<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------------- -----------------------
COMMISSION FILE NUMBER 1-12607
KRUG INTERNATIONAL CORP.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 31-0621189
- ------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
900 Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(770) 933-7000
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
filings requirements for the past 90 days.
Yes [X] No [ ]
The number of Common Shares, without par value, outstanding as of
November 5, 1999 was 4,976,285.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------- --------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,450 $ 2,680
Restricted cash (Note 2) -- 6,641
Receivables - net 5,028 7,174
Inventories 4,691 4,959
Prepaid expenses 974 778
------- --------
Total Current Assets 15,143 22,232
Property, Plant and Equipment, At Cost 11,760 11,724
Less accumulated depreciation 6,148 5,796
------- --------
Property, Plant and Equipment - Net 5,612 5,928
Pension Asset 1,516 1,567
Other Assets 60 15
------- --------
Total Assets $22,331 $ 29,742
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ 850 $ --
Accounts payable 7,234 10,129
Accrued expenses 3,086 4,345
Income taxes 82 199
Net current liabilities of discontinued operations 150 400
Current maturities of long-term debt 726 5,347
------- --------
Total Current Liabilities 12,128 20,420
Long-term Debt 2,085 931
Net Non-Current Liabilities of Discontinued Operations 1,078 911
------- --------
Total Liabilities 15,291 22,262
Shareholders' Equity:
Common shares, no par value:
Issued and outstanding, 4,976,285 at September 30, 1999
and 5,256,230 at March 31, 1999 2,488 2,628
Additional paid-in capital 3,604 4,829
Retained earnings 831 1,589
Treasury shares, at cost, 278,700 shares at March 31, 1999 -- (1,363)
Accumulated other comprehensive income (loss) 117 (203)
------- --------
Total Shareholders' Equity 7,040 7,480
------- --------
Total Liabilities and Shareholders' Equity $22,331 $ 29,742
======= ========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 3
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Revenues $ 11,941 $ 13,368
Cost of Goods Sold 10,315 12,993
Selling and Administrative Expenses 1,711 2,210
Restructuring Charges -- 99
-------------------------
Operating Loss (85) (1,934)
Other Income (Expense):
Interest expense (99) (166)
Interest income 60 183
Other income - net 33 --
-------------------------
Loss Before Income Taxes (91) (1,917)
Income Tax Expense 74 45
-------------------------
Net Loss $ (165) $ (1,962)
=========================
Net Loss Per Share:
Basic $ (0.03) $ (0.39)
=========================
Diluted $ (0.03) $ (0.39)
=========================
Average Common Shares Outstanding:
Basic 4,977 5,028
=========================
Diluted 4,977 5,028
=========================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 4
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Revenues $ 23,369 $ 25,112
Cost of Goods Sold 20,285 23,922
Selling and Administrative Expenses 3,518 4,225
Restructuring Charges 222 198
-------------------------
Operating Loss (656) (3,233)
Other Income (Expense):
Interest expense (156) (308)
Interest income 142 299
Equity in loss of Wyle Laboratories, Inc. -- (123)
Other income - net 34 176
-------------------------
Loss From Continuing Operations
Before Income Taxes (636) (3,189)
Income Tax Expense 122 7
-------------------------
Loss From Continuing Operations (758) (3,196)
Earnings From Discontinued Operations
(net of tax of $55) -- 348
-------------------------
Net Loss $ (758) $ (2,848)
=========================
Loss Per Share:
Continuing Operations:
Basic $ (0.15) $ (0.63)
=========================
Diluted $ (0.15) $ (0.63)
=========================
Net Loss:
Basic $ (0.15) $ (0.56)
=========================
Diluted $ (0.15) $ (0.56)
=========================
Average Common Shares Outstanding:
Basic 4,977 5,112
=========================
Diluted 4,977 5,112
=========================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 5
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
------------------------
<S> <C> <C>
Net Cash Used in Operating Activities $(2,107) $ (421)
Cash Flows From Investing Activities:
Expenditures for property, plant and equipment (111) (203)
Proceeds from sale of Sowester Limited - net -- 8,342
Proceeds from sale of land -- 188
Other -- (132)
------------------------
Net Cash Provided by (Used in) Investing Activities (111) 8,195
Cash Flows From Financing Activities:
Purchase of treasury stock (2) (1,363)
Bank borrowings - net 828 --
Payments on long-term debt (3,555) (640)
Proceeds from exercise of stock options -- 268
------------------------
Net Cash Used in Financing Activities (2,729) (1,735)
Effect of Exchange Rate Changes on Cash 76 248
------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (4,871) 6,287
Restricted Cash, Cash and Cash Equivalents at Beginning of Period 9,321 4,205
------------------------
Restricted Cash, Cash and Cash Equivalents at End of Period $ 4,450 $ 10,492
========================
Cash Paid For:
Income Taxes $ 170 $ 325
========================
Interest $ 167 $ 314
========================
Non-Cash Investing and Financing Activities:
Capital leases $ 40 $ 863
========================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 6
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
NOTE 1. -- BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements for the three
months ended September 30, 1999 have been prepared in accordance with Rule 10-01
of Regulation S-X of the Securities and Exchange Commission and, as such, do not
include all information required by generally accepted accounting principles.
These Condensed Consolidated Financial Statements should be read in conjunction
with the consolidated financial statements included in the Corporation's Annual
Report on Form 10-K filed on June 18, 1999. In the opinion of management, the
Condensed Consolidated Financial Statements, which are unaudited, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position and results of operations for the periods
indicated. The results of operations for the three and six months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other interim period.
NOTE 2. -- BANK BORROWINGS AND LONG-TERM DEBT
Long-Term Debt:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------- -------
<S> <C> <C>
U.K. Term Loan $ 1,482 $ 1,571
U.K. Variable Rate Loan -- 3,236
Capital leases 1,066 1,161
Finland Loan 209 256
Other 54 54
------- -------
Total 2,811 6,278
Less current maturities (726) (1,539)
U.K. loans reclassified -- (3,808)
------- -------
Long-term portion $ 2,085 $ 931
======= =======
</TABLE>
In September 1999, the Corporation refinanced its U.K. debt. A working
capital line of approximately $4,500 was established with a U.K. bank. The
availability under the line is based upon the current levels of U.K. accounts
receivable and will fluctuate with increases or decreases in eligible accounts
receivable. Borrowing under this line was $850 at September 30, 1999. In
conjunction with the refinancing, the U.K. Variable Rate Loan was repaid and
restrictions on approximately $4,100 of the Corporation's U.K. cash were
removed. The Corporation had previously agreed to keep cash on deposit at the
bank until the refinancing was completed due to violations of certain tangible
net worth and cash flow covenants in the U.K. Variable Rate and Term Loans. The
Corporation was not in compliance with certain covenants of the U.K. Term Loan
at September 30, 1999, but received a waiver dated October 15, 1999 of the
covenant violations from the bank. The covenants of the U.K. Term Loan were
subsequently renegotiated and the Corporation projects it will be in compliance
with the new covenants at the end of the current fiscal year, the date on which
the waiver of the covenant violation lapses.
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. -- INVENTORIES
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------ ------
<S> <C> <C>
Finished goods $1,391 $1,498
Work-in-process 940 965
Raw materials and supplies 2,360 2,496
------ ------
$4,691 $4,959
====== ======
</TABLE>
NOTE 4. -- INCOME TAXES
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1999 1998
------ ------
<S> <C> <C>
Domestic $ -- $ --
Foreign 74 45
------ ------
$ 74 $ 45
====== ======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
September 30,
---------------------
1999 1998
------ ------
<S> <C> <C>
Domestic $ -- $ --
Foreign 122 7
------ ------
$ 122 $ 7
====== ======
</TABLE>
NOTE 5. -- OTHER INCOME - NET
During the six months ended September 30, 1998, the Corporation sold
land in Dayton, Ohio for a pre-tax gain of $176. This property was excess to the
Corporation's needs and had been listed for sale.
NOTE 6. -- RESTRUCTURING CHARGES
The Corporation recorded a restructuring charge of $222 for severance
paid to 18 terminated employees of the European child safety segment in the six
months ended September 30, 1999.
The following is a summary of the provision for restructuring charges:
<TABLE>
<S> <C>
Balance at March 31, 1999 $ 680
Provision for European Child Safety restructuring 222
Payments for lease exit costs of vacated Housewares facility (599)
Payments for European Child Safety restructuring (222)
Other usage (35)
-----
Balance at September 30, 1999 $ 46
=====
</TABLE>
The balance at September 30, 1999 represented the estimated final
expenses of a leased office in Dayton, Ohio, which was vacated in October 1996.
The lease ended on June 25, 1999, but certain costs related to the removal of
furniture and fixtures have not been finalized.
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. -- DISCONTINUED OPERATIONS
In prior years, the Corporation discontinued the operations and
disposed of substantially all of the net assets of its Industrial segment.
Remaining obligations related to this segment consist primarily of product
liability claims related to products sold before the disposal of the Industrial
Segment. Obligations under leases of property in Knoxville, Tennessee (which
expired December 31, 1998) were settled with the landlord in August 1999 with no
gain or loss recognized as a result of the settlement.
On April 16, 1998, the Corporation sold its Leisure Marine subsidiary
to a company formed by the management of the segment. The purchase price was
approximately $15,000, comprised of approximately $8,900 in cash and the
assumption of approximately $6,100 of debt. As a result of the disposal, the
Corporation reported a gain of $348 under discontinued operations for the six
months ended September 30, 1998.
NOTE 8. -- TREASURY SHARES
On April 9, 1999, the directors of the Corporation voted to retire the
278,700 common shares held as treasury shares by the Corporation. On September
24, 1999, the directors of the Corporation voted to retire 1,245 common shares
purchased by the Corporation in September 1999.
NOTE 9. -- COMPREHENSIVE INCOME
Effective April 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in financial statements. This Statement also
requires that an entity classify items of other comprehensive earnings by their
nature in an annual financial statement. Other comprehensive earnings for the
Corporation includes foreign currency translation adjustments. Total
comprehensive income (loss) for the following periods were as follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
September 30, September 30,
1999 1998
----- -------
<S> <C> <C>
Net loss: $(165) $(1,962)
Other comprehensive
income net of tax:
Change in equity due to
foreign currency
translation adjustments 745 155
----- -------
Comprehensive income (loss) $ 580 $(1,807)
===== =======
</TABLE>
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. -- COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
September 30, September 30,
1999 1998
----- -------
<S> <C> <C>
Net loss: $(758) $(2,848)
Other comprehensive
income net of tax:
Change in equity due to
foreign currency
translation adjustments 320 30
----- -------
Comprehensive loss $(438) $(2,818)
===== =======
</TABLE>
NOTE 10. -- DOMESTIC DEFINED BENEFIT PENSION PLAN
On July 1, 1999, the directors of the Corporation rescinded the
previously approved termination of the Corporation's domestic defined benefit
pension plan due to changes in business conditions and the economic environment
over the past year.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CERTAIN CAUTIONARY STATEMENTS
In addition to historical information, Items 1 and 2 of this document
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 including, without limitation,
statements regarding management's outlook for each of its businesses, the
sufficiency of the Corporation's liquidity and sources of capital and the impact
of Year 2000 issues. These forward-looking statements are subject to certain
risks, uncertainties and other factors which could cause actual results,
performance and achievements to differ materially from those anticipated,
including, without limitation, general economic and business conditions in the
U.S. and abroad, restrictions imposed by debt agreements, competition in the
housewares and child safety businesses, governmental budgetary constraints, the
regulatory environment for the Corporation's businesses, competition in the
acquisition market, changes in exchange rates, increases in prices of raw
materials and services, the purchasing practices of significant customers, the
availability of qualified management and staff personnel in each subsidiary, the
functionality of the Corporation's computer systems, claims for product
liability from continuing and discontinued operations and the operating
performance of minority-owned affiliates.
GENERAL
During March 1998, the Corporation merged KRUG Life Sciences Inc. and
Technology/Scientific Services, Inc., its two subsidiaries which comprised the
Life Sciences and Engineering segment, with Wyle Laboratories, Inc. ("Wyle") in
exchange for a 38% equity interest in Wyle plus cash and the assumption of debt.
The Corporation is reporting for the six months ended September 30, 1999 and
1998, respectively, its equity in Wyle's income or loss as a single line item in
its condensed consolidated statements of earnings pursuant to APB No. 18.
The Corporation previously announced that it had reached a definitive
agreement to sell its Wyle Series A Preferred Stock for $4,125 and to exchange
non-dividend paying Series B Preferred Stock currently held by the Corporation
for new 8% Senior Preferred Stock in Wyle's new holding company with a
redemption price of approximately $950 in 2003. The closing date of the sale has
been extended until November 30, 1999. Wyle has indicated to the Corporation
that it expects to complete financing for the transaction and purchase of the
Corporation's shares pursuant to the previously announced agreement. Closing of
the sale is subject to the purchaser's ability to complete financing for the
purchase of the Corporation's shares and substantially all equity held by other
non-employee stockholders as well as certain other conditions. Accordingly,
there can be no assurance that the transaction will close or will be on terms
contained in the definitive agreement.
In April 1998, the Corporation sold its Leisure Marine subsidiary and
the results of operations of the segment are included in discontinued operations
for the six months ended September 30, 1998.
<PAGE> 11
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Housewares $ 7,993 $ 9,482 $ 15,674 $ 17,737
Child Safety 3,948 3,886 7,695 7,375
-------- -------- -------- --------
$ 11,941 $ 13,368 $ 23,369 $ 25,112
======== ======== ======== ========
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES:
Housewares $ 186 $ (787)(b) $ 259 $ (1,167)(b)
Child Safety 182 (439) (4)(a) (909)
-------- -------- -------- --------
368 (1,226) 255 (2,076)
Corporate Expense (453) (708) (911) (1,157)
-------- -------- -------- --------
Operating Loss (85) (1,934) (656) (3,233)
Interest expense (99) (166) (156) (308)
Interest income 60 183 142 299
Equity in loss of Wyle
Laboratories, Inc. -- -- -- (123)
Other income - net 33 -- 34 176
-------- -------- -------- --------
Loss from Continuing
Operations before Income
Taxes $ (91) $ (1,917) $ (636) $ (3,189)
======== ======== ======== ========
</TABLE>
(a) Includes restructuring charge of $222 for the six months ended
September 30, 1999.
(b) Includes restructuring charge of $99 and $198 for the three and six
months ended September 30, 1998, respectively.
RESULTS OF OPERATIONS
Revenues of the European housewares segment for the second quarter of
fiscal 2000 decreased by $1,489 or 15.7% to $7,993 from $9,482 for the same
quarter in fiscal 1999. The decreased revenues resulted from the loss of certain
customer listings in fiscal 1999 caused by the segment's manufacturing
difficulties last year and by the unfavorable effect of foreign currency
translation of $237. Revenues of the European child safety segment for the
second quarter of fiscal 2000 increased by $62 or 1.6% to $3,948 from $3,886 in
the same quarter of fiscal 1999. Increased sales resulted from the redesigned
child safety seats that were introduced in August 1998. The sales volume
increase was partially offset by a $117 decrease due to the unfavorable effect
of foreign currency translation. Revenues of the European housewares segment for
the six months ended September 30, 1999 decreased by $2,063 or 11.6% to $15,674
from $17,737 for the same period last year. Lower sales of all product lines
except child safety gates and the unfavorable effect of foreign currency
translation of $469 caused the decreased revenues of the segment. Revenues of
the European child safety segment for the six months ended September 30, 1999
increased by $320 or 4.3% to $7,695 from $7,375 from the same period last year.
The increased revenues were due to the introduction of the redesigned child
<PAGE> 12
safety seats, which were partially offset by a $230 decrease due to the
unfavorable effect of foreign currency translation.
The Corporation recorded a restructuring charge of $222 in the six
months ended September 30, 1999 for severance paid to 18 terminated employees of
the European child safety segment. The reduction in staff was made to eliminate
the duplication of services at certain locations and to streamline the delivery
of the segment's products to customers. In the three and six months ended
September 30, 1998, the Corporation recorded restructuring charges of $99 and
$198, respectively, for costs related to a facility vacated by the European
housewares segment.
Gross profit margin (revenue less cost of goods sold) increased to
13.6% for the quarter ended September 30, 1999 from 2.8% for the same quarter of
the previous fiscal year. The housewares segment gross profit margin was 9.4%
for the quarter ended September 30, 1999, compared to zero gross profit for the
same quarter last year. The increase in the current year is the result of
increased operational efficiencies at the housewares segment's manufacturing
facility which resulted from the organizational changes made during the second
half of fiscal 1999. The child safety segment gross profit margin increased to
19.3% from 12.6% from the same quarter last year. Increased sales volume due to
the redesigned child safety seats and operating efficiencies resulting from the
restructuring of the segment in the first quarter of fiscal 2000 have resulted
in the increased gross profit margin. Gross profit margin for the six months
ended September 30, 1999 increased to 13.2% compared to 4.7% for the same six
months last fiscal year. The housewares segment gross profit margin for the six
months increased to 9.2% from 1.7% and the child safety segment margin increased
to 18.3% compared to 12.0% for the same period last year. The improved gross
profit margins are the result of the changes made by the new management of the
two segments over the past twelve months to improve operating efficiencies and
reduce overhead costs.
Selling and administrative expense decreased by $499 in the quarter
ended September 30, 1999 from the same quarter of the previous fiscal year and
by $707 for the six months ended September 30, 1999 compared to the same period
last fiscal year. The decreased expense resulted from overhead reductions at the
housewares and child safety segments over the past year to reduce their
breakeven cost levels in response to lower than anticipated sales levels.
Selling and administrative expenses include costs relating to the Corporation's
exchange offer, which expired on September 17, 1999, of $124 and $162,
respectively, for the quarter and six months ended September 30, 1999.
Interest expense decreased $67 in the quarter ended September 30, 1999
from the same quarter of the previous fiscal year and by $152 for the six months
ended September 30, 1999 compared to the same period last fiscal year. Interest
expense has decreased in the current year as a result of lower U.K. interest
rates and reduced U.K. debt levels. Interest income decreased $123 in the
quarter ended September 30, 1999 from the same quarter of the prior year and by
$157 for the six months ended September 30, 1999 compared to the same period
last fiscal year. The decreased interest income resulted from lower levels of
cash invested and lower interest rates earned.
The Corporation recognized $123 as its portion of Wyle's losses in the
first half of fiscal 1999 under the equity method of accounting. At September
30, 1999, the book value of the Corporation's investment in Wyle was zero as a
result of recording a portion of Wyle's losses against the carrying value of the
investment. The Corporation's proportional share of losses incurred by Wyle
subsequent to the carrying value of the investment being reduced to zero are not
recorded by the Corporation but must be offset by an equal amount of earnings
before future income, if any, from the investment can be recognized. The
Corporation has announced it has
<PAGE> 13
reached an agreement to sell its Wyle Series A Preferred Stock. See the
"General" section above for further discussion of this agreement.
Income tax expense of $74 and $122 was recorded for the quarter and six
months ending September 30, 1999, respectively, for income taxes on profits in
Finland and Sweden. No tax benefit has been recognized for current losses in the
U.K., Germany and the U.S. The Corporation currently believes their future usage
is less likely than not. The Corporation recorded an income tax expense of $45
in the fiscal 1999 second quarter and $7 for the six months ended September 30,
1998. The tax benefit is substantially less than the statutory tax rate due to
losses incurred in the U.K., Germany and U.S. for which current tax benefits
were not recognized due to the future usage of these losses being considered
less likely than not.
The loss from continuing operations was $165 ($0.03 per share) in the
second quarter of fiscal 2000 compared to a loss of $1,962 ($0.39 per share) in
the second quarter of fiscal 1999. The loss was substantially reduced in the
current year primarily due to the operating profits of the European housewares
and child safety segments compared to large operating losses by both segments in
the comparable quarter of last year. The loss from continuing operations was
$758 ($0.15 per share) for the six months ended September 30, 1999 compared to a
loss of $3,196 ($0.63 per share) for the comparable period last year.
DISCONTINUED OPERATIONS
On April 16, 1998, the Corporation sold its Leisure Marine subsidiary
to a company formed by the management of the subsidiary. The purchase price was
approximately $15,000 comprised of approximately $8,900 in cash and the
assumption of approximately $6,100 of debt. As a result of the disposal, the
Corporation reported a gain of $348 under discontinued operations for the six
months ended September 30, 1998.
In fiscal 1989, the Corporation discontinued the operations of its
Industrial segment and subsequently disposed of substantially all related net
assets. However, obligations remain relating to product liability claims for
products manufactured and sold before the disposal of the segment. The
Corporation reviewed the provision for losses from such discontinued operations
during the quarter and no changes were deemed necessary. Obligations under
leases of property in Knoxville, Tennessee (which expired December 31, 1998)
were settled with the landlord in August 1999 with no gain or loss recognized as
a result of the settlement.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation used $2,107 of cash in operating activities during the
first six months of fiscal 2000. Cash was used to provide working capital for
the European operations (primarily to reduce accounts payable balances and pay
restructuring expenses), to fund corporate expenses and to pay U.S. income
taxes.
In September 1999, the Corporation refinanced its U.K. debt. A working
capital line of approximately $4,500 was established with a U.K. bank. The
availability under the line is based upon the current levels of U.K. accounts
receivable and will fluctuate with increases or decreases in eligible accounts
receivable. Borrowing under this line was $850 at September 30, 1999. In
conjunction with the refinancing, the U.K. Variable Rate Loan, which had an
outstanding balance of approximately $2,900, was repaid and restrictions on
approximately $4,100 of the Corporation's U.K. cash were removed. The
Corporation had previously agreed to keep cash on deposit at the bank until the
refinancing was completed due to covenant violations under the U.K. Variable
Rate and Term Loans. At September 30, 1999, the Corporation had $1,482
outstanding under the U.K. Term Loan relating to the Beldray Ltd. manufacturing
facility which
<PAGE> 14
has quarterly principal payments and matures in fiscal 2005. The Corporation
was not in compliance with certain covenants of the U.K. Term Loan at September
30, 1999, but received a waiver dated October 15, 1999 of the covenant
violations from the bank. The covenants of the U.K. Term Loan were subsequently
renegotiated and the Corporation projects it will be in compliance with the new
covenants at the end of the current fiscal year, the date on which the waiver of
the covenant violation lapses. At September 30, 1999, the Corporation had no
outstanding U.S. debt. The Corporation believes it has adequate financing in
both the U.S. and U.K. to support its current level of operations.
IMPACT OF THE YEAR 2000 ISSUE
Some older computer programs and systems were written using two digits
rather than four to define the applicable year (for example, 98 to denote 1998).
As a result, those computer programs have software which may recognize a date
using "00" as the year 1900 rather than the year 2000. This may result in
computer system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, engage in manufacturing processes, or continue similar normal
business activities.
State of Readiness - The Corporation recognizes the importance of the
Year 2000 issues and has given high priority to the planning and implementation
of Year 2000 solutions, including contingency planning. The Corporation has
underway a Year 2000 project to identify the programs and infrastructure that
could be affected by the Year 2000 issues and is implementing a plan to resolve
on a timely basis the problems identified. The Corporation's Year 2000 plan
generally may be broken into five interrelated phases: (i) evaluating existing
information technology ("IT") and non-IT systems of the Corporation, (ii)
implementing corrective actions to such systems (including testing), where
appropriate, (iii) evaluating the Corporation's exposure to third parties'
failures to adequately address Year 2000 issues, (iv) developing contingency
plans with respect to such exposure, and (v) on-going vigilance with respect to
Year 2000 developments. As mentioned, the scope of the Year 2000 project
includes (i) IT systems such as software and hardware; (ii) non-IT systems or
embedded technology such as micro-controllers contained in various manufacturing
systems; and (iii) the readiness of key third parties, including suppliers and
customers, and electronic data interchange with those key third parties. The
evaluation phase of the Year 2000 project includes identifying IT and non-IT
systems or components that might malfunction or fail as a result of the Year
2000 issues.
