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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
Commission File Number 1-7708
MARLTON TECHNOLOGIES, INC.
(Name of Registrant as specified in its charter)
New Jersey 22-1825970
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(State of incorporation) (IRS Employer Identification Number)
2828 Charter Road, Philadelphia, PA 19154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 676-6900
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange:
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Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Exchange Act: NONE
Check whether the Registrant (1) 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 periods that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes _X_ No ____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. ________
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 20, 2000 was $10,671,972. As of March 20, 2000, there were
7,326,765 shares of Common Stock, $.10 par value, of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The following materials contained in the
following documents are hereby incorporated by reference into this Form 10-K.
(i) Information from the Registrant's definitive proxy statement for the 2000
Annual Meeting of Shareholders, involving the election of directors, has been
incorporated by reference in Part III - Items 10, 11, 12 and 13.
Exhibit Index appears on Page 14
Page 1 of 153
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PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Marlton Technologies, Inc. (the "Company") was incorporated as a New Jersey
corporation in 1966. The Company's business was related to computerized
electronic telecommunication systems until 1988 when it sold substantially all
of its operating assets.
On August 7, 1990, the Company acquired the business of Sparks Exhibits Corp.
("SEC") in Philadelphia, Pennsylvania. SEC custom designs and manufactures
sophisticated trade show exhibits, displays, architectural and museum interiors,
graphics and signage, provides trade show services, and designs and sells
portable/modular exhibits. During the fourth quarter of 1990, the Company
acquired the accounts and assets of the trade show exhibit division of a
competitor and also established a portable exhibits group. The Company
subsequently formed (i) Sparks Exhibits, Inc. ("Exhibits") during July 1991 in
the Atlanta, Georgia area, (ii) Sparks Exhibits, Ltd. ("Limited") during July
1992 in the San Diego, California area, and (iii) Sparks Exhibits Incorporated
("Incorporated") during December 1992 in the Orlando, Florida area, in each case
by acquiring the assets of trade show exhibit design and manufacturing
companies. During April 1996, the Company acquired the stock of Piper
Productions, Inc. ("Piper") in Orlando, Florida, and during December 1997 the
operations of Incorporated were combined into Piper. In addition to
Incorporated's trade show exhibit business, Piper produces business theater,
theme park attractions, themed interiors, theatrical scenery and special
effects. On December 31, 1997, the Company acquired DMS Store Fixtures Corp.
("DMS") in King of Prussia, Pennsylvania, which was subsequently relocated to
the Company's Philadelphia Pennsylvania location in March 2000. DMS supplies
custom made fixtures and displays to national retailers, department stores and
consumer products manufacturers. On April 1, 1998, the Company acquired a San
Francisco, California-based producer of exhibit properties for industrial and
corporate theater events and subsequently changed the name of the acquired
company to Sparks Productions Ltd. ("Productions"). In 1999, as part of its
nationwide branding and marketing strategy, the Company changed the business
names of all of its operating subsidiaries except DMS to Sparks Exhibits &
Environments (collectively "Sparks"). Currently, all of the Company's operating
revenues are derived from Sparks and DMS.
On February 1, 1998, the Company exchanged its 51% interest in a jointly-owned
subsidiary and paid cash to Abex Display Systems, Inc. ("Abex") for a 25%
interest in Abex, a portable/modular trade show exhibit manufacturer based in
Los Angeles, California. On August 1, 1998, the Company acquired a 20% equity
interest in Abex Europe, Ltd. ("AEL"), a United Kingdom corporation which
markets, assembles and distributes portable/modular exhibit products and
produces graphics. In October 1999, AEL went into receivership under UK law, and
a new UK corporation, Abex Display UK Ltd. ("Abex UK") was formed to purchase
AEL's assets and continue AEL's business. The Company owns 25% of Abex UK. In
February 1999, the Company acquired a 25% equity interest in an Amsterdam,
Netherlands area trade show exhibit design and manufacturing company, which
simultaneously changed its name to Sparks Europe, B.V. ("Sparks Europe").
The Company's investments in Abex, Abex UK and Sparks Europe are accounted for
using the equity method with the Company recognizing its pro-rata portion of
Abex, Abex UK and Sparks Europe operating results.
BUSINESS DESCRIPTION
Products and Services
The Company is engaged in the design, production and sale of exhibits and
environments for trade shows, museums, theme parks, themed interiors and
retailers. Clients include industry, government, entertainment and commercial
establishments. Graphics and exhibit designers develop and manage custom design
requirements from concept through final construction, employing sophisticated
computer-aided design software and hardware. In-house graphics facilities
provide a wide range of capabilities, and state of the art computerized design
and production of graphics. Electronics and audiovisual capabilities include
on-staff electronic specialists, consultants, and vendor relationships which
provide multi-media equipment and programs, interactive program production and
customized software and hardware applications. The Company provides full service
trade show exhibit services, including coordination, refurbishing, storage and
marketing literature distribution. Many clients are Fortune 1000 firms, who
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typically contract for custom trade show exhibit projects costing in excess of
$200,000. Additionally, a majority of these clients store their trade show
exhibits at a Company facility, where ongoing refurbishing and coordination of
clients' trade show schedules are provided. The Company also represents domestic
clients who desire to exhibit at international trade shows. The Company designs
such exhibits, and through Sparks Europe or an international network of
independent exhibit manufacturers, arranges for the manufacture and delivery of
trade show exhibits to the desired trade show. The Company also designs and
manufactures trade show exhibits for a number of United States subsidiaries of
foreign corporations for use in domestic trade shows. The Company produces
sophisticated themed exhibits for educational and entertainment venues such as
museums, theme parks and theaters. Typically, the customer or its design firm
prepares the design for the Company to fabricate using carpentry, sculpture,
metal working and scenic artist skills. The Company is also engaged in the
business of supplying custom store fixtures, showcases and point of purchase
displays for retailers, having the expertise and capability to take a design
from concept to installation. Engineers and designers work with the customers to
develop the fixture design through computer aided design equipment. Engineering
drawings are then produced and provided to a third-party factory for production.
The Company utilizes various manufacturers with whom it has developed
long-standing business relationships for the production of its products. These
manufacturers work closely with an experienced project management team. Custom
store fixture opportunities includes outfitting new retail stores and remodeling
existing stores, including specialty apparel chains, "category killer" stores,
department stores, outlet stores, supermarkets, building supply stores and drug
stores. The Company made no significant disbursements during any of the last
three fiscal years for research and development activities.
Marketing and Distribution
Sales by the Company to domestic customers for both domestic and international
use are solicited through internal sales and marketing groups. Purchase of
sophisticated exhibits and environments usually involves a substantial dollar
commitment by the customer, and significant expertise is required to properly
meet the customer's needs. Sales personnel are required to be knowledgeable with
respect to the design and manufacturing of sophisticated exhibits and
environments and to comply with internal profitability requirements. Sales are
typically made directly to the end user of the product or service. In addition
to the sales personnel, senior officers devote substantial time and effort to
sales and marketing activities.
Manufacturing and Raw Materials
The Company designs, develops and manufactures custom trade show exhibits
utilizing an in-house staff of designers, carpenters, electricians and
warehousemen. Specialty items such as steel work and studio production are
subcontracted. The Company also subcontracts to Sparks Europe and others the
manufacture of exhibits for foreign trade shows. The Company coordinates
shipping, exhibit set-up and removal at the customer's trade show and, in most
cases, subsequently stores the exhibit for the customer. For scenic projects,
the Company employs scenic carpenters and metal workers to fabricate scenery
which is painted by skilled scenic artists. The Company utilizes a network of
manufacturers for the production of its store fixture and display products. Raw
materials for custom, scenic and portable exhibits, store fixtures and displays,
as well as subcontractors for specialty work, have historically been available
on commercially reasonable terms from various vendors. Portable exhibit
configurations, together with graphics and signage, are typically designed by
the Company for a client and are purchased from Abex or unrelated manufacturers
for resale. Graphics and signage may be produced internally or subcontracted.
Geographic distribution rights are typically granted by portable exhibit
manufacturers based on annual sales volume levels. The Company has obtained such
distribution rights from Abex, its primary source of portable exhibits.
Seasonality of Business
Trade shows traditionally occur regularly throughout the year with the exception
of the third quarter when business to business trade shows are historically at a
low point. Trade show activities in specific industries, such as health care and
telecommunications, tend to be a function of seasonal show schedules within
those industries. The custom store fixture business tends to be slower during
the fourth and first quarters due to retailers' desires not to install or plan
new fixtures during their traditionally busy year-end season. The Company seeks
new clients and sales people with client bases in different industries to reduce
the effects of the slower sales periods. Additionally, the Company offers other
products and services, such as sales of scenic and themed exhibits,
portable/modular exhibits, and permanent exhibits which tend to be less seasonal
in nature, and in certain cases, manufacturing can be spread over longer periods
of time.
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Working Capital
The Company's working capital requirements are fulfilled by funds generated
through operations and revolving credit facilities. Working capital requirements
are generally not affected by project size requirements or accelerated delivery
for major trade show exhibit, scenic and themed exhibit customers due to general
policies of progress billing on larger jobs. However, custom store fixtures are
generally produced upon receipt of purchase orders from large retailers, but are
held in inventory and are not billed to the customer until delivery requisitions
are issued by the customer. The Company does not require continuous allotments
of raw materials from suppliers and does not generally provide extended payment
terms to customers.
Significant Customers
One customer accounted for 12% of consolidated net sales in 1999 and 13% of
accounts receivable at December 31, 1999. During 1998, a different customer
accounted for 16% of consolidated net sales. The loss of one or both of these
customers, or a significant reduction in one or both of these customers'
purchases, could have a material adverse effect on the Company's results of
operation. Although the Company has taken steps to diversify its customer base
during 1999, the Company expects its reliance on these two customers to continue
at least through 2000.
Backlog
Backlog of orders at December 31, 1999 and 1998 was approximately $30.8 million
and $27.0 million, respectively. Generally, backlog of orders are recognized as
sales during the subsequent six month period. The entire current backlog relates
to expected 2000 sales. The Company maintains a client base from which new
orders are continually generated, including refurbishing of existing trade show
exhibits stored in the Company's facilities. There are also a significant amount
of proposals outstanding with current and prospective clients.
Competition
The Company competes with other companies offering similar products and
providing similar services on the basis of price, quality, performance,
financial resources, and client-support services. The custom trade show exhibit,
scenic and themed exhibit, permanent exhibit, retail store fixture and display,
and portable exhibits sales markets include a large number of national and
regional companies, some of which have substantially greater sales and resources
than the Company. In addition to its Philadelphia, Atlanta, San Diego, San
Francisco and Orlando manufacturing facilities, the Company utilizes its
national and international affiliations and relationships to meet customers
needs in other geographic areas. Due to the lack of specific public information,
the Company's competitive position is difficult to ascertain.
Environmental Protection
The Company's compliance with federal, state and local provisions regulating
discharge of materials into the environment or otherwise relating to the
protection of the environment has not had, and is not expected to have, a
material effect upon its capital expenditures, earnings and competitive
position.
Employees
The total number of persons employed by the Company is approximately 375 of
which 370 are full-time employees. The Philadelphia, PA, operations have a
three-year labor contract expiring June 30, 2001 and a three year labor contract
expiring November 14, 2001, and the San Carlos, CA operations have a three year
labor contract expiring December 31, 2002.
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ITEM 2. PROPERTIES
The Company currently leases five primary facilities as follows:
SQUARE
LOCATION FOOTAGE PURPOSE
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Philadelphia, PA 250,000 Office, showroom, warehouse & manufacturing
Austell, GA 81,000 Office, showroom, warehouse & manufacturing
El Cajon, CA 150,000 Office, showroom, warehouse & manufacturing
Orlando, FL 45,000 Office, warehouse & manufacturing
San Carlos, CA 42,000 Office, warehouse & manufacturing
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568,000
The Company's subsidiaries also have five sales offices of under 1,000 square
feet each. The Company's office, showroom, warehouse and manufacturing
facilities were all in good condition and adequate for 1999, based on normal
five-day operations, and are adequate for operations in 2000, including any
foreseeable internal growth. The Company does not anticipate significant
difficulty in acquiring additional space, if necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is a defendant and counterclaimant in various
lawsuits that arise out of, and are incidental to, the conduct of its business.
The resolution of pending legal matters should not have a material effect upon
the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table shows the high and low sales prices of the Common Stock, par
value $.10 per share, of the Company on the American Stock Exchange:
1999 1998
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QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
1 5-1/8 3 7-5/8 4-3/4
2 5-1/4 3-5/8 7-5/16 6
3 4 2-1/16 6-5/8 2-3/4
4 3-3/16 1-1/2 5-1/2 3-5/8
No dividends were paid during the past two fiscal years. The Company currently
intends to employ all available funds in the business. Future dividend policy
will be determined in accordance with the financial requirements of the
business. However, the Company's bank loan agreement provides that the Company
may not pay dividends to its shareholders without the bank's prior consent.
Unless the bank's consent is obtained, this restriction will preclude the
Company from paying dividends.
As of March 20, 2000, there were 965 holders of record of the Company's Common
Stock.
In September 1999, 50,000 shares of Common Stock were sold to a manager of the
Company, at a price of $2.00 per share. In addition, during 1999, 3,575 shares
of Common Stock were issued to 3 employees at the price of $2.80 per share
pursuant to the exercise of stock options. There were 7,125 shares of Common
Stock awarded to eight managers of the Company during 1999. In February 1999,
70,160 shares were issued at a price of $ 3.25 per share to the 2 sellers of a
25% equity interest in Sparks Europe. No underwriter was employed in any of
these transactions. These sales were isolated transactions involving
sophisticated purchasers and employees, and were exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended, and were in conformity
with Rule 701 or Regulation D promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
For the year ended December 31,
1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
TOTAL ASSETS $60,201,712 $62,022,260 $54,113,255 $22,190,615 $16,607,893
LONG-TERM OBLIGATIONS 11,157,613 11,744,495 12,243,312 457,440 991,894
OPERATIONS:
Net sales 94,583,824 91,134,034 48,715,828 38,315,600 27,671,763
Operating profit 4,435,696 5,314,926 2,273,976 1,345,863 739,023
Net income $1,722,167(1) $2,820,631 $2,003,316 $2,340,153(4) $1,252,814
BASIC NET INCOME PER
COMMON SHARE (2) $.24 $.40 $.42 $.52 $.32
DILUTED NET INCOME PER
COMMON SHARE (2) $.22(3) $.35(3) $.36(3) $.45(3) $.32(3)
CASH DIVIDENDS -0- -0- -0- -0- -0-
</TABLE>
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(1) Includes an impairment loss of $279,000 ($465,000 before income taxes) for
a write-down of the Company's investment in Abex Europe.
(2) Basic per common shares amounts are computed using the weighted average
number of common shares outstanding during the year. Diluted per common
share amounts are computed using the weighted average number of common
shares outstanding during the year and dilutive potential common shares.
Dilutive potential common shares consist of stock options and stock
warrants, calculated using the treasury stock method.
(3) Diluted net income per common share does not reflect elimination of
non-recurring items and the application of comparable income tax
provisions. See MD&A "Net Income" analysis.
(4) Includes a $708,000 gain from contractual amendments, net of income taxes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL OVERVIEW
The Company's business is the custom design, production and sale of exhibits and
environments for trade shows, museums, theme parks, themed interiors and retail
stores for clients in industry, government, entertainment and commercial
establishments.
On August 7, 1990, the Company acquired the business of Sparks Exhibits Corp.
("Sparks") in Philadelphia, Pennsylvania. Sparks custom designs and manufactures
sophisticated trade show exhibits, displays, architectural and museum interiors,
graphics and signage, provides trade show services and designs and sells
portable exhibits. During the fourth quarter of 1990, the Company acquired the
accounts and assets of the trade exhibit division of a competitor and also
established a portable exhibits group. The Company subsequently formed (i)
Sparks Exhibits, Inc. ("Exhibits") during July 1991 in the Atlanta, Georgia
area, (ii) Sparks Exhibits, Ltd. ("Limited") during July 1992 in the San Diego,
California area, and (iii) Sparks Exhibits Incorporated ("Incorporated") during
December 1992 in the Orlando, Florida area, in each case by acquiring the assets
of trade show exhibit manufacturing companies.
During July 1993, the Company and Abex Display Systems, Inc. ("ADSI"), an
unaffiliated portable/modular trade show exhibit manufacturer based in Los
Angles, California, entered into an agreement to organize a new California
corporation, Expose Display System, Inc. ("EDSI"). The Company acquired 51% of
EDSI with ADSI acquiring the balance. EDSI granted to ADSI exclusive worldwide
distribution and marketing rights for Expose, a portable display product,
through December 2005. Effective February 1, 1998, the Company exchanged its 51%
majority interest in EDSI and paid approximately $180,000 in cash, for a 25%
interest in ADSI.
During April 1996, the Company acquired Piper Productions, Inc. ("Sparks
Florida") of Orlando, Florida which produces permanent displays, including
business theaters, theme park attractions, themed interiors, theatrical scenery
and special effects.
On December 31, 1997, the Company acquired DMS, which is engaged in the business
of supplying custom store fixtures, showcases and point of purchase displays for
retailers. DMS has expertise and capabilities to take a design from concept to
installation. DMS utilizes various unaffiliated manufacturers with whom it has
developed long-standing business relationships for the production of its
products. The retail fixture industry includes outfitting new retail stores and
remodeling existing stores, including specialty apparel chains, "category
killer" stores, department stores, outlet stores, supermarkets, building supply
stores and drug stores.
On April 1, 1998, the Company acquired Rusty Hinges, Inc. located in the San
Francisco, California area, which produces exhibit properties for industrial and
corporate theater events throughout the United States. The Company subsequently
changed the name of this business to Sparks Productions Ltd.
During February, 1999, the Company invested in a 25% interest in a
Netherlands-based organization focusing on exhibit fabrication, interior design,
event displays and graphics production, which subsequently changed its name to
Sparks Europe, B.V. ("Sparks Europe"). This investment should assist the Company
to expand its international presence.
Management's aggressive growth plan, since the August 1990 acquisition of Sparks
Exhibits Corp. ("Sparks"), has resulted in the dramatic expansion of the
Company's client base, the development of new businesses and areas of expertise
for expansion of its products and services, and the extension into major
geographic markets in the United States and internationally. Management believes
the acquisitions and the continuing development of new areas of expertise will
position the Company to increase its revenue base and move toward its goal of
becoming a leading exhibits and environments company through the continued
offering of expanded products and services to a larger customer network.
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RESULTS OF OPERATIONS
1999 AS COMPARED WITH 1998
SALES
(in thousands)
% INCREASE
REVENUE SOURCES 1999 1998 (DECREASE)
- --------------- ---- ---- ----------
Trade show exhibits $47,265 $41,777 13%
Permanent/scenic displays 47,319 48,957 (3)
EDSI --- 400 (100)
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Total revenues $94,584 $91,134 4%
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Total net sales increased $3.5 million, or 4%, in 1999 as compared with 1998,
led by higher sales of trade show exhibits, which grew $5.5 million, or 13%. The
increase in sales of trade show exhibits was principally attributable to a full
year of sales for significant new clients secured near the end of 1998,
resulting from the Company's continuing initiatives focused on client expansion.
Net sales of permanent/scenic displays, comprised primarily of the DMS business
acquired at the end of 1997 and the Sparks Florida ("permanent displays")
business acquired in 1996, decreased $1.6 million, or 3%. This decrease was the
net result of lower sales for DMS, partially offset by higher sales for
permanent displays. Lower sales for DMS were due in large part to a decrease in
purchases by a large client, and higher sales for permanent displays were the
result of securing new clients during 1999. There were no sales in 1999 for EDSI
as a result of an exchange of EDSI in connection with the acquisition of a
minority interest in ADSI as of February 1, 1998.
OPERATING PROFITS
Operating profits decreased $0.9 million, or 16.5%, to $4.4 million in 1999 from
$5.3 million in 1998. This decrease was principally attributable to lower
operating profits generated by the permanent displays business as well as to
lower sales for DMS. The permanent displays operating profit decrease resulted,
in large part, to bids on large jobs that did not provide adequate profit
margins. Management has taken steps to improve the bidding and production
control process and believes that a recurrence of significant jobs providing
inadequate profit margins in the future is unlikely. Selling expenses decreased
to 9.8% of net sales in 1999 from 10.6% in 1998, while administrative and
general expenses increased to 8.1% of net sales in 1999 from 7.3% in 1998. The
decrease in selling expenses was due in large part to lower variable expenses
incurred by DMS and to lower sales commission rates incurred for certain new
clients for the trade show exhibit business. The increase in administrative and
general expenses was principally attributable to higher depreciation related to
investments in computer systems and to improvements in the Company's facilities
in the western United States.
OTHER INCOME (EXPENSE)
Interest income decreased to $136,896 in 1999 from $240,645 in 1998 due to lower
average cash balances, which was largely the result of reductions in accounts
payable and other accrued expenses. Interest expense increased $122,509 in 1999
primarily due to short-term borrowings from the Company's revolving credit
facility necessary to meet working capital requirements. A loss of $45,406 was
incurred in 1999 from investments in affiliates as compared with income of
$14,464 in 1998. A write-down of $465,106 was incurred in 1999, related to a
write-down of the Company's investment in Abex Europe, which went into
receivership on October 15, 1999.
INCOME TAXES
The provision for income taxes, as a percentage of net sales, increased to 41%
in 1999 as compared with 38% in 1998. This increase was principally attributable
to non-deductible goodwill amortization.
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NET INCOME
Net income decreased to $1.7 million ($.22 per diluted share) in 1999 from $2.8
million ($.35 per diluted share) in 1998. The decrease was principally
attributable to lower operating profit generated by the permanent displays
business, lower sales for DMS, the write-down of investment in the Abex Europe
affiliate and the higher income tax expense.
Backlog
The Company's manufacturing backlog of orders was approximately $30.8 million as
of December 31, 1999 as compared with $27 million as of December 31, 1998.
1998 AS COMPARED WITH 1997
NET SALES
(in thousands)
% INCREASE
REVENUE SOURCES 1998 1997 (DECREASE)
- --------------- ---- ---- ----------
Trade show exhibits $41,777 $32,659 28%
Permanent/scenic displays 48,957 11,329 332
EDSI 400 4,728 (92)
------- ------- -----
Total revenues $91,134 $48,716 87%
======= ======= =====
Total net sales for 1998, as compared with 1997, increased by 87%, to $91.1
million from $48.7 million. Approximately 74% of the overall sales increase
during 1998 was due to sales generated by the December 31, 1997-acquired DMS
business, which is included as part of permanent/scenic displays revenues. Trade
show exhibits generated $9.1 of the overall $42.4 million increase in total
sales for 1998 as compared with 1997, reflecting the Company's continuing
program of client expansion. Permanent/scenic displays, comprising DMS,
museum/productions, permanent displays and the April 1998-acquired Sparks
Productions Ltd., experienced a $37.6 million increase in 1998 sales as compared
with 1997 revenues. Exclusive of the sales generated by the December 31,
1997-acquired DMS, total sales for permanent/scenic displays increased during
1998 over 1997 revenues by 155%. This significant increase during 1998 was
predominately due to expanding the scope of services in permanent display
projects and the sales from Sparks Productions Ltd. Sales generated by EDSI
amounted to $4.7 million during 1997 as compared with only $0.4 million during
1998 due to the exchange of EDSI in connection with the acquisition of a
minority interest in ADSI as of February 1, 1998 (see Note 6 to the consolidated
financial statements). Sales and the related costs of operations generated by
EDSI, formerly a consolidated 51% owned subsidiary of the Company, were recorded
through January 31, 1998. Subsequent to the previously described exchange with
ADSI, the Company recorded its pro-rata equity interest in ADSI's net profits
using the equity method of accounting. Accordingly, sales and related costs from
EDSI's operations are not reflected in the Company's consolidated statement of
operations subsequent to January 31, 1998.
OPERATING PROFITS
Operating profits more than doubled to $5.3 million during 1998 from
approximately $2.3 million during 1997. The increase in 1998 operating profits
occurred despite a 4.6% decrease in the gross profit margin, as a percentage of
sales, during 1998 as compared with 1997. This decrease is predominantly due to
lower gross profit margins on sales generated by the December 31, 1997-acquired
DMS. Due to the additional sales from DMS during 1998, a larger percentage of
1998 total revenues were generated by permanent/scenic displays. In addition to
the lower gross profit margins relative to DMS, the Company experienced a lower
gross profit margin on a specific museum project during 1998. This project was
bid at a lower gross profit margin due to its large size and the competitive
environment surrounding the project. In an effort to expand its opportunities in
permanent display projects, the Company made investments in specialized
production and installation techniques on these particular projects, which
negatively impacted overall gross profit margins. While permanent/scenic
displays caused lower overall gross profit margins, the additional sales they
generated significantly contributed to the absorption of fixed overhead,
selling, and general and administrative costs. Accordingly, the 4.6% lower gross
profit margin percentage was more than offset
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by 5.8% lower selling and administrative and general costs, as a percentage of
sales, during 1998 as compared with 1997 selling and administrative and general
costs.
OTHER INCOME/(EXPENSE)
Other expenses, net, increased $1.1 million during 1998 as compared with 1997
primarily due to interest expense attributable to term debt associated with the
December 31, 1997 acquisition of DMS and the Company's utilization of its credit
facility from a bank during 1998. Interest income during 1998 was less than 1997
interest income due to less cash being available for investment during 1998 as
compared with 1997. Operating cash requirements for the December 31,
1997-acquired DMS and the Company's acquisition of property and equipment,
particularly with respect to the Company's new management information system,
also negatively impacted cash available for investment during 1998.
INCOME TAXES
The provision for income taxes, as a percentage of income before taxes,
increased to approximately 38% during 1998 as compared with 24% during 1997. The
1997 rate reflects a benefit from the release of valuation allowances based upon
the Company's expected ultimate realization of benefits from its business tax
credit carryforwards.
NET INCOME
Net income increased to $2,820,631 ($.35 per diluted share) during 1998 from
$2,003,316 ($.36 per diluted share) during 1997. This increase is attributed to
the higher sales levels and related operating profits generated during 1998.
Additionally, the tax provision during 1998, as a percentage of income before
income taxes, increased to 38% from the 24% tax provision rate in 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, the Company's cash balance decreased $3.8 million as a result of
several factors, the most significant of which were reductions in accounts
payable and accrued expenses, significant capital expenditures and an increase
in inventories. Accounts payable and accrued expenses were reduced by $4.3
million to improve relations with valued suppliers and sub-contractors. Capital
expenditures of $2.8 million were incurred to improve the Company's computer
systems and to upgrade several facilities. Inventories were increased by $2.2
million to improve customer service for DMS and as a result of higher work in
process inventories related to both new and existing trade show exhibit clients
contracted for delivery in the first quarter of 2000. These reductions in cash
were partially offset by depreciation and amortization of $2.6 million and net
income of $ 1.7 million.
The Company borrowed $13.0 million and repaid $11.4 million under its revolving
credit facility during 1999 to finance its working capital needs. There were
borrowings of $1.6 million outstanding under the revolving credit facility and
$0.8 million under a short-term construction loan as temporary financing for a
facility expansion at December 31, 1999. The balance of a term loan incurred in
connection with the DMS acquisition was reduced by $1.9 million to $10.6 million
at December 31, 1999, in accordance with the term loan agreement. The Company
was in compliance with its bank covenants as of December 31, 1999.
The Company's current ratio at December 31, 1999 improved slightly to 1.6:1 as
compared with 1.5:1 at December 31, 1998, and the total liabilities to net worth
ratio improved to 1.03:1 at December 31, 1999 from 1.24:1 at December 31, 1998.
SUBSEQUENT EVENT
On January 21, 2000, the Company restructured its bank debt with an amended
revolving credit facility, providing for borrowing capacity up to $30 million.
This new facility, which matures on January 21, 2005, was used to refinance the
term loan and is intended to finance capital expenditures, permitted
acquisitions and other working capital requirements as needed. The new facility
is collateralized by all of the Company's assets and bears interest at rates
based on the LIBOR, adjusted for applicable spreads ranging from 1.25% to 2.5%.
The Company is subject to an annual commitment fee of 1/4% on the average
unused portion of the revolving credit facility. This new facility includes
certain financial covenants requiring a minimum net worth and maintenance of
certain financial ratios, and
11
<PAGE>
restricts the Company's ability to pay dividends. Loan origination fees totaling
approximately $540,000, comprised of $440,000 of cash payments and issuance of
37,210 shares of the Company's common stock, will be amortized over five years.
OUTLOOK
The Company expects continued sales growth from trade show exhibits and improved
sales from permanent/scenic displays during 2000. The investment in Sparks
Europe in February 1999 was made to expand the Company's international presence
throughout the European markets during 2000 and beyond. The lower gross profit
margins experienced in 1999 are expected to improve in 2000 as management has
taken steps to improve the management talent in the Sparks Florida permanent
displays business, and has invested in new management talent in its western
region facilities. Management believes that the trade show exhibit client base
of Fortune 1000 companies will continue to tightly manage their marketing
budgets, which may impact the Company's trade show exhibit profit margins. The
Company has upgraded several facilities and continues to pursue operating
efficiency improvements to mitigate the impact of margin pressure from its
client base.
The Company converted its management information system at the beginning of 1999
and incurred inefficiencies as a result of the transition. This upgrade of both
hardware and software is expected to better position the Company to manage the
business and to meet the changing environment of information requirements of its
clients and suppliers during 2000 and beyond.
Management plans ongoing investment in human resources, particularly for new
sales executives and support staff to create long term growth opportunities, and
believes that these investments combined with the new debt capacity, which may
be used for acquisitions, will provide future opportunities for continued growth
and business expansion.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will require that all derivative
financial instruments be recognized as either assets or liabilities in the
balance sheet. SFAS No. 133 will be effective no later than for the Company's
first quarter of 2001. The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's consolidated results of operation, financial
position or cash flows.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
there are certain important factors that could cause the Company's actual
results to differ materially from those included in such forward-looking
statements. When used in this report, the words "intends," "believes,"
"anticipates" and similar words are used to identify these forward looking
statements. Some of the important factors which could cause actual results to
differ materially from those projected include, but are not limited to: the
Company's ability to continue to identify and complete strategic acquisitions to
enter new markets and expand existing business; continued availability of
financing to provide additional sources of funding for future acquisitions;
capital expenditure requirements and foreign investments; the effects of
competition on products, pricing, and, growth and acceptance of new product
lines through the Company's sales and marketing programs; changes in material
prices from suppliers; uncertainties regarding accidents or litigation which may
arise in the ordinary course of business; and the effects of, and changes in the
economy, monetary and fiscal policies, laws and regulations, inflation and
monetary fluctuations as well as fluctuations in interest rates, both on a
national and international basis.
YEAR 2000 DATE CONVERSIONS
The Company completed a major project of converting its computer systems to year
2000 compliant software during 1999. The Company expended approximately $1.3
million in 1999 and $1.7 million during 1998 and 1997 in connection with this
project. There were no significant disruptions to business operations during the
first quarter of 2000 related to the Company's computer systems.
12
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Fluctuations in interest and foreign currency exchange rates do not
significantly affect the Companys' financial position and results of operations.
The Company's revolving credit facility bears a floating rate of interest, based
on LIBOR rates, plus an applicable spread.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report of the Company's independent
accountants thereon, are presented under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
13
<PAGE>
PART III
Items 10, 11, 12 and 13 have been omitted from this report, in accordance with
General Instruction G (3), since the Company will file with the Commission a
definitive proxy statement, involving the election of directors, pursuant to
Regulation 14A within 120 days after the close of its fiscal year. Accordingly,
relevant information contained in such definitive proxy statement is
incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
PAGE
----
<S> <C>
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Accountants 18
Consolidated Statements of Net Income for the years ended December 31, 1999,
1998 and 1997 19
Consolidated Balance Sheets, December 31, 1999 and 1998 20
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 21
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 22
Notes to Consolidated Financial Statements 23
(2) Acquisition Agreement for DMS Store Fixtures (Incorporated by
reference to Company Proxy Statement dated November 7, 1997, filed
with the Commission)
(3)(i)(a) Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 4(a) to the Company Registration Statement on
Form S-8, File No. 33-3647, filed with the Commission)
(3)(i)(b) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company filed on June 2, 1987
(Incorporated by reference to Exhibit 3(a)(ii) to the Company
Annual Report on Form 10-K for the year ended December 31,
1987, filed with the Commission)
(3)(i)(c) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company filed on January 14, 1988
(Incorporated by reference to Exhibit 3(a)(iii) to the Company
Annual Report on Form 10-K for the year ended December 31,
1988, filed with the Commission)
(3)(i)(d) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company filed on May 8, 1989 (Incorporated
by reference to Exhibit 3(a)(iv) to the Company Annual Report
on Form 10-K for the year ended December 31, 1989, filed with
the Commission)
(3)(i)(e) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company filed on December 26, 1997
(Incorporated by reference to Company Proxy Statement dated
November 7, 1997, filed with the Commission)
14
<PAGE>
3(b) Amended and Restated By-laws of the Company (Incorporated by
reference to Exhibit 3(b) to the Company Annual Report on Form
10-K for the year ended December 31, 1990, filed with the
Commission)
10(a) Agreement to Amend the International Distribution and Technology
Agreement with Tsubasa System Company, Ltd. dated January 22,
1997 (Incorporated by reference to Exhibit 10(a) to the Company
Annual Report on Form 10-K for the year ended December 31, 1996,
filed with the Commission)
10(b) Amended Agreement of Employment, dated December 11, 1992,
between the Company and Robert B. Ginsburg (Incorporated by
reference to Exhibit 10(b) to the Company Annual Report of Form
10-K for the year ended December 31, 1992 filed with the
Commission).
10(c) Amended Agreement of Employment, dated December 11, 1992,
between the Company and Alan I. Goldberg (Incorporated by
reference to Exhibit 10(b) to the Company's Annual Report of
Form 10-K for the year ended December 31, 1992 filed with the
Commission)
10(d) Option Agreement dated November 23, 1992 with Robert B. Ginsburg
(Incorporated by reference to Exhibit 10(d) to the Company's
Annual Report of Form 10-K for the year ended December 31, 1992
filed with the Commission)
10(e) Option Agreement dated November 23, 1992 with Alan I. Goldberg
(Incorporated by reference to Exhibit 10(d) to the Company's
Annual Report of Form 10-K for the year ended December 31, 1992
filed with the Commission)
10(f) Lease for Premises located at 2828 Charter Road, Philadelphia,
PA dated May 14, 1999 36
10(g) Amendment to Lease 2828 Charter Road, Philadelphia, PA dated 83
February 25, 2000
10(h) Lease for Premises located at 8125 Troon Circle, Austell, GA
30001 (Incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993 filed with the Commission)
10(i) Lease for Premises located at 4560 36th Street, Orlando, FL
32811 (Incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993 filed with the Commission)
10(j) Option Agreement dated May 23, 1997 with Robert B. Ginsburg
(Incorporated by reference to Exhibit 10(p) to the Company's
Annual Report on Form 10K for the year ended December 31, 1997
filed with the Commission)
10(k) Option Agreement dated May 23, 1997 with Alan I. Goldberg
(Incorporated by reference to Exhibit 10(q) to the Company's
Annual Report on Form 10K for the year ended December 31, 1997
filed with the Commission)
10(l) Employment Agreement dated November 24, 1999 with Stephen P. 85
Rolf
10(m) Employment Agreement dated December 31, 1997 with Lawrence W.
Schan (Incorporated by reference to Exhibit 10(s) to the
Company's Annual Report on Form 10K for the year ended December
31, 1997 filed with the Commission)
10(n) Employment Agreement dated December 31, 1997 with Ira Ingerman
(Incorporated by reference to Exhibit 10(t) to the Company's
Annual Report on Form 10K for the year ended December 31, 1997
filed with the Commission)
15
<PAGE>
10(o) Employment Agreement dated December 31, 1997 with Stanley
Ginsburg (Incorporated by reference to Exhibit 10(u) to the
Company's Annual Report on Form 10K for the year ended December
31, 1997 filed with the Commission)
10(p) Option Agreement dated January 27, 1998 with Robert B. Ginsburg
(Incorporated by reference to Exhibit 10(v) to the Company's
Annual Report on Form 10K for the year ended December 31, 1998
filed with the Commission)
10(q) Option Agreement dated January 27, 1998 with Alan I. Goldberg
(Incorporated by reference to Exhibit 10(w) to the Company's
Annual Report on Form 10K for the year ended December 31, 1998
filed with the Commission)
10(r) Letter Agreement dated January 2, 1998 to Amended Employment
Agreement with Robert B. Ginsburg (Incorporated by reference to
Exhibit 7(1) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 filed with the Commission)
10(s) Letter Agreement dated January 2, 1998 to Amended Employment
Agreement with Alan I. Goldberg (Incorporated by reference to
Exhibit 7(2) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 filed with the Commission)
10(t) Lease Agreement dated June 29, 1998 between Gillespie Field
Partners, LLC and Sparks Exhibits, Ltd. (Incorporated by
reference to Exhibit 7(2) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 filed with the
Commission)
10(u) Option Agreements with Directors (Incorporated by reference to
Company Proxy Statement dated April 30, 1999, filed with the
Commission)
10(v) Revolving Credit Facility, First Union National Bank 90
21 Subsidiaries of the Company 152
23 Consent of PricewaterhouseCoopers LLP 153
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report on Form 10-K
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MARLTON TECHNOLOGIES, INC.
By: /s/ ROBERT B. GINSBURG
---------------------------
President
By: /s/ STEPHEN P. ROLF
---------------------------
Chief Financial Officer
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ FRED COHEN Chairman of the March 30, 2000
- ---------------------------- Board of Directors
(Fred Cohen)
/s/ ROBERT B. GINSBURG Director March 30, 2000
- ----------------------------
(Robert B. Ginsburg)
/s/ ALAN I. GOLDBERG Director March 30, 2000
- ----------------------------
(Alan I. Goldberg)
/s/ WILLIAM F. HAMILTON Director March 30, 2000
- ----------------------------
(William F. Hamilton)
/s/ JEFFREY HARROW Director March 30, 2000
- ----------------------------
(Jeffrey Harrow)
/s/ SEYMOUR HERNES Director March 30, 2000
- ----------------------------
(Seymour Hernes)
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
and Board of Directors of
Marlton Technologies, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 14, present fairly, in all material
respects, the financial position of Marlton Technologies, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 30, 2000
18
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME
For the years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $94,583,824 $91,134,034 $48,715,828
Cost of sales 73,242,070 69,458,547 34,876,590
------------ ------------ ------------
Gross profit 21,341,754 21,675,487 13,839,238
------------ ------------ ------------
Selling expenses 9,262,672 9,681,448 7,830,492
Administrative and general expenses 7,643,386 6,679,113 3,734,770
------------ ------------ ------------
16,906,058 16,360,561 11,565,262
------------ ------------ ------------
Operating profit 4,435,696 5,314,926 2,273,976
------------ ------------ ------------
Other income (expense):
Interest income 136,896 240,645 380,892
Interest expense (1,142,913) (1,020,404) (31,552)
Income (loss) from investment in affiliates, net (45,406) 14,464 --
Write-down of investment in affiliate (465,106) -- --
------------ ------------ ------------
(1,516,529) (765,295) 349,340
Income before income taxes 2,919,167 4,549,631 2,623,316
Provision for income taxes 1,197,000 1,729,000 620,000
------------ ------------ ------------
Net income $1,722,167 $2,820,631 $2,003,316
============ ============ ============
Net income per common share:
Basic $.24 $.40 $.42
============ ============ ============
Diluted $.22 $.35 $.36
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Current:
Cash and cash equivalents $835,884 $4,620,079
Accounts receivable, net of allowance
of $410,000 and $414,000, respectively 16,231,653 16,511,804
Inventory 11,655,114 9,466,161
Prepaid and other current assets 2,320,629 2,324,679
Deferred income taxes 341,000 740,000
------------ ------------
Total current assets 31,384,280 33,662,723
Investment in affiliates 2,057,496 2,010,427
Deferred income taxes -- 43,000
Property and equipment, net of accumulated depreciation 5,011,331 3,779,367
Rental assets, net of accumulated depreciation 1,369,661 1,369,009
Goodwill, net of accumulated amortization of $2,343,474
and $1,580,591, respectively 19,858,972 20,621,855
Other assets, net of accumulated amortization
of $1,267,609 and $1,131,958, respectively 519,972 535,879
------------ ------------
Total assets $60,201,712 $62,022,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $2,912,545 $1,950,790
Accounts payable 7,079,584 7,153,619
Accrued expenses and other 9,328,101 13,528,076
------------ ------------
Total current liabilities 19,320,230 22,632,485
------------ ------------
Long-term liabilities:
Long-term debt, net of current portion 10,448,113 10,926,995
Other long-term liabilities 550,500 817,500
Deferred income taxes 159,000 --
------------ ------------
Total long-term liabilities 11,157,613 11,744,495
------------ ------------
Total liabilities 30,477,843 34,376,980
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par - shares authorized
10,000,000; no shares issued or outstanding
Common stock, $.10 par - shares authorized
50,000,000; 7,331,765 and 7,200,905 issued, respectively 733,177 720,090
Additional paid-in capital 30,352,744 30,009,409
Accumulated deficit (1,250,375) (2,972,542)
------------ ------------
29,835,546 27,756,957
Less cost of 5,000 treasury shares (111,677) (111,677)
------------ ------------
Total stockholders' equity 29,723,869 27,645,280
------------ ------------
Total liabilities and stockholders' equity $60,201,712 $62,022,260
============ ============
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
COMMON STOCK Additional Total
---------------------- Paid-in Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity
------ ------ ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,534,592 $453,459 $21,030,881 ($7,796,489) ($111,677) $13,576,174
Issuance of shares and warrants
for DMS acquisition 2,000,000 200,000 7,483,750 -- -- 7,683,750
Issuance of shares in exchange
for convertible notes 206,456 20,646 263,231 -- -- 283,877
Issuance of shares under
compensation arrangements 148,396 14,839 391,548 -- -- 406,387
Net income -- -- -- 2,003,316 -- 2,003,316
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 6,889,444 688,944 29,169,410 (5,793,173) (111,677) 23,953,504
Issuance of shares for
Steel acquisition 42,391 4,239 245,104 -- -- 249,343
Issuance of shares under
compensation arrangements 269,070 26,907 594,895 -- -- 621,802
Net income -- -- -- 2,820,631 -- 2,820,631
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 7,200,905 720,090 30,009,409 (2,972,542) (111,677) 27,645,280
Issuance of shares for Sparks
Europe acquisition 70,160 7,017 221,004 -- -- 228,021
Issuance of shares under
compensation arrangements 60,700 6,070 122,331 -- -- 128,401
Net income -- -- -- 1,722,167 -- 1,722,167
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 7,331,765 $733,177 $30,352,744 ($1,250,375) ($111,677) $29,723,869
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows provided from operating activities:
Net income $ 1,722,167 $ 2,820,631 $ 2,003,316
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in loss of affiliates 45,406 (14,464) -
Depreciation and amortization 2,596,794 2,036,281 1,569,287
Deferred taxes 601,000 798,870 396,000
Write down of investment in affiliate 465,106 - -
Change in assets and liabilities, net of effects of acquisitions:
(Increase) decrease in accounts receivable, net 280,151 (6,868,967) (2,681,217)
(Increase) in inventory (2,188,953) (47,272) (3,215,232)
(Increase) decrease in prepaid and other assets (15,719) (1,092,127) (326,714)
Increase (decrease) in accounts payable, accrued
expenses and other (4,274,010) 4,461,672 7,119,839
Other operating items, net 18,392 247,400 78,845
---------------- --------------- -----------------
Net cash provided by (used in) operating activities (749,666) 2,342,024 4,944,124
---------------- --------------- -----------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (366,976) (681,293) (12,970,740)
Cash paid for investment in affiliates (414,451) (679,646) -
Capital expenditures (2,845,986) (2,758,095) (1,306,630)
Disposal of capital assets - - 46,767
Other - (57,177) -
---------------- --------------- -----------------
Net cash used for investing activities (3,627,413) (4,176,211) (14,230,603)
---------------- --------------- -----------------
Cash flows from financing activities:
Debt proceeds, net 2,422,685 51,885 13,500,000
Principal payments on long-term debt (1,856,608) (1,096,049) (678,052)
Payments against notes payable, sellers (83,203) (20,000) (20,000)
Proceeds from exercised stock options and stock purchases 110,010 403,330 299,621
---------------- --------------- -----------------
Net cash provided by (used in) financing activities 592,884 (660,834) 13,101,569
---------------- --------------- -----------------
Increase (decrease) in cash and cash equivalents (3,784,195) (2,495,021) 3,815,090
Cash and cash equivalents - beginning of year 4,620,079 7,115,100 3,300,010
---------------- --------------- -----------------
Cash and cash equivalents - end of year $ 835,884 $ 4,620,079 $ 7,115,100
================ ============== ==============
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Marlton
Technologies, Inc., its wholly-owned subsidiaries and the effects of minority
investments in non-consolidated businesses (the "Company"). Investments in
affiliates, representing the Company's 20% or more but less than 50%
investments, are accounted for using the equity method. All inter-company
accounts and transactions have been eliminated.
