the maximum
aggregate principal balance at any time outstanding of Two Hundred Thousand and
no/100 ($200,000.00) Dollars. Said Letters of Credit shall be issued at the
request of Borrower to such third parties as Borrower shall direct in
furtherance of the customary business purposes of Borrower upon terms and
conditions
<PAGE> 2
as Bank may from time to time impose on similar financing accommodations to its
commercial borrowers similarly situated.
2. Purpose of the $500k Loan.
The $500k Loan shall be made to Borrower to support its short term commercial
borrowing needs for the conduct of its regular business. The $500k Loan shall be
in the form of a revolving commercial credit line as herein after described.
3. Interest, Repayment and Term.
The Loan shall be evidenced by documentation in form and content acceptable
to Bank in the exercise of its reasonable lending discretion and shall provide,
inter alia, for the following terms and conditions:
3.1 The outstanding principal of the Loan shall bear interest at a floating per
annum rate (the "Note Rate") equal to Bank's Prime Rate (as hereafter defined
and from time to time in effect) PLUS One and One Half (1.50%) percentage points
(the "Margin"). The Note Rate shall vary as and when the Prime Rate varies,
effective as of the date of each such variance in the Prime Rate.
3.2 The term "Prime Rate" means the per annum rate of interest from time to time
determined by Bank's Financial Division in the exercise of its sole and
exclusive judgment based upon rate information provided by funding sources
ordinarily used by Bank and/or upon national or regional indices as made
generally known by Bank's Financial Division to Bank's lending staff. The Prime
Rate is an interest rate of general application by Bank but it is not
necessarily the best or lowest interest rate made available to its customers.
3.3 Interest shall be computed on a daily basis and calculated on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
3.4 Monthly payments of interest as same accrues at the Note Rate shall commence
on the first day of the month immediately following the advance of principal
under either of the Loans. All principal then outstanding under the $500k Loan,
all accrued but unpaid interest and all other sums which may then be due Bank
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<PAGE> 3
relative to the $500k Loan, shall be due and payable in full on August 31, 2000
(the "Maturity Date"). All principal under the $200k Loan shall be due and
payable UPON DEMAND and if not sooner demanded, all principal then outstanding
under the $200k Loan, all accrued but unpaid interest and all other sums which
may then be due Bank relative to the $200k Loan, shall be due and payable in
full on the Maturity Date.
3.5 The Loan documents shall provide that after maturity of the Loan howsoever
occasioned and/or during the continuance of any default under the Loan documents
beyond any applicable grace period expressly therein provided for, the interest
rate shall be five (5.00%) percentage points above the otherwise applicable
rate.
3.6 The Loan documents shall provide that the Loan shall become due and payable
on demand if Lender in good faith determines that the prospect of payment or
performance by Borrower or any guarantor under the Loan documents, or any
collateral securing the Loan, is impaired or if the Borrower or any guarantor
shall default under any other loan obligation to the Bank.
4. Advances of Principal.
The principal amount of the $500k Loan shall be advanced in the normal course
of Bank's revolving credit line commercial financing facilities pursuant to the
terms of a Commercial Revolving Loan Agreement by and between Bank and Borrower
in form and content acceptable to Bank. The principal amount of the $200k Loan
shall be deemed advanced when and if any draw or demand for a draw is made
pursuant to the terms of any Standby Letter of Credit issued by Bank pursuant to
the $200k Loan. All advances of principal under the Loan are subject to the
prior satisfaction by Borrower of all conditions precedent herein provided for.
5. Commitment Fee.
Borrower shall pay to Lender a non-refundable commitment fee and other fees
of $5,000.00.
Borrower shall pay all customary and then applicable fees incident to the
issuance and maintenance of any Letter of Credit made pursuant to the $200k
Loan. The non-refundable commitment
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<PAGE> 4
fee shall be paid at the time and as a condition of Borrower's acceptance of
this commitment and as consideration for the issuance of this commitment. Such
fee shall be considered earned whether or not the Loan closes.
6. Guaranty.
The $500k Loan shall be partially guaranteed by the Connecticut Development
Authority pursuant to the terms of its June 16, 1999 Commitment Letter, a copy
of which is attached hereto as Exhibit A and incorporated herein by reference.
It shall be a condition precedent to the making of the Loan that said Guaranty
is in full force and effect as of the Closing.
7. Prepayment.
The Borrower may prepay the Loan at any time in whole or in part without fee
or penalty.
8. Security.
In addition to other items of collateral or security as provided elsewhere
herein, the Loan shall be secured as follows:
8.1 $200K Loan.
The $200K Loan shall be secured by the pledge and delivery of cash deposits
in an amount or amounts equal to the face amount of any Standby Letters of
Credit issued by Bank at the direction of Borrower under the terms of the $200K
Loan facility. Said deposits shall be released to Borrower in accordance with
Bank's customary procedures but in no event shall the sum total of cash pledged
and held by Bank be less than Bank's aggregate exposure under such Letters of
Credit at any one time outstanding.
8.2 $500K Loan.
(a) A first priority, valid and perfected lien upon all accounts receivable
of Borrower.
(b) A second priority valid and perfected lien as to all other personal
property of Borrower.
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<PAGE> 5
(c) The Guaranty as set forth in paragraph 6 of this Commitment Letter.
9. Loan Documents.
9.1 $200,000 Credit Line
The $200K Loan shall be documented by the following, all in form and content
acceptable to Bank in its sole and absolute discretion:
a. Promissory Note.
b. Customary internal People's Bank documentation evidencing the obligation
to issue, and the issuance of, Standby Letters of Credit to be secured by cash
collateral. All such letters of credit to be issued shall expire by their terms
not more than six months from date of issuance or one month before the expiry of
the credit facility, whichever is earlier. The $200K Loan shall be cross
defaulted with the $500K Loan.
c. Subordination of any other creditor of Borrower who asserts a security
interest in the Borrower's cash.
9.2 $500,000 Revolving Credit Line
The $500K Loan shall be documented by the following, all in form and content
acceptable to Bank in its sole and absolute discretion:
a. Promissory Note.
b. Commercial Revolving Credit Line Agreement which shall provide, inter
alia, for certain financial performance criteria as follows:
Debt Service Coverage Ratio of 1.25x as determined by Bank on a rolling four
quarter basis, commencing June 30, 1999 and continuing during the term of the
$500K loan.
Said Agreement shall further provide that at no time during the term of the
$500K Loan shall the principal then advanced and outstanding exceed eighty (80%)
percent of the value of the
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<PAGE> 6
Eligible Receivables as determined by Bank based upon Borrower's timely monthly
reporting of the status of same to Bank. "Eligible Receivables" are all accounts
receivable of Borrower EXCEPTING receivables more than sixty (60) days past
invoice date, all receivables of the United States government and all unearned
service contract receivables. No advances shall be made unless the above ratio
is met and the failure of Borrower to reduce the principal at any time advanced
and outstanding upon Bank's DEMAND to conform to said ratio shall be a default
of the $500K Loan.
c. Security Agreement as to all assets of Borrower with Financing Statements
as above described.
d. A subordination of all secured creditors of record with respect to the
accounts receivable, only, of the Borrower. Said creditors shall further waive
payment on account of Borrower's obligations thereby secured in the event, and
during the continuance of a default of Borrower's financial covenants set forth
in paragraph 9.2 b, above.
e. An intercreditor/marshalling agreement as hereinabove described.
f. Connecticut Development Authority Guaranty and compliance with all
conditions precedent to the execution and delivery of same, all as above
described.
9.3 As to Both Credit Facilities
Prior to closing, Borrower shall provide Bank the following:
a. An up to date Uniform Commercial Code search of the Borrower.
b. Certificate of Legal Existence of the Borrower.
c. Copies of relevant incorporation documents of Borrower including any
share holder agreements.
d. Copies of all documentation evidencing or securing Investor Creditor
interests.
e. An opinion of legal counsel to each Investor Creditor
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<PAGE> 7
as to authority binding effect and due execution.
f. An opinion of legal counsel to the Borrower in the normal course.
g. At closing, an affidavit, by Mr. Perkins and Mr. Vehlies, personally and
as officers of Borrower, as to the following:
i. the balance sheet as of 12/31/98 (the "Balance Sheet") is true and
accurate;
ii. there is no litigation pending nor contingent liabilities except as
disclosed on the Balance Sheet;
iii. all federal, state and local tax filings have been made, all tax
obligations and assessments are current and no claims have been
asserted, all other than as shown on the Balance Sheet;
iv. there has been no material adverse change in the Borrower's
financial condition since the date of the Balance Sheet;
v. the proposed Loan, as evidenced by the Loan documents, does not
violate any corporate bylaw or provision nor would result in a
default under any other agreement or obligation to which the
Borrower is a party or by which it is bound;
vi. there is no current default by the Borrower in the performance of,
or compliance with any covenant or condition of any agreement or
obligation to which the Borrower is a party or by which it is bound.
h. Evidence of casualty and liability insurance reasonably acceptable to
People's Bank. All insurance policies shall be in the form and substance, for
amounts and in companies "A" rated and acceptable to the Bank, with annual
premiums prepaid by the Borrower, shall contain lender's loss payable clauses
(as Lender may require) effective as of the closing date, providing for any loss
payable thereunder to be paid to the Lender, shall provide
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<PAGE> 8
that the policy may not be canceled without 30 days prior written notice to the
mortgagee and shall be deposited with the Lender throughout the life of the
Loan. The Lender's obligations under this commitment shall be conditioned upon
receipt at closing of such insurance policies complying with this paragraph
together with evidence of premium payment. All policies and endorsements shall
be endorsed as follows: People's Bank/its successors and assigns/ATIMA, P.O. Box
7097, Bridgeport, Connecticut 06601, Loan #00-0000660. All notices required to
be sent to Lender shall be sent by registered mail, postage prepaid, to the
address above set forth.
9.4 As to Both Credit Facilities
Borrower shall further comply with any other requirement as People's Bank
may reasonably impose in the sole exercise of its commercial underwriting
discretion pursuant to its established underwriting criteria and shall be
responsible for all fees and costs of People's Bank, whether or not the loan
facilities close.
The condition of the title to all collateral, the form and substance of all
documents, agreements, or other instruments shall be such as Lender shall deem
necessary or require and shall be satisfactory to Lender and its counsel.
Without limiting the foregoing, the Loan documents shall include such covenants,
representations and warranties and default provisions as Lender may deem
necessary or desirable.
Borrower shall duly execute and/or deliver such instruments, documents,
certificates, opinions, assurances and shall do such other acts and things as
Lender may reasonably request to provide Lender with such information and
assurances Lender may require with respect to the Loan and operation of the
property and to effect the intent and purpose of the Loan and this Commitment
Letter.
10. Financial Statements.
10.1 Current signed financial statements of Borrower must be submitted to and
approved by the Lender prior to Loan closing.
10.2 The Loan documents shall provide that Borrower and the Guarantor under the
Guaranty annually shall furnish to the Lender or cause to be furnished, (a)
quarterly during the term of the Loan financial statements of the Borrower, all
in such detail as the Lender may reasonably require and certified by a certified
public accountant acceptable to the Bank if the Bank so requests,
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<PAGE> 9
(b) within (15) days of filing, copies of Borrower's and Guarantor's federal,
state, and local tax returns together with all supporting schedules, and (c)
such other financial information in such detail as the Bank may require within
ten (10) days of the Bank's request for same.
11. Late Charge/Default Rate.
The note evidencing the Loan will provide that the Borrower will be assessed
by the Lender a late charge equal to five (5.00%) percent of the aggregate
monthly payment of interest, principal for each payment not paid within fifteen
(15) days of the due date to cover the expenses to the Lender resulting from
such delinquent payment. During the continuance of any default under the note
evidencing the Loan, the mortgage securing the note or any related documents
beyond any applicable grace period contained therein, the interest rate under
the note shall be five (5.00%) percentage points above the then otherwise
applicable interest rate.
12. Prejudgment Remedy and Jury Trial Waivers.
The Loan documents will provide for a waiver by Borrower of such rights as
may exist under state or federal law to a hearing prior to Lender's exercise of
any right to take legal action to enforce its rights under the Loan documents
after a default thereunder and a waiver by Borrower of the right to a jury
trial.
13. Secondary Financing.
Excepting only such financings as are disclosed by Borrower to Bank prior to
closing and accepted by Bank in its sole and absolute discretion, no secondary
financing shall be permitted without Lender's prior written consent, to be given
or withheld in Lender's sole discretion. Any secondary financing obtained by the
Borrower and/or secured by the collateral or any part thereof or interest
therein without such consent shall be a default under the Loan documents
causing, at Lender's option, the entire amount of the Loan and all other
indebtedness of the Borrower to Lender to be immediately due and payable.
14. Lender's Counsel - Closing Procedure.
Lender's counsel for this transaction shall be Karl-Erik Sternlof of Brown,
Jacobson, Tillinghast, Lahan & King, P.C., 22
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<PAGE> 10
Courthouse Square, Norwich, Connecticut 06360, who shall represent Lender in
this transaction, prepare the Loan documents and review all closing exhibits.
Lender's counsel is generally in a position to complete the closing within
fifteen (15) business days after satisfaction of all pre-closing requirements of
this commitment letter and receipt of acceptable closing exhibits.
All fees and disbursements of Lender's counsel in connection with the Loan,
including, without limitation, preparation of this commitment, loan
documentation, negotiation and closing of the Loan, are the responsibility of
the Borrower, whether or not the Loan closes.
15. Costs and Expenses.
The Loan transaction shall be made without cost to the Lender. Whether or
not this commitment is terminated for any reason, and whether or not the Loan
transaction closes or portion thereof is disbursed, Borrower agrees to pay all
expenses, fees and out of pocket charges paid or payable to third parties with
respect to the Loan transaction or in any way connected therewith, including,
without limiting the foregoing, legal fees of counsel for Borrower legal fees of
counsel for the Lender, costs of recording, documentary stamps, taxes, and such
other customary and reasonable expenses (whether incurred prior to or after the
date of closing) as are normally and reasonably incurred in connection with the
processing and/or consummation of the Loan transaction, or such similar expenses
as may be incurred in connection with the submission of any instruments and
documents after the date of closing or the modification of loan document as may
occur or be required after the date of closing.
16. Consideration for Commitment.
In consideration of the expenses incurred by Lender in processing this Loan,
for the issuance of this commitment, and for the holding of funds for
disbursement at the future date, the Borrower agrees that upon acceptance of
this commitment and payment of the commitment fee specified above this
commitment shall become binding and that the provisions hereof shall govern the
closing of the Loan and the terms of this commitment shall survive the closing
except to the extent inconsistent with the
- 10 -
<PAGE> 11
Loan documents.
17. Borrower's Representations.
This commitment is issued in reliance on the representations made by the
Borrower in connection with its application for the Loan. By acceptance of this
commitment, the Borrower represents that all such representations remain true
and correct and that it has not accepted any other commitment for a mortgage
loan on the Property.
18. Sale of Participation(s) by Lender.
Lender may sell one or more participation interests in the Loan. Lender
shall have the right to disclose any information in its possession or available
to it relative to the Property, the Borrower and/or the Guarantor of the Loan as
Lender deems necessary or desirable in connection with the solicitation and sale
of participation interests in the Loan.
19. Brokerage.
No brokerage commission or compensation is to be paid by the Lender in
connection with the Loan, and by acceptance hereof the Borrower and each
guarantor of the Loan, agrees to indemnify the Lender against any claim for a
brokerage commission or compensation. Lender and Borrower each warrant and
represent to the other that they have not dealt with any broker with regard to
this transaction.
20. Assignment.
The identity of the Borrower is of material importance to the Lender, and
this commitment may not be assigned by the Borrower, and the Lender shall have
no obligation hereunder to any third party, without the Lender's prior written
consent, which may be given or withheld in Lender's sole discretion.
21. Contingencies.
Lender's obligations to close and make any advance under the Loan discussed
in this commitment are subject to the following:
(a) There being no material adverse change in the financial
- 11 -
<PAGE> 12
condition of Borrower at the closing date from that shown on financial
statements and other materials heretofore submitted to Lender, and there being
no litigation at the closing date involving those parties, except litigation
previously disclosed in writing to, and accepted by, the Lender. Any failure of
the Borrower to notify Lender of any such material adverse change or of any such
litigation shall constitute a representation by the Borrower to the Lender that
none has occurred;
(b) Borrower shall not be subject to a bankruptcy, insolvency or
reorganization proceeding;
(c) There exists no default under the Loan documents and no event or
condition which could become a default with the passage of time or giving of
notice;
(d) Borrower accepting this commitment on or before August 31, 1999, by
signing and returning the enclosed copy of this letter to Lender together with
the commitment fee discussed in Section 3 which sum shall be a non-refundable
fee to be retained by the Bank, whether or not the Loan closes; and
(e) Satisfaction of all other conditions and requirements for both the $200K
Loan and the $500K Loan, all as set forth in this commitment letter.
(f) That Borrower agrees in writing at Closing, in form and content
acceptable to Lender, to maintain all operating accounts relative to its
business in an account or accounts at Lender to which recourse may be had in the
event of Borrower's default.
22. Reliance.
Neither this commitment nor any obligation or undertaking of Lender set
forth in this commitment letter, may be relied on by third parties without the
express consent of Lender to such reliance.
23. Effect.
This commitment is issued in response to Borrower's request. Where terms and
provisions of this commitment differ from terms and conditions of the Loan as
requested, this commitment shall prevail. All representations inclusive of
correspondence,
- 12 -
<PAGE> 13
applications or commitment letters related to this Loan and dated prior to the
date hereof shall be superseded by this Commitment and be of no further force or
effect. This Commitment shall survive the closing of the Loan and all terms
hereof to the extent the same are not inconsistent with the terms of the Loan
Documents shall continue to apply, and Borrower in the event of a violation
shall be deemed to be in default thereunder which shall entitle Lender to any
and all rights or remedies referred to herein or under the Loan Documents, or
available to Lender under law or in equity.
