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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-23686
PC SERVICE SOURCE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1703687
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2350 Valley View Lane
Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 481-4000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE 5,761,320
(Title of class) (Number of Shares Outstanding
as of March 20, 1998)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant is approximately $18,028,316. This amount was calculated by reducing
the total number of shares of the registrant's common stock outstanding by the
total number of shares of common stock held by officers, directors, and
stockholders owning in excess of 5% of the registrant's common stock, and
multiplying the remainder by the average of the bid and asked price for the
registrant's common stock on March 20, 1998, as reported on the National
Association of Securities Dealers, Inc. Automated Quotation System. The
information provided shall in no way be construed as an admission that any
officer, director, or more than 5% stockholder of the registrant may be deemed
an affiliate of the registrant or that such person is the beneficial owner of
the shares reported as being held by such person, and any such inference is
hereby disclaimed.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement concerning the
1998 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are
incorporated by reference into Part III of this report. The Proxy Statement will
be filed with the Commission not later than 120 days after the Registrant's
fiscal year ended December 31, 1997.
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PART I
ITEM 1. BUSINESS.
GENERAL
PC Service Source, Inc. ("PCSS" or the "Company") is the leading
provider of logistics services to the Personal Computer ("PC") hardware repair
industry. These logistics services include sourcing and distributing spare
parts, inventory management, warranty claims processing, parts remanufacturing
and related functions. PCSS is the largest independent distributor of parts used
in the repair of PCs in North America, distributing over 330,000 different parts
to approximately 20,000 PC service providers ("Service Providers") such as
independent service organizations, original equipment manufacturers' service
operations and PC resellers. Service Providers purchase replacement parts for
the service and repair of PCs and peripherals. These parts may be purchased
directly from the Original Equipment Manufacturer ("OEM") or from any of the
hundreds of independent distributors, the largest of which is PCSS. The Company
currently maintains in its inventory over 23,000 different parts. These parts
include printer parts, logic boards, controllers, disk drives, monitors, memory
boards, cables and related hardware. PCSS has established vendor relationships
for repair parts with over 30 leading OEMs, including AST, Canon, Compaq, Dell,
Epson, Exabyte, Hewlett-Packard, IBM, Lexmark, NEC, Okidata, Packard Bell and
Toshiba. To complement its distribution operations, PCSS seeks to supply
additional value-added services to OEMs and Service Providers to allow OEMs and
Service Providers to completely outsource their service logistics functions.
The foundation of the Company's logistics services is its ability to
provide accurate, efficient and rapid delivery of repair parts to its customers.
PCSS also offers a wide range of value-added logistics services to Service
Providers and OEMs to meet their particular needs. These logistics services
include inventory management, parts distribution and sourcing, warranty claims
administration, exchanged parts remanufacturing administration, vendor returns,
management reporting, and inventory liquidation and consignment. See "Business
- -- Services."
PCSS has leveraged its logistics services capabilities and strong
vendor relationships to establish outsourcing arrangements with OEMs. Under the
terms of an OEM outsourcing arrangement, the OEM may re-route authorized Service
Providers, customers and dealers to the Company for some or all of the OEM's
warranty and non-warranty parts business. See "Business -- Services."
PCSS believes an important factor in an OEM's decision to outsource
service logistics functions is the extent to which such an arrangement relieves
the OEM of functions outside of the OEM's core competencies. These service and
warranty logistics areas often include remanufacturing activities. To support
this function and encourage OEMs to consider outsourcing functions to PCSS, the
Company commenced its own remanufacturing operations through PC Service Source
Repair Services ("PCSS Repair Services") during 1995 (formerly known as Cyclix
Engineering Corporation). The principal business objective of PCSS Repair
Services is to outsource the remanufacturing and component level repair
operations of OEMs. PCSS believes its remanufacturing capabilities through PCSS
Repair Services are an important aspect of the full range of value-added
services it offers to OEMs in an effort to outsource a broader array of the
OEM's service and warranty logistics functions.
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The Company's principal executive offices and mailing address are 2350
Valley View Lane, Dallas, Texas 75234, and its telephone number is (972)
481-4000. The Company was incorporated in Delaware in January 1990. PCSS Repair
Services, a subsidiary of the Company, was incorporated in Texas in June 1995.
OPERATIONS
PCSS conducts its parts distribution and processing business
principally from its 155,200 square foot distribution center at the Alliance
Airport facility located in the Dallas/Fort Worth Metroplex. Recognizing the
immediate demands of its service customers, PCSS established an automated and
integrated order processing and distribution system which allows the Company to
provide efficient and accurate delivery of products on a next day basis. The
Company has also established a system of "work cells" for receiving, recording
and warehousing daily supply shipments. All parts are bar coded and tracked
throughout the facility through radio frequency scanning equipment that is
integrated with the Company's computer network. Parts are received daily from
OEMs and other suppliers, bar coded and shelved in the Company's warehouse for
quick access based on real time daily demand.
In addition, many PC and peripheral replacement parts are
remanufactured from returned goods in need of repair. For example, a part may no
longer work because one of its many components is defective. When a Service
Provider purchases a replacement for a defective part, the defective part
("core") may often be returned for credit. The core may then be repaired and
resold as a remanufactured part. Service Providers often prefer lower cost
remanufactured parts because they have performance specifications equivalent to
newly manufactured parts. This aspect of the PC parts business requires that the
Company distribute new or remanufactured parts to its customers, collect broken
but repairable parts and then administer the remanufacturing of those parts
which are offered for resale. Therefore, unlike many distribution businesses,
products flow to and from the Company and its customers, and to and from its
suppliers. In addition to new parts being received and shelved daily, cores are
also received daily from customers, sorted and distributed to the Company's
remanufacturing subcontractors, including PCSS Repair Services. Following the
remanufacturing of a core, it is bar coded and replaced in inventory.
Under the terms of the Company's OEM outsourcing arrangements, the OEMs
re-route calls from authorized service providers, customers and dealers to the
Company for some or all of the OEM's warranty and non-warranty parts business.
Typically, when an OEM receives a call from an authorized Service Provider,
customer or dealer for a warranty or non-warranty part, the OEM will re-route
the call via a dedicated T-1 line directly to the Company's call center for
handling and order processing. Service Providers and other customers of the
Company can make purchases 24 hours a day, 365 days a year by credit card, cash
on delivery, or, for approved accounts, by open account. Service Providers
typically call an account representative, toll free (1.800.PCPARTS) to place
orders for next day delivery.
Utilizing its high capacity Computer Telephony Integrated ("CTI")
system, the Company's call center automatically routes customer calls, including
calls re-routed to the Company by an OEM, to the appropriate account
representative. Each account representative has a work station that provides
access to the Company's information system, through which the account
representative may retrieve detailed information about accounts,
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products, inventory, shipping and the status of all orders. Through the
information system's imaging and direct fax capabilities, the account
representative may access exploded-view diagrams of a substantial majority of
parts in inventory from the account representative's work station and fax the
image to the Service Provider to confirm the identification of the ordered part.
Once the order is placed, the account representative immediately transmits the
order to the distribution center where the part is picked, packed and shipped in
accordance with the Service Provider's request, usually the same day the order
is placed.
Service Providers may also place orders directly over the Internet
through PC SERVICENET(R). PC SERVICENET, located on the Internet at
http://www.pcservice.com/partsnet.htm, provides customers with an Internet
web-based real-time purchasing and ordering system, which enables customers to
place an order electronically, check parts availability and pricing, and the
status of pending orders. Because many of the Company's customers are familiar
with and have ready access to the Internet, the Company has expanded its
Internet customer service functions to include additional features, such as
warranty processing programs.
SERVICES
The Company offers a wide range of value-added logistics services to
Service Providers and OEMs. These services capabilities, in combination with the
Company's core distribution expertise, effectively allow PCSS to become the
spare parts department for its customers. PCSS offers these logistics services
in two formats, Service Provider alliances and OEM outsourcing arrangements,
each based on the demands of its customers. In 1997, Service Provider alliances
and OEM outsourcing arrangements generated 10% and 14% of the Company's total
revenues, respectively.
Service Provider Alliances. Typically, a substantial portion of a
Service Provider's cost structure is attributable to parts inventory ownership
and logistics management for these materials. The Company offers a range of
services directed at minimizing this cost burden of the Service Provider. These
support services include inventory management, parts sourcing, warranty claims
administration, vendor returns, management reporting and inventory liquidation
and consignment. Because this type of support generally requires a high level of
process integration between the Service Provider and the Company, the Company
seeks to provide these services through long term alliances. Under these
arrangements, the Company becomes the primary source of specified parts for the
Service Provider. The Service Provider benefits from this alliance with the
Company because these value-added services decrease the Service Provider's
inventory carrying costs, improve service and permit the Service Provider to
devote less of its capital to these business functions.
The Company has entered into Service Provider alliances with CompUSA,
Computer City, EnPointe Technologies, TSS and Vanstar, among others. Generally,
these types of arrangements may be terminated by either party at any time, but
the Company enters into Service Provider alliances with the expectation that
these arrangements will lead to long-term relationships or contracts with those
parties.
OEM Logistics Outsourcing. PCSS seeks arrangements with OEMs of PCs and
peripherals to handle a defined portion of the related parts distribution and
warranty processing functions. Under the terms of such an OEM outsourcing
arrangement, the OEM directs some or all of its customers and dealers to the
Company for some or all of the OEM's warranty and non-warranty parts business.
PCSS believes these arrangements benefit OEMs by reducing infrastructure needs,
reducing the amount of capital committed by the OEM to the
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non-core segments of its business and improving customer service and
responsiveness. The Company believes that as a specialist in managing the key
business functions associated with parts distribution, which includes its
expertise in two-way distribution logistics, the Company is able to provide
parts and related logistics services at lower costs and greater reliability than
manufacturers themselves can provide such services. The Company has entered into
arrangements with OEMs such as AST, Compaq, Dell, Exabyte, NEC, Packard Bell and
Toshiba for handling limited functions for those OEMs. These arrangements may
generally be terminated by either party at any time, but the Company has entered
into them with the expectation that these arrangements will lead to long-term
relationships or contracts with these parties.
Remanufacturing. In June 1995, PCSS established PCSS Repair Services, a
provider of parts remanufacturing outsourcing services, to further enhance the
broad array of logistics services offered by the Company to its OEM customers.
In August 1997, PCSS Repair Services acquired the remanufacturing operations of
Hi-Tek Services, Inc., a California Corporation ("Hi-Tek"), a component repair
operation strategically located near California's Silicon Valley. The Company
conducts all of its remanufacturing and component repair operations through PCSS
Repair Services.
PCSS believes that its remanufacturing capabilities through PCSS Repair
Services are an important aspect of the full range of value-added services it
offers to OEMs in an effort to outsource larger functions of the OEM's service
and warranty logistics functions. Remanufacturing involves the component level
repair of defective parts (cores) returned for exchange credit by Service
Providers, as well as upgrading the parts to the most recent technical
specification set by the OEM. PCSS Repair Services has entered into
remanufacturing arrangements with Compaq, Gateway and Hitachi for the repair of
main logic boards. PCSS Repair Services also remanufactures personal computer
equipment for OEMs. These arrangements may generally be terminated by either
party at any time, but the Company enters into them with the expectation that
these arrangements will lead to long-term relationships or contracts with those
parties.
MANAGEMENT INFORMATION SYSTEMS
The Company maintains sophisticated information systems to improve
efficiency, process orders, monitor operations, manage inventory risks, offer
faster and higher levels of service, and provide innovative service logistics to
OEMs and Service Providers. These on-line systems provide management with
information concerning sales, inventory levels, customer payments and other
operations which are essential for the Company to operate efficiently and to
enable it to offer additional services. The Company has invested in advanced
telecommunications, voice response equipment, electronic mail and messaging,
automated fax technology, radio frequency scanning and bar-coding and automated
inventory management.
The Company maintains a sophisticated call center utilizing an Aspect
switch, which is integrated with the Company's information system. The
information system is a Unix server based Hewlett-Packard 9000 T-500 running an
Informix database program customized to the Company's requirements. The CTI
system is an essential element of the call center's operation, automatically
routing customer calls to the appropriate account representative, providing the
account representative with all account information relevant to the call being
answered and monitoring information which is used by management to improve
efficiency and customer services. The Company compiles and analyzes data on,
among other things, the amount of time a customer waits until the customer's
call is answered, the accuracy of information conveyed by account
representatives, the number of sales lost due to unavailability of parts,
inventory levels, as well as the status of any particular
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shipment. During 1997, the call center handled more than 2,200,000 calls,
allowing PCSS to ship approximately 834,000 packages. Each account
representative has a work station that provides access to the Company's
information system, through which the account representative may retrieve
detailed information about customers, products, inventory, shipping, and the
status of all orders. Through the information system's imaging and direct fax
capabilities, the account representative may access exploded-view diagrams of a
substantial majority of parts in inventory from the account representative's
work station and fax the image to the customer to confirm the identification of
the ordered part.
PCSS has also developed capabilities which allow pre-approved customers
to place orders electronically, reducing the order processing costs for both the
Company and the customer. The Company believes that this capability will
increasingly become a requirement by many customers and some suppliers and,
accordingly, the Company will continue to invest in enhancing those
capabilities.
The Company has completed the process of assessing its main operating
system software and call center software for Year 2000 compliance and determined
that each of those applications is Year 2000 compliant. The Company is in the
process of assessing all of its other software applications to determine if such
applications are Year 2000 compliant. The Company anticipates that it will have
completed this assessment by the end of 1998 and is currently unaware of
any material Year 2000 issues. Although the Company may incur some expenses in
connection with assessing and, if necessary, modifying its software applications
to make them Year 2000 compliant, in the opinion of management, any such
expenses related to any issues are not expected to have a material adverse
effect on the Company's business, financial condition or results of operation.
See Note 1 to Notes to Consolidated Financial Statements.
SALES AND MARKETING
The Company views service spare parts distribution as a value-added
service business. As such, sustaining the growth of the Company is dependent
upon building and maintaining relationships and loyalties with Service Providers
as well as OEMs. The Company maintains a Service Provider sales force. Each
field sales representative is located in a major metropolitan area and works as
a team with inside sales representatives to cover a designated geographical
territory. Major account managers are assigned to maintain relationships with
the Company's largest national accounts and are assigned other accounts based on
the customers' market segment. The Company also has a separate sales force
focusing on OEM outsourcing arrangements. The Company's sales representatives
visit major OEMs, Service Providers and attend various trade shows.
The Company regularly advertises its parts and services in recognized
trade magazines, participates at trade shows, distributes news releases,
publishes a quarterly customer newsletter and makes direct mailings to potential
customers. Customers rely upon the Company's advertisements, newsletters and
frequent mailings as a source for product information, including pricing. In
addition, the Company maintains a presence on the world-wide web at
http://www.pcservice.com. The Company has registered its PC SERVICESOURCE(R),
its RIGHT PARTS RIGHT NOW(R) and its PC SERVICENET(R) marks and related design
service marks. The Company also conducts customer satisfaction surveys and
purchases market research data to maintain continuous insight into marketplace
trends and requirements.
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The Company provides comprehensive training to its sales and account
representatives regarding technical characteristics of products and the
Company's policies and procedures. Each new account representative attends a
four-week course given by the Company. In addition, the Company's ongoing
training program for sales and account representatives is supplemented by
product seminars offered by OEMs.
CUSTOMERS AND SUPPLIERS
PCSS sells parts to customers throughout the United States, Canada and
in Latin America, as well as in other countries. In 1997, international sales
accounted for approximately 5% of the Company's net revenues. In 1997, no
customer of the Company accounted individually for more than 10% of the
Company's net revenues. The Company sells a variety of parts to approximately
20,000 Service Providers, including Ameridata, Best Buy, Decision One, IBM
(MVAS), Tandy Services and Unisys. In addition, the Company has entered into
Service Provider alliances with CompUSA, Computer City, En Pointe Technologies,
TSS and Vanstar, among others. PCSS also entered into outsourcing arrangements
with OEMs, such as AST, Compaq, Dell, NEC, Packard Bell and Toshiba to outsource
various service logistics functions. See "Business -- Services." These
arrangements with Service Providers and OEMs may generally be terminated by
either party at any time, but the Company has entered into them with the
expectation that these arrangements will lead to long-term relationships or
contracts with these parties.
The Company depends on numerous suppliers (including more than 30
leading OEMs) to provide the Company with the parts it sells. During 1997, the
sale of Canon, Hewlett-Packard and Compaq parts accounted for approximately 14%,
12% and 11%, respectively, of the Company's total net revenues. No other
supplier provided parts accounting for more than 10% of the Company's net
revenues. There are generally no long-term supply agreements governing the
Company's relationships with its major suppliers. The Company's primary supply
arrangements are thus subject to termination or curtailment at any time, with
little or no advance notice. Although management expects no such loss to occur,
the refusal or inability of any major manufacturer to ship to the Company, or an
increase in prices charged to the Company as compared to the prices charged by
such manufacturers to Service Providers, could have a material adverse effect on
the Company.
COMPETITION
The Company is the leading provider of logistics services to the PC
repair and maintenance industry. These logistics services include distribution
and sourcing of spare parts, inventory management, warranty claims, parts
remanufacturing and related functions. Management believes that the Company is
the largest independent distributor of parts used in the repair of PCs in North
America, distributing over 330,000 different parts for PCs (of which it
maintains over 23,000 in its inventory) to approximately 20,000 service and
maintenance providers.
The market for the Company's products is large but fragmented.
Competition in the industry is widespread and comes from other independent
distributors (including various small independents) that are not affiliated with
an OEM, as well as from the OEMs themselves. When OEMs act as distributors, they
typically distribute only their own products. Independent distributors typically
distribute a variety of manufacturers' parts. Among the Company's major
independent competitors are Aurora Electronics and The Cerplex Group,
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both of which recently announced an agreement to merge the two companies.
Certain of these competitors, such as the OEMs, are large and have substantially
greater financial and other resources than the Company.
The Company believes that its growth is attributable to its ability to
consistently process customer orders and supply needed parts on demand, with
rapid delivery, and at competitive prices. Management believes that these
competitive factors will continue to govern customer decisions in the
foreseeable future.
EMPLOYEES
As of March 1, 1998, the Company had 726 full time employees, of which
191 were in the customer service center, 145 were in administration, 72 were in
sales, 190 were warehouse services and 127 were engineers or technicians. The
Company is not party to any collective bargaining agreement and believes
relations with its employees are good.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws and
regulations relating to worker safety and health, environmental regulations, and
other matters applicable to businesses in general. The Company does not believe
that these regulations as currently in effect have a material effect on its
business.
ITEM 2. PROPERTIES.
All but one of the Company's properties are located within the
Dallas/Fort Worth Metroplex area. In 1995, the Company entered into a 10-year
office lease in Dallas, Texas. The Company leases approximately 82,250 square
feet in this facility which houses the Company's corporate offices, account
representatives and information systems. The Company has the option to terminate
the lease during the fifth year of the lease and the option to renew the lease
for an additional 5-year term.
In 1995, the Company entered into a 10-year build-to-suit lease for a
155,200 square foot distribution center near the Alliance Airport, out of which
orders are received, processed and shipped. The Company has a build-to-suit
lease option for an additional 100,000 square feet at that location.
The Company has a lease that expires in June 2001, for a 51,500 square
foot facility in Dallas, Texas which houses the remanufacturing operations of
PCSS Repair Services. The Company has the option to renew the lease for an
additional 3-year term.
In August 1997, the Company acquired a 50,460 square foot facility in
Hayward, California in connection with PCSS Repair Services' acquisition of
Hi-Tek. See "Business -- Services." This facility is used for the west coast
operations of PCSS Repair Services. At the time of the acquisition, the Company
agreed to enter into a sale-leaseback arrangement for this facility with the
former principal stockholder of Hi-Tek. This agreement is subject to certain
conditions, including the former principal shareholder's ability to secure
adequate financing, and expires in August 1998. Under the terms of the
agreement, the Company would enter into a 5-7 year lease for this facility. The
Company intends to enter into a similar sale-leaseback arrangement with another
party if the transaction with the former principal Hi-Tek shareholder has not
been consummated by August 1998.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various pending and threatened litigation
from time to time in the ordinary course of business. Although all litigation
involves some degree of uncertainty, in the opinion of management, liabilities,
if any, arising from such litigation or threat thereof are not expected to have
a material adverse effect on the Company's business, financial condition or
results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "PCSS."
For the periods indicated below, the following table sets forth the
high and low closing prices of the Company's common stock as reported on Nasdaq.
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW
----------- ---- ---
<S> <C> <C>
January 1-March 31...................... $9.88 $6.13
April 1-June 30......................... 8.25 5.50
July 1-Sept. 30.......................... 8.00 6.00
Oct. 1-Dec. 31.......................... 6.50 4.78
</TABLE>
As of March 20, 1998, there were 98 record holders of the Company's
common stock. The Company estimates that there were approximately 2,100
beneficial owners of its common stock as of the same date. The Company has not
declared or paid any cash dividends on the common stock since its organization.
Under the terms of the Company's revolving bank line of credit, the Company's
ability to pay cash dividends to its stockholders is restricted.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial information regarding the Company's
financial position and operating results for the five-year period ended December
31, 1997, are derived from the audited consolidated financial statements of the
Company. The data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and related notes included elsewhere in this
report.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
OPERATING RESULTS: YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues .................................. $131,843 $110,146 $ 68,690 $ 42,267 $ 24,110
Cost of revenues .............................. 94,159 78,001 49,766 30,171 17,592
-------- -------- -------- -------- --------
Gross margin ............................... 37,684 32,145 18,924 12,096 6,518
Operating Expenses:
Selling, general and administrative ........ 33,271 26,457 17,241 8,746 4,656
Loss incurred from terminated supply
agreement(1) ............................... -- -- 1,935 -- --
Depreciation and amortization .............. 3,504 2,151 1,510 384 138
-------- -------- -------- -------- --------
Total operating expenses ............. 36,775 28,608 20,686 9,130 4,794
-------- -------- -------- -------- --------
Earnings (loss) from operations ............ 909 3,537 (1,762) 2,966 1,724
Net interest expense (income) ................. 739 577 473 (115) 177
-------- -------- -------- -------- --------
Earnings (loss) before income taxes ........ 170 2,960 (2,235) 3,081 1,547
Income tax expense (benefit) .................. 64 1,089 (730) 1,186 587
-------- -------- -------- -------- --------
Net earnings (loss) ....................... 106 1,871 $ (1,505) 1,895 960
======== ======== ======== ======== ========
Earnings (loss) per common share - basic(3).... $ 0.02 $ 0.38 $ (0.39) $ 0.52 $ 1.08
Earnings (loss) per common share - diluted(3).. $ 0.02 $ 0.35 $ (0.39) $ 0.46 $ 0.30
Weighted average common shares
outstanding - basic ....................... 5,750 4,970 3,900 3,631 890
Weighted average common shares
outstanding - diluted ..................... 5,882 5,285 3,900 4,103 3,373
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital 23,737 23,494 15,310 10,702 4,164
Total assets 55,158 50,174 33,127 20,015 7,567
Long-term debt, excluding convertible debt(2) 8,695 3,059 10,165 873 1,610
Stockholders' equity, including convertible debt 32,334 32,196 11,603 13,081 3,312
</TABLE>
- ----------
(1) 1995 results include a non-recurring, pre-tax charge of $1.9 million
related to the supply agreement with Intelogic Trace, Inc. ("Intelogic")
which was terminated in connection with the bankruptcy of Intelogic. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) CompuCom Systems, Inc. ("CompuCom") held $1.5 million of convertible debt
in the Company during 1993. In January 1994, CompuCom converted that debt
into 2,000,000 shares of Common Stock. Since that time, CompuCom has sold
most of that Common Stock under Rule 144 promulgated under the Securities
Act of 1933, as amended, and in connection with the Company's May 1996
public offering of Common Stock. CompuCom currently holds less than 5% of
the Company's outstanding Common Stock.
(3) All per share date retroactively changed per SFAS 128.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL OVERVIEW
In a study published by Dataquest in December 1997, the U.S. computer,
peripheral and printer spare parts market, exclusive of extended maintenance
contracts and manufacturer warranty transactions, was estimated to have declined
approximately 7% during 1997. This market is a significant contributor to the
Company's revenue stream. In a difficult year for the service logistics
industry, the Company managed to grow revenues and gain market share. The
Company's technologically advanced call center and distribution center make it a
logical alternative for OEMs and Service Providers looking to outsource their
service logistics functions. During 1997, PCSS entered into a number of new
relationships with both OEMs and new Service Providers. Examples of these new
relationships include OEMs Dell and Overland Data and Service Providers TSS and
Vanstar. While the revenue and profit contributions of these new relationships
were not fully realized during 1997, PCSS believes the establishment of such
relationships will have a positive impact on the Company in addition to
providing highly visible market acceptance of its business model. During 1997,
the Company began implementation of several productivity enhancement programs,
including a new warehouse management system and call center monitoring system.
These programs will expand the Company's capabilities enabling it to continue to
attract new customers while improving its business model.
The Company continues to believe that its remanufacturing capabilities
through PCSS Repair Services (formerly known as Cyclix Engineering Corporation)
are an important aspect of the full range of value-added services which it
offers to OEMs. PCSS Repair Services' revenue grew 175% from 1996 to 1997, but
was not profitable for the whole year, although the business broke even in the
fourth quarter of 1997. Typical of similar remanufacturing operations, PCSS
Repair Service's financial operating model is expected to result in higher gross
margins and higher operating costs than the Company's distribution operations.
As the remanufacturing operation grows as a percentage of the Company's overall
business mix, this different operating model will have an increasing impact on
the Company's consolidated income statement and operating margins. In August
1997, PCSS Repair Services acquired the remanufacturing operations of Hi-Tek
Services, Inc. ("Hi-Tek"), a component repair operation strategically located
near California's Silicon Valley.
The Company recorded net earnings of $106,000, or $0.02 per diluted common
share for the year ended December 31, 1997 compared with net earnings of
$1,871,000, or $.35 per share for the same period in 1996. Management continues
to pursue its goal of making PCSS the distribution hub between OEMs and Service
Providers by expanding its OEM outsourcing arrangements and capacity. Although
no assurances can be given, the Company believes that expansions in OEM
arrangements will increase the Company's net revenues and earnings.
-11-
<PAGE> 13
RESULTS OF OPERATIONS
The following table displays the Company's statements of operations as a
percentage of net revenues for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 71.4 70.8 72.5
------ ------ ------
Gross margin 28.6 29.2 27.5
------ ------ ------
Operating expenses:
Selling, general and administrative 25.2 24.0 25.1
Loss incurred from terminated
supply agreement -- -- 2.8
Depreciation and amortization 2.7 2.0 2.2
------ ------ ------
27.9 26.0 30.1
------ ------ ------
Earnings (loss) from operations 0.7 3.2 (2.6)
Net interest expense 0.6 .5 .7
------ ------ ------
Earnings (loss) before income taxes 0.1 2.7 (3.3)
Income taxes (benefit) -- 1.0 (1.1)
------ ------ ------
Net earnings (loss) 0.1% 1.7% (2.2)%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
The Company recognized nearly a 20% increase in net revenues for the year
ended December 31, 1997, with $131.8 million in revenues compared to $110.1
million for the year ended December 31, 1996. All components of revenue
contributed to the increase. General parts distribution, OEM outsourcing
arrangements, remanufacturing and Service Provider alliances represented 63%,
14%, 13%, and 10% of annual revenues, respectively.
Gross margin as a percentage of net revenues declined from 29.2% in 1996 to
28.6% in 1997. The reduction in gross margin as a percentage of revenues was due
to a decision to reduce the number of parts offered for sale on an exchange
basis from approximately 9,000 skus to less than 1,500 skus. This shift was made
in recognition of the improvements made in the Company's programs to acquire
remanufactured, or used parts, as many of the parts formerly offered for sale as
an exchange are now available as a remanufactured part. The gross margin decline
resulted from the inventory value of the exchange parts, many of which were new
when acquired, being substantially in excess of their market value as a
remanufactured part. Had this shift in inventory product mix not taken place,
gross margin as a percentage of revenue would have been consistent with 1996.
Selling, general and administrative (SG&A) expenses as a percentage of net
revenues rose from 24% in 1996 to 25.2% in 1997. The primary reasons for this
increase were the hiring, training and development of personnel needed to
support the increase in business mainly in the call center and distribution
center, and additions to senior management necessary to grow and improve the
business. Management does not believe
-12-
<PAGE> 14
this level of SG&A is appropriate over the long term. However, to meet expected
revenue growth PCSS must hire associates in anticipation of additional revenue
as the period to recruit, hire and train account representatives can be six
weeks or more. The Company experienced fluctuating average daily revenues
throughout 1997 which made forecasting revenue, as well as required manning,
difficult. PCSS is pursuing a number of productivity initiatives to lower SG&A
as a percent of revenues in 1998, including a new warehouse management system,
expected to be operational in the first quarter, a call center activity
monitoring system and a review of the Company's various customer programs to
discontinue those which do not generate an appropriate profit margin.
Depreciation and amortization increased as a percentage of net revenues to
2.7% in 1997 compared to 2.0% in 1996. This increase was due to recognizing a
full years depreciation on the significant capital expenditures made in 1996 and
1997.
Interest expense (net) increased slightly in 1997 to .6% of net revenues
over .5% of net revenues in 1996. The increase is attributable to greater
borrowings in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net revenues for the year ended December 31, 1996 of $110.1 million
represent an increase of $41.5 million, or 60% over the year ended December 31,
1995. The Company's outsourcing agreement with Intelogic contributed $3.1
million in net revenues during 1995 and that agreement was terminated in April
1995 in connection with the bankruptcy and liquidation of Intelogic. Excluding
sales to Intelogic for the 1995 period, revenues increased by $44.6 million, or
68%. The primary components of revenue are the general parts distribution
operations, service provider alliances and OEM outsourcing arrangements, which
represented 63%, 15%, and 13% of the yearly revenues, respectively.
The gross margin percentage increased in 1996 to 29.2% from 27.5% in 1995.
Because the gross margin is different for each line of computer spare parts
which the Company sells, changes in the mix of parts sold by the Company during
a particular period affect the Company's gross margin. The increase in gross
margin experienced in 1996 was a result of favorable variations in the mix of
parts sold during the year, as well as improved margins for parts sold on
exchange, improvements in pricing and purchasing, and the fact that PCSS Repair
Services had slightly higher margins than the remainder of the Company's
business.
SG&A as a percentage of net revenue decreased from 27.9% in 1995 to 24% in
1996. The primary reason for this decrease in 1995 was that the Company incurred
a significant charge (2.8% of revenues) in connection with the termination of
the Company's outsourcing agreement with Intelogic and the bankruptcy and
liquidation of Intelogic, with no related Intelogic revenues in the last three
quarters of 1995.
Depreciation and amortization decreased as a percentage of net revenues to
2% for the year ended December 31, 1996 compared to 2.2% in 1995 despite a
$641,000 increase in depreciation and amortization expense. The increase in
expense was due to depreciation on capital expenditures made over 1996 related
to the Company's information systems, new distribution facility, and new
corporate headquarters.
Interest expense (net) decreased slightly as a percentage of net revenues
to .5% in 1996 compared to .7% in the year ended December 31, 1995.
-13-
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company currently maintains a revolving bank line of credit which
provides for borrowings of up to a maximum of $20 million. The Company's
available borrowing capacity at December 31, 1997, was approximately $14.5
million. The line is collateralized by substantially all of the assets of the
Company and matures in June 1999. The Company may request that the maturity date
be extended annually after June 1999 for additional one-year periods with the
prior written consent of all lenders. As of the quarter ended December 31, 1997,
the Company was not in compliance with the financial covenants under its
revolving credit facility. The Company has received a waiver from its lenders
with respect to the covenants and has negotiated the terms of an amendment to
this facility which contains revised financial covenants. The Company expects to
be in compliance with its financial covenants throughout 1998.
The Company has historically been a net user of cash from operations, and
has financed its working capital requirements and its capital expenditures from
revolving credit, subordinated debt, equity financing and internally generated
funds. Cash provided by operating activities during the year ended December 31,
1997 was $3 million compared with cash used in operating activities of $4.3
million in 1996. The change in cash used in operating activities to cash
provided by operating activities is due to lower working capital requirements as
a result of improved operating efficiencies experienced through inventory
management.
Cash used in investing activities was $7.5 million for the year ended
December 31, 1997. During the third quarter of 1997, the Company, through PCSS
Repair Services, acquired the remanufacturing and repair operations of Hi-Tek.
Capital expenditures, including capital assets acquired through leasing
arrangements, totaled $6.4 million, $6.1 million and $5.5 million in 1997, 1996
and 1995, respectively. Capital expenditures during 1997 included improvements
to the Company's management information systems, furniture and fixtures, and
leasehold improvements in the Company's corporate headquarters and distribution
facility. The Company anticipates capital expenditures of approximately $3 to $4
million in 1998 for improvements and modifications to the Company information
systems and warehouse equipment. The Company believes these expenditures are
required to support and manage future growth of its business.