Activity included in the consolidated statements of operations consists
primarily of the design, manufacture, sale and servicing of sophisticated custom
and portable/modular trade show exhibits and the manufacturing of museum
interiors, themed interiors, theme park attractions, staging, and custom store
fixture and point of purchase displays.
The Company operates in one segment.
CASH EQUIVALENTS
The Company considers all investments with an initial maturity of three months
or less at the time of their purchase to be cash equivalents. Temporary cash
investments comprise principally short-term government funds. At various time
throughout the year the Company may maintain cash balances in excess of FDIC
limits.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or market and
include materials, labor and manufacturing overhead costs.
LONG-LIVED ASSETS
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets,
ranging primarily from 3 to 10 years. Assets and accumulated depreciation
accounts are reduced for the sale or other disposition of property, and the
resulting gain or loss is included in income. Rental assets, which include
manufactured and purchased exhibit components, are stated at cost. Depreciation
is recorded on a usage basis, primarily over 3 years.
The excess of cost over the fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over periods ranging from 5 to 30 years.
Customer lists, which are recorded at cost, are amortized on a straight-line
basis over their estimated useful lives of 5 to 15 years and are included as
components of other assets. Also included in other assets are debt issue costs
and deposits relating to certain facility leases.
The Company's policy is to record an impairment loss against long-lived assets,
including property and equipment, goodwill and other intangibles, in the period
when it is determined that the carrying amount of such assets may not be
recoverable. This determination includes evaluation of factors such as current
market value, future asset utilization, business climate and future undiscounted
cash flows expected to result from the use of the net assets.
REVENUE RECOGNITION
Revenues on trade show exhibit sales, themed interiors, sets and custom store
fixtures and point of purchase displays are recognized using the completed
contract method. Revenues on permanent exhibit installations which are generally
six months or longer in duration, are recognized on the percentage of completion
method. Progress billings are generally made throughout the production process.
Progress billings which are unpaid at the balance sheet date are not recognized
in the financial statements as accounts receivable. Progress billings which have
been collected on or before the balance sheet date are classified as customer
deposits and are included in accrued expenses and other.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based upon the future
tax consequences of events that have been included in the financial statements
or tax returns. Deferred tax assets and liabilities are calculated based on the
difference between the financial and tax bases of assets and liabilities using
the currently enacted tax rates in effect during the years in which the
differences are expected to reverse.
23
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results may differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash and temporary cash investments with high
credit quality institutions. The Company's accounts receivable are primarily
with customers throughout the United States. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires
progress payments which mitigate its loss exposure.
Substantially all of the Company's net sales and long-lived assets reside within
the United States. One customer accounted for 12% of consolidated net sales in
1999 and 13% of accounts receivable at December 31, 1999. During 1998, a
different customer accounted for 16% of consolidated net sales. The loss of one
or both of these customers, or a significant reduction in one or both of these
customers' purchases, could have a material adverse effect on the Company's
results of operation. Although the Company has taken steps to diversify its
customer base during 1999, the Company expects this condition to continue at
least through 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents and long-term debt.
The recorded values of cash and cash equivalents approximate their fair value
due to the short maturity of these instruments. The fair value of long-term debt
is estimated based on current interest rates offered to the Company for similar
remaining maturities. The recorded value of these financial instruments
approximate their fair value at December 31, 1999 and 1998.
PER SHARE DATA
Basic net income per common share is calculated using the average shares of
common stock outstanding, while diluted net income per common share reflects the
potential dilution that could occur if stock options were exercised.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted the provisions of SFAS 130,
"Reporting Comprehensive Income," which establishes a standard for reporting and
display of comprehensive income and its components in the financial statements.
No items of other comprehensive income existed during December 31, 1999, 1998 or
1997.
2. ACQUISITIONS
SPARKS PRODUCTIONS LTD.
On April 1, 1998, the Company acquired 100% of the stock of Rusty Hinges, Inc.
d/b/a Steele Productions ("Steele") located in the San Francisco, California
area. Steele produces exhibit properties for industrial and corporate theater
events throughout the United States. Subsequent to the acquisition, the Company
changed the name to Sparks Productions Ltd.
The transaction included a cash payment of approximately $395,000, a five year
note approximating $197,000 payable in annual installments bearing interest at
7.25% per annum, and 42,391 shares of the Company's common stock valued at
24
<PAGE>
approximately $250,000. The excess cost of the acquisition, including related
costs of the transaction, over the net assets acquired of approximately $190,000
is being amortized on a straight-line basis over 10 years.
DMS STORES FIXTURES LLC
On December 31, 1997, the Company acquired the assets and liabilities of DMS
Store Fixtures, L.P. ("DMS"), a supplier of custom made store fixtures and
displays to national retailers, department stores and consumer product
manufacturers. Total consideration paid was $14.5 million in cash, $7.5 million
in the Company's common stock, and additional accrued consideration of $1.3
million to be paid in annual installment of $270,000 payable annually through
2002. The Company incurred fees of approximately $875,000 as part of the
acquisition, including approximately $214,000 for the value of 162,500 warrants
for the Company's common stock, issued to the Company's financial advisor and
lending institution. The value of the warrants issued to the lending
institution, approximating $82,000, is included as a component of other assets,
and is being amortized on a straight line basis over five years. The excess
cost, including related costs of the transaction over the net assets acquired,
of approximately $18.3 million, is being amortized on a straight-line basis over
30 years.
The following table summarizes the unaudited consolidated pro forma information
assuming the DMS acquisition had occurred at the beginning of 1997. The pro
forma effects of the Steele acquisition are not material and, accordingly, have
been excluded from the pro forma presentation.
1997
----
Net sales $79,796,000
Operating income 4,059,000
Net income $ 2,816,000
Weighted average of common shares:
Basic 6,759,000
Diluted 7,634,000
Net income per common share:
Basic $.42
Diluted $.37
Pro forma net income presented for 1997 includes a pre-tax charge of $792,000
against operating income for the value of stock compensation paid to certain DMS
employees. Exclusive of the after-tax effect of this non-recurring item during
1997, pro forma net income for the respective period was $3,418,000 ($.45 per
diluted common share).
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest expense on acquisition debt and
certain other adjustments, together with related income tax effects. The
unaudited pro forma information is not necessarily indicative of the results of
operations that would have occurred had the purchase been made at the beginning
of the period presented or the future results of the combined operations.
25
<PAGE>
3. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income
per common share (in thousands except per share data):
1999 1998 1997
---- ---- ----
Net income $1,722 $2,821 $2,003
====== ====== ======
Weighted average common
shares outstanding used to compute
basic net income per common share 7,280 7,139 4,765
Additional common shares to be issued
assuming exercised of stock options,
net of shares assumed reacquired 511 1,001 875
Total shares used to compute diluted
net income per common share 7,791 8,140 5,640
====== ====== ======
Basic net income per share $.24 $.40 $.42
====== ====== ======
Diluted net income per share $.22 $.35 $.36
====== ====== ======
Options and warrants to purchase 655,000, 308,000 and 190,000 shares of common
stock at prices ranging from $3.38 per share to $7.00 per share were outstanding
at December 31, 1999, 1998 and 1997, respectively, but were not included in the
computation of diluted income per common share because the options' and
warrants' exercise price was greater than the average market price of the common
shares.
4. STATEMENTS OF CASH FLOWS INFORMATION
Cash paid for interest in 1999, 1998 and 1997 amounted to $1,001,000, $770,000
and $28,000, respectively.
Cash paid for income taxes in 1999, 1998 and 1997 amounted to $1,020,000,
$735,925, and $61,000, respectively.
Cash paid for the December 31, 1997 acquisition of DMS was calculated as follow:
Current assets $ 5,410,816
Property and equipment 160,642
Goodwill and other intangibles 16,990,432
Liabilities assumed or created (1,907,400)
Common stock issued (7,683,750)
----------
Cash paid, net of cash acquired $12,970,740
===========
During 1999, the following non-cash transactions took place:
* On February 19, 1999 the Company issued 70,160 shares of its common
stock having a market value of $3.25 per share in connection with a
25% investment in Sparks Europe (See Note 6 of the consolidated
financial statements).
* The Company issued 57,125 shares of its common stock to certain
employees for a stock sale and awards.
During 1998, the following non-cash transactions took place:
* The Company issued 42,391 shares of its common stock and a five year
note amounting to $197,307 bearing interest at 6% per annum, payable
in five installments commencing April 1, 1999 in connection with the
acquisition of Steele.
26
<PAGE>
* The Company recorded approximately $1,090,000 of additional accrued
consideration in connection with the acquisition of DMS.
* The Company issued 29,270 shares of its common stock to certain
employees and the Company's 401(k) plan for shares, stock awards and
defined contributions under the Company's employment benefit plan.
* In addition to cash of $179,646, the Company transferred its 51%
majority interest in EDSI, with a book value of approximately
$1,330,000, in exchange for a 25% minority interest in ADSI. (See Note
6 to the consolidated financial statements)
During 1997, the following non-cash investing and financing transactions took
place:
* The Company issued 2,250,000 shares of its common stock and 162,500
warrants in connection with the acquisition of DMS.
* The Company issued 27,166 of its common stock to certain directors,
employees and the Company's 401(k) plan for director fees, stock
awards and defined contributions under the Company's employment
benefit plan.
* The Company exchanged three, two-year convertible notes to the sellers
of Sparks amounting to $283,877 for 206,456 shares of the Company's
common stock.
5. INVENTORY
Inventories at December 31 consist of the following:
1999 1998
---- ----
Raw materials $ 481,882 $ 404,961
Work in process 7,612,068 6,330,634
Finished goods 3,561,164 2,730,566
--------- ---------
$11,655,114 $9,466,161
=========== ==========
6. INVESTMENT IN AFFILIATES
On February 19, 1999, the Company paid $258,451 and issued 70,160 shares of its
common stock having a market value of $3.25 per share for a 25% minority
interest in Hans Uljee Explotatie en Beheer B.V. ("Uljee"), a Netherlands-based
organization focusing on exhibit fabrication, interior design, event displays
and graphics production. The excess cost over the 25% equity acquired was
$362,000 which is being amortized on a straight-line basis over 10 years.
Subsequent to the Company's 25% investment, Uljee changed its name to Sparks
Europe, B.V. ("Sparks Europe"). Should Sparks Europe attain defined cumulative
net income levels the Company will be required to pay an additional amount in
Eurodollars and/or its common stock, at the Company's option. During 1999,
income from investments in affiliates comprise the Company's 25% interest in
Sparks Europe's operating results from February 19, 1999 through December 31,
1999.
On February 1, 1998, the Company exchanged its 51% majority interest in Expose
Display Systems, Inc. ("EDSI") and paid approximately $180,000 in cash for a 25%
equity interest in Abex Display Systems Inc. ("ADSI"), a portable/modular trade
show exhibit manufacturer in Los Angeles, California. On August 1, 1998, the
Company paid $500,000 in cash for a 20% interest in Abex Europe, Ltd. ("Abex
Europe"), a newly-formed United Kingdom corporation, headquartered in London,
organized to market, assemble and distribute portable/modular exhibit products
and graphics throughout the United Kingdom and Europe. In October 1999, Abex
Europe went into receivership under UK law, and a new UK corporation, Abex
Display UK Ltd. ("Abex UK") was formed to purchase Abex Europe's assets and
continue Abex Europe's business. During the third quarter of 1999, the Company
recognized an impairment loss of approximately $465,000 related to its
investment in Abex Europe. The Company made an additional investment of $156,000
in the fourth quarter of 1999 to acquire a 25% ownership in Abex UK.
27
<PAGE>
The table below contains summarized unaudited 1999 financial information with
respect to the Sparks Europe and ADSI unconsolidated affiliates.
CONDENSED STATEMENT OF NET INCOME:
(in thousands)
Net sale $20,973
Gross profit 6,585
Net income 122
CONDENSED BALANCE SHEETS:
Current assets $6,547
Non-current assets 5,800
-------
$12,347
=======
Current liabilities $4,712
Non-current liabilities 4,816
Shareholder's equity 2,819
-------
$12,347
=======
7. PROPERTY AND EQUIPMENT
1999 1998
---- ----
Property and equipment at December 31
consist of the following:
Manufacturing equipment and vehicles $ 1,733,765 $ 1,467,955
Office equipment and data processing 5,468,488 4,170,862
Leasehold improvements 2,507,263 1,540,231
Showroom exhibits and other 616,602 596,120
----------- ----------
$10,326,118 $7,775,168
Less accumulated depreciation and amortization 5,314,787 3,995,801
----------- ----------
$ 5,011,331 $3,779,367
=========== ==========
Rental assets at December 31
consist of the following:
Rental assets $ 3,312,149 $3,030,029
Less accumulated depreciation 1,942,488 1,661,020
----------- ----------
$ 1,369,661 $1,369,009
=========== ==========
During 1997, the Company began a multi-year project to install a computer system
to support its information processing and access needs. Direct internal and
external costs, subsequent to the preliminary stage of this project, are being
capitalized as property and equipment. Capitalized costs will be amortized over
the estimated useful lives of the related assets, ranging from three to five
years, beginning when each site installation or module is complete and ready for
its intended use. Depreciation and amortization of property and equipment,
including software, was $1,613,000, $1,219,000 and $1,339,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
8. INTANGIBLE ASSETS
Amortization expense related to goodwill and other intangible assets was
approximately $984,000, $817,000 and $230,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
28
<PAGE>
9. ACCRUED EXPENSES AND OTHER
Accrued expenses and other at December 31, consist of the following:
1999 1998
---- ----
Customer deposits $5,289,182 $ 6,677,913
Accrued compensation 1,902,719 2,893,119
Accrued payroll, sales and business taxes 281,630 840,062
Accrued insurance costs 147,239 800,135
Accrued contractual costs 220,547 75,000
Accrued interest 49,240 250,076
Other 1,437,544 1,991,771
---------- -----------
$9,328,101 $13,528,076
========== ===========
10. DEBT OBLIGATIONS
The Company, in connection with the December 31, 1997 acquisition of DMS,
entered into a $13.5 million five-year term loan and a $6.5 million five-year
revolving credit facility with a lending institution, both collateralized by all
of the Company's assets. The availability on the revolving credit facility was
increased in 1999 to $9.0 million. Borrowings under the term loan are fixed at
6.15% per annum plus an applicable spread. The revolving credit facility bears
interest at rates equal to adjusted LIBOR plus applicable spreads ranging from
75 to 100 basis points. The applicable spreads are dependent upon the Company's
debt to capitalization ratio, measured on a quarterly basis. The interest rates
charged during 1999 were 7.15% for the term loan and a range of 5.94% to 6.88%
for the revolving credit facility. A final term loan payment is due during 2002
provided the Company has not fully repaid the term loan due to
contractually-required prepayments equal to 50% of its defined excess cash flow.
Both the term loan and revolving credit facility include among other things,
certain financial covenants requiring the maintenance of certain minimum
financial ratios and restricts the Company's ability to pay dividends. The
outstanding balance under the revolving credit facility at December 31, 1999 was
$1,627,224. No amounts under this credit facility were outstanding as of
December 31, 1998. The Company is subject to an annual commitment fee
of 25 basis points on the average annual unused portion of the revolving credit
facility.
The Company obtained a $1.0 million credit facility in September 1999 to fund
the construction of an office expansion. (See Note 11 to the consolidated
financial statements). The interest rate on this credit facility was LIBOR plus
200 basis points and was repaid in February 2000.
29
<PAGE>
The Company's debt obligations at December 31, consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Term loan payable, interest payable quarterly at
adjusted LIBOR plus spreads ranging from 75 to 100
basis points, principal in equal quarterly
payments from April 1, 2000 based on minimum
annual installments of $2.025 million,
$3.0375 million and a final payment of $5.56875 million $10,631,250 $12,487,500
Revolving credit facility 1,627,224 ---
Construction loan 795,461 ---
Seller note payable, interest payable
annually at 6%, principal payable in
annual installments of $20,000 through April, 2001 40,000 60,000
Seller note payable, interest payable
annually at 7.25%, principal payable on
April 1, 1999 totaling $63,203 and four
equal annual installments of $33,526 thereafter 134,104 197,307
Other 132,619 132,978
----------- -----------
13,360,658 12,877,785
Less current portion 2,912,545 1,950,790
----------- -----------
$10,448,113 $10,926,995
=========== ===========
</TABLE>
Aggregate long-term debt maturities for the next five years are as follows:
YEARS ENDED DECEMBER 31, AMOUNT
------------------------ ------
2000 $ 2,912,545
2001 3,185,087
2002 7,229,500
2003 33,526
2004 -0-
-----------
$13,360,658
===========
11. RELATED PARTY TRANSACTIONS
The Company leases two facilities from partnerships controlled by two
shareholders of the Company. One lease, which expires on May 14, 2019, requires
minimum annual rent of $771,000 for the first 10 years, and the Company is
responsible for taxes, insurance and other operating expenses. This annual rent
is comparable to the amount charged by the previous lessor. There were advances
of $826,000 made to one of the partnerships at December 31, 1999 included in
prepaid and other current assets made in connection with a construction loan for
a facility expansion. These advances were repaid in February 2000.
The second lease for a separate facility expires on April 1, 2000. The previous
expiration date for this lease was May 1, 2001, which was changed, without
penalty, to April 1, 2000 as a result of management's decision to relocate and
consolidate its DMS operation. The annual rent for this facility is $180,000,
and the Company is responsible for taxes, insurance and other operating
expenses.
30
<PAGE>
In connection with the DMS acquisition, employment agreements were made with two
shareholders of the Company, which provide for guaranteed minimum payments of
approximately $270,000 included in other accrued liabilities and $550,500 in
other long-term liabilities.
12. COMMITMENTS AND CONTINGENCIES
The Company operates in leased office and warehouse facilities. Lease terms
range from monthly commitments up to 240 months with options to renew at varying
times. Certain lease agreements require the Company to pay supplemental costs of
utilities, taxes, insurance and maintenance.
As of December 31, 1999, future minimum lease commitments under non-cancelable
operating leases are as follows:
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ------
2000 $ 2,520,000
2001 2,016,000
2002 1,973,000
2003 1,976,000
2004 1,975,000
2005 and thereafter 12,832,000
-----------
Total minimum lease
commitments $23,292,000
===========
Rental expense, exclusive of supplemental costs, was approximately $2,564,000,
$1,840,000 and $1,405,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company is engaged in legal proceedings in the normal course of business.
The Company believes that any unfavorable outcome from these suits not covered
by insurance would not have a material adverse effect on the financial
statements of the Company.
13 WARRANTS AND STOCK OPTIONS
WARRANTS
On October 12, 1999, the Company issued warrants to purchase 100,000 shares of
common stock at an exercise price of $2.50 per share to the Company's financial
adviser in connection with a debt restructuring project. These warrants are
exercisable on or before October 12, 2004.
In December 1997, the Company issued warrants to purchase 100,000 and 62,500
shares of common stock at an exercise price of $6.19 per share to another
financial advisor and a lending institution, respectively, as part of the DMS
acquisition. These warrants are exercisable on or before December 31, 2001.
STOCK OPTIONS
The Company has qualified and nonqualified stock option plans.
In August 1990, the Company adopted the 1990 Incentive Plan which provides for
the granting of Incentive Stock Options ("ISO") and a 1990 Nonstatutory Option
Plan which provides for the grantings of Nonstatutory options ("NSO")
(collectively, "the 1990 Plans"). Under the 1990 Plans, 1,450,000 shares of
Common Stock are authorized for issuance under options that may be granted to
employees. Options are exercisable at a price not less than the market value of
the shares at the date of grant in the case of ISO's, and 85% of the market
value of the shares in the case of NSO's.
In April 1984, the Company adopted the 1984 Incentive Stock Option Plan ("1984
Plan"). The plan provides for the granting of Incentive Stock Options to key
salaried employees to purchase a maximum of 100,000 common shares at prices not
less than the market value of the shares on the date the options are granted.
The Company maintains a Nonqualified Stock Option Plan ("NSOP") which provides
for the granting of options primarily to employees, directors and others to
purchase, for a period of five years, a maximum of 65,900 common shares at
prices and
31
<PAGE>
terms determined by a committee appointed by the Board of Directors. Options are
granted at a price not less than 85% of the market value of the shares at the
date of the grant.
The Directors' and Consultants' Stock Option Plan provides for the granting of
options to purchase up to 73,600 common shares to directors and consultants who
are neither principal stockholders, nor receive salary compensation. Prices are
determined as in the Nonqualified Stock Option Plan.
The 1992 Director Stock Plan ("1992 Plan) was amended in June 1998 to eliminate
non-discretionary annual stock awards, to provide stock awards or options as
determined by the Board and to increase the authorized shares to a total of
250,000.
The following is a summary of option and warrant transactions and exercise
prices:
WEIGHTED
SHARES PRICE PER SHARE AVERAGE
------ --------------- -------
Outstanding at December 31, 1996 1,481,122 $1.60 to $2.88 $2.08
=========
Granted 172,419 $3.75 to $7.00 $4.02
Expired (98,427) $2.13 to $3.00 $2.96
Exercised (121,230) $1.60 to $2.60 $1.89
----------
Outstanding at December 31, 1997 1,433,884 $1.60 to $7.00 $2.27
=========
Granted 475,828 $2.08 to $6.88 $5.47
Expired (13,700) $2.60 to $6.00 $4.15
Exercised (239,800) $1.60 to $4.00 $1.98
---------
Outstanding at December 31, 1998 1,656,212 $1.60 to $7.00 $3.10
=========
Granted 195,575 $2.00 to $4.13 $2.77
Expired (156,990) $2.00 to $6.00 $3.92
Exercised (3,575) $2.80 to $2.80 $2.80
---------
Outstanding at December 31, 1999 1,691,222 $1.60 to $7.00 $3.10
=========
32
<PAGE>
The following table summarized information concerning outstanding and
exercisable options and warrants as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED AVERAGE
NUMBER OF NUMBER OF
RANGE OF OPTIONS REMAINING OPTIONS WEIGHTED
EXERCISE AND LIFE EXERCISE AND AVERAGE
PRICES AWARDS (YEARS) PRICE AWARDS EXERCISE PRICE
------ ------ ------- ----- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
1990 Plans $1.60 to $2.00 687,200 1.73 $1.80 687,200 $1.80
$3.38 to $4.88 199,000 7.05 $4.50 126,631 $4.29
-------------- --------- ---- ----- --------- -----
Plan Totals $1.60 to $4.88 886,200 2.93 $2.41 813,831 $2.19
-------------- --------- ---- ----- --------- -----
1984 Plan $2.00 to $3.38 60,000 1.00 $2.63 60,000 $2.63
NSOP $2.00 to $2.00 7,300 1.25 $2.00 7,300 $2.00
-------------- --------- ---- ----- --------- -----
1992 Plan $2.00 to $2.88 85,995 1.17 $2.31 85,995 $2.31
$3.57 to $6.25 70,000 3.09 $5.10 70,000 $5.10
-------------- --------- ---- ----- --------- -----
Plan Totals $2.00 to $6.25 155,995 2.03 $3.56 155,995 $3.56
-------------- --------- ---- ----- --------- -----
Other $2.00 to $3.50 150,900 1.82 $2.26 109,400 $2.27
$3.88 to $7.00 430,827 3.10 $4.74 423,327 $4.70
-------------- --------- ---- ----- --------- -----
Total Other $2.00 to $7.00 581,727 2.77 $4.10 532,727 $4.20
-------------- --------- ---- ----- --------- -----
Grand Total $1.60 to $7.00 1,691,222 2.71 $3.10 1,569,853 $3.03
============== ========= ==== ===== ========= =====
</TABLE>
The following is a summary of stock options exercisable at December 31, 1999,
1998 and 1997, and their respective weighted-average share prices:
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
Options exercisable December 31, 1999 1,569,853 $3.03
Options exercisable December 31, 1998 1,396,217 $3.00
Options exercisable December 31, 1997 1,250,384 $2.18
The Company has adopted the disclosure - only provisions of SFAS No. 123,
"Accounting for Stock-based Compensation." The Company will continue to apply
the provisions of Accounting Principles Board Opinion 25 in accounting for its
stock option plans. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net income and diluted income per common share would have been
reduced to the pro forma amount as follows:
Year ended December 31,
--------------------------------------------
1999 1998 1997
---- ---- ----
Net income
As reported $1,722,167 $2,820,631 $2,003,316
Pro forma 1,445,430 2,486,549 1,747,569
Diluted income per common share
As reported $.24 $.35 $.36
Pro forma $.18 $.31 $.31
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model. Assumptions used to calculate the fair
value of option grants in 1999, 1998 and 1997 include the following:
33
<PAGE>
ASSUMPTION 1999 1998 1997
- ---------- ---- ---- ----
Dividend yield 0.0% 0.0% 0.0%
Risk-free rate 5.6% 5.4% 6.0%
Expected life 2-3 years 3-4 years 3-4 years
Expected volatility 60% 68% 68%
Fair Value $1.13 $2.90 $2.07
14. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution savings plan under Section 401(k)
of the Internal Revenue Code which provides retirement benefits to certain
employees of the Company and its wholly-owned subsidiaries who meet certain age
and length of service requirements. The Company's contribution to the Plan is
determined by management. Charges to income with respect to this Plan were
approximately $105,000, $98,000 and $55,000 in 1999, 1998 and 1997,
respectively.
15. INCOME TAXES
The components of the provision for income taxes were as follows:
1999 1998 1997
---- ---- ----
Current:
Federal $ 496,000 $ 833,000 $ 99,000
State 100,000 97,130 125,000
Deferred:
Federal 574,000 801,000 375,000
State 27,000 (2,130) 21,000
---------- ---------- --------
$1,197,000 $1,729,000 $620,000
========== ========== ========
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
1999 1998 1997
---- ---- ----
Federal statutory rate 34% 34% 34%
State income tax, net of
federal income tax effect 3 2 4
Non-deductible expenses 4 3 3
Valuation allowance - - (13)
Other, net - (1) (4)
--- --- ---
41% 38% 24%
=== === ===
34
<PAGE>
The net deferred tax asset at December 31, 1999 and 1998 consist of the
following:
1999 1998
---- ----
Accounts receivables $142,000 $229,000
Inventories 84,000 --
Property and equipment 82,000 352,000
Accrued expenses and compensation 115,000 355,000
Goodwill and intangibles (439,000) (220,000)
0ther, net 198,000 67,000
-------- --------
$182,000 $783,000
======== ========
During the fourth quarter of 1997, as a result of the acquisition of DMS, the
Company reassessed its ability to utilize its general business credit
carryforwards which were to expire primarily in 1998. Based on this
reassessment, a benefit of approximately $350,000 was recognized related to
release of valuation allowance in 1997. Approximately $1,056,000 and $450,000 of
gross deferred tax asset and valuation allowance related to general business
credits were written off in 1998 and 1997, respectively.
16. SUBSEQUENT EVENT
On January 21, 2000, the Company restructured its bank debt with an amended
revolving credit facility, providing for borrowing capacity up to $30 million.
This new facility which matures on January 21, 2005, was used to refinance the
term loan and is intended to finance capital expenditures, permitted
acquisitions and other working capital requirements as needed. The new facility
is collateralized by all of the Company's assets and bears interest at rates
based on the LIBOR adjusted for applicable spreads ranging from 1.25% to 2.5%.
The Company is subject to an annual commitment fee of 1/4 % on the average
unused portion of the revolving credit facility. This new facility includes
certain financial covenants requiring a minimum net worth and maintenance of
certain financial ratios, and restricts the Company's ability to pay dividends.
Loan origination fees totaling approximately $540,000, comprised of $440,000 of
cash payments and issuance of 37,210 shares of the Company's common stock, will
be amortized over five years.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized unaudited quarterly financial data for the years ended December 31,
1999 and 1998 are:
(in thousands)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1999
----
Net sales $25,791 $24,027 $21,921 $22,845
Gross profit 5,561 4,750 5,177 5,854
Net income 838 212 316 356
Basic net income per
common share .12 .03 .04 .05
Diluted net income
per common share .11 .03 .04 .04
1998
----
Net sales $22,051 $22,317 $24,358 $22,408
Gross profit 5,479 5,567 4,965 5,664
Net income 700 659 607 854
Basic net income per
common share .10 .09 .08 .12
Diluted net income
per common share .09 .08 .08 .11
35
EXHIBIT 10(f)
LEASE AGREEMENT
THIS AGREEMENT (the "Lease") made as of the 17th day of May, 1999, by and
between 2828 Partnership, L.P., a Pennsylvania limited partnership ("Lessor"),
and Marlton Technologies, Inc., a New Jersey corporation ("Lessee").
W I T N E S S E T H
WHEREAS, pursuant to the Agreement of Sale (the "Agreement of Sale") dated
April 5, 1999 between Lessor's predecessor in interest under the Agreement of
Sale and the legal owner, Charter Road Partnership (the "Current Owner"), Lessor
is the equitable owner of a certain tract of land located in the City of
Philadelphia, County of Philadelphia and Commonwealth of Pennsylvania known as
2828 Charter Road and containing 19.36 acres, more or less, as more fully
described on Exhibit "A" attached hereto and incorporated herein by reference
(the "Land"), together with the building and improvements thereon, including the
approximately 234,285 square foot one-story building thereon (the "Building")
(the Land, the Building and the other improvements on the Land are sometimes
collectively referred to herein as the "Property"); and
WHEREAS, an affiliate of Lessee, Sparks Exhibits Holding Corporation
("Sparks"), currently leases the Property from the Current Owner pursuant to an
Indenture of Lease dated December 21, 1988, as amended, between the Current
Owner and Sparks' predecessor in interest (the "Existing Lease"); and
WHEREAS, the Agreement of Sale provides that, upon closing thereunder and
Lessor becoming the legal owner of the Property, the Current Owner will assign
its right, title and interest in, to and under the Existing Lease to the Lessor;
and
WHEREAS, Lessor and Lessee desire to enter into a Lease for the Property
which: (a) will be contingent upon Lessor closing under the Agreement of Sale
and becoming the legal owner of the
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Property (the "Title Closing"); (b) will have a term commencing on the date of
the Title Closing; and (c) will replace the Existing Lease upon the occurrence
of the Title Closing.
NOW THEREFORE, the parties hereto, in consideration of the mutual covenants
made herein, and INTENDING TO BE LEGALLY BOUND, hereby agree as follows:
1. Incorporation of Recitals. The foregoing recitals are incorporated into
and made a part of this Lease.
2. Lease Contingent Upon the Occurrence of the Title Closing. This Lease is
conditioned and contingent upon the occurrence of the Title Closing and, if, for
any reason, the Title Closing does not occur within one year from the date of
this Lease, this Lease shall be null and void.
3. Existing Lease Terminated Upon Title Closing. Upon the occurrence of the
Title Closing: (a) the Existing Lease shall be deemed to have been terminated as
if the date of the Title Closing were its natural expiration date; and (b) the
term of this Lease shall commence, such date of commencement being sometimes
referred to herein as the "Effective Date" of this Lease.
4. Lease of Demised Premises. Lessor does hereby demise and lease unto
Lessee and Lessee does hereby lease from the Lessor the Property (sometimes
referred to herein as the "Demised Premises"), on the terms and conditions set
forth herein.
5. Use of Demised Premises. The Demised Premises may be used by Lessee for
any legal purpose and for no other purpose.
6. Term
A. Term. The term of this Lease (the "Term") shall be for twenty (20)
years, commencing on the Effective Date, unless extended or sooner
terminated as herein provided. Notwithstanding the foregoing, if the
Effective Date shall occur on a day which is not the first day of the
month, the Term shall be twenty (20) years plus the number of days in the
month in which the Effective Date occurs which are on or after the
Effective Date. The period from the Effective Date to the end of the month
in which the Effective Date occurs is referred to herein as the "Stub
Period."
B. Option to Terminate Term. Notwithstanding the foregoing, Lessee
shall have the right to terminate the Lease effective on that date which is
the day before the tenth (10th) anniversary of
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the Effective Date or, if there is a Stub Period, effective on that date
which is the tenth (10th) anniversary of the expiration of the Stub Period
(such right to terminate hereinafter referred to as the "Termination
Right"), provided that Lessee shall have given Lessor written notice of
Lessee's election to terminate the Lease which notice must be given at
least six (6) months prior to the day before the tenth (10th) anniversary
of the Effective Date or, if there is a Stub Period, at least six (6)
months prior to that day which is the tenth (10th) anniversary of the
expiration of the Stub Period. If Lessee fails to give such termination
notice in a timely fashion, Lessee shall be deemed to have waived its
Termination Right and the term of the Lease shall be as set forth in
Section 6.A. hereof.
Notwithstanding the foregoing, it is expressly understood and agreed that, even
if Lessee does validly exercise its Termination Right, Lessee shall,
nevertheless, continue to be fully responsible for all of its responsibilities
and obligations under this Lease, including the payment of all rent owed
hereunder, as if the Lease had not been terminated, until such time as Lessor
shall have either "Sold" the Demised Premises or "Re-leased" the Demised
Premises. "Sold" shall mean Seller shall actually have conveyed legal title to
and received the purchase price for the Demised Premises. "Re-leased" shall mean
that Lessor shall have actually leased the Demised Premises and shall be
receiving rent, after any free rent period. Lessor shall use reasonable efforts
to Sell or Release the Demised Premises and shall not unreasonably refuse to
Sell or Re-lease the Demised Premises to a buyer or lessee located by Lessee and
at a sale price or rent and on other terms negotiated by Lessee, but under no
circumstances shall Lessor be obligated to either: (i) Sell the Demised Premises
for a price less than the sum of (a) the balance due on any mortgage debt
secured by the Demised Premises plus (b) $1,000,000.00, if the Lessor has closed
on the Addition Permanent Financing, or $850,000.00, if the Lessor has not
closed on the Addition Permanent Financing; or (ii) Re-lease the Demised
Premises at a rental rate less than Lessor would have received under the Lease
if it had not been terminated, in each case unless Lessee shall consent to such
Sale or Re-leasing and shall agree to pay any deficiency. If Lessor Re-leases
part, but not all, of the Demised Premises, Lessee shall be released from its
obligations pro rata based upon the fraction having as the numerator the square
footage of the Building, as expanded (if applicable), Re-leased and having as
the denominator all leaseable square footage of the Building, as expanded (if
applicable). Anything herein to the contrary notwithstanding, if Lessee
exercises the Termination Right, it may nevertheless continue to occupy the
Demised Premises, at the rent and on the other terms provided herein, after the
effective date of the termination until the Move Out Date (hereinafter defined).
"Move Out Date" shall mean that earliest date which is, sixty (60) days after
Lessor has provided Lessee with written notification of any of: (a) the date the
buyer or new lessee is expected to occupy the Demised Premises; (b) the date, in
connection with a Re-leasing, that the Lessor needs possession in order to
commence those landlord improvements to the Demised Premises, if any, required
under the relevant lease; or (c) Lessor's exercise of the Ultimate Right
(hereinafter defined). Lessee shall vacate the Demised Premises on or before the
Move Out Date.
It is expressly understood and agreed that, in addition to any other right
Lessor has hereunder, after the Lessee has exercised the Termination Right,
Lessor shall have the right, but not the obligation, (the "Ultimate Right") to
either Sell or Re-lease the Demised Premises on any terms Lessor elects, in
Lessor's sole discretion, or to refrain from Selling or Re-leasing, or both, for
any reason, in Lessor's sole discretion, provided Lessor releases Lessee from
its obligation under this Section 6.B. to continue to be responsible for all of
Lessee's responsibilities and obligations, including the payment of rent, which
obligations and responsibilities accrue after the later of (i) the date which is
the day before the tenth (10th) anniversary of the Effective Date or, if there
is a Stub Period, effective on
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that date which is the tenth (10th) anniversary of the expiration of the Stub
Period and (ii) sixty (60) days after Lessor's written exercise of the Ultimate
Right.
7. Base or Minimum Rent.
A. Amount of Payments.
(i) Stub Period. During the Stub Period, if any, Lessee shall pay
to Lessor a base rent (the "Stub Period Base Rent") equal to the sum
of (a) the interest which Lessor owes to its mortgage lender for the
Stub Period on the $5,400,000.00 mortgage loan which Lessor will use
to finance its acquisition of the Demised Premises (the "Acquisition
Loan") and (b) $232.88 for each day of the Stub Period. The Stub
Period Base Rent shall be due and payable on the first day of the Stub
Period. Lessor shall allow Lessee a credit against the Stub Period
Base Rent in the amount, if any, of any prepaid rent relating to the
Stub Period which Sparks shall have paid to the Current Owner and
which the Current Owner shall have transferred, assigned or credited
to Lessor (the "Stub Period Prepaid Base Rent"). If the Stub Period
Base Rent is less than the Stub Period Prepaid Base Rent, then Lessor
shall be obligated to repay or credit against Lessee's rental
obligations the amount, if any, by which the Stub Period Prepaid Base
Rent exceeds the Stub Period Base Rent.
(ii) First Ten Year Period Following Stub Period.
a) Initial Base Rent. During the first ten years of the Term
of this Lease immediately following the Stub Period, if any, or,
if there is no Stub Period, during the first ten years of the
Term of this Lease (whichever is applicable is hereinafter
sometimes referred to as the "First Ten Year Period"), Lessee
shall pay to Lessor an annual base rent (the "Initial Base Rent")
of Six Hundred Seven Thousand Twenty-Four Dollars and Thirty-Two
Cents ($607,024.32) payable in one hundred twenty (120) equal
monthly installments of Fifty Thousand Five Hundred Eighty-Five
Dollars and Thirty-Six Cents ($50,585.36) each payable on the
first day of each month, the first installment to be payable on
the first day of the Term of this Lease if there is no Stub
Period, or, if there is a Stub Period, on the first day
immediately after the Stub Period.
It is understood and agreed that the Initial Base Rent has been calculated
based on the assumption that the Lessor will incur exactly $850,000.00 in
out-of-pocket costs in connection with or relating to its acquisition of the
Demised Premises, its obtaining a commitment for and closing (or attempting to
close in the event that the Addition Permanent Financing does not close) both
the Acquisition Loan and the Addition Permanent Financing and its drafting and
negotiation of and entry
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into this Lease (collectively "Lessor's Out-Of-Pocket Costs"). It is further
understood and agreed that: (I) Lessee shall reimburse Lessor, in addition to
any of Lessee's rental or other obligations under this Lease, for the amount, if
any, by which Lessor's Out-Of-Pocket Costs exceed $850,000.00; and (II) Lessor
shall pay Lessee the amount, if any, by which Lessor's Out-Of-Pocket Costs are
less than $850,000.00 (the "Lessor's Reimbursement").
While the following is not an exclusive list of Lessor's Out-Of-Pocket
Costs, Lessee acknowledges and agrees that the following costs, if incurred by
Lessor, are proper Lessor's Out-Of-Pocket Costs:
(1) $600,000 difference between the $6,000.000.00 purchase price for the
Demised Premises and the amount of the Acquisition Loan;
(2) $120,000.00 transfer tax which Lessor will pay in connection with the
acquisition of the Demised Premises;
(3) $14,708.37 title insurance premium which Lessor will pay plus the cost
of any endorsements required by GE, recording fees for the deed and mortgage and
other miscellaneous charges of the title company in connection with the
acquisition of legal title to the Demised Premises and the closing on the
Acquisition Loan;
(4) The title insurance premium and attendant charges which Lessor will pay
in connection with the Addition Permanent Financing.
(5) $4,000.00 for the appraisal plus the cost of the updated appraisal
which will be required in connection with the Addition Permanent Financing;
(6) $5,800.00 for the survey plus the cost of updating the survey in
connection with the Addition Permanent Financing;
(7) $1,800.00 for the engineering study plus the cost, if any, of updating
same in connection with the Addition Permanent Financing;
(8) $1,075.00 for Phase I Environmental Report;
(9) GE's attorneys fees in connection with both the Acquisition Loan and
the Addition Permanent Financing;
(10) Lessor's legal fees incurred in connection with or relating to the
acquisition of the Demised Premises, the drafting and negotiation of this Lease
and the negotiation and closing of both the Acquisition Loan and the Addition
Permanent Financing;
(11) Nonrefundable $13,500.00 "forward commitment fee" required under the
commitment for the Addition Permanent Financing; and
(12) Any "refundable" deposits paid under the loan commitment for either
the Acquisition Loan or the Addition Permanent Financing which are not actually
refunded.
Lessor shall not be obligated to pay Lessee the Lessor's Reimbursement, if
applicable, until after the Addition Permanent Financing has closed or it is
known that it will not close and the Lessor's Out-Of-Pocket Costs relating
thereto are known.