24. Time of Closing.
The closing on this Loan in accordance with the terms hereof, must take
place on or before thirty (30) days after acceptance, otherwise the commitment
shall become null and void. The Lender must be given at least five (5) business
days' written notice prior to closing or advance of any funds.
If there are any questions in connection with the terms of this commitment,
please call us at (860) 889-2621.
Very truly yours,
PEOPLE'S BANK
By Arthur C. Barton
Its Vice President
Duly Authorized
The undersigned hereby accepts this Commitment as set forth above and agrees to
be bound to its terms.
Borrower:
Gunther International, Ltd
Date: By: /s/ Marc I. Perkins
--------------------- ----------------------------
---------------------------,
Its President
----------------------------
Duly Authorized
Subject to attached letter
dated September 2, 1999 from
Marc I. Perkins to Arthur C. Barton
- 13 -
<PAGE> 14
GUNTHER
September 2, 1999
Mr. Arthur C. Barton
People's Bank
4 Broadway
Norwich, Connecticut 06360-5725
Dear Mr. Barton:
In reference to your letter dated August 27, 1999, in which People's Bank agrees
to loan Gunther International, Ltd. a maximum principal sum of $700,000 under
two credit facilities subject to certain terms and conditions ("People's
Commitment Letter"), please find a signed copy of the Commitment Letter subject
to the changes noted below and a signed copy of the commitment letter from the
Connecticut Development Authority ("CDA Commitment"). Other than the changes
noted below, all terms and conditions of the People's Commitment Letter and the
CDA Commitment letter remain the same.
The following changes are incorporated into the Commitment Letter:
Section 3.6 is replaced in its entirety by:
"The Loan documents shall provide that the Loan shall become due and
payable on demand if Lender in good faith determines that the prospect
of payment or performance by Borrower or any guarantor under the Loan
documents is impaired, if the Borrower or any guarantor shall default
under any other loan obligation to the bank, or should the collateral
securing the loan become impaired to the extent that the conditions set
forth in paragraph 9.2 are not met."
Section 4 is amended as follows:
"....Commercial Revolving Loan Agreement by and between Bank and
Borrower in form and content acceptable to Bank AND BORROWER. The
........."
Section 14, third paragraph is amended as follows:
"....the responsibility of the Borrower, whether or not the loan
closes, SUBJECT TO A CAP ON THE ATTORNEY FEES FOR THE LENDER OF
$2,000."
Section 15 is amended as follows:
".......legal fees of counsel for the Lender SUBJECT TO THE CAP OF
$2,000 AS STATED IN SECTION 14......"
Please indicate your acceptance of the changes noted above by signing in the
space provided below. The commitment fees required by the bank will be paid by
Gunther International, Ltd. upon the receipt of a signed copy of this letter.
Sincerely,
/s/ Marc I. Perkins
- -------------------------
Marc I Perkins
Chief Executive Officer
The undersigned hereby accepts the changes to the People's Commitment Letter as
set forth above and agrees to be bound to its terms.
Lender: People's Bank
By:
Its Vice President
Duly Authorized
<PAGE> 15
[GUNTHER INTERNATIONAL, LTD. LETTERHEAD]
As of October 23, 1999
People's Bank
4 Broadway
Norwich, Connecticut 06360
Re: People's Bank Commitment Letter to Gunther International, Ltd.
dated Revised August 27, 1999 as Modified by Gunther
International, Ltd. Letter to People's Bank dated September 2,
1999
Ladies and Gentlemen:
This letter is to confirm our understanding with respect to a change to
the above-captioned Commitment Letter with respect to the financial information
which is to be delivered by Gunther International, Ltd. (the "Borrower") to
People's Bank (the "Bank") during the existence of the two loan facilities
described in the Commitment Letter. It has been agreed that Section 10.2 of the
Commitment Letter shall be replaced by the following: "The Loan documents shall
provide that Borrower shall timely submit to Bank the following financial
information: internally prepared financial statements (balance sheet, statement
of income and retained earnings) on a monthly basis within thirty (30) days
following the end of the preceding month; audited financial statements annually
within one hundred twenty (120) days after the end of Borrower's fiscal year;
and notice of all filings made to the Securities and Exchange Commission, with
copies of such filings upon written request of Bank within twenty days of such
filing or request.
Please confirm your agreement with the foregoing change to the
Commitment Letter by signing a copy of this letter in the place indicated and
returning it to us.
Very truly yours,
GUNTHER INTERNATIONAL, LTD.
By: /s/ Michael M. Vehlies
----------------------------
Name: Michael M. Vehlies
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED TO
as of the 23rd day of October, 1999
PEOPLE'S BANK
By: /s/ Arthur C. Barton
----------------------------
Name: Arthur C. Barton
Title: Vice President
<PAGE> 1
COMMERCIAL LOAN AGREEMENT
($200,000.00 Facility)
This Agreement is made as of this 23rd day of October, 1999, by and
between People's Bank (the "Lender") and GUNTHER INTERNATIONAL, LTD. (the
"Borrower").
WHEREAS, by commitment letter dated August 27, 1999 as modified by
Borrower's letter to the Bank dated September 2, 1999 and as further modified by
a letter signed by Bank and Borrower dated October 23,1999, (the "Commitment
Letter"), Lender committed to lend to Borrower the sum of $220,000.00 upon
certain terms and conditions, which Commitment Letter is herein incorporated by
reference.
WHEREAS, the Commitment Letter contemplated the drafting of a Loan
Agreement to stand as one of the Loan Documents; and
WHEREAS, the parties are agreeable to the Commitment Letter standing as
the Loan Agreement.
NOW, THEREFORE, in consideration of the making of the loan described in
the Commitment Letter, the parties agree as follows:
1. The Commitment Letter shall survive the closing of the loan
and its terms shall continue in full force and effect as the Commercial Loan
Agreement until the
<PAGE> 2
loan is paid in full.
2. The attached Pledge Agreement and Rider to Pledge Agreement
attached hereto as Exhibits A-1 and A-2, respectively, shall be used in
connection with each Letter of Credit issued pursuant to the terms of the
Commitment Letter.
3. To the extent any condition precedent to the closing of the
loan has not been satisfied as of this date, the closing of same does not
constitute a waiver of Lender's rights with respect to Borrower's compliance
with same in the future unless such is specifically waived in writing by Lender.
4. Failure of Borrower to keep or perform any of the
agreements, covenants or provisions contained in the Commitment Letter shall be
deemed a default under the Note, the Mortgage and the other Loan Documents.
IN WITNESS WHEREOF, the undersigned have set their hands and seals as
of the day first above written.
PEOPLE'S BANK
By Arthur C. Barton
--------------------------------
Its Vice President
2
<PAGE> 3
GUNTHER INTERNATIONAL, LTD.
By /s/ Michael M. Vehlies
--------------------------------
Its Chief Financial Officer
3
<PAGE> 1
PROMISSORY NOTE
(Revolving Credit Facility)
$500,000.00 Norwich, Connecticut
October 23, 1999
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises to pay to
the order of PEOPLE'S BANK ("Holder") at its office at 850 Main Street,
Bridgeport, Connecticut, the maximum principal sum of FIVE HUNDRED THOUSAND and
NO/100 ($500,000.00) DOLLARS, or so much thereof as may from time to time may be
advanced and is outstanding pursuant to the terms of the Revolving Loan
Agreement of even date herewith between Holder and Maker (the "Agreement"),
together with interest thereon at the rate hereafter provided for. All advances
of principal from Holder to Maker shall be made only in accordance with the
terms of the Agreement and all sums due hereunder shall be payable in full on
August 31, 2000 (the "Maturity Date").
Interest shall be charged on the outstanding principal balance at any
time outstanding from the date advanced at a floating rate equal to the Holder's
Prevailing Prime Rate from time to time in effect plus one and one-half (1.50%)
percent (the "Interest Rate"). The Interest Rate shall be adjusted on a daily
basis throughout the life of the Loan to equal the People's Bank Prevailing
Prime Rate as from time to time in effect.
The term "People's Bank Prevailing Prime Rate" means the per annum
interest rate from time to time determined by the Financial Division of Holder
in the exercise of its sole and exclusive judgment based upon rate information
provided by funding sources ordinarily used by Holder and/or upon national or
regional indices as made generally known by Holder's Financial Division to
Holder's lending staff. The Prime Rate is an interest rate of general
application by Holder but it is not necessarily the best or lowest interest rate
made available to its customers.
Maker shall make monthly payments of interest on principal advanced
pursuant to the terms of the Agreement as accrued at the Interest Rate from time
to time in effect,
<PAGE> 2
commencing on the 1st day of the month immediately following the first advance
of principal and continuing on the first day of each and every month thereafter
until the Maturity Date of August 31, 2000, when the entire balance of principal
and interest shall be due and payable.
Holder shall bill Maker for interest prior to its due date, provided,
however, that any failure of Holder to so bill Maker, or any error contained in
such billing, including but not limited to the calculation of interest, shall
not relieve Maker of its obligations hereunder.
The occurrence of any one of the following events shall constitute an
event of default hereunder and, at the sole election of Holder, the whole of the
principal sum, interest accrued thereon, and any and all indebtedness evidenced
hereby or otherwise due Holder shall accelerate and become immediately due and
payable without notice or demand of any kind:
(a) Failure to make any payment due Holder hereunder for more
than fifteen (15) days after same is due and payable.
(b) Failure to promptly observe, perform or comply with any
other obligation, condition or covenant to be observed, performed or
complied with by Maker under this Note which failure shall continue for
a period of thirty (30) days after notice of such default by Holder to
Maker provided, however, the same shall not constitute an Event of
Default as long as maker commences to cure such default within said
thirty (30) day period and thereafter diligently pursues such cure.
(c) The happening of any event, condition or situation,
permitting the Holder to accelerate the maturity of any indebtedness
hereby evidenced, including, but not by way of limitation, each of the
following acts, omissions, breaches, failures or non-compliance,
events, conditions or situations provided same continue beyond any
express cure period: [i] default under any term of the Agreement,
including but not limited to financial covenants therein contained
-2-
<PAGE> 3
which default continues beyond any express grace or cure period therein
expressly provided for; or [ii] default under the Guaranty of the
Connecticut Development Authority securing this Note; or [iii] default
under the Security Agreement securing this Note which default continues
beyond any express grace or cure period therein expressly provided for;
or default of Maker's obligations under any subordination agreement to
the benefit of Holder; or [iv] default under any other document or
agreement of Maker to the benefit of Holder, whether securing or
further evidencing the obligations herein described or otherwise, which
default continues beyond any express grace or cure period expressly
provided for.
(d) The filing by or against the Grantor of any petition,
arrangement, reorganization, or the like under any insolvency or
bankruptcy law, or the adjudication of Maker as a bankrupt, or the
making of an assignment for the benefit of creditors, or the
appointment of a receiver for any part of any of Maker's properties.
Notwithstanding the above, Maker shall have sixty (60) days to cure or
otherwise dismiss any involuntary petition or other involuntary action
filed against him Maker.
The failure of Holder to exercise such option to accelerate the indebtedness
hereby evidenced shall not constitute a waiver of the right to exercise the same
in the event of any subsequent default.
Total or partial prepayment may be made at any time and from time to
time without payment of a prepayment fee.
Maker agrees to pay all taxes levied or assessed upon this Note other
than taxes upon income to Holder and to pay all reasonable costs, expenses and
attorneys fees incurred by Holder in any proceedings for collection of this Note
and in protecting or sustaining any security interest given Holder. Maker hereby
gives Holder a lien and right of setoff for all Maker's liabilities upon and
against all the deposits, credits, collateral and property of Maker, now or
hereafter in the possession or control of Holder or in transit to it
-3-
<PAGE> 4
including but not limited to special accounts and certificates of deposit
whether or not matured. Holder may, in the event of default in the payment of
obligations hereunder, or upon the occurrence of any event or condition which
would constitute such an event of default after, in each case, the expiration of
any express grace period, if any, apply or set off the same, or any part
thereof, to any liability of Maker. If Maker is indebted to the Holder under any
other obligation, then a default in that obligation which continues beyond any
applicable express grace or cure period shall be a default under this
obligation. Conversely, default under this obligation which continues after any
applicable grace period shall be a default under any other obligation.
MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF ANY
STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY
DESIRE TO USE, AND FURTHER, WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT
AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR HEREIN, NOTICE OF NONPAYMENT,
PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS OF THIS
NOTE, AND ALL RIGHTS UNDER ANY STATUTE OF LIMITATIONS, AND AGREES THAT THE TIME
FOR PAYMENT OF THIS NOTE MAY BE CHANGED AND EXTENDED AT HOLDER'S SOLE
DISCRETION, WITHOUT IMPAIRING ITS LIABILITY THEREON, AND FURTHER CONSENTS TO THE
RELEASE OF ALL OR ANY PART OF THE SECURITY FOR THE PAYMENT HEREOF AT THE
DISCRETION OF HOLDER, OR THE RELEASE OF ANY PARTY LIABLE FOR THIS OBLIGATION
WITHOUT AFFECTING THE LIABILITY OF THE MAKER HEREUNDER. ANY DELAY ON THE PART OF
THE HOLDER IN EXERCISING ANY RIGHT HEREUNDER SHALL NOT OPERATE AS A WAIVER OF
ANY SUCH RIGHT, AND ANY WAIVER GRANTED FOR ONE OCCASION SHALL NOT OPERATE AS A
WAIVER IN THE EVENT OF ANY SUBSEQUENT DEFAULT.
TO THE EXTENT ALLOWED BY LAW, MAKER DOES HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH IT MAY BE A PARTY ARISING OUT
OF OR PERTAINING DIRECTLY OR INDIRECTLY TO THIS TRANSACTION.
Any delay on the part of Holder in exercising any right
-4-
<PAGE> 5
hereunder shall not operate as a waiver of any such right, and any waiver
granted for one occasion shall not operate as a waiver in the event of any
subsequent default.
All notices to Maker required under this Note, if any, shall be deemed
to have been made upon the third business day following the mailing of same by
United States mail, certified, return receipt requested, postage prepaid, or by
commercial courier with the delivery charges prepaid, to the following address:
"Gunther International, Ltd., One Winnenden Road, Norwich, Connecticut 06360" or
such other address as Maker may notice in writing to Holder.
THE RIGHTS AND OBLIGATIONS OF MAKER HEREUNDER, INCLUDING BUT NOT
LIMITED TO THE CIRCUMSTANCES UNDER WHICH PRINCIPAL IS TO BE ADVANCED, ARE
GOVERNED BY THE TERMS OF THE AGREEMENT WHICH ARE INCORPORATED HEREIN BY
REFERENCE.
This Note shall bind the successors and assigns of each Maker and all
endorsers hereto and shall inure to the benefit of the Holder, its successors
and assigns.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut.
GUNTHER INTERNATIONAL, LTD.
By /s/ Marc Perkins
-----------------------------
Its Chief Executive Officer
Duly Authorized
-5-
<PAGE> 1
COMMERCIAL REVOLVING LOAN AGREEMENT
REVOLVING LOAN AGREEMENT, dated as of October 23, 1999 between GUNTHER
INTERNATIONAL, LTD., a corporation with offices at One Winnenden Road, Norwich
CT 06360-1570 ("Borrower") and PEOPLE'S BANK, a Connecticut banking institution
with offices at 850 Main Street, Bridgeport, Connecticut 06604 ("Bank"). The
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings (terms defined in the singular to have the same meaning when used in
the plural and vice versa):
Section 1.1 "Agreement" means this Revolving Loan Agreement,
as amended, supplemented, or modified from time to time in a writing executed by
Borrower and Bank.
Section 1.2 "Borrowing Limit" means FIVE HUNDRED THOUSAND AND
NO/100 ($500,000.00) DOLLARS, subject to the terms of Sections 2.5 and 3.3.
Section 1.3 "Business Day" means any day other than a
Saturday, Sunday, or other day on which commercial banks are authorized or
required to close under the laws of the State of Connecticut and/or federal law.
Section 1.4 "Commitment Letter" means Bank's undertaking to
enter into this Agreement for the benefit of Borrower contained in Bank's
Commitment Letter dated "REVISED August 27, 1999 as revised by a letter from
Borrower to Bank dated September 2, 1999 and as further revised and amended by
letter dated October 23, 1999.
Section 1.5 "Debt Service Coverage Ratio" shall be not less
than 1.25 to 1 and shall be calculated quarterly by Bank on a rolling quarterly
basis in accordance with the following formula: (1) the sum of: (a) net profit,
plus (b) depreciation and amortization, plus (c) interest expense for the
period, plus (d) expenses related to capital leases, minus (e) dividends paid in
cash, minus (f) capital expenditures paid for out of internally generated funds;
divided by (2) the sum of: (a) interest expense for the period paid in cash,
plus (b) maturities of long term debt
<PAGE> 2
scheduled to be paid during the period, plus (c) any expense related to lease
payments for the period. All of the above shall be calculated at the end of each
fiscal quarter for the four preceding quarters using the financial information
provided by Borrower.
Section 1.6 "Default" means any of the events specified in
Section 7.1, whether or not any requirement for the giving of notice, the lapse
of time, or both, or any other condition has been satisfied.