The Company believes that its balances of cash and cash equivalents and its
borrowing capability, together with equipment financing related to capital
expenditures for the purchase of equipment, will be sufficient to meet its 1998
working capital and capital expenditure requirements
EFFECTS OF INFLATION
The Company believes that the effects of inflation on its operations have
not been material during the past three years.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996. SFAS No. 125 has
-14-
<PAGE> 16
been amended by SFAS No. 127 which amends the effective date of certain
provisions for those transactions occurring after December 31, 1997. Management
of the Company believes that the impact from adopting the provisions of SFAS No.
125 will not be material.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Under existing accounting standards, other comprehensive
income shall be classified separately into foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. Comprehensive income is defined as
the change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. This statement is effective
for the Company on December 1, 1998. The Company will be required to separately
disclose the components of comprehensive income listed above.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The Company will be
required to adopt SFAS 131 on December 1, 1998. Currently, the Company
anticipates that only the results of its remanufacture and repair operations in
the event that they become material will be required to be separately disclosed
from operations under the reporting guidelines of SFAS 131.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The Company occasionally makes forward-looking statements concerning its
plans, goals, product and service offerings, and anticipated financial
performance. These forward-looking statements may generally be identified by
introductions such as "outlook" for an upcoming period of time, or words and
phrases such as "should", "expect", "hope", "plans", "projected", "believes",
"forward-looking" (or variants of those words and phrases) or similar language
indicating the expression of an opinion or view concerning the future.
These forward-looking statements are subject to risks and uncertainties
based on a number of factors and actual results or events may differ materially
from those anticipated by such forward-looking statements. These factors
include, but are not limited to: the growth rate of the Company's revenue and
market share; the consummation of new, and the non-termination of, existing OEM
outsourcing arrangements and service provider alliances; the Company's ability
to effectively manage its business functions while growing the Company's
business in a rapidly changing environment; the ability of the Company to adapt
and expand its services in such an environment; the effective and efficient
purchasing of parts and processing of sales orders; and the quality of the
Company's plans and strategies, and the ability of the Company to execute such
plans and strategies.
In addition, forward-looking statements concerning the Company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the Company has no control. The Company does not plan to generally
publicly update prior forward-looking statements for unanticipated events or
otherwise and, accordingly, prior forward- looking statements should not be
considered to be "fresh" simply because the Company has not made additional
comments on those forward-looking statements.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements together with the report
thereon of KPMG Peat Marwick LLP are included in this report commencing at
Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-15-
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the heading "Election of Directors" of
the definitive proxy statement for the Company's 1998 Annual Meeting of
Stockholders is incorporated by reference in this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the heading "Executive Compensation"
of the definitive proxy statement for the Company's 1998 Annual Meeting of
Stockholders is incorporated by reference in this Form 10-K Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the heading "Ownership of Common Stock
by Certain Beneficial Owners and Management" of the definitive proxy statement
for the Company's 1998 Annual Meeting of Stockholders is incorporated by
reference in this Form 10-K Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the headings "Election of Directors --
Board Meetings and Committees of the Board," "Election of Directors --
Compensation of Directors" and "Certain Transactions" of the definitive proxy
statement for the Company's 1998 Annual Meeting of Stockholders is incorporated
by reference in this Form 10-K Annual Report.
-16-
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS
The following financial statements of the Company and its subsidiaries
are filed as a part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report....................................................................................F-1
Consolidated Balance Sheets - December 31, 1997 and 1996........................................................F-2
Consolidated Statements of Operations -- For the Three Years
Ended December 31, 1997.......................................................................................F-4
Consolidated Statements of Stockholders' Equity -- For the Three Years
Ended December 31, 1997.......................................................................................F-5
Consolidated Statements of Cash Flows -- For the Three Years
Ended December 31, 1997.......................................................................................F-6
Notes to Consolidated Financial Statements......................................................................F-7
</TABLE>
The following consolidated financial statement schedule of the Company
is filed as a part of this report:
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts -- For the Three Years Ended December 31, 1997............... F-17
</TABLE>
All other financial statement schedules have been omitted because they
are not applicable or the required information is shown in the consolidated
financial statements and notes thereto.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of fiscal 1997.
-17-
<PAGE> 19
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
3.1+++ Restated Certificate of Incorporation of the Company
3.2++ Amended and Restated Bylaws of the Company
4+ Specimen Certificate evidencing Common Stock
10.1* Credit Agreement among the Company,
certain lenders and NationsBank of
Texas, N.A., as administrative
lender, as amended
10.2++++ Stock Option Plan, including form of Stock Option
Agreements, as amended
10.3++++ Director Compensation Plan
10.4+++++ Employee Stock Purchase Plan
21* Subsidiaries of the Company
23* Consent of KPMG Peat Marwick LLP
27* Financial Data Schedule
</TABLE>
- ----------
+ Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2, Registration Number 33-76068-D, initially filed with the
Securities and Exchange Commission on March 4, 1994, and declared
effective on March 4, 1994, and declared effective on March 28, 1994.
++ Previously filed as an exhibit to the Company's report on Form 10-K
for the year ended December 31, 1994, filed with the Securities and
Exchange Commission on March 31, 1995.
+++ Previously filed as an exhibit to the Company's report on Form S-8,
Registration Number 33-98176, filed with the Securities and Exchange
Commission on October 17, 1995.
++++ Previously filed as an exhibit to the Company's report on Form 10K for
the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 31, 1996.
+++++ Previously filed as an exhibit to the Company's Registration Statement
on Form S-1, Registration Number 333-03977, initially filed with the
Securities and Exchange Commission on May 17, 1996, and declared
effective on May 28, 1996.
* Filed herewith.
-18-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PC SERVICE SOURCE, INC.
March 30, 1998 By: /s/ Mark T. Hilz, President
---------------------------------
Mark T. Hilz, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 30, 1998.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ Mark T. Hilz President, Director
- ----------------------------------- (Principal Executive Officer)
Mark T. Hilz
/s/ Avery More Chairman of the Board, Director
- -----------------------------------
Avery More
/s/ Garold E. Swan Senior Vice President and Chief Financial Officer
- ----------------------------------- (Principal Financial and Accounting Officer)
Garold E. Swan
Director
- -----------------------------------
Morti Tenenhaus
/s/ Philip Wise Director
- -----------------------------------
Philip Wise
Director
- -----------------------------------
Robert Leff
/s/ Edward Raymund Director
- -----------------------------------
Edward Raymund
/s/ Jay Haft Director
- -----------------------------------
Jay Haft
</TABLE>
-19-
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
PC Service Source, Inc.:
We have audited the accompanying consolidated balance sheets of PC Service
Source, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. In
connection with the audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PC Service Source,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 13, 1998
F-1
<PAGE> 22
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Assets 1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 717 $ 3,650
Accounts receivable, less allowance for doubtful accounts of $977
and $384 at December 31, 1997 and 1996, respectively 15,973 12,978
Inventories 17,511 19,590
Income taxes receivable 668 --
Deferred income taxes 1,190 866
Other current assets 1,098 763
-------- --------
Total current assets 37,157 37,847
-------- --------
Property and equipment:
Computer equipment 13,612 8,779
Furniture and fixtures 5,660 4,295
Leasehold improvements 1,284 1,115
-------- --------
20,556 14,189
Accumulated depreciation and amortization (7,030) (3,771)
-------- --------
Net property and equipment 13,526 10,418
-------- --------
Goodwill, net of accumulated amortization of
$222 and $53 at December 31, 1997 and 1996
respectively 3,206 1,612
Other assets, net 1,269 297
-------- --------
$ 55,158 $ 50,174
======== ========
</TABLE>
F-2
<PAGE> 23
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1997 1996
-------- --------
<S> <C> <C>
Current liabilities:
Accounts payable $ 8,864 $ 7,821
Accrued liabilities 3,403 2,600
Income taxes payable -- 38
Revolving line of credit -- 3,053
Current portion of obligations under capital leases 1,153 841
-------- --------
Total current liabilities 13,420 14,353
-------- --------
Long-term debt - revolving line of credit 5,535 --
Obligations under capital leases, excluding current portion 3,160 3,059
Deferred income taxes 709 566
Commitments -- --
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
none issued -- --
Common stock, $.01 par value. Authorized 20,000,000 shares; issued
5,891,082 and 5,879,582 shares at December 31, 1997 and 1996,
respectively 59 59
Additional paid-in capital 30,978 30,946
Retained earnings 3,087 2,981
Less treasury stock, at cost, (132,762 common shares)
(1,790) (1,790)
-------- --------
Total stockholders' equity 32,334 32,196
-------- --------
$ 55,158 $ 50,174
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net revenues $131,843 $110,146 $ 68,690
Cost of revenues 94,159 78,001 49,766
-------- -------- --------
Gross margin 37,684 32,145 18,924
-------- -------- --------
Operating expenses:
Selling, general and administrative 33,271 26,457 17,241
Loss incurred from terminated supply agreement -- -- 1,935
Depreciation and amortization 3,504 2,151 1,510
-------- -------- --------
36,775 28,608 20,686
-------- -------- --------
Earnings (loss) from operations 909 3,537 (1,762)
Net interest expense 739 577 473
-------- -------- --------
Earnings (loss) before income taxes 170 2,960 (2,235)
Income tax expense (benefit) 64 1,089 (730)
-------- -------- --------
Net earnings (loss) $ 106 $ 1,871 $ (1,505)
======== ======== ========
Earnings (loss) per share:
Basic $ .02 $ .38 $ (.39)
======== ======== ========
Diluted $ .02 $ .35 $ (.39)
======== ======== ========
Weighted average common shares outstanding:
Basic 5,750 4,970 3,900
======== ======== ========
Diluted 5,882 5,285 3,900
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common stock Additional Total
-------------- paid-in Retained Treasury stockholders'
Shares Amount capital earnings stock equity
------ ------ ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 3,893,000 $ 39 $ 10,427 $ 2,615 $ -- $ 13,081
Issuance of common stock 1,000 -- 10 -- -- 10
Exercise of common stock options 61,371 1 57 -- (41) 17
Net loss -- -- -- (1,505) -- (1,505)
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1995 3,955,371 40 10,494 1,110 (41) 11,603
Issuance of common stock 1,439,000 14 18,531 -- -- 18,545
Exercise of common stock options 150,129 2 442 -- (267) 177
Exercise of common stock warrants 335,082 3 1,479 -- (1,482) --
Net earnings -- -- -- 1,871 -- 1,871
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1996 5,879,582 59 30,946 2,981 (1,790) 32,196
Issuance of common stock 1,500 -- 10 -- -- 10
Exercise of common stock options 10,000 -- 22 -- -- 22
Net earnings -- -- -- 106 -- 106
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1997 5,891,082 $ 59 $ 30,978 $ 3,087 $ (1,790) $ 32,334
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 106 $ 1,871 $ (1,505)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 3,504 2,151 1,510
Deferred income taxes (181) 753 (767)
Loss incurred from terminated supply agreement - - 1,935
Stock issuance for directors' compensation 10 24 10
Other, net (360) (195) (317)
Changes in operating assets and liabilities:
Accounts receivable (2,995) (2,727) (5,280)
Inventories 2,079 (5,913) (5,299)
Other current assets (335) (51) (472)
Accounts payable 1,043 (1,055) 5,765
Accrued liabilities 803 697 682
Income taxes receivable/payable (706) 118 (485)
Payable to Intelogic Trace - - (1,200)
-------- -------- --------
Net cash provided by (used in) operating activities 2,968 (4,327) (5,423)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (4,999) (3,244) (4,810)
Acquisition of noncash net assets (2,451) (1,975) -
-------- -------- --------
Net cash used in investing activities (7,450) (5,219) (4,810)
-------- -------- --------
Cash flows from financing activities:
Net revolving debt borrowings (payments) 2,482 (5,881) 8,934
Principal payments under capital lease obligations (955) (454) (217)
Net proceeds from public offering - 18,521 -
Proceeds from exercise of common stock options 22 177 17
-------- -------- --------
Net cash provided by financing activities 1,549 12,363 8,734
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (2,933) 2,817 (1,499)
Cash and cash equivalents at beginning of year 3,650 833 2,332
-------- -------- --------
Cash and cash equivalents at end of year $ 717 $ 3,650 $ 833
======== ======== ========
Supplemental cash flow disclosures:
Interest paid $ 612 $ 545 $ 332
======== ======== ========
Income taxes paid, net $ 856 $ 225 $ 508
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 27
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
PC Service Source, Inc. and Subsidiaries (the Company) are
suppliers of parts used in the repair of personal computers and
associated peripherals and services to the personal computing
service industry.
The Company began operations in 1989 as Digital Data Corporation
(Digital). In July 1990 the assets of Digital were acquired by a
subsidiary of CompuCom Systems, Inc. (CompuCom), which shortly
thereafter changed Digital's name to PC Parts Express, Inc. From
December 1990 until January 1994, the Company remained a
majority-owned subsidiary of CompuCom. In January 1994, CompuCom
sold a substantial portion of its equity position in the Company
to Rosetta Stone Corporation (Rosetta Stone). Subsequent to the
acquisition by Rosetta Stone, the Company changed its name to PC
Service Source, Inc.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of PC
Service Source, Inc. and its majority owned subsidiaries. The
minority interest in the results of operations and net assets of
the subsidiaries is not material. All significant intercompany
balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid cash investments with
original maturities of three months or less to be cash
equivalents.
(d) Inventories
Inventories are stated at the lower of average cost or market and
consist primarily of new and remanufactured personal computer
parts.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful
lives of the assets, which range from 3 to 5 years. Leasehold
improvements are amortized using the straight-line method over the
lesser of the estimated useful lives of the assets or the
remaining term of the lease.
F-7
<PAGE> 28
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(f) Goodwill
Goodwill represents the excess of purchase price over fair value
of net assets acquired and is amortized on a straight-line basis
over the expected periods to be benefited, generally 15 years.
(g) Revenue Recognition
Revenue is recognized upon shipment with provisions made for
anticipated returns.
(h) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
amounted to $1,266, $1,399 and $1,142 in 1997, 1996 and 1995,
respectively.
(i) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(j) Earnings per Share
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128 (SFAS 128), Earnings per Share in the
fourth quarter of 1997. This statement requires companies to
present basic earnings per share and diluted earnings per share.
Basic earnings per share is computed by dividing income available
to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock. Diluted earnings per share is not presented for
1995 because the impact of common stock equivalents was
antidilutive. The Company has restated all earnings (loss) per
share calculations to reflect the adoption of SFAS 128.
F-8
<PAGE> 29
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(k) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of, on January 1, 1996. This statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable.
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(m) Noncash Financing and Investing Activities
Capital lease obligations of $1,368, $2,866 and $723 were incurred
for computer equipment and furniture and fixtures in 1997, 1996
and 1995, respectively.
In 1996, 128,038 shares of treasury stock were acquired upon the
exercise of stock options and warrants. In 1995, 4,724 shares of
treasury stock were acquired upon the exercise of stock options.
In 1997, 1996 and 1995, 1,500, 1,500 and 1,000 shares of common
stock, respectively, were issued to directors in lieu of
compensation for an expense of $10, $24 and $10, respectively.
(n) Reclassifications
Certain previously reported financial information has been
reclassified to conform to the 1997 presentation.
F-9
<PAGE> 30
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(o) Year 2000
In January 1997, the Company developed a plan to deal with the
Year 2000 problem and began converting its computer systems to be
Year 2000 compliant. The plan provides for the conversion efforts
to be completed by the end of 1998. The Year 2000 problem is the
result of computer programs being written using two digits rather
than four to define the applicable year. The total cost of the
project is estimated to be $200 and is being funded through
operating cash flows. The Company is expensing all costs
associated with these systems changes as the costs are incurred.
As of December 31, 1997, approximately $50 had been expensed.
(p) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, other current assets and accounts payable approximates
fair value due to the short-term maturity of these instruments.
The carrying value of the revolving line of credit outstanding
approximates the estimated fair value since the obligation bears
interest at current market rates.
F-10
<PAGE> 31
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(2) INCOME TAXES
Income tax expense (benefit) for the years ended December 31 is presented
below.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 247 $ 272 $ --
Deferred (166) 777 (767)
State:
Current (2) 64 37
Deferred (15) (24) --
------- ------- -------
$ 64 $ 1,089 $ (730)
======= ======= =======
</TABLE>
The reconciliation of income taxes at the federal statutory rate of 34%
to the provision (benefit) for income taxes for the years ended December
31 is presented below.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income taxes at federal statutory rate 34.0% 34.0% (34.0)%
State taxes, net of federal income tax benefit 2.7 2.7 1.1
Other .9 .1 .2
---- ---- -----
Effective rate 37.6% 36.8% (32.7)%
==== ==== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at
December 31 are presented below.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Inventory costs 537 432
Accrued expenses 190 200
Accounts receivable 361 142
Other 102 92
Total deferred tax asset 1,190 866
------ ------
Deferred tax liability - depreciation 709 566
------ ------
Net deferred tax asset $ 481 $ 300
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
deferred tax assets will not be realized. The Company expects the
deferred tax assets at December 31, 1997 and 1996 will be realized as a
result of the reversals during the carryforward period of existing
taxable temporary differences giving rise to deferred tax liabilities and
generation of future taxable income. No valuation allowance is considered
necessary as of December 31, 1997 and 1996.
F-11
<PAGE> 32
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(3) REVOLVING LINE OF CREDIT
The Company has a $20,000 Revolving Bank Credit Facility (the Credit
Facility) of which $5,535 was outstanding as of December 31, 1997, that
matures in June 1999 and which may be annually extended for one year with
consent of the lenders. The Credit Facility contains covenants related
to, among others, tangible net worth, debt to tangible net worth and
interest coverage, and limits the amount available for capital
expenditures and dividends. At December 31, 1997, there were no
unremedied events of default. Outstanding borrowings under the agreement
are collateralized by substantially all of the assets of the Company. The
carrying value of the amounts outstanding approximates the estimated fair
value since the obligation bears interest at current market rates.
Interest is payable on the outstanding borrowings at a rate of 1.00% to
2.25% above the London Interbank Offering Rate for LIBOR advances (5.9%
at December 31, 1997) and 0.00% to 0.75% above the prime rate for base
rate advances (8.5% at December 31, 1997) and on the unused borrowings at
a rate of .25%. The weighted average interest rates were 8.34% and 9.29%
for 1997 and 1996 respectively.
(4) LEASES
The Company entered into capital leases for computer and warehouse
equipment and furniture and fixtures expiring in various years through
2002. Depreciation and amortization of assets under capital leases is
included in depreciation and amortization expense for the years ended
December 31, 1997, 1996 and 1995. Interest rates on capitalized leases
vary from 6.06% to 10.69% and are imputed based on the lower of the
Company's incremental borrowing rate at the inception of each lease or
the lessor's implicit rate. Property held under capital leases at
December 31, 1997 and 1996 is presented below.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Computer equipment $3,193 $2,303
Furniture and fixtures 2,497 2,019
Leasehold improvements 352 352
------ ------
6,042 4,674
Less accumulated amortization 2,039 974
------ ------
$4,003 $3,700
====== ======
</TABLE>
The Company leases office and warehouse distribution space and equipment
under various noncancellable operating leases with terms from three to
ten years. Certain of the leases contain renewal options ranging up to
five years. Total rental expense under operating leases was $2,126,
$1,665 and $856 in 1997, 1996 and 1995, respectively.
F-12
<PAGE> 33
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
The present value of future minimum lease payments under capital leases
and the minimum lease payments under noncancelable operating leases are
presented below.
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1998 $ 1,515 $ 1,949
1999 1,476 1,931
2000 1,209 1,841
2001 756 1,798
2002 169 1,709
Thereafter - 4,666
------- -------
Total minimum lease payments 5,125 $13,894
------- =======
Less amount representing interest 812
-------
Present value of net minimum lease payment 4,313
Less current installments of obligations under capital leases 1,153
-------
Obligations under capital leases, excluding current installments $ 3,160
=======
</TABLE>
(5) STOCKHOLDERS' EQUITY
In June 1996, the Company issued 1,437,500 shares of common stock to the
public and 1,500 shares of common stock to the directors. The net
proceeds of this secondary public offering were $18,521 net of offering
costs of $1,604. The net proceeds were used to pay approximately $11,400
outstanding under the Company's revolving bank credit facility. The
balance of the net proceeds was added to the Company's working capital
for general operating purposes.
(6) STOCK OPTIONS
In 1992, the Company adopted a stock option plan (the Plan) pursuant to
which the Company's Board of Directors may grant incentive and
nonqualified options to officers and key employees. The Plan authorizes
grants of options to purchase up to 1,000,000 shares of authorized but
unissued common stock. Stock options are granted with an exercise price
not less than the stock's fair market value at the date of grant. Stock
options generally become exercisable and vest at a rate of 20% per year
for five years after the date of grant and generally carry an expiration
date of ten years subsequent to the date of issuance. At December 31,
1997, there were 28,600 additional shares available for grant under the
Plan.
On March 9, 1998, the Compensation Committee of the Board of Directors
approved a program under which option holders would be able to cancel
their existing option contract in exchange for a new contract covering a
reduced number of shares with an exercise price of $4.75, the fair market
value of the Company's common stock at March 1, 1998. The Company
anticipates that contracts covering 662,500 shares will be cancelled in
exchange for contracts covering 512,750 shares. The new option awards
will vest over three years.
F-13
<PAGE> 34
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options since
January 1995 under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's net earnings (loss) would be adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss):
As reported $ 106 $ 1,871 $ (1,505)
Pro forma (264) 1,643 (1,577)
Earnings (loss) per share as reported:
Basic .02 .38 (.39)
Diluted .02 .35 (.39)
Earnings (loss) per share-pro forma:
Basic (.05) .33 (.40)
Diluted (.05) .31 (.40)
</TABLE>
Pro forma net earnings (loss) reflects only options granted since January 1,
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings (loss)
amounts presented above because compensation cost is reflected over the options'
vesting period of five years and compensation cost for options granted prior to
January 1, 1995 is not considered.
The per share weighted-average fair value of stock options granted during 1997,
1996 and 1995 ranged from $2.00 - $5.06, $4.96 - $8.20 and $4.97 - $5.27,
respectively, on the dates of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected volatility 57.7% 58.4% 58.4%
Risk-free interest rate 5.67 - 6.83% 5.24 - 6.64% 5.34 - 7.53%
Expected life 5 years 5 years 5 years
</TABLE>
F-14
<PAGE> 35
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
Following is a summary of activity in the Plan 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Weighted Weighted Weighted
Average average average
Exercise exercise exercise
Shares Price Shares price Shares price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 630,500 $ 7.75 624,129 $ 5.46 614,500 $ 4.56
Granted 305,500 9.00 212,000 11.84 170,000 9.04
Exercised (10,000) 2.25 (150,129) 2.96 (61,371) 2.25
Canceled (179,100) 10.39 (55,500) 10.57 (99,000) 8.83
-------- -------- --------
Outstanding at end of year 746,900 $ 7.70 630,500 $ 7.75 624,129 $ 5.46
======== ======== ======== ======== ======== ========
Options exercisable at
year end 275,900 $ 5.64 224,500 $ 5.25 195,000 $ 4.35
======== ======== ========
Weighted average fair
value of options granted
during the year $ 3.85 $ 6.68 $ 5.11
======== ======== ========
</TABLE>
(7) STOCK WARRANTS
In January 1994, the Company issued CompuCom a warrant to purchase
250,000 shares of common stock as part of the transaction in which
CompuCom sold a portion of the common stock it owned to Rosetta Stone.
The warrant was amended in May 1996 to include a net exercise provision
which permits the holder to surrender the warrant in exchange for the
number of shares of stock equal to the difference between the total
number of shares under the warrant and the number of shares at fair
market value equal to the total exercise price. The warrant was
surrendered and exercised under this provision in June 1996 resulting in
the issuance of 209,821 shares at an exercise price of $2.25 per share.
In connection with the Company's initial public offering in 1994, the
Company sold warrants covering 100,000 shares of common stock to the
representatives of the underwriters for a purchase price of $.01 per
share. The exercise price of these warrants is equal to 120% of the
initial public offering price per share of common stock and the warrant
also contains a net exercise provision. The warrants may be exercised for
all or any lesser number of shares of the common stock covered by the
warrants between April 6, 1995 and April 6, 2000. During 1996, a portion
of the warrant was exercised for 85,082 shares pursuant to the net
exercise provision at a price of $10.80 per share.
F-15
<PAGE> 36
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(8) RELATED PARTY TRANSACTIONS
The Company's sales to CompuCom were $441, $783 and $735 in 1997, 1996
and 1995, respectively. In addition, purchases of computer parts and
equipment from CompuCom were $259, $496 and $5,108 in 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, the Company had
accounts receivable outstanding from CompuCom of approximately $83 and
$168, respectively. Following the secondary offering in June 1996,
CompuCom owned less than 5% of the Company's outstanding common stock.
(9) BENEFIT PLANS
The Company sponsors a defined contribution plan under Section 401(k) of
the Internal Revenue Code. Employees who have attained the age of 21 and
completed one full quarter of service are eligible to participate.
Participation may begin on January 1, April 1, July 1, or October 1
following the full quarter of service. Eligible employees may contribute
from 1% to 15% of their annual compensation subject to limitations. The
Company matches 100% of the first 4% an employee contributes. Employee
contributions vest immediately while the Company contributions become
vested beginning in the participant's first year of eligibility with full
vesting by the end of the second year. In 1997, 1996 and 1995 the Company
contributed $454, $299 and $206, respectively.
In 1996, the Company adopted an Employee Stock Purchase Plan (the
Purchase Plan) covering all employees that have attained the age of 21
and completed one year of service. Under the Purchase Plan, eligible
participants may purchase stock of the Company at not less than 85% of
its market value as of the date the option to purchase is offered to the
employees; employees have one year to make sufficient contributions to
pay the exercise price. No shares have been issued under the Purchase
Plan. At December 31, 1997, 100,000 shares were available for future
issuance.
(10) TRANSACTION WITH INTELOGIC TRACE, INC.
In November 1994, the Company entered into a supply agreement with
Intelogic Trace (Intelogic) to provide substantially all of the spare
parts and replacement parts required by Intelogic's service operations.
The Company also acquired a component level returned parts repair
facility in San Antonio, Texas (San Antonio Facility), certain parts
inventory, and repair equipment. Intelogic filed for bankruptcy in March
1995, its business was sold in April 1995 and, as a result, the supply
agreement with the Company was terminated. The Company closed the San
Antonio Facility and terminated the employment of approximately
forty-five employees at that facility as a result of the bankruptcy
filing.
The Company realized a pretax charge in 1995 of $1,935, of which $907 was
for uncollected accounts receivable in excess of the approximately $900
recovered by the Company from its escrow security account with Intelogic
and $931 related to the write-off of certain fixed assets formerly used
at the San Antonio Facility. The remaining $97 of the pretax charge was
for severance packages paid to the approximately forty-five terminated
employees.
F-16
<PAGE> 37
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(In thousands, except share and per share amounts)
(11) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 32,421 $ 31,711 $ 33,495 $ 34,216
Gross margin 8,986 9,472 9,916 9,310
Net earnings (loss) 447 271 5 (617)
Earnings (loss) per share:
Basic .08 .05 .00 (.11)
Diluted .08 .05 .00 (.11)
1996
Net revenues $ 26,281 $ 26,786 $ 28,478 $ 28,601
Gross margin 7,573 8,316 7,988 8,268
Net earnings 654 759 179 279
Earnings per share:
Basic .16 .17 .03 .05
Diluted .15 .16 .03 .05
</TABLE>
F-17
<PAGE> 38
Schedule II
PC SERVICE SOURCE, INC.
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Additions
---------
Balance at Charged to Charged to Balance at
Beginning costs and other end
Description of period expenses accounts Deductions of period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable -
allowance for doubtful
accounts:
1997 $ 384 $1,727 -- $1,134 (B) $ 977
1996 267 505 -- 388 (B) 384
1995 275 1,197 (A) -- 1,205 (A) 267
</TABLE>
(A) Includes charge and write-off of $907 of account receivable for Intelogic
Trace.
(B) Write-off of uncollectible accounts.
F-18
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
3.1+++ Restated Certificate of Incorporation of the Company
3.2HH Amended and Restated Bylaws of the Company
4H Specimen Certificate evidencing Common Stock
10.1* Credit Agreement among the Company,
certain lenders and NationsBank of
Texas, N.A., as administrative
lender, as amended
10.2++++ Stock Option Plan, including form of Stock Option
Agreements, as amended
10.3++++ Director Compensation Plan
10.4++++ Employee Stock Purchase Plan
21* Subsidiaries of the Company
23* Consent of KPMG Peat Marwick LLP
27* Financial Data Schedule
</TABLE>
- ----------
+ Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2, Registration Number 33-76068-D, initially filed with the
Securities and Exchange Commission on March 4, 1994, and declared
effective on March 4, 1994, and declared effective on March 28, 1994.
++ Previously filed as an exhibit to the Company's report on Form 10-K
for the year ended December 31, 1994, filed with the Securities and
Exchange Commission on March 31, 1995.
+++ Previously filed as an exhibit to the Company's report on Form S-8,
Registration Number 33-98176, filed with the Securities and Exchange
Commission on October 17, 1995.
++++ Previously filed as an exhibit to the Company's report on Form 10K for
the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 31, 1996.
+++++ Previously filed as an exhibit to the Company's Registration Statement
on Form S-1, Registration Number 333-03977, initially filed with the
Securities and Exchange Commission on May 17, 1996, and declared
effective on May 28, 1996.
* Filed herewith.
<PAGE> 1
EXHIBIT 10.1
================================================================================
$20,000,000
CREDIT AGREEMENT
AMONG
PC SERVICE SOURCE, INC.,
CERTAIN LENDERS PARTY HERETO
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
June 20, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page
----
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Amendments and Renewals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 1.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 2
Advances
Section 2.1 The Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.2 Manner of Borrowing and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.3 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.5 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.6 Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.7 Non-Receipt of Funds by the Administrative Lender . . . . . . . . . . . . . . . . . . . . . 29
Section 2.8 Payment of Principal of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.9 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.10 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.11 LIBOR Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.12 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.13 Calculation of LIBOR Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.15 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Initial Advance and the Initial Issuance of Letters of
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 3.2 Conditions Precedent to All Advances and Letters of Credit . . . . . . . . . . . . . . . . 42
Section 3.3 Conditions Precedent to Conversions and Continuations . . . . . . . . . . . . . . . . . . . 44
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.2 Survival of Representations and Warranties, etc . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 5
General Covenants
Section 5.1 Preservation of Existence and Similar Matters . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.2 Business; Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.4 Accounting Methods and Financial Records . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.6 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.7 Visits and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 5.9 INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.10 Environmental Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.13 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 6
Information Covenants
Section 6.1 Borrowing Base Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.2 Quarterly Financial Statements and Information . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.3 Annual Financial Statements and Information; Certificate of No Default . . . . . . . . . . 57
Section 6.4 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.5 Copies of Other Reports and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.6 Notice of Litigation, Default and Other Matters . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.7 ERISA Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.8 Certain Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 7
Negative Covenants
Section 7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.3 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.4 Liquidation, Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.5 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.6 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.7 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.8 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.9 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.10 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.11 Minimum Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.12 Minimum Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.13 Maximum Funded Debt to EBITDA less CapEx Ratio . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.14 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.15 Sale or Discount of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.16 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.17 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.18 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.19 Amendment of Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.20 Amendments and Waivers of Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.21 Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 8
Default
Section 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 9
Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 9.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 9.3 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 9.4 Effect On Base Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 9.5 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 9.6 Replacement Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE 10
Agreement Among Lenders
Section 10.1 Agreement Among Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.2 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 10.3 Benefits of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE 11
Miscellaneous
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.3 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.4 Calculation by the Lenders Conclusive and Binding . . . . . . . . . . . . . . . . . . . . . 79
Section 11.5 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.9 Interest and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 11.11 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 11.12 Exception to Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 11.13 No Liability of Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 11.14 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 11.15 Amendment, Restatement, Extension, Renewal and Increase . . . . . . . . . . . . . . . . . . 84
SECTION 11.16 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 11.17 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 11.18 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>
- iv -
<PAGE> 6
Schedules and Exhibits
- ----------------------
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Labor Relations
Exhibit A: Note
Exhibit B: Security Agreement
Exhibit C: Borrowing Base Report
Exhibit D: Pledge Agreement
Exhibit E: Compliance Certificate
Exhibit F: Assignment Agreement
Exhibit G: Subsidiary Guaranty
Exhibit H: Notice of Borrowing
- v -
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of June 20, 1997, among PC SERVICE
SOURCE, INC., a Delaware corporation (the "Borrower"), the Lenders from time to
time party hereto, and NATIONSBANK OF TEXAS, N.A., a national banking
association, as administrative agent for the Lenders.
BACKGROUND
The Lenders have been requested to provide the Borrower the funds
required to (i) refinance existing debt of the Borrower outstanding to
NationsBank of Texas, N.A. pursuant to the terms of that certain Financing and
Security Agreement, dated as of January 12, 1994, as amended, modified,
supplemented and restated from time to time (the "Existing Credit Agreement"),
(ii) finance acquisitions permitted hereunder, (iii) finance the ongoing
working capital and general corporate requirements of the Borrower and its
Subsidiaries (as hereinafter defined) and (iv) finance certain capital
expenditures. The Lenders have agreed to provide such financing, subject to
the terms and conditions set forth below.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration hereby acknowledged, the
parties hereto agree that the Existing Credit Agreement shall be amended,
restated and superseded as follows:
ARTICLE 1
Definitions
Section 1.1 Defined Terms. For purposes of this Agreement:
"Account" has the meaning assigned to such term in the UCC.