The Corporation currently has three primary operating locations
(Bilston, England, Carlisle, England and Helsinki, Finland) and each location
has a designated person responsible for coordinating Year 2000 issues for that
location. At the largest location, Bilston, England, the IT system is less than
two years old and the IT system, when purchased, was reviewed for Year 2000
compliance. The other two locations are smaller and will require new IT systems
(primarily local area networks) for approximately 25 users at each location.
Such new IT systems will be installed by the end of 1999. The non-IT systems
identified are primarily manufacturing and assembly systems. Key third parties
have been and will continue to be contacted to minimize the disruptions in the
relationship between the Corporation and such third parties because of the Year
2000 issues. While the Corporation cannot guarantee compliance of third parties,
the Corporation will consider alternate sources of supply in the event a key
supplier cannot demonstrate its systems or products are Year 2000 compliant.
The Year 2000 project requires the Corporation to devote considerable
internal resources and hire consultants to assist with the implementation and
monitoring of the plan, and will require the replacement of certain equipment
and replacement or modification of certain software. The Corporation will also
be working with its customers and suppliers to ensure business continuity during
the potential problem period. In order to validate systems for Year 2000
readiness (both IT and non-IT systems), the Corporation has performed a number
of
<PAGE> 15
procedures, each as appropriate for the system being verified. For IT systems,
the Corporation has, where it is able, simulated the date change to the year
2000 by resetting the system date to December 31, 1999 and then monitoring the
effects of the date change. For non-IT systems, the Corporation has been in
correspondence with the vendor or manufacturer and sought verification from them
that the system has been tested and not failed under Year 2000 conditions. Where
the Corporation has any doubt about the system's ability to deal correctly with
Year 2000 issues, contingency planning has been performed to evaluate the impact
on the business, alternatives to the system in question have been discussed and
the need for replacement considered. In addition, the manufacturers of all
equipment containing embedded circuitry purchased since November 1998 have
confirmed to the Corporation that such equipment was Year 2000 compliant before
the equipment was accepted. The Corporation has tested all IT systems and all of
the non-IT systems that can be tested, but the non-IT systems tested account for
only approximately 20% of all non-IT systems that may be affected by Year 2000
issues.
The state of completion of each of the five phases and the
Corporation's action plan is as follows:
Evaluating existing IT and non-IT systems of the Corporation - This has
been completed.
Implementing corrective actions to such systems (including testing) -
The Corporation is currently testing the systems and the testing is
substantially completed.
Evaluating the Corporation's exposure to third parties' failures to
adequately address Year 2000 issues - The Corporation is currently inquiring of
significant third parties as to their Year 2000 preparedness. Significant
suppliers, customers and service providers have been contacted and evaluated and
will continue to be evaluated as to their Year 2000 preparedness.
Developing contingency plans with respect to such exposure -
Contingency plans have been completed.
On-going vigilance with respect to Year 2000 developments - This
on-going process will not be fully completed until after the significant Year
2000 dates, both prior to January 1, 2000 and after, have passed.
Costs to Address the Year 2000 Issues - The Corporation currently
estimates that the total cost of its Year 2000 project will be approximately
$200, including the cost of capital expenditures. Approximately $75 of the total
costs has yet to be spent. These costs include $100 of normal system software
and equipment upgrades and replacements, which the Corporation anticipated
incurring in the ordinary course of business without regard to the Year 2000
issues.
Risks to the Corporation of the Year 2000 Issues - If the Corporation's
plan to address the Year 2000 issues is not successful or is not timely
implemented, the Corporation may need to devote more resources to the process
and additional costs may be incurred which could have a material adverse effect
on the Corporation's financial condition and results of operations. Problems
with the Year 2000 issues encountered by the Corporation's vendors and customers
may also have a material adverse effect of an uncertain magnitude on the
Corporation's financial condition and results of operations.
The Corporation's Contingency Plans - As a component of its Year 2000
project, the Corporation has developed contingency plans to mitigate any
projected effects of problems experienced by it, key vendors and service
providers and customers in the timely implementation of solutions to Year 2000
problems. The Corporation has completed the contingency plans for each of the
three operating locations and will continue to correspond with its key vendors
and service suppliers and customers regarding their compliance plans for the
Year 2000 issues.
<PAGE> 16
The estimated costs of the Corporation's Year 2000 project and the
dates by which the Corporation expects to complete portions of its Year 2000
compliance program are based on management's best estimates and reflect
assumptions regarding the availability and cost of personnel trained in this
area, the compliance plans of third parties, and similar uncertainties. However,
due to the complexity and pervasiveness of the Year 2000 issues and, in
particular, the uncertainty regarding the compliance programs of third parties,
no assurance can be given that these estimates can be achieved and actual
results could differ materially from those anticipated.
THE EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the
European Union ("EU") established fixed conversion rates through the European
Central Bank ("ECB") between their existing local currencies and the Euro, the
EU's single currency. The Euro was adopted as their common legal currency on
that date. The Corporation currently operates in three countries which adopted
the Euro (Finland, France and Germany) and sells from the United Kingdom to
certain countries which adopted the Euro. The Corporation believes that the
adoption of the Euro has not had a material effect on the operations of its
European businesses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 31, 1998, Springdale Partners, Ltd., an Ohio Limited
Liability Company, and Mada Corporation ("Mada") filed a Complaint in the
Chancery Court of Knox County, Tennessee, naming KRUG International Corp. and
KRUG Properties Inc. ("KRUG Properties") as defendants. The suit related to
industrial property in Knoxville, Tennessee, that the Corporation sold to
Springdale Partners, an Ohio General Partnership, in December 1983. As part of
the transaction, KRUG Properties leased back a portion of the property from
Springdale Partners and the Corporation and KRUG Properties guaranteed the
obligations of Mada, the lessee of the other portion of the property. Mada was
required to use all reasonable efforts to sublease its portion of the property
on terms and conditions approved by the Corporation. As part of the purchase
price, Springdale Partners executed a $200,000 promissory note payable to the
Corporation due on December 31, 1998, which Springdale Partners failed to pay.
As part of its obligations, the Corporation was required to maintain the portion
of the property that it leased and return it on December 31, 1998 in as good
condition as it was in at the beginning of the lease, excluding ordinary wear
and tear and obsolescence. On January 25, 1999, the Corporation and KRUG
Properties filed a Complaint in the Common Pleas Court of Montgomery County,
Ohio, relating to this action and naming Springdale Partners, its general
partners and Mada as defendants. This case involves substantially the same
factual situation as the Knox County, Tennessee, case. On August 24, 1999, the
parties settled this matter by executing mutual global releases. As part of the
settlement, the Corporation received cash totaling $150,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 10.1 - Invoice Discounting Agreement (recourse)
Between Lombard NatWest Discounting Limited and Beldray
Limited, dated September 27, 1999.
(B) Exhibit 10.2 - Invoice Discounting Agreement (recourse)
Between Lombard NatWest Discounting Limited and Klippan
Limited, dated September 27, 1999.
(C) Exhibit 10.3 - Stock Purchase Agreement Between KRUG
International Corp. and Wyle Laboratories, Inc., dated
September 24, 1999.
(D) Exhibit 10.4 - Exchange Agreement Between KRUG International
Corp. and LTS Holdings, Inc., dated September 24, 1999.
(E) Exhibit 10.5 - Extension of Closing Date of Stock Purchase
Agreement and Exchange Agreement Between KRUG International
Corp., Wyle Laboratories, Inc. and LTS Holdings, Inc., dated
October 29, 1999.
(F) Exhibit 27 - Financial Data Schedule.
(G) Reports on Form 8-K - None.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
KRUG International Corp. has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
KRUG International Corp.
By: /s/ Mark J. Stockslager
---------------------------------
Mark J. Stockslager
Principal Accounting Officer
Dated: November 10, 1999
<PAGE> 1
EXHIBIT 10.1
INVOICE DISCOUNTING AGREEMENT
(RECOURSE)
BETWEEN
LOMBARD NATWEST DISCOUNTING LIMITED
AND
BELDRAY LIMITED
================================================================================
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<PAGE> 2
INVOICE DISCOUNTING AGREEMENT
ORDER OF CLAUSES
<TABLE>
<S> <C>
1. Introduction 13. Your Undertakings to Us
2. Start and Length of Relationship 14. Warranties
Between Us
15. FacFlow
3. Our Ownership of Debts,
Offers and Client Advices 16. Information For Us
4. Purchase Price of Debts 17. Termination Events
5. Limits and Percentages 18. Power to Act in Your Name
6. Decisions 19. Contacting Other Parties
7. Disputes 20. Assignment, Delegation and
Force Majeure
8. Our Accounts
21. Service of Notices and Process
9. Charges and Indemnities
22. Law and Jurisdiction
10. Repurchase
23. Interpretation of this Agreement
11. Agency
24. General
12. Trusts and Other Rights
</TABLE>
ANNEXES
SCHEDULE
CLIENT PARTICULARS
EXECUTION
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<PAGE> 3
INVOICE DISCOUNTING AGREEMENT
THIS AGREEMENT IS MADE ON: the last date shown for the signatures of the parties
at the end of this document.
BETWEEN:
(1) LOMBARD NATWEST DISCOUNTING LIMITED ("We/Us")
and
(2) THE CLIENT NAMED IN THE CLIENT PARTICULARS ("You")
1. INTRODUCTION
1.1 This Agreement applies only to those Debts specified in the Schedule at
the end of this document created by you under whatever trading name or
style you may ever carry on business. We may later extend or reduce the
scope of this Agreement to such Debts as we agree in writing signed by
both you and us. Certain words used in this document have special
meanings which are explained in the Annexe of Definitions. Their first
letter is in capitals.
1.2 You will sell to us with full title guarantee and we will purchase from
you all Debts to which this Agreement applies which are created after
the date of this Agreement and until its termination. You will also
Offer to us all Debts to which this Agreement applies which are
Outstanding on the date this Agreement is made.
2. START AND LENGTH OF RELATIONSHIP BETWEEN US
2.1 This Agreement shall start on the date it is made and it will run for
the minimum period shown in the Schedule. After the end of the minimum
period our relationship with you will then continue until ended by
either you or us giving to the other notice of at least the minimum
shown in the Schedule. Such notice may be given at any time, even
during the minimum period, provided it runs out on or after the end of
the minimum period. During any period of notice you will continue to
comply with all your obligations to us.
2.2 Should this Agreement end within the minimum period shown in the
Schedule you must pay us a sum equal to the shortfall between the
amount of the minimum commission charge that would have been earned had
this Agreement continued for the minimum period, and the commission
charges actually earned.
2.3 Should you wish to end this Agreement but give us notice of less than
the minimum shown in the Schedule we may still agree to your request,
subject to an additional fee. For each month or part of a month that
your notice falls short of the minimum notice period the fee will be
the higher of:
2.3.1 the monthly average of the commission charges earned in the
six calendar months before we agree to accept your request; or
2.3.2 one twelfth of the minimum commission charge for the twelve
calendar months before we agree to accept your request.
2.4 We can also immediately end this Agreement by giving you written notice
at any time after a Termination Event.
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<PAGE> 4
3. OUR OWNERSHIP OF DEBTS, OFFERS AND CLIENT ADVICES
3.1 As soon as possible on or after the date of this Agreement you will
deliver an Offer in respect of each Initial Debt Outstanding together
with its Related Rights. If we wish to accept an Offer, this will be
done by crediting the Notified Value of each accepted Debt to the
Receivables Purchased Account. Upon doing so our ownership of such
accepted Debt shall be complete and the Debt thereby assigned to us.
3.2 You hereby transfer to us the ownership of all Debts and in addition
you hereby assign to us all Scottish Debts (in each case together with
their Related Rights) created after the date of this Agreement until
the ending of this Agreement. Our ownership of such Debts shall be
complete and they shall vest in us the moment they are created.
3.3 During the life of this Agreement you will enter the Debts and any
relative credits onto your Customers' accounts following Delivery of
the Goods and send us a Client Advice of them, unless they are
Non-Notifiable Debts. Immediately you make any Adjustments you will
send us details of them on a Client Advice.
4. PURCHASE PRICE OF DEBTS
4.1 The Purchase Price of the Debts covered by this Agreement is to be the
amount received by us towards the discharge of the Debts but less:
4.1.1 Customers' prompt settlement discounts later claimed; and
4.1.2 any other later claimed Customers' deductions, abatements or
set-offs; and
4.1.3 the discounting charges and commission charges; and
4.1.4 all other sums due to us.
5. LIMITS AND PERCENTAGES
5.1 The Limits (except Funding Limits) shall, to start with, be as stated
in the Schedule. We may at any time increase or decrease any or all of
the Limits with immediate effect.
5.2 We will tell you of any changes to the Limits (except Funding Limits).
We can tell you by written notice, oral advice or making the same
available through FacFlow, even if no enquiry be made.
5.3 We may also set up a Funding Limit for each Customer, and will tell you
of any balance which exceeds it.
5.4 No Prepayments will be available against Debts in excess of a Funding
Limit. If, following a reduction of a Funding Limit, the amount of
Prepayments already made exceeds your Availability, the excess must be
paid back immediately to us.
6. DECISIONS
6.1 We need not give reasons for any of our decisions and all decisions and
information given by us are confidential. You must treat any
information regarding Funding Limits as legally privileged and will
indemnify us against all claims arising from breach of your duty of
confidentiality. You must not take Funding Limits as our view of the
creditworthiness or otherwise of a Customer. We do not operate a credit
reference service.
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<PAGE> 5
7. DISPUTES
7.1 If any Customer disputes a Debt or his liability to pay by its due date
or asserts any counterclaim or claim for reduction of or retention or
set-off against a Debt (except for a settlement discount not exceeding
7.5%), then:
7.1.1 you must promptly give us full details; and
7.1.2 you must do your best to settle all such disputes and claims
promptly and directly with your Customers.
7.2 You must promptly raise a credit note if a Customer is entitled to one.
Unless we have brought clause 7.3 into effect you must immediately
deliver the credit note to the Customer and include its details on your
next Client Advice. The credit note will be debited to the Receivables
Purchased Account.
7.3 We may at any time write and tell you either that no credit notes can
be despatched to your Customers without our prior consent or that any
credit notes must be sent to us for our consent before we then despatch
them.
7.4 Clauses 7.1 to 7.3 shall not affect those rights which we may have
because this Agreement has been breached.
8. OUR ACCOUNTS
8.1 The Notified Value of all Debts will be credited to our account known
as the "Receivables Purchased Account". The balance on this account is
our record of the prospective Purchase Price of Debts before any of the
deductions used under clause 4.1 to calculate the Purchase Price.
8.2 You may also take Prepayments from us in respect of Debts credited to
the Receivables Purchased Account. These payments will be debited to
both the Receivables Purchased Account and to the Memorandum
Discounting Statement. The amount taken must not exceed either your
Availability or the Prepayment review level shown in the Schedule. Your
Availability will immediately be affected if any Debt later becomes an
Ineligible Debt.
8.3 We may debit the Receivables Purchased Account and the Memorandum
Discounting Statement with all other sums you owe us. If the debit
balance on the Memorandum Discounting Statement results in a negative
Availability you must immediately pay the excess to us without our
having to ask you.
8.4 The value of any Remittance received by us will be credited to the
Memorandum Discounting Statement with an effective date for calculating
discounting charges as follows:
8.4.1 if in cleared funds by electronic means to the specific
account we tell you for such purpose - the same calendar day
that we receive the Remittance;
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<PAGE> 6
8.4.2 other Remittances paid into our bank account - four calendar
days after the date of lodgement by you of such Remittance,
provided:
- for FacFlow users, you record the lodgement in
FacFlow on the same date it is made and tell us by
means of a FacFlow Transmission within such four
calendar day period. If your FacFlow Transmission
takes place later, the effective date for calculating
discounting charges will be the date of this
transmission; or
- for non FacFlow users, we receive a duplicate bank
paying-in slip, duly stamped by the receiving bank,
within the four calendar day period. If we receive
the paying-in slip later, the effective date for
calculating discounting charges will be the date of
such receipt.
8.5 The balance on the Memorandum Discounting Statement will reflect:
8.5.1 payments taken by you;
8.5.2 any sums owed by you to us; and
8.5.3 any Remittances received by us.
8.6 If the Memorandum Discounting Statement shows a credit balance we will
normally pay this to you without your asking us but, at our discretion,
we may withhold amounts equal to:
8.6.1 any credit balances on Customers' accounts; and
8.6.2 the amount of Your Responsibility.
8.7 We cannot let you take any credit balance from your Memorandum
Discounting Statement after we have been told of the issue of a
petition for your sequestration, bankruptcy or winding up. Provided
that we do not exercise any of our rights under clause 17 we shall need
to see a court order dismissing the petition before starting payments
again.
8.8 We may at any time add together the balances on all accounts recording
transactions between you and us. We may also at any time apply or
set-off any amounts owing by you to us and the amount of Your
Responsibility against any amounts owing by us to you. Where any
amounts due by you to us, including those prospectively and
contingently due, cannot immediately be found out we may make a
reasonable estimate.
8.9 We will provide you with statements of the Receivables Purchased
Account and the Memorandum Discounting Statement. These shall be
treated as correct and binding upon you, except for those errors which
shall be obvious or contrary to law or where we receive your written
notice within 10 days of our despatch of such statements to you.
8.10 You will accept a certificate signed by our Company Secretary or a
director of ours as to all or any of the following on the date referred
to in the certificate:
8.10.1 the balance on the Memorandum Discounting Statement;
8.10.2 the balance on the Receivables Purchased Account;
8.10.3 any loss or damage suffered by us;
8.10.4 the amount of Your Responsibility;
8.10.5 any other amount payable to us.
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<PAGE> 7
In any proceedings such certificate shall be conclusive evidence as to
the balance, loss, damage or amount on the date so certified.
8.11 If we ask you to do anything you will pay all costs and expenses of
doing so. If you do not carry out anything which we have a right to ask
for then we may do it and you will pay all our costs and expenses.
8.12 All payments due from you to us shall be made in immediately available
funds free and clear of any right of retention, set-off or counterclaim
or any other withholding or deduction. If you are required by law to
make any withholding or deduction, you will pay such additional sum
needed so that we receive the full amount due to us under this
Agreement.
9. CHARGES AND INDEMNITIES
9.1 You will pay us the discounting charge which shall accrue from day to
day. It will be worked out at the rate shown in the Schedule on the
debit balance on the Memorandum Discounting Statement. Any payment to
you will be debited to the Memorandum Discounting Statement with an
effective date for calculating discounting charges as follows:
CHAPS - the same day as the payment is taken.
2 days BACS - two calendar days from the date that the payment
is initiated.
3 days BACS - three calendar days from the date that the payment is
initiated.
9.2 The discounting charge shall be debited daily to the Receivables
Purchased Account and to the Memorandum Discounting Statement. Any
debit to the Memorandum Discounting Statement shall be treated as a
Prepayment for the purpose of working out the discounting charge.
9.3 We shall be entitled to a commission charge at the rate shown in the
Schedule for each Notified Debt. We shall debit this to both the
Receivables Purchased Account and the Memorandum Discounting Statement
at the end of each calendar month. No refund of any commission charges
can be made either if a credit note is issued or if this Agreement
ends.
9.4 If the total of all commission charges in each period shown in the
Schedule falls short of the sum needed during that period to reach the
minimum commission charge you will pay us the shortfall. If we consider
such shortfall likely then we may debit it to the Receivables Purchased
Account and to the Memorandum Discounting Statement.
9.5 If this Agreement does not end on the last day of a period for the
calculation of the minimum commission charge then when the Agreement
does end you will pay us the minimum commission charge to the end of
such period.
9.6 Payments to you will be made by BACS or CHAPS or such other method we
may at any time advise you. Any administration charges to you for such
payments will be at the same rate as those of our bankers.
9.7 If our bankers charge us, you will repay to us their charges for:
9.7.1 dealing with dishonoured Remittances;
9.7.2 collecting any Remittances in a currency other than Sterling;
9.7.3 collecting Remittances in Sterling drawn on a bank outside the
United Kingdom.
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<PAGE> 8
9.8 You will pay us an arrangement fee for any variation of this Agreement
requested by you or any additional service provided outside its scope.
If we permit payments in excess of your Availability, we may also make
an additional facility charge until the excess is repaid. This will not
affect any other rights we may have.
9.9 If we make special visits to your premises or anywhere else then you
will pay all our costs and expenses.
9.10 You will fully indemnify us against all losses, costs, demands,
disbursements, fees and expenses of:
9.10.1 obtaining the release of Debts from charges, trusts or other
encumbrances or enforcing such release;
9.10.2 assignments or reassignments of Debts or Related Rights or
giving notices of assignment or reassignment;
9.10.3 taking guarantees or indemnities from any person, including a
receiver;
9.10.4 enforcing either this Agreement or any guarantee or indemnity
given in respect of it;
9.10.5 all matters arising from any breach by you of this Agreement
or the occurrence of a Termination Event;
9.10.6 any Customer failing to pay a Debt at its full Notified Value;
9.10.7 any solicitor or agent engaged to collect Debts or conduct
legal proceedings concerning Debts and all legal fees and
disbursements payable to any other party to such proceedings.
9.11 Changes to the discounting charge, the commission charge and the
minimum commission charge shall only be effective if in writing signed
by both you and us.
9.12 VAT, if applicable, will be added to all fees and charges quoted by us.
9.13 You will pay us immediately on demand any amount which we have to pay
to any Customer by way of refund claimed under a direct debit guarantee
given by us.
10. REPURCHASE
10.1 We may at any time require you to Repurchase an Ineligible Debt from
us.
10.2 Should we require you to Repurchase Debts from us we will continue to
own all such Debts until we receive the price for all Repurchases. At
this point we shall transfer them back to you. We shall then account to
you for any further sums received by us from your Customers in respect
of such Debts.
11. AGENCY
11.1 We alone shall have sole and absolute discretion as to how to collect
and enforce payment of Debts. We can do this in whatever way we see
fit. Until we exercise our rights under clause 11.5 you must, at your
expense, collect Debts and manage Customers' accounts for us as our
undisclosed agent. You are not our agent for any other purpose.
11.2 Throughout the term of this Agreement you must ensure that all Debts
are promptly and correctly recorded in your Accounting Records and that
your sales ledger control bears a conspicuous notation that Debts have
been sold and assigned to us.
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<PAGE> 9
11.3 During your agency we may communicate in your name with Customers for
the purposes of Debt verification.
11.4 You must act promptly and efficiently when carrying out your duties as
our agent.
11.5 We may at any time vary the terms of your agency as we see fit. If we
request you will give notice to each Customer that we are the owner of
all your present and future Debts. We will tell you the wording of the
notice which we can also give on your behalf. Unless we state
otherwise, such request will act as a cancellation of your agency,
whereupon we alone shall be entitled to collect and enforce payment of
all Debts in whatever way we see fit, including by direct debits. You
will fully co-operate with us and, as we direct, will help us to
collect Debts.
11.6 After the cancellation of your agency:
11.6.1 you must not say you are our agent;
11.6.2 you must immediately send us your Accounting Records to do
with Debts;
11.6.3 we will maintain your Customers' accounts in the form of a
sales ledger;
11.6.4 you must make sure Customers pay all their Debts to us or as
we direct;
11.6.5 in our absolute discretion we may settle, conduct or abandon
any collection activity and you will be bound by our actions
and decisions;
11.6.6 in our absolute discretion we can grant time or other
indulgence at any time to any Customer without discharging you
from your obligations to us, and compromise claims with
Customers or accept payment from a Customer which is less than
the Notified Value of the Debt;
11.6.7 in our absolute discretion we may start, defend or compromise
any legal proceedings and you will be bound by our actions and
decisions; the proceedings may be in our or your name; you
will give us all evidence we may at any time need, whether
before during or after any proceedings; you will make sure
that those witnesses we need will attend court; we may use an
alternative dispute resolution procedure involving mediation
or arbitration;
11.6.8 we can repay to a Customer any credit balance shown on their
account;
11.6.9 you will be responsible for paying all our charges, costs,
expenses and fees for collecting or attempting to collect any
Debt, including:
- our own internal costs, expenses and court fees;
- those of any solicitor or collection agent engaged by
us;
- those payable to any other party to the proceedings;
11.6.10 we may require you to give us security for the above costs and
expenses; we will credit the Receivables Purchased Account and
the Memorandum Discounting Statement with any costs and
expenses recovered.