Section 1.7 "Eligible Receivables" means all accounts
receivable of Borrower from time to time existing excepting: receivables more
than sixty (60) days past invoice date; all receivables of the United States
government; and all receivables arising from services agreements which are not
then due and payable, whether or not they have been "earned" according to GAAP.
Bank may make a determination of the Eligible Receivables at any time and from
time to time in the exercise of its reasonable banking judgment, based upon
Borrower's timely monthly reporting to Bank.
Section 1.8 "Eligible Receivables Ratio" means the ratio of
eighty (80%) percent or less at any and all times during the term of this
Agreement between the then debit balance of the Loan Account and the then value
of the Eligible Receivables as determined by Bank in the exercise of its
reasonable banking judgment.
Section 1.9 "Event of Default" means any of the events
specified in Section 7.1, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has been satisfied.
Section 1.10 "Guaranty" means the guaranty of the CDA relative
to the $500,000.00 Revolving Loan made or to be made to Borrower pursuant to
this Agreement.
Section 1.11 "Margin" means one and one-half (1.50%)
percentage points.
Section 1.12 "Prime Rate" means the per annum rate of interest
from time to time determined by Bank's Financial Division in the exercise of its
sole and exclusive judgment based upon
-2-
<PAGE> 3
funding sources ordinarily used by Bank and/or upon national and regional
indices as made generally known by Bank's Financial Division to Bank's lending
staff. The "Prime Rate" is an interest rate of general application but it is not
necessarily the best or lowest rate made available to its customers.
Section 1.13 "Interest Rate" means the Prime Rate from time to
time in effect PLUS the Margin.
Section 1.14 "Lien" means any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), or encumbrance of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction to evidence any of
the foregoing).
Section 1.15 "Loan(s)" means all advances made by Bank
pursuant to the terms of this Agreement, whether to Borrower or to any third
party, including Bank, pursuant to any express provision of the Loan Documents.
Section 1.16 "Loan Account" means the account of Borrower on
the books of Bank in which Bank shall record: all loans made by Bank to Borrower
pursuant to this Agreement, interest, charges, expenses and other items
chargeable to Borrower pursuant to this Agreement, payments made on such loans
by Borrower, and other appropriate debits and credits as provided herein.
Section 1.17 "Loan Documents" means this Agreement, the
Commitment Letter, the Note, the Security Agreement, the Guaranty and any other
documents executed by, on behalf of, or for the benefit of Borrower or the CDA
in connection with the transaction which is the subject hereof.
Section 1.18 "Maturity Date" means August 31, 2000.
Section 1.19 "Obligations" mean any and all indebtedness,
obligations and liabilities of Borrower to Bank of every kind and description,
absolute or contingent, due or to
-3-
<PAGE> 4
become due, whether for payment or performance, now existing or hereafter
arising, including without limitation all loans, interest, taxes, fees, charges,
expenses and reasonable attorneys fees chargeable to Borrower or incurred by
Bank hereunder.
Section 1.20 "Person" means an individual partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority, or other entity of whatever
nature.
Section 1.21 "Note" means that certain "Promissory Note"
(Revolving Credit Facility) executed by Borrower of even date herewith regarding
the Loans made or to be made to Borrower pursuant to this Agreement.
Section 1.22 "Security Agreement" means that certain "Security
Agreement" executed by Borrower of even date herewith, together with the UCC-1
Financing Statements and all subordination agreements executed in connection
therewith, all with respect to collateralizing the Loans made or to be made
pursuant to this Agreement.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
Section 2.1 Revolving Loans. The Bank agrees on the terms and
conditions hereinafter set forth, to make one or more Loans to the Borrower from
the date hereof through (but not including) the Maturity Date in an aggregate
amount not to exceed at any time outstanding the Borrowing Limit. At all times
the proceeds of each Loan shall be utilized for commercial purposes and in
support of the business operations of Borrower in the normal course, only.
Section 2.2 Interest. The Borrower shall pay interest to the Bank on
the outstanding and unpaid principal amount of the Loans, as evidenced by the
Loan Account, at the Interest Rate from time to time in effect. Any change in
the Interest Rate resulting from a change in the Index shall become effective as
of the opening of business on the first Business Day following such change
without notice or demand. Interest shall be calculated on a daily basis and
calculated on the basis of a three hundred sixty (360) day year for the actual
number of days elapsed. Interest shall be paid in arrears on a monthly basis
from the date of the
-4-
<PAGE> 5
first Loan hereunder, commencing on the first day of the month immediately
following the initial loan. Any error in, or failure to provide a monthly
invoice for interest accrued shall not relieve the Borrower of its
responsibilities for payment of accrued interest as herein provided.
The above notwithstanding, upon the occurrence and during the
continuance of an Event of Default, any principal amount not paid when due (at
maturity, by acceleration, or otherwise) shall bear interest until paid at a
rate which shall be five (5.00%) percent above the rate which would otherwise be
applicable.
Section 2.3 Loan Account. The indebtedness of Borrower to Bank
hereunder shall be evidenced by a Promissory Note and the Loan Account. Bank
shall enter as debits to the Loan Account all loans, charges, expenses and other
items chargeable to Borrower hereunder; and shall enter as credits to the Loan
Account all payments made by Borrower on account of indebtedness evidenced by
the Loan Account, and other appropriate debits and credits.
Section 2.4 Loans in Excess of Borrowing Limit. If at any time the
outstanding principal balance advanced to Borrower hereunder exceeds the
Borrowing Limit, Borrower shall immediately pay cash to Bank to be credited to
the Loan Account in an amount necessary to reduce the outstanding principal
balance hereunder to the Borrowing Limit.
Section 2.5 Loans in Excess of Ratio. If at any time the Eligible
Receivables Ratio and/or Debt Service Ratio are exceeded, Borrower shall
immediately pay cash to Bank to be credited to the Loan Account in an amount
necessary to reduce the Eligible Receivables Ratio to eighty (80%) percent or
less and/or increase the Debt Service Coverage Ratio to 1.25x or greater.
Section 2.6 Principal Payments; Maturity Date. Borrower shall pay to
the Bank all principal sums then outstanding with respect to the Loans on the
Maturity Date, together with all accrued but unpaid interest and all other
charges due hereunder or as provided in the Loan Documents.
Section 2.7 Application of Payments. All payments received by Bank
shall be applied first to the payment of interest and all charges and expenses
payable by Borrower hereunder (in such order as Bank may determine) and the
balance, if any, shall be applied
-5-
<PAGE> 6
to principal.
Section 2.8 Late Charges. Any payment received more than ten (15) days
after its due date shall be subject to an additional charge of five (5.00%)
percent of the amount due.
Section 2.9 Prepayments. Borrower may prepay the Note in whole or in
part at any time, with accrued interest to the date of such prepayment on the
amount prepaid without penalty.
Section 2.10 Termination of Future Advances. Anything contained in this
Agreement or the Note to the contrary notwithstanding, the Bank shall have the
right to refuse to make any further advances or Loans as provided hereunder or
in the Note upon the occurrence of any Event of Default under this Agreement,
the Note, the Security Agreement, or any other documents further evidencing or
securing the Loans, or in the event that there has been a default by Borrower
under the terms of any other financing or loan arrangement between Bank and
Borrower which has continued beyond any applicable grace or cure periods
expressly provided for.
ARTICLE III
CONDITION PRECEDENT TO LOANS
Section 3.1 Reaffirmation of Representations and Warranties. Each
request for a Loan shall constitute a reaffirmation by Borrower that all
representations and warranties herein contained are, in all material respects,
true and accurate as of the date of such request.
Section 3.2 Borrowing Limit. The obligation of the Bank to make Loans
is subject to the condition that the Loan when made shall not cause the
outstanding principal balance advanced to Borrower hereunder to exceed the
Borrowing Limit.
Section 3.3 Eligible Receivable Compliance with Ratios. The obligation
of the Bank to make Loans is subject to the condition that the Loan when made
shall not cause the Eligible Receivable Ratio to exceed eighty (80%) percent and
that the Debt Service Coverage Ratio shall not be less than 1.25x.
Section 3.4 Reporting. The obligation of the Bank to make
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Loans is subject to the condition that Borrower has timely filed its monthly
reports to Bank relative to Eligible Receivables.
Section 3.5 Absence of Default. The obligation of the Bank to make
Loans is subject to the condition that no Event of Default be existing Borrower
is not then in default under the terms of this Agreement, the Note, the Security
Agreement or any other document further evidencing or securing the Loans,
whether or not the Bank has elected to accelerate the Loans or otherwise seek
enforcement of its remedies.
Section 3.6 Reaffirmation of Covenants. Each request for a Loan shall
constitute a reaffirmation by Borrower that Borrower is then complying with the
covenants contained in Articles V and VI of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank that:
Section 4.1 Legally Enforceable Agreement. This Agreement is, and each
of the other Loan Documents when delivered under this Agreement will be, legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, or other
similar laws affecting creditor's rights generally.
Section 4.2 Financial Statements. The financial statements of the
Borrower as furnished to the Bank are complete and correct and fairly present
the financial condition of the Borrower as of such dates and periods covered by
such statements. There has been no material adverse change in the financial
condition of the Borrower since June 30, 1999, the date of the latest financial
statement provided Bank by Borrower. There are no liabilities of the Borrower,
fixed or contingent, which are material but are not reflected in the financial
statements. No information furnished by the Borrower to the Bank in connection
with the negotiation of this Agreement contained any material misstatement of
fact or omitted to state a material fact or any fact necessary to make the
statement contained therein not materially misleading.
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<PAGE> 8
Section 4.3 Other Agreements. The Borrower is not now a party to any
indenture, loan, or loan agreement, or to any lease or other agreement or
instrument, or subject to any restriction which could have a material adverse
effect on its assets or financial condition, or its ability to carry out the
obligations under the Loan Documents. The Borrower is not in default in any
respect in the performance, observance, or fulfillment of any of the obligations
covenants, or conditions contained in any agreement or instrument material to
which it is a party.
Section 4.4 Litigation. There is no pending or threatened action or
proceeding against or affecting the Borrower before any court, governmental
agency, or arbitrator which may, in any one case or in the aggregate, materially
adversely affect the financial condition of the Borrower or its ability to
perform the obligations under the Loan Documents.
Section 4.5 No Defaults on Outstanding Judgments or Orders. The
Borrower has satisfied all judgments and is not in default with respect to any
judgment, writ, injunction, decree, rule, or regulation of any court,
arbitrator, or federal, state, or municipal instrumentality, domestic or
foreign.
Section 4.6 Ownership and Liens. The Borrower has title to, or valid
leasehold interest in, all of its properties and assets as reflected in the
financial statements provided to the Bank, and no such properties or assets are
subject to any lien or encumbrance not disclosed therein.
Section 4.7 Taxes. The Borrower is current on all obligations to pay
taxes, including without limitation property taxes, income taxes, sales taxes
and all other taxes arising in connection with its property and is not aware of
any liability for taxes other than currently accruing taxes.
Section 4.8 Compliance with Law. The Borrower is not aware of any
violations of law on their part in connection with its assets.
Section 4.9 Capacity. That the Borrower is a corporation formed under
the laws of the State of Delaware and is in all respects in good standing.
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower will:
Section 5.1 Financial Statements. Timely submit to Bank the following
financial information: internally prepared financial statements (balance sheet,
statement of income and retained earnings) on a monthly basis within thirty (30)
days following the end of the preceding month; audited financial statements
annually within one hundred twenty (120) days after the end of Borrower's fiscal
year; and notice of all filings made to the Securities and Exchange Commission,
with copies of such filings upon written request of Bank, within twenty (20)
days of such filing or request.
Section 5.2 Accounts Receivable Reporting. Timely submit to Bank
monthly reports of Accounts Receivable within fifteen (15) days of the end of
each calendar month.
Section 5.3 Compliance with Laws. Comply, in all material respects with
all applicable laws, rules, regulations, and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments, and governmental charges imposed upon its property.
Section 5.4 Compliance with Loan Documents. Comply with all obligations
under the Loan Documents including but not limited to the maintenance of the
required Eligible Receivables Ratio and the required Debt Service Coverage
Ratio.
Section 5.5 Bank Account. Maintain all operating accounts of the
Borrower with the Bank, including a deposit account with the Bank into which the
Bank may deposit advances made pursuant hereto and to the Promissory Note. The
Borrower acknowledges and agree that the maintenance of the operating accounts
with the Bank is required for collateral purposes and the Borrowers failure to
do so shall be a default hereunder.
ARTICLE VI
NEGATIVE COVENANTS
So long as the Note shall remain unpaid or the Bank shall
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<PAGE> 10
have any Commitment under this Agreement, the Borrower will not without the
Bank's written consent:
Section 6.1 Liens. Create, incur, assume, or suffer to exist, any Lien
upon or with respect to any personal property pledged to the Bank pursuant to
the terms of the Security Agreement, except:
(1) Liens in favor of the Bank;
(2) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained.
(3) Liens for the acquisition of new personal property in the
normal course of the Borrower's business.
(4) Purchase money liens in the normal course of Borrower's
business.
(5) Such liens as are set forth in Exhibit A attached hereto
and incorporated herein.
Section 6.2 Sale of Assets. Sell, lease, assign, transfer, pledge or
otherwise dispose of any personal property pledged to the Bank pursuant to the
terms of the Security Agreement except in the normal course of the Borrower's
business, unless said Property is replaced with a like asset of equal or greater
value.
ARTICLE VII
EVENTS OF DEFAULT AND ACCELERATION
Section 7.1. The occurrence of any one or more of the following events
shall constitute an Event of Default hereunder:
(1) Default in the payment of any principal, interest or other
charges in respect of any of the Obligations within fifteen (15) days of the due
date thereof.
(2) Default in the observance or performance or any
undertaking of Borrower set forth in Article V herein which shall continue for a
period of thirty (30) days after notice of such
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<PAGE> 11
default by the Bank to the Borrower.
(3) Default in the observance or performance of any
undertaking of Borrower set forth in Article VI hereof.
(4) Default in the observance or performance of any
undertaking of Borrower herein set forth or set forth in the Note, the Security
Agreement or any other document further evidencing or securing the Loans which
are not otherwise specifically addressed in this Section 7.1 and which default
shall continue for a period of thirty (30) days after notice of such default
from Bank to Borrower.
(5) If any representation, warranty or information made or
furnished by Borrower to Bank is or shall be untrue or misleading in any
material respect.
(6) If Borrower shall have made an assignment for the benefit
of creditors, or if a petition in bankruptcy or to effect a plan or arrangement
with creditors is filed by or against Borrower; or if Borrower shall apply for
or permit the appointment of a receiver or trustee for any of its property or
assets, or if any such receiver or trustee shall have been appointed for any of
its property or assets; or if any of the above actions or proceedings whatsoever
are commenced by or against Borrower. Notwithstanding the above, Borrower shall
have sixty (60) days to dismiss or otherwise cure any involuntary petition or
other involuntary action filed or commenced against it.
(7) Default under the terms of any other financing or loan
facility between the Bank and the Borrower, including but not limited to that
certain $200,000.00 facility with respect to Standby Letters of Credit of even
date herewith which default continues beyond any applicable grace or cure
period.
Section 7.2. If any Event of Default shall occur, then or at any time
thereafter, while such Event of Default shall continue, or at any time Bank
shall in good faith determine that the prospect of payment or performance by
Borrower under the documentation further evidencing or securing the Loan
evidenced hereby is impaired, the Bank may declare all Obligations to be due and
payable, without notice, protest, presentment or demand, all of which are hereby
expressly waived by Borrower.
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<PAGE> 12
ARTICLE VIII
RIGHTS AND REMEDIES
Section 8.1. During the continuance of an Event of Default:
(1) Bank shall have the right, without notice, to set off any
and all deposits or other sums at any time or times credited by or due from Bank
to Borrower, including certificates of deposit, whether in a special account or
other account, which deposits and other sums shall at all times constitute
security for the Obligations which are then due. Any and all instruments,
documents, policies and certificates of insurance, securities, goods, contracts
and contract rights, accounts receivable, general intangibles, chattel paper,
cash and property and the proceeds of any of the foregoing owned by Borrower or
in which Borrower now or hereafter has an interest, which now or hereafter are
at any time in possession or control of Bank or in transit by mail or carrier to
or from Bank or in the possession of any third party acting in or on behalf of
Bank, without regard to whether Bank received the same in pledge, for
safekeeping, as agent for collection or transmission or otherwise (including
computer records) or whether Bank had conditionally released the same, shall
constitute security for the Obligations and may be applied at any time to any
matured Obligations.
(2) The Bank shall have all of the rights and remedies set
forth in any other document evidencing or securing the Loans.
(3) The foregoing remedies shall not be exclusive, but shall
be cumulative, and shall not diminish or impair any other rights and remedies
available to the Bank at law or in equity.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Term of Agreement. The term of this Agreement shall
commence on the date hereof and shall continue until all Obligations shall have
been fully paid and satisfied.
Section 9.2. The failure of Bank at any time or times to require strict
performance by Borrower of any of the provisions, warranties, terms, covenants,
and conditions contained herein for
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<PAGE> 13
any other instrument or document now or at any time or times hereafter executed
by Borrower and delivered to Bank shall not waive, affect or diminish any right
of Bank at any time or times to demand strict performance thereof; no rights of
Bank hereunder shall be deemed to have been waived unless such waiver is in
writing signed by an officer of Bank. No waiver by Bank of any of its rights
shall operate as a waiver of any other of its rights or any of its rights on a
future occasion.
Section 9.3. Any demand, consent, approval or notice given hereunder
(collectively "Notice")shall be given in writing (regardless of whether so
specified in other provisions of this Agreement) and shall be delivered (i) by
United States certified mail, postage prepaid, return receipt requested or (ii)
by nationally recognized overnight courier which provides for a signature upon
receipt of deliveries and shall be deemed given upon receipt or upon refusal or
acceptance. Notice shall be delivered to the following addresses:
TO BORROWER:
Gunther International, Ltd.