"Acquisition" means any transaction pursuant to which the Borrower or
any of its Subsidiaries, (i) whether by means of a capital contribution or
purchase or other acquisition of stock or other securities or other equity
participation or interest, (A) acquires more than 50% of the equity interest in
any Person pursuant to a solicitation by the Borrower or such Subsidiary of
tenders of equity securities of such Person, or through one or more negotiated
block, market, private or other transactions, or a combination of any of the
foregoing, or (B) makes any corporation a Subsidiary of the Borrower or such
Subsidiary, or causes any corporation, other than a Subsidiary of the Borrower
or such Subsidiary, to be merged into the Borrower or such Subsidiary (or
agrees to be merged into any other corporation other than a wholly-owned
Subsidiary (excluding directors' qualifying shares) of the Borrower or such
Subsidiary), (ii) purchase all or substantially all of the business or assets
of any Person or of any operating division of any Person or (iii) purchase any
business(es) or assets of any Person(s) outside of
<PAGE> 8
the ordinary course of the business of the Borrower or the applicable
Subsidiary of the Borrower for consideration (including, without limitation,
Debt assumed by the Borrower or the applicable Subsidiary of the Borrower) with
an aggregate value in excess of $1,000,000.
"Administrative Lender" means NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
"Administrative Lender Fee Letter" has the meaning specified in
Section 2.4(b) hereof.
"Advance" means an Advance made pursuant to Section 2.1 hereof and
"Advances" means, collectively, all of such Advances.
"Affiliate" means, as applied to any Person, any other Person that,
directly or indirectly, through one or more Persons, Controls or is Controlled
By or Under Common Control with, that Person.
"Agreement" means this Credit Agreement, as amended, modified,
supplemented or restated from time to time.
"Agreement Date" means the date of this Agreement.
"Applicable Environmental Laws" means applicable laws pertaining to
health or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA").
"Applicable Law" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies
or regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
Sections 85 and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the maximum
rates of interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute
of the State of Texas; provided that the parties hereto agree that the
provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925, as
amended, shall not apply to Advances, this Agreement, the Notes or any other
Loan Documents.
- 2 -
<PAGE> 9
"Applicable Margin" means the following per annum percentages,
applicable in the following situations:
<TABLE>
<CAPTION>
Applicable Applicable Margin
Margin with with respect to
respect to Base Rate
LIBOR Advances
Advances ---------------
----------
<S> <C> <C> <C>
(a) Initial Pricing Period 1.50% 0.00%
(b) Subsequent Pricing Period
(1) The Funded Debt to EBITDA less CapEx Ratio is greater 1.75% 0.25%
than or equal to 3.50 to 1.00
(2) The Funded Debt to EBITDA less CapEx Ratio is less 1.50% 0.00%
than 3.50 to 1.00 but greater than or equal to 2.50
to 1.00
(3) The Funded Debt to EBITDA less CapEx Ratio is less 1.25% 0.00%
than 2.50 to 1.00 but greater than or equal to 1.50
to 1.00
(4) The Funded Debt to EBITDA less CapEx Ratio is less 1.00% 0.00%
than 1.50 to 1.00
</TABLE>
The Applicable Margin payable by the Borrower on the Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above, on a quarterly basis according to the performance of
the Borrower as tested by using the Funded Debt to EBITDA less CapEx Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the LIBOR Basis or the Base Rate
Basis shall be effective with respect to Advances (i) made following receipt by
the Administrative Lender of the financial statements required to be delivered
pursuant to Section 6.2 or 6.3 hereof, as applicable, for each such fiscal
quarter, and the corresponding Compliance Certificate required pursuant to
Section 6.4 hereof, on the date of making such Advance and (ii) outstanding on
the date of receipt of such financial statements and Compliance Certificate
referred to in clause (i) immediately preceding, on the date which is two
Business Days following the date of receipt of such financial statements and
Compliance Certificate. If such financial statements and Compliance
Certificate are not received by the Administrative Lender by the date required,
effective as of the first Business Day following notification thereof from the
Administrative Lender to the Borrower, the Applicable Margin with respect to
LIBOR Advances and the Applicable Margin with respect to Base Rate Advances
shall be determined as if the Funded Debt to EBITDA less CapEx Ratio is greater
than 3.50 to 1.00 until such time as such financial statements and Compliance
Certificate are received.
- 3 -
<PAGE> 10
"Assignees" means any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in Section 11.6 hereof.
"Assignment Agreement" has the meaning specified in Section 11.6
hereof.
"Authorized Signatory" means such senior personnel of the Borrower as
may be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances and Letters of Credit hereunder.
"Base Rate Advance" means any Advance bearing interest at the Base
Rate Basis.
"Base Rate Basis" means, for any day, a per annum interest rate equal
to the higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on
such day or (b) the Prime Rate on such day. The Base Rate Basis shall be
adjusted automatically without notice as of the opening of business on the
effective date of each change in the Prime Rate to account for such change.
"Borrower" has the meaning specified in the introductory provision
hereof.
"Borrowing Base" means (a) at any time prior to the Borrowing Base
Commencement Date, an amount equal to the Commitment and (b) at any time after
the Borrowing Base Commencement Date, an amount equal to the sum of (i) an
amount equal to 80% of Eligible Accounts, plus (ii) an amount equal to 40% of
Eligible Inventory, plus (iii) $7,000,000.
"Borrowing Base Report" means a report, signed by an Authorized
Signatory, in substantially the form of Exhibit C, appropriately completed.
"Borrowing Base Commencement Date" means the first day of the first
fiscal quarter immediately following the end of any fiscal quarter in which the
Leverage Ratio (calculated quarterly as of the last day of the applicable
fiscal quarter for the four consecutive fiscal quarters immediately preceding
the date of calculation) exceeds the ratio set forth below applicable to such
fiscal quarter of determination:
(i) for fiscal quarters ending on (and including) or before September
30, 1997 -- 2.50 to 1.00; and
(ii) for fiscal quarters ending thereafter -- 2.25 to 1.00.
"Business Day" means a day on which commercial banks are open (a) for
the transaction of business in Dallas, Texas, and, (b) with respect to any
LIBOR Advance, for the transaction of international business (including
dealings in U.S. dollar deposits) in London, England.
"Capital" means, for any date of calculation, for the Borrower and its
Subsidiaries, on a consolidated basis determined in accordance with GAAP, the
sum of (a) Funded Debt plus (b) Net Worth.
- 4 -
<PAGE> 11
"Capital Expenditures" means, for any period, expenditures made by the
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capitalized Lease
Obligations at the cost of the item, but excluding capital expenditures made
with insurance proceeds to the extent used to replace or repair damaged fixed
assets, plant and equipment) computed in accordance with GAAP, consistently
applied.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital
stock in any Person that is a corporation, and each class of partnership
interest (including, without limitation, general, limited and preference units)
in any Person that is a partnership.
"Capitalized Lease Obligations" means that portion of any obligation
of the Borrower or any Subsidiary of the Borrower as lessee under a lease which
at the time are recorded as capitalized lease obligations on the balance sheet
of the Borrower or such Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and
each Subsidiary of the Borrower (i) cash (which, after the occurrence of an
Event of Default, shall exclude any cash proceeds of Accounts), (ii) securities
issued or directly and fully guaranteed or insured by the United States
Government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any Lender or with any
domestic commercial bank having capital and surplus in excess of $500,000,000,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper issued by any Lender or the parent
corporation of any Lender, and commercial paper rated A-1 or the equivalent
thereof by Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc., a
New York corporation, or P-1 or the equivalent thereof by Moody's Investors
Service, Inc., and in each case maturing within six months after the date of
acquisition, and (vi) a readily redeemable "money market mutual fund" advised
by a bank described in clause (iii) hereof, or an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940, that has and
maintains an investment policy limiting its investments primarily to
instruments of the types described in clauses (i) through (v) hereof and having
on the date of such Investment total assets of at least One Hundred Million
Dollars ($100,000,000.00).
"Change of Control" means the occurrence of any of the following
events after the Agreement Date: (a) any Person or any Persons acting together
which would constitute a "group" (a "Group") for purposes of Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision thereto, other than any Person or Group which Controls the
Borrower as of the close of business on the Agreement Date, shall
- 5 -
<PAGE> 12
beneficially own (as defined in Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act or any successor provision thereto) at least
30% of the aggregate voting power of all classes of Capital Stock of the
Borrower entitled to vote generally in the election of directors of the
Borrower; provided, however, that any Person or Group which Controls the
Borrower as of the close of business on the Agreement Date no longer Controls
the Borrower after the acquisition by such Person or Group of at least 30% of
the aggregate voting power of all classes of such Capital Stock of the
Borrower; or (b) any Person or Group, other than any Person or Group which
Controls the Borrower as of the close of business on the Agreement Date, shall
succeed in having sufficient of its or their nominees elected to the Board of
Directors of the Borrower, such that such nominees, when added to any existing
director remaining on the Board of Directors of the Borrower after such
election who is an Affiliate or Related Person of such Person or Group, shall
constitute a majority of the Board of Directors of the Borrower.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means any collateral hereafter granted by any Person to
the Administrative Lender for the benefit of the Lenders to secure the
Obligations.
"Collateral Document" means any document under which Collateral is
granted and any document related thereto.
"Commitment Fee" has the meaning specified in Section 2.4(a) hereof.
"Commitment" means $20,000,000, as reduced pursuant to Section 2.6
hereof.
"Compliance Certificate" means a certificate, signed by an Authorized
Signatory, in substantially the form of Exhibit E, appropriately completed.
"Control" or "Controlled By" or "Under Common Control" means
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of voting securities, by
contract or otherwise); provided, however, that in any event any Person which
beneficially owns, directly or indirectly, 20% or more (in number of votes) of
the securities having ordinary voting power for the election of directors of a
corporation shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person
not an individual, all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) which are under common
control with such Person and which, together with such Person, are treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code; provided,
however, that the Subsidiaries of the Borrower shall be deemed to be members of
the Borrower's Controlled Group.
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<PAGE> 13
"Commercial Letter of Credit" means any letter of credit other than a
Standby Letter of Credit.
"Creditor" means a creditor of the Borrower or any Subsidiary of the
Borrower and shall not include any Affiliate of any such creditor.
"Current Maturities" means, with respect to any Person, the principal
portion payable by such Person on Long Term Debt during the twelve-month period
immediately succeeding the date of determination.
"Debtor Relief Laws" means any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization or similar debtor relief Laws affecting the rights of creditors
generally from time to time in effect.
"Deed of Trust" means any Deed of Trust or Mortgage, as applicable,
relating to real property interests of the Borrower, in a form acceptable to
the Administrative Lender, as amended, modified, renewed, supplemented or
restated from time to time.
"Default" means an Event of Default and/or any of the events specified
in Section 8.1, regardless of whether there shall have occurred any passage of
time or giving of notice that would be necessary in order to constitute such
event an Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a)
with respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or
(ii) the Prime Rate plus 2.00% or (b) with respect to LIBOR Advances, the
lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis plus 2% in excess
of the Applicable Margin then in effect.
"Determining Lenders" means, on any date of determination, any
combination of the Lenders having at least 66.67% of the aggregate amount of
the Advances then outstanding; provided, however, that if there are no Advances
outstanding hereunder, "Determining Lenders" shall mean any combination of
Lenders whose Specified Percentages aggregate at least 66.67%.
"Dividend" means, as to any Person, (a) any declaration or payment of
any dividend (other than a stock dividend) on, or the making of any
distribution on account of, any shares of Capital Stock of, or other similar
interest in, such Person and (b) any purchase, redemption, or other acquisition
or retirement for value of any shares of Capital Stock of, or similar interest
in, such Person.
"Dollar" or "$" means the lawful currency of the United States of
America.
"EBIT" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of
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<PAGE> 14
business, and adding thereto, to the extent included in determining Pretax Net
Income, any items of extraordinary loss, including net losses on the sale of
assets other than asset sales in the ordinary course of business), plus (b)
interest expense.
"EBITDA" means, for any period, determined in accordance with GAAP on
a consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation, amortization and other non-cash charges (to the extent
included in determining EBIT).
"Eligible Accounts" means at the time of any determination thereof,
the net amount of the Accounts of the Obligors which are reasonably acceptable
to the Determining Lenders in their discretion for the purposes of determining
the Borrowing Base and as to which the following requirements have been
fulfilled, less any reserves against such Eligible Accounts as the Determining
Lenders may, from time to time in their reasonable discretion without prior
notice, deem to be necessary or appropriate:
(i) An Obligor has lawful and absolute title to such
Account;
(ii) Such Account is a valid, legally enforceable
obligation of the Person who is obligated under such Account (the
"account debtor") for goods or services that have been delivered or
that have been rendered to such Person;
(iii) If such Account and other Accounts are owed by a
Creditor of the Borrower or any Subsidiary of the Borrower, the amount
of all such Accounts included as Eligible Accounts shall be the amount
by which all such Accounts exceeds the aggregate accounts payable owed
by the Borrower or such Subsidiary to such Creditor;
(iv) There has been excluded from such Account any portion
that is subject to any asserted dispute, offset, discount,
counterclaim or other claim or defense on the part of the account
debtor or to any asserted claim on the part of the account debtor
denying liability under such Account;
(v) The applicable Obligor(s) have the full and
unqualified right to assign and grant a security interest in such
Account to Administrative Lender as security for the Obligations;
(vi) Such Account is not evidenced by chattel paper,
promissory note or other instrument payable to any Obligor;
(vii) Such Account has not been due and payable for more
than 120 days from the invoice date; provided, that, unless
Determining Lenders agree otherwise, no Accounts from an account
debtor shall constitute Eligible Accounts if 50% or more of the
aggregate dollar amount of all Accounts owed to the Borrower or any
Subsidiary of
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<PAGE> 15
the Borrower by such account debtor have been due and payable for 120
days or more from their respective invoice dates;
(viii) No account debtor in respect of such Account is (a)
primarily conducting business in and organized under the laws of any
jurisdiction located outside the United States of America (provided,
however, that the term "Eligible Accounts" shall also include
Accounts, in an aggregate amount not to exceed $750,000 outstanding at
any time, that otherwise comply with the definition of "Eligible
Accounts" but as to which an account debtor is primarily conducting
business in or organized under the laws of Canada), (b) the subject of
a proceeding under any Debtor Relief Laws or (c) a Tribunal;
(ix) No account debtor in respect of such Account is (a)
an Affiliate of the Borrower or any Subsidiary of the Borrower or (b)
an employee of the Borrower or any Subsidiary of the Borrower;
(x) The interest of the applicable Obligor in such
Account is (a) subject to a fully perfected first priority interest in
favor of Administrative Lender pursuant to the Loan Documents, prior
to the rights of, and enforceable as such against, any other Person
(including holders of a purchase money security interest) and (b) not
subject to any Lien in favor of any other Person except for Liens in
favor of the Administrative Lender.
(xi) Such Account was generated in the ordinary course of
the Borrower's business, represents amounts payable in respect of
goods that have been delivered or services that have been performed
and is denominated and payable only in United States dollars in the
United States; and
(xii) Such Account is required to be paid in full not more
than 30 days after the original invoice date and satisfies all
applicable requirements of the Borrower's credit and collection
policies and practices, as in effect from time to time.
"Eligible Inventory" means, at the time of any determination thereof,
each item of the Obligors' Inventory (excluding work-in-process, obsolete
Inventory, Inventory on consignment and Inventory used for demonstrations and
display) valued at the lower of cost or market value, which is reasonably
acceptable to the Determining Lenders in their discretion for purposes of
determining the Borrowing Base and as to which the following requirements have
been fulfilled to the satisfaction of the Determining Lenders, less any
reserves against such Eligible Inventory as the Determining Lenders may, from
time to time in their reasonable discretion without prior notice, deem to be
necessary or appropriate:
(i) An Obligor has lawful and absolute title to such
Inventory;
(ii) Such Inventory is not defective or unmerchantable
goods;
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<PAGE> 16
(iii) Such Inventory is located in the United States of
America;
(iv) Such Inventory is (a) subject to a fully perfected
first priority security interest in favor of Administrative Lender
pursuant to the Loan Documents, prior to the rights of, and
enforceable as such against, any other Person (including holders of a
purchase money security interest) and (b) not subject to any Lien in
favor of any other Person;
(v) The sale of such Inventory by Administrative Lender
(or its successors or assigns) upon an Event of Default is not subject
to any Necessary Authorization, restriction or limitation;
(vi) Such Inventory is not located, nor will it at any
time be located, at any location that would result in its being
subjected to any landlord's Lien or any other Lien (other than
Permitted Liens) and the landlord and owner, if different from the
landlord, with respect to any and all locations(s) at which such
Inventory is, or may be, located from time to time have executed and
delivered a Landlord's Waiver in favor of the Administrative Lender;
and
(vii) Such Inventory is in the actual possession of
Borrower or the applicable Obligor and, without limiting the
generality of the foregoing, such Inventory is not in the actual or
constructive possession of any customer of Borrower or of any Obligor.
"Equipment" has the meaning assigned to such term in the UCC.
"Equity" means shares of capital stock or partnership, profits,
capital or member interest, or options, warrants or any other right to
subscribe for or otherwise acquire capital stock or a partnership, profits,
capital or member interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its
Subsidiaries, (a) a Reportable Event (other than a Reportable Event not subject
to the provision for 30-day notice to the PBGC pursuant to regulations issued
under Section 4043 of ERISA), (b) the withdrawal of any such Person or any
member of its Controlled Group from a Plan subject to Title IV of ERISA during
a plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate under
Section 4041(c) of ERISA, (d) the institution of proceedings to terminate a
Plan by the PBGC, (e) the failure to make required contributions which could
result in the imposition of a lien under Section 412 of the Code or Section 302
of ERISA, or (f) any other event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the
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<PAGE> 17
appointment of a trustee to administer, any Plan or the imposition of any
liability under Title IV of ERISA other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1,
provided that any requirement for notice or lapse of time has been satisfied.
"Existing Credit Agreement" has the meaning specified in the
Background provision hereof.
"Federal Funds Rate" means, for any day, the rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day
next succeeding such day, provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average of the quotations
for the day for such transactions received by the Administrative Lender from
three Federal funds brokers of recognized standing selected by it.
"Fixed Charges" means, for any date of calculation, calculated for
Borrower and its Subsidiaries on a consolidated basis, the sum of, without
duplication, (a) Current Maturities, plus (b) interest expense (including
interest expense pursuant to Capitalized Lease Obligations), plus (c) Rental
Expenses.
"Fixed Charge Coverage Ratio" means the ratio of EBITDA, plus Rental
Expenses, to Fixed Charges, calculated for the four consecutive fiscal quarters
immediately preceding the date of calculation.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
organized under the laws of any state of the United States of America or the
District of Columbia.
"Funded Debt" means, as of any date of determination, determined for
the Borrower and its Subsidiaries on a consolidated basis, (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services other than trade payables incurred in the ordinary course
of business and (iv) Capitalized Lease Obligations.
"Funded Debt to EBITDA less CapEx Ratio" means, for any date of
calculation, the ratio of Funded Debt as of the date of determination to the
remainder of (i) EBITDA, less (ii) (a) for any fiscal quarter ending on or
before June 30, 1997, the amount of Capital Expenditures in excess of
$3,000,000 and (b) for fiscal quarters ending after June 30, 1997, the amount
of Capital Expenditures in excess of $2,000,000, as of the date of
determination, all calculated for the four consecutive fiscal quarters
immediately preceding the date of calculation.
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<PAGE> 18
"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles applied in a current period are comparable in
all material respects to those applied in a preceding period.
"Guarantor" means each Material Subsidiary that executes and delivers
a Subsidiary Guaranty hereunder.
"Guaranty" or "Guaranteed", as applied to an obligation of another
Person, means (a) a guaranty, direct or indirect, in any manner, of any part or
all of such obligation, and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to amounts which may be drawn by
beneficiaries of outstanding letters of credit; provided, however, Guaranty
does not mean (i) the endorsement of instruments for collection or deposit in
the ordinary course of business and (ii) customary indemnities given in
connection with asset sales in the ordinary course of business.
"Hedge Agreements" means any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap, swap or
collar protection agreements, and forward rate currency or interest rate
options, as the same may be amended or modified and in effect from time to
time, and any and all cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
"Highest Lawful Rate" means at the particular time in question the
maximum rate of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations. If the maximum rate of interest which,
under Applicable Law, the Lenders are permitted to charge on the Obligations
shall change after the date hereof, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, from time to time as
of the effective time of each change in the Highest Lawful Rate without notice
to the Borrower.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services, (e) all obligations secured by any Lien
on any property or asset owned by such Person (other than accounts payable
arising in the ordinary course of business), whether or not the obligation
secured thereby shall have been assumed (provided that, unless such obligations
shall have been assumed, for purposes of this definition
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<PAGE> 19
the amount of such Indebtedness at any time shall be deemed to equal the fair
market value of such property or asset at such time), (f) to the extent not
otherwise included, all Capitalized Lease Obligations of such Person, all
obligations in respect of letters of credit, bankers' acceptances and similar
instruments and all obligations under Hedge Agreements and (g) any Guaranty of
such Person of any obligation of another Person constituting obligations of a
type set forth above.
"Indemnified Matters" has the meaning specified in Section 5.9(a)
hereof.
"Indemnitees" has the meaning specified in Section 5.9(a) hereof.
"Initial Pricing Period" means the period from and including the
Agreement Date to and including the Rate Adjustment Date.
"Intangible Assets" means those assets which are treated as intangible
pursuant to GAAP, and in any event including, without limitation: (i)
obligations, if any, owing by Affiliates to the Borrower or any Subsidiary of
the Borrower, (ii) the amount, if any, by which inventory exceeds the lower of
cost or market value thereof, (iii) leases and leasehold improvements; (iv) any
asset which is intangible or lacks intrinsic and marketable value or
collectibility, including without limitation goodwill, noncompetition
agreements, patents, copyrights, trademarks, franchises or organization or
research and development costs; (v) organizational and experimental expense;
and (vi) unamortized debt discount and expense.
"Interest Period" means the period beginning on the day any LIBOR
Advance is made and ending one, two, three or six months thereafter (as the
Borrower shall select); provided, however, that all of the foregoing provisions
are subject to the following:
(i) if any Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day, unless, with respect to a LIBOR
Advance, the result of such extension would be to extend such Interest
Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;
(ii) any Interest Period with respect to a LIBOR Advance
that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(iii) the Borrower may not select any Interest Period which
ends after the date of a scheduled principal payment on the Advances
unless, after giving effect to such selection, the aggregate unpaid
principal amount of the LIBOR Advances for which Interest Periods end
after such scheduled principal payment shall be equal to or less than
the principal amount to which the Advances or Commitment are required
to be reduced after such scheduled principal payment is made.
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<PAGE> 20
"Inventory" has the meaning assigned to such term in the UCC.
"Investment" means any acquisition of all or substantially all assets
of any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person that are not current assets or do not
arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
association, in its capacity as issuer of the Letters of Credit.
"Landlord's Waiver" means an agreement in form and substance
satisfactory to the Administrative Lender pursuant to which the landlord of any
leased location where any Collateral is located shall waive its rights, if any,
to the Collateral and shall grant to the Administrative Lender rights to enter
upon the premises to inspect, remove or dispose of the Collateral.
"Law" means any statute, law, ordinance, regulation, rule, order,
writ, injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages
hereof so long as such financial institution maintains a portion of the
Commitments or is owed any part of the Obligations (including the
Administrative Lender in its individual capacity), and each Assignee that
hereafter becomes a party hereto pursuant to Section 11.6 hereof, subject to
the limitations set forth therein.
"L/C Related Documents" has the meaning specified in Section 2.15(e)
hereof.
"Letter of Credit" means any Standby Letter of Credit or any
Commercial Letter of Credit. "Letters of Credit" means, collectively, all
Standby Letters of Credit and all Commercial Letters of Credit.
"Letter of Credit Agreement" has the meaning specified in Section
2.15(b) hereof.
"Letter of Credit Facility" has the meaning specified in Section
2.15(a) hereof.
"Leverage Ratio" means, for any date of calculation, the ratio of
Funded Debt as of the date of determination to EBITDA calculated for the four
consecutive fiscal quarters immediately preceding the date of calculation.
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<PAGE> 21
"LIBOR Advance" means an Advance which the Borrower requests to be
made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in
accordance with the provisions of Section 2.2 hereof.
"LIBOR Basis" means a simple per annum interest rate equal to the
lesser of (a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus
the Applicable Margin with respect to LIBOR Advances. The LIBOR Basis shall,
with respect to LIBOR Advances subject to reserve or deposit requirements, be
subject to premiums for such reserve or deposit requirements assessed by each
Lender to the extent incurred by such Lender, which are payable directly to
each Lender. Once determined, the LIBOR Basis shall remain unchanged during
the applicable Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "LIBOR Rate" shall mean, for any LIBOR Advance
for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
"Lien" means, with respect to any property, any mortgage, lien,
pledge, collateral assignment, hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure, attachment, garnishment or other
similar encumbrance of any kind in respect of such property, whether or not
choate, vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair competition,
securities, Tax or other Law, or under or pursuant to any contract, agreement
or other instrument.
"Loan Documents" means this Agreement, the Notes, the Security
Agreement, the Pledge Agreement, the Subsidiary Guaranty, any other Collateral
Document, the Administrative Lender Fee Letter, any Hedge Agreements entered
into with any Lender or any of their respective
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<PAGE> 22
Affiliates, and any other document or agreement executed or delivered from time
to time by the Borrower, any Subsidiary of the Borrower or any other Person in
connection herewith or as security for the Obligations.
"Long Term Debt" means any obligation which is due one year or more
from the date of creation thereof which under GAAP is shown as a liability,
plus (without duplication) amounts equal to the aggregate net rentals (after
making allowances for any interest, taxes or other expenses included therein)
payable more than one year from the date of creation thereof under Capitalized
Lease Obligations.
"Material Adverse Effect" means any act or circumstance or event that
(a) could reasonably be expected to be material and adverse to the business,
financial condition, results of operations, or business prospects of the
Borrower and its Subsidiaries taken as a whole, or (b) in any manner whatsoever
does or could reasonably be expected to materially and adversely affect the
validity or enforceability of any Loan Document.
"Material Subsidiary" means any direct or indirect Subsidiary of the
Borrower, whether now existing or hereafter created, acquired or arising, that,
in the opinion from time to time of the Determining Lenders, in their sole and
absolute discretion, owns or controls, directly or indirectly, a material
portion of property and/or business(es) of the Borrower and/or its Subsidiaries
or is otherwise material to the business(es) conducted, or intended to be
conducted, by the Borrower and/or its Subsidiaries. Without limiting the
generality of the foregoing, as of the Agreement Date, the term Material
Subsidiary shall include Cyclix Engineering Corporation.
"Maturity Date" means the earlier of (i) June 19, 1999, or (ii) the
date of termination of the Commitment pursuant to Section 2.6 or 8.2 hereof;
provided, however, that the Maturity date may be extended annually for
additional one-year periods after June 19, 1999 with the prior written consent
of all Lenders, which consent may be granted or withheld by any Lender(s) in
its or their sole and absolute discretion, following written request by
Borrower for such extension(s), to be received by the Lenders not less than 60
days prior to any anniversary date of the Agreement Date (commencing with such
anniversary date in 1998 and continuing with each such anniversary date
thereafter).
"Multiemployer Plan" means, as to any Person, at any time, a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which such Person or any member of its Controlled Group is making, or is
obligated to make contributions or has made, or been obligated to make,
contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
association, in its capacity as a Lender hereunder.
"Necessary Authorization" means any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with,
any Tribunal or any Person necessary
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<PAGE> 23
or appropriate to enable the Borrower or any Subsidiary of the Borrower to
maintain and operate its business and properties, including the sale of any
Inventory.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer
or other disposition of any asset by any Person, the amount of cash received by
such Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, lease, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction
or to the asset that is the subject thereof: (i) reasonable brokerage
commissions, legal fees, finder's fees, financial advisory fees, accounting
fees, underwriting fees, investment banking fees and other similar commissions
and fees, in each case, to the extent paid or payable by such Person; (ii)
filing, recording or registration fees or charges or similar fees or charges
paid by such Person; (iii) taxes paid or payable by such Person or any
shareholder, partner or member of such Person to governmental taxing
authorities as a result of such sale or other disposition; and (iv) payment of
the outstanding principal amount of, premium or penalty, if any, and interest
on any Indebtedness that is secured by a Lien on the asset in question and that
is required to be repaid under the terms thereof as a result of such asset
sale.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, after provisions for taxes and extraordinary
items, determined in accordance with GAAP.
"Net Worth" means, as of any date of calculation, for the Borrower and
its Subsidiaries, on a consolidated basis, determined in accordance with GAAP,
the consolidated total stockholders' equity of the Borrower and its
Subsidiaries.
"Notes" means, collectively, the promissory notes of Borrower
evidencing Advances hereunder, substantially in the form of Exhibit A hereto,
together with any extension(s), renewal(s), or amendment(s) thereof, or any
substitution(s) therefor.
"Notice of Borrowing" has the meaning specified in Section 2.2(a)
hereof.
"Notice of Issuance" has the meaning specified in Section 2.15(b)
hereof.
"Obligations" means (a) all obligations of any nature (whether matured
or unmatured, fixed or contingent, including the Reimbursement Obligations) of
the Borrower or any other Obligor to any Lender or the Administrative Lender
under any of the Loan Documents as they may be amended from time to time, and
(b) all obligations of the Borrower or any other Obligor for losses, damages,
expenses or any other liabilities of any kind that any Lender may suffer by
reason of a breach by the Borrower or any other Obligor of any obligation,
covenant or undertaking with respect to any Loan Document payable by the
Borrower or any other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
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"Operating Lease" means any operating lease, as defined in the
Financial Accounting Standard Board Statement of Financial Accounting Standards
No. 13, dated November, 1976 or otherwise in accordance with GAAP.
"Participant" has the meaning specified in Section 11.6(c) hereof.
"Participation" has the meaning specified in Section 11.6(c) hereof.
"Payment Date" means the last day of the Interest Period for any LIBOR
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
(a) Any Lien in favor of the Lenders to secure the Obligations
hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet
delinquent, and (ii) Liens for taxes, assessments, governmental charges, levies
or claims that are not yet delinquent or that are being diligently contested in
good faith by appropriate proceedings in accordance with Section 5.6 hereof and
for which adequate reserves shall have been set aside on such Person's books,
but only so long as no foreclosure, restraint, sale or similar proceedings have
been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and
materialmen incurred in the ordinary course of business for sums not yet due or
being contested in good faith, if such reserve or appropriate provision, if
any, as shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or similar
legislation;
(e) Easements, right-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere in any material
respect with the ordinary conduct of the business of such Person;
(f) Liens created to secure the purchase price of assets acquired
(or existing on property at the time such property is acquired) by such Person
or created to secure Indebtedness permitted by Section 7.1(c) or 7.1(d) hereof,
which is incurred solely for the purpose of financing the acquisition of such
assets and incurred at the time of acquisition or which exists against such
assets at the time of acquisition thereof, so long as each such Lien shall at
all times be confined solely to the asset or assets so acquired (and proceeds
thereof), and refinancings thereof so long as any such Lien remains solely on
the asset or assets acquired and the amount of Indebtedness related thereto is
not increased;
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<PAGE> 25
(g) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been
secured, provided that (i) such Person shall have established adequate reserves
for such judgments or awards, (ii) such judgments or awards shall be fully
insured (subject to customary deductibles) and the insurer shall not have
denied coverage, or (iii) such judgments or awards shall have been bonded to
the satisfaction of the Determining Lenders;
(h) Any Liens which are described on Schedule 2 hereto, and Liens
resulting from the refinancing of the related Indebtedness, provided that the
Indebtedness secured thereby shall not be increased and the Liens shall not
cover additional assets of the Borrower;
(i) Liens arising from filing Uniform Commercial Code financing
statements for precautionary purposes relating solely to true leases of
personal property permitted by this Agreement under which the Borrower or any
of its Subsidiaries is a lessee;
(j) Any zoning or similar law or right reserved to or vested in
any Tribunal to control or regulate the use of any real property;
(k) Any other title exception with respect to real property assets
disclosed by any preliminary title report, title commitment report or other
search of title provided to the Administrative Lender prior to the Agreement
Date in accordance with this Agreement unless disapproved by the Administrative
Lender prior to the Agreement Date;
(l) Any Lien in favor of any Lender to secure any obligations owed
to such Lender in respect of any Hedge Agreement;
(m) Liens incurred or deposits made to secure the performance of
bids, trade contracts (other than for Indebtedness), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(n) Liens securing Indebtedness or other obligations of the
Borrower or a Subsidiary of the Borrower owing to the Borrower or a Subsidiary;
(o) any replacements or renewals of Liens (but no increases in the
Indebtedness secured thereby) permitted by clauses (f), (h), (i), (j) and (m)
hereof; and
(p) Liens securing Indebtedness permitted by Section 7.1(k)
hereof, to the extent only that such Liens cover Inventory manufactured by,
purchased from or acquired from the holder of such Indebtedness and any
renewals thereof.