12. TRUSTS AND OTHER RIGHTS
12.1 From the moment that you receive any Remittance, you will hold it
absolutely in trust for us. We may give notice to anyone that such
trust exists.
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<PAGE> 10
12.2 When you receive a Remittance you must:
12.2.1 immediately pay it into our bank account, or into a trust bank
account in your name;
12.2.2 not pay it into any other account or deal with or negotiate
it.
12.3 A trust bank account must be run according to our instructions. This
means that we may irrevocably appoint our officers as the only people
who can authorise transactions on the account.
12.4 You must authorise and indemnify our bankers so that they can credit
our bank account with any transfers received from your bankers or your
Customers' bankers and so they can collect the proceeds of any
Remittances payable to you or your agents.
12.5 You must give us a letter addressed to your bankers instructing them to
transfer to our bankers any cheques, bank giro transfers, BACS, CHAPS
and other electronically transferred funds that may be received by your
bank from Customers. You will not be able to cancel such instructions.
12.6 If we do not become the owner of any Debt or its Related Rights covered
by this Agreement for any reason then you will be treated as holding
such Debt or its Related Rights on trust for us free from all
encumbrances.
12.7 You must promptly tell us about all Returned Goods. We may require you
to set these aside marked with our name as the owner. You will then
deliver them to us, or deal with them as we direct. We can, without
notice, enter any premises where we believe Returned Goods or any other
items comprised in the Related Rights are kept. We can take possession
of or sell any Returned Goods on such terms and at such prices as we
consider appropriate. We shall credit the net proceeds towards the
discharge of the relative Debts. If we ask, you will deliver to us or
allow us to take away any other items included in the Related Rights
which we may deal with as we see fit.
13. YOUR UNDERTAKINGS TO US
13.1 Whilst this Agreement is in force and then until you have paid all
monies owing to us you undertake:
13.1.1 to make sure the payment and settlement discount terms for
each Debt and any rights of retention, abatement or rebate are
not more generous than those appearing in the Schedule and
that these appear on every invoice and all copies;
13.1.2 not to cancel or vary any Sale Contract or any payment terms
or settlement discounts after Delivery unless you have our
written consent;
13.1.3 to make sure that every Sale Contract shall:
- only be made in the ordinary course of your business
stated in the Client Particulars;
- be subject to English law or Scots law;
- provide for payment by the Customer in Sterling;
- not include any prohibition against assignment of the
Debt;
13.1.4 to make sure that neither you nor any Associate enters into
any other agreement for the factoring, charging, declaring in
trust or discounting of Debts with any other party or into any
arrangement prejudicial to our outright ownership of Debts;
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13.1.5 to tell us immediately you know about the following:
- any change or contemplated change in the directors or
partners or the control or ownership of your company,
firm or business or of any guarantor or indemnifier
of your obligations to us;
- any threatened or pending Insolvency proceedings
against you, or against any guarantor, indemnifier or
Associate;
- any changes in the status, address, or
creditworthiness of a Customer;
- any security holder taking any steps towards or
actually enforcing its security over any part of your
assets or undertaking;
- any floating charge given by you being crystallised
or becoming converted into a fixed charge;
- all retrospective or quantity discounts agreed with
Customers;
- any payment or settlement discount terms different
from those shown in the Schedule;
13.1.6 immediately we ask:
- to provide information about your Customers;
- to give evidence satisfactory to us of any order and
the completion of any Sale Contract;
- to exercise any reservation of title to Goods in the
Sale Contract;
- to deliver to us and not to your Customer the
originals of any of the items comprised in the
Related Rights, together with as many copies as we
may require; we may forward these to the Customer or
other persons or organisations as appropriate at your
expense;
13.1.7 not to include in an Offer or a Client Advice, until we tell
you, any Debt which shall:
- be due by an Associate;
- be due by a Customer who also supplies goods or
services to you;
- arise from Goods supplied by you on approval, trial,
evaluation, consignment, sale or return or similar
terms;
- be due by a Customer who has not purchased the Goods
for his business;
- be regulated by the Consumer Credit Act 1974;
- arise from the sale of your capital or fixed assets;
- be due under a Sale Contract in a currency other than
Sterling unless a Currency Annexe applies;
- be within the category of Non-Notifiable Debts
detailed in the Schedule, or such other Debts as we
may specify;
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13.1.8 immediately to cease and desist from any contra accounting
arrangements with your Customers;
13.1.9 not to include in an Offer or a Client Advice any Debt until
the Goods have been Delivered;
13.1.10 to keep us advised of the identity of your Associates;
13.1.11 promptly to perform all your further and continuing
obligations to a Customer and, if we ask, to give evidence of
such performance;
13.1.12 to create such security in our favour on your undertaking and
assets as we may specify for your performance of this
Agreement, or in respect of Debts intended to be owned by us
but which for any reason fail to belong to us;
13.1.13 to sign any additional documents and do anything we may need
to exercise or enforce our rights, to sign assignments of
Debts or Related Rights or endorse or Assign any instrument or
security included in the Related Rights; any such assignment
of a Scottish Debt or any of its Related Rights will support
the assignment given in clause 3.2 but will not prejudice that
earlier assignment;
13.1.14 to follow our guidelines for the day to day efficient working
of this Agreement;
13.1.15 to make sure that your warranties about Debts are complied
with until they are discharged;
13.1.16 to take all steps we may require for the protection of our
interests under or arising out of this Agreement and in
mitigating any loss we may suffer.
14. WARRANTIES
14.1 By including a Debt in an Offer or a Client Advice you will be treated
as having given all of the following warranties to us:
14.1.1 all the particulars contained in the Offer or Client Advice
are correct and complete and the Debt has not been previously
Notified to us;
14.1.2 each Debt relates to an actual and bona fide sale and Delivery
in accordance with the Sale Contract;
14.1.3 the Debt is payable in the U.K. without any retention, set-off
or counterclaim by a Customer with an established place of
business in the U.K.;
14.1.4 you have the absolute right to transfer the Debt to us and,
except in our favour, it shall remain free from any security,
charge, trust, option, pledge, hypothecation, encumbrance,
lien or any tracing rights adversely affecting the Debt, the
Goods or the proceeds;
14.1.5 our ownership of the Debt will not violate any laws or
agreement affecting you;
14.1.6 the Notified Value of the Debt is the same as its Contracted
Value;
14.1.7 all sums due or obligations by you to the Customer have been
paid or performed and you will have no other obligations
towards the Customer which could reduce the amount payable to
us for the Debt;
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14.1.8 no right or claim of rescission, defence, adjustment or other
right or claim exists or will arise to reduce or extinguish
the Notified Value of the Debt or affect our ability to
collect the Debt;
14.1.9 the correct name and address of the Customer and any required
purchase order number appear on the invoice or credit note, on
any documents supplied evidencing the Debt and all
correspondence;
14.1.10 the Customer has obtained all the consents and certificates
necessary in order to pay the Debt;
14.1.11 the invoice or credit note identifies the currency for payment
as Sterling;
14.1.12 the Debt is one to which this Agreement applies;
14.1.13 where the Debt relates to a claim for interest:
- all legal criteria for your interest claim have been
fulfilled;
- the principal Debt to which your interest claim
relates has previously been Notified;
- your interest claim must be Notified to us within
three months of the date the principal Debt was paid;
- no credit payment terms have been allowed for
discharging your interest claim.
14.2 You warrant that prior to entering into this Agreement you have
disclosed to us every fact or matter known to you or which you should
have reasonably known might influence us in our decision whether or
not:
14.2.1 to enter into this Agreement on these terms; or
14.2.2 to accept any person as a guarantor or indemnifier of your
obligations to us.
14.3 You will immediately tell us of anything which might reasonably
influence our decision to continue with this Agreement on these terms.
15. FACFLOW
15.1 We will provide you with FacFlow. You will provide all computer
equipment required at your premises and will keep this equipment virus
free and suitable for use. We shall have no responsibility for any
damage, loss or corruption of your data, software or equipment caused
through the loading or operation of our Software.
15.2 You undertake:
15.2.1 to use your best endeavours to keep such equipment free from
any Equipment Defect or Transmission Defect and to make
suitable contingency arrangements to cover any such defect or
the withdrawal or suspension of FacFlow;
15.2.2 immediately to load and use any Software updates which we may
provide;
15.2.3 to keep secret and confidential the method of operation of
FacFlow, the Software and all access data and security
procedures and to tell us promptly if any contravention is
known or suspected;
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15.2.4 on a weekly basis or more frequently if we tell you, to make
back up copies on disk of your sales ledger records, including
invoices and credit notes, and to securely store such copies
away from your premises for at least 4 months, and to advise
us of their location.
15.3 You will have a non-transferable licence to use the Software.
15.4 We own all rights in the Software. You may not copy it without our
prior written consent, except one copy solely for back-up purposes.
15.5 You and we undertake to each other:
15.5.1 to use all reasonable endeavours to ensure that each FacFlow
Transmission is completely and correctly sent;
15.5.2 to tell the other promptly if either is aware of any Equipment
Defect or Transmission Defect and to co-operate with the other
to remedy it;
15.5.3 to maintain appropriate records in support of FacFlow
Transmissions and to ensure that FacFlow is not accessible to
unauthorised persons.
15.6 We will maintain a Transmissions Log which shall, in the absence of
manifest error, be conclusive proof and evidence of the FacFlow
Transmissions sent or received by us.
15.7 We may rely upon any FacFlow Transmission ostensibly sent by you even
though it may be sent without your authority. We may also rely upon any
FacFlow Transmission sent through your agent or intermediary.
15.8 We may without notice suspend, withdraw or reactivate the operation of
FacFlow.
15.9 We shall have no responsibility to you for any loss or damage as a
result of any failure or delay in complying with our obligations in
connection with FaclFlow, including that arising from any:
15.9.1 Equipment Defect or Transmission Defect;
15.9.2 suspension or withdrawal of FacFlow;
15.9.3 act or omission of any third party or abnormal operating
conditions;
15.9.4 failure to process any FacFlow Transmission to our internal
systems, even though accepted by FaclFlow.
15.10 Upon withdrawal of FacFlow you will immediately return to us any
property of ours in your possession or under your control.
15.11 You will indemnify us against all losses and damages that we may incur
if you breach your obligations in respect of FacFlow.
15.12 FacFlow does not operate on a real time basis. Please note any
information is only accurate to an earlier point in time. In particular
any request by you for a payment based upon any Availability shown may
be varied by us as further information becomes available.
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15.13 Subject to clause 15.12, you and we will give each FacFlow Transmission
the same status as if it had been in writing, signed on behalf of the
sender and physically delivered to the recipient, unless the FacFlow
Transmission can be shown to have been corrupted as a result of
technical failure. FacFlow Transmissions shall be treated as satisfying
any legal requirement for a communication to be in writing. You waive
any rights to challenge the validity of any FacFlow Transmission on the
ground that it was prepared and/or sent and/or received only in
electronic form.
15.14 A FacFlow Transmission regarding Initial Debts shall be treated as
including the following words:
"In accordance with the Invoice Discounting Agreement between Lombard
NatWest Discounting Ltd and ourselves the Debts referred to in this
FacFlow Transmission shall be considered as being subject to an Offer".
16. INFORMATION FOR US
16.1 You must give us a signed copy of your full set of accounts, including
your directors' and auditor's report or such other financial reports as
we request, for each of your accounting reference periods (as defined
in the Companies Act 1985). You must give us these items as soon as you
have them, which must be no later than six months from the end of each
accounting period.
16.2 You must give us your management profit and loss account and balance
sheet at such intervals as we tell you. You will also give us such
other financial reports that we may ask for and you will ensure that
your auditors or external accountants report to us directly any
information that we require.
16.3 You will provide to us by the monthly returns due date specified in the
Schedule:
16.3.1 an aged analysis of Debts on the basis specified in the
Schedule and correct to the last day of the preceding month.
The ageing must also identify those Customers' accounts which
are either in dispute or have been passed to solicitors, debt
collectors or other third parties for collection;
16.3.2 copy Customers' statements for the same period as in clause
16.3.1;
16.3.3 a sales ledger control in the format we tell you reconciled to
the aged analysis of Debts in clause 16.3.1;
16.3.4 any other information we may ask for.
16.4 You will let any employee, representative or agent of ours enter any of
your business premises or locations under your control in order to:
16.4.1 inspect Goods, stocks, Sale Contracts and evidence of their
performance;
16.4.2 verify, check, remove or be provided with copies of all
Accounting Records.
16.5 We may at all times rely upon any signature, act or communication of
any person purporting to act on your behalf and the same shall be
binding upon you.
17. TERMINATION EVENTS
17.1 In addition to the right of either you or us to give notice to the
other to end this Agreement under clause 2.1, we may immediately end it
at any time after any of the following events:
17.1.1 any breach or threatened breach by you of this Agreement;
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17.1.2 the breach or threatened breach or the termination of any
contract between us and any of your Associates;
17.1.3 any application by any creditor of yours for a court order
that we must pay money to your creditor or must stop paying
any monies to you;
17.1.4 if you have an obligation to a third party for repayment of
borrowed money which is declared due prior to its stated
maturity date or you do not pay it when due;
17.1.5 any change in your ownership, control, constitution or
composition reasonably considered by us to prejudice our
position;
17.1.6 breach or termination by you or a third party of any
representation, warranty or undertaking given to us;
17.1.7 the termination of any waiver, consent, ranking or priority
arrangement in our favour;
17.1.8 your ceasing or threatening to cease to carry on your business
referred to in the Schedule;
17.1.9 your Insolvency;
17.1.10 the Insolvency or death of any person who has given a
guarantee or indemnity for your obligations to us, or the
service of a notice of intention to end such guarantee or
indemnity or the legal disability of that person;
17.1.11 if any Associate factors or discounts its debts with another
party or is threatened with Insolvency proceedings or becomes
Insolvent;
17.1.12 your failure to comply with the minimum notification
requirements shown in the Schedule.
17.2 Upon your Insolvency, ceasing to trade, failure to repay the entire
Repurchase price under clause 17.4.1 or our cancelling your agency
referred to in clause 11.5, we may:
17.2.1 immediately debit your Receivables Purchased Account and
Memorandum Discounting Statement with an additional commission
charge of five per cent of the Notified Value of the Debts
then Outstanding or Notified to us thereafter in order to
cover our additional administrative work; and
17.2.2 immediately increase the discounting charge by two per cent.
17.3 Upon or at any time after a Termination Event (whether or not we use
our right immediately to end this Agreement), we may, with or without
notice to you, do any or all of the following:
17.3.1 reduce the Prepayment percentage to zero or such other figure
as we may decide;
17.3.2 designate all or any Outstanding Debts as Ineligible Debts;
17.3.3 create a special reserve against the Receivables Purchased
Account to cover Your Responsibility;
17.3.4 add together the balances on all accounts recording
transactions between you and us;
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17.3.5 demand that you pay us immediately any debit balance arrived
at under clause 17.3.4 plus commission charges and discounting
charges accrued but not yet debited and an amount equal to all
credit balances on Customers' accounts;
17.3.6 require you to Repurchase any Debts then Outstanding;
17.3.7 delay at least ten calendar days, to allow for cheque
clearances, before paying to you any credit balance on the
Memorandum Discounting Statement.
17.4 Upon the ending of this Agreement, for whatever reason:
17.4.1 you must Repurchase all Outstanding Debts from us at a price
equivalent to the debit balance on the Memorandum Discounting
Statement and all other sums due to us;
17.4.2 you will not attempt to cancel any notices of assignment given
to Customers or attempt to collect Debts until you have paid
the Repurchase price under clause 17.4.1 and we shall continue
to own all Debts until so paid;
17.4.3 you will be responsible for all credit balances on Customers'
accounts and indemnify us in respect of all claims for them;
17.4.4 you will not Notify us of any Debts arising after the date on
which this Agreement ends; and
17.4.5 we shall pay you any credit balance on the Memorandum
Discounting Statement less the amount of Your Responsibility
but allowing at least ten calendar days for cheque clearances.
17.5 Except as otherwise provided, the ending of this Agreement shall not
affect our respective rights and obligations in respect of:
17.5.1 any Debts which shall have come into existence prior to such
termination; and
17.5.2 all transactions or events having their inception prior to
such termination, including the continued running of the
discounting charge and our rights to set-off monies or combine
accounts.
Such rights and obligations shall remain in full force and effect until
all monies due from you shall have been received by us and all monies
due from us to you shall have been paid.
17.6 Any discharge of your obligations to us shall be of no effect to the
extent that any receipt by us shall later be set aside under insolvency
law.
18. POWER TO ACT IN YOUR NAME
18.1 To ensure that you carry out your obligations to us and as security for
all sums which shall become due to us, you irrevocably appoint us and
our directors, Company Secretary and officers, at any time, jointly and
each of them severally to act as your attorneys as we or they think fit
in order to do all or any of the following:
18.1.1 complete and perfect our title to or deal with any Debt,
Related Rights or Returned Goods;
18.1.2 obtain payment of and give valid discharges for any Debt;
18.1.3 secure performance of any of your obligations to us or to any
Customer.
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18.2 For these purposes, your attorneys may do any of the following:
18.2.1 sign all documents;
18.2.2 endorse and/or negotiate all Remittances;
18.2.3 conduct, defend or compromise any legal proceedings and settle
any indebtedness;
18.2.4 take all other steps they consider necessary.
18.3 These powers shall continue both during and after the ending of this
Agreement and during any disability on your part until all sums due to
us have been paid. You will ratify and confirm whatever shall be
lawfully done under these powers.
18.4 You also irrevocably appoint any assignee of ours or any person to whom
we may novate this Agreement to perform any of the acts set out above.
We may also appoint or remove a substitute attorney.
19. CONTACTING OTHER PARTIES
19.1 We may:
19.1.1 provide your bank, auditors, accountants and other
professional advisers with such information about your
accounts with us as they may ask;
19.1.2 obtain from your bank, auditors, accountants and other
professional advisers such information as we may
request.
19.2 You confirm that you have authorised the persons referred to in 19.1.2
to give us such information.
19.3 We may disclose this Agreement and any information which we have
obtained:
19.3.1 to any actual or potential assignee, transferee or
sub-participant;
19.3.2 to any agency, security trustee, agent and/or arranger in
connection with any financing of any such assignee, transferee
or sub-participant;
19.3.3 in any listing particulars, prospectus or offering circular.
20. ASSIGNMENT, DELEGATION AND FORCE MAJEURE
20.1 You consent to our novating to any other party any or all of our
obligations, rights and remedies. This Agreement shall bind and enure
to the benefit of our successors and assignees.
20.2 Except where the context otherwise requires, references to "we" or "us"
shall include our successors, assignees and transferees in clauses
conferring benefits and/or rights on us; in clauses imposing
obligations on us, such references shall extend to such successors,
assignees and transferees only if they shall specifically assume such
obligations.
20.3 You will not, without our prior written consent:
20.3.1 assign, grant security over or charge any of your rights or
benefits or delegate any of your duties under this Agreement;
20.3.2 dispose of any part of your business, assets or undertaking,
except in the ordinary course of your business;
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20.3.3 create any securities, mortgages or charges on or over your
assets or undertaking.
20.4 We shall not be liable to you for any consequential, secondary or
indirect loss, injury or damage or any loss of or damage to goodwill,
profits or anticipated savings. However nothing shall operate to excuse
us from liability caused by the fraud of any of our officers.
20.5 We shall have no liability to you if we are delayed in or unable to
perform our duties directly or indirectly because of an event of Force
Majeure.
20.6 Any waiver or apparent waiver by us of any breach of any obligation or
provision in this Agreement cannot be treated as a general waiver or be
construed as implying or establishing consent to any subsequent breach.
21. SERVICE OF NOTICES AND PROCESS
21.1 Except as otherwise stated, any written notice from us to you and any
proceedings issued by us requiring service on you may be given or
served by delivering it at or posting it to:
21.1.1 your address stated in the client particulars or such other
address advised to and acknowledged by us as being effective
for the purposes of this clause; or
21.1.2 your registered office; or
21.1.3 any address last known to us at which you carried on business.
It may also be handed to any officer of yours or be given by facsimile
transmission or electronic medium to your number or address last known
to us for communication by such means.
21.2 Any notice or process shall be considered served if:
21.2.1 delivered - at the time of delivery; or
21.2.2 sent by post - 48 hours from the time of posting; or
21.2.3 sent by facsimile transmission or electronic medium - at the
time of transmission; or
21.2.4 handed over - at the time of handing over.
21.3 Any notice in writing by you to us under this Agreement shall take
effect at the time it is received by us at our registered office.
22. LAW AND JURISDICTION
22.1 Our relationship with you is to be governed and interpreted by English
law. You submit to the jurisdiction of the English courts. We may,
however, use the courts of any other jurisdiction.
23. INTERPRETATION OF THIS AGREEMENT
23.1 Any reference to a statute includes any amendment or replacement or
re-enactment of that statute for the time being and any order and any
subordinate legislation made under it.
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23.2 The singular includes the plural and vice versa. Reference to any
gender shall include any other gender. References to a person or party
shall be construed as references to any person, firm, company,
corporation, association, partnership, government, whether local,
national or supranational or other official body.
23.3 The meaning of general words introduced by the word "other" is not to
be limited by reference to any preceding words.
23.4 Where the meaning of a word or expression in this Agreement has to be
considered in relation to any place outside England and such word or
expression has no exact counterpart in that place, it is to have the
meaning of its closest equivalent as conclusively determined by us.
23.5 The interpretation and construction of this Agreement shall not be
affected by any headings, which are for convenience only.
24. GENERAL
24.1 The whole agreement between you and us consists of only this document,
including any annexes referred to in the Schedule (and any document
referred to in such annexes). References to "the Agreement" or "this
Agreement" include all the annexes and all subsequent amendments,
variations or extensions. All earlier agreements, prior negotiations,
quotations, warranties, advertisements and representations shall be of
no effect. You have not relied upon any representation made to you by
us or on our behalf or been influenced, induced or persuaded to enter
into this Agreement by any representation.
24.2 We may use all or any of the rights and remedies contained in this
Agreement. They are not exclusive of each other or of any rights or
remedies given to us by law. If we choose not to enforce or cannot
enforce any term or condition, this will not affect our right to
enforce the rest of the Agreement or to enforce that term or condition
at a later date. Also, such rights and remedies shall not be affected
if we compromise with any Customer.
24.3 This Agreement is considered by both you and us to be reasonable.
Should any part of it be valid only if some other part were deleted
then the Agreement will apply as if it were so deleted. The remainder
of this Agreement will not be affected by such deletion.
24.4 Except where clauses 5.1 (where we may change Limits at our complete
discretion) and 9.11 apply, changes to the Agreement can be made
between you and us in any way but will only come into effect on the
date stated in our written confirmation to you of such change or if no
such date is stated upon despatching such confirmation.
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ANNEXE OF DEFINITIONS
In the attached Agreement the following expressions have the meanings set out
below against each of them.
<TABLE>
<S> <C> <C>
Accounting Records Force Majeure Related Rights
Adjustments Funding Limit Remittances
Assign Funding Period Repurchase
Associate Goods Retention Percentage
Availability Ineligible Debt Returned Goods
BACS Initial Debt Sale Contract
Base Rate Insolvent Schedule
CHAPS Limits Scottish Debts
Client Advice Memorandum Discounting Statement Software
Concentration Limit Percentage Non-Notifiable Debt Sterling
Contracted Value Notified/Notify/Notifying Termination Event
Customer Notified Value Transmission Defect
Debt Offer Terminations Log
Delivered Outstanding United Kingdom/U.K.