One Winnenden Road
Norwich, CT 06360
Attention: President
With a copy simultaneously delivered to:
Murtha, Cullina, Richter and Pinney, LLP
185 Asylum Street
Hartford, Connecticut 06103
Attention: Richard S. Smith, Jr.,
Esquire
TO BANK:
People's Bank
4 Broadway
Norwich, Connecticut 06360
Attention: Arthur C. Barton
With a copy simultaneously delivered to:
Brown, Jacobson, Tillinghast, Lahan &
King, P.C.
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<PAGE> 14
22 Courthouse Square
Norwich, Connecticut 06460
Attention: Karl-Erik Sternlof, Esquire
or to such other address as may be provided by such party, in manner aforesaid.
Section 9.4. This Agreement contains the entire understanding between
the parties hereto with respect to the transactions contemplated herein and such
understanding shall not be modified except in writing signed by the parties
hereto.
Section 9.5. The provisions of this Agreement shall be binding and
shall inure to the benefit of the successors and assigns of Bank and the
Borrower, provided however, Borrower may not assign any of its rights nor
delegate any of its duties hereunder without the prior written consent of the
Bank which shall be given or withheld in the sole reasonable discretion of the
Bank.
Section 9.6. This Agreement has been made and delivered in the State of
Connecticut, and shall be construed in all respects in accordance with and
governed by the laws and decisions of that State.
Section 9.7. If Bank shall employ counsel in connection with the
execution and consummation of the transactions contemplated by this Agreement or
to take any action in or with respect to any suit or proceeding (bankruptcy or
otherwise) relating to this Agreement, or to enforce any other rights of the
Bank hereunder, whether before or after the occurrence of any Event of Default,
or to collect any of the Obligations, then in any of such events, all reasonable
attorneys fees and any expenses, costs and charges relating thereto, shall be
part of the Obligations, payable on demand.
Section 9.8. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
Section 9.9. The section headings herein are included for convenience
only and shall not be deemed to be a part of this Agreement.
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<PAGE> 15
Section 9.10. Each reference herein made to Bank shall be deemed to
include its successors and assigns, and each reference to Borrower and any
pronouns referring thereto as used herein shall be deemed to include the
successors and assigns of Borrower, all of whom shall be bound by the provisions
hereof.
Section 9.11. THE UNDERSIGNED HEREBY WAIVE TRIAL BY JURY IN ANY WAY
RELATED TO THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART.
BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH BANK MAY
DESIRE TO USE, AND FURTHER, WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT
AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR HEREIN, NOTICE OF NONPAYMENT,
PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS OF THIS
AGREEMENT, AND ALL RIGHTS UNDER ANY STATUTE OF LIMITATIONS, AND AGREE THAT THE
TERMS OF BORROWER'S OBLIGATIONS UNDER THIS AGREEMENT MAY BE CHANGED AND EXTENDED
AT BANK'S SOLE DISCRETION, WITHOUT IMPAIRING THEIR LIABILITY THEREON, AND
FURTHER CONSENT TO THE RELEASE OF ALL OR ANY PART OF THE SECURITY FOR THE
PAYMENT HEREOF AT THE DISCRETION OF BANK, OR THE RELEASE OF ANY PARTY LIABLE FOR
THIS OBLIGATION WITHOUT AFFECTING THE LIABILITY OF BORROWER. ANY DELAY ON THE
PART OF THE BANK IN EXERCISING ANY RIGHT HEREUNDER SHALL NOT OPERATE AS A WAIVER
OF ANY SUCH RIGHT, AND ANY WAIVER GRANTED FOR ONE OCCASION SHALL NOT OPERATE AS
A WAIVER IN THE EVENT OF ANY SUBSEQUENT DEFAULT.
Section 9.12 Conflict with Law. In the event that the rights and
remedies of the Bank herein conflict with any federal or state laws and
regulations applicable to consumer loans, the provisions of such laws and
regulations shall take precedence.
ARTICLE X
ASSIGNMENT
Section 10.1 Assignment by Bank. If at any time or times by assignment
or otherwise the Bank transfers or assigns any Obligations, such transfer shall
carry with it the powers and rights of the Bank under this Agreement with
respect to the
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<PAGE> 16
Obligations assigned or transferred and the assignee or transferee shall become
vested with said powers and rights whether or not they are specifically referred
to in the transfer or assignment. If and to the extent the Bank retains any
Obligations, the Bank shall continue to have the rights of powers herein set
forth with respect thereto.
Section 10.2 Assignment by Borrower. The Borrower may not assign its
rights or obligations under this Agreement without the prior written approval of
the Bank which shall be given or withheld in the sole reasonable discretion of
the Bank.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the 23rd day of October, 1999.
In the presence of:
GUNTHER INTERNATIONAL, LTD.
/s/ Frank J. Saccomandi, III By /s/ Michael M. Vehlies
- ---------------------------- ---------------------------------
Its Chief Financial Officer
/s/ Karl-Erik Sternlof
- ----------------------------
PEOPLE'S BANK
/s/ Frank J. Saccomandi, III /s/ Arthur C. Barton
- ---------------------------- ------------------------------------
Arthur C. Barton
Its Vice President
/s/ Karl-Erik Sternlof
- ----------------------------
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<PAGE> 1
SECURITY AGREEMENT
AGREEMENT dated as of the 23rd day of October, 1999, by and between
GUNTHER INTERNATIONAL, LTD., a Connecticut corporation with its principal place
in the Town of Norwich, County of New London and State of Connecticut, (herein
referred to as "Debtor"), and PEOPLE'S BANK, a Connecticut stock savings bank
with a principal place of business at 850 Main Street, Bridgeport, Connecticut,
(herein referred to as "Bank").
WHEREAS, Debtor has requested Bank to make loans and financing
available to Debtor, and
WHEREAS, Bank has agreed to do so on certain conditions, including,
without limitation, the granting of certain security interests and rights and
the making of certain representations and covenants by Debtor.
W I T N E S S E T H
NOW, THEREFORE, Debtor and Bank agree as follows:
(1) GRANT OF SECURITY INTEREST.
(a) Debtor hereby grants to the Bank a security interest in all
personal property now or hereafter owned or acquired by Debtor, including but
not limited to Accounts, Chattel, Paper, Documents, Equipment, Fixtures, General
Intangibles, Instruments and Inventory as more particularly described on Exhibit
A attached hereto and incorporated herein (the "Collateral"). This grant is made
to secure the payment and performance of any and all existing and future
obligations and liabilities of Debtor to Bank relating in any way to that
certain note of even date herewith in the amount of $500,000.00 made by Debtor
to the order of Bank (the "Note") pursuant to the terms of that certain
Commercial Revolving Loan Agreement of even date herewith between Debtor and
Bank (the "CRLA"), copies of which Note and which CRLA are attached hereto and
marked as Exhibit "B" and "C", or to any other document evidencing the
obligations thereunder or securing same. As used in this Agreement,
"Liabilities" or "Obligations" mean any and all indebtedness, obligations and
liabilities of Debtor (and any endorser, guarantor or surety
<PAGE> 2
of for Debtor) to Bank relative to the loan evidenced by said Note and CRLA of
every kind and description, direct or indirect, primary or secondary, absolute
or contingent due or to become due, now existing or hereafter arising,
regardless of how they arise or by what agreement or instrument further
evidencing or securing same they may be evidenced, or whether evidenced by any
agreement or instrument, including, without limitation, all costs incurred by
Bank to obtain, preserve and enforce this security interest, collect and enforce
the liabilities therein contained, and maintain and preserve collateral and
including, but not limited to, reasonable attorneys fees and legal expenses.
(b) To the extent applicable, the Uniform Commercial Code of
Connecticut shall govern security interests provided for herein. In connection
therewith, the Debtor shall take such steps and execute and deliver such
financing statements, assignments and other papers as Bank may from time to time
request.
(c) If, by reason of location of Collateral or otherwise, the
creation, validity or perfection of security interests provided for herein are
governed by the law of a jurisdiction other than Connecticut, the Debtor shall
take steps and execute and deliver such papers as Bank may from time to time
request to comply with such law.
(d) As long as any Liabilities of the Debtor to Bank are
outstanding under this Agreement, the Debtor will not become obligated for any
loans or other grants of credit (except for merchandise purchased or services
rendered in the ordinary course of business) to any person other than Bank,
without Bank's prior written consent.
(e) It is understood and agreed that all advances now or hereafter
made by the Bank to Debtor under the CRLA are hereby deemed to be secured by
this Agreement.
(2) PROMISES TO PAY.
The Debtor promises to pay to Bank:
(a) All Liabilities of Debtor to Bank in accordance
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<PAGE> 3
with their terms;
(b) Any and all taxes, charges and expenses of every kind or
description paid or incurred by the Bank under or with respect to any
Liabilities or any Collateral therefor or the collection of or realization of
the same including costs of collection, attorneys fees, expenses of litigation
and otherwise.
(3) DEBTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
In order to induce the Bank to make loans under the CRLA, Debtor
hereby represents, warrants and covenants to the Bank that:
(a) Except as provided in Exhibit C attached hereto and made a
part hereof and except for the security interests herein granted, no financing
statement has been filed with respect to the Collateral, Debtor is the absolute
and undisputed owner of the Collateral. Except as provided in Exhibit C hereto,
the Collateral is not, and will not be permitted to be in any respect encumbered
other than by this security interest (and the same will be true of collateral
acquired hereafter when acquired). All indebtedness to Debtor with respect to
any accounts receivable is bona fide and valid and no setoffs or counterclaims
exist against such indebtedness. No suits or actions are pending against Debtor,
and no claims, including, without limitation, taxes, assessments and insurance
premiums, are due and unpaid. Debtor's chief place of business is the address
shown above, and Debtor shall promptly give Bank written notice of any change
thereto, and the Collateral and business records pertaining to the Collateral
and Obligations, including those pertaining to all accounts and contract rights,
shall be kept at the above address of Debtor unless prior written consent of
Bank is obtained to a change of location.
(b) Debtor shall [i] pay punctually all Obligations when due as
required by the terms of any notes or agreements, and if any Obligation is now
evidenced by a writing specifying a due date, pay the same upon demand, all
Obligations being payable to the Bank at its address shown above, and [ii] pay
on demand any and all taxes, charges and
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<PAGE> 4
expenses of every kind or description paid or incurred by Bank under or with
respect to loans made under the CRLA or any Collateral therefor or the
collection of or realization upon the same, including costs of collection,
attorneys fees, expenses of litigation and otherwise. Debtor hereby authorizes
the Bank to charge any and all liabilities owing to the Bank, including, without
limitation, the aforesaid interest, charges, taxes and expenses, to any of their
accounts with the Bank after and during the continuance of any Event of Default
as defined in the CRLA.
(c) Debtor shall [i] preserve the Collateral in good condition
and order and not permit it to be abused or misused, [ii] insure the Collateral
for such hazards and in such amounts as the Bank reasonably directs, policies to
be satisfactory to and payable to Bank and providing a minimum of ten (10) days
written cancellation notice to the Bank, [iii] until contrary instructions from
Bank, collect the accounts, contracts, rights, chattel paper and other debts,
[iv] when and to the extent required by the Bank after and during the
continuance of an Event of Default as defined in the CRLA, notify other debtors
and obligors that their accounts, contract rights, instruments, documents and/or
chattel paper have been assigned to the Bank and shall be paid directly to the
Bank, [v] take necessary steps to preserve the liability of account debtors,
obligors and secondary parties whose liabilities are part of the Collateral,
[vi] take any action required by the Bank with reference to the Federal
Assignment of Claims Act, [vii] allow the Bank to inspect the Collateral and to
inspect and copy all records relating to the Collateral and Obligations, [viii]
upon request by the Bank and subject to the rights of the other secured lenders
listed on Exhibit C hereto, if any, sign any papers necessary to obtain,
preserve and enforce this security interest in any jurisdiction; transfer
possession of and assign all instruments, documents, patents and chattel paper,
which are part of the Collateral to the Bank immediately, or as to those
hereafter acquired, immediately following acquisition, [ix] perfect a security
interest (using a method satisfactory to Bank) in goods covered by any
instrument, document or chattel paper in the Collateral, [x] notify the Bank of
any change occurring in or any of the Collateral, or in any fact or circumstance
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<PAGE> 5
warranted or represented by Debtor herein, or furnished to the Bank, or if any
such Event of Default occurs, [xi] pay all costs necessary to perform any act or
duty required by this Agreement, including, but not limited to, attorneys fees,
insurance premiums, taxes and assessments. The Bank shall have the right to
execute any financing statement or other document necessary or advisable to
perfect an interest granted hereunder.
(4) CERTAIN RIGHTS OF BANK.
The Bank shall, in addition to any other rights it may have by
law or under this Agreement, have the following rights:
(a) At its option, after an Event of Default as defined in the
CRLA occurs, the Bank may, subject to the rights of the other Secured Parties
listed on Exhibit C hereto, if any: [i] take, and require Debtor to give to it,
possession or control of any of the Collateral and proceeds thereof, and apply
the same to payment of any of the Obligations, [ii] apply to any Obligations the
balance of Debtor's accounts, of whatever type, at the Bank, [iii] endorse as
Debtor's agent any instruments, documents, chattel paper in the Collateral, [iv]
notify account debtors and obligors of Debtor to pay directly to Bank, or to
verify information supplied by Debtor, [v] discharge any lien or encumbrance on
Collateral and exercise any other rights which an owner of the Collateral may
exercise and, [vii] take any of the foregoing actions, or any action Debtor is
required to take by this Agreement, without notice to Debtor, and add the costs
of the same to the Obligations, but Bank is under no duty to take any such
action.
(b) Debtor hereby gives Bank a lien and right of setoff for all
Debtor's Liabilities upon or against all the deposits, credits, collateral and
property of Debtor now or hereafter in the possession or control of the Bank or
in transit to it. The Bank may at any time upon and during the continuance of
any Event of Default as defined in the CRLA apply or setoff the same, or any
part thereof, to any of Debtor's Liabilities even though unmatured.
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<PAGE> 6
(5) EVENTS OF DEFAULT: ACCELERATION.
Any and all of the Liabilities of Debtor to the Bank shall, at
the sole option of the Bank and notwithstanding any time or credit allowed by
any instrument evidencing a Liability, be immediately due and payable, without
notice or demand, upon the occurrence of any of the following events of default:
[i] the occurrence of an Event of Default under the CRLA and/or the Note; [ii]
loss, theft, damage, destruction (for which there is inadequate insurance
coverage), unauthorized sale or encumbrance to or of any of the Collateral, or
the making or issuance of any levy, seizure, attachment or injunction upon or
against any of the Collateral or any other property of Debtor; [iii] dissolution
or other termination of existence or (iv) if Bank in good faith determines the
prospect of payment or performance by Debtor under the CRLA and/or the Note is
impaired.
(6) POWER TO SELL OR COLLECT COLLATERAL.
Upon the occurrence of any Event of Default as defined in the
CRLA, all Obligations shall, at Bank's sole option, become immediately due and
payable, anything in any note evidencing any such Obligation or in this
Agreement or in any other agreement to the contrary notwithstanding, without
notice to Debtor, and Bank shall have, in any jurisdiction where enforcement
hereof is sought, in addition to any other rights and remedies which Bank may
have under law, the following rights and remedies, all of which may be exercised
with or without further notice to Debtor but subject to the rights of the other
secured lenders as set forth in Exhibit C hereto, if any: [i] to notify any and
all obligors on accounts receivable that the same have been assigned to the Bank
and that all payments thereon are to be made directly to the Bank, [ii] to
settle, compromise or release on terms acceptable to the Bank, in whole or in
part, any amounts owing on accounts receivable and to enforce payment and
prosecute any action or proceeding with respect to any and all accounts
receivable, [iii] to extend the time of payment, make allowances and adjustments
and to issue credits in the Bank's name or in the name of Debtor, [iv] to
foreclose the liens and security interests created under this Agreement or under
any other agreement relating to Collateral by any available judicial
procedure or without judicial process, to enter any premises where any of the
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<PAGE> 7
Collateral may be located for the purpose of taking possession of or removing
the same, [v] to sell, assign, lease or otherwise dispose of the Collateral or
any part thereof, either at public or private sale or at any broker's board, in
lots or in bulk, for cash, on credit or otherwise, with or without
representations or warranties and upon such terms as shall be acceptable to the
Bank, all at the Bank's sole option and as the Bank, in its sole discretion, may
deem advisable and the Bank may bid or become purchaser at any such sale if
public, free from any right of redemption which is hereby expressly waived by
Debtor, and the Bank shall have the right, at its option, to apply or be
credited with the amount of all or any part of the Liabilities owing to the Bank
against the purchase price bid by the Bank at any such sale. Subject to the
right of the other secured lenders as set forth in Exhibit C hereto, if any, The
net cash proceeds resulting from the collection, liquidation, sale, lease or
other disposition of Collateral shall be applied first to the expenses
(including all attorneys fees) or retaking, holding, storing, processing and
preparing for sale, selling, collecting, liquidating and the like, and then to
the satisfaction of all Liabilities, application as the particular Liabilities
or against principal or interest to be in the Bank's discretion. Debtor shall be
liable to the Bank and shall pay the Bank on demand any deficiency which may
remain after such sale, disposition, collection or liquidation of Collateral,
and the Bank in turn agrees to remit to Debtor any surplus remaining after all
Liabilities have been paid in full. If any of the Collateral shall require
repairing, maintenance, preparation, or the like, or is in the process or other
unfinished state, the Bank shall have the right, but shall not be obligated, to
do such repairing, maintenance, preparation, processing or completion of
manufacturing for the purpose of putting the same in such saleable form as the
Bank shall deem appropriate, but the Bank shall have the right to sell or
dispose of such Collateral without such processing. Subject to the rights of the
other secured lenders as set forth in Exhibit C hereto, if any, Debtor will, at
the Bank's request, assemble all Collateral and make it available to the Bank at
places which the Bank may select whether at premises of Debtor or
-7-
<PAGE> 8
elsewhere, and will make available to the Bank all premises and facilities of
Debtor for the purpose of Bank's taking possession of Collateral or of removing
or putting the Collateral in saleable form. In the event any goods called for in
any sales order, contract, invoice or other instrument or agreement evidencing
or purporting to give rise to any accounts receivable included in any assignment
submitted to the Bank for Collateral purposes shall not have been delivered or
shall be claimed to be defective by any customer, the Bank shall have the right,
in its sole discretion, to use and deliver to such customer any goods of Debtor
to fulfill such order, contract, or the like, so as to make good any such
accounts receivable. To facilitate the exercise by the Bank of the rights and
remedies set forth in this Paragraph, Debtor hereby constitutes Bank or its
agents, or any other person whom Bank may designate, as attorney-in-fact for
Debtor at Debtor's own cost and expense, to exercise all or any of the following
powers subject to the rights of the other secured lenders as set forth in
Exhibit C hereto, if any, which being coupled with an interest, shall be
irrevocable, shall continue until all Liabilities have been paid in full and
shall be in addition to any other rights and remedies that the Bank may have:
[i] to remove from any premises where the same may be located, any all
documents, instruments, files and records, and any receptacles and cabinets
containing the same, relating to Collateral, and the Bank may, at Debtor's cost
and expense, use such of the personnel, supplies and space of Debtor at its
place of business as may be necessary to properly administer and control the
Collateral or the handling of collections and realizations thereon; [ii] to
receive, open and dispose of all mail addressed to Debtor and to notify postal
authorities to change the address for delivery thereof to such address as the
Bank may designate; [iii] to take or bring, in the Bank's name or in the name of
Debtor, all steps, actions, suits or proceedings deemed by the Bank necessary or
desirable to effect collection of or to realize upon the Collateral; and [iv] to
collect or withdraw all sums of money or other solvent credits Debtor may have
to its credit with any banking institution.