"Person" means an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
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<PAGE> 26
"Plan" means an employee benefit plan as defined in Section 3(3) of
ERISA (including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pledge Agreement" means the pledge agreement, substantially in the
form of Exhibit D hereto, as amended, modified, renewed, supplemented or
restated from time to time, executed by the Borrower.
"Pretax Net Income" means net profit (or loss) before taxes of the
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Quarterly Date" means the last day of each March, June, September and
December, beginning June 30, 1997.
"Rate Adjustment Date" means the date which is two Business Days
following the date that the Lenders receive the financial statements for the
fiscal quarter ended June 30, 1997, required to be delivered pursuant to
Section 6.2 hereof.
"Receivables" means all of the Obligors' present and future accounts,
contract rights and accounts receivable, whether now or hereafter owned, held,
or acquired by any Obligor and includes, without limitation, all of the
following insofar as same constitute, result from or are attributable to any of
the foregoing: all of the Obligors' chattel paper, documents, instruments,
deposit accounts, general intangibles and accounts receivable, including all
rights to payment for goods sold or leased or for services rendered, whether or
not earned by performance (and in any case where an account arises from the
sale of goods, the interest of the Obligor(s) in such goods); lease
receivables; license receivables; notes receivable; all other rights to receive
payments of money from any Person; the Obligors' right, title and interest
under equipment leases; the Obligors' rights under any service, lease rental,
consulting or similar agreements; rights or claims under contracts; books of
account, customer lists and other records relating in any way to any of the
foregoing.
"Reference Lender" means NationsBank; provided that if the Commitment
of NationsBank shall terminate and it shall have no Advances and Letters of
Credit outstanding hereunder, NationsBank shall cease to be the Reference
Lender, and Administrative Lender (after consultation with Borrower) shall,
with notice to Borrower and Lenders, designate another Lender as the Reference
Lender.
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"Reimbursement Obligations" means, in respect of any Letter of Credit
as at any date of determination, the sum of (a) the maximum aggregate amount
which is then available to be drawn under such Letter of Credit plus (b) the
aggregate amount of all drawings under such Letter of Credit not theretofore
reimbursed by the Borrower.
"Related Person" means (a) any Affiliate of the Borrower, (b) any
individual or entity who directly or indirectly holds 10% or more of any class
of Capital Stock of the Borrower, (c) any relative of such individual by blood,
marriage or adoption not more remote than first cousin and (d) any officer or
director of the Borrower.
"Release Date" means the date on which the Notes have been paid, all
other Obligations due and owing have been paid and performed in full, and the
Commitment has been terminated.
"Rental Expenses" means, as of any date of determination, calculated
for Borrower and its Subsidiaries on a consolidated basis, any and all rental
payments and other costs and expenses of the applicable Person under, or
pursuant to, Operating Leases, during the applicable period(s).
"Reportable Event" has the meaning set forth in Section 4043(b) of
ERISA.
"Restricted Payments" means, collectively, (i) Dividends and (ii) any
(A) payment or prepayment of principal, premium or penalty on any Subordinated
Debt of the Borrower or any Subsidiary of the Borrower or any defeasance,
redemption, purchase, repurchase or other acquisition or retirement for value,
in whole or in part, of any Subordinated Debt (including, without limitation,
the setting aside of assets or the deposit of funds therefor) and (B)
prepayment of interest on any Subordinated Debt.
"Rights" means rights, remedies, powers and privileges.
"Security Agreements" means, collectively, the security agreement(s)
relating to all Receivables, Inventory, Equipment and other personal property
(and all computer programs, applications, disks, plans, manuals,
specifications, files and other records pertaining thereto) of the Borrower and
its Subsidiaries, substantially in the form of Exhibit B hereto, as amended,
modified, renewed, supplemented or restated from time to time.
"Solvent" means, with respect to any Person, that the fair value of
the assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
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<PAGE> 28
reasonably be expected to become an actual or matured liability discounted to
present value at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll,
P.C., or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage
indicated beside its name on the signature pages hereof, or if applicable,
specified in its most recent Assignment Agreement.
"Standby Letter of Credit" means any letter of credit which represents
an obligation on the part of the issuer thereof to the beneficiary thereof: (i)
to repay money borrowed by or advanced to or for the account of the account
party, (ii) to make payment on account of any indebtedness undertaken by the
account party, or (iii) to make payment on account of any default (including
any statement of default) by the account party in the performance of an
obligation.
"Subordinated Debt" means any Indebtedness of the Borrower or any
Subsidiary of the Borrower having maturities and terms, and which is
subordinated to payment of the Obligations in a manner, approved in writing by
the Administrative Lender and the Determining Lenders, with only such changes
or amendments as are not prohibited by Section 7.20 hereof.
"Subsequent Pricing Period" means the period from and including the
date which is the first day following the end of the Initial Pricing Period to
and including the Maturity Date.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to
elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class
or classes of such corporation shall or might have voting power upon
the occurrence of any contingency),
(b) the interest in the capital or profits of such
partnership or joint venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such
Person and one or more of its Subsidiaries or by one or more of such
Person's Subsidiaries; provided, however, that no Person shall be
deemed to be a Subsidiary of the Borrower solely by virtue of the fact
that certain shares of the stock of such Person have been pledged to
the Borrower.
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<PAGE> 29
"Subsidiary Guaranty" means a guaranty, substantially in the form of
Exhibit G hereto, executed and delivered by each Guarantor, as such
guaranty(ies) may be amended, supplemented, modified, renewed or otherwise
restated from time to time.
"Tangible Net Worth" means the sum of the following for the Borrower
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP, (a) Net Worth minus (b) the sum of the following (without duplication in
respect of items already deducted in arriving at Net Worth): Intangible
Assets, and any write-up in the book value of assets resulting from revaluation
thereof subsequent to December 31, 1996.
"Taxes" has the meaning specified in Section 2.14 hereof.
"Tribunal" means any state, commonwealth, federal, foreign,
territorial, or other court or government body, subdivision, agency,
department, commission, board, bureau, or instrumentality of a governmental or
other regulatory or public body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time
to time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.
"Unused Portion" means an amount equal to the result of (a) the
Commitment, minus (b) the sum of (i) the outstanding Advances, plus (ii) the
outstanding Reimbursement Obligations in respect of the Letters of Credit.
Section 1.2 Amendments and Renewals. Each definition of an
agreement in this Article 1 shall include such agreement as amended to date,
and as amended or renewed from time to time in accordance with its terms, but
only with the prior written consent of the Determining Lenders or all the
Lenders as required pursuant to Section 11.11 hereof.
Section 1.3 Construction. The terms defined in this Article 1
(except as otherwise expressly provided in this Agreement) for all purposes
shall have the meanings set forth in Section 1.1 hereof, and the singular shall
include the plural, and vice versa, unless otherwise specifically required by
the context. All accounting terms used in this Agreement which are not
otherwise defined herein shall be construed in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, unless otherwise
expressly stated herein.
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ARTICLE 2
Advances
Section 2.1 The Advances.
(a) Each Lender severally agrees, upon the terms and subject to
the conditions of this Agreement, to make Advances to the Borrower from time to
time until the Maturity Date in an aggregate amount not to exceed its Specified
Percentage of the Commitment less its Specified Percentage of the aggregate
amount of all Reimbursement Obligations then outstanding (assuming compliance
with all conditions to drawing), for the purposes set forth in Section 5.8(a)
hereof. Subject to Section 2.9 hereof, Advances may be repaid and then
reborrowed. Notwithstanding any provision in any Loan Document to the
contrary, in no event shall the principal amount of all outstanding Advances
exceed the lesser of (i) the result of (A) the Borrowing Base minus (B) the
aggregate outstanding Reimbursement Obligations and (ii) the Commitment.
(b) Any Advance shall, at the option of the Borrower as provided
in Section 2.2 hereof (and, in the case of LIBOR Advances, subject to the
provisions of Article 9 hereof), be made as a Base Rate Advance or a LIBOR
Advance; provided that there shall not be outstanding, at any one time, more
than ten LIBOR Advances.
Section 2.2 Manner of Borrowing and Disbursement.
(a) In the case of Base Rate Advances, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender prior to 11:00 a.m.,
Dallas, Texas time, on the date of any proposed Base Rate Advance irrevocable
written notice, or irrevocable telephonic notice followed immediately by
written notice, in substantially the form of Exhibit H hereto (a "Notice of
Borrowing") (provided, however, that the Borrower's failure to confirm any
telephonic notice in writing shall not invalidate any notice so given), of its
intention to borrow a Base Rate Advance hereunder. Such notice of borrowing
shall specify the requested funding date, which shall be a Business Day, and
the amount of the proposed aggregate Base Rate Advances to be made by Lenders.
(b) In the case of LIBOR Advances, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender at least two
Business Days' irrevocable written notice, or irrevocable telephonic notice
followed immediately by written notice (provided, however, that the Borrower's
failure to confirm any telephonic notice in writing shall not invalidate any
notice so given) pursuant to a Notice of Borrowing, of its intention to borrow
a LIBOR Advance hereunder. Notice shall be given to the Administrative Lender
prior to 11:00 a.m., Dallas, Texas time, in order for such Business Day to
count toward the minimum number of Business Days required. LIBOR Advances
shall in all cases be subject to Article 9 hereof. For LIBOR
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<PAGE> 31
Advances, the notice of borrowing shall specify the requested funding date,
which shall be a Business Day, the amount of the proposed aggregate LIBOR
Advances to be made by Lenders and the Interest Period selected by the
Borrower, provided that no such Interest Period shall extend past the Maturity
Date, or prohibit or impair the Borrower's ability to comply with Section 2.5
or 2.8 hereof.
(c) Subject to Sections 2.1 and 2.9 hereof, the Borrower shall
have the option (i) to convert at any time all or any part (subject to the
requirements contained herein as to the minimum amounts of LIBOR Advances) of
the outstanding Base Rate Advances to LIBOR Advances and all or any part of the
outstanding LIBOR Advances to Base Rate Advances or (ii) upon expiration of any
Interest Period applicable to a LIBOR Advance, to continue all or any portion
of such LIBOR Advance equal to $500,000 and integral multiples of $100,000 in
excess of that amount as a LIBOR Advance and the succeeding Interest Period(s)
of such continued LIBOR Advance shall commence on the last day of the Interest
Period of the LIBOR Advance to be continued; provided, however, (a) LIBOR
Advances may only be converted into Base Rate Advances on the expiration date
of the Interest Period applicable thereto and (b) notwithstanding anything in
this Agreement to the contrary, no outstanding Advance may be continued as, or
converted into, a LIBOR Advance when any Default or Event of Default has
occurred and is continuing. At least two Business Days prior to a proposed
conversion/continuation date, the Borrower, through an Authorized Signatory,
shall give the Administrative Lender irrevocable written notice, or irrevocable
telephonic notice followed immediately by written notice (provided, however,
that the Borrower's failure to confirm any telephonic notice in writing shall
not invalidate any notice so given), stating (i) the proposed
conversion/continuation date (which shall be a Business Day), (ii) the amount
of the Advance to be converted/continued, (iii) in the case of a conversion to,
or a continuation of, a LIBOR Advance, the requested Interest Period, and (iv)
in the case of a conversion of a Base Rate Advance to a LIBOR Advance or
continuation of a LIBOR Advance, stating that no Default or Event of Default
has occurred and is continuing. If the Borrower shall fail to give any notice
in accordance with this Section 2.2(c), the Borrower shall be deemed
irrevocably to have requested that such LIBOR Advance be converted to a Base
Rate Advance in the same principal amount. Notice shall be given to the
Administrative Lender prior to 11:00 a.m., Dallas, Texas time, in order for
such Business Day to count toward the minimum number of Business Days required.
(d) The aggregate amount of Base Rate Advances to be made by the
Lenders on any day shall be in a principal amount which is at least $250,000
and which is an integral multiple of $100,000; provided, however, that such
amount may equal the unused amount of the applicable Commitment. The aggregate
amount of LIBOR Advances having the same Interest Period and to be made by the
Lenders on any day shall be in a principal amount which is at least $500,000
and which is an integral multiple of $100,000.
(e) The Administrative Lender shall promptly notify the Lenders of
each notice received from the Borrower pursuant to this Section. Each Lender
shall, not later than 2:00
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p.m., Dallas, Texas time, on the date of any Advance, deliver to the
Administrative Lender, at its address set forth herein, such Lender's Specified
Percentage of such Advance in immediately available funds in accordance with
the Administrative Lender's instructions. Prior to 2:30 p.m., Dallas, Texas
time, on the date of any Advance hereunder, the Administrative Lender shall,
subject to satisfaction of the conditions set forth in Article 3, disburse the
amounts made available to the Administrative Lender by the Lenders by (i)
transferring such amounts by wire transfer pursuant to the Borrower's
instructions, or (ii) in the absence of such instructions, crediting such
amounts to the account of the Borrower maintained with the Administrative
Lender. All Advances shall be made by each Lender according to its Specified
Percentage.
Section 2.3 Interest.
(a) On Base Rate Advances.
(i) The Borrower shall pay interest on the outstanding
unpaid principal amount of the Base Rate Advances outstanding from
time to time, until such Base Rate Advances are due (whether at
maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid at a simple interest rate per annum equal to the
Base Rate Basis for the Base Rate Advances as in effect from time to
time. If at any time the Base Rate Basis would exceed the Highest
Lawful Rate, interest payable on the Base Rate Advances shall be
limited to the Highest Lawful Rate, but the Base Rate Basis shall not
thereafter be reduced below the Highest Lawful Rate until the total
amount of interest accrued on the Base Rate Advances equals the amount
of interest that would have accrued if the Base Rate Basis had been in
effect at all times.
(ii) Interest on the Base Rate Advances shall be computed
on the basis of a year of 365 or 366 days, as appropriate, for the
actual number of days elapsed, and shall be payable in arrears on each
Quarterly Date and on the Maturity Date.
(b) On LIBOR Advances.
(i) The Borrower shall pay interest on the unpaid
principal amount of each LIBOR Advance, from the date such Advance is
made until it is due (whether at maturity, by reason of acceleration,
by scheduled reduction, or otherwise) or repaid, at a rate per annum
equal to the LIBOR Basis for such LIBOR Advance. The Administrative
Lender, whose determination shall be controlling in the absence of
manifest error, shall determine the LIBOR Basis on the second Business
Day prior to the applicable funding date and shall notify the Borrower
and the Lenders of such LIBOR Basis.
(ii) Subject to Section 11.9 hereof, interest on each
LIBOR Advance shall be computed on the basis of a 360-day year for the
actual number of days elapsed, and shall be payable in arrears on the
applicable Payment Date and on the Maturity Date; provided, however,
that if the Interest Period for such LIBOR Advance exceeds three
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months, interest shall also be due and payable in arrears on each
three-month anniversary of the commencement of such Interest Period
during such Interest Period.
(c) Interest After an Event of Default. (i) After an Event of
Default (other than an Event of Default specified in Section 8.1(f) or (g)
hereof) and during any continuance thereof, at the option of Determining
Lenders and provided that the Administrative Lender has given notice of the
decision to charge interest at the Default Rate, and (ii) after an Event of
Default specified in Section 8.1(f) or (g) hereof and during any continuance
thereof, automatically and without any action or notice by the Administrative
Lender or any Lender, the Obligations shall bear interest at a rate per annum
equal to the Default Rate. Such interest shall be payable on the earlier of
demand or the Maturity Date, and shall accrue until the earlier of (i) waiver
or cure (to the satisfaction of the Determining Lenders) of the applicable
Event of Default, (ii) agreement by the Lenders to rescind the charging of
interest at the Default Rate, or (iii) payment in full of the Obligations. The
Lenders shall not be required to accelerate the maturity of the Advances, to
exercise any other rights or remedies under the Loan Documents, or to give
notice to the Borrower of the decision to charge interest at the Default Rate.
Section 2.4 Fees.
(a) Commitment Fee. Subject to Section 11.9 hereof, the Borrower
agrees to pay to the Administrative Lender, for the ratable account of the
Lenders, a commitment fee equal to 0.250 percent per annum (the "Commitment
Fee") on the daily average Unused Portion during the period commencing on the
Agreement Date and ending on the Maturity Date. The Commitment Fee shall be
(i) payable in arrears on each Quarterly Date and on the Maturity Date, (ii)
fully earned when due and, subject to Section 11.9 hereof, nonrefundable when
paid and (iii) subject to Section 11.9 hereof, computed on the basis of a year
of 365 or 366 days, as appropriate, for the actual number of days elapsed.
(b) Other Fees. Subject to Section 11.9 hereof, the Borrower
agrees to pay to the Administrative Lender, for the account of the
Administrative Lender, the fees on the dates and in the amounts specified in
the letter agreement (the "Administrative Lender Fee Letter"), dated May 5,
1997, between the Borrower and the Administrative Lender.
Section 2.5 Prepayments.
(a) Voluntary LIBOR Advance Prepayments. Upon three Business
Days' prior telephonic notice (to be promptly followed by written notice) by an
Authorized Signatory to the Administrative Lender, LIBOR Advances may be
voluntarily prepaid but only so long as the Borrower concurrently reimburses
the Lenders in accordance with Section 2.9 hereof. Any notice of prepayment
shall be irrevocable.
(b) Mandatory Prepayment. On or before the date of any reduction
of the Commitment, the Borrower shall prepay applicable outstanding Advances in
an amount necessary
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to reduce the sum of outstanding Advances and Reimbursement Obligations to an
amount less than or equal to the Commitment as so reduced. On any date that
the aggregate principal amount of outstanding Advances and Reimbursement
Obligations (other than such Reimbursement Obligations which are fully secured
by funds in the L/C Cash Collateral Account pursuant to Section 2.15(g) hereof)
exceed the Borrowing Base, the Borrower shall immediately prepay Advances in an
amount equal to such excess amount and all interest attributable to such excess
amount. To the extent required by the immediately preceding two sentences, the
Borrower shall first prepay all Base Rate Advances and shall thereafter prepay
LIBOR Advances. To the extent that any prepayment requires that a LIBOR
Advance be repaid on a date other than the last day of its Interest Period, the
Borrower shall reimburse each Lender in accordance with Section 2.9 hereof. To
the extent that outstanding Advances exceed the Commitment after any reduction
thereof, the Borrower shall repay any such excess amount and all accrued
interest attributable to such excess Advances on the date of such reduction.
(c) Payments, Generally. Any prepayment of any LIBOR Advance
shall be accompanied by interest accrued on the principal amount being prepaid.
Any voluntary partial payment of a Base Rate Advance shall be in a principal
amount which is at least $250,000 and which is an integral multiple of
$100,000. Any voluntary partial payment of a LIBOR Advance shall be in a
principal amount which is at least $500,000 and which is an integral multiple
of $100,000, and to the extent that any prepayment of a LIBOR Advance is made
on a date other than the last day of its Interest Period, the Borrower shall
reimburse each Lender in accordance with Section 2.9 hereof.
Section 2.6 Reduction of Commitments.
(a) Voluntary Reduction. The Borrower shall have the right, upon
not less than ten Business Days' notice by an Authorized Signatory to the
Administrative Lender (if telephonic, to be confirmed by telex or in writing on
or before the date of reduction or termination), which shall promptly notify
the Lenders, to terminate or reduce the Commitment, in whole or in part,
without premium or penalty except as provided in the next sentence. Each
partial termination shall be in an aggregate amount which is at least
$1,000,000 and which is an integral multiple of $1,000,000, and no voluntary
reduction of the Commitment shall cause any LIBOR Advance to be repaid prior to
the last day of its Interest Period unless the Borrower shall reimburse each
Lender in accordance with Section 2.9 hereof.
(b) Mandatory Reduction. The Commitment shall be automatically
reduced to zero on the Maturity Date.
(c) General Requirements. Upon any reduction of a Commitment
pursuant to this Section, the Borrower shall immediately make a repayment of
applicable Advances in accordance with Section 2.5(b) hereof. The Borrower
shall reimburse each Lender in connection with any such payment in accordance
with Section 2.9 hereof to the extent applicable. The Borrower shall not have
any right to rescind any termination or reduction. Once reduced, the
Commitments may not be increased or reinstated.
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Section 2.7 Non-Receipt of Funds by the Administrative Lender.
Unless the Administrative Lender shall have been notified by a Lender prior to
the date of any proposed Advance that such Lender does not intend to make the
proceeds of such Advance available to the Administrative Lender, the
Administrative Lender may assume that such Lender has made such proceeds
available to the Administrative Lender on such date, and the Administrative
Lender may in reliance upon such assumption (but shall not be required to) make
available to the Borrower a corresponding amount. If such corresponding amount
is not in fact made available to the Administrative Lender by such Lender, the
Administrative Lender shall be entitled to recover such amount on demand from
such Lender (or, if such Lender fails to pay such amount forthwith upon such
demand, from the Borrower) together with interest thereon in respect of each
day during the period commencing on the date such amount was available to the
Borrower and ending on (but excluding) the date the Administrative Lender
receives such amount from (a) the Lender, at a per annum rate equal to the
lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Rate or (b) the
Borrower, at the per annum rate applicable at the time to such Advance. No
Lender shall be liable for any other Lender's failure to fund an Advance
hereunder.
Section 2.8 Payment of Principal of Advances. To the extent not
otherwise required to be paid earlier as provided herein, the principal amount
of the Advances, all accrued interest and fees thereon, and all other
Obligations related thereto, shall be due and payable in full on the Maturity
Date.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or
incur (other than through a default by that Lender) any losses (inclusive of
any such losses attributable to change(s) in the LIBOR Rate during the
applicable period(s), but exclusive of any losses of any other anticipated
profits on the part of such Lender) or reasonable out-of-pocket expenses
actually incurred in connection with (a) failure by the Borrower to borrow any
LIBOR Advance after having given notice of its intention to borrow in
accordance with Section 2.2 hereof (whether by reason of the Borrower's
election not to proceed or the non-fulfillment of any of the conditions set
forth in Article 3 hereof) or (b) any prepayment for any reason of any LIBOR
Advance in whole or in part (including a prepayment pursuant to Section 9.3(b)
hereof) on other than the last day of an Interest Period applicable to such
LIBOR Advance, the Borrower agrees to pay to any such Lender, within 30 days
after demand by such Lender, an amount sufficient to compensate such Lender for
all such losses (inclusive of any such losses attributable to change(s) in the
LIBOR Rate during the applicable period(s), but exclusive of any losses of any
other anticipated profits on the part of such Lender) and out-of-pocket
expenses, subject to Section 11.9 hereof. Such losses shall include, without
limiting the generality of the foregoing, reasonable expenses incurred by such
Lender in connection with the re-employment of funds prepaid, repaid, converted
or not borrowed, converted or paid, as the case may be. A certificate as to
any amounts payable to any Lender under this Section 2.9 submitted to the
Borrower by such Lender shall certify that such amounts were actually incurred
by such Lender and shall show in reasonable detail an accounting of the amount
payable and the calculations used to determine in good faith such amount and
shall be conclusive absent manifest or demonstrable
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error. Nothing in this Section 2.9 shall provide the Borrower or any
Subsidiary of the Borrower the right to inspect the records, files or books of
any Lender.
Section 2.10 Manner of Payment.
(a) Each payment (including prepayments) by the Borrower of the
principal of or interest on the Advances, fees, and any other amount owed under
this Agreement or any other Loan Document shall be made not later than 12:00
noon (Dallas, Texas time) on the date specified for payment under this
Agreement to the Administrative Lender at the Administrative Lender's office,
in lawful money of the United States of America constituting immediately
available funds.
(b) If any payment under this Agreement or any other Loan Document
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next succeeding day which is a Business Day, unless, with
respect to a payment due in respect of a LIBOR Advance, such Business Day falls
in another calendar month, in which case payment shall be made on the preceding
Business Day. Any extension of time shall in such case be included in
computing interest and fees, if any, in connection with such payment.
(c) Without waiving any other rights or recourse that the Borrower
may otherwise have against any Lender for such Lender's breach of its
obligations hereunder, the Borrower agrees to pay principal, interest, fees and
all other amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from the Borrower are
received by the Administrative Lender, the Administrative Lender shall apply
such amounts in the following order of priority: (i) to the payment of the
Administrative Lender's expenses incurred on behalf of the Lenders then due and
payable, if any; (ii) to the payment of all other fees then due and payable;
(iii) to the payment of interest then due and payable on the Advances; (iv) to
the payment of all other amounts not otherwise referred to in this clause (d)
then due and payable under the Loan Documents; and (v) to the payment of
principal then due and payable on the Advances.
(e) Each payment by the Borrower in respect of obligations
relating to the Advances and the Letters of Credit (whether for principal,
interest, fees or otherwise) shall be made to the Administrative Lender for the
account of the Lenders pro rata in accordance with their respective Specified
Percentages. Notwithstanding anything in this Section 2.10(e) or any other
provision of this Agreement or any other Loan Document to the contrary, any
payment by the Borrower in respect of any Advances after acceleration of the
Advances pursuant to Section 8.2 or any monies received by the Administrative
Lender as a result of the exercise of remedies under any Loan Documents after
acceleration of the Advances pursuant to Section 8.2 shall be distributed pro
rata to each Lender based on the percentage that the outstanding Advances and
Reimbursement Obligations owed to such Lender bears to the aggregate Advances
and Reimbursement Obligations owed to all Lenders.
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Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR
Lending Office is set forth opposite its name in Schedule 1 attached hereto.
Each Lender shall have the right at any time and from time to time to designate
a different office of itself or of any Affiliate of such Lender as such
Lender's LIBOR Lending Office, and to transfer any outstanding LIBOR Advance to
such LIBOR Lending Office. No such designation or transfer shall result in any
liability on the part of the Borrower for increased costs or expenses resulting
solely from such designation or transfer (except any such transfer which is
made by a Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the
purpose of complying with Applicable Law, to the extent that Applicable Law, or
any relevant construction or interpretation thereof, changes after the
Agreement Date). Increased costs for expenses resulting from a change in law
occurring subsequent to any such designation or transfer shall be deemed not to
result solely from such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances or its participation in the Letters of
Credit (other than pursuant to Sections 2.4(b), 2.14, 2.15(d), 9.3 or 9.5) in
excess of its Specified Percentage of all payments made by the Borrower with
respect to Advances and the Letters of Credit shall purchase from each other
Lender such participation in the Advances made by such other Lender or its
participation in the Letters of Credit as shall be necessary to cause such
purchasing Lender to share the excess payment pro rata according to Specified
Percentages with each other Lender; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section, to the fullest extent permitted by law, may exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower in the amount
of such participation.
Section 2.13 Calculation of LIBOR Rate. The provisions of this
Agreement relating to calculation of the LIBOR Rate are included only for the
purpose of determining the rate of interest or other amounts to be paid
hereunder that are based upon such rate, it being understood that each Lender
shall be entitled to fund and maintain its funding of all or any part of a
LIBOR Advance as it sees fit.
Section 2.14 Taxes.
(a) Any and all payments by the Borrower hereunder shall be made,
in accordance with Section 2.10, free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Administrative Lender, (i) taxes imposed on, based upon
or measured by its overall net income, net worth or capital, and franchise
taxes, doing business taxes or minimum taxes imposed on it, (A) by the
jurisdiction under the laws of which such Lender or the Administrative Lender
(as the case may be) is organized or in which
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it has its applicable lending office or any political subdivision thereof; or
(B) by any other jurisdiction, or any political subdivision thereof, other than
those imposed by reason of (1) an asserted relation of such jurisdiction to the
transactions contemplated by this Agreement, (2) the activities of the Borrower
in such jurisdiction or (3) the activities in connection with the transactions
contemplated by this Agreement of a Lender or the Administrative Lender; (ii)
taxes imposed by reason of failure by the Lender or the Administrative Lender
to comply with the requirements of paragraph (e) of this Section 2.14; and
(iii) in the case of any Lender, any Taxes in the nature of transfer, stamp,
recording or documentary taxes resulting from a transfer (other than as a
result of foreclosure) by such Lender of all or any portion of its interest in
this Agreement, the Notes or any other Loan Documents; (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by Law
to deduct or withhold any Taxes from or in respect of any sum payable hereunder
to any Lender or the Administrative Lender, (x) the sum payable shall be
increased as may be necessary so that after making all required deductions for
Taxes (including deductions applicable to additional sums payable under this
Section 2.14) such Lender or the Administrative Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (y) the Borrower shall make such deductions and (z) the
Borrower shall pay the full amount of Taxes deducted to the relevant taxation
authority or other authority in accordance with Applicable Law.
(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than Taxes described in clause (iii) of the first
sentence of Section 2.14(a)) that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Lender and the Administrative
Lender for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.14) paid by such Lender or the Administrative
Lender (as the case may be) and all liabilities (including penalties, additions
to tax, interest and reasonable expenses) arising therefrom or with respect
thereto whether or not such Taxes or Other Taxes were correctly or legally
asserted, other than penalties, additions to tax, interest and expenses arising
as a result of gross negligence or wilful misconduct on the part of such Lender
or the Administrative Lender, provided, however, that the Borrower shall have
no obligation to indemnify such Lender or the Administrative Lender unless and
until such Lender or the Administrative Lender shall have delivered to the
Borrower a certificate certifying that such Taxes or Other Taxes (and/or
penalties, additions to tax, interest and reasonable expenses) were actually
incurred by such Lender or the Administrative Lender and showing in reasonable
detail an accounting of the amount payable and the calculations used to
determine in good faith such amount, which certificate shall be conclusive
absent manifest or demonstrable error. Nothing in this Section 2.14 shall
provide the Borrower or any Subsidiary of the Borrower the right to inspect the
records, files or books of any Lender or the Administrative Lender. This
indemnification shall be made within 30 days from the date such Lender or the
Administrative Lender (as the case may be) makes written demand therefor.
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(d) As soon as practicable after the date of any payment of Taxes,
the Borrower will furnish to the Administrative Lender the original or a
certified copy of a receipt evidencing payment thereof. For purposes of this
Section 2.14 the terms "United States" and "United States Person" shall have
the meanings set forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees
that:
(i) it shall, no later than the Agreement Date (or, in
the case of a Lender which becomes a party hereto pursuant to Section
11.6 after the Agreement Date, the date upon which such Lender becomes
a party hereto) and at such times as necessary in the reasonable
determination of the Borrower, deliver to the Borrower through the
Administrative Lender, with a copy to the Administrative Lender:
(A) if any lending office is located in the United States
of America, two (2) accurate and complete signed
originals of Internal Revenue Service Form 4224 or
any successor thereto ("Form 4224"),
(B) if any lending office is located outside the United
States of America, two (2) accurate and complete
signed originals of Internal Revenue Service Form
1001 or any successor thereto ("Form 1001"),
in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
for the account of such lending office or lending offices under this
Agreement free from withholding of United States Federal income tax;
(ii) if at any time such Lender changes its lending office
or lending offices or selects an additional lending office it shall,
at the same time or reasonably promptly thereafter but only to the
extent the forms previously delivered by it hereunder are no longer
effective, deliver to the Borrower through the Administrative Lender,
with a copy to the Administrative Lender, in replacement for the forms
previously delivered by it hereunder:
(A) if such changed or additional lending office is
located in the United States of America, two (2)
accurate and complete signed originals of Form 4224;
or
(B) otherwise, two (2) accurate and complete signed
originals of Form 1001,
in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
for the account of such changed or additional lending office under
this Agreement free from withholding of United States Federal income
tax;
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(iii) it shall, before or promptly after the occurrence of
any event (including the passing of time but excluding any event
mentioned in clause (ii) above) requiring a change in the most recent
Form 4224 or Form 1001 previously delivered by such Lender and if the
delivery of the same be lawful, deliver to the Borrower through the
Administrative Lender with a copy to the Administrative Lender, two
(2) accurate and complete original signed copies of Form 4224 or Form
1001 in replacement for the forms previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower
to that effect, deliver to the Borrower such other forms or similar
documentation as may be required from time to time by any applicable
law, treaty, rule or regulation in order to establish such Lender's
tax status for withholding purposes; and
(v) it shall notify the Borrower after any event
(including an amendment to, or a change in any applicable law or
regulation or in the written interpretation thereof by any regulatory
authority or any judicial authority, or by ruling applicable to such
Lender of any governmental authority charged with the interpretation
or administration of any law) shall occur that results in such Lender
no longer being capable of receiving payments under this Agreement
without any deduction or withholding of United States federal income
tax.
(f) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.14 shall survive the payment in full of principal
and interest hereunder.
(g) Each Lender (and the Administrative Lender with respect to
payments to the Administrative Lender for its own account) agrees that (i) it
will take all reasonable actions by all usual means to maintain all exemptions,
if any, available to it from United States withholding taxes (whether available
by treaty, existing administrative waiver or by virtue of the location of any
Lender's lending office), (ii) it will use reasonable best efforts (consistent
with its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its lending office, if the making of such a change would avoid
the need for, or reduce the amount of, any such additional amounts which may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
materially disadvantageous to such Lender, and (iii) otherwise cooperate with
the Borrower to minimize amounts payable by the Borrower under this Section
2.14; provided, however, the Lenders and the Administrative Lender shall not be
obligated by reason of this Section 2.14(g) to contest the payment of any Taxes
or Other Taxes or to disclose any information regarding its tax affairs or tax
computations or reorder its tax or other affairs or tax or other planning.