If and when Lessor's Out-Of-Pocket Costs exceed $850,000.00, however,
Lessee shall promptly reimburse Lessor, from time to time, for those Lessor's
Out-Of-Pocket Costs which Lessor has incurred in excess of $850,000.00.
b) Revised Initial Base Rent. If, and only if, the Lessor closes
on the Addition Permanent Financing (hereinafter defined), the Initial
Base Rent shall be increased by the
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sum of (I) amount of the Lessor's debt service (principal and
interest) on the Addition Permanent Financing for the concomitant
period and (II) $1,250.00 per month. By way of example, assume,
hypothetically, that Lessor obtains the Addition Permanent Financing
on the following terms:
Loan Amount: $1,350,000.00
Interest Rate: 7.50%
Amortization Rate: 20 years
Monthly Payment of
Principal and Interest: $10,875.51:
By way of example under such hypothetical facts, after closing on the Addition
Permanent Financing, the Initial Base Rent would be increased by $12,125.51
($1,250.00 + $10,875.51) per month resulting in a monthly Initial Base Rent of
$62,710.87. If there is a stub period (the "Addition Stub Period") for a partial
month during which the Lessor is obligated to pay only interest on the Addition
Permanent Financing, the Initial Base Rent for that month shall be increased by
only the sum of (I) the amount of such interest for the Addition Stub Period and
(II) $41.67 for each day of the Addition Stub Period. The intent of this
paragraph is to pass on the full debt service on the Addition Permanent
Financing to Lessee plus the sum of $1,250.00 per month for the period from the
closing on the Addition Permanent Financing to the tenth (10th) anniversary of
the Effective Date, if there is no Stub Period, or, if there is a Stub Period,
the tenth (10th) anniversary of the expiration of the Stub Period.
Lessor acknowledges that Lessee intends to construct an approximately
15,800 square foot expansion to the Building (the "Addition"). While Lessee
shall finance the construction of the Addition, Lessor has agreed to
attempt to obtain non-recourse permanent financing for the Addition in
order to reimburse Lessee for a portion of the cost of constructing the
Addition in an amount not to exceed $1,350,000.00. This financing is
referred to herein as the "Addition Permanent Financing." In the event that
Lessor is able to obtain and close on the Addition Permanent Financing,
Lessor shall: (I) pay the proceeds from the Addition Permanent Financing to
Lessee and the Initial Base Rent shall be increased as set forth in this
Section 7.A.(ii).b; and (II) pay to Lessee a one time lump sum payment of
$150,000.00 in addition to, and not from, the proceeds of the Addition
Permanent Financing.
Lessor currently has a commitment from General Electric Capital
Business Asset Financial Corporation ("GE") for the Addition Permanent
Financing, a copy of which is attached hereto as Exhibit "B" and made a
part hereof (the "Existing Commitment"). While Lessor shall use its
reasonable efforts to close the loan described in the Existing Commitment,
Lessor does not promise, warrant or represent that it will be able to do so
since some of the conditions for funding under the Existing Commitment are
outside of Lessor's control. In the event that Lessor is not able to close
under the Existing Commitment, Lessee shall have no recourse against Lessor
as a result thereof other than the fact that, as a result thereof, the
Initial Base Rent shall not be increased pursuant to this Section
7.A.(ii).b. In the event that Lessor is not able to close under the
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Existing Commitment, however, Lessor shall use its reasonable efforts to
close on any other alternative Addition Permanent Financing which Lessee
may secure for Lessor no later than April 1, 2000, provided that such
financing is non-recourse, the amount shall not exceed $1,350,000.00, the
debt service is passed on to Lessee pursuant to this Section 7.A.(ii).b and
the maturity date of such financing is the same as the maturity date on the
Acquisition Loan.
(iii) Second Ten Year Period Following First Ten Year Period.
During the next ten years of the Term of this Lease immediately
following the First Ten Year Period (the "Second Ten Year Period"),
Lessee shall pay to Lessor an annual base rent (the "Second Ten Year
Base Rent") equal to the sum of (a) $100,000 if Lessor has closed on
the Addition Permanent Financing and $85,000 if Lessor has not closed
on the Addition Permanent Financing, (b) Thirty-Four Cents ($.34) for
each foot in the Building Square Footage (hereinafter defined), and
(c) the Hypothetical Refinanced Mortgage Debt Service (hereinafter
defined) for the concomitant year of the Lease.
"Building Square Footage" shall mean the sum of the square footage of the
existing Building on the date hereof (agreed to be 234,285 square feet)
plus the square footage of any additions made to the Building. By way of
example, if the Lessee constructs a 15,800 square foot Addition, as
contemplated, and no other additions, the Building Square Footage would be
250,085.
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While, both the Acquisition Loan and the Addition Permanent Financing will
have a maturity date on or about the end of the First Ten Year Period, both will
be repaid based on a twenty (20) year amortization schedule. Therefore, there
will be a significant outstanding balance on both the Acquisition Loan and the
Addition Permanent Financing that will need to be refinanced at their maturity.
"Refinanced Mortgage" shall be the mortgage loan used by Lessor to refinance and
repay the balances, at maturity, of the Acquisition Loan and the Addition
Permanent Financing. The per annum interest rate on the Refinanced Mortgage
which the Lessor actually obtains is hereinafter referred to as the "Refinanced
Mortgage Interest Rate."
If, for logistical or other reasons, the Refinanced Mortgage has not yet
been obtained and closed at the end of the First Ten Year Period, until such
time as the Refinanced Mortgage has closed, and only until such time,
Hypothetical Refinanced Mortgage Debt Service shall mean the sum of the debt
service (principal and interest) which Lessor was paying under the Acquisition
Loan and the Addition Permanent Financing prior to their maturity.
"Hypothetical Refinanced Mortgage Debt Service" shall mean the debt service
(principal and interest) on the Hypothetical Refinanced Mortgage (hereinafter
defined). "Hypothetical Refinanced Mortgage" shall mean a hypothetical loan
(which shall not actually be obtained) (a) in the principal amount of the
aggregate of (i) the original principal amount of the Acquisition Loan, i.e.
$5,400,000.00 and (ii) the original principal amount of the Addition Permanent
Financing if Lessor has closed on that loan; (b) having an amortization schedule
of twenty (20) years; and (c) having an interest rate equal to the Refinanced
Mortgage Interest Rate.
By way of example, if the Refinanced Mortgage Interest Rate was eight
percent (8%) and the original principal amount of the Addition Permanent
Financing was $1,350,000.00, then the Hypothetical Refinanced Mortgage Debt
Service would be $677,516.40 per annum, or $56,459.70 per month.
The annual Second Ten Year Base Rent shall be payable annually throughout
the Second Ten Year Period in twelve equal monthly installments equal to
one-twelfth (1/12th) of the annual Second Ten Year Base Rent.
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(iv) Notwithstanding anything contained in Section 7.A to the
contrary, it is expressly agreed that, if, at any time after the date of
this Lease, there is a "Change in Control of the Lessee" (hereinafter
defined) then, as of that date which is the sixth (6th) month anniversary
of the Change in Control of the Lessee (the "Sixth Month Anniversary"), the
Base Rent hereunder shall be the greater of (a) the Base Rent otherwise
provided herein and (b) the "Fair Market Rental" (hereinafter defined) of
the Demised Premises.
If the Sixth Month Anniversary occurs during the Second Ten Year Period,
the Fair Market Rental need only be calculated once, as of the Sixth Month
Anniversary, for the portion of the Second Ten Year Period remaining after the
Sixth Month Anniversary. If the Sixth Month Anniversary occurs during the First
Ten Year Period, then the Fair Market Rental shall be calculated twice: once, as
of the Sixth Month Anniversary, for the portion of the First Ten Year Period
remaining after the Sixth Month Anniversary and once again, as of the first day
of the Second Ten Year Period, for the full Second Ten Year Period.
"Change in Control of the Lessee" shall mean that greater than fifty
percent (50%) of the common stock of the Lessee shall have been acquired by a
person or entity who/which did not own such stock as of the date of this Lease,
regardless of the reason for the transfer, including transfers by operation of
law; provided, however, that such term shall not include any merger,
consolidation or similar transaction in which (a) Lessee is the surviving
entity, (b) a majority of the members of Lessee's board of directors immediately
after consummation of the merger or consolidation were members of Lessee's board
of directors immediately prior to consummation of the merger or consolidation,
and (c) senior management of Lessee is not materially altered.
"Fair Market Rental" shall mean the current rental charge, as of the date
in question (i.e. the date of the Sixth Month Anniversary and, if the Sixth
Month Anniversary occurs during the First Ten Year Period, the first day of the
Second Ten Year Period), for space comparable to the Demised Premises in the
vicinity of the Demised Premises taking into account the term remaining and the
other terms and conditions of this Lease. Fair Market Rental shall be
exclusively determined by the following procedure:
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Lessor and Lessee shall each determine their good-faith opinion of the Fair
Market Rental value of the Demised Premises taking into account the quality,
size, configuration, location, comparable values and all other facts which each
determine to be relevant. Within forty-five (45) days after the Sixth Month
Anniversary (or, if applicable, within forty-five (45) days after the first day
of the Second Ten Year Period), at a mutually agreeable time and place, the
Lessor and Lessee shall simultaneously exchange in writing their respective
good-faith opinions of the Fair Market Rental value of the Demised Premises. If
the respective opinions of Lessor and Lessee are within ten percent (10%) of
each other, the Fair Market Rental value of the Demised Premises for the
applicable term shall be determined to be the average of the two opinions. If
the respective opinions of the Lessor and Lessee are not within ten percent
(10%) of each other, the Lessor and Lessee shall promptly select a disinterested
real estate appraiser familiar with values in the Philadelphia Industrial Park,
and the sole function of the agreed-upon real estate appraiser shall be to
choose either the opinion of the Lessor or the opinion of the Lessee which most
closely reflects the Fair Market Rental value of the Demised Premises.
The determination as to the Fair Market Rental value of the Demised
Premises, as provided herein, shall be final and conclusively binding on the
parties and may be enforced by legal proceedings.
The Lessor and the Lessee will equally share the compensation of the real
estate appraiser selected. In the event the Lessor and Lessee are unable to
agree upon a disinterested appraiser, either party may apply to any court of
competent jurisdiction for the appointment of a disinterested appraiser. In the
event the Fair Market Rental for the applicable period shall not have been
determined under the aforesaid procedure at the relevant time (i.e. the date of
the Sixth Month Anniversary or, if applicable, the first day of the Second Ten
Year Period) for comparing it to the Base Rent hereunder to see which is
greater, Lessee shall continue to pay the Base Rent otherwise provided herein
until the Fair Market Rental has been determined at which time the Base Rent
shall be retroactively adjusted if the Fair Market Renal is greater than the
Base Rent otherwise provided for herein.
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B. Date and Place Payable. All rent, additional rent and any other
sums due Lessor (hereinafter collectively the "Rent") shall be payable in
advance on the first day of each and every calendar month to 2828
Partnership, L.P. at c/o Equivest Management, Inc., 215 S. Broad Street,
Suite 600, Philadelphia, PA 19107, or at such other address as Lessor may
designate, from time to time, by written notice to Lessee, and shall be
payable without any prior demand thereof and without any deduction, set-off
or counterclaim whatever (except to the extent demand or notice shall be
expressly provided for herein).
C. Late Charges. If Lessee's rental payment has not been received by
Lessor by the fifth day of any month, Lessee will pay any late charge
assessed by Lessor's mortgage lender as a result of such late payment.
Additionally, if rent or any other sum due from Lessee to Lessor has been
overdue for more than fifteen (15) days, it will thereafter bear interest
at the rate of three percent (3%) per annum in excess of the announced
prime rate of interest of Citibank, NA, from time to time in effect (or, if
lower, the highest legal rate), until paid.
D. Acceptance of Rent. If Lessor, at any time or times, shall accept
said rent or any other sum due to it hereunder after the same shall become
due and payable, such acceptance shall not excuse delay upon subsequent
occasions, or constitute, or be construed as, a waiver of any of Lessor's
rights hereunder.
8. Base Rent is Absolutely Net to Lessor/Additional Rent. It is understood
and agreed that the Base Rent which Lessee is obligated to pay to Lessor
pursuant to Section 7 hereof is to be absolutely net to Lessor, and Lessee,
throughout the full term of this Lease, shall be responsible for all costs of
owning, operating, maintaining and repairing (including necessary replacements
except as expressly provided for in Sections 9.B and 30 hereof relating to
casualty damage and condemnation, respectively) the Demised Premises, as
expressly provided herein and otherwise, with the sole exception that Lessee
shall not be obligated or responsible for any mortgage debt of the Lessor
secured by the Demised Premises.
In illustration of, but not in limitation of, the foregoing, in addition to
the Base Rent which Lessee shall be obligated to pay pursuant to Section 7
hereof, Lessee
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shall be obligated to pay the following amounts as additional rent (individually
or collectively "Additional Rent") through the full term of this Lease, as
extended:
A. Additional Rent on Account of Real Estate Taxes. Lessee shall be
responsible for, and shall pay Lessor as additional rent hereunder, 100.00%
of the Real Estate Taxes (hereinafter defined) for each and every calendar
year during the term hereof, as extended (the "Real Estate Tax Additional
Rent"). If the term of this Lease does not commence on January 1st,
Lessee's obligation shall be prorated for the calendar year in which the
term of this Lease commences and the last partial calendar year in the term
of this Lease. Such proration shall be based on a fraction of the
obligation for a full calendar year, which fraction has, as a numerator,
the number of days in the calendar year in the term of the Lease, and, as a
denominator, the number "365". Notwithstanding the foregoing, Lessee shall
not be obligated to pay any Real Estate Taxes for calendar year 1999 which
Sparks has already paid under the Existing Lease.
Lessee shall pay its Real Estate Tax Additional Rent within fifteen (15) days of
its receipt from Lessor of an invoice therefor. Such invoice shall be
accompanied by a copy of the tax bill to which the invoice relates. If, at any
time during the term of this Lease, either Lessee shall have failed to pay its
Real Estate Tax Additional Rent within the required fifteen (15) day period or
Lessor's mortgage lender shall require Lessor to establish an escrow account for
the payment of Real Estate Taxes, Lessor shall have the right, with respect to
future Real Estate Tax Additional Rent, to collect same on a good-faith
estimated basis in advance by requiring Lessee to pay one-twelfth (1/12) of the
estimated amount together with and at the same time as its monthly installment
of Base Rent. Within forty-five (45) days from the time that the actual Real
Estate Tax Additional Rent becomes known, Lessor shall provide Lessee with a
written reconciliation of Lessee's estimated payments received against the
actual amount. Lessee shall pay Lessor any shortfall reflected by the
reconciliation within fifteen (15) days of its receipt of the reconciliation
statement. Lessor shall refund to Lessee any overage reflected by the
reconciliation within fifteen (15) days of Lessee's receipt of the
reconciliation.
If Lessor is not contesting any increased Real Estate Tax assessment occurring
during the term of this Lease, Lessee shall have the right, at its sole cost, to
appeal said increased assessment in its name or in the name of Lessor. During
any such appeal, however, Lessee shall, nevertheless, be required to pay, when
due, its Real Estate Tax Additional Rent but shall be entitled to and shall
receive its share (100%) of any refund obtained relating to any period within
the Term of this Lease. Lessee hereby agrees to indemnify, defend and hold
Lessor harmless from and against any cost or liability incurred by Lessor in
connection with Lessee's exercise of this right. At Lessee's request, Lessor
shall mark any tax payments made during the pendency of a tax assessment appeal
as "paid under protest."
"Real Estate Taxes" shall mean all real estate taxes and assessments, general or
special, ordinary or extraordinary, foreseen or unforeseen, imposed upon the
Building or the Land, and any existing or future improvements of whatever kind
thereto or thereon. Taxes shall include, without limitation, any assessment
imposed by any public or quasi-public entity by reason of the Building being
located in a special services district or similar designation. If, due to a
future change in the method of taxation, any franchise, profit or other tax,
however designated, shall be levied or imposed in substitution, in whole or in
part, for (or in lieu of) any tax which would otherwise be included within the
definition of Taxes, such other tax shall be deemed to be included within Taxes
as defined herein.
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B. Additional Rent on Account of Lessor's Insurance. Lessee shall be
responsible for, and shall pay Lessor as additional rent hereunder, 100.00%
of the Insurance Premium (hereinafter defined) for each and every calendar
year during the term hereof, as extended (the "Insurance Additional Rent").
If the term of this Lease does not commence on January 1st, Lessee's
obligation shall be prorated for the calendar year in which the term of
this Lease commences and the last partial calendar year in the term of this
Lease. Such proration shall be based on a fraction of the obligation for a
full calendar year, which fraction has, as a numerator, the number of days
in the calendar year in the term of this Lease, and, as a denominator, the
number "365".
Lessee shall pay its Insurance Additional Rent within fifteen (15) days of
its receipt from Lessor of an invoice or invoices therefor. Such invoice shall
be accompanied by a copy of the Insurance Premium bill or bills to which the
invoice relates. If, at any time during the term of this Lease, either Lessee
shall have failed to pay its Insurance Additional Rent within the required
fifteen (15) day period or Lessor's mortgage lender shall require Lessor to
establish an escrow account for the payment of insurance premiums, Lessor shall
have the right, with respect to future Insurance Additional Rent, to collect
same on a good faith estimated basis in advance by requiring Lessee to pay
one-twelfth (1/12th) of the estimated amount (which shall not be less than the
actual Insurance Additional Rent for the immediately preceding year) together
with and at the same time as its monthly installment of base rent. Within
forty-five (45) days from the time that the actual Insurance Additional Rent
becomes known, Lessor shall provide Lessee with a written reconciliation of
Lessee's estimated payments received against the actual amount. Lessee shall pay
Lessor any short-fall reflected by the reconciliation within fifteen (15) days
of its receipt of the reconciliation. Lessor shall refund to Lessee any overage
reflected by the reconciliation within fifteen (15) days of Lessee's receipt of
the reconciliation.
"Insurance Premium" shall mean the cost, premium or bill for each and
all of the following types of insurance which will be obtained and
maintained by Lessor for the benefit of Lessor:
(i) insurance against loss or damage to the Building, as
expanded, by fire, windstorm, lightning and tornado and against loss
and damage by such other additional risk as may be now or hereafter
embraced by an "all-risk" form of insurance policy for the full
insurable value, subject to a reasonable deductible (which deductible
shall, in all events, be acceptable to Lessor's mortgage lender) of
the Building, as expanded ("Lessor's Casualty Insurance"). Lessee
acknowledges and understands that Lessor is not obligated to, and does
not intend to, insure the value of any improvements, alterations or
additions that Lessee makes to the Demised Premises other than the
Addition.
(ii) loss of rents or business interruption insurance in an
amount, as reasonably determined by Landlord, from time to time, to
cover the aggregate total of Base Rent, Additional Rent and all other
costs, expenses, sums, charges and other amounts which are the
obligation of Lessee under this Lease for a twelve (12) month period
from the date of the event giving rise to the business interruption or
loss of rents ("Lessor's Loss of Rents Insurance").
(iii) comprehensive general public liability insurance coverage
against claims for or arising out of bodily injury, death or property
damage, occurring in, on or about the streets, sidewalks or properties
adjacent to the Demised Premises as well as in, on, or about the
Demised
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Premises ("Lessor's Liability Insurance"). The aforementioned
policy shall be a single limit policy initially in the amount of Five
Million Dollars ($5,000,000) and thereafter in such increased amounts
as may be reasonably determined by Landlord.
Lessee acknowledges that Lessor's Casualty Insurance, Lessor's Loss of
Rents Insurance and Lessor's Liability Insurance may or may not be on the same
premium or insurance year and, that, if there are different premium or insurance
years, Lessor may submit invoices at different times. Lessee also acknowledges
that, in order to close on the mortgage loan which will enable Lessor to acquire
the Demised Premises, Lessor will have to have these insurance coverages in
place and thus Lessor will have to pay the relevant Insurance Premiums therefor
on or prior to the Effective Date. Lessee further acknowledges that Lessor shall
be obtaining the Lessor's Casualty Insurance, Lessor's Loss of Rents Insurance
and Lessor's Liability Insurance in satisfaction of the requirements of the
lender holding a mortgage on the Premises, including, but not limited to those
reflected on Exhibit "C" attached hereto and made apart hereof. Lessee agrees to
accept any requirements of such insurance imposed by the Lessor's mortgage
lender.
Notwithstanding the foregoing, it is expressly understood and agreed
that, except as required by a lender providing the Acquisition Loan or the
Addition Permanent Financing, or a refinance thereof, Lessee shall have the
right to directly acquire and maintain, during the full term of this Lease and
for the benefit of Lessor, the Lessor's Casualty Insurance, the Lessor's Loss of
Rents Insurance and the Lessor's Liability Insurance or any one or ones thereof,
at Lessee's sole cost and expense and as Insurance Additional Rent hereunder.
Lessee, in fact, has so elected to obtain and maintain all such insurance as of
the Effective Date and Lessee shall continue to maintain such insurance on
Lessor's behalf until Lessee elects or is directed to do otherwise by such
lender in writing. Notwithstanding the foregoing, the following rules shall
always be applicable to the Lessee's right to directly maintain the Lessor's
Casualty Insurance, the Lessor's Loss of Rents Insurance and the Lessor's
Liability Insurance:
I. Lessee shall never elect to discontinue maintaining any such
insurance directly without having provided Lessor with thirty (30)
days advance written notification thereof; and
II. In the event of Lessee's Default (as defined in Section 19
hereof) of this Lease, Lessor shall have the right (but not the
obligation) to terminate Lessee's right to directly maintain any such
insurance; and
III. Lessee shall, in all events and with respect to all
insurance which Lessee directly maintains pursuant to this Section
8.B, provide Lessor with certificates of insurance evidencing renewals
of any and all such insurance prior to the date of expiration for such
insurance as reflected in the most recent prior certificate of
insurance evidencing coverage which Lessee has delivered to Lessor;
and
IV. All insurance which Lessee maintains directly pursuant to
this Section 8.B shall not be cancelable by the insurer without first
providing Lessor thirty (30) days advance written notice.
C. Water and Sewer Charges. During the full term of this Lease, as
extended, Lessee shall be responsible for and shall pay, as additional rent
hereunder, one hundred percent (100%) of the water and sewer charges for
the entire Demised Premises. At the election of Lessor, Lessee shall either
pay the bills for water and sewer charges directly to the provider within
the times specified in the bills (simultaneously providing Lessor with
evidence of payment) or pay the amounts due to Lessor, for Lessor's
submission to the provider, within fifteen (15) days after receipt of a
copy of the relevant bill therefor. Until otherwise directed by Lessor in
writing to the contrary, Lessee
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shall pay such charges directly to the provider and if possible, arrange
for the billing account to be placed in Lessee's name.
D. Utilities. During the full term of this Lease, as extended, Lessee
shall be responsible for and shall pay one hundred percent (100%) of the
cost of all utilities (other than water and sewer which are addressed in
the foregoing subsection (C)) used or consumed at, on or in the Demised
Premises including, but not limited to, electricity, gas (if any) and all
energy consumed or used in connection with the lighting, heating and air
conditioning of the Demised Premises. Lessee shall cause the electric
service (and other utility services) to be billed directly to Lessee in
Lessee's name, and Lessee shall pay its electric (and other utility) bills
when due.
E. Sidewalks. Lessee shall be responsible, at Lessee's sole expense
and cost, for maintaining the sidewalks and parking areas at the Demised
Premises and keeping them free from snow and ice.
F. Other Taxes. If, during the term of this Lease or any renewal or
extension thereof, any tax is imposed upon the privilege of renting or
occupying the Demised Premises or upon the amount of rentals collected
therefor, Lessee will pay each month, as additional rent, a sum equal to
such tax or charge that is imposed for such month, but nothing herein shall
be taken to require Lessee to pay any income, estate, inheritance or
franchise tax imposed upon Lessor.
G. Use and Occupancy Tax. Without limiting the foregoing, Lessee will
pay promptly when due and in any event not later than fifteen (15) days
after receipt of a bill therefor (whether said bill be submitted by Lessor,
the City of Philadelphia, the Philadelphia School District or otherwise),
all City of Philadelphia School District Use and Occupancy Tax imposed upon
the use and occupancy of the Demised Premises. It is expressly understood
that Lessor shall have the right, but not the obligation, to collect such
use and occupancy tax from Lessee and submit it to the City of Philadelphia
and, if Lessor exercises said right, Lessee shall pay such use and
occupancy tax to Lessor.
H. Survival After Termination. If, upon termination of this Lease for
any cause, the amount of any additional rent due pursuant to this Section
has not yet been determined, an
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appropriate payment from Lessee to Lessor, or refund from Lessor to Lessee,
shall be made promptly after such determination.
I. Lessor's Option as to Manner of Payment. Except as required by a
lender providing the Acquisition Loan, the Addition Permanent Financing or
a refinance thereof, and except after Lessee's Default under this Lease,
Lessee shall have the option, exercisable from time to time, of either
paying any Additional Rent, other than Use and Occupancy Tax pursuant to
Section 8.G. hereof and Real Estate Tax Additional Rent pursuant to Section
8.A. hereof, directly to the provider/vendor/biller or paying the relevant
Additional Rent to the Lessor so that the Lessor can pay the
provider/vendor/biller.
J. Anything to the contrary herein notwithstanding, Lessee shall have
the right to terminate this Lease at any time before the Effective Date if
any requirement, imposed by any lender, with which Lessee will have to
comply under the terms of this Lease, is unacceptable to Lessee in its sole
and unreviewable discretion. Lessee shall effect such termination by giving
Lessor written notice of termination prior to the Effective Date and
reimbursing Lessor for all expenses actually and reasonably incurred by
Lessor and Lessor's predecessor in interest under the Agreement of Sale in
connection with the acquisition of the Demised Premises, the financing
thereof, and the negotiation of this Lease. Furthermore, if at any time
after the Effective Date Lessor proposes to incur additional debt secured
by a mortgage on the Demised Premises or an assignment of this Lease
(including, without limitation, the Addition Permanent Financing), then
Lessor shall give Lessee fifteen (15) days prior written notice of all
requirements, imposed by the lender, with which Lessee will have to comply
under the terms of this Lease. Lessee shall have a period of ten (10) days
after receipt of Lessor's notice to notify Lessor of any requirement that
is unacceptable to Lessee in its reasonable discretion, and Lessor shall
not proceed to incur such debt unless all requirements to which Lessee
reasonably objects are removed.
9. Lessee's Insurance/Casualty Damage.
A. In General. During the full Term hereunder, Lessee will, at its
sole expense, obtain and maintain insurance against liability for bodily
injury, including death, and property damage in or
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about the Building, under a single limit policy of comprehensive general
public liability insurance, with limits initially of not less than
$5,000,000 and thereafter in such increased amounts as may be reasonably
determined by Lessor. Each insurance policy hereunder shall name Lessor as
an additional insured. On or prior to the Commencement Date of this Lease,
Lessee shall deliver to Lessor a certificate of insurance evidencing that
such insurance has been obtained and is in effect. Lessee shall deliver to
Lessor renewals thereof at least fifteen (15) days prior to expiration. All
such policies of insurance shall provide that they shall not be canceled or
amended without at least thirty (30) days prior notice to Lessor.
B. Destruction and Damage to Demised Premises by Fire or Other
Casualty. In the event of damage to the Building, by fire or other
casualty, Lessee, at its sole expense, shall cause the damage to be
repaired and the Building to be restored or rebuilt to a condition as
nearly as practicable to that existing prior to the damage, with reasonable
speed and diligence. Lessor shall make available to Lessee for the purpose
of such repair, restoration and rebuilding any insurance proceeds available
from Lessor's Casualty Insurance which Lessor's mortgage lender (which will
be the primary loss payee on Lessor's Casualty Insurance) shall make
available to Lessor but only to the extent and when such proceeds are so
made available to Lessor. If Lessor's mortgage lender does not make
available the proceeds from Lessor's Casualty Insurance for the purpose of
repair, restoration and rebuilding, and Lessor does not elect (at its sole
option) to make substitute funds available from some other source, Lessee
shall have the option to purchase (the "Option to Purchase") the Demised
Premises from the Lessor at the sales price of the sum of (a) the
outstanding balance owed on or under the Acquisition Loan (or any
replacement or refinance thereof) together with any applicable prepayment
premium; (b) the outstanding balance owed on or under the Addition
Permanent Financing (or any replacement or refinance thereof) together with
any applicable prepayment premium; and (c) $1,000,000.00, if the Lessor has
closed on the Addition Permanent Financing, or $850,000.00, if the Lessor
has not closed on the Addition Permanent Financing, and on such other terms
and conditions as are customary and reasonable. Lessee must exercise the
Option to Purchase, if at all, by providing Lessor with written
notification of Lessee's exercise of the Option to Purchase (the "Written
Election") within sixty (60)
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days from the date that Lessor notifies Lessee in writing that Lessor's
mortgage lender will not make the insurance proceeds available for the
purpose of repair, restoration and rebuilding. If the Lessee exercises the
Option to Purchase, Lessor shall assign to Lessee, at closing, any interest
it has in any insurance proceeds resulting from the casualty damage to the
Demised Premises giving rise to Lessee's option to purchase the Demised
Premises. Notwithstanding anything to the contrary in the foregoing, it is
expressly understood and agreed that, in the event that Lessee has the
right to and does exercise the Option to Purchase, Lessor shall have the
right, exercisable by written notification to Lessee ("Lessor's Termination
Notice") within thirty (30) days after Lessor's receipt of the Written
Election, to terminate this Lease effective as of the date set forth
therein but no later than fifteen (15) days after the date of Lessor's
Termination Notice (the "Accelerated Expiration Date"). Lessor's provision
of the Lessor's Termination Notice shall not only terminate the Lease but
it shall also negate the Option to Purchase and Lessee shall no longer have
the option to purchase the Demised Premises. If Lessor provides the
Lessor's Termination Notice, the Accelerated Expiration Date shall be the
date which the term of this Lease expires as if it had been the natural
expiration date. Lessor agrees that, without Lessee's prior written
consent, Lessor shall not agree with the holder of the Acquisition Loan to
amend the terms and conditions in the documents evidencing or relating to
the Acquisition Loan which relate to the Lessor's right to use insurance
proceeds for the repair, restoration or rebuilding of the Demised Premises.
Lessee understands, however, that Lessor does not covenant, warrant or
represent that identical or similar terms and conditions will be part of
any loan documents evidencing the refinance of the Acquisition Loan.
It is expressly understood and agreed that no damage to the Building or the
Demised Premises, nor any interruption or interference with Lessee's use
and enjoyment thereof resulting therefrom, shall entitle Lessee to any rent
abatement of any kind (whether of Base Rent or Additional Rent) except for
a dollar for dollar abatement for such amounts as Lessor actually receives
from Lessor's Loss of Rent's Insurance.
C. Personalty. Lessee shall be responsible for obtaining and
maintaining, and Lessee shall obtain and maintain, at Lessee's sole cost
and expense, insurance covering the replacement value, subject to a
reasonable deductible, of all furniture, trade fixtures, equipment and
other personalty Lessee keeps on or at the Demised Premises.
10. Indemnification and Release/Waiver of Subrogation.
A. Waiver of Subrogation. Each party hereto hereby indemnifies, holds
harmless and releases the other party, to the extent of the releasing
party's insurance coverage, from and against
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any and all liability for any loss or damage covered by such insurance
which may be inflicted upon the property of such releasing party, even if
such loss or damage shall be brought about by the fault or negligence of
the other party, its agents, servants or employees; provided however, that
this indemnification and release shall not affect said policy or the right
of the insured to recover thereunder. If any policy does not permit such a
waiver, and if the party to benefit therefrom requests that such a waiver
be obtained, then the other party agrees to obtain an endorsement to its
insurance policy permitting such waiver of subrogation, if it is available.
If an additional premium is charged for such waiver, then the party
benefiting therefrom agrees to pay the amount of such additional premium
promptly upon being billed therefor.
B. Liability
1. Damage in General. Lessee agrees that Lessor, its building
manager (if applicable), and their respective principals, officers,
employees and agents, shall not be liable to Lessee, and Lessee hereby
releases said parties, for any personal injury or damage to or loss of
personal property in or about the Demised Premises or Building from
any cause whatsoever unless such damage, loss or injury results from
the gross negligence or deliberate acts of Lessor, its building
manager (if applicable), or their officers, employees or agents.
Lessor and its building manager (if applicable) and their respective
principals, officers, employees and agents shall not be liable to
Lessee for any such damage or loss, whether or not such damage or loss
results from gross negligence or deliberate acts, to the extent Lessee
is compensated therefor by Lessee's insurance or to the extent Lessee
could have obtained coverage against such damage or loss at regular
rates under commonly available insurance.
2. Indemnity. Lessee shall defend, indemnify and save harmless
Lessor and its principals, partners, agents and employees against and
from all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including reasonable attorneys' fees, which may
be imposed upon or incurred by or asserted against Lessor and/or its
agents by reason of any of the following which shall occur during the
term of this Lease, or during any period of time prior to the
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commencement date hereof when Lessee may have been given access to or
possession of all or any part of the Demised Premise:
(i) any work or act done in, on or about the Demised
Premises or any part thereof at the direction of Lessee, its
agents, contractors, subcontractors, servants, employees,
licensees or invitees, except if such work or act is done or
performed by Lessor or its agents or employees;
(ii) any negligence or other wrongful act or omission on the
part of Lessee or any of its agents, contractors, subcontractors,
servants, employees, subtenants, licensees or invitees;
(iii) any accident, injury or damage to any person or
property occurring in, on or about the Demised Premises or any
part thereof, unless caused by the gross negligence or deliberate
acts of Lessor, its employees or agents; and
(iv) any failure on the part of Lessee to perform or comply
with any of the covenants, agreements, terms, provisions,
conditions or limitations contained in this Lease on its part to
be performed or complied with which is directly related to the
claim for indemnification.
11. Lessor's Access to Demised Premises. Lessor shall at all times
hereunder have access upon reasonable notice to the Demised Premises for the
purposes of inspection, cleaning, maintenance, repairs, and for the performance
of any work consistent with the ownership and maintenance of the Demised
Premises. Nothing in the foregoing sentence, however, is intended to increase or
alter the Lessor's obligations with respect to the maintenance of the Demised
Premises as set forth in Section 14 hereof. In the event that Lessor enters the
Demised Premises pursuant to this Section 11 or otherwise, Lessor shall use
reasonable efforts to minimize interference with the conduct of Lessee's
business on the Demised Premises. Provided that Lessor uses such reasonable
efforts (which reasonable efforts shall not include or otherwise require
Lessor's utilizing its access right at a time when Lessee is closed for business
unless Lessee pays the incremental cost thereof), Lessee shall have no recourse
against Lessor, including the abatement of rent, on account of such
interference.
12. This Section has been left blank intentionally.
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13. Condition of Demised Premises/Absolutely As-Is. The entry into
possession of the Demised Premises by Lessee shall be conclusive evidence as
against Lessee that the Demised Premises were in good and satisfactory condition
at the time of such entry. No promise of Lessor to alter, remodel or improve the
Demised Premises or the Building and no representation respecting the condition
of the Demised Premises or the Building have been made by Lessor or its agents
to Lessee. Notwithstanding the foregoing, it is expressly understood that the
Lessee has agreed to accept the Demised Premises in their present condition,
absolutely "as-is," and Lessor is not required to perform any so called tenant
fit-up or other landlord's work in connection with the leasing of the Demised
Premises to Lessee hereunder.
Lessee acknowledges that Sparks has occupied the Demised Premises for some
time under the Existing Lease and that Lessee is familiar with the condition of
the Demised Premises. 14. Maintenance and Repair of Demised Premises. In order
to assure to Lessor the payment of the Base Rent and all Additional Rent due
under this Lease, net of all costs and expenses, Lessee shall be fully
responsible for the maintenance, repair and replacement, if applicable (except
as provided in Section 9.B hereof for casualty damage), of the Demised Premises
as fully as if Lessee were the owner of the Demised Premises. Lessee, at
Lessee's sole cost and expense, shall keep and maintain the Demised Premises in
good and tenantable condition during the full term of this Lease, and Lessee
shall promptly arrange, at Lessee's sole expense, for the repair of all damage
to the Demised Premises (except for reasonable wear and tear and as otherwise
provided in Section 9.B of this Lease relating to casualty damage). Without
limiting the generality of the foregoing, Lessee, at Lessee's sole cost and
expense, shall keep the following in good repair and condition:
A. The Building, including the roof, the foundation and other
structural and nonstructural components thereof, both exterior and
interior;
B. The building systems of the Building including heating, electrical,
plumbing, air conditioning (if applicable) and mechanical;
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C. The parking areas and sidewalks. Lessee shall not only be
responsible for keeping them free from ice and snow but shall also be
responsible for their repair and, if necessary, replacement or repaving;
and
D. Outdoor areas, if any, requiring landscaping services including
lawn cutting.
Lessee shall also be obligated to make any replacements (as well as repairs)
necessary at or to the Demised Premises during the term of this Lease and Lessee
shall not be relieved of its obligation to do so on the basis that the action
would be a capital expense as opposed to an ordinary repair.
All such repairs and replacements shall be of good quality sufficient for
the proper maintenance and operation of the Demised Premises and shall be
constructed and installed in compliance with all requirements of all
governmental authorities having jurisdiction thereof. Lessee, further, shall not
permit the accumulation of waste or refuse matter, nor permit anything to be
done upon the Demised Premises which would invalidate or prevent the procurement
of any insurance policies which may at any time be required pursuant to the
provisions of Section 8.B hereof. Lessee shall not obstruct or permit the
obstruction of the street or sidewalk adjacent to the Demised Premises except as
may be permitted by municipal authorities having jurisdiction thereof and shall
keep the sidewalk, parking areas and curb adjoining the Demised Premises clean
and free from snow and ice.
At all times during the Term, Lessee shall be responsible for and shall
make, at its sole cost and expense, any and all repairs, additions and
alterations to the Building, including any of the systems thereof, structural or
non-structural, which are required by any law, statute, ordinance or
governmental authority.
Lessor shall have the right, but not the obligation, after providing the
notice specified in Section 19.A.2 hereof, to make any of the repairs or
alterations or additions to the Demised Premises which Lessee is required to
make pursuant to the terms of this Lease in the event Lessee fails to make such
repairs. Lessee shall promptly reimburse to Lessor, as additional rent, any and
all costs for any such repairs, alterations or additions incurred by Lessor.
Lessor shall not furnish any services, utilities or repairs to the Demised
Premises during the Term or any extension thereof, whether structural or
nonstructural, ordinary or extraordinary, foreseen or unforeseen, whether
arising from requirements of any applicable laws or governmental
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regulations or otherwise; and the Lessee expressly acknowledges and agrees that,
except as expressly provided herein, no defense or claim can arise hereunder
from any physical condition now or hereafter affecting the Demised Premises, and
no condition can exist which could give rise to the assertion of a claim or
defense by the Lessee against Lessor of a constructive eviction from the Demised
Premises, which claim or defense the Lessee hereby expressly waives and agrees
not to assert in any action or proceeding relating to this Lease brought by
Lessor.
In the event Lessor or its agents or contractors shall elect or be required
to make repairs, alterations, improvements or additions to the Demised Premises
or the Building, Lessor shall be allowed to take into and upon the Demised
Premises all material that may be required to make such repairs, alterations,
improvements or additions and during the continuance of any said work, to
temporarily close doors, entryways, public space and corridors in the Building
and to interrupt or temporarily suspend Building service and facilities without
being deemed or held liable for eviction of Lessee or for damages to Lessee's
property, business or person, and the rent reserved herein shall in no way abate
while said repairs, alterations, improvements or additions are being made, and
Lessee shall not be entitled to maintain any set-off or counterclaim for damages
of any kind against Lessor by reason thereof. Lessor will use reasonable efforts
to make any such repairs in a prompt and professional manner. Lessor may, at its
option, make all such repairs, alterations, improvements or additions in and
about the Building and the Demised Premises during ordinary business hours, but
if Lessee desires to have the same done at any other time, Lessee shall pay for
all overtime and additional expenses resulting therefrom.
15. Remodeling, Alterations and Improvements.
A. Interior Decorative or Cosmetic Changes. Lessee shall be permitted
to make decorative and cosmetic changes to the Demised Premises without the
Lessor's consent. Notwithstanding the foregoing, Lessee shall not make any
such change which requires the consent of the lender holding a mortgage on
the Demised Premises (a "Mortgage Lender") unless and until Lessee shall
have notified Lessor of the proposed change and Lessor shall have obtained
the consent of the Mortgage Lender. Lessor shall use its reasonable efforts
to obtain the Mortgage Lender's
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consent but shall not be obligated to pay Mortgage Lender any sum of money
in order to obtain such consent. Lessee agrees to supply any information
required by the Mortgage Lender as a condition to granting its consent.
B. Structural, Non-Decorative and Non-Cosmetic Changes. It is
specifically understood and agreed that Lessee shall not have the right to
make structural or non-decorative or non-cosmetic changes, alterations or
improvements to the Demised Premises or to the Building (including the
Addition) without first having submitted reasonably detailed plans and
specifications therefor to Lessor and securing the written approval of
Lessor (and Mortgage Lender, if required), which approval Lessor shall not
unreasonably withhold. Lessor acknowledges that it has already consented to
the Addition conceptually although it reserves the right of it and its
Mortgage Lender to review the plans and specifications for the Addition.
C. Covenant Against Liens. Lessee covenants and agrees not to suffer
or permit any lien of mechanics or materialmen to be placed against the
Building or the Demised Premises, and in case of any such lien attaching,
to immediately pay off and remove the same. If Lessee has not removed any
such lien or encumbrance within fifteen (15) days after notice to Lessee by
Lessor, Lessor shall have the right to (but shall not be obligated to) pay
the amount necessary to remove the lien or encumbrance without being
responsible for making an investigation as to the validity thereof, and the
amount so paid shall be deemed additional rent reserved under this Lease
due and payable forthwith. Lessee has no authority or power to cause or
permit any lien or encumbrance of any kind whatsoever, whether created by
act of Lessee, operation of law or otherwise, to attach to or be placed
upon Lessor's title or interest in the Building or the Demised Premises,
and any and all liens and encumbrances created by Lessee shall attach to
Lessee's interest only.
Lessee further covenants and agrees that it shall not contract with, or
otherwise allow, any contractor (a "Contractor") to perform any work or
activity at the Demised Premises, including, but not limited to, the
construction of the Addition, which could give rise to a mechanic's or
materialman's lien under the Pennsylvania Mechanics Lien Law of 1963 (or
any replacement thereof) unless and until such Contractor shall have signed
and filed with the Prothonotary of Philadelphia County a Waiver of
Mechanics Lien in form reasonably acceptable to Lessor in a time and manner
which will have the effect of binding the Contractor's subcontractors to
the Contractor's waiver.
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D. Other All work performed pursuant to this Section 15 shall be at
Lessee's sole cost and expense and shall be subject to the following
conditions and qualifications:
(i) The work shall be performed by responsible contractors and
subcontractors, approved in advance by Lessor (and Mortgage Lender, if
required), who shall furnish in advance and maintain in effect
Workmen's Compensation Insurance in accordance with statutory
requirements and comprehensive public liability insurance (naming
Lessor as an additional insured) with limits satisfactory to Lessor.