(7) WAIVERS.
-8-
<PAGE> 9
(a) Debtor waives presentment, demand, notice, protest, notice
of acceptance of this Agreement, notice of loans made, credit extended,
collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. With respect both to
Liabilities and Collateral, Debtor assents to any extension or postponement of
the time of payment or any other indulgence, to any substitution, exchange, or
release of Collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payments thereon
and the settlement, compromising or adjusting of any thereof, all in such manner
and at such time or times as the Bank may deem advisable. The Bank shall have no
duty as to the collection or protection of Collateral or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto beyond the safe custody thereof.
The Bank may exercise its rights with respect to Collateral without resorting or
regard to other Collateral or sources of reimbursement for any Liability. The
Bank shall not be deemed to have waived any of its right upon or under
Liabilities or Collateral unless such waiver be in writing and signed by the
Bank. No delay or omission on the part of the Bank in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right on any future
occasion. The Bank may revoke any permission or waiver previously granted to
Debtor, such revocation shall be effective whether given orally or in writing.
All rights and remedies of the Bank on Liabilities or Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised singularly or concurrently.
(b) The Bank shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the liquidation of any Collateral, including the settlement,
collection or payment of any collateral accounts or any instrument received in
payment thereof, or any damage resulting therefrom. Debtor shall indemnify and
hold harmless the Bank against any claim, loss or damage arising out of said
liquidation of any Collateral, including the settlement, collection or payment
of
-9-
<PAGE> 10
any collateral accounts or any instrument received in payment thereof.
(c) DEBTOR ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS
AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES ITS RIGHT TO
NOTICE WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANK OR ITS SUCCESSORS
OR ASSIGNS MAY DESIRE TO USE.
(8) MISCELLANEOUS.
This Agreement shall become effective upon execution by the
parties hereto. No modification or amendment hereof shall be effective unless
the same shall be in writing and signed by the parties hereto. Definitions in
the Uniform Commercial Code of Connecticut shall apply to words and phrases
herein; if Code definitions conflict, Article 9 definitions apply. Debtor waives
presentment, demand, notice of dishonor, protest and extension of time without
notice as to any instrument, document or chattel paper in Collateral and notice
of any action taken by the Bank hereunder unless such notice is mandatory under
applicable law. Any notice to the Bank shall be effective only upon its receipt
by the Bank. Any demand upon or notice to Debtor that the Bank may elect to give
shall be effective if deposited in the mails or delivered to a telegraph,
wireless or radio company, addressed to Debtor at the address shown at the
beginning of this Agreement, or if Debtor has notified Bank in writing of a
change of address, to Debtor's last address so notified, or to address to which
the Bank customarily communicates with Debtor. The rights and privileges of the
Bank shall inure to its successors and assigns. This Agreement or any other
agreement or note executed with reference hereto, if signed by or on behalf of
more than one person as Debtor, endorser, guarantor, or surety for Debtor, shall
bind jointly and severally the persons signing or on whose behalf same is
signed, their personal representatives, heirs, successors and assigns. If any
provision of this Agreement is invalid or unenforceable under applicable law,
the provision is and will be totally ineffective to that extent, but the
remaining provisions will be unaffected. As used herein, plural or singular
include each other and pronouns in any gender are to be construed as masculine,
feminine or neuter, as context
-10-
<PAGE> 11
requires. This Agreement has been made in the State of Connecticut and construed
in accordance with the laws of the State. The section headings are for
convenience only and of no substance, and no significance to any section heading
shall be given in construction of interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement as
of the day and year first above written.
Signed, Sealed and Delivered in the presence of:
GUNTHER INTERNATIONAL, LTD.
/s/ Frank J. Saccomandi, III
----------------------------
By /s/ Michael M. Vehlies
-------------------------
/s/ Karl-Erik Sternlof Its
---------------------- Duly Authorized
/s/ Frank J. Saccomandi, III PEOPLE'S BANK
----------------------------
/s/ Karl-Erik Sternlof By /s/ Arthur C. Barton
---------------------- ----------------------
Its
Duly Authorized
STATE OF CONNECTICUT:
: ss. Norwich
COUNTY OF NEW LONDON:
On this the 8th day of November, 1999, personally appeared Michael
Vehlies, who acknowledged himself/herself to be the Chief Financial Officer of
GUNTHER INTERNATIONAL, LTD., a Connecticut corporation, and who acknowledged
that as such he/she subscribed the foregoing instrument for the purposes therein
contained, as his/her free act and deed and the free act and deed of said
corporation, before me.
/s/ Frank J. Saccomandi, III
----------------------------
Commissioner of the Superior Court/
-11-
<PAGE> 12
STATE OF CONNECTICUT:
: ss. Norwich October 23, 1999
COUNTY OF NEW LONDON:
Personally appeared Arthur C. Barton, who acknowledged himself/herself
to be an Officer of PEOPLE'S BANK, and who acknowledged that as such he/she
subscribed the foregoing Agreement for the purposes therein contained, as
his/her free act and deed and the free act and deed of said Bank, before me,
/s/ Karl-Erik Sternlof
----------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires:
-12-
<PAGE> 1
SUBORDINATION AND INTERCREDITOR AGREEMENT
Subordination and Intercreditor Agreement entered into as of October 23,
1999 by and among PEOPLE'S BANK ("New Lender"), GUNTHER PARTNERS, LLC ("GP"),
and GUNTHER INTERNATIONAL, LTD. ("Gunther").
WHEREAS, pursuant to a certain Commercial Revolving Loan Agreement dated
the date hereof between Gunther and the New Lender (the "Revolving Loan
Agreement"), the New Lender has or may make loans to Gunther from time to time
in the aggregate principal amount of up to Five Hundred Thousand Dollars
($500,000) at any one time outstanding, which loans are evidenced by the
Revolving Loan Agreement and a certain $500,000 Promissory Note (Revolving
Credit Facility) dated the date hereof made by Gunther to the order of the New
Lender (the "Revolving Note"); and
WHEREAS, payment and performance of Gunther's obligations under the
Revolving Loan Agreement and the Revolving Note are secured by a valid security
interest in, and lien on, all of Gunther's tangible and intangible personal
property, whether now owned or hereafter acquired, and all products and proceeds
thereof (collective the "Collateral"), all as more fully set forth in a certain
Security Agreement dated the date hereof between Gunther and the New Lender (the
"Security Agreement"); and
WHEREAS, pursuant to a certain Commercial Loan Agreement dated the date
hereof between Gunther and the New Lender (the "Commercial Loan Agreement"), the
New Lender may make loans to Gunther from time to time in the aggregate
principal amount of up to Two Hundred Thousand Dollars ($200,000) at any one
time outstanding; and
WHEREAS, payment and performance of Gunther's obligations under the
Commercial Loan Agreement are to be secured by a valid pledge and security
interest in cash deposits (the "Cash Deposits") to be delivered to the New
Lender pursuant to a certain Pledge Agreement dated the date hereof between
Gunther and the New Lender (the "Pledge Agreement"); and
WHEREAS, Gunther is indebted to GP under a certain Loan and Security
Agreement dated October 2, 1998 between Gunther and GP
<PAGE> 2
as amended by that certain Amendment to Loan and Security Agreement dated as of
September 15, 1999 between Gunther and GP (such Loan and Security Agreement as
so amended the "GP Loan Agreement"); and
WHEREAS, Gunther's indebtedness to GP under the GP Loan Agreement is also
evidenced by a certain $4,000,000 Substitute Term Note dated as of September 15,
1999 made by Gunther to the order of GP (the "GP Note"); and
WHEREAS, Gunther's obligations to GP under the GP Loan Agreement and the
GP Note are secured by a valid security interest in, and lien on, all of the
Collateral, including the Cash Deposits, granted to GP by Gunther pursuant to
the GP Loan Agreement; and
WHEREAS, the Collateral, including the Cash Deposits, is also encumbered
by a valid security interest and lien granted by Gunther to June H. Geneen, Phil
E. Gilbert, Jr., Thomas W. Keesee and the United States Trust Company of New
York, as Co-Executor of the Estate of Harold S. Geneen, Late of New York, New
York (collectively, the "Estate") pursuant to a certain Security Agreement dated
October 2, 1998 between Gunther and the Estate; and
WHEREAS, the Collateral, including the Cash Deposits, is also encumbered
by a valid security interest and lien granted by Gunther to Connecticut
Innovations, Inc. ("CII") pursuant to an Amendment and Restatement of
Development Agreement dated as of December 31, 1995 between Gunther and CII; and
WHEREAS, pursuant to a certain Subordination and Intercreditor Agreement
dated the date hereof, between the Estate, the New Lender and Gunther, the
Estate has agreed to subordinate its lien and security interest in all of the
Collateral, including the Cash Deposits, to the lien and security interest
therein held by the New Lender; and
WHEREAS, pursuant to a certain Subordination and Intercreditor Agreement
dated the date hereof between CII, the New Lender and Gunther, CII has agreed to
subordinate its lien and security interest in the Cash Deposits and all of the
other Collateral (other than the Collateral constituting patents and trademarks)
to the lien and security interest held by the New Lender in the Cash Deposits
and the other Collateral (other than Collateral constituting patents and
trademarks); and
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<PAGE> 3
WHEREAS, the New Lender has conditioned its extension of credit to Gunther
under the Revolving Loan Agreement, the Revolving Note and the Commercial Loan
Agreement upon GP's subordinating its lien in (i) that portion of the Collateral
constituting Accounts, as herein defined, to the lien thereon of the New Lender,
and (ii) the Cash Deposits to the lien thereon of the New Lender; and
WHEREAS, it is in the best interests of GP if the New Lender provides
financing to Gunther pursuant to the Revolving Loan Agreement, the Revolving
Note and the Commercial Loan Agreement.
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. GP hereby subordinates its security interest and lien in the Accounts
to the security interest and lien of the New Lender therein. Notwithstanding the
date, time, manner or order of attachment or perfection of the security interest
and liens of GP or the New Lender in the Accounts, and notwithstanding any
provisions of the Uniform Commercial Code, any applicable law, any decision of
any court or tribunal of competent jurisdiction or whether GP or the New Lender
holds possession of all or any part of the Accounts, the lien and security
interest of the New Lender in and to the Accounts shall be prior in right to the
lien and security interest of GP in and to the Accounts. As used herein, the
term "Accounts" shall have the meaning assigned thereto in the Uniform
Commercial Code as in effect in the State of Connecticut and shall include,
without limitation, any right to payment now or hereafter held by, received by,
belonging to or owing to Gunther for goods sold or leased by Gunther or for
services rendered by Gunther whether or not earned by performance, together with
all guarantees and security therefor and all proceeds thereof, whether cash
proceeds or otherwise including, without limitation, all right, title and
interest of Gunther in the goods which gave rise to any such Accounts including,
without limitation, the right of stoppage in transit, all returned, rerouted or
repossessed goods, all insurance and condemnation proceeds in respect to the
foregoing, all rights of Gunther as an unpaid seller of goods and services
including, without limitation, rights of replevin, reclamation and resale, and
all reserves and deposits associated with any of the foregoing.
-3-
<PAGE> 4
2. GP hereby subordinates its security interest and lien on the Cash
Deposits to the security interest and lien of the New Lender therein.
Notwithstanding the date, time, manner or order of attachment of perfection of
the security interest and lien of GP or the New Lender in the Cash Deposits and
notwithstanding any provisions of the Uniform Commercial Code, any applicable
law, any decision of any court or tribunal of competent jurisdiction or whether
GP or the New Lender holds possession of all or any part of the Cash Deposits,
the lien and security interest of the New Lender in and to the Cash Deposits
under the Pledge Agreement shall be prior in right to the lien and security
interest of the GP in and to the Cash Deposits.
3. After the occurrence of a default in Gunther's obligations to the New
Lender or GP which continues beyond any applicable grace period, (i) the
proceeds from the disposition, sale or liquidation of the Accounts Receivable
shall be applied regardless of when the indebtedness of Gunther to the New
Lender or GP may be due, first to pay the debts, obligations and liabilities of
Gunther to the New Lender under the Revolving Loan Agreement, and the Revolving
Note (including accrued interest, expenses and other costs) and then, to pay all
other creditors of Gunther in accordance with their rights and (ii) the Cash
Deposits shall be applied, regardless of when the indebtedness of Gunther to the
New Lender or GP may be due, first to pay the debts, obligations and liabilities
of Gunther to the New Lender under the Commercial Loan Agreement (including
accrued interest, expenses and other costs) and then to pay all other creditors
of Gunther in accordance with their rights. At all times, the New Lender may
exercise all of its rights and remedies under the Revolving Loan Agreement, the
Revolving Note and the Commercial Loan Agreement and, without limiting the
foregoing, may take all actions that it deems desirable to collect the debts,
obligations and liabilities of Gunther to the New Lender under the Revolving
Loan Agreement, the Revolving Note and/or Commercial Loan Agreement
(collectively the "New Lender Indebtedness") as the case may be, including
without limitation, the repossessing, foreclosing, selling, releasing or
disposing of any Accounts Receivable and the commencement of, or joining with
other creditors in the commencement of, bankruptcy or insolvency actions against
Gunther.
4. GP agrees to execute any assignment, UCC-1 financing statement, UCC-3
subordination agreement, or any other instrument or document requested by the
New Lender and to take such further
-4-
<PAGE> 5
action as the New Lender may at any time, and from time to time, reasonably
request in order to effectuate this Agreement.
5. GP has, to the extent deemed necessary by GP, reviewed the existing
agreements among the New Lender and Gunther and has had its counsel fully
explain to it such agreements and this Agreement, and understands that there is
no commitment or obligation on the New Lender's part to make any loans or
advances or to extend credit to Gunther except as may be contained in current
and presently effective written agreements between the New Lender and Gunther;
provided, however, that GP further understands that such agreements may be
modified, altered or amended, without notice to or consent of GP.
6. The New Lender may at any time, in its discretion, renew or extend the
time of payment of all or any of the New Lender Indebtedness or waive or release
any collateral which may be held therefor, and the New Lender may enter into
such agreements with Gunther as the New Lender may deem desirable without notice
to or further assent from GP and without in any way affecting the New Lender's
rights hereunder.
7. GP shall pay to the New Lender on demand, all expenses of every kind,
including reasonable attorneys' fees that the New Lender may incur in enforcing
any of its rights under this Agreement.
8. This Agreement is effective notwithstanding any defect in the validity
or enforceability of any instrument or document evidencing the New Lender
Indebtedness.
9. This Agreement shall be governed by and construed under the laws of the
State of Connecticut.
10. The provisions of this Agreement are independent of and severable from
each other. If any provision hereof shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
11. Neither the failure nor any delay on the part of the New Lender to
exercise any right, remedy, power or privilege hereunder shall operate as a
waiver thereof or give rise to an estoppel, nor be construed as an agreement to
modify the terms of
-5-
<PAGE> 6
this Agreement, nor shall any single or partial exercise of any right, remedy,
power or privilege with respect to any occurrence be construed as a waiver of
such right, remedy, power or privilege with respect to any other occurrence. No
waiver by the New Lender hereunder shall be effective unless it is in writing
and signed by the New Lender, and then only to the extent specifically stated in
such writing.