Subject to the foregoing, to the extent the Borrower pays sums pursuant to this
Section 2.14 and the Lender or the Administrative Lender receives a refund of
any or all of such sums, such refund shall be applied to reduce any amounts
then due and owing under this Agreement or, to the extent that no amounts are
due and owing under this Agreement at the time such refunds are received, the
party receiving such refund shall promptly pay over all such refunded sums to
the Borrower, provided that (i) no Event of Default is in existence at such
time or (ii) all of the
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Obligations have been fully and finally paid or satisfied. At such time, if
any, that such Default or Event of Default is cured or waived, the party
receiving such refund shall promptly pay over all such refunded sums to the
Borrower.
(h) If the Borrower becomes obligated to pay additional amounts
described in this Section 2.14 to any Lender, the Borrower may designate a
financial institution reasonably acceptable to the Administrative Lender to
replace such Lender by purchasing for cash and receiving an assignment of such
Lender's pro rata share of the Commitments and the Rights of such Lender under
the Loan Documents without recourse to or warranty by, or expense to, such
Lender, for a purchase price equal to the outstanding amounts owed to such
Lender (including such additional amounts owing to such Lender pursuant to this
Section 2.14). Upon execution of an Assignment Agreement, such other financial
institution shall be deemed to be a "Lender" for all purposes of this Agreement
as set forth in Section 11.6 hereof.
Section 2.15 Letters of Credit.
(a) The Letter of Credit Facility. The Borrower may request the
Issuing Bank, on the terms and conditions hereinafter set forth, to issue, and
the Issuing Bank shall, if so requested, issue, Letters of Credit for the
account of the Borrower from time to time on any Business Day from the date of
the initial Advance until the Maturity Date in an aggregate maximum amount
(assuming compliance with all conditions to drawing) not to exceed, at any time
outstanding, the lesser of (i) $5,000,000 (the "Letter of Credit Facility") and
(ii) the Borrowing Base, less the aggregate principal amount of all Advances
then outstanding. No Letter of Credit shall have an expiration date (including
all rights of renewal) later than the earlier of (i) the Maturity Date or (ii)
one year after the date of issuance thereof. Immediately upon the issuance of
each Letter of Credit, the Issuing Bank shall be deemed to have sold and
transferred to each Lender, and each Lender shall be deemed to have purchased
and received from the Issuing Bank, in each case irrevocably and without any
further action by any party, an undivided interest and participation in such
Letter of Credit, each drawing thereunder and the obligations of the Borrower
under this Agreement in respect thereof in an amount equal to the product of
(x) such Lender's Specified Percentage times (y) the maximum amount available
to be drawn under such Letter of Credit (assuming compliance with all
conditions to drawing). Within the limits of the Letter of Credit Facility,
and subject to the limits referred to above, the Borrower may request the
issuance of Letters of Credit under this Section 2.15(a), repay any Advances
resulting from drawings thereunder pursuant to Section 2.15(c) and request the
issuance of additional Letters of Credit under this Section 2.15(a).
(b) Request for Issuance. Each Letter of Credit shall be issued
upon notice, given not later than 11:00 a.m. (Dallas, Texas time) on the fourth
Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank. Each Letter of Credit shall be
issued upon notice given in accordance with the terms of any separate agreement
between the Borrower and the Issuing Bank in form and substance reasonably
satisfactory to the Borrower and the Issuing Bank providing for the issuance of
Letters of Credit pursuant to this Agreement and containing terms and
conditions not inconsistent with this
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Agreement (a "Letter of Credit Agreement"), provided that if any such terms and
conditions are inconsistent with this Agreement, this Agreement shall control.
Each such notice of issuance of a Letter of Credit by the Borrower (a "Notice
of Issuance") shall be by telecopier, specifying therein, in the case of a
Letter of Credit, the requested (A) date of such issuance (which shall be a
Business Day), (B) maximum amount of such Letter of Credit, (C) expiration date
of such Letter of Credit, (D) name and address of the beneficiary of such
Letter of Credit, and (E) form of such Letter of Credit and specifying such
other information as shall be required pursuant to the relevant Letter of
Credit Agreement. If the requested terms of such Letter of Credit are
acceptable to the Issuing Bank in its reasonable discretion, the Issuing Bank
will, upon fulfillment of the applicable conditions set forth in Article 3
hereof, make such Letter of Credit available to the Borrower at its office
referred to in Section 11.1 or as otherwise agreed with the Borrower in
connection with such issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of
a draft drawn under any Letter of Credit shall constitute for all purposes of
this Agreement the making by the Issuing Bank of an Advance, which shall bear
interest at the Base Rate Basis, in the amount of such draft (but without any
requirement for compliance with the conditions set forth in Article 3 hereof).
In the event that a drawing under any Letter of Credit is not reimbursed by the
Borrower by 11:00 a.m. (Dallas, Texas time) on the first Business Day after
such drawing, the Issuing Bank shall promptly notify Administrative Lender and
each other Lender. Each such Lender shall, on the first Business Day following
such notification, make an Advance, which shall bear interest at the Base Rate
Basis, and shall be used to repay the applicable portion of the Issuing Bank's
Advance with respect to such Letter of Credit, in an amount equal to the amount
of its participation in such drawing for application to reimburse the Issuing
Bank (but without any requirement for compliance with the applicable conditions
set forth in Article 3 hereof) and shall make available to the Administrative
Lender for the account of the Issuing Bank, by deposit at the Administrative
Lender's office, in same day funds, the amount of such Advance. In the event
that any Lender fails to make available to the Administrative Lender for the
account of the Issuing Bank the amount of such Advance, the Issuing Bank shall
be entitled to recover such amount on demand from such Lender together with
interest thereon at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate or (ii) the Federal Funds Rate.
(d) Increased Costs. If after the Agreement Date any change in
any Law or in the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof shall either (i)
impose, modify or deem applicable any reserve, special deposit or similar
requirement against letters of credit or guarantees issued by, or assets held
by, or deposits in or for the account of, the Issuing Bank or any Lender or any
corporation controlling the Issuing Bank or any Lender or (ii) impose on the
Issuing Bank or any Lender or any corporation controlling the Issuing Bank or
any Lender any other condition regarding this Agreement or any Letter of
Credit, and the result of any event referred to in the preceding clause (i) or
(ii) shall be to increase the cost to the Issuing Bank or any corporation
controlling the Issuing Bank of issuing or maintaining any Letter of Credit or
to any Lender or any corporation controlling such Lender of purchasing any
participation therein or making any Advance pursuant to Section 2.15(c), then,
within 30 days after demand by the Issuing Bank or
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such Lender (which demand shall be made not later than one year after the
Issuing Bank or applicable Lender receives notice of the relevant change), the
Borrower shall, subject to Section 11.9 hereof, pay to the Issuing Bank or such
Lender, from time to time as specified by the Issuing Bank or such Lender,
additional amounts that shall be sufficient to compensate the Issuing Bank or
such Lender or any corporation controlling such Lender for such increased cost.
A certificate as to the amount of such increased cost, submitted to the
Borrower by the Issuing Bank or such Lender, shall certify that such increased
costs were actually incurred by the Issuing Bank or such Lender and shall show
in reasonable detail an accounting of the amount payable and the calculation
used to determine in good faith such amount and shall be conclusive absent
manifest or demonstrable error. In determining such amount, the Issuing Bank
or such Lender may use any reasonable averaging or attribution method. Nothing
in this Section 2.15(d) shall provide the Borrower or any Subsidiary of the
Borrower the right to inspect the records, files or books of the Issuing Bank
or any Lender. If the Borrower becomes obligated to pay additional amounts
described in this Section 2.15(d) to any Lender, the Borrower may designate a
financial institution reasonably acceptable to the Administrative Lender to
replace such Lender by purchasing for cash and receiving an assignment of such
Lender's pro rata share of the Commitments and the Rights of such Lender under
the Loan Documents without recourse to or warranty by, or expenses to, such
Lender, for a purchase price equal to the outstanding amounts owing to such
Lender (including such additional amounts owing to such Lender pursuant to this
Section 2.15(d). Upon execution of an Assignment Agreement, such other
financial institution shall be deemed to be a "Lender" for all purposes of this
Agreement as set forth in Section 11.6 hereof. The obligations of the Borrower
under this Section 2.15(d) shall survive termination of this Agreement. The
Issuing Bank or any Lender claiming any additional compensation under this
Section 2.15(d) shall use reasonable efforts (consistent with legal and
regulatory restrictions) to reduce or eliminate any such additional
compensation which may thereafter accrue and which efforts would not, in the
reasonable judgment of the Issuing Bank or such Lender, be otherwise
disadvantageous.
(e) Obligations Absolute. Except in the case of gross negligence
or wilful misconduct on the part of the Issuing Bank, the obligations of the
Borrower under this Agreement with respect to any Letter of Credit, any Letter
of Credit Agreement and any other agreement or instrument relating to any
Letter of Credit or any Advance pursuant to Section 2.15(c) shall be
unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of this Agreement, such Letter of Credit Agreement and such other
agreement or instrument under all circumstances, including, without limitation,
the following circumstances:
(i) any lack of validity or enforceability of this
Agreement, any other Loan Document, any Letter of Credit Agreement,
any Letter of Credit or any other agreement or instrument relating
thereto (collectively, the "L/C Related Documents");
(ii) (A) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations of
the Borrower in respect of the Letters of Credit or any Advance
pursuant to Section 2.15(c) or (B) any other amendment or waiver of or
any consent to departure from all or any of the L/C Related Documents;
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(iii) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary
or any transferee of a Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), the Issuing
Bank, any Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by the L/C Related
Documents or any unrelated transaction;
(iv) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not comply
with the terms of the Letter of Credit;
(vi) any exchange, release or non-perfection of any
Collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Obligations of the
Borrower in respect of the Letters of Credit or any Advance pursuant
to Section 2.15(c); or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including, without
limitation, any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Borrower or a guarantor.
(f) Compensation for Letters of Credit.
(i) Credit Fee with respect to Standby Letters of Credit.
Subject to Section 11.9 hereof, the Borrower shall pay to the
Administrative Lender for the ratable account of each Lender a fee
(which shall be payable quarterly in arrears on each Quarterly Date
and on the Maturity Date) equal to a rate per annum equal to the
product of the Applicable Margin with respect to LIBOR Advances in
effect from time to time multiplied by the average daily amount
available for drawing under all outstanding Standby Letters of Credit.
Subject to Section 11.9 hereof, such fee shall be computed on the basis
of a 360-day year for the actual number of days elapsed.
(ii) Issuance Fee with respect to Standby Letters of
Credit. Subject to Section 11.9 hereof, the Borrower shall pay to the
Administrative Lender for the account of the Issuing Bank an issuance
fee for each Standby Letter of Credit (which shall be payable on the
date of issuance of each Standby Letter of Credit) in an amount equal
to the greater of (a) $300 or (b) the product of (x) 0.125% times (y)
the face amount of the Standby Letter of Credit being issued.
(iii) Fees with respect to Commercial Letters of Credit.
Subject to Section 11.9 hereof, the Borrower shall pay to the
Administrative Lender for the ratable account of
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each Lender a fee for each Commercial Letter of Credit (which shall be
payable on the date of issuance of the applicable Commercial Letter of
Credit) in an amount equal to the greater of (a) $300 or (b) the
product of (x) one percent (1.00%) per annum times (y) the face amount
of the Commercial Letter of Credit being issued, calculated based upon
the stated term of such Commercial Letter of Credit.
(iv) Other Fees. Subject to Section 11.9 hereof, the
Borrower shall pay, with respect to each amendment, renewal or
transfer of each Letter of Credit and each drawing made thereunder,
reasonable documentary and processing charges in accordance with the
Issuing Bank's standard schedule for such charges in effect at the
time of such amendment, renewal, transfer or drawing, as the case may
be.
(g) L/C Cash Collateral Account.
(i) Upon the Maturity Date or the occurrence, and during
the continuance, of an Event of Default and demand by the
Administrative Lender pursuant to Section 8.2(c), the Borrower will
promptly pay to the Administrative Lender in immediately available
funds an amount equal to the maximum amount then available to be drawn
under the Letters of Credit then outstanding. Any amounts so received
by the Administrative Lender shall be deposited by the Administrative
Lender in a deposit account maintained by the Issuing Bank (the "L/C
Cash Collateral Account").
(ii) As security for the payment of all Reimbursement
Obligations and for any other Obligations, the Borrower hereby grants,
conveys, assigns, pledges, sets over and transfers to the
Administrative Lender (for the benefit of the Issuing Bank and
Lenders), and creates in the Administrative Lender's favor (for the
benefit of the Issuing Bank and Lenders) a Lien in, all money,
instruments and securities at any time held in or acquired in
connection with the L/C Cash Collateral Account, together with all
proceeds thereof. The L/C Cash Collateral Account shall be under the
sole dominion and control of the Administrative Lender and the Borrower
shall have no right to withdraw or to cause the Administrative Lender
to withdraw any funds deposited in the L/C Cash Collateral Account. At
any time and from time to time, upon the Administrative Lender's
request, the Borrower promptly shall execute and deliver any and all
such further instruments and documents, including UCC financing
statements, as may be necessary, appropriate or desirable in the
Administrative Lender's judgment to obtain the full benefits (including
perfection and priority) of the security interest created or intended
to be created by this paragraph (ii) and of the rights and powers
herein granted. The Borrower shall not create or suffer to exist any
Lien on any amounts or investments held in the L/C Cash Collateral
Account other than the Lien granted under this paragraph (ii).
(iii) The Administrative Lender shall (A) apply any funds
in the L/C Cash Collateral Account on account of Reimbursement
Obligations when the same become due and payable, (B) after the
Maturity Date, apply any proceeds remaining in the L/C Cash
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<PAGE> 46
Collateral Account first to pay any unpaid Obligations then outstanding
hereunder and then to refund any remaining amount to the Borrower.
(iv) The Borrower, no more than once in any calendar
month, may direct the Administrative Lender to invest the funds held in
the L/C Cash Collateral Account (so long as the aggregate amount of
such funds exceeds any relevant minimum investment requirement) in (A)
Cash and Cash Equivalents or direct obligations of the United States or
any agency thereof, or obligations guaranteed by the United States or
any agency thereof and (B) one or more other types of investments
permitted by the Determining Lenders, in each case with such maturities
as the Borrower, with the consent of the Determining Lenders, may
specify, pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be. In
the absence of any such direction from the Borrower, the Administrative
Lender shall invest the funds held in the L/C Cash Collateral Account
(so long as the aggregate amount of such funds exceeds any relevant
minimum investment requirement) in one or more types of investments
with the consent of the Determining Lenders with such maturities as the
Borrower, with the consent of the Determining Lenders, may specify,
pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be.
All such investments shall be made in the Administrative Lender's name
for the account of the Lenders, subject to the ownership interest
therein of the Borrower. The Borrower recognizes that any losses or
taxes with respect to such investments shall be borne solely by the
Borrower, and the Borrower agrees to hold the Administrative Lender and
the Lenders harmless from any and all such losses and taxes, except to
the extent that such losses or taxes are finally judicially determined
by a court of competent jurisdiction to be the result of gross
negligence or wilful misconduct of the Administrative Lender.
Administrative Lender may liquidate any investment held in the L/C Cash
Collateral Account in order to apply the proceeds of such investment on
account of the Reimbursement Obligations as provided in Section
2.15(g)(iii) hereof (or on account of any other Obligation then due and
payable, as the case may be) without regard to whether such investment
has matured and without liability for any penalty or other fee incurred
(with respect to which the Borrower hereby agrees to reimburse the
Administrative Lender) as a result of such application.
(v) After the establishment of the L/C Cash Collateral
Account pursuant to Section 2.15(g)(i) hereof, the Borrower shall pay
to the Administrative Lender the fees customarily charged by the
Issuing Bank with respect to the maintenance of accounts similar to the
L/C Cash Collateral Account.
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ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Initial Advance and the
Initial Issuance of Letters of Credit. The obligation of each Lender to make
any Advance and the obligation of the Issuing Bank to issue Letters of Credit
is subject to (i) receipt by the Administrative Lender of the following items
which are to be delivered, in form and substance satisfactory to each Lender,
with a copy (except for the Notes and this Agreement) for each Lender, and (ii)
satisfaction of the following conditions which are to be satisfied:
(a) A loan certificate of each Obligor certifying as to the
accuracy of its representations and warranties in the Loan Documents,
certifying that no Default has occurred, and including a certificate of
incumbency with respect to each Authorized Signatory, and including (i) a copy
of the articles or certificate of incorporation of such Obligor, certified to
be true, complete and correct by the secretary of state of its state of
organization, and (ii) with respect to the Borrower only, a copy of a
certificate of good standing and a certificate of existence for its state of
organization and the State of Texas;
(b) a duly executed Note payable to the order of each Lender and
in an amount for each Lender equal to its Specified Percentage of the
Commitment, respectively;
(c) UCC searches in appropriate jurisdictions where Collateral is
located;
(d) opinions of counsel to each Obligor addressed to the Lenders
and in form and substance satisfactory to the Lenders, dated the Agreement
Date, and covering certain of the matters set forth in Sections 4.1(a), (b),
(c), (e), (f), (h), (m), (n), (o) and (p) and such other matters incident to
the transactions contemplated hereby as the Administrative Lender or Special
Counsel may reasonably request;
(e) reimbursement for the Administrative Lender for Special
Counsel's reasonable and customary fees (on an hourly basis) and expenses
rendered through the date hereof, to the extent invoiced;
(f) evidence that all proceedings of each Obligor taken in
connection with the transactions contemplated by this Agreement and the other
Loan Documents shall be reasonably satisfactory in form and substance to the
Lenders and Special Counsel; and the Lenders shall have received copies of all
documents or other evidence which the Administrative Lender, Special Counsel or
any Lender may reasonably request in connection with such transactions;
(g) any fees or expenses required to be paid on or before the
Agreement Date pursuant to the Administrative Lender Fee Letter;
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<PAGE> 48
(h) duly completed Security Agreements, dated as of the Agreement
Date, executed by the Borrower and by each Material Subsidiary, granting a Lien
in all Collateral covered thereby, together with related financing statements,
and insurance certificates listing Administrative Lender as loss payee and
additional insured and otherwise in a form required by the Collateral
Documents;
(i) a duly executed and completed Pledge Agreement, dated as of
the Agreement Date, granting a Lien in all Collateral covered thereby, together
with related financing statements, stock powers and stock certificates
evidencing ownership of each material Subsidiary;
(j) duly executed Deeds of Trust, dated as of the Agreement Date,
granting a Lien in such of the real property leasehold interests of the
Borrower and all Material Subsidiaries as shall be acceptable to the
Administrative Lender and all other Collateral covered thereby, together with
related financing statements;
(k) simultaneously with the making of the initial Advance,
executed UCC-3 Termination Statements to be filed in appropriate jurisdictions
to terminate all Liens against assets of the Borrower and its Subsidiaries
other than Permitted Liens;
(l) there shall not have occurred any material adverse change (i)
in the business, assets, operations, condition (financial or otherwise), or
prospects of the Borrower and its Subsidiaries, taken as a whole, since
December 31, 1996 or (ii) in any facts or information furnished to the Lenders,
or any of them, prior to the Agreement Date with respect to the Borrower and/or
any of its Subsidiaries;
(m) the Subsidiary Guaranty, duly executed by each Material
Subsidiary;
(n) all Indebtedness of the Borrower under the Existing Credit
Agreement shall have been (or shall simultaneously therewith be) refinanced in
full pursuant to the terms hereof; and
(o) in form and substance reasonably satisfactory to the Lenders
and Special Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, evidence of
the status, organization or authority of the Borrower or any Subsidiary of the
Borrower, and the enforceability of the Obligations.
Section 3.2 Conditions Precedent to All Advances and Letters of
Credit. The obligation of each Lender to make each Advance hereunder
(including the initial Advance) and the obligation of the Issuing Bank to issue
each Letter of Credit (including the initial Letter of Credit) is subject to
fulfillment of the following conditions immediately prior to or
contemporaneously with each such Advance or issuance:
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<PAGE> 49
(a) With respect to each Advance and each issuance of a Letter of
Credit, all of the representations and warranties of each Obligor under the
Loan Documents, which, pursuant to Section 4.2 hereof, are made at and as of
the time of each such Advance or issuance, shall be true and correct at such
time in all material respects, both before and after giving effect to the
application of the proceeds of the Advance or Letter of Credit.
(b) The incumbency of the Authorized Signatories shall be as
stated in the certificate of incumbency delivered in the Borrower's loan
certificate pursuant to Section 3.1(a) or as subsequently modified and
reflected in a certificate of incumbency delivered to the Administrative
Lender. The Lenders may, without waiving this condition, consider it fulfilled
and a representation by the Borrower made to such effect if no written notice
to the contrary, dated on or before the date of such Advance or Letter of
Credit, is received by the Administrative Lender from the Borrower prior to the
making of such Advance or issuance of such Letter of Credit;
(c) There shall not exist a Default or Event of Default hereunder
that has not been waived;
(d) The aggregate Advances and Letters of Credit, after giving
effect to such proposed Advance or Letter of Credit, shall not exceed the
maximum principal amount then permitted to be outstanding hereunder;
(e) No order, judgment, injunction or decree of any Tribunal shall
purport to enjoin or restrain any Lender or the Issuing Bank from making any
Advance or issuing any Letter of Credit;
(f) There shall not be pending, or to the knowledge of the
Borrower, threatened any Litigation against or affecting the Borrower or any
Subsidiary of the Borrower or any property of the Borrower or any Subsidiary of
the Borrower that has not been disclosed in writing by the Borrower pursuant to
Section 4.1(h) or 6.6(a) prior to the making of the last preceding Advance or
the issuance of the last preceding Letter of Credit (or in the case of the
initial Advances and Letters of Credit, prior to the Agreement Date) and there
shall have occurred no development not so disclosed in any such Litigation
that, in either event, could reasonably be expected to have a Material Adverse
Effect; and
(g) There shall have occurred no material adverse change in the
business, financial condition, results of operations or business prospects of
the Borrower and its Subsidiaries, taken as a whole, since December 31, 1996.
Notwithstanding anything herein to the contrary, the obligation of
each Lender to make an Advance, pursuant to Section 2.15(c) shall be absolute
and unconditional and shall not be affected by any circumstances, including,
without limitation, (i) the occurrence of any Default or Event of Default, (ii)
the failure of the Borrower to satisfy any condition set forth in this Section
3.2 or (iii) any other circumstance, happening or event whatsoever.
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Section 3.3 Conditions Precedent to Conversions and
Continuations. The obligation of the Lenders to convert any existing Base Rate
Advance into a LIBOR Advance or to continue any existing LIBOR Advance is
subject to the condition precedent that on the date of such conversion or
continuation no Default or Event of Default shall have occurred and be
continuing or would result from the making of such conversion or continuation.
The acceptance of the benefits of each such conversion and continuation shall
constitute a representation and warranty by the Borrower to each of the Lenders
that no Default or Event of Default shall have occurred and be continuing or
would result from the making of such conversion or continuation.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower hereby
represents and warrants to each Lender as follows:
(a) Organization; Power; Qualification. The respective
jurisdiction of organization or incorporation and percentage ownership by the
Borrower of the Subsidiaries listed on Schedule 4 are true and correct as of
the Agreement Date. Schedule 4 is a complete and accurate listing as of the
Agreement Date, showing with respect to the Borrower and each Subsidiary of the
Borrower (a) its mailing address, which is its principal place of business, (b)
the classes of its Capital Stock and the number and amount of its Capital Stock
authorized and outstanding, (c) each record and beneficial owner of 5% or more
of its outstanding Capital Stock, and (d) all outstanding options, rights,
rights of conversion, redemption, purchase or repurchase, rights of first
refusal and similar rights relating to the Capital Stock. All of the
outstanding Capital Stock of the Borrower and each Subsidiary of the Borrower
is validly issued, fully paid and non-assessable. Each of the Borrower and its
Subsidiaries is a corporation or other legal Person duly organized, validly
existing and in good standing under the laws of its state of incorporation or
organization. Each of the Borrower and its Subsidiaries has the legal power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted. Each of the Borrower and its
Subsidiaries is authorized to do business, duly qualified and in good standing
as set forth in Schedule 7 and no qualification or authorization is necessary
in any other jurisdictions in which the character of its properties or the
nature of its business requires such qualification or authorization, except
where the failure to be so qualified or authorized could not reasonably be
expected to have a Material Adverse Effect.
(b) Authorization. The Borrower has legal power and has taken all
necessary legal action to authorize it to borrow and request Letters of Credit
hereunder. Each of the Borrower and its Subsidiaries has legal power and has
taken all necessary legal action to execute, deliver and perform the Loan
Documents to which it is party in accordance with the terms thereof, and to
consummate the transactions contemplated thereby. Each Loan Document has been
duly executed and delivered by the Borrower or the Subsidiary of the Borrower
executing it. Each
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of the Loan Documents to which the Borrower or any of its Subsidiaries is a
party is a legal, valid and binding obligation of the Borrower or such
Subsidiary, as applicable, enforceable in accordance with its terms, subject,
to enforcement of remedies, to the following qualifications: (i) equitable
principles generally, and (ii) Debtor Relief Laws (insofar as any such law
relates to the bankruptcy, insolvency or similar event of the Borrower or any
Subsidiary of the Borrower).
(c) Compliance with Other Loan Documents and Contemplated
Transactions. The execution, delivery and performance by the Borrower and its
Subsidiaries of the Loan Documents to which they are respectively a party, and
the consummation of the transactions contemplated thereby, do not and will not
(i) require any consent or approval necessary on or prior to the Agreement Date
not already obtained, except to the extent that the failure to obtain any such
consent or approval could not reasonably be expected to have a Material Adverse
Effect, (ii) violate any Applicable Law, (iii) conflict with, result in a
breach of, or constitute a default under the certificate of incorporation or
by-laws of the Borrower or any Subsidiary of the Borrower, (iv) conflict with,
result in a breach of, or constitute a default under any Necessary
Authorization, indenture, agreement or other instrument, to which the Borrower
or any Subsidiary of the Borrower is a party or by which they or their
respective properties may be bound, the result of which could reasonably be
expected to have a Material Adverse Effect, or (v) result in or require the
creation or imposition of any Lien (other than Liens in favor of the Lenders to
secure the Obligations hereunder) upon or with respect to any property now
owned or hereafter acquired by the Borrower or any Subsidiary of the Borrower.
(d) Business. The Borrower and its Subsidiaries are engaged in
the business of providing logistics services to the personal computer hardware
repair industry, which services include sourcing and distributing spare parts,
inventory management, processing warranty claims remanufacturing parts, and
functions relating to the foregoing.
(e) Licenses, etc. All Necessary Authorizations have been duly
obtained, and are in full force and effect without any known conflict with the
rights of others and free from any unduly burdensome restrictions, unless the
failure to obtain or have in effect such Necessary Authorizations could not
reasonably be expected to result in a Material Adverse Effect. The Borrower
and its Subsidiaries are and will continue to be in compliance in all material
respects with all provisions thereof. No circumstance exists which could
reasonably be expected to impair the utility of the Necessary Authorization or
the right to renew such Necessary Authorization the effect of which could
reasonably be expected to have a Material Adverse Effect. No Necessary
Authorization is the subject of any pending or, to the best of the Borrower's
knowledge, threatened challenge, suspension, cancellation or revocation, the
effect of which could reasonably be expected to have a Material Adverse Effect.
(f) Compliance with Law. The Borrower and its Subsidiaries are in
compliance in all respects with all Applicable Laws, except where the failure
to so comply could not reasonably be expected to have a Material Adverse
Effect.
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<PAGE> 52
(g) Title to Properties. The Borrower and its Subsidiaries have
good and indefeasible title to, or a valid leasehold interest in, all of their
material assets. None of their assets are subject to any Liens, except
Permitted Liens. No financing statement or other Lien filing (except relating
to Permitted Liens) is on file in any state or jurisdiction that names the
Borrower or any of its Subsidiaries as debtor or covers (or purports to cover)
any assets of the Borrower or any of its Subsidiaries. The Borrower and its
Subsidiaries have not signed any such financing statement or filing, nor any
security agreement authorizing any Person to file any such financing statement
or filing (except relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, as of
the Agreement Date there is no Litigation pending against, or, to the
Borrower's knowledge, threatened against the Borrower, or in any other manner
relating directly and adversely to the Borrower or any of its Subsidiaries, or
any of their respective properties, in any court or before any arbitrator of
any kind or before or by any governmental body in which the amount claimed (in
excess of applicable insurance) exceeds $100,000.
(i) Taxes. All material federal, state and other tax returns of
the Borrower and its Subsidiaries required by law to be filed have been duly
filed or extensions have been timely filed, and all material federal, state and
other Taxes upon the Borrower, its Subsidiaries or any of their properties,
income, profits and assets, which are due and payable, have been paid, unless
the same are being diligently contested in accordance with Section 5.6 hereof.
The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of their Taxes are, in the reasonable judgment of the
Borrower, adequate.
(j) Financial Statements; Material Liabilities.
(i) The Borrower has heretofore delivered to Lenders (a)
the audited consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1996, and the related statements of
earnings and changes in investment and statement of cash flows for the
twelve-month period then ended, and (b) unaudited consolidated balance
sheets of the Borrower and its Subsidiaries as at March 31, 1997, and
the related statements of earnings and changes in investment and
statement of cash flows for the three-month period then ended. Such
financial statements were prepared in conformity with GAAP (except for
the absence of footnotes) and fairly present, in all material
respects, the financial position of the Borrower and its Subsidiaries
as at the date thereof and the combined results of operations and cash
flows for the period covered thereby.
(ii) The projected financial statements of the Borrower
and its Subsidiaries delivered to the Lenders prior to or on the
Agreement Date were prepared in good faith and management of the
Borrower believes them to be based on reasonable assumptions (which
assumptions have been included in the most recent projections
furnished to the Lenders prior to the Agreement Date) and to fairly
present in all material respects the projected financial condition of
the Borrower and its Subsidiaries and the projected results of
operations as of the dates and for the periods shown for the Borrower
and its
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Subsidiaries, it being recognized by the Lenders that such projections
as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections
may differ from the projected results.
(iii) The financial statements of the Borrower and its
Subsidiaries delivered to the Lenders pursuant to Sections 6.2 and 6.3
hereof fairly present in all material respects their respective
financial condition and their respective results of operations as of
the dates and for the periods shown, all in accordance with GAAP,
subject to normal year-end adjustments. The latest of such financial
statements reflects all material liabilities, direct and contingent,
of the Borrower and each Subsidiary of the Borrower that are required
to be disclosed in accordance with GAAP. As of the date of the latest
of such financial statements, there were no Guaranties, liabilities
for Taxes, forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments that are
substantial in amount that are required to be reflected but that are
not reflected on such financial statements.
(k) No Adverse Change. Since December 31, 1996, no event or
circumstance has occurred or arisen which is reasonably likely to have a
Material Adverse Effect.
(l) ERISA. None of the Borrower or its Controlled Group maintains
or contributes to any Plan subject to Title IV of ERISA other than those
disclosed to the Administrative Lender in writing. Each such Plan (other than
any Multiemployer Plan) is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Law, except
to the extent that failure to so comply would not reasonably be expected to
have a Material Adverse Effect. With respect to each Plan (other than any
Multiemployer Plan) of the Borrower and each member of its Controlled Group,
all reports required under ERISA or any other Applicable Law to be filed with
any Tribunal, the failure of which to file could reasonably be expected to
result in liability of the Borrower or any member of its Controlled Group in
excess of $100,000, have been duly filed. All such reports are true and
correct in all material respects as of the date given. No Plan of the Borrower
or any member of its Controlled Group has been terminated under Section 4041(c)
of ERISA nor has any accumulated funding deficiency (as defined in Section
412(a) of the Code) been incurred (without regard to any waiver granted under
Section 412 of the Code), nor has any funding waiver from the Internal Revenue
Service been received or requested the result of which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any member
of its Controlled Group has failed to make any contribution or pay any amount
due or owing as required under the terms of any such Plan, or by Section 412 of
the Code or Section 302 of ERISA by the due date under Section 412 of the Code
and Section 302 of ERISA, the result of which could reasonably be expected to
have a Material Adverse Effect. There has been no ERISA Event or any event
requiring disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with
respect to any Plan or its related trust of the Borrower or any member of its
Controlled Group since the effective date of ERISA. There are no pending, or to
the Borrower's knowledge threatened, claims, lawsuits or actions (other than
routine claims for benefits in the ordinary course) asserted or instituted
against, and neither the Borrower nor any member of its Controlled Group has
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knowledge of any threatened litigation or claims against, the assets of any
Plan or its related trust or against any fiduciary of a Plan with respect to
the operation of such Plan, the result of which could reasonably be expected to
have a Material Adverse Effect. None of the Borrower or, to the Borrower's
knowledge, any member of its Controlled Group has engaged in any prohibited
transactions, within the meaning of Section 406 of ERISA or Section 4975 of the
Code, in connection with any Plan the result of which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any member
of its Controlled Group has withdrawn from any Multiemployer Plan, nor has
incurred or reasonably expects to incur (A) any liability under Title IV of
ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B)
any withdrawal liability (and no event has occurred which with the giving of
notice under Section 4219 of ERISA would result in such liability) under
Section 4201 of ERISA as a result of a complete or partial withdrawal (within
the meaning of Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (C)
any liability under Section 4062 of ERISA to the PBGC or to a trustee appointed
under Section 4042 of ERISA. None of the Borrower, any member of its
Controlled Group, or any organization to which the Borrower or any member of
its Controlled Group is a successor or parent corporation within the meaning of
ERISA Section 4069(b), has engaged in a transaction within the meaning of ERISA
Section 4069, the result of which could reasonably be expected to have a
Material Adverse Effect. None of the Borrower or any member of its Controlled
Group maintains or has established any Plan, which is a welfare benefit plan
within the meaning of Section 3(1) of ERISA and which provides for continuing
benefits or coverage for any participant or any beneficiary of any participant
after such participant's termination of employment, except as may be required
by any Applicable Law, the result of which could reasonably be expected to have
a Material Adverse Effect. Each of Borrower and its Controlled Group which
maintains a Plan which is a welfare benefit plan within the meaning of Section
3(1) of ERISA has complied in all material respects with any applicable notice
and continuation requirements of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and the regulations thereunder. None of the Borrower
or any member of its Controlled Group maintains, has established, or has ever
participated in a multiemployer welfare benefit arrangement within the meaning
of Section 3(40)(A) of ERISA.