Equipment Defect Prepayment U.K. Debt
FacFlow Purchase Price VAT
FacFlow Transmission Receivables Purchased Account Your Responsibility
</TABLE>
"ACCOUNTING Any of the following:
RECORDS" (1) accounting books, records and ledgers, financial and
management accounts;
(2) computer data or materials about your financial
position, purchases and sales;
(3) all invoices, credit notes or documents evidencing
entries in such books of accounts, records and
computer data and any other documents we require.
"ADJUSTMENTS" Any entry on your Customers' accounts which changes the
Notified Value of Debts.
"ASSIGN" The transfer of ownership which includes in Scotland the
giving of an assignation.
"ASSOCIATE" (1) Any subsidiary or holding company of yours as defined
in sections 736 and 736A of the Companies Acts 1985
to 1989; or
(2) any other form of associate of yours as defined in
section 184 of the Consumer Credit Act 1974; or
(3) a director, partner, shareholder or employee of yours
or the spouse of any of them; or
(4) any company in which you or any of them have an
interest other than purely for investment purposes in
a publicly quoted company.
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"AVAILABILITY" Your entitlement to Prepayment calculated by taking the credit
balance on the Receivables Purchased Account and deducting:
(1) the value of all Ineligible Debts;
(2) the amount of Your Responsibility; and
(3) the standard retention.
The standard retention is arrived at by:
(1) taking the balance on the sales ledger control; and
then
(2) deducting the value of all Ineligible Debts; and then
(3) multiplying the resultant sum by the Retention
Percentage.
"BACS" The Bankers Automated Clearing System.
"BASE RATE" The Sterling Base Rate per annum quoted, from time to
time, by National Westminster Bank Plc or its successors or
such other bank as we may tell you.
"CHAPS" The Clearing Houses Automated Payments System.
"CLIENT ADVICE" Your notification to us, in such way as we may specify,
including in a FacFlow Transmission, of Debts, credit notes
and Adjustments which have not previously been Notified to us
together with such evidence of the performance of the Sale
Contract or reasons for a credit note as we may specify.
"CONCENTRATION A percentage established by us of the balance of all
LIMIT Outstanding Notified Debts.
PERCENTAGE"
"CONTRACTED The amount of a Debt payable by a Customer in
VALUE" accordance with the Sale Contract after taking into
account any deduction, discount, claim or allowance.
"CUSTOMER" A person who incurs or may incur any indebtedness under a Sale
Contract.
"DEBT" Any present, future or contingent obligation of a Customer to
make payment under a Sale Contract together with its Related
Rights or where the context allows a part of such obligation
or its Related Rights, including:
(1) the future right to recover sums due following the
determination, assessment or agreement of the amount
of the obligation; and
(2) VAT; and
(3) all duties and charges.
"DELIVERED" In relation to Goods:
(1) their removal from your control and from your
premises, carriers and agents; and
(2) their physical delivery to the Customer in the United
Kingdom or to the Customer's order; and
(3) the assumption of risk therein by the Customer; and
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(4) complete performance of the Sale Contract.
In relation to services: fully performed.
"Deliver" and "Delivery" are to be similarly construed.
"EQUIPMENT Any malfunction, failure, defect, downtime or unavailability
of computer equipment
or
DEFECT" software or any ancillary service or link including telephone
or other communication systems.
"FACFLOW" A computerised data enquiry and transmission system between
you and us as updated from time to time.
"FACFLOW Any item of data transmitted between you and us using FacFlow.
TRANSMISSION"
"FORCE MAJEURE" Any circumstances outside our or a Customer's reasonable
control, including an act of God, any exchange control,
governmental or other official regulations or requirements,
the outbreak of war, any terrorist act, revolution, civil
insurrection, strike, lockout, industrial action or failure or
non-operation of postal, banking or communication services.
"FUNDING LIMIT" A monetary limit established by us in respect of each Customer
against which the Prepayment percentage will be applied.
"FUNDING PERIOD" The period initially as specified in the Schedule, after which
Debts will rank as Ineligible Debts.
"GOODS" Any merchandise or services the subject of a Sale Contract.
"INELIGIBLE DEBT" A Debt:
(1) which is disputed or in respect of which the Customer
shall dispute their liability to pay or pay it by its
due date for payment; or
(2) in respect of which you shall be in breach of any
undertaking or warranty given to us about it or any
other obligations of yours to us arising from it; or
(3) which remains Outstanding beyond the end of the
Funding Period; or
(4) in excess of our Funding Limit; or
(5) owing by any Customer in excess of the Concentration
Limit Percentage; or
(6) in respect of which legal proceedings have been
threatened against the Customer; or
(7) where the Customer is Insolvent; or
(8) specified by us at any other time.
"INITIAL DEBT" A Debt Outstanding at the date of this Agreement.
-23-
<PAGE> 24
INSOLVENT" (A) In relation to you or any guarantor or indemnifier of
your obligations to us - any of or the occurrence of
any of the following:
(1) the issue of a petition or application, the calling
of a meeting or making proposals, for any of the
matters listed in sub section 'B' below;
(2) any part of your or their income or assets being
subject to any of the following:
- seizure, distress, diligence or lien;
- enforcement of security rights;
- execution of legal process;
- sequestration;
- an injunction or interdict;
- attachment;
- other legal process;
(3) the service of any statutory demand under the
Insolvency Act 1986;
(4) the entry or making of any judgment, order, decree or
award which shall remain unsatisfied or whose terms
shall not be complied with for seven days (except
pending any appeal);
(5) an application for a garnishee order;
(6) giving notice of the intended suspension of payments
of debts;
(7) becoming apparently insolvent;
and the taking of any steps for the commencement of any
proceedings in respect of any of the above matters.
(B) In relation to a Customer - any of following:
(1) in relation to an, individual - bankruptcy, apparent
insolvency or sequestration or the granting of a
trust deed for the benefit of creditors;
(2) in relation to a company - a resolution for voluntary
winding up by reason of insolvency, a winding up
order, the appointment of an administrator under the
Insolvency Act 1986 or the appointment of a
provisional liquidator or receiver (whether in or out
of court) or an administrative receiver of any of its
assets or income or a judicial factor;
(3) in relation to a partnership - its bankruptcy,
apparent insolvency or sequestration or its winding
up or the appointment to it of an administrator under
the Insolvency Act 1986 or the appointment of a
judicial factor or an order for the bankruptcy or
sequestration of any partner or the apparent
insolvency of any partner or the grant by a partner
of a trust deed for creditors;
(4) in relation to any person - entry into a voluntary
arrangement under the Insolvency Act 1986 or apparent
insolvency or any formal or informal arrangement
generally for the benefit of creditors;
"Insolvency" shall be construed accordingly.
-24-
<PAGE> 25
"LIMITS" Any of
- the Prepayment percentage;
- Funding Limits;
- Funding Period;
- the Prepayment review level initially shown in the Schedule;
- the Concentration Limit Percentage.
"MEMORANDUM An account operated by us to calculate discounting charges.
DISCOUNTING
STATEMENT"
"NON-NOTIFIABLE A Debt, owned by us under this Agreement, which must not be
DEBT" Notified to us until we tell you, including specifically those
referred to in the Schedule and in clause 13.1.7.
"NOTIFIED/NOTIFY Inclusion of a Debt in an Offer or Client Advice.
NOTIFYING"
"NOTIFIED VALUE" The amount of the Debt as shown in an Offer or Client Advice.
"OFFER" An unconditional offer to sell us a Debt with full title
guarantee to be made in such form and with such evidence of
the performance of the Sale Contract as we may specify. Where
more than one Debt is at the same time subject to an Offer it
shall be treated as an independent offer to sell us each Debt
so offered which may be accepted or rejected by us entirely at
our discretion.
"OUTSTANDING" A Debt unpaid by the Customer or a third party.
"PREPAYMENT" A payment on account of the Purchase Price of Debts calculated
by applying the Prepayment percentage initially specified in
the Schedule to their Notified Value.
"PURCHASE PRICE" The price payable by us for a Debt calculated in accordance
with clause 4.1.
"RECEIVABLES An account reflecting the prospective Purchase Price of Debts.
PURCHASED
ACCOUNT"
"RELATED RIGHTS" Any of the following in relation to any Debt or Returned
Goods:
(1) all your rights by law as an unpaid vendor or under
the Sale Contract but without any obligation on us to
complete the Sale Contract;
(2) all evidence of the Sale Contract or its performance
or any disputes arising;
(3) documents of title to goods, warehouse keepers
receipts, bills of lading, shipping documents, airway
bills, certificates of origin, customs forms,
commercial and consular invoices, insurance documents
or similar;
(4) the benefit of all insurances;
(5) all Remittances, securities, bonds, guarantees and
indemnities;
(6) all Accounting Records to do with the Debt;
-25-
<PAGE> 26
(7) the right to call for the ownership of all Returned
Goods;
(8) interest.
"REMITTANCES" Cash, cheques, bills of exchange, negotiable and non
negotiable instruments, letters of credit, orders, drafts,
promissory notes, electronic payments and any other
instruments, methods or forms of payment or engagement
received by us, you or your agents towards a Debt.
"REPURCHASE" Our right to require you to buy back and in respect of a
Scottish Debt to take a reassignment from us of an
Outstanding Debt at a price equivalent to its Notified
Value or the Prepayment paid in respect of it.
"RETENTION 100% less the Prepayment percentage from time to time.
PERCENTAGE"
"RETURNED GOODS" Any Goods relating to or purporting to comply with a Sale
Contract which any Customer shall for any reason:
(1) reject or give notice of rejection; or
(2) return or attempt to or wish to return to you or
us; or
(3) which you or we recover from a Customer.
"SALE CONTRACT" A contract in any form, including a purchase order, between
you and a Customer for the sale or hire of Goods or the
provision of services or work done and materials supplied.
"SCHEDULE" The Schedule to this Agreement.
"SCOTTISH DEBTS" Debts arising under Sale Contracts where either those Sale
Contracts are governed by Scots law or the invoices for the
Debts are addressed to Customers in Scotland.
"SOFTWARE" The software provided by us to enable you to use FacFlow.
"STERLING" The lawful currency from time to time of the U.K.
"TERMINATION EVENT" Any event listed in clause 17.1.
"TRANSMISSION Any programming error, corruption or other defect, or any
DEFECT" delay or failure or breach of security in a FacFlow
Transmission.
"TRANSMISSIONS A record maintained by us of FacFlow Transmissions.
LOG"
"UNITED KINGDOM/ The United Kingdom of Great Britain and Northern Ireland,
U.K." the Channel Islands and the Isle of Man.
"U.K. DEBT" A Debt evidenced by an invoice addressed to a Customer in
the United Kingdom.
"VAT" Value Added Tax.
-26-
<PAGE> 27
"YOUR Monies payable or possibly payable to us in the future
RESPONSIBILITY" including liability:
(1) arising from debts transferred to us by any of your
suppliers; or
(2) as a guarantor or indemnifier of another client of
ours; or
(3) for the breach of your obligations to us; or
(4) for legal costs and expenses;
and our reasonable estimate of such monies where the amount
cannot be immediately found out.
-27-
<PAGE> 28
EXPORT DEBTS ANNEXE - INVOICE DISCOUNTING
EX 1 Where the Schedule to the Agreement shows that this annexe is
to be incorporated into the Agreement then you will also
Notify us of Export Debts and the terms of this annexe shall
additionally apply.
EX 2 In this annexe the following expressions have the meanings set
out against each of them:
"APPROVED A country, territory, region or continent
TERRITORY" referred to in the list at the end of this
annexe or as we may tell you in writing or
by making the same available through
FacFlow, even if no enquiry be made.
"EXPORT A Debt where the invoice is addressed to a
DEBT" Customer outside the United Kingdom and/or
in respect of which payment is to
originate from outside the United Kingdom.
EX 3 The definition of a "Non-Notifiable Debt" in the Agreement is
extended to include:
(1) all Debts, which under the Sale Contract are to be
discharged, wholly or in part, by letters of credit;
and
(2) all Debts where the invoice is addressed to a
Customer outside an Approved Territory.
EX 4 The definition of "Delivered" in relation to Export Debts
shall be treated as if item 2 of such definition were deleted.
EX 5 When you Notify us of an Export Debt you will be treated as
additionally warranting to us that:
(1) the Debt is payable by a Customer with an established
place of business in the country to which the invoice
is addressed, such country being an Approved
Territory, and without any set-off or counterclaim;
(2) the Customer has all unconditional authorities,
licences and permits necessary for him lawfully to
purchase and import the Goods and to pay for them by
their due date for payment;
(3) the exportation of the Goods does not breach the laws
of the United Kingdom or any other country or
territory.
EX 6 We may at any time remove any country, territory, region or
continent from the definition of Approved Territory by written
notice to you or by making the same available through FacFlow,
even if no enquiry be made, but this shall not affect Debts
Notified to us prior to our despatch of such notice.
EX 7 Where there is any conflict between the terms of this annexe
and the remainder of the Agreement then the terms of this
annexe shall prevail.
EXP1
<PAGE> 29
LIST OF APPROVED TERRITORIES
1. The following countries of the European Union - Austria, Belgium,
Denmark, Republic of Ireland, Finland, France, Germany, Greece, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden.
2. Norway, Switzerland, Canada and The United States of America.
SPECIAL CONDITIONS
1. You will obtain loss of book debt records insurance with our interest
noted therein, or alternatively sales ledger to be backed up at least
weekly and copy disk stored offsite.
2. You will give all Customers paying by BACS, CHAPS or any other form of
electronic transfer our nominated bank account details.
3. You will retain Customer Remittance Advices and make these available
to us upon request, where a Remittance Advice is not received you will
retain a copy of the cheque.
4. You must not include in an Offer or Notification any Debt until the
Goods have been delivered in accordance with this Agreement.
5. You will obtain proof of Delivery in all cases and make these available
to us upon request.
6. Accrual in respect of retrospective rebates is to be advised to LND at
commencement. A reserve will be maintained and updated at audit or more
regularly at LND's discretion.
7. You will maintain a monthly reconciliation between your bank statements
and cashbook and make them available to us upon request.
8. Exports to be ledgered separately.
9. We are to receive written confirmation that your credit insurance
policy with NCM is assigned to us.
EXP2
<PAGE> 30
THE SCHEDULE
(RECOURSE - DOMESTIC AND EXPORT)
<TABLE>
<S> <C> <C>
1. ANNEXE(S) INCORPORATED IN THIS AGREEMENT: Definitions.
(clause 24.1) Export Debts.
2. (A) MINIMUM PERIOD OF THIS AGREEMENT: 12 months from
(clause 2.1) the date this Agreement is made.
(B) MINIMUM NOTICE PERIOD: 3 months.
(clause 2.1)
3. DEBTS TO WHICH THIS AGREEMENT APPLIES: All U.K. Debts.
(clause 1.1) All Export Debts.
4. MONTHLY RETURNS DUE DATE: 15th day of month following.
(clause 16.3)
5. BASIS ON WHICH ANALYSIS OF DEBTS IS TO BE AGED: From each invoice date,
(clause 16.3.1) separately identifying the
amounts of
Outstanding Debts by
Customer showing
Customer balances as
follows: total, up
to 30 days old, 31 -
60 days old, 61 - 90
days old, and beyond
90 days old, plus a
summary ageing of
the totals of each
of these categories.
</TABLE>
N.B. In paragraphs 6 to 14 below:
- the provisions in the column headed U.K. Debts shall only apply to
U.K. Debts and the provisions in the column headed Export Debts shall
only apply to Export Debts;
- if we keep the Receivables Purchased Account and the Memorandum
Discounting Statement in respect of Debts in currencies other than
Sterling then any sum expressed in Sterling shall be treated as if the
words "or its currency equivalent" were also added.
<TABLE>
<CAPTION>
U.K. DEBTS EXPORT DEBTS
<S> <C> <C> <C>
6. MINIMUM NOTIFICATION We must receive a Client We must receive a Client
REQUIREMENTS: Advice from you at least Advice from you at least
(clause 17.1.12) once every 4 weeks. once every 4 weeks.
7. PREPAYMENT PERCENTAGE: 70%. 70%.
(definition of "Prepayment")
8. FUNDING PERIOD: 90 days from end of month 90 days from end of month
(definition of "Ineligible of invoice. of invoice.
Debt" and "Funding
Period")
</TABLE>
SCH1
<PAGE> 31
<TABLE>
<CAPTION>
U.K. DEBTS EXPORT DEBTS
<S> <C> <C> <C>
9. PREPAYMENT REVIEW To be determined by us. To be determined by us.
LEVEL:
(clause 8.2)
10. DISCOUNTING CHARGE: 1.50% above Base Rate. 1.50% above Base Rate.
(clause 9.1)
11. COMMISSION CHARGE: 0.08% of the Notified Value 0.08% of the Notified Value
(clause 9.3) of each Debt. of each Debt.
12. MINIMUM COMMISSION In any period of 12 In any period of 12
CHARGE: month(s) (pound)6000. month(s) (pound)6000.
(clause 9.4)
</TABLE>
Where both U.K. Debts and Export Debts are subject to this Agreement,
the minimum commission charge in respect of all Debts shall be (pound)
6000.
<TABLE>
<S> <C> <C> <C>
13. YOUR PAYMENT AND 30 days from date of 30 days from date of
SETTLEMENT DISCOUNT invoice with a settlement invoice with a settlement
TERMS: discount not exceeding n/a discount not exceeding n/a
(clause 13.1.1) %. %.
14. ADDITIONAL NON-NOTIFIABLE Sales to associated Sales to associated
DEBTS: companies, cash and credit companies, cash and credit
(clause 13.1.7) card sales. card sales.
</TABLE>
15. CONDITIONS TO BE COMPLIED WITH BEFORE WE START MAKING PREPAYMENTS:
1. We are to receive the corporate guarantee and indemnity of Krug
International (UK) Ltd, Hago Products Limited, Klippan Limited and
Bradley International Holdings Limited.
2. We are to be satisfied with a statement of your millennium compliance.
3. We are to receive and be satisfied with a copy of your Certificate of
Incorporation and Memorandum & Articles and Association.
4. We require an all assets mortgage debenture, the cost of which will be
borne by you.
5. We require a deed of priority from National Westminster Bank Plc in
respect of LND'S mortgage debenture.
6. We are to receive a letter of waiver from National Westminster Bank
Plc, in our standard form to allow us to purchase your Debts.
7. The practice of accepting on account payments is to cease from
commencement. All receipts are to be correctly allocated.
SCH2
<PAGE> 32
16. SPECIAL CONDITIONS:
1. We are to receive a copy of your quarterly management accounts within 6
weeks of quarter end, commencing with quarter ending 30th September
1999.
2. You will obtain loss of book debt records insurance with our interest
noted therein, or alternatively sales ledger to be backed up at least
weekly and copy disk stored offsite.
3. You will give all Customers paying by BACS, CHAPS or any other form of
electronic transfer our nominated bank account details.
4. You will retain Customer Remittance Advices and make these available to
us upon request, where a Remittance Advice is not received you will
retain a copy of the cheque.
5. You must not include in an Offer or Notification any Debt until the
Goods have been delivered in accordance with this Agreement.
6. You will obtain proof of Delivery in all cases and make these available
to us upon request.
7. Argos is to be ledgered separately and a prepayment percentage of 50%
will apply to this ledger.
8. Accrual in respect of retrospective rebates is to be advised to LND at
commencement. A reserve will be maintained and updated at audit or more
regularly at LND's discretion.
9. You will maintain a monthly reconciliation between your bank statements
and cashbook and make them available to us upon request.
10. Exports to be ledgered separately.
11. We are to receive written confirmation that your credit insurance
policy with NCM is assigned to us.
<PAGE> 33
CLIENT PARTICULARS
CORPORATE CLIENT
NAME: Beldray Limited
COMPANIES REGISTRY NO: 00062665
ADDRESS: PO Box 20, Beldray Road
Bilston
West Midlands WV14 7NF
NATURE OF YOUR BUSINESS: Manufacturers of household products
EXECUTION
TO CONFIRM THE RESPECTIVE CONSENT OF EACH PARTY TO THIS AGREEMENT AND TO
ACKNOWLEDGE HAVING HAD THE OPPORTUNITY TO TAKE INDEPENDENT LEGAL ADVICE BOTH
PARTIES HAVE EXECUTED AND DELIVERED THIS AGREEMENT AS INDICATED BELOW ON THE
27TH DAY OF SEPTEMBER 1999.
SIGNED and DELIVERED as a deed on )
behalf of LOMBARD NATWEST DISCOUNTING )
LIMITED by */s/ Stephen Harper ) /s/ Stephen Harper
-------------------- ) ---------------------
duly appointed Attorney in the presence ) Attorney for Lombard NatWest
of this Witness: Discounting Limited
Witness' Signature: /s/ Alex Tang
-----------------------------------------
Witness' Full Names: Alex Tang
-----------------------------------------
Witness' Address: c/o Smith House, PO Box 50, Elmwood Ave.
-----------------------------------------
Feltham Middx TW137QD
-----------------------------------------
Witness' Occupation: Account Manager's Assistant
-----------------------------------------
CORPORATE CLIENT
SIGNED and DELIVERED as a deed on behalf of )
)
BELDRAY LIMITED )
- -------------------------------------------- )
)
by * Marshall Cooper ) /S/ Marshall Cooper
---------------------------------------- ) --------------------------
Director ) Signature of Director
)
and * Paul Jones ) /S/ Paul Jones
---------------------------------------- ) --------------------------
Company Secretary ) Signature of
) Company Secretary
Key
* Insert full names.
** Delete as applicable.
<PAGE> 1
EXHIBIT 10.2
INVOICE DISCOUNTING AGREEMENT
(RECOURSE)
BETWEEN
LOMBARD NATWEST DISCOUNTING LIMITED
AND
KLIPPAN LIMITED
================================================================================
-1-
<PAGE> 2
INVOICE DISCOUNTING AGREEMENT
ORDER OF CLAUSES
<TABLE>
<S> <C>
1. Introduction 13. Your Undertakings to Us
2. Start and Length of Relationship 14. Warranties
Between Us
15. FacFlow
3. Our Ownership of Debts,
Offers and Client Advices 16. Information For Us
4. Purchase Price of Debts 17. Termination Events
5. Limits and Percentages 18. Power to Act in Your Name
6. Decisions 19. Contacting Other Parties
7. Disputes 20. Assignment, Delegation and
Force Majeure
8. Our Accounts 21. Service of Notices and Process
9. Charges and Indemnities 22. Law and Jurisdiction
10. Repurchase 23. Interpretation of this Agreement
11. Agency 24. General
12. Trusts and Other Rights
</TABLE>
ANNEXES
SCHEDULE
CLIENT PARTICULARS
EXECUTION
-2-
<PAGE> 3
INVOICE DISCOUNTING AGREEMENT
THIS AGREEMENT IS MADE ON: the last date shown for the signatures of
the parties at the end of this document.
BETWEEN:
(1) LOMBARD NATWEST DISCOUNTING LIMITED ("We/Us")
and
(2) THE CLIENT NAMED IN THE CLIENT PARTICULARS ("You")
1. INTRODUCTION
1.1 This Agreement applies only to those Debts specified in the Schedule
at the end of this document created by you under whatever trading name
or style you may ever carry on business. We may later extend or reduce
the scope of this Agreement to such Debts as we agree in writing
signed by both you and us. Certain words used in this document have
special meanings which are explained in the Annexe of Definitions.
Their first letter is in capitals.
1.2 You will sell to us with full title guarantee and we will purchase
from you all Debts to which this Agreement applies which are created
after the date of this Agreement and until its termination. You will
also Offer to us all Debts to which this Agreement applies which are
Outstanding on the date this Agreement is made.