(ii) Lessee shall have sole responsibility for compliance with
all Governmental Requirements with respect to any work performed by or
at the request of Lessee (including the obtaining of any necessary
building permit) and neither Lessor's (or Mortgage Lender's) approval
of plans and specifications nor Lessor's (or Mortgage Lender's)
inspection or approval of any work proposed by Lessee shall constitute
an implication, representation or certification by Lessor that said
improvements are in compliance with Governmental Requirements. Lessee
acknowledges that any review or inspection by Lessor (or Mortgage
Lender) shall be for Lessor's (or Mortgage Lender's) internal purposes
and shall not be of a technical nature. Neither Lessee nor any third
party shall be entitled to rely on such an approval in any manner
other than Lessee's ability to rely on such approval as the approval
required under Section 15.B hereof; and
(iii) Lessee and its contractors and subcontractors shall be
solely responsible for the transportation, safekeeping and storage of
materials and equipment used in the performance of any work and for
the removal of waste and debris resulting therefrom.
(iv) Lessee shall obtain and maintain any "builder's risk" or
other insurance required by the Mortgage Lender or reasonably required
by Lessor in connection with the construction of the Addition and any
other improvements made by Lessee pursuant to this Section 15.
E. Lessor's Rights to Alterations. All repairs, alterations and/or
improvements (in whole or in designated part) will be the sole and
exclusive property of Lessor upon termination of this Lease, provided,
however, that Lessor shall have the right to require Lessee to remove such
repairs,
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alterations or improvements, other than the Addition, at Lessee's sole cost
upon the termination of this Lease by lapse of time or otherwise.
F. Indemnification. Lessee shall indemnify, defend and hold Lessor
harmless from and against any and all injuries, claims, liabilities or
actions for damage or injury to person or property (including the property
of Lessor) resulting from Lessee's performance of any improvements to the
Demised Premises.
16. Lessor's Services. Lessor shall not be obligated to provide any service
to Lessee. All services required by Lessee (including trash removal) shall be
obtained by Lessee at Lessee's sole cost and expense. Lessor shall not have any
liability to Lessee, nor shall Lessee have the right to abate rent, on account
of the interruption of any service. Nor shall Lessor have any liability to
Lessee, nor shall Lessee have the right to abate rent, on account of any repairs
or other work Lessor performs in, at, to or about the Demised Premises. The
foregoing, however, is not intended in any way to expand the Lessor's
obligations under this Lease beyond those obligations of Lessor which are
expressly set forth herein.
17. Affirmative Covenants of Lessee. At all times during Initial Term
hereunder, Lessee covenants and agrees to do the following without demand:
A. Payment of Rent and Other Costs. Lessee shall pay to Lessor the
monthly Base Rent payments, all additional rent, late charges, and all
other charges herein set forth on the days and at the place the same are
due. If Lessor shall at any time or times accept any payment of rent or
otherwise after such payment has become due and payable, such acceptance
shall not excuse Lessee's delay in payment upon any subsequent occasion, or
constitute or be construed as a waiver of any of Lessor's rights. Lessee
agrees that any charge or payment herein reserved, included or agreed to be
treated or collected as rent and/or any other charges, taxes, expenses or
costs herein agreed to be paid by Lessee shall be considered to be
additional rent and may be proceeded for and recovered by Lessor by legal
process in the same manner as rent due and in arrears and, for all purposes
hereof, shall be deemed to be Rent.
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B. Compliance with Legal Requirements. Lessee shall comply with all
requirements of any of the constituted public authorities affecting the use
of the Demised Premises at Lessee's sole cost and expense, and in
compliance with the terms of any state or federal statute or local
ordinance or regulation applicable to Lessee's use of the Demised Premises.
Lessee shall also maintain the Demised Premises and use it in accordance
with the requirements or conditions imposed by Lessor's insurance carrier,
which are communicated in writing to Lessee. Lessee shall pay all
penalties, fines, costs or damages, including counsel fees, resulting from
any failure of Lessee to comply with the covenants of this Section 17,
including expenses Lessor may incur in order to cure any violation and
bring the Demised Premises into compliance with any of the requirements of
public authorities by reason of any act or failure to act by the Lessee.
C. Utilities. Lessee shall open an account in Lessee's name, and shall
pay for, all electricity and other utilities used in, at and for the
Demised Premises.
D. Notices to Lessor. Lessee shall promptly notify Lessor of any fire,
theft, accident, or any other damage occurring to or upon the Demised
Premises.
E. Surrender of Demised Premises. On or before the date this Lease and
the Term hereby created terminates, or on or before the date Lessee's right
of possession terminates, whether by lapse of time or by right of Lessor,
Lessee shall: (a) to the extent required by Lessor in whole or in part
(Lessor also having the right to deem repairs, alterations and/or
improvements (in whole or in part) to be the sole and exclusive property of
Lessor), restore the Demised Premises to the same condition as they were in
at the beginning of the Term (except for the Addition, reasonable wear and
tear and as otherwise provided in Section 9.B of this Lease) and remove
those alterations, improvements and additions installed by Lessee during
Lessee's occupancy; (b) remove from the Demised Premises and the Building
all of Lessee's personal property; and (c) surrender possession of the
Demised Premises to Lessor in broom clean condition. If Lessee shall fail
or refuse to restore the Demised Premises to the above-described condition,
on or before the above specified date, Lessor may put the Demised Premises
in such condition, and recover from Lessee Lessor's cost of so doing. If
Lessee shall fail or refuse to comply with Lessee's duty to remove all
personal property from the
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Demised Premises and the Building on or before the above specified date,
the parties hereto agree and stipulate that Lessor may, at its election:
(1) Treat such failure or refusal as an offer by Lessee to transfer title
to such personal property to Lessor, in which event title thereto shall
thereupon pass under this Lease as a bill of sale to and vest in Lessor
absolutely without any cost either by set-off, credit allowance or
otherwise, and Lessor may remove, sell, donate, destroy, store, discard, or
otherwise dispose of all or any part of said personal property in any
manner that Lessor shall choose; (2) Treat such failure or refusal as
conclusive evidence on which Lessor shall be entitled absolutely to rely
and act, that Lessee has forever abandoned such personal property, and
without accepting title thereto, Lessor may, at Lessee's expense, remove,
store, destroy, discard or otherwise dispose of all or any part thereof in
any manner that Lessor shall choose without incurring liability to Lessee
or to any other person. In no event shall Lessor ever become or accept or
be charged with the duties of a bailee (either voluntary or involuntary) of
any personal property; and the failure of Lessee to remove all personal
property from the Demised Premises and the Building shall forever bar
Lessee from bringing any action or from asserting any liability against
Lessor with respect to any such property which Lessee fails to remove. If
Lessee shall fail or refuse to surrender possession of the Premises to
Lessor on or before the above-specified date, Lessor may forthwith obtain
possession of the Premises by legal process.
F. Cost, Expenses and Attorneys' Fees. In case Lessor shall, without
fault on its part, be made a party to any litigation commenced by or
against Lessee, then Lessee shall pay all cost, expense and reasonable
attorneys' fees incurred or paid by Lessor in connection with such
litigation. Lessee shall also pay all costs, expenses and reasonable
attorneys' fees that may be incurred or paid by Lessor in enforcing
Lessee's covenants and agreements in this Lease.
G. Lessee to Keep Demised Premises Clean. Lessee, at Lessee's sole
expense: (i) shall keep the Demised Premises reasonably clean; (ii) shall
replace all broken glass windows and doors at the Demised Premises and keep
all waste and drain pipes open; and (iii) repair all damage to plumbing to
and for the Demised Premises.
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18. Negative Covenants of Lessee. Lessee covenants and agrees that Lessee
will do none of the following things without the prior written consent of
Lessor, which consent Lessor shall not unreasonably withhold, condition or
delay:
A. Misuse of Demised Premises. Occupy the Demised Premises in any
manner or for any other purpose than the purpose set forth in Section 5
hereof. Without limiting the foregoing, Lessee shall not use the Demised
Premises, or allow the Demised Premises to be used, for any illegal
purpose.
B. Assignment or Sublease. Assign, mortgage, pledge, lease, underlet
or sublease the Demised Premises or any part of thereof, or permit any
other person, firm or corporation to occupy the Demised Premises or any
part thereof, without the Lessor's prior written approval to do so which
approval Lessor shall not unreasonably withhold, condition or delay unless
the consent of the Lessor's Mortgage Lender is required and is withheld;
nor shall any permitted assignee or sublessee assign, mortgage or pledge
this Lease or such sublease without the specific written consent by Lessor,
and without such consent no such assignment, mortgage or pledge shall be
valid. It is expressly understood that any consent granted by Lessor
(including the consent set forth in the last sentence of this Section 18.B)
shall not be construed to release Lessee from any liability under this
Lease. Any permitted assignment or subletting (including the sublease set
forth in the last sentence of this Section 18.B) shall be under the
condition that Lessee shall remain fully and primarily liable for the
Lessee's obligations under this Lease. Lessor hereby consents to the
Lessee's sublease of the entire Demised Premises to Sparks Exhibits &
Environment Corp., a Pennsylvania corporation ("Sparks EEC").
C. Alterations. Make any alterations, improvements or additions to the
Demised Premises or to the Building, other than those provided for in this
Lease or otherwise approved in writing by Lessor.
D. Harmful Machinery. Use or operate any machinery that is harmful to
the Building.
E. Excessive Weights. Place any weights in any portions of the Demised
Premises beyond the safe carrying capacity of the structure.
F. Risk of Fire or Explosion. Do or suffer to be done, any act, matter
or thing objectionable to the fire insurance companies whereby the fire
insurance or any other insurance now
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in force or hereafter to be placed on the Building shall become void or
suspended; or employ any person or persons objectionable to the fire
insurance companies or carry or have any benzine or explosive matter of any
kind in and about the Demised Premises except such amounts as may be
necessary in connection with the operation of Lessee's (or Sparks EEC's)
business and even then only in accordance with all applicable laws
governing their use, storage and disposal. In case of a breach of this
covenant (in addition to all other remedies given to Lessor in case of the
breach of any of the conditions or covenants of this Lease) Lessee agrees
to pay to Lessor as additional rent any and all increase or increases of
premiums on insurance carried by or for Lessor on the Building, caused in
any way by the occupancy of the Lessee.
G. Vacate Demised Premises. Remove, attempt to remove or manifest any
intention to remove Lessee's goods or property from or out of the Demised
Premises otherwise than in the ordinary and usual course of business,
without having first paid and satisfied Lessor of all Rent which may become
due during the then current term of this Lease; or vacate the Demised
Premises during the terms of this Lease, or any extensions thereof, or
permit the same to be empty and unoccupied.
H. Grant a Leasehold Mortgage. Grant a leasehold mortgage in, on or to
Lessee's leasehold interest in the Demised Premises.
19. Default.
A. Defined. The occurrence of any one or more of the following, at the
election of Lessor, shall constitute a Default by Lessee hereunder:
1. Non-Payment of Monies Owed. Lessee's failure to pay any
monthly Base Rent or any cost or other amount required to be paid by
Lessee pursuant to this Lease when due, and continuance of such
failure for five (5) days after Lessor has given Lessee written notice
of non-payment; provided, however, that Lessor shall not be required,
as a condition precedent to default, to provide such notice more than
twice in any twelve month period;
2. Non-Performance. Lessee's failure to comply with or perform
any of the terms, covenants, conditions or agreements to be complied
with or performed by Lessee, and continuance of such failure for
thirty (30) days after receipt by Lessee of written notice from
Lessor, or, if the failure is
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of such a character as cannot reasonably be cured within thirty (30)
days, failure to initiate within such thirty (30) day period such
action as reasonably can be taken toward curing the same or failure to
reasonably prosecute the cure thereafter, but in no event shall the
cure period extend beyond one hundred eighty (180) days after receipt
by Lessee of such written notice;
3. Insolvency; Bankruptcy; Etc. If Lessee is adjudicated an
insolvent; or makes an assignment for the benefit of creditors; or if
a petition in bankruptcy is filed by or against Lessee and remains
undismissed for sixty (60) days; or if a bill in equity or other
proceeding for the appointment of a receiver for Lessee is filed and
remains undismissed for sixty (60) days; or if a proceeding for
reorganization or for composition with creditors under any State or
Federal law is instituted by or against Lessee, and such proceeding
remains undismissed for sixty (60) days; or if any execution is issued
against a significant portion of the assets of Lessee or any guarantor
or surety of this lease, or against Lessee's leasehold interest
hereunder which is not stayed or discharged at least twenty (20) days
prior to a scheduled execution sale; or
4. Vacating Demised Premises. Lessee's vacating or deserting the
Demised Premises or permitting same to be empty or unoccupied;
5. Removal of Lessee's Goods or Property. Lessee's removing,
attempting to remove, or manifesting an intention to remove Lessee's
goods or property from the Demised Premises (except in the ordinary
and usual course of business) without having first paid Lessor all the
rent for the balance of the Term of this Lease;
6. Lessee Causing Lessor to be in Default of its Mortgage Debt.
Lessee shall have caused, through failure of Lessee to pay its rent or
otherwise, Lessor to be in default of the Lessor's indebtedness which
is secured by a mortgage on the Demised Premises.
B. Consequences of Default. If any Default shall have occurred, then
Lessor, in addition to all other rights and remedies available to it by law
or equity or by any other provisions hereof, may at any time thereafter:
1. Declare the rent for the entire unexpired balance of the then
current term of this Lease, as well as all other charges, payments,
costs and expenses herein agreed to be paid by Lessee,
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or at the option of Lessor any part thereof, in addition to any and
all installments of rent already due and payable and in arrears and/or
any other charge or payment herein reserved, included or agreed to be
treated or collected as rent, and/or any other charge, expense or
costs herein agreed to be paid by Lessee which may be due and payable
and in arrears, as if by the terms and provisions of this Lease, the
whole balance of unpaid rent and other charges, payments, taxes, costs
and expenses were on that date payable in advance, to be immediately
due and payable to Lessor, discounted, however, to present value based
on a discount rate (the "Effective Rate") equal to the weighted
average of the rates charged with respect to the Acquisition Loan and
the Addition Permanent Financing (if there is Addition Permanent
Financing) (the "Accelerated Rent").
Lessor's charges, payments, costs and expenses herein agreed to be
paid by Lessee up to the end of the term of the Lease which shall not
be capable of precise determination shall be determined by Lessor's
good faith estimate.
2. As an alternative remedy, give Lessee notice of Lessor's
intention to terminate this Lease on a date specified in such notice,
which date shall not be less than five (5) days after the date of
giving of such notice, and upon the giving of such notice, the Lease
term and the estate hereby granted shall expire on the date so
specified in said notice with the same effect as if the date specified
in said notice were the date hereinbefore fixed for the expiration of
the Lease term. Upon such termination, Lessor shall have the right (in
addition to other rights contained herein) to recover from Lessee, on
demand, as and for liquidated and agreed final damages for Lessee's
default, an amount equal to the difference between the rent reserved
under this Lease, for the period commencing upon the date of such
termination and ending upon the date which the Lease term would have
expired if this Lease had remained in effect for the then current
term, and the then fair rental value of the Demised Premises for a
like period, discounted, however, to present value based upon a
discount rate equal to the Effective Rate.
20. Further Remedies of Lessor. If a Default, as defined in Section 19.A
hereof, shall have occurred, Lessor may, at Lessor's option, and in addition to
the other rights and remedies contained in this Lease do any of the following:
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A. With or without terminating this Lease, Lessor may enter upon and
repossess the Demised Premises, by summary proceedings, ejectment or
otherwise, and may dispossess Lessee and remove Lessee and all other
persons and property from the Demised Premises and may have, hold and enjoy
the Demised Premises and the rents and profits therefrom. Lessor may, in
its own name, as agent for Lessee, if this Lease has not been terminated,
or in its own behalf, if this Lease has been terminated, relet the Demised
Premises or any part thereof for such term or terms (which may be greater
or less than the period which would otherwise have constituted the balance
of the term of this Lease) and on such conditions and provisions (which may
include concessions or free rent) as Lessor in its sole discretion may
determine. Lessor may, in connection with any such reletting, cause the
Demised Premises to be redecorated, altered, divided, consolidated with
other space or otherwise changed or prepared for reletting. No reletting
shall be deemed a surrender and acceptance of the Demised Premises.
B. Lessee's Continuing Liability. Lessee shall, with respect to all
periods of time up to and including the expiration of the term of this
Lease (or what would have been the expiration date in the absence of
default or breach) remain liable to Lessor as follows:
(i) in the event of termination of this Lease on account of
Lessee's default or breach, Lessee shall remain liable to Lessor for
damages equal to the rent and other charges payable under this Lease
by Lessee as if this Lease were still in effect, less the net proceeds
of any reletting after deducting all costs incident thereto (including
without limitation all repossession costs, brokerage and management
commissions, operating and legal expenses and fees, alternation costs
and expenses of preparation for reletting) and to the extent such
damages shall not have been recovered by Lessee by virtue of payment
by Lessee of the Accelerated Rent (but without prejudice to the right
of Lessee to demand and receive the Accelerated Rent) such damages
shall be payable to Lessor monthly upon presentation to Lessee of a
bill for the amount due.
(ii) In the event and so long as this Lease shall not have been
terminated after default or breach by Lessee, the rent and all other
charges payable under this Lease shall be reduced by the net proceeds
of any reletting by Lessor (after deducting all costs incident thereto
as above set
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forth) and by any portion of the Accelerated Rent paid by Lessee to
Lessor and any amount due to Lessor shall be payable monthly upon
presentation to Lessee of a bill for the amount due.
C. Credit. In the event Lessor shall, after default or breach by
Tenant, recover the Accelerated Rent from Lessee and it shall be determined
at the expiration of the term of this Lease (taken without regard to early
termination for default) that a credit is due Lessor because the net
proceeds of reletting, as aforesaid, plus the amounts paid to Lessor by
Lessee exceed the aggregate of rent and other charges accrued in favor of
Lessor to the end of said term, Lessor shall refund such excess to Lessee,
without interest, promptly after such determination.
D. No Responsibility for Inability to Relet. Lessor shall in no event
be responsible or liable for any failure to relet the Demised Premises or
any part thereof, or for any failure to collect any rent due upon a
reletting; provided, however, that Lessor shall act reasonably to mitigate
its damages in the event of a Default by Lessee hereunder.
21. CONFESSION OF JUDGMENT FOR RENT. IF A DEFAULT OCCURS BY REASON OF
LESSEE'S FAILURE TO PAY RENT OR ANY OTHER CHARGE WHEN DUE, LESSEE HEREBY
EMPOWERS ANY PROTHONOTARY, CLERK OF COURT OR ATTORNEY OF ANY COURT OF RECORD TO
APPEAR FOR LESSEE IN ANY AND ALL SUITS OR ACTIONS WHICH MAY BE BROUGHT FOR RENT
AND/OR CHARGES, PAYMENTS, COSTS AND EXPENSES RESERVED AS RENT, OR AGREED TO BE
PAID BY THE LESSEE. IN SAID SUITS OR ACTIONS, LESSEE EMPOWERS SUCH PROTHONOTARY,
CLERK OF COURT OR ATTORNEY TO CONFESS JUDGMENT AGAINST LESSEE FOR ALL OR ANY
PART OF THE RENT SPECIFIED IN THIS LEASE AND THEN UNPAID, INCLUDING WITHOUT
LIMITATION, AT LESSOR'S OPTION, THE ACCELERATED RENT, AND/OR OTHER CHARGES,
PAYMENTS, COSTS AND EXPENSES RESERVED AS RENT OR AGREED TO BE PAID BY LESSEE,
AND FOR INTEREST AND COSTS TOGETHER WITH AN ATTORNEY'S COMMISSION OF 5% OF THE
AMOUNT SO CONFESSED. SUCH AUTHORITY SHALL NOT BE EXHAUSTED BY ONE EXERCISE
THEREOF, BUT JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN
AS ANY OF SAID RENT AND/OR OTHER CHARGES, PAYMENTS, COSTS AND EXPENSES, RESERVED
AS RENT SHALL FALL DUE OR BE IN ARREARS, INCLUDING WITHOUT LIMITATION FOR THE
SAME AMOUNTS DUE AS PREVIOUSLY
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CONFESSED IF AND TO THE EXTENT THAT A PREVIOUS CONFESSION OF JUDGMENT SHALL BE
STRICKEN OR OTHERWISE INVALIDATED WITHOUT A FINAL DECISION IN THE MERITS OF THE
CLAIM. SUCH POWERS MAY BE EXERCISED AS WELL AFTER THE EXPIRATION OF THE ORIGINAL
TERM AND/OR ANY OPTION TERM OR EXTENSION OR RENEWAL OF THIS LEASE, AND/OR AFTER
THE TERMINATION OF THIS LEASE.
22. CONFESSION OF JUDGMENT FOR EJECTMENT. IF A DEFAULT OCCURS BY REASON OF
LESSEE'S DEFAULT IN THE COMPLIANCE WITH OR THE PERFORMANCE OR NON-PERFORMANCE OF
ANY PROVISIONS OF THIS LEASE, EITHER DURING THE INITIAL TERM OF THIS LEASE OR
ANY OPTION TERM HEREUNDER, AND ALSO WHEN AND AS SOON AS THE TERM HEREBY CREATED
OR ANY EXTENSION THEREOF SHALL HAVE TERMINATED OR EXPIRED, IT SHALL BE LAWFUL
FOR ANY ATTORNEY TO APPEAR FOR LESSEE IN ANY AND ALL SUITS OR ACTIONS WHICH MAY
BE BROUGHT FOR POSSESSION AND/OR EJECTMENT; AND, AS ATTORNEY FOR LESSEE, TO
CONFESS JUDGMENT IN EJECTMENT AGAINST LESSEE AND ALL PERSONS CLAIMING UNDER
LESSEE FOR THE RECOVERY BY LESSOR OF POSSESSION OF THE DEMISED PREMISES, FOR
WHICH THIS LEASE SHALL BE LESSOR'S SUFFICIENT WARRANT. UPON SUCH CONFESSION OF
JUDGMENT FOR POSSESSION, IF LESSOR SO DESIRES, A WRIT OF EXECUTION OR OF
POSSESSION MAY ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDINGS
WHATSOEVER. IF FOR ANY REASON AFTER SUCH ACTION SHALL HAVE BEEN COMMENCED THE
SAME SHALL BE DETERMINED AND THE POSSESSION OF THE DEMISED PREMISES SHALL REMAIN
IN OR BE RESTORED TO LESSEE, THEN LESSOR SHALL HAVE THE RIGHT UPON ANY
SUBSEQUENT OR CONTINUING DEFAULT OR DEFAULTS, OR AFTER EXPIRATION OF THE LEASE
OR UPON THE TERMINATION OF THIS LEASE AS HEREINBEFORE SET FORTH, TO BRING ONE OR
MORE FURTHER ACTIONS AS HEREINBEFORE SET FORTH TO RECOVER POSSESSION OF THE
DEMISED PREMISES.
23. Affidavit of Default. In any action by confession of judgment in
ejectment and/or for rent in arrears or other amount due, Lessor shall first
cause to be filed in such action an affidavit made by Lessor or someone acting
for Lessor setting forth the facts necessary to authorize the entry of judgment,
of which facts such affidavit shall be conclusive evidence. If a true copy of
this Lease (and
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of the truth of the copy such affidavit shall be sufficient evidence) be filed
in such action, it shall not be necessary to file the original as a warrant of
attorney, any rule of Court, custom or practice to the contrary notwithstanding.
24. Waivers by Lessee of Errors, etc. Lessee expressly agrees, to the
extent not prohibited by law, that any judgment, order or decree entered against
it by or in any Court or Judge by virtue of the warrant of attorney contained in
this Lease or otherwise, shall be final, and that Lessee will not file a motion
or rule to strike off or to stay execution of the same, and releases to Lessor
and to any and all attorneys who may appear for Lessee all errors in the said
proceedings, and all liability therefor. Lessee expressly waives the benefits of
all laws, now or hereafter in force, exempting any goods on the Demised Premises
from distraint, levy or sale in any legal proceedings taken by the Lessor to
enforce any rights under this Lease. If proceedings shall be commenced by Lessor
to recover possession under any Acts of Assembly either at the end of any term
or sooner termination of this Lease, or for the nonpayment of rent or any other
reason, Lessee specifically waives the right to the three months' notice and/or
the fifteen or thirty days' notice required by the Landlord and Tenant Act of
Pennsylvania, Act of April 6, 1951 P.L. 69, or the right to any other notice to
quit which might be applicable, and agrees that five (5) days' notice shall be
sufficient in either or any other case.
25. Right of Lessor to Assign This Lease Upon Sale/Lessor's Liability
Limited to Its Interest in Demised Premises. Upon sale or other disposition of
the Demised Premises, Lessor may assign all of Lessor's rights and obligations
under this Lease to the purchaser or transferee of Lessor's interest in the
Demised Premises. The right to enter or confess judgment against Lessee and to
enforce all of the other provisions of this Lease hereinabove provided for may,
at the option of any purchaser, assignee or transferee, be exercised by such
purchaser, assignee or transferee of the Lessor's right, title and interest in
this Lease in his, her, its or their own name, notwithstanding the fact that any
or all assignments of the said right, title and interest may not be executed
and/or witnessed in accordance with the Act of Assembly of May 28, 1715, 1 Sm.
L. 90, and all supplements and amendments thereto that have been or may
hereafter be passed, and Lessee hereby expressly waives the requirements of
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said Act of Assembly and any and all laws regulating the manner and/or form in
which such assignments shall be executed and witnessed.
The term "Lessor" as used in this Lease means the then owner of the Demised
Premises. Lessor above-named represents that it will be the holder of such
rights as of the Effective Date. In the event of the voluntary or involuntary
transfer of such ownership or right to a successor-in-interest of Lessor, Lessor
shall be freed and relieved of all liability and obligation hereunder which
shall thereafter accrue and Lessee shall look solely to such successor in
interest for the performance of the covenants and obligations of the Lessor
hereunder which shall thereafter accrue. The liability of Lessor (and any of its
partners) and its successors in interest, under or with respect to this Lease,
shall be strictly limited to and enforceable only out of its or their interest
in the Demised Premises, and shall not be enforceable out of any other assets.
26. Holding Over. Lessee shall pay to Lessor double the Base Rent and
additional rent, if any, then applicable for each month or portion thereof
Lessee shall retain possession of the Demised Premises or any part thereof after
the termination of this Lease, whether by lapse of time or otherwise, and also
shall pay all damages sustained by Lessor on account thereof. The provisions of
this Section shall not operate as a waiver by Lessor of any right to obtain
possession of the Demised Premises by legal process. At the option of Lessor,
expressed in a written notice to Lessee and not otherwise, such holding over
shall constitute a renewal of this Lease from month-to month.
It is expressly understood, notwithstanding the foregoing, that, in the event
that Lessee has exercised the Termination Right but continues to occupy the
Demised Premises pursuant to its right to do so provided for in Section 6.B
hereof, Lessee shall not be considered a holdover tenant subject to the
provisions of the first paragraph of this Section 26 until the earlier of (a)
sixty (60) days after Lessor has provided Lessee with the written notification
referred to in Section 6.B or (b) the date that the term of this Lease would
have expired had the Lessee not exercised the Termination Right.
27. Disclosure of Broker. Lessee and Lessor warrant and represent to each
other that neither of them has dealt with any brokers in connection with this
Lease. Lessee and Lessor agree that, should any claim be made for brokerage
commissions or fees by any person or entity for representing and/or being the
broker of or for Lessee or Lessor, respectively, in this transaction, the party
through which the
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claim is being made shall be solely responsible therefor, and the party through
which the claim is being made agrees to and shall defend, indemnify, save and
hold the other party free and harmless from and against any and all such
liabilities, obligations, etc.
28. Estoppel Certificate. Lessee shall from time to time, within 10 days
after written request by Lessor therefor, deliver to Lessor or a person or
entity designated by Lessor (e.g. a mortgagee) (a "Third Party") a statement in
writing certifying:
A. That this Lease is unmodified and in full force and effect or, if
there have been modifications, that this Lease as modified is in full force
and effect;
B. The amount of Base Rent, additional rent, any other charges then
payable hereunder and the date to which Base Rent, additional rent, and any
other charges have been paid;
C. The terms of any options to extend the Term or add expansion space;
D. That Lessor is not in default under this Lease, or, if in default,
a detailed description of such default(s); and
E. Such other reasonable and customary items as may be required by the
Third Party.
29. Cumulative Remedies. Except as expressly provided herein, all of the
remedies hereinbefore given to Lessor and all rights and remedies given to
Lessor by law and equity shall be cumulative and concurrent. No determination of
this Lease or the taking or recovering of the Demised Premises shall deprive
Lessor of any of Lessor's remedies or actions against Lessee for rent due at the
time or which, under the terms hereof, would in the future become due as if
there has been no determination, or for any and all sums due at the time or
which, under the terms hereof, would in the future become due as if there had
been no determination, nor shall the bringing of any action for rent or breach
of covenant, or the resort to any other remedy herein provided for the recovery
of rent be construed as a waiver of the right to obtain possession of the
Demised Premises; provided, however, that if Lessee pays the Accelerated Rent
after default, it shall have undisturbed possession and occupancy of the Demised
Premises for the entire balance of the term of this Lease, provided Lessee
complies with those other terms and conditions of this Lease other than those
rental obligations satisfied by payment of the Accelerated Rent.
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30. Partial or Total Condemnation/Taking of Demised Premises. In the event
that the Demised Premises, or any part thereof, is acquired or taken,
temporarily or permanently, or condemned for a public or quasi-public use, this
Lease shall, as to the part so taken or condemned, terminate as of the date of
such condemnation or taking; and rent shall abate equitably, in the case of a
partial condemnation. Any unearned prepaid rent which is abated pursuant to the
immediately preceding sentence shall be refunded to Lessee. This Lease shall
terminate in the event the Demised Premises are entirely taken. Lessor shall
have the option of terminating this Lease in the event that it reasonably
determines that the reduced rental, resulting from the equitable abatement, no
longer makes it economically feasible to lease the Demised Premises to the
Lessee. Lessor shall promptly give notice to Lessee if any authority shall
commence negotiations or shall commence legal action for the acquiring or taking
of all or any party of the Demised Premises, either temporarily or permanently,
by condemnation or by exercise of the right of eminent domain. Lessee hereby
waives all claims against the fee, the leasehold and otherwise against Lessor by
reason of the complete or partial taking or condemnation of the Demised
Premises. The foregoing, however, is not intended to prohibit the Lessee from
asserting any claim against the condemnor (e.g. for relocation costs) which will
not reduce the Lessor's just compensation.
31. Subordination. This Lease and Lessee's rights hereunder shall be
subject and subordinate to any mortgages or other encumbrances now or hereafter
placed upon or affecting the Demised Premises including the mortgage(s) securing
the Acquisition Loan and the Addition Permanent Financing, and to all renewals,
modifications, consolidations, and extensions thereof. Notwithstanding the
foregoing, it is expressly agreed that Lessee's subordination to any future
mortgage is contingent upon the future mortgagee entering into a non-disturbance
agreement in form reasonably acceptable to the Lessee providing that, so long as
the Lessee is not in default hereunder, no foreclosure of the lien of the
mortgagee's mortgage or any other proceeding in respect thereof shall divest,
impair, impede or otherwise adversely affect any interests or rights of Lessee
under this Lease. It is understood that the failure or refusal of any mortgagee
or encumbrancer to execute a written non-
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disturbance agreement shall not affect Lessee's obligations under this Lease
but, instead, only its obligation to subordinate.
Notwithstanding the foregoing, the party holding the instrument to which this
Lease is subordinate shall have the right to recognize and preserve this Lease
in the event of any foreclosure sale or possessory action, and in such case this
Lease shall continue in full force and effect at the option of the party holding
the superior lien and Lessee shall attorn to such party and shall execute,
acknowledge and deliver any instrument that has for its purpose and effect the
confirmation of such attornment.
32. Owner's Interest/Quiet Enjoyment. Lessor warrants and represents that:
(a) Lessor is the equitable owner of the Demised Premises and that, upon the
Effective Date, Lessor will be the legal owner of the Demised Premises; (b)
Lessor has the full right and authority to enter into the Lease; and (c) Lessee,
upon paying the rent herein reserved and upon performing all terms and
conditions to be performed by Lessee hereunder, shall at all times during the
term herein demised peacefully and quietly have, hold and enjoy the Demised
Premises. Notwithstanding the foregoing, Lessee acknowledges that its leasehold
interest in the Demised Premises is subject and subordinate to those title
exceptions excluded from the coverage of the Lessor's owner's title insurance
policy Lessor obtained in connection with Lessor's acquisition of the Demised
Premises (the "Title Exceptions") and that, except for the requirements of
Lessor's mortgage, Lessee shall be responsible for complying with the
requirements of all Title Exceptions.
33. Notices.
A. All notices provided for by this Lease shall be in writing and sent
either by nationally recognized overnight carrier (e.g. Federal Express) or
by certified mail, return receipt requested, to Lessor at c/o Equivest
Management, Inc., 215 S. Broad Street, Suite 600, Philadelphia, PA 19107,
with a copy to Gary S. Lewis, Esquire of Connolly Epstein Chicco Foxman
Oxholm & Ewing, 1515 Market Street, 9th Floor, Philadelphia, Pa 19102, and
to Lessee at 2828 Charter Road, Philadelphia, PA 9154, Attention:
President, with a copy to Timothy B. Anderson, Esquire, Pepper Hamilton
LLP, 200 One Keystone Plaza, North Front and Market Streets, P.O. Box 1181,
Harrisburg, PA 17108-1181.
B. Notice by certified mail shall be deemed given on the third
business day following deposit in the mail. Notice by nationally recognized
overnight carrier shall be deemed given on the first business day after
deposit with the carrier. Either party may change the address to which
notice
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is to be given, provided that notice of such change is given to the other
party in the manner provided for in subparagraph A of this Section 33.
34. Successors and Assigns. All covenants, conditions and obligations
contained in this Lease shall be binding upon and inure to the benefit of the
parties hereto and each of their respective successors and assigns. No person
not a party to this Lease shall have any "third party beneficiary" or other
rights hereunder.
35. Entire Agreement. This Lease contains the entire understanding and
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous agreements or understandings. No
amendment or modification of this Lease shall be effective unless it is written
and executed by all parties hereto or their proper successors or assigns.
36. General.
A. Headings Not Determinative. The headings to the various sections of
this Lease have been inserted for convenience of reference only and shall
not modify, amend or change the express terms and provisions of this Lease.
B. Controlling Law. This Lease shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
C. Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original.
D. Use of Gender; Plurals; Etc. As used herein, the neuter shall be
deemed to refer to and include the male and female, and vice versa, where
appropriate. As used herein, the singular shall be deemed to refer to and
include the plural, and vice versa, where appropriate.
E. Non-Waiver. The failure of either party to insist in any one or
more instances upon the strict performance of any one or more of the
agreements, terms, covenants, conditions or obligations of this Lease, or
to exercise any right, remedy or election herein contained, shall not be
construed as a waiver or relinquishment in the future of such performance
or exercise, but the same shall continue and remain in full force and
effect with respect to any subsequent breach, act or omission.
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F. Partial Payment. No payment by Lessee or receipt by Lessor of a
lesser amount than the correct Base Rent or additional rent due hereunder
shall be deemed to be other than a payment on account, nor shall any
endorsement or statement on any check or any letter accompanying any check
or payment be deemed to effect or evidence an accord and satisfaction, and
Lessor may accept such check or payment without prejudice to Lessor's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
G. Requested Modifications. If, in connection with obtaining,
continuing or renewing financing for which the Building, Land or the
Demised Premises or any interest therein represents collateral in whole or
in part, a banking, insurance or other lender shall request reasonable
modifications of this Lease as a condition of such financing, Lessee will
not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not increase the monetary obligations of Lessee
hereunder or adversely affect to a material degree the Lessee's leasehold
interest hereby created.
H. Partial Invalidity. If any of the provisions of this Lease, or the
application thereof to any person or circumstances, shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the
application of such provision or provisions to persons or circumstances
other than those as to whom or which it is held invalid or unenforceable,
shall not be affected thereby, and every provision of this Lease shall be
valid and enforceable to the fullest extent permitted by law.
I. Lease Not Binding Until Fully Executed. This Lease shall not be
binding on either party until both parties have executed this Lease.
J. No Construction Against Drafter or Lessor. This Lease has been
fully negotiated and, notwithstanding any rule of construction to the
contrary, shall not be construed against either the Lessor or the party
which drafted this Lease.
37. Security Deposit. Lessee shall not be required to pay any security
deposit to Lessor under this Lease. Promptly after the Effective Date, Lessor
shall return to Sparks any security deposit which Lessor actually receives from
the Current Owner relating to the Existing Lease.
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38. Miscellaneous Provisions:
A. Should contractors and materialmen supply work or materials to
Lessee at the Demised Premises, Lessee agrees that it shall hold Lessor
fully indemnified from any and all mechanic's liens or costs or expenses as
a result thereof.
B. It is hereby covenanted and agreed, any law, usage or custom to the
contrary notwithstanding, that Lessor shall have the right at all times to
enforce the covenants and provisions of this Lease in strict accordance
with the terms hereof, notwithstanding any conduct or custom on the part of
Lessor in refraining from so doing at any time or times. Further, the
failure of Lessor at any time or times to enforce Lessor's rights under
said covenants and provisions strictly in accordance with the same shall
not be construed as having created a custom in any way or manner contrary
to the specific terms, provisions and covenants of this Lease or as having
in any way or manner modified the same.
C. If the Lessee shall be comprised of two or more persons or
entities, it is expressly understood that the obligations of all parties
comprising the Lessee hereunder shall be joint and several.
39. Environmental Considerations. Lessee acknowledges and agrees that,
because its affiliate, Sparks, has occupied the Demised Premises and operated
its business therefrom for some time, Lessee is familiar with the environmental
condition of the Demised Premises. Lessee further acknowledges and agrees that
Lessor has relied on the covenants and indemnification set forth in this Section
39 and that Lessor would not have acquired legal title to the Demised Premises
without them.
Lessee shall be solely responsible for any environmental condition existing on,
at, in or under the Demised Premises as of the Effective Date (the "Existing
Environmental Conditions"). Additionally Lessee shall be solely responsible for
any other environmental conditions on, at, in or under the Demised Premises
occurring or arising between the Effective Date and the date on which the term
of this Lease expires or has been terminated, except for any conditions actually
caused by the Lessor (the "Future Environmental Conditions").
Lessee covenants and agrees with Lessor as follows:
A. Lessee shall defend, indemnify and hold Lessor harmless from and
against any claim, liability, damage, cost or expense, including reasonable
attorneys' fees, arising from or relating to any and all Existing
Environmental Conditions and any and all Future Environmental Conditions.
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B. Lessee shall comply with all so-called environmental laws
("Environmental Laws") relating to the Demised Premises and the operation
of the Lessee's business therefrom.
C. Lessee shall not use or store any so-called hazardous substances or
hazardous materials on, at or in the Demised Premises except such amounts
as may be necessary in connection with the operation of the Lessee's (or
Sparks EEC's) business and even then only in accordance with all applicable
laws governing their use, storage and disposal.
D. Lessee, at Lessee's sole cost and expense, shall remediate any and
all Existing Environmental Conditions and any Future Environmental
Conditions if and to the extent that such remediation is required by any
Environmental Laws.
It is expressly understood and agreed that Lessee's responsibilities and
obligations under this Section 39 shall survive the termination or expiration of
this Lease.
40. Lessor Has No Obligations, Liability or Responsibility Under Existing
Lease. Regardless of whether, as between the Current Owner and the Lessor,
Lessor may have assumed any obligations of the Current Owner under the Existing
Lease, it is expressly understood and agreed that, as between the Lessor, on the
one hand, and the Lessee and Sparks, on the other hand, the Lessor shall have no
obligations, responsibilities or liability under the Existing Lease and the
rights and remedies of Sparks and Lessee relating to the Demised Premises, as
they relate to the Lessor, shall solely be defined by this Lease. Nothing herein
is intended to prevent Sparks from asserting any claim against the Current Owner
under the Existing Lease relating to the period prior to the Effective Date.
41. Lessee to Perform Work Required by GE. Attached hereto as Exhibit D and
made a part hereof is a copy of a letter dated May 6, 1999 from GE to Lessor
setting forth certain work which GE requires Lessor to perform as a post-closing
requirement in connection with the Acquisition Loan (the "GE Letter"). The GE
Letter also sets forth the times by which the work required therein must be
completed. Lessee, at Lessee's sole cost and expense, shall perform the work
required under the GE Letter within the time frames set forth therein and
Lessee's failure to fully do so, at Lessor's option, shall constitute a Default
under this Lease.
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At the time of the execution of this Lease, Lessor has not yet been notified by
GE what work, if any, of an environmental nature GE will require Lessor to
perform as a condition to GE's making the Acquisition Loan (the "GE
Environmental Work"). Lessee agrees to perform the GE Environmental Work, at
Lessee's sole cost and expense and within the time frames required by GE,
subject to Lessee's right to terminate this Lease pursuant to Section 8.J
hereof.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the day
and year first above written.
LESSOR
2828 PARTNERSHIP, L.P.,
a Pennsylvania limited partnership
By: 2828 Corporation,
a Pennsylvania corporation,
its General Partner
ATTEST: CORPORATE SEAL
By:____________________________
- ------------------------------ Ira M. Ingerman, President
LESSEE:
ATTEST: CORPORATE SEAL MARLTON TECHNOLOGIES, INC.
By:_____________________________
- ------------------------------ Robert B. Ginsburg, President
The undersigned, Sparks Exhibits
Holding Corporation, has joined
in and executed this Lease for the
sole purpose of acknowledging its
agreement to be legally bound by the
terms and conditions set forth in
Sections 3, 7, 8, 13, 18 and 40 hereof.
ATTEST: CORPORATE SEAL SPARKS EXHIBITS HOLDING CORPORATION
By:_____________________________
- ------------------------------
90424v12
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LIST OF EXHIBITS
Exhibit A Legal Description of Land
Exhibit B Loan Commitment for Addition Permanent Financing
Exhibit C Insurance Requirements of Lessor's Mortgage Lender
Exhibit D Letter from GE dated May 6, 1999 Requiring Work
<PAGE>
EXHIBIT 10(g)
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") made as of
this 25th day of February, 2000 by and between 2828 Partnership, L.P.,
a Pennsylvania limited partnership ("Lessor") and Marlton Technologies,
Inc., a New Jersey corporation ("Lessee")
WITNESSETH
WHEREAS, by Lease Agreement dated as of May 14, 1999 (but effective May 17,
1999) between Lessor and Lessee (the "Lease"), Lessor leased to Lessee and
Lessee leased from Lessor certain real property known as 2828 Charter Road,
Philadelphia, PA (the "Property"); and
WHEREAS, the Lease contemplates that, if and when the Lessor closes on the
Addition Permanent Financing and pays the proceeds thereof to Lessee, the
Initial Base Rent shall be increased in accordance with a formula provided in
the Lease; and
WHEREAS, on the date hereof, Lessor has closed on Addition Permanent Financing
having the following features:
Amount of Loan: $1,350,000.00
Interest Rate: 9.31%
-----
Monthly Debt Service
(principal and interest): $12,416.75; and
----------
WHEREAS, Lessee acknowledges that Lessor has paid the proceeds of the
Addition Permanent Financing to Lessee; and
WHEREAS, Lessor and Lessee wish to memorialize the increased amount of the
Initial Base Rent which is now in effect as a result of the Lessor having paid
the proceeds of the Addition Permanent Financing to Lessee.