(m) Compliance with Regulations G, T, U and X. The Borrower is
not engaged principally or as one of its important activities in the business
of extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System, and no part of the proceeds of the Advances or
Letters of Credit will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. No more than 25% of the assets of the Borrower and its Subsidiaries are
margin stock. None of the Borrower and its Subsidiaries nor any agent acting
on their behalf, have taken or will knowingly take any action which would cause
this Agreement or any other Loan Documents to violate any regulation of the
Board of Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934, in each case as in effect now or as the same may
hereafter be in effect.
(n) Authorization. The Borrower and its Subsidiaries are not
required to obtain any Necessary Authorization on or prior to the Agreement
Date that has not already been obtained
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from, or effect any material filing or registration that has not already been
effected with, any Tribunal in connection with the execution and delivery of
this Agreement or any other Loan Document, or the performance thereof, in
accordance with their respective terms, including any borrowings hereunder,
except for the filing of financing statements (and other similar notices)
containing a description of the Collateral with certain Tribunals, including
the United States Trademark and Copyright Offices.
(o) Absence of Default. The Borrower and its Subsidiaries are in
compliance in all material respects with all of the provisions of their
certificate of incorporation and by-laws, and no event has occurred or failed
to occur, which has not been remedied or waived, the occurrence or
non-occurrence of which constitutes, or which with the passage of time or
giving of notice or both would constitute, (i) an Event of Default or (ii) a
default by the Borrower or any of its Subsidiaries under any material
indenture, agreement or other instrument, or any judgment, decree or order to
which the Borrower or any of its Subsidiaries or by which they or any of their
respective properties is bound, except to the extent that such default could
not reasonably be expected to have a Material Adverse Effect.
(p) Governmental Regulation. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940. Neither the entering into or performance by
the Borrower of this Agreement nor the issuance of the Notes violates any
provision of such act or requires any consent, approval, or authorization of,
or registration with, the Securities and Exchange Commission or any other
Tribunal pursuant to any provisions of such act.
(q) Environmental Matters. Neither the Borrower nor any
Subsidiary has any current actual knowledge that any substance deemed hazardous
by any Applicable Environmental Law, has been installed (i) on any real
property fee title to which is now owned by the Borrower or any of its
Subsidiaries or (ii) by Borrower or any of its Subsidiaries on any real
property leased by the Borrower or any of its Subsidiaries, in either case in a
manner which does not comply with Applicable Environmental Laws, except to the
extent that the failure to so comply could not reasonably be expected to have a
Material Adverse Effect. The Borrower and its Subsidiaries are not in
violation of or subject to any existing, pending or, to the best of the
Borrower's knowledge, threatened investigation or inquiry by any Tribunal or to
any remedial obligations under any Applicable Environmental Laws, the effect of
which could reasonably be expected to have a Material Adverse Effect. The
Borrower and its Subsidiaries have not obtained and are not required to obtain
any permits, licenses or similar authorizations other than certificates of
occupancy and building permits and other authorizations that have been obtained
to construct, occupy, operate or use any buildings, improvements, fixtures, and
equipment forming a part of any real property owned or leased by the Borrower
or any Subsidiary of the Borrower by reason of any Applicable Environmental
Laws, except to the extent that the failure to so obtain could not reasonably
be expected to have a Material Adverse Effect. The Borrower and its
Subsidiaries undertook, at the time of acquisition of fee title to any real
property, reasonable inquiry into the previous ownership and uses of such real
property consistent with
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good commercial or customary practice. The Borrower and its Subsidiaries have
taken reasonable steps to determine, and the Borrower and its Subsidiaries have
no current actual knowledge, that any hazardous substances or solid wastes have
been disposed of or otherwise released (i) on or to the real property fee title
to which is owned by the Borrower or any of its Subsidiaries or (ii) by
Borrower or any of its Subsidiaries on or to any real property leased by
Borrower or any of its Subsidiaries, all within the meaning of the Applicable
Environmental Laws, the effect of which could reasonably be expected to have a
Material Adverse Effect. The Borrower and its Subsidiaries have disposed of
all hazardous substances and solid wastes (if any), all within the meaning of
the Applicable Environmental Laws, generated in their respective businesses in
compliance with all Applicable Environmental Laws, except to the extent that
the failure to so comply could not reasonably be expected to have a Material
Adverse Effect.
(r) Certain Fees. No broker's, finder's or other fee or
commission will be payable by the Borrower (other than to the Lenders
hereunder) with respect to the making of the Commitments or the Advances
hereunder. The Borrower agrees to indemnify and hold harmless the
Administrative Lender and each Lender from and against any claims, demand,
liability, proceedings, costs or expenses asserted with respect to or arising
in connection with any such fees or commissions.
(s) Patents, Etc. The Borrower and its Subsidiaries have
collectively obtained or applied for all patents, trademarks, service marks,
trade names, copyrights, licenses and other rights, free from burdensome
restrictions, that are necessary for the operation of their business as
presently conducted and as proposed to be conducted, except to the extent that
the failure to so obtain or apply could not reasonably be expected to have a
Material Adverse Effect. Nothing has come to the current actual knowledge of
the Borrower or any of its Subsidiaries to the effect that (i) any process,
method, part or other material presently contemplated to be employed by the
Borrower or any Subsidiary of the Borrower may infringe any patent, trademark,
service mark, trade name, copyright, license or other right owned by any other
Person, or (ii) there is pending or overtly threatened any claim or litigation
against or affecting the Borrower or any Subsidiary of the Borrower contesting
its right to sell or use any such process, method, part or other material,
which could reasonably be expected to have a Material Adverse Effect.
(t) Disclosure. All factual information furnished by the Borrower
or any of its Subsidiaries in writing to the Administrative Lender or any
Lender in connection with this Agreement, the other Loan Documents or any
transaction contemplated herein or therein is, and all other factual
information hereafter furnished by or on behalf of the Borrower or any of its
Subsidiaries in writing to the Administrative Lender or any Lender will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading at
such time in light of the circumstances under which such information was
provided. There is no fact known to the Borrower and not known to the public
generally that could reasonably be expected to have a Material Adverse Effect,
which has not been set forth in this Agreement or in the documents,
certificates and statements furnished to the Lenders by
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or on behalf of the Borrower prior to the date hereof in connection with the
transaction contemplated hereby.
(u) Solvency. The Borrower is, and Borrower and its Subsidiaries
on a consolidated basis are, Solvent.
(v) Labor Relations. Except as provided on Schedule 8, neither
the Borrower nor any Subsidiary of the Borrower is a party to a collective
bargaining agreement or similar agreement, and the Borrower and each Subsidiary
of the Borrower is in compliance in all material respects with all Laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours and other laws related to the employment of its
employees, except where the failure to comply could not reasonably be expected
to result in a Material Adverse Effect, and there are no arrears in the payment
of wages, withholding or social security taxes, unemployment insurance premiums
or other similar obligations of the Borrower or any Subsidiary of the Borrower
or for which the Borrower or any Subsidiary of the Borrower may be responsible
other than in the ordinary course of business, except for such unpaid or
unwithheld arrears which could not reasonably be expected to result in a
Material Adverse Effect. There is no strike, work stoppage or labor dispute
with any union or group of employees pending or overtly threatened involving
Borrower or any Subsidiary of the Borrower that could reasonably be expected to
have a Material Adverse Effect.
(w) Consolidated Business Entity. The Borrower and its
Subsidiaries are operated as a part of one consolidated business entity and are
directly or indirectly dependent upon each other for and in connection with
their respective business activities.
Section 4.2 Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and the date of issuance of each Letter of
Credit, and each shall be true and correct in all material respects when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof or (b) previously waived in writing by the Determining Lenders with
respect to any particular factual circumstance or permitted by the terms of
this Agreement. All such representations and warranties shall survive, and not
be waived by, the execution hereof by any Lender, any investigation or inquiry
by any Lender, or by the making of any Advance or the issuance of any Letter of
Credit under this Agreement.
ARTICLE 5
General Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
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Section 5.1 Preservation of Existence and Similar Matters. The
Borrower shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to Section 7.4 hereof,
preserve and maintain, or timely obtain and thereafter preserve and maintain,
its existence, rights, franchises, licenses, authorizations, consents,
privileges and all other Necessary Authorizations from any Tribunal, the loss
of which could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to Section 7.4 hereof,
qualify and remain qualified and authorized to do business in each jurisdiction
in which the character of its properties or the nature of its business requires
such qualification or authorization, unless the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The
Borrower and its Subsidiaries shall (a) engage primarily in the businesses set
forth in Section 4.1(d) hereof, and (b) comply in all respects with the
requirements of all Applicable Law, except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
Section 5.3 Maintenance of Properties. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, maintain or cause to be
maintained all its properties (whether owned or held under lease) in reasonably
good repair, working order and condition, taken as a whole, and from time to
time make or cause to be made all appropriate (in the reasonable judgment of
the Borrower) repairs, renewals, replacements, additions, betterments and
improvements thereto, except where the failure to so maintain, repair, renew,
replace or improve could not reasonably be expected to have a Material Adverse
Effect.
Section 5.4 Accounting Methods and Financial Records. The
Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain a
system of accounting established and administered in accordance with GAAP, keep
adequate records and books of account in which complete entries will be made
and all transactions reflected in accordance with GAAP, and keep accurate and
complete records of its respective assets. Except with respect to a change in
the fiscal year of any Subsidiary to conform to the fiscal year of the
Borrower, the Borrower and each of its Subsidiaries shall maintain its fiscal
year in the manner in existence on the Agreement Date.
Section 5.5 Insurance. The Borrower shall, and shall cause each
Subsidiary of the Borrower to, maintain insurance from responsible companies in
such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and capability. Each insurance policy
shall (a) provide for at least 30 days' prior notice to the Administrative
Lender of any proposed termination or cancellation of such policy, whether on
account of default or otherwise and (b) otherwise contain the requirements for
insurance set forth in the Security Agreements.
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Section 5.6 Payment of Taxes and Claims. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, pay and discharge all material
Taxes to which they are subject prior to the date on which penalties attach
thereto, and all lawful material claims for labor, materials and supplies
which, if unpaid, might become a Lien upon any of its properties; except that
no such Tax or claim need be paid which is being diligently contested in good
faith by appropriate proceedings and for which adequate reserves shall have
been set aside on the appropriate books, but only so long as no Lien shall
attach with respect thereto and no foreclosure, distraint, sale or similar
proceedings shall have been commenced. The Borrower shall, and shall cause
each Subsidiary of the Borrower to, timely file all information returns (or
extensions of such filing deadlines) required by federal, state or local tax
authorities.
Section 5.7 Visits and Inspections. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, promptly permit representatives
of the Administrative Lender or any Lender from time to time after reasonable
notice by the Administrative Lender or any Lender to (a) visit and inspect the
properties of the Borrower and its Subsidiaries as often as the Administrative
Lender or any Lender shall reasonably deem advisable, (b) audit, inspect and
make extracts from and copies of the Borrower's and each such Subsidiary's
books and records, and (c) discuss with the Borrower's and each such
Subsidiary's appropriate directors, officers, employees and auditors its
business, assets, liabilities, financial positions, results of operations and
business prospects, provided that such representatives of the Administrative
Lender or any Lender shall keep confidential all information obtained pursuant
to this Section 5.7 to the extent required by Section 11.14. Prior to the
occurrence of an Event of Default, the Borrower shall pay the reasonable
expenses related to one inspection and audit per year performed by the
Administrative Lender and the Administrative Lender shall be responsible for
all expenses associated with any additional inspections or audits. Following
the occurrence and during the continuance of an Event of Default, the Borrower
shall pay all of the reasonable expenses related to inspections and audits
performed by the Administrative Lender. Prior to the occurrence of an Event of
Default, all such visits and inspections shall be conducted during normal
business hours. Following the occurrence and during the continuance of an
Event of Default, such visits and inspections shall be conducted at any time
requested by the Administrative Lender or any Lender without any requirement
for reasonable notice.
Section 5.8 Use of Proceeds. The proceeds of (a) the Advances
and the Letters of Credit shall be used by the Borrower for refinancing of
Indebtedness of the Borrower under the Existing Credit Agreement, Capital
Expenditures, Acquisitions permitted under Section 7.6 hereof and for working
capital and for other general corporate purposes.
SECTION 5.9 INDEMNITY.
(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD
HARMLESS THE ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE
AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS AND CONSULTANTS (INCLUDING, WITHOUT
LIMITATION, THOSE
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RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF ANY
OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY,
"INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS,
REASONABLE EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH
INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL
AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER
COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING
FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS OF THE BORROWER,
ITS SUBSIDIARIES OR THEIR RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST,
PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF THE BORROWER OR ITS
SUBSIDIARIES), RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR
TRANSACTION RELATING OR ATTENDANT THERETO, THE MANAGEMENT OF THE ADVANCES OR
LETTERS OF CREDIT, INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN
PART, OF ANY ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY LENDER
(OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE
ADMINISTRATIVE LENDER OR ANY LENDER AND NOT THE BORROWER OR ANY OF ITS
SUBSIDIARIES), OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES OR
LETTERS OF CREDIT HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY
POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING (I) ANY CLAIM OR LIABILITY THAT
ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF ANY
INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION, AND (II) MATTERS RAISED BY ONE LENDER AGAINST ANOTHER LENDER OR
BY ANY SHAREHOLDERS OF A LENDER AGAINST A LENDER OR ITS MANAGEMENT
(COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE EXTENT THAT ANY INDEMNIFIED
MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH INDEMNITEES SHALL USE THE SAME
LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS REASONABLE DISCRETION DETERMINES
THAT CONFLICTS EXIST OR MAY ARISE IN CONNECTION WITH SUCH REPRESENTATION.
(b) WITHOUT DUPLICATION, THE BORROWER SHALL PERIODICALLY, UPON
REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL
REASONABLE EXPENSES (INCLUDING THE REASONABLE
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COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY
INDEMNIFIED MATTER. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS
UNDER THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE BORROWER MAY
OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH
INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY
SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF THE BORROWER, THE
ADMINISTRATIVE LENDER, THE LENDERS AND ALL OTHER INDEMNITEES. THIS SECTION
SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
Section 5.10 Environmental Law Compliance. The use which the
Borrower or any Subsidiary of the Borrower intends to make of any real property
which is owned or leased by it will not result in the disposal or other release
of any hazardous substance or solid waste on or to such real property which is
in violation of Applicable Environmental Laws, the effect of which could
reasonably be expected to have a Material Adverse Effect. As used herein, the
terms "hazardous substance" and "release" as used in this Section shall have
the meanings specified in CERCLA (as defined in the definition of Applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of Applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden or lessen the meaning of any term defined thereby, such broader or
lesser meaning shall apply subsequent to the effective date of such amendment;
and provided further, to the extent that any other law applicable to the
Borrower, any Subsidiary or any of their properties establishes a meaning for
"hazardous substance," "release," "solid waste," or "disposal" which is broader
or lesser than that specified in either CERCLA or RCRA, such broader or lesser
meaning shall apply. The Borrower agrees to indemnify and hold the
Administrative Lender and each Lender harmless from and against, and to
reimburse them with respect to, any and all claims, demands, causes of action,
loss, damage, liabilities, reasonable costs and reasonable expenses (including
reasonable attorneys' fees and courts costs) of any kind or character, known or
unknown, fixed or contingent, asserted against or incurred by any of them at
any time and from time to time by reason of or arising out of (a) the failure
of the Borrower or any Subsidiary to perform any of their obligations hereunder
regarding asbestos or Applicable Environmental Laws, (b) any violation on or
before the Release Date of any Applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real property or release from such real
property of hazardous substances or solid wastes disposed of or otherwise
released on or prior to the Release Date), resulting from or in connection with
the ownership of the real property, regardless of whether the act, omission,
event or circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence; provided that, the Borrower
shall not be under any obligation to indemnify the Administrative Lender or any
Lender to the extent that any such liability arises as the result of the gross
negligence or wilful misconduct of such Person, as finally judicially
determined by a court of competent jurisdiction. The provisions of
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this paragraph shall survive the Release Date and shall continue thereafter in
full force and effect.
Section 5.11 Further Assurances. At any time or from time to time
upon request by the Administrative Lender, the Borrower or any Subsidiary of
the Borrower shall execute and deliver such further documents and do such other
acts and things as the Administrative Lender may reasonably request in order to
effect fully the purposes of this Agreement and the other Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, the Borrower agrees to (a) update and deliver to the Administrative
Lender Schedules 3 and 4 hereto at the time of delivery of the financial
statements set forth in Sections 6.2 and 6.3 hereof if the information provided
therein is not complete and correct, and (b) update and deliver to the
Administrative Lender Schedule 1 to the Security Agreements promptly upon
discovery if the information provided therein is not complete and correct.
Section 5.12 Subsidiaries. At any time that any Person becomes a
Subsidiary other than pursuant to Section 7.3(f) hereof, (a) the Borrower shall
immediately notify the Administrative Lender in writing of such fact, (b) such
Subsidiary shall execute a Subsidiary Guaranty of the Obligations and a
Security Agreement granting a first priority Lien in all its assets of the
types or classes included in the Collateral, except, to the extent applicable,
for Liens permitted in clause (f) of the definition of Permitted Liens, to
secure the Obligations and (c) the Lenders shall receive such board
resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request in connection with the actions
described in clause (b) above.
Section 5.13 Real Property. At any time that the Borrower or any
Subsidiary of the Borrower acquires any real property, the Borrower or the
applicable Subsidiary of the Borrower shall notify the Administrative Lender in
writing of such fact and, at the request of the Administrative Lender (a)
execute a Deed of Trust granting a first priority Lien in the real property so
acquired, (b) deliver to the Administrative Lender a title insurance policy
with respect to such real property, in form and substance acceptable to the
Administrative Lender, (c) deliver to the Administrative Lender an
environmental site assessment with respect to such real property, in form and
substance acceptable to the Administrative Lender, prepared by a Person
acceptable to the Administrative Lender, (d) deliver to the Administrative
Lender surveys with respect to such real property, in form and substance
acceptable to the Administrative Lender, and (e) the Lenders shall receive such
board resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request with respect thereto.
ARTICLE 6
Information Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled), the
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Borrower shall furnish or cause to be furnished to each Lender or shall notify
each Lender of the following events:
Section 6.1 Borrowing Base Report. Within 15 days after the
Borrowing Base Commencement Date and within 15 days after the end of each month
of each fiscal year thereafter, the Borrowing Base Report setting forth a
certification of Eligible Accounts and Eligible Inventory, and calculation of
the Borrowing Base.
Section 6.2 Quarterly Financial Statements and Information.
Within 45 days after the end of each fiscal quarter of each fiscal year, the
consolidated balance sheets of the Borrower and its Subsidiaries as at the end
of such fiscal quarter and the related consolidated statements of income for
such fiscal quarter and for the elapsed portion of the year ended with the last
day of such fiscal quarter, and consolidated statements of cash flow for the
elapsed portion of the year ended with the last day of such fiscal quarter, all
of which shall be certified by the president, chief financial officer, vice
president of finance or controller of the Borrower, to, in his or her opinion
acting solely in his or her capacity as an officer of the Borrower, present
fairly in all material respects, in accordance with GAAP (except for the
absence of footnotes), the financial position and results of operations of the
Borrower and its Subsidiaries as at the end of and for such fiscal quarter, and
for the elapsed portion of the year ended with the last day of such fiscal
quarter, subject only to normal year-end adjustments.
Section 6.3 Annual Financial Statements and Information;
Certificate of No Default.
(a) Within 90 days after the end of each fiscal year, a copy of
(i) the consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years and (ii) the
consolidated and consolidating statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of cash flow as of
and through the end of such fiscal year, all of which are prepared in accordance
with GAAP, and certified by independent certified public accountants reasonably
acceptable to the Lenders (provided, however, any big six public accounting firm
shall be acceptable to the Lenders), whose opinion shall be in scope and
substance in accordance with generally accepted auditing standards and shall be
unqualified as to scope of audit and going concern.
(b) As soon as available, but in any event within 30 days after
December 31, 1997 and within 30 days after the end of each fiscal year
thereafter, a copy of the annual consolidated financial projections (including
proforma income statements, balance sheets and statements of cash flow) of the
Borrower and its Subsidiaries for the succeeding two fiscal years.
Section 6.4 Compliance Certificate. At the time financial
statements are furnished pursuant to Sections 6.2 and 6.3 hereof, the
Compliance Certificate, completed as provided therein, executed by the Chief
Financial Officer, Treasurer or Vice President of Finance of the Borrower.
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Section 6.5 Copies of Other Reports and Notices.
(a) Promptly upon their becoming available, a copy of (i) all
material final reports or letters submitted to the Borrower or any Subsidiary
of the Borrower by accountants in connection with any annual, interim or
special audit, including without limitation any final report prepared in
connection with the annual audit referred to in Section 6.2 hereof, and, if
requested by the Administrative Lender, any other comment letter submitted to
management in connection with any such audit, (ii) each financial statement,
report, notice or proxy statement sent by the Borrower to stockholders
generally, (iii) each regular, periodic or other report and any registration
statement (other than statements on Form S-8) or prospectus (or material
written communication in respect of any thereof) filed by the Borrower or any
Subsidiary of the Borrower with any securities exchange, with the Securities
and Exchange Commission or any successor agency, and (iv) all press releases
concerning material financial aspects of the Borrower or any Subsidiary of the
Borrower;
(b) Promptly upon becoming aware that (i) the holder(s) of any
note(s) or other evidence of indebtedness or other security of the Borrower or
any Subsidiary of the Borrower in excess of $250,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform,
claimed default or event of default thereunder, (ii) any occurrence or
non-occurrence of any event which constitutes or which with the passage of time
or giving of notice or both could constitute a material breach by the Borrower
or any Subsidiary of the Borrower under any material agreement or instrument
other than this Agreement to which the Borrower or any Subsidiary of the
Borrower is a party or by which any of their properties may be bound, or (iii)
any event, circumstance or condition which could reasonably be expected to be
classified as a Material Adverse Effect, a written notice specifying the
details thereof (or the nature of any claimed default or event of default) and
what action is being taken or is proposed to be taken with respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized
Lease Obligations or Operating Lease, in each case, in excess of $100,000, has
given notice or taken any action with respect to a breach, failure to perform,
claimed default or event of default thereunder, a written notice specifying the
details thereof (or the nature of any claimed default or event of default) and
what action is being taken or is proposed to be taken with respect thereto;
(d) Promptly upon receipt thereof, information with respect to and
copies of any notices received from any Tribunal relating to any order, ruling,
law, information or policy that relates to a breach of or noncompliance with
any Law, or could reasonably be expected to result in the payment of money by
the Borrower or any Subsidiary of the Borrower in an amount of $100,000 or more
in the aggregate, or otherwise have a Material Adverse Effect, or result in the
loss or suspension of any Necessary Authorization where such loss could
reasonably be expected to have a Material Adverse Effect; and
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(e) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Borrower and its Subsidiaries, as the
Administrative Lender or any Lender may reasonably request.
Section 6.6 Notice of Litigation, Default and Other Matters.
Prompt notice of the following events after the Borrower has knowledge or
notice thereof:
(a) The commencement of all Litigation and investigations by or
before any Tribunal, and all actions and proceedings in any court or before any
arbitrator involving claims for damages (including punitive damages) in excess
of $100,000 (after deducting the amount with respect to the Borrower or any
Subsidiary of the Borrower is insured), against or in any other way relating
directly to the Borrower, any Subsidiary of the Borrower, or any of their
respective properties or businesses;
(b) The creation, acquisition, reorganization or change of name,
identity or location of any Subsidiary of the Borrower; and
(c) Promptly upon the happening of any condition or event of which
the Borrower has current actual knowledge which constitutes a Default, a
written notice specifying the nature and period of existence thereof and what
action is being taken or is proposed to be taken with respect thereto.
Section 6.7 ERISA Reporting Requirements.
(a) Promptly and in any event (i) within 30 days after the
Borrower or any member of its Controlled Group has current actual knowledge
that any ERISA Event described in clause (a) of the definition of ERISA Event
or any event described in Section 4063(a) of ERISA with respect to any Plan of
the Borrower or any member of its Controlled Group has occurred, and (ii)
within 10 days after the Borrower or any member of its Controlled Group has
current actual knowledge that any other ERISA Event with respect to any Plan of
the Borrower or any member of its Controlled Group has occurred or a request
for a minimum funding waiver under Section 412 of the Code has been made with
respect to any Plan of the Borrower or any member of its Controlled Group, a
written notice describing such event and describing what action is being taken
or is proposed to be taken with respect thereto, together with a copy of any
notice of such event that is given to the PBGC;
(b) Promptly and in any event within three Business Days after
receipt thereof by the Borrower or any member of its Controlled Group from the
PBGC, copies of each notice received by the Borrower or any member of its
Controlled Group of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(c) Promptly and in any event within 30 days after the filing
thereof by the Borrower or any member of its Controlled Group with the United
States Department of Labor or the
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Internal Revenue Service, copies of each annual report (including Schedule B
thereto, if applicable) with respect to each Plan subject to Title IV of ERISA
of which Borrower or any member of its Controlled Group is the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after
receipt thereof, a copy of any correspondence the Borrower or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Borrower or such member of its Controlled Group
setting forth details as to the events giving rise to such potential withdrawal
liability and the action which the Borrower or such member of its Controlled
Group is taking or proposes to take with respect thereto;
(e) Notification within 30 days of any material increases in the
benefits provided under any existing Plan which is not a Multiemployer Plan, or
the establishment of any new Plans, or the commencement of contributions to any
Plan to which the Borrower or any member of its Controlled Group was not
previously contributing, which could reasonably be expected in any such case to
result in an additional material liability to the Borrower;
(f) Notification within three Business Days after the Borrower or
any member of its Controlled Group knows that the Borrower or any such member
of its Controlled Group has filed or intends to file a notice of intent to
terminate any Plan under a distress termination within the meaning of Section
4041(c) of ERISA and a copy of such notice; and
(g) Within three Business Days after receipt of written notice of
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any member of
its Controlled Group with respect to any Plan, except those which, in the
aggregate, if adversely determined could not reasonably be expected to have a
Material Adverse Effect.
Section 6.8 Certain Post-Closing Matters.
(a) Promptly, and in any event within 75 days after the Agreement
Date, Borrower shall have delivered to the Administrative Lender evidence, in
form and substance acceptable to the Administrative Lender, of the good
standing of Cyclix Engineering Corporation in the State of Texas;
(b) Promptly, and in any event within 60 days after the Agreement
Date, Borrower shall have delivered to the Administrative Lender stop transfer
letters and such other documents, instruments and agreements as the
Administrative Lender shall have reasonably requested, in each case executed by
Borrower and Marplace (Number 382) Limited, as appropriate, with respect to the
Capital Stock of Marplace (Number 382) Limited to be pledged by Borrower to the
Administrative Lender; and
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(c) Promptly, and in any event within 30 days after the Agreement
Date, Borrower shall have delivered to the Administrative Lender all of the
Landlord's Waivers, duly executed by all necessary parties.
ARTICLE 7
Negative Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 7.1 Indebtedness. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, create, assume, incur or otherwise
become or remain obligated in respect of, or permit to be outstanding, or
suffer to exist any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Accounts payable and accrued liabilities incurred in the
ordinary course of business;
(c) Indebtedness, including in respect of Capitalized Lease
Obligations, incurred to purchase, or to finance the purchase of, assets which
constitute property, plant and equipment;
(d) Indebtedness incurred or assumed in respect of Acquisitions
permitted pursuant to Section 7.6 hereof in an aggregate principal amount not
in excess of $5,000,000 per calendar year;
(e) Hedging obligations under Hedge Agreements entered into with
any Lender or any of their respective Affiliates;
(f) Indebtedness existing on the Agreement Date which is described
on Schedule 6 hereto, including renewals, replacements and refinancings (but no
increases) thereof;
(g) Indebtedness in respect of endorsement of negotiable
instruments in the ordinary course of business;
(h) Indebtedness owing to the Borrower or any Guarantor by any
Subsidiary of the Borrower, which Indebtedness is evidenced by an entry on the
financial records of the Borrower and any such Subsidiary of the Borrower;
(i) Guaranties by the Borrower or by Subsidiaries of the Borrower
of Indebtedness of the Borrower or Subsidiaries of the Borrower, to the extent
such underlying Indebtedness is permitted hereunder;
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(j) Unsecured trade accounts payable, incurred in the ordinary
course of the business of Borrower or any of its Subsidiaries; and
(k) Unsecured Indebtedness not otherwise permitted pursuant to
clauses (a) through (j) above not to exceed $1,000,000 in the aggregate
principal amount outstanding at any time.
Section 7.2 Liens. The Borrower shall not, and shall not permit
any Subsidiary of Borrower to, create, assume, incur, permit or suffer to
exist, directly or indirectly, any Lien on any of its assets, whether now owned
or hereafter acquired, except Permitted Liens. The Borrower shall not, and
shall not permit any Subsidiary to, agree with any other Person that it shall
not create, assume, incur, permit or suffer to exist or to be created, assumed,
incurred or permitted to exist, directly or indirectly, any Lien on any of its
assets other than in respect of Indebtedness permitted by Sections 7.1(c) and
(d), provided that such agreement relates only to the assets purchased or
acquired.
Section 7.3 Investments. The Borrower shall not, and shall not
permit any Subsidiary of Borrower to, make any Investment, except that the
Borrower and any Subsidiary of the Borrower may purchase or otherwise acquire
and own:
(a) Cash and Cash Equivalents;
(b) Accounts receivable that arise in the ordinary course of
business and are payable on standard terms;
(c) Investments in existence on the Agreement Date which are
described on Schedule 5 hereto;
(d) Investments which are Acquisitions permitted pursuant to
Section 7.6 hereof;
(e) Investments in the form of Hedge Agreements permitted by
Section 7.1(e) hereof;
(f) Investments (excluding accounts receivable from Subsidiaries
of the Borrower created in the ordinary course of business) in, and
expenditures in respect of Acquisitions of, Subsidiaries which are not
Guarantors by the Borrower in an aggregate amount not to exceed (calculated
immediately prior to the date of each such Investment or Acquisition) 5% of Net
Worth at any time outstanding;
(g) Investments in Subsidiaries of the Borrower (i) which have
executed a Subsidiary Guaranty and a Security Agreement granting a first
priority Lien in all its assets of the types or classes included in the
Collateral to secure the Obligations and (ii) which have delivered to the
Lenders such board resolutions, officer's certificates and opinions of counsel
as the Administrative Lender shall reasonably request;
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(h) Guaranties permitted under Section 7.1(i) hereof; and
(i) Investments arising from transactions by the Borrower or any
of its Subsidiaries with customers or suppliers in the ordinary course of
business, including endorsements of negotiable instruments, debt obligations
and other investments received in connection with the bankruptcy or
reorganization of customers and suppliers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers.
Section 7.4 Liquidation, Merger. The Borrower shall not, and
shall not permit any Subsidiary of Borrower to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up, except that a Subsidiary of the Borrower may
liquidate or dissolve into the Borrower or a Subsidiary of the Borrower; or
(b) enter into any merger or consolidation unless (i) with respect
to a merger or consolidation involving the Borrower, the Borrower shall be the
surviving corporation, or if the merger or consolidation involves a Subsidiary
of the Borrower and not the Borrower, such Subsidiary shall be the surviving
corporation, (ii) such transaction shall not be utilized to circumvent
compliance with any term or provision herein and (iii) no Default or Event of
Default shall then be in existence or occur as a result of such transaction.