2. START AND LENGTH OF RELATIONSHIP BETWEEN US
2.1 This Agreement shall start on the date it is made and it will run for
the minimum period shown in the Schedule. After the end of the minimum
period our relationship with you will then continue until ended by
either you or us giving to the other notice of at least the minimum
shown in the Schedule. Such notice may be given at any time, even
during the minimum period, provided it runs out on or after the end of
the minimum period. During any period of notice you will continue to
comply with all your obligations to us.
2.2 Should this Agreement end within the minimum period shown in the
Schedule you must pay us a sum equal to the shortfall between the
amount of the minimum commission charge that would have been earned
had this Agreement continued for the minimum period, and the
commission charges actually earned.
2.3 Should you wish to end this Agreement but give us notice of less than
the minimum shown in the Schedule we may still agree to your request,
subject to an additional fee. For each month or part of a month that
your notice falls short of the minimum notice period the fee will be
the higher of:
2.3.1 the monthly average of the commission charges earned in the
six calendar months before we agree to accept your request;
or
2.3.2 one twelfth of the minimum commission charge for the twelve
calendar months before we agree to accept your request.
2.4 We can also immediately end this Agreement by giving you written
notice at any time after a Termination Event.
-3-
<PAGE> 4
3. OUR OWNERSHIP OF DEBTS, OFFERS AND CLIENT ADVICES
3.1 As soon as possible on or after the date of this Agreement you will
deliver an Offer in respect of each Initial Debt Outstanding together
with its Related Rights. If we wish to accept an Offer, this will be
done by crediting the Notified Value of each accepted Debt to the
Receivables Purchased Account. Upon doing so our ownership of such
accepted Debt shall be complete and the Debt thereby assigned to us.
3.2 You hereby transfer to us the ownership of all Debts and in addition
you hereby assign to us all Scottish Debts (in each case together with
their Related Rights) created after the date of this Agreement until
the ending of this Agreement. Our ownership of such Debts shall be
complete and they shall vest in us the moment they are created.
3.3 During the life of this Agreement you will enter the Debts and any
relative credits onto your Customers' accounts following Delivery of
the Goods and send us a Client Advice of them, unless they are
Non-Notifiable Debts. Immediately you make any Adjustments you will
send us details of them on a Client Advice.
4. PURCHASE PRICE OF DEBTS
4.1 The Purchase Price of the Debts covered by this Agreement is to be the
amount received by us towards the discharge of the Debts but less:
4.1.1 Customers' prompt settlement discounts later claimed; and
4.1.2 any other later claimed Customers' deductions, abatements or
set-offs; and
4.1.3 the discounting charges and commission charges; and
4.1.4 all other sums due to us.
5. LIMITS AND PERCENTAGES
5.1 The Limits (except Funding Limits) shall, to start with, be as stated
in the Schedule. We may at any time increase or decrease any or all of
the Limits with immediate effect.
5.2 We will tell you of any changes to the Limits (except Funding Limits).
We can tell you by written notice, oral advice or making the same
available through FacFlow, even if no enquiry be made.
5.3 We may also set up a Funding Limit for each Customer, and will tell
you of any balance which exceeds it.
5.4 No Prepayments will be available against Debts in excess of a Funding
Limit. If, following a reduction of a Funding Limit, the amount of
Prepayments already made exceeds your Availability, the excess must be
paid back immediately to us.
6. DECISIONS
6.1 We need not give reasons for any of our decisions and all decisions
and information given by us are confidential. You must treat any
information regarding Funding Limits as legally privileged and will
indemnify us against all claims arising from breach of your duty of
confidentiality. You must not take Funding Limits as our view of the
creditworthiness or otherwise of a Customer. We do not operate a
credit reference service.
-4-
<PAGE> 5
7. DISPUTES
7.1 If any Customer disputes a Debt or his liability to pay by its due
date or asserts any counterclaim or claim for reduction of or
retention or set-off against a Debt (except for a settlement discount
not exceeding 7.5%), then:
7.1.1 you must promptly give us full details; and
7.1.2 you must do your best to settle all such disputes and claims
promptly and directly with your Customers.
7.2 You must promptly raise a credit note if a Customer is entitled to
one. Unless we have brought clause 7.3 into effect you must
immediately deliver the credit note to the Customer and include its
details on your next Client Advice. The credit note will be debited to
the Receivables Purchased Account.
7.3 We may at any time write and tell you either that no credit notes can
be despatched to your Customers without our prior consent or that any
credit notes must be sent to us for our consent before we then
despatch them.
7.4 Clauses 7.1 to 7.3 shall not affect those rights which we may have
because this Agreement has been breached.
8. OUR ACCOUNTS
8.1 The Notified Value of all Debts will be credited to our account known
as the "Receivables Purchased Account". The balance on this account is
our record of the prospective Purchase Price of Debts before any of
the deductions used under clause 4.1 to calculate the Purchase Price.
8.2 You may also take Prepayments from us in respect of Debts credited to
the Receivables Purchased Account. These payments will be debited to
both the Receivables Purchased Account and to the Memorandum
Discounting Statement. The amount taken must not exceed either your
Availability or the Prepayment review level shown in the Schedule.
Your Availability will immediately be affected if any Debt later
becomes an Ineligible Debt.
8.3 We may debit the Receivables Purchased Account and the Memorandum
Discounting Statement with all other sums you owe us. If the debit
balance on the Memorandum Discounting Statement results in a negative
Availability you must immediately pay the excess to us without our
having to ask you.
8.4 The value of any Remittance received by us will be credited to the
Memorandum Discounting Statement with an effective date for
calculating discounting charges as follows:
8.4.1 if in cleared funds by electronic means to the specific
account we tell you for such purpose - the same calendar day
that we receive the Remittance;
-5-
<PAGE> 6
8.4.2 other Remittances paid into our bank account - four calendar
days after the date of lodgement by you of such Remittance,
provided:
- for FacFlow users, you record the lodgement in
FacFlow on the same date it is made and tell us by
means of a FacFlow Transmission within such four
calendar day period. If your FacFlow Transmission
takes place later, the effective date for
calculating discounting charges will be the date of
this transmission; or
- for non FacFlow users, we receive a duplicate bank
paying-in slip, duly stamped by the receiving bank,
within the four calendar day period. If we receive
the paying-in slip later, the effective date for
calculating discounting charges will be the date of
such receipt.
8.5 The balance on the Memorandum Discounting Statement will reflect:
8.5.1 payments taken by you;
8.5.2 any sums owed by you to us; and
8.5.3 any Remittances received by us.
8.6 If the Memorandum Discounting Statement shows a credit balance we will
normally pay this to you without your asking us but, at our
discretion, we may withhold amounts equal to:
8.6.1 any credit balances on Customers' accounts; and
8.6.2 the amount of Your Responsibility.
8.7 We cannot let you take any credit balance from your Memorandum
Discounting Statement after we have been told of the issue of a
petition for your sequestration, bankruptcy or winding up. Provided
that we do not exercise any of our rights under clause 17 we shall
need to see a court order dismissing the petition before starting
payments again.
8.8 We may at any time add together the balances on all accounts recording
transactions between you and us. We may also at any time apply or
set-off any amounts owing by you to us and the amount of Your
Responsibility against any amounts owing by us to you. Where any
amounts due by you to us, including those prospectively and
contingently due, cannot immediately be found out we may make a
reasonable estimate.
8.9 We will provide you with statements of the Receivables Purchased
Account and the Memorandum Discounting Statement. These shall be
treated as correct and binding upon you, except for those errors which
shall be obvious or contrary to law or where we receive your written
notice within 10 days of our despatch of such statements to you.
8.10 You will accept a certificate signed by our Company Secretary or a
director of ours as to all or any of the following on the date
referred to in the certificate:
8.10.1 the balance on the Memorandum Discounting Statement;
8.10.2 the balance on the Receivables Purchased Account;
8.10.3 any loss or damage suffered by us;
8.10.4 the amount of Your Responsibility;
8.10.5 any other amount payable to us.
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In any proceedings such certificate shall be conclusive evidence as to
the balance, loss, damage or amount on the date so certified.
8.11 If we ask you to do anything you will pay all costs and expenses of
doing so. If you do not carry out anything which we have a right to
ask for then we may do it and you will pay all our costs and expenses.
8.12 All payments due from you to us shall be made in immediately available
funds free and clear of any right of retention, set-off or
counterclaim or any other withholding or deduction. If you are
required by law to make any withholding or deduction, you will pay
such additional sum needed so that we receive the full amount due to
us under this Agreement.
9. CHARGES AND INDEMNITIES
9.1 You will pay us the discounting charge which shall accrue from day to
day. It will be worked out at the rate shown in the Schedule on the
debit balance on the Memorandum Discounting Statement. Any payment to
you will be debited to the Memorandum Discounting Statement with an
effective date for calculating discounting charges as follows:
CHAPS - the same day as the payment is taken.
2 days BACS - two calendar days from the date that the
payment is initiated.
3 days BACS - three calendar days from the date that the
payment is initiated.
9.2 The discounting charge shall be debited daily to the Receivables
Purchased Account and to the Memorandum Discounting Statement. Any
debit to the Memorandum Discounting Statement shall be treated as a
Prepayment for the purpose of working out the discounting charge.
9.3 We shall be entitled to a commission charge at the rate shown in the
Schedule for each Notified Debt. We shall debit this to both the
Receivables Purchased Account and the Memorandum Discounting Statement
at the end of each calendar month. No refund of any commission charges
can be made either if a credit note is issued or if this Agreement
ends.
9.4 If the total of all commission charges in each period shown in the
Schedule falls short of the sum needed during that period to reach the
minimum commission charge you will pay us the shortfall. If we
consider such shortfall likely then we may debit it to the Receivables
Purchased Account and to the Memorandum Discounting Statement.
9.5 If this Agreement does not end on the last day of a period for the
calculation of the minimum commission charge then when the Agreement
does end you will pay us the minimum commission charge to the end of
such period.
9.6 Payments to you will be made by BACS or CHAPS or such other method we
may at any time advise you. Any administration charges to you for such
payments will be at the same rate as those of our bankers.
9.7 If our bankers charge us, you will repay to us their charges for:
9.7.1 dealing with dishonoured Remittances;
9.7.2 collecting any Remittances in a currency other than Sterling;
9.7.3 collecting Remittances in Sterling drawn on a bank outside
the United Kingdom.
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9.8 You will pay us an arrangement fee for any variation of this Agreement
requested by you or any additional service provided outside its scope.
If we permit payments in excess of your Availability, we may also make
an additional facility charge until the excess is repaid. This will
not affect any other rights we may have.
9.9 If we make special visits to your premises or anywhere else then you
will pay all our costs and expenses.
9.10 You will fully indemnify us against all losses, costs, demands,
disbursements, fees and expenses of:
9.10.1 obtaining the release of Debts from charges, trusts or other
encumbrances or enforcing such release;
9.10.2 assignments or reassignments of Debts or Related Rights or
giving notices of assignment or reassignment;
9.10.3 taking guarantees or indemnities from any person, including a
receiver;
9.10.4 enforcing either this Agreement or any guarantee or indemnity
given in respect of it;
9.10.5 all matters arising from any breach by you of this Agreement
or the occurrence of a Termination Event;
9.10.6 any Customer failing to pay a Debt at its full Notified
Value;
9.10.7 any solicitor or agent engaged to collect Debts or conduct
legal proceedings concerning Debts and all legal fees and
disbursements payable to any other party to such proceedings.
9.11 Changes to the discounting charge, the commission charge and the
minimum commission charge shall only be effective if in writing signed
by both you and us.
9.12 VAT, if applicable, will be added to all fees and charges quoted by us.
9.13 You will pay us immediately on demand any amount which we have to pay
to any Customer by way of refund claimed under a direct debit
guarantee given by us.
10. REPURCHASE
10.1 We may at any time require you to Repurchase an Ineligible Debt from
us.
10.2 Should we require you to Repurchase Debts from us we will continue to
own all such Debts until we receive the price for all Repurchases. At
this point we shall transfer them back to you. We shall then account
to you for any further sums received by us from your Customers in
respect of such Debts.
11. AGENCY
11.1 We alone shall have sole and absolute discretion as to how to collect
and enforce payment of Debts. We can do this in whatever way we see
fit. Until we exercise our rights under clause 11.5 you must, at your
expense, collect Debts and manage Customers' accounts for us as our
undisclosed agent. You are not our agent for any other purpose.
11.2 Throughout the term of this Agreement you must ensure that all Debts
are promptly and correctly recorded in your Accounting Records and
that your sales ledger control bears a conspicuous notation that Debts
have been sold and assigned to us.
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11.3 During your agency we may communicate in your name with Customers for
the purposes of Debt verification.
11.4 You must act promptly and efficiently when carrying out your duties as
our agent.
11.5 We may at any time vary the terms of your agency as we see fit. If we
request you will give notice to each Customer that we are the owner of
all your present and future Debts. We will tell you the wording of the
notice which we can also give on your behalf. Unless we state
otherwise, such request will act as a cancellation of your agency,
whereupon we alone shall be entitled to collect and enforce payment of
all Debts in whatever way we see fit, including by direct debits. You
will fully co-operate with us and, as we direct, will help us to
collect Debts.
11.6 After the cancellation of your agency:
11.6.1 you must not say you are our agent;
11.6.2 you must immediately send us your Accounting Records to do
with Debts;
11.6.3 we will maintain your Customers' accounts in the form of a
sales ledger;
11.6.4 you must make sure Customers pay all their Debts to us or as
we direct;
11.6.5 in our absolute discretion we may settle, conduct or abandon
any collection activity and you will be bound by our actions
and decisions;
11.6.6 in our absolute discretion we can grant time or other
indulgence at any time to any Customer without discharging
you from your obligations to us, and compromise claims with
Customers or accept payment from a Customer which is less
than the Notified Value of the Debt;
11.6.7 in our absolute discretion we may start, defend or compromise
any legal proceedings and you will be bound by our actions
and decisions; the proceedings may be in our or your name;
you will give us all evidence we may at any time need,
whether before during or after any proceedings; you will make
sure that those witnesses we need will attend court; we may
use an alternative dispute resolution procedure involving
mediation or arbitration;
11.6.8 we can repay to a Customer any credit balance shown on their
account;
11.6.9 you will be responsible for paying all our charges, costs,
expenses and fees for collecting or attempting to collect any
Debt, including:
- our own internal costs, expenses and court fees;
- those of any solicitor or collection agent engaged
by us;
- those payable to any other party to the proceedings;
11.6.10 we may require you to give us security for the above costs
and expenses; we will credit the Receivables Purchased
Account and the Memorandum Discounting Statement with any
costs and expenses recovered.
12. TRUSTS AND OTHER RIGHTS
12.1 From the moment that you receive any Remittance, you will hold it
absolutely in trust for us. We may give notice to anyone that such
trust exists.
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12.2 When you receive a Remittance you must:
12.2.1 immediately pay it into our bank account, or into a trust
bank account in your name;
12.2.2 not pay it into any other account or deal with or negotiate
it.
12.3 A trust bank account must be run according to our instructions. This
means that we may irrevocably appoint our officers as the only people
who can authorise transactions on the account.
12.4 You must authorise and indemnify our bankers so that they can credit
our bank account with any transfers received from your bankers or your
Customers' bankers and so they can collect the proceeds of any
Remittances payable to you or your agents.
12.5 You must give us a letter addressed to your bankers instructing them
to transfer to our bankers any cheques, bank giro transfers, BACS,
CHAPS and other electronically transferred funds that may be received
by your bank from Customers. You will not be able to cancel such
instructions.
12.6 If we do not become the owner of any Debt or its Related Rights
covered by this Agreement for any reason then you will be treated as
holding such Debt or its Related Rights on trust for us free from all
encumbrances.
12.7 You must promptly tell us about all Returned Goods. We may require you
to set these aside marked with our name as the owner. You will then
deliver them to us, or deal with them as we direct. We can, without
notice, enter any premises where we believe Returned Goods or any
other items comprised in the Related Rights are kept. We can take
possession of or sell any Returned Goods on such terms and at such
prices as we consider appropriate. We shall credit the net proceeds
towards the discharge of the relative Debts. If we ask, you will
deliver to us or allow us to take away any other items included in the
Related Rights which we may deal with as we see fit.
13. YOUR UNDERTAKINGS TO US
13.1 Whilst this Agreement is in force and then until you have paid all
monies owing to us you undertake:
13.1.1 to make sure the payment and settlement discount terms for
each Debt and any rights of retention, abatement or rebate
are not more generous than those appearing in the Schedule
and that these appear on every invoice and all copies;
13.1.2 not to cancel or vary any Sale Contract or any payment terms
or settlement discounts after Delivery unless you have our
written consent;
13.1.3 to make sure that every Sale Contract shall:
- only be made in the ordinary course of your business
stated in the Client Particulars;
- be subject to English law or Scots law;
- provide for payment by the Customer in Sterling;
- not include any prohibition against assignment of the
Debt;
13.1.4 to make sure that neither you nor any Associate enters into
any other agreement for the factoring, charging, declaring in
trust or discounting of Debts with any other party or into
any arrangement prejudicial to our outright ownership of
Debts;
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13.1.5 to tell us immediately you know about the following:
- any change or contemplated change in the directors or
partners or the control or ownership of your company, firm or
business or of any guarantor or indemnifier of your
obligations to us;
- any threatened or pending Insolvency proceedings against you,
or against any guarantor, indemnifier or Associate;
- any changes in the status, address, or creditworthiness of a
Customer;
- any security holder taking any steps towards or actually
enforcing its security over any part of your assets or
undertaking;
- any floating charge given by you being crystallised or
becoming converted into a fixed charge;
- all retrospective or quantity discounts agreed with
Customers;
- any payment or settlement discount terms different from those
shown in the Schedule;
13.1.6 immediately we ask:
- to provide information about your Customers;
- to give evidence satisfactory to us of any order and the
completion of any Sale Contract;
- to exercise any reservation of title to Goods in the Sale
Contract;
- to deliver to us and not to your Customer the originals of
any of the items comprised in the Related Rights, together
with as many copies as we may require; we may forward these
to the Customer or other persons or organisations as
appropriate at your expense;
13.1.7 not to include in an Offer or a Client Advice, until we tell you, any
Debt which shall:
- be due by an Associate;
- be due by a Customer who also supplies goods or services to
you;
- arise from Goods supplied by you on approval, trial,
evaluation, consignment, sale or return or similar terms;
- be due by a Customer who has not purchased the Goods for his
business;
- be regulated by the Consumer Credit Act 1974;
- arise from the sale of your capital or fixed assets;
- be due under a Sale Contract in a currency other than
Sterling unless a Currency Annexe applies;
- be within the category of Non-Notifiable Debts detailed in
the Schedule, or such other Debts as we may specify;
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13.1.8 immediately to cease and desist from any contra accounting
arrangements with your Customers;
13.1.9 not to include in an Offer or a Client Advice any Debt until
the Goods have been Delivered;
13.1.10 to keep us advised of the identity of your Associates;
13.1.11 promptly to perform all your further and continuing
obligations to a Customer and, if we ask, to give evidence of
such performance;
13.1.12 to create such security in our favour on your undertaking and
assets as we may specify for your performance of this
Agreement, or in respect of Debts intended to be owned by us
but which for any reason fail to belong to us;
13.1.13 to sign any additional documents and do anything we may need
to exercise or enforce our rights, to sign assignments of
Debts or Related Rights or endorse or Assign any instrument
or security included in the Related Rights; any such
assignment of a Scottish Debt or any of its Related Rights
will support the assignment given in clause 3.2 but will not
prejudice that earlier assignment;
13.1.14 to follow our guidelines for the day to day efficient working
of this Agreement;
13.1.15 to make sure that your warranties about Debts are complied
with until they are discharged;
13.1.16 to take all steps we may require for the protection of our
interests under or arising out of this Agreement and in
mitigating any loss we may suffer.
14. WARRANTIES
14.1 By including a Debt in an Offer or a Client Advice you will be treated
as having given all of the following warranties to us:
14.1.1 all the particulars contained in the Offer or Client Advice
are correct and complete and the Debt has not been previously
Notified to us;
14.1.2 each Debt relates to an actual and bona fide sale and
Delivery in accordance with the Sale Contract;
14.1.3 the Debt is payable in the U.K. without any retention,
set-off or counterclaim by a Customer with an established
place of business in the U.K.;
14.1.4 you have the absolute right to transfer the Debt to us and,
except in our favour, it shall remain free from any security,
charge, trust, option, pledge, hypothecation, encumbrance,
lien or any tracing rights adversely affecting the Debt, the
Goods or the proceeds;
14.1.5 our ownership of the Debt will not violate any laws or
agreement affecting you;
14.1.6 the Notified Value of the Debt is the same as its Contracted
Value;
14.1.7 all sums due or obligations by you to the Customer have been
paid or performed and you will have no other obligations
towards the Customer which could reduce the amount payable to
us for the Debt;
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14.1.8 no right or claim of rescission, defence, adjustment or other
right or claim exists or will arise to reduce or extinguish
the Notified Value of the Debt or affect our ability to
collect the Debt;
14.1.9 the correct name and address of the Customer and any required
purchase order number appear on the invoice or credit note,
on any documents supplied evidencing the Debt and all
correspondence;
14.1.10 the Customer has obtained all the consents and certificates
necessary in order to pay the Debt;
14.1.11 the invoice or credit note identifies the currency for
payment as Sterling;
14.1.12 the Debt is one to which this Agreement applies;
14.1.13 where the Debt relates to a claim for interest:
- all legal criteria for your interest claim have been
fulfilled;
- the principal Debt to which your interest claim
relates has previously been Notified;
- your interest claim must be Notified to us within
three months of the date the principal Debt was
paid;
- no credit payment terms have been allowed for
discharging your interest claim.
14.2 You warrant that prior to entering into this Agreement you have
disclosed to us every fact or matter known to you or which you should
have reasonably known might influence us in our decision whether or
not:
14.2.1 to enter into this Agreement on these terms; or
14.2.2 to accept any person as a guarantor or indemnifier of your
obligations to us.
14.3 You will immediately tell us of anything which might reasonably
influence our decision to continue with this Agreement on these terms.
15. FACFLOW
15.1 We will provide you with FacFlow. You will provide all computer
equipment required at your premises and will keep this equipment virus
free and suitable for use. We shall have no responsibility for any
damage, loss or corruption of your data, software or equipment caused
through the loading or operation of our Software.
15.2 You undertake:
15.2.1 to use your best endeavours to keep such equipment free from
any Equipment Defect or Transmission Defect and to make
suitable contingency arrangements to cover any such defect or
the withdrawal or suspension of FacFlow;
15.2.2 immediately to load and use any Software updates which we may
provide;
15.2.3 to keep secret and confidential the method of operation of
FacFlow, the Software and all access data and security
procedures and to tell us promptly if any contravention is
known or suspected;
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15.2.4 on a weekly basis or more frequently if we tell you, to make
back up copies on disk of your sales ledger records,
including invoices and credit notes, and to securely store
such copies away from your premises for at least 4 months,
and to advise us of their location.
15.3 You will have a non-transferable licence to use the Software.
15.4 We own all rights in the Software. You may not copy it without our
prior written consent, except one copy solely for back-up purposes.
15.5 You and we undertake to each other:
15.5.1 to use all reasonable endeavours to ensure that each FacFlow
Transmission is completely and correctly sent;
15.5.2 to tell the other promptly if either is aware of any
Equipment Defect or Transmission Defect and to co-operate
with the other to remedy it;
15.5.3 to maintain appropriate records in support of FacFlow
Transmissions and to ensure that FacFlow is not accessible to
unauthorised persons.
15.6 We will maintain a Transmissions Log which shall, in the absence of
manifest error, be conclusive proof and evidence of the FacFlow
Transmissions sent or received by us.
15.7 We may rely upon any FacFlow Transmission ostensibly sent by you even
though it may be sent without your authority. We may also rely upon
any FacFlow Transmission sent through your agent or intermediary.