12. In order to induce the New Lender to provide financing to Gunther
pursuant to the Revolving Loan Agreement, the Revolving Note, and the Commercial
Loan Agreement, Gunther hereby acknowledges this Agreement and agrees to be
bound by all the terms, provisions and conditions hereof.
13. This Agreement shall be binding upon GP and its successors, and
assigns, and all of the New Lender's rights hereunder shall inure to the benefit
of the New Lender and its successors and assigns.
14. All notices or other communications pursuant to this Agreement shall
be in writing and shall be deemed given when received at the addresses provided
below:
If to the New Lender, to:
People's Bank
4 Broadway
Norwich, Connecticut 06360
Attention: Arthur C. Barton
If to GP, to:
Gunther Partners, LLC
c/o Thomas M. Steinberg, President
Tisch Family Interests
667 Madison Avenue
New York, New York 10021
If to Gunther, to:
Gunther International, Ltd.
One Winnenden Road
Norwich, Connecticut 06360
Attention: President
-6-
<PAGE> 7
Each party shall have the right to change its address by sending a written
notice thereof to the other parties by registered or certified mail addressed as
provided herein.
15. GP, the New Lender and Gunther hereby agree that any state court or
local court of the State of Connecticut and the United States District Court for
the District of Connecticut shall have exclusive jurisdiction to hear and
determine any claims or disputes between GP, the New Lender and Gunther
pertaining directly or indirectly to this Agreement, or to any matter arising
herefrom. GP, the New Lender and Gunther expressly submit and consent in advance
to such jurisdiction in any action or proceeding commenced in such courts,
hereby waiving personal service of the summons and complaint, or other process
or papers issued therein, and agreeing that service of such summons and
complaint, or other process or papers may be made by registered or certified
mail addressed to GP, the New Lender and Gunther, as the case may be, at the
address of the New Lender, GP or Gunther, as the case may be, set forth above.
The exclusive choice of forum set forth in this paragraph shall not be deemed to
preclude the enforcement of any judgment obtained in such forum, in any
appropriate jurisdiction.
16. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Telefacsimile transmissions of any executed original document and/or
retransmission of any executed telefacsimile transmission shall be deemed to be
the same as the delivery of an executed original. At the request of any party
hereto, the other parties shall confirm telefacsimile transmissions by executing
duplicate original documents and delivering the same to the requesting party or
parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed the day and year first above written.
Signed, Sealed and Delivered
in the Presence of: PEOPLE'S BANK
/s/ Karl-Erik Sternlof By: /s/ Arthur C. Barton
- ------------------------------- -------------------------------
Name: Name:
Title: Vice President
/s/ Frank J. Saccomandi III
- -------------------------------
Name:
-7-
<PAGE> 8
GUNTHER PARTNERS, LLC
By: /s/ Thomas J. Tisch
- ----------------------------- --------------------------------
Name: Name:
Title: Manager
- -----------------------------
Name:
GUNTHER INTERNATIONAL, LTD.
/s/ Frank J. Saccomandi III By: /s/ Michael M. Vehlies
- ----------------------------- --------------------------------
Name: Name:
Title: Chief Financial Officer
/s/ Karl-Erik Sternlof
- -----------------------------
Name:
STATE OF CONNECTICUT )
) ss. Norwich November 8, 1999
COUNTY OF New London )
Personally appeared Arthur C. Barton, signer and sealer of the foregoing
instrument personally known to me (or satisfactorily proven) who acknowledged
that he is the Vice President of PEOPLE'S BANK, is duly authorized to execute
said instrument and further acknowledged the same to be his free act and deed as
such Officer of PEOPLE'S BANK and the free act and deed of said bank, before me,
the undersigned officer.
/s/ Karl-Erik Sternlof
------------------------------------
Name:
Commission of the Superior Court
-8-
<PAGE> 9
STATE OF NEW YORK )
) ss. October 20, 1999
COUNTY OF New York )
Personally appeared Thomas J. Tisch, signer and sealer of the foregoing
instrument personally known to me (or satisfactorily proven) who acknowledged
that he is the Manager of GUNTHER PARTNERS, LLC, is duly authorized to execute
said instrument and further acknowledged the same to be his free act and deed as
such Manager of GUNTHER PARTNERS, LLC and the free act and deed of said limited
liability company, before me, the undersigned officer.
/s/ Choya Chiu
-----------------------------------------
Name:
Notary Public
My Commission Expires 1/24/2000
STATE OF CONNECTICUT )
) ss. Norwich November 8, 1999
COUNTY OF New London )
Personally appeared Michael Vehlies, signer and sealer of the foregoing
instrument personally known to me (or satisfactorily proven) who acknowledged
that he as Chief Financial Officer of GUNTHER INTERNATIONAL, LTD., is duly
authorized to execute said instrument and further acknowledged the same to be
his free act and deed as such Officer of GUNTHER INTERNATIONAL, LTD., and the
free act and deed of said corporation, before me, the undersigned officer.
/s/Frank J. Saccomandi III
------------------------------------------
Name:
Commissioner of the Superior Court
-9-
<PAGE> 1
SUBORDINATION AND INTERCREDITOR AGREEMENT
Subordination and Intercreditor Agreement entered into as of October
23, 1999 by and among PEOPLE'S BANK ("New Lender"), JUNE H. GENEEN, PHIL E.
GILBERT, JR., THOMAS W. KEESEE and the UNITED STATES TRUST COMPANY OF NEW YORK,
as Co-Executors of the Estate of Harold S. Geneen, Late of New York, New York
(collectively, the "Estate") and GUNTHER INTERNATIONAL, LTD. ("Gunther").
WHEREAS, pursuant to a certain Commercial Revolving Loan Agreement
dated the date hereof between Gunther and the New Lender (the "Revolving Loan
Agreement"), the New Lender has or may make loans to Gunther from time to time
in the aggregate principal amount of up to Five Hundred Thousand Dollars
($500,000) at any one time outstanding, which loans are evidenced by the
Revolving Loan Agreement and a certain $500,000 Promissory Note (Revolving
Credit Facility) dated the date hereof made by Gunther to the order of the New
Lender (the "Revolving Note"); and
WHEREAS, payment and performance of Gunther's obligations under the
Revolving Loan Agreement and the Revolving Note are secured by a valid security
interest in, and lien on, all of Gunther's tangible and intangible personal
property, whether now owned or hereafter acquired, and all products and proceeds
thereof (collectively, the "Collateral"), all as more fully set forth in a
certain Security Agreement dated the date hereof between Gunther and the New
Lender (the "Security Agreement"); and
WHEREAS, pursuant to a certain Commercial Loan Agreement dated the date
hereof between Gunther and the New Lender (the "Commercial Loan Agreement"), the
New Lender may make loans to Gunther from time to time in the aggregate
principal amount of up to Two Hundred Thousand Dollars ($200,000) at any one
time outstanding; and
WHEREAS, payment and performance of Gunther's obligations under the
Commercial Loan Agreement are to be secured by a valid pledge and security
interest in cash deposits (the "Cash Deposits") to be delivered to the New
Lender pursuant to a certain Pledge Agreement dated the date hereof between
Gunther and the New Lender (the "Pledge Agreement"); and
<PAGE> 2
WHEREAS, Gunther is indebted to the Estate under a certain
$1,701,168.75 Promissory Note dated October 2, 1998 made by Gunther to the order
of the Estate (the "Estate Note"); and
WHEREAS, payment and performance of Gunther's obligations to the Estate
under the Estate Note are secured by a valid security interest in, and lien on,
all of the Collateral granted to the Estate by Gunther pursuant to a certain
Security Agreement dated October 2, 1998 (the" Estate Security Agreement"); and
WHEREAS, the Collateral, including the Cash Deposits, is also
encumbered by a valid security interest and lien granted by Gunther to Gunther
Partners, LLC ("GP") pursuant to a certain Loan and Security Agreement dated
October 2, 1998 between Gunther and GP as amended by that certain Amendment to
Loan and Security Agreement and Term Note dated as of September 15, 1999 between
Gunther and GP; and
WHEREAS, the Collateral, including the Cash Deposits, is also
encumbered by a valid security interest and lien granted by Gunther to
Connecticut Innovations, Inc. ("CII") pursuant to an Amendment and Restatement
of Development Agreement dated as of December 31, 1995 between Gunther and CII;
and
WHEREAS, pursuant to a certain Subordination and Intercreditor
Agreement dated the date hereof between GP (the "GP Subordination"), the New
Lender and Gunther, GP has agreed to subordinate its lien and security interest
in the Cash Deposits and all of the other Collateral constituting Accounts, as
defined in the GP Subordination, to the lien and security interest therein held
by the New Lender; and
WHEREAS, pursuant to a certain Subordination and Intercreditor
Agreement dated the date hereof between CII, the New Lender and Gunther, CII has
agreed to subordinate its lien and security interest in the Cash Deposits and
all of the other Collateral (other than Collateral constituting patents and
trademarks) to the lien and security interest held by the New Lender in the Cash
Deposits and the other Collateral (other than Collateral constituting patents
and trademarks); and
WHEREAS, the New Lender has conditioned its extension of credit to
Gunther under the Revolving Loan Agreement, the Revolving Note and the
Commercial Loan Agreement upon the Estate's subordinating its lien in the
Collateral, including but
-2-
<PAGE> 3
not limited to the Cash Deposits, to the lien therein of the New Lender; and
WHEREAS, it is in the best interests of the Estate if the New Lender
provide financing to Gunther pursuant to the Revolving Loan Agreement, the
Revolving Note and the Commercial Loan Agreement; and
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. The Estate hereby subordinates its security interest and lien in the
Collateral, including the Cash Deposits, to the security interest and lien of
the New Lender therein. Notwithstanding the date, time, manner or order of
attachment or perfection of the security interest and liens of the Estate or the
New Lender in any of the Collateral, including the Cash Deposits, and
notwithstanding any provisions of the Uniform Commercial Code, any applicable
law, any decision of any court or tribunal of competent jurisdiction or whether
the Estate or the New Lender holds possession of all or any part of the
Collateral, including the Cash Deposits, the lien and security interest of the
New Lender in and to the Collateral, including the Cash Deposits, and all
proceeds thereof shall be prior in right to the lien and security interest of
the Estate in and to the Collateral, including the Cash Deposits.
2. After the occurrence of a default in Gunther's obligations to the
New Lender or the Estate which continues beyond any applicable grace period, (i)
the proceeds from the disposition, sale or liquidation of the Collateral, other
than the Cash Deposits, shall be applied, regardless of when the indebtedness of
Gunther to the New Lender or the Estate may be due, first to pay the debts,
obligations and liabilities of Gunther to the New Lender under the Revolving
Loan Agreement and the Revolving Note (including accrued interest, expenses and
other costs) and then, to pay all other creditors of Gunther in accordance with
their rights and (ii) the Cash Deposits shall be applied, regardless of when the
indebtedness of Gunther to the New Lender or the Estate may be due, first to pay
the debts, obligations and liabilities of Gunther to the New Lender under the
Commercial Loan Agreement (including accrued interest, expenses and other costs)
and then to pay all other creditors of Gunther in accordance with their rights.
At all times, the New Lender may exercise all of its rights and remedies under
the Revolving Loan Agreement, the Revolving Note and the Commercial
-3-
<PAGE> 4
Loan Agreement and, without limiting the foregoing, may take all actions that it
deems desirable to collect the debts, obligations and liabilities of Gunther to
the New Lender under the Revolving Loan Agreement, the Revolving Note and/or
Commercial Loan Agreement (collectively, the "New Lender Indebtedness"), as the
case may be, including without limitation, the repossession, foreclosing,
selling, releasing or disposing of any Collateral and the commencement of, or
joining with other creditors in the commencement of, bankruptcy or insolvency
actions against Gunther.
3. The Estate agrees to execute any assignment, UCC-1 financing
statement, UCC-3 subordination agreement, or any other instrument or document
requested by the New Lender and to take such further action as the New Lender
may at any time, and from time to time, reasonably request in order to
effectuate this Agreement.
4. The Estate has, to the extent deemed necessary by the Estate,
reviewed the existing agreements among the New Lender and Gunther and has had
its counsel fully explain to it such agreements and this Agreement, and
understands that there is no commitment or obligation on the New Lender's part
to make any loans or advances or to extend credit to Gunther except as may be
contained in current and presently effective written agreements between the New
Lender and Gunther; provided, however, that the Estate further understands that
such agreements may be modified, altered or amended, without notice to or
consent of the Estate.
5. The New Lender may at any time, in its discretion, renew or extend
the time of payment of all or any of the New Lender Indebtedness or waive or
release any collateral which may be held therefor, and the New Lender may enter
into such agreements with Gunther as the New Lender may deem desirable without
notice to or further assent from the Estate and without in any way affecting the
New Lender's rights hereunder.
6. The Estate shall pay to the New Lender on demand, all expenses of
every kind, including reasonable attorneys' fees that the New Lender may incur
in enforcing any of its rights under this Agreement.
7. This Agreement is effective notwithstanding any defect in the
validity or enforceability of any instrument or document evidencing the New
Lender Indebtedness.
-4-
<PAGE> 5
8. This Agreement shall be governed by and construed under the laws of
the State of Connecticut.
9. The provisions of this Agreement are independent of and severable
from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
10. Neither the failure nor any delay on the part of the New Lender to
exercise any right, remedy, power or privilege hereunder shall operate as a
waiver thereof or give rise to an estoppel, nor be construed as an agreement to
modify the terms of this Agreement, nor shall any single or partial exercise of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver by the New Lender hereunder shall be effective
unless it is in writing and signed by the New Lender, and then only to the
extent specifically stated in such writing.
11. In order to induce the New Lender to provide financing to Gunther
pursuant to the Revolving Loan Agreement, the Revolving Note and the Commercial
Loan Agreement, Gunther hereby acknowledges this Agreement and agrees to be
bound by all the terms, provisions and conditions hereof.
12. This Agreement shall be binding upon the Estate and their
respective heirs, executors, administrators, successors, and assigns, and all of
the New Lender's rights hereunder shall inure to the benefit of the New Lender
and its successors and assigns.
13. All notices or other communications pursuant to this Agreement
shall be in writing and shall be deemed given when received at the addresses
provided below:
If to the Estate, to:
Co-Executors of the Estate of Harold S. Geneen
c/o United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Steven M. Kirkpatrick
-5-
<PAGE> 6
If to the New Lender, to:
People's Bank
4 Broadway
Norwich, Connecticut 06360
Attention: Arthur C. Barton
If to Gunther, to:
Gunther International, Ltd.
One Winnenden Road
Norwich, Connecticut 06360
Attention: President
Each party shall have the right to change its address by sending a
written notice thereof to the other parties by registered or certified mail
addressed as provided herein.
14. The Estate, the New Lender and Gunther hereby agree that any state
court or local court of the State of Connecticut and the United States District
Court for the District of Connecticut shall have exclusive jurisdiction to hear
and determine any claims or disputes between the Estate, the New Lender and
Gunther pertaining directly or indirectly to this Agreement, or to any matter
arising herefrom. The Estate, the New Lender and Gunther expressly submit and
consent in advance to such jurisdiction in any action or proceeding commenced in
such courts, hereby waiving personal service of the summons and complaint, or
other process or papers issued therein, and agreeing that service of such
summons and complaint, or other process or papers may be made by registered or
certified mail addressed to the Estate, the New Lender and Gunther, as the case
may be, at the address of the New Lender, the Estate or Gunther, as the case may
be, set forth above. The exclusive choice of forum set forth in this paragraph
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum, in any appropriate jurisdiction.
15. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
16. Telefacsimile transmissions of any executed original document
and/or retransmission of any executed telefacsimile transmission shall be deemed
to be the same as the delivery of an executed original. At the request of any
party hereto, the other
-6-
<PAGE> 7
parties shall confirm telefacsimile transmissions by executing duplicate
original documents and delivering the same to the requesting party or parties.
[Rest of This Page Intentionally Left Blank.]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed the day and year first above written.
Signed, Sealed and Delivered
in the Presence of: PEOPLE'S BANK
/s/ Karl-Erik Sternlof By: /s/ Arthur C. Barton
- ------------------------------ ----------------------------------
Name: Name:Arthur C. Barton
Title: Vice President
/s/ Frank J. Saccomandi, III
- ------------------------------
Name:
THE ESTATE OF
HAROLD S. GENEEN
By: /s/ June H. Geneen
- ------------------------------ ----------------------------------
Name: June H. Geneen,
Its Co-Executor
- ------------------------------
Name:
/s/ Todd Skobinsky By: /s/ Phil E. Gilbert, Jr.
- ------------------------------ ----------------------------------
Name: Phil E. Gilbert, Jr.,
Its Co-Executor
/s/ Valerie W. Hunt
- ------------------------------
Name:
/s/ Clay R. Serenbetz By: /s/ Thomas W. Keesee
- ------------------------------ ----------------------------------
Name: Thomas W. Keesee,
Its Co-Executor
/s/ Robert Bove
- ------------------------------
Name:
-8-
<PAGE> 9
By: UNITED STATES TRUST
COMPANY OF NEW YORK,
Its Co-Executor
/s/ Robert Bove By: /s/ Steven Scott Kirkpatrick
- ------------------------------ ----------------------------------
Name: Name:
Title: Vice President
/s/ Todd Skobinsky
- ------------------------------
Name:
GUNTHER INTERNATIONAL, LTD.