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Increased Initial Base Rent. As of the date hereof, the monthly
Initial Base Rent, after the Addition Stub Period, shall be $64,252.11
(calculated as the sum of $50,585.36 (the monthly Initial Base Rent in
effect prior to this Amendment) plus $12,416.75 (the monthly debt service
on the Addition Permanent Financing) plus $1,250.00).
2. Increased Initial Base Rent For The Addition Stub Period. Initial
Base Rent for the Addition Stub Period shall be increased (from the rent in
effect prior to this Amendment) by the sum of (a) $1,745.65 (interest on
the Addition Permanent Financing for the Addition Stub Period); and (b)
$208.35 ($41.67 multiplied by five (5), the number of days in the Addition
Stub Period).
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3. Lease Otherwise In Full Force and Effect and Unmodified. Except as
expressly provided herein, the Lease shall remain in full force and effect
and unmodified, including, but not limited to, the confession of judgment
provisions contained in Sections 21 and 22 of the Lease.
4. Capitalized Terms. Terms capitalized herein (unless otherwise
defined herein) shall have the meanings set forth in the Lease.
5. Binding Effect. This Amendment will bind and inure to the benefit
of the successors and assigns of the parties hereto and will be governed in
accordance with the laws of the Commonwealth of Pennsylvania.
6. Entire Agreement. This Amendment (together with the Lease) sets
forth the entire agreement and understanding of the parties with respect to
the transactions contemplated hereby.
7. Effect of Headings. Headings used in this Amendment are for
convenience only and are intended to have no import or meaning.
8. No Construction Against Drafter. This Amendment has been fully
negotiated and should not be construed against the party which drafted it
or on whose behalf this Amendment was drafted.
9. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute but one and the same agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have signed this Amendment.
LESSOR
2828 PARTNERSHIP, L.P.,
a Pennsylvania limited partnership
By: 2828 Corporation, a Pennsylvania corporation,
its General Partner
By: ________________________________________
Ira M. Ingerman, President
LESSEE:
MARLTON TECHNOLOGIES, INC.
By: _________________________________________
Robert B. Ginsburg, President
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EXHIBIT 10(l)
EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between MARLTON
TECHNOLOGIES, INC., a New Jersey corporation (the "Company"), and STEPHEN P.
ROLF (the "Employee") as of the 24th day of November, 1999.
BACKGROUND
The Company desires to employ the Employee and the Employee desires to be
employed by the Company, in the sale, design and manufacture of exhibits and
displays, and the provision of related services (the "Business"), on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, intending to be legally bound hereby, the parties agree
as follows:
1. Employment. The Company shall employ the Employee and the Employee shall
enter into the employ of the Company in the Business as its Chief Financial
Officer (initially reporting to the Company's Chief Executive Officer), for the
period commencing no earlier than December 29, 1999 and no later than January
24, 2000, as mutually agreed by the parties (the "Effective Date") and
continuing until terminated by either party with written notice (the "Employment
Period"), provided if the Company terminates this Agreement without Cause (as
defined in Paragraph 5(a)), Company will continue Employee's base salary for a
period of six months after such termination.
2. Performance of Duties. During his employment by the Company, the
Employee shall devote his best efforts and all of his business time to the
business affairs of the Company, shall faithfully and efficiently perform such
duties as may be assigned to him from time to time by the Company and shall
comply with all Company policies and procedures and shall provide information to
and shall cooperate with other Company employees as reasonably required to
service customers of the Business. Employee may not sell, represent, broker or
distribute services or products of any person or entity other than the Company.
All leads and customers will be referred by Employee exclusively to the Company.
Employee's principal place of business will be the Company's primary facility in
Philadelphia, Pennsylvania.
3. Compensation.
(a) During his employment by the Company, the Employee shall receive
(i) salary at the rate of $120,000 per year paid bi-weekly; (ii) a bonus
plan as provided on the attached Schedule A; and (iii) stock options as set
forth on Schedule A. The Company generally reviews performance on an annual
basis and salary on a bi-annual basis. Employee's first salary review date
will be January1, 2001 and every two years thereafter.
(b) Employee and his dependents shall be entitled to participate in
any health or benefit plans which the Company in its sole discretion
sponsors for its employees and their dependents generally at the time the
Employee is entitled to participate therein, subject to the conditions of
such plans. The Company currently pays all of the premium for employees and
their dependents participating in the Company's medical benefits plan. The
Company will also reimburse Employee for up to three months of his COBRA
premiums.
(c) Employee shall receive vacation in accordance with the Company's
standard vacation policy, at such times as mutually agreed by Employee and
the persons to whom the Employee reports, but in no event less than three
weeks per year.
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(d) Employee shall be entitled to receive reimbursement only for those
business expenses which Employee reasonably incurs in connection with the
performance of his duties which are billed to and paid by a customer or are
reasonably associated with his employment activities and are approved in
advance in writing by the person to whom Employee reports.
(e) All bonus calculations and payments are subject to the Company's
current standard policies, as amended from time to time.
(f) Neither Employee nor any individual or entity related to or
affiliated with Employee shall receive any compensation or consideration
from any other individual or entity relating in any way to the Business
during the Employment Period.
(g) After completing one year of employment, Employee shall be
eligible to participate in the Company's 401k plan, subject to the
conditions of such plan. The Company currently contributes Marlton
Technologies, Inc. Common Stock to such plan, in an amount equal to 25%
(not to exceed $1,000 per year) of the employee's contribution.
4. Employee Agreements. Employee agrees, except as otherwise required in
the performance of his duties, not to remove from the premises of the Company at
any time either during or after the term of his employment, any originals or
copies of documents, reports, drawings, lists, notebooks, customer and supplier
lists, price lists, files, books and records, invoices, sales orders, customer
files, blueprints, specifications, proposals, job bags, drawings, photos, sales
literature, promotional materials, stationery, materials and the like pertaining
to the business of the Company (collectively, "Company Property"). Upon
termination of his employment, Employee shall immediately deliver to the Company
any and all originals or copies of Company Property used by him, in his
possession or under his control.
5. Termination of Employment.
(a) In the event Employee voluntarily terminates his employment or the
Company terminates Employee's employment for Cause (as defined below),
Employee's compensation and benefits (to the extent permitted by law)
hereunder shall cease as of the effective date of termination. The Company
shall have no liability to Employee except payment of accrued salary under
subparagraph 3(a), which shall be payable in accordance with the Company's
normal practices. The term "Cause" means (i) gross negligence, (ii) willful
misconduct, (iii) dishonesty, fraud, misappropriation or misapplication of
funds or conviction of a felony, (iv) habitual insobriety or use of a
controlled substance, (v) failure to devote all of his business time to the
business of the Company, (vi) failure to perform those duties consistent
with his position as set forth in Paragraph 1 of this Agreement, or (vii)
failure to comply with the terms and conditions of this Agreement, which in
the case of subparagraphs (v), (vi) or (vii) has not been cured by Employee
within 15 days after receipt of written notice from the Company.
(b) The Company may terminate Employee's employment upon Employee's
death or disability which disability continues for a period in excess of 90
consecutive days or 90 days in any 12 month period. If Employee is
terminated upon death or disability, his compensation hereunder shall
accrue up to the date of his death or disability, with any such accrued but
unpaid amounts to be paid to Employee, his spouse or survivors. Such
compensation shall be subject to reduction by any disability insurance
payments received by Employee for which the Company makes premium payments.
Accrued salary shall be payable in accordance with the Company's normal
practices. In addition, Employee shall be entitled to receive any accrued
subparagraph 3(a) non-discretionary bonus, calculated based on the actual
full annual amount multiplied by a fraction equal to the number of days in
the calendar year of termination preceding the date of death or disability,
divided by 365, to be paid in accordance with the terms of Paragraph 3.
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6. Confidentiality; Restrictive Covenants.
(a) During and after the Employment Period, the Employee will not
directly or indirectly (i) solicit or induce any Employee, supplier,
contractor, consultant or representative of the Company to terminate its
relationship with the Company or to enter into the employ (whether as a
principal, Employee, director, consultant or otherwise) of or a business
relationship with any person, firm or corporation which then competes or
intends to compete with the Company, or (ii) divulge or appropriate to his
own use or to the use of others any Company Property, information or
knowledge relating to the sales prospects, customer lists, costing,
business methods, processes, techniques or procedures of the Company, or
any financial data relating to its sales, profits, or costs or any of its
brokers, customers or prospects.
(b) The Employee further agrees that upon termination of his
employment for any reason, for a period of two years after the date of
termination of employment, he will not, directly or indirectly, do business
or enter into any agreement with any broker, customer or active prospect
(i.e., entity from whom the Company has received a request for proposal,
bid or quote or with whom Company has had an in person meeting or to whom
Company has furnished a design, estimate or proposal) of the Company (as of
the date of termination or during the eighteen month period prior to
termination), to provide products or services which in any manner competes
or then intends to compete with the products and services of the Business.
(c) The Employee acknowledges that he has unique knowledge and
experience relating to the business of the Company which could be
prejudicial and harmful to the operation of the Company's business if he
violated the terms of this or any other provision of this Agreement. The
Employee also acknowledges that he is not and will not be deprived of his
ability to earn a livelihood or otherwise be unduly burdened by the
covenants set forth in this Paragraph 6. In the event of any actual or
threatened breach of any of the covenants contained in this Agreement, the
Company shall be entitled to an injunction restraining the breach thereof
and may pursue any other available remedies for such actual or threatened
breach, including the recovery of monetary damages and an equitable
accounting. If, in any judicial proceeding, a court shall refuse to enforce
any of the covenants contained in this Agreement, any such unenforceable
covenant shall be deemed amended to the minimum extent necessary to permit
its enforcement to the extent practicable; otherwise, any such covenant
shall be deemed eliminated from this Agreement for the purposes of such
proceeding to the extent necessary to permit the remaining separate
covenants to be enforced. If any court determines that the duration or
limit of any restriction contained in this Paragraph 6 is unenforceable, it
is the intention of the parties that the restrictive covenant set forth
herein shall not thereby be terminated but shall be deemed amended to the
minimum extent required to render them valid and enforceable, such
amendment to apply only with respect to the operation of this Paragraph 6
in the jurisdiction of the court that has made the adjudication. The
Company and the Employee agree the restrictive covenants set forth herein
are necessary for the protection of the legitimate business interests of
the Company. In the event of a violation of the Employee's covenants
hereunder, the duration for which such violation is continuing shall be
excluded from the calculation of the period during which such covenant
shall apply and Employee shall reimburse Company for all court costs,
attorney fees and expenses incurred by Company in enforcing such covenants.
(d) The Employee agrees that to the extent he develops or originates
or participates in the development or origination of any designs, patents,
trademarks, trade names, service marks, copyrights, patentable devices or
processes (or for which patent applications are pending), proprietary
materials or Company Property during the Employment Period which are used
in or applicable to the business of the Company, the same shall be the
exclusive property of the Company.
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(e) For purposes of this Paragraph 6 and Paragraph 4 only, the term
"Company" shall be deemed to include any parent, subsidiary or affiliated
corporation of Marlton Technologies, Inc. which is engaged in a business
the same as or substantially similar to the Business.
7. Prior Agreements. Employee represents to Company (a) that there are no
restrictions, agreements or understandings whatsoever to which Employee is a
party which would prevent, impair, restrict or make unlawful his execution of
this Agreement or his employment hereunder, (b) that his execution of this
Agreement and his employment hereunder shall not constitute a breach of any
contract, agreement or understanding, oral or written, to which he is a party or
by which is bound, (c) that he is free and able to execute this Agreement and to
enter into employment by Company, and (d) that in the course of his employment
with the Company, he will take no action to violate or infringe upon the rights
of any third party. Employee agrees to indemnify, defend and hold harmless
Company, its officers, directors, employees, agents and representatives from any
claims, actions or litigation arising from or related to any breach of the
foregoing representations or any breach of any prior agreements to which
Employee is a party.
8. Miscellaneous.
(a) This Agreement may be amended by written agreement of the parties
without the consent of any other persons, and no person, other than the
parties hereto, shall have any rights under or interest in this Agreement
or the subject matter hereof.
(b) The waiver by either party of a breach of this Agreement shall not
be construed as a waiver of any subsequent breach. No waiver shall be
effective unless set forth in writing and signed by the party granting such
waiver.
(c) Notice shall be sufficiently given if personally delivered or
shall be deemed given three business days after such notice is deposited
with proper postage in the United States mail, addressed to the respective
parties as set forth below or at such other address as may hereafter be
furnished:
If to the Employee: If to the Company:
Stephen P. Rolf Marlton Technologies, Inc.
18 Bradford Way 2828 Charter Road
Voorhees, NJ 08043 Philadelphia, PA 19154
Attn: President
(d) This Agreement may not be assigned by Employee.
(e) The headings used in this Agreement are inserted only for the
purpose of convenience and reference, and in no way define the scope or
intent of any provision or part hereof.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania. Any action between
Company and Employee under this Agreement shall be conducted in the state
and federal courts located in Pennsylvania.
(g) The provisions of Paragraphs 4 and 6 shall survive any termination
of this Agreement.
(h) The provisions of this Agreement are independent of and separable
from each other, and no provision shall be affected or rendered invalid or
unenforceable by virtue of the fact that for any reason any other or others
of them may be invalid or unenforceable in whole or in part. In the event
of any such prohibition or unenforceability, a court of appropriate
jurisdiction is authorized to amend any such provision to the minimum
extent necessary to make such provision not prohibited nor unenforceable.
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(i) In the event of any breach of this Agreement by Employee, Company
may offset the amount of any claim against any amounts payable hereunder to
Employee or any other amounts payable by Company (or any of its affiliated
corporations) to Employee.
(j) This Agreement constitutes the entire agreement between the
parties hereto with respect to the employment of Employee by the Company
and supersedes all prior agreements, understandings and negotiations, both
written and oral, between the parties hereto. This Agreement may be
modified only by a subsequent written document between Employee and the
Company.
IN WITNESS WHEREOF, Employee and the Company have caused this
Agreement to be executed as of the day and year first written above.
MARLTON TECHNOLOGIES, INC.
_______________________________ By:________________________________
Stephen P. Rolf Robert B. Ginsburg, Chief
Executive Officer
WITNESS:
_______________________________ Attest: ___________________________
Alan I. Goldberg, Secretary
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EXHIBIT 10(v)
AMENDED AND RESTATED
REVOLVING CREDIT AND SECURITY AGREEMENT
Dated as of January 21, 2000
among
MARLTON TECHNOLOGIES, INC.
SPARKS EXHIBITS HOLDING CORPORATION
SPARKS EXHIBITS & ENVIRONMENTS CORP.
SPARKS EXHIBITS & ENVIRONMENTS, INC.
SPARKS EXHIBITS & ENVIRONMENTS, LTD.
SPARKS EXHIBITS & ENVIRONMENTS, INCORPORATED
SPARKS SCENIC LTD.
SPARKS PRODUCTIONS LTD.
DMS STORE FIXTURES LLC
collectively, the Borrowers
and
The Banks named herein
and
FIRST UNION NATIONAL BANK, as Agent
<PAGE>
144
TABLE OF CONTENTS
Page
Article I DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Certain Defined Terms.......................... 1
Section 1.2 Accounting Terms...............................12
Article II THE REVOLVING CREDIT FACILITY
Section 2.1 The Revolving Credit Commitment................13
Section 2.2 Revolving Credit Advances......................14
Section 2.3 Lending Offices; Bank Obligations..............16
Section 2.4 The Revolving Credit Notes.....................16
Section 2.5 Fees...........................................16
Section 2.6 Repayment......................................16
Section 2.7 Interest; Conversions; Continuations...........17
Section 2.8 Computation of Interest and Fees...............18
Section 2.9 Payments.......................................18
Section 2.10 Payment on Non-Business Days...................18
Section 2.11 Reimbursement to the Banks for Cost Increases
Imposed by Law.................................18
Section 2.12 Reimbursement to the Banks for Increased Costs
Due to Capital Adequacy Requirements...........19
Section 2.13 Illegality.....................................20
Section 2.14 Interest and Commissions After Event
of Default.................................... 20
Section 2.15 Special Provisions for LIBOR Loans.............20
Section 2.16 Prepayment; Funding Loss Indemnification.......20
Section 2.17 Letters of Credit..............................21
Section 2.18 Taxes..........................................23
Section 2.19 Additional Borrowers...........................24
Article III COLLATERAL
Section 3.1 Security.......................................24
Section 3.2 Financing Statements; Certificates of Title....26
Section 3.3 Landlord's Waiver..............................26
Section 3.4 Places of Business; Location of Collateral.....26
Section 3.5 Agent's Rights With Respect to Accounts,
Chattel Paper, Instruments and General
Intangibles....................................26
Section 3.6 Accounts.......................................27
Section 3.7 Equipment and Inventory........................27
Section 3.8 Condition of Inventory.........................27
Section 3.9 Expenses of the Agent..........................27
Section 3.10 Notices........................................28
Section 3.11 Insurance; Discharge of Taxes, etc.............28
Section 3.12 Waiver and Release by Borrower.................28
Section 3.13 Access to Inventory............................28
Section 3.14 Records and Reports............................28
Section 3.15 Further Assurances.............................29
Section 3.16 Application of Proceeds of Collateral..........29
Section 3.17 Continuing Collateral..........................29
Article IV CONDITIONS OF LENDING
Section 4.1 Conditions Precedent to the Loans..............29
Section 4.2 Conditions Precedent to All Revolving Credit
Advances.......................................31
Article V REPRESENTATIONS AND WARRANTIES
Section 5.1 Existence......................................31
Section 5.2 Authorization..................................32
Section 5.3 Validity.......................................32
Section 5.4 Financial Information..........................32
<PAGE>
Section 5.5 Litigation.....................................32
Section 5.6 Contingent Liabilities.........................32
Section 5.7 Taxes..........................................32
Section 5.8 Encumbrances...................................33
Section 5.9 Consents.......................................33
Section 5.10 ERISA..........................................33
Section 5.11 Ownership......................................33
Section 5.12 Subsidiaries and Ownership of Stock............34
Section 5.13 Margin Stock; Regulation U, Etc................34
Section 5.14 Environmental Matters..........................34
Section 5.15 Debt and Guarantees............................34
Section 5.16 Credit Arrangements............................34
Section 5.17 Licenses, Permits, Etc.........................35
Section 5.18 Compliance with Laws...........................35
Section 5.19 Labor Matters..................................35
Section 5.20 Outstanding Judgments or Orders................35
Section 5.21 No Defaults on Other Agreements................35
Section 5.22 Public Utility Holding Company Act.............35
Section 5.23 Patents........................................35
Section 5.24 Year 2000 Compliance...........................36
Section 5.25 Full Disclosure................................36
Article VI COVENANTS OF THE BORROWERS
Section 6.1 Financial Statements...........................36
Section 6.2 Insurance......................................37
Section 6.3 Taxes..........................................37
Section 6.4 Encumbrances...................................37
Section 6.5 Compliance with Laws...........................38
Section 6.6 Inspection by the Agent........................38
Section 6.7 Reports........................................39
Section 6.8 ERISA..........................................39
Section 6.9 Environmental Matters..........................41
Section 6.10 Change of Business.............................42
Section 6.11 Regulation U...................................42
Section 6.12 Disposal of Assets.............................42
Section 6.13 Loans, Investments, and Contingent Liabilities.42
Section 6.14 Maintenance of Property........................42
Section 6.15 Transactions with Affiliates and Subsidiaries..42
Section 6.16 Restriction on Acquisitions; Merger; Corporate
Structure......................................42
Section 6.17 Dividends and Distributions....................44
Section 6.18 Other Indebtedness.............................44
Section 6.19 Licenses, Permits..............................44
Section 6.20 Fiscal Year....................................44
Section 6.21 Banking Relationships..........................44
Section 6.22 Ownership of Borrowers Other than MTI..........44
Section 6.23 RICO...........................................44
Section 6.24 Minimum Net Worth..............................45
Section 6.25 Senior Funded Debt to EBITDA Ratio.............45
Section 6.26 Funded Debt to EBITDA Ratio....................45
Section 6.27 Fixed Charge Coverage Ratio....................45
Article VII DEFAULT
Section 7.1 Events of Default..............................45
Section 7.2 Termination of Revolving Commitment;
Acceleration...................................47
Section 7.3 Remedies.......................................48
<PAGE>
Article VIII AGENCY PROVISIONS
Section 8.1 Authorization and Action.......................48
Section 8.2 Liability of Agent.............................49
Section 8.3 Rights of Agent as a Bank......................49
Section 8.4 Independent Credit Decisions...................49
Section 8.5 Indemnification................................50
Section 8.6 Successor Agent................................50
Section 8.7 Sharing of Payments, Etc.......................50
Article IX MISCELLANEOUS
Section 9.1 No Waiver; Cumulative Remedies.................51
Section 9.2 Arbitration....................................51
Section 9.3 Warrant of Attorney............................52
Section 9.4 Set-Off........................................53
Section 9.5 Amendments, Etc................................53
Section 9.6 Notices........................................53
Section 9.7 Nature of Obligations..........................54
Section 9.8 Costs and Expenses.............................54
Section 9.9 Counterparts...................................54
Section 9.10 Binding Effect.................................55
Section 9.11 Governing Law..................................55
Section 9.12 Headings.......................................55
Section 9.13 Usury..........................................55
Section 9.14 Assignments; Participations....................55
Section 9.15 Appointment of Borrower Agent..................56
Section 9.16 Survival; Indemnification......................56
Section 9.17 Entire Agreement...............................57
Schedules:
- ---------
2.1 Revolving Credit Commitments
3.4 Collateral Locations
5.12 Subsidiaries and Stock Ownership
5.15 Existing Debt
Exhibits:
- --------
2.4 Revolving Credit Note
6.1 Compliance Certificate
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT, dated as of
January 21, 2000, among MARLTON TECHNOLOGIES, INC., a New Jersey corporation
("MTI"), SPARKS EXHIBITS & ENVIRONMENTS CORP. f/k/a Sparks Exhibits Corp., a
Pennsylvania corporation ("SPARKS"), SPARKS EXHIBITS & ENVIRONMENTS, INC. f/k/a
Sparks Exhibits, Inc., a Georgia corporation ("EXHIBITS"), SPARKS EXHIBITS
HOLDING CORPORATION, a Delaware corporation ("SEH"), SPARKS EXHIBITS &
ENVIRONMENTS, LTD. f/k/a Sparks Exhibits, Ltd., a California corporation
("LIMITED"), SPARKS PRODUCTIONS LTD., a California corporation, SPARKS EXHIBITS
& ENVIRONMENTS, INCORPORATED f/k/a Piper Productions, Inc., a Florida
corporation ("PIPER"), DMS STORE FIXTURES LLC, a Pennsylvania limited liability
company ("DMS"), SPARKS SCENIC, LTD., a California corporation ("SCENIC") and
any other Person (as herein defined) that hereafter becomes a Borrower hereunder
pursuant to Section 2.19 (MTI, SEH, Sparks, Exhibits, Limited, Incorporated,
Piper, DMS and Scenic, and each such other Person that becomes a Borrower
hereunder pursuant to Section 2.19 are each hereinafter referred to as a
"Borrower" and collectively as the "Borrowers"); MARLTON TECHNOLOGIES, INC., as
agent for the Borrowers (in such capacity, the "Borrower Agent"); and FIRST
UNION NATIONAL BANK, a national banking association and any bank joining this
Agreement hereafter (said banks being hereinafter referred to collectively as
"Banks" and individually as a "Bank"); and FIRST UNION NATIONAL BANK, in its
capacity as agent for the Banks (the "Agent").
BACKGROUND
On December 31, 1997, certain of the Borrowers and First Union National
Bank entered into a Loan and Security Agreement pursuant to which agreement
First Union National Bank agreed to make loans to such Borrowers (such
Agreement, as amended the "Prior Agreement"). The Borrowers and First Union
National Bank wish to continue and expand this prior relationship by providing
for additional Banks. Also, the Borrowers have requested that the Banks provide
to the Borrowers a $35,000,000.00 revolving credit facility and the Banks have
agreed to provide a $30,000,000 facility to the Borrowers which may be increased
to $35,000,000, on the terms and conditions herein contained (the "Facility").
The Facility is to be used to refinance existing debt under the Prior Agreement,
finance working capital, capital expenditures and acquisitions permitted
hereunder and for other general corporate purposes.
NOW THEREFORE, the Borrowers, jointly and severally, and the Banks, and the
Agent, intending to be legally bound, agree to amend and restate the Prior
Agreement to read in full as follows:
Article I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"AAA" has the meaning given to such term in Section 9.2(A) hereof.
"Acquisition" has the meaning given to such term in Section 6.16 hereof.
"Adjusted Base Rate" means the Base Rate plus the Applicable Margin for
Base Rate Loans. The Adjusted Base Rate shall change simultaneously with each
change in the Base Rate or the Federal Funds Rate.
"Adjusted LIBOR" means the LIBOR plus the Applicable Margin.
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<PAGE>
"Affiliate" of a Borrower means any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Borrower. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have the meanings correlative to the foregoing.
"Agent" has the meaning given to such term in the introductory paragraph
hereof, and shall include any successor in such capacity.
"Agreement" means this Amended and Restated Revolving Credit and Security
Agreement, as such document may be modified, amended, refinanced, refunded,
extended or otherwise changed from time to time.
"Applicable Margin" means, in accordance with the table and text below:
Applicable Margin:
If the ratio of Senior Funded LIBOR Loans and Base
Debt to EBITDA is: Letter of Credit Fees: Rate Loans
-------------------------- ----------------------- ----------
3.75:1 or lower, but higher than 2.50% 0.50%
3.50:1 (it being acknowledged
that the maximum permitted ratio
of Senior Funded Debt to EBITDA
may never exceed the amount
permitted under Section 6.25)
3.50:1 or lower, but higher than 2.50:1 2.00% 0.00%
2.50:1 or lower, but higher than 2.00:1 1.75% -0.25%
less than or equal to 2.00:1 1.25% -0.25%
The calculation of the Applicable Margin pursuant to the above tables shall be
made quarterly, based upon the Interim Financial Statements or Financial
Statements, as applicable, of MTI and its Subsidiaries as at the last day of
each such fiscal quarter and for the fiscal period then ended. In the event that
the Applicable Margin changes, such change shall become effective for Eurodollar
Loans then existing or thereafter made, as of the first day of the fiscal
quarter immediately following the date on which such financial statements are
delivered to the Agent. In the event that such financial statements are not
delivered to the Agent on or before the date required under this Agreement, the
Applicable Margin shall be calculated as if the Funded Debt to EBITDA is greater
than 3.50:1, effective upon the last day of the fiscal quarter to which such
financial statements relate, and until such financial statements are delivered
showing that the Borrowers are entitled to a lower rate hereunder.
"Arbitration Rules" has the meaning given to such term in Section 9.2(A)
hereof.
"Bank" or "Banks" has the meaning given to such term in the introductory
paragraph hereof and shall include all successors and assigns, and lenders
joining this Agreement as a "Bank".
"Base Rate" means the rate which is at all times equal to the higher of (a)
the Prime Rate or (b) 1/2 of 1% per annum in excess of the Federal Funds Rate.
"Base Rate Loan" means a Loan to which the Adjusted Base Rate applies.
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<PAGE>
"Borrower," "Borrower Agent" and "Borrowers" have the meanings given to
such terms in the introductory paragraph hereof, and each shall include
successors and permitted assigns.
"Business Day" means any day other than a Saturday, Sunday, or other day
on which commercial banks in Philadelphia, Pennsylvania are authorized or
required to close under the laws of the Commonwealth of Pennsylvania; provided
that, if such term is used in connection with a borrowing of, a payment or
prepayment of principal of or interest on, or the Interest Period for, any
Eurodollar Loan or a notice by a Borrower with respect to any such borrowing,
payment, prepayment or Interest Period, "Business Day" shall include any day on
which ordinary dealings are carried out in the London interbank market in
Dollars.
"Capital Expenditures" means expenditures for fixed assets or
improvements, replacements, substitutions, or additions thereto which have a
useful life of more than one year, including assets acquired pursuant to a
Capital Lease; provided that for the purposes of this Agreement, expenditures
for exhibit product inventory purchased and capitalized for rental purposes
shall not be considered Capital Expenditures.
"Capital Lease" means a lease of any Person for real, personal or mixed
use property which, according to GAAP should be capitalized on the books of such
Person.
"Capitalization" means the Net Worth of the Borrowers on a Consolidated
basis less (i) the value of the Borrowers' Intangibles and (ii) loans and
advances to and guaranties of the indebtedness of shareholders plus (iii)
Subordinated Debt.
"Cash Equivalents" means (A) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States
maturing within one year from the date of acquisition thereof, (B) marketable
direct obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having the highest rating obtainable from either Standard &
Poor's Ratings Group or Moody's Investors Service, Inc., (C) commercial paper
maturing no more than one year from the date of creation thereof and, at the
time of acquisition, having the highest rating obtainable from either Standard &
Poor's Corporation or Moody's Investors Service, Inc., (D) certificates of
deposit, demand accounts or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by the Bank or commercial banks organized
under the laws of the United States of America or any state thereof, each having
combined capital and surplus of not less than $500,000,000.00, and (E)
repurchase agreements and reverse repurchase agreements with securities dealers
of recognized national standing relating to any of the obligations referred to
in the foregoing clause (A); provided that the terms of such agreement comply
with the guidelines set forth in the Supervisory Policy; and further provided
that possession or control of the underlying securities is established as
provided in the Supervisory Policy.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended from time to time.
"Change in Control" means the occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended "Exchange Act") other than
an "affiliate" (as such term is used in the Exchange Act) of MTI becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 40% of the total voting power
of MTI; or
3
<PAGE>
(ii) At any time after the date hereof, individuals who at the date
hereof constitute the Board of Directors (together with any new directors
whose election by such Board of Directors or whose nomination for election
by the shareholders of MTI was approved by a vote of 66-2/3% of the
directors of MTI then still in office who were either directors at the date
hereof or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office.
"Closing Date" means the first date on which all of the conditions
precedent contained in Section 4.1 are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" has the meaning given to such term in Section 3.1 hereof.
"Commitment Fee" has the meaning given to such term in Section 2.5.
"Consideration" means "cost basis" as defined in Section 1012 of the Code.
"Consolidated" refers to the consolidation of the accounts of MTI and its
Subsidiaries in accordance with GAAP, including principles of consolidation.
"Consolidating" refers to the separation of the accounts of MTI and its
Subsidiaries in accordance with GAAP.
"Controlled Group" means a group of employers, of which any Borrower is a
member and is treated as a single employer under:
(A) ss.414(b) of the Code and the Department of the Treasury
regulations thereunder); or
(B) solely for purposes of liability under ss.412(c)(11) of the Code
and ss.302(c)(11) of ERISA and the lien under ss.412(n) of the Code and
ss.302(f) of ERISA, ss.414(c) of the Code and the Department of the
Treasury regulations thereunder; or
(C) solely for purposes of liability under ss.412(c)(11) of the Code
and ss.302(c)(11) of ERISA and the lien under ss.412(n) of the Code and
ss.302(f) of ERISA, ss.414(m) of the Code and the Department of the
Treasury regulations thereunder; or
(D) any other entity required to be aggregated with any Borrower
pursuant to ss.414(o) of the Code and the Department of the Treasury
regulations thereunder.
"Current Assets" means all assets of MTI and its Subsidiaries as of any
date that would, in accordance with GAAP, be classified as current assets
thereof on a Consolidated basis.
"Current Liabilities" means all liabilities of MTI and its Subsidiaries as
of any date that would, in accordance with GAAP, be classified as current
liabilities thereof on a Consolidated basis.
"Current Maturities" means on any date those portions of Funded Debt that
are payable on demand or within one year of such date without giving effect to
any prospective renewal or extension of such Funded Debt.
"Current Ratio" means as of any date the ratio of Current Assets to Current
Liabilities.
4
<PAGE>
"Default Rate" means the Interest Rate set forth in Section 2.14.
"Defined Benefit Pension Plan" means a defined benefit plan (other than a
Multiemployer Plan) as defined in ss.3(35) of ERISA, subject to Title IV of
ERISA.
"Defined Contribution Plan" means an individual account plan as defined in
ss.3(34) of ERISA.
"Dispute" has the meaning given to such term in Section 9.2(A) hereof.
"Dollars" and the "$" mean lawful money of the United States of America.
"EBITDA" means for any period of four fiscal quarters of MTI, Net Income of
MTI and its Subsidiaries on a Consolidated basis for such period plus interest,
taxes, depreciation and amortization deducted in computing Net Income, minus the
non-cash earnings related to income from Affiliates or other Persons in which
MTI and/or its Subsidiaries have an Investment.
"Effective Date" means, for Eurodollar Loans, the date the Borrower Agent
designates as the date on which a Eurodollar Interest Period is to commence
pursuant to Section 2.2, 2.7(C) or 2.7(D).
"Employee Benefit Plan" has the meaning given to such term in ss.3(3) of
ERISA.
"Environmental Law" means any federal, state, or local statute, law,
ordinance, regulation, rule, standard, permit or requirement, including but not
limited to those statutes, ordinances, laws, regulations, rules, standards,
permits and requirements promulgated under the laws of the United States of
America or any other nation, concerning or relating to the protection of the
environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder.
"Eurocurrency Reserve Requirement" means, for any day as applied to a
Eurodollar Loan, the aggregate of the rates (such aggregate being expressed as a
decimal) of reserve requirements in effect on such day (including, without
limitation, any basic, marginal, supplemental and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as now and from
time to time hereafter in effect) for eurocurrency funding (currently referred
to as "Eurocurrency liabilities" in Regulation D of such Board) maintained by a
member bank of the Federal Reserve System having deposits in an aggregate amount
at least equal to the aggregate amount of deposits held by Agent, but without
benefit of or credit for proration, exemptions, or offsets that might otherwise
be available to such member bank from time to time under Regulation D. Without
limiting the effect of the foregoing, the Eurocurrency Reserve Requirement shall
reflect any other reserves required to be maintained by such member bank against
(A) any category of liabilities which includes deposits by reference to which
the LIBOR for Eurodollar Loans is to be determined or (B) any category of
extension of credit or other assets that include Eurodollar Loans.
"Eurodollar Interest Period" means for each Eurodollar Loan a period of
time, beginning on an Effective Date, and ending on the numerically
corresponding day in the first, second, third, or sixth calendar month
thereafter (or if there is no numerically corresponding calendar day in such
calendar month, ending on the last day of such calendar month), selected by the
Borrower Agent by telephone or in writing (and if by telephone, confirmed by the
Borrower Agent promptly thereafter in writing), during which the Interest Rate
is the Adjusted LIBOR. If a Eurodollar Interest Period would otherwise end on a
day that is not a Business Day, such Eurodollar Interest Period shall be
extended to the next Business
5
<PAGE>
Day, unless such Business Day would fall in the next calendar month, in which
event such Eurodollar Interest Period shall end on the immediately preceding
Business Day.
"Eurodollar Loan" means any Loan denominated in Dollars when and to the
extent to which the Adjusted LIBOR applies.
"Event of Default" has the meaning given to such term in Section 7.1.
"Exhibits" has the meaning given to such term in the introductory paragraph
hereof.
"Facility" has the meaning given to such term in the Background Section.
"Federal Funds Rate" means the rates shown as the Federal Funds Rate in the
Federal Reserve Statistical Release H.15 (519), Selected Interest Rates. In the
event that the Federal Reserve fails to publish such rate, "Federal Funds Rate"
shall mean the rate determined by the Bank in good faith.
"Fees" means all payments except for interest and principal which the
Borrowers are required to make to the Agent and/or the Banks hereunder and shall
include, without limitation, amounts owing in connection with any prepayment
under any Eurodollar Loan and the Commitment Fee.
"Financial Statements" means the audited Consolidated balance sheet,
statement of income, statement of cash flow and statement of changes in
stockholders' equity, together with all notes pertaining thereto, and an
unaudited Consolidating balance sheet and statements of income of MTI and its
Subsidiaries, all as at and for a designated period and all in accordance with
GAAP.
"Fixed Charges" means for any period the sum of (A) Total Debt Service,
plus (B) taxes paid in cash by the Borrowers during the relevant period, plus
(C) expenses paid by the Borrowers during such period for the rental of personal
or real property, plus (D) non-financed Capital Expenditures made by the
Borrowers during such period.
"Funded Debt" means at any time with respect to MTI and its Subsidiaries on
a Consolidated basis, without duplication, the sum of all current outstandings
under demand and overdraft facilities, plus the current portion of long term
Indebtedness and capital leases plus all Indebtedness that has a final maturity
more than one year after the date of issuance thereof (or which is convertible,
renewable or extendable into an obligation with such final maturity) including
all final and serial maturities, prepayments and sinking fund payments required
to be made within one year of the date of calculation (notwithstanding the fact
that any portion thereof may also be included in current liabilities under
GAAP).
"GAAP" means generally accepted accounting principles in the United States
in effect from time to time as promulgated in statements, opinions and
pronouncements by the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board and any successor entities, consistently
applied.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to all
governmental bodies.
"Indebtedness" means, with respect to any Person:
(a) (i) all indebtedness, obligation or liability for borrowed money
or for the deferred purchase price of property, (ii) all lease obligations
that would, in accordance with GAAP, have been or should be capitalized,
including without limitation, sale-leaseback and synthetic lease
obligations, (iii) all obligations of such Person to purchase goods,
property or services where payment for such goods,
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property or services is required regardless of whether delivery of such
goods, property, or the performance of such services is ever made or
tendered; (iv) all obligations for the deferred purchase price of property
or services (including trade obligations other than those incurred in the
ordinary course of business and in accordance with customary terms); (v)
all current liabilities in respect of unfunded vested benefits under any
Plan; (vi) all obligations under letters of credit issued for the account
of any Person; (vii) all obligations arising under acceptance facilities;
and (viii) the notional amount of interest rate products and derivatives;
and
(b) to the extent not included in the foregoing, all indebtedness,
obligations and liabilities secured by any mortgage, pledge, lien,
conditional sale or other title retention agreement or other security
interest to which any property or asset owned or held by such Person is
subject, whether or not the Indebtedness, obligations or liabilities
secured thereby shall have been assumed by such Person;
(c) to the extent not included in the foregoing, all indebtedness,
obligations and liabilities of others which such Person has directly or
indirectly guaranteed, endorsed (other than for collection or deposit in
the ordinary course of business), discounted, sold with recourse or for
less than face value or agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire or in respect of which such Person has
agreed to supply or advance funds or otherwise to become directly or
indirectly liable; and
(d) all obligations or liabilities of such Person under or pursuant to
a letter of credit, interest rate protection agreement, surety bond, or
similar obligation.
"Intangibles" means any assets which are properly classified as intangible
assets in accordance with GAAP and including, but not limited to: goodwill,
patents, tradenames, trademarks, copyrights, franchises, experimental expense,
organization expense, unamortized debt discount and expenses, the excess of
shares acquired over book value of assets, and non-compete agreements.
"Interest Period" means a Eurodollar Interest Period or any period during
which the Interest Rate is the Adjusted Base Rate, as appropriate.
"Interest Rate" means the Adjusted LIBOR, Adjusted Base Rate or Default
Rate, as appropriate.
"Interim Financial Statements" means an unaudited Consolidated balance
sheet, statement of income and statement of cash flows of MTI and its
Subsidiaries all as, at and for a designated period, all in accordance with GAAP
subject only to usual year-end adjustments and the absence of footnotes.
"Investment" means any loan or advance, or purchase or acquisition of the
securities or obligations of, any Person or the assumption of any liability of
another Person which in such case, did not arise from sales to such Person in
the ordinary course of business.
"Landlord Waiver" has the meaning given to such term in Section 3.3 hereof.
"Lending Office" means, with respect to any Bank, for each type of Loan,
the Lending Office of such Bank (or of an affiliate of such Bank) designated for
such type of Loan on the signature pages hereof or such other office of such
Bank (or of an affiliate of such Bank) as the Bank may from time to time specify
to the Borrowers and the Agent as the office at which its Loans of such type are
to be made and maintained.
"Letter of Credit" has the meaning given to such term in Section 2.17
hereof.
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"Letter of Credit Liability" means, without duplication, at any time and in
respect of any Letter of Credit then outstanding the sum of (a) the undrawn face
amount of such Letter of Credit plus (b) the aggregate unpaid principal amount
of all Reimbursement Obligations at such time due and payable in respect of all
drawings made under such Letter of Credit.
"Liabilities" has the meaning given to such term in Section 3.1 hereof.
"LIBOR Loan" means a Eurodollar Loan.
"LIBOR" means, with respect to each Interest Period pertaining to a LIBOR
Loan, the rate per annum (rounded upward, if necessary, to the nearest 1/16 of
1%) equal to the quotient of (A) the London Interbank Offered Rate for such
Eurodollar Loan for the applicable Eurodollar Interest Period for delivery on
the first day of such Interest Period divided by (B) a number equal to 1.00
minus the Eurocurrency Reserve Requirement on the day which is two Business Days
prior to the beginning of such Interest Period.
"Loan Document(s)" means this Agreement, the Notes, the Letters of Credit,
a Subrogation and Contribution Agreement executed by each Borrower, and all
certificates, agreements, instruments, schedules and exhibits delivered or to be
delivered by the Borrowers to the Agent or the Banks in connection with this
Agreement, in each case, as amended, refinanced, extended, modified or
supplemented from time to time.
"Loans" means amounts advanced under the Facility, and shall have the same
meaning as Revolving Credit Advances.
"London Interbank Offered Rate" applicable to any elected Eurodollar
Interest Period for a Eurodollar Loan means the rate per annum (rounded upwards,
if necessary, to the nearest 1/16th of 1%) quoted at approximately 11:00 a.m.
London time, by the principal London branch of the Bank two London Business Days
prior to the first day of such Eurodollar Interest Period for the offering to
leading banks in the London interbank market of Dollar deposits in immediately
available funds for a period, and in an amount, comparable to the Eurodollar
Interest Period and principal amount of the Eurodollar Loan which shall be
outstanding during such Eurodollar Interest Period.
"Majority Banks" means at any time the Banks holding at least 51% of the
then aggregate unpaid principal amount of the Notes held by the Banks, or, if no
such principal amount is then outstanding, Banks having at least 51% of the
aggregate Commitments. Notwithstanding the foregoing, if there are two or fewer
Banks, the term "Majority Banks" shall mean all Banks.
"Margin Stock" has the same meaning that Regulation U of the Board of
Governors of the Federal Reserve System gives to that term.
"Material Adverse Effect" means any material adverse effect on:
(a) the business, condition (financial or otherwise), operations,
properties or prospects of MTI and its Subsidiaries, taken as a whole, or
(b) the ability of the Borrowers, taken as a whole, to perform their
obligations under the Loan Documents.