Section 7.5 Sales of Assets. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, sell, lease, transfer or
otherwise dispose of, any of its assets except (a) inventory in the ordinary
course of business, (b) obsolete or worn-out assets, (c) asset sales in which
the Net Cash Proceeds from the disposition thereof are reinvested, within 90
days before or after such disposition, in productive tangible assets of a
similar nature of the Borrower and its Subsidiaries, (d) asset sales between
Obligors and (e) other asset sales in the aggregate amount during any one
fiscal year not to exceed 10% of Net Worth as of the end of the most recently
completed fiscal year of the Borrower.
Section 7.6 Acquisitions. The Borrower shall not, and shall not
permit any Subsidiary of Borrower to, make any Acquisitions; provided, however,
if immediately prior to and after giving effect to the proposed Acquisition
there shall not exist a Default or Event of Default, the Borrower or any
Subsidiary of the Borrower may make Acquisitions so long as (i) such
Acquisition shall not be opposed by the board of the directors of the Person
being acquired, (ii) Lenders shall have received written notice at least 15
Business Days prior to the date of such Acquisition, (iii) the Administrative
Lender shall have received at least 10 Business Days prior to the date of such
Acquisition a Compliance Certificate setting forth the covenant calculations
both immediately prior to and after giving effect to the proposed Acquisition,
(iv) the assets, property or business acquired shall be in the business
described in Section 4.1(d) hereof and the Administrative Lender for the
benefit of the Lenders shall have a first priority Lien in such assets except
for Liens permitted in clause (f) of the definition of Permitted Liens, (v) the
aggregate consideration (exclusive of Equity in the Borrower or any Subsidiary
of the Borrower,
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but inclusive of any Indebtedness incurred or assumed by the Borrower or any
Subsidiary of the Borrower) paid or given by the Borrower and/or Borrower's
Subsidiaries during any calendar year in connection with Acquisitions shall not
exceed $5,000,000 and (vi) such Subsidiary shall execute a Subsidiary Guaranty
of the Obligations and a Security Agreement granting a first priority Lien in
all its assets of the types or classes included in the Collateral, except for
Liens permitted in clause (f) of the definition of Permitted Liens, to secure
the Obligations and (vii) the Lenders receive such board resolutions, officer's
certificates and opinions of counsel as the Administrative Lender shall
reasonably request in connection with the actions described in clause (vi)
above. Notwithstanding anything in this Section 7.6 or any other provision of
this Agreement to the contrary, the aggregate amount of expenditures in respect
of Acquisitions of, and Investments in, Subsidiaries of the Borrower shall not
exceed (calculated immediately prior to the date of each such Investment or
Acquisition) 20% of Net Worth at any time outstanding.
Section 7.7 Capital Expenditures. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, make or commit to make any
Capital Expenditures during any fiscal year in an aggregate amount in excess of
$6,500,000.
Section 7.8 Restricted Payments. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, directly or indirectly
declare, pay or make any Restricted Payments except (a) Dividends payable by a
Subsidiary to the Borrower or to a Guarantor and (b) scheduled payments of
principal and interest on the Subordinated Debt; provided, however, the
Borrower shall not, and shall not permit any Subsidiary of the Borrower to,
declare, pay or make any Restricted Payments permitted by this Section 7.8
unless there shall exist no Default or Event of Default prior to or after
giving effect to any such proposed Restricted Payment.
Section 7.9 Affiliate Transactions. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, at any time engage in any
transaction with an Affiliate other than in the ordinary course of business and
on terms not materially less advantageous to the Borrower or such Subsidiary
than would be the case if such transaction had been effected with a
non-Affiliate. The Borrower shall not, and shall not permit any Subsidiary of
the Borrower to, incur or suffer to exist any Indebtedness or Guaranty in favor
of any Affiliate, unless such Affiliate shall (i) subordinate the payment and
performance thereof to the Obligations on terms, conditions and documentation
satisfactory to the Determining Lenders or (ii) pledge the applicable
Indebtedness to the Administrative Lender pursuant to documentation acceptable
to the Administrative Lender.
Section 7.10 Compliance with ERISA. The Borrower shall not, and
shall not permit any Subsidiary to, directly or indirectly, or permit any
member of its Controlled Group to directly or indirectly, (a) terminate any
Plan so as likely to result in any material (in the reasonable opinion of the
Determining Lenders) liability to the Borrower or any member of its Controlled
Group taken as a whole, (b) permit to exist any ERISA Event, or any other event
or condition with respect to a Plan which could reasonably be expected to have
a Material Adverse Effect, (c) make a complete or partial withdrawal (within
the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as likely
to result in any material (in the reasonable
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opinion of the Determining Lenders) liability to the Borrower or any member of
its Controlled Group taken as a whole, or (d) enter into any new Plan or modify
any existing Plan so as to increase its obligations thereunder which could
reasonably be expected to have a Material Adverse Effect.
Section 7.11 Minimum Fixed Charge Coverage Ratio. The Borrower
shall not permit the Fixed Charge Coverage Ratio to be less than (a) 1.50 to
1.00 at the end of any fiscal quarter ending on (and including) or prior to
June 30, 1997 and (b) 1.75 to 1.00 at the end of any fiscal quarter thereafter.
Section 7.12 Minimum Tangible Net Worth. The Borrower shall not
permit the Tangible Net Worth to be less than an amount equal to the sum of (a)
$27,250,000, plus (b) 75% of cumulative Net Income for the period from, but not
including, December 31, 1996 through the date of calculation (but excluding
from the calculation of such cumulative Net Income the effect, if any, of any
fiscal quarter (or portion of a fiscal quarter not then ended) of the Borrower
for which Net Income was a negative number), plus (c) 90% of the Net Cash
Proceeds received by the Borrower as a result of any offering of Equity or
pursuant to any conversion or exchange of convertible Indebtedness or preferred
Capital Stock into common Capital Stock of the Borrower.
Section 7.13 Maximum Funded Debt to EBITDA less CapEx Ratio. The
Borrower shall not permit the Funded Debt to EBITDA less CapEx Ratio to be
greater than (a) 5.00 to 1.00 at the end of the fiscal quarter ending June 30,
1997, (b) 3.50 to 1.00 at the end of the fiscal quarter ending September 30,
1997 and (c) 3.00 to 1.00 at the end of any fiscal quarter ending after
September 30, 1997.
Section 7.14 Sale and Leaseback. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, enter into any arrangement
whereby it sells or transfers any of its assets, and thereafter rents or leases
such assets.
Section 7.15 Sale or Discount of Receivables. The Borrower shall
not, and shall not permit any Subsidiary of the Borrower to, directly or
indirectly, sell, with or without recourse, for discount or otherwise, any
notes or Eligible Accounts.
Section 7.16 Capital Stock. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, issue, sell or otherwise dispose of
any Capital Stock in any Subsidiary of the Borrower or any options or any
rights to acquire any such Capital Stock.
Section 7.17 Business. Neither the Borrower nor any Subsidiary of
the Borrower shall conduct any business other than the business described in
Section 4.1(d) hereof.
Section 7.18 Fiscal Year. Except with respect to a change in the
fiscal year of any Subsidiary to conform to the fiscal year of the Borrower,
neither the Borrower nor any Subsidiary of the Borrower shall change its fiscal
year.
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Section 7.19 Amendment of Organizational Documents. The Borrower
shall not, and shall not permit any Subsidiary of the Borrower to, amend its
articles of incorporation or bylaws in any manner that could reasonably be
expected to (a) result in a Material Adverse Effect or (b) impair or affect the
Rights of the Administrative Lender or any Lender under any Loan Documents or
in respect of any Collateral.
Section 7.20 Amendments and Waivers of Subordinated Debt. The
Borrower shall not, and shall not permit any Subsidiary to, change or amend (or
take any action or fail to take any action the result of which is an effective
amendment or change) or accept any waiver or consent with respect to, any
document, instrument or agreement relating to any Subordinated Debt that would
result in (a) an increase in the principal, interest, overdue interest, fees or
other amounts payable under the Subordinated Debt, (b) an acceleration in any
date fixed for payment or prepayment of principal, interest, fees or other
amounts payable under the Subordinated Debt (including, without limitation, as
a result of any redemption), (c) a reduction in any percentage of holders of
the Subordinated Debt required under the terms of the Subordinated Debt to take
(or refrain from taking) any action under the Subordinated Debt, (d) a change
in any financial covenant under the Subordinated Debt making such financial
covenant more restrictive, (e) a change in any default or event of default
(however designated) under the Subordinated Debt which makes such default or
event of default more restrictive, (f) a change in the definition of "Change of
Control" as provided in the Subordinated Debt which would result in such
definition being more restrictive than such definition in this Agreement, (g) a
change in any of the subordination provisions of the Subordinated Debt, (h) a
change in any covenant, term or provision in the Subordinated Debt which would
result in such term or provision being more restrictive than the terms of this
Agreement and the other Loan Documents or (i) a change in any term or provision
of the Subordinated Debt that could have, in any material respect, an adverse
effect on the interest of the Lenders.
Section 7.21 Operating Leases. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, enter into any Operating Leases
except for Operating Leases entered into in the ordinary course of business in
a manner and to an extent consistent with past practice.
ARTICLE 8
Default
Section 8.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event, and whether
voluntary, involuntary, or effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under any Loan Document
shall prove to have been incorrect or misleading in any material respect when
made;
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(b) The Borrower shall fail to pay any (i) principal under any
Note when due or (ii) interest under any Note or any fees payable hereunder or
any other costs, fees, expenses or other amounts payable hereunder or under any
other Loan Document within two Business Days after the date due;
(c) The Borrower or any Subsidiary of the Borrower shall default
in the performance or observance of any agreement or covenant contained in
Section 5.1 or Article 7;
(d) The Borrower or any Subsidiary of the Borrower shall default
in the performance or observance of any other agreement or covenant contained
in this Agreement not specifically referred to elsewhere in this Section 8.1,
and such default shall not be cured within a period of fifteen days after the
earlier of notice from the Administrative Lender thereof or actual notice
thereof by the Borrower or such Subsidiary;
(e) There shall occur any default or breach in the performance or
observance of any agreement or covenant in any of the Loan Documents (other
than this Agreement) and such default shall not be cured within a period of
thirty days after the earlier of notice from the Administrative Lender thereof
or actual notice thereof by an officer of any Obligor;
(f) There shall be entered a decree or order by a court having
jurisdiction in the premises constituting an order for relief in respect of any
Obligor under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal, state or foreign bankruptcy
law or other similar law, or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or similar official of any Obligor, or of any
substantial part of their respective properties, or ordering the winding-up or
liquidation of the affairs of any Obligor, and any such decree or order shall
continue unstayed and in effect for a period of thirty consecutive days;
(g) Any Obligor shall file a petition, answer or consent seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal, state or foreign bankruptcy
law or other similar law, or any Obligor shall consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of any Obligor or of
substantially all of its properties, or any Obligor shall take any corporate
action in furtherance of any such action;
(h) A final judgment or judgments shall be entered by any court
against any Obligor for the payment of money which exceeds $500,000 in the
aggregate, or a warrant of attachment or execution or similar process shall be
issued or levied against property of any Obligor which, together with all other
such property of the Borrower and its Subsidiaries subject to other such
process, exceeds in value $500,000 in the aggregate, and if such judgment or
award is not insured or, within 30 days after the entry, issue or levy thereof,
such judgment, warrant or process shall not have been paid or discharged or
stayed pending appeal, or if, after the
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expiration of any such stay, such judgment, warrant or process shall not have
been paid or discharged;
(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other
party-in-interest or disqualified person (other than any Lender) shall engage
in transactions which in the aggregate would reasonably be expected to result
in a direct or indirect liability to the Borrower or any member of its
Controlled Group under Section 409 or 502 of ERISA or Section 4975 of the Code;
(ii) the Borrower or any member of its Controlled Group shall incur any
accumulated funding deficiency, as defined in Section 412 of the Code, or
request a funding waiver from the Internal Revenue Service for contributions;
(iii) the Borrower or any member of its Controlled Group shall incur any
withdrawal liability as a result of a complete or partial withdrawal within the
meaning of Section 4203 or 4205 of ERISA, or any other liability with respect
to a Plan, unless the amount of such liability has been funded within the Plan
or pursuant to one or more insurance contracts; (iv) the Borrower or any member
of its Controlled Group shall fail to make a required contribution by the due
date under Section 412 of the Code or Section 302 of ERISA which would result
in the imposition of a lien under Section 412 of the Code or Section 302 of
ERISA; (v) the Borrower, any member of its Controlled Group or any Plan sponsor
shall notify the PBGC of an intent to terminate, or the PBGC shall institute
proceedings to terminate, or the PBGC shall institute proceedings to terminate,
any Plan subject to Title IV of ERISA; (vi) a Reportable Event shall occur with
respect to a Plan subject to Title IV of ERISA, and within 15 days after the
reporting of such Reportable Event to the Administrative Lender, the
Administrative Lender shall have notified the Borrower in writing that the
Determining Lenders have made a determination that, on the basis of such
Reportable Event, there are reasonable grounds for the termination of such Plan
by the PBGC or for the appointment by the appropriate United States District
Court of a trustee to administer such Plan and as a result thereof an Event of
Default shall have occurred hereunder; (vii) a trustee shall be appointed by a
court of competent jurisdiction to administer any Plan or the assets thereof;
or (viii) any ERISA Event with respect to a Plan subject to Title IV of ERISA
shall have occurred, and 30 days thereafter (A) such ERISA Event, other than
such event described in clause (f) of the definition of ERISA Event herein, (if
correctable) shall not have been corrected and (B) the then present value of
such Plan's benefit liabilities, as defined in Title IV of ERISA, shall exceed
the then current value of assets accumulated in such Plan; provided, however,
that the events listed in subsections (i) - (viii) above shall constitute
Events of Default only if the maximum aggregate liability which the Borrower or
any member of its Controlled Group has a reasonable likelihood of incurring
under the applicable provisions of ERISA resulting from an event or events
exceeds $500,000.
(j) The Borrower or any Subsidiary of the Borrower shall default
in the payment of any Indebtedness or any lease obligations in an aggregate
amount of $100,000 or more beyond any grace period provided with respect
thereto, or any other event or condition shall exist under any agreement or
instrument under which such Indebtedness is created or evidenced beyond any
applicable grace period, if the effect of such event or condition is to permit
or cause the holder of such Indebtedness (or a trustee on behalf of any such
holder) to (i) cause such Indebtedness
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to be prepaid or to become due prior to its date of maturity or (ii) require
the Borrower or any Subsidiary of the Borrower to purchase such Indebtedness;
(k) Any lease where the Borrower or any Subsidiary of the Borrower
is the lessee shall terminate or cease to be effective, and termination or
cessation thereof, together with all other leases, if any, which have been
terminated or cease to be effective, could reasonably be expected to have a
Material Adverse Effect; provided, however, that termination or cessation of a
lease shall not constitute an Event of Default if another lease reasonably
satisfactory to the Determining Lenders is contemporaneously substituted
therefor;
(l) Any material provision of any Loan Document shall for any
reason cease to be valid and binding on or enforceable against any party to it
(other than the Administrative Lender or any Lender) other than in accordance
with its terms, or any such party (other than the Administrative Lender or any
Lender) shall so assert in writing and any such event or circumstance shall
continue for seven days following notification of the occurrence or existence
thereof from the Administrative Lender to the Borrower; provided, however, that
such notice, grace and cure period shall not apply to any event or circumstance
evidenced or represented by any assertion in writing by the Borrower or any
Affiliate of the Borrower;
(m) Any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid first priority Lien in
Collateral having a value in an aggregate amount in excess of $50,000; or
(n) A Change of Control shall occur.
Section 8.2 Remedies. If an Event of Default shall have occurred
and shall be continuing:
(a) With the exception of an Event of Default specified in Section
8.1(f) or (g) hereof, the Administrative Lender shall, upon the direction of
the Determining Lenders, terminate the Commitment and/or declare the principal
of and interest on the Advances and all Obligations and other amounts owed
under the Loan Documents to be forthwith due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything in the Loan Documents to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in
Section 8.1(f) or (g) hereof, such principal, interest and other amounts shall
thereupon and concurrently therewith become due and payable and the Commitment
shall forthwith terminate, all without any action by the Administrative Lender,
any Lender or any holders of the Notes and without presentment, demand, protest
or other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.
(c) If any Letter of Credit shall be then outstanding, the
Administrative Lender may, and upon the direction of the Determining Lenders
shall, demand upon the Borrower to, and
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forthwith upon such demand, the Borrower shall, pay to the Administrative
Lender in same day funds at the office of the Administrative Lender for deposit
in the L/C Cash Collateral Account, an amount equal to the maximum amount
available to be drawn under the Letters of Credit then outstanding.
(d) The Administrative Lender and the Lenders may exercise all of
the Rights granted to them under the Loan Documents or under Applicable Law.
(e) The Rights of the Administrative Lender and the Lenders
hereunder shall be cumulative, and not exclusive.
ARTICLE 9
Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate. If with
respect to any proposed LIBOR Advance for any Interest Period, (i) any Lender
determines that deposits in dollars (in the applicable amount) are not being
offered to that Lender in the relevant market for such Interest Period or (ii)
the Determining Lenders determine that the LIBOR Rate for such proposed LIBOR
Advance does not adequately cover the cost to the Lenders of making and
maintaining such proposed LIBOR Advance for such Interest Period, such Lender
or Determining Lenders, as the case may be, shall forthwith give notice thereof
to the Borrower, whereupon until such Lender or Determining Lenders, as the
case may be, notify the Borrower that the circumstances giving rise to such
situation no longer exist, the obligation of such Lender to make LIBOR Advances
shall be suspended; provided, however, such Lender or the Determining Lenders,
as the case may be, shall promptly notify the Borrower if the circumstances
giving rise to such situation no longer exist. In the event that any Lender
(other than NationsBank of Texas, N.A.) notifies the Borrower that deposits in
dollars (in the applicable amount) are not being offered to such Lender in the
relevant market for the applicable Interest Period, as permitted by clause (i)
of this Section 9.1, the Borrower shall have the right (subject to the
conditions, limitations and requirements set forth in Section 11.6 hereof with
respect to "Assignees"), at the cost and expense of the Borrower, to substitute
a replacement Lender, of the Borrower's selection, in the place and stead of
such Lender with respect to all of the rights, duties and obligations of such
Lender hereunder and under the other Loan Documents upon payment by such
replacement Lender to such replaced Lender of an amount equal to the full
amount of all Advances, Reimbursement Obligations and other Obligations then
owing to such replaced Lender.
Section 9.2 Illegality. If any change in applicable law, rule or
regulation, or adoption thereof, or any change in any interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its LIBOR Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for
such Lender (or its LIBOR Lending
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Office) to make, maintain or fund its LIBOR Advances, such Lender shall so
notify the Borrower and the Administrative Lender. Before giving any notice to
the Borrower pursuant to this Section, the notifying Lender shall designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for giving such notice and will not, in the sole judgment of the
Lender, be materially disadvantageous to the Lender. Upon receipt of such
notice, notwithstanding anything contained in Article 2 hereof, the Borrower
shall repay in full the then outstanding principal amount of each LIBOR Advance
owing to the notifying Lender, together with accrued interest thereon and any
reimbursement required under Section 2.9 hereof, on either (a) the last day of
the Interest Period applicable to such Advance, if the Lender may lawfully
continue to maintain and fund such Advance to such day, or (b) immediately, if
the Lender may not lawfully continue to fund and maintain such Advance to such
day or if the Borrower so elects. Concurrently with repaying each affected
LIBOR Advance owing to such Lender if the Borrower does not terminate this
Agreement, notwithstanding anything contained in Article 2 hereof, the Borrower
may, without any requirement to satisfy the conditions precedent set forth in
Section 3.1, 3.2 or 3.3, borrow a Base Rate Advance from such Lender, and such
Lender shall make such Base Rate Advance, in an amount such that the
outstanding principal amount of the Advances owing to such Lender shall equal
the outstanding principal amount of the Advances owing immediately prior to
such repayment.
Section 9.3 Increased Costs.
(a) If after the Agreement Date any change in or adoption of any
law, rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof or compliance by any
Lender (or its LIBOR Lending Office) with any request or directive (whether or
not having the force of law) of any such authority, central bank or comparable
agency:
(i) shall subject a Lender (or its LIBOR Lending Office)
to any Tax (net of any tax benefit engendered thereby) with respect to
its LIBOR Advances or its obligation to make such Advances, or shall
change the basis of taxation of payments to a Lender (or to its LIBOR
Lending Office) of the principal of or interest on its LIBOR Advances
or in respect of any other amounts due under this Agreement, as the
case may be, or its obligation to make such Advances (except for
changes in the rate of tax on the overall net income, net worth or
capital of the Lender and franchise taxes, doing business taxes or
minimum taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors
of the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, a Lender's LIBOR Lending Office or shall impose on the
Lender (or its LIBOR Lending Office) or on the London interbank market
any other condition affecting its LIBOR Advances or its obligation to
make such Advances (but excluding any reserves or deposits that are
included in the calculation of LIBOR Basis);
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and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 30 days after demand by a Lender, the Borrower agrees to
pay to such Lender such additional amount as will compensate such Lender for
such increased costs or reduced amounts, subject to Section 11.9 hereof. The
affected Lender will as soon as practicable notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle
such Lender to compensation pursuant to this Section and will designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the reasonable judgment of the affected Lender made in good faith, be
disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this
Section and setting forth the additional amounts to be paid to it hereunder
shall certify that such amounts or costs were actually incurred by such Lender
and shall show in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount and shall be
conclusive absent manifest or demonstrable error. In determining such amount,
a Lender may use any reasonable averaging and attribution methods. Nothing in
this Section 9.3 shall provide the Borrower or any Subsidiary of the Borrower
the right to inspect the records, files or books of any Lender. If a Lender
demands compensation under this Section, the Borrower may at any time, upon at
least five Business Days' prior notice to the Lender, after reimbursement to
the Lender by the Borrower in accordance with this Section of all costs
incurred, prepay in full the then outstanding LIBOR Advances of the Lender,
together with accrued interest thereon to the date of prepayment, along with
any reimbursement required under Section 2.9 hereof. Concurrently with
prepaying such LIBOR Advances, the Borrower may borrow a Base Rate Advance from
the Lender, and the Lender shall make such Base Rate Advance, in an amount such
that the outstanding principal amount of the Advances owing to such Lender
shall equal the outstanding principal amount of the Advances owing immediately
prior to such prepayment.
Section 9.4 Effect On Base Rate Advances. If notice has been
given pursuant to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a
Lender to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be
repaid or prepaid, then, unless and until the Lender notifies the Borrower that
the circumstances giving rise to such repayment no longer apply, all Advances
which would otherwise be made by such Lender as LIBOR Advances shall be made
instead as Base Rate Advances.
Section 9.5 Capital Adequacy. If after the Agreement Date, (a)
the introduction of or any change in or in the interpretation of any law, rule
or regulation or (b) compliance by a Lender with any law, rule or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) adopted or promulgated after the
Agreement Date affects or would affect the amount of capital required or
expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such
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Lender's commitment or Advances hereunder and other commitments or advances of
such Lender of this type, then, within 30 days after demand by such Lender,
subject to Section 11.9, the Borrower shall immediately pay to such Lender,
from time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender with respect to such circumstances, to the extent that
such Lender reasonably determines in good faith such increase in capital to be
allocable to the existence of such Lender's Commitments hereunder. A
certificate as to any additional amounts payable to any Lender under this
Section 9.5 submitted to the Borrower by such Lender shall certify that such
amounts were actually incurred by such Lender or corporation controlling such
Lender and shall show in reasonable detail an accounting of the amount payable
and the calculations used to determine in good faith such amount and shall be
conclusive absent manifest or demonstrable error. In determining such amount,
such Lender or a corporation controlling such Lender may use any reasonable
averaging and attribution methods. Notwithstanding the foregoing, nothing in
this Section 9.5 shall provide the Borrower or any Subsidiary of the Borrower
the right to inspect the records, files or books of any Lender or any
corporation controlling such Lender.
Section 9.6 Replacement Lender. If (i) any Lender is unable or
unwilling to make, maintain or fund any LIBOR Advance pursuant to Section 9.1
or 9.2 or (ii) the Borrower becomes obligated to pay additional amounts to any
Lender described in Section 9.3 or 9.5, the Borrower may designate a financial
institution reasonably acceptable to the Administrative Lender to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of such Lender's Commitment and the Rights of such Lender under the
Loan Documents without recourse to or warranty by, or expense to, such Lender,
for a purchase price equal to the outstanding amounts owing to such Lender
(including such additional amounts owing to such Lender pursuant to Section
9.2, 9.3 or 9.5). Upon execution of an Assignment Agreement, such other
financial institution shall be deemed to be a "Lender" for all purposes of this
Agreement as set forth in Section 11.6 hereof.
ARTICLE 10
Agreement Among Lenders
Section 10.1 Agreement Among Lenders. The Lenders agree among
themselves that:
(a) Administrative Lender. Each Lender hereby appoints the
Administrative Lender as its nominee in its name and on its behalf, to receive
all documents and items to be furnished hereunder; to act as nominee for and on
behalf of all Lenders under the Loan Documents; to, except as otherwise
expressly set forth herein, take such action as may be requested by the
Determining Lenders, provided that, (i) unless and until the Administrative
Lender shall have received such requests, the Administrative Lender may take
such administrative action, or refrain from taking such administrative action,
as it may deem advisable and in the best interests of the Lenders, and (ii) the
Administrative Lender shall not be required to take any action that exposes the
Administrative Lender to personal liability or that is contrary to any Loan
Document or
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Applicable Law; to arrange the means whereby the proceeds of the Advances of
the Lenders are to be made available to the Borrower; to distribute promptly to
each Lender information, requests and documents received from the Borrower
hereunder and not otherwise provided to such Lender by the Borrower or any
other Person, and each payment (in like funds received) with respect to any of
such Lender's Advances, or the ratable amount of fees or other amounts; and to
deliver to the Borrower requests, demands, approvals and consents received from
the Lenders. Administrative Lender agrees to promptly distribute to each
Lender, at such Lender's address set forth below information, requests,
documents and payments received from the Borrower and not otherwise provided to
such Lender by the Borrower or any other Person. The Administrative Lender
shall have no fiduciary relationship in respect of any Lender by reason of this
Agreement or any other Loan Document. The Administrative Lender shall have no
duties or responsibilities except those expressly set forth in this Agreement.
The duties of the Administrative Lender are mechanical and administrative in
nature.
(b) Replacement of Administrative Lender. Should the
Administrative Lender or any successor Administrative Lender ever cease to be a
Lender hereunder, or should the Administrative Lender or any successor
Administrative Lender ever resign as Administrative Lender, or should the
Administrative Lender or any successor Administrative Lender ever be removed
with cause or without cause by the action of all Lenders (other than the
Administrative Lender), then the Lender appointed by the other Lenders (with
the consent of the Borrower, which consent shall not be unreasonably withheld)
shall forthwith become the Administrative Lender, and the Borrower and the
Lenders shall execute such documents as any Lender may reasonably request to
reflect such change. If the Administrative Lender also then serves in the
capacity of the Issuing Bank, such resignation or removal shall constitute
resignation or removal of the Issuing Bank. Any resignation or removal of the
Administrative Lender or any successor Administrative Lender shall become
effective upon the appointment by the Lenders of a successor Administrative
Lender; provided, however, if no successor Administrative Lender shall have
been so appointed and shall have accepted such appointment within 30 days after
the retiring Administrative Lender's giving of notice of resignation or the
Lenders' removal of the retiring Administrative Lender, then the retiring
Administrative Lender may, on behalf of the Lenders, appoint a successor
Administrative Lender, which shall be a commercial bank organized under the
Laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as the Administrative Lender hereunder by a successor
Administrative Lender, such successor Administrative Lender shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Administrative Lender, and the retiring Administrative Lender shall be
discharged from its duties and obligations under the Loan Documents, provided
that if the retiring or removed Administrative Lender is unable to appoint a
successor Administrative Lender, the Administrative Lender shall, after the
expiration of a 60 day period from the date of notice, be relieved of all
obligations as Administrative Lender hereunder. Notwithstanding any
Administrative Lender's resignation or removal hereunder, the provisions of
this Article shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Administrative Lender under this
Agreement.
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(c) Expenses. Each Lender shall pay its pro rata share, based on
its Specified Percentage, of any expenses paid by the Administrative Lender
directly and solely in connection with any of the Loan Documents if
Administrative Lender does not receive reimbursement therefor from other
sources within 60 days after the date incurred. Any amount so paid by the
Lenders to the Administrative Lender shall be returned by the Administrative
Lender pro rata to each paying Lender to the extent later paid by the Borrower
or any other Person on the Borrower's behalf to the Administrative Lender.
(d) Delegation of Duties. The Administrative Lender may execute
any of its duties hereunder by or through officers, directors, employees,
attorneys or agents, and shall be entitled to (and shall be protected in
relying upon) advice of counsel concerning all matters pertaining to its duties
hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender
and its officers, directors, employees, attorneys and agents shall be entitled
to rely and shall be fully protected in relying on any writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telex or
teletype message, statement, order, or other document or conversation
reasonably believed by it or them in good faith to be genuine and correct and
to have been signed or made by the proper Person and, with respect to legal
matters, upon opinions of counsel selected by the Administrative Lender. The
Administrative Lender may, in its reasonable judgment, deem and treat the payee
of any Note as the owner thereof for all purposes hereof.
(f) Limitation of Administrative Lender's Liability. Neither the
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards
the execution or enforcement of the powers hereby created or to prosecute or
defend any suit in respect hereof, unless indemnified to its reasonable
satisfaction against loss, cost, liability and expense unless expressly
provided to the contrary herein. The Administrative Lender shall not be
responsible in any manner to any Lender for the effectiveness, enforceability,
genuineness, validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made
herein or furnished in connection with any Loan Documents, or be under any
obligation to any Lender to ascertain or to inquire as to the performance or
observation of any of the terms, covenants or conditions of any Loan Documents
on the part of the Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER,
EACH LENDER HEREBY SEVERALLY INDEMNIFIES AND HOLDS HARMLESS THE ADMINISTRATIVE
LENDER, PRO RATA ACCORDING TO ITS SPECIFIED PERCENTAGE, FROM AND AGAINST ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS,
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COSTS, EXPENSES AND/OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY
BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THE ADMINISTRATIVE LENDER (IN
SUCH CAPACITY) IN ANY WAY WITH RESPECT TO ANY LOAN DOCUMENTS OR ANY ACTION
TAKEN OR OMITTED BY THE ADMINISTRATIVE LENDER UNDER THE LOAN DOCUMENTS
(INCLUDING ANY NEGLIGENT ACTION OF THE ADMINISTRATIVE LENDER), EXCEPT TO THE
EXTENT THE SAME ARE FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION TO
RESULT FROM GROSS NEGLIGENCE OR WILFUL MISCONDUCT BY THE ADMINISTRATIVE LENDER.
THE INDEMNITY PROVIDED IN THIS SECTION 10.1(f) SHALL SURVIVE TERMINATION OF
THIS AGREEMENT.
(g) Liability Among Lenders. No Lender shall incur any liability
(other than the sharing of expenses and other matters specifically set forth
herein and in the other Loan Documents) to any other Lender, except for acts or
omissions in bad faith.
(h) Rights as Lender. With respect to its commitment hereunder,
the Advances made by it and the Notes issued to it, the Administrative Lender
shall have the same rights as a Lender and may exercise the same as though it
were not the Administrative Lender, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Lender in
its individual capacity. The Administrative Lender or any Lender may accept
deposits from, act as trustee under indentures of, and generally engage in any
kind of business with, the Borrower and any of its Affiliates, and any Person
who may do business with or own securities of the Borrower or any of its
Affiliates, all as if the Administrative Lender were not the Administrative
Lender hereunder and without any duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Lender
or any other Lender and based upon the financial statements referred to in
Sections 4.1(j), 6.2, and 6.3 hereof, and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Administrative Lender or any other
Lender and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents. Each
Lender also acknowledges that its decision to fund the initial Advances shall
constitute evidence to the Administrative Lender that such Lender has deemed
all of the conditions set forth in Section 3.1 to have been satisfied.
Section 10.3 Benefits of Article. None of the provisions of this
Article shall inure to the benefit of any Person other than Lenders and, with
respect to Section 10.1(b), the Borrower; consequently, no such other Person
shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of the Administrative Lender or any Lender to comply
with such provisions.
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ARTICLE 11
Miscellaneous
Section 11.1 Notices.
(a) All notices and other communications under this Agreement
shall be in writing (except in those cases where giving notice by telephone is
expressly permitted) and shall be deemed to have been given on the date
personally delivered or sent by telecopy (answerback received), or three days
after deposit in the mail, designated as certified mail, return receipt
requested, postage-prepaid, or one day after being entrusted to a reputable
commercial overnight delivery service, addressed to the party to which such
notice is directed at its address determined as provided in this Section. All
notices and other communications under this Agreement shall be given to the
parties hereto at the following addresses:
(i) If to the Borrower, at:
PC Service Source, Inc
2350 Valley View Lane
Dallas, Texas 75234
Attn: Bernard W. Rohde
Vice President, Finance
Telecopy No.: (972) 481-4752
With a copy of any notice of default or Event of
Default on the part of the Borrower to be sent to:
Brian M. Lidji, Esq.