/s/ Frank J. Saccomandi, III By: /s/ Michael M. Vehlies
- ------------------------------ ----------------------------------
Name: Name:
Title: Chief Financial
Officer
/s/ Karl-Erik Sternlof
- ------------------------------
Name:
STATE OF CONNECTICUT )
) ss. Norwich November 8, 1999
COUNTY OF New London )
Personally appeared Arthur C. Barton, signer and sealer of the
foregoing instrument personally known to me (or satisfactorily proven) who
acknowledged that he is the Vice President of PEOPLE'S BANK, is duly authorized
to execute said instrument and further acknowledged the same to be his free act
and deed as such Officer of PEOPLE'S BANK, and the free act and deed of said
bank, before me, the undersigned officer.
/s/ Karl-Erik Sternlof
----------------------------------
Name:
Commissioner of the Superior Court
-9-
<PAGE> 10
STATE OF Massachusetts )
) ss:
COUNTY OF Norfolk )
On this 30th day of October, 1999, before me, the undersigned officer,
personally appeared JUNE H. GENEEN, personally known to me (or satisfactorily
proven) who acknowledged herself to be the person whose name subscribed to the
within instrument and acknowledged that she executed the same for the purposes
therein contained.
In witness whereof I hereunto set my hand.
/s/ Andrew Murphy
-------------------------------------
Name:
Notary Public
My Commission Expires Sept. 7, 2001
STATE OF NEW YORK )
) ss:
COUNTY OF New York )
On this __ day of October, 1999, before me, the undersigned officer,
personally appeared PHIL E. GILBERT, JR., personally known to me (or
satisfactorily proven) who acknowledged himself to be the person whose name
subscribed to the within instrument and acknowledged that he executed the same
for the purposes therein contained.
In witness whereof I hereunto set my hand.
/s/ Valerie W. Hunt
-------------------------------------
Name:
Notary Public
My Commission Expires 2/5/2000
-10-
<PAGE> 11
STATE OF NEW YORK )
) ss:
COUNTY OF Westchester )
On this 23rd day of October, 1999, before me, the undersigned officer,
personally appeared THOMAS W. KEESEE, personally known to me (or satisfactorily
proven) who acknowledged himself to be the person whose name subscribed to the
within instrument and acknowledged that he executed the same for the purposes
therein contained.
In witness whereof I hereunto set my hand.
/s/ Clay R. Serenbetz
-------------------------------------
Name:
Notary Public
My Commission Expires 11/13/99
STATE OF NEW YORK )
) ss:
COUNTY OF New York )
On this 28th day of October, 1999, before me, the undersigned officer,
personally appeared Steven Scott Kirkpatrick, Vice President of UNITED STATES
TRUST COMPANY OF NEW YORK, personally known to me (or satisfactorily proven) who
acknowledged himself to be the person whose name subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
In witness whereof I hereunto set my hand.
/s/ Clay R. Serenbetz
-------------------------------------
Name:
Notary Public
My Commission Expires 11/13/99
-11-
<PAGE> 12
STATE OF CONNECTICUT )
) ss. Norwich November 8, 1999
COUNTY OF New London )
Personally appeared Michael Vehlies, signer and sealer of the foregoing
instrument personally known to me (or satisfactorily proven) who acknowledged
that he as Chief Financial Officer of GUNTHER INTERNATIONAL, LTD., is duly
authorized to execute said instrument and further acknowledged the same to be
his free act and deed as such Officer of GUNTHER INTERNATIONAL, LTD., and the
free act and deed of said corporation, before me, the undersigned officer.
/s/ Frank J. Saccomandi, III
-------------------------------------
Name:
Commissioner of the Superior Court
-12-
<PAGE> 1
SUBORDINATION AND INTERCREDITOR AGREEMENT
Subordination and Intercreditor Agreement entered into as of October
23, 1999 by and among PEOPLE'S BANK ("New Lender"), CONNECTICUT INNOVATIONS,
INCORPORATED ("CII") and GUNTHER INTERNATIONAL, LTD. ("Gunther").
WHEREAS, pursuant to a certain Commercial Revolving Agreement dated the
date hereof between Gunther and the New Lender (the "Loan Agreement"), the New
Lender has or may make loans to Gunther from time to time in the aggregate
principal amount of up to Five Hundred Thousand Dollars ($500,000) at any one
time outstanding, which loans are evidenced by the Revolving Loan Agreement and
a certain $500,000 Promissory Note (Revolving Credit Facility) dated the date
hereof made by Gunther to the order of the New Lender (the "Revolving Note");
and
WHEREAS, payment and performance of Gunther's obligations under the
Revolving Loan Agreement and the Revolving Note are secured by a valid security
interest in, and lien on, all of Gunther's tangible and intangible personal
property, whether now owned or hereafter acquired, and all products and proceeds
thereof (collectively "the Collateral"), all as more fully set forth in a
certain Security Agreement dated the date hereof between Gunther and the New
Lender ("the Security Agreement"); and
WHEREAS, pursuant to a certain Commercial Loan Agreement dated the date
hereof between Gunther and the New Lender (the "Commercial Loan Agreement"), the
New Lender may make loans to Gunther from time to time in the aggregate
principal amount of up to Two Hundred Thousand Dollars ($200,000) at any one
time outstanding; and
WHEREAS, payment and performance of Gunther's obligations under the
Commercial Loan Agreement are to be secured by a valid pledge and security
interest in cash deposits (the "Cash Deposits") to be delivered to the New
Lender pursuant to a certain Pledge Agreement dated the date hereof between
Gunther and the New Lender (the "Pledge Agreement"); and
WHEREAS, Gunther is indebted to CII (the "CII Indebtedness") pursuant
to a certain Amendment and Restatement of Development
<PAGE> 2
Agreement made as of the 31st day of December, 1995 between Gunther and CII
("the CII Agreement"); and
WHEREAS, payment and performance of the CII Indebtedness is secured by
a valid security interest in and lien on all of the Collateral, as herein before
defined; and
WHEREAS, the Collateral, including the Cash Deposits, is also
encumbered by a valid security interest and lien granted by Gunther to Gunther
Partners, LLC ("GP") pursuant to a certain Loan and Security Agreement dated
October 2, 1998 between Gunther and GP as amended by that certain Amendment to
Loan and Security Agreement and Term Note dated as of September 15, 1999 between
Gunther and GP; and
WHEREAS, the Collateral, including the Cash Deposits, is also
encumbered by a valid security interest and lien granted by Gunther to June H.
Geneen, Phil E. Gilbert, Jr., Thomas W. Keesee and The United States Trust
Company of New York, as Co-Executors of the Estate of Harold S. Geneen, State of
New York, New York (collectively "the Estate") pursuant to a certain Security
Agreement dated October 2, 1998 between Gunther and the Estate; and
WHEREAS, pursuant to a certain Subordination and Intercreditor
Agreement dated the date hereof between GP (the "GP Subordination"), the New
Lender and Gunther, GP has agreed to subordinate its lien and security interest
in the Cash Deposits and all of the other Collateral constituting Accounts, as
defined in the GP Subordination, to the lien and security interest therein held
by the New Lender; and
WHEREAS, pursuant to a certain Subordination and Intercreditor
Agreement dated the date hereof between the Estate, the New Lender and Gunther,
the Estate has agreed to subordinate its lien and security interest in all of
the Collateral, including the Cash Deposits, to the lien and security interest
therein held by the New Lender; and
WHEREAS, the New Lender has conditioned its extension of credit to
Gunther under the Revolving Loan Agreement, the Revolving Note and the
Commercial Loan Agreement upon CII's subordinating its lien in the Cash Deposits
and other Collateral [other than Collateral which constitutes patents and
trademarks (such portion of the Collateral which constitutes patents and
trademarks herein called the "Patents and Trademarks")] to the
-2-
<PAGE> 3
lien of the New Lender in the Cash Deposits and the other Collateral other than
Patents and Trademarks; and
WHEREAS, it is in the best interests of CII if the New Lender provides
financing to Gunther pursuant to the Revolving Loan Agreement, the Revolving
Note and the Commercial Loan Agreement; and
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. CII hereby subordinates its security interest and lien in Cash
Deposits and the other Collateral other than the Patents and Trademarks (the
Cash Deposits and the other Collateral other than Patents and Trademarks herein
called the "Subordinated Collateral") to the security interest and lien of the
New Lender therein. Notwithstanding the date, time, manner or order of
attachment or perfection of the security interest and liens of CII or the New
Lender in any of the Subordinated Collateral, and notwithstanding any provisions
of the Uniform Commercial Code, any applicable law, any decision of any court or
tribunal of competent jurisdiction or whether CII or the New Lender holds
possession of all or any part of the Subordinated Collateral, the lien and
security interest of the New Lender in and to the Subordinated Collateral and
all proceeds thereof shall be prior in right to the lien and security interest
of CII in and to the Subordinated Collateral.
2. After the occurrence of a default in Gunther's obligations to the
New Lender or CII which continues beyond any applicable grace period, (i) the
proceeds from the disposition, sale or liquidation of the Subordinated
Collateral other than the Cash Deposits shall be applied, regardless of when the
indebtedness of Gunther to the New Lender or CII may be due, first to pay the
debts, obligations and liabilities of Gunther to the New Lender under the
Revolving Loan Agreement and the Revolving Note (including accrued interest,
expenses and other costs) and then, to pay all other creditors of Gunther in
accordance with their rights and (ii) the Cash Deposits shall be applied,
regardless of when the indebtedness of Gunther to the New Lender or CII may be
due, first to pay the debts, obligations and liabilities of Gunther to the New
Lender under the Commercial Loan Agreement (including accrued interest, expenses
and other costs) and then to pay all other creditors of Gunther in accordance
with their rights. At all times, the New Lender may exercise all of its rights
and remedies under the Revolving Loan
-3-
<PAGE> 4
Agreement, the Revolving Note and the Commercial Loan Agreement and, without
limiting the foregoing, may take all actions that it deems desirable to collect
the debts, obligations and liabilities of Gunther to the New Lender under the
Revolving Loan Agreement, the Note and/or Commercial Revolving Loan Agreement
("collectively the New Lender Indebtedness") as the case may be, including
without limitation, the repossessing, foreclosing, selling, releasing or
disposing of any of the Subordinated Collateral and the commencement of, or
joining with other creditors in the commencement of, bankruptcy or insolvency
actions against Gunther.
3. CII agrees to execute any assignment, UCC-1 financing statement,
UCC-3 subordination agreement, or any other instrument or document requested by
the New Lender and to take such further action as the New Lender may at any
time, and from time to time, reasonably request in order to effectuate this
Agreement.
4. CII has, to the extent deemed necessary by CII, reviewed the
existing agreements among the New Lender and Gunther and has had its counsel
fully explain to it such agreements and this Agreement, and understands that
there is no commitment or obligation on the New Lender's part to make any loans
or advances or to extend credit to Gunther except as may be contained in current
and presently effective written agreements between the New Lender and Gunther.
5. In its discretion, the New Lender may at any time and from time to
time: extend the time for payment of all or any of the New Lender Indebtedness;
waive any event of default provided for in the documentation evidencing the New
Lender Indebtedness; amend the interest rate applicable to the New Lender
Indebtedness provided that at such time the CII Indebtedness is not in default
and such amended rate is commercially reasonable (but in no event shall it
exceed the Default Rate provided for in said documentation); waive or release
any collateral which is pledged to, or held by New Lender as security for the
New Lender Indebtedness; release any guarantor or accommodation party with
respect to the New Lender Indebtedness; or modify or amend the terms of the
documentation evidencing the New Lender Indebtedness with respect to and only
with respect to the exercise of the rights of New Lender to accelerate such
Indebtedness provided such modification or amendment is commercially reasonable;
all as the New Lender may deem desirable without notice to or further assent
from CII and without in any way affecting the New Lender's rights hereunder. New
Lender may otherwise amend, modify or
-4-
<PAGE> 5
restate the obligations of Gunther to the New Lender upon receipt of a written
reaffirmation of this Subordination from CII, which reaffirmation CII shall not
commercially unreasonably withhold (and provided that CII may withhold its
consent in its sole discretion to any increase in the amount of the New Lender
Indebtedness if the CII Indebtedness is then in default).
6. This Agreement shall be governed by and construed under the laws of
the State of Connecticut.
7. The provisions of this Agreement are independent of and severable
from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
8. Neither the failure nor any delay on the part of the New Lender to
exercise any right, remedy, power or privilege hereunder shall operate as a
waiver thereof or give rise to an estoppel, nor be construed as an agreement to
modify the terms of this Agreement, nor shall any single or partial exercise of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver by the New Lender hereunder shall be effective
unless it is in writing and signed by the New Lender, and then only to the
extent specifically stated in such writing.
9. In order to induce the New Lender to provide financing to Gunther
pursuant to the Revolving Loan Agreement, the Revolving Note and the Commercial
Loan Agreement, Gunther hereby acknowledges this Agreement and agrees to be
bound by all the terms, provisions and conditions hereof.
10. This Agreement shall be binding upon CII and its successors and
assigns and all of the New Lender's rights hereunder shall inure to the benefit
of the New Lender and its successors and assigns.
11. All notices or other communications pursuant to this Agreement
shall be in writing and shall be deemed given when received at the addresses
provided below:
If to CII, to:
-5-
<PAGE> 6
Connecticut Innovations, Incorporated
999 West Street
Rocky Hill, Connecticut 06067
Attn: Executive Director
If to the New Lender, to:
People's Bank
4 Broadway
Norwich, Connecticut 06360
Attn: Arthur C. Barton
If to Gunther, to:
Gunther International, Ltd.
One Winnenden Road
Norwich, Connecticut 06360
Attention: President
Each party shall have the right to change its address by sending a
written notice thereof to the other parties by registered or certified mail
addressed as provided herein.
12. CII, the New Lender and Gunther hereby agree that any state court
or local court of the State of Connecticut and the United States District Court
for the District of Connecticut shall have exclusive jurisdiction to hear and
determine any claims or disputes between CII, the New Lender and Gunther
pertaining directly or indirectly to this Agreement, or to any matter arising
herefrom. CII, the New Lender and Gunther expressly submit and consent in
advance to such jurisdiction in any action or proceeding commenced in such
courts, hereby waiving personal service of the summons and complaint, or other
process or papers issued therein, and agreeing that service of such summons and
complaint, or other process or papers may be made by registered or certified
mail addressed to CII, the New Lender and Gunther, as the case may be, at the
address of the New Lender, CII or Gunther, as the case may be, set forth above.
The exclusive choice of forum set forth in this paragraph shall not be deemed to
preclude the enforcement of any judgment obtained in such forum, in any
appropriate jurisdiction.
13. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
-6-
<PAGE> 7
14. Telefacsimile transmissions of any executed original document
and/or retransmission of any executed telefacsimile transmission shall be deemed
to be the same as the delivery of an executed original. At the request of any
party hereto, the other parties shall confirm telefacsimile transmissions by
executing duplicate original documents and delivering the same to the requesting
party or parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed the day and year first above written.
Signed, Sealed and Delivered
in the Presence of: PEOPLE'S BANK
/s/ Karl-Erik Sternlof By: /s/ Arthur C. Barton
- ---------------------------------- -------------------------------
Name: Name:
Title: Vice President
/s/ Frank J. Saccomandi, III
- ----------------------------------
Name:
CONNECTICUT INNOVATIONS,
INCORPORATED
/s/ K. D. Coombs By: /s/ Victor R. Butnick
- ---------------------------------- -------------------------------
Name: Name:
Title: President & Executive
Director
- ----------------------------------
Name:
GUNTHER INTERNATIONAL, LTD.
/s/ Frank J. Saccomandi, III By: /s/ Michael M. Vehlies
- ---------------------------------- -------------------------------
Name: Name:
Title: Chief Financial
Officer
/s/ Karl-Erik Sternlof
- ----------------------------------
Name:
-7-
<PAGE> 8
STATE OF CONNECTICUT )
) ss. at Norwich November 8, 1999
COUNTY OF New London )
Personally appeared Arthur C. Barton, signer and sealer of the foregoing
instrument personally known to me (or satisfactorily proven) who acknowledged
that he is the Vice President of PEOPLE'S BANK, is duly authorized to execute
said instrument and further acknowledged the same to be his free act and deed as
such Officer of PEOPLE'S BANK, and the free act and deed of said bank, before
me, the undersigned officer.
/s/ Karl-Erik Sternlof
----------------------------------------
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss. Rocky Hill October 29, 1999
COUNTY OF HARTFORD )
Personally appeared Victor R. Butnick, signer and sealer of the
foregoing instrument personally known to me (or satisfactorily proven) who
acknowledged that he/she as President and Executive Director of CONNECTICUT
INNOVATIONS, INCORPORATED, is duly authorized to execute said instrument and
further acknowledged the same to be his/her free act and deed as such Officer of
CONNECTICUT INNOVATIONS, INCORPORATED, and the free act and deed of said
corporation, before me, the undersigned officer.
/s/ Julana F. Rader
----------------------------------------
Name:
Commissioner of the Superior Court
Notary Public
My Commission Expires Nov. 30, 2003
-8-
<PAGE> 9
STATE OF CONNECTICUT )
) ss. Norwich October __, 1999
COUNTY OF New London )
Personally appeared Michael Vehlies, signer and sealer of the foregoing
instrument personally known to me (or satisfactorily proven) who acknowledged
that he as Chief Financial Officer of GUNTHER INTERNATIONAL, LTD., is duly
authorized to execute said instrument and further acknowledged the same to be
his free act and deed as such Officer of GUNTHER INTERNATIONAL, LTD., and the
free act and deed of said corporation, before me, the undersigned officer.
/s/ Frank J. Saccomandi, III
-----------------------------------------
Name:
Commissioner of the Superior Court
-9-
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of the 3rd day of October, 1999, by and between Gunther International, Ltd.,
a Delaware corporation (the "Employer"), and Marc I. Perkins, an individual
resident in the State of Connecticut (the "Executive").