"Maturity Date" means, unless the Loans are earlier accelerated pursuant to
Section 7.2, the date which is the fifth (5th) anniversary of the Closing Date.
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"Measurement Date" has the meaning given to such term in Section 6.25
hereof.
"MTI" has the meaning given to such term in the introductory paragraph
hereof.
"Multiemployer Plan" has the meaning given to such term in ss.4001(a)(3) of
ERISA.
"Net Income" means gross revenues and other proper income credits, less all
proper income charges, including taxes on income, all determined in accordance
with GAAP.
"Net Worth" means as of any date the amount by which Total Assets exceed
Total Liabilities.
"New Borrower" has the meaning given to such term in Section 2.19 hereof.
"Note(s)" means the Revolving Credit Note(s).
"Obligations" means all amounts payable to the Agent or the Banks under
this Agreement or the Notes, whether now or hereafter owing, including but not
limited to principal amounts, interest, fees, charges, indemnification
obligations, Reimbursement Obligations as to Letters of Credit, and all
obligations to reimburse Agent or any Bank for payments made by the Agent or any
Bank pursuant to interest rate protection agreements, or foreign exchange
contracts issued by any Bank for the benefit of a Borrower or Borrowers, and
including any guaranty or surety obligations of Borrowers owed to any Bank and
the undertakings of Borrowers to immediately pay to any Bank the amount of any
overdraft on any account of deposit maintained with any Bank.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisition" has the meaning given to such term in Section 6.16
hereof.
"Permitted Seller Debt" means Subordinated Debt that is incurred in a
Permitted Acquisition and is otherwise on terms reasonably acceptable to the
Agent and the Banks.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Plan" means (A) a Defined Benefit Pension Plan or Defined Contribution
Plan maintained for employees of a Borrower or any member of any Borrower's
Controlled Group, or (B) any other Employee Benefit Plan (other than a
Multiemployer Plan) maintained for employees of a Borrower or any member of any
Borrower's Controlled Group.
"Prime Rate" means the rate of interest for loans established and publicly
announced by the Agent at its Head Office from time to time as its prime rate;
the use of such terms shall not imply that such rate is the lowest or best rate
offered by the Agent or any of the Banks.
"Principal Payment Dates" means April 1, July 1, October 1 and January 1 in
any year.
"Prohibited Transaction" has the meaning given to such term in ss.406 of
ERISA, ss.4975(c) of the Code and any Treasury regulations issued thereunder.
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"Properties" means any real estate owned or occupied by any Borrower or any
of its Subsidiaries or at which any Borrower or any of its Subsidiaries conducts
business operations, but excluding customer sites where the Borrowers' only
operation is the installation of exhibits.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as amended or supplemented from time to time.
"Reimbursement Obligations" shall mean, at any time, the obligations of the
Borrowers then outstanding, or that may thereafter arise in respect of all
Letters of Credit then outstanding, to reimburse amounts paid by the Agent in
respect of any drawings under a Letter of Credit.
"Reportable Event" has the meaning given to such term in ss.4043(b) of
ERISA.
"Revolving Credit Advances" means amounts advanced by the Agent and/or the
Banks under the revolving credit facility provided for in this Agreement and
shall have the same meaning as "Loans".
"Revolving Credit Commitment" means $30,000,000 initially, and after the
addition of another Bank or Banks under Section 2.1(B), $35,000,000 as such
amount may be reduced pursuant to Section 2.1(D) hereof.
"Revolving Credit Notes" has the meaning given to such term in Section 2.4
hereof.
"RICO" means the Racketeer Influenced and Corrupt Organization Act, as
amended by the Comprehensive Act of 1984, 18 U.S.C. ss.ss.1961-68, as amended or
supplemented from time to time.
"Senior Funded Debt" shall mean all Consolidated Funded Debt, other than
(i) Subordinated Debt and (ii) Funded Debt referred to in Section 6.16(B)(iii).
"Subordinated Debt" means any Indebtedness of the Borrowers that is
subordinated to the Obligations in accordance with a subordination agreement
acceptable to the Majority Banks in their reasonable discretion.
"Subsidiary" of any Person means any corporation or other entity, more than
50% of the voting capital stock, partnership or other ownership interests of
which is owned, directly or indirectly, by such Person and/or one or more of
such Person's other subsidiaries.
"Supervisory Policy" means the Federal Financial Institutions Examination
Council Supervisory Policy-Repurchase Agreements of Depository Institutions with
Security Dealers and Others as adopted by the Comptroller of the Currency on
October 31, 1985, as amended or supplemented from time to time.
"Total Assets" means as of any date all assets of MTI and its Subsidiaries
that would, in accordance with GAAP, be classified as assets thereof on a
Consolidated basis.
"Total Debt Service" for any period means Current Maturities as of the last
day of such period, plus interest expenses in respect of Indebtedness of
Borrowers on a Consolidated basis during such period.
"Total Liabilities" means as of any date all liabilities of MTI and its
Subsidiaries on a Consolidated basis that would, in accordance with GAAP, be
classified as liabilities thereof on a Consolidated basis.
"Total Outstanding Revolving Credit" has the meaning given to such term in
Section 2.1.
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"Unmatured Event of Default" means and refers to any event, act or
occurrence which, with the passing of time or the giving of notice or both,
would constitute an Event of Default.
"Withdrawal Liability" has the meaning given to such term in ss.4201 of
ERISA.
SECTION 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein, or defined herein and not specifically provided as being construed
in accordance with GAAP, shall be construed, and all financial data
submitted pursuant to this Agreement shall be prepared, in accordance with
GAAP.
Article II
THE REVOLVING CREDIT FACILITY
SECTION 2.1 THE REVOLVING CREDIT COMMITMENT.
(A) Subject to the terms and conditions set forth in this Agreement, each
Bank severally, but not jointly, agrees to make loans to any Borrower
(as directed by the Borrower Agent), from time to time up to the
amount set forth opposite such Bank's name on Schedule 2.1, attached
hereto, as amended from time to time, during the period from the date
hereof until the Maturity Date, such sums as the Borrower Agent may
request (each such advance shall be a "Revolving Credit Advance" or a
"Loan"), provided that the sum of (a) the total outstanding principal
of Revolving Credit Advances plus (b) all Letter of Credit Liabilities
(such sum is hereinafter referred to as the "Total Outstanding
Revolving Credit") shall not at any time exceed the Revolving Credit
Commitment. The Borrowers shall use Loans to refinance existing
Obligations under the Prior Agreement and for general corporate
purposes including Permitted Acquisitions and transactions expressly
permitted hereunder and for no other purposes.
(B) The parties contemplate that an additional Bank shall join this
Agreement in order to increase the Revolving Credit Commitment to
$35,000,000 (Thirty-Five Million Dollars). Such Bank shall be subject
to the prior written approval of the Agent and the Borrower Agent,
which shall not be unreasonably withheld. To the extent that
additional or different Banks become lenders hereunder, whether under
the foregoing sentence or otherwise, each such Bank shall deliver to
the Agent a joinder to the Agreement indicating the amount of its
Revolving Credit Commitment, and the Agent shall issue to all parties
hereto an amended Schedule 2.1 reflecting such joinders. In addition,
Borrowers shall issue to each such additional Bank, a Note in the
principal amount of such Bank's Revolving Credit Commitment and such
Bank shall automatically become a "Bank" hereunder and a party to this
Agreement, entitled to all rights and subject to all obligations
attributable to a Bank hereunder. To the extent necessary, the
Borrowers will issue replacement Notes to the other Banks reflecting
their new Revolving Credit Commitments and upon receipt of the
replacement Notes the Banks shall return the prior Notes.
(C) Each extension of credit under the Revolving Credit Commitment shall
be made by each Bank in the proportion which that Bank's Revolving
Credit Commitment bears to the total Revolving Credit Commitment.
Within the limits of the Revolving Credit Commitment, the Borrowers
may borrow, repay and reborrow under this Section; provided that all
of the Loans be paid in full on the Maturity Date. The Borrowers shall
pay interest on the principal amount of the Revolving Credit Advances
outstanding from time to time at the Interest Rate applicable to each
Loan in accordance with Section 2.7.
(D) The Revolving Credit Commitment shall be permanently reduced by the
sum of Three Hundred Thousand Dollars ($300,000), beginning on October
1, 2000 and continuing on the
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last day of every calendar quarter thereafter (each, a "Mandatory
Reduction Date"), until the Revolving Credit Commitment has reached
Twenty-Five Million Dollars ($25,000,000); provided that, in the event
an additional Bank or Banks joins this Agreement pursuant to Section
2.1(B) above, on each Mandatory Reduction Date subsequent to such
joinder, the amount by which the Revolving Credit Commitment is
reduced shall be increased to $358,000 (Three Hundred and Fifty-Eight
Thousand Dollars). In addition to reductions on Mandatory Reduction
Dates, the Borrower Agent shall have the right at any time and from
time to time, upon at least three (3) Business Days prior written
notice by the Borrower Agent to the Agent, to terminate the Revolving
Credit Commitment in whole or reduce it in part, provided, however,
that: (i) the Borrowers shall simultaneously with each such reduction
pay to the Agent, for the account of the Banks (a) the amount by which
the Total Outstanding Revolving Credit exceeds the Revolving Credit
Commitment as so reduced, with such repaid principal to be applied
first against Base Rate Loans and thereafter against Eurodollar Loans
in accordance with Section 2.17(D), and (b) all accrued and unpaid
interest on the Loans so prepaid; and (ii) to the extent application
of this subsection requires a prepayment of any Eurodollar Loans prior
to the end of the applicable Interest Period(s), the Borrowers shall
pay any prepayment compensation required under Section 2.17 (whether
or not the Banks shall have actually funded a Loan with corresponding
deposits). Any partial reduction of the Revolving Credit Commitment
made at Borrower Agent's option shall be in the minimum amount of Five
Hundred Thousand Dollars ($500,000) or in multiples of Five Hundred
Thousand Dollars ($500,000) in excess thereof. Any termination or
reduction of the Revolving Credit Commitment hereunder shall be
permanent, and the Revolving Credit Commitment cannot thereafter be
restored or increased without the written consent of the Banks. Upon
the termination of the Revolving Credit Commitment in whole, the
Borrowers shall pay any accrued Commitment Fees and repay the
aggregate principal amount of the Total Outstanding Revolving Credit
together with interest thereon and any other sums due hereunder,
including, without limitation, under Section 2.17.
(E) The Borrowers may borrow, repay and reborrow under the Revolving
Credit Commitment until the Maturity Date subject to the terms and
conditions of this Agreement.
SECTION 2.2 REVOLVING CREDIT ADVANCES.
(A) Borrower Agent Request. The Borrower Agent shall notify the Agent by
telephone no later than Noon Philadelphia time the day of the
requested borrowing of each proposed Base Rate Loan, specifying the
date and amount of the proposed Base Rate Loan. The Borrower Agent
shall notify the Agent by telephone no later than Noon Philadelphia
time at least three (3) Business Days in advance of each proposed
Eurodollar Loan, specifying the date and the amount of such proposed
Loan and the length of the proposed Interest Period. The Borrower
Agent will confirm any telephonic notice of a proposed Loan the same
day by facsimile copy. Each Eurodollar Loan shall be in an amount of
Five Hundred Thousand Dollars ($500,000) or in multiples of One
Hundred Thousand Dollars ($100,000) in excess thereof. Each such
notice (whether or not actually confirmed by facsimile copy) shall
constitute a representation by all of the Borrowers that, at the time
thereof and giving effect to the Loan requested thereby, the
conditions precedent for such Loan as set forth in Section 4.2 hereof
have all been satisfied.
(B) Making Loans. Upon satisfaction of the conditions set forth herein,
the Agent shall promptly notify each Bank of each such notice. Not
later than 2:00 p.m. Philadelphia time on the date of the requested
Loan, each Bank will make available to the Agent at the Agent's
specified office in immediately available funds, such Bank's pro rata
share of such Loan. After the Agent's receipt of such funds, not later
than 4:00 p.m. on the date of such Loans and upon satisfaction of the
conditions set forth herein, the Agent shall make the requested
Advance available to the Borrower Agent (for the account of the
relevant Borrower), in the Borrower Agent's account maintained with
the Agent. The Borrowers agree to hold the Agent and Banks harmless
from any liability for any loss resulting from the Agent's reliance on
any writing, facsimile copy or telephonic notice purportedly made by
an officer of
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the Borrower Agent, provided that the Agent has acted in good faith in
doing so. The Agent may assume that telephonic notice of a request for
a Loan is from an authorized officer of the Borrower Agent, absent
willful misconduct or gross negligence.
(C) NON-RECEIPT OF FUNDS BY AGENT.
(1) Unless the Agent shall have received notice from a Bank prior to
the date on which such Bank is to provide funds to the Agent for
a Loan to be made by such Bank that such Bank will not make
available to the Agent such funds, the Agent may assume that such
Bank has made such funds available to the Agent on the date of
such Loan in accordance with Section 2.2 and the Agent in its
sole discretion may, but shall not be obligated to, in reliance
upon such assumption, make available to the Borrowers on such
date a corresponding amount. If and to the extent such Bank shall
not have so made such funds available to the Agent, such Bank
agrees to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrowers
until the date such amount is repaid to the Agent, at the
overnight federal funds rate calculated in the manner customary
for the correction of errors among banks for three Business Days
and thereafter at the Base Rate. If such Bank shall repay to the
Agent such amount with interest upon or prior to the Agent's
demand therefor, such Bank shall be deemed to have funds
available as required under Section 2.2. If such Bank does not
pay such amount forthwith upon Agent's demand therefor, the Agent
shall promptly notify Borrowers, and Borrowers shall immediately
pay such corresponding amount to the Agent with interest thereon,
for each day from the date such amount is made available to the
Borrowers until the date such amount is repaid to the Agent, at
the rate of interest applicable at the time to such proposed
Loan.
(2) Unless the Agent shall have received notice from the Borrowers
prior to the date on which any payment is due to the Banks
hereunder that the Borrowers will not make such payment in full,
the Agent may assume that the Borrowers have made such payment in
full to the Agent on such date and the Agent in its sole
discretion may, but shall not be obligated to, in reliance upon
such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to
the extent the Borrowers shall not have so made such payment in
full to the Agent, each Bank shall repay to the Agent forthwith
on demand such amount distributed to such Bank together with
interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such
amount to the Agent, at the overnight federal funds rate
calculated in the manner customary for the correction of errors
among banks for three Business Days and thereafter at the Base
Rate.
SECTION 2.3 LENDING OFFICES; BANK OBLIGATIONS. Each type of Loan shall be made
and maintained at such Bank's Lending Office for such type of Loan. The
failure of any Bank to make any requested Revolving Credit Loan to be made
by it on the date specified for such Loan shall not relieve any other Bank
of its obligation (if any) to make such Loan on such date, but no Bank
shall be responsible for the failure of any other Bank to make such Loans
to be made by such other Bank.
SECTION 2.4 THE REVOLVING CREDIT NOTES. All Loans made by each Bank under this
Agreement shall be evidenced by, and repaid with interest in accordance
with, a single promissory note of each of the Borrowers in substantially
the form of Exhibit 2.4 duly completed, in the principal amount equal to
such Bank's Commitment, dated the date of this Agreement, payable to such
Bank for the account of the applicable Lending Office and maturing as to
principal on the Maturity Date (said promissory note, as it may be
hereafter amended, renewed or extended, the "Revolving Credit Note"). Each
Bank is hereby authorized by the Borrowers to endorse on the schedule
attached to the Revolving Credit Note held by it, or on its records, the
amount of each Loan and each renewal, conversion, and payment of principal
amount received by such Bank for the account of the applicable Lending
Office on account of its Loans, which endorsement shall, in the absence of
manifest error, be conclusive as to the outstanding balance
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of the Loans made by such Bank; provided, however, that the failure to make
such notation with respect to any Loan or renewal, conversion, or payment
shall not limit or otherwise affect the obligations of the Borrowers under
this Agreement or the Revolving Credit Note held by such Bank.
SECTION 2.5 FEES.
(A) Certain Fees. At Closing, the Borrowers shall pay to the Agent an
upfront fee for the account of the Banks in the amount of 0.15% of the
Revolving Credit Commitment. In addition, the Borrowers shall pay
certain other non-refundable fees to the Agent, all as set forth in
the letter dated on or about the date hereof, to the Borrowers from
the Agent.
(B) Commitment Fee. The Borrowers agree to pay to the Agent a
non-refundable commitment fee (the "Commitment Fee") for the ratable
benefit of the Banks computed at the rate of 1/4% per year on the
average daily unused portion of the Revolving Credit Commitment from
the date of this Agreement until the Maturity Date. Upon receipt of
any Commitment Fees, the Agent will promptly thereafter cause to be
distributed such payments to the Banks in the proportion that each
Bank's unused Commitment bears to the total of all the Banks' unused
Commitments.
SECTION 2.6 REPAYMENT. The Total Outstanding Revolving Credit shall be repaid in
full on the Maturity Date, together with all accrued but unpaid interest
and Fees. In addition, the Borrowers shall pay all amounts necessary from
time to time to reduce the aggregate outstanding Revolving Credit Advances
as the Revolving Credit Commitment is periodically reduced pursuant to
Section 2.1(D), so that the aggregate outstanding Revolving Credit Advances
never exceed the Revolving Credit Commitment.
SECTION 2.7 INTEREST; CONVERSIONS; CONTINUATIONS.
(A) Base Rate Loans. The Borrowers shall pay to the Agent, for the benefit
of the Banks, interest at the Adjusted Base Rate in arrears on the
unpaid principal amount of each Base Rate Loan from the date on which
such Base Rate Loan is advanced or converted from a Eurodollar Loan
until such principal amount has been repaid in full or converted to a
Eurodollar Loan (1) quarterly on the last day of each quarter
commencing with the last day of the first calendar quarter after this
Agreement is executed, (2) on the date of payment in full of the Total
Outstanding Revolving Credit and (3) on the Maturity Date.
(B) LIBOR Loans. The Borrowers shall pay interest in arrears on the unpaid
principal amount of each LIBOR Loan at the applicable Adjusted LIBOR,
on the last day of each Interest Period, with respect thereto and
also, in the event that the Interest Period is six (6) months in
duration, the Borrowers shall pay interest on the last day of the
third month of such Interest Period.
(C) Conversions to Eurodollar Loans. By notifying the Agent at least three
Business Days prior to an Effective Date, the Borrower Agent may
convert into a Eurodollar Loan any Base Rate Loan(s) in an aggregate
principal amount of Five Hundred Thousand Dollars ($500,000) and
multiples of One Hundred Thousand Dollars ($100,000) in excess
thereof. At the end of the applicable Eurodollar Interest Period, the
Eurodollar Loan will convert back to a Base Rate Loan unless the
Borrower Agent otherwise elects to continue or convert such Eurodollar
Loan as provided herein.
(D) Continuation of Loans. If any Loan shall be outstanding as a
Eurodollar Loan, then not later than 3:00 p.m. Philadelphia time on
the date that is three (3) Business Days prior to the last day of the
current Interest Period for such Loan, the Borrower may elect to
continue such Loan as the same type of Loan for a subsequent Interest
Period as provided in this Section 2.7(D).
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If the Borrower Agent elects to continue any such Loan as aforesaid,
the Borrower Agent shall give notice not later than the time set forth
above, which notice shall identify the type, amount and current
Interest Period of the Loan to be continued, and the duration of the
new Interest Period for such Loan.
(E) Limitation on Number of Interest Rate Tranches. At no time shall there
be more than six (6) different Interest Periods pertaining to the
Eurodollar Loans.
(F) Notices Irrevocable. All notices given under this Section shall be
irrevocable if reasonably relied upon by the Agent and such reliance
leads to an economic loss by the Agent and/or any Bank.
SECTION 2.8 COMPUTATION OF INTEREST AND FEES. The Fees and all interest on the
Loans and other sums payable hereunder shall be computed on the basis of a
year of 360 days for the actual number of days elapsed.
SECTION 2.9 PAYMENTS.
(A) The Borrowers hereby authorize the Agent or any Bank to charge
directly any account maintained by the Borrowers or any entity
comprising the Borrowers with the Agent or any Bank for any payments
of principal of the Loans, interest and Fees, and any other amounts
owing under this Agreement or under the Note, as and when due. The
Agent or any Bank shall promptly notify the Borrower Agent (and Agent
if notice is given by a Bank) whenever any such account is so charged,
which notice shall specify the amount so charged and the obligations
hereunder to which such amount was applied. In the event that the
Borrowers maintain insufficient funds in such account(s) to meet the
Borrowers' obligations hereunder when due, the Borrowers will make all
payments of principal of the Loans, all payments of interest on the
Loans and all payments of Fees, to the Agent, for the benefit of the
Banks, not later than 1:00 P.M. Philadelphia time on the applicable
due date in immediately available funds.
(B) Any payment made after the time specified in subsection (A) shall be
deemed to have been made on the next succeeding Business Day.
(C) After the occurrence of an Event of Default, the Agent shall apply all
payments and collections received by it as follows: first, to all of
the reasonable costs and expenses incurred in connection with the
collection of such payments; second, to accrued and unpaid Fees (other
than attorneys' fees and expenses already paid pursuant to "first"
above); third, to accrued interest; fourth, to the outstanding
principal amount of the Loans; fifth, to all other amounts which shall
have come due hereunder, and sixth, to the Borrowers.
SECTION 2.10 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day, and, except
as otherwise specifically provided herein, such extension of time shall in
such case be included in the computation of payment of interest hereunder
or under the Note or the Fees, as the case may be.
SECTION 2.11 REIMBURSEMENT TO THE BANKS FOR COST INCREASES IMPOSED BY Law.
(A) If any change in existing law or regulation, any new law, change in
regulatory interpretation or change in any other factor having the
force of law shall impose or change any tax (other than taxes on
income in general), reserve, insurance, special deposit or similar
requirements or charges with respect to funds obtained by any Bank to
make or maintain any of the
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Loans during any Interest Period, and the result is to increase the
cost to such Bank of obtaining or maintaining such funds or to reduce
the return to such Bank on the Loans, the Borrowers shall pay to such
Bank an amount sufficient to compensate such Bank in full for such
increased costs or such reduced return.
(B) A certificate of the affected Bank setting forth such amount or
amounts as shall be necessary to compensate the Bank or its holding
company as specified above shall be provided to the Agent and promptly
forwarded by the Agent to the Borrowers and shall be conclusive absent
manifest error, provided such determination is made on a reasonable
basis. The Borrowers shall pay the affected Bank the amount shown as
due on any such certificate delivered by the Bank within 10 days after
its receipt of the same.
SECTION 2.12 REIMBURSEMENT TO THE BANKS FOR INCREASED COSTS DUE TO CAPITAL
ADEQUACY REQUIREMENTS.
(A) If any law or regulation or the interpretation thereof by any court or
administrative or governmental authority charged with the
administration thereof, or compliance by any Bank with any request or
directive (whether or not having the force of law) of any such
authority, applicable from time to time, shall after the date hereof
(A) impose, modify, deem applicable or result in the application of
any capital maintenance, capital ratio or similar requirements against
loan commitments or other facilities made by such Bank and the result
thereof shall be to impose upon such Bank a fee or a requirement to
increase any capital requirement applicable as a result of the making
or maintenance of the Loans (which imposition of or increase in
capital requirements may be determined by such Bank's allocation of
the aggregate of such capital impositions or increases), or subject
such Bank to any tax, duty or other charge with respect to the Loans,
such Bank's Note, or its obligation to advance under the Revolving
Credit Commitment, or change the basis of taxation of payments to such
Bank of the principal of or interest on the Loans or any other amounts
due under this Agreement in respect of the Loans or its obligation to
advance under the Revolving Credit Commitment (including the
imposition of any tax not previously in effect on the net income of
such Bank imposed by any jurisdiction in which such Bank is obligated
to pay taxes), then, upon demand by such Bank or the Agent, the
Borrowers shall immediately pay to the Bank from time to time as
specified by such Bank, such additional amounts or fees which shall be
sufficient to compensate such Bank for such impositions of or
increases in capital requirements or taxes from the date of such
change.
(B) A certificate of the affected Bank setting forth such amount or
amounts as shall be necessary to compensate the Bank or its holding
company as specified above shall be provided to the Agent and promptly
forwarded by the Agent to the Borrowers and shall be conclusive absent
manifest error, provided such determination is made on a reasonable
basis. The Borrowers shall pay the affected Bank the amount shown as
due on any such certificate delivered by the Bank within 10 days after
its receipt of the same.
(C) Failure on the part of a Bank to demand compensation for increased
costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period after the date hereof
shall not constitute a waiver of the Bank's right to demand
compensation with respect to such period or any other period during
the term of this Agreement provided that such demand is made prior to
repayment of all credit extended by the Banks under this Agreement.
SECTION 2.13 ILLEGALITY. Notwithstanding any other provision in this Agreement,
if the adoption of any applicable law, rule, or regulation, or any change
therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank, or
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comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its lending office) with any request
or directive (whether or not having the force of law) of any such
authority, central bank, or comparable agency shall make it unlawful or
impossible for such Bank (or its lending office) to honor its obligation to
make or maintain LIBOR Loans, then upon notice to the Borrowers by the
Agent at the request of such Bank such obligation shall be suspended until
such time as the applicable Bank may again make and maintain LIBOR Loans of
such type (and until such time, any Loans that are outstanding as LIBOR
Loans shall, upon the request of the Agent at the request of such Bank, be
automatically converted into Base Rate Loans and the Borrowers shall not be
required to pay any compensation due under Section 2.16 in connection
therewith).
SECTION 2.14 INTEREST AND COMMISSIONS AFTER EVENT OF DEFAULT. After the
occurrence of any Event of Default, the Agent shall have the right upon
notice to the Borrower Agent to change the Interest Rate on all Loans and
other amounts advanced and/or owing hereunder to be the applicable Interest
Rate plus three percent (3%) (the "Default Rate"), effective upon the
giving of such notice.
SECTION 2.15 SPECIAL PROVISIONS FOR LIBOR LOANS.
(A) Unavailability of Funds and Indeterminate Interest Rates. If on or
before any Effective Date for a Eurodollar Loan the Agent determines
in good faith that no adequate means exists to determine the LIBOR for
such Interest Period, then the Agent shall so notify the Borrowers on
or before the Effective Date and the Borrowers shall have one (1)
Business Day after notice to withdraw their request for such Loan. If
the Borrowers do not withdraw such request, such Loan shall bear
interest (following the expiration of the then applicable Interest
Period, if any) at the rates from time to time applicable to Base Rate
Loans. Until such notice from the Agent has been withdrawn, no further
Eurodollar Loans shall be made, nor shall the Borrowers have the right
to convert a Base Rate Loan to a Eurodollar Loan.
(B) Discretion of the Agent as to Manner of Funding. Notwithstanding any
other provision of this Agreement, the Agent on behalf of the Banks
may fund or maintain its funding of all or any part of the Loans in
any legal manner it chooses and such manner of funding shall not in
any way relieve the Borrowers of their obligations to pay prepayment
compensation in the event of a prepayment as set forth in Section 2.16
hereof.
SECTION 2.16 PREPAYMENT; FUNDING LOSS INDEMNIFICATION.
(A) The Borrowers may prepay Base Rate Loans in whole or in part at any
time and from time to time, without premium or penalty.
(B) The Borrowers shall pay to the Agent, upon the request of any Bank(s),
such amount or amounts as shall be sufficient to compensate the Banks
for any loss, cost or expense (including, without limitation, costs or
losses associated with prepaying or redeploying deposits (whether or
not the Banks shall have actually funded a Loan with corresponding
deposits)) which the Agent determines is attributable to:
(1) any payment, prepayment, conversion or continuation of a LIBOR
Loan made by the Bank on a date other than the last day of an
Interest Period for such Loan (whether by reason of acceleration
or otherwise); or
(2) any failure by the Borrowers to borrow, convert into or continue
a LIBOR Loan to be made, converted into or continued by the Agent
on behalf of the Banks on the date specified therefor pursuant to
the Borrower Agent's prior election.
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A determination of the Agent as to the amounts payable pursuant to
this Section 2.16(B) shall be conclusive if made on a reasonable basis
and in good faith.
(C) Provided that the Borrowers have not given the Agent written
instructions to the contrary, the Bank shall apply any voluntary
principal prepayment first, to repayment of the Base Rate Loans then
outstanding, and second, to repayment of any LIBOR Loans in such a
manner as to minimize the Borrowers' obligation to pay prepayment
compensation under this Section 2.16.
SECTION 2.17 LETTERS OF CREDIT. Subject to the terms and conditions of this
Agreement, the Revolving Credit Commitment may be utilized, upon the
request of the Borrower Agent, in addition to the Revolving Credit Advances
provided for by Section 2.1, by the issuance by the Agent of letters of
credit (collectively, "Letters of Credit") for account of the Borrowers up
to a maximum aggregate stated amount of $5,000,000 at any one time
outstanding, provided that no Letter of Credit shall be requested by the
Borrowers if the total of outstanding Revolving Credit Loans and Letters of
Credit (including the Letter of Credit being requested) would exceed the
aggregate Revolving Credit Commitment. Each Letter of Credit shall provide
that drafts drawn under it shall be payable at sight and shall expire
before the Maturity Date and not more than 364 days after issuance. Letters
of Credit under the Prior Agreement shall be deemed to be Letters of Credit
under this Agreement. The following additional provisions shall apply to
Letters of Credit:
(A) The Agent may decline to issue any Letter of Credit which it
reasonably believes to be in violation of applicable laws or
regulations or the use of which it determines to be unacceptable in
its reasonable judgment. Upon issuance of each Letter of Credit, the
Agent will promptly notify the Banks thereof, and each Bank shall
immediately and automatically acquire (without the need for the
execution of any document or other act) a pro-rata risk participation
in the Letter of Credit based on its respective Commitment.
(B) The Borrower Agent shall give the Agent at least three (3) Business
Days irrevocable prior notice (effective upon receipt) specifying the
Business Day each Letter of Credit is to be issued and the account
party or parties therefor and describing in reasonable detail the
proposed terms of such Letter of Credit (including the beneficiary
thereof) and the nature of the transactions or obligations proposed to
be supported thereby (including whether such Letter of Credit is to be
a commercial letter of credit or a standby letter of credit).
(C) On each day during the period commencing with the issuance by the
Agent of any Letter of Credit and until such Letter of Credit shall
have expired or been terminated, the Commitment shall be deemed to be
utilized for all purposes of this Agreement in an amount equal to the
then undrawn face amount of such Letter of Credit.
(D) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Agent shall
promptly notify the Borrower Agent of the amount to be paid by the
Agent as a result of such demand and the date on which payment is to
be made by the Agent to such beneficiary in respect of such demand,
provided that, failure to so notify shall not affect the Borrower's
obligations hereunder. Notwithstanding the identity of the account
party of any Letter of Credit, the Borrowers hereby jointly and
severally and unconditionally agree to pay and reimburse the Agent for
the amount of each demand for payment under such Letter of Credit that
is in compliance with the provisions of such Letter of Credit at or
prior to the date on which payment is to be made by the Agent to the
beneficiary thereunder, without presentment, demand, protest or other
formalities of any kind.
(E) Forthwith upon its receipt of a notice referred to in paragraph (D) of
this Section 2.17, the Borrower Agent shall advise the Agent whether
or not a Borrower intends to borrow
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hereunder to finance its obligation to reimburse the Agent for the
amount of the related demand for payment and, if it does, submit a
notice of such borrowing as provided in Section 2.2. If the Borrowers
do not borrow nor reimburse the Agent for the amount of the related
demand for payment, each Bank shall pay to the Agent a pro rata share
of the amount of the demand for payment, based on each Bank's pro rata
share of the Revolving Credit Commitment.
(F) The Borrowers shall pay to the Agent a Letter of Credit fee equal to
the Applicable Margin per annum multiplied by the face amount of such
Letter of Credit on the date any Letter of Credit is issued or renewed
(calculated as of the date of such issuance or renewal). The Letter of
Credit fee shall be allocated as follows: first, 0.125% per annum of
the face amount of such Letter of Credit shall be paid to the Agent,
and the remaining amount of the Letter of Credit fee shall be
allocated among the Banks according to their relative pro rata portion
of the Revolving Credit Commitment. In addition, the Borrowers shall
pay to the Agent all commissions, charges, costs and expenses in the
amounts customarily charged by the Agent from time to time in like
circumstances with respect to the issuance of each Letter of Credit
and drawings and other transactions relating thereto.
(G) The issuance by the Agent of each Letter of Credit shall, in addition
to the conditions precedent to the making of a Loan set forth in
Article IV hereof, be subject to the conditions precedent that (i)
such Letter of Credit shall be in such form, contain such terms and
support such transactions as shall be reasonably satisfactory to the
Agent consistent with its then current practices and procedures with
respect to letters of credit of the same type and (ii) the account
party on such Letter of Credit shall have executed and delivered such
applications, agreements and other instruments relating to such Letter
of Credit as the Agent shall have reasonably requested consistent with
its then current practices and procedures with respect to letters of
credit of the same type, provided that in the event of any conflict
between any such application, agreement or other instrument and the
provisions of this Agreement, the provisions of this Agreement shall
control.
(H) The issuance by the Agent of any modification, amendment, or
supplement to any Letter of Credit hereunder shall be subject to the
same conditions applicable under this Section 2.17 to the issuance of
new Letters of Credit.
(I) The Borrowers hereby jointly and severally indemnify and hold harmless
the Agent and Banks from and against any and all claims and damages,
losses, liabilities, costs or expenses that the Agent or Banks may
incur (or that may be claimed against the Agent or Banks by any Person
whatsoever) by reason of or in connection with the execution and
delivery or transfer of or payment or refusal to pay by the Agent and
Banks under any Letter of Credit, other than such amounts arising due
to the Agent's or any Bank's gross negligence or willful misconduct.
SECTION 2.18 TAXES.
(A) All payment by any of the Borrowers of principal of, and interest on,
the Loans and all other amounts payable hereunder shall be made free
and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties,
withholdings or other charges of any nature whatsoever imposed by any
taxing authority, United States or foreign, but excluding franchise
taxes and taxes imposed on or measured by any Bank's net income or
receipts (such non-excluded items being called "Taxes"). In the event
that any withholding or deduction from any payment to be made by a
Borrower hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Borrowers jointly and
severally agree to:
(1) Pay directly to the relevant authority the full amount required
to be so withheld or deducted;
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(2) Promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment
to such authority; and
(3) Pay to the Agent for the account of the Banks such additional
amount or amounts as is necessary to ensure that the net amount
actually received by each Bank will equal the full amount such
Bank would have received had no such withholding or deduction
been required.
(B) If any Taxes are directly asserted against the Agent or any Bank with
respect to any payment received by the Agent or such Bank hereunder,
the Agent or such Bank may pay such Taxes and the Borrowers jointly
and severally agree to promptly pay such additional amounts (including
any penalties, interest or expenses) as are necessary in order that
the net amount received by such Person after the payment of such Taxes
(including any Taxes on such additional amount) shall equal the amount
such Person would have received had not such Taxes been asserted. A
certificate of the affected Bank setting forth such amount or amounts
as shall be necessary to compensate the Bank or its holding company as
specified above shall be provided to the Agent and promptly forwarded
by the Agent to the Borrowers and shall be conclusive absent manifest
error, provided such determination is made on a reasonable basis. The
Borrowers shall pay the affected Bank the amount shown as due on any
such certificate delivered by the Bank within 10 days after its
receipt of the same.
(C) The Borrowers jointly and severally shall indemnify the Agent and the
Banks for any incremental Taxes, interest or penalties that may become
payable by any Bank as a result of any failure by any Borrower to pay
any Taxes when due to the appropriate taxing authority or to remit to
the Agent, for the account of the respective Banks, the required
receipts or other required documentary evidence.
SECTION 2.19 ADDITIONAL BORROWERS. Any Subsidiary of a Borrower shall, unless
otherwise specifically agreed to in writing by the Agent, immediately upon
becoming a Subsidiary of a Borrower become a Borrower hereunder ("New
Borrower") and be jointly and severally obligated with each other Borrower
under this Agreement with respect to all of the obligations under this
Agreement stated to be obligations of the Borrower; and MTI shall cause
each New Borrower to execute and deliver to the Agent (i) an instrument in
form and substance reasonably satisfactory to the Agent pursuant to which
each New Borrower agrees to assume all of the obligations of a "Borrower"
under this Agreement, and (ii) such other documents as the Agent may
reasonably request, including, without limitation, UCC-1 financing
statements. The right of the New Borrower to receive the proceeds of a Loan
hereunder shall be subject to the delivery to the Agent of such proof of
corporate action, incumbency of officers, opinions of counsel and other
documents as are consistent with those delivered by each Borrower
originally signatory hereto pursuant to Section 4.1 as well as such other
information or documents as the Agent shall reasonably request.
Article III
COLLATERAL
SECTION 3.1 SECURITY. As security for the payment of all Obligations of
Borrowers to the Agent or Banks, each of the Borrowers hereby grant to the
Agent, for the benefit of the Banks, a security interest in and lien upon
all of the following property (the "Collateral"):
(A) All of the Borrowers' existing and future accounts, contract rights,
chattel paper, instruments and documents and all other rights to the
payment of money whether or not yet earned, for services rendered or
goods sold, consigned, leased or furnished by the Borrowers or
otherwise, and all products and proceeds of any of the foregoing.
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(B) All of the Borrowers' present and future inventory (including, but not
limited to, goods held for sale or lease or furnished or to be
furnished under contracts for service, raw materials, work-in-process,
finished goods and goods used or consumed in the Borrowers' business)
whether owned, consigned or held on consignment (to the extent
permitted by such consignment), together with all of the Borrowers'
merchandise, component materials, supplies, packing, packaging and
shipping materials, and all returned, rejected or repossessed goods
sold, consigned, leased or otherwise furnished by the Borrowers and
all products and proceeds of any of the foregoing.
(C) All of the Borrowers' present and future general intangibles
(including, but not limited to, manufacturing and processing rights,
designs, patent rights and applications therefor, trademarks and
registration or applications therefor, tradenames, brand names, logos,
inventions, copyrights and all applications and registrations
therefor) software and computer programs, license rights, royalties,
trade secrets, methods, processes, know-how, formulas, drawings,
specifications, descriptions, label designs, plans, blueprints,
patterns and all memoranda, notes and records with respect to any
research and development, and all products and proceeds of any of the
foregoing.
(D) All of the Borrowers' present and future machinery, equipment,
furniture, fixtures, tools, dies, jigs, molds and other articles of
tangible personal property of every type, together with all parts,
substitutions, accretions, accessions, attachments, accessories,
additions, components and replacements thereof, and all manuals of
operation, maintenance or repair, and all products and proceeds of any
of the foregoing.
(E) All of the Borrowers' present and future general ledger sheets, files,
records, books of account, invoices, bills, certificates or documents
of ownership, bills of sale, business papers, correspondence, credit
files, tapes, cards, computer runs and all other data and data storage
systems whether in the possession of the Borrowers or any service
bureau.
(F) Borrowers' interest as tenant under that certain Lease for the
premises located at 2828 Charter Road, Philadelphia, Pennsylvania
dated May 17, 1999, and under any lease for any location, in any case
as amended or replaced, except to the extent that this clause violates
any such lease and no waiver or consent is obtained.
(G) All deposits, funds, instruments, documents, policies and certificates
of insurance, securities, chattel paper and other assets of the
Borrowers or in which any of the entities comprising the Borrowers has
an interest and all proceeds thereof, now or at any time hereafter on
deposit with or in the possession or control of any Bank or owing by
any Bank to the Borrowers or in transit by mail or carrier to such
Bank or in the possession of any other Person acting on such Bank's
behalf, without regard to whether such Bank received the same in
pledge, for safekeeping, as agent for collection or otherwise, or
whether such Bank has conditionally released the same, and in all
assets of the Borrowers in which such Bank now has or may at any time
hereafter obtain a lien, mortgage, or security interest for any
reason.
The above-described security interests shall not be rendered void
by the fact that no Obligations exist as of any particular date, but
shall continue in full force and effect until the filing of
termination statements signed by the Agent with respect to the
Collateral. Upon payment of all Obligations and termination of the
Revolving Credit Commitment, at the Borrowers' cost and expense, the
Agent will execute and deliver to the Borrowers such termination
statements as may be needed to terminate the Agent's security interest
in the Collateral.
SECTION 3.2 FINANCING STATEMENTS; CERTIFICATES OF TITLE. The Borrowers will join
with the Agent in executing such financing statements and continuation
statements (in form satisfactory to Agent) under the Uniform Commercial
Code as the Agent may specify, and will pay the cost of filing the
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same in such public offices as the Agent shall designate. The Borrowers
shall have noted on the certificate of title of any Collateral the liens
created hereby and shall deliver to the Agent the originals of each such
Certificate of Title. Each Borrower agrees to take whatever action the
Agent reasonably requests to perfect and to continue perfection of the
Agent's security interest in the Collateral.
SECTION 3.3 LANDLORD'S WAIVER. Each Borrower shall use its best efforts to cause
the owners of the locations identified on Schedule 3.4 and/or identified in
Section 3.1(F) to execute and deliver to the Agent an instrument (in form
satisfactory to the Agent) by which each such owner waives its right to
distrain on any of the Collateral, and by which such owner grants to the
Agent the right (but not the obligation) to cure any default by any
Borrower under the applicable lease (each, a "Landlord's Waiver").
SECTION 3.4 PLACES OF BUSINESS; LOCATION OF COLLATERAL.
(A) Each Borrower represents that the properties listed on Schedule 3.4
attached hereto serves as such Borrower's chief place of business,
chief executive office, and the place where it keeps its books and
records, and substantially all of the equipment or inventory serving
as Collateral hereunder.
(B) Each Borrower will notify the Agent at least thirty (30) days prior to
(1) any change in the location of the chief place of business or chief
executive office of such Borrower, (2) any change in the place where
such Borrower keeps its equipment and/or inventory or its books and
records, (3) the establishment of any new or the discontinuance of any
existing place of business, and (4) the establishment of any new or
the discontinuance of any location where inventory, equipment or books
and records are kept.
(C) No Borrower will permit its equipment to be removed from its current
location or any of its inventory serving as Collateral to be so
removed without the Agent's prior consent, except for sales of
inventory in the ordinary course of business.
SECTION 3.5 AGENT'S RIGHTS WITH RESPECT TO ACCOUNTS, CHATTEL PAPER, INSTRUMENTS
AND GENERAL INTANGIBLES. With respect to any account, chattel paper,
instrument and general intangible that is Collateral hereunder, the Agent
for the benefit of the Banks shall have the right at any time and from time
to time, without notice to the Borrowers, to: (A) if there then exists an
Unmatured Event of Default or Event of Default, endorse in the name of any
Borrower all proceeds of the accounts, chattel paper, instruments and
general intangibles payable to such Borrower that come to the Bank; (B)
upon the occurrence of an Unmatured Event of Default or an Event of Default
and during the continuance thereof, notify purchasers under the Borrower's
accounts, chattel paper, instruments and general intangibles that such
accounts, chattel paper, instruments and general intangibles have been
assigned to the Agent for the account of the Banks, (C) upon the occurrence
of an Event of Default, and during the continuance thereof, compromise,
extend, or renew any account, chattel paper, instrument or general
intangible of any Borrower or deal with the Borrower's accounts, chattel
paper, instruments and general intangibles as the Agent may reasonably deem
advisable; (D) whether or not there then exists an Unmatured Event of
Default, to make exchanges, substitutions, or surrenders of Collateral; and
(E) if there exists an Event of Default, take control of any cash or
non-cash proceeds of any account, chattel paper, instrument, and/or general
intangibles which funds shall then be applied to the Loans pursuant hereto.