Sayles & Lidji, P.C.
4400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telecopy No.: (214) 939-8787
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(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor
Vice President
(iii) If to a Lender, at its address shown below its name
on the signature pages hereof, or if applicable, set
forth in its Assignment Agreement.
(b) Any party hereto may change the address to which notices shall
be directed by giving 10 days' written notice of such change to the other
parties.
Section 11.2 Expenses. The Borrower shall promptly pay:
(a) all reasonable out-of-pocket expenses of the Administrative
Lender in connection with the preparation, negotiation, execution and delivery
of this Agreement and the other Loan Documents, the transactions contemplated
hereunder and thereunder, and the making of Advances hereunder, including
without limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses and reasonable
attorneys' fees of the Administrative Lender in connection with the
administration of the transactions contemplated in this Agreement and the other
Loan Documents and the preparation, negotiation, execution and delivery of any
waiver, amendment or consent by the Administrative Lender relating to this
Agreement or the other Loan Documents; and
(c) all reasonable costs, out-of-pocket expenses and reasonable
attorneys' fees of the Administrative Lender and each Lender incurred for
enforcement, collection, restructuring, refinancing and "work-out", or
otherwise incurred in obtaining performance under the Loan Documents, which in
each case shall include without limitation fees and expenses of consultants,
counsel for the Administrative Lender and any Lender, and administrative fees
for the Administrative Lender.
Section 11.3 Waivers. The rights and remedies of the Lenders
under this Agreement and the other Loan Documents shall be cumulative and not
exclusive of any rights or remedies which they would otherwise have. No
failure or delay by the Administrative Lender or any Lender in exercising any
right shall operate as a waiver of such right. The Lenders expressly reserve
the right to require strict compliance with the terms of this Agreement in
connection with any funding of a request for an Advance or issuance of a Letter
of Credit. In the event that any Lender decides to fund an Advance at a time
when the Borrower is not in strict compliance with the terms of this Agreement,
such decision by such Lender shall not be deemed to constitute an
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undertaking by the Lender to fund any further requests for Advances or preclude
the Lenders from exercising any rights available under the Loan Documents or at
law or equity. Any waiver or indulgence granted by the Lenders shall not
constitute a modification of this Agreement, except to the extent expressly
provided in such waiver or indulgence, or constitute a course of dealing by the
Lenders at variance with the terms of the Agreement such as to require further
notice by the Lenders of the Lenders' intent to require strict adherence to the
terms of the Agreement in the future. Any such actions shall not in any way
affect the ability of the Administrative Lender or the Lenders, in their
discretion, to exercise any rights available to them under this Agreement or
under any other agreement, whether or not the Administrative Lender or any of
the Lenders are a party thereto, relating to the Borrower.
Section 11.4 Calculation by the Lenders Conclusive and Binding.
Any mathematical calculation required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent manifest
error, be controlling.
Section 11.5 Set-Off. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence and during the continuation of an Event of Default, each
Lender and any subsequent holder of any Note, and any assignee of any Note is
hereby authorized by the Borrower at any time or from time to time, without
notice to the Borrower or any other Person, any such notice being hereby
expressly waived, to set-off, appropriate and apply any deposits (general or
special (except trust and escrow accounts), time or demand, including without
limitation Indebtedness evidenced by certificates of deposit, in each case
whether matured or unmatured) and any other Indebtedness at any time held or
owing by such Lender or holder to or for the credit or the account of the
Borrower, against and on account of the Obligations and other liabilities of
the Borrower to such Lender or holder, irrespective of whether or not (a) the
Lender or holder shall have made any demand hereunder, or (b) the Lender or
holder shall have declared the principal of and interest on the Advances and
other amounts due hereunder to be due and payable as permitted by Section 8.2.
Any sums obtained by any Lender or by any assignee or subsequent holder of any
Note shall be subject to pro rata treatment of all Obligations and other
liabilities hereunder. Any Lender exercising any Rights under this Section
11.5 shall give the Borrower prompt notice thereof after such exercise.
Section 11.6 Assignment.
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Documents without the prior
written consent of the Lenders.
(b) No Lender shall be entitled to assign or grant a participation
in its interest in this Agreement, its Note or its Advances, except as
hereinafter set forth.
(c) Without the consent of the Borrower, any Lender may at any
time sell participations in all or any part of its Advances and Reimbursement
Obligations (collectively,
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"Participations") to any banks or other financial institutions ("Participants")
provided that neither such Participation nor any agreement relating thereto
shall confer on any Person (other than the parties hereto) any right to vote
on, approve or sign amendments or waivers, or any other independent benefit or
any legal or equitable right, remedy or other claim under this Agreement or any
other Loan Documents, other than the right to vote on, approve, or sign
amendments or waivers or consents with respect to items that would result in
(i) any increase in the commitment of any Participant; or (ii)(A) the extension
of the date of maturity of, or (B) the extension of the due date for any
payment of principal, interest or fees respecting, or (C) the reduction of the
amount of any installment of principal or interest on or the change or
reduction of any mandatory reduction required hereunder, or (D) a reduction of
the rate of interest on, the Advances, the Letters of Credit, or the
Reimbursement Obligations to which such Participant is entitled; or (iii) the
release of security for the Obligations, including without limitation any
guarantee, except pursuant to this Agreement or the other Loan Documents; or
(iv) the reduction of any fees payable hereunder to which such Participant is
entitled. Notwithstanding the foregoing, the Borrower agrees that the
Participants shall be entitled to the benefits of Article 9 hereof as though
they were Lenders and the Lenders may, subject to Section 11.14 hereof, provide
copies of all financial information received from the Borrower to such
Participants.
(d) Each Lender may assign to one or more financial institutions
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country,
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business (each, an "Assignee") its rights
and obligations under this Agreement and the other Loan Documents; provided,
however, that (i) each such assignment shall be subject to the prior written
consent of the Administrative Lender and Borrower, which consent shall not be
unreasonably withheld (provided, however, notwithstanding anything herein to
the contrary, no consent of the Borrower is required for any assignment during
any time that an Event of Default has occurred and is continuing), (ii) no such
assignment shall be in an amount of Commitment less than $5,000,000 unless such
lesser amount represents the entirety of the Commitment of the applicable
Lender, (iii) the applicable Lender, Administrative Lender and applicable
Assignee shall execute and deliver to the Administrative Lender an Assignment
and Acceptance Agreement (an "Assignment Agreement") in substantially the form
of Exhibit F hereto, together with the Notes subject to such assignment, (iv)
the Assignee executing the Assignment, shall deliver to the Administrative
Lender a processing fee of $3,500 and (v) each such assignment shall be a
constant, not a varying, percentage of the assigning Lender's Rights and
obligations in respect of the Advances. Upon such execution, delivery and
acceptance from and after the effective date specified in each Assignment,
which effective date shall be at least three Business Days after the execution
thereof, (A) the Assignee thereunder shall be party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment, have the rights and obligations of a Lender hereunder and (B) the
applicable Lender shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment, relinquish such rights
and be released from such obligations under this Agreement.
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<PAGE> 87
(e) Notwithstanding anything in clause (d) above to the contrary,
any Lender may assign and pledge all or any portion of its Advances and Notes
to any Federal Reserve Bank as collateral security pursuant to Regulation A of
F.R.S. Board and any Operating Circular issued by such Federal Reserve Bank;
provided, however, that no such assignment under this clause (e) shall release
the assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a
Lender and an Assignee, and any Note or Notes subject to such assignment, the
Borrower shall, within five Business Days after its receipt of such Assignment
Agreement, at no expense to the Borrower, execute and deliver to the
Administrative Lender in exchange for the surrendered Notes new Notes to the
order of such Assignee in an amount equal to the portion of the Advances and
Commitments assigned to it pursuant to such Assignment Agreement and new Notes
to the order of the assignor Lender in an amount equal to the portion of the
Advances and Commitments retained by it hereunder. Such new Notes shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Notes, shall be dated the effective date of such Assignment
Agreement and shall otherwise be in substantially the form of Exhibit A hereto.
(g) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.6, disclose to the assignee or Participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower, provided such Person agrees in writing to
handle such information in accordance with the standards set forth in Section
11.14 hereof.
(h) Except as specifically set forth in this Section 11.6, nothing
in this Agreement or any other Loan Documents, expressed or implied, is
intended to or shall confer on any Person other than the respective parties
hereto and thereto and their successors and assignees permitted hereunder and
thereunder any benefit or any legal or equitable right, remedy or other claim
under this Agreement or any other Loan Documents.
Section 11.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such separate counterparts shall together constitute but one and the same
instrument.
Section 11.8 Severability. Any provision of this Agreement which
is for any reason prohibited or found or held invalid or unenforceable by any
court or governmental agency shall be ineffective to the extent of such
prohibition or invalidity or unenforceability without invalidating the
remaining provisions hereof in such jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Highest Lawful
Amount. If any Lender or participant ever receives, collects or applies, as
interest, any
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<PAGE> 88
such excess, such amount which would be excessive interest shall be deemed a
partial repayment of principal and treated hereunder as such; and if principal
is paid in full, any remaining excess shall be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Borrower and the Lenders
shall, to the maximum extent permitted under Applicable Law, (a) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Highest Lawful Rate, the Lenders
shall refund to the Borrower the amount of such excess or credit the amount of
such excess against the total principal amount of the Obligations owing, and,
in such event, the Lenders shall not be subject to any penalties provided by
any laws for contracting for, charging or receiving interest in excess of the
Highest Lawful Rate. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this
Agreement may not be amended, modified or waived except by the written
agreement of the Borrower and the Determining Lenders; provided, however, that
no such amendment, modification or waiver shall be made (a) without the consent
of all Lenders, if it would (i) increase the Specified Percentage or commitment
of any Lender, or (ii) extend or postpone the date of maturity of, extend the
due date for any payment of principal or interest on, reduce the amount of any
installment of principal or interest on, or reduce the rate of interest on, any
Advance, the Reimbursement Obligations or other amount owing under any Loan
Documents to which such Lender is entitled, or (iii) release any security for
or guaranty of the Obligations (except pursuant to this Agreement or the other
Loan Documents), or (iv) reduce the fees payable hereunder to which such Lender
is entitled, or (v) revise this Section 11.11, or (vi) waive the date for
payment of any principal, interest or fees hereunder or (vii) amend the
definition of Determining Lenders; (b) without the consent of the
Administrative Lender, if it would alter the rights, duties or obligations of
the Administrative Lender; or (c) without the consent of the Issuing Bank, if
it would alter the rights, duties or obligations of the Issuing Bank. Neither
this Agreement nor any term hereof may be amended orally, nor may any provision
hereof be waived orally but only by an instrument in writing signed by the
Administrative Lender and, in the case of an amendment, by the Borrower.
Section 11.12 Exception to Covenants. Neither the Borrower nor any
Subsidiary of the Borrower shall be deemed to be permitted to take any action
or fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the
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<PAGE> 89
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein.
Section 11.13 No Liability of Issuing Bank. The Borrower assumes
all risks of the acts or omissions of any beneficiary or transferee of any
Letter of Credit with respect to its use of such Letter of Credit. Neither the
Issuing Bank nor any Lender nor any of their respective officers or directors
shall be liable or responsible for: (a) the use that may be made of any Letter
of Credit or any acts or omissions of any beneficiary or transferee in
connection therewith; (b) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should prove
to be in any or all respects invalid, insufficient, fraudulent or forged; (c)
payment by the Issuing Bank against presentation of documents that do not
comply with the terms of a Letter of Credit, including failure of any documents
to bear any reference or adequate reference to the Letter of Credit, except for
any payment made upon the Issuing Bank's gross negligence or wilful misconduct;
or (d) any other circumstances whatsoever in making or failing to make payment
under any Letter of Credit, except that the Borrower shall have a claim against
the Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the
extent of any direct, but not consequential, damages suffered by the Borrower
that a court of competent jurisdiction determines were caused by (i) the
Issuing Bank's wilful misconduct or gross negligence or (ii) the Issuing Bank's
wilful failure to make lawful payment under a Letter of Credit after the
presentation to it of a draft and certificates strictly complying with the
terms and conditions of the Letter of Credit. In furtherance and not in
limitation of the foregoing, the Issuing Bank may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
Section 11.14 Confidentiality. Each Lender and the Administrative
Lender agrees (on behalf of itself and each of its Affiliates, directors,
officers, employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant
to this Agreement which is identified by the Borrower as being confidential at
the time the same is delivered to the Lenders or the Administrative Lender,
provided that nothing herein shall limit the disclosure of any such information
(a) to the extent required by statute, rule, regulation or judicial process,
(b) to counsel for any Lender or the Administrative Lender, (c) to bank
examiners, auditors or accountants of any Lender, (d) to the Administrative
Lender or any other Lender, (e) in connection with any Litigation to which any
one or more of Lenders is a party, provided, further, that, unless specifically
prohibited by Applicable Law or court order, each Lender shall, prior to
disclosure thereof, notify Borrower of any request for disclosure of any such
non-public information (i) by any Tribunal or representative thereof (other
than any such request in connection with an examination of such Lender's
financial condition by such governmental agency) or (ii) pursuant to legal
process, or (f) to any Assignee or Participant (or prospective Assignee or
Participant) so long as such Assignee or Participant (or prospective Assignee
or Participant) agrees in writing to handle such information in accordance with
the provisions of this Section 11.14.
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<PAGE> 90
Section 11.15 Amendment, Restatement, Extension, Renewal and
Increase. This Agreement is a renewal, extension, amendment, increase and
restatement of the Existing Credit Agreement, and is not a novation of the
"Obligations" (as defined in the Existing Credit Agreement) thereunder. On
the Agreement Date, the "Revolving Note" (as defined in the Existing Credit
Agreement), all of the outstanding indebtedness of the Borrower under the
Existing Credit Agreement and all of the liens, security interests and other
rights and interests of NationsBank of Texas, N.A. under the Existing Credit
Agreement and under the other Loan Documents (as defined in the Existing Credit
Agreement) shall be acquired by the Administrative Lender for the ratable
benefit of the Lenders in their respective Specified Percentages. On the
Agreement Date, the outstanding indebtedness of the Borrower under the
Revolving Note shall be renewed, extended, modified and restated by the Notes.
The Borrower hereby consents to the acquisition by the Administrative Lender of
the indebtedness, rights and interests described above. All terms and
provisions of this Agreement supersede in their entirety the Existing Credit
Agreement. All Liens covering the Collateral, or any part thereof, under the
collateral documents executed in connection with the Existing Credit Agreement
shall remain valid, binding and enforceable Liens against the Persons which
granted such Liens.
SECTION 11.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS) AND THE
UNITED STATES OF AMERICA. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, TEXAS,
AND BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER
LIABLE FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS,
JOINTLY AND SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. WITHOUT EXCLUDING
ANY OTHER JURISDICTION, THE BORROWER, THE ADMINISTRATIVE LENDER AND EACH LENDER
EACH AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS,
TEXAS, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND HEREBY SUBMITS WITH RESPECT TO
ITSELF AND ITS PROPERTY TO THE JURISDICTION OF ANY SUCH COURT FOR THE PURPOSE
OF ANY SUIT, ACTION, PROCEEDING OR JUDGMENT RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT.
SECTION 11.17 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT
AND MAKING ANY ADVANCES HEREUNDER.
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<PAGE> 91
SECTION 11.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
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<PAGE> 92
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date
first set forth above.
BORROWER: PC SERVICE SOURCE, INC.
By:/s/ BERNARD W. ROHDE
-----------------------------------------
Name: Bernard W. Rohde
Title: Vice President, Finance
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<PAGE> 93
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A., as
Administrative Lender
By: /s/ TIMOTHY M. O'CONNOR
-----------------------------------------
Name: Timothy M. O'Connor
Title: Vice President
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<PAGE> 94
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender
and Issuing Bank
Specified Percentage:
100.00%
By: s/ TIMOTHY M. O'CONNOR
--------------------------------------
Name: Timothy M. O'Connor
Title: Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor
Vice President
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<PAGE> 95
SCHEDULE 1
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
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<PAGE> 96
SCHEDULE 2
EXISTING LIENS
<TABLE>
<CAPTION>
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
------- ---------- ------------ -------------
<S> <C> <C> <C>
</TABLE>
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<PAGE> 97
SCHEDULE 3
EXISTING LITIGATION
AND MATERIAL LIABILITIES
- 91 -
<PAGE> 98
SCHEDULE 4
SUBSIDIARIES
<TABLE>
<CAPTION>
Owner(s) of 5% or more Description of
State of of Capital Stock and outstanding options,
Name and Incorporation Description of Percentage Ownership rights of conversion,
Mailing Address or Organization Capital Stock held by each Owner first refusal, etc.
- --------------- --------------- ------------- --------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
- 92 -
<PAGE> 99
SCHEDULE 5
EXISTING INVESTMENTS
- 93 -
<PAGE> 100
SCHEDULE 6
EXISTING INDEBTEDNESS
- 94 -
<PAGE> 101
SCHEDULE 7
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
- 95 -
<PAGE> 102
SCHEDULE 8
LABOR RELATIONS
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<PAGE> 103
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT to CREDIT AGREEMENT (this "First Amendment"),
dated as of March 30, 1998, is entered into by and among PC SERVICE SOURCE,
INC., a Delaware corporation, (the "Borrower"), HI-TEK SERVICES, INC., a
California corporation ("Hi-Tek"), CYCLIX ENGINEERING CORPORATION, a Texas
corporation ("Cyclix") (Hi-Tek and Cyclix being sometimes referred to herein
singularly as a "Guarantor" and collectively as the "Guarantors"), NATIONSBANK
OF TEXAS, N.A. and NATIONAL CITY BANK OF KENTUCKY, in their respective
capacities as lenders under the Credit Agreement (as such term is hereinafter
defined) (collectively, the "Lenders"), and NATIONSBANK OF TEXAS, N.A., in its
capacity as Administrative Lender under the Credit Agreement (the
"Administrative Lender").
BACKGROUND
A. The Borrower, the Lenders and the Administrative Lender are parties
to a certain Credit Agreement dated as of June 20, 1997 (said Credit Agreement,
as amended, supplemented, modified and/or restated, being referred to herein as
the the "Credit Agreement"); the terms defined in the Credit Agreement and not
otherwise defined herein shall be used herein as defined in the Credit Agreement
and, to the extent appropriate, as amended hereby.
B. The Guarantors have heretofore guaranteed all of the indebtedness,
obligations and liabilities of the Borrower to the Lenders under, or in
connection with, the Credit Agreement.
C. The Borrower, the Guarantors, the Lenders and the Administrative
Lender desire to amend the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Guarantors, the Lenders and the Administrative Lender covenant and agree as
follows:
1. AMENDMENTS.
1.1 The definition of "Intangible Assets" set forth in Article
I of the Credit Agreement is hereby amended to read as follows:
"`Intangible Assets' means those assets which are treated as
intangible pursuant to GAAP, and in any event including,
without limitation: (i) obligations, if any, owing by
Affiliates to the Borrower or any Subsidiary of the Borrower,
(ii) the amount, if any, by which inventory exceeds the lower
of cost or market value thereof,
<PAGE> 104
(iii) any asset which is intangible or lacks intrinsic and
marketable value or collectibility, including without
limitation goodwill, noncompetition agreements, patents,
copyrights, trademarks, franchises or organization or research
and development costs; (iv) organizational and experimental
expense; and (v) unamortized debt discount and expense."
1.2 The definition of "Borrowing Base Commencement Date" set
forth in Article I of the Credit Agreement is hereby amended to read as
follows:
"`Borrowing Base Commencement Date' means the first day of the
first fiscal quarter immediately following the earlier to
occur of (a) the date that the Administrative Lender gives
written notice to the Borrower of the occurrence of the
Borrowing Base Commencement Date (which notice may be given by
the Administrative Lender at any time, in its sole and
absolute discretion, regardless of whether any of the
additional events set forth herein have occurred) and (b) the
end of any fiscal quarter (i) during which the aggregate
outstanding principal balance of the Obligations exceeded
$10,000,000 at any time and (ii) at the end of which fiscal
quarter the Leverage Ratio (calculated quarterly as of the
last day of the applicable fiscal quarter for the four
consecutive fiscal quarters immediately preceding the date of
calculation) exceeded 2.25 to 1.00."
1.3 Article I of the Credit Agreement is hereby amended by
adding thereto the following additional defined terms:
"`First Amendment Initial Pricing Period' means the period
from and including the effective date of the First Amendment
to this Credit Agreement to and including the First Amendment
Rate Adjustment Date."
"`First Amendment Rate Adjustment Date' means the date which
is two Business Days following the date that the Lenders
receive the financial statements for the fiscal year ended
December 31, 1997, required to be delivered pursuant to
Section 6.3 hereof, together with the Compliance Certificate
in connection therewith, required to be delivered pursuant to
Section 6.4 hereof."
1.4 The definition of "Subsequent Pricing Period" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
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<PAGE> 105
"`Subsequent Pricing Period' means the period from and
including the date which is the first day following the end of
the First Amendment Initial Pricing Period to and including
the Maturity Date."
1.5 The definition of "Applicable Margin" set forth in Article
I of the Credit Agreement is hereby amended to read as follows:
"`Applicable Margin'" means the following per annum
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicable Applicable
Margin Margin with
with respect respect to
to LIBOR Base Rate
Advances Advances
-------- --------
<S> <C> <C>
(a) First Amendment Initial Pricing Period 2.25% 0.75%
(b) Subsequent Pricing Period
(1) The Funded Debt to EBITDA less CapEx 2.25% 0.75%
Ratio is greater than or equal to 4.50 to 1.00
(2) The Funded Debt to EBITDA less CapEx 1.75% 0.25%
Ratio is less than 4.50 to 1.00 but greater than
or equal to 3.50 to 1.00
(3) The Funded Debt to EBITDA less CapEx 1.50% 0.00%
Ratio is less than 3.50 to 1.00 but greater than
or equal to 2.50 to 1.00
(4) The Funded Debt to EBITDA less CapEx 1.25% 0.00%
Ratio is less than 2.50 to 1.00 but greater than
or equal to 1.50 to 1.00
(5) The Funded Debt to EBITDA less CapEx 1.00% 0.00%
Ratio is less than 1.50 to 1.00
</TABLE>
The Applicable Margin payable by the Borrower on the Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above, on a quarterly basis according to the performance of
the Borrower as tested by using the Funded Debt to EBITDA less CapEx Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the LIBOR Basis or the Base Rate Basis
shall be effective with
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<PAGE> 106
respect to Advances (i) made following receipt by the Administrative Lender of
the financial statements required to be delivered pursuant to Section 6.2 or 6.3
hereof, as applicable, for each such fiscal quarter, and the corresponding
Compliance Certificate required pursuant to Section 6.4 hereof, on the date of
making such Advance and (ii) outstanding on the date of receipt of such
financial statements and Compliance Certificate referred to in clause (i)
immediately preceding, on the date which is two Business Days following the date
of receipt of such financial statements and Compliance Certificate. If such
financial statements and Compliance Certificate are not received by the
Administrative Lender by the date required, effective as of the first Business
Day following notification thereof from the Administrative Lender to the
Borrower, the Applicable Margin with respect to LIBOR Advances and the
Applicable Margin with respect to Base Rate Advances shall be determined as if
the Funded Debt to EBITDA less CapEx Ratio is greater than 4.50 to 1.00 until
such time as such financial statements and Compliance Certificate are received."
1.6 Section 2.4(a) of the Credit Agreement is hereby deleted
in its entirety and the following is hereby substituted in lieu
thereof:
"(a) Commitment Fee. Subject to Section 11.9 hereof, the
Borrower agrees to pay to the Administrative Lender, for the
ratable account of the Lenders, a commitment fee equal to
0.250 percent per annum (provided, however, that such
commitment fee shall be equal to 0.375 percent per annum
during any period(s) of time that the Funded Debt to EBITDA
less CapEx Ratio is greater than or equal to 4.50 to 1.00)
(the "Commitment Fee") on the daily average Unused Portion
during the period commencing on the Agreement Date and ending
on the Maturity Date. The Commitment Fee shall be (i) payable
in arrears on each Quarterly Date and on the Maturity Date,
(ii) fully earned when due and, subject to Section 11.9
hereof, nonrefundable when paid and (iii) subject to Section
11.9 hereof, computed on the basis of a year of 365 or 366
days, as appropriate, for the actual number of days elapsed."
1.7 Section 7.7 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.7 Capital Expenditures. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, make or
commit to make any Capital Expenditures in an aggregate amount
in excess of (a) $7,500,000 during any period of four
consecutive fiscal quarters ending on or prior to June 30,
1998 and (b) $6,500,000 during any period of four consecutive
fiscal quarters ending after June 30, 1998."
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<PAGE> 107
1.8 Section 7.11 of the Credit Agreement is hereby
deleted in its entirety and the following is hereby substituted in lieu
thereof:
"Section 7.11 Minimum Fixed Charge Coverage Ratio. The
Borrower shall not permit the Fixed Charge Coverage Ratio to
be less than (a) 1.25 to 1.00 at the end of any fiscal quarter
ending on (and including) or prior to June 30, 1998, (b) 1.50
to 1.00 at the end of the fiscal quarter ending September 30,
1998 and (c) 1.75 to 1.00 at the end of any fiscal quarter
thereafter."
1.9 Section 7.12 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.12 Minimum Tangible Net Worth. From and after
January 1, 1998, the Borrower shall not permit the Tangible
Net Worth to be less than an amount equal to the sum of (a)
$27,000,000, plus (b) 75% of cumulative Net Income for the
period from, but not including, December 31, 1997 through the
date of calculation (but excluding from the calculation of
such cumulative Net Income the effect, if any, of any fiscal
quarter (or portion of a fiscal quarter not then ended) of the
Borrower for which Net Income was a negative number), plus (c)
90% of the Net Cash Proceeds received by the Borrower after
December 31, 1997 as a result of any offering of Equity or
pursuant to any conversion or exchange of convertible
Indebtedness or preferred Capital Stock into common Capital
Stock of the Borrower."
1.10 Section 7.13 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.13 Minimum EBITDA and Maximum Funded Debt to EBITDA
less CapEx Ratio. The Borrower shall not permit (a) EBITDA,
calculated for the four consecutive fiscal quarters
immediately preceding the date of calculation, to be less than
(i) $3,500,000, as of March 31, 1998, (ii) $3,900,000, as of
June 30, 1998 and (iii) $5,700,000, as of September 30, 1998,
or (b) the Funded Debt to EBITDA less CapEx Ratio to be
greater than 3.00 to 1.00 at the end of any fiscal quarter
ending on or after December 31, 1998."
1.11 The Lenders and the Administrative Lender hereby waive
the requirements of Section 7.13 of the Credit Agreement with respect
to, and only with the respect to, the fiscal quarter of the Borrower
ended December 31, 1997.
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<PAGE> 108
1.12 Notwithstanding anything to the contrary contained in the
Credit Agreement, for purposes of calculating the Funded Debt to EBITDA
less CapEx Ratio for any period, if the remainder of (i) EBITDA, less
(ii) the applicable amount of Capital Expenditures results in a
negative number, such negative number shall be deemed to be $1.00.
1.13 Notwithstanding anything to the contrary contained in the
Credit Agreement, during the period from September 30, 1997 through and
including the quarter ending June 30, 1998, the costs and expenses of
Hi-Tek (not to exceed $2,197,000 in the aggregate) with respect to the
acquisition of the real property described in Exhibit "A" attached
hereto and the improvements located thereon (collectively, the "Hi-Tek
Building") shall not be included as Capital Expenditures under the
Credit Agreement.
2. ADDITIONAL COVENANTS; REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT
OF DEFAULT. By its execution and delivery hereof, the Borrower and each
Guarantor covenants, agrees, represents and warrants that, as of the date hereof
and after giving effect to the amendments contemplated by the foregoing Section
1:
(a) Neither the execution and delivery of this Amendment nor the
consummation of the transactions contemplated hereby shall terminate, limit or
otherwise reduce the obligations and/or liabilities of either Guarantor under,
or in connection with, such Guarantor's guaranty of the Obligations or any other
Loan Document executed by such Guarantor, all of which obligations and
liabilities are hereby ratified and confirmed by each Guarantor;
(b) No event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) Borrower has full power and authority to execute and deliver this
First Amendment and this First Amendment, and the Credit Agreement, as amended
hereby, constitute the legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law);
(d) Each Guarantor has full power and authority to execute and deliver
this First Amendment and this First Amendment constitutes the legal, valid and
binding obligations of such Guarantor, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law); and
(e) No authorization, approval, consent, or other action by, notice to,
or filing with, any governmental authority or other Person (other than the
consent of the respective Board of Directors
- 6 -
<PAGE> 109
of each of Borrower and each Guarantor), is required for the execution, delivery
or performance by Borrower or either Guarantor of this First Amendment.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of March 30, 1998, subject to the following:
(a) the Administrative Lender shall have received a counterpart of this
First Amendment executed by each Lender;
(b) the Administrative Lender shall have received a counterpart of this
First Amendment executed by the Borrower and by each Guarantor;
(c) the Administrative Lender shall have received all of the payments
required to be made by the Borrower as of the date of this Amendment pursuant to
the terms of a certain fee letter agreement, of even date herewith, among the
Borrower and the Administrative Lender;
(d) the Administrative Lender shall have received the sum of $
__________ from the Borrower, such sum representing accrued and unpaid interest
on the Obligations attributable to the period from August 15, 1997 through and
including March 30, 1998, calculated in accordance with the provisions of
Section 1.5 of this First Amendment (it being expressly understood and agreed
among the parties hereto that the provisions of Section 1.5 of this Amendment,
and the interest rates provided therein, shall be effective with respect to the
Obligations as of August 15, 1997 notwithstanding the general effective date of
this First Amendment of March 30, 1998);
(e) the Administrative Lender shall have received the sum of $
__________ from the Borrower, such sum representing the accrued and unpaid
portion of the Commitment Fee on the Obligations attributable to the period from
August 15, 1997 through and including March 30, 1998, calculated in accordance
with the provisions of Section 1.6 of this First Amendment (it being expressly
understood and agreed among the parties hereto that the provisions of Section
1.6 of this Amendment, and the Commitment Fee provided therein, shall be
effective with respect to the Obligations as of August 15, 1997 notwithstanding
the general effective date of this First Amendment of March 30, 1998);
(f) the Administrative Lender shall have received certified resolutions
of the respective board of directors of each of the Borrower and each Guarantor
authorizing the execution, delivery and performance of this First Amendment; and
(g) the Administrative Lender shall have received, in form and
substance satisfactory to the Administrative Lender, such other documents,
certificates and instruments as the Administrative Lender shall require.
- 7 -
<PAGE> 110
4. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "herein", or words of
like import shall mean and be a reference to the Credit Agreement, as affected
and amended hereby.
(b) The Credit Agreement, as amended by the amendments referred to
above, and all other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
5. COSTS, EXPENSES AND TAXES. The Borrower agree to pay on demand all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of this First Amendment
and the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
6. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
7. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower, each Guarantor, each Lender and the
Administrative Lender and their respective successors and assigns.
8. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first above written.
-8-
<PAGE> 111
PC SERVICE SOURCE, INC.
By: /s/
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
HI-TEK SERVICES, INC.
By: /s/
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
CYCLIX ENGINEERING CORPORATION
By: /s/
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
NATIONSBANK OF TEXAS, N.A., as
Administrative Lender and as a Lender
By: /s/
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
NATIONAL CITY BANK OF KENTUCKY,
as a Lender
By: /s/
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
-9-
<PAGE> 1
PC SERVICE SOURCE, INC.
Exhibit 21 - Subsidiaries of the Company
<TABLE>
<CAPTION>
NAMES OF SUBSIDIARIES STATE OF INCORPORATION
--------------------- ----------------------
<S> <C>
Cyclix Engineering Corporation d/b/a PC Service Source Repair Services Texas
Hi-Tek Services, Inc. California
</TABLE>
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
PC Service Source, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 (No. 333-09333, No. 333-09335, No. 33-81146 and No. 33-98176) of PC Service
Source, Inc. of our report dated February 13, 1998, relating to the consolidated
balance sheets of PC Service Source, Inc. and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997, and related financial statement schedule, which
report appears in the December 31, 1997 Form 10-K of PC Service Source, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 717
<SECURITIES> 0
<RECEIVABLES> 16,950
<ALLOWANCES> (977)
<INVENTORY> 17,511
<CURRENT-ASSETS> 37,157
<PP&E> 20,556
<DEPRECIATION> (7,030)
<TOTAL-ASSETS> 55,158
<CURRENT-LIABILITIES> 13,420
<BONDS> 8,695
0
0
<COMMON> 59
<OTHER-SE> 32,275
<TOTAL-LIABILITY-AND-EQUITY> 55,158
<SALES> 125,796
<TOTAL-REVENUES> 131,843
<CGS> 86,747
<TOTAL-COSTS> 94,159<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 739
<INCOME-PRETAX> 170
<INCOME-TAX> 64
<INCOME-CONTINUING> 106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>F1 Provision for doubtful accounts and inventory provision included in total
costs.
</FN>
</TABLE>