RECITALS:
The Employer desires to secure the employment of the Executive, and the
Executive wishes to become employed by the Employer, upon the terms and
conditions set forth in this Agreement.
Now, therefore, the parties intending to be legally bound, hereby agree
as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the meanings specified or referred to in this Section 1.
"AGREEMENT" shall mean this Employment Agreement, as amended from time
to time.
"BASIC COMPENSATION" shall mean Salary and Benefits.
"BENEFITS" shall have the meaning given to such term in Section 3.1(b)
hereof.
"BOARD OF DIRECTORS" shall mean the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" shall mean and include any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information), and any other information, however documented, that is a trade
secret within the meaning of Chapter 625 of the Connecticut General Statutes;
and
(b) information concerning the business and affairs of the
Employer (which includes historical financial statements, financial projections
and budgets, historical and projected sales, capital spending budgets and plans,
the names and backgrounds of key personnel, and personnel training and
techniques and materials), however documented; and
<PAGE> 2
(c) notes, analysis, compilations, studies, summaries, and
other material prepared by or for the Employer containing or based, in whole or
in part, on any information included in the foregoing.
"DISABILITY" shall have the meaning given to such term in Section 6.2
hereof.
"EFFECTIVE DATE" shall mean October 3, 1999.
"EMPLOYEE INVENTION" shall mean any idea, invention, technique,
modification, process, or improvement (whether patentable or not), any
industrial design (whether registerable or not), any mask work, however fixed or
encoded, that is suitable to be fixed, embedded or programmed in a semiconductor
product (whether recordable or not), and any work of authorship (whether or not
copyright protection may be obtained for it) created, conceived, or developed by
the Executive, either solely or in conjunction with others, during the
Employment Period, or a period that includes a portion of the Employment Period,
that relates in any way to, or is useful in any manner in, the business then
being conducted or proposed to be conducted by the Employer, and any such item
created by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"EMPLOYMENT PERIOD" shall mean the term of the Executive's employment
under this Agreement.
"FISCAL YEAR" shall mean the Employer's fiscal year, as it exists on
the Effective Date or as changed from time to time.
"FOR CAUSE" shall have the meaning given to such term in Section 6.3
hereof.
"FOR GOOD REASON" shall have the meaning given to such term in Section
6.4 hereof.
"PERSON" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, or
governmental body.
"POST-EMPLOYMENT PERIOD" shall have the meaning given to such term in
Section 8.2 hereof.
"PROPRIETARY ITEMS" shall have the meaning given to such term in
Section 7.2(a)(iv) hereof.
"SALARY" shall have the meaning given to such term in Section 3.1(a)
hereof.
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2. EMPLOYMENT TERMS AND DUTIES.
2.1 EMPLOYMENT. The Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the term of
the Executive's employment under this Agreement shall commence as of the
Effective Date and continue until the close of business of March 31, 2001.
2.3 DUTIES. The Executive will have such duties as are
assigned or delegated to the Executive by the Board of Directors, and will
initially serve as the Chief Executive Officer of the Employer. The Executive
will devote his entire business time, attention, skill, and energy exclusively
to the business of the Employer, will use his best efforts to promote the
success of the Employer's business, and will cooperate fully with the Board of
Directors in the advancement of the best interests of the Employer. Nothing in
this Section 2.3, however, will prevent the Executive from engaging in
additional activities in connection with personal investments and community
affairs that are not inconsistent with the Executive's duties under this
Agreement. In addition, the Employer expressly authorizes the Executive to
devote whatever time is reasonably necessary for the Executive to complete his
consulting activities in connection with the litigation matter Standard Charter
Bank vs. Price Waterhouse.
3. COMPENSATION.
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual
salary of $172,000.00, subject to adjustment as provided below (the "Salary"),
which will be payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly. The Salary
will be reviewed by the Board of Directors of the Employer not less frequently
than annually and may be adjusted upward (but not downward) in the sole
discretion of the Board of Directors.
(b) CAR ALLOWANCE. The Executive will be paid a
monthly allowance of $600.00 for expenses incurred by the Executive in
connection with the use of his automobile in the performance of the Executive's
duties.
(c) BENEFITS. The Executive will, during the
Employment Period, be permitted to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical, and other employee
benefit plans of the Employer that may be in effect from time to time, to the
extent the Executive is eligible under the terms of those plans (collectively,
the "Benefits").
3.2 INCENTIVE COMPENSATION.
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(a) INCENTIVE STOCK OPTION. Prior to the execution
and delivery of this agreement, the Executive Compensation/Stock Option
Committee of the Board of Directors of the Employer took action to grant the
Executive an incentive stock option (the "ISO") to purchase up to thirty
thousand (30,000) shares of the common stock, per value $.001 per share ("Common
Stock"), of the Employer at an exercise price of $3.00 per share. The terms and
conditions of the ISO shall be governed by the separate Incentive Stock Option
Agreement evidencing the ISO entered into between the Employer and the Employee.
(b) CASH BONUS. As additional compensation for the
services to be rendered by the Executive pursuant to this Agreement, the
Executive shall be eligible to receive a cash bonus based on the attainment of
specified goals and objectives for Employer operating performance established
for the Executive by the Executive Compensation/Stock Option Committee of the
Board of Directors with respect to the Fiscal Year ending March 31, 2001.
4. FACILITIES AND EXPENSES. The Employer will furnish the Executive
office space, equipment, supplies, and such other facilities and personnel as
the Employer deems necessary or appropriate for the performance of the
Executive's duties under this Agreement. The Employer will pay the Executive's
dues in such professional societies and organizations as the Board of Directors
deems appropriate, and will pay on behalf of the Executive (or reimburse the
Executive for) reasonable expenses incurred by the Executive at the request of,
or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS. The Executive will be entitled to paid
vacation in accordance with the vacation policies of the Employer in effect for
its executive officers from time to time. Vacation must be taken by the
Executive at such time or times as approved by the Chairman of the Board. The
Executive will also be entitled to paid holidays and other paid leave, as set
forth in the Employer's policies. Up to ten (10) vacation days that are not used
by the Executive during any Fiscal Year may be carried over to the next Fiscal
Year.
6. TERMINATION.
6.1 EVENTS OF TERMINATION. The Employment Period, the
Executive's Basic Compensation, and any and all other rights of the Executive
under this Agreement or otherwise as an employee of the Employer will terminate
(except as otherwise provided in this Section 6):
(a) upon ninety (90) days' prior written notice from
one party to the other;
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(b) upon the death of the Executive;
(c) upon the disability of the Executive (as defined
in Section 6.2) immediately upon notice from either party to the other;
(d) For Cause (as defined in Section 6.3),
immediately upon notice from the Employer to the Executive, or at such later
time as such notice may specify; or
(e) For Good Reason (as defined in Section 6.4) upon
not less than ninety (90) days' prior notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY. For purposes of Section 6.1, the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the essential functions of the
Executive's duties under this Agreement for ninety (90) consecutive days.
6.3 DEFINITION OF "FOR CAUSE." For purposes of Section 6.1,
the phrase "For Cause" means: (a) the Executive's material breach of this
Agreement; (b) the Executive's failure to adhere to any written Employer policy
after the Executive has been given a reasonable opportunity to comply with such
policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement); (c)
the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer; (d) the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON." For purposes of Section
6.1, the phrase "For Good Reason" means any of the following: (a) the Employer's
material breach of this Agreement; (b) the assignment of the Executive without
his consent to a position, responsibilities, or duties of a materially lesser
status or degree of responsibility than his position, responsibilities, or
duties at the Effective Date; or (c) the relocation of the Employer's principal
executive offices to a location or place that is more than fifty miles from the
location of the Employer's principal executive officers as of the Effective Date
or the requirement by the Employer that the Executive be based anywhere other
than the Employer's principal executive offices, in either case without the
Executive's consent.
6.5 TERMINATION PAY. Effective upon the termination of this
Agreement, the Employer will be obligated to pay the Executive (or, in the event
of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 6.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as
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the Executive may designate by notice to the Employer from time to time or, if
the Executive fails to give notice to the Employer of such a beneficiary, the
Executive's estate. Notwithstanding the preceding sentence, the Employer will
have no duty, in any circumstances, to attempt to open an estate on behalf of
the Executive, to determine whether any beneficiary designated by the Executive
is alive or to ascertain the address of any such beneficiary, to determine the
existence of any trust, to determine whether any person or entity purporting to
act as the Executive's personal representative (or the trustee of a trust
established by the Executive) is duly authorized to act in that capacity, or to
locate or attempt to locate any beneficiary, personal representative, or
trustee.
(a) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. If
the Executive terminates this Agreement For Good Reason, the Employer will pay
the Executive (i) the Executive's Salary for the remainder, if any, of the
calendar month in which such termination is effective and for six (6)
consecutive calendar months thereafter. Notwithstanding the preceding sentence,
if the Executive obtains other employment prior to the end of the six (6) months
following the month in which the termination is effective, he must promptly give
notice thereof to the Employer, and the Salary payments under this Agreement for
any period after the Executive obtains other employment will be reduced by the
amount of the cash compensation received and to be received by the Executive
from the Executive's other employment for services performed during such period.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If the
Employer terminates this Agreement for cause, the Executive will be entitled to
receive his Salary only through the date such termination is effective.
(c) TERMINATION UPON DISABILITY. If this Agreement is
terminated by either party as a result of the Executive's disability, as
determined under Section 6.2, the Employer will pay the Executive his Salary
through the remainder of the calendar month during which such termination is
effective and for the lesser of (i) three consecutive months thereafter, or (ii)
the period until disability insurance benefits commence under the disability
insurance coverage furnished by the Employer to the Executive, if any.
(d) TERMINATION UPON DEATH. If this Agreement is
terminated because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which his death
occurs.
(e) TERMINATION BY WRITTEN NOTICE. If this Agreement
is terminated by either party pursuant to Section 6.1(a) hereof, the Executive
will be entitled to receive his Salary through the termination date of his
employment, which shall be at least ninety (90) days from the date of the
notice.
(f) BENEFITS. The Executive's accrual of, or
participation in plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans. The
Executive will not receive, as part of his termination pay pursuant to this
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Section 6, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the date the notice of termination is given
under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS.
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that (a) during the Employment Period and as a part of his
employment, the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an adverse
effect on the Employer and its business; (c) because the Executive possesses
substantial technical expertise and skill with respect to the Employer's
business, the Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive disadvantage if
it fails to acquire exclusive ownership of each Employee Invention; and (d) the
provisions of this Section 7 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment
Period, the Executive will hold in confidence the Confidential Information and
will not disclose it to any person, except with the specific prior written
consent of the Employer or except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer will
be entitled to all of the protections and benefits under Chapter 625 of the
Connecticut General Statutes and any other applicable law. If any information
that the Employer deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade secret or post a bond
or other security.
(iii) None of the foregoing obligations and
restrictions applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to the public other
than as a result of a disclosure by the Executive.
(iv) The Executive will not remove from the
Employer's premises (except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while traveling, or except as
otherwise specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form (collectively, the "Proprietary Items").
The Executive recognizes that, as between the Employer and the
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Executive, all of the Proprietary Items, whether or not developed by the
Executive, are the exclusive property of the Employer. Upon termination of this
Agreement by either party, or upon the request of the Employer during the
Employment Period, the Executive will return to the Employer all of the
Proprietary Items in the Executive's possession or subject to the Executive's
control, and the Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention will
belong exclusively to the Employer. The Executive acknowledges that all of the
Executive's writings, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire, the Executive hereby
assigns to the Employer all of the Executive's right, title, and interest,
including all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants that he will
promptly:
(i) disclose to the Employer in writing any
Employee Invention;
(ii) assign to the Employer or to a party
designated by the Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee Invention for the
United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer
such applications, assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to
carry out the above obligations; and
(v) give testimony and render any other
assistance (but without expense to the Executive) in support of the Employer's
rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that
should a dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
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8. NON-INTERFERENCE.
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive hereby
acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character;
(b) the Employer's business is national in scope and its products are marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) the Employer
has required that the Executive make the covenants set forth in this Section 8
as a condition to the Employer's willingness to employ the Executive pursuant to
this Agreement; and (e) the provisions of this Section 8 are reasonable and
necessary to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE. In consideration of the
foregoing acknowledgments by the Executive, and in consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
(a) whether for the Executive's own account or the
account of any other person (i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment Period and for three
years thereafter, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(b) at any time during or after the Employment
Period, disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment
Period" means the three-year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be
unreasonable, arbitrary, or against public policy, such covenant will be
considered to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section
8.2 will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2
is in effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity
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of the Executive's employer. The Employer may notify such employer that the
Executive is bound by this Agreement and, at the Employer's election, furnish
such employer with a copy of this Agreement or relevant portions thereof.
9. GENERAL PROVISIONS.
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive
hereby acknowledges that the injury that would be suffered by the Employer as a
result of a breach of the provisions of this Agreement (including any provision
of Sections 7 and 8) would be irreparable and that an award of monetary damages
to the Employer for such a breach would be an inadequate remedy. Consequently,
the Employer will have the right, in addition to any other rights it may have,
to obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and the
Employer will not be obligated to post bond or other security in seeking such
relief. Without limiting the Employer's rights under this Section 9 or any other
remedies of the Employer, if the Executive breaches any of the provisions of
Section 7 or 8, the Employer will have the right to cease making any payments
otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND
INDEPENDENT COVENANTS. The covenants by the Executive in Sections 7 and 8 are
essential elements of this Agreement, and without the Executive's agreement to
comply with such covenants, the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The Employer
and the Executive have independently consulted their respective counsel and have
been advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise will not excuse the Executive's breach of any
covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
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9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of
the Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive's performance of the
Executive's obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand, (b) sent by facsimile, provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer:
Gunther International, Ltd.
One Winnenden Road
Norwich, CT 06360
Attn: Chairman of the Board
Facsimile No.: (860) 886-8889
If to the Executive:
Marc I. Perkins
213 West Town Street
Unit H-43
Norwich, CT 06360
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9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Stock
Option contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, between the parties hereto with respect to the subject matter
hereof, including without limitation that certain Employment Agreement, dated as
of October 5, 1999, which is hereby terminated and completely superseded by this
Agreement. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the laws
of the State of Connecticut without regard to conflicts of laws principles.
9.10 JURISDICTION. Any action or proceeding seeking to enforce
any provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Connecticut,
County of Hartford, or, if it has or can acquire jurisdiction, in the United
States District Court for the District of Connecticut, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on either party anywhere in the world.
9.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections
in this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement unless otherwise
specified. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.12 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
9.13 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE A
JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
GUNTHER INTERNATIONAL, LTD.
By: /s/ Robert Spiegel
---------------------------------------
Chairman of the Executive Compensation/
Stock Option Committee
/s/ Marc I. Perkins
---------------------------------------
Marc I. Perkins
13
<PAGE> 1
PROMISSORY NOTE
$200,000.00 Norwich, Connecticut
December 16, 1999
FOR VALUE RECEIVED, GUNTHER INTERNATIONAL, LTD., a Delaware corporation
("Maker") promises to pay to the order of ROBERT SPIEGEL ("Payee") at 60 Sachem
Road, Weston, Connecticut 06883, or at such other place as Payee may designate
in writing, the principal sum of TWO HUNDRED THOUSAND DOLLARS ($200,000)
together with interest on the unpaid balance of the Note from the date hereof
until paid, at a fixed rate of eight percent (8%) per annum and together with
all costs of collection, including reasonable attorney's fees, incurred in any
action to collect this Note.
All principal, accrued interest, and any other amounts owed under this Note
shall be due and payable in full ON DEMAND by Payee at any time after January
16, 2000.
Maker shall have the right, at any time and from time to time, to prepay
the principal amount of this Note, in whole or in part, without premium or
penalty.
Presentment, notice of dishonor, and protest are hereby waived.
Any notice to Maker shall be given by mailing such notice by regular mail,
addressed to Maker at One Winnenden Road, Norwich, Connecticut 06360-1570 or to
such other address as Maker may designate by notice to Payee. Any notice to
Payee shall be given by mailing such notice by regular mail, at the address
stated in the first paragraph of this Note, or at such other address as may have
been designated by notice to Maker.
The word "Maker" shall include the successors and assigns of Maker named
herein and the word "Payee" shall include the successors and assigns of Payee
named herein. This Note shall be construed in accordance with the laws of the
State of Connecticut.
GUNTHER INTERNATIONAL, LTD.
By: /s/ Marc I. Perkins
------------------------------
Name: Marc I. Perkins
Title: Chief Executive Officer
Hereunto Duly Authorized
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 555,360
<SECURITIES> 0
<RECEIVABLES> 2,142,008
<ALLOWANCES> 42,800
<INVENTORY> 1,385,554
<CURRENT-ASSETS> 4,906,973
<PP&E> 2,395,807
<DEPRECIATION> 1,323,551
<TOTAL-ASSETS> 8,873,115
<CURRENT-LIABILITIES> 7,253,828
<BONDS> 5,204,073
0
0
<COMMON> 4,292
<OTHER-SE> (3,580,494)
<TOTAL-LIABILITY-AND-EQUITY> 8,873,115
<SALES> 2,102,167
<TOTAL-REVENUES> 4,527,197
<CGS> 1,713,842
<TOTAL-COSTS> 3,693,194
<OTHER-EXPENSES> 282,599
<LOSS-PROVISION> 19,400
<INTEREST-EXPENSE> 145,052
<INCOME-PRETAX> (903,935)
<INCOME-TAX> 0
<INCOME-CONTINUING> (903,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (903,935)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