SECTION 3.6 ACCOUNTS. With respect to each account:
(A) each Borrower represents that: (1) such account is not evidenced by a
judgment, an instrument or chattel paper or secured by a letter of
credit (except (a) such judgment as has been assigned, (b) such
instrument or chattel paper as has been endorsed and delivered to the
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Agent and (c) such letter of credit as has been assigned and delivered
to the Agent) and represents a bona fide completed transaction; (2)
the amount shown on such Borrower's books and records and on any list,
invoice or statement furnished to the Bank is owing to such Borrower;
(3) the title of such Borrower to the account is absolute; (4) the
account has not been transferred to any other person, and, at the time
such account is created, no person except the Borrowers have any claim
thereto or; (5) no partial payment against any account has been made
by anyone; and (6) no material set-off or counter-claim to such
account exists, and no agreement has been made with any person under
which any material deduction or discount may be claimed.
(B) Each Borrower will immediately notify the Agent if any material
account arises out of contracts with the United States or any
department, agency or instrumentality thereof, furnish the Agent with
copies of each such contract and execute any instruments and take any
steps reasonably required by the Agent in order that all moneys due
and to become due under any such contract shall be assigned to the
Agent for the account of the Banks and notice given under the Federal
Assignment of Claims Act.
SECTION 3.7 EQUIPMENT AND INVENTORY. Each Borrower represents, warrants and
agrees that except for leased equipment (A) such Borrower is the absolute
owner of its inventory and equipment, subject only to the security
interests created hereby and those permitted under Section 6.4(A); and (B)
each Borrower will sell its inventory only in the ordinary course of
business; and (C) if any inventory is or becomes represented by a document,
the Agent may require that such document be in such form as to permit the
Agent or anyone to whom the Agent may negotiate the same to obtain delivery
to it of the inventory represented thereby.
SECTION 3.8 CONDITION OF INVENTORY. Each Borrower will immediately notify the
Bank of any event of deterioration, loss or depreciation of value of any
substantial portion of its inventory and the amount of such deterioration,
loss or depreciation.
SECTION 3.9 EXPENSES OF THE AGENT. The Borrowers will reimburse the Agent on
demand for all reasonable expenses (including the reasonable fees and
expenses of legal counsel for the Agent) in connection with the enforcement
of the Banks' rights to take possession of the Collateral and the proceeds
thereof and to hold, collect, render in compliance with applicable
environmental laws and regulations, prepare for sale, sell and dispose of
the Collateral.
SECTION 3.10 NOTICES. If notice of sale, disposition or other intended action by
the Agent with respect to the Collateral is required by the Uniform
Commercial Code or other applicable law, any notice thereof sent to the
Borrower Agent at its address specified herein or such other address of
Borrower Agent as may from time to time be shown on the records of the
Agent at least five (5) days prior to such action, shall constitute
reasonable notice to the Borrowers.
SECTION 3.11 INSURANCE; DISCHARGE OF TAXES, ETC. The Agent shall have the right
at any time and from time to time, with or without notice to the Borrowers,
if the Borrowers fail to do so, (A) obtain insurance covering any of the
Collateral, (B) discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on any of the Collateral and (C)
pay for the maintenance and preservation of any of the Collateral. The
Borrowers will reimburse the Agent, on demand, with interest at the Base
Rate for any payment the Agent makes, or any expense the Agent incurs under
this authorization. Each Borrower assigns to the Agent, for the account of
the Banks, all right to receive the proceeds of insurance covering the
Collateral, directs any insurer to pay all such proceeds directly to the
Agent, for the account of the Banks, and authorizes the Agent to endorse in
the name of the Borrowers any draft for such proceeds provided that until
the occurrence of an Unmatured Event of Default, the Agent agrees to
promptly endorse and deliver any proceeds of insurance to the Borrower
Agent.
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SECTION 3.12 WAIVER AND RELEASE BY BORROWER. Each Borrower (A) waives protest of
all commercial paper at any time held by the Agent on which such Borrower
is in any way liable, notice of nonpayment at maturity of any and all
accounts of such Borrower and, except where required hereby or by law,
notice of action taken by the Agent, and (B) releases the Agent and the
Banks from all claims for loss or damage caused by any failure to collect
any account or by any act or omission on the part of the Agent or its
officers, agents and employees, except gross negligence and willful
misconduct.
SECTION 3.13 ACCESS TO INVENTORY. The Borrowers shall permit the Agent's
representatives to have access to their respective inventory from time to
time, as requested by the Agent, for purposes of audit, examination,
inspection, and appraisal thereof and verification of Borrower's records
pertaining thereto. Except after the occurrence of an Unmatured Event of
Default or an Event of Default, the Agent shall give the Borrowers at least
same day telephone notice before exercising the rights granted in the
preceding sentence and such rights shall be exercised during normal
business hours. Upon demand by the Agent, after the occurrence and during
the continuation of an Event of Default, each Borrower shall assemble its
inventory which constitutes Collateral hereunder and make it available to
the Agent at such Borrower's place of business. At the request of the
Agent, after the occurrence and during the continuance of an Event of
Default, each Borrower shall provide warehousing space in its own premises
to the Agent for the purpose of taking inventory into the custody of the
Agent without removal thereof from such premises and will erect such
structures and post such signs as the Agent may require in order to place
such inventory under the exclusive control of the Agent.
SECTION 3.14 RECORDS AND REPORTS. Each Borrower shall keep accurate and complete
records of its accounts (and the collection thereof), general intangibles,
chattel paper, instruments, documents and inventory and furnish the Agent
such information about its accounts, general intangibles, chattel paper,
instruments, documents, and inventory as the Agent may reasonably request.
SECTION 3.15 FURTHER ASSURANCES. From time to time each Borrower will execute
and deliver to the Agent such additional instruments as Agent may
reasonably request to effectuate the purposes of this Agreement and to
assure to the Agent, as secured party, a first priority, perfected security
interest in the Collateral. Each Borrower hereby irrevocably appoints the
Agent as such Borrower's attorney-in-fact (A) to take any action the Agent
deems reasonably necessary to perfect or maintain perfection of any
security interest granted to the Agent herein or in connection herewith,
including the execution of any document on such Borrower's behalf, and (B)
to take any other action to effectuate the rights granted in this Article
III, which power of attorney is coupled with an interest and irrevocable
until all of the Liabilities are paid in full. Until all of the Obligations
are paid in full, the Agent may, at any time and from time to time, send to
any account debtor under any account a verification form, make such calls
or otherwise contact such account debtors of any Borrower as are necessary
or desirable, in the Agent's reasonable discretion, to verify accounts,
instruments, chattel paper and/or general intangibles that are Collateral
and the balance due.
SECTION 3.16 APPLICATION OF PROCEEDS OF COLLATERAL. Following an Event of
Default all proceeds of Collateral shall be applied in accordance with
Section 2.9(C) hereof.
SECTION 3.17 CONTINUING COLLATERAL. The Agent shall be under no obligation to
proceed first against any part of the Collateral before proceeding against
any other part of the Collateral. It is expressly agreed that all of the
Collateral stands as equal security for all Liabilities and the Agent shall
have the right to proceed against or sell any and/or all of the Collateral
in any order, or simultaneously, as it, in its sole discretion, shall
determine.
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Article IV
CONDITIONS OF LENDING
SECTION 4.1 CONDITIONS PRECEDENT TO THE LOANS. The obligation of each Bank to
make the initial Revolving Credit Advances and the obligation of the Agent
to issue any Letter of Credit is subject to the Agent having received, on
or before the day on which such Loans are to be made, all of the following
which shall be in form and substance satisfactory to the Agent and its
counsel and (except for the Notes) in sufficient copies for each Bank:
(A) A copy, certified in writing as of the date hereof by the Secretary or
Assistant Secretary of each Borrower, of (1) resolutions of the Board
of Directors of such Borrower evidencing approval of this Agreement
and the Notes and other matters contemplated hereby and (2) each
document evidencing any other necessary corporate action and any
required approvals from governmental authorities for each Borrower
with respect to this Agreement or the Notes;
(B) Favorable opinions of counsel for each Borrower acceptable to the
Agent dated the date hereof in form and substance reasonably
satisfactory to the Agent;
(C) A certificate dated the date hereof by the Secretary or an Assistant
Secretary of each Borrower as to the names and signatures of the
officers of such Borrower authorized to sign this Agreement, the Notes
and the other documents or certificates of such Borrower to be
executed and delivered pursuant hereto. The Banks may conclusively
rely on, and shall be protected in acting upon, such certificate until
it shall receive a further certificate by the Secretary or an
Assistant Secretary of such Borrower amending the prior certificate;
(D) This Agreement duly executed by the Borrowers;
(E) The Notes duly executed by the Borrowers;
(F) Payment by the Borrowers of all Fees then due;
(G) Copies of the Bylaws of each Borrower, certified as true, correct and
complete by such Borrower's Secretary or Assistant Secretary on behalf
of such Borrower;
(H) With respect to each Borrower, certificates dated within thirty (30)
days of the date hereof for United States jurisdictions and, as the
Agent may require, for jurisdictions outside the United States, issued
by the Secretary of State (or similar official) of each jurisdiction
in which such Borrower is incorporated or is qualified to do business,
stating that such Borrower is a corporation duly incorporated or
authorized to do business, as the case may be, and in good standing
under the laws of such jurisdiction;
(I) For each Borrower, a certificate dated the date of this Agreement and
executed by the chief executive officer, in each case on behalf of
such Borrower, confirming that (1) no Event of Default or Unmatured
Event of Default has occurred or is continuing as of the Closing Date,
(2) each of the representations and warranties made in this Agreement
by such entity are true and correct in all material respects as of the
date of this Agreement and of the Closing Date (or, to the extent any
such representation or warranty expressly relates to a specific date,
as of such specific date), (3) such entity has fully performed each
and every covenant to be performed by such Borrower on or prior to the
Closing Date and, for covenants contained in Sections 6.24 through
6.27, computations demonstrating compliance with such covenants, (4)
that each Borrower is "solvent" (as defined in such certificate) after
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giving effect to these transactions, and (5) such entity has satisfied
each of the conditions set forth in this Article IV (to the extent
required to be satisfied by such entity on or prior to the Closing
Date).
(J) The results of Uniform Commercial Code, judgment, and bankruptcy
searches of the jurisdictions listed in Schedule 3.4 showing no Liens
or judgments against any Borrower or any of their assets which would
violate Section 6.4; and;
(K) A certificate of insurance evidencing property insurance, business
interruption coverage insurance, and workmen's compensation and
commercial general liability insurance, providing such level of
coverage and otherwise in form and substances reasonably satisfactory
to Agent.
Each policy of insurance must be issued by an insurance company
reasonably satisfactory to the Agent, must not be in arrears as to the
payment of premiums, and must provide that it will not be terminated
without at least thirty (30) days prior written notice to the Agent
and must name Agent as mortgagee/loss payee for the account of the
Banks;
(L) Financial statements for the year ended December 31, 1998, Interim
Financial Statements as of September 30, 1999, and copies of all
reports delivered to the Securities and Exchange Commission;
(M) Financial projections prepared by MTI for the next succeeding three
(3) years reasonably acceptable to the Banks;
(N) UCC-1 financing statements for all jurisdictions requested by the
Agent;
(O) UCC-3 termination statements from parties holding liens which are not
permitted in accordance herewith;
(P) The Landlord's Waivers and waivers from mortgagees of the landlords;
(Q) A Subrogation and Contribution Agreement executed by each Borrower;
and
(R) such other documents as may be reasonably requested by the Agent, the
Banks or its or their counsel.
SECTION 4.2 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT ADVANCES. The
obligation of each Bank to disburse each Loan is subject to the further
conditions precedent that:
(A) The representations and warranties contained herein shall be accurate
on and as of the date of such disbursement as though made on and as of
such date (or, to the extent any such representation or warranty
expressly relates to a specific date, as of such specific date) except
for changes permitted hereby or in writing by the Agent for the
account of the Banks; and
(B) No Event of Default or Unmatured Event of Default shall have occurred
and be continuing or will result from the making of such disbursement
or selection.
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Article V
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Agent and each Bank as follows:
SECTION 5.1 EXISTENCE. Each Borrower is a corporation or limited liability
company duly organized, validly existing and in good standing under the
laws of its state or other jurisdiction of organization. Each Borrower has
all requisite power and authority, corporate and otherwise, to conduct its
business and to own its properties and is duly qualified as a foreign
corporation or limited liability company in good standing in all
jurisdictions in which its failure so to qualify could reasonably be
expected to have a Material Adverse Effect.
SECTION 5.2 AUTHORIZATION. The execution, delivery and performance by each
Borrower of each Loan Document has been duly authorized by all necessary
corporate or other limited liability company action, and does not and will
not violate any current provision of any government regulation or statute,
or of the charter or by-laws or other organizational documents of such
Borrower or result in a breach of or constitute a default under any
instrument or other material agreement to which such Borrower is a party or
by which it or its properties are bound or affected, except for any such
breach or default that would not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
SECTION 5.3 VALIDITY. Each Loan Document constitutes, valid and legally binding
obligations of such Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors'
rights generally and subject to the availability of equitable remedies.
SECTION 5.4 FINANCIAL INFORMATION. The Consolidated balance sheet and statements
of cash flows, income and changes in Shareholder's equity of MTI and its
Subsidiaries as of and for the year ended December 31, 1998 audited by
Coopers & Lybrand, and Interim Financial Statements for the period ended
September 30, 1999, copies of all of which have been furnished to the
Banks, are accurate, and present fairly the financial positions, the
results of operations and cash flows at such dates and for the periods
ended on such dates, all in accordance with GAAP. Since December 31, 1998
there has been no material adverse change to the financial condition,
business operations or prospects of MTI and its Subsidiaries taken as a
whole either in such financial positions or in such results of operations
except to the extent, if any, reflected in the Interim Financial Statements
dated September 30, 1999 or MTI's Form 10-Q's filed with respect to the
fiscal quarters ending March 31, June 30 and September 30, 1999.
SECTION 5.5 LITIGATION. There are no actions, suits or proceedings pending or,
to the knowledge of the Borrowers, threatened against any Borrower, or any
of their respective properties before any court or governmental department,
commission, board, bureau, agency or instrumentality (domestic or foreign)
which if adversely determined could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
SECTION 5.6 CONTINGENT LIABILITIES. There are on the date hereof no suretyship
agreements, guarantees or other contingent liabilities of any Borrower in
respect of any Indebtedness or any other material contingent liabilities
known to any Borrower other than (A) guarantees and other contingent
liabilities that are disclosed in the financial statements mentioned in
Section 5.4 or in the September 30, 1999 Report 10-Q previously filed with
the SEC or in Schedule 5.15, and (B) the joint and several obligations of
the Borrowers hereunder.
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SECTION 5.7 TAXES. Each Borrower has filed all tax returns and reports required
to be filed before the date of this Agreement and has paid all taxes,
assessments and charges imposed upon it or its property, or that it is
required to withhold and pay over, to the extent that they were required to
be paid before the date of this Agreement except where an extension for
filing is available and such Borrower has taken the necessary steps to
qualify for such extension, where such taxes, assessments or charges are
being contested in good faith and by proper proceedings and against which
adequate reserves are being maintained in accordance with GAAP or where a
failure to pay such taxes, assessments or charges or file such returns or
reports would not reasonably be expected to have a Material Adverse Effect.
SECTION 5.8 ENCUMBRANCES. Except as disclosed in the lien searches conducted
pursuant hereto, or permitted pursuant to Section 6.4, none of the
properties or assets of any Borrower are subject to any lien, encumbrance
or security interest.
SECTION 5.9 CONSENTS. No authorization, consent, approval, license, exemption by
or filing or registration with any court or governmental department,
commission, board (including the Board of Governors of the Federal Reserve
System), bureau, agency or instrumentality, domestic or foreign, is or will
be necessary for the valid execution, delivery or performance by any
Borrower of this Agreement or the Notes. Each Borrower has obtained all
Governmental Approvals necessary for the conduct of such Borrower's
business, and the conduct of such Borrower's business is not and has not
been in violation of any such Governmental Approval or any applicable
federal or state law, rule or regulation, except for any Governmental
Approval which if not obtained, or any violation which if having occurred,
could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
SECTION 5.10 ERISA. All Defined Benefit Pension Plans and Defined Contribution
Plans maintained by any of the Borrowers and the members of their
Controlled Group meet the minimum funding standards of ss.412 of the Code,
the regulations thereunder and ss.302 of ERISA without regard to any
funding waiver. No Prohibited Transaction that would have a Material
Adverse Effect has occurred with respect to any Plan. No Reportable Event
that would have a Material Adverse Effect has occurred with respect to any
Defined Benefit Pension Plan. No trust was established in connection with
any such Defined Benefit Pension Plan pursuant to ss.4049 of ERISA (as in
effect on December 17, 1987) and no liabilities have been asserted against
any Borrower or any member of its Controlled Group in connection with any
such Defined Benefit Pension Plan by the PBGC or by a trustee appointed
pursuant to ss.4042(b) or (c) of ERISA, and no lien has been attached and
neither the PBGC nor the Internal Revenue Service has threatened to attach
a lien on any property of any Borrower or any member of its Controlled
Group as a result of any failure to comply with the Code or the Treasury
regulations thereunder or ERISA. All Plans maintained by any Borrower or
any Subsidiary of any Borrower comply (A) in operation with the applicable
requirements of the Code and the regulations thereunder and ERISA, and (B)
in form with those requirements of the Code and the regulations thereunder
and ERISA which must be met and reflected in Plan documents on the date
hereof, except where the failure so to comply would not have a Material
Adverse Effect. No Borrower or any member of its Controlled Group has
incurred any Withdrawal Liabilities that would have a Material Adverse
Effect.
SECTION 5.11 OWNERSHIP. The Borrowers have title to, or valid leasehold
interests in, all of their properties and assets, real and personal,
including the properties and assets and leasehold interests reflected on
the financial statements referred to in Section 5.4 hereof except for (A)
properties and assets reflected therein and disposed of as inventory in the
ordinary course of business and (B) other property reflected therein, the
disposal of which (individually or in the aggregate) would not reasonably
be expected to have a Material Adverse Effect.
SECTION 5.12 SUBSIDIARIES AND OWNERSHIP OF STOCK. Schedule 5.12 is a complete
and accurate list of the entities comprising the Borrowers, and shows (A)
the jurisdiction of incorporation or
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organization of each such entity, (B) any Person owning more than 5% of the
outstanding stock of MTI, and (C) the chief executive office of each
Borrower. All of the outstanding capital stock or other ownership interests
of each Borrower has been validly issued and is fully paid and
nonassessable. MTI owns directly or indirectly all of the outstanding
capital stock of the other Borrowers, free and clear of all liens, claims
or encumbrances. No Borrower has any Subsidiaries except for those Persons
shown on Schedule 5.12.
SECTION 5.13 MARGIN STOCK; REGULATION U, ETC. No Borrower engages in the
business of making loans for the purchase of Margin Stock. The Loans will
not constitute a violation of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System. No part of the proceeds of the
Loans will be used for any purposes which violate or are inconsistent with
the provisions of any of such regulations.
SECTION 5.14 ENVIRONMENTAL MATTERS. Each Borrower is in possession of and in
compliance with all required permits and Environmental Laws relating to the
discharge or release of liquids, gases or solids into the air, water, and
soil, except for any such permit that, if not obtained, would not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No Borrower refines, processes, generates, stores,
recycles, transports, disposes of, or releases into the environment any
"hazardous substance" as that term is defined under Section 101(14) of
CERCLA or any hazardous or toxic substances as those terms are defined by
the provisions of any state or local environmental statute or regulation,
except to the extent such Borrower does so in material compliance with all
applicable Environmental Laws. No Borrower has received: (A) written or, to
its knowledge, oral notice from any governmental agency that it is a
potentially responsible party in any proceeding under CERCLA or any similar
state or local environmental statute or regulation, or (B) any written or,
to its knowledge oral, notice of violation, citation, complaint, request
for information, order, directive, compliance schedule, notice of claim,
proceeding or litigation from any party concerning such entity's compliance
with any Environmental Law which is presently outstanding or unresolved,
except for any notice or other communication relating to any such
non-compliance or proceeding that could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
SECTION 5.15 DEBT AND GUARANTEES. Except as set forth in Schedule 5.15 hereto,
no Borrower has guaranteed the payment or performance of the debts or
obligations of any other Person except for the guaranty of checks or other
documents for collection in the ordinary course of business or as disclosed
pursuant to Section 5.16 hereof.
SECTION 5.16 CREDIT ARRANGEMENTS. There are no credit agreements, indentures,
securities, purchase agreements, guaranties, capital leases, and other
investments, agreements and arrangements presently in effect providing for
or relating to extensions of credit for Funded Debt (including agreements
and arrangements for the issuance of any letters of credit or for
acceptance financing) in respect of which any Borrower is in any manner
directly or contingently obligated, excluding therefrom any single
agreement relating to the purchase of the machinery, equipment, goods and
supplies made in the ordinary course of business of less than Two Hundred
Fifty Thousand ($250,000); and the maximum principal or face amount of the
credit in question as of the date hereof is therein correctly stated.
SECTION 5.17 LICENSES, PERMITS, ETC. Each Borrower is in possession of and
operating in compliance with all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders required
for the conduct of its business now conducted, and all of them are valid
and in full force and effect, except to the extent the failure to possess
or be in compliance with any of the foregoing, or for any of the foregoing
not to be valid and in full force and effect, could not reasonably be
expected to have, either individually or in the aggregate, a Material
Adverse Effect.
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SECTION 5.18 COMPLIANCE WITH LAWS. Each Borrower is in compliance with all laws,
rules, regulations, and orders of all Federal, state and governmental
agencies and courts (domestic and foreign) which are applicable to it, to
the conduct of its business, or to the ownership and use of its properties,
except for any such non-compliances that could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse
Effect.
SECTION 5.19 LABOR MATTERS. There are no existing, or to the best of the
Borrowers' knowledge threatened or contemplated, strikes, slowdowns,
picketing or work stoppages by any employees against any Borrower, any
lockouts by any Borrower of any of its employees or any other occurrence,
event or condition of a similar character affecting or which may affect any
Borrower that could reasonably be expected to have a Material Adverse
Effect.
SECTION 5.20 OUTSTANDING JUDGMENTS OR ORDERS. Each Borrower has satisfied all
judgments against it that could reasonably be expected to have a Material
Adverse Effect and no Borrower is in default with respect to any judgment,
writ, injunction, decree, material rule or regulation of any court,
arbitrator or commission, board bureau, agency or instrumentality, domestic
or foreign that could reasonably be expected to have a Material Adverse
Effect.
SECTION 5.21 NO DEFAULTS ON OTHER AGREEMENTS. No Borrower is in default in the
performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument to which it is a
party, except for any such default that could not reasonably be expected to
have a Material Adverse Effect.
SECTION 5.22 PUBLIC UTILITY HOLDING COMPANY ACT. No Borrower is a public utility
holding company within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
SECTION 5.23 PATENTS. Each Borrower's trademarks, servicemarks and patents
needed for its operations are valid and enforceable on the date hereof.
SECTION 5.24 YEAR 2000 COMPLIANCE.
(A) All material computer software (owned or leased) of MTI and its
Subsidiaries is and shall remain "Year 2000 Compliant" (as hereinafter
defined).
(B) For purposes of this Agreement, "Year 2000 Compliant" shall mean (i)
all such software shall operate without errors in the recognition,
calculation and processing of date data relating to century
recognition, leap years, single and multi-century formulae, date
values and interfaces of date-related functionalities; (ii) all date
processing shall be conducted in a four-digit year format and all date
sorting that includes a "year field" or "year category" shall be based
upon a four-digit year format; and (iii) any date arithmetic programs
or calculators in the software shall operate in accordance with the
related user documentation in the Year 2000, and the years following,
without degrading functionality or performance.
SECTION 5.25 FULL DISCLOSURE. No representation or warranty by any Borrower in
this Agreement and no information in any statement, certificate, schedule
or other document furnished or to be furnished to the Agent or any Bank
pursuant hereto, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading. Except as
disclosed in this Agreement and the Schedules attached hereto, there is no
fact known to any Borrower which on the date hereof it has not disclosed to
the Agent or any Bank in writing which has had, or could reasonably be
expected to have, a Material Adverse Effect.
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Article VI
COVENANTS OF THE BORROWERS
So long as any amount due Agent or any Bank hereunder remains outstanding,
or any Bank shall have any Commitment hereunder, unless the Agent and each Bank
shall otherwise consent in writing, each Borrower agrees that:
SECTION 6.1 FINANCIAL STATEMENTS.
(A) The Borrowers will furnish to the Agent not later than ninety (90)
days after the end of each year, Financial Statements as of and for
the twelve (12) months ending the last day of such year, the
Consolidated statements therein contained to be audited and
unqualifiedly certified by Coopers & Lybrand or other independent
certified public accountants of nationally recognized standing or
otherwise reasonably satisfactory to the Bank.
(B) In addition, the Borrowers will furnish to the Agent, within 45 days
of the close of each fiscal quarter other than the last fiscal quarter
of each fiscal year, Interim Financial Statements for such fiscal
quarter and for the portion of the fiscal year then ended.
(C) With all Financial Statements and Interim Financial Statements, the
Borrowers will provide to the Agent a certificate of the chief
financial officer of MTI, which certificate shall state that such
Financial Statements or Interim Financial Statements are complete and
correct in all material respects and prepared in accordance with GAAP,
subject only to usual year-end adjustments and the absence of
footnotes in the case of Interim Financial Statements. The Borrowers
shall furnish to the Agent together with all Financial Statements and
Interim Financial Statements, a certificate executed by the chief
financial officer of MTI, which certificate shall include all
calculations (in reasonable detail) necessary to determine compliance
with Sections 6.24, 6.25, 6.26, and 6.27 (as appropriate for each
Financial Statement or Interim Financial Statement), which shall state
that the signer has reviewed the terms of this Agreement and has made,
or caused to be made under his supervision, a review in reasonable
detail of the transactions and condition of the Borrowers during the
accounting period covered by such Financial Statements or Interim
Financial Statements and that such review has not disclosed the
existence during or at the end of such accounting period, and does not
have knowledge of the existence as at the date of the certificate, of
any condition or event which constitutes an Event of Default or
Unmatured Event of Default or if any such condition or event existed
or exists, specifying the nature and period of existence thereof and
what action(s) the Borrowers have taken, are taking and propose to
take with respect thereto. A compliance certificate substantially in
the form of Exhibit 6.1 hereto executed by the chief financial officer
of MTI shall be delivered to the Agent at the same time as all
Financial Statements and Interim Financial Statements are delivered
hereunder.
(D) Promptly upon receipt thereof, the Borrowers shall deliver to the
Agent copies of any management letters or other reports submitted to
the Borrowers by independent certified public accountants in
connection with the examination of the Financial Statements.
SECTION 6.2 INSURANCE. Each Borrower will maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which
such Borrower operates or owns such properties. The Agent shall be named as
mortgagee/loss payee pursuant to an endorsement to such policies, but,
until the occurrence of an Unmatured Event of Default or Event of Default,
the Agent shall promptly endorse and/or return any proceeds of insurance to
the Borrower Agent.
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SECTION 6.3 TAXES. Each Borrower will pay all taxes, assessments and charges
imposed upon it or its property or that it is required to withhold and pay
over when due, except where such taxes, assessments and charges are
contested in good faith and where adequate reserves have been set aside in
accordance with GAAP, or where the failure to pay such taxes, assessments
or charges when due could not reasonably be expected to cause, individually
or in the aggregate, a Material Adverse Effect.
SECTION 6.4 ENCUMBRANCES.
(A) No Borrower will create, incur, assume or suffer to exist any
mortgage, pledge, lien, security interest or other encumbrance of any
kind ("Lien") upon or in, any of its property or assets, including,
without limitation, patents, trademarks, copyrights or any other
general intangible except for (1) liens for taxes not yet delinquent
or being contested in good faith and by appropriate proceedings, (2)
liens solely securing the performance of bids, tender contracts,
surety and appeal bonds, or similar obligations, arising in the
ordinary course of business, provided that the Borrowers remain in
compliance with the terms of such obligations, (3) liens in connection
with workmen's or worker's compensation, unemployment insurance or
other social security obligations, (4) mechanic's, materialman's,
landlord's, carrier's, or other similar liens arising in the ordinary
course of business with respect to obligations that are not due, or
which are being contested diligently, in good faith and by appropriate
proceedings, provided that (a) such proceedings have the effect of
staying execution on such liens, and (b) adequate reserves have been
set aside or the obligation being contested has been bonded against,
(5) the encumbrances disclosed pursuant to Section 5.8 hereof; and (6)
purchase money liens on any asset hereinafter acquired including the
assumption of any such lien on assets existing at the time of such
acquisition or at the time of acquisition of the owner of such assets,
any lien incurred in connection with any conditional sale or other
title retention agreement, a capital lease, or construction loans or
permanent financing for new construction; provided that (a) any
property subject to any of the foregoing is acquired by a Borrower in
the ordinary course of its business and the lien on any such property
is created contemporaneously with such acquisition or in accordance
with the construction financing or permanent financing of a newly
constructed facility or is assumed in connection with such
acquisition; (b) the obligation secured by any lien so created,
assumed or existing shall not exceed one hundred percent (100%) of the
lesser of cost or fair market value as of the time of acquisition of
the property covered thereby to the Borrower acquiring the same; (c)
each such lien shall attach only to the asset so acquired and fixed
improvements thereon; and (d) the obligation so secured shall not
exceed in any case Five Hundred Thousand Dollars ($500,000) or in the
aggregate Two and one-half Million Dollars ($2,500,000) at any one
time outstanding.
(B) No Borrower will agree with any Person to restrict its ability to
grant mortgages, pledges, liens, or other encumbrances upon, or
security interests in, any of its property or assets to the Agent
and/or the Banks.
(C) No Lien on any asset or property of any Borrower shall be of equal or
higher priority than the Liens of the Agent hereunder, except Liens
expressly permitted under Section 6.4(A) (6) above and except to the
extent that Liens expressly permitted under Section 6.4(A)(1) - (5)
may be granted statutory priority irrespective of the chronological
order of perfection.
SECTION 6.5 COMPLIANCE WITH LAWS. Each Borrower will comply with all laws and
regulations applicable to it in the operation of its business, except to
the extent any such non-compliance could not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.
SECTION 6.6 INSPECTION BY THE AGENT. Each Borrower will permit representatives
of the Agent, at the request of any Bank to inspect the property and books
and records of such Borrower and to make extracts therefrom and to discuss
the affairs of each Borrower with its officers, directors, employees and
accountants at all reasonable times during normal business hours and,
except after the occurrence of an
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Event of Default, upon reasonable prior notice from the Agent. After the
occurrence and during the continuance of an Event of Default, the Borrowers
agree to reimburse the Agent for all reasonable out-of-pocket costs and
expenses incurred in connection with any such inspection.
SECTION 6.7 REPORTS. The Borrowers will furnish to the Agent:
(A) As soon as possible after any Borrower has knowledge of the occurrence
of any Event of Default or Unmatured Event of Default, a written
statement by the chief executive or chief financial officer of such
Borrower on behalf of such Borrower setting forth details of such
Event of Default or Unmatured Event of Default, stating whether or not
the same is continuing and, if so, the action(s) that such Borrower
proposes to take with respect thereto;
(B) Immediately after receiving notice thereof, notice in writing of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign if an adverse result thereof could reasonably be
expected to have a Material Adverse Effect;
(C) As soon as practicable after any Borrower has knowledge of the
occurrence of a change in the business, properties or the operations
and condition (financial or otherwise) of such Borrower that such
Borrower considers could reasonably be expected to have a Material
Adverse Effect, a statement by such officer setting forth details of
such change and the action(s) that the Borrowers propose to take with
respect thereto;
(D) Simultaneously with the filing thereof, the Borrowers shall deliver to
the Agent copies of all notices required by law or regulation to be
filed, and all reports, registrations and requests for interpretive
letters or rulings filed, with the Securities and Exchange Commission;
(E) Annually, within 90 days after the end of each Fiscal Year of MTI, the
Borrowers will furnish to the Agent an annual operating budget for MTI
and its subsidiaries on a Consolidated Basis; and
(F) Such other information respecting the business, properties, condition
and operations (financial or otherwise) of each Borrower as the Agent
may at any time and from time to time reasonably request be furnished
to it.
SECTION 6.8 ERISA.
(A) Each Borrower and all of its Subsidiaries will comply in all material
respects with the applicable provisions of ERISA and the Code and the
regulations thereunder with respect to any Plan except where the
failure to so comply could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
(B) Each Borrower will cause to be made all contributions required to
avoid any accumulated funding deficiency (as defined in ss.412(a) of
the Code and the regulations thereunder and ss.302(a) of ERISA) with
respect to any pension plan (as defined in ss.3(2) of ERISA) which is
subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of
the Code and the regulations thereunder and which is maintained by a
Borrower or any member of its Controlled Group.
(C) As soon as practicable (and in any event within five days) after any
Borrower has reason to know (1) that any Reportable Event has occurred
with respect to any Defined Benefit Pension Plan maintained by a
Borrower or any member of its Controlled Group, (2) that any Defined
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Benefit Pension Plan maintained by a Borrower or any member of its
Controlled Group is to be terminated in a "distress termination"
(within the meaning of ss.4041(c) of ERISA), (3) that the PBGC has
instituted or will institute proceedings under Title IV of ERISA to
terminate any Defined Benefit Pension Plan maintained by a Borrower or
any member of its Controlled Group, (4) that a Borrower has incurred
Withdrawal Liability from a Multiemployer Plan maintained by it or any
member of its Controlled Group which is likely to have a Material
Adverse Effect, or (5) that any Multiemployer Plan to which a Borrower
or any member of its Controlled Group has made contributions is in
"reorganization" (within the meaning of ss.4241 of ERISA), such
Borrower will furnish a statement to the Agent setting forth the
details of such Reportable Event, distress termination, termination
proceedings, Withdrawal Liability, or "reorganization" (within the
meaning of ss.4241 of ERISA), and the action that the Borrowers
propose to take with respect thereto, together with a copy of any
notice of such Reportable Event or distress termination given to the
PBGC, or a copy of any notice of termination proceedings, Withdrawal
Liability, or Reorganization received by a Borrower or any member of
its Controlled Group.
(D) Each Borrower will furnish to the Agent as soon as possible after
receipt thereof a copy of any notice that a Borrower or any member of
its Controlled Group receives from the PBGC, the Internal Revenue
Service, the Department of Labor, any other governmental entity or
from the sponsor of any Multiemployer Plan that sets forth or proposes
any action to be taken or determination made by the PBGC, the Internal
Revenue Service, the Department of Labor, any other governmental
entity or the sponsor of any Multiemployer Plan with respect to any
Plan or Multiemployer Plan, which is likely to have a Material Adverse
Effect.
(E) Each Borrower will promptly notify the Agent of any material taxes,
penalties, interest charges and other financial obligations that have
been assessed or otherwise imposed, or that such Borrower has reason
to believe may be assessed or otherwise imposed, against any Borrower
or any member of its Controlled Group by the Internal Revenue Service,
the PBGC, the Department of Labor or any other governmental entity
with respect to any Plan or Multiemployer Plan, that is likely to have
a Material Adverse Effect.
(F) Each Borrower will promptly notify the Agent of the adoption of any
Plan or any obligation to contribute to any Multiemployer Plan by any
Borrower or any member of its Controlled Group if the potential
liability thereunder is likely to have a Material Adverse Effect.
(G) No Borrower will withdraw, or permit any member of its Controlled
Group to withdraw, from any Multiemployer Plan to which any of them
now or hereafter contribute if the Withdrawal Liability which would
thereupon be incurred and the payments thereupon required over the
time period required could have a Material Adverse Effect.
(H) No Borrower will fail to make required minimum contributions, or
permit any member of its Controlled Group to fail to make required
minimum contributions with respect to a Defined Benefit Pension Plan,
resulting in a lien (as provided in the Code or ss.302(f) of ERISA)
against any Borrower or any member of its Controlled Group.
(I) No Borrower will permit the adoption of a plan amendment which results
in significant underfunding (as defined in ss.307 of ERISA) of a
Defined Benefit Pension Plan which requires such Borrower or any
member of its Controlled Group to provide security.
(J) Without the written consent of the Agent, Borrower will not acquire or
permit the acquisition by any other member of its Controlled Group of
any trade or business which maintains a Defined Benefit Plan (1) with
any "amount of unfunded benefit liabilities" (as defined in
ss.4001(a)(18) of ERISA) if the potential liability from the
termination of such Plan is likely to have a Material Adverse
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Effect, or (2) with any "accumulated funding deficiency" (as defined
in ss.412(a) of the Code), whether or not waived.
SECTION 6.9 ENVIRONMENTAL MATTERS.
(A) Each Borrower will obtain and comply with all required permits,
licenses, registrations, and approvals relating to the discharge or
release of liquids, gases or solids into the environment; and to the
extent that such are applicable to the operation of its business, each
Borrower will comply with all laws, rules, regulations and
governmental orders and directives relating to the generation,
treatment, storage, transportation, disposal and release into the
environment and cleanup of any "hazardous substance" as that term is
defined under Section 101(14) of CERCLA, or any hazardous or toxic
substances as defined by the provisions of any state or local
environmental statute or regulation at all premises owned or operated
by such Borrower; in each case, to the extent non-compliance therewith
could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
(B) Each Borrower will notify the Agent in writing of the receipt by it of
(1) any written notice from any governmental agency that it is a
potentially responsible party in any proceeding under CERCLA or any
similar state or local environmental statute or regulation, (2) any
written notice of any claim, proceeding, litigation, order, directive,
citation, or request for information concerning its compliance with
the Environmental Laws, (3) written notice of any alleged violation of
the Environmental Laws, or (4) any information known to it concerning
any potentially materially adverse environmental condition on, above,
or beneath its premises, including but not limited to any spilling,
leaking, discharge, release, or threat of release of any hazardous or
toxic waste or substance; in each case, to the extent such notice or
information relates to an event or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect.
SECTION 6.10 CHANGE OF BUSINESS. No Borrower will make any material change in
the lines of business as conducted by it at the date hereof, meaning no
Borrower will enter into any new business unrelated to that conducted by it
at the date hereof.
SECTION 6.11 REGULATION U. No Borrower will: (A) use the proceeds of the Loan to
purchase or carry any Margin Stock; (B) engage in the business of making
loans for the purchase of Margin Stock; or (C) purchase or carry Margin
Stock in a manner that would result in a violation of Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System.
SECTION 6.12 DISPOSAL OF ASSETS. No Borrower will dispose of any asset except
for the sale of inventory in the ordinary course of business and the sale
or other disposition of obsolete or worn-out equipment except where there
is no Material Adverse Effect.
SECTION 6.13 LOANS, INVESTMENTS, AND CONTINGENT LIABILITIES. No Borrower will
(A) become liable for the obligation of anyone except by endorsement of
negotiable instruments for deposit or collection in the usual course of
business and except for the joint and several obligations of the Borrowers
hereunder, or (B) make any loan or Investment except for (1) Investments in
cash or Cash Equivalents, (2) loans or Investments in Borrowers, (3)
Investments permitted by Section 6.16, provided that to the extent the
Investment constitutes a Permitted Acquisition of securities, the
Subsidiary thereby acquired becomes a Borrower hereunder in accordance with
Section 2.19 hereof, and (4) Investments in Affiliates (other than
Borrowers) or other Persons in which MTI or its Subsidiaries have an
interest of not more than $2,500,000 in the aggregate on or prior to the
date hereof and an additional $2,000,000 in the aggregate thereafter.
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SECTION 6.14 MAINTENANCE OF PROPERTY. Each Borrower will maintain all of its
property in good condition and repair, ordinary wear and tear excepted, and
keep all of its patents, trademarks, copyrights, licenses, and permits
which are of more than nominal value in full force and effect.
SECTION 6.15 TRANSACTIONS WITH AFFILIATES AND SUBSIDIARIES. No Borrower will
enter into any transaction with any officer, director or shareholder of any
Borrower or any Affiliate or Subsidiary of any Borrower for less than full
value or on terms or conditions less favorable to such Borrower in any
material respect than could be obtained in an arm's length transaction with
a third party.
SECTION 6.16 RESTRICTION ON ACQUISITIONS; MERGER; CORPORATE STRUCTURE.
(A) General Prohibition. No Borrower shall create or acquire, or permit a
Subsidiary to create or acquire, any new Subsidiary, or acquire, or
permit a Subsidiary to acquire, all or a substantial portion of the
assets or securities of any other Person, or assume or agree, or
permit a Subsidiary to assume or agree, to merge or consolidate with
any Person or discharge the liabilities or obligations of any other
Person, or agree or permit a Subsidiary to agree to do any of the
foregoing (any such transaction, an "Acquisition"); except that, so
long as no Unmatured Default or Event of Default exists or would
result therefrom:
(i) any Borrower may merge with one or more other Borrowers, any
Borrower may consolidate with one or more other Borrowers or may
merge or consolidate with one or more Subsidiaries of any
Borrower, if, in any such case, the resulting or surviving
corporation (if not already a Borrower) becomes a Borrower,
provided that if such merger or consolidation involves MTI, MTI
shall be the resulting or surviving corporation;
(ii) any Subsidiary of a Borrower may merge or consolidate with one or
more other Subsidiaries of a Borrower; and
(iii) any Borrower or Subsidiary of any Borrower may engage in one or
more Permitted Acquisitions under subsection (B) below.