15.8 We may without notice suspend, withdraw or reactivate the operation of
FacFlow.
15.9 We shall have no responsibility to you for any loss or damage as a
result of any failure or delay in complying with our obligations in
connection with FacFlow, including that arising from any:
15.9.1 Equipment Defect or Transmission Defect;
15.9.2 suspension or withdrawal of FacFlow;
15.9.3 act or omission of any third party or abnormal operating
conditions;
15.9.4 failure to process any FacFlow Transmission to our internal
systems, even though accepted by FacFlow.
15.10 Upon withdrawal of FacFlow you will immediately return to us any
property of ours in your possession or under your control.
15.11 You will indemnify us against all losses and damages that we may incur
if you breach your obligations in respect of FacFlow.
15.12 FacFlow does not operate on a real time basis. Please note any
information is only accurate to an earlier point in time. In particular
any request by you for a payment based upon any Availability shown may
be varied by us as further information becomes available.
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15.13 Subject to clause 15.12, you and we will give each FacFIow
Transmission the same status as if it had been in writing, signed on
behalf of the sender and physically delivered to the recipient, unless
the FacFlow Transmission can be shown to have been corrupted as a
result of technical failure. FacFlow Transmissions shall be treated as
satisfying any legal requirement for a communication to be in writing.
You waive any rights to challenge the validity of any FacFlow
Transmission on the ground that it was prepared and/or sent and/or
received only in electronic form.
15.14 A FacFlow Transmission regarding Initial Debts shall be treated as
including the following words:
"In accordance with the Invoice Discounting Agreement between Lombard
NatWest Discounting Ltd and ourselves the Debts referred to in this
FacFlow Transmission shall be considered as being subject to an
Offer".
16. INFORMATION FOR US
16.1 You must give us a signed copy of your full set of accounts, including
your directors' and auditor's report or such other financial reports
as we request, for each of your accounting reference periods (as
defined in the Companies Act 1985). You must give us these items as
soon as you have them, which must be no later than six months from the
end of each accounting period.
16.2 You must give us your management profit and loss account and balance
sheet at such intervals as we tell you. You will also give us such
other financial reports that we may ask for and you will ensure that
your auditors or external accountants report to us directly any
information that we require.
16.3 You will provide to us by the monthly returns due date specified in
the Schedule:
16.3.1 an aged analysis of Debts on the basis specified in the
Schedule and correct to the last day of the preceding month.
The ageing must also identify those Customers' accounts which
are either in dispute or have been passed to solicitors, debt
collectors or other third parties for collection;
16.3.2 copy Customers' statements for the same period as in clause
16.3.1;
16.3.3 a sales ledger control in the format we tell you reconciled to
the aged analysis of Debts in clause 16.3.1;
16.3.4 any other information we may ask for.
16.4 You will let any employee, representative or agent of ours enter any
of your business premises or locations under your control in order to:
16.4.1 inspect Goods, stocks, Sale Contracts and evidence of their
performance;
16.4.2 verify, check, remove or be provided with copies of all
Accounting Records.
16.5 We may at all times rely upon any signature, act or communication of
any person purporting to act on your behalf and the same shall be
binding upon you.
17. TERMINATION EVENTS
17.1 In addition to the right of either you or us to give notice to the
other to end this Agreement under clause 2.1, we may immediately end
it at any time after any of the following events:
17.1.1 any breach or threatened breach by you of this Agreement;
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17.1.2 the breach or threatened breach or the termination of any
contract between us and any of your Associates;
17.1.3 any application by any creditor of yours for a court order
that we must pay money to your creditor or must stop paying
any monies to you;
17.1.4 if you have an obligation to a third party for repayment of
borrowed money which is declared due prior to its stated
maturity date or you do not pay it when due;
17.1.5 any change in your ownership, control, constitution or
composition reasonably considered by us to prejudice our
position;
17.1.6 breach or termination by you or a third party of any
representation, warranty or undertaking given to us;
17.1.7 the termination of any waiver, consent, ranking or priority
arrangement in our favour;
17.1.8 your ceasing or threatening to cease to carry on your
business referred to in the Schedule;
17.1.9 your Insolvency;
17.1.10 the Insolvency or death of any person who has given a
guarantee or indemnity for your obligations to us, or the
service of a notice of intention to end such guarantee or
indemnity or the legal disability of that person;
17.1.11 if any Associate factors or discounts its debts with another
party or is threatened with Insolvency proceedings or becomes
Insolvent;
17.1.12 your failure to comply with the minimum notification
requirements shown in the Schedule.
17.2 Upon your Insolvency, ceasing to trade, failure to repay the entire
Repurchase price under clause 17.4.1 or our cancelling your agency
referred to in clause 11.5, we may:
17.2.1 immediately debit your Receivables Purchased Account and
Memorandum Discounting Statement with an additional
commission charge of five per cent of the Notified Value of
the Debts then Outstanding or Notified to us thereafter in
order to cover our additional administrative work; and
17.2.2 immediately increase the discounting charge by two per cent.
17.3 Upon or at any time after a Termination Event (whether or not we use
our right immediately to end this Agreement), we may, with or without
notice to you, do any or all of the following:
17.3.1 reduce the Prepayment percentage to zero or such other
figure as we may decide;
17.3.2 designate all or any Outstanding Debts as Ineligible Debts;
17.3.3 create a special reserve against the Receivables Purchased
Account to cover Your Responsibility;
17.3.4 add together the balances on all accounts recording
transactions between you and us;
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17.3.5 demand that you pay us immediately any debit balance arrived
at under clause 17.3.4 plus commission charges and
discounting charges accrued but not yet debited and an amount
equal to all credit balances on Customers' accounts;
17.3.6 require you to Repurchase any Debts then Outstanding;
17.3.7 delay at least ten calendar days, to allow for cheque
clearances, before paying to you any credit balance on the
Memorandum Discounting Statement.
17.4 Upon the ending of this Agreement, for whatever reason:
17.4.1 you must Repurchase all Outstanding Debts from us at a price
equivalent to the debit balance on the Memorandum Discounting
Statement and all other sums due to us;
17.4.2 you will not attempt to cancel any notices of assignment
given to Customers or attempt to collect Debts until you have
paid the Repurchase price under clause 17.4.1 and we shall
continue to own all Debts until so paid;
17.4.3 you will be responsible for all credit balances on Customers'
accounts and indemnify us in respect of all claims for them;
17.4.4 you will not Notify us of any Debts arising after the date on
which this Agreement ends; and
17.4.5 we shall pay you any credit balance on the Memorandum
Discounting Statement less the amount of Your Responsibility
but allowing at least ten calendar days for cheque
clearances.
17.5 Except as otherwise provided, the ending of this Agreement shall not
affect our respective rights and obligations in respect of:
17.5.1 any Debts which shall have come into existence prior to such
termination; and
17.5.2 all transactions or events having their inception prior to
such termination, including the continued running of the
discounting charge and our rights to set-off monies or
combine accounts.
Such rights and obligations shall remain in full force and effect
until all monies due from you shall have been received by us and all
monies due from us to you shall have been paid.
17.6 Any discharge of your obligations to us shall be of no effect
to the extent that any receipt by us shall later be set aside
under insolvency law.
18. POWER TO ACT IN YOUR NAME
18.1 To ensure that you carry out your obligations to us and as
security for all sums which shall become due to us, you
irrevocably appoint us and our directors, Company Secretary
and officers, at any time, jointly and each of them severally
to act as your attorneys as we or they think fit in order to
do all or any of the following:
18.1.1 complete and perfect our title to or deal with any
Debt, Related Rights or Returned Goods;
18.1.2 obtain payment of and give valid discharges for any
Debt;
18.1.3 secure performance of any of your obligations to us
or to any Customer.
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18.2 For these purposes, your attorneys may do any of the following:
18.2.1 sign all documents;
18.2.2 endorse and/or negotiate all Remittances;
18.2.3 conduct, defend or compromise any legal proceedings and
settle any indebtedness;
18.2.4 take all other steps they consider necessary.
18.3 These powers shall continue both during and after the ending of this
Agreement and during any disability on your part until all sums due to
us have been paid. You will ratify and confirm whatever shall be
lawfully done under these powers.
18.4 You also irrevocably appoint any assignee of ours or any person to
whom we may novate this Agreement to perform any of the acts set out
above. We may also appoint or remove a substitute attorney.
19. CONTACTING OTHER PARTIES
19.1 We may:
19.1.1 provide your bank, auditors, accountants and other
professional advisers with such information about your
accounts with us as they may ask;
19.1.2 obtain from your bank, auditors, accountants and other
professional advisers such information as we may request.
19.2 You confirm that you have authorized the persons referred to in 19.1.2
to give us such information.
19.3 We may disclose this Agreement and any information which we have
obtained:
19.3.1 to any actual or potential assignee, transferee or
sub-participant;
19.3.2 to any agency, security trustee, agent and/or arranger in
connection with any financing of any such assignee,
transferee or sub-participant;
19.3.3 in any listing particulars, prospectus or offering circular.
20. ASSIGNMENT, DELEGATION AND FORCE MAJEURE
20.1 You consent to our novating to any other party any or all of our
obligations, rights and remedies. This Agreement shall bind and enure
to the benefit of our successors and assignees.
20.2 Except where the context otherwise requires, references to "we" or
"us" shall include our successors, assignees and transferees in
clauses conferring benefits and/or rights on us; in clauses imposing
obligations on us, such references shall extend to such successors,
assignees and transferees only if they shall specifically assume such
obligations.
20.3 You will not, without our prior written consent:
20.3.1 assign, grant security over or charge any of your rights or
benefits or delegate any of your duties under this Agreement;
20.3.2 dispose of any part of your business, assets or undertaking,
except in the ordinary course of your business;
-18-
<PAGE> 19
20.3.3 create any securities, mortgages or charges on or over your
assets or undertaking.
20.4 We shall not be liable to you for any consequential, secondary or
indirect loss, injury or damage or any loss of or damage to goodwill,
profits or anticipated savings. However nothing shall operate to
excuse us from liability caused by the fraud of any of our officers.
20.5 We shall have no liability to you if we are delayed in or unable to
perform our duties directly or indirectly because of an event of Force
Majeure.
20.6 Any waiver or apparent waiver by us of any breach of any obligation or
provision in this Agreement cannot be treated as a general waiver or
be construed as implying or establishing consent to any subsequent
breach.
21. SERVICE OF NOTICES AND PROCESS
21.1 Except as otherwise stated, any written notice from us to you and any
proceedings issued by us requiring service on you may be given or
served by delivering it at or posting it to:
21.1.1 your address stated in the client particulars or such other
address advised to and acknowledged by us as being effective
for the purposes of this clause; or
21.1.2 your registered office; or
21.1.3 any address last known to us at which you carried on
business.
It may also be handed to any officer of yours or be given by facsimile
transmission or electronic medium to your number or address last known
to us for communication by such means.
21.2 Any notice or process shall be considered served if:
21.2.1 delivered - at the time of delivery; or
21.2.2 sent by post - 48 hours from the time of posting; or
21.2.3 sent by facsimile transmission or electronic medium - at the
time of transmission; or
21.2.4 handed over - at the time of handing over.
21.3 Any notice in writing by you to us under this Agreement shall take
effect at the time it is received by us at our registered office.
22. LAW AND JURISDICTION
22.1 Our relationship with you is to be governed and interpreted by English
law. You submit to the jurisdiction of the English courts. We may,
however, use the courts of any other jurisdiction.
23. INTERPRETATION OF THIS AGREEMENT
23.1 Any reference to a statute includes any amendment or replacement or
re-enactment of that statute for the time being and any order and any
subordinate legislation made under it.
-19-
<PAGE> 20
23.2 The singular includes the plural and vice versa. Reference to any
gender shall include any other gender. References to a person or party
shall be construed as references to any person, firm, company,
corporation, association, partnership, government, whether local,
national or supra-national or other official body.
23.3 The meaning of general words introduced by the word "other" is not to
be limited by reference to any preceding words.
23.4 Where the meaning of a word or expression in this Agreement has to be
considered in relation to any place outside England and such word or
expression has no exact counterpart in that place, it is to have the
meaning of its closest equivalent as conclusively determined by us.
23.5 The interpretation and construction of this Agreement shall not be
affected by any headings, which are for convenience only.
24. GENERAL
24.1 The whole agreement between you and us consists of only this document,
including any annexes referred to in the Schedule (and any document
referred to in such annexes). References to "the Agreement" or "this
Agreement" include all the annexes and all subsequent amendments,
variations or extensions. All earlier agreements, prior negotiations,
quotations, warranties, advertisements and representations shall be of
no effect. You have not relied upon any representation made to you by
us or on our behalf or been influenced, induced or persuaded to enter
into this Agreement by any representation.
24.2 We may use all or any of the rights and remedies contained in this
Agreement. They are not exclusive of each other or of any rights or
remedies given to us by law. If we choose not to enforce or cannot
enforce any term or condition, this will not affect our right to
enforce the rest of the Agreement or to enforce that term or condition
at a later date. Also, such rights and remedies shall not be affected
if we compromise with any Customer.
24.3 This Agreement is considered by both you and us to be reasonable.
Should any part of it be valid only if some other part were deleted
then the Agreement will apply as if it were so deleted. The remainder
of this Agreement will not be affected by such deletion.
24.4 Except where clauses 5.1 (where we may change Limits at our complete
discretion) and 9.11 apply, changes to the Agreement can be made
between you and us in any way but will only come into effect on the
date stated in our written confirmation to you of such change or if no
such date is stated upon despatching such confirmation.
-20-
<PAGE> 21
ANNEXE OF DEFINITIONS
In the attached Agreement the following expressions have the meanings set out
below against each of them.
<TABLE>
<S> <C> <C>
Accounting Records Force Majeure Related Rights
Adjustments Funding Limit Remittances
Assign Funding Period Repurchase
Associate Goods Retention Percentage
Availability Ineligible Debt Returned Goods
BACS Initial Debt Sale Contract
Base Rate Insolvent Schedule
CHAPS Limits Scottish Debts
Client Advice Memorandum Discounting Statement Software
Concentration Limit Percentage Non-Notifiable Debt Sterling
Contracted Value Notified/Notify/Notifying Termination Event
Customer Notified Value Transmission Defect
Debt Offer Terminations Log
Delivered Outstanding United Kingdom/U.K.
Equipment Defect Prepayment U.K. Debt
FacFlow Purchase Price VAT
FacFlow Transmission Receivables Purchased Account Your Responsibility
</TABLE>
"ACCOUNTING Any of the following:
RECORDS"
(1) accounting books, records and ledgers, financial and
management accounts;
(2) computer data or materials about your financial
position, purchases and sales;
(3) all invoices, credit notes or documents evidencing
entries in such books of accounts, records and
computer data and any other documents we require.
"ADJUSTMENTS" Any entry on your Customers' accounts which changes the
Notified Value of Debts.
"ASSIGN" The transfer of ownership which includes in Scotland the
giving of an assignation.
"ASSOCIATE" (1) Any subsidiary or holding company of yours as
defined in sections 736 and 736A of the Companies
Acts 1985 to 1989; or
(2) any other form of associate of yours as defined in
section 184 of the Consumer Credit Act 1974; or
(3) a director, partner, shareholder or employee of
yours or the spouse of any of them; or
(4) any company in which you or any of them have an
interest other than purely for investment purposes
in a publicly quoted company.
-21-
<PAGE> 22
"AVAILABILITY" Your entitlement to Prepayment calculated by taking
the credit balance on the Receivables Purchased
Account and deducting:
(1) the value of all Ineligible Debts;
(2) the amount of Your Responsibility; and
(3) the standard retention.
The standard retention is arrived at by:
(1) taking the balance on the sales ledger
control; and then
(2) deducting the value of all Ineligible
Debts; and then
(3) multiplying the resultant sum by the
Retention Percentage.
"BACS" The Bankers Automated Clearing System.
"BASE RATE" The Sterling Base Rate per annum quoted, from
time to time, by National Westminster Bank Plc or
its successors or such other bank as we may tell
you.
"CHAPS" The Clearing Houses Automated Payments System.
"CLIENT ADVICE" Your notification to us, in such way as we may
specify, including in a FacFlow Transmission, of
Debts, credit notes and Adjustments which have not
previously been Notified to us together with such
evidence of the performance of the Sale Contract or
reasons for a credit note as we may specify.
"CONCENTRATION A percentage established by us of the balance of all
LIMIT PERCENTAGE" Outstanding Notified Debts.
"CONTRACTED VALUE" The amount of a Debt payable by a Customer in
accordance with the Sale Contract after taking into
account any deduction, discount, claim or allowance.
"CUSTOMER" A person who incurs or may incur any indebtedness
under a Sale Contract.
"DEBT" Any present, future or contingent obligation of a
Customer to make payment under a Sale Contract
together with its Related Rights or where the
context allows a part of such obligation or its
Related Rights, including:
(1) the future right to recover sums due
following the determination, assessment or
agreement of the amount of the obligation;
and
(2) VAT; and
(3) all duties and charges.
"DELIVERED" In relation to Goods:
(1) their removal from your control and from
your premises, carriers and agents; and
(2) their physical delivery to the Customer in
the United Kingdom or to the Customer's
order; and
(3) the assumption of risk therein by the
Customer; and
-22-
<PAGE> 23
(4) complete performance of the Sale Contract.
In relation to services: fully performed.
"Deliver" and "Delivery" are to be similarly
construed.
"EQUIPMENT Any malfunction, failure, defect, downtime or
unavailability of computer equipment
or
DEFECT" software or any ancillary service or link including
telephone or other communication systems.
"FACFLOW" A computerised data enquiry and transmission system
between you and us as updated from time to time.
"FACFLOW Any item of data transmitted between you and us
TRANSMISSION" using FacFlow.
"FORCE MAJEURE" Any circumstances outside our or a Customer's
reasonable control, including an act of God, any
exchange control, governmental or other official
regulations or requirements, the outbreak of war,
any terrorist act, revolution, civil insurrection,
strike, lockout, industrial action or failure or
non-operation of postal, banking or communication
services.
"FUNDING LIMIT" A monetary limit established by us in respect of
each Customer against which the Prepayment
percentage will be applied.
"FUNDING PERIOD" The period initially as specified in the Schedule,
after which Debts will rank as Ineligible Debts.
"GOODS" Any merchandise or services the subject of a Sale
Contract.
"INELIGIBLE DEBT" A Debt:
(1) which is disputed or in respect of which
the Customer shall dispute their liability
to pay or pay it by its due date for
payment; or
(2) in respect of which you shall be in breach
of any undertaking or warranty given to us
about it or any other obligations of yours
to us arising from it; or
(3) which remains Outstanding beyond the end of
the Funding Period; or
(4) in excess of our Funding Limit; or
(5) owing by any Customer in excess of the
Concentration Limit Percentage; or
(6) in respect of which legal proceedings have
been threatened against the Customer; or
(7) where the Customer is Insolvent; or
(8) specified by us at any other time.
"INITIAL DEBT" A Debt Outstanding at the date of this Agreement.
-23-
<PAGE> 24
"INSOLVENT"
(A) In relation to you or any guarantor or
indemnifier of your obligations to us - any
of or the occurrence of any of the
following:
(1) the issue of a petition or application, the
calling of a meeting or making proposals,
for any of the matters listed in sub
section 'B' below;
(2) any part of your or their income or assets
being subject to any of the following:
- seizure, distress, diligence or
lien;
- enforcement of security rights;
- execution of legal process;
- sequestration;
- an injunction or interdict;
- attachment;
- other legal process;
(3) the service of any statutory demand under
the Insolvency Act 1986;
(4) the entry or making of any judgment, order,
decree or award which shall remain
unsatisfied or whose terms shall not be
complied with for seven days (except
pending any appeal);
(5) an application for a garnishee order;
(6) giving notice of the intended suspension of
payments of debts;
(7) becoming apparently insolvent;
and the taking of any steps for the commencement of
any proceedings in respect of any of the above
matters.
(B) In relation to a Customer - any of
following:
(1) in relation to an individual -
bankruptcy, apparent insolvency or
sequestration or the granting of a trust
deed for the benefit of creditors;
(2) in relation to a company - a resolution for
voluntary winding up by reason of
insolvency, a winding up order, the
appointment of an administrator under the
Insolvency Act 1986 or the appointment of a
provisional liquidator or receiver (whether
in or out of court) or an administrative
receiver of any of its assets or income or
a judicial factor;
(3) in relation to a partnership - its
bankruptcy, apparent insolvency or
sequestration or its winding up or the
appointment to it of an administrator under
the Insolvency Act 1986 or the appointment
of a judicial factor or an order for the
bankruptcy or sequestration of any partner
or the apparent insolvency of any partner
or the grant by a partner of a trust deed
for creditors;
(4) in relation to any person - entry into a
voluntary arrangement under the Insolvency
Act 1986 or apparent insolvency or any
formal or informal arrangement generally
for the benefit of creditors;
"Insolvency" shall be construed accordingly.
-24-
<PAGE> 25
"LIMITS" Any of:
- the Prepayment percentage;
- Funding Limits;
- Funding Period;
- the Prepayment review level initially shown
in the Schedule;
- the Concentration Limit Percentage.
"MEMORANDUM An account operated by us to calculate discounting
DISCOUNTING charges.
STATEMENT"
"NON-NOTIFIABLE A Debt, owned by us under this Agreement, which must
DEBT" not be Notified to us until we tell you, including
specifically those referred to in the Schedule and
in clause 13.1.7.
"NOTIFIED/NOTIFY Inclusion of a Debt in an Offer or Client Advice.
NOTIFYING"
"NOTIFIED VALUE" The amount of the Debt as shown in an Offer or Client
Advice.
"OFFER" An unconditional offer to sell us a Debt with full
title guarantee to be made in such form and with
such evidence of the performance of the Sale
Contract as we may specify. Where more than one Debt
is at the same time subject to an Offer it shall be
treated as an independent offer to sell us each Debt
so offered which may be accepted or rejected by us
entirely at our discretion.
"OUTSTANDING" A Debt unpaid by the Customer or a third party.
"PREPAYMENT" A payment on account of the Purchase Price of Debts
calculated by applying the Prepayment percentage
initially specified in the Schedule to their Notified
Value.
"PURCHASE PRICE" The price payable by us for a Debt calculated in
accordance with clause 4.1.
"RECEIVABLES An account reflecting the prospective Purchase Price
PURCHASED of Debts.
ACCOUNT"
"RELATED RIGHTS" Any of the following in relation to any Debt or
Returned Goods:
(1) all your rights by law as an unpaid vendor
or under the Sale Contract but without any
obligation on us to complete the Sale
Contract;
(2) all evidence of the Sale Contract or its
performance or any disputes arising;
(3) documents of title to goods, warehouse
keepers receipts, bills of lading, shipping
documents, airway bills, certificates of
origin, customs forms, commercial and
consular invoices, insurance documents or
similar;
(4) the benefit of all insurances;
(5) all Remittances, securities, bonds,
guarantees and indemnities;
(6) all Accounting Records to do with the Debt;
-25-
<PAGE> 26
(7) the right to call for the ownership of all
Returned Goods;
(8) interest.
"REMITTANCES" Cash, cheques, bills of exchange, negotiable and non
negotiable instruments, letters of credit, orders,
drafts, promissory notes, electronic payments and
any other instruments, methods or forms of payment
or engagement received by us, you or your agents
towards a Debt.
"REPURCHASE" Our right to require you to buy back and in respect
of a Scottish Debt to take a reassignment from us of
an Outstanding Debt at a price equivalent to its
Notified Value or the Prepayment paid in respect of
it.
"RETENTION 100% less the Prepayment percentage from time to
PERCENTAGE" time.
"RETURNED GOODS" Any Goods relating to or purporting to comply with a
Sale Contract which any Customer shall for any
reason:
(1) reject or give notice of rejection; or
(2) return or attempt to or wish to return to
you or us; or
(3) which you or we recover from a Customer.