(B) Permitted Acquisitions. For the purposes hereof, an Acquisition shall
be deemed a "Permitted Acquisition" if:
(i) the Banks receive, at least thirty (30) Business Days prior to
the consummation of such proposed Acquisition, written notice
thereof and information and documents sufficient to show that the
Acquisition is a Permitted Acquisition;
(ii) no Default or Event of Default is in existence at the time of the
consummation of such Acquisition or would exist after giving
effect thereto, and MTI shall deliver to the Banks a certificate
signed by its chief executive officer, its chief financial
officer or its treasurer stating that such condition precedent
has been fulfilled;
(iii) in furtherance and not in limitation of (ii) above, any
Indebtedness incurred in the Acquisition to the Seller or one of
its Affiliates does not constitute a Default or Event of Default
under the requirements of Section 6.26;
(iv) within five (5) Business Days after such Acquisition, MTI shall
deliver to the Agent such updated Schedules to this Agreement as
may be required to make such schedules accurate in light of such
Acquisition;
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(v) any Subsidiary division or business created or acquired as a
result of such Acquisition shall be in compliance with Section
6.10 and all other representations and covenants herein, and any
such Subsidiary shall have become a Borrower under this Agreement
and under the Notes and the other Loan Documents, the Banks shall
have received the documents described in Section 2.19 of this
Agreement with respect to such new Subsidiary and the Agent for
the benefit of the Banks shall have a perfected security interest
and mortgage (having first priority, subject only to the
exceptions permitted under Section 6.4(C) above) in all assets
and securities acquired by MTI in the Acquisition directly or
indirectly; and
(vi) if the total Consideration in any Acquisition is to exceed Five
Million Dollars ($5,000,000) or if the aggregate amount of
Consideration with respect to all Acquisitions consummated after
the Closing Date is to exceed $10,000,000 during any fiscal year
then, in addition:
(1) MTI shall deliver to the Agent a certificate signed by its
chief executive officer, its chief financial officer, or its
treasurer, including projections incorporating pro forma
EBITDA of the Person(s) or business(es) being acquired and
the Borrowers, as though such Acquisition had occurred,
certifying as to such officer's good faith belief that the
financial covenants contained herein will continue to be met
for the first four (4) full fiscal quarters following the
consummation of such Acquisition, to which shall be attached
computations as to such financial covenants in form and
substance reasonably satisfactory to the Agent; and
(2) The Borrowers shall deliver whatever information and/or
document the Agent or any Bank may request, in its sole
discretion, regarding the proposed transaction, and the
Majority Banks shall determine, in their sole discretion,
whether the proposed Acquisition may be consummated.
SECTION 6.17 DIVIDENDS AND DISTRIBUTIONS. No Borrower shall be entitled to make
or declare dividends upon any of its capital stock or return any capital to
any of its shareholders (except to a Borrower), or make or declare any
other payment or distribution to its shareholders (including those relating
to share repurchases or redemptions) (except to a Borrower) in their
capacity as such, except that MTI may repurchase its shares of capital
stock if the aggregate consideration therefor, after the date of this
Agreement, does not exceed $1,000,000.
SECTION 6.18 OTHER INDEBTEDNESS. No Borrower will incur or otherwise permit to
exist any Indebtedness, whether as borrower or guarantor, except (A)
Indebtedness incurred hereunder, (B) Indebtedness listed on Schedule 5.16
existing as of the date hereof, (C) purchase money Indebtedness permitted
under Section 6.4(A)(6), and (D) Permitted Seller Debt and Indebtedness
incurred in accordance with Section 6.16(B)(iii).
SECTION 6.19 LICENSES, PERMITS. Each Borrower will maintain the validity, force
and effect of, and operate in compliance with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and
orders required for the conduct of its businesses, except to the extent
non-compliance with the foregoing could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
SECTION 6.20 FISCAL YEAR. Each Borrower shall maintain a fiscal year ending on
December 31.
SECTION 6.21 BANKING RELATIONSHIPS. The Borrowers shall maintain the Agent as
their principal bank of deposit and account.
SECTION 6.22 OWNERSHIP OF BORROWERS OTHER THAN MTI. MTI will at all times
directly or indirectly own 100% of the capital stock of the Borrowers in
existence on the Closing Date.
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SECTION 6.23 RICO. No Borrower shall engage in any conduct or take or fail to
take any action which will, or would, under the facts and circumstances
relative thereto, violate RICO.
SECTION 6.24 MINIMUM NET WORTH. MTI will maintain at the end of each fiscal
quarter, commencing the fiscal quarter ending December 31, 1999,
consolidated Net Worth in an amount not less than $29,000,000 plus 50% of
MTI's cumulative consolidated net income for the fiscal year ending
December 31, 2000 and each fiscal year thereafter. For purposes of
determining the required minimum as aforesaid (a) cumulative consolidated
net income shall include consolidated net income for entire fiscal years
only and shall be determined by reference to the financial statements
delivered under Section 6.1, and (b) a consolidated net loss during any
period shall be deemed to be consolidated net income in the amount of zero.
SECTION 6.25 SENIOR FUNDED DEBT TO EBITDA RATIO. Except as permitted below, the
Borrowers will not permit the ratio of Senior Funded Debt, determined as of
the last day (a "Measurement Date") of each period of four consecutive
fiscal quarters of MTI, to EBITDA for such period to be greater than
3.50:1.00. Notwithstanding the foregoing, if the Majority Banks so permit
in writing, in their sole discretion, the Borrowers may permit the ratio of
Senior Funded Debt to EBITDA to be greater than 3.50:1.00 (but not greater
than 3.75:1.00) as of the four consecutive Measurement Dates immediately
following a Permitted Acquisition.
SECTION 6.26 FUNDED DEBT TO EBITDA RATIO. The Borrowers will not permit the
ratio of Funded Debt, determined as of the last day of each period of four
consecutive fiscal quarters of MTI, to EBITDA for such period to be greater
than 5.00:1.00.
SECTION 6.27 FIXED CHARGE COVERAGE RATIO. MTI and its Subsidiaries, on a
consolidated basis, shall not allow the ratio of EBITDA plus expenses for
the rental of real or personal property to Fixed Charges, to be less than
1.1:1.0 for any period of four consecutive fiscal quarters.
Article VII
DEFAULT
SECTION 7.1 EVENTS OF DEFAULT. Each of the following shall be an event of
default ("Event of Default"):
(A) (i) if the Borrowers shall fail to pay when due any principal of the
Loans or any interest on the Loans, or (ii) if the Borrower shall fail
to pay any Fee or any other amount owing hereunder within 3 Business
Days of written notice by facsimile or overnight mail by the Agent to
the Borrower Agent;
(B) if any representation or warranty made or deemed made by any of the
Borrowers in this Agreement, or in any certificate, agreement,
instrument, statement or report required hereby or made, or delivered
or deemed delivered pursuant hereto or in connection herewith, shall
prove to have been incorrect in any material respect as of the date on
which it is made, deemed made or reaffirmed;
(C) (i) if any Borrower (1) shall fail to pay any Indebtedness in a
principal amount of $250,000 or greater owing by it, or any interest
or premium thereon, when due, whether such Indebtedness shall become
due by scheduled maturity, by required prepayment, by acceleration, by
demand or otherwise, or (2) shall fail to perform any term, covenant
or agreement on its part to be performed under any agreement or
instrument evidencing or securing or relating to any such
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Indebtedness when required to be performed and such defaults shall
permit the holder of such Indebtedness to accelerate the repayment of
such Indebtedness and shall not be cured within any applicable grace
period; or (ii) there shall occur any material breach or violation of
any agreement or instrument relating to an Acquisition to which any
Borrower is bound, or any Borrower shall incur any material cost,
penalty or obligation under any such agreement or instrument;
(D) if any Borrower is adjudicated a bankrupt or insolvent or the
equivalent under any law or admits in writing its inability generally
to pay its debts as they mature, or makes an assignment for the
benefit of its creditors; or if any Borrower shall apply for or
consent to the appointment of any receiver, trustee, or similar
officer or the equivalent under any law for such applicant or for all
or any substantial part of its property; or such receiver, trustee or
similar officer or the equivalent under any law shall be appointed
without the application or consent of such party and shall continue
undischarged or unstayed for a period of 90 days; or if any Borrower
shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding
relating to it under the laws of any jurisdiction; or if any such
proceeding shall be instituted (by petition, application or otherwise)
against any Borrower and an order for relief or similar remedy shall
be entered in such proceeding or such proceeding shall remain
undismissed for a period of 90 days; or if any Borrower suspends its
operations or becomes unable to pay its debts as they mature or calls
a meeting of creditors for the purpose of debt restructuring or
dissolves or otherwise terminates its existence; provided that, the
occurrence of any of the foregoing events with respect to any Borrower
other than MTI, SEH, or Sparks shall not constitute an Event of
Default if (1) such occurrence does not have a Material Adverse Effect
on the financial condition or business operations of any of the other
Borrowers or all of the other Borrowers on a Consolidated basis, (2)
such occurrence does not materially and adversely effect the
collateral position of the Banks or the Collateral, (3) no other
Borrower is consolidated in or otherwise made a party to such
proceeding, and (4) the aggregate of the revenues and assets of all
Borrowers with respect to which one or more of such events has
occurred after the date of this Agreement shall not exceed,
cumulatively, ten percent (10%) of the total Consolidated revenues and
assets, respectively, of all Borrowers (the measurement dates for such
calculation being the date of each such event);
(E) if (1) any Reportable Event, or any failure of compliance required by
Section 6.8 hereof, that creates a reasonable likelihood of the
termination of any Defined Benefit Pension Plan maintained by any
Borrower or any member of its Controlled Group, or of the appointment
by the appropriate United States District Court of a trustee to
administer any such Plan has occurred and is continuing 30 days after
written notice to such effect is given to the Borrowers by the Agent
or any Bank, or (2) any Borrower or any member of its Controlled Group
withdraws from any Defined Benefit Pension Plan for which it was a
substantial employer as defined by ss.4001(a)(2) and within the
meaning of ss.4063(b) of ERISA or from any Multiemployer Plan and the
liability for such withdrawal exceeds $500,000, or (3) the plan
administrator of any Defined Benefit Pension Plan maintained by any
Borrower or any member of its Controlled Group files with the PBGC a
notice of intention to terminate such Plan in a "distress termination"
(as defined in ss.4041(c) of ERISA), or (4) the PBGC institutes
proceedings to terminate any such Plan or to appoint a trustee to
administer any such Plan, and if, in any of the cases described in the
foregoing clauses (1) to (4);
(F) if the Borrowers shall fail to perform or observe when due any term,
covenant or agreement contained herein and such failure (other than a
failure which otherwise constitutes an Event of Default under this
Section 7.1 or is a violation of Sections 6.24, 6.25, 6.26 or 6.27) is
not cured within a period of thirty (30) days from the date the
Borrower Agent first became aware of such failure, whether by written
notice from the Agent or any Bank or otherwise, or has not been cured
within a period of five (5) days from the date that the Agent or any
Bank gives the Borrower Agent notice of such default;
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(G) if there is a Change in Control not approved in advance and in writing
by the Majority Banks;
(H) if any two of the three officers of MTI presently serving in the
capacities of Chief Executive Officer, Executive Officer or Chief
Financial Officer shall (a) voluntary resign or (b) shall be
discharged or otherwise involuntarily cease to serve in such position
and shall not be replaced within thirty (30) days with a replacement
reasonably acceptable to the Bank;
(I) if a judgment of Five Hundred Thousand Dollars ($500,000) or more is
entered against any Borrower and is not satisfied or bonded within
thirty (30) days;
(J) this Agreement, any of the Notes, the Subrogation and Contribution
Agreement or any other material Loan Document executed pursuant hereto
is found to be unenforceable or its enforceability is contested in any
way by a Borrower; provided that, the occurrence of any of the
foregoing events with respect to any Borrower other than MTI, SEH, or
Sparks shall not constitute an Event of Default if (1) such occurrence
does not have a Material Adverse Effect on the financial condition or
business operations of any of the other Borrowers or all of the other
Borrowers on a Consolidated basis, (2) such occurrence does not
materially and adversely affect the collateral position of the Banks
or the Collateral, (3) no other Borrower is consolidated in or
otherwise made a party to any related proceeding, and (4) the
aggregate of the revenues and assets of all Borrowers with respect to
which one or more of such events has occurred after the date of this
Agreement shall not exceed, cumulatively, ten percent (10%) of the
total Consolidated revenues and assets, respectively, of all Borrowers
(the measurement dates for such calculation being the date of each
such event); or
(K) if there shall be a violation or breach under any of Sections 6.24,
6.25, 6.26 or 6.27.
SECTION 7.2 TERMINATION OF REVOLVING COMMITMENT; ACCELERATION. If any Event of
Default shall occur and be continuing, the Agent may at its option and
shall, upon being so directed by the Majority Banks, declare the
Commitments to be terminated and the outstanding Notes and all interest
thereon and all other amounts payable under this Agreement to be
immediately due and payable and require the Borrowers to (and the Borrowers
shall) immediately and fully collateralize each outstanding Letter of
Credit with cash deposited with the Agent in the full amount of the
aggregate outstanding amounts thereof; provided that immediately and
automatically upon the happening of a Default specified in Section 7.1(D),
the Commitments shall terminate, the outstanding Notes and all interest
thereon and all other amounts payable under this Agreement shall be
immediately due and payable and the aforesaid cash collateralization shall
be immediately required without declaration or other notice to the
Borrowers, and the Borrowers shall immediately make all such payments to
the Agent for the ratable benefit of the Banks. Thereupon, the Agent shall
notify the Borrowers of the accrual of interest at the Default Rate, and
the Agent and the Banks shall have all of the rights and remedies available
under the Loan Documents or otherwise at law or in equity. The Borrowers
expressly waive any presentment, demand, protest or further notice of any
kind.
SECTION 7.3 REMEDIES.
(A) Upon the occurrence and during the continuance of any one or more
Events of Default, the Agent for the account of the Banks may proceed
to protect and enforce its rights under this Agreement, the Notes
and/or any other document executed pursuant hereto by exercising such
remedies as are available to the Agent or any Bank in respect thereof
under applicable law, either by suit in equity or by action at law, or
both, whether for specific performance of any provision contained in
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this Agreement, the Notes or the other Loan Documents or in aid of the
exercise of any power granted in this Agreement, the Notes or the
other Loan Documents.
(B) Upon the occurrence and during the continuance of any one or more
Events of Default, the Agent for the account of the Banks, in addition
to all the other rights and remedies herein contained, shall be
entitled to exercise any and all rights available to it in law or
equity.
Article VIII
AGENCY PROVISIONS
SECTION 8.1 AUTHORIZATION AND ACTION. Each Bank hereby irrevocably appoints and
authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the other Loan Documents as
are delegated to the Agent by the terms hereof, together with such powers
as are reasonably incidental thereto. The duties of the Agent shall be
mechanical and administrative in nature and the Agent shall not by reason
of this Agreement be a trustee or fiduciary for any Bank. The Agent shall
have no duties or responsibilities except those expressly set forth in the
Loan Documents. As to any matters not expressly provided for by this
Agreement or the other Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or
to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Banks, and
such instructions shall be binding upon all Banks and all holders of Notes;
provided, however, that the Agent shall not be required to take any action
which exposes the Agent to personal liability or which is contrary to this
Agreement or the other Loan Documents or applicable law. Whenever the Agent
shall receive any notice, financial information or other written material
from any Borrower relating to or in connection with any of the Loan
Documents, any such oral notification of a material nature shall be
promptly relayed to the Banks, and copies of any such written notice,
information or other material shall be promptly provided to the Banks.
SECTION 8.2 LIABILITY OF AGENT. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to any Bank for any action
taken or omitted to be taken by it or them under or in connection with any
Loan Documents in the absence of its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing,
the Agent (a) may treat the payee of any Note as the holder thereof until
the Agent receives written notice of the assignment or transfer thereof
signed by such payee and in form satisfactory to the Agent; (b) may consult
with legal counsel (including counsel for the Borrowers), independent
public accountants and other experts selected by it and shall not be liable
for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any statements, warranties or representations
made in or in connection with any Loan Document; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of any Loan Document on the part of
the Borrowers or any other Person or to inspect the property (including the
books and records) of the Borrowers; (e) shall not be responsible to any
Bank for the due execution, legality, validity, enforceability,
genuineness, perfection, sufficiency or value of any of the Loan Documents
or any other instrument or document furnished pursuant thereto; and (f)
shall incur no liability under or in respect of any Loan Document by acting
upon any notice, consent, certificate or other instrument or writing (which
may be by telegram, cable or telex) believed by it to be genuine and signed
or sent by the proper party or parties.
SECTION 8.3 RIGHTS OF AGENT AS A BANK. With respect to its Commitment, the Loans
made by it and the Note issued to it, the Agent shall have the same rights
and powers under the Loan Documents as any other Bank and may exercise the
same as though it were not the Agent; and the term "Bank" or
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"Banks" shall, unless otherwise expressly indicated, include the Agent in
its individual capacity. The Agent, each Bank and their respective
Affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any
Borrower, any of the Subsidiaries and any Person who may do business with
or own securities of any Borrower or any Subsidiary, all as if the Agent
were not the Agent and without any duty on the part of the Agent or any
Bank to account therefor to the Banks or the Agent as the case may be.
SECTION 8.4 INDEPENDENT CREDIT DECISIONS. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and
based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance
upon the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under the Loan
Documents. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent under the
terms of any of the Loan Documents, the Agent shall have no duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of any Borrower or
any Subsidiary (or any of their Affiliates) which may come into the
possession of the Agent or any of its Affiliates.
SECTION 8.5 INDEMNIFICATION. The Banks agree to indemnify the Agent (to the
extent not reimbursed by the Borrowers), ratably according to the
respective amounts of their Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against the Agent in any
way relating to or arising out of any of the Loan Documents or any action
taken or omitted by the Agent under any of the Loan Documents, provided
that no Bank shall be liable for any portion of any of the foregoing
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent (to
the extent not reimbursed by the Borrowers) promptly upon demand for its
ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preparation, administration,
or enforcement of, or legal advice in respect of rights or responsibilities
under, any of the Loan Documents. The Agent shall confer with the Banks
prior to retaining outside counsel in connection with this Agreement and
shall not retain counsel with whom any Bank demonstrates an actual or
potential conflict of interest of a material nature without such Bank's
written consent.
SECTION 8.6 SUCCESSOR AGENT. The Agent may resign at any time by giving at least
30 days prior written notice thereof to the Banks and the Borrowers and may
be removed at any time with or without cause by the Majority Banks. Upon
any such resignation or removal, the Borrowers shall have the right, with
the approval of the Banks, to appoint a successor Agent. If no successor
Agent shall have been so appointed and accepted such appointment, within 21
days after the retiring Agent's giving of notice of resignation or the
Majority Banks' removal of the retiring Agent, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent, which shall be a
commercial bank organized under the laws of the United States of America or
of any State thereof and having a combined capital and surplus of at least
$500 million. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article
shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under any of the Loan Documents.
SECTION 8.7 SHARING OF PAYMENTS, ETC. If any Bank shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Notes or other obligations of
Borrowers held by all the Banks, such Bank shall purchase from the other
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Banks such participations in the Notes or other obligations held by them as
shall be necessary to cause such purchasing Bank to share the excess
payment ratably with each of them, provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Bank, such purchase from each Bank shall be rescinded and each Bank shall
repay to the purchasing Bank the purchase price to the extent of such
recovery together with an amount equal to such Bank's ratable share
(according to the proportion of (a) the amount of such Bank's required
repayment to (b) the total amount so recovered from the purchasing Bank) of
any interest or other amount paid or payable by the purchasing Bank in
respect of the total amount so recovered. The Borrowers agree that any Bank
so purchasing a participation from another Bank pursuant to this Section
may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation
as fully as if such Bank were the direct creditor of the Borrowers in the
amount of such participation
.
Article IX
MISCELLANEOUS
SECTION 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
the Agent for the account of the Banks in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy hereunder. No waiver of any right, power, remedy, privilege or
prerogative of the Agent or any Bank hereunder shall be effective unless
the same shall be in writing and signed by the Agent or applicable (as the
case may be) Bank. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9.2 ARBITRATION.
(A) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy
arising out of, or relating to the Loan Documents between the parties
(a "Dispute") hereto shall be resolved by binding arbitration
conducted under and governed by the Commercial Financial Disputes
Arbitration Rules (the "Arbitration Rules") and, where applicable, the
Supplementary Rules for Large Complex Disputes, of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act.
Disputes may include, without limitation, tort claims, counterclaims,
a dispute as to whether a matter is subject to arbitration, claims
brought as class actions, or claims arising from documents executed in
the future. A judgment upon the award may be entered in any court
having jurisdiction. Notwithstanding the foregoing, this arbitration
provision does not apply to disputes under or related to swap
agreements.
(B) All arbitration hearings shall be conducted in the city of
Philadelphia, Commonwealth of Pennsylvania unless otherwise agreed by
all parties to such arbitration. A hearing shall begin within 90 days
of demand for arbitration and all hearings shall conclude within 120
days of demand for arbitration. These time limitations may not be
extended unless a party shows cause for extension and then for no more
than a total of 60 days. At the administrative conference conducted by
the AAA, the parties and the AAA shall determine how to ensure that
the hearing is started and completed on sequential hearing days.
Potential arbitrators shall be informed of the anticipated length of
the hearing and they shall not be subject to appointment unless they
agree to abide by the parties' intent that, absent exigent
circumstances, the hearing be conducted on sequential days. The
expedited procedures set forth in Rule 51 et seq. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000.00.
Arbitrators shall be licensed attorneys selected from the Commercial
Financial Dispute Arbitration Panel of the AAA. The parties do not
waive applicable Federal or state substantive law except as provided
herein. The award of the arbitrator(s) shall be accompanied by a
statement of the reasons upon which such award is based.
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(C) In any arbitration hereunder, the arbitrator shall decide (by
documents only or with a hearing, at the arbitrators' discretion) any
pre-hearing motions which are substantially similar to pre-hearing
motions to dismiss for failure to state a claim or motions for summary
adjudication.
(D) Discovery shall be limited to the prehearing exchange of all documents
which each party intends to introduce at the hearing and any expert
reports prepared by an expert who will testify at the hearing.
(E) Notwithstanding the preceding binding arbitration provisions, the
parties agree to preserve, without diminution, certain remedies that
any party may exercise before or after an arbitration proceeding is
brought. The parties shall have the right to proceed in any court of
proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against
any real or personal property or other security by exercising a power
of sale or under applicable law by judicial foreclosure including a
proceeding to confirm the sales; (ii) all rights of self-help
including peaceful occupation of real property and collection of
rents, set-off, and peaceful possession of personal property; (iii)
obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of
receiver and filing of involuntary bankruptcy proceedings; and (iv)
when applicable, a judgment by confession of judgment. Any claim or
controversy with regard to any party's entitlement to such remedies is
a Dispute.
(F) The parties agree that they shall not have a remedy of punitive,
exemplary, special or consequential damages against other parties in
any Dispute and hereby waive any right or claim to punitive,
exemplary, special or consequential damages they have now or which may
arise in the future in connection with any Dispute whether the Dispute
is resolved by arbitration or judicially.
SECTION 9.3 WARRANT OF ATTORNEY. EACH BORROWER HEREBY IRREVOCABLY AUTHORIZES AND
EMPOWERS ANY ATTORNEY OR ATTORNEYS OR THE PROTHONOTARY OR CLERK OF ANY
COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AT ANY
TIME AFTER AN EVENT OF DEFAULT HEREUNDER TO APPEAR FOR AND CONFESS JUDGMENT
AGAINST ANY AND ALL BORROWERS FOR THE UNPAID PRINCIPAL BALANCE OF THE NOTES
TOGETHER WITH ANY CHARGES DUE HEREUNDER OR THEREUNDER, ALL INTEREST ACCRUED
THEREON, AND ALL OTHER SUMS DUE HEREUNDER OR THEREUNDER, TOGETHER WITH
REASONABLE ATTORNEYS FEES AND ALL COSTS OF SUIT OR OTHER EXPENSES INCURRED.
IF A COPY OF THIS WARRANT OF ATTORNEY, VERIFIED BY AFFIDAVIT SHALL BE FILED
IN ANY PROCEEDING, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL COPY OF
THIS AGREEMENT AS WARRANT OF ATTORNEY.
SECTION 9.4 SET-OFF. Upon an Event of Default, the Agent and each Bank shall
have a right of set-off against all property of each Borrower now or at any
time in the possession of the Agent or such Bank in any capacity whatever,
including, but not limited to, any such Borrower's interest in any deposit
account.
SECTION 9.5 AMENDMENTS, ETC. No amendment, modification, termination, or waiver
of any provision of any Loan Document to which any Borrower is a party, nor
consent to any departure by any Borrower from any Loan Document to which it
is a party, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks, and then such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given, provided, however, that no amendment, waiver or
consent, shall, unless in writing and signed by all Banks, do any of the
following: (a) waive any of the conditions precedent specified in Article
IV; (b) increase the Revolving Credit Commitments of the Banks or subject
the Banks to any additional obligations; (c) reduce the principal of, or
interest on, the Notes or any fees hereunder; (d) postpone any date fixed
for any payment of
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principal of, or interest on, the Notes or any fees hereunder; (e) change
the percentage of the Revolving Credit Commitments or of the aggregate
unpaid principal amount of the Notes which shall be required for the Banks
or any of them to take any action hereunder; (f) release any Borrower from
its obligations hereunder; or (g) amend, waive or modify this Section or
the definition of "Majority Banks," provided that, no amendment, waiver or
consent shall, unless in writing and signed by the Agent in addition to the
Banks required above to take such action, affect the rights or duties of
the Agent under any of the Loan Documents.
SECTION 9.6 NOTICES. Unless this Agreement specifically provides otherwise, all
notices, requests, demands and other communications that this Agreement
requires or permits the Borrowers to give to the Agent or Banks or the
Agent or any Bank to give to the Borrowers shall be in writing (including
telecopy) and shall be given to the Agent, the Bank(s) or the Borrower
Agent, as the case may be, at their respective address or telecopy number
specified on the signature pages of this Agreement or at such other address
or telecopy number as shall be designated by such party in a notice to each
other complying with the terms of this Section. Unless this Agreement
specifically provides otherwise, all notices, requests, demands and other
communications provided for hereunder shall be effective (A) if given by
mail, three days after placing in the United States mail, postage prepaid,
certified mail, return receipt requested, (B) if given by telecopy, when
such telecopy is transmitted to the aforesaid telecopy number and the
appropriate confirmation of receipt is received by the sender or (C) if
given by any other means, when delivered to the carrier with postage
prepaid to the aforesaid address(es); provided, however, that notices from
the Borrower Agent to the Agent pursuant to any of the provisions of
Article II hereof shall not be effective until received by the Agent. The
Agent and each Bank shall be entitled to rely on any notice, oral or
written, received by it from the Borrower Agent as if such notice were
delivered by all of the Borrowers. Although the Borrower Agent is obligated
to follow any telephonic notice made to select an Interest Rate and/or
Interest Period with written confirmation, the Agent shall be entitled to
rely on such telephonic notice whether or not the Borrower Agent thereafter
confirms in writing, as if the Borrower Agent did, in fact, confirm in
writing.
SECTION 9.7 NATURE OF OBLIGATIONS.
(A) Nothing contained in this Agreement, and no action taken by the Agent
or any Bank pursuant hereto, shall be deemed to create a partnership,
association, joint venture or other entity with the Borrowers. The
obligations of each Borrower under this Agreement and the Notes are
joint and several.
(B) The joint and several obligations of each Borrower hereunder shall be
absolute and unconditional irrespective of: (i) any lack of validity
or enforceability of the Agreement or the Notes against any other
Borrower; (ii) any change in the time, manner or place of payment of,
or in any other term in respect of, all or any of the obligations of
any other Borrower hereunder, or any other amendment or waiver of or
consent to any departure from any provision of this Agreement or the
Notes with respect to any other Borrower; or (iii) any other
circumstance which might otherwise constitute a defense available to,
or a discharge of, any Borrower in respect of the obligations of the
Borrowers hereunder.
(C) Each Borrower hereby irrevocably agrees for the benefit of the Agent
and the Banks and the other Borrowers that it will not exercise any
rights which it may have or acquire against such other Borrower by way
of subrogation or otherwise arising from payments under this Agreement
or the Notes; until all amounts due to the Bank hereunder and under
the Notes are paid in full and the Revolving Credit Commitment
terminates or expires and no Letter of Credit Liabilities shall be
outstanding or otherwise exist.
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SECTION 9.8 COSTS AND EXPENSES. The Borrowers agree to pay on demand (A) all
reasonable, out-of-pocket costs and expenses of the Agent in connection
with the preparation, negotiation, printing, execution and delivery of this
Agreement, the Notes and the other documents executed pursuant hereto
(including and limited to the reasonable fees and out-of-pocket expenses of
counsel for the Agent, such fees of the Agent's counsel for the first draft
of this Agreement not to exceed Four Thousand Dollars ($4,000) , (B) all
reasonable, out-of-pocket costs and expenses of the Agent in connection
with the amendment, waiver and administration of this Agreement, the Notes
or any other documents executed pursuant hereto, and (C) all reasonable
costs and expenses, if any, of the Agent and the Banks in connection with
the enforcement against the Borrowers of this Agreement, the Notes or any
other documents executed pursuant hereto (including without limitation the
reasonable fees and out-of-pocket expenses of counsel with respect thereto
of the Bank).
SECTION 9.9 COUNTERPARTS. This Agreement and any amendments thereto may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any of the parties hereto may
execute this Agreement by signing any such counterpart.
SECTION 9.10 BINDING EFFECT. This Agreement shall become effective when it has
been executed by the Borrowers, the Agent and the Banks. It shall
thereafter be binding upon and inure to the benefit of the Borrowers, the
Agent and the Banks and their respective successors and assigns except that
no Borrower shall have the right to assign any of its rights or obligations
hereunder or any interest herein.
SECTION 9.11 GOVERNING LAW. This Agreement, the Notes and the other documents
executed pursuant hereto shall be governed in all respects by the law of
the Commonwealth of Pennsylvania and for all purposes shall be construed in
accordance with the law of the Commonwealth of Pennsylvania. Subject to
Section 9.2, the parties acknowledge the non-exclusive jurisdiction of the
federal and state courts located within Philadelphia County in the
Commonwealth of Pennsylvania over controversies arising from or relating to
this Agreement.
SECTION 9.12 HEADINGS. Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this
Agreement.
SECTION 9.13 USURY. Nothing herein contained, contained in the Notes or
contained in any other document executed pursuant hereto, nor any
transaction related hereto or thereto, shall be construed or shall so
operate either presently or prospectively to require the Borrowers (i) to
pay interest at a rate greater than is now lawful in such case to contract
for, but shall require payment of interest only to the extent of such
lawful rate, or (ii) to make any payment or do any act contrary to law, but
if any provision herein or therein contained shall otherwise so operate to
invalidate such document, in whole or in part, then such provision only
shall be held for naught as though not herein or therein contained and the
remainder of such document shall remain operative and in full force and
effect. Any interest paid in excess of the lawful rate shall be refunded to
the Borrowers. Such refund shall be made by application of the excessive
amount of interest paid against any sums outstanding under this Agreement
and shall be applied in such order as the Agent may determine. If the
excessive amount of interest paid exceeds the sums outstanding hereunder,
the portion exceeding the said sums outstanding shall be refunded in cash
by the Banks. Any such crediting or refund shall not cure or waive any
Unmatured Default or Event of Default by the Borrowers hereunder or under
the Notes. The Borrowers agree, however, that in determining whether or not
any interest payable exceeds the highest rate permitted by law, any
non-principal payment (except payments specifically stated in this
Agreement to be "interest") shall be deemed, to the extent permitted by
law, to be an expense, fee, premium, or penalty rather than interest.
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SECTION 9.14 ASSIGNMENTS; PARTICIPATIONS. The Borrowers acknowledge and agree
that any Bank may at any time:
(A) assign or transfer any of its rights or obligations under this
Agreement in a transaction intended solely as a source of funding, to
a Federal Reserve Bank, without the consent of or notice to MTI or the
Agent;
(B) sell participations in the Loans outstanding hereunder to another
financial institution (after providing written notice to MTI regarding
such sale at least five (5) days prior thereto), but in the event of
any such participation, no party to this Agreement shall have any
obligations or responsibilities to such participant other than its
obligations or responsibilities to the seller of such participation,
and no participation shall relieve any party of its obligations and
duties hereunder, provided that, any agreement pursuant to which any
Bank may grant a participation shall not limit such Bank's ability to
agree to any modification, amendment or waiver of the Loan Documents
without the consent of the participant except to the extent such
modification, amendment or waiver would change the amount of the
Commitments, reduce the principal of or rate of interest on the Loans
or related fees or postpone the date fixed for any payment of
principal of or interest on the Loans or related fees;
(C) assign all or any portion of its rights under the Loans and its
Commitment in minimum amounts of $5,000,000 either (A) to an Affiliate
of such Bank, or (B) with the prior written consent of the Agent,
which shall not be unreasonably withheld or delayed, together with the
payment by such Bank to the Agent of a $3,500 transfer fee, and,
except after the occurrence of an Event of Default, with the prior
written consent of MTI, which shall not be unreasonably withheld or
delayed. Promptly upon any such assignment described in (A) or (B)
above, the assignee shall execute a joinder to this Agreement in form
satisfactory to the Agent, agreeing to be bound by the terms and
conditions of this Agreement, and then shall be deemed a Bank for all
purposes hereunder, and the Borrowers shall execute and deliver new
Notes and such other documents as may be appropriate to reflect such
assignment; and
(D) share credit information on the Borrowers with prospective and actual
participants and assignees.
SECTION 9.15 APPOINTMENT OF BORROWER AGENT. Each Borrower hereby irrevocably
appoints and authorizes MTI to act as its agent hereunder and under the
Notes with such powers as are specifically delegated to the Borrower Agent
by the terms of this Agreement and the Notes, including, without
limitation, the power to receive notice on behalf of all of the Borrowers,
together with such other powers as are reasonably incidental thereto.
SECTION 9.16 SURVIVAL; INDEMNIFICATION.
(A) The obligations of the Borrowers under Sections 2.11, 2.12, 2.17,
2.18, 9.7 and 9.15 shall survive the repayment of the Loans.
(B) If after receipt of any payment of all or any part of the amounts
outstanding hereunder or under the Notes, the Agent or any Bank is for
any reason compelled to return such payment to any Person because such
payment is determined to be void or voidable as a preference, an
impermissible setoff, or a diversion of trust funds, or for any other
reason, this Agreement and the Notes shall continue in full force and
the Borrowers shall be liable, and shall indemnify and hold the Agent
and each Bank harmless for, the amount of such payment returned and
any fees and expenses incurred in enforcing this indemnity provision.
The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by the
Agent or any Bank in
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reliance upon such payment, and any such contrary action so taken
shall be without prejudice to the Agent's or any Bank's rights under
this Agreement and the Notes and shall be deemed to have been
conditioned upon such payment having become final and irrevocable. The
provisions of this Section shall survive the termination of the
Agreement and the Notes.
(C) Each Borrower hereby jointly and severally indemnifies and holds
harmless the Agent, each Bank and all of their affiliates,
subsidiaries, successors, assigns, officers, directors, attorneys,
shareholders, employees and agents ("Indemnified Parties") from any
and all liability, damages, costs, claims, losses, suits, actions,
legal or administrative proceedings, interest, expenses, reasonable
attorneys' fees (including any such fees and expenses incurred in
investigating, evaluating or defending such claims or in enforcing
this indemnity provision), and reasonable consultants' fees and expert
witness fees incurred by any of them caused by, relating to, arising
out of or resulting from or in any way connected with this Agreement
or the Notes and any transaction contemplated herein or therein,
exclusive of any of the forgoing resulting from any act or omission
amounting to willful misconduct or gross negligence by any beneficiary
of this indemnity.
(D) Each Borrower hereby jointly and severally indemnifies, defends and
holds harmless the Indemnified Parties, from and against any and all
liability, damages, costs, claims, losses, suits, actions, legal or
administrative proceedings, interest, expenses, reasonable attorneys'
fees (including any such fees and expenses incurred in investigating,
evaluating, or defending such claims or in enforcing this indemnity
provision), and reasonable consultants' fees and expert witness fees
incurred by any of them caused by, relating to, arising out of or
resulting from or in any way connected with (1) any liability or any
claims relating to the Environmental Laws or the environmental
condition of the properties; (2) the presence of any hazardous
substance on, about, beneath or arising from any Properties, (3) the
failure of any Borrower, any Subsidiary thereof, any past or present
occupant, or any future occupant that controls, is controlled by, or
is under common control with any Borrower, of any Property (whether
owner, tenant, subtenant or any other occupant) to comply with the
Environmental Laws; or (4) the untruth or breach of any of the
representations or warranties contained herein relating to the
Environmental Laws, provided, however, that the Borrowers shall not be
required to indemnify any Indemnified Party to the extent the
liability resulted from or arose out of the gross negligence or
willful or reckless act or omission of that Indemnified Party.
SECTION 9.17 ENTIRE AGREEMENT. This Agreement, the Schedules and Exhibits
attached hereto, the Note, the Subrogation and Contribution Agreement and
the other documents executed pursuant hereto constitute the entire
understanding among the parties with respect to the subject matter hereof
and supersede any and all contemporaneous and prior agreements between the
parties hereto with respect to the subject matter hereof and thereof.
WAIVER OF JURY TRIAL. BORROWERS AND THE BANKS HEREBY WAIVE TRIAL BY
JURY IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE RELATIONSHIP EVIDENCED HEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANKS TO ENTER INTO THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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SIGNATURE CONTINUED FROM THE PREVIOUS PAGE
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have caused this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
MARLTON TECHNOLOGIES, INC.,
a New Jersey corporation
SPARKS EXHIBITS & ENVIRONMENTS CORP.
(formerly Sparks Exhibits Corp.),
a Pennsylvania corporation
SPARKS EXHIBITS & ENVIRONMENTS, INC.
(formerly Sparks Exhibits, Inc.),
a Georgia corporation
SPARKS EXHIBITS & ENVIRONMENTS, LTD.
(formerly Sparks Exhibits, Ltd.),
a California corporation
SPARKS EXHIBITS & ENVIRONMENTS INCORPORATED
(formerly Piper Productions, Inc.),
a Florida corporation
SPARKS SCENIC, LTD.,
a California corporation
SPARKS PRODUCTIONS LTD.,
a California corporation
SPARKS EXHIBITS HOLDING
CORPORATION, a Delaware Address:
corporation -------
2828 Charter Road
Philadelphia, PA 19154
By:
Robert B. Ginsburg, CEO
DMS STORE FIXTURES LLC
(formerly DMS Store Fixtures Corp.),
a Pennsylvania corporation
By:
Robert B. Ginsburg, Manager
49
<PAGE>
[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]
FIRST UNION NATIONAL BANK 123 S. Broad Street
(for itself and as Agent) Philadelphia, Pennsylvania 19109
Fax: (215) 973-3143
Attention: Thomas Woodward
By: ______________________
Name: AND
---
Title:
First Union National Bank
1339 Chestnut Street
P.O. Box 7618
Philadelphia, PA 19101-7618
Fax: (215) 786-5356
Attention: Charles H. Dietrich
50
<PAGE>
Schedule 2.1
Revolving Credit Commitments
First Union National Bank $30,000,000
Total $30,000,000
51
<PAGE>
Schedule 3.4
Collateral Locations
52
<PAGE>
Schedule 5.12
Subsidiaries and Stock Ownership
53
<PAGE>
Schedule 5.15
Existing Debt
54
<PAGE>
Exhibit 2.4
Revolving Credit Note
$__,000,000.00 January __, 2000
FOR VALUE RECEIVED, the undersigned, (collectively the "Borrowers"), hereby
jointly and severally promise to pay to the order of
______________________________ (the "Bank"), by remittances to the Agent in
accordance with the Agreement (defined below), the principal amount of
_______________ Million Dollars ($__,000,000.00), or such lesser amount as may
be advanced by the Bank, in lawful money of the United States of America in
immediately available funds, payable at the times, in the manner, and at the
interest rates specified in the Agreement.
This Note arises out of that certain Amended and Restated Revolving Credit
and Security Agreement dated as of January 21, 2000 among the Borrowers, First
Union National Bank, as Agent and the Banks (as amended, the "Agreement") and is
subject in all respects to the terms of the Agreement. This Revolving Credit
Note is one of the "Revolving Credit Notes" as defined in the Agreement.
Terms used herein which are defined in the Agreement shall have their
defined meanings when used herein. The Agreement, among other things, contains
provisions for acceleration of the maturity of this Note upon the happening of
certain stated events and also for prepayments on account of principal hereof
prior to the maturity of this Note upon the terms and conditions specified in
the Agreement. This Note is secured by the Agreement, reference to which is
hereby made for a description of the Collateral provided for therein and the
rights of the Borrowers and the Bank with respect to such Collateral.
The Borrowers hereby waive presentment, demand for payment, notice of
dishonor or acceleration, protest and notice of protest, and any and all other
notices or demands in connection with the delivery, acceptance, performance,
default or enforcement of this Note, excepting any notice requirements set forth
in the Agreement.
JURISDICTION AND VENUE. IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE COUNTIES
OF PHILADELPHIA, MONTGOMERY OR BUCKS IN THE COMMONWEALTH OF PENNSYLVANIA AND
AGREE NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. THE BORROWER
AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON
IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO THE
BORROWER.
WAIVER OF JURY TRIAL. BORROWERS HEREBY WAIVE, AND THE BANKS BY THEIR
ACCEPTANCE HEREOF THEREBY WAIVE, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
BANKS TO ACCEPT AND RELY UPON THIS NOTE.
This Note shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania.
55
<PAGE>
IN WITNESS WHEREOF, the Borrowers, intending to be legally bound, have
executed and delivered this Note on the date first above written.
MARLTON TECHNOLOGIES, INC.,
a New Jersey corporation
SPARKS EXHIBITS & ENVIRONMENTS CORP.
(formerly Sparks Exhibits Corp.),
a Pennsylvania corporation
SPARKS EXHIBITS & ENVIRONMENTS, INC.
(formerly Sparks Exhibits, Inc.),
a Georgia corporation
SPARKS EXHIBITS & ENVIRONMENTS, LTD.
(formerly Sparks Exhibits, Ltd.),
a California corporation
SPARKS EXHIBITS & ENVIRONMENTS INCORPORATED
(formerly Piper Productions, Inc.),
a Florida corporation
SPARKS SCENIC, LTD., a California corporation
SPARKS PRODUCTIONS LTD., a California corporation
SPARKS EXHIBITS HOLDING CORPORATION, a
Delaware corporation
By:______________________________________
Robert B. Ginsburg, CEO
DMS STORE FIXTURES LLC (formerly DMS Store
Fixtures Corp.), a Pennsylvania corporation
By:______________________________________
Robert B. Ginsburg, Manager
56
<PAGE>
Exhibit 6.1
Compliance Certificate
To be in the form used in connection with the 12/31/97 Credit
Agreement, with any changes necessary to reflect
new financial covenants.
57
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
The following are the Company's primary subsidiaries (including state of
organization) and percentage of ownership:
1. Sparks Exhibits Holding Corporation (Delaware) 100%
2. Sparks Exhibits & Environments Corp. (Pennsylvania) 100%
3. Sparks Exhibits & Environments Inc. (Georgia) 100%
4. Sparks Exhibits & Environments, Ltd. (California) 100%
5. Sparks Exhibits & Environments, Incorporated (Florida) 100%
6. DMS Store Fixtures LLC (Pennsylvania) 100%
7. Sparks Productions, Ltd. (California) 100%
8. Abex Display Systems, Inc. (California) 25%
9. Sparks Europe, B.V. (Netherlands) 25%
10. Abex Display UK Ltd. (United Kingdom) 20%
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-3647) of Marlton Technologies, Inc. of our report
dated March 30, 2000 relating to the financial statements and financial
statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 30, 2000
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<NAME> MARLTON TECHNOLOGIES, INC
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