"SALE CONTRACT" A contract in any form, including a purchase order,
between you and a Customer for the sale or hire of
Goods or the provision of services or work done and
materials supplied.
"SCHEDULE" The Schedule to this Agreement.
"SCOTTISH DEBTS" Debts arising under Sale Contracts where either
those Sale Contracts are governed by Scots law or
the invoices for the Debts are addressed to
Customers in Scotland.
"SOFTWARE" The software provided by us to enable you to use
FacFlow.
"STERLING" The lawful currency from time to time of the U.K.
"TERMINATION EVENT" Any event listed in clause 17.1.
"TRANSMISSION Any programming error, corruption or other defect,
DEFECT" or any delay or failure or breach of security in a
FacFlow Transmission.
"TRANSMISSIONS A record maintained by us of FacFlow Transmissions.
LOG"
"UNITED KINGDOM/ The United Kingdom of Great Britain and Northern
U.K." Ireland, the Channel Islands and the Isle of Man.
"U.K. DEBT" A Debt evidenced by an invoice addressed to a
Customer in the United Kingdom.
"VAT" Value Added Tax.
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<PAGE> 27
"YOUR Monies payable or possibly payable to us in the
RESPONSIBILITY" future including liability:
(1) arising from debts transferred to us by any
of your suppliers; or
(2) as a guarantor or indemnifier of another
client of ours; or
(3) for the breach of your obligations to us;
or
(4) for legal costs and expenses;
and our reasonable estimate of such monies where the
amount cannot be immediately found out.
-27-
<PAGE> 28
EXPORT DEBTS ANNEXE - INVOICE DISCOUNTING
EX 1 Where the Schedule to the Agreement shows that this annexe is to be
incorporated into the Agreement then you will also Notify us of Export
Debts and the terms of this annexe shall additionally apply.
EX 2 In this annexe the following expressions have the meanings set out
against each of them:
"APPROVED A country, territory, region or continent referred
TERRITORY" to in the list at the end of this annexe or as we
may tell you in writing or by making the same
available through FacFlow, even if no enquiry be
made.
"EXPORT A Debt where the invoice is addressed to a Customer
DEBT" outside the United Kingdom and/or in respect of
which payment is to originate from outside the
United Kingdom.
EX 3 The definition of a "Non-Notifiable Debt" in the Agreement is
extended to include:
(1) all Debts, which under the Sale Contract are to be
discharged, wholly or in part, by letters of credit; and
(2) all Debts where the invoice is addressed to a Customer
outside an Approved Territory.
EX 4 The definition of "Delivered" in relation to Export Debts shall be
treated as if item 2 of such definition were deleted.
EX 5 When you Notify us of an Export Debt you will be treated as
additionally warranting to us that:
(1) the Debt is payable by a Customer with an established place
of business in the country to which the invoice is addressed,
such country being an Approved Territory, and without any
set-off or counterclaim;
(2) the Customer has all unconditional authorities, licences and
permits necessary for him lawfully to purchase and import the
Goods and to pay for them by their due date for payment;
(3) the exportation of the Goods does not breach the laws of the
United Kingdom or any other country or territory.
EX 6 We may at any time remove any country, territory, region or continent
from the definition of Approved Territory by written notice to you or
by making the same available through FacFlow, even if no enquiry be
made, but this shall not affect Debts Notified to us prior to our
despatch of such notice.
EX 7 Where there is any conflict between the terms of this annexe and the
remainder of the Agreement then the terms of this annexe shall
prevail.
EXP1
<PAGE> 29
LIST OF APPROVED TERRITORIES
1. The following countries of the European Union - Austria, Belgium,
Denmark, Republic of Ireland, Finland, France, Germany, Greece, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden.
2. Norway, Switzerland, Canada and The United States of America.
SPECIAL CONDITIONS
1. You will obtain loss of book debt records insurance with our interest
noted therein, or alternatively sales ledger to be backed up at least
weekly and copy disk stored offsite.
2. You will give all Customers paying by BACS, CHAPS or any other form of
electronic transfer our nominated bank account details.
3. You will retain Customer Remittance Advices and make these available
to us upon request, where a Remittance Advice is not received you will
retain a copy of the cheque.
4. You must not include in an Offer or Notification any Debt until the
Goods have been delivered in accordance with this Agreement.
5. You will obtain proof of Delivery in all cases and make these
available to us upon request.
EXP2
<PAGE> 30
THE SCHEDULE
(RECOURSE - DOMESTIC AND EXPORT)
<TABLE>
<S> <C>
1. ANNEXE(S) INCORPORATED IN THIS AGREEMENT: DEFINITIONS.
(clause 24.1)
Export Debts.
2. (A) MINIMUM PERIOD OF THIS AGREEMENT:
(clause 2.1) 12 months from
the date this Agreement is made.
(B) MINIMUM NOTICE PERIOD:
(clause 2.1) 3 months.
3. DEBTS TO WHICH THIS AGREEMENT APPLIES:
(clause 1.1) All U.K. Debts.
All Export Debts.
4. MONTHLY RETURNS DUE DATE:
(clause 16.3) 15th day of month following.
5. BASIS ON WHICH ANALYSIS OF DEBTS IS TO BE AGED:
(clause 16.3.1) From each invoice date, separately identifying
the amounts of Outstanding Debts by
Customer showing Customer balances as
follows: total, up to 30 days old, 31 - 60
days old, 61 - 90 days old, and beyond 90
days old, plus a summary ageing of the
totals of each of these categories.
</TABLE>
N.B. In paragraphs 6 to 14 below:
- the provisions in the column headed U.K. Debts shall only
apply to U.K. Debts and the provisions in the column headed
Export Debts shall only apply to Export Debts;
- if we keep the Receivables Purchased Account and the
Memorandum Discounting Statement in respect of Debts in
currencies other than Sterling then any sum expressed in
Sterling shall be treated as if the words "or its currency
equivalent" were also added.
<TABLE>
<CAPTION>
U.K. DEBTS EXPORT DEBTS
<S> <C> <C> <C>
6. MINIMUM NOTIFICATION We must receive a Client We must receive a Client
REQUIREMENTS: Advice from you at least Advice from you at least
(clause 17.1.12) once every 4 weeks. once every 4 weeks.
7. PREPAYMENT PERCENTAGE: 70%. 70%.
(definition of "Prepayment")
8. FUNDING PERIOD: 90 days from end of month 90 days from end of month
(definition of "Ineligible of invoice. of invoice.
Debt" and "Funding
Period")
</TABLE>
SCH1
<PAGE> 31
<TABLE>
<CAPTION>
U.K. DEBTS EXPORT DEBTS
<S> <C> <C>
9. PREPAYMENT REVIEW To be determined by us. To be determined by us.
LEVEL:
(clause 8.2)
10. DISCOUNTING CHARGE: 1.50% above Base Rate. 1.50% above Base Rate.
(clause 9.1)
11. COMMISSION CHARGE: 0.08% of the Notified Value 0.08% of the Notified Value
(clause 9.3) of each Debt. of each Debt.
12. MINIMUM COMMISSION In any period of 12 In any period of 12
CHARGE: month(s) (pound) 6000. month(s) (pound) 6000.
(clause 9.4)
</TABLE>
Where both U.K. Debts and Export Debts are subject to this Agreement,
the minimum commission charge in respect of all Debts shall be (pound)
6000.
<TABLE>
<S> <C> <C>
13. YOUR PAYMENT AND 30 days from date of 30 days from date of
SETTLEMENT DISCOUNT invoice with a settlement invoice with a settlement
TERMS: discount not exceeding n/a discount not exceeding n/a
(clause 13.1.1) %. %.
14. ADDITIONAL NON-NOTIFIABLE Sales to associated Sales to associated
DEBTS: companies, cash and credit companies, cash and credit
(clause 13.1.7) card sales. card sales.
</TABLE>
15. CONDITIONS TO BE COMPLIED WITH BEFORE WE START MAKING PREPAYMENTS:
1. We are to receive the corporate guarantee and indemnity of Krug
International (UK) Ltd, Hago Products Limited, Beldray Limited and
Bradley International Holdings Limited.
2. We are to be satisfied with a statement of your millennium compliance.
3. We are to receive and be satisfied with a copy of your Certificate of
Incorporation and Memorandum & Articles and Association.
4. We require an all assets mortgage debenture, the cost of which will be
borne by you.
5. We require a deed of priority from National Westminster Bank Plc in
respect of LND'S mortgage debenture.
6. We are to receive a letter of waiver from National Westminster Bank
Plc, in our standard form to allow us to purchase your Debts.
7. The practice of accepting on account payments is to cease from
commencement. All receipts are to be correctly allocated.
SCH2
<PAGE> 32
16. SPECIAL CONDITIONS:
1. We are to receive a copy of your quarterly management accounts within 6
weeks of quarter end, commencing with quarter ending 30th September 1999.
2. You will obtain loss of book debt records insurance with our interest
noted therein, or alternatively sales ledger to be backed up at least
weekly and copy disk stored offsite.
3. You will give all Customers paying by BACS, CHAPS or any other form of
electronic transfer our nominated bank account details.
4. You will retain Customer Remittance Advices and make these available to us
upon request, where a Remittance Advice is not received you will retain a
copy of the cheque.
5. You must not include in an Offer or Notification any Debt until the Goods
have been delivered in accordance with this Agreement.
6. You will obtain proof of Delivery in all cases and make these available to
us upon request.
7. Collecting drivers are to sign despatch notes in all cases.
8. Argos is to be ledgered separately and a prepayment percentage of 50% will
apply to this ledger.
9. Accrual in respect of retrospective rebates is to be advised to LND at
commencement. A reserve will be maintained and updated at audit or more
regularly at LND's discretion.
<PAGE> 33
CLIENT PARTICULARS
CORPORATE CLIENT
NAME: Klippan Limited
COMPANIES REGISTRY NO: 02264274
ADDRESS: Byron Street, Carlisle
Cumbria
CA2 5TD
NATURE OF YOUR BUSINESS: Manufacturer of child safety equipment
EXECUTION
To confirm the respective consent of each party to this Agreement and to
acknowledge having had the opportunity to take independent legal advice both
parties have executed and delivered this agreement as indicated below on the
Twenty Seventh day of September 1999.
SIGNED and DELIVERED as a deed on )
behalf of LOMBARD NATWEST DISCOUNTING )
LIMITED by * Stephen Harper ) /s/ Stephen Harper
--------------------------- ) ----------------------------
duly appointed Attorney in the presence ) Attorney for Lombard NatWest
of this Witness: Discounting Limited
Witness' Signature: /s/ Alex Tang
--------------------------------------
Witness' Full Names: Alex Tang
--------------------------------------
Witness' Address: c/o Smith House, PO BOX 50 Elmwood Ave
--------------------------------------
Feltham, Middlesex TW137QD
--------------------------------------
Witness' Occupation: Account Manager's Assistant
--------------------------------------
CORPORATE CLIENT
SIGNED and DELIVERED as a deed on behalf of )
)
KLIPPAN LIMITED )
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)
by * Robert M Thornton Jr. ) /s/ Robert M Thornton Jr.
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Director ) Signature of Director
)
and * David Wright ) /s/ David Wright
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**Director Signature of **Director
Key
* Insert full names.
** Delete as applicable.
<PAGE> 1
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and entered
into on September 24, 1999 by and between Wyle Laboratories, Inc., a Delaware
corporation with its principal executive office located at 128 Maryland St., El
Segundo, CA 90245 (the "Company" or "Purchaser") and KRUG International Corp.,
an Ohio corporation with its principal executive office located at 900 Circle 75
Parkway, Suite 1300, Atlanta, GA 30339 ("KRUG" or "Seller") with reference to
the following facts:
A. Seller owns 3,800,000 shares of the Series A-1 Preferred Stock
of the Company (the "Shares"). Seller also owns 9,640 shares of the Series B
Senior Redeemable Preferred Stock of the Company (the "Series B Shares"). Seller
also has a stock option to purchase a variable number of shares of the Common
Stock of the Company (the "KRUG Option") under that certain Stock Option
Agreement dated March 16, 1998 between the Company and Seller (the "KRUG Option
Agreement").
B. Seller has previously entered into a letter of intent dated
June 4, 1999 (the "LOI") with C.D. Yiakas on behalf of himself and a group of
key managers of the Company (the "Management Group") giving the Management Group
the exclusive right to purchase the Shares, on the terms and conditions set
forth in the LOI. This Agreement is the "Definitive Agreement" contemplated in
the LOI, and is intended to replace and supersede the LOI in its entirety.
C. The Management Group has also entered into a certain letter of
intent dated June 11, 1999 with William E. Simon & Sons, LLC ("WESS"),
representing WESINVEST Partners, L.P. ("Wesinvest") and Keith Hightower
(collectively, the
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"Wesinvest Group"), under which the Management Group has the right to purchase
certain equity of the Company owned by the Wesinvest Group (the "WESS LOI"),
subject to certain conditions as set forth in the WESS LOI. It is contemplated
that a definitive agreement will be entered into with the Wesinvest Group
containing all the terms and conditions of, and superseding, the WESS LOI (the
"Wesinvest Group Agreement"). The transactions contemplated by the WESS LOI (or,
if superseded, by the Wesinvest Group Agreement) are referred to herein as the
"Wesinvest Transactions."
D. It is contemplated that the transactions contemplated by this
Agreement, and the Wesinvest Transactions, will be financed through a series of
transactions as described in the Private Placement Memorandum attached as
Exhibit A to this Agreement (the "Financing Transactions"), it being understood
and acknowledged that KRUG has not reviewed, and undertakes no obligation to
review, the factual accuracy of the Private Placement Memorandum.
E. In connection with the Financing Transactions, it is
contemplated that a new holding company will be formed (referred to herein as
"Holdings") which will, upon consummation of the transactions contemplated by
this Agreement, the Wesinvest Transactions and the Financing Transactions,
become the sole shareholder of the Company.
F. Subject to the closing and consummation of the Financing
Transactions and the Wesinvest Transactions, the Purchaser desires to purchase
and receive from Seller, and the Seller desires to sell and transfer to the
Purchaser, all of the Shares.
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Purchaser and Seller have also agreed to cancel the KRUG Option and terminate
the KRUG Option Agreement.
G. The parties desire to enter into this Agreement upon the terms
and conditions set forth below.
The parties agree as follows:
8. SALE AND TRANSFER OF SHARES; CANCELLATION OF OPTION; PURCHASE
PRICE.
8.1 SALE AND TRANSFER OF SHARES; CANCELLATION OF OPTION. Subject
to the terms, covenants and conditions set forth herein, at the Closing (as
defined below), (i) Seller shall sell, transfer, assign and deliver to
Purchaser, and Purchaser shall purchase and acquire from Seller, all of the
Shares; and (ii) Purchaser and Seller shall cancel the KRUG Option and terminate
the KRUG Option Agreement.
8.2 PURCHASE PRICE. The purchase price for the sale of the Shares
and cancellation of the KRUG Option shall be the aggregate amount of $4,125,000
(the "Purchase Price"). The Purchase Price shall be paid by cash, certified or
cashier's check, or wire transfer of immediately available funds delivered at
the Closing. Of the Purchase Price, $984,927 represents payment in satisfaction
of accrued but unpaid dividends on the Shares.
9. DELIVERIES AT THE CLOSING. At the Closing:
(a) Seller will deliver to the Company for transfer and
cancellation thereof the stock certificate(s) evidencing the Shares.
Such certificate(s) shall be accompanied by a stock assignment separate
from the certificate(s) representing the shares evidenced thereby, duly
executed by Seller;
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(b) Seller will deliver to the Company for transfer and
cancellation thereof the stock certificate(s) evidencing the Series B
Shares pursuant to the Exchange Agreement (as defined below). Such
certificate(s) shall be accompanied by a stock assignment separate from
the certificate(s) representing the shares evidenced thereby, duly
executed by Seller;
(c) Seller will execute and deliver to Purchaser an agreement
of cancellation of the KRUG Option and termination of the KRUG Option
Agreement, in the form attached as Exhibit B to this Agreement (the
"Option Cancellation Agreement");
(d) Seller will deliver to Purchaser a secretary's certificate
evidencing the due authorization of the transactions contemplated by
this Agreement and attesting to the incumbency of officers, in form and
substance reasonably satisfactory to Purchaser;
(e) Seller will deliver to Purchaser the officers certificate
referred to in Section 3.2, paragraph (a) below;
(f) Purchaser will deliver to Seller the consideration
described in Section 1.2 above;
(g) Purchaser will execute and deliver to Seller the Option
Cancellation Agreement;
(h) Purchaser will deliver to Seller a secretary's certificate
evidencing the due authorization of the transactions contemplated by
this Agreement and attesting to the incumbency of officers, in form and
substance reasonably satisfactory to Seller; and
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(i) Purchaser will deliver to Seller the officers certificate
referred to in Section 3.2, paragraph (b) below.
10. CLOSING.
10.1 PLACE AND TIME. The closing of the transactions contemplated
by this Agreement (the "Closing") will be held at the offices of the Company,
128 Maryland St., El Segundo, CA 90245. The parties will use their best efforts
to have the Closing occur on October 14, 1999, or on such other date and at a
time agreed-upon in good faith by the parties, but in no event later than
October 29, 1999, unless extended by mutual agreement of the parties. The date
of the Closing is referred to herein as the "Closing Date."
10.2 CONDITIONS TO CLOSING. The obligations of the parties are
subject to the satisfaction or waiver, at or prior to the Closing, of each of
the following conditions:
(a) the representations and warranties of Seller in this
Agreement shall be true and correct in all respects, as of the date
hereof and as of the Closing Date as if made on the Closing Date, and
Seller shall provide an officers certificate to Purchaser, in form and
substance satisfactory to Purchaser, to that effect and that the
conditions to closing for which Seller is responsible have been
satisfied;
(b) the representations and warranties of Purchaser in this
Agreement shall be true and correct in all respects, as of the date
hereof and as of the Closing Date as if made on the Closing Date, and
Purchaser shall provide an officers certificate to Seller, in form and
substance satisfactory to Seller, to that
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effect and that the conditions to closing for which Purchaser is
responsible have been satisfied;
(c) at the option of Purchaser, which condition may be waived
in the sole discretion of the Management Group, concurrently with the
Closing, the Financing Transactions shall be in a position to be
consummated and closed, conditioned only on the satisfaction of the
conditions set forth in this Agreement;
(d) Seller shall have received a solvency opinion from a firm
mutually acceptable to the parties, dated the Closing Date, in form and
substance acceptable to Seller in its reasonable discretion (the
"Solvency Opinion"). The Solvency Opinion shall include the rendering
firm's opinion as to whether, among other things, assuming the
transactions contemplated by this Agreement, the Financing
Transactions, the Wesinvest Transactions and any other related buyout
transactions with other shareholders of the Company (collectively, the
"Buyout Transactions") have been consummated as proposed, immediately
after giving effect to such transactions: (i) the fair value and
present fair saleable value of the Company's assets would exceed the
Company's stated liabilities and identified contingent liabilities;
(ii) the Company should be able to pay its debts as they become
absolute and mature; and (iii) the capital remaining in the Company
after the transactions would not be unreasonably small for the business
in which the Company is engaged, as management has indicated it is now
conducted and is proposed to be conducted following the consummation of
the Buyout Transactions; the preparation of the Solvency Opinion will
be at the sole cost and expense of the Company;
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(e) concurrently with or prior to the Closing, the Company
shall close the Wesinvest Transactions on substantially the terms and
conditions set forth in the Wesinvest Group Agreement (Purchaser will
deliver to Seller an executed copy of the Wesinvest Group Agreement
promptly after the execution thereof, it being expressly understood and
acknowledged by Seller that Seller is not a third party beneficiary of
such agreement);
(f) at or prior to the Closing, WESINVEST Partners L.P.
("Wesinvest") will deliver an acknowledgment and waiver of its right of
first refusal to purchase the Shares under that certain Amended and
Restated Stockholders Agreement dated March 16, 1998, by and among
Wyle, KRUG, Wesinvest and certain senior managers of the Company (the
"Management Stockholders"); acknowledging such rights under the
Stockholders Agreement, KRUG agrees that it will not send a "Notice of
Intention" under Section 4.3 of the Stockholders Agreement prior to the
Closing or termination of this Agreement;
(g) at or prior to the Closing, the Management Stockholders
will deliver an acknowledgment and waiver of their respective rights of
first refusal, if any, to purchase the Shares under the Stockholders
Agreement;
(h) at or prior to the Closing, Seller and Holdings shall
enter into an agreement (the "Exchange Agreement") pursuant to which
Seller will exchange the Series B Shares for an equal number of shares
of the Senior Preferred Stock of Holdings (the "Holdings Preferred
Stock") having the rights, privileges, powers, preferences and
restrictions set forth on Exhibit C hereto; and
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(i) at or prior to the Closing, the Company and KRUG will
agree to terminate that certain Amended and Restated Stockholders
Agreement dated March 16, 1998 (the "Wyle Stockholders Agreement")
among the Company, KRUG, Wesinvest Partners, L.P. and certain senior
managers of the Company; at or prior to the Closing, the Company will
also cause the other parties to the Wyle Stockholders Agreement to
terminate the Wyle Stockholders Agreement.
11. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants (which representations and warranties under this
Agreement shall survive for a period of two years after the Closing) to
Purchaser that:
(a) the Shares represent all of the voting shares of the
Company owned or controlled, directly or indirectly, by Seller and
represent Seller's entire interest in the Company other than the Series
B Shares and the KRUG Option;
(b) the Shares and the KRUG Option are each owned beneficially
and of record by Seller, free and clear of any and all liens,
encumbrances, security agreements, equities, options, claims, charges
and restrictions of any kind whatsoever;
(c) Seller has not assigned the KRUG Option or any rights
under the KRUG Option Agreement, nor has Seller attempted or purported
to exercise any option or any other of Seller's rights under the KRUG
Option Agreement;
(d) Seller has, in connection with the Company's compliance
with paragraph 5(e) hereof, received current information as to the
operations, financial condition and future prospects, including
potential strategic
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alliances, of the Company (as described in paragraph 5(e)) and has had
an opportunity to ask questions of and receive answers from the Company
in order to obtain such information as Seller believes it needs to make
its decision to sell the Shares;
(e) Seller has the full power to transfer the Shares to
Purchaser and cancel the KRUG Option and terminate the KRUG Option
Agreement as provided herein without first obtaining the consent or
approval of any person;
(f) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction under which it
was organized, with full power and authority to enter into this
Agreement and perform its obligations hereunder;
(g) the execution and delivery of this Agreement and each
document or instrument in furtherance hereof and the consummation of
the transactions contemplated by Seller has been duly authorized by all
necessary action of its Board of Directors, and no further
authorization is necessary on the part of Seller;
(h) this Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its
terms, except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally,
and the general principles of equity, regardless of whether asserted in
a proceeding in law or equity (the "Enforceability Exceptions");
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(i) neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Seller is subject or any
provisions of the Seller's charter or bylaws or any agreement or
contract to which Seller is bound;
(j) neither the Seller nor any of its officers, employees or
agents have incurred any obligation or liability for brokerage or
finder's fees, agent's commissions or other similar payment in
connection with this Agreement or the transactions contemplated hereby;
and
(k) no representation or warranty of Seller in this Agreement
omits, and no notice given pursuant to Section 7.1 hereof will omit, to
state a material fact necessary to make the statements herein and
therein, in light of the circumstances in which they were made, not
misleading.
12. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Company
(including the Company and its subsidiaries, and Holdings and its subsidiaries
and affiliated companies) hereby represents and warrants (which representations
and warranties under this Agreement shall survive for a period of two years
after the Closing) to Seller that:
(a) it is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full
power and authority to enter into this Agreement and perform its
obligations hereunder;
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(b) the execution and delivery of this Agreement and each
document or instrument in furtherance thereof and the consummation of
this transaction by the Company has been duly authorized by its Board
of Directors and/or shareholders, and no further authorization is
necessary on the part of the Company;
(c) this Agreement constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as may be limited by the
Enforceability Exceptions;
(d) neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Purchaser is subject or any
provisions of the Purchaser's charter or bylaws or any agreement or
contract to which Purchaser is bound;
(e) the Purchaser has disclosed to the Sellers all material
matters relating to the Company and its business as of the Closing
Date, including without limitation the Company's financial condition,
business, operations, and pending and prospective extraordinary
transactions (including, without limitation, investments, sales of
significant assets or similar transactions, acquisitions, significant
financing transactions, and agreements other than in the ordinary
course of business with significant vendors, suppliers or customers),
except as the disclosure of the specific details thereof to the Sellers
may be limited by agreements of confidentiality or non-disclosure, in
which case the Purchaser
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shall have disclosed the general nature of any such material matters;
the Private Placement Memorandum (referenced above) does not misstate
any material fact or omit to state any fact necessary to make the
statements made therein, in light of the circumstances in which they
were made, not misleading; other than as disclosed pursuant to this
paragraph, there have been no discussions initiated or held by or on
behalf of the Company or Holdings with any third parties contemplating
a joint venture or strategic alliance other than normal proposals and
agreements with such third parties in the ordinary course of the
Company's business, none of which is viewed by the management of the
Company or Holdings as material;
(f) on the Closing Date, after giving effect to the Closing
and the occurrence of the Buyout Transactions: (i) the fair value and
present fair saleable value of the Company's assets would exceed the
Company's stated liabilities and identified contingent liabilities;
(ii) the Company will be able to pay its debts as they become absolute
and mature; (iii) the capital remaining in the Company after the
transactions would not be unreasonably small for the business in which
the Company is engaged, as it is now conducted and is proposed to be
conducted following the consummation of the transactions contemplated
by this Agreement; (iv) this Agreement and the transactions
contemplated hereby do not and will not impair the capital of the
Company; and (v) the Company will not be "insolvent" within the meaning
Section 101(32) of the United States Bankruptcy Code;
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(g) neither the Purchaser nor any of its officers, employees
or agents have incurred any obligation or liability for brokerage or
finder's fees, agent's commissions or other similar payment in
connection with this Agreement or the transactions contemplated hereby;
and
(h) no representation or warranty of Purchaser in this
Agreement omits, and no notice given pursuant to Section 7.1 hereof
will omit, to state a material fact necessary to make the statements
herein and therein, in light of the circumstances in which they were
made, not misleading.
13. MISCELLANEOUS.
13.1 NOTICES. All notices, requests or demands required or
permitted to be given under this Agreement shall be in writing, and shall be
deemed to have been duly given on the date of service if served personally on
the party to whom notice is to be given, or three days after the date of mailing
if mailed by first class mail, postage prepaid, registered or certified, return
receipt requested, and properly addressed to the party to whom notice is to be
given at the address for such party set forth herein. Any party may change its
address to which notices are to be sent by written notification of such change
of address in accordance with the provisions hereof.
13.2 BEST EFFORTS; COOPERATION IN GOOD FAITH. Between the date of
this Agreement and the Closing, each of the parties will use its best efforts to
cause responsibilities and the conditions of this Agreement for which it is
responsible to be satisfied. The parties shall also cooperate in good faith in
the preparation and execution of the Exchange Agreement.
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13.3 SUBJECT HEADINGS. The subject headings of the Sections and
paragraphs of this Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
13.4 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement,
together with the exhibits and waiver and assignment of rights attached hereto,
constitutes the entire agreement among the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties, including the LOI. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by each of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
13.5 BINDING EFFECT. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto and their respective successors and
assigns.
13.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to its principles of conflicts or choice of laws.
13.7 DISPUTES. If either party hereto brings an action pertaining
to or arising out of this Agreement, the prevailing party shall be entitled to
recover from the losing party all reasonable costs and expenses of litigation,
including reasonable attorneys fees and court costs, in such amounts as may be
determined in the discretion of the
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court having jurisdiction of such action in addition to any other legal or
equitable relief to which such party may be entitled.
13.8 MULTIPLE COUNTERPARTS. This Agreement may be executed in one
or more counterparts, any of which may be executed and transmitted by facsimile,
and each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13.9 FURTHER ACTIONS. The parties shall execute any and all
additional documents and take all other such actions as may be convenient or
necessary to carry out the terms of this Agreement.
13.10 ONGOING INFORMATION. So long as Seller holds any capital stock
of Holdings, Holdings or the Company shall provide Seller, in addition to the
information Seller may be entitled to by law as, and as if Seller were, a
stockholder of Holdings, with audited consolidated financial statements of
Holdings prepared in conformity with generally accepted accounting principles
consistently applied for each year after the date hereof, and quarterly
unaudited consolidated financial statements of Holdings, certified by the chief
financial officer of Holdings.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
PURCHASER: SELLER:
WYLE LABORATORIES, INC. KRUG INTERNATIONAL CORP.
By: /s/ C.D. Yiakas By: /s/ Robert M. Thornton, Jr.
-------------------------- ----------------------------
C.D. Yiakas, President Robert M. Thornton, Jr.
Chief Executive Officer
By: /s/ L. Craig Smith
--------------------------
L. Craig Smith, Secretary
WAIVER AND ASSIGNMENT OF RIGHTS
On behalf of himself and the Management Group, the undersigned waives and
relinquishes all rights under that certain letter dated June 4, 1999 between the
Management Group and KRUG International Corp., and transfers and assigns all
such rights to Wyle Laboratories, Inc. as set forth in the foregoing Agreement.
Wyle Laboratories, Inc. hereby accepts such transfer and assignment and agrees
to assume the obligations and liabilities of the Management Group arising out of
such letter.
Dated: September 24, 1999
/s/ C.D. (Gus) Yiakas
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C.D. (Gus) Yiakas on behalf of himself
and the Management Group
WYLE LABORATORIES, INC.
By: /s/ C.D. Yiakas
-----------------------------------
C.D. Yiakas, President
<PAGE> 1
EXHIBIT 10.4
EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement") is made and entered into on
September 24, 1999 by and between LTS Holdings, Inc., a Delaware corporation
with its principal executive office located at 128 Maryland St., El Segundo, CA
90245 ("Holdings"), and KRUG International Corp., an Ohio corporation with its
principal executive office at 900 Circle 75 Parkway, Suite 1300, Atlanta, GA
30339 ("KRUG"), with reference to the following facts:
A. This Agreement is entered into in connection with that certain
Stock Purchase Agreement (the "Stock Purchase Agreement") dated September 24,
1999 between KRUG and Wyle Laboratories, Inc., a Delaware corporation ("Wyle").
Capitalized terms not otherwise defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
B. Holdings has been formed for the purpose of financing a series
of transactions as described in the Private Placement Memorandum attached as
Exhibit A to the Stock Purchase Agreement (the "Financing Transactions"). As a
result of the Financing Transactions, it is contemplated that, among other
things, Holdings will become the owner of 100% of the equity securities of Wyle.
C. KRUG owns 9,640 shares of Series B Senior Redeemable Preferred
Stock (the "Series B Shares") of Wyle.
D. In connection with, and subject to the closing and
consummation of, the Financing Transactions, Holdings desires to exchange for
the Series B Shares an equal number of Holdings Senior Preferred Stock
("Holdings Preferred Stock"), having the
<PAGE> 2
rights, privileges, powers, preferences and restrictions set forth in the
Certificate of Designation of Senior Preferred Stock attached as Exhibit A to
this Agreement (the "Certificate of Designation").
E. KRUG and Wyle are parties to that certain Amended and Restated
Stockholders Agreement dated March 16, 1998 (the "Wyle Stockholders Agreement")
among Wyle, KRUG, Wesinvest Partners, L.P. ("Wesinvest") and certain senior
managers of Wyle (the "Management Stockholders"). In connection with the
transactions contemplated by the Stock Purchase Agreement and this Agreement,
and consummation of the Financing Transactions, KRUG and Wyle have agreed to
terminate the Wyle Stockholders Agreement, and KRUG and Holdings desire to enter
into a new stockholders agreement covering the Holdings Preferred Stock.
F. The parties desire to enter into this Agreement upon the terms
and conditions set forth below.
The parties agree as follows:
7. EXCHANGE OF SHARES. Subject to the terms, covenants and
conditions set forth herein, at the Closing (as defined below), KRUG shall
transfer, assign and deliver to Holdings, and Holdings shall acquire from KRUG,
the Series B Shares. In exchange for the Series B Shares, at the Closing
Holdings shall issue and deliver to KRUG 9,604 shares of Holdings Preferred
Stock.
8. HOLDINGS STOCKHOLDERS AGREEMENT. At the Closing, Holdings and
KRUG shall enter into a Stockholders Agreement, in the form of Exhibit B hereto
(the "Holdings Stockholders Agreement").
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9. DELIVERIES AT THE CLOSING. At the Closing:
(a) KRUG will deliver to Holdings for transfer the stock
certificate(s) evidencing the Series B Shares. Such certificate(s)
shall be accompanied by a stock assignment separate from the
certificate(s) representing the shares evidenced thereby, duly executed
in blank by KRUG;
(b) Holdings shall deliver to KRUG stock certificate(s)
representing 9,604 shares of Holdings Preferred Stock;
(c) Holdings shall execute and deliver to KRUG the Holdings
Stockholders Agreement;
(d) KRUG shall execute and deliver to Holdings the Holdings
Stockholders Agreement;
(e) Holdings shall deliver a secretary's certificate attesting
to the due formation and organization of Holdings, attaching true and
correct copies of the Certificate of Incorporation and bylaws of
Holdings, minutes evidencing due authorization of the transactions
contemplated by this Agreement and attesting to the incumbency of
officers;
(f) KRUG shall deliver a secretary's certificate evidencing
due authorization of the transactions contemplated by this Agreement
and attesting to the incumbency of officers;
(g) Holdings shall deliver the officers certificate referred
to in Section 4.2, paragraph (a) below; and
(h) KRUG shall deliver the officers certificate referred to in
Section 4.2, paragraph (b) below.
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10. CLOSING.
10.1 PLACE AND TIME. The closing of the transactions contemplated
by this Agreement (the"Closing") will be held at the offices of Holdings and
Wyle, 128 Maryland St., El Segundo, CA 90245. The parties will use their best
efforts to have the Closing occur on October 14, 1999, or on such other date and
at a time agreed-upon in good faith by the parties, but in no event later than
October 29, 1999, unless extended by mutual agreement of the parties. The date
of the Closing is referred to herein as the "Closing Date."
10.2 CONDITIONS TO CLOSING. The obligations of the parties are
subject to the satisfaction or waiver, at or prior to the Closing, of each of
the following conditions:
(a) the representations and warranties of Holdings in this
Agreement shall be true and correct in all respects, as of the date
hereof and as of the Closing Date as if made on the Closing Date, and
Holdings shall deliver to KRUG an officers certificate to such effect;
(b) the representations and warranties of KRUG in this
Agreement shall be true and correct in all respects, as of the date
hereof and as of the Closing Date as if made on the Closing Date, and
KRUG shall deliver to Holdings an officers certificate to such effect;
(c) at the option of Holdings, which condition may be waived
in the sole discretion of Holdings, concurrently with the Closing, the
Financing Transactions shall be in a position to be consummated and
closed, conditioned only on the
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satisfaction of the conditions set forth in this Agreement and the
Stock Purchase Agreement;
(d) concurrently with or prior to the Closing, Wyle shall
close the transactions contemplated by the Stock Purchase Agreement as
contemplated therein;
(e) concurrently with or prior to the Closing, Wyle shall
close the Wesinvest Transactions on substantially the terms and
conditions set forth in the Wesinvest Group Agreement (Holdings or Wyle
will deliver to KRUG an executed copy of the Wesinvest Group Agreement
promptly after the execution thereof, it being expressly understood and
acknowledged by KRUG that KRUG is not a third party beneficiary of such
agreement);
(f) at or prior to the Closing, Wesinvest will deliver an
acknowledgment and waiver of its right of first refusal to purchase the
Series B Shares under the Wyle Stockholders Agreement; acknowledging
such rights under the Wyle Stockholders Agreement, KRUG agrees that it
will not send a "Notice of Intention" under Section 4.3 of the Wyle
Stockholders Agreement prior to the Closing or termination of this
Agreement;
(g) at or prior to the Closing, the Management Stockholders
will deliver an acknowledgment and waiver of their respective rights of
first refusal, if any, to purchase the Series B Shares under the Wyle
Stockholders Agreement;
(h) KRUG shall have received a solvency opinion from a firm
mutually acceptable to the parties, dated the Closing Date, in form and
substance acceptable to KRUG in its reasonable discretion (the
"Solvency Opinion"). The
-5-
<PAGE> 6
Solvency Opinion shall include the rendering firm's opinion as to
whether, among other things, assuming the transactions contemplated by
this Agreement, the Financing Transactions, the Wesinvest Transactions
and any other related buyout transactions with other shareholders of
Wyle (collectively, the "Buyout Transactions") have been consummated as
proposed, immediately after giving effect to such transactions: (i) the
fair value and present fair saleable value of the Holdings' assets
would exceed Holdings' stated liabilities and identified contingent
liabilities; (ii) Holdings should be able to pay its debts as they
become absolute and mature; and (iii) the capital remaining in Holdings
after the transactions would not be unreasonably small for the business
in which Holdings is engaged, as management has indicated it is now
conducted and is proposed to be conducted following the consummation of
the Buyout Transactions; the preparation of the Solvency Opinion will
be at the sole cost and expense of Holdings and Wyle; and
(i) at or prior to the Closing, the Wyle Stockholders
Agreement shall have been terminated by Wyle, KRUG and the other
parties thereto.
11. REPRESENTATIONS AND WARRANTIES OF KRUG. KRUG hereby
represents and warrants (which representations and warranties shall survive the
Closing, except paragraphs (c) and (i) below which shall survive only for a
period of two years following the Closing) to Purchaser that:
(a) the Series B Shares represent all of the shares of Wyle
Series B Senior Redeemable Preferred Stock owned or controlled,
directly or indirectly, by KRUG;
-6-
<PAGE> 7
(b) the Series B Shares are owned beneficially and of record
by KRUG, free and clear of any and all liens, encumbrances, security
agreements, equities, options, claims, charges and restrictions of any
kind whatsoever, with the exception of the restrictions arising under
the Wyle Stockholders Agreement;
(c) KRUG has, in connection with Holding's compliance with
paragraph 6(f) hereof, received current information as to the
operations, financial condition and future prospects, including
potential strategic alliances, of Holdings and Wyle (as described in
paragraph 6(f)) and has had an opportunity to ask questions of and
receive answers from Holdings in order to obtain such information as
KRUG believes it needs to make its decision to exchange the Series B
Shares for the Holdings Preferred Stock;
(d) KRUG has the full power to transfer the Series B Shares to
Holdings as provided herein without first obtaining the consent or
approval of any person, except Wyle and as set forth in the Wyle
Stockholders Agreement;
(e) KRUG is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction under which it was
organized, with full power and authority to enter into this Agreement
and perform its obligations hereunder;
(f) the execution and delivery of this Agreement and each
document or instrument in furtherance hereof and the consummation of
-7-
<PAGE> 8
the transactions contemplated by KRUG has been duly authorized by all
necessary action of its Board of Directors, and no further
authorization is necessary on the part of KRUG;
(g) this Agreement constitutes the legal, valid and binding
obligation of KRUG, enforceable against KRUG in accordance with its
terms, except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally,
and the general principles of equity, regardless of whether asserted in
a proceeding in law or equity (the "Enforceability Exceptions");
(h) neither KRUG nor any of its officers, employees or agents
have incurred any obligation or liability for brokerage or finder's
fees, agent's commissions or other similar payment in connection with
this Agreement or the transactions contemplated hereby; and
(i) no representation or warranty of KRUG in this Agreement
omits, and no notice given pursuant to Section 7.1 hereof will omit, to
state a material fact necessary to make the statements herein and
therein, in light of the circumstances in which they were made, not
misleading.
12. REPRESENTATIONS AND WARRANTIES OF HOLDINGS. Holdings
(including Holdings and its subsidiaries and affiliated companies) hereby
represents and warrants (which representations and warranties shall survive the
Closing, except for paragraphs (f) and (i) below which shall survive only for a
period of two years following the Closing) to KRUG that:
-8-
<PAGE> 9
(a) it is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full
power and authority to enter into this Agreement and perform its
obligations hereunder;
(b) the execution and delivery of this Agreement and each
document or instrument in furtherance thereof and the consummation of
this transaction by Holdings has been duly authorized by its Board of
Directors and/or shareholders, and no further authorization is
necessary on the part of Holdings;
(c) this Agreement (including the Exhibits hereto) constitutes
the legal, valid and binding obligation of Holdings, enforceable
against Holdings in accordance with its terms, except as may be limited
by the Enforceability Exceptions;
(d) the shares of Holdings Preferred Stock, upon issuance to
KRUG hereunder, will be duly authorized, validly issued, fully paid and
nonassessable shares of Holdings capital stock having the rights,
preferences and privileges set forth in the Certificate of Designation;
(e) neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which Holdings is subject or any
provisions of Holdings' charter or bylaws or any agreement or contract
to which Holdings is bound;
(f) Holdings has disclosed to KRUG all material matters
relating to Holdings and its business as of the Closing Date, including
without limitation
-9-
<PAGE> 10
Holdings' financial condition, business, operations, and pending and
prospective extraordinary transactions (including, without limitation,
investments, sales of significant assets or similar transactions,
acquisitions, significant financing transactions, and agreements other
than in the ordinary course of business with significant vendors,
suppliers or customers), except as the disclosure of the specific
details thereof to KRUG may be limited by agreements of confidentiality
or non-disclosure, in which case Holdings shall have disclosed the
general nature of any such material matters; the Private Placement
Memorandum (referenced above) does not misstate any material fact or
omit to state any fact necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading;
other than as disclosed pursuant to this paragraph, there have been no
discussions initiated or held by or on behalf of Holdings or Wyle with
any third parties contemplating a joint venture or strategic alliance
other than normal proposals and agreements with such third parties in
the ordinary course of the Holdings' business, none of which is viewed
by the management of Wyle or Holdings as material;
(g) on the Closing Date, after giving effect to the Closing
and the occurrence of the Financing Transactions: (I) the fair value
and present fair saleable value of Holdings' assets would exceed
Holdings' stated liabilities and identified contingent liabilities;
(II) Holdings will be able to pay its debts as they become absolute and
mature; (III) the capital remaining in Holdings after the transactions
would not be unreasonably small for the business in which it is
proposed to be conducted following the consummation of the transactions
-10-
<PAGE> 11
contemplated by this Agreement; (IV) this Agreement and the
transactions contemplated hereby do not and will not impair the capital
of Holdings; and (V) Holdings will not be "insolvent" within the
meaning Section 101(32) of the United States Bankruptcy Code;
(h) neither Holdings nor any of its officers, employees or
agents have incurred any obligation or liability for brokerage or
finder's fees, agent's commissions or other similar payment in
connection with this Agreement or the transactions contemplated hereby;
and
(i) no representation or warranty of Holdings in this
Agreement omits, and no notice given pursuant to Section 7.1 hereof
will omit, to state a material fact necessary to make the statements
herein and therein, in light of the circumstances in which they were
made, not misleading.
13. MISCELLANEOUS.
13.1 NOTICES. All notices, requests or demands required or
permitted to be given under this Agreement shall be in writing, and shall be
deemed to have been duly given on the date of service if served personally on
the party to whom notice is to be given, or three days after the date of mailing
if mailed by first class mail, postage prepaid, registered or certified, return
receipt requested, and properly addressed to the party to to whom notice is to
be given at the address for such party set forth herein. Any party may change
its address to which notices are to be sent by written notification of such
change of address in accordance with the provisions hereof.
-11-
<PAGE> 12
13.2 BEST EFFORTS. Between the date of this Agreement and the
Closing, each of the parties will use its best efforts to cause the conditions
of this Agreement for which it is responsible to be satisfied.
13.3 SUBJECT HEADINGS. The subject headings of the Sections and
paragraphs of this Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
13.4 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement,
together with the Stock Purchase Agreement and the exhibits hereto and thereto,
constitute the entire agreement among the parties pertaining to the subject
matter contained therein and supersede all prior and contemporaneous agreements,
representations and understandings of the parties. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
each of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provisions, whether
or not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
13.5 BINDING EFFECT. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto and their respective successors and
assigns.
13.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to its principles of conflicts or choice of laws.
-12-
<PAGE> 13
13.7 DISPUTES. If either party hereto brings an action pertaining
to or arising out of this Agreement, the prevailing party shall be entitled to
recover from the losing party all reasonable costs and expenses of litigation,
including reasonable attorneys fees and court costs, in such amounts as may be
determined in the discretion of the court having jurisdiction of such action in
addition to any other legal or equitable relief to which such party may be
entitled.
13.8 MULTIPLE COUNTERPARTS. This Agreement may be executed in one
or more counterparts, any of which may be executed and transmitted by facsimile,
and each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13.9 FURTHER ACTIONS. The parties shall execute any and all
additional documents and take all other such actions as may be convenient or
necessary to carry out the terms of this Agreement.
13.10 ONGOING INFORMATION. So long as KRUG holds any capital stock
of Holdings, in addition to the information to which KRUG may be entitled by law
as, and as if KRUG were, a stockholder of Holdings, Holdings or Wyle shall
provide KRUG with audited consolidated financial statements of Holdings prepared
in conformity with generally accepted accounting principles consistently applied
for each year after the date hereof, and quarterly unaudited consolidated
financial statements of Holdings, certified by the chief financial officer of
Holdings.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
HOLDINGS: KRUG:
LTS HOLDINGS, INC. KRUG INTERNATIONAL CORP.
By: /s/ C.D. Yiakas By: /s/ Robert M. Thornton, Jr.
-------------------------- ---------------------------
C.D. Yiakas, President Robert M. Thornton, Jr.
Chief Executive Officer
By: /s/ L. Craig Smith
--------------------------
L. Craig Smith, Secretary
-14-
<PAGE> 1
EXHIBIT 10.5
[Wyle Laboratories Letterhead]
October 29, 1999
KRUG International Corp.
900 Circle 75 Parkway
Suite 1300
Atlanta, GA 30339
RE: STOCK PURCHASE AGREEMENT/EXCHANGE AGREEMENT
Gentlemen:
This letter concerns that certain Stock Purchase Agreement between Wyle
Laboratories, Inc. and KRUG International Corp. ("KRUG"), dated September 24,
1999 (the "Purchase Agreement"), and that certain Exchange Agreement between
LTS Holdings, Inc. and KRUG, dated September 24, 1999 (the "Exchange
Agreement").
In accordance with our telephone conversation earlier today, this will confirm
that the parties have agreed by mutual consent to extend the time for the
Closing to occur, as provided under Section 3.1 of the Purchase Agreement, and
as provided under Section 4.1 of the Exchange Agreement, until November 30,
1999.
Management of Wyle will keep KRUG representatives informed on a weekly basis
of the status of and progress toward completing the financing and other
transactions necessary to consummate the closing.
Except as specifically modified and amended, the other terms and conditions of
the Purchase Agreement and the Exchange Agreement shall remain in full force
and effect.
WYLE LABORATORIES, INC. KRUG INTERNATIONAL CORP.
By: /s/ C.D. Yiakas By: /s/ Robert M. Thornton, Jr.
-------------------------- ---------------------------
C.D. Yiakas, President Robert M. Thornton, Jr.
Chief Executive Officer
LTS HOLDINGS, INC.
By: /s/ C.D. Yiakas
--------------------------
C.D. Yiakas, President
Wyle Laboratories, Inc. 128 Maryland Street, El Segundo, CA 90245-4100
Tel: (740) 322-1763 Fax: (310) 640-7662
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<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
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2,488
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